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

Taposh Bari - Goldman Sachs Group Inc., Research Division Stephen Carlson Scott D. Krasik - BB&T Capital Markets, Research Division Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division Howard Tubin - RBC Capital Markets, LLC, Research Division Maria Vizuete Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division Steven Louis Marotta - CL King & Associates, Inc., Research Division

Good day, everyone, and welcome to Carter's Second 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 second 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 Investor Relations section of the company's website at www.carters.com. Before we begin, let me remind you that statements made on this call -- 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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Also on the 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 the website, I'd like to share some thoughts on our business with you. As you've seen in the press release this morning, we outperformed the macro retail trends in the second quarter. We achieved our sales and earnings goals, we have strong demand for our Carter's brand in all channels of distribution, we had a significant increase in international sales and we made good progress with our growth initiatives. From my perspective, we saw the continued benefit of our multichannel business model in the second quarter. We achieved growth in our core Wholesale business and have strong bookings for our Carter's fall and holiday product offerings. Carter's retail stores, both new stores and comp stores, are achieving their sales and earnings objectives. We saw strong demand online for both Carter's and OshKosh B'Gosh, with total eCommerce sales up 36%. Sales outside the United States grew 45% in the second quarter, with good growth in our Retail, Wholesale and eCommerce businesses. And we meaningfully reduced the losses incurred by Oshkosh, which we expect to be significantly more profitable on a global basis, this year. Given our strong first half performance, we continue to expect good growth in sales and earnings this year. With respect to our growth initiatives, we had good progress with our top 4 initiatives in the first half. These initiatives are focused on consolidating our operations in Atlanta, improving our supply chain capabilities, integrating our new operations in Japan and strengthening our IT capabilities. We're on track to consolidate our Connecticut and Atlanta-based teams into a new headquarters in Atlanta by the end of this year. We're already beginning to see the benefit of our teams working together in one location. We've begun shipping product from our new distribution center to our stores. The buildout and automation of this facility is on track and on budget. This new facility has supported a 47% increase in eCommerce sales so far this year. Our fulfillment costs are significantly lower than last year and we're expecting more meaningful savings after the buildout of this new distribution center is completed next year. With respect to product sourcing, our on-time deliveries from our agent-based and direct sourcing operations have been lower than expected. We saw certain factories fall behind in their production schedules and, as a result, we expect higher air freight charges in the third quarter to meet our delivery commitments. These delays and related cost to expedite shipments are included in our estimates and are not expected to impact our ability to achieve our growth objectives this year. We continue to evaluate our exposure to product cost inflation. Thankfully, cotton prices have been relatively stable but are higher than last year. Earlier this year, some of our largest suppliers told us to expect modest inflation driven by rising wages in Asia. Since our last update, we've negotiated Spring 2014 product costs. Those costs will be higher than last year due to rising wages, improved product benefits and changes in our product mix. We plan to offset product cost increases with pricing and other margin improvement initiatives. By February, we'll have visibility on Fall 2014 bookings and related product costs, which will enable us to firm up our growth plan for next year. With respect to our new business in Japan, sales trends are improving. The start-up costs and the estimated dilution this year are in line with what we shared with you previously. We view Japan as a long-term initiative. Near-term, we don't expect it to have a meaningful impact on our results. And with respect to our technology investments, we are upgrading key systems this year to support the growth we are seeing in our business. These investments are focused on supporting our new distribution center and workforce consolidation initiatives. We're upgrading our order management systems to support our eCommerce and international businesses, and we're upgrading our supply chain systems to improve our visibility to production and shipments from Asia. These investments are an important component of our long term growth strategy. There are a few noteworthy developments since our last update that I want to share with you. Just prior to our last update in April, the world learned about the tragedy in Bangladesh. Thankfully, we were not directly impacted, and we are closely monitoring the work being done there for us. About 8% of our production is in Bangladesh. We have a rigorous process for engaging factories throughout the world. Our experience in Bangladesh, with respect to product safety, quality, reliability and cost have generally been good. That said, there's always a risk that someone takes a shortcut and puts workers' safety, product quality and our brand names at risk. To mitigate that risk, Carter's has joined the Coalition of North American Retailers to fund an alliance for Bangladesh Workers Safety. It's a 5-year initiative intended to improve the safety and working conditions at factories in Bangladesh. This initiative requires an investment proportional to our presence there, and we believe it will strengthen the source of supply for us over time. Separately, as you've seen in the release this morning, we recently acquired trade names previously owned by H.W. Carter and Sons. This company established its operations in 1859, 6 years prior to the founding of our company, previously known as The William H. Carter Company. Similar names, no relation, both selling children's apparel. Years ago we took legal action against H.W. Carter to get superior rights to the Carter's brand name and were unsuccessful in that effort. We believe the coexistence of 2 Carter brand names in children's apparel has caused confusion in the market and put our brand name at risk. In some cases, H.W. Carter have priority rights to the Carter's brand name for children's apparel in markets very important to us, including China. To gain superior rights to the Carter's brand name for children's apparel, we purchased the H.W. Carter trade names in June. No liabilities were assumed in the transaction. And with respect to our capital structure and capital allocation initiatives, as you've seen in our operating results in recent years, we have strengthened our retail store model, launched a highly successful eCommerce business, acquired our largest international licensee, improved our distribution capabilities and built direct sourcing capabilities. Collectively, we believe these initiatives have strengthened our business model and may generate significant levels of excess cash flow in the future. Our priorities for cash flow include maintaining a healthy liquidity position, investing in high-return organic growth opportunities, evaluating acquisitions to supplement our organic growth initiatives and returning excess cash flow to shareholders through dividends and share repurchases. As you know, in recent years, we've been underleveraged and generally been in a net cash position. In May, our Board of Directors approved a $300 million share repurchase plan and declared our company's first quarterly dividend since going public 10 years ago. These actions reflect our positive outlook for our business and our commitment to return excess capital to our shareholders. Since our last update, we've been working closely with our board and our financial advisors to help us evaluate opportunities to improve our capital structure and deliver additional value to our shareholders. Given the favorable credit market, we believe there's an opportunity to improve our capital structure and reduce our cost of capital by adding a prudent amount of leverage. We are actively pursuing this opportunity and we expect to update you on our progress with this initiative in the near future. In summary, we've made good progress in the first half strengthening our business, and we believe we're on track to achieve our growth objectives this year. We plan to continue our focus on providing the best value and experience in young children's apparel, extending the reach of our brands, improving our profitability and strengthening our performance-oriented culture. We've built a very talented organization over the years, and we believe we have strengthened our company with our office consolidation initiative. I'm grateful for the support provided by current and former employees who helped make this initiative successful. I want to welcome the many new employees who have joined us in Atlanta this past year. We're committed to help all of our employees build successful careers with us in the years to come. Richard will now walk you through the presentation on our website. Richard F. Westenberger: Good morning, everyone. Our presentation materials, this morning, are available on the Investor Relations portion of our website. As these materials provide a lot of detailed information, I'll try to just point out some of the highlights as I move through the presentation. So beginning on Page 2. We delivered a strong second quarter. Net sales grew 10% compared to last year, the increase was comprised of strong unit sales growth and a modest improvement in average unit pricing. In terms of contribution by business, our Carter's brand retail stores here in the U.S., international and eCommerce drove our top line growth. We got solid expansion in gross margins of 370 basis points, which was somewhat better than our internal forecast for the quarter. On the bottom line, adjusted earnings per share grew 24% to $0.46. Second quarter completes a strong first half performance for our company, with growth in net sales of 8% and an increase in adjusted earnings per share of 34%. Page 3 breaks down our second quarter sales results. Total Carter's sales in the U.S. grew 9%, driven by good growth in our Retail store and eCommerce businesses. Carter's Retail store comparable sales increased nearly 4%. Carter's Wholesale segment sales grew modestly in the second quarter. Sales growth was affected by fiscal calendar differences between us and our wholesale customers, which have a 53rd week in their calendars this year. We're projecting good full year growth in Carter's Wholesale at the mid-single digit level. Total U.S. OshKosh sales declined 5%. Retail comparable store sales were down 5% in the quarter and eCommerce sales grew nicely, up 25%. International sales increased 45% in the second quarter, reflecting solid growth across the wholesale, Canadian Retail and eCommerce segments of the business. Our new Japanese business contributed nearly $5 million in net sales in its first full quarter of operations, trending in line with our expectations. I'll provide more detail on our business segment results in a moment. Moving to Page 4, in our second quarter P&L, beginning with gross margin. Second quarter gross margin improved to 42.5% driven by better average unit product cost and slightly higher average unit pricing. A higher mix of sales from our U.S. and international direct-to-consumer businesses also contributed to the year-over-year margin expansion. Adjusted SG&A increased by 260 basis points over last year in line with our expectations. I'll discuss this in more detail in a moment. Adjusted operating margin improved by 100 basis points to 8.7%, with adjusted operating income growing 24%. Again, on the bottom line, we were pleased with the strong growth in adjusted earnings per share of 24%. Turning to the SG&A summary on Page 5, second quarter adjusted SG&A was $183 million compared to $154 million in the prior year. SG&A increases over the prior year continue to be principally driven by our growth initiatives, specifically our U.S. direct-to-consumer businesses and the growth in international. Distribution and freight increases reflect increased sales volumes across our businesses, as well as the start-up costs associated with our new multichannel distribution center here in Georgia. We've seen some higher expenses from employee benefits, as well as higher stock-based compensation which is up, in part, due to the strong performance of our stock. The All Other bucket principally reflects higher HR and personnel related expenses and spending on our technology initiatives. From a rate perspective, the largest contributors to SG&A rate deleverage were our Japanese operations, which are not comparable to last year; expenses from new stores, which are not yet at their full level productivity; and distribution expenses, which reflect some of the inefficiencies in ramping up the new DC. We do expect the growth rate in expenses to be lower in the second half than our first half experience. The next 3 pages summarize our first half performance, and we've included this information for your reference. Pages 9 and 10 provide a reconciliation of our GAAP results to our as-adjusted basis of presentation for the second quarter and the first half of the year. Page 9 covers our second quarter, where the most notable adjustment is $10 million in charges related to our office consolidation initiative. As Mike had said, we're making very good progress in the operational transition from Connecticut to Atlanta. We're happy to have our employees together, and we're looking forward to moving to our new headquarters facility later this year. As noted, in today's press release, we expect to incur expenses over the balance of the year, as we move to substantially complete this initiative by the end of the year. We also expect to normalize out the amortization costs related to the trade name acquisition, so we'll give good visibility to those costs going forward. Page 11 highlights several balance sheet and cash flow items. Our balance sheet and liquidity remained very strong. We ended the second quarter with a cash position of $312 million. Quarter end inventories increased 14% compared to a year ago, reflecting our expectations for good top line growth in the third quarter, as well as supporting more than 60 store openings in the second half of the year. The overall quality of our inventory remains excellent. First half cash flow from operations was solid at $70 million. CapEx for the first half was $71 million compared to $38 million in last year's first half. As noted on previous calls, we're executing a more significant investment agenda in 2013 to support our long-term growth objectives. We made good progress in repurchasing shares in the second quarter. During the second quarter we bought back approximately $29 million worth of stock. Through yesterday, our year-to-date repurchases totaled approximately $46 million, or approximately 704,000 shares, and we have approximately $275 million remaining under our current board authorization. Also in the second quarter, we initiated our first-ever dividend at $0.16 per share, which represented a total distribution of capital of $10 million. So far this year, we've returned a total of $56 million to our shareholders via share repurchases and dividends. Since I've been discussing the balance sheet, this is a good spot to provide my comments on the trade name acquisition and my perspective on our capital structure review. Page 12 summarizes our recent H.W. Carter trade names acquisition. Mike's already covered the key strategic points related to this asset acquisition. We've included some branding and creative imagery used by the H.W. Carter and Sons and Carter's Watch the Wear brands. I think you'll see the potential for consumer confusion with such similar brand names on children's apparel in the marketplace. Consideration for this transaction was $38 million in cash. This was an asset acquisition only. We're not acquiring any continuing operations or assuming any liabilities. H.W. Carter is required to wind down its operations over the balance of this year. We've recorded a trade name asset on the balance sheet as a result of this transaction and we plan on amortizing this asset on an accelerated basis over the next 3 years. And with regard to our ongoing capital structure review on Page 13, earlier on the call, Mike mentioned our guiding principles. I'll provide my perspective on these important issues as well. First, we intend to maintain a comfortable level of liquidity. We've seen some volatility in our business over the past few years in terms of product cost and the impact this can have on working capital. So we feel it's prudent to have a sufficient level of liquidity available to us at all times. We've assigned our target liquidity as cash on hand, as well as the capacity under our revolver, and we have a target of approximately 1 year of EBITDA which is currently about $350 million. Second, as Mike pointed out and consistent with the strength and cash generation capabilities of our business, we've been actively exploring ways to improve our capital structure and to deliver enhanced value to our shareholders. We are in the process of adding a prudent amount of new leverage to our balance sheet which we think will improve the overall efficiency of our capital structure. We use a lease adjusted debt-to-EBITDAR metric when thinking about the level of leverage which is appropriate for our balance sheet. This is the most relevant measure since it includes balance sheet debt and the very significant fixed obligations we have in the form of leases. Finally, in terms of capital distribution, returning excess capital to our shareholders is a priority. On a go-forward basis, we're targeting the return of 50% of annual free cash flow in the form of share repurchases and dividends. We'll, of course, keep you posted on our progress on these matters. Page 14 summarizes our business segment financial performance for the second quarter. As noted earlier, adjusted operating margin in the second quarter improved by 100 basis points. Both Carter's and OshKosh businesses in the U.S. contributed to this margin expansion with the profitability of our U.S. Oshkosh businesses improving by 500 basis points. International segment margin declined compared to last year, largely due to the operating loss of our Japanese operations. We're forecasting a full year operating loss in Japan of about $0.10 per share, in line with our prior expectations. I'll move to Page 15 for some specific comments on each of our segments and their second quarter performance. Turning to Carter's Wholesale, on Page 15, Carter's Wholesale second quarter sales grew 1% compared to last year. We planned the first half of the business at a lower level, given the calendar and shipment timing differences that I referenced earlier. And again, we're planning on good growth for the full year. Season-to-date Spring 2013 selling at our major national customers is up in the low-single-digit range, with prices comparable to last year. Segment income and margin declined in the second quarter compared to last year principally due to the timing of customer support and the mix of customers in the quarter. As we look ahead, we're expecting good growth in Fall 2013 sales, given our high single-digit bookings. Our Spring 2014 bookings are up in the low- to mid-single-digit range. Moving on to Page 16, in Carter's Retail, this business delivered another quarter of strong sales growth at plus 18%. Growth was driven by the addition of 53 net new stores versus a year ago, eCommerce sales growth of 39% and a strong store comp of nearly 4%. The store comp was driven by higher average transaction values. From a product category perspective, girls and boys playwear were the strongest performing parts of the assortment. Carter's Retail segment profit grew 67% and operating margin improved 490 basis points. This improvement reflects a strong product offering, effective pricing and promotions and lower product costs. Operating margins improved in both the retail store and eCommerce components of the Carter's Retail segment, with the eCommerce operating margin above the retail store margin. Turning to OshKosh Retail on Page 17, second quarter net sales for the OshKosh Retail segment declined 3%. This reflects eCommerce growth of 25% and new store revenue that was offset by lower comp store sales and the impact of closing underperforming stores. We continue to have good success in Girls Playclothes, particularly, the more fashion-oriented components of the assortment. Boys Playclothes was the most challenging category for the quarter. As we've said, our focus this year is on improving the profitability of Oshkosh, and consistent with this objective, profitability of the OshKosh Retail segment improved by $3 million compared to last year. Profitability improved in both the retail store and eCommerce components of the business. We've embarked on a new path which we hope may represent a good retail store growth vehicle for Oshkosh, which we refer to as the side-by-side concept. As you know, we've had great success over the past few years in presenting the Carter's and OshKosh brands together in Canada, in the co-branded store concept and with our co-branded website here in the U.S. We consistently hear from consumers that they love the ability to shop the 2 leading brands in children's apparel in the same location. The side-by-side concept is essentially 2 stores, side-by-side, as the name implies, but with a passthrough between them. Customers can easily shop the best of both brands and check out in either store. This model looks to have the potential to drive improved OshKosh store productivity by taking advantage of the historically higher Carter's store traffic patterns. We think this model may also yield capital and expense efficiencies in constructing and operating the stores jointly. We plan to open approximately 18 of these stores over the balance of the year and to remodel an additional 7 locations to this format. On Page 18, we've included a picture of our newest side-by-side store, which is located in Woodstock, Georgia, just north of Atlanta. This store had a terrific grand opening last week. For those of you in the New York area, we're planning on opening a side-by-side store in Yonkers later this year. So hopefully you'll have a chance to go and see it for yourselves. Moving to Page 19 in OshKosh Wholesale, sales declined 12% in the quarter, but segment operating margins improved by 550 basis points. We expect full year profitability in this portion of our business to be up nicely. Current Spring 2014 seasonal bookings for Oshkosh are planned down in the high-single digits, which equates to about $2 million in sales. Moving on to our International segment on Page 2, excuse me, on Page 20. Second quarter segment sales grew 45% driven by strong wholesale channel sales, continued growth of our Canadian retail store business and our recently acquired Japanese operations. Canada retail comped down 1%, the co-branded Carter's and OshKosh stores comped up 4% while our legacy Bonnie Togs format stores comped down 7%. Unseasonably cool temperatures and the transition away from private label product in the legacy Bonnie Togs stores weighed on Canadian comps in the quarter. New Canadian stores continue to perform at the very high level and we are particularly encouraged by the strong start of our new stores in Québec. We've included a photo of one of the new Québec stores on Page 21. Japan contributed approximately $5 million in net sales in the quarter and an operating loss of approximately $1 million. Our priorities in Japan are focused on better merchandising, brand presentation and sourcing initiatives to strengthen this business. Second quarter net sales in international wholesale were particularly strong at plus 64%, principally driven by growth with U.S.-based multinational retailers. Our Target Canada business is off to a good start. We look forward to supporting Wal-Mart Canada this coming Spring. Overall, we're very pleased with our progress in replicating our successful U.S. multichannel strategy in Canada. Segment operating income in international grew 16% compared to last year, reflecting strong top line growth across all the components of our international operations. Turning now to our outlook on Page 23. For the third quarter, we're projecting net sales to increase approximately 12%, with our U.S. Carter's and international businesses contributing the most to this growth. We expect adjusted earnings per share to be up low-single digits versus last year's adjusted $1.02 per share. Our third quarter outlook now includes more meaningful airfreight expenses than originally planned, due to some production delays which we've experienced with a specific vendor in China. We've also moved certain marketing expense into the third quarter, expense which fell into the fourth quarter last year. When excluding these airfreight expenses and the timing of marketing investments, our third quarter adjusted earnings per share growth outlook would represent an increase in the low-double-digit range. We're expecting solid growth in net sales and earnings for the fourth quarter. For the full year, we expect growth in net sales of 8% to 10%, given our first half performance and confidence in our second half plans, were raising our full year earnings per share outlook to growth in the range 15% to 17%. Note that this guidance excludes the effect of any additional share repurchase activity we might execute in the balance of the year. Our full year capital expenditures continue to trend to approximately $200 million for the year. Significant investments this year include adding over 100 new retail stores in the U.S. and in Canada, spending on our new corporate offices here in Atlanta, continued buildout of our new multichannel distribution center and upgrades to our information technology infrastructure. Lastly, we expect solid operating cash flow for the full year. With those remarks, we're now ready for your questions.

[Operator Instructions] And for our first question, we go to Taposh Bari with Goldman Sachs. Taposh Bari - Goldman Sachs Group Inc., Research Division: Mike, I was hoping you could maybe provide some comments on how the retail environment transpired this past quarter from your perspective. I know that the first quarter was pretty unseasonably unfavorable. But I wanted to see how the second quarter transpired. Can you provide some context as to how you actually performed versus that? Michael D. Casey: Sure. You're right. I think the first quarter was pretty bumpy because it was unusually cold. It was unusually cold, but it was spring. It just happened to be up against gorgeous weather the previous year, in the first quarter. Second quarter was better. Carter's comped positive, April, May, June. Fourth of July, best holiday we have seen all-year long, compared to Presidents' Day weekend, Easter. Fourth of July was the strongest holiday both brands, both Carter's and Oshkosh, have seen all year. So I'd say the trends in the second quarter were good. Oshkosh had a bumpy start. I think the April comps were down, but it had positive comps in May and June, again, strong, very strong comps over the Fourth of July, the long weekend, we measure Wednesday through Monday, or Sunday, rather, as I recall. Good top line growth, good profit margins over the Fourth of July weekend. I would say, since Fourth of July, business has slowed a bit. Carter's comps quarter-to-date -- third quarter to-date, down about 1%. I think Oshkosh down about 2.5%. I think Canada down 2.5%. So it's not unusual when you have a big surge in sales, as we did over the Fourth of July weekend, the comps were up double digit. And the profits on those sales were up double digits, so it wasn't like we were getting those sales by deeply discounting the brands. And so when you see a big surge in sales over a holiday weekend, it's not unusual to see business slow a bit. July is a -- I'd say July is the smallest of the 3 months in the third quarter. I think it represents less than 25% of the sales, less than 25% of the profits for Retail. August, September, those are the big months. Feel really good about the fall product offering. We're out in the stores last week looking at this new side-by-side store that Richard referenced. It looks beautiful. So we're set right now for the fall. We're set at Carter's. Within the week, we'll be set for Oshkosh. So we feel good about the current business trends. I think we're going to have a good, solid third quarter. Carter's, we're assuming positive comps, and I guess for OshKosh, comps -- we would be disappointed if the comps for Oshkosh are not better than they were in the second quarter. We've continued to be focused on improving the profitability of Oshkosh, I think we're making good progress with that. But say in a word, business trends have been good and we're expecting a good third quarter, good second half. Taposh Bari - Goldman Sachs Group Inc., Research Division: I was hoping -- just to follow-up on that point on the Carter's Wholesale side, so -- I might have missed this, but second quarter came in slightly below your guidance. You're reiterating the back half guidance for wholesale growth, up high-single digits. Then I look at your spring bookings for Carter's up a little bit less than that, low single to mid single. So if you could you help us understand what's happening there. Brian J. Lynch: Taposh, this is Brian. A couple of things, first of all, our plan is a low- to mid-single-digit growth for the Wholesale business. We feel really good about our prospects. For the year, we're going to be up mid-single digits in totality. So there's timing differences and what have you, but we feel really -- that business is very solid. I think, as Richard mentioned for the first half of '14, Spring '14 bookings, we're currently up mid to -- low to mid singles and the launch of our new replenishment businesses in the early reads in fall are positive. So we feel it's really solid business. Again, there's some timing differences, but overall, we feel really good about that business.

Great. And just the last question for Richard. You said you have capital structure -- I know you've given a lot of detail, but can you help us better understand, I guess, what the upper bounds of leverage or comfort are. I know you've mentioned quality investment rating, but help us understand what you're thinking in terms of target leverage or just how you're approaching that in general. Richard F. Westenberger: Well, as the comments reflected this morning, it appears it's a reasonable, prudent amount that we feel comfortable adding to the balance sheet, we're not going to add anything that we think stretches us too far or is reckless in any regard. We think flexibility and liquidity are important in our business. We've seen some shocks to the system over the years. So it's an appropriate amount of leverage. We have a transaction that's underway at the moment so we don't feel it's appropriate to be specific until that officially launches in the marketplace. But once we do that we'll share all that with you.

And for our next question, we go to Scott Krasik with BB&T. Scott D. Krasik - BB&T Capital Markets, Research Division: Mike, this H.W. Carter's, is that in China already? Do they have a business there? And if not, what does this mean for the timing of when you could enter China? Michael D. Casey: Yes, I think, it's fair to say, Scott, they didn't have much of a business at all, I would say, here in the United States or China, but they did have superior rights to our Carter's brand name in China, and so we made that investment. This is a brand that has been, I would say, drafting off of our success for a number of years and they were entitled to do that. They opened up their doors about 6 years prior to us establishing our operations years ago. So it was a small business, but it was in the market. And in some cases, they took advantage of, perhaps, our lack of focus, years ago, in certain markets to protect our brand name or the rights to our brand names in those markets. So if they had a presence in China, it was small. And but we -- so we decided to make the investment and take that brand name out of the market. Scott D. Krasik - BB&T Capital Markets, Research Division: And just in terms of timing for a strategy now to enter China? Michael D. Casey: I would say, I don't expect any meaningful announcement in the balance of the year. Our focus right now is on Japan, integrating that operation. Thankfully, we're seeing improving trends in that business. And we're focused also on bringing the international team down here to Atlanta and getting the resources that we need. So I'd say ,we've taken some good steps. We've scoped out the market, we've looked at potential partners in China. Our strategy is to find a great partner in China, preferably a retailer. And then leverage their local market knowledge, their local market expertise and combine that with our great brands, our merchandising expertise, our supply chain capabilities and build a better book of business in China over time. We have a presence in China through a licensee. One thing I've learned, perhaps with exception of Canada, if you have a licensed business, it will never be big. And we think the opportunity in China is big, but that's a long-term initiative. There won't be any meaningful announcement, I don't believe, in the balance of the year with respect to China. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then Richard, can you just parse out what the freight/airfreight cost is going to be in Q3? And then what the marketing additional cost is going to be, please? Richard F. Westenberger: On balance, the airfreight we're expecting is in the range of $4 million to $5 million and the marketing expenses, which relate to the count on Carter's campaign, we're shifting that a little earlier in the year, is about $6 million.

For our next question, we go to Susan Sansbury with Miller Tabak. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: Just a cleanup question in terms of these trade names that you bought. Other than China, where were they being used? Michael D. Casey: They were being used here in the United States, Susan. Tended to be a lower tier distribution and in Canada. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: But no place else? Michael D. Casey: Not any meaningful area. Richard F. Westenberger: Correct. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: This is not on topic, but I'm always curious about what's going on at JCPenney. Did you get your shop-'n-shops open and in place? And/or can you say anything more about what's going on at JCPenney? Michael D. Casey: Sure. I think if you went to Penney's today, you'd see a beautiful presentation of the Carter's brand. The Oshkosh presence has been shrunk. We are launching the Oshkosh overall bar in their top stores later. The share of our business with Penney's has been good. I think, they -- what we shared on our previous call, Susan, is that we put a pin, for now, in the big shop, the big hard shop, so to speak. I think that's the lingo that's been used in the past. I was in -- I was down at Penney's recently, had a meeting with Mike Ullman and his team, and I think our brands are being viewed very favorably. We've had growth, despite some of the issues that they've had in recent years, and we expect that to continue to be a very good customer for us and a good source of growth for us. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: Okay. And then back to this capital restructuring initiative, when do you expect the transaction to be effective, Richard? Richard F. Westenberger: We're working on it right now, Susan. We've been to visit the rating agencies. We've had a number of discussions with our board. They have approved our action plan and we will move as quickly as we can to execute it. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: Okay, great. You're doing -- you're executing extremely well and to be applauded. And we wish you the best for the back half.

We go next to Howard Tubin with RBC Capital Markets. Howard Tubin - RBC Capital Markets, LLC, Research Division: How do you feel about inventories in the channel going into the back-to-school season? I guess, maybe both wholesale and your inventories in your own retail stores in terms of carry-over product and quality? Michael D. Casey: Howard, I think, overall, we're in pretty good shape. In our retail stores, going into the quarter, we were down slightly on a per door basis in Carter's. Flat to last year in Oshkosh. So we feel like we're in good shape there. From a wholesale standpoint, I would say the inventories trended a little higher than sales. The folks did have some challenges with weather early in spring, and they had to clear that out. So got a little more promotional further in the quarter, so we don't think it's a concern. We haven't had any significant cancellations or what have you, but I would say it's slightly higher than probably the sales rate has been in wholesale. Howard Tubin - RBC Capital Markets, LLC, Research Division: Got it. And maybe just overall plans for inventory level at the end of 3Q, should we expect an increase kind of similar to what we've seen at the end of 2Q? Richard F. Westenberger: Yes. In that neighborhood, Howard.

For our next question, we go to Stephanie Wissink with Piper Jaffrey.

It's actually Maria Vizuete in for Stephanie. We just have a couple of questions relating to the balance between the third and the fourth quarter. Is there any calendar or timing shift that we should be mindful of? Richard F. Westenberger: I don't think significantly. The Wholesale business is a little bit larger in terms of the share of the pie in the third quarter. The direct-to-consumer businesses kick up and are more significant piece of the pie in Q4. But other than that, not anything significant.

Okay. And then can you remind us what tax rate we should be using for the year? Richard F. Westenberger: I would say in the upper 36% range.

[Operator Instructions] We go next to Anna Andreeva with Oppenheimer. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Speaking to Carter's Wholesale, just -- did you guys quantify, by any chance, the magnitude of the shift from the second quarter to the third quarter? I guess, looking at the sales guidance of up 12% for 3Q, retail comping down low singles, should we think that acceleration in sales is entirely wholesale-shift related? And again, on Carter's. Operating margins declined in that bucket. Can you maybe talk about what drove that? You obviously referred to higher inventories in wholesale, so maybe a little bit more color on that would be great. Michael D. Casey: Yes, sure. The shift of revenue from Q2 to Q3 was not all that significant. We, to Brian's earlier comments, we tend to look at the business on a full year basis because you can have differences in the timing of shipments that fall over quarter end dates, so it wasn't that material. I don't think the performance relative to our forecasted revenue guidance was that meaningfully different, to be very candid. The decline in operating margin for the Carter's Wholesale segment largely had to do with the mix of customers. There are various a support rates that are in effect for different customers, and that mix of customer base can skew from quarter-to-quarter. So it's largely timing and mix of customers that related to the change in profitability. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay. And I guess the acceleration in sales, Richard, for the third quarter, this is obviously the wholesale bookings being up high singles. Is that how we should think about sales, being up 12%? Richard F. Westenberger: For Carter's Wholesale, your question is? Yes, we're expecting very good growth across our businesses for the third quarter. A piece of that is the shift in revenue. A piece of it is the 53rd week issue that I mentioned, where some shipments that normally would have been in Q2, before now, will be in Q3. But expecting good revenue growth, and in particular, in international we're expecting a good third quarter. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay, got you. And on gross margins, obviously, we've been seeing some nice upside for some time. What kind of a gross margin are you guys implying in the third quarter guidance? And just for the back half? How should we think about AUC for the back half? And sounds like you're placing your Spring '14 orders now, and just the magnitude would be helpful. And just with the production disruption issue, I'm assuming that's contained to the third quarter and that shouldn't continue into the 4Q? Michael D. Casey: There's a lot of questions there. I think as it relates to the production delays, yes, it's largely a Q3 issue. We hope to be through that, certainly, by the end of September. Product costs for the second half are up about 3%. I'd say, we have good strategies to, more or less, offset that with mix and with pricing. We are seeing a trend towards product cost inflation for Spring of next year, that it's above 3%, so we're still working through those plans. In terms of gross margin, we're expecting good gross margins in the second half of the year. We're not anticipating the hundreds of basis points of upside that we've seen, or expansion that we've seen, similar to the first half. The benefit from product cost has started to moderate and so now we won't have that going forward. But we're expecting good gross margins for the back half. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay, got you. That's helpful. And just maybe to Mike, just a bigger picture on Oshkosh. If the business had been difficult for some time, we're kind of operating it more for profitability here in '13. But I guess, I'm curious, the girls' side has been challenging, sounds like that's improved now, which is great. Boys, you know, sounds like a little tougher now. Maybe talk about what's going on in this business. Is it just the landscape for the older kid a bit more competitive out there? Just kind of your thoughts going forward. Michael D. Casey: I actually have a different point of view than you do. I actually think we've made great progress with Oshkosh. I think brand point of view has never been stronger. We're very excited about the side-by-side store initiative. Girls performance was extremely good. Boys was tougher. Boys is always tougher in the spring. You're selling polo shirts, t-shirts and shorts and it's hard to make that look particularly beautiful. Girls you have an opportunity to put more fashion into the product and that has resonated wonderfully with the consumer. And the strategy we've taken over the past year or so is -- it's a wonderful business. It'll probably do some portion of $460 million in sales this year. It has grown. That'll be good growth over last year. We're focused on meaningfully improving its profitability. I wanted to focus on the profits. This brand earned some portion of $30 million for us back in 2010. That got wiped out with cotton, and not much we could have done about that. It showed some profit improvement in 2012 on a global basis, earned some portion of about $11 million. This year we hope it earns closer to $15 million to $20 million, excluding some of the startup costs for Japan. So we're making progress. I think it's a wonderful brand. I think it's got a wonderful future. I continue to believe it's going to meaningfully contribute to our growth objectives. So a lot of times when people view it as difficult, Oshkosh always looks weaker when it's compared to Carter's. There's very few brands that look better than Carter's. Carter's is just this wonderful brand. We've been working at it a long time, it's the top-of-mind brand for new moms. And so now, what we're doing is we're attaching the Oshkosh brand to Carter's in this side-by-side store initiative to draft off the natural traffic that Carter's gets from consumers. And the feedback on that initiative is good, so pretty excited about that. So we're pretty bullish on Oshkosh. I think we're making good progress with the brand.

And for our next question we go to Steve Marotta with CL King & Associates. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Could you please remind us, from your direct sourcing initiative standpoint, what percentage of sales that was in the Spring of '13 and what you expect in the Fall of '13 as well as Spring of '14, that cadence of growth there, the percent of sales? Michael D. Casey: Yes. Just directionally. I think Spring of '13 was in the teens. Fall '13 is somewhere around 25%. And my guess is it will ramp up closer to 30% for Spring '14. So what we're trying to do is have a slow climb up to 50%, direct sourcing mix by 2017. That has run ahead of what we had anticipated for a number of reasons. One, we saw some new opportunities, and in some cases, we -- one major factory who did not perform well for us last year had the good sense to say, "You know what? I'd rather have smaller business on the Asian-sourced side of the business." And we took that business over from them. So I'd say it's ramped up quicker than we had planned. In some ways that's been good, some ways it has not. I'd say the performance from both Asian-sourced and direct sourcing has been a bit disappointing. That's what will result in some higher airfreight charges that we've worked into the estimates for the balance of the year. So I would say the direct sourcing operation, right long term strategy, absolutely the right thing to create a more competitive sourcing model over time. And we're seeing some of the usual first year startup bumps that we're working through. But it'll be a -- I think, for all those reasons, I think, it's prudent to ramp this up slowly to a 50% mix by 2017. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Michael, you just intimated that the airfreighting is both late at the feet, if you will of agency as well as direct, is it accurate? Or is it -- does it skew one or the other? Michael D. Casey: I think it skews more towards -- I believe it skews more to direct. Yes. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Lastly, and this is just intimated, but I'd like to be perfectly clear, the acquired trademarks will be completely extinguished, correct? They will not be resurrected, in any form, under your umbrella? Michael D. Casey: Yes, sir. That's correct.

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. Michael D. Casey: Great. Thanks very much. Thanks, everybody. Appreciate you joining us on the call. I appreciate your questions and your interest in our business, and we look forward to updating you again on our progress in October. Thanks very much. Bye-bye.

And ladies and gentlemen, this will conclude today's conference. Thank you for your participation.