US' Carter's reports $2.84 bn FY24 sales, operating margin declines

US retail and international segments were partially offset by growth in the US wholesale segment. Macroeconomic factors, including inflation and elevated interest rates, continued to weigh on families with young children and demand for Carter’s in 2024. US retail and international net sales declined 5.6 per cent, and 5.5 per cent, respectively, while US wholesale net sales grew 0.7 per cent, Carter’s said in a press release.

US retail comparable net sales declined 6.9 per cent. Changes in foreign currency exchange rates used for translation in fiscal 2024, as compared to fiscal 2023, had an unfavourable effect on consolidated net sales of approximately $7.4 million, or 0.3 per cent. Net income in FY24 decreased $47.0 million, or 20.2 per cent YoY.

The operating income in FY24 decreased $68.7 million, or 21.2 per cent. The operating margin decreased 200 basis points (bps) to 9.0 per cent, reflecting the OshKosh tradename impairment, fixed cost deleverages on lower sales, and investments in pricing, marketing, and retail stores, partially offset by lower inbound freight and product costs, lower performance-based compensation provisions, and lower consulting fees.

Adjusted operating income decreased $41.3 million, or 12.6 per cent to $286.6 million, compared to $327.8 million in FY23. Adjusted operating margin decreased 100 bps to 10.1 per cent, reflecting fixed cost deleverage on lower sales and investments in pricing, marketing, and retail stores, partially offset by lower inbound freight and product costs, lower performance-based compensation provisions, and lower consulting fees.

The company’s diluted earnings per share (EPS) stood at $5.12, down from $6.24, with adjusted diluted EPS at $5.81, compared to $6.19 in 2023. The company generated $299 million in operating cash flow and returned $167 million to shareholders through dividends and share repurchases. The board of directors declared a quarterly dividend of $0.80 per share.

“Our product, pricing and promotional strategies in the fourth quarter drove a continued trend improvement in traffic, conversion and comparable sales in our US retail businesses,” said Richard F Westenberger, interim chief executive officer (CEO), senior executive vice president, chief financial officer (CFO) and chief operating officer (COO). “We also saw strong demand for our exclusive brands in the wholesale channel and continued momentum in our retail businesses in Mexico and Canada. We achieved a 13.4 per cent adjusted operating margin in Q4. Our profitability reflected planned investments in pricing, marketing and stores which contributed to a mid-single-digit increase in comparable retail sales over the key black Friday selling period as well as improved customer acquisition and retention.”

“Several factors are expected to weigh on our profitability in 2025, including some residual lower pricing in the first half of the year, higher product costs and the restoration of more normalised variable compensation provisions. In 2025, we intend to rely less on pricing action and lean more into planned improvements in our merchandise assortments and a stronger overall inventory position, particularly in the more significant second half of the year,” added Westenberger.

Fourth quarter (Q4) financial

In the fourth quarter of FY24, Carter’s reported net sales of $860 million, slightly up from $858 million in Q4 FY23. The operating margin declined to 9.7 per cent, compared to 15.9 per cent in the prior year, while the adjusted operating margin fell to 13.4 per cent. Diluted EPS stood at $1.71, including a $0.63 non-cash charge related to the OshKosh tradename impairment, down from $2.90 in Q4 2023. Adjusted diluted EPS was $2.39, compared to $2.76 in the previous year.

Outlook

For fiscal 2025, Carter’s expects net sales between $2.78 billion and $2.855 billion. The company projects adjusted operating income in the range of $180 million to $210 million and adjusted diluted EPS between $3.20 and $3.80.

The company anticipates US retail sales to range from flat to a mid-single-digit decline, US wholesale to see low single-digit growth or decline, and international sales to experience low single-digit growth or remain comparable. Sales and earnings are expected to be weighted towards the second half, benefitting from improved product assortments, stronger inventory positions, and reduced pricing and freight cost impacts.

The company expects a lower gross margin rate due to targeted pricing adjustments, customer mix changes in wholesale, currency exchange impacts, and higher product costs. SG&A expenses are projected to rise, reflecting higher variable compensation provisions and growth-related investments, partially offset by productivity initiatives. Additionally, higher net interest expenses and an increased effective tax rate are anticipated, with the average number of shares outstanding remaining comparable.

ALCHEMPro News Desk (SG)