Q2 2024 Carter's Inc Earnings Call

Operator: Welcome to Carter's second quarter fiscal 2024 earnings conference call. On the call are Michael Casey, Chairman and Chief Executive Officer, Richard Westenberger, Chief Financial Officer and Chief Operating Officer, Kendra Krugman, Chief Creative and Growth Officer, and Sean McHugh, Treasurer. I'll now turn the call over to Mr. McHugh.

Operator: Welcome to Carter's second quarter fiscal 2024 earnings conference call. On the call are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Chief Financial Officer and Chief Operating Officer; Kendra Krugman, Chief Creative and Growth Officer; and Sean McHugh, Treasurer. Please note that today's call is being recorded.

Welcome to Carter's second quarter fiscal 2024 earnings conference call on the call are Michael Casey, Chairman and Chief Executive Officer, Richard Westenberger, Chief Financial Officer, and Chief Operating Officer, Kendra, Krugman, Chief Creative Officer, and Sean Mchugh Treasurer. Please note that today's call is being recorded I'll now turn the call over to Mr. Mchugh.

Sean Mchugh: I'll now turn the call over to Mr. McHugh. Thank you and good morning, everyone. We issued our second quarter 2024 earnings release earlier today. The release and presentation materials for today's call are available on our Investor Relations website.

Sean McHugh: Thank you, and good morning, everyone. We issued our second quarter 2024 earnings release earlier today. The release and presentation materials for today's call are available on our investor relations website at ir.carters.com. Before we begin, note that statements about items such as the company's outlook are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings and the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call.

Sean McHugh: Thank you and good morning, everyone.

Sean McHugh: Issued our second quarter 2024 earnings release earlier today, the release and presentation materials for today's call are available on our Investor Relations website at IR Dot Carter's Dot com.

Sean Mchugh: Before we begin, note that statements about items such as the company's outlook are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see that our most recent SEC filings and the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliation of various non-GAAP financial measurements referenced during this call.

Speaker Change: Before we begin note that statements about items such as the company's outlook are forward looking statements.

Speaker Change: For a discussion of factors that could cause actual results to vary from those contained in the forward looking statements. Please see our most recent SEC filings.

Speaker Change: Earnings release and presentation materials posted on our website.

Speaker Change: In these materials you will also find reconciliations of various non-GAAP financial measurements referenced during this call.

Sean McHugh: After today's prepared remarks, we will take questions as time allows.

Sean McHugh: After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Mike. Thanks, Sean. Good morning, everyone.

Speaker Change: After today's prepared remarks, we will take questions as time allows I will now turn the call over to Mike. Thanks, Sean and good morning, everyone. Thanks for joining us on the call.

Sean McHugh: I will now turn the call over to Mike. Thanks, Sean.

Michael D. Casey: Good morning, everyone. Thank you for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you. Our sales in the second quarter were in line with our forecast. We saw good growth in our U.S. wholesale sales in the quarter, but our U.S. retail and international sales were lower than expected. Earnings in the second quarter were meaningfully higher than planned, driven by a record gross profit margin.

Michael D. Casey: Good morning, everyone. Thanks for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you. Our sales in the second quarter were in line with our forecast. We saw a good road in our US wholesale sales in the quarter. Our US retail and international sales were lower than expected. Burtings in the second quarter were meaningfully higher than planned, driven by a record gross profit margin. We continued to curtail spending, which enabled growth in operating income for the quarter. Cash flow through June trended better than planned.

Mike: Before we walk you through the presentation on our website I'd like to share some thoughts on our business with you.

Mike: Our sales in the second quarter were in line with our forecast we saw good growth in our U S wholesale sales in the quarter, our U S retail and international sales were lower than expected.

Mike: Earnings in the second quarter were meaningfully higher than planned driven by a record gross profit margin.

Michael D. Casey: We continue to curtail spending, which enabled growth in operating income for the quarter. Cash flow through June trended better than planned. We ended the quarter with lower inventories, a higher cash position, no seasonal borrowing, lower net interest costs, and over $1 billion in liquidity.

Mike: We continue to curtail spending which enabled growth in operating income for the quarter.

Mike: Cash flow through June trended better than planned.

Michael Casey: We ended the quarter with lower inventory, a higher cash position, no seasonal borrowings, lower net interest costs, and over $1 billion in liquidity. Our continued focus on margin preservation and cash flow enabled over $90 million to be distributed to our shareholders through dividends and share purchases in the first half this year. For the first half, our earnings per year were up 13%; sales were down 5%. In the second quarter, we saw a good response to our new summer product offerings, including our Americana themed collections, out sitting children for their summer holiday techniques and parades. Our best selling products included our new Little Planet and Purely Soft collections each have elevated styling and fabrications.

Mike: Ended the quarter with lower inventories and a higher cash position.

Mike: No seasonal borrowings.

Mike: Lower net interest costs.

Mike: For $1 billion in liquidity.

Michael D. Casey: Our continued focus on margin preservation and cash flow enabled over $90 million to be distributed to our shareholders through dividends and share repurchases in the first half of this year. For the first half, our earnings per share were up 13%, and sales were down 5%. In the second quarter, we saw a good response to our new summer product offerings, including our Americana-themed collections, outfitting children for their summer holiday picnics and parades. Our best-selling products included our new Little Planet and Purely Soft collections. Each pair has elevated styling and fabrication.

Our continued focus on margin preservation and cash flow enabled over $90 million to be distributed to our shareholders through dividends and share repurchases in the first half this year.

Mike: For the first half our earnings per share were up 13% sales were down 5%.

Mike: In the second quarter, we saw a good response to our new summer product offerings, including our Americana themed collections.

Speaker Change: Setting children for their summer holiday techniques and parades.

Speaker Change: Our best selling products included our new little planet and purely soft collections, each have elevated styling and fabrications.

Michael Casey: Sales of our baby and toddler product offerings were comparable to last year. Our playware sales were lower, which we believe reflects the slow start to spring selling earlier in the quarter and the more discretionary nature of those product offerings. In the second quarter, we saw a higher and earlier demand in our US wholesale segment. Our growth in wholesale was driven by our exclusive brands. During this inflationary cycle, we are benefiting from consumers choosing the ease of one-stop shopping with mass chain retailers where they can purchase groceries, diapers, baby formula, and children's apparel at one convenient location.

Michael D. Casey: Sales of our baby and toddler product offerings were comparable to last year. However, our playwear sales were lower, which we believe reflects the slow start to spring selling earlier in the quarter and the more discretionary nature of those product offerings. In the second quarter, we saw higher and earlier demand in our U.S. wholesale sector. Our growth in wholesale was driven by our exclusive brand. During this inflationary cycle, we are benefiting from consumers choosing the ease of one-stop shopping with mass-channel retailers, where they can purchase groceries, diapers, baby formula, and children's apparel at one convenient location. Carter's has an unparalleled competitive advantage as the largest supplier of young children's apparel to these retailers.

Speaker Change: Sales of our baby and toddler product offerings were comparable to last year, our playwear sales were lower which we believe reflects the slow start to spring selling earlier in the quarter and the more discretionary nature of those product offerings.

Speaker Change: In the second quarter, we saw higher and earlier demand in our U S wholesale segment.

Speaker Change: Our growth in wholesale was driven by our exclusive brands.

Speaker Change: This inflationary cycle, we are benefiting from consumers choosing the ease of one stop shopping with mass channel retailers, where they can purchase groceries diapers baby formula and children's apparel at one convenient location.

Michael D. Casey: Carter's has an unparalleled competitive advantage at the largest supplier of young children's apparel to these retailers. We also saw growth with our flagship Carter's brand in the second quarter. We believe we're seeing the benefit of our strategies tailored to support the unique needs of departments to our and club store retailers. Our wholesale sales have a hymx of baby apparel. Baby apparel continues to be our best performing age segment and contributes over 50% of our consolidated apparel sales. Baby apparel is a less discretionary purchase, and Carter's has the largest share of baby apparel in North America.

Speaker Change: Carter's has an unparalleled competitive advantage as the largest supplier of young children's apparel to these retailers.

Michael D. Casey: We also saw growth with our flagship Carter's brand in the second quarter. We believe we're seeing the benefit of our strategies tailored to support the unique needs of department store and club store retailers. Our wholesale sales have a high mix of baby apparel. Baby apparel continues to be our best performing age segment and contributes over 50% of our consolidated apparel sales. Baby apparel is a less discretionary purchase, and Carter's has the largest share of baby apparel in North America.

Speaker Change: We also saw growth with our flagship Carter's brand in the second quarter. We believe we're seeing the benefit of our strategies tailored to support the unique needs of department store and.

Speaker Change: Club store retailers.

Speaker Change: Our wholesale sales have a high mix of baby apparel baby apparel continues to be our best performing age segment and contributes over 50% of our consolidated apparel sales.

Speaker Change: Baby apparel is a less discretionary purchase and Carter's has the largest share of baby apparel in North America.

Michael D. Casey: We saw double-digit growth in our replenishment wholesale sales in the second quarter, which was better than planned. Replenishment sales reflect the sell-throughs of our high-margin essential core products, including bodysuits, washcloths, towels, bibs, blankets, and baby sleepwear. We expect replenishment sales to be a good source of growth for us in the balance of the year. However, sales in our U.S. retail segment were lower in the quarter due to traffic and conversion rates.

Michael Casey: We saw double-digit growth in our replenishment wholesale sales in the second quarter, which were better than planned. Replenishment sales reflect the cell screws of our high margin essential core products, including body suits, wash gloves, towels, bibs, blankets, and baby sleepwear. We expect replenishment sales will be a good source of growth for us in the balance of the year. Sales in our US retail segment were lower in the quarter due to traffic and conversion rates. Our comparable sales were down 12% in the quarter, a few points lower than expected. Recall that our second quarter got off to a slow start in April with the earlier Easter holiday and late arrival of a warmer weather.

Speaker Change: We saw a double digit growth in our replenishment wholesale sales in the second quarter, which were better than planned.

Speaker Change: Punishment sales reflect the sell throughs of our high margin essential core products, including body suits wash cloths towels, bibs blankets and baby Sleepwear we.

Speaker Change: We expect replenishment sales will be a good source of growth for us in the balance of the year.

Speaker Change: Sales in our U S retail segment were lower in the quarter due to traffic and conversion rates are comparable sales were down 12% in the quarter, a few points lower than expected.

Michael D. Casey: Our comparable sales were down 12% in the quarter, a few points lower than expected. Recall that our second quarter got off to a slow start in April with the earlier Easter holiday and late arrival of warmer weather. As the weather warmed up in May and June, the trend in our sales improved. July month-to-date comparable sales are down 11% due to lower traffic. Our store sales were down 8% in the quarter. E-commerce sales were down 16%. In the second quarter, we saw very little variation in comparable sales by store type or by region. The lack of variation in performance, we believe, suggests a macro slowdown in consumer spending.

Speaker Change: Recall that our second quarter got off to a slow start in April with the earlier Easter holiday and late arrival of warmer weather.

Michael Casey: As weather warmed up in May and June, the trend in our sales improved. July and month-to-date comparable sales are down 11% due to lower traffic. Our store sales were down 8% in the quarter. E-commerce sales were down 16%. In the second quarter, we saw very little variation in comparable sales by store type or by region. The lack of variation in performance we believe suggests a macro slowdown in consumer spending. What we find interesting but not surprising is the variation in our comparable US retail sales based on demographics. Over the past two years, we saw a six to seven point difference in our comparable store sales based on household incomes.

Speaker Change: As weather warmed up in May and June the trend in our sales improved July month to date comparable sales are down 11% due to lower traffic.

Speaker Change: Our store sales were down 8% in the quarter ecommerce sales were down 16% in the second quarter, we saw very little variation in comparable sales by store type or by region. The lack of variation in performance. We believe suggests a macro slowdown in consumer.

Michael D. Casey: What we find interesting but not surprising is the variation in our comparable U.S. retail sales based on demographics. For example, over the past two years, we saw a six to seven point difference in our comparable store sales based on household income. Our store is located in markets with annual household incomes over $100,000, and it competes meaningfully better than markets with household incomes of $70,000 or less. That six to seven point spread narrowed to two points in the second quarter this year.

Speaker Change: Pending.

Speaker Change: While we find interesting, but not surprising is the variation in our comparable U S. Retail sales based on demographics over the past two years, we saw a 6% to seven point difference in our comparable store sales based on household incomes.

Michael Casey: Our store is located in markets with annual household incomes over $100,000. Compt meaningfully better than markets with household incomes of $70,000 or less. That's six to seven point spread narrowed to two points in the second quarter this year. It's been reported that nearly 50% of consumers in the United States with annual incomes of $100,000 or more are now living paycheck to paycheck. It's also been reported that more of those higher-income consumers are now shopping at Walmart. We believe we are benefiting from that shift in shopping preference this year with the growth of our Child of Mine brand.

Speaker Change: Our stores located in markets with annual household incomes over $100000.

Speaker Change: Comp meaningfully better than markets with household incomes of $70000 or less.

Speaker Change: That 6% to seven point spread narrowed to two points in the second quarter. This year.

Michael D. Casey: It's been reported that nearly 50% of consumers in the United States with annual incomes of $100,000 or more are now living paycheck to paycheck. It's also been reported that more of those higher-income consumers are now shopping at Walmart. We believe we are benefiting from that shift in shopping preference this year with the growth of our Child of Mine brand. Our newer stores are doing better than older stores. Comparable sales from stores opened in the post-pandemic period were down about two percent in the first half of this year.

Speaker Change: It's been reported that nearly 50% of consumers in the United States with annual incomes of $100000 or more are now living paycheck to paycheck.

Speaker Change: It's also been reported that more of those higher income consumers are now shopping at Walmart we.

Speaker Change: We believe we are benefiting from that shift in shopping preference this year with the growth of our child of mine brand.

Michael D. Casey: Our newer stores are copying better than older stores, comparable sales from stores opened in the post-pandemic period. We're down about 2% in the first half of this year. Stores opened since 2020 are expected to contribute about $100 million in sales this year and about $20 million in either die. We plan to continue opening stores as long as the unit economics are attractive relative to other investment opportunities. Nearly 70% of children's apparel is purchased in stores, and our stores are our number one source of new customer acquisition. Most of our stores are off mall and provide convenience for families with young children.

Speaker Change: Our newer stores are comping better than older stores comparable sales from stores opened in the post pandemic period were down about 2% in the first half of this year stores opened since 2020 are expected to contribute about $100 million in sales this year and about $20 million in EBA.

Michael D. Casey: Stores opened since 2020 are expected to contribute about $100 million in sales this year and about $20 million in EBITDA. We plan to continue opening stores as long as the unit economics are attractive relative to other investment opportunities. Nearly 70% of children's apparel is purchased in stores, and our stores are our number one source of new customer acquisition. Most of our stores are off-mall and provide convenience for families with young children.

Speaker Change: The Doc.

Speaker Change: We plan to continue opening stores as long as long as the unit economics are attractive relative to other investment opportunities.

Speaker Change: Nearly 70% of children's apparel is purchased in stores and our stores are our number one source of new customer acquisition.

Speaker Change: Most of our stores are off mall and provide convenience for families with young children.

Michael D. Casey: We plan to continue closing low margin stores into cleaning centers as the lease is expired. We believe market conditions weakened in the second quarter. Consumer confidence peaked in March this year to a level not seen since July of 2021. We had our best comparable sales in March. By July, the confidence index had dropped to its lowest level in eight months. Since our last update in April, other retailers have reported a slowdown in consumer demand. In the second quarter, we saw very aggressive promotions by our competitors with thrift store level pricing on in-season key items about 50% below our pricing.

Michael D. Casey: We plan to continue closing low-margin stores and declining centers as leases expire. We believe market conditions weakened in the second quarter. Consumer confidence peaked in March this year at a level not seen since July of 2021. We had our best comparable sales in March. But by July, the confidence index had dropped to its lowest level in eight months.

Speaker Change: We plan to continue closing low low margin stores and declining centers as leases expire.

Speaker Change: We believe market conditions weakened in the second quarter consumer confidence peaked in March this year to a level not seen since July of 2021, we.

Speaker Change: We had our best comparable sales in March.

Speaker Change: But by July the confidence index had dropped to its lowest level in eight months.

Michael D. Casey: Since our last update in April, other retailers have reported a slowdown in consumer demand. In the second quarter, we saw very aggressive promotions by our competitors, with thrift store-level pricing on in-season key items about 50 percent below our prices. We did not engage in this race to the bottom on pricing; our pricing to consumers in the second quarter was comparable to last year. Had we matched those deep discounts in the quarter, we don't believe we would have seen a corresponding lift in unit volume. International sales were down 10% in the second quarter.

Speaker Change: Since our last update in April other retailers have reported a slowdown in consumer demand in.

Speaker Change: In the second quarter, we saw very aggressive promotions by our competitors with a thrift store level pricing on in the season key items about 50% below our pricing.

Michael Casey: We did not engage in this race to the bottom on pricing; our pricing to consumers in the second quarter was comparable to last year. Had we matched those deep discounts in the quarter, we don't believe we would have seen a corresponding lift in unit volume. International sales were down 10% in the second quarter. Canada is the largest contributor to our international sales and earnings. Our retail sales in Canada comp down 8% in the quarter. We believe inflation and a meaningful repricing of low-rate home mortgages is weighing on discretionary spending in Canada. In Mexico, we saw a double digit growth in our comparable retail sales, and our sales to our wholesale customers in the Middle East and Brazil were lower in the second quarter.

Speaker Change: We did not engage in this race to the bottom on pricing our pricing to consumers in the second quarter.

Speaker Change: Was comparable to last year.

Speaker Change: How do we match those deep discounts in the quarter. We don't believe we would have seen a corresponding lift in unit volume.

Speaker Change: International sales were down 10% in the second quarter, Canada is the largest contributor to our international sales and earnings.

Michael D. Casey: Canada is the largest contributor to our international sales and earnings. Our retail sales in Canada declined 8% in the quarter. We believe inflation and a meaningful repricing of low-rate home mortgages are weighing on discretionary spending in Canada.

Our retail sales in Canada, Comped down 8% in the quarter, we believe inflation and a meaningful repricing of low rate home mortgages is weighing on discretionary spending in Canada.

Michael D. Casey: In Mexico, we saw double-digit growth in our comparable retail sales, and our sales to our wholesale customers in the Middle East and Brazil were lower in the second quarter. However, our supply chain continues to be a source of strength in our business. Our on-time shipping to our wholesale customers has been excellent, and our supply chain team negotiated lower product costs for the balance of this year. The Red Sea turmoil has caused longer lead times and higher costs related to the rerouting of ships around South Africa.

Speaker Change: In Mexico, we saw double digit growth in our comparable retail sales and our sales to our wholesale customers in the middle East and Brazil were lower in the second quarter.

Michael D. Casey: Our supply chain continues to be a source of strength in our business. Our on-time shipping to our wholesale customers has been excellent. And our supply chain team negotiated lower product costs for the balance of this year. The Red Sea turmoil has caused longer lead times in higher costs related to the rerouting of ships around South Africa. We factored those higher costs into our previous forecast. Our revised forecast reflects additional provisions for peak period surcharges and higher cost routes from Southeast Asia. Inclusive of those higher provisions, were forecasting inbound freight costs down over 20% this year.

Speaker Change: Our supply chain continues to be a source of strength in our business. Our on time shipping to our wholesale customers has been excellent and our supply chain team negotiated lower product costs for the balance of this year.

Speaker Change: The Red Sea turmoil has caused longer lead times and higher costs related to the rerouting of ships around South Africa, we factored those higher costs into our previous forecast.

Michael D. Casey: We factored those higher costs into our previous forecast. Our revised forecast reflects additional provisions for peak period surcharges and higher-cost routes from Southeast Asia. Inclusive of those higher provisions, we're forecasting inbound freight costs down over 20% this year. This morning, we announced a revision to our annual forecast for sales and earnings. We believe the declining trend in consumer confidence over the past four months reflects lingering concerns about inflation. However, to date, inflation has not moderated to the extent expected. The costs of living remain elevated, and the likelihood of interest rate reductions this year is less certain.

Speaker Change: Our revised forecast reflects additional provisions for peak periods surcharges and higher cost routes from southeast Asia.

Speaker Change: Inclusive of those higher provisions were forecasting inbound freight costs down over 20% this year.

Michael D. Casey: This morning, we announced a revision to our annual forecast for sales and earnings. We believe that the declining trend and consumer confidence over the past four months reflects the lingering concerns about inflation. Today, inflation has not moderated to the extent expected. The cost of living remain elevated, and the likelihood of interest rate reductions this year is less certain. The revisions to our previous forecast are largely in our US retail segment and, to a lesser extent, our international segment.

Speaker Change: This morning, we announced a revision to our annual forecast for sales and earnings we believe that declining trend in consumer confidence over the past four months reflects the lingering concerns about inflation.

Speaker Change: To date inflation has not moderated to the extent expected the cost of living remain elevated and the likelihood of interest rate reductions. This year is less certain and.

Michael D. Casey: The revisions to our previous forecasts are largely in our U.S. retail segment and, to a lesser extent, our international segment. We are forecasting growth in our U.S. wholesale sales and earnings this year, consistent with the forecast we shared with you in April. Our U.S. wholesale segment is the most profitable component of our business. We are the largest supplier of young children's apparel to the largest retailers in North America.

The revisions to our previous forecast are largely in our U S retail segment and to a lesser extent our international segment.

Speaker Change: We are forecasting growth in our U S wholesale sales and earnings this year consistent with the forecast we shared with you in April.

Speaker Change: Our U S. Wholesale segment is the most profitable component of our business. We are the largest supplier of young children's apparel to the largest retailers in North America. We believe our brands are traffic drivers to these retailers and provide product offerings, which are complementary to their private label brands.

Michael D. Casey: We believe our brands are traffic drivers for these retailers and provide product offerings that are complementary to their private label brands. In April, we forecasted improvement in comparable U.S. retail sales with a return to growth beginning in the second half this year. We believed that improvement would be driven by the strength of our fall and holiday product offerings, lower price points on certain key items, and new marketing capabilities. We continue to believe these strategies will enable better performance, but given market headwinds, it may take more time than we envisioned in April to see the related benefits.

Speaker Change: In April we forecasted improvement in our comparable U S retail sales with a return to growth beginning in the second half. This year, we believed that improvement would be driven by the strength of our fall and holiday product offerings lower price points on certain key items and new marketing.

Speaker Change: <unk>.

Speaker Change: We continue to believe these strategies will enable better performance, but given market headwinds. It may take more time than we envisioned in April to see the related benefits.

Michael D. Casey: To improve traffic to our U.S. stores and websites, we plan to lower prices on about 20% of our product offerings in the second half. The focus of those price adjustments is on our opening price point products. In our previous forecast, we assumed retail pricing in the second half would be comparable to last year. Our revised forecast assumes a mid-single-digit price decrease.

Speaker Change: To improve traffic to our U S stores and websites, we plan to lower prices on about 20% of our product offerings in the second half the focus of those price adjustments is on our opening price point products.

Speaker Change: In our previous forecast, we assumed retail pricing in the second half would be comparable to last year. Our revised forecast assumes a mid single digit price decrease.

Michael D. Casey: The impact of that price adjustment is about $40 million on our annual operating income. In the second quarter, we increased our investments in brand marketing and saw an improvement in traffic and customer acquisition. To further support that strategy, we are providing an additional $10 million for brand marketing in the second half. In our international segment, we revised our annual earnings forecast by $10 million to reflect lower traffic in Canada and lower international wholesale sales. In summary, we achieved our first half sales and earnings objectives. Given the weaker than expected macro environment, we have revised our annual forecast.

Speaker Change: The impact of that price adjustment is about $40 million on our annual operating income.

Speaker Change: In the second quarter, we increased our investments in brand marketing and saw an improvement in traffic and customer acquisition.

Speaker Change: To further support that strategy, we are providing an additional $10 million for brand marketing in the second half.

Speaker Change: In our international segment, we revised our annual earnings forecast by $10 million to reflect lower traffic in Canada and lower international wholesale sales.

Speaker Change: In summary, we achieved our first half sales and earnings objectives, given the weaker than expected macro environment, we have revised our annual forecast.

Michael D. Casey: In the months ahead, we plan to invest in targeted price adjustments and brand marketing, which we expect will improve traffic to our stores and websites. Our consolidated sales have been under pressure since inflation ramped up to historic levels in 2022 because we believe that those we serve, families with raising young children, have been under financial pressure and have reduced their discretionary spending where possible. Carter's is working its way through a historic and challenging inflationary period.

Speaker Change: In the months ahead, we plan to invest in targeted price adjustments and brand marketing, which we expect will improve traffic to our stores and websites.

Speaker Change: Our consolidated sales have been under pressure since inflation ramped up to historic levels in 2022, because we believe that those we serve families with raising young children have been under financial pressure and have reduced their discretionary spending where possible.

Speaker Change: Carter's is working its way through our historic and challenging inflationary period, we plan to use this down cycle to help strengthen our leading market position as the best selling national brand in young children's apparel.

Michael D. Casey: We plan to use this down cycle to help strengthen our leading market position as the best-selling national brand in young children's apparel. Our growth strategies are focused on the fundamentals. We plan to elevate the style and value of our product offerings, deepen our customer relationships through new marketing capabilities, and leverage our unparalleled multi-channel market presence to extend the reach of our brand. With the strength of our high-margin business model and cash flow generation, we have the resources to invest in these growth strategies, which we believe will strengthen our ability to return to growth when market conditions improve. In our press release this morning, we provided the background of two new leaders who have joined Carter's. Allison Peterson is our new head of retail. Raghu Sagi is our new head of technology.

Speaker Change: Our growth strategies are focused on the fundamentals, we plan to elevate the style and value of our product offerings deepen our customer relationships through new marketing capabilities and leverage our unparalleled multichannel market presence to extend the reach of our brands.

Speaker Change: With the strength of our high margin business model and cash flow generation, we have the resources to invest in these growth strategies, which we believe will strengthen our ability to return to growth when market conditions improve.

Michael Casey: move.

Michael D. Casey: Both executives have been recruited because of their senior leadership experiences with winning retailers. We expect to benefit from their retail expertise and fresh perspectives on opportunities to strengthen our performance. Allison and Raghu have extensive e-commerce experience, which we believe will help strengthen that very profitable component of our business. I want to thank all of our employees for their contributions to our first half results and their commitment to help improve our performance over the balance of the year. At this time, Richard will walk us through the presentation on our website.

Michael Casey: In our press release this morning, we provided the background of two new leaders who have joined Carter's. Allison Peterson is our new Head of Retail. Raghu Sagi is our new Head of Technology. Both executives were recruited because of their senior leadership experiences with winning retailers. We expected benefit from their retail expertise and fresh perspectives on opportunities to strengthen our performance. Allison and Raghu have extensive e-commerce experience, which we believe will help strengthen that very profitable component of our business.

Speaker Change: In our press release. This morning, we provided the background of two new leaders, who have joined Carter's Allison Peterson as our new head of retail ragu soggy as our new head of technology. Both executives were recruited because of their senior leadership experiences with winning retailers.

Speaker Change: We expect to benefit from their retail expertise and fresh perspectives on opportunities to strengthen our performance Allison and <unk> have extensive ecommerce experience, which we believe will help strengthen that very profitable component of our business.

Michael Casey: I want to thank all of our employees for their contributions to our first half results in their commitment to help improve our performance in the balance of the year.

Speaker Change: I want to thank all of our employees for their contributions to our first half results and their commitment to help improve our performance in the balance of the year.

Richard F. Westenberger: At this time, Richard will talk this through the presentation on our website.

Speaker Change: At this time, Richard will walk us through the presentation on our website.

Richard Westenberger: Thank you, Mike. Good morning, everyone. On pages 3 and 4, we've included our gap basis panels for the second quarter and first half. On page 5, we have a summary of minor non-GAAP adjustments to our prior year, second quarter, and first half results. We had no adjusting items in this year's second quarter or first half. Turning to page 6, we have a summary of our performance relative to the guidance for the second quarter, which we shared on our last call in April. Our consolidated sales were in-line with our forecasted range. Sales in our U.S. health service were better than we had planned, largely as a result of higher and earlier than planned demand for seasonal product.

Richard F. Westenberger: Thank you, Mike. Good morning, everyone.

Richard F. Westenberger: On pages three and four, we've included our gap basis P&Ls for the second quarter and first half. On page five, we have a summary of minor non-GAAP adjustments to our prior year, second quarter, and first half results. We had no adjusting items in this year's second quarter or first half.

Richard: Thank you Mike Good morning, everyone on pages, three and four we have included our GAAP basis P&L for the second quarter and first half.

Richard: On page five we have a summary of minor non-GAAP adjustments to our prior year second quarter and first half results. We had no adjusting items in this years second quarter or first half.

Richard F. Westenberger: Turning to page six, we have a summary of our performance relative to the guidance for the second quarter, which we shared on our last call in April. Our consolidated net sales were in line with our forecasted range. Sales in our U.S. wholesale business were better than we had planned, largely as a result of higher and earlier than planned demand for seasonal products. The outperformance in wholesale offset lower-than-planned sales in U.S. retail and international, which I'll discuss further in a moment.

Richard: Turning to page six we have a summary of our performance relative to the guidance for the second quarter, which we shared on our last call in April.

Richard: Our consolidated net sales were in line with our forecasted range sales.

Richard: Sales in our U S wholesale business were better than we had planned largely as a result of higher and earlier than planned demand for seasonal product.

Richard Westenberger: The outperformance and wholesale offset lower than planned sales in U.S. retail and international, which I'll discuss further in a moment. Our profitability, both operating income and EPS, were above where we had guided, which was a result of good gross margin performance, lower spending, and a lower effective tax rate. On page 7 and some overall highlights of our second quarter performance, net sales were $564 million in the quarter, down 6% versus last year. We had lower sales in our U.S. retail and international segments that posted year-over-year growth in U.S. health driven by the exclusive brand portion of the business.

The outperformance in wholesale offset lower than planned sales in U S retail and international which I'll discuss further in a moment.

Richard F. Westenberger: Our profitability, both operating income and EPS, was above where we had guided, which was a result of good gross margin performance, lower spending, and a lower effective tax rate. On page 7 and some overall highlights of our second quarter performance.

Richard: Our profitability, both operating income and EPS were above where we had guided which was a result of good gross margin performance.

Richard: <unk> spending and a lower effective tax rate.

Richard: On page seven and some of our highlights of our second quarter performance.

Richard F. Westenberger: Net sales were $564 million in the quarter, down 6% versus last year. We had lower sales in our U.S. retail and international segments but posted year-over-year growth in U.S. wholesale, driven by the exclusive brands portion of the business. On these lower sales, operating income was $39 million, representing growth of 4% over last year, with a good expansion in our operating margin. And earnings per share grew 19%, driven by our growth in operating income, lower net interest expense, a lower effective tax rate, and a lower average share count versus last year.

Richard: Net sales were $564 million in the quarter down 6% versus last year we.

Richard: We had lower sales in our U S retail and international segments that posted year over year growth in U S wholesale driven by the explicit brands portion of the business.

Richard Westenberger: On these lower sales, operating income was $39 million, representing growth of 4% over last year, with good expansion in our operating margin. In earnings for share, grew to 19% driven by our growth in operating income, lower net interest expense, and a lower effective tax rate and a lower average share count versus last year. On the next page, we have our consolidated P&L for the second quarter. Our gross margin rate on the $564 million in net sales in the quarter was 50.1%, or an increase of 150 basis points. This represented record gross margin performance for the company.

Richard: On these lower sales operating income was $39 million representing.

Richard: Representing growth of 4% over last year with good expansion in our operating margin.

Richard: And earnings per share grew 19% driven by our growth in operating income lower net interest expense and a lower effective tax rate and a lower average share count versus last year.

Richard F. Westenberger: On the next page, we have our consolidated P&L for the second quarter. Our gross margin rate on the $564 million in net sales in the quarter was 50.1 percent, or an increase of 150 basis points. This represented record gross margin performance for the company.

Richard: On the next page, we have our consolidated P&L for the second quarter.

Richard: Our gross margin rate on the 500 $564 million in net sales in the quarter was 51% or an increase of 150 basis points.

Richard: This represented record gross margin performance for the company.

Richard F. Westenberger: The year-over-year expansion in gross margin was driven by several factors, including lower product input costs, lower inbound freight rates, and lower sales to the off-price channel. However, these benefits were partially offset by inventory provisions, which were higher than last year, largely because last year included a benefit from reserve reductions as we sold through excess and pack-and-hold inventory. That benefit did not repeat in this year's second quarter, and spending was $11 million lower year-over-year in the quarter. Our teams continue to do a good job pulling back on spending where possible.

Richard F. Westenberger: The year-over-year expansion in gross margin was driven by several factors, including lower product input costs, lower inbound freight rates, and lower sales to the off-price channel. These benefits were partially offset by inventory provisions, which were higher than last year, largely because last year included a benefit from reserve reductions as we sold through excess and pack and hold inventory. That benefit did not repeat in the spending; was $11 million lower year over year in the quarter. Our teams continue to do a good job pulling back on spending where possible. We had lower volume-related expenses in the quarter, primarily distribution and trade, as well as lower provisions for performance-based compensation, given our revised outlook for the year.

Richard: The year over year expansion in gross margin was driven by several factors, including lower product input costs, lower inbound freight rates and lower sales to the off price channel.

Richard: These benefits were partially offset by inventory provisions, which were higher than last year, largely because last year included a benefit from reserve reductions as we sold through excess and pack and hold inventory that benefit did not repeat in this years second quarter.

Richard: Spending was $11 million lower year over year in the quarter. Our teams continued to do a good job pulling back on spending where possible.

Richard F. Westenberger: We had lower volume-related expenses in the quarter, primarily distribution and freight, as well as lower provisions for performance-based compensation, given our revised outlook for the year. In the quarter, we had higher spending related to new stores and higher store payroll costs. As mentioned, our $39 million in adjusted operating income represented growth of 4% and 70 basis points of margin expansion over last year. Below the line, interest and other costs were about a million dollars less than last year on a net basis.

Richard: We had lower volume related expenses in the quarter, primarily distribution and freight as well as lower provisions for performance based compensation, given our revised outlook for the year.

Richard Westenberger: In the quarter, we had higher spending related to new stores and higher store payroll costs. As mentioned, our $39 million and adjusted operating income represented growth at 4%. And 70 basis points of margin expansion over last year. Below the line, interest in other costs were about a million dollars less than last year on a net basis. We earned more interest income given our strong cash position, which was offset somewhat by higher FX-related costs. Our affected tax rate was 19.6%, which was below what we had forecasted back in April, and about 400 basis points lower than last year.

Richard: In the quarter, we had higher spending related to new stores and higher store payroll costs.

As mentioned, our $39 million and adjusted operating income represented growth of 4% and 70 basis points of margin expansion over last year.

Richard: Below the line interest and other costs were about $1 million less than last year on a net basis.

Richard F. Westenberger: We earned more interest income given our strong cash position, which was offset somewhat by higher FX-related costs. Our effective tax rate was 19.6%, which was below what we had forecasted back in April and about 400 basis points lower than last year. As we have adjusted our expectations for the business for the balance of the year, we now expect U.S.-based income to represent a lower proportion of our full-year earnings relative to income to be earned outside of the United States. The second quarter's effective tax rate included an adjustment to reflect this revised full year outlook. For the full year, we're expecting an effective tax rate of about 22 percent.

Richard: We earned more interest income given our strong cash position, which was offset somewhat by higher FX related costs.

Richard: Our effective tax rate was 19, 6%, which was below what we had forecasted back in April and about 400 basis points lower than last year.

Richard Westenberger: As we have adjusted our expectations for the business for the balance of the year, we now expect U.S. based income to represent a lower proportion of our full year earnings relative to income to be earned outside of the United States. Second quarters, affected tax rate included an adjustment to reflect that's revised to full year outlook. And for the full year, we're expecting an effective tax rate of about 22%. Our average share count was about 3% lower than last year, reflecting the benefit of share purchases. So, on the bottom line, adjusted earnings per share in the second quarter were 76 cents, representing growth of 19% over last year.

Richard: As we have adjusted our expectations for the business for the balance of the year. We now expect U S. Based income to represent a lower proportion of our full year earnings relative to income to be earned outside of the United States.

Richard: Second quarter's effective tax rate included an adjustment to reflect this revised full year outlook and for the full year, we're expecting an effective tax rate of about 22%.

Richard F. Westenberger: Our average share count was about 3% lower than last year, reflecting the benefit of shareware purchases. So on the bottom line, adjusted earnings per share in the second quarter were 76 cents, representing growth of 19% over last year. On the next two pages, we've included information on our first half performance.

Richard: Our average share count was about 3% lower than last year, reflecting the benefit of share repurchases.

Richard: So on the bottom line adjusted earnings per share in the second quarter were <unk> 76, representing growth of 19% over last year.

Richard Westenberger: On the next two pages, we've included information on our first tap performance. First tap net sales decreased 5% or about 70 million dollars. With about 70% of the decrease attributable to lower traffic and sales in our U.S. Retail business. With our focus on profitability, first tap, operating income was down only slightly year every year on our lower sales. And first tap, adjusted EPS grew 11%. Turning to a summary of business segment results for the second quarter on page 12. In the second quarter, as I've said, sales were $36 million lower versus last year, and our U.S.

On the next two pages. We've included information on our first half performance first half net sales decreased 5% or about $70 million with about 70% of the decrease attributable to lower traffic and sales in our U S retail business.

Richard F. Westenberger: First half net sales decreased 5%, or about $70 million, with about 70% of the decrease attributable to lower traffic and sales in our U.S. retail business. With our focus on profitability, first half operating income was down only slightly year over year on our lower sales, and first half adjusted EPS grew 11%. Turning to a summary of business segment results for the second quarter on page 12.

Richard: With our focus on profitability first half operating income was down only slightly year over year on our lower sales and first half adjusted EPS grew 11%.

Richard: Turning to a summary of business segment results for the second quarter on page trial.

Richard F. Westenberger: In the second quarter, as I've said, sales were $36 million lower versus last year, and our U.S. retail business accounted for the majority of this decrease. U.S. retail segment profitability declined, tracking with the lower sales in the quarter. Growth in sales and profitability in our U.S. wholesale business, as well as lower corporate expenses, allowed us to grow operating income by $2 million in the second quarter. On page 13, we have some additional information on our business segment performance.

Richard: In the second quarter as I've said sales were at $36 million lower versus last year, and our U S retail business accounted for the majority of this decrease.

Richard F. Westenberger: Retail business accounted for the majority of this decrease. U.S. Retail segment profitability declined, tracking with the lower sales in the quarter. Growth in sales and profitability in our U.S. wholesale business, as well as lower corporate expenses allowed us to grow, operating income by $2 million in the second quarter. On page 13, we have some additional information on our business segment performance. In U.S. retail, we've talked extensively about the factors that are contributing to lower consumer demand. The quarter got off to a slow start. The Easter holiday occurred in March this year, pulling some volume into our first quarter.

Richard: U S retail segment profitability declined tracking with the lower sales in the quarter growth in sales and profitability in our U S wholesale business as well as lower corporate expenses allowed us to grow operating income by $2 million in the second quarter.

Richard: On page 13, we have some additional information on our business segment performance in U S. Retail we've talked extensively about the factors that are contributing to lower consumer demand.

Richard F. Westenberger: In U.S. retail, we've talked extensively about the factors that are contributing to lower consumer demand. The quarter got off to a slow start. The Easter holiday occurred in March this year, pulling some volume into our first quarter. Spring weather was also slow to arrive in much of the country, which affected demand for warmer weather outfitting.

Richard: Quarter got off to a slow start the Easter holiday occurred in March this year pulling some volume into our first quarter.

Richard F. Westenberger: Spring weather was also slow to arrive in much of the country, which affected demand for warmer weather out settings. Overall, comparable sales declined to 12% in the second quarter. Our stores performed better than the e-commerce channel, which has been the trend in our retail business for several quarters now. Retail operating margin was 6.2% in the quarter. Retail gross margin benefited from lower product and transportation costs. Our retail team has done a nice job managing costs in this lower demand environment. The behind-fix cost nature of the retail business has led to expensive leverage, given the lower level of sales.

Richard: Spring weather was also slow to arrive in much of the country, which affected demand for warmer weather out settings.

Richard F. Westenberger: Overall, comparable sales declined to 12% in the second quarter. However, our stores performed better than the e-commerce channel, which has been the trend in our retail business for several quarters now. Retail operating margin was 6.2% in the quarter. Retail gross margin benefited from lower product and transportation costs. Our retail team has done a nice job managing costs in this lower demand environment, but the high fixed cost nature of the retail business has led to expenses to leverage given the lower level of sales. U.S. Wholesale was our star in the quarter. Sales increased 3% over last year, which was better than we had planned. The Exclusive Brands portion of the business continues to be the driver within wholesale.

Richard: Overall comparable sales declined to 12% in the second quarter, our stores performed better than the ecommerce channel, which has been the trend in our retail business for several quarters now.

Richard: Retail operating margin was six 2% in the quarter retail gross margin benefited from lower product and transportation costs. Our retail team has done a nice job managing costs in this lower demand environment at the high fixed cost nature of the retail business has led to expense deleverage given the lower level of sales.

Richard Westenberger: U.S. wholesale was our star in the quarter. sales increased 3% over last year, which was better than we had planned. The exclusive brands portion of the business continues to be the driver within wholesale. The majority of the sales upside in the quarter related to earlier demand for seasonal products from our exclusive brands customers. Profitability in wholesale was up nicely in the quarter, as a result of the sales growth, lower product and transportation costs, lower sales to the off-price channel, and favorable charge back than other selling costs. In international sales for down 10%, in Canada we've seen many of the same macro pressures which are affecting demand in the U.S.

Richard: U S wholesale as our star in the quarter.

Richard: Sales increased 3% over last year, which was better than we had planned.

Exclusive brands portion of the business continues to be the driver within wholesale the majority of the sales upside in the quarter related to earlier demand for seasonal product from our exclusive brands customers.

Richard F. Westenberger: The majority of the sales upside in the quarter related to earlier demand for seasonal products from our Exclusive Brands customers. Profitability in wholesale was up nicely in the quarter as a result of the sales growth, lower product and transportation costs, lower sales to the off-price channel, and favorable chargebacks and other selling costs. In international, sales were down 10%. In Canada, we've seen many of the same macro pressures which are affecting demand in the U.S. As Mike commented, Canadian consumers are under pressure due to higher inflation and higher interest rates.

Richard: Profitability in wholesale was up nicely in the quarter as a result of the sales growth lower product and transportation costs lower sales to the off price channel and favorable charge backs and other selling costs.

Richard: And international sales were down 10% in Canada, we've seen many of the same macro pressures, which are affecting demand in the U S. As Mike commented consumers in Canada are under pressure due to higher inflation and higher interest rates.

Richard Westenberger: As my commented, consumers in Canada are under pressure due to higher inflation and higher interest rates. In our international wholesale business, sales decline due to changes in the shipment timing and lower demand in the Middle East, given the ongoing conflicts there. We continue to see good sales growth in Mexico with the benefit of both new stores and 10% growth in comparable retail sales in the second quarter. Profitability in international was down slightly in the quarter as lower product and transportation costs benefit of gross margins and helped offset the profit impact of lower sales volume and lower pricing.

Richard F. Westenberger: In our international wholesale business, sales declined due to changes in shipment timing and lower demand in the Middle East given the ongoing conflicts there. However, we continue to see good sales growth in Mexico with the benefit of both new stores and 10% growth in comparable retail sales in the second quarter. Profitability in International was down slightly in the quarter as lower product and transportation costs benefited gross margins and helped offset the profit impact of lower sales volume and lower pricing.

Mike: In our international wholesale business sales declined due to changes in shipment timing and lower demand in the middle East given the ongoing conflicts there.

Mike: We continue to see good sales growth in Mexico with the benefit of both new stores and 10% growth in comparable retail sales in the second quarter.

Mike: Profitability in international was down slightly in the quarter as lower product and transportation costs benefited gross margin and helped to offset the profit impact of lower sales volume and lower pricing.

Richard F. Westenberger: Information on our first tap doesn't segment performance is included on page 14 for your reference. Turning down to page 15 and some balance sheet and cash flow highlights, our balance sheet remains very strong. We ended the quarter with substantial liquidity, and inventory is in good shape heading into the second half. Quality of our inventory is high, with less access than a year ago in the absence of nearly $80 million of pack and hold inventory, which we held at this time last year. We generated over $90 million in operating cash flow in the first half. Last year's cash generation was higher when we were reducing inventory at a greater pace than this year, as we sold through that pack and hold inventory.

Richard F. Westenberger: Information on our first half business segment performance is included on page 14 for your reference. Turning now to page 15 and some balance sheet and cash flow highlights, our balance sheet remains very strong. We ended the quarter with substantial liquidity, and our inventory is in good shape heading into the second half. The quality of our inventory is high, with less excess than a year ago, in the absence of nearly $80 million of pack and hold inventory, which we held at this time last year.

Mike: Information on our first half business segment performance is included on page 14 for your reference.

Mike: Turning now to page 15, and sound balance sheet and cash flow highlights our balance sheet remains very strong we ended the quarter with substantial liquidity and inventory is in good shape heading into the second half.

Mike: Quality of our inventory is high with less excess than a year ago and the absence of nearly $80 million.

Mike: Pack and hold inventory, which we held at this time last year.

Richard F. Westenberger: We generated over $90 million in operating cash flow in the first half. Last year's cash generation was higher when we were reducing inventory at a greater pace than this year as we sold through that pack-and-hold inventory. Our cash flow and strong overall liquidity have enabled us to continue investing in the business with first half cap backs of $24 million, representing spending on new stores, store remodels, and technology and distribution center initiatives.

Mike: We generated over $90 million in operating cash flow in the first half last year's cash generation was higher when we were reducing inventory at a greater pace than this year as we sold through that pack and hold inventory.

Richard Westenberger: Our cash flow and strong overall liquidity have enabled us to continue investing in the business with first half cat backs of $24 million representing spending on new stores, store remodeled, and technology and distribution center initiatives. We also distributed $92 million to our shareholders in the first half of the year through dividends and share purchases.

Mike: Our cash flow and strong overall liquidity have enabled us to continue investing in the business with first half capex of $24 million, representing spending on new stores store, Remodels and technology and distribution center initiatives.

Mike: We also distributed $92 million to our shareholders in the first half of the year through dividends and share repurchases.

Richard F. Westenberger: We also distributed $92 million to our shareholders in the first half of the year through dividends and share repurchase. Now, I'll turn the call over to Kendra for an update on our progress with our product and growth strategies.

Kendra Krugman: Now I'll turn the call over to Kendra for an update on our progress with our product and growth strategies. Thank you, Richard. As Mike mentioned, we remain focused on our three transformative strategies outlined in April. These priorities are grounded and consumer insights from both our current customers and tomorrow's new parents. We believe this focus will enable us to grow our share of North America young children's apparel market and which we maintain the number one position.

Speaker Change: Now I'll turn the call over to <unk> for an update on our progress with our product and growth strategies.

Kendra D. Krugman: Thank you, Richard. As Mike mentioned, we remain focused on our three transformative strategies outlined in April. These priorities are grounded in consumer insights from both our current customers and tomorrow's new parents. We believe this focus will enable us to grow our share of the North America Young Children's Apparel Market, in which we maintain the number one position. Our first strategic priority is to deliver market-leading style and value. Our brand portfolio enables us to lead the market with specific assortments that respond to a range of trends and consumer behavior.

Speaker Change: Thank you Richard as Mike mentioned, we remain focused on our three transformative strategies outlined in April. These priorities are grounded in consumer insights from both our current customers and Tomorrow's new pairing.

Speaker Change: We believe this focus will enable us to grow our share of North America young children's apparel market in which we maintained the number one position.

Kendra Krugman: Our first strategic priority is to deliver market-leading style and value. Our brand portfolio enables us to lead the market with specific assortments that respond to a range of trends and consumer behaviors. Second, with an increased focus on marketing effectiveness and consumer experiences, we are deepening our relationship with our customers across every touch point. And last, our brand reaches unparalleled in a significant point of differentiation. Our brands are available wherever families with young children are shopping, meeting the needs of each specific shopping occasion.

Speaker Change: Our first strategic priority is to deliver market, leading style and value.

Speaker Change: Our brand portfolio enables us to lead the market with specific assortments that respond to a range of trends and consumer behaviors.

Kendra D. Krugman: Second, with an increased focus on marketing effectiveness and consumer experiences, we are deepening our relationship with our customers across every touchpoint. And last, our brands reach unparalleled levels of and a significant point of differentiation. Our brands are available wherever families with young children are shopping, meeting the needs of each specific shopping occasion.

Speaker Change: Second with an increased focus on marketing effectiveness and consumer experiences we are deepening our relationship with our customers across every touch point.

Speaker Change: And last our brand reach is unparalleled and a significant point of differentiation. Our brands are available wherever families with young children are shopping meeting the needs of each specific shopping occasion.

Kendra D. Krugman: Diving deeper into our product strategies and the progress with our style and value transformation. Page 18 features our top selling quarters newborn attention.

Kendra D. Krugman: Diving deeper into our product strategies and the progress with our style and value transformation, page 18 features our top-selling Carter's newborn essentials. This category across our Carter's brands has delivered positive comps versus last year and is an important indicator of the health of our business and underscores Carter's enduring brand relevance with new parents. Our newborn essentials assortment breadth and value are unmatched in the market, where Carter's brands have earned a 28% share in the 0-12 month apparel segment. Additionally, we are seeing strong sales in our premium-priced products that lean heavily into fashion trends and more elevated fabrics. Page 19 highlights the latest Carter's Elevated Baby Collection featuring on-trend transitional neutrals in must-have styling.

Speaker Change: Diving deeper into our product strategy and the progress with our style and value transformation page 18, featuring our top selling Carter's newborn essential.

Speaker Change: This category across our Carter's brand has delivered positive comps versus last year and is an important indicator to the health of our business and underscores Carter's enduring brand relevance with new hearing.

Speaker Change: Newborn essentials assortment breadth and value are unmatched in the market. Our Carter's brands have earned a 28% share and is nearing its 12 month apparel segment.

Speaker Change: Also we are seeing strong selling in our premium priced products that lean heavily into fashion trends and more elevated fabrics.

Speaker Change: Page 19 highlights the latest Carter's elevated baby collection, featuring entre traditional neutrals and Logcap styling.

Kendra D. Krugman: Turning to page 20, customers are positively responding to our new Oshkosh back-to-school launch. The premium fashion denim and bottoms are selling especially well. As noted on the next few pages, Little Planet and Purely Soft, our newest and most sustainable brands, continue to exceed expectations. Customers are loving the relevant styling and premium quality as much as the incredible value these brands offer. Little Planet and Purely Soft play a critical role in bringing new, more style-forward customers into our family, who tend to be younger parents, spend more than our average customer, and shop with us more frequently.

Speaker Change: Turning to page 20 customers are positively responding to our new Oshkosh back to school lines, the premium fashion denim and bottoms are selling especially well.

Speaker Change: Noted on the next few pages little planet and purely soft our newest and most sustainable brands continue to exceed expectations.

Speaker Change: Customers are loving the relevant styling and premium quality as much as the incredible value These brands offer.

Speaker Change: Little planet and purely soft play a critical role in bringing new more style forward customers into our family who tend to be younger parent.

Speaker Change: <unk> more than our average customer and shop with us more frequently.

Kendra D. Krugman: We are growing both Little Planet and Purely Soft brands in assortment breadth, depth, and through broadening our global distribution. Combined, these brands are expected to achieve over $100 million in consumer sales this year, with targets to achieve $200 million by 2027.

Speaker Change: We are growing both little planet and purely soft brands and assortment breadth depth and through broadening our global distribution.

Speaker Change: Combined these brands are expected to achieve over $100 million in consumer sales this year with target to achieve $200 million by 2027.

Kendra D. Krugman: Over the years, our innovative model has proven successful at building, launching, and rapidly scaling new breakthrough brands. We will continue to leverage our talented teams and unique capabilities to launch new adjacent brands to our portfolio in support of our long-range growth objectives. Next, sharper and more impactful value messaging continues to be a focus. We noted last quarter that we are seeing a barbell in selling trends. Consumers are shifting out of mid-tiered items and into opening price and premium price buckets. In response, we are transforming our product model, distorting the mix into a value and premium assortment. This transition started earlier this year with a meaningful shift planned for the back half.

Speaker Change: Over the years, our innovative model has proven successful at building launching in rapidly scaling new breakthrough brands, we will continue to leverage our talented teams and unique capability to launch new adjacent brands to our portfolio in support of our long range growth objectives.

Speaker Change: Next sharper and more impactful value messaging continues to be a focus.

Speaker Change: You did last quarter that we are seeing a barbell on selling training.

Speaker Change: <unk> are shifting out of mid tiered items and into opening price and premium price bucket.

Speaker Change: In response, we are transforming our product model just storing the mixed.

Speaker Change: Distorting the mix and to value and premium assortments.

Speaker Change: This transition started earlier this year with a meaningful shift plans in the back half.

Kendra D. Krugman: In April, we rolled out sharper and more impactful price messaging. Page 23 features these in-store and online presentations. To date, we've seen a positive response, and the sharper pricing allows us to better meet the needs of value-oriented customers. Finally, on product, our most loyal customers shop with us across channels and retailers and trust our consistent quality and commitment to style and value. Page 24 features our newest Carter's Just One U collection, showcasing how our exclusive brands that are sold at Target and Walmart help to reinforce our style and value commitment.

Speaker Change: In April we rolled out sharper and more impactful price messaging page 23 features these in store and online presentations to date, we've seen a positive response and the sharper pricing allows us to better meet the needs of value oriented customers.

Speaker Change: Lastly on product, our most loyal customers shop with us across channels and retailers and trust, our consistent quality and commitment to style and value.

Jeff: Page 24 features our newest Carter, Jeff on your collection showcasing how our exclusive brands that are sold at target and Walmart helped to reinforce our style and value commitment.

Kendra D. Krugman: Our next strategic focus is rooted in deepening our customer relationships through marketing. In April, we relaunched our U.S. Retail Loyalty Program. Highlights are noted on page 25. Customers have responded well to the new Carter's Rewards, with nearly 90% participation rate. We are pleased to see an increase in both frequency and average spend when customers use a reward. This is especially true with our new VIP-tier customers, who benefit from earning rewards faster and gain access to exclusive events throughout the year.

Jeff: Our next strategic focus is rooted in deepening our customer relationships through marketing effectiveness.

Jeff: In April we relaunched our U S retail loyalty program highlights are noted on page 25.

Jeff: Customers have responded well to the new Carter's reward with nearly 90% participation rate we.

Jeff: We are pleased to see an increase in both frequency and average spend from our customers use our reward.

Jeff: This is especially true with our new VIP tier customers, who benefit from earning rewards faster and gain access to their events throughout the year.

Kendra D. Krugman: This highly engaged customer has a seven times higher lifetime value and annual spend than our average customer. Page 26 highlights our continued progress with personalization. Our customers are four times more likely to engage with content that is personalized to the ages and stages of their family. In the last 12 months, we have made significant progress to develop these capabilities.

Jeff: It's highly engaged customer has is seven times higher lifetime value and annual spend than our average customer.

Speaker Change: Page 26 highlights our continued progress with personalization.

Our customers are four times more likely to engage with content that is personalized to the ages and stages of their family and.

Speaker Change: In the last 12 months, we have made significant progress to develop these capabilities.

Kendra D. Krugman: Today, customers receive personalized notifications on relevant deals and promotions, localized messaging aligned to the events and weather in their area, and size-up prompts reminding busy parents that it's time to restock favorite styles for their growing child. Coming this fall, customers will experience even more, including personalized offers, landing pages, and an in-app experience based on their preferences and behavior. As mentioned, this year we are investing an incremental $10 million in marketing. This includes the launch of our compelling new campaign featured on page 27. The modern messaging and breakthrough tone of this campaign was developed with award-winning agency Mischief.

Speaker Change: Today customers receive personalized notifications on relevant deals and promotions localized messaging aligns fee events and whether in their area and size Upfronts reminding busy parents that it's time to restock favorite styles for their growing child.

Speaker Change: Coming this fall customers will experience, even more including personalized offers landing pages and app experience based on their preferences and behaviors.

As mentioned this year, we are investing an incremental $10 million in marketing.

Speaker Change: This includes the launch of our compelling new campaign featured on page 27.

Speaker Change: The modern messaging and breakthrough tone of this campaign was developed with award winning agency mischief.

Kendra D. Krugman: It's targeted at the new generation of parents who are seeking brands that reflect their personal style without sacrificing function or comfort. This campaign will show up everywhere parents and gift givers are shopping for our brands and throughout both traditional and social marketing channels. Our final strategic priority is to leverage our brands on parallel.

Speaker Change: It's targeted at the new generation of parents, who are seeking brands that reflect our personal style without.

Speaker Change: Fighting function or comfort this.

This campaign will show up everywhere parents and gift givers are shopping for our brands and throughout both traditional and social marketing channel.

Speaker Change: Our final strategic priority is to leverage our brands unparalleled reach the.

Kendra D. Krugman: The accessibility and convenience of our brands, represented in over 20,000 locations globally, is unmatched in the market and a critical component of our growth strategy. Our distribution enables us to engage with customers who are increasingly shopping across multiple channels, turning to page 28 and speaking to our retail channel. As part of our fleet optimization strategy, we maintain our long-term plan to open stores, with 10 net new stores planned for 2024, mainly focused on mall locations and underserved smaller markets.

Speaker Change: The accessibility and convenience of our brands represented in over 20000 locations globally is unmatched in the market and a critical component of our growth strategy.

Speaker Change: Our distribution enables us to engage with customers who are increasingly shopping across multiple channels.

Speaker Change: Turning to page 28, and speaking to our retail channel.

As part of our fleet optimization strategy, we maintain our long term plan to open story with 10 net new stores planned for 2024, mainly focused on mall locations and underserved smaller market.

Kendra D. Krugman: As Mike mentioned, new stores continue to meaningfully deliver strong returns on investment and importantly act as a top source of customer acquisition. We continue to test new store models to further accelerate our store openings. Our most recent Best of Baby model includes a perfectly curated assortment of 0-5T products from our entire house of brands.

Speaker Change: As Mike mentioned, new stores continue to meaningfully deliver strong returns on investment and importantly, after the top source of customer acquisition.

Mike: We continue to test new store model to further accelerate our store opening.

Mike: Our most recent Investor Baby model includes a perfectly curated assortment of <unk> product from our entire house of brands.

Kendra D. Krugman: Since opening in March, results have been excellent, and in response, we are converting 37 additional stores this year, and we have a long-term opportunity for over 100 Vestibaby locations. Also, we are thrilled to announce our first ever flagship store set to open in the heart of Atlanta's Buckhead neighborhood this fall. It's preview on page 29.

Speaker Change: Since opening in March results have been excellent and in response, we are converting 37 additional stores. This year and we have a long term opportunity for over 100 dusted baby location.

Speaker Change: Also we are thrilled to announce our first ever flagship store set to open in the heart of Atlanta's Buckhead neighborhood. This fall it's previewed on page 29.

Kendra D. Krugman: This elevated and innovative experience is fully reimagined and includes traffic-driven community engagement. The new brand-centric look and feel of the store, including a comprehensive Little Planet shop, will be leveraged across our fleet for future remodels and new stores. Our new store models and fleet optimization strategies extend across North America. In Guadalajara, Mexico, we are opening our first-ever Little Planet stand-alone store in a premium mall location.

Speaker Change: This elevated and innovative experience, it's fully re imagined and includes traffic driving community engagement.

Speaker Change: The new brand centric look and feel of the store, including a comprehensive little planet shop will be leveraged across our fleet for future Remodels and new stores.

Speaker Change: Our new store model and fleet optimization strategies extend across North America in Guadalajara, Mexico, We are opening our first ever little planet Standalone store in a premium mall location photos are on page 30.

Kendra D. Krugman: Additionally, earlier this year in Canada, we opened five Little Planet Shops and Shops in existing stores with great success, and we are now on track to open five stand-alone Little Planet stores in premium Canadian mall locations over the next 12 months. Moving on to our U.S. Wholesale Channel, noted on page 31, our partnerships with Target, Walmart, and Amazon have been critical components of our success over the years and enabled our brands to reach millions of customers who are increasingly seeking convenience and ease.

Speaker Change: Additionally earlier this year in Canada, we opened five little planet shop in shop, and existing stores with great success.

Speaker Change: And are now on track to open five Standalone little planet stores and premium Canadian mall locations over the next 12 months.

Speaker Change: Moving on to our U S. Wholesale channel noted on page 31, our partnership with target Walmart and Amazon have been critical components of our success over the years and enabled our brands to reach millions of customers, who are increasingly seeking convenience and ease.

Kendra D. Krugman: To leverage our success with exclusive brands, we are building more tailored strategies to support the unique needs of our Carter's brand wholesale customers. Highlighted on page 32, at Kohl's, we have partnered to create a comprehensive brand experience adjacent to their upcoming Babies R Us shops in 200 stores. We have also developed tailored strategies to profitably support growth with clubs and the off-price channels. In closing, we are excited about the opportunities ahead and grateful for the talented and dedicated teams who will drive our success. Now turning it back to Richard to walk through our second half guidance.

Speaker Change: To leverage our success with exclusive brands, we are building more tailored strategies to support the unique needs of our Carter's brand wholesale customers too.

Speaker Change: Highlighted on page 32 at Kohl's, we have partnered to create a comprehensive brand experience adjacent to their upcoming babies R us shops and 200 doors.

We have also developed tailored strategies to profitably support growth with clubs and the off price channel.

Speaker Change: In closing we are excited about the opportunities ahead and grateful for the talented and dedicated team. If you will drive our success now turning it back to Richard to walk through our second half guidance.

Richard F. Westenberger: Thank you, Kendra. In discussing the revisions to our outlook for the balance of the year, I think it's helpful to provide some context. Beginning on page 34, we've included some well-reported data on the health and sentiment of the consumer. From our perspective, we believe the macro, backdrop, and state of the consumer have declined since we held our last call in late April. This is the University of Michigan Consumer Confidence Metric, which is published monthly. Since the time of our call in late April, consumer confidence has declined each month. The recent preliminary data point from July is the lowest since November 2023.

Richard: Kendra and discussing the revisions to our outlook for the balance of the year I think it is helpful to provide some context beginning on page 34. We've included some well reported data on the health and sentiment of the consumer.

Richard: From our perspective, we believe the macro backdrop and state of the consumer have declined since we held our last call in late April.

Richard: Shown here is the University of Michigan consumer confidence metric, which is published monthly since the time of our call in late April consumer confidence has declined each month.

Richard: The recent preliminary data point from July is the lowest since November of 2023.

Richard F. Westenberger: We've historically seen a strong correlation between consumer confidence and demand in our business. Our strongest retail performance in the recent past, in March of this year and also last December, corresponded to the meaningful uptick in consumer confidence which occurred in those months. On page 35, while inflation may have moderated somewhat, its effects continue to be seen across a range of spending categories, which are very important to families caring for young children.

Richard: We've historically seen a strong correlation between consumer confidence and demand in our business our strongest retail performance in the recent past in March of this year and also last December corresponded to the meaningful uptick in consumer confidence which occurred in those months.

Richard: On page 35, while inflation may have moderated somewhat its effects continue to be seen across a range of spending categories, which are very important to families carrying with young children.

Richard F. Westenberger: As Mike commented, we've revised our outlook for the second half in light of the changes in market conditions since our last call. And on page 36, we've summarized the key changes in our second half outlook. The most significant revisions relate to our U.S. retail and international businesses. In U.S. retail, we're taking steps to strengthen our value proposition by making adjustments to our pricing and promotional strategies. While we will get sharper on prices on a portion of our retail assortments, we won't participate in the extreme discounting we are seeing in the marketplace. There are a number of examples of those in our industry who have pursued an overly aggressive approach to pricing. This has not been a winning strategy for these companies or their shareholders.

Richard: As Mike commented, we have revised our outlook for the second half in light of the changes in market conditions since our last call and on page 36, we have summarized the key changes in our second half outlook.

The most significant revisions relate to our U S retail and international businesses in U S. Retail, we're taking steps to strengthen our value proposition by making adjustments to our pricing and promotional strategies.

Richard: While we will get sharper on prices on a portion of our retail assortments, we won't participate in the extreme discounting we are seeing in the marketplace. There are a number of examples of those in our industry have pursued in a really aggressive approach on pricing. This has not been a winning strategy for these companies or their shareholders.

Richard F. Westenberger: Also, as Mike and Kendra indicated, we've increased our investment in brand marketing. We've also already begun to see some progress in attracting new customers as a result of this increased spend. This brand marketing investment is intended to provide a strong benefit over time in driving stronger top-line sales across our business. For our U.S. retail business, our second half guidance assumes a decline in comparable sales between 9 and 12 percent. Our first half retail comps declined 9%, which is similar to our current year-to-date trend of down 10%.

Speaker Change: Also as Mike and Kendra indicated we've increased our investment in brand marketing. We've also already begun to see some progress in attracting new customers as a result of this increased spend.

Speaker Change: This brand marketing investment is intended to provide a strong benefit overtime and driving stronger topline sales across our business.

Speaker Change: And our U S retail business, our second half guidance assumes a decline in comparable sales between 9% and 12%.

Speaker Change: Our first half retail comps declined 9%, which is similar to our current year to date trend of down 10%. So our outlook reflects the possible continuation of the trends we have seen with the possibility of some further some further deterioration.

Richard F. Westenberger: So our outlook reflects the possible continuation of the trends we've seen, with the possibility of some further deterioration. With the actions we're taking, we're endeavoring to do better than this. The outlook for our U.S. wholesale business remains strong.

Speaker Change: With the actions, we're taking we're endeavoring to do better than us.

Speaker Change: The outlook for our U S wholesale business remains strong we're expecting good growth in the second half we've adjusted our second half outlook, mostly due to changes in the expected timing of shipments.

Richard F. Westenberger: We're expecting good growth in the second half. We've adjusted our second half outlook mostly due to changes in the expected timing of shipments. In international, our outlook reflects pressures on consumer demand principally in Canada and some changes in the timing of shipments to our international wholesale partners. We intend to manage spending tightly, as we always have, but importantly, we will continue to invest in the initiatives which we believe will drive our business longer term, including marketing, stores, both new stores and remodels, to improve the productivity of our existing fleet and in technology.

Speaker Change: In international our outlook reflects pressures on consumer demand principally in Canada, and some changes in the timing of shipments to our international wholesale partners.

Speaker Change: We intend to manage spending tightly as we always have but importantly, we will continue to invest in the initiatives, which we believe will drive our business longer term, including marketing and stores, both new stores and remodels to improve the productivity of our existing fleet and in technology.

Richard F. Westenberger: Of the roughly $100 million revision to projected second half operating income, about $50 million relates to the incremental investments in pricing and marketing, which we've discussed. The balance of the reduction relates to lower sales volume offset by some lower expected SG&A. There are a number of risks which we're monitoring as we approach our second half plans. The macro environment, consumer confidence, and inflation top the list. We're also watching the level of promotional activity across the industry, which has intensified of late, as we've mentioned. In the past, presidential elections have been disruptive to demand in our business. Given the events of the past two weeks, this year's election may hold the same potential.

Speaker Change: Of the roughly 100 $100 million revision to projected second half operating income.

Speaker Change: $50 million relates to the incremental investments in pricing and marketing, which we've discussed the balance of the reduction relates to lower sales volume offset by some lower expected SG&A.

Speaker Change: There are a number of risks, which we're monitoring as we approach our second half plans.

Speaker Change: <unk> environment consumer confidence and inflation topped the list.

Speaker Change: We're also watching the level of promotional activity across the industry, which has intensified of late as we've mentioned.

Speaker Change: In the past presidential elections have been disruptive to demand in our business given the events of the past two weeks. This year's election may hold the same potential.

Richard F. Westenberger: On page 37, our revised expectations for the full year are summarized here. Full-year net sales are now expected in the range of $2,785,000,000 to $2,825,000,000, with lower sales forecasted in U.S. retail and international, and growth expected in U.S. wholesale. As we demonstrated in the first half, we will work to curtail non-growth discretionary spending where possible.

Speaker Change: On page 37 of our revised expectations for the full year are summarized here.

Speaker Change: Full year net sales are now expected in the range of $2.785 billion to $2 $825 million with lower sales forecasted in U S retail and international and growth expected in U S wholesale.

Speaker Change: As we demonstrated in the first half we will work to curtail non growth discretionary spending where possible.

Richard F. Westenberger: On profitability, we're expecting adjusted operating income in the range of $240 to $260 million and adjusted EPS between $4.60 and $5.05. We expect to generate over $200 million of operating cash flow for the full year. Our estimate of cash flow has come down a bit given the revision to the second half forecast, but we are still expecting substantial cash generation this year. We've trimmed our forecast of CapEx a bit and currently expect to invest about $75 million this year.

Speaker Change: On profitability, we are expecting adjusted operating income in the range of $240 million to $268 million and adjusted EPS between $4 60 and $5 <unk>.

Speaker Change: We're expecting to generate over $200 million of operating cash flow for the full year.

Speaker Change: Our estimate of cash flow has come down a bit given the revision to the second half forecast, but we're still expecting substantial cash generation this year.

Speaker Change: We've trimmed our forecast of Capex, a bit and currently expect to invest about $75 million this year.

Richard F. Westenberger: Terms of our expectations for the third quarter are on page 38. We're planning net sales in the range of $735 to $755 million. In U.S. retail, we're planning total sales down in the high single digits to down low double digits, and U.S. Wholesale was planning sales comparable to down in the low single digits last year, and international sales down in the mid to high single digits. On profitability, we're assuming adjusted operating income in the range of $60 to $70 million and adjusted EPS in the range of $1.10 to $1.35.

Speaker Change: In terms of our expectations for the third quarter on page 38.

We're planning net sales in the range of $735 million to $755 million in U S. Retail, we're planning total sales down in the high single digits to down low double digits.

Speaker Change: In U S wholesale were planning sales comparable to down in the low single digits to last year.

Speaker Change: And in international sales down in the mid to high single digits on profitability, we're assuming adjusted operating income in the range of $60 million to $70 million.

Speaker Change: And adjusted EPS in the range of $1 10 to $1 35, with these comments, we're ready to take your questions.

Operator: With those comments, we're ready to take your questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time...

Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star one again. We'll pause for a moment while we compile our Q&A list. Our first question comes from Jay Sole with UBS. Your line is open.

Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered you were seeing with yourself from the queue. Please press star wouldn't want again, we will pause for a moment, while we compile the Q&A roster.

Speaker Change: Our first question comes from Jay sole with UBS. Your line is open.

Jay Daniel Sole: Great. Thank you so much Mike I'm, just wondering if you could give us a little bit more detail on the price decreases youre planning to make are they.

Jay Daniel Sole: What do you plan on doing at wholesale versus retail and I think Richard said it was going to be on part of the assortment.

Speaker Change: Retail can you just tell us why some products and not others and then Richard.

Speaker Change: If you can give us some help on gross margin in Q3 like how much lower you expect it to be year over year that would be great. Thank you.

Michael D. Casey: It will be great. Thank you. We clearly got beat on some of the holidays. Memorial Day, and the 4th of July, we saw the market get very aggressive on pricing. Things that we would typically sell, like a T-shirt for five bucks, we saw some of our competitors selling them for $2.50. Those are thrift store prices. It's unusual to see that kind of pricing. I think it just reflects a price that those retailers felt as though they needed to have to drive traffic to the store. So traffic continues to be an issue.

So our pricing pricing had been comparable year over year in the quarter that we.

Speaker Change: We clearly got beat on some of the holidays Memorial day fourth of July we saw the market get very aggressive on pricing things that we would typically sell like a T shirt for buybacks.

Speaker Change: Some of our competitors are selling it for $2 50 of those are thrift store level pricing, it's unusual to see that kind of pricing.

Speaker Change: I think it just reflects that our pricing that those retailers helped us though they needed to have to drive traffic to the stores. So traffic continues to be the issue the negative comps were having our own by and large driven by traffic.

Michael D. Casey: The negative comps we're having are, by and large, driven by traffic. We sold fewer units direct to the consumer in the first half, but we sold significantly more units through our exclusive brand. So it's a function of where people are shopping.

Speaker Change: We saw sold fewer units direct to the consumer in the first half, but we.

Speaker Change: We sold significantly more units through our exclusive brands. So it is a function of where.

Michael D. Casey: But when we saw the pricing in the second quarter, where it got kind of down and dirty, we decided in the second half to be more aggressive. So that $40 million, if I had to break down the $40 million adjustment to our second half profitability, probably half of it relates to just getting sharper on price points on some of the opening price point product offerings we have where we saw the market move lower. And if something was $5, it might be $4.

Speaker Change: People are shopping but.

Speaker Change: When we saw the pricing in the second quarter, where it got kind of a down and dirty we decided in the second half to be more aggressive. So that's $40 million, if I had to break down the $40 million adjustment to our second half profitability probably half of it.

Speaker Change: Related to just getting sharper on price points on some of the opening price point.

Speaker Change: Product offerings, we have that where I thought we saw the market move lower.

Michael D. Casey: We're talking about $1 or $2 at most just to get a little sharper on price points. So half of the $40 million is just getting sharper on price points to see if it takes us to a better place and improves the trend in our performance relative to the guidance we're giving this morning. The other half of the $40 million is just to make sure we don't get backed up with inventory. So that's the focus. We have the capacity to make the investment. We're a high-margin business. We have the resources to make the investments.

Speaker Change: If something was $5 it might be $4, we're talking about a dollar or two at most just to get a little sharper on price points. So half of the $40 million is just getting sharper on price points. If it takes us to a better place and improves the trend in our performance relative to the guidance. We're giving this morning. The other half of the $40 million is just make sure we don't get backed up with inventory.

Speaker Change: So that's the that's the focus we have the capacity to make the investment we're a high margin business. We have the resources to make the investments we will still have a good margin for the year high single digit operating margin for the year below our standards of double digit margins, but we feel as though we need to make these investments both in price and in brand market.

Michael D. Casey: We'll still have a good margin for the year, a high single-digit operating margin for the year. It's below our standards of double-digit margins, but we feel as though we need to make these investments both in price and in brand marketing. We felt as though we were under-invested in brand marketing to drive traffic. So when we tested some of the incremental investments in brand marketing in the second quarter, it started to have an impact.

Speaker Change: We felt as though we were underinvested in brand marketing to drive traffic. So when we tested some of the incremental investments in brand marketing in the second quarter It started to.

Speaker Change: Have an impact we started to see a change in the trend in both cost of customer acquisition and some of the traffic, we're going to see whether or not we can spend.

Michael D. Casey: We started to see a change in the trend in both customer acquisition and some of the traffic. We're going to see whether or not we can spend an additional $10 million than we previously had planned to spend on brand marketing to see whether or not it distorts the performance. Wholesale pricing, I would say, in the first half was lower simply because the product costs were lower. When our supply chain team negotiated lower product costs, we decided, as we always have, some of it would get sharp run prices for our wholesale customers so they get the margin benefit.

Speaker Change: Spend an additional $10 million that we previously had planned to spend on brand marketing to see whether or not it distorts the performance in the second half.

Speaker Change: <unk> pricing wholesale pricing.

Speaker Change: I would say in the first half was lower simply because the product costs were lower when we when our supply chain team negotiated lower product costs, we decided as we always have some of it will get sharper on prices for our wholesale customers. So they get the margin benefit some of it we put into product better product benefits and some of it flow through and so I think our model.

Michael D. Casey: Some of it we put into better product benefits, and some of it we let flow through. And so I think our models in the second half, our product costs for wholesale will be lower, and I think our pricing on wholesale will be comparable to slightly lower. So it's just a function of, you know, reinvesting some of that good product cost reduction into better prices.

Speaker Change: <unk> in the second half or.

Speaker Change: Product cost for wholesale will be lower.

Speaker Change: Our pricing on wholesale will be comparable to slightly lower.

Speaker Change: So it's just a function of.

Speaker Change: Reinvesting some of that.

Speaker Change: Product cost reduction into better pricing.

Richard F. Westenberger: And on third-quarter gross margin, Jay, we're expecting a year-over-year decline of about 50 to 70 basis points, I would say. The good guys would be where, despite the price decreases, we're planning margin expansion in retail and in wholesale, largely driven by lower product costs and lower off-price activity in the third quarter.

Speaker Change: And on the third quarter, our gross margin J, we're expecting year over year decline of about that 50 to 70 basis points I would say.

Speaker Change: The good guys would be where despite the price decreases we're planning margin expansion in retail and in wholesale.

Largely driven by lower product costs lower off price activity in the third quarter.

Richard F. Westenberger: The factors that start to work against us a bit throughout the second half are higher transportation costs. So, as Mike mentioned, we are seeing some higher surcharges and such related to the kind of peak capacity coming earlier this year. Some importers are trying to get ahead of some tariffs that are going into effect this fall. Those tariffs don't affect us, but others are kind of getting in early to try and get their products here in the United States.

Speaker Change: The factors that start to work against us a bit throughout the second half are higher transportation costs. So as Mike mentioned, we are seeing some higher surcharges and such related to.

Mike: Kind of peak capacity coming earlier this year. Some importers are trying to get ahead of some tariffs that are going into effect. This fall.

Speaker Change: Tariffs don't affect us, but others are kind of getting in early to try and get their products here to the United States of freight which has been a good guy starts to reverse a bit to come a bit of a headwind. We also throughout the second half of last year, we're releasing reserves as we made progress reducing inventory. That's that's not a benefit this year, but on balance forecasting between 50 and 70 basis.

Richard F. Westenberger: So freight, which has been a good guy, starts to reverse a bit, become a bit of a headwind. We also, throughout the second half of last year, were releasing reserves as we made progress, reducing inventory. That's not a benefit this year. But on balance, forecasting between 50 and 70 basis points in the third quarter down.

Points in the third quarter down year over year.

Speaker Change: Okay. That's super helpful. Thank you so much sir.

Speaker Change: One moment for our next question.

Operator: One moment for our next question. Our next question comes from Warren Cheng with Evercore ISI. Your line is open.

Speaker Change: Our next question comes from Warren Cheng with Evercore ISI. Your line is open.

Operator: Hey, good morning. I wanted to dive in a little bit on the difference you're seeing between retail and wholesale. So it seems like the trend really slowed down in retail. You lowered your second half comp outlook, it looks like by over 10 points.

Warren Cheng: Hey, good morning, I wanted to dive in.

Warren Cheng: A little bit on the difference you're seeing between retail and wholesale so it seems like the trends really slowdown in retail you lowered your second half comp outlook. It looks like by over 10 points, you really haven't seen that slow down in wholesale is this.

Michael D. Casey: You really haven't seen that slowdown in wholesale. Is this a replenishment or discretionary dynamic we're seeing? I'm just trying to think about true demand for the category here. Any insights on the channel difference? Yeah. Again, Warren.

Speaker Change: Replenishment versus discretionary dynamic we're seeing I'm, just trying to think about true demand and category here.

Doug: Any insights on that the channel difference again warm Doug I would share with you in the in the <unk>.

Michael D. Casey: Again, Warren, I would share with you that in the first half, we sold 3 million fewer units direct-to-consumer in the United States. Unit volume was down 6%. But in our exclusive brand, unit volume went up 7 million.

Speaker Change: First half, we sold 3 million fewer units direct to consumer in the United States unit volume was down 6%.

Speaker Change: But in our exclusive brand of unit volume was up 7 million units.

Michael D. Casey: You know, more than double the decline in units we saw direct to consumer. It's a function of where people are shopping. So the weakness in our retail business we saw in the first half was largely traffic. We're reflecting in our revised forecast for the year the risk that those traffic trends may continue into the second half. To help improve the traffic trends, we're investing $40 million in price and $10 million in brand marketing.

Speaker Change: Yes, more than more than double the decline in units, we saw a direct to consumer it's a function of where people are shopping so the weakness in our retail business. We saw in the first half was largely traffic.

Speaker Change: We're reflecting in our revised forecast for the year the risk that those traffic trends may continue into the second half to help.

Speaker Change: Improve the traffic trends.

Speaker Change: We're investing $40 million in price $10 million in brand marketing. So I would say the market data I think the data I saw that the market is probably down some portion of 2% and I think it's a function of we're seeing a channel shift given where people are shopping in these days there where the mass channel retailers are doing well in the off price.

Michael D. Casey: So I would say the market data, I think the data I saw, that the market is probably down some portion of 2 percent, and I think it's a function of where people are shopping these days. The mass channel retailers are doing well. The off-price retailers are doing well. Specialty retail, at least our specialty retail business, is under some pressure.

Speaker Change: Retailers are doing well, especially retail.

Speaker Change: At least our specialty retail business is under under some pressure.

Operator: Thanks, Mike. And then another channel question here. Can you step back and give a little diagnostic on why e-comm continues to lag the stores pretty persistently here?

Speaker Change: Thanks, Mike and then another channel question here can you step back and give a little diagnostic and light E. Comm continues to lag the stores pretty persistently here is.

Michael D. Casey: It was really exciting to hear about the addition of Allison and Raghu to the team. Can you just give us a little more on their experience and what they'll be focused on as they come on board? Sure.

Speaker Change: It was really exciting to hear about the addition of Alex.

Speaker Change: The team can you just give us a little more on their experience and what that will be focused on as we come up short.

Michael D. Casey: So, again, it's been a consistent experience, this kind of mid-teen decline in e-commerce demand. And e-commerce, for many years, was our fastest-growing, highest-margin business, and it still is a very high-margin, very profitable component of our business. We've been tracking it. Citi comes out with a weekly spend analysis, 40 different spending categories, dog food, cosmetics, all different things people spend money on. But there's a line item, online pure play apparel purchases, all ages, including kids. That consistently, you know, the broader scope of apparel purchases online has been down in the mid-teens. So we've been tracking that for the past year and a half.

It's been a consistent experience this kind of mid teen decline in e-commerce demand in E. Commerce for many years was our fastest growing highest margin business still is very high margin very profitable component of our our business. We we've been tracking city comes out with a weekly.

Speaker Change: Spend analysis 40 different spending categories.

Speaker Change: Dog food cosmetics, all different things people spend money, but there is a line item online pure play apparel purchases all ages, including kids that has consistently.

Speaker Change: Broader broader scope of apparel purchases online has been down mid teens, so we've been tracking to that.

Speaker Change: For the past year, and a half and I think it's a function of the consumer pulling back in years past. If you got a text you got an e-mail you're inclined to open end and say Oh, Mike There is a sale because I wasn't even thinking of buying something but with that text or email.

Michael D. Casey: And I think it's a function of the consumer pulling back. In years past, if you got a text or an email, you were inclined to open it and say, "Oh, my, there's a sale. Geez, I wasn't even thinking of buying anything."

Michael D. Casey: But with that text or email, I'm going to do some shopping. And I think the consumer is just less responsive to some of that unsolicited marketing stimulus. And our e-commerce business for years still is, it's kind of a stock-up, you know, kind of experience. So you don't go in, it's not like Amazon; you go to buy one thing, and it gets shipped to you. In ours, you buy in six or seven units every time you're shopping online. So that's, you know, it's been a part of a $70 transaction. We just see fewer people, you know, making that type of transaction with us. Again, it's a traffic issue.

Speaker Change: Going to do some shopping and I think the consumers just less responsive to some of that unsolicited market marketing stimulus and RV.

Speaker Change: Our ecommerce business for four years still is is kind of a stock up.

Speaker Change: Kind of experience. So you don't sound like Amazon to go to buy one thing and it gets shipped to <unk> as you buy in six or seven units every time, you're shopping online. So thats its better part of a $70 transaction, we just see fewer people.

Speaker Change: Yes.

Speaker Change: Taking that.

Michael D. Casey: By comparison to stores, stores provide immediacy. And just the nature of, you know, behavior during this, consumer behavior during this inflationary cycle, you're shopping closer to need, buying what's needed, and really only when it's needed. And so stores provide immediacy. You can go to one of our beautiful stores and pick up what you need.

Speaker Change: Transaction with its again its a traffic issue by comparison in the stores the stores provide immediacy and that's just the nature of it.

Speaker Change: Behavior. During this consumer behavior. During this inflationary cycle youre shopping closer to need buying what's needed and really only when it's needed.

Speaker Change: Stores provide immediacy you can go to one of our beautiful stores and pick up what you need the average units per transaction in our stores is about four units per transaction.

Michael D. Casey: The average units per transaction in our stores is about four units per transaction. That has stayed consistent. But even there, the traffic has been lower, just fewer people, we're seeing fewer visits. But those who visit, the conversion rate, the average transaction, the AUR is about the same. At least that was our experience in the first half.

Speaker Change: That has stayed consistent but even even there the traffic has been lower to spirit, we're seeing fewer visits.

Speaker Change: Those who visit.

Speaker Change: Conversion rate the average transaction.

Speaker Change: <unk> is about the same at least that was our experience in the first half.

Speaker Change: Thanks, Mike Good luck. Thanks, Lorne one member for next question.

Operator: Thanks Warren. One moment for our next question. Our next question comes from Ike Boruchow with Wells Fargo. Your line is open.

Our next question comes from Ike <unk> with Wells Fargo. Your line is open.

Operator: Hey, good morning, everyone. Um, question on the gross margin. On the gross margin guide, maybe I'm taking the guide for the year to be literally for comparable. But Richard, if you're saying gross margins are down 50 to 75 in Q3, does that imply that they're down substantially more in Q4? Because to get the flattest gross margin, you basically need the back out to be down, like closer to 200 basis points. So again, am I overthinking this? Is it still up a little bit? I mean, just kind of walk us through the actual gross margin plan. Now you're you're

Ike: Hey, good morning, everyone.

Ike: Question on the gross.

Ike: Hey, Mike.

Speaker Change: On the gross margin guide, maybe I'm taking the.

Ike: Guidance for the year to literally.

Ike: Apparel.

Ike: Richard if you're saying gross margins are down 50 to 75 in Q3 does that imply that theyre down substantially more in Q4, because you get to flattish gross margins and EBITDA to be down closer to 200 basis points. So again am I overthinking, the comparable as it will be up a little bit I mean, just kind of walk us through the actual gross margin plan.

Richard F. Westenberger: Now, you're spot on. Forecasts have us gross margin declining 200-some basis points in the fourth quarter, so it will be more dramatic than the third quarter. I would say the factors that I mentioned for Q3 continue to apply in terms of product costs being a good guy through the fourth quarter. What works against us through the fourth quarter are those inbound transportation costs which start to be higher year over year. We do have higher inventory costs, which again is the comparison to inventory releases a year ago, which we're not expecting to repeat. In the fourth quarter specifically, I would say mix works against us reasonably dramatically.

Speaker Change: Now youre spot on.

Speaker Change: Okay.

Speaker Change: Gross margin declining 210 basis points in the fourth quarter. Some are more dramatic than the third quarter I would say that the factors that I mentioned for Q3 continued to apply in terms of product costs are good guide through the fourth quarter.

Speaker Change: What works against us through the fourth quarter are those inbound transportation costs start to be higher year over year.

Speaker Change: We do have higher inventory costs, which again is that comparison to inventory releases, a year ago, which were not expecting to.

Speaker Change: Repeat in the fourth quarter, specifically I would say mix works against US recently dramatically. So about half of that decrease in gross margin I would say is mix related so we're planning very.

Richard F. Westenberger: So about half of that decrease in gross margin, I would say, is mix-related. So we're planning very good growth in the wholesale channel. That's been consistent.

Speaker Change: Good growth in the wholesale channel that's been consistent the wholesale.

Richard F. Westenberger: The wholesale outlook, I would say, is the least affected by our revisions to our outlook. So we had always planned for very strong growth in fourth-quarter wholesale, and a good response to our fall-winter bookings. And we do have a bit more off-price channel activity planned for the fourth quarter, which is not great on the gross margin line as well. That just reflects some of those excess units in retail now that we will anticipate clearing in the fourth quarter. Those are kind of the puts and takes, but it is a more severe year-over-year decline in gross margin planned for the fourth quarter versus Q3.

Speaker Change: Look I would say is the least affected by our revisions to our outlook. So we had always planned for very strong growth in fourth quarter wholesale good response to our fall winter bookings and we do have a bit more of off price channel activity planned in fourth quarter, which is not great on the gross margin line as well that just reflects some of those excess units and retail now that we will.

Speaker Change: Anticipate clearing in the fourth quarter those are kind of the puts and takes but it is a more.

Speaker Change: Severe year over decline in gross margin planned in fourth quarter versus Q3.

Richard F. Westenberger: The 40 million, if I'm just doing the quick math, that's roughly like 250 basis points of a headwind to you guys in the back half. Is that pricing more like declined, more weighted to the fourth quarter, or is it kind of like going into place right now, and you're just kind of offsetting it with more good guys in the third quarter than you have in the fourth quarter?

Speaker Change: The $40 million of Im just doing the quick math, it's roughly like 250 basis points of a headwind.

Speaker Change: In the back half is that is that pricing more to close more weighted to the fourth quarter or is it kind of like going into place right now youre, just kind of offsetting it with more good guys in the third quarter.

Richard F. Westenberger: I would say the plan is we will likely be more promotional over the holidays. The next big holiday is Labor Day, and then certainly we'll be more promotional over the year-end holidays.

Speaker Change: I would say the plan is we will likely be more promotional over the holidays next big holiday is labor day, and then we'll certainly we'd be more promotional over the year end holidays.

Michael D. Casey: Got it. And then Mike, maybe just, it's probably too early, but any initial thoughts on AUCs or product costs, you know, into early next year, just kind of looking at freight, you know; freight's very topical right now. Obviously, you guys don't need to go shoot for a while, but how are we thinking about overall product costs early next year, based on whatever visibility you guys have now? We have two data points.

Speaker Change: Got it and then Mike maybe just.

Mike: Probably too early but any initial thoughts on.

Mike: AUC user product cost into early next year, just kind of looking at the fleet.

Mike: So it's very topical right now.

Speaker Change: Obviously, you guys don't renegotiate for a while but how are we thinking about overall product costs. Early next year based on whatever visibility you guys have now that just two data points. So we negotiated.

Michael D. Casey: And just two data points. So we negotiated inbound freight costs through, say, the second quarter of next year. And those rate increases, from memory, were somewhere around 2 percent. So we were pleased with the outcome of those rate negotiations. I had a good update from one of the cotton experts here in Atlanta the last couple weeks or so. And, you know, the crops are good. If you look at the cotton futures, the cotton futures are trending lower than the current prices.

Speaker Change: Freight costs through.

Speaker Change: So the second quarter of next year and those rate increases for memory, we're somewhere around 2%. So we're pleased with the outcome of those rate negotiations had a good update from one of the cotton experts here in Atlanta last couple of weeks or so and the crops are good.

If you look at the cotton futures.

Speaker Change: Our cotton futures are trading lower than the current prices so the outlook on the.

Michael D. Casey: So the outlook on one of the key input costs for us is currently favorable. So it's early. And in October, we'll have more visibility to a better part of the first half of 2025 product costs. So the freight we have visibility to, and, you know, cotton. Most of what we do for a living is cotton-based, and the outlook on cotton futures is currently good.

Speaker Change: One of the key input cost for us.

Speaker Change: Outlook is currently favorable so it's early.

Speaker Change: Tober, we'll have more visibility too.

Speaker Change: The.

Speaker Change: Better part of the first half of 2025 product costs, so, but the freight freight we have visibility to.

Speaker Change: Cotton most of what we do for living is cotton based and the outlook on cotton cotton futures and preferably is good.

Speaker Change: Best of luck guys.

Speaker Change: Thank you one moment for our next question.

Operator: One moment for our next question. Our next question comes from Tom Nikic with Wedbush. Your line is open.

Tom Nikic: Our next question comes from Tom <unk> with Wedbush. Your line is open.

Operator: Hi, good morning, guys. Thanks for taking my question. I want to ask about the comments that, you know, stores open since 2020 are, you know, a little bit more resilient than the older stores. What is it about those doors that's different? I mean, is it just that they're newer, so they're going through the maturity curve in real estate, like just, I guess, what would you attribute, you know, the relative outperformance of the newer cohort of stores? Yeah, so Tom, the whole thing.

Tom: Hi, Good morning, guys. Thanks for taking my question.

Tom Nikic: I wanted to ask about the comment to that stores opened in 2020.

Speaker Change: Yes.

Speaker Change: A little bit more resilient than the older stores.

Speaker Change: What is it about those doors that that's.

Speaker Change: Different I mean.

Is it just that they are newer so they're going through the maturity curve.

Speaker Change: Better real estate like just I guess.

Speaker Change: What would you attribute.

Speaker Change: The relative outperformance of the newer cohort of stores.

Michael D. Casey: Tom, the whole focus of the real estate strategy is to open better centers, better co-tenancy, and better traffic patterns. In many cases, it's a new center; anything new draws people to that center.

Speaker Change: The wholesale because the real estate strategy is to open in.

Speaker Change: Better better centers better co tenancy better better traffic patterns. Many cases, it's a new center or anything new draws people to to that center. So our focus is as long as we continue to find good real estate opportunities, where the unit economics are attractive we will continue to open stores. We believe in stores, we like stores stores are our number one source.

Michael D. Casey: So our focus is, as long as we continue to find good real estate opportunities where the unit economics are attractive, we will continue to open stores. We believe in stores. We like stores. Stores are our number one source of new customer acquisition and the very best expression of the brand. And I believe our stores inspire our wholesale customers. We take our wholesale customers into our stores, where they see the full expression of the brand.

Michael D. Casey: And on the flip side, we will continue to close stores. Rarely do we close a store early because 97 percent of our stores are cash flow positive. So rarely do we close a store before the lease expires, and rarely do we take advantage of the kick-out clauses in the event that we signed up for a store that is not going to perform the way we expected. Rarely do we leave early. So even this year, we came into this year initially assuming we'd open up 40 stores and close 10, but we're going to close 30 stores this year because as the leases come up, we look at the opportunities to stay, and what kind of investment would have to be made to freshen them up after a 10-year period. So we will continue to open stores and close stores, you know, based on what the real estate opportunities are and what the traffic patterns are in legacy stores.

Speaker Change: New customer acquisition very best expression of of the brand I believe our stores inspire our wholesale customers, we take our wholesale customers into our stores, where they see the full expression of the brand and on the flip side. We will continue to close stores. We're rarely do we close the store early because 97% of our stores are cash flow positive. So.

Speaker Change: Rarely do we close a store before the lease expires rarely do we take advantage of the kick out clauses that in the event, we signed up to a store that is not going to perform the way we expected rarely leave early so even though this year. We came into this year initially assuming we'd open up 40 stores and close 10, we're going to close 30 stores this year.

Speaker Change: As the leases come up we look at.

Speaker Change: What the opportunities to stay what kind of investment we'd have to be made to freshen. It up after a 10 year period. So we will continue to open stores and closed stores.

Speaker Change: Based on what the what the real estate opportunities are and what the traffic patterns are on legacy stores.

Operator: Understood. Thanks, Mike, and best of luck for the rest of the year. Thanks very much.

Mike: Understood. Thanks, Mike.

Operator: One moment for our next question. Our next question comes from Paul Lejuez.

Speaker Change: The rest of the year, thanks, very much one moment for our next question.

Paul Lawrence Lejuez: Our next question comes from Paul <unk> with Citi. Your line is open.

Operator: Hi, this is Kelly on behalf of Paul. Thanks for taking our question. Just one question on the pricing adjustments in retail. Is it that 20% of the product assortment is getting a mid-single-digit price decrease, or is that the net impact of it all? Kelly, that's the net because if you said a 4% on $11, it would be about, you know, 40 cents, right?

Paul Lawrence Lejuez: Yeah, Hi, this is Kelly on for Paul Thanks for taking my question.

Kelly: One question on the price.

Speaker Change: Tracy and retail is at a 20% of the product assortment is getting at a mid single digit price.

Speaker Change: Decrease or is that the net impact of it all.

Speaker Change: That's all.

Speaker Change: Yes, Hi, Kelly, that's that's been out because if you set up 4% on $11 would be about 40.

Michael D. Casey: So, we're making you don't make a 40 cent adjustment to You know, a t-shirt. Where the changes will make the most will be some portion of a buck or two on key items Opening price point items where the consumer is strapped. You know, There's probably no shortage of consumers opting for some of our competitors selling t-shirts and shorts for 250. Our t-shirts and shorts won't be And then I was just curious if you're viewing these price investments more as, you know, a temporary adjustment reflecting the weakness of the consumer, or do you believe them to be more permanent? I currently view it as temporary. We're doing what we can.

Speaker Change: Alright, so so we're making you don't make a 40 <unk> adjustment to.

Speaker Change: T shirt.

Speaker Change: Changes will make will be some portion of a buck or two on key items opening price point items, where the consumer being strapped. There is probably no shortage of consumers opting for some of our competitors selling T shirts and shorts for $2 50, our T shirts, and shorts won't be $2 50, but we will get sharper on price to two two.

Speaker Change: Respond to what's going on in the market.

Speaker Change: Got it and then I was just curious if you're viewing these price investments more as.

Speaker Change: A temporary adjustment, reflecting the weakness in the consumer or do you believe that could be more permanent.

Michael D. Casey: We currently view it as temporary. We're doing what we need to do because we were less promotional, I would say, in the first half, and we achieved our first half profit objectives. We don't think lowering prices is a good long-term strategy. It's very short-term, but that's the world we live in right now, with the consumer under some financial pressure.

Speaker Change: Currently viewed as temporary we're doing what we need to do because we we were less promotional I would say in the first half.

Speaker Change: And we achieved our first half profit objectives, we don't think lowering prices is a good long term strategy, it's very short term, but thats what thats the world We live in right now with the consumer under some financial pressure. So we've made significant progress.

Michael D. Casey: So we've made significant progress since the pre-pandemic period in terms of improving price realization, improving margins, and recording a record gross profit margin in the second quarter, largely through inventory management, largely through just being smart on the buys, improving the beauty of the product offering, buying the unit smarter, making smart bets on the inventory buys. We'll continue to do that. But we're going to take a different approach this second half. Our initial reaction was that perhaps we have to do a significant cost reduction.

Speaker Change: Since the pre pandemic period in terms of improving price realization improving margins record.

Speaker Change: Gross profit margin in the second quarter, largely through inventory management, largely through just being smart on the buys improving the beauty of the product offering buying units smarter.

Speaker Change: Making smart bets on inventory buys we will continue to do that but we're doing we're going to take a different approach to the second half of our initial reaction was way, perhaps we have to do a significant cost reduction we said, it's probably the time to lean it let's get sharper on price points, where we need to invest in brand marketing to attract more people to the brands drive more.

Michael D. Casey: We said this is probably the time to lean in. Let's get sharper on price points where we need to, and let's invest in brand marketing to attract more people to the brands and drive more traffic to our stores and websites. So I view the pricing adjustments as temporary. Kelly, on the other side of the price spectrum, also, while we're investing and getting sharp...

Speaker Change: Traffic to our stores.

Speaker Change: On websites.

Kelly: Our view of the pricing adjustments as temporary Kelly on the other side of the price spectrum also while were investing and getting sharper on price. It in the opening price bucket. We also are growing the penetration of our assortment and the best price bucket as well so our more premium products, where we can probe on price.

Michael D. Casey: in the opening price bucket. We are also growing the penetration of our assortment in the best price bucket as well, so our products are more premium.

Kelly: And grow on a range of pricing that is.

<unk>.

Kelly: Margin offset on the other side.

Operator: Got it. Thank you. And just, you know, given that you're seeing sort of a share shift or traffic kind of moving more towards the wholesale business, and you're seeing, you know, some traffic weakness in retail, just curious, you know, any initial thoughts on your store opening and closing plans as you think about next year?

Speaker Change: Got it. Thank you and just given that youre seeing sort of a share shepherd traffic kind of moving more towards.

Speaker Change: The wholesale business and Youre seeing some traffic weakness in retail.

Speaker Change: Curious any.

Speaker Change: Any initial thoughts on your store opening closing plans as you think about.

Speaker Change: Our next year.

Michael D. Casey: Just a couple of reactions. So we're thrilled that consumers, when they go to Target, Walmart, and Amazon, we've got the best-selling brand in young kids' apparel there. So as I look at the unit volume, what we didn't sell directly to consumers in terms of the unit decreases direct to consumer, we more than picked up on people shopping at our other wholesale customers. That's the beauty of our business.

Speaker Change: Just a couple of reactions. So we're thrilled the consumers when they go to target Walmart and Amazon, We've got the best selling brand in young kids apparel, there. So as I look at the as I look at the unit volume, while we didnt sell directly.

Speaker Change: To the consumers in terms of the unit decreases direct to consumer we more than picked up on people shopping at our other wholesale customers thats. The beauty of our business. We've got an unparalleled multichannel market presence. So wherever consumers are shopping in a meaningful way, we've got a strong presentation of our brands.

Michael D. Casey: We've got an unparalleled multi-channel market presence. So wherever consumers are shopping in a meaningful way, we have a strong presentation of our brands. And again, going back to the earlier point, we have a line of sight to stores. The real estate opportunities that exist for us in 2025, we're pursuing those opportunities. And we'll share more with you as we get later into the year and early next year in terms of how many store openings we have.

Speaker Change: Again going back to the earlier point, we have a line of sight to stores that are re.

Speaker Change: Real estate opportunities that exist for us in 2025, we are pursuing those opportunities.

Speaker Change: And we will share more with you as we.

Speaker Change: We get later into the year early next year in terms of how many store openings, but our plan is to continue to open stores and opened stores in.

Michael D. Casey: But our plan is to continue to open stores and open stores in good centers where there's good co-tenancy, good traffic patterns, a good center, and where we reach more consumers. So we've been developing new store models that are focused on the strength of our business, which is baby and toddler. Baby and toddler apparel sales represent over 80% of our sales. We carry the older age ranges, largely as a convenience for family shopping with a younger and an older child.

Speaker Change: Good centers, where theres good co tenancy good traffic patterns, good centers, where we reach more consumers. So we've been developing new store models that are focused on the strength of our business, which is baby and toddler baby and toddler apparel sales represented over 80% of our sales we carry the older age ranges largely as a convenience to families.

Michael D. Casey: But we're going to have what we call these best of baby stores that we're seeing some early and good read on. So we're testing new formats, and I think a good portion of the stores next year will be in those new store formats to focus on the core of our brands, the most productive components of our brands. Keep in mind that in the second quarter, baby and toddler apparel sales were comparable to last year, while the weakness was in the older age range.

Speaker Change: With a younger and older child, but we're going to have what we call. These best of baby stores that we're seeing some early and good readout. So we're we're testing new formats.

Speaker Change: I think a good portion of the stores next year will be in those new store formats to focus on the core of our brands. The most productive components of our brands keep in mind that in the second quarter, our baby and toddler.

Apparel sales were comparable to last year, the weakness was in the older age ranges.

Michael D. Casey: Got it. And if I could just squeeze in one more here, I think you made a comment earlier in the presentation about your Carter, the growth of Carter's flagship brand. Did you see, you know, the Carter's brand in department stores grow in QQ? And just how should we think about that exclusive versus, you know, the flagship Carter brand growth in the back half of the year? So, you know, Carter's flagship brand is largely sold to department stores and club retailers.

Speaker Change: Got it and if I could just squeeze in one more here I think you made a comment earlier.

Carter: The presentation about Youre Carter Carter.

Carter: Carter its flagship brand could you see.

Speaker Change: On the Carter's brand in department stores grow in <unk>, and just how should we think about that exclusive versus flagship cargo brand growth in the back half.

Michael D. Casey: So we've got some tailored strategies. Kendra referenced the initiative with Kohl's and Baby's Rush, which I thought was a smart move on their part, trying to replicate the success they had with Sephora with Baby's Rush. Baby's Rush used to be a $100 million customer for us, a high-margin customer for us. So we're tailoring the strategies for department store and club store retailers, and we're starting to see some good traction with those initiatives. So that's another opportunity that we're pursuing to craft a strategy that is good for the off-price channel and good for our business.

Speaker Change: Yes.

Speaker Change: Carter's flagship brand largely sold to department stores and club retailers. So we've got some tailored strategies Kendra referenced the initiative with kohls and the babies R us, which although was a smart move on their part trying to replicate the success. They had with sephora with babies R. US babies are also used to be $100 million customer for us high margin customer for us. So we're tailoring the.

Speaker Change: Strategies for the Department store and club store retailers and we're starting to see some good traction with those initiatives. There is another big opportunity with the off price channel I think our unit volume in the off price channel was down about 70% in the.

Speaker Change: In the first half only because were very clean on inventory, but I've gotten no shortage across from our off price wholesale customers asking us.

Speaker Change: For more product and the challenge there is we want to make sure. It's a it's a good margin for us and a good margin for them. So so that's another opportunity.

Speaker Change: That we're pursuing to tailor our strategy that is good for the off price channel and good for our business.

Michael D. Casey: Thank you. Ladies and gentlemen, this concludes the Q&A portion of today's conference. I'd like to turn the call back over to Mr. Casey for any closing remarks.

Speaker Change: Thank you ladies and gentlemen, this does conclude the Q&A portion of today's conference I'd like to turn the call back over to Mr. Casey for any closing remarks. Thank you very much. Thank you all for joining US. This morning, we look forward to updating you on our progress in October Goodbye.

Michael D. Casey: Thank you very much. Thank you all for joining us this morning. We look forward to updating you on our progress in October. Goodbye.

Operator: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker Change: Okay.

Speaker Change: [music].