Carter’s Inc. (NYSE: CRI) announced better-than-expected second-quarter 2018 results early Thursday, highlighting steady growth from both its domestic retail and international operations, partially offset by the continued impact of the liquidation of Toys R Us.
Still, Carter’s stock fell more than 6% on the day in response — a likely consequence of the stock’s more than 30% rise in the year leading up to this report, as well as Carter’s seemingly conservative third-quarter guidance.
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Let’s take a closer look at what the kid’s clothing retailer accomplished over the past few months, and what investors should be watching in the quarters ahead.
Carter’s results: The raw numbers
| Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$696.2 million |
$691.8 million |
0.6% |
|
GAAP net income |
$37.3 million |
$37.8 million |
(1.4%) |
|
GAAP earnings per diluted share |
$0.79 |
$0.77 |
2.6% |
What happened with Carter’s this quarter?
- Adjusted for one-time items, Carter’s non-GAAP earnings were the same as its reported figures, but declined 3.4% year over year and were flat on a per-share basis.
- By comparison, Carter’s guidance provided in April called for adjusted earnings of only $0.53 per share on a 1.7% revenue decline.
- By segment: U.S. retail sales increased 2.7% to $402 million, with comparable sales growth of 0.9% driven by e-commerce growth. U.S. wholesale sales fell 3.8% to $209.5 million, driven by discontinued sales to Toys R Us and Bon-Ton. International revenue grew 2.6% to $84.7 million, driven by growth in Canada and the acquisition of Carter’s licensee in Mexico last year.
- U.S. retail sales increased 2.7% to $402 million, with comparable sales growth of 0.9% driven by e-commerce growth.
- U.S. wholesale sales fell 3.8% to $209.5 million, driven by discontinued sales to Toys R Us and Bon-Ton.
- International revenue grew 2.6% to $84.7 million, driven by growth in Canada and the acquisition of Carter’s licensee in Mexico last year.
- Carter’s repurchased and retired 599,314 shares of common stock for $63.9 million, for an average price of $106.62 per share.
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What management had to say
Carter’s Chairman and CEO Michael Casey stated:
Looking forward
Carter’s also reiterated its previous full-year 2018 guidance, Casey says, due to “the strength of our product offerings and growth strategies, together with the benefit from the new federal tax law […].” That guidance calls for full-year revenue growth of 3%, and 12% growth in adjusted earnings to approximately $6.46 per share.
In the meantime, Carter’s also said it expects third-quarter sales to be roughly flat on a year-over-year basis, with adjusted earnings per share similarly comparable to $1.70 in the same year-ago period. By contrast, consensus estimates were technically modeling higher third-quarter earnings of $1.92 per share on 2.3% revenue growth.
Of course, Carter’s has also demonstrated a recent habit of under-promising and over-delivering. And nothing in the company’s commentary indicates that they’re disappointed with the start of — and prospects for — the third quarter.
To the contrary, Carter’s management is obviously looking forward to putting the Toys R Us headwind behind them. When that happens, I think it should be easier for the market to recognize the brand’s underlying strength.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Carter’s. The Motley Fool has a disclosure policy.
