Executives from children's clothing maker Carter's Inc. said Friday they have new internal controls in place and are cooperating with federal inquiries into errors made in earnings reports going back to 2003.
The errors delayed the Atlanta-based company's third-quarter report several months as the company corrected its books.
"We regret that the actions of a few people have reflected negatively on our company, which has always prided itself on doing the right thing," said Mike Casey, chairman and chief executive officer, in a call with analysts. "We're fortunate that we spotted the problem and that its impact on our financial statements was not more significant."
Aside from that mention, company executives mostly stayed mum on the earnings restatement, which amounted to a $7.5 million, or 3 percent, reduction in retained earnings dating to 2003. Analysts also were mostly quiet on the topic, choosing to focus on the company's stellar profit growth and underlying conditions for business.
The company, however, was roiled for the past few months as it discovered errors in the way some of its sales staff was reporting discounts given to wholesale customers for special offers (like two-for-one sales).
President Joseph Pacifico left the company, along with key sales staff. The company hired or promoted new talent, including former merchandisers from Disney and Land's End.
One analyst asked whether changes in key personnel would affect wholesale orders.
Casey, the CEO, answered that he just got back from the company's market week in New York. "I had a chance to be with almost every one of our largest customers this past week," he said, "and they indicated no concerns whatsoever."
That analyst, Scott Krasik with CL King & Associates in New York later reiterated his "strong buy" rating of Carter’s stock, raising his target price from $34 to $36.
One good consequence of the accounting errors, CEO Casey said, is that the company is putting new, stronger internal controls in place.
Richard Westenberger, Carter's chief financial officer, said, "We are late in releasing our third quarter results, which is a shame in no small part because the company's performance ... was outstanding."
The company has been adding retail outposts of its Carter's branded stores, which increased its top line performance.
Third-quarter earnings also were strong for the clothing maker on the strength of its sales at Target, which increased 10 percent year-to-date.
Net profits increased 52.5 percent to $49.4 million, on sales of $481.5 million, a 10.7 percent increase over the third quarter of 2008.
Earnings per diluted share were 84 cents, compared to 55 cents a year ago. The company solidly beat analyst expectations.
However, sales of its brands at Walmart were flagging, as that big-box retailer emphasized lower-priced products during the recession, the CEO said. Sales of Carter's Child of Mine products at Walmart were down 14 percent year-to-date.
The company also said it is building an e-commerce site.
The news that earnings would be adjusted spurred several shareholder lawsuits late last year. The company's stock also plummeted nearly 25 percent that day to close at $21.56. At least one analyst previously had set a target stock price of $33.
Friday's earnings report sent the stock down nearly 3 percent, to close at $26.06.
The company will release its fourth-quarter earnings on schedule in February.
In its 2008 annual report, Carter's said it had a 14.1 percent market share of the $24 billion baby and young children's apparel market -- giving it the No. 1 position.
Sales in 2008 totaled $1.5 billion. Carter's clothing is sold at 400 company-operated retail stores and thousands of chain stores nationwide.
About the Author
Keep Reading
The Latest
Featured
