Thank you very much. Good morning, everyone.

Thanks for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you.

Suffice it to say, we're off to a very good start this year. We meaningfully outperformed the projections we shared with you on our previous call.

Total sales in the first quarter grew 18%. We believe consumers are responding to the compelling value of our product offerings across all channels of distribution.

In the first quarter, we had sales growth in every segment of our business. We achieved positive comps in each of our retail store channels in the United States and Canada, and we continued to see strong growth with our new eCommerce and international initiatives.

Given the positive trends in our business, our outlook for the year has improved.

We've made good progress since our last update, increasing average prices by improving the flow of product to our stores, reducing off-price sales, which dropped nearly 70% in the quarter, and by increasing the effectiveness of our promotions. Average prices were higher across all business segments, though the vast majority of our products still sell for less than $10 each, it's a great value.

The strength of our business continues to be driven by our Carter's brands, with sales up 12%. We had very good growth in our Carter's retail stores, with sales up 20%.

Collectively, our new stores are achieving their plans, and we are on track to open about 60 Carter's stores this year.

Carter's eCommerce sales more than doubled in the first quarter, and all key eCommerce metrics are better than last year. We're seeing very good over-the-counter performance with our top wholesale customers.

The growth is being led by our baby and playwear product offerings. Sleepwear sales were lower than last year but are in line with our plan.

We're excited about the launch of our Little Layette product offering next month. It's the annual refresh of the core of our Carter's brands and should be in all stores by Memorial Day weekend.

We're seeing a very good response to our marketing initiatives. We're particularly excited about the campaign we've created around that launch of the new movie What To Expect When You're Expecting, which was inspired by the best-selling book by the same name.

Our Carter's brand is prominently featured in the movie. Our marketing efforts are designed to showcase the important role our Carter's brand has in mom's experience with her new baby.

This is just one example of many new marketing initiatives under way to further strengthen the performance of our great Carter's brand.

The second-largest contributor to first quarter sales growth was our new international segment, which represented nearly 9% of our total sales compared to only 3% of total sales last year. The growth was driven largely by our new Canadian operations.

We're achieving very strong comps from our Carter's and Oshkosh brands in Canada, and we're on track to open 18 co-branded stores this year. We expect to open at least 100 stores in Canada over the next 5 years.

We're making good progress with our international wholesale business, and we're on track to launch our brands with Target Canada early next year.

As we've shared with you on previous updates, we're working with our international licensees to help them benefit from our merchandising and supply chain capabilities. We believe there's a meaningful opportunity to improve these licensing arrangements over time.

And by doing so, we expect to drive even stronger sales and earnings growth in international markets.

We're making good progress with our OshKosh B'Gosh, particularly with the girls product offering. OshKosh sales grew 6% in the quarter, with store comps up nearly 5%.

March represented OshKosh's seventh consecutive month of comp store growth. We're on track to open 7 OshKosh stores this year, including 3 mall stores.

Demand for our OshKosh brand in our eCommerce channel more than doubled in the quarter. We're forecasting growth in sales and profitability from OshKosh this year.

We're planning earnings growth to be more weighted to the second half of the year, and we expect this growth will be driven by better product, better pricing and lower product costs.

We're making good progress improving our supply chain capabilities. We expect to open an office in Hong Kong this summer to support our direct sourcing initiative, and we're making good progress recruiting a team to lead that office.

We recently announced our agreement to lease a 1 million square foot multichannel distribution center just north of Atlanta. The initial phase of this new facility should enable us to support the accelerated growth we're experiencing with our new eCommerce business.

We hope to complete Phase 1 of this initiative later this year. We expect that our retail and wholesale businesses will be supported by the new facility beginning next year.

This initiative is expected to create at least 600 new jobs for people in the state of Georgia.

Assuming we achieve our revised plans for the balance of 2012, our sales would be approximately $2.3 billion this year, our 24th consecutive year of sales growth. Since the recession began in 2007, our business is trending to have grown sales by over 60%.

Over the past 4 years, many companies have been downsizing to deal with the effects of the recession. Our business, by comparison, has been thriving.

We have iconic brands that have withstood the test of time. In good economies and weak economies, we've done well.

We have an extraordinary talented and committed workforce. They make these results possible, and they work hard every day to exceed their goals.

We're excited about the future of our business, and we remain focused on leading the market in product value and brand presentation, extending the reach of our brands and improving our profitability. With nearly 4 months into this year, I'd say we're making very good progress.

We're expecting good growth for the balance of the year and for the years to come.

Richard will now walk you through our first quarter results and will share with you our latest thoughts on the growth we believe is possible this year.

Thank you, Mike. Good morning, everyone.

My comments this morning will follow along with the presentation materials, which are available on the Investor Relations portion of our website.

Beginning on Page 2, where we summarize some high-level financial metrics. As Mike said, we delivered a very solid first quarter.

We posted strong revenue growth of 18%. This was on top of 15% growth in the first quarter of last year.

This revenue strength was very broad-based, with significant growth in both our U.S. and international operations.

Domestically, both the Carter's and the OshKosh brands contributed solidly to revenue growth in the quarter.

Our adjusted operating income and adjusted EPS summarized here were comparable to a year ago. As we had planned the business down for the quarter, these results are clearly better than we had expected, driven by our strong revenue performance and better gross margins.

Carter's, Child of Mine and Just One You.

Our reported revenue in wholesale will be affected this year by a meaningful reduction in off-price channel sales. Recall that a year ago, we had entered the year with a lot of inventory to work through, and our inventory position this year has significantly improved.

U.S. OshKosh brand sales in total grew by over $4 million, driven primarily by continued growth in the eCommerce channel.

Retail stores comps were up 4.7% in the first quarter. And as Mike said, OshKosh has comped positively now for a number of months, which encourages us.

Our international business contributed approximately $31 million to our net sales growth in the first quarter. In addition to revenues from our new Canadian retail and wholesale business, we grew our existing international wholesale business by more than 20%.

In total, our Canadian operations contributed about 6 percentage points of net sales growth in the first quarter. I'll provide some more detail on our business segment results in a moment.

Our first quarter P&L is on Page 4. We've already covered the specifics of net sales, so turning to gross margin first quarter gross margin increased to 160 basis points over last year.

We've obviously had a number of quarters now at declining gross margin rate because of higher cotton costs, so it’s nice to see a reversal of that trend by posting an increase in gross margin in the first quarter. We're hopeful that upcoming quarters will also reflect higher year-over-year gross margins.

As we've discussed, our recent performance has been negatively affected by the spike in cotton costs that the entire industry has faced. Contributing to our increase in gross margin in the first quarter was the continued growth in our higher-margin direct-to-consumer businesses, such as retail and eCommerce, the acquisition of our business in Canada, lower sales to the off-price channel and the success of our pricing and supply chain strategies, which have been helping to offset the ongoing impact of product cost inflation.

Adjusted SG&A increased approximately $35 million over last year, which I'll go through in a moment. Growth income was down versus last year, which almost entirely reflects the acquisition of our former licensee in Canada.

Interest and other costs were approximately $2 million, up slightly compared to the first quarter of last year. So again, on a bottom line basis, adjusted earnings per share for the quarter were comparable to last year at $0.56.

Certain of the line items of this P&L are presented on an as-adjusted basis. To recap the adjustments we've made to our reported results, in the first quarter this year, we recorded pretax charges of approximately $2 million related to the Bonnie Togs acquisition and our announced closing of a distribution center next year.

The facility closure is part of our broader strategy to add logistics, capacity and capabilities to support our various growth initiatives, including eCommerce and retail.

In the first quarter of 2011, we recorded pretax charges of approximately $1 million related to the Bonnie Togs acquisition. We provided a summary of these adjustments and a reconciliation to our GAAP results for both periods on Page 7.

Page 5 summarizes the key drivers of adjusted SG&A for the first quarter. Consistent with our recent history, the principal drivers of higher SG&A are higher operating expenses for our growth businesses, including retail and eCommerce.

Contributing significantly to the increase in SG&A rate in the quarter is the greater year-over-year penetration of our direct-to-consumer businesses, which are more SG&A-intensive than the rest of our business portfolio.

In retail, we're operating 45 more stores than we did a year ago, and eCommerce volume is up significantly versus last year. Canadian operating expenses are noncomparable to the prior year, as we didn't close that transaction until the end of June last year.

We're also providing for higher levels of performance-based compensation versus a year ago, given our expectations for improved profitability for the full year.

Lastly, the all other bucket contains a number of individually immaterial items. But to give you some flavor, we continue to spend more in beefing up our marketing, CRM and store visual capabilities, and we have some higher corporate occupancy costs, which represent spending in support of our overall organizational growth.

On Page 6, we've summarized our business segment performance for the first quarter. Some of these results are presented on an as-adjusted basis, excluding the impact of the previously described acquisition and facility closure costs.

I'd point out that our Carter's segment operating margins were close to their level of a year ago, with margins in the wholesale component up over last year, primarily due to favorable product sales mix, lower inventory-related charges and lower off-price channel sales.

The decline in OshKosh margins reflects mostly product cost inflation, which has been particularly severe in the playclothes category, as well as incremental costs associated with the dedicated merchandising, marketing, creative and retail teams which we have put in place to support the OshKosh brand.

As we've said, we are very pleased with the progress we're making with OshKosh. The extended OshKosh team is doing a tremendous job in improving this part of our business and establishing the foundation for more meaningful growth going forward.

Our international segment delivered an adjusted operating margin of nearly 18% compared to 32% in the first quarter of last year. The decline reflects primarily the different mix of businesses between the 2 years.

The year-ago income from our international business segment was weighted more towards royalty income and this year obviously includes the significant Canadian retail store component.

Overall, adjusted operating income was up modestly compared to last year at $56 million. Adjusted operating margin was 10.1%, and, while down from last year, we think this is a good result given the product cost issues that we continued to work through.

Turning now to Page 8. We've recapped a few key balance sheet and cash flow metrics.

Our liquidity and balance sheet remained very strong. Cash on hand at the end of the first quarter was approximately $300 million.

Accounts receivable were up due to higher wholesale sales in the current quarter compared to a year ago.

Inventories at the end of the quarter were 22% higher than a year ago, and I'll cover more on that in just a moment. Cash flow from operations in the first quarter was $82 million, a first quarter record for the company.

This strong cash flow generation reflects the decline in inventory from its level at the end of 2011 as well as the favorable timing of payments for taxes and inventory and lower incentive compensation paid in the first quarter versus a year ago.

Turning to Page 9. We continue to feel very good about our progress in managing inventory.

At a high level, the increase in inventory versus a year ago is due to higher product cost, an earlier product launch compared to last year and the addition of the Canadian business. Inventory not related to our Canadian operations increased 12% in dollars, and units at the end of the quarter were comparable with a year ago.

These results were better than we have projected, in part due to the strong sales performance in the first quarter.

Higher product costs continue to drive up our overall investment in inventory. But we've made good progress through our various inventory and supply chain initiatives to lower the amount of inventory we're holding.

And the quality of our inventory remains very high.

At this point, we're projecting that second quarter ending inventories will decline year-over-year approximately 10% to 15% in dollars and about 10% in units. We're also forecasting that year-end inventories will be roughly flat in dollars and up mid-single-digits in units versus the end of fiscal 2011.

Carter's, Child of Mine and Just One You. As anticipated, off-price channel sales were down meaningfully compared to last year's first quarter.

Carter's regular-priced sales, which exclude off-price channel sales, grew 13% in the first quarter compared to last year. In general, our spring assortments have performed very well at wholesale.

AURs for our wholesale customers were up 11% in the quarter, reflecting the pricing action that we have taken in response to higher product cost. Seasonal fall bookings for Carter's wholesale remain up in the low- to mid-single-digit range.

On Page 12, we have summarized some key metrics for our Carter's retail segment. We delivered a strong comp sales increase in the quarter of 6.7%.

From a product perspective, baby and boys playclothes were the strongest elements of the assortment, although all categories comped positively in the quarter. All store types also comped up, with the largest contribution coming from our brand stores.

We believe our strong product offerings, inventory management strategies and marketing initiatives drove our AUR increase of about 11%. Our inventory per store is down, reflecting that we bought fewer units in light of our planned price increases and also, some new supply chain strategies which have resulted in more inventory held at our distribution centers.

Under this faster and more effective replenishment programs, we believe we're able to deploy inventory to the stores closer to when and where it is needed.

During the first quarter, we opened 16 Carter's stores and closed 3. We ended the first quarter with 372 stores, an increase of 56 stores compared to the first quarter of last year.

Rounding out the Carter's retail segment, our eCommerce business continues to perform extremely well. First quarter sales were approximately $23 million, up $14 million from the first quarter last year.

We believe the growth outlook for eCommerce continues to be very strong, and we're moving forward with plans to in-source the distribution center functions of this business later this year.

Now turning to the OshKosh businesses, beginning with OshKosh wholesale on Page 13. First quarter sales grew 1%.

Regular-priced OshKosh wholesale sales, which exclude sales to the off-price channel, grew 10%. Spring product over-the-counter sales in the first quarter at our major accounts were up 8% in the quarter, with particular strength in Girls.

Our wholesale customers also successfully raised AURs in the quarter, and sell-through rates have improved over last year as well.

Fall 2012 bookings are down in the low single digits compared to last year, which we believe reflects a degree of conservatism in the marketplace. On a full year basis, we're forecasting OshKosh wholesale sales to decline approximately 5%, as significantly lower sales to the off-price channel are expected to be more than offset -- expected to more than offset expected growth in the regular-priced sales.

Page 14 summarizes some key metrics for our OshKosh retail segment. Our OshKosh retail stores delivered another good quarter, with comparable store sales increasing nearly 5%.

In terms of product categories, girls playclothes and sleepwear drove the comp store improvement. On a geographic basis, the East and Great Lakes regions were our strongest.

Our performing -- our best-performing store types have been the mall stores, our brand stores and our outlet stores, which are located in tourist destinations. AURs were up in the quarter nearly 12%, which we believe reflects the strong performance of our improved product assortment.

We planned the business conservatively this year, focusing more on profitability and top line sales growth. As part of these continuing efforts to improve the overall profitability of the OshKosh brand, we closed 2 underperforming outlet stores in the quarter, bringing our quarter-end store count to 168.

Recall that we closed 13 locations last year, and for the full year 2012, we also plan to close approximately 13 locations. These store closures represent stores which are in declining outlet centers with poor prospects for the long term.

We continue to test the mall store concept for OshKosh and are encouraged by the test results we're seeing in the stores that we've opened. We plan to open several new mall stores over the balance of this year.

The most frequent themes we hear from consumers about OshKosh are that they love the brand and they wish it was more convenient to find. So our mall store brand store initiatives are intended to bring this great brand closer to the consumer and over time, reduce the concentration of the business in the outlet centers.

OshKosh also continues to perform very well online. Online sales more than doubled in the first quarter over last year.

On Page 15, we summarized the components of our international segment in the first quarter. Our Canadian retail stores continue to perform very well.

Same-store sales for the first quarter increased nearly 14%. Carter's branded products delivered a 34% comp in the first quarter, driven by expanded product offering.

OshKosh continues to perform very well in Canada with a comp increase of about 15%.

During the first quarter, we opened 4 new Carter's and OshKosh stores, bringing our quarter-end total Canadian store count to 69 locations. We plan to open an additional 14 locations, for an expected total of 18 new stores this year.

International wholesale sales were strong in the first quarter, growing 46% compared to last year. This growth reflects the addition of our Canadian business and strong sales to several U.S.-based multinational retailers and to our partner who services the South American market.

International royalty income declined by approximately $500,000 versus last year, driven mostly by the loss of royalties from our former licensee, Bonnie Togs. Excluding the Canadian contribution in the prior year, first quarter international royalty income grew approximately 7%.

Turning now to our outlook on Page 17. Second quarter is typically our smallest of the year, both in terms of top line and earnings.

We're off to a good start, although the lion's share of the quarter's revenues and earnings come in May and June. Currently, we're projecting net sales will be up about 20% over Q2 last year, driven by planned growth in all business segments.

We expect that adjusted earnings per share will be in the range of approximately $0.26 to $0.30 compared to an adjusted $0.23 per share last year. Given our strong start to the year, we've raised our expectations for the full year.

We're now projecting net sales will increase in the range of 9% to 11%, up from our prior range of 8% to 10%. We expect the full year adjusted earnings per share, which exclude additional expenses that we anticipate related to the Canadian acquisition and facility closure, to increase in the range of 20% to 25%.

This compares to our previous guidance of growth of 15% to 20% over 2011's adjusted results of $2.09.

As we shared on our last call, the majority of our full year earnings growth, we believe, will be back-end loaded in the second half of the year, when our results are expected to benefit from a decline in product costs of approximately 10%. Obviously, there is a lot of the year left to play out.

The principal risk that we're monitoring relates to the level of pricing and promotional activity in the marketplace and ensuring a good transition of fulfillment activities for the eCommerce business to in-house management.

We're also cautious regarding potential weakness in consumer demand and confidence in the context of the economy, which is continuing to recover, and the uncertain impact of the upcoming presidential election. We're expecting another solid year of investment in the business, with CapEx projected at around $100 million.

This reflects continued growth in our store base, both here and in Canada, and the initial build-out cost related to the new multichannel distribution center here in Georgia.

And with that, we're ready to take your questions.

I know Easter was earlier this year. I wondered if you could comment on how your April comps have trended to start off Q2.

That's the first question.

Margaret, it's Jim. April has -- is pretty much on plan.

It is a little bit slower, as you would expect, due to the shift in Easter. But on a March, April combined basis, we're looking at both brands being between 1.5% to 2% comp but very much in line with plan on both top line sales and operating income perspective.

So overall, we're pleased with things.

And Jim, I wonder if you could provide more color on what you're seeing at the mall-based OshKosh stores in terms of performance.

Yes, I'd be happy to. We're pleased.

They are actually performing at the top of the comp range. They -- collectively, the mall stores comp in the first quarter at about 12%.

So overall, we're very excited. And that's capped off by a $1 more average unit retail in our mall stores over the balance of the company.

So the customer is excited about the fact that the brand's in closer to where they live. And as you know, that's our growth strategy and vehicle on a go-forward basis.

So overall, we're very happy with the performance.

And Mike, those comps up north looked very strong. What can you tell me about why Canada is performing so well, much better than U.S.

comp?

I don't know if you've had a chance to go see the stores, but the Canadian team is doing a beautiful job executing, beautiful presentation of the brands in these co-branded stores, the very best of the Carter's and OshKosh brand, and in one convenient location. And it's really the only place you can buy it up there.

So there's not a whole lot of other competition. We don't have any big wholesale presence in Canada.

We'll be going up first quarter next year with Target, but they're the only place to buy the brands. And I just say if you haven't made a trip up there, it's worth going to see how beautifully executed the co-branded strategy is.

Margaret, this is Jim again. Just back to the mall stores for a second.

I just think it's important to note that we've really given a strong attention to this category of stores. We've now dedicated some manpower from a visual perspective, from a field perspective, and we've got a great team focusing intensely on the overall store improvements.

So I think we'll continue to see growth in that arena.

And Carter's wholesale was up only 3%. Are you expecting growth to pick up from here?

Or is it more retail caution on taking in inventory?

I'd say that the growth is in line with what we're expecting. You've got to keep in mind that the folks that were doing business with.

I think that growth is fully in line with the growth that they're planning for the year. Keep in mind that, that -- the 3% is weighed down by a significant decrease in off-price sales this year, and that was part of our strategy.

We had worked through a good portion of that excess inventory last year. And I think I shared on previous updates, you will see low to mid-single-digit growth in both Carter's and OshKosh wholesale businesses this year because of the significant decrease we are forecasting in off-price sales, which is good for average price realization.

It's good for margin that the quality of the business will be conservatively better this year relative.

And finally, could you just give us an update on what's going on with the Wal-Mart and Target businesses?

Relationships with both those retailers, I would say, are excellent, and we were out to see Wal-Mart just last week. The business has the potential to reach its peak level of performance this year.

I think you followed all the changes going on at Wal-Mart over the past couple of years in terms of shifting their merchandising strategy, focusing on the brands, particularly our brand in the kids space. And so we're very excited about the potential growth with our Child of Mine brand and all the brands that are selling well at Target.

So the business there is very healthy.

So you're saying you'll reach peak revenues this year at Wal-Mart?

That's the plan.

And what would that be, again?

Well, directionally, from memory, I think in 2008, we were -- we did some portion of about $146 million in sales. And with some shifts in their merchandising strategy, we lost ground from that level of performance.

It was trending closer to $100 million, and our forecasting vision that will probably exceed that 2008 level of performance this year. We'll probably be closer to $150 million in...

I had a question on your pricing trends across all your businesses. So AURs sound very strong for retail OshKosh and in Carter's in wholesale sort of across the businesses for spring.

I was hoping if you could walk us through the expected dynamic or plan for the back half. So you're sourcing costs are coming down a lot.

You took AURs up, I think, for fall 2011. How should we think about -- do you expect unit velocity to increase?

Or could AURs actually comp again on tougher comparisons in the back half and so that spread really widens and we get this really fantastic gross margin rebound in the back half that we're all hoping for? So Mike, if you could just sort of walk us through on the dynamics on that, that would be great.

Sure, I'd be happy to. So just as a refresher, we had the biggest challenge in terms of product cost increase in the second half of last year starting with fall '11.

So we did our best to raise prices about 10%. We didn't get all of that.

This is based on the coupon dilution and some of the other things that weighed down the average prices. But that was the objective: to raise prices about 10%.

That cost pressure continued the first half of this year, spring '12, so average prices. And again, the objective was to raise prices, some portion of about 10%.

Keep in mind, based on our average unit prices, that's less than $1. But the objective was to try to get some portion of $1, both for fall '11 and spring '12.

The objective for the second half of this year is to maintain the level of pricing we had in the second half of 2011. So fall '12, fall '11 pricing should be comparable.

We do expect to see a meaningful benefit in the second half of this year from product cost improving. We've taken some portion of that cost reduction and reinvested it into product benefits, in some cases, have gotten sharper on price points.

So our overall pricing strategy is to make sure we're offering great value to the consumer, making sure that we stay very, very competitive. I've referenced on previous calls probably the toughest category for us over the past 9 months or so has been Sleepwear.

It was probably the most price-sensitive category. So we plan to make some adjustments on the Sleepwear offering to address that.

So we don't plan on taking every bit of the cost reductions in the second half of this year and flowing it through to earnings. Some portion of it will go back into -- be back into product benefits, in some cases, price adjustments.

That said, we are expecting margin expansion this year. What was about a 9% operating margin last year for the company should be in excess of 10%.

Our overall objective is walk this operating margin back up to its peak level of performance that we realized just a couple of years ago in 2010 of 14%. But we feel good about our pricing strategies.

We're monitoring what the competitors are doing, and our overall objective is, again, offer great value to the consumer and stay very competitive.

And could you also remind us, Mike, the mix shift away from the off-price channel is? I forgot the comparisons you're against.

We're you shipping a lot to off-price in the back half of 2011, and so you could see continued mix shift benefit to margin? And did that also keep your AUR going up in the back half even as you...

That's right. That's correct.

Just, again, to give you a bit of a historical perspective, off-price, this is shipments to folks like T.J. Maxx, Ross Stores, Marshall's, and that has never been a significant portion of our business.

I'd say if you go back over a 10-year period, it probably ranges some portion of roughly 2% of sales, maybe a bit higher than that. But never been a -- I'll give you a range, 2% to 3%.

I think in 2010, we had our best performance ever. Probably it was closer to 1%.

By comparison, in 2011, it wasn't our best performance. It was probably closer to 4%, right?

So but still that had some pressure on margin and price realization. By comparison, this year, 2012, we're forecasting a significant reduction in off-price sales.

We've done a lot of good things, with the supply chain team's help, to reduce our exposure to excess -- shortening the product development process, buying more to order, reducing what we referred to in the past as these contingency buys, basically hold inventory in anticipation of some demand. What we're sharing with our customers, even with our retail team, order what you need, because that's all we're going to buy.

And if, for whatever reason, business is better for you, we'll have limited ability to change that demand. So we encourage folks to buy what they need, and we'll do our best to support their forecasted demand.

So all of those initiatives, I believe, will help us improve average unit prices and improve our margins.

Maybe if you can talk about the new -- I think, you mentioned there's new merchandising marketing team for OshKosh and that's weighing on margins. So it sounds like expenses for that brand are maybe higher versus they were historically.

So maybe if you can -- like how should we think about the margin recovery over the next year? And then, over the long term, should we expect to be able to get back to the mid-single-digit EBIT with just the product cost recovery?

Just for clarification, we did invest in a new merchandising design team, visual merchandising team. We've made good investments in the OshKosh team over the past couple of years.

We felt as though the brand needed full-time attention, and that's what we have given it. I would not say that that's what you're seeing weighing on the margins.

What you're seeing weighing on the margins was a significant increase in product costs beginning in the second half of last year continuing into the first quarter of this year. First quarter product costs for OshKosh were up over 28%, and that was just a function of, I'd say, our supply chain strategy.

We did not have much flexibility to shift gears when we saw the spike in cotton prices. What's interesting to us is that we have insight into what Canada's -- our Canadian operations experience was.

With product cost over the past year, I'd say, they fared much better than we did here in the United States for a lot of reasons. Canada has more favorable trade arrangements than the United States has with respect to our product categories.

But we are working our way out of that now. So I think that the worst is largely behind us in terms of these significant increases in product costs.

As I shared with you, I think we shall start to see more meaningful margin recovery for OshKosh in the second half of this year. And so what was, all-in, perhaps a low-single-digit operating margin for OshKosh last year, the previous year, this operating margin was close to 9%.

It earned some portion of about $30 million in operating income. Most of that got wiped out in 2011 with the increase in product costs.

Our vision for the brand this year is that it'll show meaningful recovery in operating income. More importantly, over time, what today is a little over $400 million business with a very low operating margin, our vision is within the next 4 or 5 years, it's at least a $500 million business, earning about a 10% to 12% operating margin, which would be its earning $50 million to $60 million for the company relative to, call it at best of breakeven operation in 2011.

So we're very excited about the initiatives under way with OshKosh. I think we've got a terrific team, we're making progress with the product performance.

Seventh consecutive month of comp store growth, that's a direct reflection of the success this new team is achieving. So we're pretty bullish on OshKosh.

Okay, good. That sounds great.

And then maybe if you can give some more color on the improved inventory management in the quarter. I assume it has to do with the restructuring, but maybe just a little bit color on what you're doing better now versus historically.

Sure, Susan. I think there's a number of things that we're doing differently there.

Being more plan-ful in the business, making our commitments closer to when we have better visibility to the wholesale side of the orders so we're not buying contingency inventories. I think some of the things that we're doing with this new distribution center, what we're doing currently with replenishing retail, holding a bit more inventory at -- centrally and then getting it to the stores when they need it, so we've sharpened our systems on that front as well.

We're also making more use of just a planning and allocation technology that we've invested in retail over the last couple of years. That's starting to bear some fruit as well.

But on balance, we are taking some lead time out of our ordering cycles such that we're able to get more precision with the demand we're forecasting and able to hold a little bit less inventory as a result.

Mike, looking forward into fall. With respect to your wholesale customers.

Any comment or any insights that you can share in terms of their inventory positions? Is that the reason they're ordering conservatively?

Or is it more a reflection of what happened to them last year? What's your inventory position on the floor?

And if you can make any comment about where you are -- or make any comment about JCPenney relative to Carter's specifically and/or generally, that would be -- I think everybody would like to hear what you have to say.

Okay. So I would say generally speaking, our wholesale customers are being conservative on their inventory commitments.

I view that positively. That's good for their business.

It's good for our business. Maybe near term, it puts a little pressure on our top line growth, but it's far more profitable for them.

And if they're more profitable with our brands, that's good for their business and for ours. I think back to -- I believe, it was 2010, again, dealing with the effects of the recession, everybody tried to get sharper on their inventory commitments.

And that's when I would say everybody's business was better. The margins were good.

People were leaner on inventory. It was more of a pull model in terms of demand where they were running too lean on inventory, they'd call us, they'd ask us to accelerate some of the orders.

And when you run cleaner on inventory, it's good for everybody. So actually, I'm encouraged by where we're -- how we're running the business right now.

In terms of JCPenney, we're doing our best to support their new initiative, and we're looking at the prototype designs for the new stores that they're attempting to develop to improve presentation of all the things that are represented in their stores. So we're staying very close to them.

Their relationship with -- is excellent, and we're hoping they're successful with their new strategy.

Great, that's really helpful. A trivia question for Richard.

This $100 million CapEx program. Can you parse it between store investment, this distribution center and/or any IT or POS -- internet-related -- eCommerce-related technology investments for me?

Sure. At a high level, CapEx is up about $50 million relative to what we spent last year.

I'd say our initial thoughts on the DC spending that this will be a project that will extend into next year, so probably about $25 million of that increase relates to the new DC. Collectively on new stores, we're probably spending another $4 million or $5 million over what we spent a year ago.

It's a similar number of new stores for Carter's, about 7 stores for OshKosh. We have stepped up the remodel program in retail as well.

There's probably $10 million or so that we're spending more in remodels to go into the older locations and spruce them up a bit. And then, the balance is growing out additional stores in Canada and then IT systems, as you suggest, so in retail and throughout the rest of the business, upgrading our systems capabilities.

You guys are opening up a new direct sourcing office in Hong Kong later this year. Can you do a little bit about what you believe the penetration of direct sourcing as a percent of total fiscal '13 sales might be and then, as a follow-up, ultimately may be?

I would say it's too early to give you a specific percentage. What I've asked Chris Rork, who heads up the supply chain, to do is pursue this new initiative thoughtfully, carefully.

The agents have served us well, the sourcing agents. They've done a nice job for us.

And we'll walk this up over time. What our vision is, is over the next 5 years, what today is about 95% agent-sourced over the next 5 years becomes more 50% agent-sourced, 50% direct-sourced.

How it ramps up, we haven't even opened the office yet. So maybe later this year, I'll have a better view on what is possible as we firm up our 2013 plans.

But just assume we will walk it up. We'll walk it up over time.

Were not in a hurry to get to a direct sourcing formula. Our outlook for the second half of this year, we're expecting meaningful margin recovery.

It will be more significant, obviously, in 2013 based on the world as we see it today. We're expecting more meaningful margin recovery.

And our objective over the next 4 to 5 years is work our way back to that 14% operating margin. That's probably the best way.

It's the way I think about -- what the opportunity is here is to get back to a level of performance we enjoyed just a couple of years ago in terms of operating margin. And I think that's entirely possible, because when you think of where our business was in 2010 when we had about a 14% operating margin, we didn't have this wonderful Canadian business that we have now, which has a very rich margin.

I would say we did not have the clarity on what's possible on international markets, and we're making some good investments to resource that initiative appropriately. We didn't have the visibility in 2010 of how wonderful the eCommerce business would be, how it would ramp up as quickly as it has.

And that, we expect, will be a high-margin business. So all those things and others things considered, we have a high confidence level that we can work our way back to that operating margin over the next 4 to 5 years.

And your eCommerce commentary is a great segue way for my last question, which is the margin improvement that's expected due to the in-sourcing of eCommerce later this year. Can you talk a little bit about what you feel that delta may be?

It's a nice a step function improvement. Certainly, the business has scaled to a size where it's appropriate for us to bring those fulfillment activities in-house.

We'll have to look at the other elements of the outsourced model over time. But it's a nice meaningful step-up in the operating margin of the business.

We haven't been specific beyond that, Steve.

And you don't want to take the opportunity to be now, Richard?

I do not, Steve.

A couple of questions. So just going back to the first quarter, Richard, the swing in gross margin was so meaningful in Q1.

Some of those pieces you called out, can you just sort of quantify what the contribution of each of those were to the change, whether it was the DTC [ph] mix or Canada or the less off-price and then offset by higher product cost? Maybe tell us in basis points generally what the changes were.

I don't know if I'll be as discrete on that, Scott. I think a big component, certainly, was the mix shift.

The fact that our direct-to-consumer businesses grew so significantly with the addition of Canada, in particular. Canada is a very high-gross-margin business, and that was a big contributor.

I'd say in basis-point terms, the biggest contributor was the mix shift and then followed by some of the very successful things that we've done on the pricing front. But that's really still just offsetting the dilution that we're seeing from product costs, which are higher in the first quarter.

That should start to moderate that effect going forward. But it's really -- it's a number of things that have been contributing to it.

The off-price activity being lower. As Mike said, it was down about 70% in the Carter's business.

It was down significantly in OshKosh as well, although on a lower base. So really, a lot of win in our sales from a margin perspective.

We're encouraged by it.

Just to add to that, Scott. I don't know if you've been in the stores recently.

I think, what's driving -- first and foremost, I think what's driving the performance of the business is the strength of the product offering. I mean, it's just -- I was in the stores last week for all our brands, and I think the brands stand out relative to the competition.

I think that's why we're doing so well. We have got a lot of other good initiatives going on.

But I think the thing that's overall driving the strength of our business is the strength of the product offerings.

Okay. And then sort of help me with the Q2 guidance.

I mean, the revenue guidance assumes acceleration and with the April comps, while on plan but not running as high as they were in the first quarter, is that going to come into a wholesale accelerate for some reason? Or will the international business -- where do you see the acceleration in Q2 versus what we're seeing right now?

Yes, I'd expect that the growth rate in wholesale does tick up a bit in the second quarter. Recall that we still have non-comparability with Canada.

We'll have another quarter of their contribution, which was not in the prior year base as well. But good growth in wholesale, good growth from Canada, good growth from eCommerce expected as well.

Has there been anything you guys have had to [indiscernible] see pull forward? Or has there been any of that action in the last couple of quarters?

Yes, there was certainly some of that demand that we think pulled forward a bit earlier into the first quarter due to the earlier Easter, the favorable shopping weather out there, probably pulled a little bit of volume forward. We're also anticipating that some of the volume that we had planned for Q3 that may actually roll into the second quarter as well.

So just good, to Mike's point, consistent demand for our products, and we think that will be reflected in the net sales line.

Okay, great. Just last, Jim, the numbers or the breakdown of the comps for the stores were -- was awesome.

I mean, is that the model going forward? Do you hold price and you can still get the number of transactions higher?

And then, also, what is the sales particularly [ph] in your Carter's stores right now? And where do think that can go to?

Just a couple of answers for you there, Scott. First, and I've got to echo what Mike said and I think what you agree with.

Product has performed incredibly well in both brands, and product is everything, as you know. So we are continuing to be very optimistic about our ability to drive incremental AUR.

One of the, I think, upsides that we have for us that Richard alluded to is our ability to now feed our stores more effectively based on customer demand from a distribution perspective. The fact that we can now hold more of our inventory back.

And then, once we have some sales trends, feed the inventory to the stores is going to help us on bolt on AUR, which is obviously, a direct positive impact on the gross margin. Additionally, we've been able to reduce our flowback of product -- the time necessary to flow back product based on sales to stores by close to 10 days.

So that's been very, very significant in order to better service the customer. As it relates to our revenue per square foot in Carter's, on an average store basis for the chain, we're at about $408 a square foot.

We believe that there is upside to that. If you -- and I know you've -- due to the fact that you've got a young child, you're in our stores as well as I know you're a student of the business.

We've increased the shopping experience or the overall effectiveness of the shopping experience because we've reduced the density on our selling floor. Beginning at first quarter of this year, we were able to strategically remove some fixtures off of our floor, which, quite honestly, had a density issue.

And especially if you're a mom with a stroller. And we've been able to impact the vast majority of our Carter's stores by doing that.

And the overall experience, we believe, been based on consumer feedback, has been increased significantly based on that. We also have, and Richard alluded to, an initiative under remodels.

And one of the things that we realized was the general placement of our cash wrap in the center of our stores was probably not the best use of square footage. And in our remodel process, we're moving that off to the side, and that frees up roughly 400 square feet of selling space in the center of the floor to reallocate to the assortment.

We're also adding some cabinets in the windows, and we've moved our standards inward or tighter, to a certain extent, which allows for better usage of the overall walls. So combining all of those things, we've really -- we think we do have continued upside to grow comp store basis.

We've got certain stores that are operating at extreme volume levels in some of our tourist markets, and we execute them quite effectively. So yes, there's continued upside.

This is Courtney in for Howard Tubin. Could you give us a few more details on some of your marketing plans for the year?

You mentioned the movie tie-in, which sounds new. Do you have any other plans?

The big focus is to continue on and build on what's worked for us, which are these direct-mail, what we call cat-azines for each of the Carter's and OshKosh brands. Direct mail has been very effective for us.

We're doing some good things around this movie. But it's building on some of the good work that we've done with social media, specifically Facebook.

But the plan is just to continue to build on this wonderful database which has been built. We've invested in some good tools, some systems around customer relationship management software, so we can become more effective on the promotions.

I think an important point that we haven't mentioned, a good portion of what's driving a better price realization is just becoming smarter in terms of the way we do promotions. In March, we decided we did not need to repeat a very strong promotion that we had in March.

It just didn't feel as though we needed it. It was a conscious decision to roll it back and reinvest those dollars into the balance of the year.

But I think we've gotten much more sophisticated with some good tools that we've invested in and with some good people who are focused on at improving the effectiveness of our marketing initiatives.

All right. So would you say that your ad spend is consistent with last year?

Or...

No, I'd say it's going to be more, but I think we're going to get a higher return on those investments.

Okay. Is there anything specific for back-to-school?

Or...

Always. Always.

You'll see some rich marketing. I don't know if there's anything more I would specific -- I'd have on this call for you, but it will be beautifully done for both brands.

Okay. Well, thank you all for joining us on the call.

We appreciate your questions, your interest in our business. We look forward updating you again on our progress in July.

Goodbye.