Good day, everyone, and welcome to Carter's Second Quarter Fiscal 2013 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President of Investor Relations and Treasury. [Operator Instructions] Carter's issued its second quarter fiscal 2013 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor Relations section of the company's website at www.carters.com. Before we begin, let me remind you that statements made on this call -- on this conference call and in the company's presentation materials about the company's outlook, plans and future performance are forward-looking statements, and actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Also on the call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded. And now I would like to turn the call over to Mr. Casey.

Thanks very much. Good morning, everyone. Thanks for joining us on the call. Before we walk you through the presentation on the website, I'd like to share some thoughts on our business with you. As you've seen in the press release this morning, we outperformed the macro retail trends in the second quarter. We achieved our sales and earnings goals, we have strong demand for our Carter's brand in all channels of distribution, we had a significant increase in international sales and we made good progress with our growth initiatives. From my perspective, we saw the continued benefit of our multichannel business model in the second quarter. We achieved growth in our core Wholesale business and have strong bookings for our Carter's fall and holiday product offerings. Carter's retail stores, both new stores and comp stores, are achieving their sales and earnings objectives. We saw strong demand online for both Carter's and OshKosh B'Gosh, with total eCommerce sales up 36%. Sales outside the United States grew 45% in the second quarter, with good growth in our Retail, Wholesale and eCommerce businesses. And we meaningfully reduced the losses incurred by Oshkosh, which we expect to be significantly more profitable on a global basis, this year. Given our strong first half performance, we continue to expect good growth in sales and earnings this year. With respect to our growth initiatives, we had good progress with our top 4 initiatives in the first half. These initiatives are focused on consolidating our operations in Atlanta, improving our supply chain capabilities, integrating our new operations in Japan and strengthening our IT capabilities. We're on track to consolidate our Connecticut and Atlanta-based teams into a new headquarters in Atlanta by the end of this year. We're already beginning to see the benefit of our teams working…

Good morning, everyone. Our presentation materials, this morning, are available on the Investor Relations portion of our website. As these materials provide a lot of detailed information, I'll try to just point out some of the highlights as I move through the presentation. So beginning on Page 2. We delivered a strong second quarter. Net sales grew 10% compared to last year, the increase was comprised of strong unit sales growth and a modest improvement in average unit pricing. In terms of contribution by business, our Carter's brand retail stores here in the U.S., international and eCommerce drove our top line growth. We got solid expansion in gross margins of 370 basis points, which was somewhat better than our internal forecast for the quarter. On the bottom line, adjusted earnings per share grew 24% to $0.46. Second quarter completes a strong first half performance for our company, with growth in net sales of 8% and an increase in adjusted earnings per share of 34%. Page 3 breaks down our second quarter sales results. Total Carter's sales in the U.S. grew 9%, driven by good growth in our Retail store and eCommerce businesses. Carter's Retail store comparable sales increased nearly 4%. Carter's Wholesale segment sales grew modestly in the second quarter. Sales growth was affected by fiscal calendar differences between us and our wholesale customers, which have a 53rd week in their calendars this year. We're projecting good full year growth in Carter's Wholesale at the mid-single digit level. Total U.S. OshKosh sales declined 5%. Retail comparable store sales were down 5% in the quarter and eCommerce sales grew nicely, up 25%. International sales increased 45% in the second quarter, reflecting solid growth across the wholesale, Canadian Retail and eCommerce segments of the business. Our new Japanese business contributed nearly $5…

[Operator Instructions] And for our first question, we go to Taposh Bari with Goldman Sachs.

Mike, I was hoping you could maybe provide some comments on how the retail environment transpired this past quarter from your perspective. I know that the first quarter was pretty unseasonably unfavorable. But I wanted to see how the second quarter transpired. Can you provide some context as to how you actually performed versus that?

Sure. You're right. I think the first quarter was pretty bumpy because it was unusually cold. It was unusually cold, but it was spring. It just happened to be up against gorgeous weather the previous year, in the first quarter. Second quarter was better. Carter's comped positive, April, May, June. Fourth of July, best holiday we have seen all-year long, compared to Presidents' Day weekend, Easter. Fourth of July was the strongest holiday both brands, both Carter's and Oshkosh, have seen all year. So I'd say the trends in the second quarter were good. Oshkosh had a bumpy start. I think the April comps were down, but it had positive comps in May and June, again, strong, very strong comps over the Fourth of July, the long weekend, we measure Wednesday through Monday, or Sunday, rather, as I recall. Good top line growth, good profit margins over the Fourth of July weekend. I would say, since Fourth of July, business has slowed a bit. Carter's comps quarter-to-date -- third quarter to-date, down about 1%. I think Oshkosh down about 2.5%. I think Canada down 2.5%. So it's not unusual when you have a big surge in sales, as we did over the Fourth of July weekend, the comps were up double digit. And the profits on those sales were up double digits, so it wasn't like we were getting those sales by deeply discounting the brands. And so when you see a big surge in sales over a holiday weekend, it's not unusual to see business slow a bit. July is a -- I'd say July is the smallest of the 3 months in the third quarter. I think it represents less than 25% of the sales, less than 25% of the profits for Retail. August, September, those are the big months. Feel really good about the fall product offering. We're out in the stores last week looking at this new side-by-side store that Richard referenced. It looks beautiful. So we're set right now for the fall. We're set at Carter's. Within the week, we'll be set for Oshkosh. So we feel good about the current business trends. I think we're going to have a good, solid third quarter. Carter's, we're assuming positive comps, and I guess for OshKosh, comps -- we would be disappointed if the comps for Oshkosh are not better than they were in the second quarter. We've continued to be focused on improving the profitability of Oshkosh, I think we're making good progress with that. But say in a word, business trends have been good and we're expecting a good third quarter, good second half.

I was hoping -- just to follow-up on that point on the Carter's Wholesale side, so -- I might have missed this, but second quarter came in slightly below your guidance. You're reiterating the back half guidance for wholesale growth, up high-single digits. Then I look at your spring bookings for Carter's up a little bit less than that, low single to mid single. So if you could you help us understand what's happening there.

Taposh, this is Brian. A couple of things, first of all, our plan is a low- to mid-single-digit growth for the Wholesale business. We feel really good about our prospects. For the year, we're going to be up mid-single digits in totality. So there's timing differences and what have you, but we feel really -- that business is very solid. I think, as Richard mentioned for the first half of '14, Spring '14 bookings, we're currently up mid to -- low to mid singles and the launch of our new replenishment businesses in the early reads in fall are positive. So we feel it's really solid business. Again, there's some timing differences, but overall, we feel really good about that business.

Great. And just the last question for Richard. You said you have capital structure -- I know you've given a lot of detail, but can you help us better understand, I guess, what the upper bounds of leverage or comfort are. I know you've mentioned quality investment rating, but help us understand what you're thinking in terms of target leverage or just how you're approaching that in general.

Well, as the comments reflected this morning, it appears it's a reasonable, prudent amount that we feel comfortable adding to the balance sheet, we're not going to add anything that we think stretches us too far or is reckless in any regard. We think flexibility and liquidity are important in our business. We've seen some shocks to the system over the years. So it's an appropriate amount of leverage. We have a transaction that's underway at the moment so we don't feel it's appropriate to be specific until that officially launches in the marketplace. But once we do that we'll share all that with you.

And for our next question, we go to Scott Krasik with BB&T. Scott D. Krasik - BB&T Capital Markets, Research Division: Mike, this H.W. Carter's, is that in China already? Do they have a business there? And if not, what does this mean for the timing of when you could enter China?

Yes, I think, it's fair to say, Scott, they didn't have much of a business at all, I would say, here in the United States or China, but they did have superior rights to our Carter's brand name in China, and so we made that investment. This is a brand that has been, I would say, drafting off of our success for a number of years and they were entitled to do that. They opened up their doors about 6 years prior to us establishing our operations years ago. So it was a small business, but it was in the market. And in some cases, they took advantage of, perhaps, our lack of focus, years ago, in certain markets to protect our brand name or the rights to our brand names in those markets. So if they had a presence in China, it was small. And but we -- so we decided to make the investment and take that brand name out of the market. Scott D. Krasik - BB&T Capital Markets, Research Division: And just in terms of timing for a strategy now to enter China?

I would say, I don't expect any meaningful announcement in the balance of the year. Our focus right now is on Japan, integrating that operation. Thankfully, we're seeing improving trends in that business. And we're focused also on bringing the international team down here to Atlanta and getting the resources that we need. So I'd say ,we've taken some good steps. We've scoped out the market, we've looked at potential partners in China. Our strategy is to find a great partner in China, preferably a retailer. And then leverage their local market knowledge, their local market expertise and combine that with our great brands, our merchandising expertise, our supply chain capabilities and build a better book of business in China over time. We have a presence in China through a licensee. One thing I've learned, perhaps with exception of Canada, if you have a licensed business, it will never be big. And we think the opportunity in China is big, but that's a long-term initiative. There won't be any meaningful announcement, I don't believe, in the balance of the year with respect to China. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then Richard, can you just parse out what the freight/airfreight cost is going to be in Q3? And then what the marketing additional cost is going to be, please?

On balance, the airfreight we're expecting is in the range of $4 million to $5 million and the marketing expenses, which relate to the count on Carter's campaign, we're shifting that a little earlier in the year, is about $6 million.

For our next question, we go to Susan Sansbury with Miller Tabak. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: Just a cleanup question in terms of these trade names that you bought. Other than China, where were they being used?

They were being used here in the United States, Susan. Tended to be a lower tier distribution and in Canada. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: But no place else?

Not any meaningful area.

Correct. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: This is not on topic, but I'm always curious about what's going on at JCPenney. Did you get your shop-'n-shops open and in place? And/or can you say anything more about what's going on at JCPenney?

Sure. I think if you went to Penney's today, you'd see a beautiful presentation of the Carter's brand. The Oshkosh presence has been shrunk. We are launching the Oshkosh overall bar in their top stores later. The share of our business with Penney's has been good. I think, they -- what we shared on our previous call, Susan, is that we put a pin, for now, in the big shop, the big hard shop, so to speak. I think that's the lingo that's been used in the past. I was in -- I was down at Penney's recently, had a meeting with Mike Ullman and his team, and I think our brands are being viewed very favorably. We've had growth, despite some of the issues that they've had in recent years, and we expect that to continue to be a very good customer for us and a good source of growth for us. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: Okay. And then back to this capital restructuring initiative, when do you expect the transaction to be effective, Richard?

We're working on it right now, Susan. We've been to visit the rating agencies. We've had a number of discussions with our board. They have approved our action plan and we will move as quickly as we can to execute it. Susan R. Sansbury - Miller Tabak + Co., LLC, Research Division: Okay, great. You're doing -- you're executing extremely well and to be applauded. And we wish you the best for the back half.

We go next to Howard Tubin with RBC Capital Markets.

How do you feel about inventories in the channel going into the back-to-school season? I guess, maybe both wholesale and your inventories in your own retail stores in terms of carry-over product and quality?

Howard, I think, overall, we're in pretty good shape. In our retail stores, going into the quarter, we were down slightly on a per door basis in Carter's. Flat to last year in Oshkosh. So we feel like we're in good shape there. From a wholesale standpoint, I would say the inventories trended a little higher than sales. The folks did have some challenges with weather early in spring, and they had to clear that out. So got a little more promotional further in the quarter, so we don't think it's a concern. We haven't had any significant cancellations or what have you, but I would say it's slightly higher than probably the sales rate has been in wholesale.

Got it. And maybe just overall plans for inventory level at the end of 3Q, should we expect an increase kind of similar to what we've seen at the end of 2Q?

Yes. In that neighborhood, Howard.

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

It's actually Maria Vizuete in for Stephanie. We just have a couple of questions relating to the balance between the third and the fourth quarter. Is there any calendar or timing shift that we should be mindful of?

I don't think significantly. The Wholesale business is a little bit larger in terms of the share of the pie in the third quarter. The direct-to-consumer businesses kick up and are more significant piece of the pie in Q4. But other than that, not anything significant.

Okay. And then can you remind us what tax rate we should be using for the year?

I would say in the upper 36% range.

[Operator Instructions] We go next to Anna Andreeva with Oppenheimer. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Speaking to Carter's Wholesale, just -- did you guys quantify, by any chance, the magnitude of the shift from the second quarter to the third quarter? I guess, looking at the sales guidance of up 12% for 3Q, retail comping down low singles, should we think that acceleration in sales is entirely wholesale-shift related? And again, on Carter's. Operating margins declined in that bucket. Can you maybe talk about what drove that? You obviously referred to higher inventories in wholesale, so maybe a little bit more color on that would be great.

Yes, sure. The shift of revenue from Q2 to Q3 was not all that significant. We, to Brian's earlier comments, we tend to look at the business on a full year basis because you can have differences in the timing of shipments that fall over quarter end dates, so it wasn't that material. I don't think the performance relative to our forecasted revenue guidance was that meaningfully different, to be very candid. The decline in operating margin for the Carter's Wholesale segment largely had to do with the mix of customers. There are various a support rates that are in effect for different customers, and that mix of customer base can skew from quarter-to-quarter. So it's largely timing and mix of customers that related to the change in profitability. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay. And I guess the acceleration in sales, Richard, for the third quarter, this is obviously the wholesale bookings being up high singles. Is that how we should think about sales, being up 12%?

For Carter's Wholesale, your question is? Yes, we're expecting very good growth across our businesses for the third quarter. A piece of that is the shift in revenue. A piece of it is the 53rd week issue that I mentioned, where some shipments that normally would have been in Q2, before now, will be in Q3. But expecting good revenue growth, and in particular, in international we're expecting a good third quarter. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay, got you. And on gross margins, obviously, we've been seeing some nice upside for some time. What kind of a gross margin are you guys implying in the third quarter guidance? And just for the back half? How should we think about AUC for the back half? And sounds like you're placing your Spring '14 orders now, and just the magnitude would be helpful. And just with the production disruption issue, I'm assuming that's contained to the third quarter and that shouldn't continue into the 4Q?

There's a lot of questions there. I think as it relates to the production delays, yes, it's largely a Q3 issue. We hope to be through that, certainly, by the end of September. Product costs for the second half are up about 3%. I'd say, we have good strategies to, more or less, offset that with mix and with pricing. We are seeing a trend towards product cost inflation for Spring of next year, that it's above 3%, so we're still working through those plans. In terms of gross margin, we're expecting good gross margins in the second half of the year. We're not anticipating the hundreds of basis points of upside that we've seen, or expansion that we've seen, similar to the first half. The benefit from product cost has started to moderate and so now we won't have that going forward. But we're expecting good gross margins for the back half. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay, got you. That's helpful. And just maybe to Mike, just a bigger picture on Oshkosh. If the business had been difficult for some time, we're kind of operating it more for profitability here in '13. But I guess, I'm curious, the girls' side has been challenging, sounds like that's improved now, which is great. Boys, you know, sounds like a little tougher now. Maybe talk about what's going on in this business. Is it just the landscape for the older kid a bit more competitive out there? Just kind of your thoughts going forward.

I actually have a different point of view than you do. I actually think we've made great progress with Oshkosh. I think brand point of view has never been stronger. We're very excited about the side-by-side store initiative. Girls performance was extremely good. Boys was tougher. Boys is always tougher in the spring. You're selling polo shirts, t-shirts and shorts and it's hard to make that look particularly beautiful. Girls you have an opportunity to put more fashion into the product and that has resonated wonderfully with the consumer. And the strategy we've taken over the past year or so is -- it's a wonderful business. It'll probably do some portion of $460 million in sales this year. It has grown. That'll be good growth over last year. We're focused on meaningfully improving its profitability. I wanted to focus on the profits. This brand earned some portion of $30 million for us back in 2010. That got wiped out with cotton, and not much we could have done about that. It showed some profit improvement in 2012 on a global basis, earned some portion of about $11 million. This year we hope it earns closer to $15 million to $20 million, excluding some of the startup costs for Japan. So we're making progress. I think it's a wonderful brand. I think it's got a wonderful future. I continue to believe it's going to meaningfully contribute to our growth objectives. So a lot of times when people view it as difficult, Oshkosh always looks weaker when it's compared to Carter's. There's very few brands that look better than Carter's. Carter's is just this wonderful brand. We've been working at it a long time, it's the top-of-mind brand for new moms. And so now, what we're doing is we're attaching the Oshkosh brand to Carter's in this side-by-side store initiative to draft off the natural traffic that Carter's gets from consumers. And the feedback on that initiative is good, so pretty excited about that. So we're pretty bullish on Oshkosh. I think we're making good progress with the brand.

And for our next question we go to Steve Marotta with CL King & Associates. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Could you please remind us, from your direct sourcing initiative standpoint, what percentage of sales that was in the Spring of '13 and what you expect in the Fall of '13 as well as Spring of '14, that cadence of growth there, the percent of sales?

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

I think it skews more towards -- I believe it skews more to direct. Yes. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Lastly, and this is just intimated, but I'd like to be perfectly clear, the acquired trademarks will be completely extinguished, correct? They will not be resurrected, in any form, under your umbrella?

Yes, sir. That's correct.

And with that, ladies and gentlemen, we have no further questions on our roster. Therefore, Mr. Casey, I will turn the conference back over to you for any closing remarks.

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

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