Carter's Inc. CRI has shown a steady growth in recent times, with its stock price increasing by 10.5% in just a month. This rise is attributed to the launch of its "More Than Just Cute" back-to-school campaign, which focuses on the practical features of its children's apparel. By collaborating with the agency Mischief for the first time, Carter's is targeting millennial and Gen Z parents. The campaign's emphasis on functionality and style helps the company connect with these younger parents.
However, Carter's has experienced a more volatile performance over the past six months, with its stock price declining by 12.7%, slightly better than the broader industry's decline of 14.8%. In contrast, the S&P 500 has gained 9.7% in the same period. The company's dismal performance is due to the curtailed consumer discretionary spending, owing to rising inflation and higher interest rates.
Carter’s current stock price of $70.12 reflects a 27.3% discount from its 52-week high of $88.03. Moreover, Carter's stock has fallen below critical technical threshold of its 200-day moving average. The moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook.
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Factors Derailing Carter's Momentum
Carters is challenged by soft top-line trends, reflected by a 6% decline in the second quarter of 2024, following a decline of 4.9% in the first quarter. The company cited inflation, higher interest rates and reduced discretionary spending as reasons for the sales decline.
Sales in the U.S. Retail segment underperformed this quarter, driven by lower traffic and weaker conversion rates. Comparable sales dropped 12%, falling slightly below expectations. The quarter's slow start can be attributed to an early Easter holiday and delayed warmer weather in April.
Carter’s has been witnessing soft online sales trends due to the recent change in consumer behavior. The company noted that consumer behavior has recently shifted to more deliberate store visits for immediate needs, contrasting with the more impulsive nature of e-commerce purchases. This led to a 16% decline in e-commerce sales during the second quarter of 2024. This downturn was attributed to reduced online traffic and slowdown in consumer spending.
Bleak Outlook of CRI’s Stock
Several risks including a challenging macroeconomic environment, wavering consumer confidence, rising inflation and heightened promotional activity continue to weigh on CRI’s performance. These factors have collectively impacted consumer spending habits, profit margins and overall demand for discretionary items. Ongoing economic uncertainties are expected to result in increased discounting, affecting CRI’s pricing power and revenue growth in the coming months.
For the third quarter, the company expects net sales to be $735-$755 million, indicating a decline from $792 million recorded in the year-ago quarter. Adjusted earnings are expected to be $1.10-$1.35 per share, down from $1.84 reported in the prior-year quarter. In the U.S. Wholesale segment, CRI anticipates sales to be flat to down in the low single digits year over year, while sales in International is estimated to decline in the mid to high single digits.
Downward Estimate Trajectory
Reflecting the negative sentiment around Carter's, the Zacks Consensus Estimate for 2024 and 2025 have seen downward revisions. In the past 60 days, analysts have lowered estimates for 2024 by 22.0% to $4.90 and for 2025 by 26% to $4.86 per share. This implies a year-over-year earnings decline of 20.8% and 0.9%, respectively, for 2024 and 2025.
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Final Words on Carter’s Stock
Quite apparent, Carter’s weak performance, evidenced by a consistent decline in comparable sales and a lack of recovery despite seasonal improvements, has weighed on its performance. If the company reports disappointing earnings results or revises its future earnings guidance downward, this could signal deeper problems within the company.
These factors suggest that it may be wise to steer clear of this Zacks Rank #4 (Sell) stock until positive developments shore up.
Three Better-Ranked Stocks to Consider
Some better-ranked stocks in the Consumer Discretionary space are Wolverine World Wide WWW, GIII Apparel Group GIII 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 23% from the year-ago reported figures. The consensus mark for EPS reflects significant growth to 85 cents from 5 cents reported in the prior year. WWW has a trailing four-quarter earnings surprise of 7.5%, on average.
G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #1 at present.
GIII Apparel has a trailing four-quarter earnings surprise of 118.2%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 3.3% from the year-ago figure.
Steven Madden designs, sources, markets, and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 6.9% and 12.6%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.5%.
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Wolverine World Wide, Inc. (WWW) : Free Stock Analysis Report
G-III Apparel Group, LTD. (GIII) : Free Stock Analysis Report
Carter's, Inc. (CRI) : Free Stock Analysis Report
Steven Madden, Ltd. (SHOO) : Free Stock Analysis Report
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