Business Wire | Jul 24, 2020 06:12AM EDT

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

Jul. 24, 2020

ATLANTA--(BUSINESS WIRE)--Jul. 24, 2020--Carter's, Inc. (NYSE:CRI), the largest branded marketer in North America of apparel exclusively for babies and young children, today reported its second quarter fiscal 2020 results.

"We had a strong finish to the second quarter. Thankfully, the disruption to our business due to the pandemic and related store closures was less meaningful than we expected," said Michael D. Casey, Chairman and Chief Executive Officer. "In the second quarter, we continued to see good demand from our largest wholesale customers whose stores remained open, and we were also able to serve the needs of families with young children through our very profitable eCommerce operations.

"By the end of June, substantially all of our stores in the United States had reopened and we saw strong demand for our brands over the July 4th holiday shopping period.

"In the second quarter, we strengthened our brand marketing, improved price realization with more effective promotions, controlled spending, reduced our exposure to excess inventories and improved liquidity.

"We are now entering the largest portion of our year with respect to sales and earnings contribution. Given the strength of our brands and extensive market presence, we believe we are well-positioned to weather the current market challenges. We expect gradually improving trends in the performance of our Company, relative to the second quarter, in the balance of the year."

Adjustments to Reported GAAP Results

In addition to the results provided in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. These 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. See "Reconciliation of GAAP to Adjusted Results" section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.

Second 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 $ 21.0 4.1 % $ 8.2 $ 0.19 $ 64.5 8.8% $ 43.9 $ 0.97 (GAAP)

COVID-19 13.0 9.9 0.23 - - - expenses

Retail storeoperatingleases andother 3.7 2.8 0.06 - - - long-livedassetimpairments

Organizationalrestructuring 3.5 2.7 0.06 - - - costs

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

As adjusted $ 41.1 8.0 % $ 23.6 $ 0.54 $ 63.8 8.7 % $ 43.4 $ 0.95



First Half

2020 2019

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

As reported $ (57.5 ) (4.9 ) $ (70.5 ) $ (1.64 ) $ 125.2 8.5 % $ 78.4 $ 1.72 (GAAP) %

Intangibleasset 26.5 20.2 0.47 - - - impairment

Goodwill 17.7 17.7 0.41 - - - impairment

COVID-19 15.7 12.0 0.28 - - - expenses

Organizationalrestructuring 7.4 5.6 0.13 1.6 1.3 0.03 costs

Retail storeoperatingleases andother 5.0 3.8 0.09 - - - long-livedassetimpairments

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 $ 14.8 1.3 % $ (11.2 ) $ (0.26 ) $ 124.1 8.4 % $ 83.0 $ 1.82

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.

Second Quarter of Fiscal 2020 compared to Second Quarter of Fiscal 2019

Net sales decreased $219.5 million, or 29.9%, to $514.9 million. The decline was driven by the closure of the Company's retail stores in the second quarter of fiscal 2020, particularly during the months of April and May, and decreased sales to certain wholesale customers as a result of disruptions related to COVID-19, partially offset by strong eCommerce channel growth. Comparable eCommerce sales in the U.S. and Canada grew 101% and 194%, respectively. As of the end of the second quarter, approximately 97% of the Company's stores in the U.S. and 90% in Canada had reopened.

Operating income was $21.0 million, compared to $64.5 million in the second quarter of fiscal 2019. Adjusted operating income (a non-GAAP measure) was $41.1 million, compared to $63.8 million in the second quarter of fiscal 2019. The decrease reflects the decline in net sales and lower royalty income, partially offset by improved gross margin and lower selling, general, and administrative expenses.

Net income was $8.2 million, or $0.19 per diluted share, compared to $43.9 million, or $0.97 per diluted share, in the second quarter of fiscal 2019. Adjusted net income (a non-GAAP measure) was $23.6 million, compared to $43.4 million in the second quarter of fiscal 2019. Adjusted earnings per diluted share (a non-GAAP measure) was $0.54, compared to $0.95 in the second quarter of fiscal 2019.

First Half of Fiscal 2020 compared to First Half of Fiscal 2019

Net sales decreased $306.1 million, or 20.7%, to $1.17 billion. The decline was driven by the closure of the Company's retail stores in the first half of fiscal 2020, particularly during the months of March, April and May, and decreased sales to certain wholesale customers as a result of disruptions related to COVID-19, partially offset by strong eCommerce channel growth. Comparable eCommerce sales in the U.S. and Canada increased 53% and 110%, respectively.

The Company posted an operating loss of $57.5 million, compared to operating income of $125.2 million in the first half of fiscal 2019. In addition to lower net sales, the Company recorded incremental inventory-related charges of $41.9 million in the first half of fiscal 2020, primarily due to disruptions related to COVID-19. Adjusted operating income (a non-GAAP measure) was $14.8 million, compared to $124.1 million in the first half of fiscal 2019. The decrease reflects the decline in net sales and higher inventory provisions, partially offset by lower selling, general, and administrative expenses.

The Company's net loss was $70.5 million, or $1.64 per diluted share, compared to net income of $78.4 million, or $1.72 per diluted share, in the first half of fiscal 2019. The Company posted an adjusted net loss (a non-GAAP measure) of $11.2 million, compared to adjusted net income of $83.0 million in the first half of fiscal 2019. Adjusted loss per diluted share (a non-GAAP measure) was $0.26, compared to adjusted earnings per diluted share of $1.82 in the first half of fiscal 2019.

Net cash provided by operations in the first half of fiscal 2020 was $238.8 million compared to $104.5 million in the first half of fiscal 2019. The increase reflects deferrals of retail store lease and other cash payments, partially offset by lower earnings related to COVID-19.

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

The Company's total liquidity at the end of the second quarter of fiscal 2020 was $1.5 billion, comprised of cash and cash equivalents of $1.0 billion and $501 million in unused borrowing capacity on the Company's $750 million secured revolving credit facility.

As previously disclosed, on May 4, 2020, the Company, through its wholly-owned subsidiary The William Carter Company, entered into an agreement with its lenders to amend its secured revolving credit facility. Under the terms of the amendment, financial maintenance covenants under the credit facility were waived for the balance of fiscal year 2020 and relaxed for much of fiscal year 2021.

Also as previously disclosed, on May 11, 2020, The William Carter Company completed the sale of $500 million aggregate principal amount of 5.500% senior unsecured notes due 2025. During the second quarter of fiscal 2020, the net proceeds from this offering, along with cash on hand, were used to repay $500 million of borrowings under the Company's secured revolving credit facility.

Consistent with the Company's previously-announced temporary suspensions of share repurchases and quarterly cash dividends, no distributions of capital occurred in the second quarter of fiscal 2020. The Company's Board of Directors will evaluate future distributions of capital, including share repurchases and dividends, based on a number of factors, including business conditions, the Company's financial performance, and other considerations.

The Company believes 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 second quarter fiscal 2020 results and its business outlook on July 24, 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 August 7, 2020, at 888-203-1112 (U.S. / Canada) or 719-457-0820 (international), passcode 8105031. 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 Two Fiscal Quarters Ended

June 27, June 29, June 27, 2020 June 29, 2019 2020 2019

Net sales $ 514,885 $ 734,384 $ 1,169,357 $ 1,475,442

Cost of goods sold 284,073 410,390 687,445 835,528

Adverse purchasecommitments (4,703 ) 998 18,134 1,051 (inventory and rawmaterials)

Gross profit 235,515 322,996 463,778 638,863

Royalty income, net 3,588 9,635 10,926 18,179

Selling, general, andadministrative 218,149 268,155 487,986 531,807 expenses

Goodwill impairment - - 17,742 -

Intangible asset - - 26,500 - impairment

Operating income 20,954 64,476 (57,524 ) 125,235 (loss)

Interest expense 15,312 9,072 24,176 18,701

Interest income (423 ) (509 ) (887 ) (737 )

Other expense 587 202 5,405 (9 )(income), net

Loss onextinguishment of - - - 7,823 debt

Income (loss) before 5,478 55,711 (86,218 ) 99,457 income taxes

Income tax (benefit) (2,678 ) 11,774 (15,680 ) 21,054 provision

Net income (loss) $ 8,156 $ 43,937 $ (70,538 ) $ 78,403



Basic net income(loss) per common $ 0.19 $ 0.97 $ (1.64 ) $ 1.73 share

Diluted net income(loss) per common $ 0.19 $ 0.97 $ (1.64 ) $ 1.72 share

Dividend declared and $ - $ 0.50 $ 0.60 $ 1.00 paid per common share

CARTER'S, INC.

BUSINESS SEGMENT RESULTS

(dollars in thousands)

(unaudited)

Fiscal Quarter Ended Two Fiscal Quarters Ended

% of % of % of % of June 27, Total June 29, Total June 27, 2020 Total June 29, 2019 Total 2020 Net 2019 Net Net Net Sales Sales Sales Sales

Net sales:

U.S. Retail $ 316,016 61.4 % $ 423,128 57.6 % $ 636,733 54.5 % $ 800,182 54.2 %

U.S. 151,744 29.5 % 229,091 31.2 % 403,874 34.5 % 504,458 34.2 %Wholesale

International 47,125 9.1 % 82,165 11.2 % 128,750 11.0 % 170,802 11.6 %

Total net $ 514,885 100.0 % $ 734,384 100.0 % $ 1,169,357 100.0 % $ 1,475,442 100.0 %sales



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

U.S. Retail $ 23,720 7.5 % $ 51,146 12.1 % $ (8,656 ) (1.4 ) $ 75,095 9.4 % %

U.S. 21,192 14.0 % 35,335 15.4 % 23,423 5.8 % 90,791 18.0 %Wholesale

International (5,514 ) (11.7 ) 4,257 5.2 % (33,219 ) (25.8 ) 9,216 5.4 % % %

Corporate (18,444 ) (3.6 ) (26,262 ) (3.6 ) (39,072 ) (3.3 ) (49,867 ) (3.4 )expenses (*) % % % %

Total )operating $ 20,954 4.1 % $ 64,476 8.8 % $ (57,524 ) (4.9 % $ 125,235 8.5 %income (loss)

(*) 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. Two fiscal quarters ended June 27, 2020 and June 29, 2019 each include $1.6 million in charges related to organizational restructuring, respectively.

Fiscal Quarter Ended June 27, 2020 Two Fiscal Quarters Ended June 27, 2020

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

Organizational $ 1.6 $ 0.7 $ 1.1 $ 3.0 $ 1.3 $ 1.4 restructuring

Goodwill - - - - - 17.7 impairment

Skip Hoptradename - - - 0.5 6.8 3.7 impairmentcharge

OshKoshtradename - - - 13.6 1.6 0.3 impairmentcharge

Incrementalcostsassociated 4.4 6.9 1.7 6.6 7.1 2.0 with COVID-19pandemic

Retail storeoperatingleases andother 3.7 - - 5.0 - - long-livedassetimpairments

Total charges $ 9.7 $ 7.6 $ 2.9 $ 28.7 $ 16.8 $ 25.2

Fiscal Quarter Ended June 29, 2019 Two Fiscal Quarters Ended June 29, 2019

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

Organizational $ - $ - $ - $ - $ - $ - restructuring

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

Reversal ofstorerestructuringcostspreviously (0.7 ) - - (0.7 ) - - recordedduring thethird quarterof fiscal 2017

Total charges $ (0.7 ) $ - $ - $ (0.7 ) $ - $ (2.1 )

Note: Results may not be additive due to rounding.

CARTER'S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

June 27, 2020 December 28, June 29, 2019 2019

ASSETS

Current assets:

Cash and cash equivalents $ 1,000,581 $ 214,311 $ 118,458

Accounts receivable, net ofallowance for credit losses of 165,578 251,005 168,176 $9,242, $6,354, $3,786,respectively

Finished goods inventories, netof inventory reserves of $32,092, 672,205 593,987 697,559 $9,283, and $14,119, respectively

Prepaid expenses and other 51,180 48,454 56,813 current assets

Total current assets 1,889,544 1,107,757 1,041,006

Property, plant, and equipment,net of accumulated depreciation 287,941 320,168 333,600 of $559,142, $523,848, and$486,319, respectively

Operating lease assets 648,505 687,024 705,631

Tradenames, net 308,017 334,642 365,567

Goodwill 208,573 229,026 228,860

Customer relationships, net 38,950 41,126 42,825

Other assets 31,104 33,374 29,671

Total assets $ 3,412,634 $ 2,753,117 $ 2,747,160



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 458,075 $ 183,641 $ 232,869

Current operating lease 163,665 160,228 154,719 liabilities

Other current liabilities 80,634 131,631 85,483

Total current liabilities 702,374 475,500 473,071



Long-term debt, net 1,232,649 594,672 604,377

Deferred income taxes 63,850 74,370 91,190

Long-term operating lease 620,063 664,372 688,650 liabilities

Other long-term liabilities 60,420 64,073 61,975

Total liabilities $ 2,679,356 $ 1,872,987 $ 1,919,263



Commitments and contingencies



Stockholders' equity:

Preferred stock; par value $.01per share; 100,000 sharesauthorized; none issued or $ - $ - $ - outstanding at June 27, 2020,December 28, 2019, and June 29,2019

Common stock, voting; par value$.01 per share; 150,000,000shares authorized; 43,636,176,43,963,103 and 44,868,563 shares 436 440 449 issued and outstanding at June27, 2020, December 28, 2019, andJune 29, 2019, respectively

Additional paid-in capital 5,539 - -

Accumulated other comprehensive (45,045 ) (35,634 ) (36,561 )loss

Retained earnings 772,348 915,324 864,009

Total stockholders' equity 733,278 880,130 827,897

Total liabilities and $ 3,412,634 $ 2,753,117 $ 2,747,160 stockholders' equity

CARTER'S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

Two Fiscal Quarters Ended

June 27, 2020 June 29, 2019

Cash flows from operating activities:

Net (loss) income $ (70,538 ) $ 78,403

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation of property, plant, and equipment 43,774 44,991

Amortization of intangible assets 1,858 1,874

Provisions for (recoveries of) excess and obsolete 23,058 (938 )inventory

Goodwill impairment 17,742 -

Intangible asset impairments 26,500 -

Other asset impairments and loss on disposal of 7,332 385 property, plant and equipment, net of recoveries

Amortization of debt issuance costs 916 737

Stock-based compensation expense 6,485 9,807

Unrealized foreign currency exchange loss (gain), 1,621 (142 )net

Provisions for (recoveries of) doubtful accounts 3,036 (2,869 )receivable from customers

Loss on extinguishment of debt - 7,823

Deferred income taxes (benefit) expense (10,559 ) 4,268

Effect of changes in operating assets and liabilities:

Accounts receivable 80,566 93,315

Finished goods inventories (106,922 ) (119,508 )

Prepaid expenses and other assets (852 ) (18,298 )

Accounts payable and other liabilities 214,796 4,617

Net cash provided by operating activities 238,813 104,465



Cash flows from investing activities:

Capital expenditures (16,708 ) (24,992 )

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

Net cash used in investing activities (16,708 ) (24,243 )



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 80,000

Payments on secured revolving credit facility (500,000 ) (166,000 )

Repurchases of common stock (45,255 ) (92,443 )

Dividends paid (26,260 ) (45,260 )

Withholdings from vestings of restricted stock (4,789 ) (4,126 )

Proceeds from exercises of stock options 2,916 6,346

Net cash provided by (used in) financing activities 562,973 (132,528 )



Effect of exchange rate changes on cash and cash 1,192 687 equivalents

Net increase (decrease) in cash and cash 786,270 (51,619 )equivalents

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

Cash and cash equivalents, end of period $ 1,000,581 $ 118,458

CARTER'S, INC.

RECONCILIATION OF GAAP TO ADJUSTED RESULTS

(dollars in millions, except earnings per share)

(unaudited)

Fiscal Quarter Ended June 27, 2020

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

As reported $ 235.5 45.7 % $ 218.1 42.4 % $ 21.0 4.1 % $ (2.7 ) $ 8.2 $ 0.19 (GAAP)

COVID-19 - (13.0 ) 13.0 3.1 9.9 0.23 expenses (b)

Retail storeoperatingleases andother - (3.7 ) 3.7 0.9 2.8 0.06 long-livedassetimpairments(c)

Organizationalrestructuring - (3.5 ) 3.5 0.8 2.7 0.06 costs (d)

As adjusted $ 235.5 45.7 % $ 198.0 38.5 % $ 41.1 8.0 % $ 2.1 $ 23.6 $ 0.54 (a)

Two Fiscal Quarters Ended June 27, 2020

Gross % Net % Net Operating % Net Income Net Diluted Margin Sales SG&A Sales (Loss) Sales Taxes (Loss) EPS Income (Benefit)

As reported $ 463.8 39.7 % $ 488.0 41.7 % $ (57.5 ) (4.9 ) $ (15.7 ) $ (70.5 ) $ (1.64 )(GAAP) %

Intangibleasset - - 26.5 6.3 20.2 0.47 impairment (e)

Goodwill - - 17.7 - 17.7 0.41 impairment (f)

COVID-19 - (15.7 ) 15.7 3.7 12.0 0.28 expenses (b)

Organizationalrestructuring - (7.4 ) 7.4 1.7 5.6 0.13 costs (d)

Retail storeoperatingleases andother - (5.0 ) 5.0 1.2 3.8 0.09 long-livedassetimpairments(c)

As adjusted $ 463.8 39.7 % $ 459.9 39.3 % $ 14.8 1.3 % $ (2.7 ) $ (11.2 ) $ (0.26 )(a)

Fiscal Quarter Ended June 29, 2019

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

As reported (GAAP) $ 323.0 44.0 % $ 268.2 36.5 % $ 64.5 8.8 % $ 11.8 $ 43.9 $ 0.97

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

As adjusted (a) $ 323.0 44.0 % $ 268.9 36.6 % $ 63.8 8.7 % $ 11.6 $ 43.4 $ 0.95

Two Fiscal Quarters Ended June 29, 2019

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

As reported $ 638.9 43.3 % $ 531.8 36.0 % $ 125.2 8.5 % $ 21.1 $ 78.4 $ 1.72 (GAAP)

Debtextinguishment - - - 1.8 6.0 0.13 loss (h)

Organizationalrestructuring - (1.6 ) 1.6 0.4 1.3 0.03 costs (d)

Storerestructuring - 0.7 (0.7 ) (0.2 ) (0.6 ) (0.01 )costs (g)

China businessmodel change (2.1 ) - (2.1 ) - (2.1 ) (0.05 )(i)

As adjusted $ 636.8 43.2 % $ 530.9 36.0 % $ 124.1 8.4 % $ 23.1 $ 83.0 $ 1.82 (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 (loss), income tax (benefit), net income (loss), and net income (loss) on a diluted share basis excluding the adjustments discussed above. The Company believes these adjustments provide a meaningful comparison of the Company's results(a) 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 (loss) 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.

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 severance and related costs resulting from organizational restructurings (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) Reversal of retail store restructuring costs previously recorded during the third quarter of fiscal 2017.

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

(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 (LOSS) ALLOCABLE TO COMMON SHAREHOLDERS

(unaudited)

Fiscal Quarter Ended Two Fiscal Quarters Ended

June 27, June 29, June 27, June 29, 2020 2019 2020 2019

Weighted-averagenumber of commonand common equivalentsharesoutstanding:

Basic number ofcommon shares 43,162,571 44,706,307 43,259,103 44,888,552 outstanding

Dilutive effectof equity awards 147,480 332,070 - 310,479 ^ (a)

Diluted numberof common andcommon 43,310,051 45,038,377 43,259,103 45,199,031 equivalentsharesoutstanding

As reported on a GAAP Basis:

(dollars inthousands, except per sharedata)

Basic net income(loss) per common share:

Net income $ 8,156 $ 43,937 $ (70,538 ) $ 78,403 (loss)

Income allocatedto participating (86 ) (396 ) (252 ) (685 )securities

Net income(loss) available $ 8,070 $ 43,541 $ (70,790 ) $ 77,718 to commonshareholders

Basic net income(loss) per $ 0.19 $ 0.97 $ (1.64 ) $ 1.73 common share

Diluted netincome (loss) per commonshare:

Net income $ 8,156 $ 43,937 $ (70,538 ) $ 78,403 (loss)

Income allocatedto participating (86 ) (395 ) (252 ) (683 )securities

Net income(loss) available $ 8,070 $ 43,542 $ (70,790 ) $ 77,720 to commonshareholders

Diluted netincome (loss) $ 0.19 $ 0.97 $ (1.64 ) $ 1.72 per common share

As adjusted (b):

Basic net income(loss) per common share:

Net income $ 23,559 $ 43,382 $ (11,203 ) $ 83,005 (loss)

Income allocatedto participating (249 ) (391 ) (253 ) (728 )securities

Net income(loss) available $ 23,310 $ 42,991 $ (11,456 ) $ 82,277 to commonshareholders

Basic net income(loss) per $ 0.54 $ 0.96 $ (0.26 ) $ 1.83 common share

Diluted netincome (loss) per commonshare:

Net income $ 23,559 $ 43,382 $ (11,203 ) $ 83,005 (loss)

Income allocatedto participating (248 ) (390 ) (253 ) (725 )securities

Net income(loss) available $ 23,311 $ 42,992 $ (11,456 ) $ 82,280 to commonshareholders

Diluted netincome (loss) $ 0.54 $ 0.95 $ (0.26 ) $ 1.82 per common share

For the two fiscal quarters ended June 27, 2020, there were 230,286 (a) potentially dilutive equity awards that were excluded from the diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive.

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 $15.4 million and (b) $59.3 million in after-tax expenses from these results for the fiscal quarter and two fiscal quarters ended June 27, 2020, respectively. The Company has excluded ($0.6) million and $4.6 million in after-tax (benefit) expenses from these results for the fiscal quarter and two fiscal quarters ended June 29, 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 (loss) to EBITDAand Adjusted EBITDA for the periods indicated:

Four Fiscal Quarter Two Fiscal Quarters Fiscal Ended Ended Quarters Ended

June 27, June 29, June 27, June 29, June 27, 2020 2019 2020 2019 2020

Net income (loss) $ 8.2 $ 43.9 $ (70.5 ) $ 78.4 $ 114.9

Interest expense 15.3 9.1 24.2 18.7 43.1

Interest income (0.4 ) (0.5 ) (0.9 ) (0.7 ) (1.5 )

Income tax expense (2.7 ) 11.8 (15.7 ) 21.1 27.4 (benefit)

Depreciation and 22.3 23.3 45.6 46.9 94.7 amortization

EBITDA $ 42.6 $ 87.6 $ (17.3 ) $ 164.3 $ 278.6



Adjustments to EBITDA

Intangible asset $ - $ - $ 26.5 $ - $ 57.3 impairment (a)

Goodwill impairment - - 17.7 - 17.7 (b)

COVID-19 expenses (c) 12.9 - 15.7 - 15.7

Organizationalrestructuring costs 3.5 - 7.4 1.6 7.4 (d)

Retail storeoperating leases and 3.7 - 5.0 - 5.0 other long-livedasset impairments (e)

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

Debt extinguishment - - - 7.8 - loss (g)

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

China business model - - - (2.1 ) - change, net (i)

Adjusted EBITDA $ 62.7 $ 86.8 $ 54.9 $ 170.9 $ 381.1

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

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

Expenses incurred due to the COVID-19 pandemic. Amounts exclude less than(c) $0.1 million of depreciation expense that is included in the corresponding depreciation and amortization line item.

(d) Severance and related costs resulting from organizational restructurings (not related to COVID-19).

(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 twofiscal quarters ended June 27, 2020:

Fiscal Quarter Ended

Constant- Reported Reported Impact of Currency Net Reported Constant- Net Foreign Net Sales Net Currency Sales Currency Sales Sales Net Sales June 27, Translation June 29, % Change % Change 2020 June 27, 2019 2020



Consolidated $ 514.9 $ (2.0 ) $ 516.9 $ 734.4 (29.9 )% (29.6 )%net sales

Internationalsegment net $ 47.1 $ (2.0 ) $ 49.1 $ 82.2 (42.6 )% (40.2 )%sales

Two Fiscal Quarters Ended

Reported Constant- Reported Net Impact of Currency Net Reported Constant- Sales Foreign Net Sales Net Currency June 27, Currency Sales June 29, Sales Net Sales 2020 Translation June 27, 2019 % Change % Change 2020



Consolidated $ 1,169.4 $ (2.7 ) $ 1,172.0 $ 1,475.4 (20.7 )% (20.6 )%net sales

Internationalsegment net $ 128.8 $ (2.7 ) $ 131.4 $ 170.8 (24.6 )% (23.0 )%sales

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 (678) 791-7615