Business Wire | Oct 23, 2020 06:16AM EDT

Carter's, Inc. Reports Third Quarter Fiscal 2020 Results

Oct. 23, 2020

ATLANTA--(BUSINESS WIRE)--Oct. 23, 2020--Carter's, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its third quarter fiscal 2020 results.

"We exceeded our sales and earnings goals in the third quarter," said Michael D. Casey, Chairman and Chief Executive Officer. "The quarter got off to a strong start with our Fourth of July holiday retail sales up 7%. We saw less robust demand in August during the back-to-school shopping period with many children beginning their school year at home and learning virtually. We had the strongest level of demand in September with our Labor Day holiday retail sales up 15%, our best performance in three years.

"Earnings in the quarter were driven by the strength of our product offerings, more effective brand marketing, fewer promotions, curtailed spending and growth in eCommerce sales. eCommerce continues to be our fastest growing and highest margin business.

"We believe our third quarter performance reflects the strength of our brands, our strong value proposition, broad market distribution and the less discretionary nature of children's apparel.

"As we enter the final weeks of the year, consumer demand is less predictable this holiday season given the lingering effects and, in some markets, resurgence of the coronavirus. That said, we believe we are well-positioned to outperform the market in the balance of 2020 and years ahead by providing the best value and experience in young children's apparel."

Adjustments to Reported GAAP Results

In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these adjustments provide a meaningful comparison of the Company's results and afford investors a view of what management considers to be the Company's core performance. These measures are presented for informational purposes only. See "Reconciliation of GAAP to Adjusted Results" section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

Third Fiscal Quarter

2020 2019

(In millions,except Operating % Net Net Diluted Operating % Net Net Dilutedearnings per Income Sales Income EPS Income Sales Income EPSshare)

As reported $ 113.5 13.1 % $ 81.2 $ 1.85 $ 83.9 8.9 % $ 60.3 $ 1.34 (GAAP)

COVID-19 3.3 2.5 0.06 - - - expenses

Retail storeoperatingleases andother 1.5 1.1 0.03 - - - long-livedassetimpairments,net

Productivity/restructuring 1.2 1.0 0.02 - - - costs

Intangibleasset - - - 30.8 23.7 0.53 impairment

As adjusted $ 119.5 13.8 % $ 85.9 $ 1.96 $ 114.7 12.2 % $ 83.9 $ 1.87

First Three Fiscal Quarters

2020

2019

(In millions, except earnings per share)

Operating Income

% Net Sales

Net Income

Diluted EPS

Operating Income

% Net Sales

Net Income

Diluted EPS

As reported (GAAP)

$

56.0

2.8

%

$

10.7

$

0.24

$

209.1

8.6

%

$

138.7

$

3.06

Intangible asset impairment

26.5

20.2

0.46

30.8

23.7

0.52

Goodwill impairment

17.7

17.7

0.40

-

-

-

COVID-19 expenses

18.8

14.3

0.34

-

-

-

Productivity/restructuring costs

8.8

6.8

0.15

1.6

1.3

0.03

Retail store operating leases and other long-lived asset impairments, net

6.5

4.9

0.11

-

-

-

Debt extinguishment loss

-

-

-

-

6.0

0.13

Store restructuring costs

-

-

-

(0.7

)

(0.6

)

(0.01

)

China business model change

-

-

-

(2.1

)

(2.1

)

(0.05

)

As adjusted

$

134.3

6.6

%

$

74.7

$

1.70

$

238.7

9.9

%

$

166.9

$

3.68

Note: Results may not be additive due to rounding.

Consolidated Results

The discussion of results below is presented on an adjusted (non-GAAP) basis where noted.

Third Quarter of Fiscal 2020 compared to Third Quarter of Fiscal 2019

Net sales decreased $78.2 million, or 8.3%, to $865.1 million, compared to $943.3 million in the third quarter of fiscal 2019. The decline reflects decreased sales to certain wholesale customers, decreased traffic to Company-operated stores, and decreased back-to-school sales (all a result of ongoing disruptions related to the COVID-19 pandemic), partially offset by strong eCommerce channel growth. U.S. Retail segment comparable sales declined 3.5%, reflecting a retail store decline, partially offset by eCommerce growth of 17.2%.

Operating income increased $29.7 million, or 35.4%, to $113.5 million, compared to $83.9 million in the third quarter of fiscal 2019. Operating margin increased 420 basis points to 13.1%. Adjusted operating income (a non-GAAP measure) increased $4.9 million, or 4.2%, to $119.5 million, compared to $114.7 million in the third quarter of fiscal 2019. Adjusted operating margin increased 160 basis points to 13.8%, reflecting improved gross margin and strong management of spending.

Net income increased $21.0 million, or 34.8%, to $81.2 million, or $1.85 per diluted share, compared to $60.3 million, or $1.34 per diluted share, in the third quarter of fiscal 2019. Adjusted net income (a non-GAAP measure) increased $2.0 million, or 2.3%, to $85.9 million, compared to $83.9 million in the third quarter of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) increased 4.8% to $1.96, compared to $1.87 in the third quarter of fiscal 2019.

First Three Quarters of Fiscal 2020 compared to First Three Quarters of Fiscal 2019

Net sales decreased $384.3 million, or 15.9%, to $2.03 billion. This decrease reflects the temporary closure of the Company's retail stores earlier this year, largely in the months of March, April, and May, and decreased sales to certain wholesale customers (both a result of disruptions related to COVID-19), partially offset by strong growth in eCommerce sales. Comparable eCommerce sales in the U.S. increased 39%.

Operating income was $56.0 million, compared to $209.1 million in the first three quarters of fiscal 2019. Adjusted operating income (a non-GAAP measure) was $134.3 million, compared to $238.7 million in the first three quarters of fiscal 2019. The decrease reflects the decline in net sales, increased inventory provisions, and lower royalty income, partially offset by decreased selling, general, and administrative expenses.

Net income was $10.7 million, or $0.24 per diluted share, compared to $138.7 million, or $3.06 per diluted share, in the first three quarters of fiscal 2019. Adjusted net income (a non-GAAP measure) was $74.7 million, compared to $166.9 million in the first three quarters of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) was $1.70, compared to $3.68 in the first three quarters of fiscal 2019.

Net cash provided by operations in the first three quarters of fiscal 2020 was $320.1 million compared to $73.4 million in the first three quarters of fiscal 2019. The increase reflects the extension of vendor payment terms, deferrals of retail store lease and other cash payments, and a reduction in inventory, partially offset by lower earnings related to COVID-19 disruptions.

See the "Business Segment Results" and "Reconciliation of GAAP to Adjusted Results" sections of this release for additional disclosures regarding business segment performance and non-GAAP measures.

Liquidity and Financial Position

During the third quarter of fiscal 2020, the Company repaid $244 million in outstanding borrowings under its $750 million secured revolving credit facility using cash on hand. The Company's total liquidity at the end of the third quarter of fiscal 2020 was $1.6 billion, comprised of cash and cash equivalents of $831 million and approximately $740 million in available borrowing capacity (exclusive of $7 million of outstanding letters of credit) on its secured revolving credit facility.

Earlier this year, the Company announced that, in connection with the COVID-19 pandemic, it temporarily suspended its common stock share repurchase program and quarterly cash dividend. No distributions of capital occurred in the third quarter of fiscal 2020. Provisions in the Company's secured revolving credit facility restrict the Company's ability to pay cash dividends or repurchase its common stock through the third fiscal quarter of 2021, and could have the effect of restricting the Company's ability to do so thereafter. The Company's Board of Directors will evaluate future distributions of capital, including share repurchases and dividends, based on a number of factors, including restrictions under the Company's revolving credit facility, business conditions, the Company's financial performance, and other considerations.

The Company continues to believe it has sufficient liquidity for the foreseeable future to maintain its operations and manage through the disruption caused by the COVID-19 pandemic.

2020 Business Outlook

Given the market disruption caused by the COVID-19 pandemic, recent spikes in confirmed cases of the coronavirus, and related uncertainty on timing and extent of the market recovery, the Company is not providing fiscal 2020 sales and earnings guidance at this time.

Conference Call

The Company will hold a conference call with investors to discuss third quarter fiscal 2020 results and its business outlook on October 23, 2020 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 334-777-6978. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for "News & Events" followed by "Webcasts & Presentations". A replay of the call will be available shortly after the broadcast through November 6, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 9393867. The replay will also be archived online on the "Webcasts & Presentations" page noted above.

About Carter's, Inc.

Carter's, Inc. is the largest branded marketer in North America of apparel exclusively for babies and young children. The Company owns the Carter's and OshKosh B'gosh brands, two of the most recognized brands in the marketplace. These brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally. They are also sold through approximately 1,100 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, www.cartersoshkosh.ca, and www.carters.com.mx. The Company's Child of Mine brand is available at Walmart, its Just One You brand is available at Target, and its Simple Joys brand is available on Amazon. The Company also owns Skip Hop, a global lifestyle brand for families with young children. Carter's is headquartered in Atlanta, Georgia. Additional information may be found at www.carters.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to the potential effects of the COVID-19 pandemic and the Company's liquidity. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Certain of the risks and uncertainties that could cause actual results and performance to differ materially are described in the Company's most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, and other reports filed with the Securities and Exchange Commission from time to time under the headings "Risk Factors". Included among those risks are those related to: the effects of the current coronavirus outbreak; financial difficulties for one or more of our major customers; an overall decrease in consumer spending; our products not being accepted in the marketplace; increased competition in the market place; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor; our foreign sourcing arrangements; disruptions in our supply chain; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

First Three Fiscal Quarters

2020 2019

(In millions,except Operating % Net Net Diluted Operating % Net Net Dilutedearnings per Income Sales Income EPS Income Sales Income EPSshare)

As reported $ 56.0 2.8 % $ 10.7 $ 0.24 $ 209.1 8.6 % $ 138.7 $ 3.06 (GAAP)

Intangibleasset 26.5 20.2 0.46 30.8 23.7 0.52 impairment

Goodwill 17.7 17.7 0.40 - - - impairment

COVID-19 18.8 14.3 0.34 - - - expenses

Productivity/restructuring 8.8 6.8 0.15 1.6 1.3 0.03 costs

Retail storeoperatingleases andother 6.5 4.9 0.11 - - - long-livedassetimpairments,net

Debtextinguishment - - - - 6.0 0.13 loss

Storerestructuring - - - (0.7 ) (0.6 ) (0.01 )costs

China business - - - (2.1 ) (2.1 ) (0.05 )model change

As adjusted $ 134.3 6.6 % $ 74.7 $ 1.70 $ 238.7 9.9 % $ 166.9 $ 3.68

Note: Resultsmay not beadditive dueto rounding.

Consolidated Results

The discussion of results below is presented on an adjusted (non-GAAP) basis where noted.

Third Quarter of Fiscal 2020 compared to Third Quarter of Fiscal 2019

Net sales decreased $78.2 million, or 8.3%, to $865.1 million, compared to $943.3 million in the third quarter of fiscal 2019. The decline reflects decreased sales to certain wholesale customers, decreased traffic to Company-operated stores, and decreased back-to-school sales (all a result of ongoing disruptions related to the COVID-19 pandemic), partially offset by strong eCommerce channel growth. U.S. Retail segment comparable sales declined 3.5%, reflecting a retail store decline, partially offset by eCommerce growth of 17.2%.

Operating income increased $29.7 million, or 35.4%, to $113.5 million, compared to $83.9 million in the third quarter of fiscal 2019. Operating margin increased 420 basis points to 13.1%. Adjusted operating income (a non-GAAP measure) increased $4.9 million, or 4.2%, to $119.5 million, compared to $114.7 million in the third quarter of fiscal 2019. Adjusted operating margin increased 160 basis points to 13.8%, reflecting improved gross margin and strong management of spending.

Net income increased $21.0 million, or 34.8%, to $81.2 million, or $1.85 per diluted share, compared to $60.3 million, or $1.34 per diluted share, in the third quarter of fiscal 2019. Adjusted net income (a non-GAAP measure) increased $2.0 million, or 2.3%, to $85.9 million, compared to $83.9 million in the third quarter of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) increased 4.8% to $1.96, compared to $1.87 in the third quarter of fiscal 2019.

First Three Quarters of Fiscal 2020 compared to First Three Quarters of Fiscal 2019

Net sales decreased $384.3 million, or 15.9%, to $2.03 billion. This decrease reflects the temporary closure of the Company's retail stores earlier this year, largely in the months of March, April, and May, and decreased sales to certain wholesale customers (both a result of disruptions related to COVID-19), partially offset by strong growth in eCommerce sales. Comparable eCommerce sales in the U.S. increased 39%.

Operating income was $56.0 million, compared to $209.1 million in the first three quarters of fiscal 2019. Adjusted operating income (a non-GAAP measure) was $134.3 million, compared to $238.7 million in the first three quarters of fiscal 2019. The decrease reflects the decline in net sales, increased inventory provisions, and lower royalty income, partially offset by decreased selling, general, and administrative expenses.

Net income was $10.7 million, or $0.24 per diluted share, compared to $138.7 million, or $3.06 per diluted share, in the first three quarters of fiscal 2019. Adjusted net income (a non-GAAP measure) was $74.7 million, compared to $166.9 million in the first three quarters of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) was $1.70, compared to $3.68 in the first three quarters of fiscal 2019.

Net cash provided by operations in the first three quarters of fiscal 2020 was $320.1 million compared to $73.4 million in the first three quarters of fiscal 2019. The increase reflects the extension of vendor payment terms, deferrals of retail store lease and other cash payments, and a reduction in inventory, partially offset by lower earnings related to COVID-19 disruptions.

See the "Business Segment Results" and "Reconciliation of GAAP to Adjusted Results" sections of this release for additional disclosures regarding business segment performance and non-GAAP measures.

Liquidity and Financial Position

During the third quarter of fiscal 2020, the Company repaid $244 million in outstanding borrowings under its $750 million secured revolving credit facility using cash on hand. The Company's total liquidity at the end of the third quarter of fiscal 2020 was $1.6 billion, comprised of cash and cash equivalents of $831 million and approximately $740 million in available borrowing capacity (exclusive of $7 million of outstanding letters of credit) on its secured revolving credit facility.

Earlier this year, the Company announced that, in connection with the COVID-19 pandemic, it temporarily suspended its common stock share repurchase program and quarterly cash dividend. No distributions of capital occurred in the third quarter of fiscal 2020. Provisions in the Company's secured revolving credit facility restrict the Company's ability to pay cash dividends or repurchase its common stock through the third fiscal quarter of 2021, and could have the effect of restricting the Company's ability to do so thereafter. The Company's Board of Directors will evaluate future distributions of capital, including share repurchases and dividends, based on a number of factors, including restrictions under the Company's revolving credit facility, business conditions, the Company's financial performance, and other considerations.

The Company continues to believe it has sufficient liquidity for the foreseeable future to maintain its operations and manage through the disruption caused by the COVID-19 pandemic.

2020 Business Outlook

Given the market disruption caused by the COVID-19 pandemic, recent spikes in confirmed cases of the coronavirus, and related uncertainty on timing and extent of the market recovery, the Company is not providing fiscal 2020 sales and earnings guidance at this time.

Conference Call

The Company will hold a conference call with investors to discuss third quarter fiscal 2020 results and its business outlook on October 23, 2020 at 8:30 a.m. Eastern Daylight Time. To participate in the call, please dial 334-777-6978. To listen to a live broadcast via the internet and view the accompanying presentation materials, please visit ir.carters.com and select links for "News & Events" followed by "Webcasts & Presentations". A replay of the call will be available shortly after the broadcast through November 6, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 9393867. The replay will also be archived online on the "Webcasts & Presentations" page noted above.

About Carter's, Inc.

Carter's, Inc. is the largest branded marketer in North America of apparel exclusively for babies and young children. The Company owns the Carter's and OshKosh B'gosh brands, two of the most recognized brands in the marketplace. These brands are sold in leading department stores, national chains, and specialty retailers domestically and internationally. They are also sold through approximately 1,100 Company-operated stores in the United States, Canada, and Mexico and online at www.carters.com, www.oshkosh.com, www.cartersoshkosh.ca, and www.carters.com.mx. The Company's Child of Mine brand is available at Walmart, its Just One You brand is available at Target, and its Simple Joys brand is available on Amazon. The Company also owns Skip Hop, a global lifestyle brand for families with young children. Carter's is headquartered in Atlanta, Georgia. Additional information may be found at www.carters.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws relating to our future performance, including statements with respect to the potential effects of the COVID-19 pandemic and the Company's liquidity. Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize or not materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Certain of the risks and uncertainties that could cause actual results and performance to differ materially are described in the Company's most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q for the quarter ended March 28, 2020, and other reports filed with the Securities and Exchange Commission from time to time under the headings "Risk Factors". Included among those risks are those related to: the effects of the current coronavirus outbreak; financial difficulties for one or more of our major customers; an overall decrease in consumer spending; our products not being accepted in the marketplace; increased competition in the market place; diminished value of our brands; the failure to protect our intellectual property; the failure to comply with applicable quality standards or regulations; unseasonable or extreme weather conditions; pending and threatened lawsuits; a breach of our information technology systems and the loss of personal data; increased margin pressures, including increased cost of materials and labor; our foreign sourcing arrangements; disruptions in our supply chain; the management and expansion of our business domestically and internationally; the acquisition and integration of other brands and businesses; and changes in our tax obligations, including additional customs, duties or tariffs. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

CARTER'S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)

Fiscal Quarter Ended Three Fiscal Quarters Ended

September September September 26, September 28, 26, 28, 2020 2019 2020 2019

Net sales $ 865,080 $ 943,322 $ 2,034,437 $ 2,418,764

Cost of goods sold 483,333 540,808 1,170,778 1,376,336

Adverse purchasecommitments (1,968 ) 303 16,166 1,354 (inventory and rawmaterials), net

Gross profit 383,715 402,211 847,493 1,041,074

Royalty income, net 9,063 9,192 19,989 27,371

Selling, general, andadministrative 279,251 296,733 767,237 828,540 expenses

Goodwill impairment - - 17,742 -

Intangible asset - 30,800 26,500 30,800 impairment

Operating income 113,527 83,870 56,003 209,105

Interest expense 16,347 9,966 40,523 28,667

Interest income (330 ) (200 ) (1,217 ) (937 )

Other (income) (2,758 ) 483 2,647 474 expense, net

Loss onextinguishment of - - - 7,823 debt

Income before income 100,268 73,621 14,050 173,078 taxes

Income tax provision 19,027 13,369 3,347 34,423

Net income $ 81,241 $ 60,252 $ 10,703 $ 138,655



Basic net income per $ 1.86 $ 1.35 $ 0.25 $ 3.08 common share

Diluted net income $ 1.85 $ 1.34 $ 0.24 $ 3.06 per common share

Dividend declared and $ - $ 0.50 $ 0.60 $ 1.50 paid per common share

CARTER'S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 26, 2020

% of Total Net Sales

September 28, 2019

% of Total Net Sales

September 26, 2020

% of Total Net Sales

September 28, 2019

% of Total Net Sales

Net sales:

U.S. Retail

$

449,150

51.9

%

$

464,100

49.2

%

$

1,085,883

53.4

%

$

1,264,283

52.3

%

U.S. Wholesale

302,135

34.9

%

352,256

37.3

%

706,009

34.7

%

856,713

35.4

%

International

113,795

13.2

%

126,966

13.5

%

242,545

11.9

%

297,768

12.3

%

Total net sales

$

865,080

100.0

%

$

943,322

100.0

%

$

2,034,437

100.0

%

$

2,418,764

100.0

%

Operating income (loss):

% of Segment Net Sales

% of Segment Net Sales

% of Segment Net Sales

% of Segment Net Sales

U.S. Retail

$

47,559

10.6

%

$

49,472

10.7

%

$

38,902

3.6

%

$

124,567

9.9

%

U.S. Wholesale

65,718

21.8

%

54,391

15.4

%

89,141

12.6

%

145,181

16.9

%

International

17,400

15.3

%

6,136

4.8

%

(15,819

)

(6.5

)%

15,351

5.2

%

Corporate expenses (*)

(17,150

)

n/a

(26,129

)

n/a

(56,221

)

n/a

(75,994

)

n/a

Total operating income

$

113,527

13.1

%

$

83,870

8.9

%

$

56,003

2.8

%

$

209,105

8.6

%

CARTER'S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

Fiscal Quarter Ended Three Fiscal Quarters Ended

September % of September % of % of % of 26, Total 28, Total September 26, Total September 28, Total 2020 Net 2019 Net 2020 Net 2019 Net Sales Sales Sales Sales

Net sales:

U.S. Retail $ 449,150 51.9 % $ 464,100 49.2 % $ 1,085,883 53.4 % $ 1,264,283 52.3 %

U.S. 302,135 34.9 % 352,256 37.3 % 706,009 34.7 % 856,713 35.4 %Wholesale

International 113,795 13.2 % 126,966 13.5 % 242,545 11.9 % 297,768 12.3 %

Total net $ 865,080 100.0 % $ 943,322 100.0 % $ 2,034,437 100.0 % $ 2,418,764 100.0 %sales



Operating % of % of % of % ofincome Segment Segment Segment Segment(loss): Net Net Net Net Sales Sales Sales Sales

U.S. Retail $ 47,559 10.6 % $ 49,472 10.7 % $ 38,902 3.6 % $ 124,567 9.9 %

U.S. 65,718 21.8 % 54,391 15.4 % 89,141 12.6 % 145,181 16.9 %Wholesale

International 17,400 15.3 % 6,136 4.8 % (15,819 ) (6.5 ) 15,351 5.2 % %

Corporate (17,150 ) n/a (26,129 ) n/a (56,221 ) n/a (75,994 ) n/a expenses (*)

Totaloperating $ 113,527 13.1 % $ 83,870 8.9 % $ 56,003 2.8 % $ 209,105 8.6 %income

(*)

Corporate expenses include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, office occupancy, information technology, certain legal fees, consulting fees, and audit fees.

Corporate expenses include expenses related to incentive compensation, (*) stock-based compensation, executive management, severance and relocation, finance, office occupancy, information technology, certain legal fees, consulting fees, and audit fees.

Fiscal Quarter Ended September 26, 2020

Three Fiscal Quarters Ended September 26, 2020

Charges:

U.S. Retail

U.S. Wholesale

International

U.S. Retail

U.S. Wholesale

International

Productivity/restructuring costs(1)

$

0.3

$

0.2

$

0.3

$

3.4

$

1.5

$

1.9

Goodwill impairment

-

-

-

-

-

17.7

Skip Hop tradename impairment charge

-

-

-

0.5

6.8

3.7

OshKosh tradename impairment charge

-

-

-

13.6

1.6

0.3

Incremental costs associated with COVID-19 pandemic

1.6

1.4

0.3

8.3

8.5

2.0

Retail store operating leases and other long-lived asset impairments, net of gain(2)

1.5

-

-

6.3

-

0.2

Total charges

$

3.4

$

1.6

$

0.6

$

32.1

$

18.4

$

25.8

Fiscal Quarter Ended September 26, Three Fiscal Quarters Ended September 2020 26, 2020

Charges: U.S. U.S. International U.S. U.S. International Retail Wholesale Retail Wholesale

Productivity/restructuring $ 0.3 $ 0.2 $ 0.3 $ 3.4 $ 1.5 $ 1.9 costs^(1)

Goodwill - - - - - 17.7 impairment

Skip Hoptradename - - - 0.5 6.8 3.7 impairmentcharge

OshKoshtradename - - - 13.6 1.6 0.3 impairmentcharge

Incrementalcostsassociated 1.6 1.4 0.3 8.3 8.5 2.0 with COVID-19pandemic

Retail storeoperatingleases andotherlong-lived 1.5 - - 6.3 - 0.2 assetimpairments,net of gain^(2)

Total charges $ 3.4 $ 1.6 $ 0.6 $ 32.1 $ 18.4 $ 25.8

(1)

The third fiscal quarter ended September 26, 2020, the three fiscal quarters ended September 26, 2020, and the three fiscal quarters ended September 28, 2019 also include corporate charges related to organizational restructuring of $0.4 million, $2.0 million, and $1.6 million, respectively.

(2)

Impairments include an immaterial gain on the remeasurement of retail store operating leases.

The third fiscal quarter ended September 26, 2020, the three fiscal quarters ended September 26, 2020, and the three fiscal quarters ended(1) September 28, 2019 also include corporate charges related to organizational restructuring of $0.4 million, $2.0 million, and $1.6 million, respectively.

(2) Impairments include an immaterial gain on the remeasurement of retail store operating leases.

Fiscal Quarter Ended September 28, 2019

Three Fiscal Quarters Ended September 28, 2019

Charges:

U.S. Retail

U.S. Wholesale

International

U.S. Retail

U.S. Wholesale

International

Benefit related to sale of inventory previously reserved in China

$

-

$

-

$

-

$

-

$

-

$

(2.1

)

Reversal of store restructuring costs previously recorded during the third quarter of fiscal 2017

-

-

-

(0.7

)

-

-

Skip Hop tradename impairment charge

1.2

19.1

10.5

1.2

19.1

10.5

Total charges

$

1.2

$

19.1

$

10.5

$

0.5

$

19.1

$

8.4

Note: Results may not be additive due to rounding.

Fiscal Quarter Ended September 28, Three Fiscal Quarters Ended 2019 September 28, 2019

Charges: U.S. U.S. International U.S. U.S. International Retail Wholesale Retail Wholesale

Benefitrelated tosale ofinventory $ - $ - $ - $ - $ - $ (2.1 )previouslyreserved inChina

Reversal ofstorerestructuringcostspreviously - - - (0.7 ) - - recordedduring thethird quarterof fiscal2017

Skip Hoptradename 1.2 19.1 10.5 1.2 19.1 10.5 impairmentcharge

Total charges $ 1.2 $ 19.1 $ 10.5 $ 0.5 $ 19.1 $ 8.4

Note: Resultsmay not beadditive dueto rounding.

CARTER'S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

September 26, 2020

December 28, 2019

September 28, 2019

ASSETS

Current assets:

Cash and cash equivalents

$

831,175

$

214,311

$

153,936

Accounts receivable, net of allowance for credit losses of $7,675, $6,354, $4,591, respectively

263,231

251,005

293,203

Finished goods inventories, net of inventory reserves of $30,053, $9,283, and $19,583, respectively

646,608

593,987

723,242

Prepaid expenses and other current assets

56,493

48,454

53,264

Total current assets

1,797,507

1,107,757

1,223,645

Property, plant, and equipment, net of accumulated depreciation of $576,123, $523,848, and $504,833, respectively

274,574

320,168

330,371

Operating lease assets

619,057

687,024

709,523

Tradenames, net

307,955

334,642

334,705

Goodwill

209,507

229,026

228,235

Customer relationships, net

38,147

41,126

41,890

Other assets

34,874

33,374

31,211

Total assets

$

3,281,621

$

2,753,117

$

2,899,580

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

473,473

$

183,641

$

205,782

Current operating lease liabilities

172,364

160,228

158,524

Other current liabilities

115,069

131,631

119,862

Total current liabilities

760,906

475,500

484,168

Long-term debt, net

989,086

594,672

769,525

Deferred income taxes

60,160

74,370

78,916

Long-term operating lease liabilities

587,099

664,372

691,717

Other long-term liabilities

62,489

64,073

62,520

Total liabilities

$

2,459,740

$

1,872,987

$

2,086,846

Commitments and contingencies

Stockholders' equity:

Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at September 26, 2020, December 28, 2019, and September 28, 2019

$

-

$

-

$

-

Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 43,648,671, 43,963,103 and 44,287,636 shares issued and outstanding at September 26, 2020, December 28, 2019, and September 28, 2019, respectively

436

440

443

Additional paid-in capital

9,258

-

-

Accumulated other comprehensive loss

(41,402

)

(35,634

)

(38,908

)

Retained earnings

853,589

915,324

851,199

Total stockholders' equity

821,881

880,130

812,734

Total liabilities and stockholders' equity

$

3,281,621

$

2,753,117

$

2,899,580

CARTER'S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

September 26, December 28, September 28, 2020 2019 2019

ASSETS

Current assets:

Cash and cash equivalents $ 831,175 $ 214,311 $ 153,936

Accounts receivable, net ofallowance for credit losses of 263,231 251,005 293,203 $7,675, $6,354, $4,591,respectively

Finished goods inventories, netof inventory reserves of $30,053, 646,608 593,987 723,242 $9,283, and $19,583, respectively

Prepaid expenses and other 56,493 48,454 53,264 current assets

Total current assets 1,797,507 1,107,757 1,223,645

Property, plant, and equipment,net of accumulated depreciation 274,574 320,168 330,371 of $576,123, $523,848, and$504,833, respectively

Operating lease assets 619,057 687,024 709,523

Tradenames, net 307,955 334,642 334,705

Goodwill 209,507 229,026 228,235

Customer relationships, net 38,147 41,126 41,890

Other assets 34,874 33,374 31,211

Total assets $ 3,281,621 $ 2,753,117 $ 2,899,580



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 473,473 $ 183,641 $ 205,782

Current operating lease 172,364 160,228 158,524 liabilities

Other current liabilities 115,069 131,631 119,862

Total current liabilities 760,906 475,500 484,168



Long-term debt, net 989,086 594,672 769,525

Deferred income taxes 60,160 74,370 78,916

Long-term operating lease 587,099 664,372 691,717 liabilities

Other long-term liabilities 62,489 64,073 62,520

Total liabilities $ 2,459,740 $ 1,872,987 $ 2,086,846



Commitments and contingencies



Stockholders' equity:

Preferred stock; par value $.01per share; 100,000 sharesauthorized; none issued or $ - $ - $ - outstanding at September 26,2020, December 28, 2019, andSeptember 28, 2019

Common stock, voting; par value$.01 per share; 150,000,000shares authorized; 43,648,671,43,963,103 and 44,287,636 shares 436 440 443 issued and outstanding atSeptember 26, 2020, December 28,2019, and September 28, 2019,respectively

Additional paid-in capital 9,258 - -

Accumulated other comprehensive (41,402 ) (35,634 ) (38,908 )loss

Retained earnings 853,589 915,324 851,199

Total stockholders' equity 821,881 880,130 812,734

Total liabilities and $ 3,281,621 $ 2,753,117 $ 2,899,580 stockholders' equity

CARTER'S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

Three Fiscal Quarters Ended

September 26, 2020

September 28, 2019

Cash flows from operating activities:

Net income

$

10,703

$

138,655

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property, plant, and equipment

66,985

68,005

Amortization of intangible assets

2,784

2,810

Provisions for (recoveries of) excess and obsolete inventory

20,912

4,567

Goodwill impairment

17,742

-

Intangible asset impairments

26,500

30,800

Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries

9,395

407

Amortization of debt issuance costs

1,641

1,087

Stock-based compensation expense

9,531

13,540

Unrealized foreign currency exchange loss, net

1,354

176

Provisions for (recoveries of) doubtful accounts receivable from customers

7,702

(2,063

)

Loss on extinguishment of debt

-

7,823

Deferred income tax (benefit) expense

(16,697

)

8,300

Effect of changes in operating assets and liabilities:

Accounts receivable

(21,576

)

(32,792

)

Finished goods inventories

(76,739

)

(152,023

)

Prepaid expenses and other assets

(7,660

)

(16,688

)

Accounts payable and other liabilities

267,551

751

Net cash provided by operating activities

320,128

73,355

Cash flows from investing activities:

Capital expenditures

(25,212

)

(46,138

)

Disposals and recoveries from property, plant, and equipment

-

749

Net cash used in investing activities

(25,212

)

(45,389

)

Cash flows from financing activities:

Proceeds from senior notes due 2025

500,000

-

Proceeds from senior notes due 2027

-

500,000

Payment of senior notes due 2021

-

(400,000

)

Premiums paid to extinguish debt

-

(5,252

)

Payment of debt issuance costs

(7,639

)

(5,793

)

Borrowings under secured revolving credit facility

644,000

265,000

Payments on secured revolving credit facility

(744,000

)

(186,000

)

Repurchases of common stock

(45,255

)

(147,464

)

Dividends paid

(26,260

)

(67,528

)

Withholdings from vestings of restricted stock

(4,928

)

(4,214

)

Proceeds from exercises of stock options

3,728

6,881

Net cash provided by (used in) financing activities

319,646

(44,370

)

Effect of exchange rate changes on cash and cash equivalents

2,302

263

Net increase (decrease) in cash and cash equivalents

616,864

(16,141

)

Cash and cash equivalents, beginning of period

214,311

170,077

Cash and cash equivalents, end of period

$

831,175

$

153,936

CARTER'S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

Three Fiscal Quarters Ended

September September 26, 2020 28, 2019

Cash flows from operating activities:

Net income $ 10,703 $ 138,655

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property, plant, and equipment 66,985 68,005

Amortization of intangible assets 2,784 2,810

Provisions for (recoveries of) excess and obsolete 20,912 4,567 inventory

Goodwill impairment 17,742 -

Intangible asset impairments 26,500 30,800

Other asset impairments and loss on disposal of 9,395 407 property, plant and equipment, net of recoveries

Amortization of debt issuance costs 1,641 1,087

Stock-based compensation expense 9,531 13,540

Unrealized foreign currency exchange loss, net 1,354 176

Provisions for (recoveries of) doubtful accounts 7,702 (2,063 )receivable from customers

Loss on extinguishment of debt - 7,823

Deferred income tax (benefit) expense (16,697 ) 8,300

Effect of changes in operating assets and liabilities:

Accounts receivable (21,576 ) (32,792 )

Finished goods inventories (76,739 ) (152,023 )

Prepaid expenses and other assets (7,660 ) (16,688 )

Accounts payable and other liabilities 267,551 751

Net cash provided by operating activities 320,128 73,355



Cash flows from investing activities:

Capital expenditures (25,212 ) (46,138 )

Disposals and recoveries from property, plant, and - 749 equipment

Net cash used in investing activities (25,212 ) (45,389 )



Cash flows from financing activities:

Proceeds from senior notes due 2025 500,000 -

Proceeds from senior notes due 2027 - 500,000

Payment of senior notes due 2021 - (400,000 )

Premiums paid to extinguish debt - (5,252 )

Payment of debt issuance costs (7,639 ) (5,793 )

Borrowings under secured revolving credit facility 644,000 265,000

Payments on secured revolving credit facility (744,000 ) (186,000 )

Repurchases of common stock (45,255 ) (147,464 )

Dividends paid (26,260 ) (67,528 )

Withholdings from vestings of restricted stock (4,928 ) (4,214 )

Proceeds from exercises of stock options 3,728 6,881

Net cash provided by (used in) financing activities 319,646 (44,370 )



Effect of exchange rate changes on cash and cash 2,302 263 equivalents

Net increase (decrease) in cash and cash equivalents 616,864 (16,141 )

Cash and cash equivalents, beginning of period 214,311 170,077

Cash and cash equivalents, end of period $ 831,175 $ 153,936

CARTER'S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(dollars in millions, except earnings per share)

(unaudited)

Fiscal Quarter Ended September 26, 2020

Gross Margin

% Net Sales

SG&A

% Net Sales

Operating Income

% Net Sales

Income Taxes

Net Income

Diluted EPS

As reported (GAAP)

$

383.7

44.4

%

$

279.3

32.3

%

$

113.5

13.1

%

$

19.0

$

81.2

$

1.85

COVID-19 expenses (b)

-

(3.3

)

3.3

0.8

2.5

0.06

Retail store operating leases and other long-lived asset impairments, net (c)

-

(1.5

)

1.5

0.4

1.1

0.03

Productivity/restructuring costs (d)

-

(1.2

)

1.2

0.2

1.0

0.02

As adjusted (a)

$

383.7

44.4

%

$

273.2

31.6

%

$

119.5

13.8

%

$

20.4

$

85.9

$

1.96

CARTER'S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(dollars in millions, except earnings per share)

(unaudited)

Fiscal Quarter Ended September 26, 2020

Gross % Net SG&A % Net Operating % Net Income Net Diluted Margin Sales Sales Income Sales Taxes Income EPS

As reported (GAAP) $ 383.7 44.4 % $ 279.3 32.3 % $ 113.5 13.1 % $ 19.0 $ 81.2 $ 1.85

COVID-19 expenses - (3.3 ) 3.3 0.8 2.5 0.06 (b)

Retail storeoperating leasesand other - (1.5 ) 1.5 0.4 1.1 0.03 long-lived assetimpairments, net(c)

Productivity/restructuring costs - (1.2 ) 1.2 0.2 1.0 0.02 (d)

As adjusted (a) $ 383.7 44.4 % $ 273.2 31.6 % $ 119.5 13.8 % $ 20.4 $ 85.9 $ 1.96

Three Fiscal Quarters Ended September 26, 2020

Gross Margin

% Net Sales

SG&A

% Net Sales

Operating Income

% Net Sales

Income Taxes

Net Income

Diluted EPS

As reported (GAAP)

$

847.5

41.7

%

$

767.2

37.7

%

$

56.0

2.8

%

$

3.3

$

10.7

$

0.24

Intangible asset impairment (e)

-

-

26.5

6.3

20.2

0.46

Goodwill impairment (f)

-

-

17.7

-

17.7

0.40

COVID-19 expenses (b)

-

(18.8

)

18.8

4.5

14.3

0.34

Productivity/restructuring costs (d)

-

(8.8

)

8.8

1.9

6.8

0.15

Retail store operating leases and other long-lived asset impairments, net (c)

-

(6.5

)

6.5

1.6

4.9

0.11

As adjusted (a)

$

847.5

41.7

%

$

733.2

36.0

%

$

134.3

6.6

%

$

17.7

$

74.7

$

1.70

Three Fiscal Quarters Ended September 26, 2020

Gross % Net SG&A % Net Operating % Net Income Net Diluted Margin Sales Sales Income Sales Taxes Income EPS

As reported (GAAP) $ 847.5 41.7 % $ 767.2 37.7 % $ 56.0 2.8 % $ 3.3 $ 10.7 $ 0.24

Intangible asset - - 26.5 6.3 20.2 0.46 impairment (e)

Goodwill impairment - - 17.7 - 17.7 0.40 (f)

COVID-19 expenses - (18.8 ) 18.8 4.5 14.3 0.34 (b)

Productivity/restructuring costs - (8.8 ) 8.8 1.9 6.8 0.15 (d)

Retail storeoperating leasesand other - (6.5 ) 6.5 1.6 4.9 0.11 long-lived assetimpairments, net(c)

As adjusted (a) $ 847.5 41.7 % $ 733.2 36.0 % $ 134.3 6.6 % $ 17.7 $ 74.7 $ 1.70

Fiscal Quarter Ended September 28, 2019

Gross Margin

% Net Sales

SG&A

% Net Sales

Operating Income

% Net Sales

Income Taxes

Net Income

Diluted EPS

As reported (GAAP)

$

402.2

42.6

%

$

296.7

31.5

%

$

83.9

8.9

%

$

13.4

$

60.3

$

1.34

Intangible asset impairment (e)

-

-

30.8

7.1

23.7

0.53

As adjusted (a)

$

402.2

42.6

%

$

296.7

31.5

%

$

114.7

12.2

%

$

20.5

$

83.9

$

1.87

Fiscal Quarter Ended September 28, 2019

Gross % Net SG&A % Net Operating % Net Income Net Diluted Margin Sales Sales Income Sales Taxes Income EPS

As reported (GAAP) $ 402.2 42.6 % $ 296.7 31.5 % $ 83.9 8.9 % $ 13.4 $ 60.3 $ 1.34

Intangible asset - - 30.8 7.1 23.7 0.53 impairment (e)

As adjusted (a) $ 402.2 42.6 % $ 296.7 31.5 % $ 114.7 12.2 % $ 20.5 $ 83.9 $ 1.87

Three Fiscal Quarters Ended September 28, 2019

Gross Margin

% Net Sales

SG&A

% Net Sales

Operating Income

% Net Sales

Income Taxes

Net Income

Diluted EPS

As reported (GAAP)

$

1,041.1

43.0

%

$

828.5

34.3

%

$

209.1

8.6

%

$

34.4

$

138.7

$

3.06

Intangible asset impairment (e)

-

-

30.8

7.1

23.7

0.52

Debt extinguishment loss (g)

-

-

-

1.8

6.0

0.13

Productivity/restructuring costs (d)

-

(1.6

)

1.6

0.4

1.3

0.03

Store restructuring costs (h)

-

0.7

(0.7

)

(0.2

)

(0.6

)

(0.01

)

China business model change (i)

(2.1

)

-

(2.1

)

-

(2.1

)

(0.05

)

As adjusted (a)

$

1,039.0

43.0

%

$

827.6

34.2

%

$

238.7

9.9

%

$

43.6

$

166.9

$

3.68

Three Fiscal Quarters Ended September 28, 2019

Gross % Net SG&A % Net Operating % Net Income Net Diluted Margin Sales Sales Income Sales Taxes Income EPS

As reported (GAAP) $ 1,041.1 43.0 % $ 828.5 34.3 % $ 209.1 8.6 % $ 34.4 $ 138.7 $ 3.06

Intangible asset impairment - - 30.8 7.1 23.7 0.52 (e)

Debt extinguishment loss - - - 1.8 6.0 0.13 (g)

Productivity/restructuring - (1.6 ) 1.6 0.4 1.3 0.03 costs (d)

Store restructuring costs - 0.7 (0.7 ) (0.2 ) (0.6 ) (0.01 )(h)

China business model change (2.1 ) - (2.1 ) - (2.1 ) (0.05 )(i)

As adjusted (a) $ 1,039.0 43.0 % $ 827.6 34.2 % $ 238.7 9.9 % $ 43.6 $ 166.9 $ 3.68

(a)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present gross margin, SG&A, operating income, income tax, net income, and net income on a diluted share basis excluding the adjustments discussed above. The Company believes these adjustments provide a meaningful comparison of the Company's results and afford investors a view of what management considers to be the Company's core performance. The adjusted, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net income or as any other measurement of performance derived in accordance with GAAP. The adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company's future condition or results of operations.

(b)

Net expenses incurred due to the COVID-19 pandemic, including incremental employee-related costs, costs associated with additional protective equipment and cleaning supplies, restructuring costs, and a payroll tax benefit.

(c)

Principally related to U.S. Retail store lease assets.

(d)

Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19).

(e)

Intangible impairment charges related to the OshKosh and Skip Hop tradename assets.

(f)

Goodwill impairment charge recorded in the International segment.

(g)

Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

(h)

Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

(i)

Benefit related to the sale of inventory previously reserved in China.

Note: Results may not be additive due to rounding.

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present gross margin, SG&A, operating income, income tax, net income, and net income on a diluted share basis excluding the adjustments discussed above. The Company believes these adjustments provide a meaningful comparison of the Company's results and afford investors a(a) view of what management considers to be the Company's core performance. The adjusted, non-GAAP financial measurements included in this earnings release should not be considered as an alternative to net income or as any other measurement of performance derived in accordance with GAAP. The adjusted, non-GAAP financial measurements are presented for informational purposes only and are not necessarily indicative of the Company's future condition or results of operations.

Net expenses incurred due to the COVID-19 pandemic, including incremental(b) employee-related costs, costs associated with additional protective equipment and cleaning supplies, restructuring costs, and a payroll tax benefit.

(c) Principally related to U.S. Retail store lease assets.

(d) Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19).

(e) Intangible impairment charges related to the OshKosh and Skip Hop tradename assets.

(f) Goodwill impairment charge recorded in the International segment.

Related to the redemption of the $400 million aggregate principal amount of(g) senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

(h) Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

(i) Benefit related to the sale of inventory previously reserved in China.

Note: Results may not be additive due to rounding.

CARTER'S, INC.

RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS

(unaudited)

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Weighted-average number of common and common equivalent shares outstanding:

Basic number of common shares outstanding

43,193,752

44,144,135

43,237,319

44,640,413

Dilutive effect of equity awards

156,878

287,904

174,351

302,832

Diluted number of common and common equivalent shares outstanding

43,350,630

44,432,039

43,411,670

44,943,245

As reported on a GAAP Basis:

(dollars in thousands, except per share data)

Basic net income per common share:

Net income

$

81,241

$

60,252

$

10,703

$

138,655

Income allocated to participating securities

(837

)

(565

)

(88

)

(1,244

)

Net income available to common shareholders

$

80,404

$

59,687

$

10,615

$

137,411

Basic net income per common share

$

1.86

$

1.35

$

0.25

$

3.08

Diluted net income per common share:

Net income

$

81,241

$

60,252

$

10,703

$

138,655

Income allocated to participating securities

(834

)

(563

)

(89

)

(1,239

)

Net income available to common shareholders

$

80,407

$

59,689

$

10,614

$

137,416

Diluted net income per common share

$

1.85

$

1.34

$

0.24

$

3.06

As adjusted (a):

Basic net income per common share:

Net income

$

85,903

$

83,932

$

74,700

$

166,937

Income allocated to participating securities

(885

)

(794

)

(759

)

(1,508

)

Net income available to common shareholders

$

85,018

$

83,138

$

73,941

$

165,429

Basic net income per common share

$

1.97

$

1.88

$

1.71

$

3.71

Diluted net income per common share:

Net income

$

85,903

$

83,932

$

74,700

$

166,937

Income allocated to participating securities

(882

)

(791

)

(757

)

(1,502

)

Net income available to common shareholders

$

85,021

$

83,141

$

73,943

$

165,435

Diluted net income per common share

$

1.96

$

1.87

$

1.70

$

3.68

CARTER'S, INC.

RECONCILIATION OF NET INCOME ALLOCABLE TO COMMON SHAREHOLDERS

(unaudited)

Fiscal Quarter Ended Three Fiscal Quarters Ended

September September September September 26, 28, 26, 28, 2020 2019 2020 2019

Weighted-averagenumber of common and common equivalentshares outstanding:

Basic number ofcommon shares 43,193,752 44,144,135 43,237,319 44,640,413 outstanding

Dilutive effect of 156,878 287,904 174,351 302,832 equity awards

Diluted number ofcommon and common 43,350,630 44,432,039 43,411,670 44,943,245 equivalent sharesoutstanding

As reported on a GAAP Basis:

(dollars inthousands, except per share data)

Basic net income per common share:

Net income $ 81,241 $ 60,252 $ 10,703 $ 138,655

Income allocated toparticipating (837 ) (565 ) (88 ) (1,244 )securities

Net income availableto common $ 80,404 $ 59,687 $ 10,615 $ 137,411 shareholders

Basic net income per $ 1.86 $ 1.35 $ 0.25 $ 3.08 common share

Diluted net income per common share:

Net income $ 81,241 $ 60,252 $ 10,703 $ 138,655

Income allocated toparticipating (834 ) (563 ) (89 ) (1,239 )securities

Net income availableto common $ 80,407 $ 59,689 $ 10,614 $ 137,416 shareholders

Diluted net income $ 1.85 $ 1.34 $ 0.24 $ 3.06 per common share

As adjusted (a):

Basic net income per common share:

Net income $ 85,903 $ 83,932 $ 74,700 $ 166,937

Income allocated toparticipating (885 ) (794 ) (759 ) (1,508 )securities

Net income availableto common $ 85,018 $ 83,138 $ 73,941 $ 165,429 shareholders

Basic net income per $ 1.97 $ 1.88 $ 1.71 $ 3.71 common share

Diluted net income per common share:

Net income $ 85,903 $ 83,932 $ 74,700 $ 166,937

Income allocated toparticipating (882 ) (791 ) (757 ) (1,502 )securities

Net income availableto common $ 85,021 $ 83,141 $ 73,943 $ 165,435 shareholders

Diluted net income $ 1.96 $ 1.87 $ 1.70 $ 3.68 per common share

(a)

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present per share data excluding the adjustments discussed above. The Company has excluded $4.7 million and $64.0 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 26, 2020, respectively. The Company has excluded $23.7 million and $28.3 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 28, 2019, respectively.

Note: Results may not be additive due to rounding.

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements that present per share data excluding the adjustments discussed above. The Company has excluded $4.7 million and $64.0 million in(a) after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 26, 2020, respectively. The Company has excluded $23.7 million and $28.3 million in after-tax expenses from these results for the fiscal quarter and three fiscal quarters ended September 28, 2019, respectively.

Note: Results may not be additive due to rounding.

RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

(dollars in millions)

(unaudited)

The following table provides a reconciliation of net income to EBITDA and Adjusted EBITDA for the periods indicated:

Fiscal Quarter Ended

Three Fiscal Quarters Ended

Four Fiscal Quarters Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

September 26, 2020

Net income

$

81.2

$

60.3

$

10.7

$

138.7

$

135.9

Interest expense

16.3

10.0

40.5

28.7

49.5

Interest income

(0.3

)

(0.2

)

(1.2

)

(0.9

)

(1.6

)

Income tax expense

19.0

13.4

3.3

34.4

33.1

Depreciation and amortization

24.1

24.0

69.8

70.8

94.9

EBITDA

$

140.4

$

107.3

$

123.1

$

271.6

$

311.7

Adjustments to EBITDA

Intangible asset impairment (a)

$

-

$

30.8

$

26.5

$

30.8

$

26.5

Goodwill impairment (b)

-

-

17.7

-

17.7

COVID-19 expenses (c)

3.3

-

18.8

-

18.8

Productivity/restructuring costs (d)

1.0

-

8.5

1.6

8.5

Retail store operating leases and other long-lived asset impairments, net (e)

1.5

-

6.4

-

6.4

Customer bankruptcy charges, net (f)

-

-

-

-

(0.6

)

Debt extinguishment loss (g)

-

-

-

7.8

-

Store restructuring costs (h)

-

-

-

(0.7

)

-

China business model change, net (i)

-

-

-

(2.1

)

-

Total adjustments

5.8

30.8

78.1

37.5

77.5

Adjusted EBITDA

$

146.2

$

138.1

$

201.2

$

309.1

$

389.2

RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

(dollars in millions)

(unaudited)

The following table provides a reconciliation of net income to EBITDA andAdjusted EBITDA for the periods indicated:

Four Fiscal Quarter Ended Three Fiscal Quarters Fiscal Ended Quarters Ended

September September September September September 26, 28, 26, 28, 26, 2020 2019 2020 2019 2020

Net income $ 81.2 $ 60.3 $ 10.7 $ 138.7 $ 135.9

Interest expense 16.3 10.0 40.5 28.7 49.5

Interest income (0.3 ) (0.2 ) (1.2 ) (0.9 ) (1.6 )

Income tax expense 19.0 13.4 3.3 34.4 33.1

Depreciation and 24.1 24.0 69.8 70.8 94.9 amortization

EBITDA $ 140.4 $ 107.3 $ 123.1 $ 271.6 $ 311.7



Adjustments to EBITDA

Intangible asset $ - $ 30.8 $ 26.5 $ 30.8 $ 26.5 impairment (a)

Goodwill impairment - - 17.7 - 17.7 (b)

COVID-19 expenses 3.3 - 18.8 - 18.8 (c)

Productivity/restructuring costs 1.0 - 8.5 1.6 8.5 (d)

Retail storeoperating leasesand other 1.5 - 6.4 - 6.4 long-lived assetimpairments, net(e)

Customer bankruptcy - - - - (0.6 )charges, net (f)

Debt extinguishment - - - 7.8 - loss (g)

Store restructuring - - - (0.7 ) - costs (h)

China businessmodel change, net - - - (2.1 ) - (i)

Total adjustments 5.8 30.8 78.1 37.5 77.5

Adjusted EBITDA $ 146.2 $ 138.1 $ 201.2 $ 309.1 $ 389.2

(a)

Related to the write-down of the OshKosh and Skip Hop tradename assets.

(b)

Goodwill impairment charge recorded in the International segment.

(c)

Net expenses incurred due to the COVID-19 pandemic.

(d)

Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19). Amounts for fiscal quarter, three fiscal quarters, and four fiscal quarters ended September 26, 2020 exclude $0.2 million of depreciation expense that is included in the corresponding depreciation and amortization line item.

(e)

Principally related to U.S. Retail store lease assets.

(f)

Recovery related to the Toys "R" Us bankruptcy.

(g)

Related to the redemption of the $400 million aggregate principal amount of senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

(h)

Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

(i)

Benefit related to the sale of inventory previously reserved in China.

Note: Results may not be additive due to rounding.

EBITDA and Adjusted EBITDA are supplemental financial measures that are not defined or prepared in accordance with GAAP. We define EBITDA as net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items described in footnotes (a) - (i) to the table above.

We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. These measures also afford investors a view of what management considers to be the Company's core performance.

The use of EBITDA and Adjusted EBITDA instead of net income or cash flows from operations has limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. EBITDA and Adjusted EBITDA do not represent net income or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA, Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us for working capital, debt service and other purposes.

(a) Related to the write-down of the OshKosh and Skip Hop tradename assets.

(b) Goodwill impairment charge recorded in the International segment.

(c) Net expenses incurred due to the COVID-19 pandemic.

Certain lease exit, severance and related costs resulting from restructuring actions (not related to COVID-19). Amounts for fiscal(d) quarter, three fiscal quarters, and four fiscal quarters ended September 26, 2020 exclude $0.2 million of depreciation expense that is included in the corresponding depreciation and amortization line item.

(e) Principally related to U.S. Retail store lease assets.

(f) Recovery related to the Toys "R" Us bankruptcy.

Related to the redemption of the $400 million aggregate principal amount of(g) senior notes due 2021 in March 2019 that were previously issued by a wholly-owned subsidiary of the Company.

(h) Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

(i) Benefit related to the sale of inventory previously reserved in China.

Note: Results may not be additive due to rounding.

EBITDA and Adjusted EBITDA are supplemental financial measures that are not defined or prepared in accordance with GAAP. We define EBITDA as net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items described in footnotes (a) - (i) to the table above.

We present EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. These measures also afford investors a view of what management considers to be the Company's core performance.

The use of EBITDA and Adjusted EBITDA instead of net income or cash flows from operations has limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. EBITDA and Adjusted EBITDA do not represent net income or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA, Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. EBITDA and Adjusted EBITDA do not reflect the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us for working capital, debt service and other purposes.

RECONCILIATION OF U.S. GAAP AND NON-GAAP INFORMATION

(dollars in millions)

(unaudited)

The table below reflects the calculation of constant currency net sales on aconsolidated and International segment basis for the fiscal quarter and threefiscal quarters ended September 26, 2020:

Fiscal Quarter Ended

Reported Reported Net Impact of Constant-Currency Net Reported Sales Foreign Net Sales Sales Net Constant-Currency September Currency Sales Net Sales 26, Translation September 26, September % Change % Change 2020 2020 28, 2019



Consolidated net sales $ 865.1 $ (2.0 ) $ 867.1 $ 943.3 (8.3 )% (8.1 )%

International segment $ 113.8 $ (2.0 ) $ 115.8 $ 127.0 (10.4 )% (8.8 )%net sales

Three Fiscal Quarters Ended

Reported Net Sales September 26, 2020

Impact of Foreign Currency Translation

Constant-Currency Net Sales September 26, 2020

Reported Net Sales September 28, 2019

Reported Net Sales % Change

Constant-Currency Net Sales % Change

Consolidated net sales

$

2,034.4

$

(4.7

)

$

2,039.1

$

2,418.8

(15.9

)%

(15.7

)%

International segment net sales

$

242.5

$

(4.7

)

$

247.2

$

297.8

(18.5

)%

(17.0

)%

The Company evaluates its net sales on both an "as reported" and a "constant currency" basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates that occurred between the comparative periods. Constant currency net sales results are calculated by translating current period net sales in local currency to the U.S. dollar amount by using the currency conversion rate for the prior comparative period. The Company consistently applies this approach to net sales for all countries where the functional currency is not the U.S. dollar. The Company believes that the presentation of net sales on a constant currency basis provides useful supplemental information regarding changes in our net sales that were not due to fluctuations in currency exchange rates and such information is consistent with how the Company assesses changes in its net sales between comparative periods.

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CONTACT: Sean McHugh Vice President & Treasurer sean.mchugh@carters.com