Jonathan Keypour

Jon Keypour asked about the Q1 gross margin, specifically how the absence of carryover inventory drag from last year factors in, and what this implies for promotional levels. He also requested a breakdown of the factors that would lead to the low versus high end of the full-year sales guide.

Answer

COO Scott Lipesky clarified that Q1 2026 does not have a significant impact from carryover inventory, unlike Q1 2024, and that inventory is in good shape (up 2% in units excluding ERP build). He stated that both brands are in a 'chase position,' which supports AUR growth and favorable promotional levels for Q1. Regarding the full-year guide, Scott Lipesky emphasized that achieving the high end depends on consistent product execution, resonating marketing, and a great store experience. CEO Fran Horowitz reiterated the strength of their agile operating model and ability to chase demand, citing Hollister's 15% growth as an example.

Jon Keypour asked about the Q1 gross margin, specifically how the absence of carryover inventory drag (present in Q1 2024) factors in, and what this implies for promotional levels in Q1 and the rest of the year. He then asked for a breakdown of the factors that would lead to the low versus high end of the full-year guidance.

Answer

Scott Lipesky, COO, confirmed that Q1 2025 was a normal base, so there's no major carryover impact for 2026. He stated that inventory is clean (up 2% excluding ERP-related builds), with both brands in a chase position, supporting slight AUR improvement for Q1. Regarding the full-year guidance range, Scott Lipesky emphasized that achieving the high or low end depends on product execution, resonating marketing, consistent positive traffic, and a great store experience. Fran Horowitz, CEO, highlighted the agility of their operating model and ability to chase demand, citing Hollister's 15% growth last year as an example.

Jonathan Keypour asked about the cadence of Carter's marketing and demand build investments, how these funds are specifically being spent, and where early green shoots in returns are being observed. He also sought clarification on the demographics and income cohort of the newly acquired customers, specifically if they continue to come from a higher income bracket and if this trend has accelerated since previous comments.

Answer

Douglas C. Palladini, Director, President and CEO, stated that ROI has increased with renewed marketing investments, particularly from paid social, showing gains in share of voice and brand equity. He noted a significant incremental investment planned for 2026, with a commitment to measure results. He confirmed that new consumers continue to come from higher income brackets than the existing consumer base, above the U.S. median income, which correlates with AUR increases and higher spending on better/best products. He emphasized the intention to serve all consumers while recognizing the higher lifetime value potential of these new, higher-income customers.

Jonathan Keypour asked about the cadence and specific spending areas of Carter's marketing and demand build investments, seeking insights into early returns. He also inquired about the demographic and income cohort of newly acquired customers, specifically if they continue to originate from higher income brackets.

Answer

CEO Douglas C. Palladini stated that renewed marketing investments have increased ROI, particularly from paid social, leading to gains in share of voice and brand equity. He noted a significant incremental investment is planned for 2026, with continued measurement of results. He confirmed that new consumers continue to be acquired, tending to come from higher income brackets than the existing consumer base, above the U.S. median income, and showing potential for higher lifetime value, while emphasizing the intent to serve all consumers.