CRI — Carter's, Inc.

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

1. Key Financial Results and Metrics

• Q4 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 increased tariffs and higher product costs.
• 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 the prior year.
• SG&A Expenses: Increased 5% to $315 million, influenced by inflationary pressures and investments in demand creation.

2. Strategic Updates and Business Highlights

• Carter's is focusing on sustainable growth by reducing promotional activities and enhancing product quality and pricing power.
• The company is experiencing momentum with all apparel brands and age segments showing growth, particularly among Gen Z and millennial families.
• Productivity initiatives include rationalizing the store fleet and workforce, with plans to close approximately 60 stores in 2026.
• The company is investing in demand creation and technology to drive traffic and improve consumer experiences.

3. Forward Guidance and Outlook

• 2026 Sales Growth: Expected in the low to mid-single digits, with adjusted operating income also projected to grow in the same range.
• Q1 2026 Guidance: Anticipated net sales growth in the mid-single digits, with U.S. Retail expected to grow in the high single digits.
• Profitability: Adjusted operating income is expected to be lower in the first half of 2026 due to tariff impacts, with growth anticipated in the second half.

4. Bad News, Challenges, or Points of Concern

• Tariff Impact: The company faces a projected gross impact of over $200 million from tariffs in 2026, significantly higher than the $60 million in 2025.
• Profitability Decline: Despite sales growth, earnings are down year-over-year, highlighting ongoing profitability challenges.
• Market Uncertainty: Economic conditions, including consumer confidence and inflation, present risks to future performance.
• Wholesale Channel Pressure: The Wholesale segment is expected to face challenges in the first half of 2026 due to timing and tariff impacts.

5. Notable Q&A Insights

• Pricing Strategy: The company is successfully increasing full-price realization, with less reliance on promotions. New products are resonating well with consumers, particularly in higher price segments.
• Consumer Demographics: New customers are primarily from higher income brackets, indicating potential for increased lifetime value.
• Wholesale Margin Challenges: The decline in Wholesale margins is largely attributed to tariff impacts, with expectations for improvement in the second half of 2026.
• Marketing Investments: Increased marketing spending is expected to drive demand and improve ROI, particularly through digital channels.
• Amazon Strategy: Carter's is transitioning away from the Simple Joys brand on Amazon to focus on its core brands, anticipating improved sales and profitability on the platform.

Overall, Carter's, Inc. is navigating a complex environment with a focus on strategic growth initiatives, despite facing significant challenges related to tariffs and profitability.