Carter's, Inc. CRI shares have lost 6.6% since reporting fourth-quarter 2025 earnings on Feb. 25. While both revenues and earnings surpassed the Zacks Consensus Estimate, the stock fell as steady overall revenues and growth in the U.S. Wholesale division were overshadowed by declining momentum in the U.S. Retail and International segments.

Inflation continues to weigh on CRI’s top-line performance. Elevated interest rates and the suspension of pandemic-related stimulus payments to child-care centers have further pressured families with children, dampening demand for the company’s brands.

The company’s stock performance has also lagged the broader industry’s decline of 5.4%, the Consumer Discretionary sector’s slight dip of 3.6%, and the S&P 500’s drop of 3.5% since Feb. 25.

CRI's Price Performance

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Despite the better-than-expected earnings report, investors seem to be assessing the company’s prospects, considering the ongoing operational transitions.

Let’s delve deeper and find out whether the dip in the stock is a good entry point for aspiring investors or a warning.

More Insights Into CRI’s Performance

Carter's fourth-quarter 2025 performance was impacted by rising freight costs and intensified promotional competition, which squeezed profit margins. Additionally, macroeconomic challenges, including high interest rates and inflation, dampened consumer confidence. Despite these setbacks, same-store sales surpassed analyst expectations, reflecting some resilience in consumer demand.

In the fourth quarter, Carter’s U.S. Retail segment saw a 2.8% year-over-year decline in sales, with comparable net sales falling 3.4%. The decline was primarily due to softer consumer demand amid economic pressures. The U.S. Wholesale segment, however, posted a 7.3% increase in sales, benefiting from favorable shifts in shipment timing and strong partnerships with key retailers.

Meanwhile, the International segment experienced a 2% sales decline, weighed down by ongoing macroeconomic pressures in key markets. While the strength in Wholesale partially offset weaknesses in Retail and International, the overall performance highlighted the persistent headwinds affecting Carter’s top-line growth in the fourth quarter.

Margin performance weakened, with gross margin down 90 bps to 47.8%, impacted by a $30 million U.S. Retail pricing investment. Additional pressure came from higher freight rates and a greater mix of lower-margin wholesale sales. The adjusted operating margin declined 250 bps to 13.4%, driven by pricing investments, rising marketing/store expenses, inbound freight costs and increased charitable contributions.

CRI’s Bleak Outlook

Following soft fourth-quarter results, the management issued a cautious outlook for 2025, further pressuring investor sentiment. Carter’s expects net sales of $615-$625 million for the first quarter of 2025, down from $661 million in the prior-year quarter. Adjusted EPS is projected at 45 cents-55 cents, a sharp decline from $1.04. For the first quarter, the company expects a sales decline between mid-single digits and high-single digits for the U.S. Retail segment, while U.S. Wholesale sales are expected to fall in the high-single digits. International sales are expected to decline in the mid-single digits.

Adjusted operating income is forecasted to be $180-$210 million, well below $287 million last year. Adjusted EPS is expected to decline significantly to $3.20-$3.80 from $5.81 in 2024. The 53rd week in 2025 is projected to add $30 million in sales but is unlikely to offset broader headwinds.

For 2025, the company envisions several factors to weigh on profitability, including residual lower pricing in the first half of the year, higher product costs and the restoration of more normalized variable compensation provisions. The company plans to rely less on pricing actions and instead focus on improving merchandise assortments and strengthening overall inventory positions, particularly in the more significant second half of 2025.

What is the Best Approach for CRI?

Reflecting the near-term headwinds from the company’s cautious guidance, investors remain skeptical about growth in the near term. For now, investors may want to wait for signs of stabilization before considering a position in CRI. Carter’s currently carries a Zacks Rank #4 (Sell).

Three Picks You Can't Miss

We have highlighted three top-ranked stocks, namely, Under Armour UAA, Ralph Lauren Corporation RL and lululemon athletica LULU.

Under Armour is one of the leading designers, marketers and distributors of authentic athletic footwear, apparel and accessories for a wide variety of sports and fitness activities in the United States and internationally. It has a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for UAA’s fiscal 2024 sales and earnings indicates declines of 9.9% and 44.4%, respectively, from the year-ago reported figures. Under Armour delivered an earnings surprise of 98.6% in the trailing four quarters, on average.

Ralph Lauren designs, markets and distributes lifestyle products in North America, Europe, Asia and internationally. It currently carries a Zacks Rank #2.

RL has a trailing four-quarter earnings surprise of 6.5%, on average. The consensus estimate for Ralph Lauren’s current financial year sales and earnings indicates advancements of 5.8% and 16.5%, respectively, from the prior-year figures.

lululemon is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for lululemon’s current financial-year sales and EPS indicates growth of 9.7% and 12.5%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 6.7%, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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