Slide 1: Third Quarter 2018 Business Update
Third Quarter 2018 Business Update October 25, 2018
Slide 2: Third Quarter 2018 Results (GAAP Basis)
Third Quarter 2018 Results (GAAP Basis) $ in millions, except EPS Q3 % of Q3 % of Increase / 2018 Sales 2017 Sales (Decrease) Net sales $924 $948 (3%) Gross profit 387 41.9% 404 42.6% (4%) Royalty income 10 1.1% 10 1.1% (1%) SG&A 294 31.8% 283 29.9% 4% Operating income 104 11.2% 130 13.8% (21%) Inte
Slide 3: Q3 YTD 2018 Results (GAAP Basis)
Q3 YTD 2018 Results (GAAP Basis) $ in millions, except EPS YTD % of YTD % of Increase / 2018 Sales 2017 Sales (Decrease) Net sales $2,376 $2,373 - Gross profit 1,030 43.3% 1,023 43.1% 1% Royalty income 29 1.2% 32 1.4% (11%) SG&A 838 35.3% 781 32.9% 7% Operating income 221 9.3% 273 11.5% (19%) Intere
Slide 4: Third Quarter 2018 Highlights
Third Quarter 2018 Highlights $ in millions, except EPS Adjusted Net Sales Operating Income* Adjusted EPS* (Adjusted Operating Margin) (3%) (5%) (18%) $131 $1.70 $948 $1.61 $924 $107 13.8% 11.6% of of Net Sales Net Sales 2017 2018 2017 2018 2017 2018 • Net sales (3%) - Growth in U.S. and Canada Reta
Slide 5: Third Quarter 2018 Adjusted Results
Third Quarter 2018 Adjusted Results* $ in millions, except EPS Q3 % of Q3 % of Increase / 2018 Sales 2017 Sales (Decrease) Net sales $924 $948 (3%) Gross profit 390 42.2% 404 42.6% (3%) Royalty income 10 1.1% 10 1.1% (1%) Adjusted SG&A* 293 31.7% 283 29.9% 3% Adjusted operating income* 107 11.6% 131
Slide 6: Q3 YTD 2018 Adjusted Results
Q3 YTD 2018 Adjusted Results* $ in millions, except EPS YTD % of YTD % of Increase / 2018 Sales 2017 Sales (Decrease) Net sales $2,376 $2,373 - Gross profit 1,032 43.5% 1,023 43.1% 1% Royalty income 29 1.2% 32 1.4% (11%) Adjusted SG&A* 824 34.7% 779 32.8% 6% Adjusted operating income* 237 10.0% 277
Slide 7: Balance Sheet and Cash Flow
Balance Sheet and Cash Flow $ in millions • Strong liquidity 2018 2017 - Cash on hand + available revolver Cash $124 $105 capacity $468 million - Repatriated $65 million in overseas cash Balance Sheet Accounts Receivable 293 286 (at Q3 end) in Q3 Inventory 693 610 Accounts Payable 185 194 • Inventor
Slide 8: Business Segment Performance
Business Segment Performance 8
Slide 9: Third Quarter 2018 Adjusted Business Segment Performance
Third Quarter 2018 Adjusted Business Segment Performance* $ in millions Adjusted Adjusted Operating Operating Net Sales Income* Margin* $ $ 2018 2017 Growth 2018 2017 Growth 2018 2017 U.S. Retail (a) $459 $454 $5 $47 $58 ($11) 10.3% 12.8% U.S. Wholesale 339 370 (31) 68 79 (11) 20.0% 21.3% Internatio
Slide 10: Q3 YTD 2018 Adjusted Business Segment Performance
Q3 YTD 2018 Adjusted Business Segment Performance* $ in millions Adjusted Adjusted Operating Operating Net Sales Income* Margin* $ $ 2018 2017 Growth 2018 2017 Growth 2018 2017 U.S. Retail (a) $1,245 $1,209 $36 $122 $130 ($9) 9.8% 10.8% U.S. Wholesale 829 880 (51) 161 185 (23) 19.4% 21.0% Internatio
Slide 11: Third Quarter Highlights – U.S. Retail
Third Quarter Highlights – U.S. Retail $ in millions Q3 Highlights Segment Net Sales Total • Q3 Retail comp +0.5% (YTD comp +1.4%) Sales +1.2% - Slow start to September; meaningful improvement in $454 $459 trend post-Labor Day (double digit comps) - eCommerce business negatively affected by Retail s
Slide 12: Carter's Holiday Marketing
Carter’s Holiday Marketing 12
Slide 13: Carter's Holiday Marketing
Carter’s Holiday Marketing 13
Slide 14: Carter's Holiday eCommerce
Carter’s Holiday eCommerce 14
Slide 15: Carter's Instagram Posts Earned Top Engagement Scores Among Peers
Carter’s Instagram Posts Earned All 25 of the Top 25 Engagement Scores Among Peers in Q3 Source: Third-party engagement scoring on Instagram from 7/1/18 through 9/29/18. 15 Note: Peer set includes The Children’s Place, Gymboree, Hanna Andersson, Gap Kids, OshKosh B’gosh, and Skip Hop
Slide 16: Third Quarter Highlights – U.S. Wholesale
Third Quarter Highlights – U.S. Wholesale $ in millions Segment Net Sales Total Sales Q3 Highlights $370 (8%) $339 • U.S. Wholesale segment net sales (8%) - Reflects lower shipments principally due to discontinued sales to Toys “R” Us and Bon-Ton (~$32 million net sales Q3 2017) - Forecasting ~50% r
Slide 17: U.S. Wholesale – Kohl's Baby Shop Rollout
U.S. Wholesale – Kohl’s Baby Shop Rollout 17
Slide 18: U.S. Wholesale – Child of Mine
U.S. Wholesale – Child of Mine 18
Slide 19: U.S. Wholesale – Just One You
U.S. Wholesale – Just One You 19
Slide 20: U.S. Wholesale – Simple Joys
U.S. Wholesale – Simple Joys 20
Slide 21: U.S. Wholesale – Amazon
U.S. Wholesale - > i faa) | 4 . inl cei KG | Ger 5 i , a) | amazon carter’s 21
Slide 22: Third Quarter Highlights – International
Third Quarter Highlights – International $ in millions Q3 Highlights Segment Net Sales Total • International segment net sales +1% $125 $126 Sales +1% - Unfavorable effect of foreign currency exchange rate movements (net sales +4% constant currency) - Q3 year-to-date segment net sales +6% Constant •
Slide 23: International Partner Store – Dubai, UAE
International Partner Store – Dubai, UAE 23
Slide 24: International Partner Store – Perth, Australia
International Partner Store – Perth, Australia 24
Slide 25: Guidance
Guidance 25
Slide 26: 2018 Outlook
2018 Outlook (Adjusted Basis) • Net sales: growth of ~5% - Expecting growth in all business segments - ~4% comps in U.S. Retail and Canada Retail Q4 2018 • Adjusted EPS: growth of ~10% (vs. $2.33 Q4 20171). Outlook reflects: - SG&A leverage - Continued benefit of tax reform, cumulative share repurch
Slide 27: Thank you
thank you. 27
Slide 28: Nore SD ov arae a wsal
if. Nore SD ov arae a wsal
Slide 29: Third Quarter Reconciliation of Net Income Allocable to Common Shareholders
Third Quarter Reconciliation of Net Income Allocable to Common Shareholders Fiscal Quarter Ended September 29, September 30, 2018 2017 Weighted-av erage number of common and common equiv alent shares outstanding: Basic number of common shares outstanding 45,990,039 47,303,074 Dilutiv e effect of equ
Slide 30: Q3 YTD 2018 Reconciliation of Net Income Allocable to Common Shareholders
Q3 YTD 2018 Reconciliation of Net Income Allocable to Common Shareholders Three Fiscal Quarters Ended September 29, September 30, 2018 2017 Weighted-av erage number of common and common equiv alent shares outstanding: Basic number of common shares outstanding 46,399,746 47,829,794 Dilutiv e effect o
Slide 31: Third Quarter Reconciliation of Reported to Adjusted Earnings
Third Quarter Reconciliation of Reported to Adjusted Earnings $ in millions, except EPS Segment Reporting U.S. Retail % of U.S. Wholesale % of International % of Corporate % of Gross % of % of Operating % of Net Diluted Operating segment Operating segment Operating segment Operating total Third Quar
Slide 32: Q3 YTD 2018 Reconciliation of Reported to Adjusted Earnings
Q3 YTD 2018 Reconciliation of Reported to Adjusted Earnings $ in millions, except EPS Segment Reporting U.S. Retail % of U.S. Wholesale % of International % of Corporate % of Gross % of % of Operating % of Net Diluted Operating segment Operating segment Operating segment Operating total Q3 YTD of 20
Slide 33: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA $ in millions Four Fiscal Fiscal Quarter Ended Three Fiscal Quarters Ended Quarters Ended September 29, September 30, September 29, September 30, September 29, 2018 2017 2018 2017 2018 Net income $71.8 $82.3 $151.5 $166.7 $287.7 Interest expense 9.9 8.
Slide 34: Fourth Quarter Reconciliation of Reported to Adjusted Earnings
Fourth Quarter Reconciliation of Reported to Adjusted Earnings $ in millions, except EPS Segment Reporting U.S. Retail % of U.S. Wholesale % of International % of Corporate % of Gross % of % of Operating % of Net Diluted Operating segment Operating segment Operating segment Operating total Fourth Qu
Slide 35: 2017 Full Year Reconciliation of Reported to Adjusted Earnings
2017 Full Year Reconciliation of Reported to Adjusted Earnings $ in millions, except EPS Segment Reporting U.S. Retail % of U.S. Wholesale % of International % of Corporate % of Gross % of % of Operating % of Net Diluted Operating segment Operating segment Operating segment Operating total Fiscal 20
Slide 36: Store Count Data
Store Count Data Single-brand Dual-brand Dual-brand U.S. U.S. U.S. Canada Total Stand-alone Side-by-Side Co-branded Total U.S. Co-branded Total Consolidated Format Format Format Retail Format Mexico 1 International Retail Stores Store count at September 30, 2017 603 154 59 816 172 40 212 1,028 Openi
Slide 37: Forward-looking Statements and Other Information
Forward-looking Statements and Other Information Results provided in this presentation are preliminary and unaudited. This presentation should be read in conjunction with the audio broadcast or transcript of the Company’s earnings call, held on October 25, 2018 which is available at www.carters.com.