Carter’s Inc ((CRI)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Carter’s Inc. Earnings Call: A Mixed Bag of Growth and Challenges
The recent earnings call for Carter’s Inc. presented a balanced sentiment, reflecting both positive developments and ongoing challenges. On the positive side, the company reported growth in its retail and international segments, effective inventory management, and consumer acceptance of higher prices. However, these were tempered by significant declines in operating income, gross margin impacts from tariffs, and struggles within the U.S. Wholesale segment.
Positive Growth in U.S. Retail and International Segments
Carter’s Inc. reported a 3% increase in net sales within the U.S. Retail segment during the third quarter, alongside a 2% rise in total Retail comps. The international market also showed promise, with sales up by 5%. Notably, Mexico achieved a 16% comp, highlighting strong performance in this region.
Improvements in Inventory and Product Assortments
The company entered the third quarter with a reduced carryover of prior season goods, resulting in better performance for new seasonal products. Inventory quality was notably high, with excess inventory significantly reduced compared to the previous year.
Consumer Acceptance of Higher Prices
Carter’s Inc. successfully implemented a mid-single-digit increase in Average Unit Retail (AUR) prices within the U.S. Retail segment. This led to an increase in average transaction values, indicating that consumers have responded positively to the higher prices.
Cost Savings and Efficiency Measures
The company identified $45 million in gross savings for 2026, including a plan to reduce office-based roles by 15%, which is expected to save approximately $35 million. These measures are part of Carter’s broader strategy to enhance operational efficiency.
Significant Decline in Operating Income and Earnings Per Share
Carter’s reported a significant decline in adjusted operating income, which fell to $39 million in Q3 from $77 million a year ago. Adjusted earnings per share also dropped to $0.74 from $1.64 last year, reflecting the financial challenges the company is facing.
Impact of Tariffs on Gross Margin
The company’s gross margin decreased by 180 basis points, primarily due to higher product costs, including a $20 million impact from tariffs in Q3. The estimated gross impact of tariffs in Q4 is projected to be $40 million, further affecting profitability.
Challenges in U.S. Wholesale Segment
Sales in the U.S. Wholesale segment were down, largely driven by lower sales in the Simple Joys brand on Amazon. This decline is expected to persist into the next year, posing a significant challenge for the company.
Organizational Restructuring Costs
Carter’s incurred approximately $6 million in charges related to organizational restructuring in Q3, covering severance and employee separation benefits. Additional charges are anticipated in Q4 as the company continues its restructuring efforts.
Forward-Looking Guidance
Looking ahead, Carter’s outlined its strategy to address several financial metrics, including net sales of $758 million and an adjusted operating income of $39 million. The company plans to mitigate gross margin impacts through price increases and operational efficiencies, aiming for $45 million in gross savings by 2026. Carter’s also plans to close 150 stores by 2026, with an expected 20% sales transfer rate to e-commerce and remaining stores. Despite these challenges, the company remains confident in achieving adjusted earnings growth in 2026, driven by pricing strategies, productivity initiatives, and increased demand creation spending.
In summary, Carter’s Inc.’s earnings call reflected a mix of growth and challenges. While the company showed positive developments in retail and international segments and effective inventory management, it faces significant hurdles with declining operating income and gross margin impacts from tariffs. The company’s forward-looking strategies aim to address these challenges, with a focus on cost savings, operational efficiencies, and strategic pricing. Investors and stakeholders will be keenly watching how these plans unfold in the coming years.