CRI — Carter's Inc.

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

1. Key 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.

2. Strategic 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.

3. Forward 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.

4. Bad 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.

5. Notable 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.