Carter's, Inc. CRI announced its second-quarter 2025 results, wherein the top line beat the Zacks Consensus Estimate and increased year over year. Meanwhile, the bottom line fell short of the Zacks Consensus Estimate and declined from the year-ago quarter.
Carter’s shares lost more than 15% on Friday following the release of disappointing second-quarter 2025 results and growing concerns over tariffs that weighed heavily on the retailer’s outlook. The sharp decline in investor confidence was primarily due to a drop in profitability, attributed to strategic pricing investments, new store openings, normalized levels of performance-based compensation and the early effects of higher U.S. import tariffs. These factors overshadowed the company’s encouraging sales momentum in its direct-to-consumer business and improvements in U.S. retail performance.
Carter’s adjusted earnings per share (EPS) of 17 cents per share missed the Zacks Consensus Estimate of 43 cents. However, the bottom line plunged 77.6% from 76 cents reported in the prior-year quarter.
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 $585.3 million, which beat the Zacks Consensus Estimate of $580 million. The metric rose 4% from $564.4 million posted in the year-ago period. This growth was primarily driven by strong growth in the U.S. Retail and International segments, while U.S. Wholesale sales remained comparable to the prior year. Additionally, unfavorable foreign currency translation impacted consolidated net sales by approximately $3.1 million, or 0.5%.
However, adjusted operating income and adjusted earnings per share declined significantly, primarily due to planned investments in retail pricing and higher targeted spending in specific areas. Management acknowledged that the second quarter is historically the smallest of the year and emphasized that the current profitability does not reflect the company’s long-term ambitions. Carter’s remains focused on driving sustainable and profitable growth in the periods ahead.
Shares of this Zacks Rank #5 (Strong Sell) company have lost 20.5% in the past three months against the industry’s 29.3% growth.
CRI Stock's Price Performance
Image Source: Zacks Investment Research
Insights Into CRI’s Segment
Sales of the U.S. Retail segment increased 3.2% year over year to $299.6 million. The segment’s comparable net sales rose 2.2% in the second quarter. Our model predicted sales of $286.5 million for the segment.
The U.S. Wholesale segment’s sales remained flat year over year at $192.9 million. We expected net sales of $206.8 million for the segment.
The International segment witnessed a 14.1% year-over-year increase in sales to $92.8 million. We expected net sales of $86.7 million for the segment.
Focus on CRI’s Margins
Gross profit fell 0.4% year over year to $281.8 million. The gross margin contracted 200 basis points (bps) to 48.1% from 50.1% in the second quarter of 2024. This decrease was primarily caused by pricing investments in the U.S. Retail segment, particularly focused on value-driven basket starter items and promotional events to remain competitive. These pricing reductions led to a roughly 3% drop in average unit retail in U.S. retail during the quarter.
Adjusted operating income decreased 70.2% year over year to $11.8 million. The adjusted operating margin decreased 500 bps to 2%, impacted by investments in pricing, new and remodeled stores, and increased performance-based compensation provisions.
Adjusted selling, general and administrative (SG&A) expenses increased 10% year over year to $273 million in the quarter. As a percentage of net sales, SG&A expenses increased 290 bps year over year to 46.7%.
CRI’s Financial Snapshot
Carter’s ended second-quarter 2025 with cash and cash equivalents of $338.2 million, long-term debt of $498.5 million and shareholders’ equity of $853.9 million.
In the second quarter of 2025, the company paid a cash dividend of $0.25 per common share, amounting to $9.1 million. For the first half of the fiscal year, total cash dividends paid reached $38.1 million. There was no share repurchase in the second quarter.
CRI’s FY25 Outlook
In the second half of fiscal 2025, Carter’s expects to face a $35 million hit to pre-tax earnings due to newly proposed U.S. import tariffs. These tariffs, if implemented, could significantly increase costs on products imported from countries like China, Vietnam, Indonesia and others. The company estimates that the total annual impact from these additional tariffs could be between $125 million and $150 million.
However, the final cost impact will depend on the exact tariff policies the U.S. government decides to put in place. Because of this uncertainty and a recent leadership change, Carter’s has decided to suspend its financial guidance for the rest of fiscal 2025.
Key Picks
We have highlighted three better-ranked stocks, namely adidas AG ADDYY, Revolve Group, Inc. RVLV and Duluth Holdings DLTH.
adidas is a leading brand in the sporting goods market with strong positions in footwear, apparel and hardware. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for adidas’ current fiscal-year sales and EPS indicates growth of 16.5% and 90.4%, respectively, from the year-ago period’s reported figures. ADDYY has a trailing four-quarter negative earnings surprise of 48%, on average.
Revolve Group operates as an online fashion retailer for millennial and Generation Z consumers in the United States and internationally. RVLV currently carries a Zacks Rank #2. RVLV has a trailing four-quarter earnings surprise of 63.4%, on average.
The Zacks Consensus Estimate for Revolve Group’s current financial year’s sales growth of 5.4% and earnings implies a decline of 40.6%, respectively, from the year-ago reported numbers.
Duluth Holdings provides casual wear, workwear and accessories for men and women. The company currently carries a Zacks Rank #2. Duluth Holdings has a trailing four-quarter negative earnings surprise of 21%, on average.
The Zacks Consensus Estimate for DLTH’s current financial-year EPS indicates growth of 18.3% from the year-ago figure.
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This article originally published on Zacks Investment Research (zacks.com).
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