Good day, everyone, and welcome to the Carter's First Quarter 2017 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 and Treasurer. After today's prepared remarks, we will take questions as time allows. Carter's issued its first quarter 2017 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor 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. 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 filed with the Securities and Exchange Commission and the presentation materials posted on the Company's website. 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. Thank you 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. We exceeded the sales and earnings goals we shared with you on our last call. We believe that delay in tax refunds to families with young children and the late Easter holiday impacted our first quarter growth. In the weeks leading up to Easter, we saw a significant increase in demand for our brands and are encouraged by the current trends in our business. Traffic to our brands is up. E-commerce demand is strong and our co-branded stores continue to be our best performing stores. And with warmer weather arriving in more parts of the country, spring selling is meaningfully better in all channels of distribution. Our new Skip Hop brand exceeded its first quarter goals. The integration is fully underway and going well. We're also announcing today the launch of our new brand Simple Joys of Carter's brand designed exclusively for Amazon. With this launch, we now have four of our brands selling on Amazon. With the contribution of Skip Hop and Simple Joys together with our other growth initiatives, we believe we're on track to have another good year of sales and earnings growth. With respect to business trends on our earnings call on February, we briefed you on the sluggish start to our year. The best information we had at the time suggested that the delay in tax refunds and the timing of Easter were weighing on our performance. As we shared with you March represents the largest month in terms of sales and earnings contribution in the first half of the year. Thankfully given the strength of our product offering and…

Thank you, Mike. Good morning, everyone. I'll begin my comments on Page 2 of today’s presentation materials with some highlights of our first quarter. We exceeded our prior sales in earnings guidance largely due to better than forecasted e-commerce performance in both the U.S. and Canada from earlier than planned demand in U.S. wholesale and lower than planned spending. Consolidated net sales grew 1% over last year driven by strong growth in our e-commerce businesses and the contribution form Skip Hop, which we acquired this past February. We have planned earnings down in the first quarter due to lower spring seasonal bookings in our U.S. and international wholesale businesses, because of the Easter holiday shift from March to April and increased investment spending. Q1 adjusted EPS came in at $0.97 per share, a decline of 8%, but above our prior guidance of $0.80 to $0.85 per share. So that’s made a good portion of the first quarter outperformance relative to our forecast, represents favorable timing of wholesale shipments and spending, favorability which we expect will largely reverse as we move through the balance of the year. On Page 3, we summarized our year-over-year sales performance in the first quarter. As we told you on our last call, we have implemented some changes in our business segment reporting beginning in the first quarter of 2017 to better align our financial reporting with how we manage and evaluate our business. With these changes Carter's and OshKosh domestic retail results have been combined into a single U.S. retail segment. Similarly Carter's and OshKosh domestic wholesale operations have been combined into a single U.S. wholesale segment. Our international segment is unchanged. Skip Hop's results have been incorporated into the appropriate segment, which in the first quarter largely represented contributions to U.S. wholesale and international.…

Thank you, sir. [Operator Instructions] And for our first question, we go to Kate McShane with Citi.

Hi, this is Ryan Wallace on for Kate. We just had a couple of questions on SG&A. Yes, first could you just prioritize the different buckets of SG&A spending related to your growth investments. And then at this point in time, when do you think you might start to lap some of that elevated SG&A spend?

Well, I would say Ryan that the most significant area of spend is around the growth of our regional businesses in general. So we have strong e-commerce growth that drives all the operational cost that come with a very solidly growing top line e-commerce business as the next biggest bucket would be the expenses related to new stores. As Mike mentioned in his remarks it is our intention to continue to open stores. So the ongoing kind of rate deterioration if you want to call it that is really driven by just the mixed shift of the business towards the higher SG&A format businesses, those businesses also carried a higher gross margin and we think ultimately higher operating margins. Beyond the store expenses, we have been investing in technology we're on probably the second, full year now, a fairly wholesome agenda around building our Omni channel capabilities as well as another, several other investments around, I think one of the core process of managing store as well, so we're making some investments around the assortment planning, price optimization, work force management, make sure that the labor investment that we have in our stores is optimized. So, I would say towards the end of this year, perhaps we're past some of that spending but I think the ongoing trend towards higher SG&A is being driven by the mixed shift in our business will continue.

Okay. Got it, thank you. And then on the Simple Joys launch, could you give any more detail around sort of what differentiates Simple Joys from the core Carter's and OshKosh product. And then how much of a contribution you would expect Simple Joys to make to the – at wholesale low single-digit growth target for this year?

Yeah, two things. First of all I don’t know compared to parse out the differentiation of revenue. So we will see how it goes, we’re excited about that, that launch. As far as differentiation, Simple Joys as Mike said it’s a Carter's brand. We designed it with a fresh modern perspective. I would say it’s the first brand we’ve done that’s 100% focused on the digital experience for digitally savvy millennials and a more affluent Prime customer. It is everyday value price and its multiple piece. Its multiple piece bundles and the Prime members obviously have free shipping as the benefit. So it is purposely built for multiple units. So we’ve got everything from three piece bundles all the way up to eight piece bundles. So it has higher AURs, but we’re excited about it. We worked hard with Amazon by testing Carter's bundles in the last quarter of last year we learned a quite a bit. And we’ve been selling it for about three weeks, the marketing is yet to hit, but we’re off to a good start, and we’re excited about the potential.

All right, thanks very much.

And for our next question we go to Susan Anderson with FBR & Company.

Hi, good morning. Congrats on a nice quarter.

Thank you, Susan.

I was wondering if you could talk about gross margin a little bit in second quarter as we kind of go through out the year, maybe just a little bit more color on how that kind of – I think originally you guys thought it was going to improve as we go throughout the year, is that still the same thoughts versus first quarter?

As is and that is the intention. So, our gross margin up around 20 basis points really acute drivers of that in the quarter. We have the mix shift to retail, fewer inventory related charges this year versus last year, and then we continue to have a benefit from lower product costs. I’d say, in our direct business grew probably a bit more promotional. We didn’t achieve all the pricing that we had intended in the first quarter, it is our forecast of it being substantially being much more meaningful as we move into the second half of the year.

Got it. And just from a pricing front, is it the competitive environment still that’s kind of dragging that down or is it just the traffic which is causing you guys and may be other retailers to be to be more promotional.

Well, I would say that in the first quarter there was a more significant shift to the business than to the second quarter from the first quarter than we had anticipated, so we’ve responded appropriately to manage our inventory position. It feels good about where we exited the quarter, that inventory generally doesn’t get better with time and so entering the second quarter with a clean inventory position as we have with 4Q that was probably more of the issue traffic than anything else in the quarter.

Got it. That’s helpful. And then on Skip Hop it looks like your $90 million target was about may be 5% or so growth is that coming from new distribution or is that organic growth that you are expecting.

Most of that largely will be from the core Skip Hop business and we won’t start to see anything meaningful from Skip Hop until the second half of the year. But we acquired about $90 million business, then we will get some portion of that and we will probably have some portion $90 million to $100 million of benefit from them this year. But that will start to come into second half of this year.

Got it, okay. And lastly on the wholesale front, so looks like strong replenishments in the first quarter. Would you guys expect that to continue into the second quarter and throughout the rest of the year? Or do you think the first quarter was kind of a one-off?

We are planning for strong replenishment in the back half of the year. We're launching our beautiful little baby basics line next week actually, that Richard I think showed a slide on that. So we're optimistic about our core products that replenishment business is an interesting when you look at the deconstruct in wholesale now. We do have that upfront bookings in Carter’s and OshKosh. As we've had in the past that now with the additional Skip Hop that’s primarily a replenishment business. We've now got about 30% of the wholesale business that will be replenishment going forward and we're optimistic about the prospects of that for the back half of the year.

Great. Thank you so much, you guys. Good luck next quarter.

Thank you.

For our next question we go to Anna Andreeva with Oppenheimer.

Great. Thank you so much. Good morning guys and congrats on the really great results.

Good morning. Thank you.

I guess we had a couple of questions, not sure if you quantified this, but what was the whole sales shift and the lower expense benefit to the first quarter EPS? We’re just trying to understand what’s driving the magnitude of a EPS decline in the second quarter. And then secondly, with quarter year-to-date comps up Q, what does that imply for a quarter-to-date performance? I guess our both brands are comping positively right now. And are you guys seeing trends cold up, even post Easter weekend?

Staying on the first part of your question Anna, we’ve estimated that about $10 million of operating income, probably related to timing issues in the first quarter and that’s kind of evenly split between our earlier wholesale revenues and capability in spending, some of which then has an effect on Q2. I’d say the bigger effect on Q2, which we are forecasting good revenue growth is just higher investment spending. So some of the initiatives I mentioned around technology, new stores, all of that, that spending in China, all of that will have the effect of depressing earnings somewhat, good answer for the long-term, but it will affect Q2, which is our smallest quarter of the year.

Second quarter…

Second quarter, yeah. On the second part of your question around, could you repeat that, Anna?

Yes, the year-to-date up to what is that imply for April comp, are both brands comping positively right now. And are you guys seeing the trends close out even post the strong obviously Easter weekend?

We have had strong business post-Easter. Today as Mike said, we have got low single-digit positive comp in retail. Our Carter's is strong than OshKosh at this point, but OshKosh is rebounding nicely as mom is coming out to buy her spring – spring key items as weather has turned around the country.

Okay, that’s great. Best of luck, guys.

Thank you.

We go next to Jay Sole with Morgan Stanley.

Hi. This is Joe Wyatt on for Jay. I just had two quick questions. The first one on your comp outlook, how much of a factor is the improvement in tourism or also the other border stores on your comp outlook? And then secondly on China like – are you looking for 50 stores for Pou Sheng for the year and also it seems a lot of good progress in Tmall. Can you talk about sort of how your awareness has improved there and what sort of change your expectations?

So the tourist business has been good, Florida particularly. So Florida is – we’re starting to see more people come back. I’d say it was probably one of the better segments of our business in the first quarter. South East was one of the better segments of store segments of our business. North East was the toughest, so longer winner up there, but the tourist business I would actually say has shown some good progress this year. And then with respect to China, I’d say we are making good progress. We’re expecting sales in China to be up probably over 30% this year. Larger component of the business will be the Tmall business. And so that’s the comps I think in the first quarter where Tmall probably up 20% or more. As I shared with you, we’re recognized by Tmall earlier this year as one of the most popular brands on their website. So we’re encouraged by the progress we’re making with Tmall. I think the brand awareness will come one of the reasons why we’re opening stores is all the research we have done would suggest it’s good to have an online presence, but very important to have an offline presence with the stores. We only have about 14 stores opened so far. I hope to have some portion of 50 or more opened by the end of the year dealers were in China a month or so ago looking at – the stores looking at the execution meeting with the Pou Sheng management team. I think they’re doing very good job for us. But this is a good long-term initiative, we didn’t do this to grow our business in 2017, it’s a good 5, 10, 20 year initiative to build the brand in China, but we’re seeing a good response, particularly on Tmall and as the year goes on we’ll update you more about the stores, but the stores we’re very pleased with the execution of the stores so far.

All right, thanks so much.

You are welcome.

For our next question, we go to Jim Chartier with Monness, Crespi & Hardt.

Good morning nice quarter. My first question could you just give some estimated break-down for Skip Hop sales for the year, wholesale, retail and international?

In broad strokes as I said it is likely to be $90 million to $100 million of revenue for us, the majority of that will be wholesale. They have a recently small e-commerce business today, we hope to have them up and running on our website later this year. So that will be a contributor. For memory a 30% or so of their business is outside the United States that would fall into the international segment. But the majority we expect to be wholesale revenues from Skip Hop this year.

And then on Simple Joys how is the profitability of that business, this year is it going to be a drag on margins this year and then what is the potential on how does it scale going forward?

Sure. We would not see the drag on profitability for this year, I would say, we over time continue to be excited about that business. We won’t comment on the specific profitability but it is core product, it is a Carter's brand and we expect over time as volume ramps up that it will be a good profitable business for us.

Great. And then on the acceleration of wholesale shipments in the quarter, what do you attribute that to and is that creates some more opportunity for replenishment business later in that?

I think that the wholesale, we had less cancels, less discounts in the quarter and we did have a few different retailers move product in. As you recall, the track was bottling for spring we’ve booked down low-single digits. So as product sells through and retailers have open to buy money they tend to moved that up. So we were fortunate to have a few folks called said they wanted the product early, so we shipped it to them and so that was a move and we will see how it goes. January and February were challenging, regarding March, we had the benefit of the tax refunds coming out and then we had a strong Easter as did many of our wholesale partners. So as we go into a peak of spring selling we get into May and early summer, we would hope the trend continues, but it’s too early to tell.

Great. Thanks and best of luck.

We go next to Omar Saad with Evercore ISI.

Hi. Good morning, this is Warren Cheng on for Omar. I just have a question on the Amazon relationship. As you ramp up that relationship, how should we think about the net impact on wholesale? Obviously, there's a lot of product, I want a Carter's product that’s already running through Amazon via third-parties. But now as you approach that channel with your own – with the Simple Joys brand, that’s differentiated and optimized for that channel. How should we think about the net impact? So is there a difference in the economics when a third-party retailer sell to Carter’s through Amazon versus when it's sold directly through you? And how should we think about accretion on the sales side?

I would say this. I think we want to be every place mom wants to shop for young children’s apparel. And over time we demonstrated that we're going to continue to grow our market share. And it's important as these moms change their shopping behavior that we have our products available and channel the distribution if she wants to purchase them and so work size about the Amazon relationship. You've got about a $20 billion young children’s apparel market in United States. And again one of our goals is to continue to grow a deeper share of that market. And we think as moms are moving to Amazon for some of their products or some of their demand that we need to be there. But in totality, we intend to grow share there’s obviously mall traffic issues, there’s some retails sales are up, some are down but in totality our goal is to grow share and we think that being a partner with Amazon, which is the largest e-commerce retailer in United States is an important thing for our company. This whole relationship with Amazon started because the Amazon wanted a better experience for their consumers. So if you are going the Amazon when we first started having a discussion with the Amazon, they have a lot of one-off pieces, a lot of duplicate product on the site for the Carter’s brand. They wanted a better experience and from our discussions we decided to have unique bundling of product making it easier for the consumer to put some good looking outfits together. So the objectives, I think, will be in that, I think it’s going to be a better experience for the consumer, better performance for Amazon and we expect it to be a better performance for us.

Okay. And just to clarify, are you only selling Simple Joys on Amazon or you also selling the Carter's brand?

Both.

Okay, thank you.

You’re welcome.

We go next to Steve Marotta with C.L. King & Associates.

Good morning, everybody. Richard, you mentioned earlier that average unit cost was a benefit in Q1. And can you talk a little bit about that dynamic in the back half of the year as well as pricing in those expectations as it pertains the growth in gross margin?

Well, we would expect the benefit of product cost will continue. We just continue to see good capacity in Asia. We’re driving terrific productivity with our new direct sourcing operations in Hong Kong. All of that is contributing, so it expected to be continued benefit. We don't have a visibility much beyond the second half of this year, but we obviously have cost of the second half product. For AUR for pricing, our forecast would be to have some modest improvement in the second half. So that's what’s taken into the gross margin as some slight benefit on pricing and continued favorability in product cost.

My second question as this relates to the pressure on the retail store traffic in the first quarter. How does that compare against your industry averages.

Let’s say, within the first quarter the traffic generally speaking was down in the industry some portion of that 10% or so is better portion of that. And then the second quarter traffic was – an industry-wide was probably down some portion of 6% or 7%, ours was meaningfully better than that, but still down but meaningfully better than that.

Very helpful, thank you.

You’re welcome.

And we go next to John Kernan with Cowen and Company.

Good morning, this is David Buckley on for John. Congrats on a nice quarter.

Thank you.

Given the growth of SG&A expenses related to just the retail segment growth, can you just sketch what’s driving EBIT growth in the second half of this year?

Sure, John – David, excuse me, there's a number of things that are contributing we certainly expect that revenue growth will be higher in the second half and what our fewer forecast will achieve in the first half, as I mentioned gross margin expansion is expected to be more significant. There is a higher contribution from our cumulative share repurchase activity in the second half of the year. and I say, we're planning for a slightly lower growth rate in spending year-over-year, so all those things combined hopefully will lead us to higher both revenue and earnings contribution for the second half.

Okay. It’s very helpful. And then just second question on the wholesale segment, what's your outlook for margin expansion in that segment, you’ve benefited from lower product cost this quarter and some of the previous quarters. Do you expect that going forward?

Well, it's certainly a healthy operating margin business, but I don't think it’s our intention to look for significant expansion in those margins when we are looking to grow the top line, that’s probably more of our objective at this point.

Okay, thank you. Best of luck.

Thank you.

And we go next to Ike Boruchow with Wells Fargo.

Hi, good morning everyone congrats on a great quarter. I guess the two questions for you on the U.S. wholesale channel. I think Anna had asked you about the dollar shift that benefited you in Q1 it should help you in Q2. Could you just help us quantify that dollar shift so in order to think about the model a little bit better? And then just a bigger picture question about wholesale, could you talk at a high level about the department store business and may be the mass business within the channel?

Sure, Ike. I’ll start with the first part of the question, Brian will probably way in on the second. We’ve estimated its about $5 million of wholesale volume that shifted into the quarter that we had originally planned for second quarter. So that’s probably the input for your model.

In terms of department stores it’s continue to be probably the most challenging part of the business. We talked about bookings before being down low single-digits in spring as well as fall for seasonal bookings and a vast majority of that decline was predicated on department store. Bookings were down in terms of math we’ve got two customers, so we don’t usually comment that discretely on that business.

Got it. Thank you.

And we go next to Janet Kloppenburg with JJK Research.

Good morning, everyone and congratulations on a great quarter. A couple of questions, Simple Joys looks great on Amazon. I'm wondering if there is any thought to the brick-and-mortar wholesale accounts and what – if there will be any backlash from them given the launch on Amazon and if any of that is incorporated into your guidance. I was also wondering about your SG&A spending and just wondering if you inch that up as replenishment orders being better than expected, e-commerce business being better than expected. Is that a number that has some variability that we should think about as we plan our models. And lastly, on the border store business picking up, is there any reason why given easy comparisons et cetera that we shouldn't expect that to continue for rest of the year? Thank you.

Janet, on your first question we’re not expecting a backlash. You got to keep in mind the history of our company. We historically did business, a lot of business with the largest retailers in the country.

Right.

In 2001, we developed a very successful relationship with Target. I recall the time there was some concerns of those taking a Carter's brand to Target that was beautifully executed by Target. And Target is now one of our largest customers. A couple of years after that we launched with Wal-Mart and that was concerned whether or not there would be a backlash from our customers at the time doing business with Wal-Mart that was in our experience and now Wal-Mart is one of our largest customer. So, to Brian’s point we want to do business where the customer is shopping we wanted to make sure wherever the consumer is shopping for young children’s apparel, we have a great experience with our brands, we believe Simple Joys enables us to provide a better experience for the Amazon consumers. We are not anticipating any backlash.

On your question Janet on SG&A, I’d say if we have some sales upside that comes through the retail channel that would typically bring with it some additional expense particularly if it comes via the e-commerce channel. If we had more the upside coming from wholesale that’s a very low fixed cost investment we would intend to lever those expenses pretty directly.

But would you shift more spending into marketing let’s say if the business was trending better than expected?

Marketing is something we evaluate all the time our plans in general have layered an additional marketing for the second half for the entire year. If we continue to see the productivity that we’re seeing from our marketing spend we’re likely to spend more there.

Thank you. And just on the border stores?

Yes, our border stores, the border continues to strengthen, so we would hope that would continue to help us as we go through the year that the stores along the border Mexico don’t have deteriorated, they start to decline in Q4, they deteriorated further in Q1. So it's mixed results in terms of tourist, we are optimistic on the possibility.

Thanks so much and good luck.

Thank you.

And with that, ladies and gentlemen, we have no further questions on our roster. Therefore, Mr. Casey, I will turn the conference back over to you for any closing remarks.

Okay, thank you. Thank you all for joining us this morning. We appreciate your questions on our business. We look forward to updating you again on our progress in July. Goodbye.

And again ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect.