Michael D. Casey - Chairman and Chief Executive Officer Richard F. Westenberger - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer Brian J. Lynch - President

Robert F. Ohmes - BofA Merrill Lynch, Research Division Scott D. Krasik - BB&T Capital Markets, Research Division Taposh Bari - Goldman Sachs Group Inc., Research Division Howard Tubin - RBC Capital Markets, LLC, Research Division Steven Louis Marotta - CL King & Associates, Inc., Research Division

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. Michael D. 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 first quarter. We increased the number of new and repeat customer shopping with us online. The profitability of our eCommerce business has improved significantly this year with the help of our new distribution center. Fulfillment costs are meaningfully lower than last year. We expect that the profits from our new eCommerce business will continue to improve as we build out this new facility. With the success of our new stores and the strength of our eCommerce business, our U.S. sales direct to consumer for our Carter's brand in the first quarter grew 18% in total and nearly 9% on a comp basis. This is extraordinary performance driven by the strength of the Carter's product offering and execution by our retail and eCommerce teams. We expect total eCommerce sales including OshKosh to exceed $200 million this year. The largest component of our business continues to be our Carter's wholesale segment. The lack of sales growth in the quarter was expected and is due to the timing of shipments. We're expecting good growth in wholesale sales in the second quarter and the year. We continue to invest in brand presentation with our key wholesale partners. We've worked hard in recent years to provide a consistent brand experience across all channels of distribution. We want to look sharp at the floor, wherever mom is shopping for young children's apparel. The second largest contributor to sales growth in the quarter was our international segment. International sales grew over 30% in the quarter. That growth was driven by our Canadian retail operations and our international wholesale business. We continue to see good performance [indiscernible] stores up in Canada. We're getting especially good performance from our new stores. We plan to open about 100 stores in Canada over the next 5 years. We also plan to convert most of the legacy Bonnie Togs stores to the co-branded Carter's OshKosh format as leases are renewed during that time period. Cold weather has weighed on Canada's comp so far this year but we expect comps to improve as we move further into the second quarter. We also saw a good growth with our international wholesale partners in the quarter with sales up nearly 20%. We're leveraging our relationships with our wholesale partners to extend the reach of our brands outside the United States. For example, we recently launched our Just One You, Precious Firsts and Genuine Kids brands with Target in Canada. With Target's help, those launches were beautifully executed and over-the-counter selling is off to a good start. With respect to OshKosh, we meaningfully improved its profitability in the first quarter, and this will continue to be our focus. Near term, we plan to trade comps in our retail stores for higher profits and are not planning to repeat low-margin promotions we ran last year. We don't believe we have to. The product offering is meaningfully better than last year and our inventory position in the stores is in good shape. We're expecting good growth in sales and profitability from OshKosh this year. In addition to the 15 store openings planned, this year we expect to grow OshKosh by improving its product offering with better marketing, better flow of product to the stores and better supply chain performance. With respect to other key initiatives, we've been ramping up ahead of schedule with our direct sourcing initiative. Approximately 25% of our fall demand is being sourced by our new team in Hong Kong. We had previously planned to direct source about 20% of the line this year. We believe our direct sourcing initiative has created a more competitive [indiscernible] for us and has helped us negotiate better costs. Thankfully, cotton prices have been fairly stable this year. As you know, labor rates in Asia are rising. We have continued to shift our production away from China to countries with lower labor rates to mitigate the risk of cost increases. We'll share more with you later this year on our pricing and cost assumptions for 2014. With respect to other initiatives this year, our new multichannel distribution center is doing a very good job supporting our eCommerce business. Later this year, we expect to begin supporting our retail and wholesale sales out of this facility. We also made good progress in the first quarter with our office consolidation initiative. Most of the key employees on our retail and finance teams previously based in Connecticut are now based in Atlanta. By the end of this year all of our employees in Atlanta are scheduled to move into a new headquarters, which has been designed to improve the collaboration, efficiency and effectiveness of our workforce. We also plan to upgrade key systems this year to support the growth we are expecting in our business. These investments are focused on supporting the new distribution center and workforce consolidation initiatives. We're upgrading our order management system to support our eCommerce and international businesses, and we're upgrading our supply chain systems to improve our visibility on production and shipments from Asia. This is a heavy lifting year for system upgrades, all of which we expect will strengthen our ability to grow our business more profitably. In summary, we've made good progress in the first quarter, strengthening our business and believe we're on track to achieve our growth objectives this year. We've built a business that has weathered the economic and winter storms reasonably well. We consider ourselves fortunate to be managing a strong, growing, profitable business with many opportunities to improve its performance. I'm grateful for the support provided by our employees, particularly those who made the personal commitment to move their families to Georgia this year. We're committed to help them grow with us for many good years to come. Richard will now walk you through the presentation on our website. Richard F. Westenberger: 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 stronger, increased $4 million over last year's first quarter. OshKosh eCommerce was a notable bright spot as sales increased 46%. International sales increased over 30% in the first quarter with both the wholesale and Canadian retail businesses performing well. This is also the first quarter of net sales contribution from our new Japanese business. I'll provide more detail on our business segment results in a moment. Moving on to our first quarter P&L on Page 4, beginning with gross margin. First quarter gross margin increased by nearly 600 basis points over last year to 41.1%, reflecting in part lower product costs, which on average declined about 8% versus last year, as well as the benefit of the higher mix of sales from our U.S. and international direct to consumer businesses and improved pricing. Adjusted SG&A increased by 300 basis points over last year, and I'll cover more details on this in a moment. Adjusted operating margin improved by 280 basis points to 12.9%, which is our best first quarter performance since 2010. So at the bottom line, adjusted earnings per share for the first quarter grew over 40% to $0.79. On Page 5, we've summarized the various adjustments to our GAAP results and provided a reconciliation to our as-adjusted basis of presentation. I'd point out that we incurred $8 million of charges in the first quarter related to our office consolidation initiative. We expect that we'll have additional charges in upcoming quarters as this initiative moves forward. The overall expected cost of our office consolidation initiative has increased by several million dollars to a range of $41 million to $45 million. Additional costs are due to several very positive factors including successfully recruiting more of our Connecticut-based employees to Atlanta than we had originally planned, and we're very happy about that; and our decision to include our international team, which is largely based in New York City today in the scope of the project. Turning to Page 6, which summarizes the major drivers of [indiscernible]. Adjusted SG&A in the quarter was approximately $176 million compared to $148 million in the prior year. The increase in SG&A continues to be mostly driven by growth in our direct to consumer businesses with a substantially higher store count and far greater eCommerce sales volume than a year ago. The largest sources of SG&A rate deleverage in the quarter were our retail stores business, the addition of our business in Japan and our distribution expenses. In our retail stores, comp store sales were obviously softer than we planned, and we also continued to open new stores which take some time to ramp to full productivity. Regarding distribution expenses, we've mentioned that we are in the start-up phase with the new multichannel distribution center. We've also added capacity internationally to support our planned growth outside the U.S.. We expect these investments will help us meaningfully lower our distribution costs and increase efficiency over time. Given the slow start to sales early in the quarter, we also took steps to control hiring and discretionary spending, which benefited our profitability in the quarter. On Page 7, we've summarized several balance sheet and cash flow highlights. Our balance sheet and liquidity remain very strong. We ended the first quarter with a cash position of $398 million. Quarter-end inventories increased 7% compared to a year ago, reflecting our expectations for good top line growth in the second quarter. We had healthy cash flow from operations of $53 million in the first 3 months of the year. CapEx for the quarter was $31 million compared to $16 million in last year's first quarter. Significant investments during this year's first quarter include ongoing spending on our new multichannel distribution center, new retail stores in the U.S. and in Canada, and technology initiatives. During the first quarter, we repurchased approximately 157,000 shares for a total of $9 million. These repurchases were made under an existing authorization from our Board of Directors. We've continued repurchases into the second quarter and through yesterday, our year-to-date repurchases were approximately 308,000 shares for a total of $18 million. We have approximately $41 million remaining under the current board authorization. Capital structure continues to be an active topic of analysis and discussion. While we're executing a pretty full investment agenda this year, we're comfortable with our liquidity and the cash flow profile of our businesses and believe we have good capacity to return capital to shareholders in the form of share repurchases. We also plan to continue to consider smaller tuck-in type acquisitions which might be additive to our internal growth plan. We believe we have disciplined evaluation criteria in this regard and the strength of our balance sheet gives us flexibility to consider good external opportunities. Moving to Page 8, which summarizes our business segment financial performance. As noted earlier, our first quarter consolidated adjusted operating margin improved by 280 basis points. Our U.S. businesses posted solid improvement in their profitability, driven in part by lower product costs. The operating margins for our U.S. Carter's businesses expanded over 300 basis points to 19.7%, in part due to the improved profitability of our eCommerce business. OshKosh's year-over-year profitability improved for the third consecutive quarter. The lower operating margin of our international segment in the first quarter reflects an operating loss of our new Japanese operations of approximately $3.5 million. This loss offsets the profitable other business components reported within the international segment. Now to turn to a few more details on our first quarter business segment results and turning to Carter's wholesale on Page 9. First quarter Carter's wholesale sales were comparable to the prior year. These results are better than we had anticipated driven by strong replenishment demand, improved shipping performance and lower customer cancellations. As Mike mentioned, the absolute amount of net sales reported in the quarter was affected by the timing of shipments. We're expecting good growth in Carter's wholesale net sales year-over-year in the second quarter and for the full year. Off-price channel sales in the segment declined over 50%, which further helped our profitability in the quarter. Since our last update, we've made additional progress on fall 2013 seasonal bookings. Bookings are now expected to be up in the mid- to high single-digit range. Moving on to Page 10 in Carter's retail. We saw strong sales growth in this segment at plus 18%, driven by the addition of 51 net new stores versus a year ago and strong growth in eCommerce sales. During the first quarter, we opened 12 Carter's stores and closed 2, bringing our quarter-end store count to 423. As Mike said earlier, we plan to open about 60 new Carter's stores this year. Retail stores comp sales increased approximately 1% compared to a strong 7% comp in the first quarter of last year. It's a challenging quarter at retail. This year's poor weather throughout the quarter was in contrast to last year's very warm and early spring. We had good sales performance in a number of product categories with good margins including baby, sleepwear and accessories, which helped to offset some of the earnings impact at the top line being a little softer than we had planned. Carter's eCommerce sales, which we report in our retail segment, were very strong in the first quarter. Sales grew 59% to $36 million. Carter's brand eCommerce sales were approximately 21% of Carter's retail brick-and-mortar sales in the quarter. We plan to continue to enhance our websites and to make the online shopping experience better for consumers. We've made very good progress in improving the profitability of this part of our business as top line volume continues to grow and as we move to the lower cost internally-managed infrastructure. Turning to OshKosh retail on Page 11. First quarter net sales for the OshKosh retail segment declined 5%, reflecting very good eCommerce growth that was more than offset by lower comparable store sales and the impact of closing underperforming stores. OshKosh comparable store sales declined about 10%. We've planned for this in the first quarter. This difference represented about a $2 million shortfall to our planned revenue. We believe the poor weather throughout the quarter disproportionately affected OshKosh as a majority of its store base is in drive to outlet locations while Carter's has a much more significant portion of its store base in strip centers, closer to where consumers live. Playclothes was the weakest performing category at OshKosh retail in the quarter and this category was also weak in our Carter's retail stores. In general, where the weather has been consistently warmer, OshKosh performance has been meaningfully better than in other parts of the country. We're also pleased that despite the soft top line OshKosh's profitability has continued to improve. Our plans are to open about 15 new OshKosh stores in 2013. We're also very pleased with the performance of OshKosh online. First quarter OshKosh eCommerce sales grew 46% to $9 million. Penetration of the OshKosh brand online has grown steadily and represented approximately 20% of OshKosh retail store sales in the first quarter. On Page 12 in OshKosh wholesale. As we've commented previously, we're focused on developing more profitable customer relationships. Sales declined 10% in the quarter principally reflecting lower up-front bookings in the off-price channel and segment profits grew nicely. Fall 2013 seasonal bookings for OshKosh are planned down in line with the expectations we shared previously. For the full year, despite the fact we're forecasting net sales down about 7%, we expect meaningful improvement in the profitability of the OshKosh wholesale segment. Moving on to international segment on page 13. First quarter segment sales grew 30%, principally driven by strong wholesale channel sales and the continued growth of our Canadian retail store business. Canada wasn't immune to the weather issues we experienced here in the States, and same-store sales there declined about 4% in the first quarter. The legacy Bonnie Togs stores comp down about 10% and the Carter's [indiscernible] comp up 3%. During the first quarter, we opened 6 new Carter's and OshKosh stores and closed 1 Bonnie Togs store, bringing our quarter-end Canadian store count to 87 locations. We continue to be pleased with the productivity of the new stores we're opening in Canada. We converted 2 of the legacy Bonnie Togs stores to the Carter's and OshKosh co-branded format in the quarter. We're still monitoring the reaction of consumers to this change but believe converting these legacy nameplate stores to the co-branded format is the right long-term strategy for our retail business in Canada. In the first quarter, we also opened our first stores in the province of Québec. These stores are off to a strong start. During our last update, we announced the initiation of direct retail operations in Japan by acquiring certain assets from a former licensee in the market. We believe Japan will be an attractive long-term market opportunity for our brand and having a presence in this country is an important element of building our overall presence in Asia. Japan contributed approximately $3.5 million in net sales in the quarter and an operating loss of approximately the same amount. Part of this operating loss included provisions for slow-moving and excess inventory. Our immediate focus in Japan is to effectively on board the new organization and to stabilize the current distribution footprint, which includes 16 stand-alone retail stores and 81 shop-'n-shops presentations. We're currently focused on strengthening the business in Japan through better merchandising, brand presentation and sourcing. We're also working to expand the reach of the brands to a better tier of distribution in the market. Consistent with what we shared on our last call, we expect our Japanese operations to be dilutive to 2013 adjusted earnings per share by approximately $0.10. Lastly, the decline in international segment operating profit depicted on this line reflects the operating loss in Japan which I've mentioned. The next few pages in the presentation are included for your reference. Page 14 is a photo of one of our new Carter's and OshKosh stores in Québec in the year. Pages 15 and 16 are photos of our new Carter's and OshKosh shop-'n-shops within a Hankyu department store in the Mosaic Mall in Tokyo. We think these are well-executed and brand-appropriate presentations of Carter's and OshKosh B'Gosh in new markets for us. Turning now to our outlook on Page 18. For the second quarter, we're projecting net sales to increase approximately 10%. We believe our U.S. Carter's and international businesses will make the greatest contributions to this growth. We expect adjusted earnings per share to grow approximately 14% compared to last year's adjusted $0.37 per share. In contrast to the plus 40% growth in earnings in the first quarter, we do expect second quarter earnings growth to be more modest. One driver will be gross margin, which we believe will post lower year-over-year expansion in the second quarter than what we saw in the first quarter. Recall that it was in the second quarter of last year that gross margin began to recover from the spike in cotton cost. We expect SG&A will grow in the neighborhood of that experience in the first quarter as we continue to spend on our growth initiatives. We continue to feel very good about the outlook for the balance of 2013. For the full year, we're maintaining our expectations for good growth in both net sales and earnings. We continue to forecast growth in net sales in the range of 8% to 10% and growth in adjusted earnings per share of approximately 15%. We expect capital expenditures of approximately $200 million for the year. Significant investment areas include new retail stores, build out of our new multichannel distribution center here in Georgia, upgrading our information technology infrastructure and the build out of our new corporate offices in Atlanta to support the consolidation of our Connecticut operations. Lastly, we expect another good year of operating cash flow, which will fund this higher level of investment in the business. And with those remarks, we're ready to take your questions.

[Operator Instructions] And for our first question, we go to Robert Ohmes with Bank of America Merrill Lynch. Robert F. Ohmes - BofA Merrill Lynch, Research Division: 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. Michael D. Casey: 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. Robert F. Ohmes - BofA Merrill Lynch, Research Division: 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? Michael D. Casey: 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? Michael D. Casey: 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? Richard F. Westenberger: 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? Richard F. Westenberger: 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? Richard F. Westenberger: 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? Richard F. Westenberger: 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? Richard F. Westenberger: 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. Michael D. Casey: 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. Taposh Bari - Goldman Sachs Group Inc., Research Division: 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? Richard F. Westenberger: 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. Taposh Bari - Goldman Sachs Group Inc., Research Division: 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. Richard F. Westenberger: 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. Taposh Bari - Goldman Sachs Group Inc., Research Division: 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? Michael D. Casey: 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. Richard F. Westenberger: 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. Taposh Bari - Goldman Sachs Group Inc., Research Division: 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. Michael D. Casey: 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. Richard F. Westenberger: That's the opportunity. Michael D. Casey: 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. Howard Tubin - RBC Capital Markets, LLC, Research Division: 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? Michael D. Casey: 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? Brian J. Lynch: 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? Brian J. Lynch: 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? Brian J. Lynch: 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? Michael D. Casey: 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. Michael D. Casey: 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.

That does concludes today's conference. Thank you for your participation.