Carter's, Inc. CRI announced its third-quarter 2024 results, wherein the top and the bottom line beat the Zacks Consensus Estimate, while both decreased from the year-ago period’s actuals. The top line remained soft on weak sales across the U.S. Retail, International and U.S. Wholesale segments. Also, the impacts of inflation, which led to reduced spending and currency headwinds, hurt the performance.

Carter’s adjusted earnings per share (EPS) of $1.64 surpassed the Zacks Consensus Estimate of $1.29. However, the bottom line fell 10.9% from $1.84 reported in the prior-year quarter.

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Carter's, Inc. Price, Consensus and EPS Surprise

Carter's, Inc. price-consensus-eps-surprise-chart | Carter's, Inc. Quote

    
The company reported consolidated net sales of $758.5 million, which beat the Zacks Consensus Estimate of $748 million. The metric declined 4.2% from $791.7 million posted in the year-ago period. The company’s sales were impacted by reduced demand for its brands due to the ongoing macroeconomic headwinds, like inflation and elevated interest rates, which have strained families with young children. Adverse currency rates impacted net sales by $3.1 million.

Shares of this Zacks Rank #3 (Hold) company have lost 6.1% in the past three months against the industry’s 7.1% growth.

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CRI’s Segment-Wise Discussion

Sales of the U.S. Retail segment decreased 5.8% year over year to $353 million. The segment’s comparable net sales fell 7.1% in the third quarter. Our model predicted sales of $344.5 million for the segment. 

The U.S. Wholesale segment’s sales fell 0.5% year over year to $299 million. We expected net sales of $295.1 million for the segment.

The International segment witnessed an 8.6% year-over-year drop in sales to $106.5 million. We expected net sales of $108.3 million for the segment.

Focus on CRI’s Margins

Gross profit fell 5.4% year over year to $356 million. The gross margin reduced 60 basis points (bps) to 46.9% compared with 47.5% in the third quarter of 2023.

Adjusted operating income decreased 20% year over year to $77 million. The adjusted operating margin decreased 200 bps to 10.2%.

Selling, general and administrative (SG&A) expenses dipped 0.4% year over year to $284.7 million in the quarter. As a percentage of net sales, SG&A expenses increased 140 bps year over year to 37.5%. The increase in SG&A rate was due to fixed cost deleverage from lower sales, along with investments in brand marketing and retail stores, higher distribution expenses and rising transportation costs. These were partially offset by reductions in performance-based compensation and consulting expenses.

CRI’s Financial Snapshot

The company ended the third quarter with cash and cash equivalents of $175.5 million, long-term debt of $497.9 million and shareholders’ equity of $829.3 million.

In the first three quarters of 2024, the company returned $138 million to its shareholders through share repurchases and cash dividends. In the third quarter, CRI repurchased and retired nearly 0.3 million shares of its common stock for $16.7 million at an average price of $61.01 per share. As of Sept. 28, 2024, CRI had $599 million remaining under its previously announced repurchase authorization. 

Also, Carter’s paid out a dividend of 80 cents per common share for a total of $28.8 million in the quarter.

Sneak Peek Into Carter’s Outlook

For the fourth quarter of 2024, Carter’s expects net sales of $800-$840 million, indicating a decline from $858 million recorded in the year-ago quarter. Adjusted earnings are expected to be $1.32-$1.72 per share, down from $2.76 reported in the prior-year quarter. Adjusted operating income is expected to be $70-$90 million, implying a decrease from $136 million recorded in the year-ago quarter.

In the U.S. Retail business, total sales are expected to fall in the high-single digits to low-double digits for the fourth quarter. In U.S. Wholesale, the company anticipates sales up to mid-single digits to high-single digits year over year, fueled by growth in exclusive brands while sales in International are likely to decline in the mid to high-single digits.

For the U.S. Retail business, the company expects a fall of 9-12% in comparable sales. 

For 2024, Carter’s expects net sales of $2.79-$2.83 billion compared with $2.95 billion in 2023. The company anticipates adjusted operating income of $240-$260 million, lower than $328 million in 2023. It expects adjusted earnings per share of $4.70-$5.15 compared with $6.19 in 2023 and the earlier projected range of $4.60-$5.05.

The company revised its outlook for adjusted earnings per share upward due to lower borrowing costs and a lower effective tax rate. Additionally, it expects operating cash flow to exceed $200 million, while capital expenditure is anticipated to be $65 million. Earlier, management had forecasted capital expenditure of $75 million.

Carter’s anticipates an increase in SG&A for fiscal 2024, due to growth-related investments and inflation, though this will be partially offset by cost-reduction initiatives.

For 2024, Carter’s expects lower sales in U.S. Retail and International businesses, with U.S. Wholesale sales comparable to increase in the low single-digit range.

Key Picks

We have highlighted three better-ranked stocks, namely The Gap, Inc. GAP, Abercrombie & Fitch Co. ANF and Nordstrom, Inc. JWN, each sporting a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Gap operates as an apparel retail company. GAP delivered an average earnings surprise of 142.8% in the trailing four quarters.

The Zacks Consensus Estimate for The Gap’s current financial-year sales and earnings indicates growth of 0.5% and 31.5%, respectively, from the year-ago reported figure.

Abercrombie & Fitch operates as an omnichannel retailer that offers an assortment of apparel, personal care products and accessories for men, women and kids. ANF delivered an average earnings surprise of 28% in the trailing four quarters.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings indicates growth of 13% and 63.4%, respectively, from the year-ago reported figure.

Nordstrom, a fashion retailer, provides apparel, shoes, beauty, accessories and home goods for women, men, young adults and children. JWN delivered an earnings surprise of 29.7% in the last reported quarter.

The consensus estimate for Nordstrom’s current financial-year sales indicates growth of 0.6% from the year-ago reported figure.

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