CRI - Earnings call transcript Q2 2018

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Operator

Ladies and gentlemen welcome to Carter's Second Quarter 2018 Earnings Conference Call.

On the call today are Mr. Michael Casey, Chairman and Chief Executive Officer; Mr. Richard Westenberger, Executive Vice President and Chief Financial Officer; Mr. Brian Lynch, President; and Mr. and President Vice McHugh, Treasurer. Sean remarks, After time take as will today's prepared allows. questions we its earnings Carter's this quarter second issued XXXX morning. press earlier release call company's website A materials www.carters.com. the release the at Relations have today's Investor the copy on been of and section posted of for presentation

from conference about are begin, we materially the may plans, future performance this company's statements. remind in Actual the differ statements made you outlook, projected. Before and that company's forward-looking results me on let call those presentation materials and

non-GAAP For forward-looking being And company is company's a Commission this call, financial GAAP that Exchange measurements. with factors over and website. On presentation most could today's will to cause from the those filed actual turn of vary materials. the and discussion company's of release to A would refer measurements measurements and financial company's call Mr. results the these earnings recorded. contained various statements, Casey. the report Also, financial now, is Securities reference I to non-GAAP like the in the to presentation to annual the materials provided recent the the on in reconciliation please posted call

Michael Dennis Casey

for Good joining much. Thank on morning very everyone. the call. Thanks us you

sales last on on earnings walk you you our quarter through achieved goals website, Before with on we to that shared the the our and some We like second the thoughts presentation we share I'd business call. you. with

segments. growth by Our and was driven Retail our International

but than given our launches largest to due meaningfully of the Wholesale from As customers. for loss second were year, better new our of sales forecast sales planned Bon-Ton, "R" and some quarter. expected, earnings Toys in to demand outperformed product our lower the last than We earlier Us our were

off of slow got weather the cold through a with may April. first to quarter half start unusually our recall You

our saw to we By we've past, transition late period seen difficult seasonal clearly demand apparel. the pent-up That's warmer demand years our for benefit beauty is forecast. weather As business. of in of April, during the

apparel rapidly in those their discretionary refreshes is Children as more Young life outgrow frequent a purchase. of children's less change. seasons early the of require and outfits, years their particularly clothing

of significant our weather knowing trends saw cold arrived would the parts improvement when more we spending to we winter in our this spring-like exactly impact year. sales. where unseasonably in mitigate the country, earlier storms improve, of Not curtailed discretionary weather and possible As sales

saw All new the first see all, sources The our sales and effort benefit of this ahead of morning. growth, second we meaningful quarter can including Amazon, offset half. results Us a discontinued largely us. Skip You We which more and "R" Toys of Bon-Ton. year our is Hop of in contribution in good from and portion a good Mexico, that our still to had the

the to year Our continues be good. outlook for

good us achieve have growth we We our many underway initiatives objectives to which believe will year. enable this

launched our extend significant Us. brand has We believe to Age our our for launching to with also brand and age our brand. our sizes this recently initiative Carter's Carter's strategy, Up With more OshKosh more the young product size products strengthening with strategy, We've productivity, younger added and our of our up styling with two Age our children. sales respect to families relationship consistent differentiated older store product to improving Our lost creative new XX, Beginning children. recapturing include capabilities, Carter's this relative Up Toys will toddler to offering initiatives we KID offering. eCommerce summer, "R" our

Carter's age need brand. for One associates our range to extend of frequent hear the store suggestions customers more our we a and the from is

Age apparel is The initiative morning. share child. longer as Up encouraging. on early needs love feedback offerings strategy, this would with some from With our We'll and from product and like up support our children consumers our children XX-year-old this the a to with Our stay newborn will you beauty very research we of a the brands showed grow. consumers about of value their to of that feedback

the We market in X and older million. age is share baby point market number have the toddler the over We number in in that have share market both worth the segment. Every age X $XXX share segments of

the shopping data we're our retail growth in in growth our faster more customers Our than a suggests product for rate total of customers. twice consumer rate offerings, X-XX seeing of

strategy an Our is in this being supported with Age Up year. increase marketing investments

It of latest the improving phase of successful. with to grown which children's been one-stop to you life. and families location. our largest co-branded to children. continue Start favorably We're shopping names marketing From know, one store initiative positive store stores from highlights brand of apparel morning this year. trusted we campaign styles With had component that first young those our the in comps half. share very as in productivity, you a convenient by They In have most brands recent young our the stores areas. the very Consumers to improved years, opening sales. has seeing We'll productive the campaign. of respond store brand convenience earlier offer years provide dual-branded in respect With have be of this closer to complementary the annual moments retail early This shopping format the most populated for link good a Our stores special in with These two for most our the the densely launched to to You child's a response

open the stores portfolio, of plan provide of outlet co-branded remotely We from improving less mix occur we plan about centers. of to productive open co-branded stores About had beginning planned to by less year. XXXX, had in a margin return – stores closure Carter's remain year, stores dual-branded than our XX% a this at year our at XX%. for the to margin this stores last to by XXX Beginning XXX store an about store Stores and scheduled to and XXX located over on productive the investment. operating many XXXX. of XXXX, more Our the third these X% those close operating least OshKosh highest largely of closures new are standalone XX% stores are most stores,

these that As assuming assumption. transfer we To given our fixed stores, sales those structure sales at of store market. stores we about high through located benefit adjacent cost very The an flows XX% to close margin other the a XX% of are exceeding date, are transferred transferred our their be we profitability model. of store in will

our improve consumers experience the these our to of the objective strengthen openings brands. Our stores with and is and closures with to productivity

Our multi-brand our most customers customers. are valuable

is shows X that data of multi-brand XX% X Our year this annual brand over our customers the single our number customer. their that times and to grew of past spend

our then making in We investing to eCommerce more the improve our the channel the online young Over the the in best-selling of half, Carter's plan both expanded twice in our in given In steps of our past consumers who be shopping States, our continue our competitor. and online our with stores. eCommerce orders. beauty, more our our margin with XX% business, to Retail consumers in and That's twice United highest their to children's of our continued taken amount and year, our offerings online of the shop in spend understandable capabilities, to and the apparel customers up the annual shop service than this component To of customers. online-only we've both than improve online growing, Those purchases nearest stores stores speed our to to product business. supply in enabling the pick available and of business our is level online omni-channel our scope fastest the first share further of strengthen in delivery our convenience brand shopped chain stores. customers our store experiences stores.

delivery, Our leader the children's satisfaction research higher quicker online by spend of will in sales the initiative the annual as further believe position our rating and the apparel. consumers. shows We strengthen this young that the

through eCommerce have our our an capabilities for Given Prime Amazon. to Amazon the exclusively multi-channel customers sales we Last our year, the wholesale we saw wholesale our Collectively, strength XX%. Day brand reaching our through online brands Year-to-date, response saw during Simple strengthened of over than selling of capabilities customers. our Amazon's online Prime of extraordinary more is model, recent event, In the more the of we sales consumers benefit designed customers. Joys double by our event. on we launching X brands our up this

online one next We wholesale our with we next billion expect year. be customers expect achieve $X our X years. will purchases the to in grow of of our to Amazon Together customers, brands in largest

and years Those closed. this their Wholesale estimates directly year, we in the more store opportunity our provide Toys of on As a United the to and you now closures, weigh may us our Earlier "R" will for of reflect customers impact year, closures know, States best growth the the have "R" to year. profitably XXXX ability the been those adjusted potential Toys service stores to Us our in for our Us will this but growth this ahead. of recapture sales meaningful all objectives store

to States, performing retail children's one brand our the positioned in best the and We locations United presence Carters.com, from closures are throughout on benefit for XX,XXX store of the strength these uniquely apparel. over store of given websites

in million additional we demand higher in closed. half nearly to second sales sales year seen expecting through half recapture we've suggests trends Toys the analysis stores of the We're plan with latest that "R" and store more now have the $XX all Us for this of the recapture progress Our replenishment

the China year to rising risks the tariffs of we're of include the balance costs. on and product exposure new Some managing in imports the

After material situation, New on to assess expected reports That a our quarter to negotiations the our success have forecasting sourcing year. we impact, said, fourth now on visibility to are costs. product have imports product on to any, Spring the the monitor We on more XXXX and a by part, are beginning if XXXX this not several strategy, the costs product of years objectives. is consistently this costs tariffs product fluid in we growth China of lower our trade direct date will imposed continue higher driven, impact categories. in and

product product costs mitigate To these exposure rising increases. from capabilities. consumer the help cost single-digit assuming to increases Longer prices opportunity Our impact to We invested low been and management of and new mitigate with in margin cycle we term, raised in meaningful. inflationary investments a we more have Spring these the have inventory are is margin prices. pricing believe costs, the XXXX

We of and mitigated expect us and Us spring And children, store and of in offerings the thank half. young take of benefits unexpected delayed consumers. a sales for believe that in want major XXXX with will to closure the and an to retailers families Hop understood in the helped sales the challenges other more our United Bon-Ton the the expecting a impact improving higher impact growth including we're will proposals. Spring and growth unemployment, In tax all be we've pricing meaningfully States. "R" storms Mexico recovered new accepted the year. our product Amazon, weather the stores. and summary, new first Retail pay of forecasting XXXX we're Wholesale Because and But, we earnings We've They down supported With our have our bit to our International pricing our this low we and sold in Toys largely economy, home businesses. year. sales start Skip the half. of the tax contribute first of by doubling I the of closures, credits good for Spring our and from this in had law, those good to employees

objectives walk their Richard achieve our our With now you we through expect support, to will presentation the website. growth on this year.

Richard F. Westenberger

X and with Mexico. Good on speak an today of the included to this charges of our adjusted some Most begin basis. materials GAAP-basis statement will acquisitions results for our of second Last Thank everyone. related We I'll had you, year. results minor Skip income year's Mike. our QX quarter page our GAAP-basis no results adjustments Hop to comments to my on second quarter. presentation morning today's

review Our second results. this release include of to quarter presentation evaluate reconciliations presentation. you basis of and you as to our information our I results the adjusted earnings GAAP-basis encourage

Turning X the second some of quarter. to with page highlights

some earnings good the timing our Mike earlier A April. provided quarter on As by grew including previous we the and product growth net and to in year, sales exceeded in channel spending, businesses. call we of outperformance now sales X% for lower the some noted, the Consolidated planned. year Retail in incur Wholesale new we in portion had launches and in was originally of our demand expect last which our related, over driven International than later U.S. guidance

sales the investment down growth recapture planned. our pointing initiatives offset which spending revenue. "R" partially versus business were income U.S. revenue, was sources a net effective in last the in million, year Adjusted this year, year, Bon-Ton tax our year's reflecting we XX%, challenge driven by in to although so rate. to were Wholesale of total expected, count. and sales significant It's and to Wholesale our had $XX than were share by of comparable our Mike Toys Adjusted new and margin in As last were earnings we said, progress worth operating a that rate last lower higher approximately feel good sales second gross providing about we Us share lower quarter a per and and higher of had stronger Wholesale lower have progress declined part, as benefits out date

in last and in which of QX exchange first Wholesale with sales net rebound declined April, and rates. a to U.S. weather the Retail pressure channels. in forecasted. the in was Sales sales stronger Retail in Recall movements page the under X% and Turning quarter a particularly sales store X% in the X%, reasons beginning by segment X very sales shift late grew we International We to from strong strong from nearly Retail the mentioned. year, foreign compared early country. sales also U.S. a contribution in start second net online approximately our cold into quarter. Easter saw growth performance that already driven to our traffic in unseasonably both slow with of around we which Mexico due attributed our had the comp grew I've the and our roughly Canada, currency favorable were to summary sales than segment business, Sales in U.S.

Moving second to for the quarter on adjusted X. our P&L page

of XX.X%, formerly-licensed Moving expanded of efficiencies third licensee shipments, last due in to driven which our realization. by gross we the margin to of the below of acquired in the sales net in-sourcing product consolidated points former timing income basis from category, declined year. Mexico quarter sourcing improved price X%, XX licensee Royalty and absence royalties and the a

reflects Mexico of incremental in the businesses, rate year. associated growth eCommerce was our the in last and to stores SG&A as Our XX% in compared adjusted expedited XX.X%, marketing expenses investments and in second quarter acquired increase eCommerce, This business. continued shipping as well with

market other quarter Second currency interest increase rates The higher foreign to reflects $X was interest higher versus and $X expense net million borrowings higher modestly year compared to a year. and losses interest ago. and due last expense million

passed year, declined rate U.S. to from a Our XX.X% effective the result last reform tax tax legislation XX.X% of year. last

last year, compared average Our our count declined repurchase to X% reflecting share activity. share

year. a last In included $X.XX, basis adjusted adjusted and half top XXXX, first to on results X%. comparable summarize achieved both EPS half X So, GAAP quarter of again, sales are and was and grew line, reference. second the Pages for we first X your adjusted bottom our growth on of EPS the X% line and

with driven Amazon, Moving to last cash and primarily Skip as were summary a for versus up year, inventories initiatives Simple Mexico. sheet our page Quarter-end growth X such new Joys of and by balance flow. Hop, X%

the half. levels the at as initiatives approximately the mid-single the was quarter, earlier Excluding with we year. the to compared the in Inventory to begin these prior X%. XXXX mentioned finish in and as good. first normalize replenishment little in been is early cash inventories of of range. were flow lower year our flow up inventory QX inventory third a second million million. in support Heading in last in-line $XXX quarter to good the quality believe receipting roughly year I've was to well of cash the $XXX we've Free anticipation initiatives, $XX Generally, expected up digit of million, business second Operating demand into half in growth is across the

of year, cash operating the solid million. this generate flow to to expect $XXX in We range $XXX

shareholders. share $XX in In million dividends. capital addition, of XXXX, continued to million progress first the repurchases in in to In completed we've and paid make half returning $XX we

to of page the turning quarter. second an business our segment with XX Now in overview performance

stores adjusted margin consolidated margin I declined operating as and areas businesses investments such gross which offset reflects growth Our related marketing. in basis and as by expenses by increased to our XXX of points, outlined technology and earlier, new expansion, operational eCommerce

half Our International was our margin declines, believe the margin segment moment. was second XX highlight due stronger to segments We quarter, for and I'll which sales the Page segment detail improving higher of the more Wholesale for business the in be In points. in results we experienced our We've for which will with business our volume International Retail XXXX the the period. this U.S. and with included on what second than have planned basis half U.S. in first second both achieved second in margin XX. in quarter, cover reference by leverage quarter the the associated performance segments your for a principally Wholesale

beginning nearly quarter U.S. the quarter second Retail business our second XX. on in year. with segment to X% sales increased segment last versus page U.S. Retail Moving results, individual

expansion margin fulfillment, shift X%, by in planned quarter, realization April were country. up points technology. weather due lower improved driven investments segment the double-digit U.S. marketing, very a which in Our of compared reflects we country costs, eCommerce and to into partially to was a by first This basis XXXX. XX achieved quarter product Easter in weather eCommerce. XX.X%, the the After total spring-like around of much the U.S. and comp cold increased May of offset as unseasonably Retail throughout margin arrived the second comp solid Retail growth challenging and strong price

of in We half, second in which page are drive have of a business place some the to the number summarized are intended of the the significant bottom XX. of at initiatives which more

expectations Age have contribution for initiative. of the We the high Up

which the speed children's the Our the market. of our orders. working the of Braselton have successful. capabilities to eCommerce held in by been past the exited customers improving a ranges previously size distribution of to our We're capture in increasing actively delivery efforts brands improve portion center have business invested wholesale very significant apparel of We've

Our investment we're for last brand improving planning, focused productivity least, tools stores pricing, management. new including also assortment not including the our up new on in the inventory campaign. significantly, but And marketing is of workforce retail and management,

Turning to page XX.

Our brands consumer in continued shine second to surpassing in the engagement. quarter, competitors social on our media

During OshKosh, engagement posting. Hop measured collectively with scores, the consumer quarter, the by top XX of and each Skip on Instagram interactions XX second Carter's, postings earned as

that over of relative the Our our grow analysis second engagement in on lead suggests peers the increasing quarter, continued media share in our market. social to

child the campaign the as slide. March, year You journey, as on brand next at On The Since initiatives this and analyze campaign's focus its this various parenting summarized the the have marketing to has celebrates Start" reach, a impact important one the impressions evaluate sales. and of is very launch grows. our page, From the and campaign. of stages, achieved We're been Carter's campaign's continuing of strong some the on launch our "With in the the brand we on

to XX. page Moving

Start the these is in With of of elements about to brand, You consumers the From KID. supporting is offerings. Carter's as the sizes we Carter's campaign important have product marketing educate which branded This our new extended the intended the of One launch

sizes stores. representative X bottom offered KID On intended offering a photo brand. the product for product enthusiasm to younger about these slide KID one the page the identify XX, been awareness many presentation stores Facebook built we've X as one one this up new Early and terrific. to reaction of establish further a a few a from and of of videos. consumers brand. products children business, our signage newborn Carter's several has as postings to included included reflecting link area considerable we've and XX drive age a of the through the still Atlanta product have are campaign of stop of new years is Page this new for for at shop While ten. consumers we've At new Carter's our This to Carter's Carter's

ranked unaided for Promoter year's OshKosh OshKosh and on will variety in an its brand be of page consumer The the $XXX driven Net our Skip year, OshKosh dimensions sales we XX of page a OshKosh. high first have marks only in character Score. million. such assortment the exceed and consumers a first and the to U.S. product second in also bags, of brand In in format important and The on half X%. strength the this includes for On OshKosh has brand, online. great satisfaction, OshKosh marketplace. Moving backpacks, B'gosh survey, from global Global XX lunch a Zoo also and of had awareness be received iconic character quality. accessories. the school strong of in-store by with co-branded the important brief remains as this half have to corresponding OshKosh an the to period relevant Carter's meal-time year, Hop. expanded a of brand offering And success offering update we grown and uniform sales trust, expect XXXX the recent Back-to-School Back-to-School and the will store

over the we've five years. next of said, double Skip size As in Retail we business in the as Wholesale good channels. our We're International demand well segments products U.S. and Skip Hop expect Hop as to very for our seeing the

in quarter. Moving to Wholesale our XX second page results with for U.S. business the

compared several were decline second approximately to customers new was launches. in than last shipments Toys by quarter largely forecasted, "R" Us driven this performance we demand from discontinued year's year's year. in had in second quarter. for million to Overall part X% product $XX due better was Bon-Ton, again earlier and to Second Wholesale quarter last in sales U.S. net declined This which

reflects volume lost the to with $XX segment expecting digits, This year, Toys a Skip be versus full XX.X% single Wholesale growth of and and our year. recapture strong million customer compared the of core channel with For Wholesale U.S. U.S. in this Hop, the in increased sales mix $XX number down growth last operating a customers, portion spend. which meaningful profit of wholesale a XX.X% decline we've million, net Segment low by ago. Bon-Ton. primarily margin reflects the year was was marketing changes segment Us to "R" margin in and we're

expect operating last a the year, XX%, slightly we a store margin For than full we the at for have in U.S. Wholesale lower of page to product On Macy's photo XX, Carter's exceed year. Orlando.

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Moving segment for XX the International to results page and second quarter.

the net quarter reflects part from year in negatively Canada constant – quarter. sales second year. Profitability quarter. to in retail Easter declined currency comparable sales than X%. was digit basis. margin sales contribution China volume low operating was Canada in the XXXX, cool was also eCommerce X.X% in the first growth Canada demand sales in International Hop, achieved reported contributions traffic strong lower our segment International more by International Our income of a international to performance our various of store the a forecasting this and Mexico second segment somewhat performance $X on year. year. last million of Skip also and nearly and This business, component meaningful over a Relative X.X% million, This with the in X% In International segment due operating Canada and in second driven eCommerce stronger profitability shift was affected XX% the associated grew in reflecting last first growth comparable the Canada, that the largest single $X driven demand growth second into compared Skip temperatures to and also digit one-time unseasonably compared Canada, deleverage by in approximately insourcing Segment from offset reflects mid-single quarter, of year. to on lower last very we're half, Hop. in markets. in store the with and margin grew segment International half expense lower costs quarter, improved of by the second last basis, distribution. quarter

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guidance and our for the Turning to page XX third with full year. the quarter

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third EPS year's adjusted quarter. last $X.XX to quarter comparable in achieved is to projected the be Third

results And grow growth sales reaffirming X% year expected our to ready to to these grow sales of drive intended your full planning guidance. previous Full deliver long-term good take are and share investment earnings approximately with For are XX%. to continuing approximately and our we're expected are net we those while a year, We're per remarks, the level business. to questions. adjusted in earnings

Operator

first Fargo. will Wells Ike our come And with question Boruchow you. Thank from

Ike Boruchow

morning, guess, Good Congrats strong really Richard recapture. the I everyone. on on quarter. Hi. you a for wholesale and the

help us and So Can "R" in were just Us numbers understand I $XX QX – to what there and you last year? QX were way Bon-Ton million of last for those you is QX mentioned think year. Toys any

Richard F. Westenberger

the for million QX. in and combined for low customers both range It's both QX $XX

Ike Boruchow

Okay. would any of in you recapture revenues And then you recapture you on 're targeting saw that say the XX% back million those in half, QX? $XX

Richard F. Westenberger

commitments stores I visibility of at the think our modest online. $XX million to have $X channels, a our and probably that million at we the be Wholesale this Wholesale various best It is we estimate to-date. imprecise The have probably would channel. be in point analysis the retail across to would level, some we're the kind and seeing

in stores a the But in as anticipating second seen near we're measure that able own half the recapture have had in that. performance of first of the We're of demand stores. come said the Mike will of closed wave year. remarks, to majority We his lift the our this

Ike Boruchow

then sales it. like with line be the the And – your the so SG&A spend, line sounds going commentary in in spending, last question the around SG&A on Got just half. with it's rate in to back

on that we've that the investments then you SG&A of back Just that what's spend Is first should there? laid you've management in dynamic can rate about Just investment SG&A Last some to that the in the of there help us that us we out how half? XXXX? half? think off? the deviates how lapping lead off about what into going rolling think And do – on understand kind year seen

Richard F. Westenberger

the That business investment a will investment we the point, in as the the to a I in was will half for necessarily to year investment the lower base. We at third the entire will the acquired spend quarter, growth be believe point, To for within fourth we of anticipate we've nice particularly bit percentage rate particular in anniversary to the don't spending Mexico of planning continuing is going half, second planning see It – the so cost that fourth couple And last will year. Retail. benefit terms. did are, will the growth of believe moderate in of that your leverage see I'd this had years; and are we a So, That that we're in this third get into fourth a quarter. in we the in see the considerable translate the we the but in are quarter, in year. year-over-year but over that in dollar we that. leverage so won't quarter. rate in anniversary some we'll made in later a year quarter, start leverage we reduction ago SG&A wave

we've As will over it that the march rate to year, mix up think will the in continue trend the relates seen of to the continue as few shift business I the sense that the last years continues. next

be next will than was believe we're over business growth the and modest in the So rate is direct to year SG&A year, but time. that higher it growth stronger, from we driving still a this relative businesses Wholesale our anticipating

Ike Boruchow

you Got so it. Thank much.

Richard F. Westenberger

You're welcome.

Operator

Thank you.

Our with question Oppenheimer. Anna next comes Andreeva from

Anna Andreeva

kind me add much. so And was is to half? what that maybe guys expense think back shift dollar let my in trying sales benefited are of also in trends amount acceleration the what to Thanks a said I seeing comp congrats; the And quarter flat And Retail for what of Great. to-date, you earlier the XQ, just expect demand driving the XQ? and in understand Wholesale? was what the earnings you

Richard F. Westenberger

our had of similar would of majority we Wholesale was I amount and probably a million $XX Anna. attributing timing. that's The the between SG&A demand to probably that forecast the the of around. to say $X million, are we moving outperformance Hi, shifted amount that

represent So not that does to the upside year. full

guidance is the probably a good not Spending us a ago volume business. pressure. business of in that's That's and outlook for and blocks mentioned. is is really we the Top-line some still decline. drag of good will – quarter, And base, Retail particular, the to different that's Wholesale Wholesale that's QX. under while good, we to building a is And the that sort I recapture to issues in the flattish are planning are third line on shifting earnings for are continue major year-over-year. Us of QX up into top variety the the have the as in that's For some do from what's year other volume volume net QX. Toys expected into growth the expected to driving "R" We from of some flattish of a that business anticipating margin be it's direction that QX the quarter. Those be shifted International

Anna Andreeva

thanks Okay, of and luck. best that's helpful. Many

Richard F. Westenberger

you. Thank

Operator

you. Thank

with from Susan Anderson Riley FBR. B. comes question next Our

Susan Anderson

as give gross fourth nice see it we into quarter. if half, morning, about relative more you good half quarter first start the color the was Hi, could and on the the bit costs? in particularly product I higher go and to the back should job we little wondering I a to margin for think guess how we

Richard F. Westenberger

in That the forward XXXX, are shipments Wholesale We quarter say, most Product cover bit might We've the had particularly do because we continuing. fourth going to be to relates to building expansion driving start the that's major so which the Susan. modest a going in bit injurious Kong. a gross the affect margins of to margins think mix. efficiencies some Hong us Those pricings, an in in under gross in blocks. expecting good that gross start believe that of rebound margins. business. planning We're are that quarter are get would issue for I in we as the margin, to it we to the are reverses fourth I sourcing largely benefit third looking business. don't costs quarter Sure, be fourth pressure very with spring quarter, the when little the we're That's for to probably good in we a higher trend more a year-over-year. Wholesale the think will still a we situation

Susan Anderson

these Us at kind for just guys I on consumers and think second liquidation are in follow-up complete, Bon-Ton. the Great, able back was that's see Toys a events to and – will it some be curtail into that like lift you've anything "R" do spending? sounds did last quarter seeing had afterwards, was so spending you Us been on "R" to lag seems benefit like the as there going on quantify And then actually liquidations curious, any is we and do thoughts if you you were there but stocked a look a think helpful. of Toys once It up then if question, you half?

Michael Dennis Casey

Yes, Mike. did. we it's Susan,

store fair there as was that stores closure some pull were assume it's forward demand think sales. going those to I through their of

at of year-over-year, XX% or "R" XX% We have they the and half the level first as visibility it the was Us portion, Toys sales liquidating into in probably inventory. some were of up

I sales. it's didn't benefit. we when even in delay. started of our And a forward. immediate have after were So closing, there store closed, pull an was we've There lift say bit the a little And see a then seen, the to some was we think see stores fair time stores to

I have we're the So loading was sales. with sales in the July. more our clearly stores August saw to store full start September assuming Most of been of loading in see in now more the of in brand had people closed I'd in those third – stores but up and all up quarter, sold later the in our we're meaningful product. already store June. a baskets other product seeing off, the were I Carter's lift people than was that we'll been say,

right weighing July now. is that bit our I a probably on performance so think And

Susan Anderson

that's so luck helpful. next quarter. much. Good Great, Thanks very

Michael Dennis Casey

you. Thank

Operator

Thank you.

Bank question comes with America. Heather of Our next Balsky from

Heather Balsky

Thank the hoping China. could, Good any provide I you was International touch and on guess, you Hi. business I my morning. for taking on question. update

know I'm that about last the to and had you strategy, just where You process? are revisiting in quarter talked curious

Michael Dennis Casey

Sure.

say the I'd making for year. not progress this China is had we So planned

context, to The Just a of to on is few to in of $XX mix needs China expected. we ago sales adult $XX about Alibaba's revisited. sales. apparel year, probably we lose million Tmall money to able as we of eCommerce the probably so in total of a about wholesale some transfer million $X.X billion we'll website. of in portion not $X million, With is And to our The have chose do apparel. store sales this to that say weighted on has is model I'd be been years business children's success initiative portion their some amount heavily business, some performing think, it not company, in losses and portion worth it put the that partner

we're better a exploring so model. And experience us to a That for for model more and alternative model us. an much provide profitable consumer enable the would

growing. So fragmented a name name It's next China our year. of plan get right very Carter's foundation and strengthened is – a the better market. now growth Still a players. recognition build objective is market; Brand attractive the small for beginning to very brand lots recognition

store are Managing now models of the a managing the an those have that an believe probably model apparel partner two Chinese businesses was baby both to eCommerce We there's managing – business us. the creates were differently, the absence flaw We to and consistent us. online say so we an a continue managing the for with business. in store having a our for brand we wholesale China that had was and one We in Better partner would model. believe it consumer's expectation. opportunity us strong model

more this or to year. later early that model have – year with share we'll So share – that creating next new you on progress,

Heather Balsky

to International, a you just for play FX And growth I still digit into it? year? mid-single Thank guess And with are regards you. this looking does how

Michael Dennis Casey

we'll if early this term digit envision And year, Sure. with more have for growth But us. will next Should good we mid-single not be you longer be year. business share still International to growth a better.

Richard F. Westenberger

the watching it. of are in the a the factor half, second so We watching That dollar. strengthening be we're could

Heather Balsky

Thank you.

Operator

Thank you.

comes compares Our XX% metrics? to between a store XX% range "R" Us. was you sales the Macquarie quarter; it Laurent last transfer think I rates from Inc. next in comment two question thanks that for closures, provide sales Toys the that to further of these for the variance are transfer clarity rate made Good guide (USA), XX% on Macquarie. Could with out on question. to morning, Capital Vasilescu taking called Vasilescu want I Laurent my - for follow-up

Brian J. Lynch

Vasilescu recapture the to Inc. we as hope now you're what of We're this we stores in Capital XXX year. is estimate of those some confusing own our XX% of million And Us closing stores. things. "R" to and over are to then closed stores stores, expected Macquarie have think adjacent markets. the their all transferring we to $XX portion our I sales (USA), on our Toys Us, we're – two "R" them sell closed And - saying of best $XX Laurent Toys our stores for outlet million has old –

it Okay. Thank in Hop's for great. rollout And should we Any any be on how update then the Skidaddle? overall stores, much on teens, And the be you growth very mid-teens? singles, high Hop low would context Skip of year. Canadian and rate introduction Skip Should about clarification. this the think

Brian J. Lynch

really got up And job significantly we're it is we've – Hop, strong model. The a of sales Skip in driving Yes, team innovation. multi-channel, this exploiting CRI multi-brand QX. good had planning this year. doing growth we We're

resources add real say with to and continue I'd just CRI where overview, strong. beneficial. We integrate is retail

growth international go over in our your small to-date, the have year as at in doing grow new bought through expanded a we've plan Skidaddle It distribution, product, key expansion We're with of this good our very and tourist and and good in-stores, sales have skiphop.com. Wholesale, year. international We Carter's point diaper as then like we do Canada, business a last to bags strong year. real which website. is well. channels growth TRU both our are We've UK. Canada In $XXX through from on sales in major expanded business. accounts. metropolitan Mexico. this and direct business expect largely was we to stores. in on retail to several million year. got particularly about stores we strong We do of add recapture and presence in got bath their planning And is distribution And Canada categories the We We've the distribution the the Walmart we discontinued but leveraging

our Skip Macquarie years. feel north of We double at rate of XX%. least growth be will Inc. - probably This year to next five good Hop strategy Vasilescu the the to Capital continue (USA), Laurent about

is year. I then And my spend incremental the marketing on on much. question very million the you last Thank great. for Okay, think, $XX of,

I think for the second quarter quarter, by it how about half? increase spend do in did million first How the think much we it XX-Q. the increased marketing back the per about in $X and

Richard F. Westenberger

marketing our not Macquarie is entire call in that - marketing investing we'd have to been a growing was Vasilescu Capital would Laurent of million Inc. the the earmarked on say, relates year-over-year. year-end $X from In total second We amount. portion I and million memory, faster (USA), about to quarter, marketing, the $XX that sales. up than

Okay. of Thank best and you luck. very much

Richard F. Westenberger

Thank you.

Operator

you. Thank

question Our from Cowen. Kernan comes with next John

Krista Zuber

Hi, this is Krista Zuber on John. of behalf

second levels year? little inventory questions, sorry quick for for two And us by circling your for target growth that a fiscal your the inventory segment? just bit expectations half through walk on mid-single target the you back you order the Just XXXX, I'm in inventory full to could characterize kind of digit in would hit how

Richard F. Westenberger

I'd say higher. inventory been a little has running

in I company. a view As from around programs been we mentioned, of we've timing the inventory bringing point the have support some bit of various to a earlier

initiatives kind rapid We in growth that new of mode. also of number have a are

of inventory our our our and comments is hand our Skip for own product. new hand few which demand. to have terrific Hop ago. assortment. with earmarked originally redeployed of across Us replenishment support core And got on Retail acquired I support wholesale that is other have is for that we bit that. inventory that to business available demand That's hand So on Joys different Simple last Bon-Ton. then on a That's Brian's inventory as brand Amazon model we be for That us, best channel. so hand to all a well we've "R" a would velocity its bit have a us. customers we little a largely we different was in That's minutes That's as a which growth. so channels rapidly It's growing to to business is inventory margin, and highest largely on growing say that's year baby experiencing Toys

fourth early be get the So inventory levels the very the in to strong quarter is and in think quarter, do moderate moderate. part the It line our at We moment. believe we of sales time We inventory projections. still they're the are a forward third with then by into more will elevated. of the bit elevated going the quality

Krista Zuber

seeing just competitive outside the the of any both then And it thanks. domestically on the environment. Great, as U.S. just you're much. you to update question particularly environment promotional one and relates so of Thank sort follow-up

Brian J. Lynch

promotional the think a QX the players specialty promotion little some little retailers some specialty I appear we've recently. would colder on promotions more I late, a that just of seen weather. heavy from the got some folks elevated environment, say some with have to do with inventory of And

think cadence That think introduce Easter overall business, comments, anymore consistent not as with in flavor, our in were competitors they were the last I the think a Our April our have promotion late but promotional new did Promotion fairly we've elevated helped recently. & a a we more our ran promotions But changes Friends But think to effective. Fun QX. We terms were in shift promotional of of trade to with we for last Family Cash And seen big I their I bit in tied was effectiveness little say may well. year. than comparable. last overall a levels was different would year. our that we some And that May my year, I

Krista Zuber

Thank you.

Operator

comments. time this back at closing Mr. for will Casey And it I to turn

Michael Dennis Casey

and in business. our you on very your forward your progress our you on morning. We Thank joining all Goodbye. call this Thank October. look much. appreciate updating for questions Okay. interest you us again the to We in

Operator

morning's Ladies that presentation. and this concludes gentlemen,

us your You you lines. for And morning. disconnect phone this may thank joining

Michael Dennis Casey	Carter's, Inc.
Richard F. Westenberger	Carter's, Inc.
Brian J. Lynch	Carter's, Inc.
Ike Boruchow	Wells Fargo Securities LLC
Anna Andreeva	Oppenheimer & Co., Inc.
Susan Anderson	B. Riley FBR, Inc.
Heather Balsky	Bank of America Merrill Lynch
Laurent Vasilescu	Macquarie Capital (NYSE:USA), Inc.
Krista Zuber	Cowen & Co. LLC

Carter's (CRI) 26 Jul 182018 Q2 Earnings call transcript