10-Q 1 cri-20211002.htm 10-Q cri-20211002
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended October 2, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission file number: 001-31829
CARTER’S, INC.
(Exact name of registrant as specified in its charter)
Delaware
13-3912933
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)

Phipps Tower,
3438 Peachtree Road NE, Suite 1800
Atlanta, Georgia 30326
(Address of principal executive offices, including zip code)
(678) 791-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.01 per shareCRINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No x
As of October 22, 2021, there were 42,265,791 shares of the registrant’s common stock outstanding.






CARTER’S, INC.
INDEX
Page
Unaudited Condensed Consolidated Balance Sheets as of October 2, 2021, January 2, 2021 and September 26, 2020
Unaudited Condensed Consolidated Statements of Operations for the fiscal quarter and three fiscal quarters ended October 2, 2021 and September 26, 2020
Unaudited Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter and three fiscal quarters ended October 2, 2021 and September 26, 2020
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the fiscal quarters ended October 2, 2021, July 3, 2021, April 3, 2021, September 26, 2020, June 27, 2020, and March 28, 2020
Unaudited Condensed Consolidated Statements of Cash Flows for the three fiscal quarters ended October 2, 2021 and September 26, 2020
Part II. Other Information
Certifications




PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARTER’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
October 2, 2021January 2, 2021September 26, 2020
ASSETS
Current assets:
Cash and cash equivalents$943,025 $1,102,323 $831,175 
Accounts receivable, net of allowance for credit losses of $8,678, $5,940, and $7,675, respectively
261,182 186,512 263,231 
Finished goods inventories, net of inventory reserves of $23,698, $14,206, and $30,053, respectively
722,396 599,262 646,608 
Prepaid expenses and other current assets56,182 57,927 56,493 
Total current assets1,982,785 1,946,024 1,797,507 
Property, plant, and equipment, net of accumulated depreciation of $557,164, $583,980, and $576,123, respectively
218,828 262,345 274,574 
Operating lease assets510,051 593,008 619,057 
Tradenames, net307,705 307,893 307,955 
Goodwill212,016 211,776 209,507 
Customer relationships, net34,843 37,510 38,147 
Other assets28,028 34,024 34,874 
Total assets$3,294,256 $3,392,580 $3,281,621 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$388,726 $472,140 $473,473 
Current operating lease liabilities153,339 185,152 172,364 
Other current liabilities132,400 135,240 115,069 
Total current liabilities674,465 792,532 760,906 
Long-term debt, net990,900 989,530 989,086 
Deferred income taxes52,967 52,770 60,160 
Long-term operating lease liabilities464,660 554,497 587,099 
Other long-term liabilities56,390 65,218 62,489 
Total liabilities$2,239,382 $2,454,547 $2,459,740 
Commitments and contingencies - Note 14
Stockholders’ equity:
Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or outstanding at October 2, 2021, January 2, 2021, and September 26, 2020
$ $ $ 
Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 42,946,790, 43,780,075, and 43,648,671 shares issued and outstanding at October 2, 2021, January 2, 2021, and September 26, 2020, respectively
429 438 436 
Additional paid-in capital 17,752 9,258 
Accumulated other comprehensive loss(32,689)(32,760)(41,402)
Retained earnings1,087,134 952,603 853,589 
Total stockholders’ equity1,054,874 938,033 821,881 
Total liabilities and stockholders’ equity$3,294,256 $3,392,580 $3,281,621 
See accompanying notes to the unaudited condensed consolidated financial statements.
1


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
Fiscal quarter endedThree fiscal quarters ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net sales$890,586 $865,080 $2,424,347 $2,034,437 
Cost of goods sold481,298 483,333 1,262,822 1,170,778 
Adverse purchase commitments (inventory and raw materials), net507 (1,968)(7,923)16,166 
Gross profit408,781 383,715 1,169,448 847,493 
Royalty income, net8,442 9,063 22,550 19,989 
Selling, general, and administrative expenses293,192 279,251 832,889 767,237 
Goodwill impairment   17,742 
Intangible asset impairment   26,500 
Operating income 124,031 113,527 359,109 56,003 
Interest expense15,196 16,347 45,839 40,523 
Interest income(335)(330)(761)(1,217)
Other expense (income), net844 (2,758)(796)2,647 
Income before income taxes108,326 100,268 314,827 14,050 
Income tax provision23,350 19,027 72,052 3,347 
Net income $84,976 $81,241 $242,775 $10,703 
Basic net income per common share$1.94 $1.86 $5.53 $0.25 
Diluted net income per common share$1.93 $1.85 $5.51 $0.24 
Dividend declared and paid per common share$0.40 $ $0.80 $0.60 
See accompanying notes to the unaudited condensed consolidated financial statements.
2


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
Fiscal quarter endedThree fiscal quarters ended
October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Net income $84,976 $81,241 $242,775 $10,703 
Other comprehensive (loss) income:
Foreign currency translation adjustments(5,426)3,643 71 (5,768)
Comprehensive income $79,550 $84,884 $242,846 $4,935 
See accompanying notes to the unaudited condensed consolidated financial statements.
3


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts in thousands, except share amounts)
(unaudited)
Common stock - shares
Common
stock - $
Additional
paid-in
capital
Accumulated other comprehensive
loss
Retained
earnings
Total
stockholders’
equity
Balance at December 28, 201943,963,103 $440 $ $(35,634)$915,324 $880,130 
Exercise of stock options33,158  1,840   1,840 
Withholdings from vesting
of restricted stock
(43,611) (4,712)  (4,712)
Restricted stock activity132,759 1 (1)   
Stock-based compensation expense—  1,945   1,945 
Repurchase of common stock(474,684)(5)928  (46,178)(45,255)
Cash dividends declared and paid—    (26,260)(26,260)
Comprehensive loss—   (12,992)(78,694)(91,686)
Balance at March 28, 202043,610,725 $436 $ $(48,626)$764,192 $716,002 
Exercise of stock options14,180  1,076   1,076 
Withholdings from vesting
of restricted stock
(1,016) (77)  (77)
Restricted stock activity12,287      
Stock-based compensation expense—  4,540   4,540 
Comprehensive income—   3,581 8,156 11,737 
Balance at June 27, 202043,636,176 $436 $5,539 $(45,045)$772,348 $733,278 
Exercise of stock options12,811  812   812 
Withholdings from vesting
of restricted stock
(1,744) (139)  (139)
Restricted stock activity1,428      
Stock-based compensation expense—  3,046   3,046 
Comprehensive income—   3,643 81,241 84,884 
Balance at September 26, 202043,648,671 $436 $9,258 $(41,402)$853,589 $821,881 
4


Common stock - shares
Common
stock - $
Additional
paid-in
capital
Accumulated other comprehensive
loss
Retained
earnings
Total
stockholders’
equity
Balance at January 2, 202143,780,075 $438 $17,752 $(32,760)$952,603 $938,033 
Exercise of stock options12,065  811   811 
Withholdings from vesting
of restricted stock
(37,444) (3,588)  (3,588)
Restricted stock activity192,963 2 (2)   
Stock-based compensation expense—  6,931   6,931 
Comprehensive income—   1,226 86,196 87,422 
Balance at April 3, 202143,947,659 $440 $21,904 $(31,534)$1,038,799 $1,029,609 
Exercise of stock options57,274  4,336   4,336 
Withholdings from vesting
of restricted stock
(1,057) (110)  (110)
Restricted stock activity7,204      
Stock-based compensation expense—  5,391   5,391 
Cash dividends declared and paid—    (17,596)(17,596)
Comprehensive income—   4,271 71,603 75,874 
Balance at July 3, 202144,011,080 $440 $31,521 $(27,263)$1,092,806 $1,097,504 
Exercise of stock options30,464  2,313   2,313 
Withholdings from vesting
of restricted stock
(1,885) (199)  (199)
Restricted stock activity3,030      
Stock-based compensation expense—  3,515   3,515 
Repurchase of common stock(1,095,899)(11)(37,150) (73,101)(110,262)
Cash dividends declared and paid—    (17,547)(17,547)
Comprehensive (loss) income—   (5,426)84,976 79,550 
Balance at October 2, 202142,946,790 $429 $ $(32,689)$1,087,134 $1,054,874 
See accompanying notes to the unaudited condensed consolidated financial statements.
5


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three fiscal quarters ended
October 2, 2021September 26, 2020
Cash flows from operating activities:
Net income $242,775 $10,703 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant, and equipment65,269 66,985 
Amortization of intangible assets2,799 2,784 
Provisions for excess and obsolete inventory9,507 20,912 
Goodwill impairment 17,742 
Intangible asset impairments 26,500 
Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries1,988 9,395 
Amortization of debt issuance costs2,271 1,641 
Stock-based compensation expense15,837 9,531 
Unrealized foreign currency exchange loss, net95 1,354 
Provisions for doubtful accounts receivable from customers2,754 7,702 
Unrealized gain on investments(1,910)(628)
Deferred income taxes expense (benefit)894 (16,697)
Effect of changes in operating assets and liabilities:
Accounts receivable(77,522)(21,576)
Finished goods inventories(132,999)(76,739)
Prepaid expenses and other assets(*)
2,483 (8,432)
Accounts payable and other liabilities(126,922)267,551 
Net cash provided by operating activities$7,319 $318,728 
Cash flows from investing activities:
Capital expenditures$(28,663)$(25,212)
Proceeds from sale of investments(*)
5,000 1,400 
Net cash used in investing activities$(23,663)$(23,812)
Cash flows from financing activities:
Proceeds from senior notes due 2025$ $500,000 
Payment of debt issuance costs(223)(7,639)
Borrowings under secured revolving credit facility 644,000 
Payments on secured revolving credit facility (744,000)
Repurchases of common stock(110,262)(45,255)
Dividends paid(35,143)(26,260)
Withholdings from vesting of restricted stock(3,897)(4,928)
Proceeds from exercises of stock options7,460 3,728 
Net cash (used in) provided by financing activities$(142,065)$319,646 
Net effect of exchange rate changes on cash and cash equivalents(889)2,302 
Net (decrease) increase in cash and cash equivalents$(159,298)$616,864 
Cash and cash equivalents, beginning of period1,102,323 214,311 
Cash and cash equivalents, end of period$943,025 $831,175 
(*)Cash flows for the three fiscal quarters ended September 26, 2020 were revised to reflect the reclassification of $1.4 million proceeds from sale of investments from cash flows from operating activities to cash flows from investing activities.
See accompanying notes to the unaudited condensed consolidated financial statements.
6


CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – THE COMPANY
Carter’s, Inc. and its wholly owned subsidiaries (collectively, the “Company”) design, source, and market branded childrenswear under the Carter’s, OshKosh, Skip Hop, Child of Mine, Just One You, Simple JoysMy First Love, little planet, and other brands. The Company’s products are sourced through contractual arrangements with manufacturers worldwide for: 1) wholesale distribution to leading department stores, national chains, and specialty retailers domestically and internationally and 2) distribution to the Company’s own retail stores and eCommerce sites that market its brand name merchandise and other licensed products manufactured by other companies.
NOTE 2 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, comprehensive income, statement of stockholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the fiscal quarter ended October 2, 2021 are not necessarily indicative of the results that may be expected for the current fiscal year ending January 1, 2022.
The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
The accompanying condensed consolidated balance sheet as of January 2, 2021 was derived from the Company’s audited consolidated financial statements included in its most recently filed Annual Report on Form 10-K. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.
COVID-19
The Company is closely monitoring the effects of the ongoing coronavirus (“COVID-19”) pandemic and its impact on our business. Additionally, the Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of October 2, 2021 and through the date of this report filing. The accounting matters assessed included, but were not limited to, our allowance for credit losses, inventory reserves, adverse fabric purchase commitments, stock-based compensation, and the carrying value of our goodwill, indefinite-lived intangible assets, and other long-lived assets. Based on these assessments, in the first three quarters of fiscal 2021, the Company released adverse purchase commitment reserves of $8.4 million related to better than expected sales of inventory and utilization of fabric that was reserved for in the first quarter of fiscal 2020 due to COVID-19 related disruptions. As of October 2, 2021, there is no outstanding reserve for adverse fabric purchase commitments related to COVID-19 disruptions in fiscal 2020.
Additional COVID-19 related charges were $0.3 million and $3.5 million in the third quarter of fiscal 2021 and the first three quarters of fiscal 2021, respectively. These charges were primarily related to the costs associated with additional personal protective equipment and cleaning supplies.
Accounting Policies
The accounting policies the Company follows are set forth in its most recently filed Annual Report on Form 10-K. There have been no material changes to these accounting policies.
7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - REVENUE RECOGNITION
The Company’s revenues are earned from contracts or arrangements with retail and wholesale customers and licensees. Contracts include written agreements as well as arrangements that are implied by customary practices or law.
Disaggregation of Revenue
The Company sells its products directly to consumers (“direct-to-consumer”) and to other retail companies and partners that subsequently sell the products directly to their own retail customers. The Company also earns royalties from certain of its licensees. Disaggregated revenues from these sources for the third quarter and first three quarters of fiscal 2021 and 2020 were as follows:
Fiscal quarter ended October 2, 2021
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $294,180 $48,935 $343,115 
Direct-to-consumer465,711  81,760 547,471 
$465,711 $294,180 $130,695 $890,586 
Royalty income$2,500 $5,226 $716 $8,442 
Three fiscal quarters ended October 2, 2021
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $809,186 $125,337 $934,523 
Direct-to-consumer1,296,405  193,419 1,489,824 
$1,296,405 $809,186 $318,756 $2,424,347 
Royalty income$7,930 $11,877 $2,743 $22,550 
Fiscal quarter ended September 26, 2020
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $302,135 $37,838 $339,973 
Direct-to-consumer449,150  75,957 525,107 
$449,150 $302,135 $113,795 $865,080 
Royalty income$3,902 $3,986 $1,175 $9,063 
Three fiscal quarters ended September 26, 2020
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $706,009 $92,110 $798,119 
Direct-to-consumer1,085,883  150,435 1,236,318 
$1,085,883 $706,009 $242,545 $2,034,437 
Royalty income$7,648 $9,576 $2,765 $19,989 
8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounts Receivable from Customers and Licensees
The components of Accounts receivable, net, were as follows:
(dollars in thousands)October 2, 2021January 2, 2021September 26, 2020
Trade receivables from wholesale customers, net$262,770 $180,830 $255,214 
Royalties receivable7,932 5,733 8,596 
Tenant allowances and other receivables9,336 12,315 12,064 
Total receivables$280,038 $198,878 $275,874 
Less: Wholesale accounts receivable reserves(*)
(18,856)(12,366)(12,643)
Accounts receivable, net$261,182 $186,512 $263,231 
(*)Includes allowance for credit losses of $8.7 million, $5.9 million, and $7.7 million for the periods ended October 2, 2021, January 2, 2021, and September 26, 2020, respectively.
Contract Assets and Liabilities
The Company’s contract assets are not material.
Contract Liabilities
The Company recognizes a contract liability when it has received consideration from a customer and has a future obligation to transfer goods to the customer. Total contract liabilities consisted of the following amounts:    
(dollars in thousands)October 2, 2021January 2, 2021September 26, 2020
Contract liabilities - current:
Unredeemed gift cards$18,948 $18,300 $15,977 
Unredeemed customer loyalty rewards6,677 5,241 5,510 
Carter’s credit card - upfront bonus(1)
714 714 714 
Total contract liabilities - current(2)
$26,339 $24,255 $22,201 
Contract liabilities - non-current(3)
$2,321 $2,857 $3,036 
Total contract liabilities$28,660 $27,112 $25,237 
(1)The Company received an upfront signing bonus from a third-party financial institution, which will be recognized as revenue on a straight-line basis over the term of the agreement. This amount reflects the current portion of this bonus to be recognized as revenue over the next twelve months.
(2)Included with Other current liabilities on the Company’s consolidated balance sheets.
(3)This amount reflects the non-current portion of the Carter’s credit card upfront bonus.
NOTE 4 - LEASES
The Company has operating leases for retail stores, distribution centers, corporate offices, data centers, and certain equipment. The Company’s leases generally have initial terms ranging from 1 year to 10 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to early terminate the lease.
As of the periods presented, the Company’s finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or statements of cash flows.
The following components of lease expense are included in Selling, general and administrative expenses on the Company’s consolidated statements of operations for the third quarter and first three quarters of fiscal 2021 and 2020:
Fiscal quarter endedThree fiscal quarters ended
(dollars in thousands)October 2, 2021September 26, 2020October 2, 2021September 26, 2020
Operating lease cost$40,917 $44,230 $125,715 $136,180 
Variable lease cost (*)
15,444 19,635 48,118 55,139 
Net lease cost$56,361 $63,865 $173,833 $191,319 
(*)Includes short-term leases, which are not material, and operating lease asset impairment charges.
9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of October 2, 2021, the weighted average remaining operating lease term was 5.1 years, and the weighted average discount rate for operating leases was 3.28%.
Cash paid for amounts included in the measurement of operating lease liabilities in the third quarter and first three quarters of fiscal 2021 were $47.6 million and $162.3 million, respectively.
Operating lease assets obtained in exchange for operating lease liabilities in the third quarter and first three quarters of fiscal 2021 were $18.6 million and $26.2 million, respectively.
As of October 2, 2021, the maturities of lease liabilities were as follows:
(dollars in thousands)Operating leases
Remainder of 2021$46,341 
2022162,896 
2023137,967 
2024109,661 
202577,907 
202655,589 
After 202682,009 
Total lease payments$672,370 
Less: Interest(54,371)
Present value of lease liabilities(*)
$617,999