The following is a discussion of our results of operations and current financial position. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included elsewhere in this quarterly report.

Our fiscal year ends on the Saturday, in December or January, nearest the last day of December. The accompanying unaudited condensed consolidated financial statements for the first quarter of fiscal 2009 reflect our financial position as of April 4, 2009. The first quarter of fiscal 2008 ended on March 29, 2008.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated (i) selected statement
of operations data expressed as a percentage of net sales and (ii) the number of
retail stores open at the end of each period:

                                                       Three-month periods ended
                                                      April 4,          March 29,
                                                        2009               2008

   Wholesale sales:
   Carter's                                                 34.4 %             35.7 %
   OshKosh                                                   6.0                5.6
     Total wholesale sales                                  40.4               41.3

   Retail store sales:
   Carter's                                                 28.6               26.2
   OshKosh                                                  14.5               13.4
     Total retail store sales                               43.1               39.6

   Mass channel
   sales                                                    16.5               19.1

   Consolidated net sales                                  100.0 %            100.0 %
   Cost of goods
   sold                                                     64.3               68.2

   Gross
   profit                                                   35.7               31.8
   Selling, general, and administrative expenses            27.8               28.0
   Workforce reduction and facility closure costs            2.4                 --
   Royalty
   income                                                   (2.5 )             (2.4 )

   Operating
   income                                                    8.0                6.2
   Interest expense,
   net                                                       0.9                1.3

   Income before income taxes                                7.1                4.9
   Provision for income taxes                                2.5                1.4

   Net
   income                                                    4.6 %              3.5 %

   Number of retail stores at end of period:
   Carter's                                                  260                229
   OshKosh                                                   165                163
     Total                                                   425                392

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

Three-month period ended April 4, 2009 compared to the three-month period ended March 29, 2008

CONSOLIDATED NET SALES

In the first quarter of fiscal 2009, consolidated net sales increased $26.8
million, or 8.1%, to $356.8 million and reflect growth in our Carter's and
OshKosh brand wholesale and retail store segments.

                                                    For the three-month periods ended
                                             April 4,       % of       March 29,       % of
 (dollars in thousands)                        2009         Total         2008         Total

 Net sales:
   Wholesale-Carter's                        $ 122,897        34.4 %   $  117,832        35.7 %
   Wholesale-OshKosh                            21,387         6.0 %       18,449         5.6 %
   Retail-Carter's                             101,930        28.6 %       86,402        26.2 %
   Retail-OshKosh                               51,828        14.5 %       44,365        13.4 %
   Mass Channel-Carter's                        58,745        16.5 %       62,924        19.1 %
      Total net sales                        $ 356,787       100.0 %   $  329,972       100.0 %

CARTER'S WHOLESALE SALES

Carter's brand wholesale sales increased $5.1 million, or 4.3%, in the first quarter of fiscal 2009 to $122.9 million. The increase in Carter's brand wholesale sales was driven by a 5% increase in average price per unit, partially offset by a 1% decrease in units shipped, as compared to the first quarter of fiscal 2008. The increase in average price per unit during the first quarter of fiscal 2009 was driven by improved product performance and an increase in average selling prices to off-price customers.

OSHKOSH WHOLESALE SALES

OshKosh brand wholesale sales increased $2.9 million, or 15.9%, in the first quarter of fiscal 2009 to $21.4 million. The increase in OshKosh brand wholesale sales reflects a 9% increase in units shipped and a 7% increase in average price per unit as compared to the first quarter of fiscal 2008. The increase in units shipped relates primarily to the timing of Spring 2009 shipments. The increase in average price per unit reflects reduced levels of customer accommodations due to improved over-the-counter product performance.

MASS CHANNEL SALES

Mass channel sales decreased $4.2 million, or 6.6%, in the first quarter of fiscal 2009 to $58.7 million. The decrease was due to a $3.0 million, or 8.6%, decrease in sales of our Child of Mine brand to Walmart, and a $1.2 million, or 4.2%, decrease in sales of our Just One Year brand to Target. These decreases were a result of the timing of shipments. We anticipate our mass channel sales could decline approximately 15% in fiscal 2009 as compared to fiscal 2008, primarily due to lower sales of our Child of Mine brand.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

CARTER'S RETAIL STORES

Carter's retail store sales increased $15.5 million, or 18.0%, in the first quarter of fiscal 2009 to $101.9 million. The increase was driven by incremental sales of $8.3 million generated by new store openings and a comparable store sales increase of 5.2%, or $7.4 million.

On a comparable store basis, transactions increased 2.3% and average prices increased 3.1% as compared to the first quarter of fiscal 2008. The increase in transactions was driven by strong product performance in all product categories, improved inventory management, improved in-store product presentation, and improved merchandising and marketing efforts. The increase in average prices was driven primarily by the strong performance of our sleepwear and other product categories.

The Company's comparable store sales calculations include sales for all stores that were open during the comparable fiscal period, including remodeled stores and certain relocated stores. If a store relocates within the same center with no business interruption or material change in square footage, the sales of such store will continue to be included in the comparable store calculation. If a store relocates to another center, or there is a material change in square footage, such store is treated as a new store. Stores that are closed during the period are included in the comparable store sales calculation up to the date of closing.

During the first quarter of fiscal 2009, we opened seven Carter's retail stores. There were a total of 260 Carter's retail stores as of April 4, 2009. In total, we plan to open 20 and close five Carter's retail stores during fiscal 2009.

OSHKOSH RETAIL STORES

OshKosh retail store sales increased $7.5 million, or 16.8%, in the first quarter of fiscal 2009 to $51.8 million. The increase reflects a comparable store sales increase of 11.1%, or $6.7 million, and incremental sales of $0.9 million generated by new store openings, partially offset by the impact of store closings of $0.2 million.

On a comparable store basis, average prices increased 9.5% and transactions increased 5.1%. The increase in average prices and increase in transactions were driven by strong product performance which resulted in lower levels of markdowns, improved inventory management, and in-store product presentation.

There were a total of 165 OshKosh retail stores as of April 4, 2009. We plan to close three OshKosh retail stores during fiscal 2009.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

GROSS PROFIT

Our gross profit increased $22.4 million, or 21.4%, to $127.3 million in the first quarter of fiscal 2009. Gross profit as a percentage of net sales was 35.7% in the first quarter of fiscal 2009 as compared to 31.8% in the first quarter of fiscal 2008.

The increase in gross profit as a percentage of net sales reflects:

· a greater mix of consolidated retail sales which, on average, have a higher gross margin than sales in our wholesale and mass channel segments;

· improvement in our Carter's and OshKosh retail segment gross margin (consolidated retail gross margin increased from 47.1% of consolidated retail store sales in first quarter of fiscal 2008 to 50.9% of consolidated retail store sales in first quarter of fiscal 2009);

· growth in Carter's wholesale gross margin due primarily to an increase in average selling prices to off-price customers; and

· growth in OshKosh wholesale gross margin due to lower levels of customer support resulting from improved over-the-counter product performance.

The Company includes distribution costs in its selling, general, and administrative expenses. Accordingly, the Company's gross profit may not be comparable to other companies that include such distribution costs in their cost of goods sold.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses in the first quarter of fiscal 2009 increased $6.9 million, or 7.4%, to $99.1 million. As a percentage of net sales, selling, general, and administrative expenses in the first quarter of fiscal 2009 were 27.8% as compared to 28.0% in the first quarter of fiscal 2008.

The decrease in selling, general, and administrative expenses as a percentage of net sales reflects:

· lower distribution expenses related to supply chain efficiencies; and

· a focus on reducing discretionary spending.

Partially offsetting these decreases were:

· higher provisions for incentive compensation; and

· higher retail store expenses as a percentage of consolidated net sales.

WORKFORCE REDUCTION AND FACILITY CLOSURE COSTS

As a result of the corporate workforce reduction plan, we recorded charges in the first quarter of fiscal 2009 of $5.1 million, consisting of $3.3 million severance charges related to corporate office positions in connection with our existing plan and approximately $1.8 million in asset impairment charges related to our Oshkosh, Wisconsin corporate office. The Company has written down this facility to $0 to reflect the Company's intention to donate the facility. The Company expects to incur additional severance of approximately $1.4 million in the second quarter of fiscal 2009 for special one-time benefits provided to affected employees that are incremental to the Company's severance plan. The majority of the severance payments will be paid through the end of the year.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

In conjunction with the plan to close the Barnesville distribution center, the Company recorded charges of approximately $3.6 million, consisting of severance of $1.7 million (included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet as of April 4, 2009); asset impairment charges of $1.1 million related to the write-down of the related land, building, and equipment; $0.3 million of accelerated depreciation (included in selling, general, and administrative expenses); and $0.5 million of other closure costs. The Company expects to incur additional accelerated depreciation charges of approximately $0.6 million in the second quarter of fiscal 2009. The salvage value of this facility is estimated to be $0 to reflect the Company's intention to donate the facility.

ROYALTY INCOME

We license the use of our Carter's, Just One Year, Child of Mine, OshKosh B'Gosh, OshKosh, and Genuine Kids from OshKosh brand names. Royalty income from these brands in the first quarter of fiscal 2009 was approximately $8.8 million (including $2.1 million of international royalty income), an increase of 10.7%, or $0.8 million, as compared to the first quarter of fiscal 2008. This increase was driven by increased sales by our Carter's brand domestic licensees, OshKosh brand international licensees, and our Genuine Kids from OshKosh brand.

OPERATING INCOME

Operating income increased $8.0 million, or 39.0%, to $28.6 million in the first quarter of fiscal 2009. The increase in operating income was due to the factors described above.

INTEREST EXPENSE, NET

Interest expense in the first quarter of fiscal 2009 decreased $1.3 million, or 29.8%, to $3.2 million. The decrease is primarily attributable to lower effective interest rates. Weighted-average borrowings in the first quarter of fiscal 2009 were $337.7 million at an effective interest rate of 3.9% as compared to weighted-average borrowings in the first quarter of fiscal 2008 of $341.5 million at an effective interest rate of 5.8%. In the first quarter of fiscal 2009, we recorded $0.4 million in interest expense related to our interest rate swap agreements and $0.5 million in interest expense related to our interest rate collar agreement. In the first quarter of fiscal 2008, we recorded $0.2 million in interest expense related to our interest rate swap agreement.

INCOME TAXES

Our effective tax rate was 35.5% for the first quarter of fiscal 2009 and 27.9% for the first quarter of fiscal 2008. This change was a result of the reversal of $1.6 million of reserves for certain tax exposures following the completion of an Internal Revenue Service examination for fiscal 2004 and 2005 in the first quarter of fiscal 2008 as compared to the reversal of $1.0 million related to the completion of an Internal Revenue Service examination for fiscal 2006 in the first quarter of fiscal 2009.

NET INCOME

Our net income for the first quarter of fiscal 2009 increased $4.8 million, or 41.6%, to $16.4 million as compared to $11.6 million in the first quarter of fiscal 2008 as a result of the factors described above.

FINANCIAL CONDITION, CAPITAL RESOURCES, AND LIQUIDITY

Our primary cash needs are working capital and capital expenditures. Our primary source of liquidity will continue to be cash and cash equivalents on hand, cash flow from operations, and borrowings under our revolver, and we expect that these sources will fund our ongoing requirements for working capital and capital expenditures. These sources of liquidity may be impacted by continued demand for our products and our ability to meet debt covenants under our senior credit facility.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

Net accounts receivable at April 4, 2009 were $112.9 million compared to $128.5 million at March 29, 2008 and $106.1 million at January 3, 2009. The decrease as compared to March 29, 2008 primarily reflects lower levels of mass channel sales and a decrease in wholesale and mass channel sales in the latter part of the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. Due to the seasonal nature of our operations, the net accounts receivable balance at April 4, 2009 is not comparable to the net accounts receivable balance at January 3, 2009.

Net inventories at April 4, 2009 were $153.9 million compared to $174.2 million at March 29, 2008 and $203.5 million at January 3, 2009. The decrease of $20.3 million, or 11.6%, as compared to March 29, 2008 is due to improved inventory management, the timing of shipments, and lower levels of mass channel inventory. Due to the seasonal nature of our operations, net inventories at April 4, 2009 are not comparable to net inventories at January 3, 2009.

Net cash provided by operating activities for the first quarter of fiscal 2009 was $33.4 million compared to net cash provided by operating activities of $28.9 million in the first quarter of fiscal 2008. The increase in operating cash flow primarily reflects the growth in earnings.

We invested $9.0 million in capital expenditures during the first quarter of fiscal 2009 compared to $2.5 million during the first quarter of fiscal 2008. We plan to invest approximately $30 million in capital expenditures during the remainder of fiscal 2009, primarily for retail store openings and remodelings (including retail store fixtures), fixtures for our wholesale customers, investments in our supply chain, and investments in information technology.

On February 16, 2007, the Company's Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to purchase up to $100 million of its outstanding common shares. During the first quarter of fiscal 2009, the Company did not repurchase any of its common stock. Since inception of the program and through April 4, 2009, the Company repurchased and retired approximately 4,599,580 shares, or $91.1 million, of its common stock at an average price of $19.81 per share, leaving approximately $8.9 million available for repurchase under the plan. Such repurchases may occur from time to time in the open market, in negotiated transactions, or otherwise. This program has no time limit. The timing and amount of any repurchases will be determined by management, based on its evaluation of market conditions, share price, and other factors.

At April 4, 2009, we had approximately $337.2 million in term loan borrowings and no borrowings outstanding under our revolver, exclusive of approximately $8.6 million of outstanding letters of credit. Principal borrowings under our term loan are due and payable in quarterly installments of $0.9 million through June 30, 2012 with the remaining balance of $325.8 million due on July 14, 2012. Weighted-average borrowings in the first quarter of fiscal 2009 were $337.7 million at an effective interest rate of 3.9% as compared to weighted-average borrowings in the first quarter of fiscal 2008 of $341.5 million at an effective interest rate of 5.8%.

The senior credit facility contains and defines financial covenants, including a minimum interest coverage ratio, maximum leverage ratio, and a fixed charge coverage ratio. As of April 4, 2009, the Company is in compliance with all debt covenants. The senior credit facility also sets forth mandatory and optional prepayment conditions, including an annual excess cash flow requirement, as defined, that may result in our use of cash to reduce our debt obligations. There was no excess cash flow payment required for fiscal 2008 or 2007. Our obligations under the senior credit facility are collateralized by a first priority lien on substantially all of our assets, including the assets of our domestic subsidiaries.

Our senior credit facility requires us to hedge at least 25% of our variable rate debt under this facility. On September 22, 2005, we entered into an interest rate swap agreement to receive floating interest and pay fixed interest. This interest rate swap agreement is designated as a cash flow hedge of the variable interest payments on a portion of our variable rate term loan debt. The interest rate swap agreement matures on July 30, 2010. As of April 4, 2009, approximately $51.2 million of our outstanding term loan debt was hedged under this interest rate swap agreement. The fair market value of this interest rate swap agreement as of April 4, 2009 was $1.9 million and is included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

On May 25, 2006, we entered into an interest rate collar agreement (the "collar") with a floor of 4.3% and a ceiling of 5.5%. The collar covered $100 million of our variable rate term loan debt and is designated as a cash flow hedge of the variable interest payments on such debt. The collar matured on January 31, 2009.

On January 30, 2009, we entered into two interest rate swap agreements, each covering $50.0 million of our variable rate term loan debt, to receive floating interest and pay fixed interest. These swap agreements are designated as cash flow hedges of the variable interest payments on a portion of our variable rate term loan debt. The fair market value of these interest rate swap agreements as of April 4, 2009 was $0.3 million and is included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet. These swap agreements mature in January 2010.

Our operating results are subject to risk from interest rate fluctuations on our senior credit facility, which carries variable interest rates. As of April 4, 2009, our outstanding debt aggregated approximately $337.2 million, of which $185.9 million bore interest at a variable rate. An increase or decrease of 1% in the applicable rate would increase or decrease our annual interest cost by approximately $1.9 million, exclusive of variable rate debt subject to our swap agreements, and could have an adverse effect on our earnings and cash flow.

As a result of the corporate workforce reduction plan, we recorded charges in the first quarter of fiscal 2009 of $5.1 million, consisting of $3.3 million in severance charges related to corporate office positions in connection with our existing plan and approximately $1.8 million in asset impairment charges related to our Oshkosh, Wisconsin corporate office. The Company has written down this facility to $0 to reflect the Company's intention to donate the facility. The Company expects to incur additional severance of approximately $1.4 million in the second quarter of fiscal 2009 for special one-time benefits provided to affected employees that are incremental to the Company's severance plan. The majority of the severance payments will be paid through the end of the year.

During the balance of fiscal 2009, as we consolidate the operations currently performed in our Oshkosh, Wisconsin office, we expect to incur approximately $4.0 million in recruiting, relocation, and retention costs throughout the balance of the year. We expect these costs to be mostly offset by savings from the corporate workforce reduction.

As a result of the plan to close the Company's Barnesville, Georgia distribution facility, we recorded charges in the first quarter of fiscal 2009 of $3.6 million, consisting of $1.7 million of severance charges; $1.1 million of asset impairment charges; $0.3 million of accelerated depreciation (included in selling, general, and administrative expenses); and $0.5 million of other closure costs. Severance payments will be paid through the end of the year. The Company expects to incur additional accelerated depreciation charges of approximately $0.6 million in the second quarter of fiscal 2009. The salvage value of this facility is estimated to be $0 to reflect the Company's intention to donate the facility.

Based on our current level of operations, we believe that cash generated from operations and available cash, together with amounts available under our revolver, will be adequate to meet our working capital needs and capital expenditure requirements for the foreseeable future, although no assurance can be given in this regard. We may, however, need to refinance all or a portion of the principal amount of amounts outstanding under our revolver on or before July 14, 2011 and amounts outstanding under our term loan on or before July 14, 2012.

The continuing volatility in the financial markets and the related economic downturn in markets throughout the world could have a material adverse effect on our business. While we currently generate significant cash flows from our ongoing operations and have access to credit through amounts available under our revolver, credit markets have recently experienced significant disruptions and certain leading financial institutions have either declared bankruptcy or have shown significant deterioration in their financial stability. Further deterioration in the financial markets could make future financing difficult or more expensive. If any of the financial institutions that are parties to our revolver were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us. This could leave us with reduced borrowing capacity. In addition, tighter credit markets may lead to business disruptions for certain of our suppliers, contract manufacturers or trade customers and consequently, could disrupt our business.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (Continued)

EFFECTS OF INFLATION AND DEFLATION

We are affected by inflation and changing prices primarily through purchasing product from our global suppliers, increased operating costs and expenses, and fluctuations in interest rates. The effects of inflation on our net sales and operations have not been material in recent years. In recent years, there has been deflationary pressure on selling prices. If deflationary price trends outpace our ability to obtain price reductions from our global suppliers, our profitability may be affected.

SEASONALITY

We experience seasonal fluctuations in our sales and profitability, with generally lower sales and gross profit in the first and second quarters of our fiscal year. Over the past five fiscal years, excluding the impact of our acquisition of OshKosh B'Gosh, Inc. in fiscal 2005, approximately 57% of our consolidated net sales were generated in the second half of our fiscal year. Accordingly, our results of operations for the first and second quarters of any year are not indicative of the results we expect for the full year.

As a result of this seasonality, our inventory levels and other working capital requirements generally begin to increase during the second quarter and into the third quarter of each year. During these peak periods, we have historically borrowed under our revolving credit facility.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results . . .