Name: CARTERS INC Q1 2025 Earnings Call
Start: 2025-04-25T12:31:00.000Z

Executive Summary

Q1 2025 results were in line with internal plans but down year over year: net sales $629.8M (-4.8% YoY), GAAP EPS $0.43, adjusted EPS $0.66; operating margin compressed to 4.1% (adj. 5.6%) on pricing investments and deleverage .
Versus S&P Global consensus, CRI modestly beat: adjusted EPS $0.66 vs $0.52* and revenue $629.8M vs $623.4M*, aided by stronger U.S. Retail in March and better-than-forecast wholesale demand; eCom outperformed stores while U.S. Retail comps fell 5.2%* . Values retrieved from S&P Global.
Management suspended forward guidance given a new CEO and tariff uncertainty; constant currency showed a smaller sales decline (-3.8% consolidated) and International constant-currency growth (+2.2%) .
Key near-term stock catalysts: path of proposed tariff regime and pricing/mix mitigation, pace of U.S. Retail traffic recovery, and capital allocation reset (dividend cut to $0.25 per share announced May 20) .

What Went Well and What Went Wrong

What Went Well
- U.S. Retail hit sales and earnings plans; March trends improved on targeted pricing/promotions: “Business accelerated meaningfully in March… we saw some of the best [online] performance in several years” .
- Wholesale demand exceeded forecast with strong clubs/off-price and exclusive brands; International saw strong retail comps in Canada (+9% April MTD) and Mexico (+25% April MTD) .
- Diversified sourcing: apparel exposure to China cut to <2% of apparel FOB (and <4% total including Skip Hop), limiting direct tariff sensitivity; cotton costs favorable and ocean freight headwinds modest (~$2M) .
What Went Wrong
- Net sales -4.8% YoY with U.S. Retail comps -5.2% and gross margin down ~140 bps YoY to 46.2% due to pricing investments and FX in Canada/Mexico .
- Operating income -52.6% YoY; adjusted operating margin 5.6% vs 8.3% LY; operating cash flow used $(48.6)M vs $(25.6)M LY, driven by lower earnings and working capital .
- Guidance suspended amid CEO transition and tariff uncertainty, reducing visibility; FX translation was a ~$6.4M headwind to consolidated net sales .

Financial Results

Metric	Q3 2024	Q4 2024	Q1 2025
Net Sales ($M)	$758.5	$859.7	$629.8
Gross Margin %	46.9%	47.8%	46.2%
Operating Income ($M)	$77.0	$83.2	$26.1
Operating Margin %	10.2%	9.7%	4.1%
Adjusted Operating Income ($M)	$77.0	$115.0	$35.4
Adjusted Operating Margin %	10.2%	13.4%	5.6%
Diluted EPS (GAAP)	$1.62	$1.71	$0.43
Adjusted Diluted EPS	$1.64	$2.39	$0.66

Segment performance (Q1 2025 vs Q1 2024)

Segment	Net Sales Q1’24 ($M)	Net Sales Q1’25 ($M)	Segment Op Margin Q1’24	Segment Op Margin Q1’25
U.S. Retail	$307.6	$294.4	4.6%	0.8%
U.S. Wholesale	$264.1	$250.1	24.0%	22.1%
International	$89.7	$85.3	2.4%	(0.3%)
Consolidated	$661.5	$629.8	8.3%	4.1%

KPIs and cash

KPI	Q3 2024	Q4 2024	Q1 2025
U.S. Retail Comp Sales YoY	-7.1%	(Guided -9% to -12%; actual trend improved)	-5.2%
SG&A as % of Sales (Adj.)	37.5%	34.9%	41.4%
Net Cash from Operations ($M)	$11.3 YTD through Q3	$298.8 FY’24	$(48.6)
Dividend per Share	$0.80 (Q3)	$0.80 (Q4)	$0.80 (paid)

Estimate comparison (Q1 2025)

Metric	Consensus	Actual	Surprise
Adjusted EPS	$0.52*	$0.66	+$0.14 (approx)
Revenue ($M)	$623.4*	$629.8	+$6.4

Values retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance (2/25/25)	Current (4/25/25 and subsequent)	Change
Net Sales	FY 2025	$2.780B–$2.855B	Guidance suspended	Suspended
Adjusted Operating Income	FY 2025	$180M–$210M	Guidance suspended	Suspended
Adjusted Diluted EPS	FY 2025	$3.20–$3.80	Guidance suspended	Suspended
Operating Cash Flow	FY 2025	~$200M	Guidance suspended	Suspended
Capex	FY 2025	~$65M	Guidance suspended	Suspended
Q1 Revenue	Q1 2025	$615M–$625M	Actual $629.8M	N/A (reported)
Q1 Adj. OI	Q1 2025	$30M–$35M	Actual $35.4M	N/A (reported)
Q1 Adj. EPS	Q1 2025	$0.45–$0.55	Actual $0.66	N/A (reported)
Dividend per Share	Q2 2025	Previously $0.80 per quarter (through Mar 28)	$0.25 declared, payable Jun 20	Lowered

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
Pricing & Promotions	H2’24 ~$60M pricing/marketing investments to drive unit growth; Q3 gross margin -60 bps; unit stabilization achieved	~$12M pricing investment in Q1; Retail exceeded profit plan despite deleverage; EPS aided by tax/interest	Still investing select pricing; focus shifting to product/experience
U.S. Retail Traffic/Comps	Q3 comps -7%; Black Friday +5% comps; traffic weakness main issue	Q1 comps -5.2%; March improved; April MTD +13%, Mar+Apr +4% (timing)	Improving trajectory into spring; stores lag eCom
Wholesale (Exclusive Brands)	Record 2024; Q4 up; strong with Target/Walmart/Amazon; dept. stores soft	Q1 ahead of plan on several customers; wholesale OM 22.1%	Remains profit engine; mix shift favorable
International & FX	Canada/Mexico strong; FX headwinds persisted	FX -$6.4M headwind to sales; International constant-currency +2.2%	Currency still a headwind; local demand healthy
Supply chain & tariffs	China finished goods well <5%; diversifying fabrics; tariffs a watch item	Apparel FOB from China <2% (total <4% incl. Skip Hop); proposed reciprocal tariffs could materially raise costs; mitigation in place (pricing, vendor sharing, sourcing shifts)	Elevated risk; mitigations underway
AI/Tech initiatives	Launched AI-enabled personalization; new inventory allocation tool forthcoming	Continuing to leverage AI personalization; allocation tool to benefit H2’25	Capability build continues

Management Commentary

CEO Douglas C. Palladini: “My remit is clear: To return Carter’s to growth… We are not going to buy sales… Our goal is to increase profitability… we are suspending forward-looking guidance at this time… the current tariff situation has introduced substantial uncertainty” .
CFO/COO Richard Westenberger: “We achieved all of our first quarter objectives with slightly higher than forecasted consolidated sales… adjusted EPS was $0.66” .
On retail momentum: “Business accelerated meaningfully in March, particularly online… [pricing investments] have continued to drive good benefits” .
On tariffs: “Proposed [reciprocal] tariffs… would be a material increase to our product cost… we’re evaluating pricing, vendor cost sharing, and moving production” .

Q&A Highlights

Tariffs and sourcing: Management clarified Q1 slide tariffs were based on proposed reciprocal rates (April 2); apparel China exposure already <2% FOB (<4% incl. Skip Hop); mitigation includes price increases on some items (esp. Skip Hop), vendor cost sharing, and sourcing shifts .
Inventory and orders: Late-year inventory commitments trimmed “slightly” out of prudence; wholesale order cancellations not meaningful yet; back-to-school likely first fuller tariff-hit season .
Retail strategy: Pricing sharper on limited “basket starters” lifted units/UPT; improving conversion and retention; kid category inventory breadth/depth to be increased in H2’25 .
Cost backdrop: Cotton benign (low $0.60/lb), modest labor inflation, ocean freight renegotiated with only “a couple of million” P&L impact; avoids ~$12–13M unusual 2024 freight costs .

Estimates Context

Q1 2025 EPS: actual $0.66 vs consensus $0.5158*, a beat of ~$0.14. Revenue: actual $629.8M vs consensus $623.4M*, a beat of ~$6.4M. Values retrieved from S&P Global.
Implications: Despite pricing investments, CRI delivered a clean top- and bottom-line beat; guidance suspension shifts focus to tariff trajectory and H2 retail recovery cadence .

Key Takeaways for Investors

Q1 execution beat consensus on both revenue and adjusted EPS despite macro and pricing headwinds; U.S. Retail momentum improved into March with eCom strength and targeted pricing .
Margin compression reflects deliberate pricing actions and deleverage; mix and lower product costs partially offset; watch for H2 improvement as kid assortment/inventory deepen .
Wholesale remains robust and highly profitable; continued growth in exclusive brands should help earnings resiliency .
Tariff risk is the swing factor; CRI’s low China apparel exposure and multi-pronged mitigation strategy are positives, but potential cost increases could pressure margins if passed through incompletely .
Capital allocation reset: dividend cut to $0.25 per share prioritizes strategic investment and flexibility; near-term a neutral-to-negative sentiment event but supportive of longer-term reinvestment .
Visibility limited near term due to suspended guidance; upcoming strategy articulation (targeted for Q2 call per CEO) is a potential catalyst to reframe the medium-term thesis .

;

Note: All estimate figures marked with an asterisk (*) are Values retrieved from S&P Global.

CARTERS INC (CRI)·Q1 2025 Earnings Summary