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What changed in CARTERS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CARTERS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+395 added−383 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-24)

Top changes in CARTERS INC's 2024 10-K

395 paragraphs added · 383 removed · 274 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

62 edited+19 added−19 removed29 unchanged
Biggest changeTalent and Development We are guided by our core values: • Act with Integrity • Exceed Expectations • Inspire Innovation • Succeed Together • Invest in People We believe that to succeed as a business and to positively impact families and our communities, we must first create and maintain an inclusive, supportive workplace culture that fosters high employee engagement.
Biggest changeThe tables below present the composition and location of our employees: Employee Count % of Total Retail stores 11,840 77.7 % Corporate offices 1,860 12.2 % Distribution centers 1,530 10.1 % Total 15,230 100.0 % Employee Count % of Total United States 12,070 79.2 % Canada 2,160 14.2 % Mexico 680 4.5 % Other (primarily countries in Asia) 320 2.1 % Total 15,230 100.0 % Talent and Development We are guided by our core values: • Act with Integrity • Exceed Expectations • Inspire Innovation • Succeed Together • Invest in People 8 We believe that to succeed as a business and to positively impact families and our communities, we must first create and maintain an inclusive, supportive workplace culture that fosters high employee engagement.
We have not entered into any long-term contractual arrangements with any contractor or manufacturer. We believe that the production capacity of each foreign manufacturers with which we have developed, or are developing, a relationship is adequate to meet our production requirements for the foreseeable future. We believe that alternative foreign manufacturers are readily available.
We have not entered into any long-term contractual arrangements with any contractor or manufacturer. We believe that the production capacity of each foreign manufacturer with which we have developed, or are developing, a relationship is adequate to meet our production requirements for the foreseeable future. We believe that alternative foreign manufacturers are readily available.
On our investor relations website (ir.carters.com), we make available, free of charge, our SEC reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, director and officer reports on Forms 3, 4, and 5, and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
On our investor relations website (ir.carters.com), we make available, free of charge, our SEC filings, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, director and officer reports on Forms 3, 4, and 5, and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Our license agreements require strict adherence to our quality 3 and compliance standards and provide for a multi-step product approval process. We work in conjunction with our licensing partners in the development of our branded products to aim to ensure consistency across product offerings with our brand vision of high-quality products at market-leading value.
Our license agreements require strict adherence to our quality and compliance standards and provide for a multi-step product approval process. We work in conjunction with our licensing partners in the development of our branded products to aim to ensure consistency across product offerings with our brand vision of high-quality products at market-leading value.
Diversity and Inclusion Additionally, we are committed to ensuring that our workforce reflects our diverse world through a range of efforts to broaden diversity and ensure fairness across our global enterprise. Our Diversity & Inclusion (“D&I”) efforts are driven by cross-functional teams charged with guiding and implementing the organization’s D&I efforts.
Diversity and Inclusion We are committed to ensuring that our workforce reflects our diverse world through a range of efforts to broaden diversity and ensure fairness across our global enterprise. Our Diversity & Inclusion (“D&I”) efforts are driven by cross-functional teams charged with guiding and implementing the organization’s D&I efforts.
Noncompliance with these laws and regulations may result in substantial monetary penalties and criminal sanctions. Competition The baby and young children’s apparel and accessories market is highly competitive. Competition is generally based on a variety of factors, including comfort and fit, quality, pricing, style, and selection.
Noncompliance with these laws and regulations may result in substantial monetary penalties and criminal sanctions. Competition The baby and young children’s apparel and accessories market is highly competitive. Competition in our market is generally based on a variety of factors, including comfort and fit, quality, pricing, style, and selection.
We have increased our transparency on our chemicals management process by publishing a Restricted Substances List, designating chemicals that should be minimized or avoided in our apparel and accessories, and are working with our suppliers to minimize 6 or avoid the use of such chemicals in our products.
We have increased our transparency on our chemicals management process by publishing a Restricted Substances List, designating chemicals that should be minimized or avoided in our apparel and accessories, and are working with our suppliers to minimize or avoid the use of such chemicals in our products.
We believe in developing our employees and offer numerous formal training opportunities as well as ongoing informal on-the-job learning, including: • mentoring, reverse mentoring, and executive development programs that nurture emerging talent and facilitate cross-generational knowledge sharing, benefiting employees at all stages of their careers; • development days, when employees step away from their day-to-day responsibilities for curated professional growth opportunities; • online courses and formal development programs designed to enhance personal leadership skills, business acumen, and people management skills, as well as specialized development resources for our retail store, distribution center and office employees; and 8 • each year, we award 20 scholarships to Carter’s employees and children of employees to attend an accredited college or university.
We believe in developing our employees and offer numerous formal training opportunities as well as ongoing informal on-the-job learning, including: • mentoring, reverse mentoring, and executive development programs that nurture emerging talent and facilitate knowledge sharing, benefiting employees at all stages of their careers; • development days, when employees step away from their day-to-day responsibilities for curated professional growth opportunities; • online courses and formal development programs designed to enhance personal leadership skills, business acumen, and people management skills, as well as specialized development resources for our retail store, distribution center and office employees; and • each year, we award scholarships to Carter’s employees and children of employees to attend an accredited college or university.
We operate our My Rewarding Moments customer loyalty and rewards program in the United States to drive customer traffic, sales, and brand loyalty. This program is integrated across our U.S. retail stores and online businesses. During fiscal 2022, our U.S. retail sales were predominantly made to members of My Rewarding Moments.
We operate our My Rewarding Moments customer loyalty and rewards program in the United States to drive customer traffic, sales, and brand loyalty. This program is integrated across our U.S. retail stores and online businesses. During fiscal 2023, our U.S. retail sales were predominantly made to members of My Rewarding Moments .
Accordingly, our results of operations during the first half of the year may not be indicative of the results we expect for the full fiscal year. In addition, our business is susceptible to unseasonable weather conditions, which could influence consumer trends, customer traffic, and shopping habits.
Accordingly, our results of operations during the first half of the year may not be indicative of the results we expect for the full fiscal year. In addition, our business is susceptible to unseasonable weather conditions, which could influence consumer behavior, customer traffic, and shopping habits.
Our multi-channel, global business model, which includes retail stores, eCommerce, and wholesale distribution channels, as well as omni-channel capabilities in the United States and Canada, enables us to reach a broad range of consumers around the world.
Our multichannel global business model, which includes retail stores, eCommerce, and wholesale distribution channels, as well as omni-channel capabilities in the United States and Canada, enables us to reach a broad range of consumers around the world.
We proudly use the OEKO-TEX ® Standard 100 certification label, a well-known certification for textiles tested for harmful substances, which appeared on much of our baby apparel and sleepwear in fiscal 2022. We have established targets, validated by the Science-Based Target Initiative, to reduce our Scope 1 and 2 greenhouse gas emissions.
We use the OEKO-TEX ® Standard 100 certification label, a well-known certification for textiles tested for harmful substances, which appeared on much of our baby apparel and sleepwear in fiscal 2023. We have established targets, validated by the Science-Based Target Initiative, to reduce our Scope 1 and 2 greenhouse gas emissions.
We attribute our leading market position to our strong value proposition, brand strength, distinctive prints and colors, and commitment to quality, as well as our broad wholesale distribution channel that includes successful and long-standing relationships with leading global and national retailers. Our marketing programs are targeted toward first-time parents, experienced parents, and gift-givers.
We attribute our leading market position to our strong value proposition, brand strength, distinctive design, and commitment to quality, as well as our broad wholesale distribution channel that includes successful and long-standing relationships with leading global and national retailers. Our marketing programs are targeted toward first-time parents, experienced parents, and gift-givers.
Additional financial and geographical information about our business segments is contained in Item 8 “Financial Statements and Supplementary Data” and under Note 14, Segment Information , to the consolidated financial statements. We have extensive experience in the young children’s apparel and accessories market and focus on delivering products that satisfy our consumers’ needs.
Additional financial and geographical information about our business segments is contained in Item 8 “Financial Statements and Supplementary Data” and under Note 18, Segment Information , to the consolidated financial statements. Strategy We have extensive experience in the young children’s apparel and accessories market and focus on delivering products that satisfy our consumers’ needs.
As of December 2022, our OshKosh brand’s market share was approximately 1% of the zero to 10-year-old apparel market in the United States. For both our Carter’s and OshKosh brands, we employ cross-functional teams to develop our product assortments. Team members from merchandising, art, design, sourcing, product development, buying, planning, and marketing follow a disciplined development process.
As of December 2023, our OshKosh brand’s market share was approximately 1% of the zero to 10-year-old apparel market in the United States. For both our Carter’s and OshKosh brands, we employ cross-functional teams to develop our product assortments. Team members from merchandising, art, design, sourcing, product development, and planning follow a disciplined development process.
Our distribution center activities include receiving finished goods from our vendors, inspecting those products, preparing them for retail and wholesale presentation, and shipping them to our wholesale customers, retail stores, and eCommerce customers.
Our distribution center activities include receiving finished goods from our vendors, inspecting those products, and preparing and shipping them to our wholesale customers, retail stores, and eCommerce customers.
Additionally, Child of Mine , an exclusive Carter’s brand, is available only at Walmart; Just One You , an exclusive Carter’s brand, is available only at Target, and Simple Joys , an exclusive Carter’s brand, is available only on Amazon.
Additionally, Child of Mine , an exclusive Carter’s brand, is sold at Walmart, Just One You , an exclusive Carter’s brand, is sold at Target, and Simple Joys , an exclusive Carter’s brand, is available on Amazon.
In the United States, we operate three distribution centers in Georgia: an approximately 1.1 million square-foot multi-channel facility in Braselton, a 0.5 million square-foot facility in Stockbridge, and a 0.2 million square-foot single-channel facility in Jonesboro. We outsource some distribution activities to third-party logistics providers located in California and leverage additional third-party providers in Georgia primarily for storage seasonally.
In the United States, we operate three distribution centers in Georgia: an approximately 1.1 million square-foot multichannel facility in Braselton, a 0.5 million square-foot facility in Stockbridge, and a 0.2 million square-foot single-channel facility in Jonesboro. We outsource certain distribution activities to third-party logistics providers located in California and leverage additional third-party providers in Georgia primarily for storage seasonally.
We also partner with other brand owners to further expand our retail product offerings, including a range of licensed sports and licensed character t-shirts and sleepwear. Skip Hop Under our Skip Hop brand, we design, source, and market products that are sold primarily to families with young children.
We also partner with other brand owners to further expand our retail apparel product offerings, including a range of licensed sports and character t-shirts, bodysuits, and sleepwear. Skip Hop Under our Skip Hop brand, we design, source, and market products that are sold primarily to expectant parents and families with young children.
For our Carter’s brands, our focus is on essential, high-volume apparel products for babies and young children, including bodysuits, layette essentials, sleep and play, pants, tops and t-shirts, multi-piece sets, dresses, and sleepwear.
For our Carter’s brands, our focus is on essential and fashion apparel products for babies and young children, including bodysuits, layette essentials, sleep and play, pants, tops and t-shirts, multi-piece sets, dresses, and sleepwear.
Our core baby product line, the largest component of our baby business, provides families with essential products and accessories, including value-focused multi-piece sets. We also have three exclusive Carter’s brands: our Child of Mine brand, which is available at Walmart, our Just One You brand, which is available at Target, and our Simple Joys brand, which is available on Amazon.
Our core baby product line provides families with essential products and accessories, including value-focused multi-piece sets. We also have three exclusive Carter’s brands: our Child of Mine brand, which is sold at Walmart, our Just One You brand, which is sold at Target, and our Simple Joys brand, which is available on Amazon.
Little Planet products are primarily sold through our eCommerce site, many of our retail stores, and at Target. Sales Channels We sell our Carter’s , OshKosh , Skip Hop , and Little Planet branded products through multiple channels, both in the United States and globally. U.S. Retail Our U.S.
Little Planet products are primarily sold through our eCommerce site, our retail stores, and in the wholesale channel at Target. Sales Channels We sell our Carter’s , OshKosh , Skip Hop , and Little Planet branded products through multiple channels, both in the United States and globally. U.S. Retail Our U.S.
We also have sourcing operations in Cambodia, Vietnam, China, and Bangladesh to help support these efforts.
We also have sourcing offices in Cambodia, Vietnam, China, and Bangladesh to help support these efforts.
Our U.S. retail stores are generally located in high-traffic strip shopping centers and malls in or near major cities or in outlet centers that are near densely-populated areas. We believe our brand strength, product assortment, and shopping experience have made our retail stores a destination for consumers seeking young children’s apparel and accessories.
Our U.S. retail stores are generally located in high-traffic open-air shopping centers and malls in or near major cities or in outlet centers that are near densely-populated areas. We believe our brand strength, product assortment, shopping experience, and high quality service have made our retail stores a destination for consumers seeking children’s apparel and accessories.
We also inspect finished products at the manufacturing facilities. We generally arrange for the production of products on a purchase order basis with completed products manufactured to our design specifications. We assume the risk of loss predominantly on a Freight-On-Board (F.O.B.) basis when goods are delivered to a shipper and are insured against losses arising during shipping.
We generally arrange for the production of products on a purchase order basis with completed products manufactured to our design specifications. We assume the risk of loss predominantly on a Freight-On-Board (F.O.B.) basis when goods are delivered to a shipper and are insured against losses arising during shipping.
For example, extended periods of unseasonably warm temperatures during the winter season or cool temperatures during the summer season could affect the level and timing of demand. Human Capital As of the end of fiscal 2022, we had approximately 15,500 employees globally.
For example, extended periods of unseasonably warm temperatures during the winter season or cool temperatures during the summer season could affect the level and timing of demand. Human Capital Management As of the end of fiscal 2023, we had approximately 15,230 employees globally.
We also own Skip Hop , a leading young children’s lifestyle brand, exclusive Carter’s brands developed for specific wholesale customers, and Little Planet , a brand focused on organic fabrics and sustainable materials. Established in 1865, our Carter’s brand is recognized and trusted by consumers for high-quality apparel, sleepwear, and accessories for children in sizes newborn to 14.
We also own Skip Hop , a leading young children’s lifestyle brand, Little Planet , a brand focused on organic fabrics and sustainable materials, and exclusive Carter’s brands developed for Amazon, Target, and Walmart. Established in 1865, our Carter’s brand is recognized and trusted by consumers for high-quality apparel and accessories for children in sizes newborn to 14.
The baby and young children’s apparel market ages zero to 10 in the U.S. is approximately $29 billion as of December 2022. In this market, our Carter’s brands, including our exclusive brands, hold the #1 position with approximately 10% market share and our OshKosh brand has approximately 1% market share as of December 2022.
The baby and young children’s apparel market, ages zero to 10, in the U.S. is approximately $28 billion as of December 2023. In this market, our Carter’s brands, including our exclusive brands, hold the #1 position with over 9% market share and our OshKosh brand has approximately 1% market share as of December 2023.
We source the remainder of our products primarily through North America, Central America, and Africa. During fiscal 2022, approximately 70% of our product was sourced from Cambodia, Vietnam, Bangladesh, and India, and approximately 74% of the fabric that was used in the manufacture of our products was sourced from China, with the remainder primarily from India and Bangladesh.
We source the remainder of our products primarily through North America, Africa, and Central America. During fiscal 2023, approximately 74% of our product was sourced from Cambodia, Vietnam, Bangladesh, and India, and approximately 66% of the fabric that was used in the manufacture of our products was sourced from China, with the remainder primarily from India, Bangladesh, Thailand, and Taiwan.
We also sell our products through our U.S. eCommerce websites at www.carters.com, www.oshkosh.com, and www.skiphop.com, and our mobile application. We focus on the customer experience through store and eCommerce website design, visual aesthetics, clear product presentation, and experienced customer service. Our eCommerce websites also feature product recommendations and on-line-only offerings.
We also sell our products through our U.S. eCommerce websites at www.carters.com, www.oshkosh.com, and www.skiphop.com, and through our mobile app. 4 We focus on the customer experience through store and eCommerce website design, visual aesthetics, clear product presentation, and exceptional customer service. Our eCommerce websites also feature product recommendations and online-only offerings.
Retail segment consists of revenue primarily from sales of products in the United States through our retail stores and eCommerce websites. Similarly, our U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our wholesale partners.
These segments are our operating and reporting segments. Our U.S. Retail segment consists of revenue primarily from sales of products in the United States through our retail stores and eCommerce websites. Similarly, our U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our wholesale partners.
The focus of the OshKosh brand is high-quality playclothes, including denim apparel products, overalls, core bottoms, knit tops, t-shirts, and layering pieces for everyday use. Our OshKosh brand is positioned towards toddlers and young children. We believe our OshKosh brand has significant brand name recognition, which consumers associate with high-quality, durable, and authentic playclothes for young children.
The focus of the OshKosh brand is high-quality playclothes, including denim jeans, overalls, core bottoms, knit tops, t-shirts, and layering pieces for everyday use, primarily targeted at toddlers and young children. We believe our OshKosh brand has significant brand name recognition, which consumers associate with high-quality, durable, and authentic playclothes for young children.
Our Carter’s brand wholesale customers in the United States include major retailers, such as, in alphabetical order, Costco, JCPenney, Kohl’s, and Macy’s. Additionally, our Child of Mine exclusive brand is available at Walmart, our Just One You exclusive brand is available at Target, and our Simple Joys exclusive brand is available on Amazon.
Additionally, our Child of Mine exclusive brand is sold at Walmart, our Just One You exclusive brand is sold at Target, and our Simple Joys exclusive brand is available on Amazon. Our OshKosh brand wholesale customers in the United States include major retailers, such as, in alphabetical order, Amazon and Target.
Launched in 2021, the Little Planet brand focuses on sustainable clothing through the sourcing of mostly organic cotton as certified under the Global Organic Textile Standard (“GOTS”), a global textile processing standard for organic fibers. This brand includes a wide assortment of baby and toddler apparel, accessories, and sleepwear. Our corporate purpose is to inspire the generations raising the future.
Launched in 2021, the Little Planet brand focuses on sustainable clothing through the sourcing of mostly organic cotton as certified under the Global Organic Textile Standard (“GOTS”), a global textile processing standard for organic fibers. This brand includes a wide assortment of baby and toddler apparel, accessories, and sleepwear.
At the end of fiscal 2022, our channels included 993 company-owned retail stores, approximately 19,350 wholesale locations, and eCommerce websites in North America, as well as our international wholesale accounts and licensees who operate in over 90 countries. Our three business segments are: U.S. Retail, U.S. Wholesale, and International. These segments are our operating and reporting segments. Our U.S.
At the end of fiscal 2023, our channels included 1,034 company-owned retail stores, eCommerce websites, approximately 19,350 wholesale locations in North America, as well as our international wholesale accounts and licensees who operate in over 1,100 locations outside of North America in over 90 countries. Our three business segments are: U.S. Retail, U.S. Wholesale, and International.
Established in 2003, the Skip Hop brand re-thinks, re-energizes, and re-imagines durable necessities to create higher value, superior quality, and top-performing products for parents, babies, and toddlers. We acquired Skip Hop in 2017.
Established in 2003, the Skip Hop brand rethinks, reenergizes, and reimagines durable necessities to create higher value, superior quality, and top-performing products for parents, babies, and toddlers. We acquired Skip Hop in 2017.
We use audit data and performance results to suggest improvements when necessary, and we integrate this information into our on-going sourcing decisions.
We use audit data and performance results to identify potential improvements, and we integrate this information into our on-going sourcing decisions.
Little Planet Our Little Planet brand launched in 2021 and is an organic and sustainable apparel brand focused primarily on products for babies, created to serve a growing consumer need for beautiful heirloom-quality product developed using sustainable materials. The assortment of products also includes a limited range of sleepwear, accessories, toddler apparel, and toys.
Little Planet Our Little Planet brand launched in 2021 and is a primarily organic and sustainable apparel brand created to serve a growing consumer need for beautiful heirloom-quality baby and toddler products developed using sustainable materials. The assortment of products includes sleepwear, swimwear, outerwear, bedding, accessories, and toys.
Our International segment includes sales of our products to wholesale accounts outside of the United States, such as, in alphabetical order, Amazon, Costco, and Walmart. In addition, we license our Carter’s and OshKosh brands to international customers that sell our products through branded retail and online stores, as well as to wholesale customers, within their licensed territories.
Our International segment includes sales of our products to wholesale accounts outside of the United States, including both domestic retailers with international operations and international retailers. In addition, we license our Carter’s and OshKosh brands to international customers that sell our products through branded retail and online stores, as well as to wholesale customers, within their licensed territories.
As of the end of fiscal 2022, in the United States we operated 757 stores. We regularly assess potential new retail store locations and existing store closures based on demographic factors, retail adjacencies, competitive factors, and population density as part of a rigorous real estate portfolio optimization process.
We regularly assess potential new retail store locations and existing store closures based on demographic factors, retail adjacencies, competitive factors, population density, and growth projections as part of a rigorous real estate portfolio optimization process.
Licensed Products We license our Carter’s , OshKosh , Child of Mine , Just One You , Simple Joys , and Little Planet brands to various licensed partners in order to expand our product offerings into additional product categories such as footwear, outerwear, accessories (such as hair accessories and jewelry), toys, paper goods, home décor, cribs and baby furniture, and bedding.
We also place importance on differentiating our brand experience through in-store fixturing, branding, signage, photography, and advertising across all of our global channels of distribution. 3 Licensed Products We license our Carter’s , OshKosh , Child of Mine , Just One You , Simple Joys , and Little Planet brands to various licensed partners in order to expand our product offerings into additional product categories such as footwear, outerwear, accessories (such as hair accessories and jewelry), toys, paper goods, home décor, cribs and baby furniture, and bedding.
We have created and implemented processes to help eliminate safety incidents by reducing their frequency and severity. We also review and monitor our performance closely.
We have created and implemented processes to help eliminate safety incidents by reducing their frequency and severity, and we review and monitor our performance closely. Available Information Our corporate website address is https://corporate.carters.com.
International Our International segment includes sales of our products through our retail stores and eCommerce sites in Canada and Mexico. As of the end of fiscal 2022, in Canada we operated 187 co-branded Carter’s and OshKosh retail stores and an eCommerce site at www.cartersoshkosh.ca, and in Mexico we operated 49 retail stores and an eCommerce site at www.carters.com.mx.
As of the end of fiscal 2023, in Canada we operated 188 co-branded Carter’s and OshKosh retail stores and an eCommerce site at www.cartersoshkosh.ca, and in Mexico we operated 54 retail stores and an eCommerce site at www.carters.com.mx.
Our primary competitors include (in alphabetical order): Gap, Old Navy, and The Children’s Place (specialty apparel); Cat & Jack (private label sold exclusively in Target) and Garanimals (private label sold exclusively in Walmart); and Disney, Nike, and Under Armour (national brands). Because of the highly fragmented nature of the industry, we also compete with many small manufacturers and retailers.
Both national brand and private label manufacturers as well as specialty apparel retailers aggressively compete in the baby and young children’s apparel market. Our primary competitors include (in alphabetical order): Gap, Old Navy, and The Children’s Place; Cat & Jack (private label sold exclusively in Target) and Garanimals (sold exclusively in Walmart); and Disney, Nike, and Under Armour (national brands).
Skip Hop ’s core philosophy and positioning begins and ends with its brand promise — “ Must-Haves * Made Better. ” This reflects the brand’s goal of creating innovative, smartly designed, and highly functional essentials for parents, babies, and toddlers.
Skip Hop ’s core philosophy and positioning revolves around its brand promise — “ Must-Haves * Made Better. ” This reflects the brand’s goal of creating innovative, smartly designed, and highly functional essentials for parents, babies, and toddlers. The Skip Hop team includes both in-house design and creative teams, each of which is dedicated to meeting that goal.
In connection with the manufacture of our products, manufacturers purchase raw materials including fabric and other materials (such as linings, zippers, buttons, and trim) at our direction. We regularly inspect and supervise the manufacture of our products in order to maintain safety and quality control, monitor compliance with our manufacturing specifications and social responsibility standards, and to ensure timely delivery.
We regularly inspect and supervise the manufacture of our products as well as test the products in order to maintain safety and quality control, monitor compliance with our manufacturing specifications and social responsibility standards, and to ensure timely delivery. We also inspect finished products at the manufacturing facilities.
Additionally, we are subject to various other federal, state, local and foreign laws and regulations that govern our activities, operations, and products, including data privacy, truth-in-advertising, accessibility, customs, wage and hour laws and regulations, and zoning and occupancy ordinances that regulate retailers generally and govern the promotion and sale of merchandise and the operation of retail stores and eCommerce sites.
We, therefore, actively monitor import restrictions and developments and seek to minimize our potential exposure to import related risks through shifts of production among countries, including consideration of countries with tariff preference and free trade agreements, manufacturers, and geographical diversification of our sources of supply. 7 Additionally, we are subject to various other federal, state, local and foreign laws and regulations that govern our activities, operations, and products, including data privacy, truth-in-advertising, accessibility, customs, wage and hour laws and regulations, and zoning and occupancy ordinances that regulate retailers generally and govern the promotion and sale of merchandise and the operation of retail stores and eCommerce sites.
We believe that the strength of our brand names, breadth and value of product offerings, longevity in the marketplace, broad distribution footprint, scale, and operational expertise position us well against these competitors.
Because of the highly fragmented nature of the industry, we also compete with many small manufacturers and retailers. We believe that the awareness and strength of our brand names, combined with the breadth and value of our product offerings, broad distribution, scale, and operational expertise, position us well against these competitors.
Our International segment includes sales of our products to these licensees, and royalty income based on sales made by certain licensees. As of the end of fiscal 2022, we had 42 international licensees who operated in over 90 countries.
Our International segment includes sales of our products to these licensees, and royalty income based on sales made by certain licensees. As of the end of fiscal 2023 our International channel included wholesale accounts in approximately 19,350 locations in North America and wholesale accounts and licensees who operated in over 1,100 locations outside of North America.
Our investments in marketing, which include our newly-developed marketing personalization initiative, customer loyalty program, and new consumer-facing technologies are focused on acquiring new customers, developing stronger relationships with our existing customers, and extending their connections with our brands.
As such, our marketing investments are targeted at acquiring new customers, developing stronger relationships with our existing customers, and extending our customers’ tenure with our brands, and include our newly-developed marketing personalization capabilities, customer loyalty program, digital and social media, and strengthened consumer-facing technologies such as our mobile app.
Our goal is to have the most top-of-mind, preferred brands in the young children’s apparel market and to connect with a diverse, digitally savvy customer. 5 Our Global Sourcing Network We source all of our garments and other products from a global network of third-party suppliers, primarily located in Asia.
Our goal is to have the most top-of-mind, preferred brands in the young children’s apparel market and to connect with diverse, digitally savvy customers.
In addition, our Carter’s brands maintained the leading market position with approximately 19% in the zero to two-year-old baby market, which represented over three times the market share of the next largest brand, and maintained its leading market position with approximately 12% in the three to four-year-old toddler market, which represented approximately 1.7 times the market share of the next largest brand.
Our Carter’s brands maintained the leading market position with approximately 20% in the zero to two-year-old baby market and maintained its leading market position with approximately 10% in the three to four-year-old toddler market. Our Carter’s brands also have an approximately 3% market share in the five to ten-year-old kid market.
Store purchases are primarily fulfilled from each store’s inventory, but our in-store buy-on-line services allow retail store purchases to be shipped to a customer from one of our distribution facilities or from another retail store. eCommerce purchases, including from our eCommerce websites and mobile application, may be shipped from one of our distribution facilities or from a retail store (buy-on-line, deliver-from-store).
Store purchases are primarily fulfilled from each store’s inventory, but our in-store buy-online services offer our broadest assortment to be shipped to a customer from one of our distribution facilities or from another retail store. In fiscal 2022, we began utilizing Radio Frequency Identification (“RFID”) technology in our stores.
We collaborate with our wholesale customers to provide a consistent and high-level of service, and to drive growth through eCommerce, replenishment, product mix, and brand presentation initiatives. We also have frequent meetings with the senior management of key accounts to align on strategic growth plans.
Our Skip Hop brand wholesale customers in the United States include major retailers, such as, in alphabetical order, Amazon, Target, and Walmart. We collaborate with our wholesale customers to provide a consistent and high-level of service, and to drive growth through eCommerce, replenishment, product mix, and brand presentation initiatives.
As of December 2022, our multi-channel business model enabled our Carter’s brands to maintain leading market share of approximately 10% in the zero to 10-year-old market, which represented approximately 1.7 times the market share of the next largest brand.
Carter’s is the leading brand in the zero to 10-year-old market in the United States, with particular strength in the zero to two-year-old segment. As of December 2023, our multichannel business model enabled our Carter’s brands to maintain a leading market share of over 9% in the zero to 10-year-old market.
In addition, our social responsibility policy establishes our expectations for our global suppliers and guides our oversight. This policy is derived from the policies, standards, and conventions of the International Labor Organization, and includes a commitment to the Universal Declaration of Human Rights.
This policy is derived from the policies, standards, and conventions of the International Labor Organization, and includes a commitment to the Universal Declaration of Human Rights. 6 Sustainability We issued our third annual Corporate Social Responsibility (“CSR”) Report in fiscal 2023, in which we highlighted our three strategic pillars that guide our long-term CSR commitments: Product, Planet, and People.
We believe this approach, which includes consumer research, cost engineering, and rigorous attention to detail, results in compelling consumer product offerings, reduces our risk exposure to short-term trends, and supports efficient and productive operations.
We believe this approach, which includes consumer research, value engineering, and rigorous attention to detail, results in compelling consumer product offerings, increases consumer response, and supports efficient and productive operations. We are focused on strengthening our brands with consumers by differentiating our products through fabric softness, on-trend styling, updated packaging and presentation strategies, and consumer-facing marketing.
We strive to create a seamless omni-channel experience between our retail stores and our eCommerce websites, as more fully described below under “Our Customer and Marketing Strategy.” 4 U.S. Wholesale Our U.S. Wholesale segment includes sales of our products to our U.S. wholesale customers.
We strive to create a seamless omni-channel experience between our retail stores and our eCommerce websites.
Retail segment includes sales of our products through our U.S. retail stores and eCommerce sites, including through our omni-channel capabilities to allow our customers to buy on-line and pick-up in store (or curbside), buy-online and ship-to-store, and purchase items in store that may be fulfilled from our distribution facility or another retail store (in-store buy on-line services).
Retail segment includes sales of our products through our U.S. retail stores and eCommerce sites, including through our omni-channel capabilities to allow our customers to experience our brands as a seamless shopping experience in the channel of their choice.
Our Customer and Marketing Strategy For all of our brands, our marketing is predominantly focused on driving brand preference and engagement with first-time parents, experienced parents, and gift-givers, including through strengthening and evolving our digital programs. Our omni-channel approach allows the customer to experience our brands as a seamless shopping experience in the channel of their choice.
As of the end of fiscal 2023, we had 39 international licensees who operated in over 90 countries. Our Marketing Strategy For all of our brands, our marketing is largely focused on driving brand preference and engagement with both first-time and experienced parents, as well as gift-givers.
As of the end of fiscal 2022, our stores averaged approximately 5,000 square feet per location, ranging from on average approximately 4,200 square feet for our formerly single-branded stores to approximately 7,400 square feet for our stores that consist of adjacent and connected Carter’s and OshKosh stores.
As of the end of fiscal 2023, the square footage of our stores ranged from approximately 4,300 to 7,300 square feet, with an average of approximately 5,000 square feet per location. As of the end of fiscal 2023, in the United States we operated 792 stores.
Customers can choose to have eCommerce purchases shipped directly to them or to pick-up these purchases in store (buy-on-line and pick-up in-store or buy-on-line, ship-to-store) or through our curbside pick-up services. In fiscal 2021, we expanded our omni-channel capabilities further by implementing many of these omni-channel programs in our retail stores in Canada.
Customers can choose to have eCommerce purchases shipped directly to them (same-day shipping available in select markets), to pick-up the purchases in a store (buy-online, pick-up in-store), or through our curbside pick-up services. eCommerce purchases, including from our eCommerce websites and mobile app, may be shipped from one of our distribution facilities or from a retail store (buy-online, deliver-from-store).
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Our long-term growth strategy focuses on four key strategic priorities: • Lead in eCommerce — We operate an award-winning online platform focused on children’s apparel in the United States, with omni-channel capabilities to support the shopping preferences of families with young children.
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Our long-term growth strategy focuses on three key strategic priorities: • Provide the Best Value and Experience in Young Children’s Apparel — We own two of the best known and trusted brands in young children’s apparel – Carter’s and OshKosh B’gosh .
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We plan to continue to invest in eCommerce and omni-channel capabilities to provide a market-leading eCommerce experience for consumers. eCommerce is expected to contribute to our overall growth objectives in the coming years. • Win in Baby — Our Carter’s brand has a unique position in the marketplace.
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With over 100 years of rich history, these iconic brands have well-earned reputations for quality and value with generations of consumers, which has contributed to our leading market share in North America.
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It is the leading brand in the newborn to two-year-old apparel market in the United States, with over three times the market share of the next largest brand.
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Our omnichannel capabilities include retail stores located in open-air center, outlet, and mall locations as well as a highly rated website, which together provide the broadest and best expression of our assortment in the marketplace.
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We believe the strength of our brands, product innovation, and targeted marketing and customer acquisition initiatives position us well for growth in this market segment. 2 • Age Up — Our long track record of success suggests consumers trust Carter’s for their baby apparel purchases and, as their children grow, many stay with us and appreciate the high value our product offerings provide in those early years of life. • Expand Globally — In recent years, we have strengthened our position in the Canada market by investing in omni-channel capabilities, including same-day pick-up and curbside pick-up services.
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These channels are fully integrated in the U.S. and Canada and provide convenience for consumers, to include same-day and curbside pickup of online purchases. • Leverage Our Market-Leading Distribution Capabilities — Our global, multichannel business model is unique. No other children’s apparel company in the world has our combined strength in wholesale, retail store, and online 2 capabilities.
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In Mexico, we are executing the same strategy that served us well in Canada and the United States by building retail store, eCommerce, and wholesale distribution capabilities. Our global capabilities are further strengthened through our relationships with multi-national retailers, including Amazon, Walmart, and Costco and wholesale partners in over 90 countries.
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We are the largest specialty retailer in North America focused on young children’s apparel, with over 1,000 Company-operated stores and dedicated websites in the United States, Canada, and Mexico. In wholesale, we are the largest supplier of young children’s apparel to the largest retailers in North America.
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In 2021, we launched our Little Planet brand, which focuses on organic fabrics and sustainable materials. Carter’s is the leading brand in the zero to 10-year-old market in the United States, with particular strength in the zero to two-year-old segment.
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We have the most extensive distribution of childrenswear – our brands are sold in more than 19,350 retail locations in North America and through our wholesale customers’ websites.
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We are focused on strengthening our brands with consumers by differentiating our products through fabric and material improvements, new artistic applications, updated packaging and presentation strategies, and marketing. We also place importance on differentiating our products and presentation through in-store fixturing, branding, signage, photography, and advertising across all of our global channels of distribution.
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Our global distribution capabilities are further strengthened through our relationships with multi-national retailers and other wholesale partners with over 1,100 points of distribution, and over 100 global websites. • Drive Shareholder Value Through Profitability, Cash Flow, and Return of Excess Capital — We believe we possess a resilient business model, which historically has resulted in double-digit operating margins, strong operating cash flow, low balance sheet leverage, and meaningful liquidity.
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The Skip Hop team includes both an in-house design and a creative team, each of which is dedicated to meeting that goal.
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In recent years we have benefited from structural changes to our business, which included focusing our efforts on fewer, better, and higher margin sales, reducing lower margin-product choices, closing over 100 low-margin stores, remaining lean on inventory and staffing, and focusing our marketing investments on brand building versus margin-erosive promotions.
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Our OshKosh brand wholesale customers in the United States include major retailers, such as Amazon and Target. Our Skip Hop brand wholesale customers in the United States include major retailers, such as, in alphabetical order, Amazon, buybuy BABY, Target, and Walmart.
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We believe these changes, along with planned improvements in marketing effectiveness, localized product offerings, and improved digital capabilities, will continue to support our margin, cash flow, and return of capital objectives.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or agents. 22 Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, or agents to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
Biggest changeOur amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, or agents to us or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our certificate of incorporation or our bylaws, or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
Our global supply chain could be negatively affected due to a number of factors, including: • political instability or other global events resulting in the disruption of operations or trade in or with foreign countries from which we source our products; • the occurrence of a natural disaster, unusual weather conditions, or a disease epidemic in foreign countries from which we source our products; 16 • financial instability, including bankruptcy or insolvency, of one or more of our major vendors, including our transportation providers and carriers; • the imposition of new laws and regulations relating to imports, duties, taxes, and other charges on imports, including those that the U.S. government has implemented and may further implement on imports from China, such as the Uyghur Forced Labor Prevention Act and other sanctions and trade regulations issued by the U.S. government related to forced labor in the Xinjiang Uyghur Autonomous Region of China and other regions which may affect our sourcing operations and the availability of raw materials, including cotton, used by the vendors from which we purchase goods; • increased costs of raw materials (including cotton and other commodities), labor, fuel, and transportation; • interruptions in the supply of raw materials, including cotton, fabric, and trim items; • increases in the cost of labor in our sourcing locations; • changes in the U.S. customs procedures concerning the importation of apparel products, durable goods and accessories; • unforeseen delays in customs clearance of any goods; • disruptions in the global transportation network, such as a port strikes or delays, work stoppages or other labor unrest, capacity withholding, world trade restrictions, acts of terrorism, or war; • the application of adverse foreign intellectual property laws; • the ability of our vendors to secure sufficient credit to finance the manufacturing process, including the acquisition of raw materials; • potential social compliance concerns resulting from our use of international vendors, third-party manufacturers, and licensees, over whom we have limited control; • manufacturing delays or unexpected demand for products may require the use of faster, but more expensive, transportation methods, such as air-freight services; and • other events beyond our control that could interrupt our supply chain and delay receipt of our products into the United States, Canada, and Mexico, as well as the ninety additional countries in which our international partners and international wholesale customers operate.
Our global supply chain could be negatively affected due to a number of factors, including: • political instability or other global events resulting in the disruption of operations or trade in or with foreign countries from which we source our products; • the occurrence of a natural disaster, unusual weather conditions, or a disease epidemic in foreign countries from which we source our products; • financial instability, including bankruptcy or insolvency, of one or more of our major vendors, including our transportation providers and carriers; • the imposition of new laws and regulations relating to imports, duties, taxes, and other charges on imports, including those that the U.S. government has implemented and may further implement on imports from China, such as the Uyghur Forced Labor Prevention Act and other sanctions and trade regulations issued by the U.S. government related to forced labor in the Xinjiang Uyghur Autonomous Region of China and other regions which may affect our sourcing operations and the availability of raw materials, including cotton, used by the vendors from which we purchase goods; • increased costs of raw materials (including cotton and other commodities), labor, fuel, and transportation; • interruptions in the supply of raw materials, including cotton, fabric, and trim items; • increases in the cost of labor in our sourcing locations; • changes in the U.S. customs procedures concerning the importation of apparel products, durable goods and accessories; • unforeseen delays in customs clearance of any goods; • disruptions in the global transportation network, such as a port strikes or delays, work stoppages or other labor unrest, capacity withholding, world trade restrictions, acts of terrorism, or war; • the application of adverse foreign intellectual property laws; • the ability of our vendors to secure sufficient credit to finance the manufacturing process, including the acquisition of raw materials; • potential social compliance concerns resulting from our use of international vendors, third-party manufacturers, and licensees, over whom we have limited control; • manufacturing delays or unexpected demand for products may require the use of faster, but more expensive, transportation methods, such as air-freight services; and • other events beyond our control that could interrupt our supply chain and delay receipt of our products into the United States, Canada, and Mexico, as well as the ninety additional countries in which our international partners and international wholesale customers operate.
Supreme Court ruling, under which states may have additional ability to tax entities operating in their state, but lacking physical presence; • mandatory country by country reporting of revenue, employees and profits, and certain international initiatives (such as the Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS)) that are focused on the equity of international taxation, which may ultimately result in a worldwide minimum tax, or more defined approach around global profit allocation between related companies operating in jurisdictions with disparate income tax rates; and • tax revenue reductions as a result of the economic impact of the pandemic, which may lead to increases in state tax rates or the expansions of their tax base.
Supreme Court ruling, under which states may have additional ability to tax entities operating in their state, but lacking physical presence; 24 • mandatory country by country reporting of revenue, employees and profits, and certain international initiatives (such as the Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS)) that are focused on the equity of international taxation, which may ultimately result in a worldwide minimum tax, or more defined approach around global profit allocation between related companies operating in jurisdictions with disparate income tax rates; and • tax revenue reductions as a result of the economic impact of the pandemic, which may lead to increases in state tax rates or the expansions of their tax base.
Risks associated with our eCommerce business in the United States, Canada, and Mexico include: • the failure of the computer systems, including those of third-party vendors, that operate our eCommerce sites and mobile applications, including, among others, inadequate system capacity, service outages, computer viruses, human error, changes in programming, security breaches, system upgrades or migration of these services to new systems; • disruptions in telecommunications services or power outages; • reliance on third parties for computer hardware and software, as well as delivery of merchandise to our customers on-time and without damage; • limitations of shipping volumes which may be imposed by service providers; • rapid technology changes; • the failure to deliver products to customers on-time and within customers’ expectations; • credit or debit card, or other electronic payment-type, fraud, or disruptions in payment systems; • the diversion of sales from our physical stores; • natural disasters or adverse weather conditions; • changes in applicable federal, state and international regulations; • liability for online content; and • consumer privacy concerns and regulation.
Risks associated with our eCommerce business in the United States, Canada, and Mexico include: • the failure of the computer systems, including those of third-party vendors, that operate our eCommerce sites and mobile apps, including, among others, inadequate system capacity, service outages, computer viruses, human error, changes in programming, security breaches, system upgrades or migration of these services to new systems; • disruptions in telecommunications services or power outages; • reliance on third parties for computer hardware and software, as well as delivery of merchandise to our customers on-time and without damage; • limitations of shipping volumes which may be imposed by service providers; • rapid technology changes; • the failure to deliver products to customers on-time and within customers’ expectations; • credit or debit card, or other electronic payment-type, fraud, or disruptions in payment systems; • the diversion of sales from our physical stores; • natural disasters or adverse weather conditions; • changes in applicable federal, state and international regulations; • liability for online content; and • consumer privacy concerns and regulation.
In addition, if our retail eCommerce sites or our other customer-facing technology systems do not appeal to our customers, reliably function as designed, or maintain the privacy of customer data, or if we are unable to consistently meet our brand and delivery promises to our customers, we may experience a loss of customer confidence or lost sales, or be exposed to fraudulent purchases, which could adversely affect our reputation and results of operations.
In addition, if our retail eCommerce sites or our other 22 customer-facing technology systems do not appeal to our customers, reliably function as designed, or maintain the privacy of customer data, or if we are unable to consistently meet our brand and delivery promises to our customers, we may experience a loss of customer confidence or lost sales, or be exposed to fraudulent purchases, which could adversely affect our reputation and results of operations.
These systems, including our servers, are also vulnerable to physical or electronic break-ins, security breaches from inadvertent or intentional actions by our employees, third-party service providers, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information).
These systems, including our servers, are also vulnerable to physical or electronic break-ins, security breaches from inadvertent or intentional actions by our employees, third-party service providers, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service 17 attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information).
In the event that one of these systems becomes inoperable for any reason, we may be unable to ship orders in a timely manner, and as a result, we could experience a reduction in our direct-to-consumer business, which could negatively impact our sales and profitability. 18 Risks Relating to Our International Expansion We may be unsuccessful in expanding into international markets.
In the event that one of these systems becomes inoperable for any reason, we may be unable to ship orders in a timely manner, and as a result, we could experience a reduction in our direct-to-consumer business, which could negatively impact our sales and profitability. Risks Relating to Our International Expansion We may be unsuccessful in expanding into international markets.
We have outsourced elements of our IT systems, including to cloud-based solution vendors, and use third-party vendors in other aspects of our operations and, as a result, a number of third-party vendors may or could have access to confidential information. Our third-party vendors have experienced service interruptions and cyber-attacks in the past, and we expect they may continue.
We have outsourced elements of our IT systems, including to cloud-based solution vendors, and use third-party vendors in other aspects of our operations and, as a result, a number of third-party vendors may or could have access to confidential information. Our third-party vendors have experienced service interruptions and cyber-attacks in the past, and we expect they will continue.
Labor disputes at third-party factories where our goods are produced, the shipping ports we use, or within our transportation carriers create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during our peak 17 manufacturing and importing times.
Labor disputes at third-party factories where our goods are produced, the shipping ports we use, or within our transportation carriers create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during our peak manufacturing and importing times.
The techniques used by cyber criminals change frequently, may not be recognized until launched, and can 15 originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies.
The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies.
Additionally, there can be no assurance that any share repurchases will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased shares of common stock, and short-term stock price fluctuations could reduce the program’s effectiveness. The market price of our comment stock may be volatile.
Additionally, there can be no assurance that any share repurchases will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased shares of common stock, and short-term stock price fluctuations could reduce the program’s effectiveness. The market price of our common stock may be volatile.
Additionally, the nature of our business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when increase our inventory levels, and to support our retail omni-channel strategies, including our buy on-line and pick-up in store program.
Additionally, the nature of our business requires us to carry a significant amount of inventory, especially prior to the peak holiday selling season when we increase our inventory levels, and to support our retail omni-channel strategies, including our buy on-line and pick-up in store program.
At time of subsequent vesting, exercise, or expiration of an award, the difference between our 21 actual income tax deduction, if any, and the previously accrued income tax benefit is recognized in our income tax expense/benefit during the current period and can consequently raise or lower our effective tax rate for the period.
At time of subsequent vesting, exercise, or expiration of an award, the difference between our actual income tax deduction, if any, and the previously accrued income tax benefit is recognized in our income tax expense/benefit during the current period and can consequently raise or lower our effective tax rate for the period.
As our customers react to recent global economic conditions 10 we have seen and may see customers reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity, thereby adversely affecting our customers’ ability or willingness to purchase our products.
As our customers react to recent global economic conditions we have seen and may see customers reduce spending on our products and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity, thereby adversely affecting our customers’ ability or willingness to purchase our products.
If we are unable to attract and retain employees or contract with third-parties having the specialized skills needed to support our multi-channel efforts, implement improvements to our customer-facing technology in a timely manner, allow real-time and accurate visibility to product availability when customers are ready to purchase, quickly and efficiently fulfill our customers' orders using the fulfillment and payment methods they demand, or provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected.
If we are unable to attract and retain employees or contract with third-parties having the specialized skills needed to support our multichannel efforts, implement improvements to our customer-facing technology in a timely manner, allow real-time and accurate visibility to product availability when customers are ready to purchase, quickly and efficiently fulfill our customers' orders using the fulfillment and payment methods they demand, or provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, our ability to compete and our results of operations could be adversely affected.
Further, third parties may assert intellectual property claims against us, particularly as we expand our business geographically or through acquisitions, and any such claim could be expensive and time consuming to defend, regardless of their merit.
Further, third parties may assert intellectual property claims against us, particularly as we expand our business geographically or through acquisitions, and any such claim could be expensive and time consuming to defend, regardless of 12 their merit.
Additionally, while deflation could positively impact our product costs, it could have an adverse effect on our average selling prices per unit, resulting in lower sales and operating results. This could have a material adverse effect on our results of operations, liquidity, and financial condition.
Additionally, while deflation 15 could positively impact our product costs, it could have an adverse effect on our average selling prices per unit, resulting in lower sales and operating results. This could have a material adverse effect on our results of operations, liquidity, and financial condition.
Failure to implement new systems or upgrade systems, including operational and financial systems, as needed or complications encountered in implementing new systems or upgrading existing systems could cause disruptions that may adversely affect our business and results of operations.
Failure to implement new systems or upgrade systems, including operational and financial systems, as needed or complications encountered in implementing new systems or upgrading existing systems could cause disruptions that may 18 adversely affect our business and results of operations.
In addition, for any new vendors, we may encounter delays in production and added costs as a result of the time it takes to train our vendors in producing our products and adhering to our quality control standards.
In addition, for any new vendors, we may encounter delays in 20 production and added costs as a result of the time it takes to train our vendors in producing our products and adhering to our quality control standards.
The occurrence of one or more of these events could result in disruptions to our operations, which in turn could increase our cost of goods sold, decrease our gross profit, or impact our ability to deliver to our customers.
The occurrence of one or more of these events could result in disruptions to our operations, which in turn could increase our cost of goods sold, decrease our gross profit, and/or impact our ability to deliver to our customers.
Alternatively, if a court were to find this provision of our amended and restated bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations. 23
Alternatively, if a court were to find this provision of our amended and restated bylaws inapplicable to, or unenforceable in respect of, one or more of the 25 specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.
In the event we are required or determine to pay amounts in connection with any such claims or lawsuits, such amounts could exceed applicable insurance coverage, if any, or contractual rights available to us. As a result, such lawsuits could be significant and have a material adverse impact on our business, financial condition, and results of operations.
In the event we are required or decide to pay amounts in connection with any such claims or lawsuits, such amounts could exceed applicable insurance coverage, if any, or contractual rights available to us. As a result, such lawsuits could be significant and have a material adverse impact on our business, financial condition, and results of operations.
ITEM 1A. RISK FACTORS You should carefully consider each of the following risk factors as well as the other information contained in this Annual Report on Form 10-K and our other filings with the SEC in evaluating our business. The risks and uncertainties described below are not the only ones we face.
You should carefully consider each of the following risk factors as well as the other information contained in this Annual Report on Form 10-K and our other filings with the SEC in evaluating our business. The risks and uncertainties described below are not the only ones we face.
We handle a large portion of our merchandise distribution for our U.S. stores and our eCommerce operations from our facility in Braselton, Georgia. Our ability to meet consumer expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies depends on proper operation of this facility.
We process a large portion of our merchandise distribution for our U.S. stores and our eCommerce operations from our facility in Braselton, Georgia. Our ability to meet consumer expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies depends on proper operation of this facility.
Problems in any of these areas could result in a reduction in sales, increased costs and damage to our reputation and brands, which could adversely affect our business and results of operations. In addition, in fiscal 2022 we experienced a decrease in net sales in our eCommerce channel compared to fiscal 2021.
Problems in any of these areas could result in a reduction in sales, increased costs and damage to our reputation and brands, which could adversely affect our business and results of operations. In addition, in fiscal 2023 we experienced a decrease in net sales in our eCommerce channel compared to fiscal 2022.
As we have experienced in the past, we face the risk that if one or more of these customers significantly decreases their business or terminates their relationship with us as a result of financial difficulties (including bankruptcy or insolvency), competitive forces, consolidation, reorganization, changes in merchandising strategies, or other reasons, then we may have significant levels of excess inventory that we may not be able to place elsewhere, a material decrease in our sales, or material impact on our operating results.
As we have experienced in the past, we face the risk that if one or more of these customers significantly decreases their business, does business with us on less favorable terms or terminates their relationship with us as a result of financial difficulties (including bankruptcy or insolvency), competitive forces, consolidation, reorganization, changes in merchandising strategies, or other reasons, then we may have significant levels of excess inventory that we may not be able to place elsewhere, a material decrease in our sales, or material impact on our operating results.
Overall spending in the market is affected by a number of global and macroeconomic factors, such as overall economic conditions and employment levels, gasoline and utility costs, business conditions, availability of consumer credit, tax rates, the availability of tax credits, interest rates, inflationary pressures and general uncertainty regarding the overall future political and economic climate, levels of consumer indebtedness, foreign currency exchange rates, weather, and overall levels of consumer confidence.
Overall spending in the market is affected by a number of global and macroeconomic factors, such as overall economic conditions and employment levels, gasoline and utility costs, business conditions, market volatility, bank failures, availability of consumer credit, tax rates, the availability of tax credits, interest rates, inflationary pressures and general uncertainty regarding the overall future political and economic climate, levels 11 of consumer indebtedness, foreign currency exchange rates, weather, and overall levels of consumer confidence.
Given the trend of declining customer traffic in malls and shopping centers, our multi-channel business model is an important pillar of our strategic plan. Our multi-channel global business model, which includes retail store, eCommerce, and wholesale 19 sales channels, enables us to reach a broad range of consumers around the world.
Given the trend of declining customer traffic in malls and shopping centers, our multichannel business model is an important pillar of our strategic plan. Our multichannel global business model, which includes retail store, eCommerce, and wholesale sales channels, enables us to reach a broad range of consumers around the world.
We are subject to general political and economic risks in connection with our global operations, including political instability (both in the United States and globally, including the ongoing conflict between Russia and Ukraine and the related economic and retaliatory measures), terrorist attacks, and changes in diplomatic and trade relationships, any of which may have a significant adverse effect on our business, financial condition, and results of operations.
We are subject to general political and economic risks in connection with our global operations, including political instability (both in the United States and globally, including the ongoing conflict between Russia and Ukraine and the related economic and retaliatory measures), the ongoing war between Israel and Hamas, the conflict in the Red Sea region, terrorist attacks, and changes in diplomatic and trade relationships, any of which may have a significant adverse effect on our business, financial condition, and results of operations.
We may encounter differences in business culture and the legal environment that may make working with commercial partners and hiring and retaining an adequate employee base more challenging. We may also face difficulties integrating foreign business operations with our current operations.
We may encounter differences in business culture and the legal environment that may make working with commercial partners and hiring and retaining an adequate employee base more challenging. We may also face difficulties integrating foreign business operations with our current operations, including our international supply chain operations.
If demand for our products declines, promotional pricing may be required to sell out-of-season or excess merchandise, and our profitability and results of operations could be adversely affected. Our failure to protect our intellectual property rights could diminish the value of our brand, weaken our competitive position, and adversely affect our results.
If demand for our products declines, promotional pricing may be required to sell out-of-season or excess merchandise, and our profitability and results of operations could be adversely affected. We may be unable to protect our intellectual property rights, which could diminish the value of our brand, weaken our competitive position, and adversely affect our reputation and results.
As of the end of fiscal 2022, approximately 81% of our gross accounts receivable were from our ten largest wholesale customers, with three of these customers having individual receivable balances in excess of 10% of our total accounts receivable.
As of the end of fiscal 2023, approximately 80% of our gross accounts receivable were from our ten largest wholesale customers, with three of these customers having individual receivable balances in excess of 10% of our total accounts receivable.
Merchandise usually must be ordered well in advance of the season and frequently before apparel trends are validated by customer purchases. We must enter into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season.
Merchandise usually must be ordered well in advance of the season in which it is expected to be sold, and frequently before apparel trends are validated by customer purchases. We must enter into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased, due in part to cyber-attacks stemming from the Russia-Ukraine conflict.
In the event that these slow-downs, disruptions or strikes occur in the future in connection with labor agreement negotiations or otherwise, it may have a material adverse effect on our financial position, results of operations, or cash flows.
As a result, we have in the past experienced delays in the shipment of our products. In the event that these slow-downs, disruptions or strikes occur in the future in connection with labor agreement negotiations or otherwise, it may have a material adverse effect on our financial position, results of operations, or cash flows.
The steps taken by us or by our licensees and vendors to protect our proprietary rights may not be adequate to prevent either the counterfeit production of our products or the infringement of our trademarks or proprietary rights by others.
The steps taken by us or by our licensees and vendors to protect our proprietary rights may not be adequate to prevent either the counterfeit production of our products or the infringement of our trademarks or proprietary rights by others. Despite our efforts, our brands are still susceptible to counterfeiting.
Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our profit or growth targets or efficiently manage the profitability of our existing fleet of stores and could have a material adverse effect on our results of operations.
Any adverse effect on the quality of these decisions could impact our ability to retain real estate locations adequate to meet our profit or growth targets or efficiently manage the profitability of our existing fleet of stores and could have a material adverse effect on our results of operations. 14 Our eCommerce business faces distinct risks, and our failure to successfully manage it could have a negative impact on our profitability.
We do not have agreements with our major vendors that would provide us with assurances on a long-term basis as to adequate supply or pricing of our products.
We expect that we will continue to source a significant portion of our products from these vendors. We do not have agreements with our major vendors that would provide us with assurances on a long-term basis as to adequate supply or pricing of our products.
Increasing the number of stores in these markets may result in inadvertent diversion of customers and sales from our existing sales channels in the same market, thereby negatively affecting our results of operations.
Some new stores may be located in areas where we have existing sales channels. Increasing the number of stores in these markets may result in inadvertent diversion of customers and sales from our existing sales channels in the same market, thereby negatively affecting our results of operations.
In addition, from time to time, such as we have done in response to the ongoing COVID-19 pandemic, we may seek to renegotiate existing lease terms or downsize, consolidate, reposition, or close some of our real estate locations, which in most cases requires a modification of an existing store lease.
In addition, from time to time, we may seek to renegotiate existing lease terms or downsize, consolidate, reposition, or close some of our real estate locations, which in most cases requires a modification of an existing store lease.
We may not be able to increase prices to fully offset inflationary pressures on costs, such as raw materials, labor, and transportation costs, which may impact our expenses and profitability. We rely on vendors, distribution resources and transportation providers.
We may not be able to increase prices to fully offset inflationary pressures on costs, such as raw materials, labor, and transportation costs, which may impact our expenses and profitability. As a large, branded marketer of apparel for babies and young children, we rely on vendors, distribution resources and transportation providers.
Additionally, we have experienced significant competition in hiring employees for this facility, which we attribute to the impacts of governmental stimulus related to COVID-19 and to increased competition and rising wages. To address this, we have increased wages and implemented other policies in order to retain existing employees and attract additional employees. These wage increases impacted our operating results.
Additionally, we have experienced significant competition in hiring employees for this facility, and in order to address this, we have increased wages and implemented other policies in order to retain existing employees and attract additional employees. These wage increases impacted our operating results.
Risks Related to Governmental and Regulatory Changes Failure to comply with the various laws and regulations as well as changes in laws and regulations could have an adverse impact on our reputation, financial condition, or results of operations.
If our international expansion plans are unsuccessful, our results could be materially adversely affected. 21 Risks Related to Governmental and Regulatory Changes Failure to comply with the various laws and regulations as well as changes in laws and regulations could have an adverse impact on our reputation, financial condition, or results of operations.
As of the end of fiscal 2022, we had $620.0 million aggregate principal amount of debt outstanding (excluding $3.5 million of outstanding letters of credit), and $726.5 million of undrawn availability under our senior secured revolving credit facility after giving effect to $3.5 million of letters of credit issued under our senior secured revolving credit facility.
As of the end of fiscal 2023, we had $500.0 million aggregate principal amount of debt outstanding (excluding $4.4 million of outstanding letters of credit), and $845.6 million of undrawn availability under our senior secured revolving credit facility after 23 giving effect to $4.4 million of letters of credit issued under our senior secured revolving credit facility.
Our eCommerce business faces distinct risks, and our failure to successfully manage it could have a negative impact on our profitability. The successful operation of our eCommerce business as well as our ability to provide a positive shopping experience that will generate consumer demand and drive subsequent visits depends on efficient and uninterrupted operation of our order-taking and fulfillment operations.
The successful operation of our eCommerce business as well as our ability to provide a positive shopping experience that will generate consumer demand and drive subsequent visits depends on efficient and uninterrupted operation of our order-taking and fulfillment operations.
Wholesale segment, approximately 33% of our consolidated net sales from our top ten wholesale customers, and approximately 27% of consolidated net sales from our top five wholesale customers, which includes net sales from our exclusive brands sold, in alphabetical order, at Amazon, Target, and Walmart.
Wholesale segment, approximately 33% of our consolidated net sales from our top ten wholesale customers, and approximately 29% of consolidated net sales from our top five wholesale customers, which includes net sales from our exclusive brands sold, in alphabetical order, at Amazon, Target, and Walmart. Our largest wholesale customer accounted for approximately 10.4% of consolidated net sales in fiscal 2023.
Our entry into new markets may have upfront investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and such costs may be greater than expected. If our international expansion plans are unsuccessful, our results could be materially adversely affected.
Our entry into new markets may have upfront investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and such costs may be greater than expected.
Our business is sensitive to overall levels of consumer spending, particularly in the young children’s apparel market. Both retail and wholesale consumer demand for young children’s apparel and accessories, specifically brand name apparel products, is affected by the overall level of consumer spending.
Both retail consumer and wholesale customer demand for young children’s apparel and accessories, specifically brand name apparel products, is affected by the overall level of consumer spending.
The demand for baby and young children’s apparel and accessories in particular may also be subject to other external factors, such as general inflationary pressures, as well as the costs of our products, which are driven in part by the costs of raw materials (including cotton and other commodities), labor, fuel, transportation and duties, any increases in mandatory minimum wages, and the costs to deliver those products to our customers. 13 If external pressures, including deflation, cause us to reduce our sales prices and we fail to sufficiently reduce our product costs or operating expenses, or if we are unable to fully optimize prices or pass on increased costs to our customers, our profitability could decline.
The demand for baby and young children’s apparel and accessories in particular may also be subject to other external factors, such as general inflationary pressures, as well as the costs of our products, which are driven in part by the costs of raw materials (including cotton and other commodities), labor, fuel, transportation and duties, any increases in mandatory minimum wages, and the costs to deliver those products to our customers.
Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impact our business operations. If any of the following risks actually occur, our operating results may be affected.
Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impact our business operations. If any of the following risks actually occur, our operating results may be affected. Risks Related to Global and Macroeconomic Conditions Our business is sensitive to overall levels of consumer spending, particularly in the young children’s apparel market.
In addition, there is concern that climate changes could cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters.
In addition, there is concern that climate changes could cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters, which could have a long-term adverse impact on our business and results of operations.
For example, in fiscal 2022, we recorded pre-tax intangible asset impairments of $9.0 million, reflecting the effect of increased discount rates and lower forecasted sales and profitability.
For example, in fiscal 2022, we recorded a non-cash pre-tax impairment charge of $9.0 million on our Skip Hop indefinite-lived tradename asset, reflecting the effect of increased discount rates and lower forecasted sales and profitability.
As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations. 14 Risk Relating to Litigation We are and may become subject to various claims and pending or threatened lawsuits, including as a result of investigations or other proceedings related to previously disclosed investigations.
Risk Relating to Litigation We are and may become subject to various claims and pending or threatened lawsuits, including as a result of investigations or other proceedings related to previously disclosed investigations.
Our inability to successfully integrate businesses we acquire, or if such businesses do not achieve the financial results we expect, may increase our costs and have a material adverse impact on our financial condition and results of operations. 20 Risks Related to Financial Reporting, Our Debt, and Tax We may not achieve sales growth plans, profitability objectives, and other assumptions that support the carrying value of our intangible assets.
Our inability to successfully integrate businesses we acquire, or if such businesses do not achieve the financial results we expect, may increase our costs and have a material adverse impact on our financial condition and results of operations.
As a result, these competitors may be able to adapt to changes in customer requirements and preferences more quickly, take advantage of acquisitions and other opportunities more readily, devote greater resources to the marketing and sale of their products, and adopt more aggressive pricing strategies than we can.
As a result, these competitors may be able to adapt to changes in customer requirements and preferences more quickly, take advantage of acquisitions and other opportunities more readily, devote greater resources to the marketing and sale of their products, adopt more aggressive pricing strategies than we can, and more successfully utilize developing technology, including data analytics, artificial intelligence, and machine learning. 13 Financial difficulties for, or the loss of one or more of, our major wholesale customers could result in a material loss of revenues.
Financial difficulties for, or the loss of one or more of, our major wholesale customers could result in a material loss of revenues. A significant amount of our business is with our wholesale customers. For fiscal 2022, we derived approximately 34% of our consolidated net sales from our U.S.
A significant amount of our business is with our wholesale customers. For fiscal 2023, we derived approximately 34% of our consolidated net sales from our U.S.
If we are unable to identify new retail locations with consumer traffic sufficient to support a profitable sales level, our retail growth may be limited. Some new stores may be located in areas where we have existing sales channels.
A significant number of our stores are located in malls and other shopping centers, and many of these malls and shopping centers have been experiencing declines in customer traffic. If we are unable to identify new retail locations with consumer traffic sufficient to support a profitable sales level, our retail growth may be limited.
Our eCommerce business may continue to be negatively impacted if consumers shift back to traditional brick-and-mortal retail after the COVID-19 pandemic, and any increase we may see in net sales from brick-and-mortal retail may not be sufficient to offset the decreases in net sales from eCommerce.
Our eCommerce business may continue to be negatively impacted if we do not successfully integrate our traditional brick-and-mortar shopping experience with our eCommerce experience or if we fail to improve on our eCommerce shopping experience, and any increase we may see in net sales from the growth in brick-and-mortar retail may not be sufficient to offset the decreases in net sales from eCommerce.
Failure to renew existing store leases, secure adequate new lease terms, or successfully modify existing locations, or failure to effectively manage the profitability of our existing fleet of stores, could have a material adverse effect on our results of operations. 12 Additionally, the economic environment may at times make it difficult to determine the fair market rent of real estate properties within the United States and internationally.
Failure to renew existing store leases, secure adequate new lease terms, or successfully modify existing locations, or failure to effectively manage the profitability of our existing fleet of stores, including the failure to successfully identify and close underperforming stores, could have a material adverse effect on our results of operations.
Additionally, birth rate fluctuations, which in turn affect the number of customers that are acquired and retained, can have a material impact on consumer spending and our business.
Although birth rates have recently stabilized, birth rate fluctuations, which in turn affect the number of customers that are acquired and retained, can have a material impact on consumer spending and our business. Reductions, or lower-than-expected growth, in the level of discretionary or overall consumer spending may have a material adverse effect on our sales and results of operations.
Any loss or interruption to our systems or the services provided by third parties would adversely affect our business, financial condition, and results of operations. Failure to implement new information technology systems or needed upgrades to our systems, including operational and financial systems, could adversely affect our business.
Any loss or interruption to our systems or the services provided by third parties, and the other risks from cybersecurity threats described above, could adversely affect our business strategy, financial condition, or results of operations.
This could materially harm our brand and our reputation in the marketplace. 11 Risks Related to Operating a Global Business We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can.
We cannot provide any assurances that such events will not occur and impacts therefrom will not be material in the future. Risks Related to Operating a Global Business We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can.
Risks Related to Global and Macroeconomic Conditions The ongoing COVID-19 pandemic and other global crises have had and may in the future have a significant adverse effect on our business, financial condition, and results of operations.
Risks Related to Global and Macroeconomic Conditions • Our business is sensitive to overall levels of consumer spending, particularly in the young children’s apparel market. • Our business could be negatively impacted by political or economic risks that we are exposed to as a part of our global operations. • The COVID-19 pandemic and other global crises had, and may in the future have, a significant adverse effect on our business, financial condition, and results of operations.
In fiscal 2021 and 2022, the costs of raw materials, packaging materials, labor, energy, fuel, transportation, and other inputs necessary for the production and distribution of our products increased significantly. We also expect the pressures of certain input cost inflation to continue in 2023.
In fiscal 2022 and 2023, the costs of raw materials, packaging materials, labor, energy, fuel, transportation, and other inputs necessary for the production and distribution of our products increased significantly. We have recently seen moderation in the costs of raw materials and ocean freight, but cannot predict the impact that increased costs will have on our expenses and profitability.
Successful operation of a retail store depends, in part, on the overall ability of the retail location to attract a consumer base sufficient to generate profitable store sales volumes. A significant number of our stores are located in malls and other shopping centers, and many of these malls and shopping centers have been experiencing declines in customer traffic.
We derive a significant portion of our revenues through our retail stores in leased retail locations across the United States, Canada, and Mexico. Successful operation of a retail store depends, in part, on the overall ability of the retail location to attract a consumer base sufficient to generate profitable store sales volumes.
This could impact the quality of our decisions to exercise lease options and renew expiring leases at negotiated rents.
Additionally, the economic environment may at times make it difficult to determine the fair market rent of real estate properties within the United States and internationally. This could impact the quality of our decisions to exercise lease options and renew expiring leases at negotiated rents.
The extent to which COVID-19 impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including a resurgence of COVID-19, including new variants, the effectiveness and availability of vaccines and boosters, and the efficacy, scope, and duration of other actions to limit the spread of COVID-19 or treat its impact, among others.
The extent to which COVID-19 or another similar public health crisis impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including a resurgence of COVID-19, including new variants, the timing or effectiveness of vaccine roll-outs globally, the timing of easing of preventative or mitigation measures or mandates, the impact of any variants that emerge, or any impact of a global vaccine roll-out on the global economy.
The value of the U.S. dollar against other foreign currencies has experienced significant volatility in recent years. While our business is primarily conducted in U.S. dollars, we source substantially all of our production from Asia, and we generate significant revenues in Canada.
While our business is primarily conducted in U.S. dollars, we source substantially all of our production from Asia, and we generate significant revenues in Canada. Our international wholesale customers have from time to time and may in the future be negatively impacted by inflation, the stronger U.S. dollar, and global conflicts.
In addition, products that fail to meet our standards, or other unauthorized products, may be sold by third-parties without our knowledge or consent.
In addition, products that fail to meet our standards, or other unauthorized products, may be sold by third-parties without our knowledge or consent. This could materially harm our brand and our reputation in the marketplace. Although we have not incurred any material product recalls or delays to date, we have been subject to product recalls and/or delays in the past.
Our revenues, product costs, and other expenses are subject to foreign economic and currency risks due to our operations outside of the United States. We have operations in Canada, Mexico, and Asia, and our vendors, third-party manufacturers, and licensees are located around the world.
We have operations in Canada, Mexico, and Asia, and our vendors, third-party manufacturers, and licensees are located around the world. The value of the U.S. dollar against other foreign currencies has experienced significant volatility in recent years.
We have experienced many of these factors due to the ongoing COVID-19 pandemic and the related responses of national, state, and local government and public health officials. For example, the U.S. economy is being negatively impacted by historically high inflation rates, which have negatively impacted and may continue to negatively impact consumer demand.
For example, in recent years, the U.S. economy has been negatively impacted by historically high inflation rates, which have negatively impacted and may continue to negatively impact consumer demand.
A relatively small number of vendors supply a significant amount of our products, and losing one or more of these vendors could have a material adverse effect on our business. In fiscal 2022, we purchased approximately 57% of our products from ten vendors, with three vendors representing nearly one half of the purchases made from our top ten vendors.
Even if we were not subject to penalties, fines, or sanctions, if products we source are associated in any way to XPCC or the XUAR, our reputation could be damaged. A relatively small number of vendors supply a significant amount of our products, and losing one or more of these vendors could have a material adverse effect on our business.
Further, in the past, the insolvency of a major shipping company has also had an effect on our supply chain. As a result, we have in the past experienced delays in the shipment of our products.
The ports of entry to which we deliver on the East Coast may also be subject to labor disputes, work slowdowns, lockouts, strikes, or other disruptions. Further, in the past, the insolvency of a major shipping company has also had an effect on our supply chain.
Additionally, we estimate that approximately 74% of the fabric that is used in the manufacture of our products is sourced from China. We expect that we will continue to source a significant portion of our products from these vendors.
In fiscal 2023, we purchased approximately 55% of our products from ten vendors, with three vendors representing approximately one half of the purchases made from our top ten vendors. Additionally, we estimate that approximately 66% of the fabric that is used in the manufacture of our products is sourced from China.
As a result, the COVID-19 pandemic and related measures taken to contain the spread of COVID-19 have had, and may likely continue to have, a significant adverse effect on our business, financial condition, and results of operations. For example, temporary store closures and the disruption of global supply chains in 2020 and 2021 significantly impacted our operations at that time.
Public health crises, such as the COVID-19 pandemic, have and may in the future have a significant adverse effect on our business, financial condition, and results of operations. We are subject to public health crises, such as the COVID-19 pandemic, which has had and may continue to have a significant impact on our operations, cash flow and liquidity.
Our retail success is dependent upon identifying locations and negotiating appropriate lease terms for retail stores. We derive a significant portion of our revenues is through our retail stores in leased retail locations across the United States, Canada, and Mexico.
For instance, the parent company of buybuy BABY, Bed Bath & Beyond, Inc., filed for Chapter 11 bankruptcy in April 2023 and closed all of its 360 stores. Our retail success is dependent upon identifying locations and negotiating appropriate lease terms for retail stores.
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Global crises, including political instability or other global events that result in the disruption of trade, the production and distribution of our products, or our sales operations, have had and may in the future have a significant adverse effect on our business, financial condition, and results of operations.
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ITEM 1A. RISK FACTORS Risk Factors Summary The following is a summary of the principal risks and uncertainties described in more detail in this Annual Report on Form 10-K for the year ended December 30, 2023.
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In March 2020, the World Health Organization declared the outbreak of a new strain of coronavirus (including variants, “COVID-19”) a pandemic.
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Risks Related to Our Brands and Product Value • The acceptance of our products in the marketplace is affected by consumer tastes and preferences, along with fashion trends. • We may be unable to protect our intellectual property rights, which could diminish the value of our brands, weaken our competitive position, and adversely affect our reputation and results. • Our future growth depends significantly on our branding and marketing efforts, and if our marketing efforts are not successful or we receive negative publicity, the value of our brands, and our sales, could be diminished. • We may experience delays, product recalls, or loss of revenues or incur additional costs if our products do not meet our quality standards.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The following is a summary of our principal owned and leased properties as of December 31, 2022. Our corporate headquarters occupies 278,000 square feet of leased space in a building in Atlanta, Georgia. Our lease for that space expires in April 2030.
Biggest changeITEM 2. PROPERTIES The following is a summary of our principal owned and leased properties as of December 30, 2023. Our corporate headquarters occupies 209,000 square feet of leased space in a building in Atlanta, Georgia. Our lease for that space expires in July 2035.
Our average remaining lease term for retail store leases in the United States, Canada, and Mexico is approximately 3.3 years, excluding renewal options.
Our average remaining lease term for retail store leases in the United States, Canada, and Mexico is approximately 3.2 years, excluding renewal options.
We also lease additional space in or use third-party logistics providers in California, Canada, China, Mexico and Vietnam for warehousing and distribution purposes. We also operate the following number of leased retail stores: 757 in the United States, 187 in Canada, and 49 in Mexico.
We also lease additional space in or use third-party logistics providers in California, Canada, China, Mexico, and Vietnam for warehousing and distribution purposes. We also operate the following number of leased retail stores: 792 in the United States, 188 in Canada, and 54 in Mexico.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe repurchased and retired shares in open market transactions in the following amounts for the fiscal periods indicated: For the fiscal year ended December 31, 2022 January 1, 2022 January 2, 2021 Number of shares repurchased 3,747,187 2,967,619 474,684 Aggregate cost of shares repurchased (dollars in thousands) $ 299,667 $ 299,339 $ 45,255 Average price per share $ 79.97 $ 100.87 $ 95.34 Future repurchases may occur from time to time in the open market, in privately negotiated transactions, or otherwise.
Biggest changeWe repurchased and retired shares in open market transactions in the following amounts for the fiscal periods indicated: For the fiscal year ended December 30, 2023 December 31, 2022 January 1, 2022 Number of shares repurchased (1) 1,446,269 3,747,187 2,967,619 Aggregate cost of shares repurchased (dollars in thousands) (2) $ 100,034 $ 299,667 $ 299,339 Average price per share (2) $ 69.17 $ 79.97 $ 100.87 (1) Share repurchases were made in compliance with all applicable rules and regulations and in accordance with the share repurchase authorizations described in Item 8 “Financial Statements and Supplementary Data” under Note 11, Common Stock, to the consolidated financial statements.
Provisions in our secured revolving credit facility could have the effect of restricting our ability to pay cash dividends on, or make future repurchases of, our common stock, as further described in Item 8 “Financial Statements and Supplementary Data” under Note 8, Long-Term Debt , to the consolidated financial statements. Recent Sales of Unregistered Securities None.
Provisions in our secured revolving credit facility could have the effect of restricting our ability to pay cash dividends on, or make future repurchases of, our common stock, as further described in Item 8 “Financial Statements and Supplementary Data” under Note 10, Long-Term Debt , to the consolidated financial statements. Recent Sales of Unregistered Securities None.
Our Board of Directors will evaluate future dividend 25 declarations based on a number of factors, including restrictions under our secured revolving credit facility, business conditions, our financial performance, and other considerations.
Our Board of Directors will evaluate future dividend declarations based on a number of factors, including restrictions under our secured revolving credit facility, business conditions, our financial performance, and other considerations.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock trades on the New York Stock Exchange (NYSE) under the trading symbol CRI. As of February 17, 2023, there were 184 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock trades on the New York Stock Exchange (NYSE) under the trading symbol CRI. As of February 20, 2024, there were 172 holders of record of our common stock.
A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
The vast majority of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
There were 1,085 shares surrendered between October 30, 2022 and November 26, 2022. Share Repurchase Program On February 24, 2022, our Board of Directors authorized share repurchases up to $1.00 billion, inclusive of $301.9 million remaining under previous authorizations. The total aggregate remaining capacity under outstanding repurchase authorizations as of December 31, 2022 was $749.5 million.
Share Repurchase Program On February 24, 2022, our Board of Directors authorized share repurchases up to $1.00 billion, inclusive of $301.9 million remaining under previous authorizations. The total aggregate remaining capacity under outstanding repurchase authorizations as of December 30, 2023 was $649.5 million. The share repurchase authorizations have no expiration dates.
In fiscal 2022, the Board of Directors declared and the Company paid quarterly cash dividends of $0.75 per common share during all four quarters.
In fiscal 2022 the Board of Directors declared, and the Company paid, a cash dividend per common share of $0.75 (for an aggregate cash dividend per common share of $3.00 for fiscal 2022).
The timing and amount of any repurchases will be at the discretion of the Company subject to restrictions under the Company’s revolving credit facility and considerations given to market conditions, stock price, other investment priorities, excise taxes, and other factors.
The timing and amount of any repurchases will be at the discretion of the Company subject to restrictions under the Company’s secured revolving credit facility and considerations given to market conditions, stock price, other investment priorities, excise taxes, and other factors. 28 Dividends On February 26, 2024, the Company's Board of Directors declared a quarterly cash dividend payment of $0.80 per common share, payable on March 29, 2024 to shareholders of record at the close of business on March 11, 2024.
Open Market Share Repurchases The following table provides information about shares repurchased during the fourth quarter of fiscal 2022: Period Total number of shares purchased (*) Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of remaining shares that can be purchased under the plans or programs October 2, 2022 through October 29, 2022 320,012 $ 71.30 320,012 $ 784,626,269 October 30, 2022 through November 26, 2022 53,710 $ 74.13 52,625 $ 780,725,321 November 27, 2022 through December 31, 2022 432,069 $ 72.21 432,069 $ 749,526,315 Total 805,791 804,706 (*) Includes shares of our common stock surrendered by our employees to satisfy required tax withholding upon the vesting of restricted stock awards.
Open Market Share Repurchases The following table provides information about shares repurchased during the fourth quarter of fiscal 2023: Period Total number of shares purchased (1) Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of remaining shares that can be purchased under the plans or programs October 1, 2023 through October 28, 2023 188,761 $ 66.65 188,761 $ 669,453,093 October 29, 2023 through November 25, 2023 122,983 $ 67.97 122,745 $ 661,110,640 November 26, 2023 through December 30, 2023 159,405 $ 72.88 159,405 $ 649,492,412 Total 471,149 470,911 (1) Includes shares of our common stock surrendered by our employees to satisfy required tax withholding upon the vesting of restricted stock awards.
In fiscal 2021, the Board of Directors declared and the Company paid quarterly cash dividends of $0.40 per common share in each of the second and third quarters of fiscal 2021 and $0.60 per common share in the fourth quarter of fiscal 2021.
In each quarter of fiscal 2023, the Board of Directors declared, and the Company paid, a cash dividend per common share of $0.75 (for an aggregate cash dividend per common share of $3.00 for fiscal 2023).
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The share repurchase authorizations have no expiration dates.
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There were 238 shares surrendered between October 29, 2023 and November 25, 2023. (2) The average price paid per share excludes excise tax on share repurchases imposed as part of the Inflation Reduction Act of 2022.
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Dividends On February 23, 2023, the Company's Board of Directors authorized a quarterly cash dividend payment of $0.75 per common share, payable on March 17, 2023 to shareholders of record at the close of business on March 7, 2023.
Added
(2) The aggregate cost of share repurchases and average price paid per share excludes excise tax on share repurchases imposed as part of the Inflation Reduction Act of 2022. Future repurchases may occur from time to time in the open market, in privately negotiated transactions, or otherwise.
Removed
As a result of actions taken in connection with the COVID-19 pandemic, the Board of Directors did not declare and the Company did not pay cash dividends for the first quarter of 2021.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFiscal year ended (dollars in thousands, except per share data) December 31, 2022 January 1, 2022 $ Change % / bps Change Consolidated net sales $ 3,212,733 $ 3,486,440 $ (273,707) (7.9) % Cost of goods sold 1,735,910 1,832,045 (96,135) (5.2) % Adverse purchase commitments (inventory and raw materials), net 4,465 (7,879) 12,344 nm Gross profit 1,472,358 1,662,274 (189,916) (11.4) % Gross profit as % of consolidated net sales 45.8 % 47.7 % (190) bps Royalty income, net 25,820 28,681 (2,861) (10.0) % Royalty income as % of consolidated net sales 0.8 % 0.8 % 0 bps Selling, general, and administrative expenses 1,110,007 1,193,876 (83,869) (7.0) % SG&A expenses as % of consolidated net sales 34.6 % 34.2 % 40 bps Intangible asset impairment 9,000 — 9,000 nm Operating income 379,171 497,079 (117,908) (23.7) % Operating income as % of consolidated net sales 11.8 % 14.3 % (250) bps Interest expense 42,781 60,294 (17,513) (29.0) % Interest income (1,261) (1,096) (165) 15.1 % Other expense (income), net 975 (409) 1,384 nm Loss on extinguishment of debt 19,940 — 19,940 nm Income before income taxes 316,736 438,290 (121,554) (27.7) % Income tax provision 66,698 98,542 (31,844) (32.3) % Effective tax rate (*) 21.1 % 22.5 % (140) bps Net income $ 250,038 $ 339,748 $ (89,709) (26.4) % Basic net income per common share $ 6.34 $ 7.83 $ (1.49) (19.0) % Diluted net income per common share $ 6.34 $ 7.81 $ (1.47) (18.8) % Dividend declared and paid per common share $ 3.00 $ 1.40 $ 1.60 114.3 % (*) Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.
Biggest changeThe decrease in consolidated operating income is due to the factors discussed above, partially offset by the nonrecurrence of a $9.0 million non-cash pre-tax impairment charge related to the Skip Hop tradename in fiscal 2022. • Other (income) expense, net was $8.0 million in fiscal 2023, primarily due to a $6.9 million payment received in January 2024 as a result of a court-approved settlement in December 2023 related to payment card interchange fees. • Diluted net income per common share decreased $0.10, or 1.6%, to $6.24, and adjusted diluted net income per common share decreased $0.71, or 10.3%, to $6.19. • Inventories decreased $207.4 million, or 27.9%, to $537.1 million, due to decreased “pack and hold” inventory, decreased days of supply, and decreased product costs. • As a result of our strong financial position and available liquidity, we returned $212.0 million to our shareholders, comprised of $100.0 million in share repurchases and $112.0 million in cash dividends. 32 RESULTS OF OPERATIONS 2023 FISCAL YEAR ENDED DECEMBER 30, 2023 COMPARED TO 2022 FISCAL YEAR ENDED DECEMBER 31, 2022 The following table summarizes our results of operations: Fiscal year ended (dollars in thousands, except per share data) December 30, 2023 December 31, 2022 $ Change % / bps Change Consolidated net sales $ 2,945,594 $ 3,212,733 $ (267,139) (8.3) % Cost of goods sold 1,549,659 1,740,375 (190,716) (11.0) % Gross profit 1,395,935 1,472,358 (76,423) (5.2) % Gross profit as % of consolidated net sales 47.4 % 45.8 % 160 bps Royalty income, net 21,410 25,820 (4,410) (17.1) % Royalty income as % of consolidated net sales 0.7 % 0.8 % (10) bps Selling, general, and administrative expenses 1,093,940 1,110,007 (16,067) (1.4) % SG&A expenses as % of consolidated net sales 37.1 % 34.6 % 250 bps Intangible asset impairment — 9,000 (9,000) nm Operating income 323,405 379,171 (55,766) (14.7) % Operating income as % of consolidated net sales 11.0 % 11.8 % (80) bps Interest expense 33,973 42,781 (8,808) (20.6) % Interest income (4,776) (1,261) (3,515) 278.7 % Other (income) expense, net (8,034) 975 (9,009) nm Loss on extinguishment of debt — 19,940 (19,940) nm Income before income taxes 302,242 316,736 (14,494) (4.6) % Income tax provision 69,742 66,698 3,044 4.6 % Effective tax rate (*) 23.1 % 21.1 % 200 bps Net income $ 232,500 $ 250,038 $ (17,537) (7.0) % Basic net income per common share $ 6.24 $ 6.34 $ (0.10) (1.6) % Diluted net income per common share $ 6.24 $ 6.34 $ (0.10) (1.6) % Dividend declared and paid per common share $ 3.00 $ 3.00 $ — — % (*) Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.
Gross margin is calculated as gross profit divided by consolidated net sales. Cost of goods sold includes expenses related to the merchandising, design, and procurement of product, including inbound freight costs, purchasing and receiving costs, and inspection costs. Also included in costs of goods sold are the costs of shipping eCommerce product to end consumers.
Gross margin is calculated as gross profit divided by consolidated net sales. Cost of goods sold includes expenses related to the merchandising, design, and procurement of product, including inbound freight, purchasing, receiving, and inspection costs. Also included in costs of goods sold are the costs of shipping eCommerce product to end consumers.
The Consolidated Total Leverage Ratio maximum permitted shall be 3.50:1.00 and temporarily increases to 4.00:1:00 in the event of a Material Acquisition; • Term Benchmark Loans bear interest at a rate determined by reference to the Adjusted Term SOFR (Secured Overnight Financing Rate), CDOR (Canadian Dollar Offered Rate), or the Adjusted EURIBOR (Euro Interbank Offered Rate).
The Consolidated Total Leverage Ratio maximum permitted shall be 3.50:1.00 and temporarily increases to 4.00:1:00 in the event of a Material Acquisition; • Term Benchmark Loans bear interest at a rate determined by reference to the Adjusted Term SOFR (Secured Overnight Financing Rate), CDOR (Canadian Dollar Offered Rate), or the Adjusted EURIBOR (Euro Interbank 39 Offered Rate).
Discount rates are dependent upon interest rates and the cost of capital at a point in time. These assumptions are consistent with those we believe hypothetical marketplace participants would use. An impairment is recorded for any excess carrying value above the fair value of the reporting unit, not to exceed the carrying value of goodwill.
Discount rates are dependent upon interest rates and the cost of capital at a point in time. These assumptions are consistent with those we believe hypothetical marketplace 42 participants would use. An impairment is recorded for any excess carrying value above the fair value of the reporting unit, not to exceed the carrying value of goodwill.
For arrangements in which the Company receives a distinct good or service, we record these reimbursements under cooperative advertising arrangements with certain of our major wholesale customers at fair value. Fair value is determined based upon, among other factors, comparable market analysis for similar advertisements when fair value is determinable.
For arrangements in which the Company receives a distinct good or service, we record these reimbursements under cooperative 41 advertising arrangements with certain of our major wholesale customers at fair value. Fair value is determined based upon, among other factors, comparable market analysis for similar advertisements when fair value is determinable.
Dollar facility commitment increases to $750 million from $650 million and the multicurrency facility commitment remains at $100 million; • extends the maturity of the secured revolving credit facility from September 2023 to April 2027; • adds a Springing Maturity Date provision, which states that if the Company has not redeemed or refinanced at least $250 million of the senior notes due 2027 prior to the 91st day before the maturity of the senior notes due March 15, 2027, then the maturity date of the secured revolving credit facility will be the 91st day before the original maturity of the senior notes due 2027; • reduces the number of financial maintenance covenants from two to one - the Lease Adjusted Leverage Ratio has been simplified to a Consolidated Total Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio has been eliminated.
Dollar facility commitment increases to $750 million from $650 million and the multicurrency facility commitment remains at $100 million; • extends the maturity of the secured revolving credit facility from September 2023 to April 2027; • adds a springing maturity date component, which states that if the Company has not redeemed or refinanced at least $250 million of the senior notes due 2027 prior to the 91st day before the maturity of the senior notes due March 15, 2027, then the maturity date of the secured revolving credit facility will be the 91st day before the original maturity of the senior notes due 2027; • reduces the number of financial maintenance covenants from two to one - the Lease Adjusted Leverage Ratio has been simplified to a Consolidated Total Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio has been eliminated.
A tradename is considered impaired if the estimated fair value of the tradename is less than the carrying amount. Impairment reviews for an indefinite-lived tradename can be conducted using qualitative analysis, and if necessary, by a quantitative impairment test.
Indefinite-Lived Intangible Assets A tradename is considered impaired if the estimated fair value of the tradename is less than the carrying amount. Impairment reviews for an indefinite-lived tradename can be conducted using qualitative analysis, and if necessary, by a quantitative impairment test.
The process of estimating the fair value of a tradename incorporates the relief-from-royalty valuation method, which requires us to make assumptions and to apply judgment, including forecasting revenue growth rates and selecting the appropriate terminal growth rate, discount rate, and royalty rate.
The process of estimating the fair value of a tradename incorporates the relief-from-royalty valuation method, which requires us to make assumptions and to apply judgment, including forecasting revenue growth and profitability and selecting the appropriate terminal growth rate, discount rate, and royalty rate.
Retail performance, and the Company uses such information to assess the performance of U.S. Retail. Additionally, we believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of our business.
Retail and International performance, and the Company uses such information to assess the performance of the U.S. Retail and International segments. Additionally, we believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of our business.
Revenue from omni-channel sales, including buy-on-line and pick-up in-store, buy-on-line, ship-to-store, and buy-on-line, deliver-from-store, are recognized when the product has been picked up by the customer at the store or when the product is physically delivered to the customer. We recognize retail sales returns at the time of transaction by recording adjustments to both revenue and cost of goods sold.
Revenue from omni-channel sales, including buy-online and pick-up in-store, buy-online, ship-to-store, and buy-online, deliver-from-store, are recognized when the product has been picked up by the customer at the store or when the product is physically delivered to the customer. We recognize retail sales returns at the time of transaction by recording adjustments to both revenue and cost of goods sold.
Adjusted operating income, income taxes, net income, and diluted net income per common share should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP.
Adjusted operating income, income taxes, net income, and diluted net income per common share should not be considered in isolation or as a substitute for analysis of our results as reported in accordance with GAAP.
A qualitative assessment determines if it is “more likely than not” that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include but are not limited to: macroeconomic conditions; industry and market considerations; cost factors that may have a negative effect on earnings; overall financial performance; and other relevant entity-specific events.
Under a qualitative assessment, we estimate if it is “more likely than not” that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include but are not limited to: macroeconomic conditions; industry and market considerations; cost factors that may have a negative effect on earnings; overall financial performance; and other relevant entity-specific events.
Based on our results for fiscal 2022, a hypothetical 1% increase in our effective tax rate would have resulted in an increase in our income tax expense of $3.2 million. Employee Benefit Plans We sponsor a frozen defined benefit pension plan and other unfunded post-retirement plans.
Based on our results for fiscal 2023, a hypothetical 1% increase in our effective tax rate would have resulted in an increase in our income tax expense of $3.0 million. Employee Benefit Plans We sponsor a frozen defined benefit pension plan and other unfunded post-retirement plans.
For a comparison of our results for fiscal year 2021 to our results for fiscal year 2020 and other financial information related to fiscal year 2020, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K, filed with the SEC on February 25, 2022.
For a comparison of our results for fiscal year 2022 to our results for fiscal year 2021 and other financial information related to fiscal year 2021, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K, filed with the SEC on February 24, 2023.
Our Board of Directors will evaluate future dividend declarations based on a number of factors, including restrictions under the Company’s revolving credit facility, business conditions, the Company’s financial performance, and other considerations.
Our Board of Directors will evaluate future dividend declarations based on a number of factors, including restrictions under our secured revolving credit facility, business conditions, our financial performance, and other considerations.
Loss on Extinguishment of Debt Loss on extinguishment of debt was $19.9 million due to the early extinguishment of our $500 million in aggregate principal amount of 5.500% senior notes due May 2025 in the second quarter of fiscal 2022.
Loss on Extinguishment of Debt During fiscal 2022, loss on extinguishment of debt was $19.9 million due to the early extinguishment of our $500 million in aggregate principal amount of 5.500% senior notes due May 2025.
We have included the fair value of these arrangements of approximately $0.6 million for fiscal 2022, $0.2 million for fiscal 2021, and $0.5 million for fiscal 2020 as a component of SG&A expenses on our consolidated statements of operations, rather than as a reduction of net sales.
We have included the fair value of these arrangements of approximately $0.6 million for fiscal 2022 and $0.2 million for fiscal 2021 as a component of SG&A expenses on the Company’s consolidated statements of operations, rather than as a reduction of Net sales.
Due to increased discount rates, decreased actual and projected sales and profitability, and the announcement of the substantial doubt of a Skip Hop wholesale customer to continue as a going concern in the first quarter of fiscal 2023, the Company performed a quantitative impairment test on the goodwill ascribed to each of the Company’s reporting units and on the value of its indefinite-lived intangible tradename assets as of December 31, 2022.
In fiscal 2022, the Company performed a quantitative impairment test on the goodwill ascribed to each of the Company’s reporting units and on the value of its indefinite-lived intangible tradename assets as of December 31, 2022 due to increased discount rates, decreased actual and projected sales and profitability, and the announcement of the substantial doubt of a Skip Hop wholesale customer’s ability to continue to operate as a going concern.
Revenue Recognition and Accounts Receivable Allowance Our revenues, which are reported as Net sales, consist of sales to customers, net of returns, discounts, chargebacks, and cooperative advertising. We recognize revenue when (or as) the performance obligation is satisfied.
Revenue Recognition and Accounts Receivable Allowance Our revenues, which are reported as Net sales, consist of sales to customers, net of returns, discounts, chargebacks, and cooperative advertising. We recognize revenue when (or as) the performance obligation is satisfied. Generally, the performance obligation is satisfied when we transfer control of the goods to the customer.
We expect that our primary sources of liquidity will be cash and cash equivalents on hand, cash flow from operations, and available borrowing capacity under our secured revolving credit facility. We believe that our sources of liquidity will fund our projected requirements for at least the next twelve months.
We expect that our primary sources of liquidity will be cash and cash equivalents on hand, cash flow from operations, and available borrowing capacity under our secured revolving credit facility. We believe that our sources of liquidity are sufficient to meet our cash requirements for at least the next twelve months.
Retail segment consists of revenue primarily from sales of products in the United States through our retail stores and eCommerce websites. Similarly, our U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our wholesale partners.
These segments are our operating and reporting segments. Our U.S. Retail segment consists of revenue primarily from sales of products in the United States through our retail stores and eCommerce websites. Similarly, our U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our wholesale partners.
Inflationary Pressures In fiscal 2022, the cost of transportation, particularly ocean freight rates, raw materials, packaging materials, labor, energy, fuel, and other inputs necessary for the production and distribution of our products rapidly increased. These inflationary pressures of input costs may persist in fiscal 2023.
Inflationary Pressures In fiscal 2022, the cost of transportation, particularly ocean freight rates, raw materials, packaging materials, labor, energy, fuel, and other inputs necessary for the production and distribution of our products rapidly increased.
To mitigate this risk, we utilize a policy of allocating cash deposits among major financial institutions that have been evaluated by us and third-party rating agencies as having acceptable risk profiles. Balance Sheet Net accounts receivable at December 31, 2022 were $198.6 million compared to $231.4 million at January 1, 2022.
To 37 mitigate this risk, we utilize a policy of allocating cash deposits among major financial institutions that have been evaluated by us and third-party rating agencies as having acceptable risk profiles. Balance Sheet Net accounts receivable at December 30, 2023 were $183.8 million compared to $198.6 million at December 31, 2022.
Additional financial and geographical information about our business segments is contained in Item 8 “Financial Statements and Supplementary Data” and under Note 14, Segment Information , to the consolidated financial statements. Gross Profit and Gross Margin Gross profit is calculated as consolidated net sales less cost of goods sold less adverse purchase commitments (inventory and raw materials), net.
Additional financial and geographical information about our business segments is contained in Item 8 “Financial Statements and Supplementary Data” and under Note 18, Segment Information , to the consolidated financial statements. Gross Profit and Gross Margin Gross profit is calculated as consolidated net sales less cost of goods sold.
Fiscal Years Our fiscal year ends on the Saturday in December or January nearest December 31. Every five or six years, our fiscal year includes an additional 53 rd week of results. Fiscal 2022, which ended on December 31, 2022, contained 52 weeks. Fiscal 2021, which ended on January 1, 2022, contained 52 weeks.
Fiscal Years Our fiscal year ends on the Saturday in December or January nearest December 31. Every five or six years, our fiscal year includes an additional 53 rd week of results. Fiscal 2023 ended on December 30, 2023, fiscal 2022 ended on December 31, 2022, and fiscal 2021 ended on January 1, 2022.
The decrease in weighted-average borrowings was attributable to the early extinguishment of our $500 million in aggregate principal amount of 5.500% senior notes due May 2025 in the second quarter of fiscal 2022, partially offset by increased borrowings under our secured revolving credit facility.
The decrease in weighted-average borrowings was attributable to the early extinguishment of our $500 million in aggregate principal amount of 5.500% senior notes due May 2025 in the second quarter of fiscal 2022 and decreased borrowings under our secured revolving credit facility for fiscal 2023.
Performance-based compensation as a percentage of net sales decreased 180 bps. 34 Unallocated Corporate Expenses Unallocated corporate expenses include corporate overhead expenses that are not directly attributable to one of our business segments and include unallocated accounting, finance, legal, human resources, and information technology expenses, occupancy costs for our corporate headquarters, and other benefit and compensation programs, including performance-based compensation.
Unallocated Corporate Expenses Unallocated corporate expenses include corporate overhead expenses that are not directly attributable to one of our business segments and include unallocated accounting, finance, legal, human resources, and information technology expenses, occupancy costs for our corporate headquarters, and other benefit and compensation programs, including performance-based compensation.
Our Business We are the largest branded marketer of young children’s apparel in North America. We own two of the most highly recognized and trusted brand names in the children’s apparel market, Carter’s and OshKosh B’gosh (or “ OshKosh ”).
All three fiscal years contained 52 calendar weeks. Our Business We are the largest branded marketer of young children’s apparel in North America. We own two of the most highly recognized and trusted brand names in the children’s apparel market, Carter’s and OshKosh B’gosh (or “ OshKosh ”).
On our consolidated balance sheet, the $500.0 million of outstanding senior notes as of December 31, 2022 is reported net of $3.4 million of unamortized issuance-related debt costs, and the $1.00 billion of outstanding senior notes as of January 1, 2022 is reported net of $8.6 million of unamortized issuance-related debt costs.
On our consolidated balance sheet, the $500.0 million of outstanding senior notes as of December 30, 2023 is reported net of $2.6 million of unamortized issuance-related debt costs, and the $500.0 million of outstanding senior notes as of December 31, 2022 is reported net of $3.4 million of unamortized issuance-related debt costs.
Obsolete, damaged, and excess inventory is carried at net realizable value by establishing reserves after assessing historical recovery rates, current market conditions, and future marketing and sales plans. Adjustments to bring inventory to net realizable value as a result of obsolete, damaged, and excess inventory increased $4.9 million, or 34.0%, to $19.3 million as of December 31, 2022.
Obsolete, damaged, and excess inventory is carried at net realizable value by establishing reserves after assessing historical recovery rates, current market conditions, and future marketing and sales plans. Adjustments to bring inventory to net realizable value as a result of obsolete, damaged, and excess inventory decreased $10.3 million, or 53.3%, to $9.0 million as of December 30, 2023.
A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows used in our cash flow models but may also negatively impact other assumptions used in our analysis, including, but not limited to, the estimated cost of capital and/or discount rates.
A deterioration of macroeconomic factors may not only negatively impact the estimated future cash flows used in our cash flow models but may also negatively impact other assumptions used in our analysis, including, but not limited to, the estimated discount rates.
We have offset some of these cost pressures through increases in the selling prices of some of our products, product cost optimization, increasing and diversifying our portfolio of suppliers, leveraging a mix of longer-term shipping container contracts and spot market purchases, and reductions in discretionary spending.
As a result, we offset some of these cost pressures through increases in the selling prices of some of our products, product cost optimization, increasing and diversifying our portfolio of suppliers, renegotiating our longer-term shipping container contracts, and reductions in discretionary spending.
The method of calculating sales metrics varies across the retail industry. As a result, our comparable sales metrics may not be comparable to those of other retailers. U.S. Retail U.S. Retail segment net sales decreased $219.1 million, or 11.5%, to $1.68 billion.
The method of calculating sales metrics varies across the retail industry. As a result, our comparable sales metrics may not be comparable to those of other retailers. U.S. Retail U.S. Retail segment net sales decreased $178.4 million, or 10.6%, to $1.50 billion.
The assessment also indicated that the OshKosh indefinite-lived tradename assets’ fair value exceeded its carrying value by approximately 27%.
The assessment in fiscal 2022 also indicated that the OshKosh indefinite-lived tradename asset’s fair value exceeded its carrying value by approximately 27%.
At time of subsequent vesting, exercise, forfeiture, or expiration of an award, the difference between our actual income tax deduction, if any, and the previously accrued income tax benefit is recognized in our income tax expense/benefit during the current period.
During the requisite service period, we recognize a deferred income tax benefit for the expense recognized for U.S. GAAP. At time of subsequent vesting, exercise, forfeiture, or expiration of an award, the difference between our actual income tax deduction, if any, and the previously accrued income tax benefit is recognized in our income tax expense/benefit during the current period.
Rebates, discounts and other cash consideration received from a vendor related to inventory purchases are reflected as reductions in the cost of the related inventory item and are therefore reflected in Cost of goods sold when the related inventory item is sold.
This decrease is primarily due to the decrease in inventory balances, including decreased “pack and hold” inventory. Rebates, discounts and other cash consideration received from a vendor related to inventory purchases are reflected as reductions in the cost of the related inventory item and are therefore reflected in Cost of goods sold when the related inventory item is sold.
Note: Results may not be additive due to rounding. Percentage changes that are considered not meaningful are denoted with “nm”. Consolidated Net Sales Consolidated net sales decreased $273.7 million, or 7.9%, to $3.21 billion.
Note: Results may not be additive due to rounding. Percentage changes that are considered not meaningful are denoted with “nm”. Consolidated Net Sales Consolidated net sales decreased $267.1 million, or 8.3%, to $2.95 billion.
An Applicable Commitment Fee initially equal to 0.20% per annum and ranging from 0.15% per annum to 0.25% per annum, based upon a leverage-based pricing grid, is payable quarterly in arrears with 37 respect to the average daily unused portion of the revolving loan commitments.
An Applicable Commitment Fee initially equal to 0.20% per annum and ranging from 0.15% per annum to 0.25% per annum, based upon a leverage-based pricing grid, is payable quarterly in arrears with respect to the average daily unused portion of the revolving loan commitments. Capitalized items are Defined Terms pursuant to Amendment No. 4, dated as of April 11, 2022.
Weighted-average borrowings were $738.7 million at an effective interest rate of 5.84%, compared to weighted-average borrowings for fiscal 2021 of $1.00 billion at an effective interest rate of 6.02%.
Weighted-average borrowings were $545.5 million at an effective interest rate of 6.22%, compared to weighted-average borrowings for fiscal 2022 of $738.7 million at an effective interest rate of 5.84%.
Distribution expenses that are included in SG&A primarily consist of payments to third-party shippers and handling costs to process product through our distribution facilities, including eCommerce fulfillment costs, and delivery to our wholesale customers and to our retail stores. Our gross profit and gross margin may not be comparable to other entities that define their metrics differently.
Distribution expenses that are included in SG&A primarily consist of payments to third-party shippers and handling costs to process product through our distribution facilities, including eCommerce fulfillment costs, and delivery to our wholesale customers and to our retail stores.
This decrease was partially offset by increased average selling prices per unit due to improved price realization and decreased promotions. Units sold decreased approximately 17%, while average selling prices per unit increased approximately 6%. Comparable net sales, including retail store and eCommerce, decreased 10.1% primarily driven by the factors mentioned above.
This decrease was partially offset by increased average selling prices per unit due to improved price realization. Units sold decreased in the mid-teens, while average selling prices per unit increased mid-single digits. Comparable net sales, including retail store and eCommerce, decreased 12.2% driven by the factors mentioned above.
We plan to invest approximately $75 million in capital expenditures in fiscal 2023, which primarily relates to U.S. and international retail store openings and remodels, investments in our distribution facilities, and strategic information technology initiatives. 36 Net Cash Used in Financing Activities Net cash used in financing activities increased $466.6 million, or 132.3%, to $819.3 million.
We plan to invest approximately $80 million in capital expenditures in fiscal 2024, which primarily relates to U.S. and international retail store openings and remodels, investments in our distribution facilities, and strategic information technology initiatives. Net Cash Used in Financing Activities Net cash used in financing activities decreased $486.6 million, or 59.4%, to $332.6 million.
Capitalized items are Defined Terms pursuant to Amendment No. 4, dated as of April 11, 2022. Approximately $2.4 million, including both bank fees and other third-party expenses, has been capitalized in connection with Amendment No. 4 and is being amortized over the remaining term of the secured revolving credit facility.
Approximately $2.4 million, including both bank fees and other third-party expenses, was capitalized in fiscal 2022 in connection with Amendment No. 4 and is being amortized over the remaining term of the secured revolving credit facility.
The share repurchase authorizations have no expiration dates. Future repurchases may occur from time to time in the open market, in privately negotiated transactions, or otherwise.
Future repurchases may occur from time to time in the open market, in privately negotiated transactions, or otherwise.
Note: Results may not be additive due to rounding. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Our ongoing cash needs are primarily for working capital, capital expenditures, employee compensation, interest on debt, the return of capital to our shareholders, and other general corporate purposes.
LIQUIDITY AND CAPITAL RESOURCES Our ongoing cash needs are primarily for working capital (consisting primarily of inventory), capital expenditures, employee compensation, interest on debt, the return of capital to our shareholders, and other general corporate purposes.
Although the Company determined that no further impairment exists for the OshKosh indefinite-lived tradename asset, this asset could be at risk for impairment should macroeconomic factors, including inflationary pressures and declining consumer sentiment, continue to adversely affect the Company’s financial results.
Although the Company determined that no impairment exists for the OshKosh or Skip Hop indefinite-lived tradename assets, these assets could be at risk for impairment should macroeconomic factors, including declining consumer sentiment, adversely affect the Company’s financial results.
Operating income in fiscal 2022 included an intangible asset impairment charge of $5.6 million related to the Skip Hop tradename. The primary drivers of the decrease in operating margin were a 140 bps decrease in gross margin, a 20 bps decrease in royalty income, a 30 bps increase in SG&A rate, and the intangible asset impairment charge.
Operating income in fiscal 2022 included an intangible asset impairment charge of $3.0 million related to the Skip Hop tradename. The primary drivers of the decrease in operating margin were a 440 bps increase in SG&A rate, partially offset by a 180 bps increase in gross margin and the nonrecurrence of the intangible asset impairment charge in fiscal 2022.
Those risk factors expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf. Except for any ongoing obligations to disclose material information as required by federal securities laws, we do not have any intention or obligation to update forward-looking statements after we file this Annual Report on Form 10-K.
Except for any ongoing obligations to disclose material information as required by federal securities laws, we do not have any intention or obligation to update forward-looking statements after we file this Annual Report on Form 10-K.
As of December 31, 2022, the interest rate margins applicable to the amended revolving credit facility were 1.375% for adjusted term SOFR rate loans and 0.375% for base rate loans.
As of December 30, 2023, the interest rate margins applicable to the amended revolving credit facility were 1.375% for adjusted term SOFR rate loans and 0.375% for base rate loans. Weighted-average borrowings were $45.6 million and $106.6 million for fiscal 2023 and fiscal 2022, respectively.
The majority of our digital marketing advertising arrangements are recorded as a reduction of net sales. The majority of the Company’s digital cooperative advertising arrangements are recorded as a reduction of net sales as there was no distinct good or service received by the Company.
For arrangements in which the Company does not receive a distinct good or service, we record these reimbursements as a reduction of net sales. The majority of the Company’s digital cooperative advertising arrangements are recorded as a reduction of net sales as there was no distinct good or service received by the Company.
We determine whether to disclose and accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible, or probable and whether the loss can be reasonably estimated.
Loss Contingencies We record accruals for various contingencies including legal exposures as they arise in the normal course of business. We determine whether to disclose and accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible, or probable and whether the loss can be reasonably estimated.
We reinstated our common stock share repurchase program in the third quarter of fiscal 2021. On February 24, 2022, our Board of Directors authorized share repurchases up to $1.00 billion, inclusive of $301.9 million remaining under previous authorizations. The total remaining capacity under outstanding repurchase authorizations as of December 31, 2022 was approximately $749.5 million, based on settled repurchase transactions.
Share Repurchases On February 24, 2022, our Board of Directors authorized share repurchases up to $1.00 billion, inclusive of $301.9 million remaining under previous authorizations. The total remaining capacity under outstanding repurchase authorizations as of December 30, 2023 was approximately $649.5 million, based on settled repurchase transactions. The share repurchase authorizations have no expiration dates.
Accrued Expenses Accrued expenses for workers’ compensation, incentive compensation, health insurance, 401(k), and other outstanding obligations are assessed based on actual commitments, statistical trends, and/or estimates based on projections and current expectations, and these estimates are updated periodically as additional information becomes available. 42 Loss Contingencies We record accruals for various contingencies including legal exposures as they arise in the normal course of business.
Accrued Expenses Accrued expenses for workers’ compensation, incentive compensation, health insurance, 401(k), and other outstanding obligations are assessed based on actual commitments, statistical trends, and/or estimates based on projections and current expectations, and these estimates are updated periodically as additional information becomes available.
While we will continue to focus on effectively managing our variable costs, we will also look to invest in growing our business, including adding new omni-channel capabilities and opening new retail stores. • Consolidated operating income decreased $117.9 million, or 23.7%, to $379.2 million, and adjusted operating income, a non-GAAP financial measure, decreased $112.6 million, or 22.5%, to $388.2 million.
While we will continue to focus on effectively managing our variable costs, we will also look to invest in growing our business, including adding new omni-channel capabilities, opening new retail stores, and investing in more effective brand marketing. • Consolidated operating income decreased $55.8 million, or 14.7%, to $323.4 million, and adjusted operating income, a non-GAAP financial measure, decreased 60.4 million, or 15.5%, to 327.8 million.
International International segment net sales decreased $8.7 million, or 1.9%, to $452.1 million in fiscal 2022. Changes in foreign currency exchange rates, primarily between the U.S. dollar and the Canadian dollar, had an $11.2 million unfavorable effect on International segment net sales.
International International segment net sales decreased $22.9 million, or 5.1%, to $429.2 million in fiscal 2023. Changes in foreign currency exchange rates, primarily between the U.S. dollar and the Canadian dollar, used for translation in fiscal 2023 had an immaterial impact on International segment net sales.
Operating Income Consolidated operating income decreased $117.9 million, or 23.7%, to $379.2 million, and consolidated operating margin decreased as a percentage of net sales by approximately 250 bps to 11.8%, primarily due to the factors discussed above. Interest Expense Interest expense decreased $17.5 million, or 29.0%, to $42.8 million due to a decrease in weighted-average borrowings.
Operating Income Consolidated operating income decreased $55.8 million, or 14.7%, to $323.4 million, and consolidated operating margin decreased as a percentage of net sales by approximately 80 bps to 11.0%, due to the factors discussed above. Interest Expense Interest expense decreased $8.8 million, or 20.6%, to $34.0 million due to a decrease in weighted-average borrowings.
As of December 31, 2022, outstanding borrowings on our revolving credit facility were $120.0 million. We maintain cash deposits with major financial institutions that exceed the insurance coverage limits provided by the Federal Deposit Insurance Corporation in the United States and by similar insurers for deposits located outside the United States.
We maintain cash deposits with major financial institutions that exceed the insurance coverage limits provided by the Federal Deposit Insurance Corporation in the United States and by similar insurers for deposits located outside the United States.
Deferred gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations or market value of assets are amortized to earnings over the average remaining life of inactive plan participants. Any future obligation under our pension plan not funded from returns on plan assets is expected to be funded from cash flows from operations.
Deferred gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations or market value of assets are amortized to earnings over the average remaining life of inactive plan participants.
The decrease of $32.8 million, or 14.2%, primarily reflects the timing of wholesale customer shipments and associated payments. Inventories at December 31, 2022 were $744.6 million compared to $647.7 million at January 1, 2022.
The decrease of $14.8 million, or 7.5%, was driven by decreased net sales and the timing of wholesale customer shipments and associated payments. Inventories at December 30, 2023 were $537.1 million compared to $744.6 million at December 31, 2022.
In this market, our Carter’s brands, including our exclusive brands, hold the #1 position with approximately 10% market share and our OshKosh brand has approximately 1% market share as of December 2022. 27 Our multi-channel, global business model, which includes retail stores, eCommerce, and wholesale distribution channels, as well as omni-channel capabilities in the United States and Canada, enables us to reach a broad range of consumers around the world.
Our multichannel global business model, which includes retail stores, eCommerce, and wholesale distribution channels, as well as omni-channel capabilities in the United States and Canada, enables us to reach a broad range of consumers around the world.
Our cash flow provided by operating activities is driven by net income and changes in our net working capital.
Cash Flow Net Cash Provided by Operating Activities Net cash provided by operating activities increased $440.8 million, or 498.9%, to $529.1 million. Our cash flow provided by operating activities is driven by net income and changes in our net working capital.
Results by Segment - Fiscal Year 2022 compared to Fiscal Year 2021 The following table summarizes net sales and operating income, by segment, for the fiscal years ended December 31, 2022 and January 1, 2022: Fiscal year ended (dollars in thousands) December 31, 2022 % of consolidated net sales January 1, 2022 % of consolidated net sales $ Change % Change Net sales: U.S.
Net Income Our consolidated net income decreased $17.5 million, or 7.0%, to $232.5 million, due to the factors previously discussed. 34 Results by Segment - Fiscal Year 2023 compared to Fiscal Year 2022 The following table summarizes net sales and operating income, by segment, for the fiscal years ended December 30, 2023 and December 31, 2022: Fiscal year ended (dollars in thousands) December 30, 2023 % of consolidated net sales December 31, 2022 % of consolidated net sales $ Change % Change Net sales: U.S.
Generally, the performance obligation is satisfied when we transfer control of the goods to the customer. 40 Our retail store revenues, also reported as Net sales, are recognized at the point of sale. Retail sales through our on-line channels are recognized at time of delivery to the customer.
Our retail store revenues, also reported as Net sales, are recognized at the point of sale. Retail sales through our online channels are recognized at time of delivery to the customer.
As of December 31, 2022, the Company was in compliance with the financial and other covenants under the secured revolving credit facility. Senior Notes As of December 31, 2022, TWCC had $500.0 million principal amount of senior notes outstanding, bearing interest at a rate of 5.625% per annum, and maturing on March 15, 2027.
Senior Notes As of December 30, 2023, TWCC had $500.0 million principal amount of senior notes outstanding, bearing interest at a rate of 5.625% per annum, and maturing on March 15, 2027.
We based these statements on assumptions that we consider reasonable. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. Those risk factors expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf.
We account for performance-based awards over the vesting term of the 43 awards that are expected to vest based on whether it is probable that the performance criteria will be achieved. We reassess the probability of vesting at each reporting period for awards with performance criteria and adjust stock-based compensation expense based on the probability assessments.
We estimate forfeitures of restricted stock awards based on historical experience and expected future activity. We account for performance-based awards over the vesting term of the awards that are expected to vest based on whether it is probable that the performance criteria will be achieved.
However, our pricing actions could have an adverse impact on demand and may not be sufficient to cover all increased costs that we may experience. Supply Chain Disruptions Geopolitical factors continue to impact supply chain operations, causing delays in the production and transportation of our product.
Additionally, our pricing actions could have an adverse impact on demand and may not be sufficient to cover all increased costs that we may experience.
In fiscal 2022, the Board of Directors declared and the Company paid quarterly cash dividends of $0.75 per common share during all four quarters.
In fiscal 2022 the Board of Directors declared, and the Company paid, a cash dividend per common share of $0.75 (for an aggregate cash dividend per common share of $3.00 for fiscal 2022).
Based upon this assessment, there were no impairments on the value of goodwill. Based on these assessments, a non-cash pre-tax impairment charge of $9.0 million was recorded during the fourth quarter of fiscal 2022 on our indefinite-lived Skip Hop tradename asset.
As discussed above, the Company performed quantitative impairment assessments on the value of the Company’s indefinite-lived intangible tradename assets as of December 31, 2022. Based on these assessments, a non-cash pre-tax impairment charge of $9.0 million was recorded during the fourth quarter of fiscal 2022 on our indefinite-lived Skip Hop tradename asset to write-down the carrying value to $6.0 million.
This change in cash flow used in financing activities was primarily due to the early extinguishment of our $500 million in aggregate principal amount of 5.500% senior notes due May 2025 and increased cash dividends paid to our shareholders.
This change in cash flow used in financing activities was primarily due to the early extinguishment of our $500 million in aggregate principal amount of 5.500% senior notes due May 2025 in the second quarter of fiscal 2022 and decreased commons stock share repurchases, partially offset by payments on our secured revolving credit facility.
Based upon the results of the impairment test, we recognized a non-cash pre-tax impairment charge of $9.0 million during the fourth quarter of fiscal 2022 related to our Skip Hop indefinite-lived tradename asset.
Intangible Asset Impairment In fiscal 2022, we recognized a non-cash pre-tax impairment charge of $9.0 million related to our Skip Hop indefinite-lived tradename asset. There were no impairments recorded to goodwill or indefinite-lived intangible assets in fiscal 2023.
Terms of the Secured Revolving Credit Facility Our secured revolving credit facility provides for an aggregate credit line of $850 million which includes a $750 million U.S. dollar facility and a $100 million multicurrency facility. The credit facility matures in April 2027.
However, these repayment terms also allow us to repay some or all of the outstanding borrowings at any time. Terms of the Secured Revolving Credit Facility Our secured revolving credit facility provides for an aggregate credit line of $850 million which includes a $750 million U.S. dollar facility and a $100 million multicurrency facility.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES We have provided non-GAAP adjusted operating income, income taxes, net income, and diluted net income per common share measures, which excludes certain items presented below. We believe that this information provides a meaningful comparison of our results and afford investors a view of what management considers to be our core performance.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES We have provided non-GAAP adjusted operating income, income taxes, net income, and diluted net income per common share measures, which exclude certain items presented below.
Fiscal Year Ended December 31, 2022 January 1, 2022 (In millions, except earnings per share) Operating Income % Net Sales Income Taxes Net Income Diluted Net Income per Common Share Operating Income % Net Sales Income Taxes Net Income Diluted Net Income per Common Share As reported (GAAP) $ 379.2 11.8 % $ 66.7 $ 250.0 $ 6.34 $ 497.1 14.3 % $ 98.5 $ 339.7 $ 7.81 Loss on extinguishment of debt (*) — 4.8 15.2 0.38 — — — — Intangible asset impairment 9.0 2.1 6.9 0.17 — — — — COVID-19 expenses — — — — 3.9 1.0 3.0 0.07 Restructuring costs — — — — 2.4 0.6 1.8 0.04 Retail store operating leases and other long-lived asset impairments, net of gain — — — — (2.6) (0.6) (2.0) (0.05) As adjusted $ 388.2 12.1 % $ 73.6 $ 272.0 $ 6.90 $ 500.8 14.4 % $ 99.5 $ 342.5 $ 7.87 (*) In fiscal 2022, a pre-tax adjustment of approximately $19.9 million ($15.2 million net of tax, or $0.38 per diluted share) was made related to a loss on extinguishment of debt.
Fiscal Year Ended December 30, 2023 December 31, 2022 (In millions, except earnings per share) Operating Income % Net Sales Income Taxes Net Income Diluted Net Income per Common Share Operating Income % Net Sales Income Taxes Net Income Diluted Net Income per Common Share As reported (GAAP) $ 323.4 11.0 % $ 69.7 $ 232.5 $ 6.24 $ 379.2 11.8 % $ 66.7 $ 250.0 $ 6.34 Organizational restructuring (1) 4.4 1.0 3.4 0.09 — — — — Legal settlement (2) — (1.7) (5.3) (0.14) — — — — Loss on extinguishment of debt (3) — — — — — 4.8 15.2 0.38 Intangible asset impairment (4) — — — — 9.0 2.1 6.9 0.17 As adjusted $ 327.8 11.1 % $ 69.1 $ 230.6 $ 6.19 $ 388.2 12.1 % $ 73.6 $ 272.0 $ 6.90 (1) Related to charges for organizational restructuring and related corporate office lease amendment actions in fiscal 2023.
We cannot predict the timing and amount of such impact. As of December 31, 2022, we had approximately $211.7 million of cash and cash equivalents held at major financial institutions, including approximately $44.1 million held at financial institutions located outside of the United States.
As of December 30, 2023, we had approximately $351.2 million of cash and cash equivalents held at major financial institutions, including approximately $79.0 million held at financial institutions located outside of the United States.
Air freight costs normalized in fiscal 2022 after a large increase in air freight use in fiscal 2021 in order to help mitigate transportation delays. Royalty Income We have licensing agreements with domestic and international licensees that grant licensees the right to access certain trademarks in return for royalty payments or licensing fees.
We expect product input costs to decrease in fiscal 2024, and we expect inbound transportation rates, including ocean freight rates, to decrease in the first half of fiscal 2024. Royalty Income We have licensing agreements with domestic and international licensees that grant licensees the right to access certain trademarks in return for royalty payments or licensing fees.
The timing and amount of any repurchases will be at the discretion of the Company subject to restrictions under the Company’s revolving credit facility and considerations given to market conditions, stock price, other investment priorities, excise taxes, and other factors.
The timing and amount of any repurchases will be at the discretion of the Company subject to restrictions under the Company’s secured revolving credit facility and considerations given to market conditions, stock price, other investment priorities, excise taxes, and other factors. 38 Dividends On February 26, 2024, the Company's Board of Directors declared a quarterly cash dividend payment of $0.80 per common share, payable on March 29, 2024 to shareholders of record at the close of business on March 11, 2024.
Subjective assumptions include a forfeiture rate assumption for all restricted stock awards and an estimate for the probability that the performance criteria will be achieved for performance awards. We estimate forfeitures of restricted stock awards based on historical experience and expected future activity.
There have been no issuances of stock options since 2018, and there are no unrecognized compensation costs remaining on outstanding stock options. Subjective assumptions include a forfeiture rate assumption for all restricted stock awards and an estimate for the probability that the performance criteria will be achieved for performance awards.
The decreased effective tax rate primarily relates to a lower proportion of income generated in the United States, which is a higher tax jurisdiction relative to our international operations. 32 Net Income Our consolidated net income decreased $89.7 million, or 26.4%, to $250.0 million, primarily due to the factors previously discussed.
Income Taxes Our consolidated income tax provision increased $3.0 million, or 4.6%, to $69.7 million, and the effective tax rate increased approximately 200 bps to 23.1%. The increased effective tax rate relates to a higher proportion of income generated in the United States, which is a higher tax jurisdiction relative to the locations of our international operations.
Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized in the accompanying consolidated statements of operations. During the requisite service period, we recognize a deferred income tax benefit for the expense recognized for U.S. GAAP.
We reassess the probability of vesting at each reporting period for awards with performance criteria and adjust stock-based compensation expense based on the probability assessments. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized in the accompanying consolidated statements of operations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed6 unchanged
Biggest changeAs of December 31, 2022, there were $120.0 million variable rate borrowings outstanding under the amended revolving credit facility. As a result, the impact of a hypothetical 100 bps increase in the effective interest rate would result in additional interest expense of $1.2 million over a 12-month period. Other Risks We enter into various purchase order commitments with our suppliers.
Biggest changeAs of December 30, 2023, there were no variable rate borrowings outstanding under the secured 45 revolving credit facility. As a result, the impact of a hypothetical 100 bps increase in the effective interest rate would not result in a material amount of additional interest expense over a 12-month period.
Foreign currency transaction gains and losses related to intercompany loans with foreign subsidiaries that are of a long-term nature are accounted for as translation adjustments and are included in Accumulated other comprehensive income (loss). Interest Rate Risk Our operating results are subject to risk from interest rate fluctuations on our amended revolving credit facility, which carries variable interest rates.
Foreign currency transaction gains and losses related to intercompany loans with foreign subsidiaries that are of a long-term nature are accounted for as translation adjustments and are included in Accumulated other comprehensive income (loss). Interest Rate Risk Our operating results are subject to risk from interest rate fluctuations on our secured revolving credit facility, which carries variable interest rates.
The changes in foreign currency exchange rates used for translation in fiscal 2022 had a $11.2 million unfavorable effect on our consolidated net sales. Fluctuations in exchange rates between the U.S. dollar and other currencies may affect our results of operations, financial position, and cash flows.
The changes in foreign currency exchange rates used for translation in fiscal 2023 had an immaterial impact on our consolidated net sales. Fluctuations in exchange rates between the U.S. dollar and other currencies may affect our results of operations, financial position, and cash flows.
We can cancel these arrangements, although in some instances, we may be subject to a termination charge reflecting a percentage of work performed prior to cancellation. 44
Other Risks We enter into various purchase order commitments with our suppliers. We can cancel these arrangements, although in some instances, we may be subject to a termination charge reflecting a percentage of work performed prior to cancellation. 46

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