What happened
Shares of Carter's (CRI -1.65%) were moving higher Friday after the maker of baby apparel and products posted strong results for its fiscal fourth quarter, beating estimates on the top and bottom lines.
As of 1:55 p.m. ET, the stock was up 10.3%.
Image source: Getty Images.
So what
Carter's, which also owns the OshKosh B'Gosh and Skip Hop brands, said it saw strong demand over the holiday season. It recorded 11% revenue growth in the period (adjusting for the fact that 2020's fiscal Q4 had an additional week) to $1.06 billion, slightly above analysts' top-line expectation of $1.03 billion.
On the bottom line, adjusted earnings per share came in at $2.31, which was down 7% from $2.46 in the year-ago quarter, though the company didn't adjust that metric for the extra week. Nonetheless, it easily beat the $2.06 consensus estimate.
Carter's also said it was raising its quarterly dividend by 25% to $0.75, showing management's confidence in the business and giving investors a payout that yields above 3% at the current share price. Management also authorized a $1 billion share buyback program, signaling that it believes the stock is undervalued. Carter's market cap is just $4 billion. In 2021, it returned $359 million to shareholders through dividends and buybacks.
CEO Michael Casey said, "For the year, we achieved a record level of profitability which we believe was driven by structural changes made to our business during the pandemic, including the rationalization of product choices, closure of low margin stores, leaner inventories, more impactful and effective marketing, and improved price realization. We believe these changes have enabled profit margins which are sustainable and provide a stronger foundation to build on in the years ahead."
Now what
In 2022, Carter's expects only modest top-line expansion in light of supply chain challenges, earlier store closures, and a lack of government stimulus. For the year, it's calling for revenue growth of 2% to 3%, which was even with expectations, but it foresees earnings per share rising by 12% to 14% as it benefits from improving profitability and share buybacks. Additionally, management forecast EPS growth in the high-single-digit percentages over the next five years.
Given that this company owns a leading set of brands in a stable segment of the apparel industry, Carter's stock looks appealing at a forward price-to-earnings ratio of just 12.
