70% of Carter’s Products Move Through East Coast Ports
Carter’s has seen an “uptick in demand” coming from Amazon and Babylist registries since Buybuy Baby‘s owner went bankruptcy, chief financial officer Richard Westenberger told investors on Friday.
That’s a positive development for the children’s wear retailer, which is seeing wholesale order pick up and ocean freight rates turn in its favor.
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In a Nutshell: Carter’s Inc. CEO and chairman Michael D. Casey believes negotiating lower ocean freight rates will benefit second-half performance.
“Product costs for our new fall and winter product offerings will also be lower in the second half this year. That benefit of lower product costs will be partially offset by the sale of packaged old inventory carried over from last year, at a higher cost,” he told listeners on a conference call.
“Over 70 percent of our products now flow through East Coast ports. Given the status of negotiations and agreements between the dock workers and port management, we do not currently expect any disruption in the flow of our products through the West Coast ports in the balance of the year,” Casey said.
Carter’s, which uses UPS for most of its store and e-commerce shipments, arranged workarounds with the U.S. Postal Service as a buffer against a potential worker strike.
Retailers that paused replenishment programs to deal with last year’s inventory glut are now helping Carter’s wholesale orders get back in good shape, Casey said.
These days, the bigger, better-run retailers are staying lean on inventory to drive sell-throughs and get the “right balance between top-line growth and achieving their margin objectives,” said Casey, while many specialty customers are “loaded with product” and are more promotional.
Carter’s stores now stock 25,000 units versus more than 40,000 pre-Covid, Casey said.
“Our focus has been on profitability. We could certainly sell a heck of a lot more if we had lower prices and lower margins, but we’ve chosen not to do that. So we’ve worked on good strategic partnerships, healthy relationships,” Casey said.
Baby apparel contributes 60 percent of Carter’s annual sales, and “continues to be our best performing product offering,” he said. Top essentials also include body wash cloths, towels, beds, blankets, and pajamas.
Carter’s prices its private labels within $1 or $2 of national brands to be competitive. “It’s a time tested pricing strategy, which we plan to continue in the years ahead,” Casey said.
Private label is about 23 percent of the $29 billion young children’s apparel market in the U.S., according to the CEO. Carter’s owned brands, including the namesake Carter’s label, OshKosh B’gosh, Skip Hop, Little Planet, Just One You at Target, Child of Mine at Walmart and Simple Joys at Amazon, command 11 percent of the market. The “Carter’s brand has over 70 percent more market share than the largest private-label brand,” Casey said.
This year the company will open 50 U.S. stores that should do $140 million in sales. It’s planning 200-plus co-branded locations within five years in wealthier areas, Casey said.
The company is focused on expanding in Mexico and Brazil.
Back-to-school sales are “off to a very good start,” despite retailers being “very cautious regarding inventory commitments,” Casey said,
Net Sales: For the second quarter ended July 1, net sales fell 14.3 percent to $600.2 million from $700.7 million a year ago.
U.S. retail sales were down 15 percent to $323.5 million, while comparable net sale fell 15.9 percent. U.S. wholesale sales fell 17 percent to $186.9 million, and international sales fell 8 percent to $89.9 million.
For the six months, net sales were down 12.5 percent to $1.3 billion from $1.48 billion in the year-ago period.
Earnings: Net income fell 35.4 percent to $23.9 million, or 64 cents a diluted share, from $37 million, or 93 cents, a year ago. On an adjusted basis, diluted earnings per share (EPS) was 64 cents.
Wall Street was expecting adjusted diluted EPS of 53 cents on revenue of $603.5 million.
For the third quarter, Carter’s is forecasting adjusted diluted EPS in the range of $1.45 to $1.55, on net sales between $770 million to $790 million.
For Fiscal Year 2023, adjusted diluted EPS was guided to between $5.95 and $6.15, on a revenue range of $2.95 billion to $3.00 billion.
For the six months, net income dropped 42.9 percent to $59.7 million, or $2.60 a diluted share, from $104.9 million, or $2.59, a year ago.
CEO’s Take: “Carter’s advantages in inflationary markets are enabled by our focus on essential core products, our broad and unparalleled market distribution, including our exclusive brands sold to Target, Walmart and Amazon, and our compelling value proposition, with an average retail price point of about $11 including many high value multipacks,” Casey said.
