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Carter's Q1 net sales decline, confirms outlook for 2019

By Prachi Singh

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Business

Carter’s, Inc., for its first quarter said net sales decreased 14.7 million dollars or 1.9 percent to 741.1 million dollars, driven by declines in the company’s US retail and US wholesale segments and changes in foreign currency exchange rates adversely affected consolidated net sales by 3 million dollars or 0.4 percent. On a constant currency basis, consolidated net sales decreased 1.5 percent in the first quarter of fiscal 2019.

“We exceeded our sales and earnings objectives in the first quarter,” said Michael D. Casey, Chairman and Chief Executive Officer of Carter’s in a statement, adding, “Given the current trends in our business and favorable response to our product offerings and marketing strategies, we are expecting good growth in sales and earnings this year and are reaffirming our growth objectives for 2019.”

Review of Carter’s first quarter results

Operating income in the first quarter, the company said, increased 0.5 million dollars or 0.7 percent to 60.8 million dollars, including 12.8 million dollars in charges related to the bankruptcy of Toys “R” Us. Operating margin increased 20 basis points to 8.2 percent compared to 8 percent in the first quarter of fiscal 2018. Adjusted operating income decreased 12.4 million dollars or 17 percent to 60.3 million dollars and adjusted operating margin decreased 150 basis points to 8.1 percent.

Net income in the quarter decreased 8 million dollars or 18.8 percent to 34.5 million dollars or 75 cents per diluted share compared to 42.5 million dollars or 89 cents per diluted share, in the first quarter of fiscal 2018. Adjusted net income decreased 12.3 million dollars or 23.7 percent to 39.6 million dollars compared to 52 million dollars in the first quarter of fiscal 2018. Adjusted earnings per diluted share declined 20.4 percent to 87 cents compared to 1.09 dollars in the first quarter of fiscal 2018.

Q1 performance of Carter’s retail and wholesale segments

US retail segment sales decreased 6.7 million dollars or 1.7 percent to 377.1 million dollars, while US retail comparable sales declined 3.7 percent, reflecting a decline in store sales, partially offset by growth in ecommerce sales. The company believes first quarter fiscal 2019 sales were adversely affected by the later timing of Easter, cold weather around the country, and the Gymboree liquidation. In the first quarter, the company opened four stores and closed fourteen stores in the United States and at the end of the quarter, operated 834 retail stores in the United States.

US wholesale segment net sales, the company further said, decreased 5.5 million dollars or 1.9 percent to 275.4 million dollars, reflecting lower shipments principally due to the loss of sales to Toys “R” Us and Bon-Ton. Toys “R” Us and Bon-Ton contributed 13 million dollars in aggregate to net sales in the first quarter of 2018.

International segment net sales decreased 2.6 million dollars or 2.8 percent to 88.6 million dollars, reflecting unfavourable movements in foreign currency exchange rates and lower contributions from Canada and China, partially offset by increased demand in Mexico and other markets outside of North America. Changes in foreign currency exchange rates adversely affected international segment net sales by 3 million dollars or 3.3 percent. On a constant currency basis, international segment net sales increased 0.5 percent. At the end of the first quarter, the company operated 187 retail stores in Canada and 42 retail stores in Mexico.

Carter’s reveals Q2 and 2019 business outlook

For the second quarter, the company projects net sales will increase approximately 4 percent to 6 percent and adjusted diluted earnings per share to be approximately comparable to diluted earnings per share of 79 cents in the second quarter of fiscal 2018.

For fiscal 2019, the company projects net sales will increase approximately 1 percent to 2 percent and adjusted diluted earnings per share will increase approximately 4 percent to 6 percent compared to adjusted diluted earnings per share of 6.29 dollars in fiscal 2018.

Picture:Carter's website

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