Carter's, Inc. Q3 Fiscal 2024 Earnings Report

Carter's, Inc. (NYSE: CRI), a leading retailer in baby and toddler apparel, reported strong third-quarter fiscal 2024 earnings that exceeded prior guidance, despite challenges in the retail environment. The company achieved net sales of $758 million, a 4% decline from the previous year, while surpassing expectations. Operating income reached $77 million, reflecting a 10.2% margin.

Carter's has strategically invested in pricing and marketing to boost sales trends, which have shown recent signs of improvement, particularly in the baby apparel segment. Full-year sales are projected to reach approximately $2.8 billion, with U.S. retail anticipated to contribute around 50%.

Key Takeaways

• Q3 Net Sales: $758 million, exceeding guidance but down 4% YoY.
• Operating Income: $77 million with a 10.2% margin; Adjusted EPS: $1.64.
• Total investments of $50 million in pricing and marketing to improve sales.
• U.S. Retail Sales: 12% increase in omni-channel sales recently.
• Full-year net sales forecast: between $2.785 billion and $2.825 billion.
• Share repurchases paused; $138 million returned to shareholders this year through dividends.
• Focus on product innovation, brand reach, and customer marketing for growth.

Company Outlook

• Projected total sales of $2.8 billion for the year, with U.S. retail contributing about half.
• Anticipated full-year operating cash flow will exceed $200 million.
• Q4 net sales expected between $800 million and $840 million, with comparable sales expected to decline by 9% to 12%.

Bearish Highlights

• Year-to-date comparable U.S. retail sales down ~10%.
• Q3 net sales down 4% YoY, driven by lower U.S. retail and international sales.
• Adjusted EPS down 11% from last year.
• Anticipated gross margin decline of approximately 200 basis points in Q4.

Bullish Highlights

• Recent months showed a 12% increase in omni-channel sales.
• Positive retail trends observed in Canada and a strong 9% retail comp increase in Mexico.
• Market share gained in baby and toddler apparel, comprising over 80% of business.

Misses

• Decline in order demand and rise in cancellations, especially among department store customers.
• Lowered off-price sales expectations since July.

Q&A Highlights

• Warmer fall weather impacted sales near the end of Q3.
• Less than 5% of finished goods now sourced from China, mitigating tariff exposure.
• Pricing strategies led to improved unit sales; promotions needed for mid-tier product inventory moving forward.

Despite the challenging economy, Carter's management remains optimistic about growth strategies focused on innovation, brand reach, and customer marketing. With over $1 billion in liquidity, the company is well-positioned to navigate the evolving retail landscape and deliver shareholder value.

InvestingPro Insights

Carter's has shown resilience in the retail market, with a market cap of $2.07 billion. The P/E ratio of 8.97 suggests potential undervaluation. Continued dividend payments over the past 12 years underscore a commitment to shareholder value, alongside effective management of liquidity and profitability.

Full Transcript – Q3 2024 Earnings Conference Call

Operators & Executives

• Operator: Welcome to Carter's Third Quarter Fiscal 2024 Earnings Call.
• Michael Casey: Q3 results exceeded forecasts; better U.S. retail performance.
• Richard Westenberger: [Summary of numbers, P&Ls, and strategic focus].

Carter's expects to reaffirm annual sales and profitability projections, indicating potential upside if retail trends stabilize. Their focus in the upcoming months will prioritize maintaining the balance between consumer engagement and profitability amid fluctuating economic conditions.

Conclusion

Carter's remains committed to its growth strategies, showcasing a proactive approach to adapt within a competitive landscape, aiming to retain its leadership position in the children's apparel market. Their robust liquidity positions them favorably for future challenges and opportunities.