10-Q 1 cri-20221001.htm 10-Q cri-20221001
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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 1, 2022
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 21, 2022, there were 38,161,590 shares of the registrant’s common stock outstanding.



CARTER’S, INC.
INDEX
Page
Unaudited Condensed Consolidated Balance Sheets as of October 1, 2022, January 1, 2022 and October 2, 2021
Unaudited Condensed Consolidated Statements of Operations for the fiscal quarter and three fiscal quarters ended October 1, 2022 and October 2, 2021
Unaudited Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter and three fiscal quarters ended October 1, 2022 and October 2, 2021
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the fiscal quarters ended October 1, 2022, July 2, 2022, April 2, 2022, October 2,2021, July 3, 2021 and April 3, 2021
Unaudited Condensed Consolidated Statements of Cash Flows for the three fiscal quarters ended October 1, 2022 and October 2, 2021
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 1, 2022January 1, 2022October 2, 2021
ASSETS
Current assets:
Cash and cash equivalents$121,649 $984,294 $943,025 
Accounts receivable, net of allowance for credit losses of $6,290, $7,281, and $8,678, respectively
265,593 231,354 261,182 
Finished goods inventories, net of inventory reserves of $25,628, $14,378, and $23,698, respectively
899,326 647,742 722,396 
Prepaid expenses and other current assets73,578 50,131 56,182 
Total current assets1,360,146 1,913,521 1,982,785 
Property, plant, and equipment, net of accumulated depreciation of $559,085, $528,926, and $557,164, respectively
181,575 216,004 218,828 
Operating lease assets491,863 487,748 510,051 
Tradenames, net307,456 307,643 307,705 
Goodwill208,454 212,023 212,016 
Customer relationships, net31,386 33,969 34,843 
Other assets30,687 30,889 28,028 
Total assets$2,611,567 $3,201,797 $3,294,256 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$318,026 $407,044 $388,726 
Current operating lease liabilities155,199 147,537 153,339 
Other current liabilities92,394 176,449 132,400 
Total current liabilities565,619 731,030 674,465 
Long-term debt, net736,448 991,370 990,900 
Deferred income taxes48,930 40,910 52,967 
Long-term operating lease liabilities430,479 441,861 464,660 
Other long-term liabilities41,889 46,440 56,390 
Total liabilities$1,823,365 $2,251,611 $2,239,382 
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 1, 2022, January 1, 2022, and October 2, 2021, respectively
$ $ $ 
Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 38,456,219, 41,148,870, and 42,946,790 shares issued and outstanding at October 1, 2022, January 1, 2022, and October 2, 2021, respectively
385 411 429 
Additional paid-in capital   
Accumulated other comprehensive loss(40,575)(28,897)(32,689)
Retained earnings828,392 978,672 1,087,134 
Total stockholders’ equity788,202 950,186 1,054,874 
Total liabilities and stockholders’ equity$2,611,567 $3,201,797 $3,294,256 
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 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net sales$818,624 $890,586 $2,300,603 $2,424,347 
Cost of goods sold449,951 481,298 1,240,801 1,262,822 
Adverse purchase commitments (inventory and raw materials), net(1,855)507 2,993 (7,923)
Gross profit370,528 408,781 1,056,809 1,169,448 
Royalty income, net7,273 8,442 20,349 22,550 
Selling, general, and administrative expenses286,218 293,192 807,533 832,889 
Operating income 91,583 124,031 269,625 359,109 
Interest expense9,712 15,196 33,496 45,839 
Interest income(257)(335)(867)(761)
Other expense (income), net1,270 844 776 (796)
Loss on extinguishment of debt  19,940  
Income before income taxes80,858 108,326 216,280 314,827 
Income tax provision 15,901 23,350 46,421 72,052 
Net income $64,957 $84,976 $169,859 $242,775 
Basic net income per common share$1.67 $1.94 $4.26 $5.53 
Diluted net income per common share$1.67 $1.93 $4.26 $5.51 
Dividend declared and paid per common share$0.75 $0.40 $2.25 $0.80 
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 1, 2022October 2, 2021October 1, 2022October 2, 2021
Net income$64,957 $84,976 $169,859 $242,775 
Other comprehensive (loss) income:
Foreign currency translation adjustments(8,372)(5,426)(11,677)71 
Comprehensive income$56,585 $79,550 $158,182 $242,846 
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 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 of $0.40 per common share
—    (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 of $0.40 per common share
—    (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 
4


Common stock - shares
Common
stock - $
Additional
paid-in
capital
Accumulated other comprehensive
loss
Retained
earnings
Total
stockholders’
equity
Balance at January 1, 202241,148,870 $411 $ $(28,897)$978,672 $950,186 
Exercise of stock options5,100  222   222 
Withholdings from vesting
of restricted stock
(70,452) (6,623)  (6,623)
Restricted stock activity265,412 3 (3)   
Stock-based compensation expense—  5,859   5,859 
Repurchase of common stock(793,008)(8)545  (75,033)(74,496)
Cash dividends declared and paid of $0.75 per common share
—    (30,573)(30,573)
Comprehensive income—   2,782 67,933 70,715 
Balance at April 2, 202240,555,922 $406 $ $(26,115)$940,999 $915,290 
Exercise of stock options1,500  89   89 
Withholdings from vesting
of restricted stock
(705) (58)  (58)
Restricted stock activity30,731      
Stock-based compensation expense—  6,359   6,359 
Repurchase of common stock(1,272,354)(13)(6,390) (95,407)(101,810)
Cash dividends declared and paid of $0.75 per common share
—    (29,886)(29,886)
Comprehensive income—   (6,088)36,970 30,882 
Balance at July 2, 202239,315,094 $393 $ $(32,203)$852,676 $820,866 
Exercise of stock options7,850  465   465 
Withholdings from vesting
of restricted stock
(2,065) (169)  (169)
Restricted stock activity12,459      
Stock-based compensation expense—  5,003   5,003 
Repurchase of common stock(877,119)(8)(5,299) (60,138)(65,445)
Cash dividends declared and paid of $0.75 per common share
—    (29,103)(29,103)
Comprehensive income—   (8,372)64,957 56,585 
Balance at October 1, 202238,456,219 $385 $ $(40,575)$828,392 $788,202 
            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 1, 2022October 2, 2021
Cash flows from operating activities:
Net income $169,859 $242,775 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation of property, plant, and equipment46,011 65,269 
Amortization of intangible assets2,798 2,799 
Provisions for excess and obsolete inventory11,488 9,507 
Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries251 1,988 
Amortization of debt issuance costs1,560 2,271 
Stock-based compensation expense17,221 15,837 
Unrealized foreign currency exchange loss, net268 95 
(Recoveries of) provisions for doubtful accounts receivable from customers(987)2,754 
Unrealized loss (gain) on investments2,414 (1,910)
Loss on extinguishment of debt19,940  
Deferred income taxes expense 8,220 894 
Other919  
Effect of changes in operating assets and liabilities:
Accounts receivable(33,697)(77,522)
Finished goods inventories(270,696)(132,999)
Prepaid expenses and other assets(24,973)2,483 
Accounts payable and other liabilities(168,076)(126,922)
Net cash (used in) provided by operating activities$(217,480)$7,319 
Cash flows from investing activities:
Capital expenditures$(26,862)$(28,663)
Proceeds from sale of investments 5,000 
Net cash used in investing activities$(26,862)$(23,663)
Cash flows from financing activities:
Payment of senior notes due 2025$(500,000)$ 
Premiums paid to extinguish debt(15,678) 
Payment of debt issuance costs(2,420)(223)
Borrowings under secured revolving credit facility240,000  
Repurchases of common stock(241,751)(110,262)
Dividends paid(89,562)(35,143)
Withholdings from vesting of restricted stock(6,850)(3,897)
Proceeds from exercises of stock options776 7,460 
Other(919) 
Net cash used in financing activities$(616,404)$(142,065)
Net effect of exchange rate changes on cash and cash equivalents(1,899)(889)
Net decrease in cash and cash equivalents$(862,645)$(159,298)
Cash and cash equivalents, beginning of period984,294 1,102,323 
Cash and cash equivalents, end of period$121,649 $943,025 

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 B’gosh (or “OshKosh”), Skip Hop, Child of Mine, Just One You, Simple Joys, Carter’s My 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 1, 2022 are not necessarily indicative of the results that may be expected for the current fiscal year ending December 31, 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 1, 2022 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.
Inventories
Our inventories, which consist primarily of finished goods, are stated at the lower of cost (first-in, first-out basis for wholesale inventory and average cost for retail inventories) or net realizable value. Inventories at October 1, 2022 were $899.3 million compared to $722.4 million at October 2, 2021 and $647.7 million at January 1, 2022. The increase of $176.9 million, or 24.5%, at October 1, 2022 compared to October 2, 2021 is primarily due to planned earlier inventory ownership to offset transportation delays, longer holding periods for inventory to be sold in future periods, increased product costs, and lower than projected net sales. Due to the seasonal nature of our operations, the inventories balance at October 1, 2022 is not comparable to the inventories balance at January 1, 2022.
Inventory reserves at October 1, 2022 increased 8.2% compared to October 2, 2021. Although inventory levels have increased as of October 1, 2022, excess inventory reserve rates have remained relatively stable due to the overall quality and planned use of the inventory. The liability for adverse inventory and fabric purchase commitments increased from $0.8 million as of October 2, 2021 to $3.1 million as of October 1, 2022 primarily due to lower estimated customer demand.
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)
Recent Accounting Pronouncements
Supplier Finance Programs (ASU 2022-04)
In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). This new guidance is designed to enhance transparency around supplier finance programs by requiring new disclosures that would allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The effect of the adoption of ASU 2022-04 is not expected to be material to the Company’s consolidated financial statements.
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 three quarters ended fiscal 2022 and 2021 were as follows:
Fiscal quarter ended October 1, 2022
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $288,454 $50,489 $338,943 
Direct-to-consumer408,209  71,472 479,681 
$408,209 $288,454 $121,961 $818,624 
Royalty income, net$3,073 $3,349 $851 $7,273 
Three fiscal quarters ended October 1, 2022
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $819,772 $137,940 $957,712 
Direct-to-consumer1,153,664  189,227 1,342,891 
$1,153,664 $819,772 $327,167 $2,300,603 
Royalty income, net$7,631 $9,664 $3,054 $20,349 
Fiscal quarter ended October 2, 2021
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $294,180 $48,935 $343,115 
Direct-to-consumer465,711  81,760 547,471 
$465,711 $294,180 $130,695 $890,586 
Royalty income, net$2,500 $5,226 $716 $8,442 
8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, net$7,930 $11,877 $2,743 $22,550 
Accounts Receivable from Customers and Licensees
The components of Accounts receivable, net, were as follows:
(dollars in thousands)October 1, 2022January 1, 2022October 2, 2021
Trade receivables from wholesale customers, net$260,635 $233,928 $262,770 
Royalties receivable6,823 5,769 7,932 
Tenant allowances and other receivables13,673 10,352 9,336 
Total gross receivables$281,131 $250,049 $280,038 
Less: Wholesale accounts receivable reserves(*)
(15,538)(18,695)(18,856)
Accounts receivable, net$265,593 $231,354 $261,182 
(*)Includes allowance for credit losses of $6.3 million, $7.3 million, and $8.7 million for the periods ended October 1, 2022, January 1, 2022, and October 2, 2021, 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 1, 2022January 1, 2022October 2, 2021
Contract liabilities - current:
Unredeemed gift cards$21,217 $21,619 $18,948 
Unredeemed customer loyalty rewards7,527 5,659 6,677 
Carter’s credit card - upfront bonus(1)
714 714 714 
Total contract liabilities - current(2)
$29,458 $27,992 $26,339 
Contract liabilities - non-current(3)
$1,607 $2,143 $2,321 
Total contract liabilities$31,065 $30,135 $28,660 
(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 sheet.
(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 consolidated statements of cash flows.
9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 2022 and 2021:
Fiscal quarter endedThree fiscal quarters ended
(dollars in thousands)October 1, 2022October 2, 2021October 1, 2022October 2, 2021
Operating lease cost$40,231 $40,917 $118,857 $125,715 
Variable lease cost(*)
16,523 15,444 50,763 48,118 
Net lease cost$56,754 $56,361 $169,620 $173,833 
(*)Includes short-term leases, which are not material, and operating lease asset impairment charges.
As of October 1, 2022, the weighted average remaining operating lease term was 4.7 years, and the weighted average discount rate for operating leases was 3.52%.
Cash paid for amounts included in the measurement of operating lease liabilities in the third quarter and first three quarters of fiscal 2022 were $43.2 million and $129.0 million, respectively.
Operating lease assets obtained in exchange for operating lease liabilities in the third quarter and first three quarters of fiscal 2022 were $77.8 million and $108.6 million, respectively.
As of October 1, 2022, the maturities of lease liabilities were as follows:
(dollars in thousands)Operating leases
Remainder of 2022$43,809 
2023170,693 
2024143,252 
2025100,305 
202667,797 
202745,608