Good day, everyone, and welcome to the Carter's First Quarter Fiscal 2013 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President of Investor Relations and Treasury. [Operator Instructions] Carter's issued its first quarter fiscal 2013 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investors Relations section of the company's website at www.carters.com. Before we begin, let me remind you that statements made on this conference call and in the company's presentation materials about the company's outlook, plans and future performance are forward-looking statements, and actual results may differ materially from those projected. For a 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 on Form 10-K filed with the Securities and Exchange Commission. Also on this call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded. And now I would like to turn the call over to Mr. Casey.

Thanks very much. Good morning, everyone. Thanks for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you. As you've seen in the press release this morning, we're off to a very good start this year. We exceeded our sales and earnings goals for the quarter. We had strong demand for our Carter's brand. We had a significant lift in international sales and made good progress with our key initiatives. Given the strong start of the year, we are affirming our sales and earnings goals for the year. Our sales growth in the quarter was driven by our Carter's retail and eCommerce businesses. We're very pleased with the performance of our new Carter stores. We believe they provide a beautiful presentation of our brand and a great value to consumers. We plan to open 60 Carter's stores this year and 50 to 60 stores a year over the next 5 years. As I shared with you on our last update, comp store sales were trending lower than we had planned through February which we believed was due to the winter storms and unseasonably cool weather. March comps improved as we got closer to Easter and we managed to achieve a slightly favorable comp for the quarter. Excluding the 1st week of April when sales were impacted by the Easter shift, sales trends in our Carter's stores have been very good and we're expecting a good comp for the second quarter; and Carter's eCommerce sales in the quarter were exceptionally good, up nearly 60% and better than we had planned. eCommerce sales were 21% of our Carter's store sales. That's a new record for us. We had good response to our online marketing in the…

Thank you, Mike. Good morning, everyone. I'll begin on Page 2 of the presentation materials, which is posted on the Investor Relations portion of our website. In terms of highlights of the first quarter, net sales grew 7%. At the high-level unit sales increased by about 4% with an average increase in pricing of about 3%. By business, Carter's retail and international contributed the most to our year-over-year sales growth. Sales slightly exceeded our internal plans due to better-than-expected demand in the Carter's wholesale and eCommerce businesses. Gross margin was strong again this quarter driven by lower product costs and improved pricing. As a result of the better net sales performance and lower spending than anticipated, our profits grew nicely with adjusted operating income and adjusted earnings per share both up about 40%. We do think that some portion of our outperformance in the first quarter, particularly as it relates to Carter's wholesale demand and SG&A, represents timing and is not pure upside to the year. We've estimated this timing benefit to be in the range of $0.08 to $0.10. Page 3 details our first quarter sales results. Total Carter's sales in the U.S. grew 7%, driven by good growth in our retail store and eCommerce businesses. Carter's retail store comparable sales increased about 1%. As we expected, sales in our U.S. Carter's wholesale business declined slightly versus last year as a result of the timing of shipments. But as I said, results in this part of our business were stronger than we had expected, principally due to good replenishment demand and better shipping performance. Total U.S. OshKosh sales declined 6%. First quarter results reflect the continued progress in our objective to improve the profitability of the OshKosh brand. Although clearly we had hoped that the top line would've been…

[Operator Instructions] And for our first question, we go to Robert Ohmes with Bank of America Merrill Lynch.

Mike, I had really 2 questions. I think the first question is on your guidance. Great first quarter, and nice upside the second quarter guidance looks very healthy, still looking for good gross margin growth. You're keeping the year the same. Can you sort of walk us through where the big deceleration in earnings growth is coming from in the back half? Is it just simply a function of the gross margin comparisons or are there other things you're seeing there? And then I'll ask a follow-up after that.

I guess we don't see it so much as deceleration as much as -- I think it's too early to elevate the forecast. The first half of the year is the lightest part of our year. We still got some portion, coming off of March, about 80% of our sales still to go in the year. We're expecting a good year. We view it as positively, if not more positively, than we did when we last had our update at the end of February. So we're expecting a very good year. I just think it will be premature to take the year up. I don't even think it's our style every quarter to be adjusting the numbers. We've got a good plan for growth this year, 8% to 10% top line growth, about 15% growth in earnings. And I think when we get further into the year and we're shipping the fall product and start to get some visibility on spring 2014 pricing and costs, then we'll be in a position to perhaps revisit our growth objectives for the year. But this year is every bit of what we thought it would be when we last chatted with you.

Got it. That's really helpful. And then just the other question. Could you walk us through maybe the multiyear roadmap for Japan? Is there a sort of target in your mind when and how big the profit contribution could be from Japan?

Sure. Here's the big deal, it's a big market, and about a year so ago, we started to scope out the opportunity. We have a licensee that we've done business with for a number of years. When the world got difficult to do business in, they started to struggle, so we monitored their performance. We probably made a couple of million dollars in the royalties from them every year and they didn't have the capacity to invest in the business. We do. So a year or so ago, we made a decision to take it over. The decision point was let it fail and then start the business from scratch someday or take that business over and with our merchandising expertise, with our supply chain capabilities, with all the talented people we have here in the company, we felt as though we could do a much better job. And the big deal is it's -- I'm told it's some portion of about $8 billion market and every point of market share for us would be worth some portion of $80 million. It's largely a retail business, so we have the ability to control the brands directly. Richard had in the presentation some pictures of the work that's been done there. It's -- this is not going to be an overnight success. My hope is within the next 5 years we're providing an update that would suggest that we've made good progress achieving a decent market share there. Five years from now we're doing some portion at $80 million to $100 million in sales in Japan and some portion of 10% to 15% operating margin. I would say we're making good progress. But everything about Asia, China -- our focus is China and Japan right now. We've had very good success in Canada. And then we're looking at the 2 largest markets [indiscernible] Japan is one, China is another. It's -- this is going to be a very long-term initiative, and we're going down that path. But Japan again is -- the outlook for that business is consistent with what we had at the end of February where we've staffed it appropriately. We have some very talented people based in Tokyo managing it for us. The opportunity is to improve its distribution over time. So what we acquired was a business largely in kind of mid- to lower tier distribution that I see some opportunity to strengthen the presentation to support for that channel distribution. The longer-term opportunity is to improve its distribution. So the pictures that Richard shared with you are in this Hankyu department store in Tokyo. I think the execution has been beautiful. And then we're looking at other retailers that we can do business with over time. But 5 years from now, $80 million to $100 million business earning $10 million to $15 million, that would be a good outcome for us.

And for our next question, we go to Scott Krasik with BB&T Capital Markets. Scott D. Krasik - BB&T Capital Markets, Research Division: Thanks for the extra disclosures on the profitability in eCommerce. They're already very high but I think you're still doing some -- taking some initiatives to bring additional in-house by the end of the fourth quarter. Is that correct? And do you expect that the margin in eCommerce could go higher?

Actually, the profitability has been terrific for eCommerce. And we've made good progress bringing the fulfillment in-house at the tail end of last year. That's what enabled us to increase the sales to about $140 million last year. We expect to exceed $200 million this year. Most of what we're doing in-house is still manual. But the real opportunity is to get the benefit from the new systems that are being put in place, the automation that will largely be in place by midpoint next year. So even when we bring the wholesale and retail support in later this year, a lot of that work will be manual. And the full automation, we hope, is in place midyear and that's when you'll see even greater improvement in the profitability of eCommerce. But it's a beautiful business. I don't think you caught -- I don't know if you caught it, but the eCommerce relative to our store sales for both brands is about 20% of the brick-and-mortar. So the support we're getting from consumers for that new channel distribution -- relatively new channel distribution has been terrific and the profits and have been very good with more upside, I believe. Scott D. Krasik - BB&T Capital Markets, Research Division: Richard, the $0.08 to $0.10 that you called out for timing and SG&A, I mean you give us such a good bridge on the SG&A. So which aspect of SG&A do you expect the timing to come back later this year and why?

I think it's largely marketing and technology spend, Scott. I think those are just pure timing benefits in the quarter. We didn't get to everything that we had initially planned and paste in our budgets. And we'll catch up on that later in the year. Scott D. Krasik - BB&T Capital Markets, Research Division: Sort of pro rata over the next 3 quarters or second half?

Yes, I think relatively ratably over the balance of the year would be our expectation. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then just a couple of quick ones. I mean the -- since you gave us the sales for Japan and the SG&A, it seems like there's a very little gross margin. I mean is there any reason to think that that was just a cleanup process and by the back half of the year you should start to see the Japan gross margin at least go up from these very low levels?

Yes. It would be our expectations. Actually a reasonably good gross margin business today once we have brought to bear our sourcing capabilities. That was one of the advantages of us taking over the operations directly. We're able to, with our set scale and capabilities, source the product much more efficiently. So that benefit is coming to the P&L. We did take some additional charges for inventory as we've gotten into under the covers and looked at some of the older inventory that was in place in the business. That's something that we wanted to address upfront, and that's a good portion of why the margins were lower, disproportionately lower this quarter than we expect going forward. Scott D. Krasik - BB&T Capital Markets, Research Division: Any -- quick one, how big that inventory write down was?

That'll probably at $2 million in the quarter. Scott D. Krasik - BB&T Capital Markets, Research Division: $2 million, that's the number. Okay, and then just last, it's great to see your off-price sales still declining. But is it realistic to think that to a low level now where those could start growing by the back half of the year or can you still hold the off-price sales flat?

Well, our expectation is that they'll be relatively comparable as a percentage of sales to what they were last year. And it was about 2%. My guess is for the full year it will be in that same territory.

And that's where it's been historically. And there's been years where the number has been higher than that, but if you go back over 20 years, that number is typically some portion of 2% to 3%, fairly insignificant portion of our business.

And we go next to Taposh Bari with Goldman Sachs.

I was hoping you could elaborate further on your capital allocation strategy. I appreciate the tick up in share buyback in the quarter, year-to-date. I guess the question is, how do you prioritize share buyback versus acquisitions? I think it's the first time we've heard you talk about acquisitions or smaller tuck-in acquisitions in a while. Are you referring to brands or more distribution?

Well, we haven't talked about acquisitions in the past. It's something though that's continually part of our evaluation of the business and trying to create value for the long-term. As the leader in the industry as we think of ourselves, we see lots of different opportunities that come our way. We're very disciplined in evaluating those. First and foremost, we've loved to use the cash, as we've said, to put it back to work in the business. If we can find opportunities to accelerate our market share and our penetration in our current businesses, that's where we'd like to do it. There is a certain amount of infrastructure that we're upgrading this year. It's a heavier than normal agenda in that regard, this new distribution center, some of the technology platforms that we have leveraged for a very long time in this company. We've gotten to the point where they just don't have the capacity to support where we're going just in terms of our volume and strategically. So we're catching up a bit of that front. We'd be pleased if there were something that was additive to our brand portfolio that could be a potential acquisition, if there are opportunities to accelerate our penetration internationally and pick up some businesses in that regard. Canada was a wonderful template. If we can find some more Canadas, we'd be pleased to do that. As it relates to other alternatives for the cash, I think our thinking there has not really changed. It's not our intention to hold onto an excessive amount of cash on the balance sheet perpetually as our plans firm up and we have better line of sight to how the year's going to proceed and our investment needs for the coming years then our strategy is to return that capital to shareholders.

And just to follow-up on that point, what's your view on cap structure? You're now in a net cash position. You historically operated with net debt. You have a pretty -- extremely stable business model I would just want to get more color on your approach towards the capital structure.

Well, we're not opposed to leverage. We think the best use of leverage is probably in running the business if we were to need it. So if there was a sizable acquisition, we think we'd be readily received in the capital [indiscernible] to raise funds. At the moment, we don't really require additional leverage.

Okay. Quick housekeeping question. Mike, I think you alluded to the fact that the business was running better quarter-to-date. If you can elaborate on where comps are trending, that will be helpful. And then Richard, can you give us some clarity into what the embedded comp in sales -- Carter's wholesale growth assumptions are for both Q2 and the full year?

I think it's fair to say that as the weather has warmed up, business has been much better particularly at Carter's. The comps in recent weeks have been very strong at Carter's. The beauty of the Carter's brand is the baby business. I don't know if we've elaborated on that much but the baby comp has been particularly strong in our stores online with our wholesale partners, particularly in the replenishment business. So the beauty of our business there's 4 million beautiful babies being born every year. There's a reason to come out and shop in the stores so that business has been good. I'd say OshKosh comp's still running negative. I think it's important for you to understand that we're focused more on profitable -- profits for OshKosh right now. So as I look at some of the comps we were achieving last year in OshKosh, they were being done at very low margins and I've made a decision I'd rather improve profitability of OshKosh before we grow it and see the progress we've made in the first quarter improving the profitability of OshKosh. You should expect to continue to see improvement and progress -- in the improvement in profits for OshKosh in the balance of the year. Canada has been particularly tough hit. I mean unlike the United States, they don't exactly have a warm or hot zone up in Canada. So it's been particularly cold up in Canada, so those comps have been running negative. The co-branded stores consistently outperforming the legacy Bonnie Togs stores, but that's all taken into consideration in our outlook for the second quarter and the year. Suffice it to say, where weather has warmed up, business is much better.

The question that relates to our assumption for the Carter's wholesale for the second quarter is something in the mid-single-digit range and in the high single-digit range for the second half of the year, balancing up to about a mid-single growth for the full year.

Thanks. I have one last one for you guys and that's on international. As you've invested in that part of the business, looking at your royalty business as any kind of indication it seems like the OshKosh brand is actually much, probably, about 9x the size of Carter's internationally, yet obviously very different here in the U.S. So as you invest internationally, how do you think about the balance of both of those brands? And if you can kind of compare the perception of the OshKosh brand internationally versus the U.S.

OshKosh is viewed very positively. Obviously it's extremely well-known brand. I would say until recently much more well-known than Carter's. But Carter's making really good progress outside the United States. And so it's just a better -- Carter's is a fairly new entrant to the markets outside United States but it's making good progress.

That's the opportunity.

That's the opportunity. One -- just one final point on that. Our objective is to build the business more direct in international markets. So we're -- we have started in recent years to deemphasize the licensing component of the business and prefer to do -- deal more directly with the consumer outside the United States where appropriate, aligning ourselves with a very good partner in different markets. And where it makes more sense it would be more of a wholesale relationship. But there's terrific upside potential for both brands outside the United States.

[Operator Instructions] We go next to Howard Tubin with RBC Capital Markets.

In terms of your direct sourcing initiatives, it seems like you're kind of ramping up a little bit quickly than you initially thought. Do you think you can beat maybe 50% before 2015?

Before 2015, I would say it's possible but that is not our plan though. We started the initiative last year. And when they asked Chris Rork, who's the executive in charge of the supply chain is to get us to 50% by 2017, do it over a 5-year period, we're running ahead of that schedule. But I don't want to set any expectation that we're going to try to get to 50%. We're trying to do this thoughtfully over time, build important relationships, find new capacity, lower cost capacity. We're going into new parts of the world, Vietnam, Cambodia, Indonesia. We're only doing about 35% of our direct sourcing in China. We're trying to deemphasize that market given the rising labor rates in China. So we're not in a rush to get it done. It's -- getting to 50% by 2017 is in our long-term plans. That long-term plan envisions that we rebuild to our 14% operating margin over that time period. That's the margin that we achieved in 2010 before cotton hit. And so that's our plan. Is it possible to get there quicker? Certainly. Given our progress so far, I'd say it's possible.

[Operator Instructions] And for our next question, we go to Steve Marotta with CL King Associates. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Quick question regarding first and second quarter from Carter's and OshKosh wholesale perspective. Can you comment on what is normally pre-booked versus replenishment? I realize that there are some timing issues with Carter's in particular in 1Q and Q2, but on balance what are those general proportions for the wholesale business and as an addendum to that, what you're seeing from an inventory perspective at retail currently with your products?

Hi Steve, it's Brian. From a booking standpoint, OshKosh is all pre-booked. That is a pre-book business. Carter's, we pre-book about 70% of the business. The remaining 30% is our Little Layette, core key item baby business, which is the kind of the highest margin business we have in the company, the core of the company, and that's done very well. So that was a strong business for us in the back half of last year, and it's also been a great business for us this spring for ourselves and our retailers, good sell-throughs. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Okay. And when the unseasonably cold weather in the spring, is there any accelerated promotions that are occurring at retail currently within the category? How are you seeing inventory currently within the wholesale accounts at retail?

Yes, Steve, I think the -- there was a concern with the weather in terms of inventories. We feel like overall things are in pretty good shape. Sales to stock ratios from major customers are in line. There are some exceptions to that. We feel like they're doing the right thing to keep the inventory in good shape. We have been in good shape and customer cancels from our standpoint, the goods continue to flow out there. And I think people, by and large, do what they have to do to run the business. Is the environment promotional? Of course. It continues to be a promotional environment. I don't know that it's any more aggressive than it was in prior years, and the business has started to pick up as weather has improved around the country. Steven Louis Marotta - CL King & Associates, Inc., Research Division: That's terrific. Lastly, you mentioned several new systems that are going into place this year. I believe Mike mentioned already that the DC automation is going to be a major benefit by mid-2014. Are any of the systems that are going in this year an immediate benefit or are they all more levered significantly in 2014?

I think it's more future benefits. A lot of these things will be put in at some point during the course of the year. And so I think we're making these investments this year more for a longer-term benefit, not necessarily for 2013.

And with the follow-up question, we return to Scott Krasik. Scott D. Krasik - BB&T Capital Markets, Research Division: I assume the plan for the 600 Penney shop-'n-shops has changed or on hold. Your wholesale backlog numbers are still very strong for the fall. So what's the latest on that?

The outlook for Penney's for us continues to be good based on how we're performing over-the-counter. So we had growth with Penney's last year. We're anticipating good growth with them this year. I don't want to comment on their plans. We don't plan any major investment in shop -- in the shop this year. But we are investing with Penney's and other key accounts in terms of brand presentation as we have in years past, making sure that we look really good on the floor when mom is shopping. So even if you went today, you'd see that we look pretty good at Penney's and I hope we look good at very other major account, but there's no significant investment in shops planned for Penney's this year.

And that concludes today's question-and-answer session.

Okay. Well, thanks very much. Thank you, all, for joining us on the call. We look forward to updating you again on our progress in July. Goodnight.