CRI - Earnings call transcript Q2 2021

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Operator

Welcome to the Carter's Second Quarter 2021 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; and Sean McHugh, Vice President and Treasurer. [Operator Instructions] Carter's issued its second quarter 2021 earnings press release earlier this morning. A copy of the release and the presentation materials for today's call have been posted on the Investor Relations section of the company's website at ir.carters.com.

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

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

Michael Casey

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

today, thoughts of second share Before business with through like we walk quarter. you Earlier to reported presentation on I'd in on our our and website, earnings we our record some the you. sales levels

and meaningfully our We were than good XXXX the up and the year, to last second International disruption compared Retail, growth our recovery Profitability quarter of strong a quarter pre-pandemic earnings. double-digit segments. performance. is continue Earnings pandemic-related with in year Wholesale than from last each to significantly second see better our higher in over XX%

our higher off-price product capabilities life the and help product over less us fewer year on better out and to focused sustainable marketing With believe styles store pandemic longer our building curbside We and a that ship-from-store leaner past capabilities margins. penetration the choices e-commerce reduced cycle stores and sales. a We the inventory our our changes app low choices, and on that e-commerce year, sales. in accuracy, The experience focused mobile mix Over our increased year. weather and on and offerings benefit meaningful Little customers, half We edit improve pandemic better new drove a and more a this the a the XX%. better of including during reduced collective dropped customers, choices. have second lower-margin omni-channel to in and the Planet invested our ran better fewer we pickup, And product to high-margin made low-margin sell-throughs mix emerge in better by better low-margin promotions of improvement will price stores, we first launched promotions. fewer of quarter same-day and inventory, we of online then Bold capabilities. for clearance inventories strengthened fewer mix business RFID in it. product margin, stronger high-margin realization our choices, of Basics higher-margin and closure new product brand We improve on and pickup leaner profitability plan and inventories brand offering. We from We doubled last including and structural

changes to be will structural business, our for higher first forecast and and and our sales expect planned. of second we the earnings expected gross than strong In continued have our Given we previously performance profit half, benefit sales half raised XXXX.

and higher expedite employee a off to pandemic-related importantly, business, in our year in to to with XXXX. positive which grow in we're and Asia, this foundation overcome brand brands for height marketing Given half -- during record we're curtailed second year from levels increasing also enable ahead. investments the a the and deliveries in the to demand trends in years will profitability stronger eCommerce production. and year, balance level These last pandemic. a us spending to compensation, of delays get of was successful We're If support higher our on year of the achieve the in a build capabilities, start our of expected our planning to finish during more investments this good are plan, strong we to

of quarter better-than-expected warmer got in start began sales country, off the second parts as the terms each summer the to In good in month and outfits. and trends, children's quarter. their more arrived We a consumers update to of of weather saw spring demand

gotten quarter off start. has to also a third The good

second highest second our collective our in the higher in Our Retail offering, of from segment the us growing to benefit years. The stronger up to stores e-commerce our to contributor sales, the enabled earnings. margin XX% retail prior largest sales quarter product was penetration with a quarter fewer and low-margin business achieve to pandemic. sales over the quarter of XX operating eCommerce be continued to retail margin highest margin and XX%

to that million. will fewer XXX retail sales our reduce are and profitability outperformed by stores our store on Our this realization. last low nearly by less the store closures the driven given quarter and but the to XXXX second XXXX, were will higher improve margin price store by close year despite the over expectations in million year. to sales retail results higher quarter Comparisons year. closures to track XX We're earnings nearly meaningfully compared meaningful Compared $XX stores. our better of COVID-related XXXX over units sales $X this We estimate

located the plan a flow margin the store closed. fixed this are high meaningful We only X model. store see we markets that lift very the structure and in year. to continue through cost the Those transferred paused stores store opening of profitability during given pandemic our of to in opening adjacent a sales our our We stores

estate XX store top U.S. team is in new the markets. evaluating Our opportunities real

next they're expect to later year. stores We'll you opening beginning those this plans resume We after up share year. with firmed

they pick customers located it and online up of online our XX% customers. customers. by level at a advantage supported less XX% to centers, providing outdoor than frequently highest are value consumers of stores orders were and because taking customers purchases for stores. our to are We of in service their our Xx continue more XX% quarter year. see compared shopping omni-channel than single-channel which stores shop nearly more our our our focused last omni-channel to We're shop on our more spend the our more in capabilities. to They makes convenient higher Over

content Our share retail morning. OshKosh will season. marketing on on you the upcoming of back-to-school highly recently campaign a outfitting. that and We teams creative are focused this back-to-school focused launched Richard shopping visual with some brand

a brand. in brands Collectively, the during had quarter demand good year second last exclusive expect sales flagship back-to-school good our saw this We by surge recovery on our our wholesale of growth Carter's the segment store closures. to We our growth in see in good top very COVID-related year. in driven

of XX% wholesale quarter Our our exclusive second sales. brands nearly contributed

on We seeing that sell-throughs OshKosh the leaner also margins. by Skip running with sales we Many brands. with commitments, end-of-season Hop customers better our driving good growth benefits and of higher are our less saw also seeing are inventory wholesale and clearance

sales exclusive source grew in years significant this vendor were we're It of double-digit growth in distribution growth us extend during Target customers, with X and year, It saw with sales has $X.X as performance recognizing wholesale our largest for been wholesale brands up world. Carter's growth us. XX% newborn Amazon We depth launched to retailers customers. company a in age For launch good in earnings, compared brands other child. and of of eCommerce of each apparel. XX from A our in the honored our pandemic. of to our our apparel with sales the wholesale high their the year, the the and are our in with a and working of growth its customers, that Carter's breadth has, ago. to the first global Baby most X over good expecting our reach half we percentage recently provided our XX States. billion to our Walmart children's a Together through the eCommerce over exclusive of customers to top retailers by No segments successful wholesale brand the for XXXX. XX-year-old has for enabled a Target the online model year, We to Together our the and United with of

quarter. brand and the level consumers data for their suggests expect apparel in the baby. moms the has children's media kids the of shopping see apparel. Carter's best-selling is most fastest-growing is highest for in traffic Our for when driver young moms new in U.S. brand the second by recommended to latest Carter's the brand social brand the in It's engagement Carter's brand national market The was retailers. children's It's a apparel.

fewer has over decrease Our due XX% sales second born sales XX%. growth from to this in this with apparel down reflects year were X% much XXX,XXX moderated. only to suggested as children driven the XXX,XXX in would estimates year was the data Thankfully, by births births had baby quarter versus to latest up the be as the Earlier pandemic. Births forecasted in decline are the year to XXXX. CDC States X%. United The estimated this

company. government of and a in in child stimulus, we enhanced the the That including our benefit moderation for continued credit, country the good would our see births. With tax decline may be

and kid continues We the toddler with occasion is That graphic like people even good. said, family the Thankfully, fancier our to in we products early this as broader and up and benefit of special traveling, comfortable friends. apparel. denim, also outperform believe and on acceptance we schools growth access tees, styling size back-to-school good are Casual The well uniforms outlook. with fall, saw with fitting. expected that read more positioned reconnecting to vaccines, from outfits are positive are and to reopen picking parents are

segment nearly nicely quarter. a disruption the to sales year. doubled, our contributor Our last was pandemic-related in from International recovering also the growth good International

to Mexico were and Thankfully, the than June brisk has of since second COVID-related for Our on had in our reopening. XX, restrictions in closed and closures. growth More mandates. half quarter stores been government Canada operations good due ended business despite most those Canada store of

up launched growth stores. by good growth year saw of in positively eCommerce segment Amazon. include with new omni-channel half drivers first Canada capabilities sales also this responding XX% and this our very international including international international our Amazon. in to of picking wholesale Canada year. convenience nearly in earlier Canada the purchases their and our The by grew in are in shopping We our of through Consumers driven online the markets partners,

the replicate retailer of through with largest achieved Canada States store the apparel In Canada. Mexico, share Xx model we are plan specialty success our United nearest of more competitor. than our children's co-branded the in We the in we've and to

of Over co-branded we than better X it's had model. the stores Mexico Mexico our convert off year, all launched good last in planned. eCommerce also years, start, plan next and capabilities to to a we the to

in us Joys years to be the for brand Our meaningful Simple Amazon, sold of expected is source through internationally ahead. a growth

from in to Our impact wholesale have also be retailers contributors to East to be continued our to in Asia. to delays good Transportation-related quarter, from chain, Asia. This affecting delays continue by receipt virus vaccines product our in access expected many are macro retailers. is to a the relationships as respect with Middle to Brazil X- but the challenged X-week the be have we first delays appear supply With and to improved of factory relative COVID-related the challenge to deliveries infections outpacing growth.

risk the expediting West Asia deliveries, late forecasts. are delays have We to possible, a our are the year, we inventories, To Thankfully, production expect good on in we cost. wholesale extent higher we cancellations lean demand due reflected deliveries are exposure, our up pandemic-related for at not of to mitigate also To the schedules and seeing ports. than continue any that that mitigate moving it's order date, To will and meaningful but balance in brands. customers Coast late the and risk our higher we've usual. in a seen deliveries

beginning offset Our suppliers cotton this benefit which had XXXX in polyester our with fewer year, lower by are realization impact they better product be the promotions, our prices, higher inflation but price but sell-throughs of freight and offerings. year, higher our product product our seeing product offerings, of being will costs costs are We've spring will margins. and this better costs

to environment. spring margins raised our Those product XXXX improving It agreed maintain now very because productivity, the have and a employees our of our lead apparel. value objectives is store have increases our for are much we've better to continue year. the pandemic. earnings SKU this best of and nearly their provide to to to first continues young In by and effectiveness, the to from unparalleled macro margins contributed will good store price over summary, children's we I wholesale on realization. stronger-than-expected to through prices achieve been through distribution year. our customers rationalization sales price intention the XX,XXX our half, a and now worldwide the recovery to market thank strength employees our had record brands, projecting We next marketing the commitment given want reporting the locations we're Richard working all in and XX,XXX and market in walk presentation who today, of growth you website. Carter's experience

Richard Westenberger

the I'll with year. was Thank reported EPS GAAP closures, through wholesale which you, were balance Page from the compared everyone. heavily the year quarter. $XXX to was to in to affected last X suspension $XX days statement in of Net income morning, second the and store million, operating Reported and pandemic quarter, for of on compared of mid-March begin $X.XX sales of $X.XX a shipments ago. million customers. XX% $XXX year, quarter were continued Good many our Mike. by million began the early income up second the year's and our Last last second results

will of past we've Our over enable results XXXX non-GAAP second Page our of items, underlying performance remarks to second provide and speak these excludes our adjustments into results comparability and X. years. quarter X, the summarized performance greater items are summarized Page the our highlights basis, XXXX today quarter on insight My which to some on items. which We've included unusual as these results the an On X treated adjusted for reported business. unusual to

XXXX, and in year's marketplace last business the over we post expected we Given broader disruption our to quarter, growth second to which the delivered. good significant

factors has As fundamental our Certainly, which over of We our enumerated. to many contributor performance, we've some a delivered growth also to pandemic business been believe going in also drive to the improvements the chart especially significant indicates, continue just performance, we will our these made XXXX Mike from but profitability. our forward. recovery business, the

second to for $XXX X the fifth a gross Gross quarter. sales, P&L even adjusted XX.X%, our in consecutive the XX% improved basis record for to Page Moving us. an XX%, and XXX points quarterly at net grew to increase rate Building on profit million. greater margin

retail promotional were basis were XXXX. strong margin driven performance XXX recovery demand. points in somewhat We over business. year's product also in the wholesale retail U.S. reference, our in million, Adjusted demand driven companies to domestic $XXX given currently. closures to experiencing portion which the higher supply which a spend. to half the lighter in than nearly marketing store international will reflecting of a customer response good quarter For costs. These second Product gross what gross in margins we expansion for some higher channel. higher year this Spending demand chain timing by was are was in due our And margin last Royalty was in disruptions and store compensation had brand million, of over year $X offset were The core we many our restoration saw product and the into quarter income Carter's wholesale a to transportation expenses achieved second the shift doubled and provisions, of costs consumer by in the were planned, recovery strong across incurred by that our year. ago, lower curtailed helped less and benefits payroll increased by licensees. was XX% year ago, and SG&A

points and to our XX.X% improved nearly strong net basis growth leverage. the to XXX gross and operating from in $XX million Adjusted XXX sales, million, operating margin adjusted $XXX XX.X%, expense leveraged SG&A basis sales. tripled reflecting income to points expansion Given of margin

$X.XX $X.XX, second year's was line, quarter. bottom the from up adjusted in last On meaningfully EPS

Moving to Page X.

shape. great in be to continues sheet balance Our

were We billion under on and quarter strong. Our in the credit year-over-year. hand, nearly was cash total with $X considering availability remains billion over receivable our liquidity consistent facility. liquidity our ended $X when the fairly Accounts

year inventory trends. balance year-over-year declined had inventory grow of million. to good, the trying and digits will we The how our demand to receipts time good also, Quarter-end to up be accelerate of good inventory a of And quality was year, expected, growth to given strong year. constrained bring product we've part in the customers saw meaningfully As wholesale terms. X% we disruptions expecting and half first we've the single inventory the payment year. is very because due earlier through last projecting lower of year end support their we're demand in second a supply in inventories planned We're $XXX year-end to versus part that our in Most And next in sales. in of last the high pre-pandemic over to ago. net returned given the net inventory of significant inventory our can, the to where experienced have chain. this We're efforts excess

down million we repaid long-term is half in last year over drawn last $XXX revolver. Our partially were Those when versus debt of were our on year. the second borrowings

Given strong $XX when half particularly last strong in to year the flow, first unusually down million. working of This year. first yielded from response from capital was performance, our for pandemic operations was part flow cash our cash initiatives the the

at As announced Board of last second in our the quarterly the Directors dividend, of quarter. call, we was approved per resumption on our $X.XX share which paid our

capital, we improving Given including repurchases for our business, time. the liquidity share opportunities evaluate strong outlook additional continue and to over our to return

improved the and substantial in Turning Each business profit quarter. product in with our In offset segment percentage our of our as profitability costs to of several margin we expedite margins segments. improved X.X%, sales expansion margin provisions to Wholesale, and U.S. including delayed compensation grew dollars, of saw U.S. XX.X%. higher the operating second slightly International of increased we These and Page segments and fees adjusted of the operating strong sales saw to Retail initiatives. favorable and performance our Asia. product net X the a in Corporate net business, summary gains both expanded of by productivity to mix support Overall, a consulting transportation sales from expenses were brand. higher Carter's reflecting consolidated in with aspects

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driven outperformance and price Our was stores our realization. improved by

pandemic. were sales surge early online eCommerce in especially given the versus of expected, last As the year, demand, consumer in the down part

in we XX substantially. and store noted, continued progress improvements Profitability lower of margin margin Retail Mike how we've make As closed the improved management due in to inventory year-to-date. in segment stores the including and have the nearly to have portfolio improving operating our activity. and Gross quality improved been promotional the business, managing expanded

which My strong and for of channels. carters.com, shopping Tolbert. by products our processes potentially year's Bachelor all this seeing cotton, eliminate love First digital certifies to harmful core Basics new refresh Previously, first a order as event to of This which had baby our the carried rebranded to alum mom, products in First event with chemicals. child. that are accompany Jade the certified June response the Roper XX. emotion, on We names. to featuring capture joy products and its made Page Oko-Tex in We're turning consumer launched curated the Now styles in These of XXX% An kind these launch of Little important better was exposure the the the live these year, our with manufacturing arrival quarter Baby collection offerings we've Love My assortment. a in

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Mexico. as brand spot sweet stores, In over is and XXX addition then, all in in the age We given to quality This of strategic the history online brand, range. Since has reputation channels, well-deserved playwear wholesale and Carter's, in with children's complementary for we its in rich acquired OshKosh other portfolio iconic its U.S., a brand years XXXX toddler the with apparel great integrated our Canada in have focus and a on B'gosh. and OshKosh the our brand value. of

brand archives John our facilities. intertwined We of Kennedy have photos that is our is visiting country. Reagan history in whose with F. and Ronald of This a OshKosh

changes rank aesthetic past years, the the are made give more We're they as recommended few we've even assortments year productivity Today, OshKosh, significant differentiated to to focus in of one gift. and and some OshKosh on brands, one yet improving be its track unique market. and achieve to profitability. to and a OshKosh of in the Over the the consumers durable which as proud most the updating currently and best childrenswear

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to Moving XX. Page

our brand told available in consumers. Planet, in materials new introduced Carter's. Amazon also to On As of presence. XXXX. Planet Little on is on spring Target are Planet Page on stores today's a and XXX This over brand beautiful a stores overall increasingly launched we photo call, Little launch addition Little presentation online its we're which the in nationwide, organic sustainability, of to select in in-store planning which recently we've you important and to last by has an emphasis have we XX, we of both

highlights retail support in second technology intended of attracting growing currently We're suggests new This broader support Our new technology is demand our largely omni-channel a growth that the important another in-store and in-store RFID Little is and making XX pickup. to half, introduction shopping consumers customers. customer that in-store And our to spend in we've to our stores. allocated marketing inventory available and an solution U.S. online Page range inventory Planet's opting our we're improve data for implementing to accuracy investment a in making to Carter's. business. Planet by Little additional continued

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complete rollout contributions realizing to meaningful expect this more the fourth and fall, quarter the beyond. in RFID XXXX some benefits We beginning and in

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last second to was posted the last of new sales driven XX, strong for International quarter of realization. largest the our in demand closed in sales particularly by This XX, our and the and strong. much segment. as new one partnership stores increased saw currently Riachuelo East. our significantly brand over quarter good market driven markets Business of with stand-alone as in our Carter's our due Carter's our contributor Riachuelo XX, strong couple On Turning Rio million. loss oil the expand. stores has price consumer leverage. market results International in continues where Brazil lower Page the year region were has Page sales the in price well doubled place and department expectations, in of Mexico well own while improved the of $XX this is the now and opened store to omni-channel Profitability X up, been mandates. in in to Middle as quarter, the reimposition XXX open by with government past strong Page distributes eCommerce stores important product This opened On with de the increased utilization prices this its recently the portion and stores brand with in now most International our international beginning of Janeiro. second partners also in very of years in growth channel our market. of the to this to XX% hit part also margin on growth, for performed planning Brazil approximately eCommerce in COVID Despite develop closed in Riachuelo in having outlook strong But significant in Brazil. disruptions hard and of expense increased strong in this with Canada in is important demand also store and was business the nearly XX to Carter's in capabilities Canada by increasing is the of Despite growth has improved quarter. our world the Brazil, by Canada later COVID. for second demand world oil segment was the having this outperformed Riachuelo impact also over base stores year. A this, the end year. the improving. international the XXXX. is been second the of safety planning We the Carter's in to

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We retaining ago year out to is and outstanding team. will It's Other brand a compensation very campaign, other in and pandemic. which digital We're some on and this effective and second has continuity. our to marketing, also motivating marketing a spend of provisions more increasing spend business our for the in the were which the OshKosh on spend higher element for response related competitive there, performance our market also is for us. X proven employees, spending related to half, curtailed

look comparability second performance comparability will affect extraordinary for spending in important typical half of XXXX costs. the product. these more some Market total, year's on delayed amounts to to much timing given and rates on substantially It's year spend extraordinary transportation through have differences the COVID, of will Carter's. spending we revenue expect to this the increased we're XXXX. at in and issues, additional will We and expediting represent than This turn out

thoughts specific our and and XX, the the third Page on to for full outlook Moving year. quarter

to sales Adjusted and would of XX%, earnings approximately projecting EPS quarter, operating achieve and of million. up outlook we're view strong income about $XXX XX%, sales of net Today, income adjusted the record our Adjusted of now XX%. full XX.X%. expectation raising million, approximately we're We've view previous $XXX from we about our a very of for up growth adjusted our sales net plus growth. of represent XX%. of is operating forecast, $X.XX. expecting increased $XXX from operating our expected up our is previous third from million approximately grow approximately $XXX EPS meaningfully operating of If approximately be We're view this million, for income prior year. margin approximately expected now to our For earnings and

our net second closed. graphical the that So all us, strong from and to depiction forecast finally, on for in dropping get margin level profitability, terrific back with on channel through the last our XXXX's or will low-margin guidance represent our expected half a XXXX. would we we're not stores, executing year forecasting this Achievement of us. right Page sales, a full on XX, year and of of With performance, for are focus that's We're sales of not here's which year repeating year. from a we're being focused very low off-price fully

we're questions. remarks, these With take ready to your

Operator

first from with Riley. comes Anderson B. Susan Our question Instructions] [Operator

Susan Anderson

in on color Really this a to there of far you've timing, a seen year. back-to-school job Good Or so expecting normal back seeing the child I'm in if any impact far tax more why get the on from give early little to about it you also, wholesale there. the Are credit? bit you demand? any so maybe back-to-school. are reads can which see you're in rebound business is maybe nice curious quarter. talking record Everyone then is And earlier July? the to terms the

Michael Casey

Yes. We're for see to than better and if be prepared XXXX, not a that. expecting very good to back-to-school season we're comparable,

see than So I was saw then a -- our or to week was it check it did benefit pick stimulus plan. then smaller child down so we back say and relatively relative our up to business up, pick year. a and it obviously plan. earlier was the would received short-lived to and this closer credit, and tax as mid-July that sales we relates up But picked for it a settled

thing nice benefit monthly are this the payments credit. the early in balance the second the annual then year. of enhanced Those of next half paid be So would tax X about of the child And year. part

in balance families it's continue to the or children. benefit of that months benefit we'll in the But So continues with us not of a year. for to the young whether see meaningful each

to by a credit about X. for I the age of the improved portion of age under about tax children For think the payment -- $X,XXX children XX% of under some year X, the

should be potentially be good a might for good us. benefit families for and young it So with children

Susan Anderson

I thinking curious the margins? margins I in your longer-term sustainable change with the year, longer-term operating expectations performance -- the much those longer if margins are guess on are about add those could I'm one operating And more. term? the of how I'm Great. outlook just And now Okay. you're your does quarter for that curious and how the

Michael Casey

with that It of this does. year. goal an around margin by What we you XX% exceed this shared year margin that earlier targeting we operating were XXXX. We'll

what based structural changes we'll is balance on potential we've that the in longer-term the in of the the revisit So made our business. year,

be to strong this year. build would performance we're that the is objective on margin expecting Our

Operator

from comes Monness. question next Our Jim with Chartier

Jim Chartier

X-year wanted XX% to versus on touch third expectation. sales on and implied up the X% kind just in looks I second It quarter. a like quarter down of X% about or fourth basis,

great. So could any color there would you be give

Richard Westenberger

it's mentioned, XXXX, of to back and business and comparing comparing it a comparability as issues now business number Jim, a different there's XXXX is back a I well. as affecting to different

you had unprofitable in stores. second retail marginally would the XXrd XXXX, perhaps of ago. or wholesale, operating Those So fallen quarter, year of revenue. the half issues timing a million over which in is just a you have for that There a were issue. had QX And -- then issue we're entire more was $XX that's were of the had in we an than less fourth profitable stores largely week,

of better the revenue how report And view, profit point off second so sales here of be and will short we're we a we for half. from but those

Jim Chartier

then quarter? constraints Okay. you of And inventory the that impacted better for And then get balance any second over the that does situation year?

Michael Casey

Wouldn't say meaningfully.

was and million sales otherwise will was that there of portion estimate the half inventory have would had probably than we if So third go in more of position in about some quarter. would that better, the $XX we

Jim Chartier

sheet again? shares And repurchasing metrics here, waiting Okay. lastly share or start curious balance just other to on what then repurchases for things you're

Richard Westenberger

we it's continually Board. our discuss topic that Well, with a

through this regarding our we increased resilience the as of business, confidence sustainability of our business, the I the the have year, moved think operations. the has of durability

it we'd for of that position. cautious this and good free forward, going a thought constructive for lot a recent not virus be This still like world yet. flow than would about shortly. our in and pause we've some more are us. we're given the feel to uncertainties, of We to that's liquidity liquidity. substantial and to going the that business But more We is very rebound been has not. around generate cash good country intent be pandemic our a But why date, revisit through the to that's the around We there's think XXX%,

Operator

with Our comes Fargo. next question Ike Wells from Boruchow

Unidentified Analyst

for Ike. This is on Will

talk quarter of margin and about little next on for margin gross gross should think you Just how a just up question about year? a in XQ. the bit half back and frame the Can we

Richard Westenberger

we're production. spend in I'd spending and typically freight margin say air and we air delays I in down gross forecasting that given years' transportation of lot related and We're business, the bit based several the this we're both line freight largely our that's bottom -- QX don't costs in to a worth of forecast, a QX, on mentioned.

will more positive to continue of margin. some So say the blocks, would though, building weigh that I story. on gross be a fundamental

make year. price to expected progress the second half realization. Product costs largely continue to of down are be expect through with the We to

transportation product a more I costs. of But think to point that the So expansion. that show continue in will form on view, really margin of give of some higher-than-typical back these we'll

Unidentified Analyst

you -- that, think expecting levels? margin? revert to back a you're gross be kind they'll you So a than margins are Or bit pre-pandemic expecting to of bit higher little

Richard Westenberger

for think down going as QX. said, and QX be they're to I I year-over-year,

I terms the we of good for outlook, feel think outlook gross margin. longer-term about in think I

costs on to product horizon. our last increases. inflation, spring at on intending visibility We pressures We We're to seeing planning are cost covering which the we in what we're XXXX. on this point. product we see for pricing cover have mentioned those of some call, with That's inflationary

ability the given progress us I increasing think the that. that last the confidence has do we've we year over made have to

front. from expecting not that we're So deterioration

year. which back I something go of more a to airfreight, that lot historical think of would be obviously, in business a are on out we'd Hopefully, terms what at transportation of the level. this we, spending like costs, to

I transportation be to how other may and inflation determined has costs think play out. yet it

a what's happened for I whether we've us with additional in think oceangoing come that past see then comes marketplace down. comes additional to over online, freight, that online. into the persist while, That's XXXX, increases capacity in additional we'll oceangoing back the we're in are seeing time. rates. And is certainly plays those ships out But that and rates brought the spikes seen capacity into have how those may

Unidentified Analyst

brick-and-mortar you one terms of of I Where mean -- it in. stores? levels? traffic to to that could are seeing more and coming guys are pre-pandemic squeeze foot if are stores? we I in how to you're terms you just in recover And seeing What seeing traffic

Brian Lynch

comparable were we because XXXX to again, It's Yes. it's not closed. --

'XX. versus that continue forward, So expect if recovering. we month is getting and is have virtually is improve balance through on But it's move you the at to of not Again, what getting still at year. XXXX lower optimistic to than the seeing. we every look every our go yet. it we're as XXXX, better better as traffic It levels we're It's we but week,

Michael Casey

the with the largely, part is say international I'd travel. just customers...correct weakest

destinations. California, Florida, have markets are we York states. New international then And New those outlets the some largest are largest big tourist obviously Our and Those of in Texas, Jersey. in

weakest more And on so both stores, weigh business. the to the traffic consumers and Brian's part. domestic that's but those be point, been to every To from improving month continues shop guests seems International international

Operator

Paul from Instructions] question [Operator Lejuez comes with Our next Citi.

Kelly Crago

This is Kelly Paul. Crago on for

Just which like looking your means to versus an levels. at it XX%, XX% XQ EBIT around guidance, expecting EBIT margin looks down margin XXXX you're would be

pretty it was While think, despite delta a basis over significantly, up in That's XQ, points. I pretty the line XXX pretty big top looking similar.

your look So what from chain in of coming in is how How And that does the could was then the SG&A? much higher that fourth? and quarter? third impacting delta? of freight the much second us understand supply help like that And you headwinds drivers just the business

Richard Westenberger

it's that just through, The Kelly. substantial. went Well, issue you

on QX P&L will QX. transportation the As line, well. which weigh the affect say would I mentioned, the affect costs, additional gross will margin investment spending that some of as and I the

compensation across some a were these Now would year were even it's in a as spending back technology, That's that's as for a of low provisions year fulsome us. good would have not I XXXX, of we we to -- think of been. was It's trade them And it's abnormally provisions, ago. marketing, like say which to spending ago. low lot long-term restoration areas. a of different abnormally quite those some And

at and all the important again, an year us well the full think trades. think to So comparisons I issues that margin. spending year And us. going The that the I be over time. given extraordinary they're we is good mentioned, for I year. operating But affect will long-term it's And those think comparability the serve look to will full

Michael Casey

way I'm would. I to would that. Kelly, just looking Yes. at add the you

alone, about alone of the from half, XX%, margin billion in freight let's X.X had so our the decrease costs second call we alone freight million support here, the revenues. the margin to we're That's nearly in production XXXX, it, in increase XX% will including And demand product the seeing up the $XX half to freight the brands, $XX Asia, in deliveries freight and -- the costs The pandemic-related versus the XX.X% costs $X So second to get operating expedite from be overcome for will million about erosion. to points XXXX. air on delays. to

Kelly Crago

for pricing if to are be I'm spring that parts the curious the most 'XX. secondly, expecting opportunity? And like-for-like so, much just of that will assortment do And And you're see the your on you product? strategy price what it. How increases Got implement? about

Michael Casey

product cotton, mid-single for Keep increases portion fabric increases spring largely higher costs, some digits. higher cost costs by in will unit around input are polyester mid-single-digit costs, mind, for be The 'XX, $X.XX. us of driven prices, in

So price increases our be will increases. price mid-single-digit

value still inflation, the it in the on going But year. next offers half of So to to what's first product -- significant in that the consumer. with increase light of we'll start see cost

Operator

Our Steve King. next question from comes with CL Marotta

Steve Marotta

similar 'XX. the ask 'XX to seeing seeing in to to question, half in that will similar what current want There'll will Do the price next we're similar be environment? first ultimately so what that be half year I partially of to think is first product environment increases a you of that. the promotional follow-up versus that we're realization half costs of mid-single-digit offset just the first be the Mike, price in

Michael Casey

price on lower the on on up running their that you, inventory Steve, retailer experience, realization, our with prices is every tell leaner inventories, clearance lower and sits margins. to margins, I'll as excess rack opposed Yes. demand improving backing from good improving chasing at focused

be the in product bought it the in year? will offering depends inventory. on of next environment the So strength a the half and you market more second how promotional the All

the our on and see So run mode. conservative on wholesale to a we realization, to And of continue going inventories, customers be they're healthier better sell-throughs, better the chase leaner, business. buys, be seeing that they're forecast price on much higher some better a It's leaner in that we're margins. conservative more with

pendulum does backing to not make their up this do have will companies to good with back the -- think inventory. swing I sure best So

So environment you bought how by inventories. the driven the largely promotional is

business, the of overall, that I position, healthier. think is think just I a So of market quality the It's much the the sales. much in of healthier healthier quality terms

Steve Marotta

year of more this helpful. That's aimed your half air supporting incremental at supporting at the is more current DTC? Richard, wholesale the second in customers aimed or freight

Richard Westenberger

it would we're probably the to to both But I has expediting of say direct delays seeing, weighted than business. our more magnitude necessary It's do business. the wholesale towards businesses. product bit both given a delays, production to of segments support the with the support it's

Operator

JPMorgan. Our Carla next from with comes question Casella

Carla Casella

on question the kind and Did at total this you CapEx. point? tech your a how of your where is CapEx say investments, CapEx maintenance much Just stands for

Richard Westenberger

good Then would there's our the about for from a in technology. at around -- is I to relates $XX from -- be a full ago. CapEx chunk that in million around relates our that to million. year half Well, projected projects, year both memory, enterprise That's to of $XX stores up say retail and technology retail distribution. least

which would distribution is maintenance Our related. centers, I CapEx say more

projects. to Some CapEx additional eCommerce would technology equipment annually such our the around to say operations. and half investment of I conveyor improve is related least But at

Carla Casella

that been of And have payments you up the Great. last deferred pandemic? had Okay. all year, that the other had rent deferred been made any costs during

Richard Westenberger

the rent say have. There's rent for the agreement. think we've largely, to end up. the of we that on perhaps tacked would most part, But I agreements rent I was some deferred caught

Carla Casella

the one timing. on Okay. question sales more then And just

timing if in Amazon quantify people Amazon any wondering back you of the there's Day back-to-school. shift I'm mentioned been did Are into moving from the amount other You of Prime And of shift. quarter? terms buying the differently? shift

Richard Westenberger

We not some too customer relationships. individual Amazon. to about on to specifically didn't, We lengths specifically go speak

Carla Casella

or people earlier Okay. of thoughts back-to-school, general, though timing buying Any there? later? And are in

Brian Lynch

a to children not back go We're Back-to-school, last we're off start. strong optimistic. families, year. the These did

last running stuff house. So and around in year's they were in pajamas, the

has been basic started a going it's businesses here, school business wardrobe gate. are It public be We'll of tees, say our our strong. particularly those I next back. optimistic this But OshKosh uniforms, shorts, strong I the back-to-school children see in for replacement early, what very South, kids. very they're back-to-school with We're denim, the With to going the think would happens Atlanta the brand. week. Even So go point. if at in out

say would we And right So it. strong. -- I the it is in are of that it's midst

Michael Casey

Yes.

strongest our in region been recent has Southeast weeks.

Operator

now at Mr. for this There to no additional remarks. closing time. I'd back turn it are questions to like Casey Mike

Michael Casey

Thank progress us joining again you. forward We you updating in all to thank Goodbye, Well, Okay. you for everybody. our morning. this on look October.

Operator

Thank today's concludes ladies presentation. gentlemen. This you, and

may disconnect. now You

Carter's (CRI) 31 Jul 212021 Q2 Earnings call transcript