Michael Dennis Casey - Carter's, Inc. Richard F. Westenberger - Carter's, Inc. Brian J. Lynch - Carter's, Inc.

Susan Anderson - B. Riley FBR, Inc. Anna Andreeva - Oppenheimer & Co., Inc. Nancy Hilliker - Wells Fargo Securities LLC Laurent Vasilescu - Macquarie Capital (USA), Inc. Heather Balsky - Bank of America Merrill Lynch John Kernan - Cowen & Co. LLC Pamela Mia Quintiliano - SunTrust Robinson Humphrey, Inc. Bill Schultz - Goldman Sachs & Co. LLC Omar Saad - Evercore Group LLC Janet J. Kloppenburg - JJK Research

Welcome to Carter's First Quarter 2018 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President and Treasurer. After today's prepared remarks, we will take questions as time allows. Carter's issued its first quarter 2018 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor Relations section of the company's website at www.carters.com. Before we begin, let me remind you that statements made on this conference call and in the company's presentation materials about the company's outlook, plans, and future performance are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent annual report filed with the Securities and Exchange Commission and the presentation materials posted on the company's website. On this call, the company will reference various non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the GAAP financial measurements is provided within 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 Dennis Casey - Carter's, Inc.: 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. We achieved the first quarter sales and earnings goals that we shared with you on the last call. Our growth was driven by our Retail and International segments. As expected, our wholesale sales were lower than last year, but better than planned given earlier demand for our spring product offerings. In the first quarter, we launched our new Carter's brand marketing campaign. Our "With You From the Start" campaign highlights those special moments in the early years of a child's life. We'll share a link to that marketing with you this morning. Earlier this year, we extended the scope of our Simple Joys brand, designed exclusively for Amazon Prime customers, with the launch of toddler playwear, building on the successful launch of baby apparel and sleepwear last year. In the first quarter, we launched our Skip Hop brand in our Canada stores, and it's off to a very good start. And we also recently launched a new brand by Skip Hop called Skidaddle. Our new Skip Hop brand is now selling in over 3,800 Walmart stores throughout the United States and on Walmart.com. With respect to business trends this year, we saw good growth in retail sales in January and business slowed a bit in February. We saw the best growth in March, which is one of the largest months of our year, with comparable retail sales up about 6%. Consistent with our historical experience, an early Easter is a good traffic driver only if it's accompanied by warmer spring-like weather. With four nor'easters in a three week period in March, we didn't see the lift in Easter-related shopping that we expected. We had 45% more stores closed in the first quarter this year because of snowstorms compared to last year. Winter storms in recent weeks have also impacted our second quarter sales. Year-to-date retail comps are positive but below our expectations. With warmer weather now arriving in more parts of the country, sales are improving and more in line with our plans. Since our last call, we have more visibility to the potential impact of the Toys "R" Us bankruptcy. Toys "R" Us represented less than 3% of our annual sales last year. In recent weeks, our sales team has met with all of our major wholesale customers and provided our best analysis and recommendations to help them capture their potential share of the sales Toys "R" Us had planned with us this year. We sensed a high level of interest and enthusiasm for the opportunity, and expect our wholesale customers will raise their forecasts with us this year. We believe we are uniquely positioned to capture a significant share of Toys "R" Us annual children's apparel sales, estimated to be over $300 million, including $120 million in retail sales of our brands. Our research shows that 93% of Toys "R" Us customers rated our Carter's brand as their number one choice for baby apparel. Nearly 80% of our customers who purchased baby apparel from Toys "R" Us last year also purchased in our stores. That is a higher overlap of customers than any other retailer of children's apparel. Our marketing team has stepped up its customer acquisition efforts, focused on baby apparel buyers who live in proximity to Toys "R" Us stores. We're tracking our retail and wholesale performance in areas where Toys "R" Us stores have closed, and are encouraged by the lift in sales. The best information we have suggests that Toys "R" Us will close its stores through the summer. We expect a more meaningful recapture of their sales will occur in the second half of this year. Toys "R" Us is a short-term challenge, but a meaningful longer term opportunity for us. Over 90% of Millennials shopping for baby apparel last year purchased the Carter's brand. Our retail stores and website are the number one destinations to purchase Carter's. We expect to recapture about 50% of the lost sales to Toys "R" Us and Bon-Ton this year. Our new business with Amazon and Skip Hop may help offset some portion of the other half. With these assumptions, we now expect wholesale sales this year will be slightly lower than last year. Going forward, we view the closure of these retailers as an opportunity for us to capture more share. Over time, we look forward to working with fewer, better, and stronger retailers representing our brands. Our focus this year on our Retail business is to improve store productivity, strengthen our eCommerce capabilities, and improve our product offerings with extended size ranges for our Carter's brand and an expanded offering of our Skip Hop brand. Consumers continued to respond most positively to our co-branded store format with store comps up over 4% in the first quarter. These stores provide one-stop shopping for families with young children. They offer the most productive and complementary styles from two of the most trusted brand names in young children's apparel in one convenient location. As we shared with you on our last call, our co-branded stores are our most productive stores. They receive the highest net promoter scores and provide the highest return on investment. We plan to open about 160 co-branded stores by 2022, improving the mix of these stores to at least 50% of our store portfolio from about 20% at the beginning of 2017. We plan to close 115 less productive stores by 2022, largely standalone Carter's and OshKosh stores, many in remotely located outlet centers. Stores scheduled for closure had less than a 2% operating margin last year. Those stores to remain open had an operating margin of over 20%. We saw double-digit growth in our eCommerce sales in the first quarter. We have the largest share of eCommerce sales of young children's apparel in the United States, twice the share of our nearest competitor. Together with our wholesale customers, we expect to achieve $1 billion in online purchases of our brands next year. To strengthen our eCommerce capabilities and consumer experience, we are investing in expedited shipping capabilities. We've seen a good correlation between the speed of delivery, net promoter scores and online purchases of our brands. We also continued to see a good response to our omni-channel capabilities rolled out in recent years. We added about a point of comp to our retail sales growth in the quarter by enabling consumers to buy online and pick up in stores, and by enabling our store associates to make the full scope of our product offerings available to our store customers. Our Skip Hop and Age Up initiatives are also expected to contribute meaningfully to our retail sales growth this year. We rolled out the initial wave of Skip Hop products in time for Thanksgiving last year. A more expanded product offering is planned this year, especially during the back-to-school period. We are launching an expanded offering of our Carter's brand this fall. One of the most frequent suggestions we hear from our customers and store associates is the need to extend the size and age range for Carter's. Given the success of our co-branded initiative, both online and in stores, our Carter's product offering will now extend through size 14, consistent with OshKosh. With this initiative, we will support the apparel needs of children from a newborn to about a 10-year-old child. This initiative is focused on creating a stronger product offering and more distinction between our Toddler and Big Kid age segments. We have the number one market share in both the Baby and Toddler age segments. We have the number four market share in sizes 4 to 14. Every point of share in that market is worth over $100 million. We tested this initiative online in recent years with success and expect it to be a good source of growth for us. With respect to our International business, we had good growth in the first quarter driven by Skip Hop, Canada and Mexico. Canada represents over 60% of our International sales, and is expected to contribute the largest share of our International growth over the next five years. Our new business in Mexico is off to a good start. The integration is going well and performing in line with our expectations. We expect Mexico to contribute about $30 million in sales this year, with the potential to double its sales over the next five years. China is expected to contribute about $20 million in sales this year with good growth in eCommerce sales through Tmall. The wholesale model in China is not delivering the performance we expected. We are re-evaluating that initiative. Our supply chain continues to perform well, delivering over 100 million units in the first quarter. We're in the process of negotiating product costs for spring 2019. We'll have more visibility to those costs and related sales forecast on our July and October updates. About one-third of our products are sourced from China. It's been a very good source of supply for us. Apparel was excluded from the list of proposed tariffs on China imports released by the Trump Administration in April. We'll continue to assess this risk, but based on what we know today, we believe the risk is low. In summary, we're off to a good start this year. With warmer weather on the way, we're expecting better sales of our spring product offerings. We're expecting good growth in our Retail and International businesses. We also expect Amazon, Skip Hop and Mexico to contribute more meaningfully to our growth in sales and earnings this year. The Toys "R" Us store closures will weigh on our wholesale growth this year, but will provide a meaningful opportunity for us to service their customers directly and more profitably in the years ahead. We've adjusted our growth objectives for 2018 to reflect our best estimate of the potential impact of the Toys "R" Us store closures, and our ability to recapture those sales this year. We are uniquely positioned to benefit from these closures, given the strength of our brand presence in over 18,000 retail store locations throughout the United States, and on Carters.com, one of the best-performing website in children's apparel. No other brand in the world has our market presence or success, earning the trust and support of consumers shopping for young children's apparel. I want to thank all of our employees worldwide who are working around the clock to provide the best value and experience in young children's apparel. With their support, we expect to achieve good growth in sales and earnings this year. Richard will now walk you through the presentation on our website. Richard F. Westenberger - Carter's, Inc.: Thank you, Mike. Good morning, everyone. I'll begin on page 2 of today's presentation materials with our GAAP income statement for the first quarter. Most of my comments today will speak to our results on an adjusted basis. Our first quarter presentation and earnings release includes several important reconciliations of our GAAP results to the adjusted basis of presentation. The most notable adjustment to our GAAP results in the first quarter was an approximate $13 million charge related to the Toys "R" Us bankruptcy and liquidation, which was recorded in SG&A. Please review these reconciliations as you evaluate our results. Turning to page 3 with some highlights of the first quarter. As Mike noted, we achieved the sales and earnings objectives articulated on our previous earnings call in February. Consolidated net sales grew 3% over last year, led by our U.S. Retail and International segments. Skip Hop and our business in Mexico, both acquired in 2017, contributed meaningfully to our growth. Adjusted operating income declined 9%, in part due to lower wholesale revenue and higher investment spending. Adjusted earnings per share grew 12% versus last year, reflecting the benefits of the lower effective tax rates and lower share count. Turning to page 4 with a summary of our sales performance in the first quarter. Sales in our U.S. Retail segment grew 5.5%. Retail comparable sales grew 3%. Sales in U.S. Wholesale declined 4% compared to last year, which, as Mike noted, was better than we had forecasted, as several customers accelerated their demand for spring product and replenishment demand was stronger than anticipated. International segment net sales grew 19%, driven by contributions from Mexico and Skip Hop, growth in Canada, and a $3 million benefit from favorable movements in foreign currency exchange rates. Moving to our adjusted P&L for the first quarter on page 5. Building on the 3% growth in net sales, consolidated gross margin expanded 90 basis points, to 44%, driven by sourcing efficiencies and favorable channel mix. Royalty income declined 24%, due to the insourcing of a formerly licensed product category, the timing of licensee shipments, and the absence of royalty income from Mexico, which is now an owned business. Our adjusted SG&A rate was 35.4%, compared to 33.6% in the first quarter of last year. This increase reflects growth in our stores and eCommerce businesses, investments in marketing, and improving the speed of delivery of eCommerce orders, as well as the expenses for the acquired Skip Hop and Mexico businesses. Net interest and other expense increased approximately 10%, driven by higher borrowings and higher market interest rates. Our effective tax rate was approximately 20%, significantly lower compared to last year, due to U.S. tax reform legislation enacted at the end of last year. Our average share count declined 3%compared to last year, reflecting our share repurchase activity. So, again, first quarter adjusted EPS was $1.09, up 12% versus $0.97 last year. Moving to page 6 for a summary of our balance sheet and cash flow. Quarter-end inventories were up 10% versus last year, primarily driven by new growth initiatives, including retail, Amazon, Skip Hop, and Mexico. Our inventory levels will remain elevated over the next couple of quarters, driven primarily by business growth and new initiatives. At year end, we're forecasting inventory growth to moderate to the mid single digit range. And we believe the quality of our inventory is high. Debt increased by $36 million compared to last year reflecting higher short-term borrowings to support seasonal working capital needs and our continued return of capital to shareholders. Operating cash flow in the first quarter was $64 million, compared to $84 million last year. We're expecting to generate good operating cash flow again this year, in the range of $350 to $375 million. In the first quarter, we returned a total of $46 million to shareholders, comprised of $21 million in dividends and $25 million in share repurchases. Now turning to page 8 with an overview of our business segment performance in the first quarter. Our consolidated adjusted operating margin declined by 140 basis points, which reflects gross margin expansion, offset by higher operational and investment spending across the business. To put these results in context, the first half is historically the lighter portion of our year. Our core retail businesses and the new businesses which we have added over the past year are more weighted towards the second half. We believe we will post stronger sales and earnings growth and operating margin performance in our second half. Moving to our individual business segment results, beginning with U.S. Retail on page 9. U.S. Retail segment sales in the first quarter increased 5.5% versus last year. Our total U.S. Retail comp increased 3%, driven by double-digit growth in our eCommerce business. As Mike said, our results were affected by the persistent cold weather throughout much of the country, which offset a good portion of the benefit of the earlier Easter holiday this year. We've made good progress with our store portfolio optimization initiative discussed on our last earnings call. We closed 21 stores in Q1, mostly in older outlet locations. On average, for closed stores, we've observed a sales transfer rate in the range of 15% to 20%. Segment operating income in the first quarter was $29 million, and segment margin was 7.6%, compared to 8.2% in the first quarter of 2017. This performance reflects planned investments in marketing, eCommerce fulfillment, and technology, which were partially offset by lower product costs. On the bottom of this page, we've summarized a few key areas of focus in U.S. Retail for 2018. Overall, we are working to improve the productivity of our retail stores. We continue to optimize our store portfolio to focus on our most productive, highest opportunity locations and store formats. We're investing behind improving the delivery speed of eCommerce orders, which we think will increase customer satisfaction and returning visits to Carters.com. Later this year, we plan to launch extended sizing for our Carter's brand, which we believe will accelerate our growth in older age segments. Several technology systems enhancements are also underway in areas such as assortment planning and workforce management; investments which we believe will improve our inventory management capabilities and store productivity. And, certainly, we are looking to recapture, in our own stores and online, significant sales and earnings from the wholesale customers which are liquidating. Collectively, we believe these initiatives will support strong U.S. Retail segment growth in the second half of this year, with good growth in net sales and expansion in adjusted operating margins. For the full year, we're planning U.S. Retail segment net sales to grow in the mid-single digits. On pages 10 and 11, we've included photos of two new co-branded stores in southern California. Our co-branded format continues to be our best-performing store model, comping up 4% in the first quarter. The Tustin store, on page 11, which was recently converted to the co-branded format features some of our latest in-store signage, which informs customers of our omni-channel capabilities. In this case, our ability to fulfill demand for items that may be out of stock in store, or available only online. Moving to page 12, with an update on brand marketing. In the first quarter, we launched the "With You From the Start" campaign, which emphasizes the unique capabilities of the Carter's brand to help families with young children during the various phases of the parenting journey. We believe Carter's is unique in the marketplace in terms of its brand equity with consumers, including its ability to create a strong emotional connection. In a relatively short period of time, this digitally-focused campaign has achieved significant reach. The campaign is intended to strengthen the positioning of the Carter's brand throughout the marketplace including our wholesale channel. So we're actively sharing elements of our campaign with our wholesale partners in addition to integrating the campaign's messaging in our direct channels. We've included a link on this slide to one of our initial campaign videos. Turning to page 13, with an update on our brand's industry-leading social media presence. As we shared with you in February, the Carter's brand has established a significant base of followers on platforms such as Facebook and Instagram. And in the first quarter, we extended our leading position over our competitors. Carter's recently achieved a significant milestone of 1 million followers on Instagram. Carter's Instagram postings also earned 20 of the top 25 consumer engagement scores among our competitors. This strong consumer engagement on social media reflects our market-leading position in baby and young children's apparel in the United States. Carter's is the first choice moms consider when shopping for young children's clothing. Because of the overall experience we provide her both in-stores and online, we have the highest brand satisfaction and customer penetration among our competition. Moving to page 14 with results for our U.S. Wholesale business in the first quarter. First quarter net sales in U.S. Wholesale declined 4% compared to last year. We are encouraged by the performance of our core Little Baby Basics assortments in the wholesale channel over the past year. Replenishment demand in the first quarter for these products was strong. Overall, we believe the performance of our spring assortments at wholesale has been strong. Our wholesale partners are generally realizing higher AURs and gross margins with improved inventory positions. We are preparing for the annual launch of this year's Little Baby Basics assortment over the next several weeks. Excluding Toys "R" Us, bookings for Little Baby Basics are up about 5% in 2018. U.S. Wholesale segment operating profit was $63 million compared to $70 million last year. Segment margin was 22.4%, down from 23.8% a year ago. This decline is attributable almost entirely to the addition of Skip Hop, which tends to be a lower margin business in the first half. Margin in the core U.S. Wholesale business was largely consistent year-over-year in the first quarter. Given the liquidation of Toys "R" Us and Bon-Ton, we have revised our full year net sales outlook for our U.S. Wholesale business. Full year 2018 net sales are now expected to decline in the low single digit range which compares to our prior outlook of low single digit growth. This outlook includes the forecasted contribution from Skip Hop. For the balance of the year, Toys "R" Us and Bon-Ton combined, represented about $80 million in planned sales and approximately $0.50 in earnings per share. Our objective is to recapture approximately half of these sales and earnings across wholesale and our retail channels over the balance of 2018. It's also worth noting that we have virtually no exposure to Sears in our wholesale business. The next few pages highlight some of our growth opportunities in wholesale. Page 15 features some terrific imagery of our Little Baby Basics offering. Little Baby Basics is the core of the Carter's brand, every day, essential products to meet the needs of families with growing newborns. As I said earlier, we're encouraged by the response in the market to this year's assortment. Pages 16 and 17 showcase some of our Simple Joys product line, available exclusively on Amazon. Earlier this year, we expanded our Simple Joys product scope by adding playwear to the initial baby and sleepwear offerings. We think Simple Joys and Amazon will be the source of meaningful growth going forward. Turning to page 18 with an update on Skip Hop. As Mike noted in his opening remarks, we recently launched a new Skip Hop brand named Skidaddle developed for Walmart. The initial assortment is comprised of travel accessories and we'll expand to include diaper bags later this year. Demand for Skip Hop continues to be strong, with good performance in our U.S. Retail stores and online, and strong initial performance in our Canadian retail stores. The brand is also selling very well in the wholesale channel with several national retailers. Moving to page 19 and International segment results. Our International segment delivered strong top line growth of 19%, driven by meaningful contributions from Skip Hop and Mexico along with good growth in Canada. Canada, the most meaningful component of our International business achieved double digit sales growth on a reported basis with high single digit growth on a constant currency basis. Canada comparable retail sales grew 3.6%. Similar to the U.S., we believe winter weather negatively affected comparable store traffic and sales in our Canadian stores in Q1. Our Mexico business, which we acquired in the third quarter of last year, is off to a good start in 2018. Our leadership team in Mexico is making solid progress in developing plans to accelerate our growth in this important market. International segment operating margin declined about 70 basis points versus last year, reflecting channel mix and the addition of the lower margin Skip Hop business, partially offset by the net benefit of the Mexico acquisition. For the full year, we expect International net sales to increase in the mid-single digit range. On page 20, we've included a photo of one of our stores in the Mexico City area. This is a recently remodeled OshKosh store and one of our most productive locations. We operate a total of 42 stores in Mexico in both single and dual-brand formats with another 20 locations operated by franchisees. On page 21, we've included some photos of Skip Hop in our Canadian stores. We're looking forward to leveraging our terrific store network and website to grow Skip Hop within the Canadian market. Moving to page 22 and our business outlook, we continue to expect that we will have a good year in 2018. For the full year, in light of the recent wholesale customer bankruptcies, we have moderated our outlook for sales and earnings growth each by about 2%. We now expect net sales to grow approximately 3%, and adjusted earnings per share to grow approximately 12%. As mentioned, we're assuming that we will recapture approximately half of the volume from the liquidating wholesale customers this year. We assume most of this recapture will take place in the second half of the year, as liquidation sales from these retailers wind down over the summer. We've also reduced some discretionary spending in response to the lower expected top-line sales. For the second quarter of 2018, we're forecasting net sales of approximately $680 million, compared to $692 million in the second quarter of 2017. Second quarter adjusted EPS is projected to be approximately $0.53 versus $0.79 in the second quarter a year ago. The main factors working against us in the second quarter are the earlier Easter holiday, which shifted retail demand into the first quarter, slower sales trends thus far in second quarter with prolonged and unseasonably cold weather, and the absence of planned Toys "R" Us volume. With these remarks, we're ready to take your questions.

Okay, we'll go first to Susan Anderson with B. Riley FBR. Susan Anderson - B. Riley FBR, Inc.: Hi. Good morning. Nice job on the quarter. Michael Dennis Casey - Carter's, Inc.: Good morning, Susan. Susan Anderson - B. Riley FBR, Inc.: I was wondering if you could dig in a little bit more on the second quarter guidance. Maybe if you could help us think about how much the Toys "R" Us impact is versus weather and the Easter shift. And then, I think you said that retail comps are positive quarter-to-date. Does that include eCommerce, and are you expecting, I guess, positive comps for second quarter? I think, you mentioned that they were below your expectations though initially. Michael Dennis Casey - Carter's, Inc.: Just to be clear, the comps are positive year-to-date, but we expect the comps in the second quarter to be slightly negative because of the shift in Easter, and we had some unusually cold weather earlier in the quarter. Richard, you want to comment on the second quarter guidance? Richard F. Westenberger - Carter's, Inc.: Yeah. Toys "R" Us was some considerable volume, Susan, in the second quarter, given the annual launch of the Little Baby Basics program in May. I don't know that I'll parse it out precisely, but it is significant. We are expecting the Wholesale segment, in total, to be down mid to high-single digits, I would say, in terms of revenue. We're expecting growth in our Retail business. We're expecting growth in our International segment. Those are kind of the building blocks of the revenue guidance in Q2. Susan Anderson - B. Riley FBR, Inc.: Got it. Okay, that's helpful. And just to clarify, so comps down, including eCommerce? Michael Dennis Casey - Carter's, Inc.: Correct, in the second quarter. Slightly positive for the first half. And we're expecting – as we've shared with you in past calls, we think the business model supports a three or better comp, which we expect for the year. So we're expecting stronger comps in the second half. Susan Anderson - B. Riley FBR, Inc.: Got it. Okay, that's helpful. And then, just one more on the Skip Hop Walmart exclusive. Is this going to be in all Walmart stores, and maybe if you could just talk about what the opportunity could be? Brian J. Lynch - Carter's, Inc.: Sure. I'll just – overall, Skip Hop, we're really excited about the business. We have strong sales in all channels in the first quarter. eCommerce was up about 47%, and we think the business growth is going to be substantial this year, despite the challenge of the TRU bankruptcy, as we do continue to increase distribution in places such as Walmart. So we're now in about 8,000 U.S. stores. That's about two times the doors we were in last year. We've had strong selling at Buy Buy Baby, Target, Amazon, our new Macy's account that we launched. And then – and Mike and Richard talked about the presence in the U.S. and Canadian stores. As far as Walmart, we worked with their team. We're excited that, in a little less than a year, we've launched that brand, shipped – complete last week, and it's hitting the stores this week. We're going to start with travel accessories. There's about six items, if I recall. Most of them are in all doors, some are in test stores. But there's several items that are in 3,800 doors and then we're going to launch diaper bags later this summer, and then a bath assortment later in the year. So the brand is tailored to the specific needs of the Walmart customer, and we worked really closely together with them on the Walmart business model. So we're excited about it. We think there's potential for category expansion over time, based on performance. And we continue to believe our teams at Skip Hop can double the business over the next five years by building out this multi-channel, multi-brand global opportunity with good profitability. In the first year after the acquisition, we're well on our way to achieving that goal. Susan Anderson - B. Riley FBR, Inc.: Great. That sounds good. Thanks, guys. Good luck next quarter. Brian J. Lynch - Carter's, Inc.: Thank you.

We'll go next to Anna Andreeva with Oppenheimer. Anna Andreeva - Oppenheimer & Co., Inc.: Great. Thanks so much. Good morning. A couple of questions from us. First, on Wholesale. Obviously understanding all the challenges at the Toys, Bon-Ton, et cetera. But what percentage of your distribution, would you say, is still problematic? Just trying to gauge how much of an adjustment we could still see ahead. And then, secondly, this 50% sales recapture at Toys, can you maybe provide additional color how that's being derived? What kind of lifts have you guys seen with stores closed already? And maybe talk about what you guys are doing at the store level specifically to capture some of those sales? Brian J. Lynch - Carter's, Inc.: I'll take a shot at answering your questions. As far as problematic, we have inserted into our guidance what we believe is the case going forward. We're down to, I think, it's now less than 12% of the business is in department stores. So, we feel good about the account base. I think, it's important to note that we have actually seen sequential strengthening of the account base over the last few seasons. If you recall, we had had some down bookings, we'd had flat bookings, and then bookings have started to trend up to low single digits. So, I think, for this year, the sales of all the accounts, excluding Toys "R" Us and Bon-Ton, were expected to actually be up mid single digits. So, we were sensing a trend in Wholesale, and still feel good about it, with the exception of these few troubled retailers. The 50% lift, we derive that because of the fact that, basically, the stores are going to be open – the majority of the stores are going to be open through the summer. I think, so far, we've seen the lowest performing doors, that first tranche of about 150 doors closing, of the 675 doors that we're in. So, they're going to continue to sell product, and they've got a high unit velocity right now. So, the recapture efforts are minimal at this point, but we have seen a meaningful positive trend in our doors and the doors of some of our key accounts that are in close proximity to those TRU doors. So, I think the recapture will begin in earnest more in the second half. We have assumptions for our own stores and our eCommerce business, based on market share, what we think we can recapture with our digital marketing efforts, and some of the things that we're doing creatively there. And then our wholesale team, I think as Mike shared, has gone out and met with each key account. They have identified their proximity to the doors that are closing. They've identified at a category and product level, the amount of units that were sold. And I can say that each wholesale account we met with was very positive and excited about their opportunity to gain market share. So, it is an assumption. There are unknowns, clearly, but we feel like that of the business, on an annual basis, we can recapture about half of that this year, and that would be predominantly in the second half, and would continue into 2019, by the way. Anna Andreeva - Oppenheimer & Co., Inc.: All right, thanks. That's very helpful. Best of luck. Michael Dennis Casey - Carter's, Inc.: Thank you.

Okay. We'll go next to Ike Boruchow with Wells Fargo. Nancy Hilliker - Wells Fargo Securities LLC: Hi, everyone. This is Nancy, on for Ike. Our questions are around margins. So, we are just wondering if you could give a little bit more color on the gross margin line, with the Toys "R" Us impact. And also if you could touch on the cost of transportation and whatnot that we should expect for the second half of the year. And then, also, if you could just talk about, you mentioned the changes in discretionary spending. What should we think about in terms of the SG&A investments for the rest of the year, and how the tax savings will be invested? Richard F. Westenberger - Carter's, Inc.: Nancy, as it relates to gross margin and operating margin, Toys "R" Us was a profitable account for us. We think the long-term outlook is actually going to be very favorable, because some good portion of those sales we think will be recaptured in our own stores and online, which should be better margin all-in than what we were doing through the wholesale channel. Our outlook, in general, for gross margin has been good. We're trying to manage our inventories more efficiently. We're being very prudent in our inventory buys. I think, the analytics and the technology tools that we're adding in retail, in particular, we hope will start to bear some fruit later this year and into next year. Our outlook for product cost, as Mike mentioned, we're in the process of costing our spring 2019 assortments, so we'll have better line of sight towards that. We do have contracts in place on transportation, which I would think reasonably protects us if there's any swings in fuel costs or transportation costs in the second half. That's not a factor we're particularly concerned about at the moment. In terms of SG&A, overall we are expecting high – an increase in SG&A rate this year. A lot of that has to do with the growth in the business coming from the direct channels. Those tend to be the higher SG&A rate businesses. We are going to have more modest performance in wholesale this year. That's the lowest SG&A component of our business. We're continuing to make investments across the company on technology. A couple of the areas that we earmarked for investment with some of the tax savings, brand marketing and expedited shipping. We have trimmed back a bit on some of those assumptions in relation to the top-line revisions that we made in our forecast. I would say we're still investing for us really historic amounts in marketing and in shipping in order to drive those areas of the business. Nancy Hilliker - Wells Fargo Securities LLC: Thank you. Richard F. Westenberger - Carter's, Inc.: You're welcome.

Okay. We'll go next with Laurent Vasilescu. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Good morning. Thanks for taking my question. With regards to the $12.8 million in 1Q charges associated with Toys "R" Us, can you provide a little more detail on what these charges are. Are these receivables? Richard F. Westenberger - Carter's, Inc.: Yes, they are. They are. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Okay. Richard F. Westenberger - Carter's, Inc.: Yeah. Michael Dennis Casey - Carter's, Inc.: Okay. Wonderful. And then my second question, on gross margins, can you provide possibly any directional thoughts on where 2Q gross margin should shake out year-over-year? Richard F. Westenberger - Carter's, Inc.: Well, we're forecasting expansion in gross margin in the second quarter. That's probably the extent of the color that I'll provide on it. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Okay. Very helpful. Thank you. And then on Toys "R" Us, Bon-Ton. Maybe first on Toys "R" Us, just to get some sense of compares. Could you possibly give us some directional thoughts on how the quarter shook out last year from a revenue standpoint for 2017? And then, I don't know if you quantified it, but how big was the Bon-Ton business? Michael Dennis Casey - Carter's, Inc.: Small, relatively small. Less than a $20 million business last year. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Okay. And then for Toys "R" Us for last year by quarter, maybe? Michael Dennis Casey - Carter's, Inc.: Oh, I'm not quite sure I have got it by quarter, but Toys "R" Us was about an $80 million business. The two of them last year contributed some portion of about $100 million. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Okay. Very helpful. And then lastly, on China, I think you mentioned some thoughts on re-evaluating your China wholesale business. Can you parse that out further? And then any updated thoughts on where China could shake out over the next four years? Michael Dennis Casey - Carter's, Inc.: We still think China is a big opportunity for us. You've got some portion of about 17 million children being born every year in China. That's about four times the number of children in the United States. The brand awareness, the Carter's brand awareness is building. Still relatively low relative to the United States, but it's built to about 26%. The bigger portion of the business has been online with Tmall. So just for context, we're forecasting about $20 million in sales to China this year. I'd say that now it's comparable to last year. Our sales heavily weighted to eCommerce. That has been since we've started doing business in China. We launched the wholesale model in fall of 2016. Our partner opened up about 50 stores. And I would say our experience so far would suggest that they'd be smarter slowing the rate of door growth and focusing on improving the store productivity. The learning curve for the wholesale partner, I think it's fair to say, it's been steeper than they expected, but we'll do our best to help them near term. We expect that you'll see more retail growth through Tmall, and we'll revisit the wholesale arrangement. As we move through the year, we'll keep you informed on our progress. It's still a good opportunity. We were forecasting over the next five years it might be some portion of $80 million to $100 million; less than $40 million of that was going to come through wholesale. So we'll continue to do our best exploring the market, understanding what's important to the consumer, and doing a better job meeting the consumers' expectations. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Thank you very much and best of luck. Michael Dennis Casey - Carter's, Inc.: Thank you.

We'll go next to Heather Balsky with Bank of America. Heather Balsky - Bank of America Merrill Lynch: Hi. Thank you for taking my question. Just first, quickly, can you talk about the comment in your guidance regarding discretionary spending? The adjustment for originally planned levels, is that – what exactly are you seeing? And I guess what were you thinking previously? Richard F. Westenberger - Carter's, Inc.: Well, we had said on our last call that we were hoping to invest around $20 million in a couple of areas primarily, brand marketing and expedited shipping in eCommerce. Those are the areas that we have scaled back, in addition to other areas of discretionary spending. We have a great organization, and when the top-line is under some pressure, they have historically responded by scaling back those things that we have discretion over, and we expect that will be the case in this situation as well. Heather Balsky - Bank of America Merrill Lynch: Okay. Well, I guess, it was with regards to sales, so – but you're talking – it was – the comment was expenses? Oh, because it's factored in earnings. Okay. Got it. And then, the other question is we're hearing a lot from department stores and mass retailers with regards to tighter inventory management and ordering closer to need. I'm curious what you're seeing with your partners and how you're kind of working with them around that? Michael Dennis Casey - Carter's, Inc.: We've seen that in recent years – I actually – I think that's been a very good initiative on their part. It has slowed the rate of growth in our wholesale business, but it has created a much healthier model for them and for us. So we have a unique position in children's apparel. We have insight into what every major retailer is doing in young children's apparel. We look at it, do a deep dive on that every week. And our experience in recent years has been, with less inventory, they're seeing higher price realization, better margins, less products sold at clearance. That's a much healthier model. And as I shared with you on the last call, we're seeing growth with more of our major wholesale customers this year than I've seen in recent years. The business is healthier. More of them are in a chase mode. This Toys "R" Us bankruptcy creates a wonderful opportunity for them. Some portion of about 80% or more of Toys "R" Us apparel sales are in the 0 to 24 age segment. That's our sweet spot, that's the Carter's brand. And so that's why Toys "R" Us historically has been a very good customer for us, very good margin customer for us. And now the other retailers and our direct business have an opportunity to capture some portion of the $300 million or more in sales that Toys "R" Us had last year. So I would say the health of our wholesale business has actually improved in recent years, and in part because of that initiative. They've invested in technology, they've improved their inventory management capabilities, in some cases brought in new leadership. So we're actually more bullish on the wholesale model than we've been in recent years. Heather Balsky - Bank of America Merrill Lynch: Thank you very much. Michael Dennis Casey - Carter's, Inc.: You're welcome.

And we'll go next to John Kernan with Cowen. John Kernan - Cowen & Co. LLC: Hi. Good morning, guys. Thanks for taking my question. Michael Dennis Casey - Carter's, Inc.: Pleasure. John Kernan - Cowen & Co. LLC: So I just wanted to walk through the sales guidance in a little bit more detail. You said you'll recap – you plan to recapture I think half of the Toys "R" Us Bon-Ton bankruptcy. I think if I look at the sales guidance cut, it's roughly $68 million year-over-year. So is there an incremental reduction to some other segment? And did you give us the International guidance for the year? Thank you. Richard F. Westenberger - Carter's, Inc.: John, we have certainly made the revision for Toys "R" Us and Bon-Ton. We've also made an additional reduction to planned revenue, just given the start that we're off to so far in the year. So given the weather issues in first quarter, those we have extended into second quarter. We've seen weakness, as Mike mentioned, in the U.S. Retail business. We've seen it on a continuing basis in Canada. Things are starting to turn now with the warmer weather, but there will be some flow through effect, we believe, in what we've experienced so far. So that's likely the balance of what you're seeing in getting to the positive 3% guidance for the full year. International for the full year, we expect revenue will be up in the mid-single digit range. John Kernan - Cowen & Co. LLC: Okay. Thanks. And then one last question, just on inventory. Obviously, a little elevated relative to sales. I think you commented that a lot of it is related to Skip Hop and Mexico. But can you just give us your confidence level in getting that inventory down without significant gross margin pressures as we go through the rest of the year? Richard F. Westenberger - Carter's, Inc.: Sure. If you look at the – roughly up about 10% or so positioned at the end of the first quarter. It would be up about 5%, if you excluded the new business, including Simple Joys, Skip Hop, Mexico. So some of that is just purely anniversarying new businesses. I think, the quality overall, as I mentioned, is very high. Toys "R" Us in particular was a strong customer of our Little Baby Basics assortment. If you are going to be heavy on inventory, that's the inventory you want to have. It's our highest margin core (43:53) part of our assortments. We think that inventory, which is an annual program – we're just at the beginning of that. It's going to last for the next year. So we think there'll be a lot of homes for that inventory, and we're expecting to work that down here over the next couple of quarters. So I'm not particularly concerned about inventory position at the moment. John Kernan - Cowen & Co. LLC: Got it. Thank you. Best of luck. Richard F. Westenberger - Carter's, Inc.: Thank you.

Okay, we'll go next to Pamela Quintiliano with SunTrust. Pamela Mia Quintiliano - SunTrust Robinson Humphrey, Inc.: Great. Thanks so much for taking my question. Regarding the weather, historically, when there's been anomalies in weather, do you see pent-up demand when the weather turns? Or is there a way to think about just the lost sales when we're thinking less about the basics and more about the fashion component? Thank you. Brian J. Lynch - Carter's, Inc.: Yes, we do actually see that. When you think about the fact that these young children, a year after spring – summer, their mom's got about a 100% wardrobe replacement. So where we've had this cold weather – even here in Atlanta, spring has just starting to arrive this weekend. So we do expect that as historically happens in our company, when the weather turns, mom comes out, because she's got to replace basically a 100% of the garments that young child wore last year at spring and summer. So we would expect that to be a good thing. We have started to see some stronger performance in areas where the weather is turning, particularly in the South. And international customers have also continued to return to the stores. So we do see that as a trend. When you have an earlier Easter, if the weather is good, you get two bites of the apple with Easter and then with the weather turning warm – again, the weather wasn't great at Easter so we had a decent Easter, but not what we'd hoped. So we would expect that we would have elevated demand when the weather gets warmer here this spring. Pamela Mia Quintiliano - SunTrust Robinson Humphrey, Inc.: And to follow up on that, because of the income level of your customer, do you think there's a certain amount that they were allocating to spend regardless for spring, so now they're just spending – if it's $100, spending it now versus $50 a month ago and $50 now if the weather had been warm? Or do you think there's any difference? Is there a way to think about that? Thank you. Brian J. Lynch - Carter's, Inc.: Yeah. I think that she has needs that she has to fulfill. She hasn't had to do that yet. So I do expect that she would spend when the weather turns. That is something that has traditionally happened over many years here with the company, is the weather has a disproportionate impact on young children's apparel. So when it turns she comes out and she has to replace those goods. Pamela Mia Quintiliano - SunTrust Robinson Humphrey, Inc.: Excellent. Thank you very much. Best of luck.

Okay. We'll go next to Bill Schultz with Goldman Sachs. Bill Schultz - Goldman Sachs & Co. LLC: Thanks, thanks for fitting me in, guys. Just kind of a sort of math-related question on the full-year guidance. So sort of just doing the quick math around the reduction in sales guidance, it's about $70 million. And if I kind of like reverse engineer your operating profit based on your EPS projection this year, it's something like a $25 million reduction in your implied EBIT for 2018, which is like a 40% decremental margin. And I just sort of want to get a sense of – you're obviously cutting back some discretionary spending to offset it. Why would the decrementals be that high if you're sort of cushioning the blow with some reduction in discretionary spend? Richard F. Westenberger - Carter's, Inc.: Well, if you recall our initial guidance, Bill, we had called for a roughly comparable operating income year over year. And so now with really kind of historic issues that we're facing with the loss of these significant wholesale customers, that does flow through at a certain amount. And given the other issues I mentioned as it related to the start of the year, that's also impacting us. So you have a mix issue. And some of the growth we're seeing in the business is at present lower margin than what we've lost in terms of that higher-margin business. Now, we think the new businesses we're adding are going to be very high margin over time. That's why we've added them to our portfolio. But you have a certain mix effect. And to your point, we're going to offset some of the rest of the shortfall with discretionary spending, those are kind of how the pieces fit together. But we are right now forecasting some decrement to our operating income year over year. Bill Schultz - Goldman Sachs & Co. LLC: And then I guess just sort of a follow-up question to that: Assuming some of those sales are recaptured in your own doors, is built into your sort of sales guidance for this year some assumption that you're going to be capturing sales at a point of retail rather than at a wholesale account, so you're capturing the retail market as well, which sort of inflates some of the sales a bit? Am I thinking about that the right way? Michael Dennis Casey - Carter's, Inc.: Yes, we expect our retail stores will capture some portion of the sales that would've otherwise gone to Toys "R" Us. Bill Schultz - Goldman Sachs & Co. LLC: Understood. Thanks, guys.

And we'll go next to Omar Saad with Evercore ISI. Omar Saad - Evercore Group LLC: Thank you for taking my question. The first one I wanted to ask is given kind of the late start to spring, some of the calendar shifts and the warm weather coming late, what's your sense in the marketplace? Are retailers and whether it's your wholesale partners or in other channels starting to panic around inventory and promote heavily? And are you seeing that kind of evolution, something that's been a recurring theme more broadly speaking in the soft-line space the last few years? Or does it feel pretty under control as the weather starts to turn? Michael Dennis Casey - Carter's, Inc.: I'd say more under control. As Brian said, our experience over the years, when the weather turns, we see a surge in demand for our brands. We just haven't seen that consistently yet. But we have visibility every day to different parts of the country where we're doing business, and you can see where the weather is turning, we've seen a meaningful change in the sales trend. And we have that visibility to the performance of our brands with all the major retailers as well. And we're starting to see the business turn. So, there's still plenty of season left, the spring and summer season. So we expect the business to continue to improve as more warmer weather comes to more parts of the country. Omar Saad - Evercore Group LLC: And it just doesn't seem like the channels are panicking at this point, given the late start - Michael Dennis Casey - Carter's, Inc.: No. That's consistent with our view. They are not. Omar Saad - Evercore Group LLC: Okay, and then if I could ask a follow-up, too. I think someone mentioned it just briefly, the tourists in the outlet channels, the dollar has been weak for a while now. It sounds like those guys might be starting to come back. Do you have any update on your thoughts there? Michael Dennis Casey - Carter's, Inc.: Yeah, they are. Business in Florida has been through the roof. So we're starting to see, we've shared with you other parts of the country where the border stores – we refer to them as – the Mexican borders, Canadian border business is much better than it has been. So the international demand is picking up. Omar Saad - Evercore Group LLC: Got it. Thanks. Thanks a lot, guys. Good luck. Michael Dennis Casey - Carter's, Inc.: Thanks very much.

Okay. We'll go next to Janet Kloppenburg with JJK Research. Janet J. Kloppenburg - JJK Research: Good morning, everyone. Michael Dennis Casey - Carter's, Inc.: Good morning. Janet J. Kloppenburg - JJK Research: Just to clarify a question on the first quarter. My guess is that even though it was cold in many markets, in markets where it was warm, say Florida or California, I assume you saw some good results there giving you confidence in the outlook, because we've heard that from other players that business trends were pretty good. Michael Dennis Casey - Carter's, Inc.: That was consistent with our experience. Janet J. Kloppenburg - JJK Research: Okay. Great. I just wanted to make sure that that was right. And then I wanted to ask because I'm hearing from a lot of other retailers that cotton pricing is going up, and I know you have a tailwind this year, but I was wondering if you were starting to feel any pressure next year on the AUC side of things? Michael Dennis Casey - Carter's, Inc.: Well, it's too early to comment on spring 2019. We have visibility through fall. Janet J. Kloppenburg - JJK Research: Yeah. Michael Dennis Casey - Carter's, Inc.: And our costs were slightly lower year over year, but our teams are in Asia now negotiating spring 2019. We'll have more visibility to those costs in July. We are assuming over the next five years that we'll start to see some modest inflation. Our experience in recent years has been consistently lower product costs every year. But for modeling purposes, we're assuming modest inflation in product cost and we expect to offset that inflation with better price realization. Janet J. Kloppenburg - JJK Research: Great. Great. And then just two more quick questions. When will you start to see this recapture in terms of wholesale orders? So do you think that the wholesale accounts will come – are you starting to see it in your fall order books now with Toys "R" Us out, everybody looking for a little recapture, that the wholesale business starts to improve? And also, the second question is on the liquidation sales at both Bon-Ton and on Toys "R" Us, just what impact they may have on your own retail business and that of your wholesalers? Thanks. Michael Dennis Casey - Carter's, Inc.: So on the first part of the question, we're starting now to get an indication of demand from our wholesale customers, and I would say that those indications are consistent with our expectations to recapture some portion of 50% of the lost sales to Toys "R" Us. So in terms of timing of that demand, we think it will be more second half-weighted. So the Toys "R" Us stores we expect will be closing through the summer. And then we'll start to see some more of the demand in our stores and from our wholesale customers in the second half. Keep in mind, a good portion, some portion of half of the business we did with Toys "R" Us was replenishment. This is high margin, baby apparel. So as the register's ringing, as those consumers who would have otherwise shopped at Toys "R" Us are now shopping at Kohl's, Macy's, Target, our stores, our website, we will be able to see the lift in sales. Janet J. Kloppenburg - JJK Research: Right. Michael Dennis Casey - Carter's, Inc.: So we measure the replenishment trends every day. And so that is product, these are the everyday essentials, families with young children buy with great frequency, so we'll be able to see the lift in sales both in our wholesale and retail channels. And in terms of the liquidation, interestingly, I would say we've seen some impact of the store liquidations on our retail stores, I would not say it's been significant. More importantly, after the store has closed, we've seen a nice lift in the store sales in the areas where those stores have closed. So, I think the big thing to understand this morning, we view Toys "R" Us closure very positively long-term. It'll be near-term disruptive, but it's a wonderful opportunity to capture some portion of the $300 million or more of sales they were doing in young children's apparel. We are the leading brand. We have the largest market share of any company in young children's apparel in the United States. We're well positioned to recapture the sales that would have otherwise been realized by Toys "R" Us. Janet J. Kloppenburg - JJK Research: Yeah, I agree, and I forgot to say congratulations on a good quarter. You guys did really well. Michael Dennis Casey - Carter's, Inc.: Thank you. Thanks very much. Janet J. Kloppenburg - JJK Research: Excellent quarter. Thanks.

It appears there are no further questions. At this time, I'd like to turn the conference back to Mr. Casey. Michael Dennis Casey - Carter's, Inc.: Yeah, well, thank you very much. Thanks for joining us on the call this morning. We appreciate your questions and your interest in our business. We'll update you again on our progress in July. Goodbye everybody.

And this concludes today's call. We thank you for your participation. You may now disconnect.