Our market share data is based on information provided by the NPD Group, Inc., unless otherwise indicated, references to market share in this Annual Report on Form 10-K are expressed as a percentage of total retail sales of a market. The baby and young children’s apparel market includes apparel products from sizes newborn to seven. NPD data is based upon Consumer Panel Track SM (consumer-reported sales) calibrated with selected retailer’s point of sale data.
Unless the context indicates otherwise, in this filing on Form 10-K, “Carter’s,” the “Company,” “we,” “us,” “its,” and “our” refers to Carter’s, Inc. and its wholly owned subsidiaries.
We are the largest branded marketer in the United States of apparel exclusively for babies and young children. We own two of the most highly recognized and most trusted brand names in the children’s apparel industry, Carter’s and OshKosh. Established in 1865, our Carter’s brand is recognized and trusted by consumers for high-quality apparel for children sizes newborn to seven. In fiscal 2005, we acquired OshKosh B’Gosh, Inc. Established in 1895, OshKosh is recognized as a well-kno
wn brand that is trusted by consumers for its line of apparel for children sizes newborn to 12. We have extensive experience in the young children’s apparel market and focus on delivering products that satisfy our consumers’ needs. We market high-quality, essential core products at prices that deliver an attractive value proposition for consumers.
We use a business model that we believe has multiple platforms for growth and is focused on high volume and productivity. Our Carter’s, OshKosh, and related brands are sold to national department stores, chain and specialty stores, discount retailers, and, as of January 1, 2011, through our 306 Carter’s and 180 OshKosh outlet and brand retail stores. We believe each of our brands has its own unique positioning in the marketplace. Our brands compete in the $22 billion children’s apparel market, for children sizes newborn to seven, with our Carter’s brand achieving the #1 branded position with a 10.9% mar
ket share and our OshKosh brand has a 3.2% market share. We offer multiple product categories, including baby, sleepwear, playclothes, and other accessories. Our distribution strategy enables us to reach a broad range of consumers across various channels, socio-economic groups, and geographic regions.
Since fiscal 2006, we have increased consolidated net sales at a compound annual growth rate of 7.0%. Our pre-tax results have ranged from income of $128.6 million in fiscal 2006 to $233.4 million in fiscal 2010, with the exception of fiscal 2007 in which we had a pre-tax loss of $37.3 million. In fiscal 2007, our pre-tax results were impacted by OshKosh related intangible asset impairment charges of $154.9 million and distribution facility closure costs of $7.4 million related to further integrating OshKosh. In fiscal 2008, our pre-tax results were decreased by executive retirement charges of $5.3 million and a write-down of $2.6 million on our White House, Tennessee distribution facility. In fiscal 2009, our pre-tax results w
ere decreased by $5.7 million related to professional service fees incurred in connection with the customer margin support investigation, $5.5 million related to the reduction in the Company’s corporate workforce, $4.3 million of expenses associated with the closure of our Barnesville, Georgia distribution facility (including accelerated depreciation), $1.2 million of asset impairment charges net of gain associated with the closure and sale of our Company’s Oshkosh, Wisconsin facility, and a $0.7 million related to the write-down of the carrying value of our White House, Tennessee distribution facility.
The Company is a Delaware corporation. The Company and its predecessors have been doing business since 1865. The Company’s principal executive offices are located at The Proscenium, 1170 Peachtree Street NE, Suite 900, Atlanta, Georgia 30309, and our telephone number is (404) 745-2700.
OUR BRANDS, PRODUCTS, AND DISTRIBUTION CHANNELS
CARTER’S BRANDS
Under our Carter’s brand, we design, source, and market a broad array of products, primarily for sizes newborn to seven. Our Carter’s brand is sold in department stores, national chains, specialty stores, off-price sales channels, and through our Carter’s retail stores. Additionally, we sell through the mass channel our Just One You and Precious Firsts brands at Target and our Child of Mine brand at Walmart. In fiscal 2010, we sold over 256
million units of Carter’s, Child of Mine, Just One You, and Precious Firsts products to our wholesale customers, mass channel customers, and through our Carter’s retail stores, an increase of approximately 12% from fiscal 2009. Under our Carter’s and Just One You brands, sales growth has been driven by our focus on essential, high-volume, core apparel products for babies and young children. Such products include bodysuits, pajamas, blanket sleepers, gowns, bibs, towels, washcloths, and receiving blankets. Our top ten baby and sleepwear core products accounted for approximately 67% of our baby and sleepwear net sales in fis
cal 2010, including mass channel. We believe our core apparel products are essential consumer staples, less dependent on changes in fashion trends, and supported by a strong birth rate and other favorable demographic trends.
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We have four cross-functional product teams focused on the development of our Carter’s baby, sleepwear, playclothes, and mass channel products. These teams are skilled in identifying and developing high-volume, core products. Each team includes members from merchandising, design, sourcing, product development, forecasting, and supply chain logistics. These teams follow a disciplined approach to fabric usage, color rationalization, and productivity and are supported by a dedicated art department and state-of-the-art design systems. We also license our brand names to other companies to create a complete collection of lifestyle products, including bedding, hosiery, shoes, room décor, furniture, gear, and toys.
0;The licensing team directs the use of our designs, art, and selling strategies to all licensees.
We believe this disciplined approach to core product design reduces our susceptibility to fashion risk and supports efficient operations. We conduct consumer research as part of our product development process and engage in product testing in our own stores. We analyze quantitative measurements such as pre-season bookings, weekly over-the-counter selling results, and daily re-order rates in order to assess productivity.
CARTER’S BRAND POSITIONING
Our strategy is to drive our brand image as the leader in baby and young children’s apparel and to consistently provide high-quality products at a great value to consumers. We employ a disciplined merchandising strategy that identifies and focuses on core products. We believe that we have strengthened our brand image with the consumer by differentiating our core products through fabric improvements, new artistic applications, and new packaging and presentation strategies. We also attempt to differentiate our products through store-in-store fixturing and branding packages and advertising with our wholesale and mass channel customers. We have invested in display units for our major wholesale customers that more clearly pres
ent our core products on their floors to enhance brand and product presentation. We also strive to provide our wholesale and mass channel customers with a consistent, high-level of service, including delivering and replenishing products on time to fulfill customer needs.
CARTER’S PRODUCTS
Baby
Carter’s brand baby products include bodysuits, pants, undershirts, towels, washcloths, receiving blankets, layette gowns, bibs, caps, and booties. In fiscal 2010, excluding mass channel sales, we generated $458.7 million in net sales of these products, representing 26.2% of our consolidated net sales.
Our Carter’s brand is the leading brand in the baby category. In fiscal 2010, in the department store, national chain, outlet, specialty store, and off-price sales channels, our aggregate Carter’s brand market share was approximately 29.8% for baby (sizes newborn to twenty-four months), which represents greater than six times the market share of the next largest brand. We sell a complete range of baby products for newborns, primarily made of cotton. We attribute our leading market position to our brand strength, distinctive print designs, artistic applications, reputation for quality, and ability to manage our dedi
cated floor space for our retail customers. We tier our products through marketing programs targeted toward gift-givers, experienced mothers, and first-time mothers. Our Carter's Little Layette product line, the largest component of our baby business, provides parents with essential core products and accessories, including value-focused multi-packs. Our Little Collections product line consists of coordinated baby programs designed for first-time mothers and gift-givers.
Playclothes
Carter’s brand playclothes products include knit and woven cotton apparel for everyday use in sizes three months to seven. In fiscal 2010, we generated $402.9 million in net sales of these products, excluding the mass channel, or 23.0%, of our consolidated net sales. We continue to focus on building our Carter’s brand in the playclothes market by developing a base of essential, high-volume, core products that utilize original print designs and innovative artistic applications. Our aggregate 2010 CarterR
17;s brand playclothes market share was approximately 11.9% in the $9.5 billion department store, national chain, outlet, specialty store, and off-price sales channels.
Sleepwear
Carter’s brand sleepwear products include pajamas and blanket sleepers in sizes 12 months to seven. In fiscal 2010, we generated $215.0 million in net sales of these products, excluding the mass channel, or 12.3%, of our consolidated net sales. Our Carter’s brand is the leading brand of sleepwear for babies and young children within the department store, national chain, outlet, specialty store, and off-price sales channels in the United States. In fiscal 2010, in these channels, our Carter’s brand market share was approximately 30.5%, which represents a
pproximately two times the market share of the next largest brand. As in our baby product line, we differentiate our sleepwear products by offering high-volume, high quality core products with distinctive print designs and artistic applications.
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Mass Channel Products
Our mass channel product team focuses on baby, sleepwear, and playclothes products produced specifically for the mass channel. Such products are differentiated through fabrications, artwork, and packaging. Our 2010 market share was 8.0% in the $8.5 billion mass channel babies and young children’s apparel market. Our Child of Mine product line, which is sold in substantially all Walmart stores nationwide, includes layette, sleepwear, and playclothes along with a range of licensed products, such as hosiery, bedding, toys, furniture, and gifts. We also sell our Just One You and Precious Firsts brands to Target, which include baby, sleepwear, and baby playclothes along with a range of licensed products, such as hosiery, bedding, toys, furniture, gear, and gifts. In fiscal 2010, we generated $254.8 million in net sales of our Child of Mine, Just One You, and Precious Firsts products, or 14.6%, of our consolidated net sales.
Other Products
Our other product offerings include bedding, outerwear, swimwear, shoes, socks, diaper bags, gift sets, toys, and hair accessories. In fiscal 2010, we generated $71.2 million in net sales of these other products in our Carter’s retail stores, or 4.1%, of our consolidated net sales.