Carter's, Inc. CRI is trading at a discount to its historical and industry benchmarks. The CRI stock trades at a forward 12-month price-to-earnings (P/E) ratio of 11.15, below its median level of 11.49X in the past year and significantly lower than the industry’s average of 26.32X. This suggests that CRI is undervalued relative to its earnings potential, presenting an attractive opportunity for investors.

CRI Stock's P/E Performance

Image Source: Zacks Investment Research

Factors Contributing to CRI’s Growth

Carter's has been taking smart steps to address market challenges and improve profitability, focusing heavily on pricing and offering great value to customers. In the recent quarter, Carter's adjusted its pricing strategy to align better with current market conditions, and this has been well received by shoppers.

Carter's recent success includes strong results from its OshKosh back-to-school campaign, which featured premium denim and bottoms that resonated with shoppers. Its sustainable brands, Little Planet and PurelySoft, are performing well, appealing to environmentally conscious consumers.

Carter’s U.S. Wholesale business delivered strong results in the third quarter of fiscal 2024, benefiting from leaner inventories and robust demand for exclusive brands, achieving an impressive operating margin above 21%. Lower product costs further boosted profitability, while the company's efficient supply chain ensured timely order fulfillment.

Looking ahead, Carter’s expects U.S. wholesale sales to grow in the mid-to-high single digits year over year in fourth-quarter 2024, driven by the sustained demand for exclusive brands.

CRI Optimizes Omni-Channel Strategies & Enhances Profitability

Carter’s is effectively utilizing its omni-channel capabilities to drive growth and enhance profitability. In the third quarter, nearly 38% of digital orders were fulfilled through stores, up from 35% last year, reducing shipping costs and improving margins. The company has also optimized its retail footprint by opening 40 high-margin outlets and closing about 30 low-margin stores in low-traffic areas.

Investments in AI-driven marketing personalization have improved conversion rates and boosted e-commerce performance, with mid-single-digit growth in key metrics like units per transaction. Looking ahead, Carter’s will continue enhancing brand experiences across digital and in-store platforms, in collaboration with wholesale partners, to strengthen its market position and support long-term growth.

Challenges Impacting Carter’s Growth Trajectory

Carter’s, like others in the industry, has been facing macroeconomic challenges that have impacted its top-line performance. The suspension of pandemic-related stimulus payments to child-care centers has weighed on families with children, reducing demand for the company’s brands. As a result, Carter’s third-quarter 2024 sales dropped 4.2% year over year, following a decline of 5.9% in the previous quarter. The company’s sales were further affected by adverse currency rates, which reduced net sales by $3.1 million.

In the third quarter, the U.S. Retail segment reported a 5.8% decline in sales, with comparable net sales down 7.1%. The U.S. Wholesale segment also experienced a marginal decline of 0.5%, while the International segment saw an 8.6% drop in sales. 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.

Shares of this Zacks Rank #3 (Hold) company have fallen 19.6% in the past three months compared with the industry’s decline of 1%.

CRI Stock's Past Three Months Performance

Image Source: Zacks Investment Research

Three Picks You Can’t Miss

Some better-ranked stocks in the Consumer Discretionary space are Wolverine World Wide WWW, Ralph Lauren Corporation RL and Steven Madden, Ltd. SHOO.

Wolverine World Wide designs, manufactures and distributes a wide variety of casual and active apparel and footwear. The company sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for WWW’s current financial-year sales indicates a decline of almost 22% from the year-ago figure. The consensus mark for EPS indicates significant growth to 90 cents from 5 cents reported in the prior year. WWW has a trailing four-quarter earnings surprise of 17.03%, on average.

Ralph Lauren, which designs, markets, and distributes lifestyle products, carries a Zacks Rank #2 (Buy) at present. RL has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for Ralph Lauren’s current fiscal-year sales and earnings indicates growth of 3.6% and 13.9%, respectively, from the prior-year reported levels.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank #2.

The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.6% and 13.6%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Ralph Lauren Corporation (RL) : Free Stock Analysis Report

Wolverine World Wide, Inc. (WWW) : Free Stock Analysis Report

Carter's, Inc. (CRI) : Free Stock Analysis Report

Steven Madden, Ltd. (SHOO) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research