Carter’s Experiences Mixed Results Amid Market Challenges

Carter’s, Inc., a leading children’s apparel company, recently released its financial results for the second quarter of fiscal 2024, which presented a mixed picture. While U.S. Wholesale sales exhibited solid growth, both its U.S. Retail and International segments encountered challenges, resulting in overall sales that fell short of expectations. Nevertheless, Carter’s achieved a record gross profit margin, which helped to enhance earnings beyond initial projections.

The company is currently navigating a difficult inflationary environment and has revised its annual sales and earnings forecast downward, citing declining consumer confidence and rising inflation as key factors. To mitigate these issues, Carter’s is undertaking specific price adjustments and enhancing brand marketing efforts to drive traffic and sales. The company remains positive about its growth strategies and the recent additions to its leadership team.

Key Highlights:

• Carter’s reported steady sales for Q2, benefiting from a robust Wholesale performance but struggling with Retail and International sales.
• Earnings surpassed expectations, largely due to an unprecedented gross profit margin.
• The annual forecast was adjusted downward in light of ongoing inflation and declining consumer confidence.
• Investments are being made in pricing and marketing to increase traffic and sales.
• New leadership is anticipated to bolster the company’s e-commerce and technology endeavors.
• Carter’s is aiming for over $100 million in consumer sales this year and has set a target of $200 million by 2027.
• The company is focusing on launching new brands and reinforcing its value messaging.
• Pricing and promotional strategies are being adjusted to strengthen the company’s value proposition.
• The supply chain remains strong with negotiated lower product costs and reliable shipping.

Company Outlook:
Carter’s anticipates a decline in comparable retail sales while expecting growth in the wholesale sector. Over $200 million in operating cash flow is projected for the full year. The company has revised its outlook for the second half of the year and plans to both open new stores and optimize existing ones.

Bearish Points:

• U.S. Retail and International segments showed weakness, with lower traffic and conversion rates.
• Gross margin is expected to decrease by 50 to 70 basis points in Q3 and more significantly in Q4, due to rising transportation costs and diminished inventory reserves.
• The company plans to adopt a more promotional strategy during the upcoming holiday season to incentivize customers.

Bullish Points:

• Growth was noted in the Wholesale segment, propelled by exclusive brands and the flagship Carter’s brand.
• Newer stores have shown greater resilience compared to older ones because of better locations.
• Carter’s is focusing on expanding its Wholesale channel, which is less impacted by the revised outlook.

Results and Future Steps:
In the second quarter, net sales experienced a 6% decrease. While direct-to-consumer unit sales fell, this decline was mitigated by a significant increase in wholesale customer sales. The company discussed its strategic focus on style and value, enhancing customer relationships, and effectively leveraging its brand reach.

Carter’s is adapting to the current retail landscape by honing in on its strengths within the wholesale segment, strategic pricing, and robust marketing initiatives. With new leadership in place and a well-managed supply chain, the company is prepared to weather economic challenges and position itself for future growth. Updates on progress will continue to be communicated in upcoming announcements.