Welcome to Carter’s third quarter conferece call. On the call today are Fred Rowan, Executive Officer, Joe Pacifico, President and Mike Casey, Chief Financial Officer. After today’s prepared remarks we will take questions as time allows. If you have any follow-up questions after today’s call, please direct them to Eric Martin, Vice-President of Investor Relations. Mr. Martin’s direct telephone number is (404) 745-2889. Carter’s issued its third quarter earnings press release yesterday after the market close. The text of the release appears at Carter’s website at www.carters.com under the press release section. Before we begin, let me remind you that statements made on this conference call and in the company’s press release, other than those concerning historical information should be considered forward-looking statements and actual results may differ materially. For a detailed discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company’s most recent annual report filed with the Securities and Exchange Commission. Also, on this call the company will reference various non-GAAP financial measurements. A reconciliation of this non-GAAP financial measurements to the GAAP financial measurements is provided in the company’s earnings release. Now I would like to turn the call over to Mr. Rowan.

Good morning. We are pleased with the progress we made during our third quarter. We position our company well before the quarter to concentrate on certain vital initiatives that would fix problem areas and lay the groundwork for restoring us to high quality growth. Those initiatives are recruit and retain key talent, fix the operational issues affecting our retail stores, fix the OshKosh product value, make every core product in all our brands significantly more competitive, make our wholesale customers more profitable and raise the level and breadth of investments. We have made lots of progress in each. The benefits are being tempered somewhat by market conditions. I think any logical thinker would admit that this marketplace is still uncertain and that all levels of distribution are feeling the effect of reduced consumer traffic. Nevertheless, we take some comfort in the fact that we can make up ground correcting the mistakes we made in ’07 which were not market related. They are lack of sufficient inventory in our stores, miscues and lack of key management skills, poor retail execution, and mispositioning the OshKosh product value. We also benefit in that we have brands whose templates are core essential high value products. We have organic growth in each brand and all channels of distribution. We will begin the section today by walking you through the details of our progress, beginning with Joe Pacifico and then Mike Casey, and as usual we will have plenty of time for Q&A.

Thank you Fred. At a consolidated basis, our sales in the company were plus 5% in the third quarter. In the quarter we achieved positive revenue growth in five out of our six business segments. Our strategy of having a balanced portfolio of strong young children’s brands, multiple distribution channels, and essential core products delivered good results in a difficult environment. Overall, we are pleased with our results and feel good about the ongoing potential in each of our businesses. Our Carter’s wholesale and mass businesses performed well and we saw a good improvement in the Carter’s retail business. Turn OshKosh’s product performance, as expected, is not good. We have targeted spring and summer ’08 to begin the turnaround. The progress at the floor that we measured in the first few months of 2008. I will now walk you through the performance of each of our brands on a standalone basis covering third quarter performance, our expectations for the remainder of the year and our outlook on the first half of 2008. Start with Carter’s wholesale. Another good quarter at Carter’s brand wholesale, excluding off price, we have finished +7 overall. Baby was +16, sleepwear +7, playwear was a -7, which is due primary to the timing of fall shipments. When you combine quarter two and quarter three, we were +9 in playwear. For the balance of the year, we are projecting the fourth quarter will be +3% and that is due to the timing of shipments with the retailer’s calendar shift. More of our spring orders are falling into quarter one of ’08, versus quarter four that we had last year. For the year, we continue to project baby +8 to 12, sleepwear flat, and playwear +8 to 12, leading to +7% overall growth in line with our guidance,…

Thanks, Joe. Good morning everybody. Last night, we reported our third quarter results which were in line with our guidance. Sales for the third quarter were $411 million of 5% the last year and at the midpoint of our guidance. Third quarter earnings were 58 cents per share, up 2% to last year and a penny better than our guidance. In terms of sales growth for the third quarter by segment, Carter’s, on a standalone basis, represented nearly 80% of our third quarter sales and increased 5% to $320 million. OshKosh sales were $91 million, up 3% to last year. Our mass channel sales were $68 million, up 2% to last year and we are in line with guidance. Keep in mind our second quarter mass channel sales were up 16% due primarily to the timing of brand low launches. Year-to-date mass channel sales were up 10% and expected to be up 10% for the year. With respect to profitability, our consolidated gross margin in the third quarter was 35.5%, again, in line with guidance and 210 basis points lower than last year due to OshKosh product performance and related markdowns in the retail segment. Gross margin in our OshKosh retail segment decreased from about 50% last year to 40% this year. That erosion in margin quality impacted third quarter earnings by $6 million or 6 cents per share and lowered our consolidated gross margin 150 basis points. Demand for customer combinations in our wholesale segment was also higher than last year given the promotional environment and cost us about 50 basis points in gross margin. With respect to spending in the third quarter, SG&A was in line with our guidance at 100 basis points better than last year. The improvement in SG&A reflects our control over discretionary spending including…

(Operator instructions) We will go to Robert Ohms, Bank of America Securities. Robert Ohmes – Banc of America Securities: Thanks. A couple of quick follow-up questions. The first question, I just was hoping we could get a little more detail on the inventory levels versus your forward sales growth guidance and just how does it break out retail Carter’s versus OshKosh and then you talked about an increase in back stock and baby, is that a wholesale increase or is that to support the retail stores and I guess what I am looking for is connecting the, I know the inventories were low last year but you brought them back up and beginning at the end of the second quarter, you would be looking for more powerful revenue growth acceleration and I am wondering why we have not seen that. If you just walk us through that. If you just walk us through that and then the second question I think I have missed, Mike, in your comments on people investment in ’08 $0.03 and can you just give us some more detail on that as well. Thanks.

The important thing to understand on the inventories, we were under inventory last year and certainly in our retail stores and that had a significant impact in our performance starting in the second half of last year. So, we have been looking at the inventories as we looked at the inventory models when we saw that they would be up 20% at the end of the third quarter, and end of the year, we dug into it and we are very comfortable at where we are. We are supporting our retail stores with a better flow of inventory. If you break it down it, we are probably carrying about $30 million more than what you had ordinarily expect in inventory and I’d break that into three pieces. And then the last component, the final third of the increase in inventories, I would attribute to better supply chain performance. We had a key supplier last year who ran into some issues and we were delayed getting playwear product to our customers and our shipping performance year-over-year is much better than it was a year ago. So we would attribute our performance in this quarter in a very difficult environment to the fact that we are carrying a better inventory position. We are not concerned, I think as a company our inventory position has never been better and so we are in good shape as we head into the balance of the year but I think as you analyze the inventory you absolutely have to give consideration to the fact that we were under inventory last year. You had a question in terms of investments and as I said in my notes, the investment in reorganization charges is twice what we spent a year ago. In terms of the people investment, the…

In addition to some procurement on new people, we have promoted a number of qualified people here recently. We spent a lot of time on retention making sure we do not lose important people as we restore this business. They have gone in some cases to a flatter organizational structure where we make decisions a lot quicker. Joe mentioned we have put the sleepwear under our baby leadership which is super competent team. So I think overall we have looked at this to macro level as well not just filling in some key spot Robert Ohmes – Banc of America Securities:

Robert Ohmes – Banc of America Securities: Great, thanks a lot.

You are welcome.

We will go next to Brad Stephens, Morgan Keegan. Brad Stephens – Morgan, Keegan & Company, Inc.: Hey guys, good morning.

Good morning. Brad Stephens – Morgan, Keegan & Company, Inc.: Historically, I know you have targeted SG&A to grow at two thirds the rate of sales but next year you are putting the variable compensation back into the business. So, shall we expect next year to be at two thirds the rate of sales?

I am going to hold off giving you any specifics on an ’08 model but suffice to say we will continue to manage the growth and spending at a rate that is not in excess of the growth in gross profit dollars. The big opportunity for next year is a turnaround in that retail business. You got to keep in mind where we got off track. We got off track in terms of retail leadership and execution issues, we have a terrific new leader and with a far better team, as Joe said, we are seeing better results from better execution. We also got off track by how the OshKosh brand was positioned and that is being positioned differently beginning with Spring 2008, so that is why we are encouraged by the moves that we have made this year to position us better for ‘08. Brad Stephens – Morgan, Keegan & Company, Inc.: In your fourth quarter guidance of gross margin down 10 basis points, what is implied for the degradation of OshKosh margins in Q4?

We are going to expect to continue to see that we are going to struggle there, so we get that product behind us and move in. We do not want to be so specific on each of those, based on the segment profitability, that is the information I could probably give you is our view on what we have ultimately put into segment profitability that at gross margin side OshKosh, a year ago, in wholesale had probably a 23% gross margin and it is probably closer to 10. And that is based into the guidance and OskKosh retail last year was around 45%. And we are assuming that it will grow probaly close to 38, that is what has been holding us back. And that’s an issue we are expecting to see improvements next year. Brad Stephens – Morgan, Keegan & Company, Inc.: All right, then last question on the mass channel, you said 8% to 10% in the first half of next year, is that the go forward rate or do you expect to get some things straightened at Wal-Mart and we get back to Ted and hopefully a little bit better, longer terms there?

Yes, 8% to 10% for the first half and we expect it to get better. We have put a lot of plans and action, it is hard to quantify them right them now but we definitely think that has more potential, more upside. Brad Stephens – Morgan, Keegan & Company, Inc.: Alright. Good luck, guys.

Thank you.

We go next to Brian McGoff of Morgan Stanley. Brian McGoff – Morgan Stanley: Yes, hey guys, thanks a lot. Just have a question on your investment spending, a follow up on what Robby had on, but your sales on the quarter grew about 5%, your SG&A grew less than 1%, if I exclude the reorg cost it looks like SG&A was actually down. So you have noted a lot of the reinvestments of this cost cuts into other parts the organization. But net, net it still sounds like the SG&A base is coming down. When some might argue that in a tough environment it should actually go up, so I guess I am wondering what is your confidence level from a long term standpoint that you are reinvesting enough back into the business in order to reaccelerate growth on the sustainable basis?

Brian, from our point of view, we have been investing in the business. We have been investing in the business for years. Our style has always been earn and invest and because the earnings were going to be off this year we wringed in spending where we could. I would tell you there is no investment that we believe is important to grow this business that we have not funded. As we said before, there were two areas where we go to off track, that was in retail and then in OshKosh. Both of which we have taken the time needed this year to get better performance beginning next year. But I would tell you that the for our company the way we have historically invested like I say, the level of those investment was much higher this year. It was funded from among other things incentive compensation but we view that as a bonus. You do not get it unless you earn it. We will fund that as we earn it next year. Brian McGoff – Morgan Stanley: So it sounds like high competence level?

We do, yes.

We have also begun to invest heavily in research which we had not done and we are invested in understanding each of these brands more. And we have done this facts research, completed that, finding the optimum price and margins thresholds for each of every core product under our brands. We have begun online consumer surveys, we are doing consumer panels on every one of our product lines and you cannot understate the cores. We put $20 million in upgrading our core products since we move in to ‘08. So that is far beyond just a people issue. Insufficient inventory caused us a hell of a lot of grief and that’s going to pay its way and as we move to the next couple of years, having a Senior Executive of planning and allocations, we will deal a lot better not only having the proper level inventory but the proper mix and that will materially improve profitability. So I do not think we do not have a lack of investments, so let us put it that way. Brian McGoff – Morgan Stanley: Great, okay that is a great comment, thanks guys.

You are welcome.

We are going next to you Omar Saad, Credit Suisse. Omar Saad – Credit Suisse: Thank you. Good morning.

Good morning Omar Saad – Credit Suisse: Fred, you talked about some people investments and it sounds like despite writing off some of the goodwill associated with OshKosh, you guys are really sticking to it and believe in the brand long term. Do you have an opportunity to put in some leadership in a kind of top level of president of the OshKosh brand to really give it the focus that it needs from a long term basis, someone is devoted to the brand or you are going to kind of continue to manage it the way you have been the last 6 months to 12 months?

We are going to put somebody over that business, so we are getting very close to making that move. I prefer not to say anything but we are just weeks away and we feel that will help materially because there are just a lot of things that needed to be looked at other than just better product and better pricing. There are lots of issues like branding and just administratively that will help strengthen the office area so we are getting ready to do that. We have not lost fights in OshKosh, you know. If anything, our research that we have done sas reinforced the power of the franchise with the consumer and as Mike mentioned of the new positioning should be material. It is just going to take some time here. We know spring and summer better but we have to make up some grounds so I would not get too anxious about it. We are heavily in the Fall product development and we are all micro involved in that process. We are encouraged that at fall ’08 will be even stronger. So we are optimistic there and we are going to put somebody over. Omar Saad – Credit Suisse: Excellent, okay that is helpful to know that. In terms of a comment that was made at the beginning, I think it was Joe,and Fred this was one of the goals you highlighted at the opening statement. One of your goals has been to improve the product margins and profitability for the retailers and you talked about being able to do that as well as improving product profitability for Carter’s and being able to get leverage in your sourcing and the structure, can you talk about how you are able to pull that off in this kind of environment where a lot the input costs are rising and there are some wage inflation in the far East? How are you able to get leverage in the sourcing and the product cost that you are developing in this kind of environment?

As Joe said, the whole focus is to get the product and the price right and so that there is no question we are going to be much more competitive in terms of our product benefits and we have adjusted the prices in a way to improve the profitability for retailer and we are doing that so we can improve our own profitability because the product will sell better and you have less end of season markdown support. We continue to see good progress on the sourcing side of our business and there is no question costs are increasing in China but we only have about 50% of what we do in China. We continue to narrow the vendor base. We are giving more volume to fewer vendors. We are moving more to vertical suppliers who have higher efficiencies and lower costs. We are building our capabilities in other parts of Asia, places like Malaysia, India, and Thailand who has had a very good performance in our sleepwear business in Cambodia and Vietnam. We are connected as the top with Li & Fung. We have met recently with William Fung, who has been a terrific adviser to us in terms of how to continue to leverage our significant unit volume to get better prices. I would say again, based on spring visibility or spring visibility and early summer I would say, in every case where we have lower prices, our sourcing group has been able to fund that with lower product cost.

I think it also starts with the product market scope. We are reducing fabrics 20-30% on some of these lines, reducing the amount of style and colors and coupled with our combining top line revenue we maybe increasing some styles and colors 20%. So we are going there with a lot of volume leverage by reducing some of that complexity. Omar Saad – Credit Suisse: Okay, but you are not taking quality out of the product?

No. Omar Saad – Credit Suisse: Stitching or quality of the fabric.

No we are very careful about that. Omar Saad – Credit Suisse: Okay, and then, last question. The retail composition of Carter’s business, you know 4% you guys had talked about 1 to 2%, came in better. What are you seeing out there with weather, how is weather impacting your business; you know kind of, the colder, the winter product, fall, winter product, versus some of the lighter product. Are you seeing an impact in the business?

One of the reasons we do not give monthly comps is because it can be affected by weather patterns. So we do it on a three-month basis. We do see weather and probably, with the global warming, you need to be a lot more sensitive to summers are longer, longer springs are earlier. So we do take that account with it. They are mixed, and some pull a short sleeve or long sleeve and certain reasons, you know, we target the southern regions with more appropriate products. So, that becomes more important. Omar Saad – Credit Suisse: Okay, but it doesn’t sound that you are seeing a tremendous impact from the warm weather and at least you hadn’t through September.

No, I would say tremendous. We have a big effect when there is a monstrous snow storm in January. Or you know a light storm in March. Those things you never can predict. Omar Saad – Credit Suisse: Got it, got it. Okay, thanks guys.

You are welcome.

We will go next to RJ Hottovy, Next Generation Equity Research. RJ Hottovy – Next Generation Equity Research: I just wanted to ask just one big broad-based question here about some of the retail improvements that you have outlined over the last couple months here and just get an update on some of the progress, namely, how customers are reacting to some of the better pricing clarity messages you put in the stores as well as the update on the customer loyalty cards and then just one quick follow up after that.

Okay. You know, we are starting to see some good successes in OshKosh and start building a baseline which has been, you know, even though the overall is not good, putting some of these key items, like boy’s denim, sweats, tees, we are starting to see the key items, definitely led by boys performing well. So, that is really helping us build a baseline for the future. So that price clarity is going for the right price and staying there. Also, I think, next year we are having a lot of opening price point products to the mix, that we did not have this year. So, if you walked in our store, you probably saw a T-shirt at OshKosh $16.00 with 30 to 40 off , this year, you will see two for $12.00 T-shirts, two for $15.00 T-shirts. So, each classification, we have had a significant opening price point products. So that and we think approximately 70 % of the mix could be an everyday low pricing and/or a 2-for pricing compared to 30% off the T-shirts, so we are very pleased with that. The second question on the loyalty program, you started it, we definitely believe, if probably we have a list right now, it is probably 15 to 20% of our customer based, we know from past experience the potential could be 50% or 55% of the mix. So, I think it is too early to comment on results but we know these customers spend more and that we really hav, Jim has a lot of experience in this area a couple with our new VP on marketing. With that I think this will be a plus going forward. RJ Hottovy – Next Generation Equity Research: Fair enough. My second question just has to do with essentially the plans for Black Friday this year compared to the past years. You know talking with Jim it sounds like you guys have really put a priority on this for this year. Just a sense of what your expectations are there?

We definitely will be better than we were the year before. We are much more prepared from inventory and promotion and Black Friday. So, to tell you what is going to happen, I do not know. But we are much better prepared, so we expect it to be better. RJ Hottovy – Next Generation Equity Research: Okay, thanks guys, good luck.

Thank you.

We will go next to Margaret Mager with Goldman Sachs. Margaret Mager – Goldman Sachs: Just a couple of questions, could you talk about why is it that the Carter’s wholesale business is growing as much as double digit when the customers that you sell to are not growing double digits, so how is that happening? And then in your Royalty business what is driving that, that has been a strong part of the business so what are your best licenses and can you talk about your Wal-Mart strategy and what is happening there given that they are making some changes in their business and also experiencing traffic challenges. So are you still rolling out playware in Wal-Mart or what is happening in that piece of your business? Thanks.

I will answer the first one with Carter’s wholesale. Number one, I think some of our customers and our top three customers are really high gross retailers. I think you look at Kohl’s opening stores, JC Penney opening stores, and Babies “R” Us opening stores is definitely a plus so we still think Kohl’s is a big opportunity, committed to brands. I think you have to be a top one or two brand to do well with these people but I think that is what we have. We have the top potentially, the top two brands so we still only have a 7% share in the Carter’s in 0 to 7. We are making, as Mike said, more investments on the Marketing side of the business in the fixturing next year and advertising so, and we are increasing our customers’ profitability. So if you are delivering volume and increasing the profitability and making the investments, I think we are good partners so have we proven it over a period of time and they continue to support us for that. I will let Mike talk about the Royalty. Mike do you want to talk about the Royalty?

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And Margaret Allen at Wal-Mart and I think we have talked about a little bit, part of it we both need to get better. Their business has been tough. They have been lowering inventory requirements and we have had a couple of products that we are not pleased with the performance so we got aggressive. We are addressing those whether through elevated product, getting the products to the right prices, getting the inventories in line is not an issue for us because I think we did really well at that. As far as the potential, again we have got a playware rack I think for the first half of the year and there is a lot potential with that. I do not think we can comment on that. It is more of a second half wait issue there if we get an additional playware there but plenty of opportunity. We have 5 or 6% share in the 0 to 7 business so the lack of opportunity. Margaret Mager – Goldman Sachs: The Wall Space that they have assigned to Child of Mine brand, that is consistent. It is not being changed, is it?

No, it is not being changed. Margaret Mager – Goldman Sachs: Do you have different design teams for Child of Mine, Just One Year and the Carter brand, is it a different product team?

Yes. Margaret Mager – Goldman Sachs: Okay, all right and then last just follow up on the whole set piece for Carter’s if you will look at it on a comp store basis are you compingg positive at Penney’s, Kohl’s and Babies “R” Us and then separately, Macy’s has really gotten much more aggressive about brands that are sold in those competitors need to be their position with that brand. Are they doing that or is there any discussion along that line at Macy’s that they are not happy about you selling at Kohl’s and Penney’s? Thanks.

As far as you know, I would say our growth with these guys exceeds or matches their comp store’s growth so definitely Kohl’s, Penney. Federated, they are always going to want exclusive and we understand that. We are trying to partner with them to make it, but it is, we are planning that business down a little bit. I think it was down last year. We have planned it this year. We do have a couple displays with them. We just put in a new shop on 34th Street. I encourage you to look at it so there is a will there, we just need get it, again we are not doing as well as we could there but we just put in this new shop which I think will bode well for our performance of a couple of weeks that is really good so we will see where will go from there. Margaret Mager – Goldman Sachs: Okay, I want to wish to the best of luck going forward and let you know that it’s been fun covering you and a highlight of my career as GS that we were able to take you in public back in the days so, you done a great job since then and keep it up going forward.

Thank you Margaret. Margaret Mager – Goldman Sachs: Take care everyone.

Good luck to you.

We will go to Robert Jordan Morgan Stanley.

Yes, on your last conference call you talked about your repositioning of the OshKosh brand and you mentioned sort of somewhere you mentioned Children’s Place, you mention GAP and for my mind its kind like Dodge and I don’t know Volvo. If you could talk a little bit more about OshKosh brand and also how you are protecting the brand value to your retail partners that you sell to wholesale as you are moving towards this everyday little pricing and 2-fer selling on the outlet side. Thank you very much.

What we did with OshKosh, we positioned the product benefits and the prices too high and which we started in fall’06 and that continued until we got an opportunity to reposition for spring. But we did not reposition to both GAP and Children’s Place. I do believe GAP is a Volvo but you have to have to call or reposition more like a Honda’s. It’s a very valued price, super quality and terrific cool items, so we are not positioned directly at Children’s Place but we have a lot more competitive prices. And we take a lot of bells and whistles off and made it not so fashionable as it was so we are right in line. We have run this through consumer panels, we have run it through our research with the stocks threshold studies and everything it is confirmed that our positioning is right. We are confident that OshKosh is positioned well.

And can you remind me this key overlap between what you are selling retail and what you ultimately sell in the outlet is first its made for outlet on the OshKosh line. Thank you.

I think as far your earlier question about the opening price and everyday look. Most of that is really done on the categories that would compare to the retailer’s private label. Not really compared to the brand. We don’t carry those products in wholesale you will have a T-shirt, these opening price T-shirts really we got to have a second pair of T-shirts that you would find in Kohl’s and possibly in our stores. And those are priced comparatively. So as far as overlap I will probably say about half the mix falls probably 40-50% of the mix will be overlapping.

We will go next to Jim Chartier with Monness, Crespi.

Good Morning, just a quick question. Just curious about your guidance for retail comp sales, given you have got an easier comparison from fourth quarter of the last year, why are you expecting a slowdown in fourth quarter this year from third quarter?

I would not characterize this as slowdown. I do not think this is the environment to be bullish on. We are focused on having positive comps on Carter’s and hopefully starting that positive comps on OshKosh beginning next year.

Okay, thank you.

You are welcome.

Having no further questions, I would like to turn the conference over to Mr. Rowan for any additional or closing comments.

I want to thank all of you once again for your attendance and questions. We really do appreciate the quality of those. I would only say in closing that our company is more energized and more focused than ever. We are certainly more talented and we are investing not just in the short run but our investments are geared so we can guarantee that we are going to have a continuation of a high growth company and also management, the key management of this company is very invested so you should take great confidence in that we are energized to do well for our shareholders. We look forward to our next call. Thank you.

This concludes today’s Carter’s conference call.