Carter's Inc. (CRI 4.69%) released second-quarter 2017 results on Thursday before the market opened, detailing solid retail growth and international gains. But thanks to a light earnings outlook for the current quarter, shares declined 1.5% today as the market absorbed the news.
Let's fasten our velcro shoes, then, to get a better look at how the kid's clothing retailer performed over the past few months, as well as what investors can expect going forward.
Image source: Carter's.
Carter's results: The raw numbers
| Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$692.1 million |
$639.5 million |
8.2% |
|
GAAP net income |
$37.9 million |
$36.2 million |
4.7% |
|
GAAP earnings per share (diluted) |
$0.78 |
$0.71 |
9.9% |
Data source: Carter's, Inc.
What happened with Carter's this quarter?
- The Skip Hop brand -- which Carter's acquired in the first quarter -- contributed $25 million in revenue.
- On an adjusted (non- GAAP) basis -- which excludes items like stock-based compensation and acquisition costs -- net income rose 5.1% year over year to $38.6 million. Adjusted net income per share grew 9.9%, to $0.79.
- By comparison, Carter's latest guidance called for revenue to increase 6% to 8%, and translate to lower adjusted earnings per share of $0.65 to $0.70.
- Repurchased and retired 587,465 shares of common stock for $51.6 million.
- U.S. retail segment revenue grew 11.1% year over year to $391.8 million, including 6% growth in U.S. Retail comparable sales. Within that figure, comparable-store sales grew 0.4%, and comparable e-commerce sales increased 27.6%. Skip Hop also added $0.9 million to this segment.
- U.S. wholesale segment revenue rose 0.6% to $510.3 million, as $21.9 million in incremental sales from Skip Hop was partially offset by lower demand for Carter's and OshKosh products in wholesale channels.
- International segment revenue rose 15.4% to $82.6 million, as lower international wholesale demand was more than offset by growth in Canada and China, and $9.1 million in sales from Skip Hop.
What management had to say
Carter's CEO Michael Casey stated:
We achieved good growth in sales and earnings in our second quarter. Our growth was driven by our retail and international businesses, and the contribution from our Skip Hop brand which was acquired earlier this year. Given the strength of our fall and holiday product offerings, we're forecasting good growth in the second half and expect to achieve our growth objectives this year.
Looking forward
More specifically, Carter's expects net sales in the third quarter to increase roughly 5% year over year (or to roughly $946.5 million), while adjusted earnings are expected to be roughly flat at $1.61 per share. By comparison -- and this is likely the cause of Thursday's modest decline -- consensus estimates predicted higher earnings of $1.90 per share on revenue of $960 million. To be fair, Carter's noted this outlook assumes increased investments "to support the company's long-term growth objectives compared to the prior-year period."
Finally, Carter's reiterated its guidance for full fiscal-year 2017 revenue to increase 4% to 6% over 2016, and for full-year adjusted earnings per share to increase 8% to 10% (from $5.14 last fiscal year).
In short, the market may not be pleased that Carter's didn't raise its full-year guidance given its relative outperformance in the second quarter. But it's also hard to blame the company for reinvesting its incremental profits back into supporting its plans to drive long-term growth. In the end, Carter's has never been stronger, and I think it's poised to deliver market-beating gains for patient investors.
