Net income in the first half of fiscal 2019 decreased $1.3 million, or 1.7%, to $78.4 million, or $1.72 per diluted share, compared to $79.7 million, or $1.68 per diluted share, in the first half of fiscal 2018. Fiscal 2019 first half results include after-tax net charges totaling $4.6 million related to early extinguishment of debt, in addition to the favorable recovery in value of China-related inventories, retail store restructuring, and organizational restructuring items noted above. Fiscal 2018 first half results include after-tax net charges totaling $9.5 million, principally related to the wholesale customer bankruptcy noted above.

Adjusted net income (a non-GAAP measure which excludes the unusual items noted above) decreased $6.2 million, or 7.0%, to $83.0, compared to $89.2 million in the first half of fiscal 2018. Adjusted earnings per diluted share (a non-GAAP measure) in the first half of fiscal 2019 decreased 3.0% to $1.82, compared to $1.88 in the first half of fiscal 2018.

Cash flow from operations in the first half of fiscal 2019 was $104.5 million compared to $103.1 million in the first half of fiscal 2018. The increase was primarily due to the timing of payments by customers, partially offset by higher payments for inventory.

See the “Reconciliation of GAAP to Adjusted Results” section of this release for additional disclosures and reconciliations regarding non-GAAP measures.

Business Segment Results

U.S. Retail Segment

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

U.S. Retail segment sales increased $21.1 million, or 5.3%, to $423.1 million. U.S. Retail comparable sales increased 3.8%, reflecting growth in both retail store and eCommerce sales. The Company believes second quarter fiscal 2019 comparable sales benefited from the later timing of Easter in 2019 compared to 2018.

In the second quarter of fiscal 2019, the Company opened five stores and closed six stores in the United States.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

U.S. Retail segment sales increased $14.4 million, or 1.8%, to $800.2 million. U.S. Retail comparable sales increased 0.1%, reflecting growth in eCommerce sales which was offset by a decline in store sales.

In the first half of fiscal 2019, the Company opened nine stores and closed 20 stores in the United States. As of the end of the second quarter of fiscal 2019, the Company operated 833 retail stores in the United States.

U.S. Wholesale Segment

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

U.S. Wholesale segment net sales increased $19.6 million, or 9.4%, to $229.1 million, driven by increased demand for the Company’s exclusive brands.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

U.S. Wholesale segment net sales increased $14.1 million, or 2.9%, to $504.5 million, reflecting increased demand for the Company’s exclusive brands, partially offset by discontinued sales to Toys “R” Us, Bon-Ton, and Sears. Toys “R” Us, Bon-Ton, and Sears in aggregate contributed approximately $16 million to net sales in the first half of 2018.

International Segment

Second Quarter of Fiscal 2019 compared to Second Quarter of Fiscal 2018

International segment net sales decreased $2.5 million, or 3.0%, to $82.2 million, reflecting the transition of the Company’s business model in China and lower sales in other markets outside of North America, partially offset by increased demand in Mexico.

Changes in foreign currency exchange rates in the second quarter of fiscal 2019 compared to the second quarter of fiscal 2018 adversely affected International segment net sales in the second quarter of fiscal 2019 by $2.1 million, or 2.5%. On a constant currency basis (a non-GAAP measure), International segment net sales declined 0.5%.

In the first quarter of fiscal 2019, the Company completed the transition of its China retail and wholesale operations to a licensing arrangement with a China-based retailer and wholesaler of young children’s apparel.

First Half of Fiscal 2019 compared to First Half of Fiscal 2018

International segment net sales decreased $5.1 million, or 2.9%, to $170.8 million, reflecting lower demand in Canada and the change in business model in China, partially offset by growth in Mexico and various markets outside of North America.

Changes in foreign currency exchange rates in the first half of fiscal 2019 compared to the first half of fiscal 2018 adversely affected International segment net sales in the first half of fiscal 2019 by $5.1 million, or 2.9%. On a constant currency basis (a non-GAAP measure), International segment net sales were comparable to 2018.

As of the end of the second quarter of fiscal 2019, the Company operated 189 retail stores in Canada and 42 retail stores in Mexico.

Return of Capital

In the second quarter and first half of fiscal 2019, the Company returned to shareholders a total of $75.0 million and $137.7 million, respectively, through share repurchases and cash dividends as described below.

During the second quarter of fiscal 2019, the Company repurchased and retired 545,620 shares of its common stock for $52.5 million at an average price of $96.18 per share. In the first half of fiscal 2019, the Company repurchased and retired 1,005,877 shares of its common stock for $92.4 million at an average price of $91.90 per share. Fiscal year-to-date through July 24, 2019, the Company has repurchased and retired a total of 1,169,588 shares for $107.7 million at an average price of $92.11 per share. All shares were repurchased in open market transactions pursuant to applicable regulations for such transactions. As of July 24, 2019, the total remaining capacity under the Company’s previously announced repurchase authorizations was approximately $285 million.

In the second quarter of fiscal 2019, the Company paid a cash dividend of $0.50 per share totaling $22.5 million. In the first half of fiscal 2019, the Company paid cash dividends of $0.50 per share each quarter totaling $45.3 million. Future declarations of quarterly dividends and the establishment of related record and payment dates will be at the discretion of the Company’s Board of Directors based on a number of factors, including the Company’s future financial performance and other considerations.

2019 Business Outlook

For the third quarter of fiscal 2019, the Company projects net sales will increase approximately 1% compared to the third quarter of fiscal 2018 and adjusted diluted earnings per share will increase approximately 3% to 4% compared to adjusted diluted earnings per share of $1.61 in the third quarter of fiscal 2018.

For fiscal 2019, consistent with its previously-issued outlook, the Company projects net sales will increase approximately 1% to 2% compared to fiscal 2018 and adjusted diluted earnings per share will increase approximately 4% to 6% compared to adjusted diluted earnings per share of $6.29 in fiscal 2018. This fiscal 2019 adjusted earnings forecast excludes the following pre-tax items: 1) charges totaling $7.8 million related to early extinguishment of debt; 2) expenses of $1.6 million related to organizational restructuring; 3) a benefit of $2.1 million related to a favorable recovery in value of China-related inventories, and 4) a $0.7 million reversal of store restructuring costs previously recorded during the third quarter of fiscal 2017.

The Company believes these non-GAAP measurements provide investors with a meaningful view of the Company’s core operating results, and are the same measurements used by the Company’s executive management to assess the Company’s performance.

Adoption of New Accounting Standard

Beginning in fiscal 2019, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Codification No. 842, Leases (“ASC 842”), which requires substantially all of its operating leases, including retail leases, to be recorded on the balance sheet as a right-of-use asset and lease liability. The adoption of ASC 842 had a material impact on the Company’s consolidated balance sheets, but did not have a material impact on its consolidated income statements or statements of cash flows.