Summary of Carter's, Inc. Q4 2025 Earnings Call

1Key Financial Results and Metrics

Q4 2025 Net Sales: $925 million, an 8% increase year-over-year (3% growth on a comparable 13-week basis).

Gross Margin: 43.2%, down 460 basis points from the previous year, primarily due to tariffs ($40 million impact).

Adjusted Operating Income: $89 million, with an adjusted operating margin of 9.7%, down from 13.4% year-over-year.

Adjusted Earnings Per Share (EPS): $1.90, compared to $2.39 in Q4 2024.

Full Year 2025 Operating Cash Flow: $122 million, down due to lower earnings and higher inventories.

2Strategic Updates and Business Highlights

The company is focusing on sustainable growth through reduced promotional activity and improved pricing power, particularly in its direct-to-consumer (DTC) channels.

All apparel brands and age segments saw growth in Q4, with a notable increase in higher-priced product offerings attracting new consumers, especially from Gen Z and millennial families.

Carter's is undergoing a transformation with productivity initiatives, including store rationalization and workforce resizing, aimed at enhancing operational efficiency.

The company plans to close approximately 60 stores in 2026 as part of a broader strategy to optimize its retail footprint.

3Forward Guidance and Outlook

2026 Net Sales Growth: Expected in the low to mid-single digits, with adjusted operating income also anticipated to grow in the same range.

First Quarter 2026 Guidance: Net sales projected to increase in the mid-single digits, with U.S. Retail growth expected in the high single-digit range.

The company anticipates a decline in gross margin rate for the full year due to tariff impacts, but expects improved pricing and productivity initiatives to offset some costs.

Adjusted EPS for 2026 is projected to decline by low double digits to mid-teens compared to 2025's adjusted EPS of $3.47.

4Bad News, Challenges, or Points of Concern

Tariff Impact: The gross impact of tariffs is expected to increase significantly in 2026, projected at over $200 million, which will pressure margins.

Profitability Decline: Despite revenue growth, earnings were down year-over-year, indicating ongoing challenges in maintaining profitability amidst rising costs.

Macro Risks: Consumer confidence and spending remain uncertain, with potential impacts from economic conditions and tariff policies posing risks to future performance.

Wholesale Channel Pressure: The Wholesale segment is expected to face challenges in the first half of 2026, with lower sales growth anticipated due to cautious customer behavior and prior tariff impacts.

5Notable Q&A Insights

Management emphasized the importance of full-price realization and noted that they are selling more products at higher price points with reduced promotional activity.

The company is actively working to mitigate tariff impacts through pricing strategies and supply chain adjustments, with confidence in consumer acceptance of higher prices.

New customer acquisition is skewing towards higher-income demographics, which may enhance lifetime value but raises questions about maintaining appeal to existing, more price-sensitive consumers.

The transition away from Simple Joys on Amazon is underway, with a focus on promoting Carter's own brands, which is expected to improve revenue and profitability on that platform. This summary encapsulates the key points discussed during the earnings call, providing a balanced view of Carter's current performance, strategic direction, and challenges ahead.