CRI - Earnings call transcript Q2 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to Carter's Second Quarter 2019 Earnings Conference Call.

On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; Sean McHugh, Vice President and Treasurer.

After today’s prepared remarks, we will take questions as time allows. Carter's issued its second quarter 2019 earnings press release earlier this morning. A copy of the release and presentation material for today's call have been posted on the Investor Relations section of the company's website at ir.carters.com.

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

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

turn I call Please would Mr. Casey. to ahead, now to like go over sir. the And

Michael Casey

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

website, thoughts Before on presentation we to our with you. like you business some through walk our I'd share the on

sales the exceeded call. we you last and with that We our on earnings goals shared

the were quarter sales Retail Wholesale model our and was in year China. by reflected driven International our for in than change bit segments. and lower a growth last Our

second better Our control quarter strength in product the offerings, the profitability spending. our price of good and realization reflects over

saw good The weather spring-like in benefits a quarter double-digit Easter second up comparable XX%. got the in transition off the retail growth April to more with many We start. combined holiday country. had We mid to sales of sales of and a in late parts

driven offerings. to over also growth month the summer demand last July good a launch sales May and expected to strong start in of by a we July the product and store sales was with our the we June, of off As comp Xth of largest got holiday. good year the quarter comparison had tougher

Carter's for second end X% our of with and reflects in at our comparable demand Retail essentials quarter growth the good forecast everyday including for Baby core providing launches the our Little In to of the X% segment families Basics, was brand our new children. sales product the high newborn component

of Easter The higher we the bit in than holiday. in expected the last which the given were shift level year promotions quarter

see stores. the source in We growth our continue co-branded comparable and strongest sales to mall-based

Given performance, this trend markets, multiyear plan in more the opening stores in stores store continue of positive locations to our enclosing improving we outlet leases underperforming co-branded expire. populated as densely stand-alone mix by

Gymboree the earlier you a sales. in with closure we this during their in lift our nice shared we co-located stores As sales saw store with year outlet

sales was in now are seeing the has in a We segment. largest non-outlet our Gymboree closed. age in product of component Gymboree's offering lift store the Toddler centers Historically, where

billion has nearest of $X the largest market the apparel Carter's competitor. the toddler twice our share share share XX% with of

are in the Gymboree this strength former our we Given believe market, to portion store sales. capture we share well-positioned a meaningful of the of

in mall shared this with you that the closures XXX plan co-branded we provide years. locations year, new believe we five pursue over million we to the stores As $XXX opportunity opportunity To year, growth a for us. beginning earlier open this next Gymboree

brands shopping driver centers reflects plan declining in to plan our from pursue improve apparel. is of multiyear store away malls apparel children's the traffic we that for opportunities. order two better Children's young very a outlet mall This to convenience the to evolution selectively and in best-known

shopping international e-commerce demand website. good quarter consumers. in the growth lower demand driven on partially from our from growth in consumers was a sales U.S. our offset by U.S. saw That We by

sales and locations rates on demand double-digit stabilization believe in expecting international second e-commerce our the forecast balance from a in and Based has of in stronger both We exchange for of the are our year. half store the weighed on brands the guests dollar international for demand we growth tourist in online.

In every new other recent launched purchases. free e-commerce orders. on things among us enabled same-day offers After in e-commerce which to service, shipping we've which for offer recently made year, years, day a we pickup significant technology, extensive have investments testing last

e-commerce couple a can we text located them to in pickup of available purchase customers order, Many with purchase Within is new hours their our home. after this very their of visit. sales an now planned. let online those our additional been store trending to order close response their for customers better picking made positive has to up their service during than The know

our to enabled investments temporarily stock, recent complete make the a If to Other of transaction then can the product their shopping is product we for home in the at our stores. some free. in have reason ship store of to meet scope consumer's for directly customers available us years store and online offering the needs, full our out

largest have children's Maine on from United States We to the in chain the stores specialty focused of young apparel Hawaii.

plan improve orders. meet shipping new and with to launch and of to which to this of a the Collectively, e-commerce enable we new improve the half for second the these more capabilities us, convenience speed omni-channel capability the To lower cost this drive e-commerce we will serve our delivery stores expectations increasing traffic the in expect our will to fulfill shopping orders, year, and customers. stores our free e-commerce fast

an the second card improve provide a private label quarter, experience to program. us loyalty credit shopping with customers our the further we enhanced in with To launched

Over increase the connection determined card may and and the benefits the the increase it to the past deepen credit frequency of customers, value program potential our that evaluated year, visits lifetime with the we relationship. a related of

And all new earn receive faster sales events. notice free this advance impact our of card credit encouraging. our performance. and rewards this The from double card become will response June as highlight on launch early purchases, is we things to points other more will benefits from on its meaningful, shipping Among the customers service

Wholesale in good in the growth had to second and respect our With business, sales quarter. we profitability

with brands for We Target, exclusive an acceleration Walmart Amazon. see our and continue to demand in

apparel. the with Target to young OshKosh flagship in Over a brand to our of children's we've market places the worked past mom's of two year, and Target target.com presence shop strengthen stores B'gosh plan on for favorite

Target launched planning B'gosh we beginning in XXX with brand is XXXX. with Selling to-date OshKosh April, expectations. in doors. doors expansion X,XXX our spring In over Target We're to exceeding over

For of with have have best quality to strong value a proposition apparel great likely been the their shopping and for see generations of children's young States. retailers known price. great our brands in ourselves children's enduring presentation you're consider at you'll apparel, young We a relationships for the strong fortunate our deep brands. Wherever United

more baby exceptionally sleepwear other young believe job company with very we playwear our Kohl's over our across has children's best Among locations brand the has good XX,XXX strong done others, With a in presentation brand than categories into store product their Carter's and presenting the heading us the brands season. to an families apparel. in any the of back-to-school to our enabled extend retail support reach distribution of our

for children's change with in Carter's our best-selling next customers, in China. model online our lower brand bit is $X our billion exceed consumer to related expect the business, wholesale the the quarter purchases in e-commerce we young were a in In the due market. year. sales of brands business to apparel International Together $X billion our

market new children's relationship us new building with demonstrated in our This on with Our partner has a full focused enabled successful model our has expertise, this has licensing for a de-risk entry previous business partner retail Tmall. to important who assumed apparel responsibility into China.

new As progress you. we'll share evolves, with more business their this model of

quarter in negative and of Canada is slightly successful second built was had more the year. last largest second growth weather. spring and the multichannel like Its online offering We model are we've component in geared the good business. sales Mexico. in to We United quarter than in cold sales attributed our States store the weather, which We International persistent expected. good arrived growth to replicate Canada. product comparable Mexico Its had to comps plan to later

plan the four co-branded half open In after modeled this model. we Mexico U.S. stores in our year, best-performing store second to

States end to also the in Mexico in e-commerce United the From perspective use in was to the the children's of our terms apparel behind We several year. market years e-commerce launch Mexico for purchases. of relative broad plan by capabilities

a in build of online With small we consumers investment database and more good customers begin relatively to with connect Mexico. can a

growth partners retailers including second beautiful families Costco Amazon young of These Walmart, and doing in good brands countries. now the had children in are We a good XX quarter. over wholesale also International our to job with presenting our

With respect supply chain team the helped four our List mitigate us to performance has of potential our sourcing tariffs. impact

an of products last on to about from estimated the accelerated million Since, you our States. United we receipt China call tariffs to annual have to $XXX exposure unmitigated the basis. Our those was be with

China, List year to if less developed expected China sourced products from further are from four reduced our last and production imposed. reduce suppliers in the XX% if of price have than negotiated year tariffs plan our a this concessions We mix needed to XX%

more reduced on needed suppliers fully to exposure the clear effect that would to to additional price who threatened weighed possible. cost may an done than in have years. abundant exceptionally has been over job at us for reduced absorb and efforts be Given threat this of have us lining has the meaningfully be the our in objectives XX our product China tariffs of on our that higher disruption tariffs level would silver It to The is good increases the of costs. capacity imports these China otherwise past

XXXX. has you year Cotton negotiated in last lower oil with Since our we labor spring and call our prices are are last and than driver product is for product reaction for costs capacity costs higher. But China imports to of favorable lower have our the enabled tariffs in XXXX. more and costs significant a more on manufacturing market's outlook experience costs the product

believe tariffs exposure prepared but and imposed. on we mitigate business well respond is our fluid if impact a the tariff additional are situation, The to are we

half for outlook the second sales reaffirming first previous for earnings our growth half this we Given are our and year. performance and plans

in Wholesale each low Retail, second our of International expect growth the half. single-digit We in segments and

we XX from expected to mall Gymboree new co-branded store over mix stores fewer underperforming including to Our which Retail have were business closed former And a of capture the stores stores sales. higher benefit year. will past is

our this the checkout of presentation meaningfully improving experience. capabilities are websites We search our enhancing and offerings, product summer

Wholesale, also we're on continued exclusive this our age forecasting our Canada capabilities in to trends business brand momentum in sales sales Mexico. and in comparison in see better progress year benefit in including product to and offering our In based continued holiday Day an And omni-channel toddler improvements year. its demand International product greater We expect we offerings. easier expect last our Labor from to for new

are pricing with spending. discretionary second initiatives product inventory the and strength progress at position, good offerings, rate our earnings fall a half, In forecasted the given faster over our of control a than sales grow in continued to holiday

better forecasting the in Skip contribution for also second China Amazon, are half. and We earnings Mexico Hop,

more shifted more quarter. has As we've years, model seen weighted direct the and to the over to result our consumer a is to growth business our as fourth

Over year the to quarter of ability past the three largest year. our or performance believe we that X% the sales and we years, grow in have we've level this resources by enable and again to managed more of

us our helped first I in who throughout would achieve company like thank our forecasts employees to the the half.

support, be year sales we profitability. record their another will of expect With XXXX and

Richard you website. presentation through our will on the now walk

Richard Westenberger

with Thank X GAAP page you, Good Mike. second quarter. the statement morning everyone. income for begin on I'll our

results quarter which in half release in items, today. are included some the reported our Our unusual first and second press detailed

results basis speak excludes earnings this items results. basis comparability. basis, to adjusted which as release greater evaluate mostly on our provide will we and our our adjusted morning Please for an to review results you information reconciliations presentation. presentation unusual GAAP of of Today's the these This

and Wholesale per to in some Retail growth good Consolidated U.S. nearly comparable quarter. second with growth Profitability nicely sales increased businesses. our strong X% U.S. grew net quarter Moving the earnings driven year-over-year with up XX%. X operating with share over XX% income Retail for over in U.S. up the highlights and by adjusted of X%. page were sales adjusted

million, Turning the second adjusted for sales last year. to nearly Net were our on P&L X. page up quarter $XXX X.X% versus

our were million. headwind reducing net by the a modest in Foreign currency approximately quarter rate exchange $X sales movements

International in growth. sales part Our segment both U.S. solid due segments Wholesale to movements. U.S. declined recorded line Retail currency and modestly top

U.S. margin individual detail moment. last down more benefited our in about provisions XX pressured cover results inventory a segment points margin not quarter. the because customer also in lower Gross but Wholesale the in actions basis compared changes fully impact within from higher was than e-commerce total costs did product was the declined I'll year, of Gross of higher cover to year. to shipping channel. pricing Gross XX%, in within last margin in due costs and mix our

the over well last points controlled grew X% quarter. leverage in during XXX year. Adjusted SG&A Expenses achieving were basis

also place spending expected in quarter the had as some favorable We some timing later in take now year. planned SG&A second to is

operating basis expansion income operating in with margin. adjusted grew Our a adjusted point XX% XX

second offset $X comparable to Below was senior expense foreign notes. market net the last Lower higher expense our other quarter at million. the interest related and interest interest rates line, to year and higher refinancing currency losses of

quarter XX.X% to Our tax result certain rate effective last second tax to year, the of recent of XXXX a of legislation. aspects compared principally decreased XX.X% clarifications reform

we're For at to rate effective the XXXX approximately be our comparable expecting XX%. tax full-year, largely to

Our average to use for our count the declined share X% capital year, reflecting of last compared share of repurchases. benefit

bottom quarter up $X.XX, to was XX% second line, $X.XX EPS So last adjusted on the compared year.

margin and the e-commerce gross EPS half the and first sales declined of our results. was well was X%. in Spending total This summarizes half the in mix and U.S. higher adjusted customer Wholesale first very approximately in half adjusted comparable year. in costs half year's shipping last X% X Page controlled reduced to year. Changes net first grew within first

Turning a sheet of to our page balance cash X, flow. and recap with

Our Net second balance cash compared our totaled quarter, million. the strong. credit $XXX of at continue X% consistent quarter our capacity year, inventories be sheet end prior the of hand available our the and second facility At and under on the liquidity end approximately last to forecast. with grew to

liquidation improvement the quarter with inventory our excess in a in ended meaningful levels Babies"R"Us. A last we to We year were position due with of ago, versus the inventory, year. higher working unplanned part of excess

of increases inventories in the for forecasting quarters remaining XXXX. in each net mid-single-digit are We

cash flow million, the last Operating roughly to year. half first $XXX was comparable in

were XXXX, fiscal stores expenditures remodeled spending of information we're of million, Capital range forecasting cash $XX in investments the and strong the For operating new half most $XXX initiatives. and to related to the million flow million. technology $XXX first in in

to $XX investment up refreshing retail in including website of year $XX year enterprise and initiatives. the about e-commerce our other good million, over The relates another investments with forecasting around last retail business, year. stores, CapEx million full We're in forecasted increase and experience technology, technology

half, Since to billion returned million returned repurchases our of $X million first comprised share in $XX $XXX a of and XXXX, In we shareholders. to we've $XX total the nearly shareholders, million in dividends.

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

Our business in segment consolidated additional moment. up was detail second for quarter. Each segments achieved reference second basis over We've included improved your I'll our margins of the adjusted quarter our a results XX business page margin segment points some operating for our XX. X.X%, the last year. in provide results on first half on

results the shift page benefited that quarter Normalizing the second the U.S. QX the up about the sales business in approximately shift to U.S. sales X%. Total Retail Turning by Easter grew second were We period quarter. over points. March-April the comparable grew time calendar comps for X% Total for estimate X.X%. in X XX. Easter, on in comps segment Retail combined

opened in closed XX, nine States. the first XXX with portfolio. we stores half, quarter We the optimizing store stores the United new ending continue our to progress in make In and

approximately year, open full plan the we new XX For stores. to

a will first close XX, this likely beyond year handful in which the we stores additional We the disclosed half. of

recent our mall experience, second with types co-branded best-performing were Consistent quarter chain our both average. the comping and store meaningfully stores better with than in

capabilities. omni-channel customer's to us, We with good our also and to experience improve initiatives make progress to our enhance when our shopping continued with

our fulfillment ahead capability, been of Our Customer with online this now buy our running same-day customers forecast. their nationwide. of has pickup is service response provides adoption good, available with which in store orders rates to in-store online

directly will later retail orders pilot our fulfillment from of Lastly, stores. we the year this online

leverage Georgia, times distribution center to customers productivity. better for store away increase is e-commerce furthest our and inventory shorten from delivery in here our objective Our

margin U.S. Retail and leverage. points last the was growth an strong quarter, reflects improvement of in performance second the This XX second basis segment XX.X% also sales over year. expense quarter

For expansion. full low Retail in net margin single planning segment sales U.S. year operating grow with XXXX, we're to along digits the

very photo we Performance of a we've the X,XXX-square May in in new store, store This a XX, mall foot has is store. page Galleria. former been co-branded On strong. included to-date Houston opened OshKosh a which

existing happen we Galleria, the have to store. outside Just an Carter's

So mall far evaluate the opening this not by the seen we've we inside We're mall. additional stores. of location this store new from encouraged cannibalization as

and On This our of our baby presentation apparel, items intended blankets. baby in included support new a assortment in bringing Little this beauty the essentials of the together XX, of showcase as of year's new core baby as related Basics page calling we've Baby U.S. toys we're is plush our launch retail and such to gifting while in and picture product a stores experience, created was it,

these the the since of in which with presentation that We've clear seen competitors. was nearly of rolled new this of believe performance as market nice our our category position in and leader, lift our new a the market out. X accessories, strengthens this We XX% apparel share baby related baby nearest presentation is times

XX we've forward of about discussed. new some look On program. our this has time. We're Mike with card to summarized details which over potential it you about label new credit private the excited more of page sharing And

our On Carter's to particularly on Facebook the brands page continue key sites such way XX, media customer social lead in Instagram. and as, engagement

presenting teams products merchandising social extraordinarily and consumers engaging our media. marketing well with across and Our and collaborate

marketing introduced share a showcase Carter's through season Getting and for market and on ago. shopping kid which XX we successfully the Pages pages the Carter's a have big product of included to Carter's and we where and some XX, toddler XX back-to-school our category Oshkosh. closer we've product, year back-to-school XX leading

denim about are Oshkosh the iconic heritage highlighting of brand. Pages this XX and XX all

code dress requirements. as meet As uniform serve are families which new product who offerings and well school to looking

corresponding a features season. products including character Hop our Zoo Skip kids, and on brand products. The for Page focused is character XX, backpacks successful mealtime back-to-school having strong also

business year. our saw Wholesale the had U.S. quarter performance demand sales results Turning we second strong spring with products. we the U.S. XX, summer up a for a strong seasonal very page quarter in over last and with to X% quarter, in In Wholesale the over-the-counter and for

in Continuing Segment experienced last $XX brands, our $XX first exclusive strong Target, the to demand million we the quarter and profit quarter compared to million XX% available second for Amazon. trend operating grew from the year. Walmart at on

in lower reflects improved somewhat basis and marketing customer margin XX.X%. margin These spend performance mix inventory benefits expense. by and bad provisions, operating This were by Segment points to changes XX lower debt royalty income. offset

We our including improving performance areas our to presentation several penetration supporting store age business, in continue our growth of retailers. U.S. key of e-commerce on drive older growing our with these Wholesale customer's to the the focus of brands, and assortments

XXXX, margin For year our single we of operating expect in growth earnings to U.S. line low at year, with comparable XX%. Wholesale an business roughly digit top approximately last full

Page partners. the of shops productivity higher drive good brand. This brand and is example in one XX, Carter's at invest new wholesale our This with shows Carter's to to commitment and the strength our of imagery designed beauty is brand and presentation Kohl's. our picturing to a to highlight

very quarter. to third have And shops to out in been the date at Kohl's planning Results Carter's roll positive. additional we're

to at XX, as page induction Turning brand Mike mentioned, the Oshkosh recent of Target. our

And element in early We're capturing believe And this an initiative. us of of former grow our space. will opportunity. be business another encouraged for be good sales the opportunity by to store the the Gymboree toddler results will

constant second basis reported international were comparable an currency declined quarter, on basis. for on segment page results X% sales to the net and Moving segment a International a XX, roughly

growing comp X%. online in below E-commerce sales retail But our with total increased Canada, overall sales was demand strong retail sales In XX%. Canada over expectations. were

which in market. believe traffic reflecting declined, we comps the weather cold lower was persistent by influenced this Store store

perform Our business to well. in Mexico continues

in sales It net Retail performance and the channels. over quarter was very grew Wholesale both XX%. Second good

comparable to just up we're $X our As proven larger model at in store in year said, replicating store and Mexico, co-branded International million. first about our last was segment which Canada. U.S. income so adjusted successful has Mike open the operating to

absence points Canada. contribution in losses China from X.X% basis improved of reflecting, the Segment operating a offset margin to by XX by lower

profitability. we XXXX, net year last our will year full to For segment International with in improved expect comparable sales, be

This XX Pages expanding component XX is our XX our partners International footprint over through operating of with comprised countries. global partners. XX of business International highlight in our approximately

Argentina pages partner consumer Russia. Carter's in international us help store locations as These profitably relationships on show markets The for meet important brands demand are and to they these photos America. beyond North in the ever our to first us, India,

locations partners Selectively, retail over our the international world. operate XXX currently around

are Walmart Costco Our in additional and States. of available brands X,XXX locations outside also retail United the over store

the fourth Moving meaningful XX, year past delivering our in those summarized both now delivered and it's believe strong earnings. in drive to page plan strong We've list, half some growth which with we're half, beginning quarters long over a will focused net second second our outlook we build particular here believe supports sales for on which we a the on second of factors, on good of the our years. and halves performance the few in to that the we've balance and

forecasting In specific third XX, U.S. expect our international in on full to we're approximately the our single retail page business. sales low plans terms QX comps comparable X%, business sales our in and for of and quarter digit net for increase year we

quarter. our to very U.S. in in down growth planned the fourth the planning low wholesale business U.S. due shipments. single in We're of digits, sales Sales wholesale the timing good largely are

outlook gross approximately third of to expansion margin increase in We share to $X.XX and adjusted last year. expect over adjusted year. earnings EPS per last This X% SG&A compared modest quarter growth to X%, reflects

For full year XXXX, today we're previous reaffirming guidance. our

and net per to share earnings adjusted sales we're approximately approximately of good X% of of And flow We generation. another growth cash growth expecting X% X% to year expect X%.

and the we're international businesses, States Risks strategies, and our level between wholesale United China. success negotiations of the include our pricing status consumer trade the the performance U.S. marketing our of and monitoring demand the of in customers retail of

remarks, take now. ready to with these And we're questions your

Operator

from Balsky America. first Our of Instructions] with [Operator comes you. Bank Heather Thank question

Heather Balsky

more you. your environment? the promotional liquidations hoping I competition, environment guess guess you're rational players see this past about just if that talk was you closures start, the Gymboree I Thank right how now, in and you I do now to and especially

Michael Casey

what had May bit I'd of holiday and many promotions event. returned the a say higher, month in tough with in a a May so weather second think typically promotions generally retailers, generally cooler are say you're the because we post-holiday were was and later lull came line a this for in quarter in a the bit Easter May. promotions expected. year were when I'd higher I

June for us Promotions than I comparable us our was inventories two promotions lower the -- the previous second a we quality And are the promotions markets, say of lower for year-over-year, the the half will year-over-year. particularly lot the were good. but a months. expect in Still be June in of in largely function noise inventory. would of

Our inventories are in good shape.

good of second half comparable level expecting of we and the year So heading a year-over-year. we're feel into promotions the

Heather Balsky

just feel health inventory you follow-up terms of do the guess partners. in about now? wholesale a I of your that And How right

Michael Casey

very We're good. good Very shape. good. in It's

Heather Balsky

Okay. the And which SG&A one you follow-up, is last shift, help that? could quantify

Richard Westenberger

into Sure. quarter. half second we will the it second from shift It around million, $X million probably believe $X or was

Heather Balsky

Great. Thank much. very you

Michael Casey

You're welcome.

Operator

you. Thank

next Our question from with Citi. Paul comes Lejuez

Paul Lejuez

on And versus on maybe retail, you you if quantify that on the wholesale? bit Curious changes process versus channel, I'm year-over-year what's scenes basis retail a about retail guys. little wondering saw by by the Hey line? a gross both wholesale and can about talk behind wholesale, margin you if more going gross curious could Thanks. specifically, the margin -- channel the

Richard Westenberger

was it So points that. drivers I'll to a of we business. that there know as down don't XX it basis speak about I number to were mentioned, by Consolidated

lower brands, part shift within U.S. that wholesale growth the have due wholesale business. the mix We the good an terrific We are the exclusive margin for we're we strong as ongoing front. continue is X% on to which demand It's gross the margin to and seeing business bit a in it's from but just operating collectively a business a quarter. very us, margin had gross said lower in

also strong. margins were Retail

We gross more business growth coming us. the see timing an in market. year-to-date. we've continue off-price a issue the That's margin for gets which e-commerce, had second when than quarter from is a the channel Probably activity had of more in to that product of liquidated bit very

for margin I'd good. gross say outlook the is

a We shape. a bought in is second conservatively more very driving inventory number planning of to the the Mike margin the second through for We things are the half. think of position our went number in gross half. We half expansion great drivers. inventory retail There's channel that. second

the that We will off-price activity for than channel less a ago. that think channel, be of think wholesale I we important that our will in be us. do clearance had year

So, I think the we're margin gross good the outlook for in consolidated and expansion half. planning second is

Paul Lejuez

mentioned, Got can for you you. you And you of spring out quantify think both prices XXXX. way to look us? Any then that as I

Michael Casey

product product is Lower single-digit cost. And low spring XXXX. cost decrease expected for

Paul Lejuez

That side singles? see down you low as

Michael Casey

Correct.

Paul Lejuez

you. you. luck, guys. Got Good Thank

Michael Casey

Thanks very much.

Operator

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

Susan Anderson

should be out third in quarter. the was quarter, think Hi. in you I fully job on Good rolled had - morning. in place if it Nice wondering I you so quarter. think I pricing second said that

benefit good date? could say Maybe So, is stores are a margin. I'm to thoughts then, I comping better around start. give quarter you think gross you assuming off a said you your And July if to Did that. what your on

Brian Lynch

Two questions.

pricing, the yes. On

actions commented The action are we the than half. in cover second not more some increases, to we in We cover pricing we -- did We that. second we half. fulsome, were the more had those the first pricing what expect strategic the our in we good had feel cost as increases and cost -- took the think I realized totally about half pricing. more

Michael Casey

date. quarter third -- comps the And

with But positive very We typically important of comps that high July holiday, the we've comps single-digit in third markets quarter. the to strong lull running a for post-holiday heat-wave currently some start. the given in we're off The and as of Xth over third had got a quarter weeks, recent together you that see back.

Susan Anderson

there. be getting I Us we how another I That's the of growth the due timing, trying the from to on versus a And look the "R" to second should guess benefit much replenishment upside in, and greater Wholesale was was I I the there. the guys quarter guess that And guess as timing the negative helpful. Great. being gone. in of Toys just question I then to factor shift? pressure third out quarter, guess because you then,

benefit So that? how get offset I much should guess you of to a Thanks.

Brian Lynch

level. high speak I'll

I think first business. we single-digits feel good half. the about the low We're Wholesale in up

to half. playing in retailers would conservatively, their same brand. have been more second We Carter's the be the I particularly the expect say business in

Our have replenishment businesses strong. very been

the brands been about talked business has that surging. we So three exclusive

times Prime Our Prime good We of our demand accounts were Day. very are And most really sales meaningfully. Day business own Retail growing up all our Day. business strong. really Simple X Amazon think saw that the is rapidly. I during And and Joy year surge success, noteworthy with Prime it's also on last sales had brands of

business, upfront So, and we're Basics have been would optimistic our business the driven our replenishment has Skip but exclusive about with more and brands been in the conservative with businesses by forward. bookings the Baby businesses business Hop say and our going I Little

Susan Anderson

Thanks helpful. much. very luck so Good That’s Great. quarter. next

Brian Lynch

you. Thank

Operator

Our Boruchow question next Fargo. comes from with Wells Ike

Ike Boruchow

a Congrats good on quarter.

off the into you're the rest kind sales, can we good quarter? a shift of you of margins. the start, what as Obviously XX% sounds timing on down have like, And half, on Wholesale, you to third is expecting on get Just follow-up discuss guys back July lapping a just week-end. I Day think impacting the a can XQ? And we're then quick Labor I quantify but

Richard Westenberger

half. in forecasting that that relates of as and low move low in QX forecasting, single-digit. International. off-price it relates said, sales we the say we sales as we're in comparable to up We're through normalizes I'd growth shift as QX the Wholesale a bit Retail Well, single-digit activity timing second down channel most

fourth So, that's quarter very now. the in on delivering focused right good and we're growth what planned

Ike Boruchow

more you can Okay. similar half? margins, SG&A? XQ? we million off of on be And Is And the expecting levels in $X is line of what into for into gross quarter? the Should margins marketing detail on that go $X the shift cadence item back then, on on then million improvement or what SG&A that to each

Richard Westenberger

are in deferred technology like first some now second was from the a few second those Certainly, hiring shifting it's items. more take to spend of some just in half. the that say, which some an into Other I'd place will SG&A, the move planning On half. original half would areas felt we marketing it projects be opportunity

In terms QX I'd we QX and in points expansion margin in comparable of roughly terms are gross of year-over-year. it's gross planning and margin, say both basis

Ike Boruchow

helpful. Thanks that's Okay, guys.

Operator

Saad ISI. Omar from from comes question Evercore next Our

Omar Saad

channel the you. you're could in the especially questions opening I upon question. get deeper. that channel wanted expand What maybe bit you sounds estate. dive liquidation? like that but also one on seeing mall to a deemphasizing couple Gymboree you closing strategy. It stores. of outlets Thanks Maybe post to you're real for taking Thank Mike in little the a Number

been? adoption then you're the And you how ask board the across it's it how long also BOPUS it is What universal wanted rolled that to Maybe rate? the about many initiative out in seeing you've mentioned. I kind about talk stores of

the to mail? have consumers And since get it then buy maybe you any to and in in you're think choosing stores free if you offer especially you thoughts Thanks. opposed shipping, are guys as on why pickup online

Michael Casey

Yes.

strategy refer we're like this we out on probably to store those long a the outlet machines, years history is ATM is real So, stores, strategy, had and the most ago a outlets. again, used XX-year years like outlet highly our estate profitable. wholesaler to ago, we wholesalers as The outlet In of stores. evolving

apparel malls away the malls, of good were But arisen. strip more economics new to And Then strip outlets of has we had bought opportunities model we exiting open strip the with only knowing more people that because felt stayed us. And stores, centers have in same that about changed -- centers of we've to the started market very attractive. only from like because the centers. in success X% kids in the is outlet centers strip always

weren't their shared locations economics I some of year area when demographics a you with children and of close XXX about young mall attractive this decided weren't families probably XX% to variety with portion or or a lot edited meaning it of co-tenancy for all the did they there that Gymboree team But the was attractive, mall. of consideration. our identify of were we a were earlier out that in centers the estate there weak worthy very X,XXX not of mall them doors, good job evaluating think either real they reasons did

into leaning we're So, it.

the us see economics more the are they apparel because reached to largely it's to is that attractive. The out have centers. mall And owners driver traffic children's a

of a co-branding this given that a that lift Galleria. without you Richard -- has a the outside just Galleria Houston so beautiful meaningful outside cannibalizing just store picture just a an And showed morning existing Houston store store store located located Carter's

the XX They're stores better open already store We of performing in year. and have we in actually than this co-branded about mall probably it so today. stores mall our And strip up balance XX centers. best-performing our stores

little possible. of up We'll path we've opening to bit stores. of more XX got XX good up those we'll visibility if continue open down portion XXX to some of this a go are what So, is

these million year. stores average a on do And $X

new mall in Gymboree about I this Retail envision But gave plan did store would business that's on closures say think to did earlier million reason So, differently a us year. that the our a $XXX not opportunity the we not opportunity.

on about You comment want Brian you do open that? -- asked BOPUS, to

Brian Lynch

Yes.

talk same-day BOPUS about up. the We've and were On our shipped popular. chose in of our the those by been we'll got BOPUS initiatives to omni-channel customer XX% the where pick second about and pickup. stores quarter orders online swing to has

that think unlike and to runs for item consumers else when at news purchase as about were a the something she they so it's think target That chose folks not win actually those in store store, and I a the looks she's of chain-wide. for up running the we quarter she's out in us. is when The of that picked things. when convenience those other of another good errands is doing

same-day is The be at online. she the rolled pickup the puts order And available to really QX. that's picked of nationwide The then that speed. end has rollout customer out two up just after and order response as the was she plan about also the places as been after -- above we and little order a in hours

folks some the and it that house stores. We've to got store. think things customers shipped some number of a only two-thirds So, our of want I still in different the want it shop to shipped

to experiences So, our really the deliver results I we good the within forward. going omni-channel expect totality think what is initiatives of retail

Michael Casey

hours Good within you if the up and after -- of like it it by shopping can also at up convenience home. you couple just have the of if convenience a could Within pick what they ordering, of you a like question pick get hours home. need. And you and gratification. stores instant have then you swing Yeah. opt People shipped our to why to people the couple your love

stores go looking so to children's are the in So, best apparel, stores. stores our people to those like

Omar Saad

Perfect. Mike. Thanks,

Michael Casey

Thanks, Omar.

Operator

Our next with question Crespi comes Chartier from Hardt. Monness Jim

Jim Chartier

Good Thanks guys. morning, for questions. taking my

to Day circle So, Labor I last first, to of kind back wanted year. just

two think said and kind the impacts. were weather of biggest marketing I you

you So, the done have more now to make on the to anything aware assortment it to the front, weather guys product limit impact?

marketing, the will year-to-date the have Day on you Labor anything make this year that differently then done confidence that work? gives And changes Thanks. you'll you for

Michael Casey

Yeah.

with Day, we XXXX to Labor Labor last Day And broke. year. Labor respect recall, got So, cool as over I clobbered Day weather

warm XXXX. brands unusual business surge for By Day was Day so our comparison, an and our So, demand over over in Labor tougher. weather was had unusually we XXXX Labor

our in biggest quarter year. So third weakness last was the that

it's weather, early our to product that to hard have there period. done a to it's responsive patterns -- offering weather first-class your question designers sure predict And our is never fall ideal. more is our merchants, job, But making the that in

and what choices, short season. are highly for looking pant, sleeve have So, more many so consumers in wear-now we earlier responsive to the short

meaningfully forecast. first-class season job, are marketing, year. done I we're always adjustments Day both the our this teams a transitions But offering difficult making that Labor product so expecting have a and holiday think better Seasonal to the

holiday. And second-largest we Day shared I the Labor us think with is you for

to only Second the Christmas holiday.

the kind XXXX good have update October, by is you of very So, up we in again read what to on we'll year be. time it's a shaping a meaningful --

Jim Chartier

Okay. ultimately by driver. of orders? ship stores? shipping then do time how the can -- What's expect will And store, time stores were the percentage current fulfilled And you on e-comm -- And reduce do by on those what fulfilled then what to? the think that is sales on as they're you then biggest be the you

Michael Casey

Yeah.

been or have aisle. be capabilities significant these e-commerce of next So, pick portion taken place, XX% in omni-channel store online all wonderful year some the here that our or call it in buy couple endless a of hours, either high of We're view of the of buy one put will technology. within with to and shipment capability investments online customers up we of advantage forecasting what

home the it and if you from have then And new size store, need, your you're beautiful don't ship So we'll see you you store for in something the up that we we'll in fulfilled free. and the store. to capability ring

some advantage new probably e-commerce envision of we our take portion XX% capabilities. orders So will about of those of

Jim Chartier

Great. And then the just last question.

the profitability You in mentioned of or mall-based that Thanks. best-performing. well? your are terms comping that Is stores best as stores

Michael Casey

but comps profits The richest. as the from comps, is not stores, contribution well. but rich have the are other been the The the four-wall dissimilar

Jim Chartier

Thank luck. and of Great. best you

Michael Casey

much. very Thanks

Operator

Our Marotta Steve next Associates. with King question L & from comes C

Steve Marotta

asked why on a and line and you that answered. questions business will think was begin when down Good line? Most a it my impact morning, the been positive And model that permanent will about have of everybody. income Talk royalty have little change, year-over-year? that bit China to

Richard Westenberger

consistent year, the it are royalty arrangement. are categories of from legacy replacing in in-sourced are some largely those We've and income, the a that a in of with last a quarter, down the margin view. A was introduction mentioned to things. drivers. but line, two royalty which income the royalty also the of point they biggest Steve, detrimental On is sales say couple accretive I'd so at forecast. was We Oshkosh Target, program Target of modestly, more our with that

Michael Casey

tell. expect I next -- couple China, over will the It's on We're will of They're that Costco vip.com. And with They're thrilled Yeah. They're the doing be royalties meaningful Carter's few the we They time on don't Carter's days, stabilizing the China job, They the launched from partner. don't early new ready China just and first-class Costco. a to opportunity. next brand with improving with working launch are thrilled with Tmall the month. business. years.

show our to other wholesalers. China appeal pursuing presenting as brands at They're opportunities Walmart a to with they're trade

And is stores say would early year, I as and come this year. the on But early e-commerce days. may focus next it's on so And as then wholesale.

terms in you. with that activity As and share we'll it becomes meaningful of contribution more

Steve Marotta

you. Very helpful Thank

Michael Casey

You’re welcome.

Operator

Our Research. next Macquarie Laurent Vasilescu question comes with from

Laurent Vasilescu

for Thanks morning. Good my taking question.

us or given to but out XQ you here, dead the we can with this can remind July called our start comp of some back Xth year July as a September August beat and And and in factor pullback then how July, to Sorry with performed strong then last estimates? remainder. for a horse so

single-digit mid think we July So a more like comp? was that

Michael Casey

early a too we'll on -- X% expecting the we to say what And going what it's to be, know Well, today think that's we possible. comp based we're to X% for July quarter. is but

Brian Lynch

July question we And had to we your a August comparable negative in and comp had answer last in in slightly a year September. X.X% our business

quarter we year a for last X.X% the So at comp. finished

Laurent Vasilescu

us the your on Very appreciated. be between that. initiative, dollar helpful. of And how quarters? prior parse exclusive out follow-up percent would you on Thank shift question contribution very for the And you great then can job to rate is to Wholesale can business you the much Any amount much remind in exclusives? wholesale then tied

Richard Westenberger

individual relationships. about disclose the We we don't don't customer exclusive brands. We've -- talk

think you given And our with that. further quantifying probably can Laurent don't help segment not of appropriate we terms disclosures. in So

Laurent Vasilescu

about XXXX. Is Okay. and for XQ? XQ that XX then Fair And And cadence with the key and presentation XX plan? the one still should called we enough. of out think how store between the openings closure

Richard Westenberger

the the handful half. that said stores the these we're Today have the Mike of And the about in full of in And plan for is second balance they'll going year. a format year. Roughly of XX place. most the mall Yes. new as closures open to taken be

Laurent Vasilescu

Okay. Very of much and best very Thank luck. helpful. you

Richard Westenberger

you. Thank

Brian Lynch

you. Thank

Operator

Jay is from UBS. question with next Our Sole

Jay Sole

much. so Thanks Great.

fast Can card it how members? might You club And on the credit what impact rewarding card just question you idea moments credit an program. sales especially loyalty with reducing give you credit is you card on this ramp up think margin know, can program have or and us the fees?

Brian Lynch

would spend Hey, just customers. our had just Jay encouraged by on and early positive and -- this really launched applications say We've approvals the And our from put I the numbers to too response a we're We're for it. customer. we the thing. early

of a retail special available customers points, for credit meaningful Our it's sales them. goal because get card. it's years is to the the win amount over a offers. our loyalty for shipping, next have few on free And our They

with for course we win because to us a what and the of relationship customer. a got lower be credit it's hope fees And incremental really sales closer we card establish can

think us know have have we drive for that that that to families we us come the So lifetime families with those first first they they when value consumers. when can new child baby, and Carter's a really card

early to number but too early but very days. it's it. put -- So a meaningful on it's We think

Jay Sole

and when did ramp see then and or to then we really you XQ -- event on at the and guess next I through we'll Okay. XQ a Can year lap before for talk sell Target. XQ? it XQ maybe about it that OshKosh product it just start Was in in that began?

Michael Casey

It launched in April.

Jay Sole

in April. launched It

Michael Casey

April in It to ramp up. launched

with doors expand and over spring for to doors expect So over launched XXXX. XXX XXXX we

Jay Sole

Got it.

Okay. you last year. my Thank it's choppy such And then is -- question you. a

rate. you How strong are of children's because it benchmarking a the choppy? down has whole think and weekend X% comp retailers been X% four You Because environment the know, to versus rate the other that. July then growth I very yourself apparel kind whole we're year been about and talking been like slows has of that's

slower how this and was changing year the than really market else out how tell How of half environment you're share bit sort First that. of is performing you in versus a everybody you're there? do little

Michael Casey

in the competing probably of market's billion $X a That over billion portion view down some year. $XX high past market. the Well, we're

some our So And of call about business X%. growing. portion that is

So, apparel company States. presence we -- of the children's has a that United broader in no there's

apparel, brands. our So very presentation wherever you're you'll shopping likely of for strong a see kid's

outlets. we wherever number consumer apparel shop market So she we're whether to one the she uniquely and children's positioned share to capture in the likes number If we're for in the outlets, is two have there shopping.

going brand. Costco, a CMs, If you're Macy's, shopping wherever our Walmart, shopping, at see nice you're presentation Target, of to Kohl's, you're

we've why that's think I So, done so well.

economies, we're be our of to Macy's birthrates, there's there's from Over but everywhere masses strong year consecutive been tough will We because, to economies, this between. Walmart weak the everywhere. appeal and good growth in been years, birthrates, XXst the

I why way a we've think we growth. So have done. the that's deliver as manage market challenges, Despite and well done as to we've

Jay Sole

Got it.

Thank much. Okay. so you

Michael Casey

You’re welcome.

Operator

with question comes Tiffany Deutsche next Our Bank. from Kanaga

Tiffany Kanaga

taking have Hi, Carter's and that confirm? as do thanks for growing questions. you source floor Oshkosh for and category a is Target, so the own how it you And launching Can JACK In taking more of the versus a Thanks. much versus our and bit points brand at space? sense you positioning Or the & in price Is it's also, rebalancing versus do space? stores? are CAT about, product? think your you your Oshkosh exclusive

Brian Lynch

do talk a Yes. million we're the about little -- sales Oshkosh. the company and sales in overall, a and of we I'll year. planning as Oshkosh $XXX profits We're bit about brand

happy of said, to this to Target one had launch we're So, United the apparel as doors this we're consider in we retailers over in XXXX. XXX strong selling going them April. expand And key We in and Mike the States.

and brands, individual don't of strategy. overall, our would out have brand. say our selling I very Hop strategy of our Skip will all Target, Carter's in to with with I very with our continue to that branded tell you good Target's Oshkosh I Target, strong parse business terms know also we with is with I want

the even an and Skip recently one Hop feel do new been about whatsoever there. with They losing support launched and very of brands We weeks. a a Carter's job in few several space best or So of some They're brands. not They've do job. the to the the with necessarily the target their we our launch. great We've brands teams they've good They our are performance. complimentary performance. last excellent met this in retailers

few really But benchmark private sales our where to years, job the an their to on a continue the way of say grown additional good over environment have emphasis in is as brands we I I put done well. have they Target would it would last grow and

with business lifted this Oshkosh. launch we about we're excited the And and our all there. new feel So, rising good tide ships has about

Tiffany Kanaga

much. right. so All you Thank

Operator

question Davidson. Morris from John with Our comes final D.A.

John Morris

two check worth guess like add on -- out here looks want let to a directionally thought of the the of point’s QX my QX, a Congratulations about check that. just about I of the quarter about maybe these into And which revenue of shift that of right is I growth growth other it's process me revenue and timing line? great there that in shifts then couple going am right or were on most in I thinking shipments. thinking in I follow-ups. because directionally that the And Am on quick their revenue off-price? of

Richard Westenberger

in single-digit in pretty that how will strongly be and down planning the quarter, think in rebound full fourth QX it. slightly segment. That's I they the solid in year, segment for but then would about good the low business within that full looking can Wholesale. low is the planning they probably Wholesale benchmark give that's single-digit year we between you. at and Revenues in why Yes. I quarter-end best the dates we're And that would always say are growth growth

and Toys that we're year the forecasting off-price Babies"R"Us of a year, Us, past component a is comparing that. fortunately activity we're this given our we're well given against that Off-price less and "R" liquidation inventory channel ago position,

So that's it. how think we about

John Morris

questions of going the on that. is had said half was to QX, guys kind you then was back by I shifting just to earlier one quarter of And because think feel earlier That's Okay. SG&A helpful. additional I -- $X that million million that give because but implied $X us the think be going a don't into you clarify the by those into that expenses, can to

correct? I Is think quarters. should we that you allocation? were saying it's that how about going to fall into And both think

Richard Westenberger

between line. think we're second half fall say planning to and SG&A some it it's well. the low would single-digit modest how parse That's the growth the in I'll don't out I second rate for for thinking going QX. We're about planning half. as into and I QX expense leverage

John Morris

for luck Good Thanks. fall. right. All

Richard Westenberger

you, Thank much. very

Operator

concludes session. now will I back Casey. to question-and-answer This turn Mr. over conference the today's

Michael Casey

Goodbye. Okay. We the again updating Thank to you forward October. on look Thank all our us in you call. on you. progress joining for

Operator

This everyone. today's you concludes teleconference. Thank

disconnect. now may You

Carter's (CRI) 25 Jul 192019 Q2 Earnings call transcript