Sign in

You're signed outSign in or to get full access.

CI

CARTERS INC (CRI)·Q3 2026 Earnings Summary

Executive Summary

  • Note: Q3 2026 materials are not available in Carter’s public filings or transcripts. This recap synthesizes the most recent quarter (Q3 2025) and the prior two quarters (Q1–Q2 2025) to inform near-term trajectory, including S&P Global consensus comparisons.
  • Q3 2025 showed resilient top-line ($757.8M) but sharp profitability compression: GAAP EPS $0.32 and adjusted EPS $0.74, with gross margin pressure from tariffs and product investments; management suspended formal guidance amid tariff uncertainty.
  • Cost actions accelerated: office role reductions (~15%), 150 store closures planned (raised from 100), and ~$45M gross savings targeted for 2026 ($35M org + >$10M SG&A), with reinvestment into demand creation.
  • Tariffs are the core headwind; Q4 2025 net adverse impact is guided to ~$25–$35M pre-tax, with Q4 gross margin expected ~43% and planned pricing offsets into 2026.
  • Shares were reported down nearly 6% into the open on the print; catalysts: tariff trajectory, price realization, and execution on productivity/portfolio mix shift (e.g., Amazon transition away from Simple Joys).

What Went Well and What Went Wrong

What Went Well

  • U.S. Retail comps positive for the second consecutive quarter (+2.0%); AURs rose mid-single digits, signaling price acceptance. “Consumers accepted higher prices in the quarter.”
  • International strength: Q3 net sales +4.9% YoY; partners’ business up 10%, with Mexico comps +16% and strong demand from Brazil partner Riachuelo.
  • Strategic actions to right-size costs and enhance productivity: “We have identified $45 million in gross savings for 2026,” and store closures expected to be accretive.

What Went Wrong

  • Profitability compressed materially: GAAP operating margin fell to 3.8% (vs 10.2% LY); adjusted operating income down ~49% YoY, driven by tariffs, product investments, and expense deleverage.
  • Wholesale softness, particularly at Amazon on Simple Joys; department stores booked down for fall. Transition planning to elevate core brands on Amazon underway.
  • Cash flow deterioration: YTD cash from operations of -$136.3M vs +$11.3M LY, reflecting lower earnings and higher inventories (tariff cost embedded ~$34M in Q3 ending inventory).

Financial Results

Consolidated Metrics by Quarter

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($USD Millions)$629.8 $585.3 $757.8
Diluted EPS (GAAP) ($)$0.43 $0.01 $0.32
Adjusted Diluted EPS ($)$0.66 $0.17 $0.74
Operating Margin (GAAP, %)4.1% 0.7% 3.8%
Adjusted Operating Margin (%)5.6% 2.0% 5.2%
Gross Margin (Adjusted commentary, %)—48.1% 45.1%

YoY Comparison (Q3 2025 vs Q3 2024)

MetricQ3 2024Q3 2025
Net Sales ($USD Millions)$758.5 $757.8
YoY Net Sales Change-(0.1)% / -$0.6M —
Operating Income ($USD Millions)$77.0 $29.1
Operating Margin (GAAP, %)10.2% 3.8%
Diluted EPS (GAAP) ($)$1.62 $0.32
Adjusted Diluted EPS ($)$1.64 $0.74

Segment Breakdown (Q3)

SegmentNet Sales Q3 2024 ($MM)Net Sales Q3 2025 ($MM)Segment Operating Income Q3 2024 ($MM)Segment Operating Income Q3 2025 ($MM)
U.S. Retail$353.0 $362.3 $27.3 $10.0
U.S. Wholesale$299.0 $283.8 $63.1 $44.0
International$106.5 $111.7 $10.2 $9.2

KPIs and Operational Indicators

KPIQ1 2025Q2 2025Q3 2025
U.S. Retail Comparable Sales (%)-5.2% +2.2% +2.0%
Ending Inventory ($MM)$474.1 $619.1 $656.1
Inventory YoY (%)—+3% +8%
Cash & Cash Equivalents ($MM)$320.8 $338.2 $184.2
Dividends per share ($)$0.80 $0.25 $0.25

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Fiscal guidance (sales/earnings)FY2025Suspended (Apr) Suspended (Jul/Oct) Maintained
Effective tax rateFY2025~23% (Q2 outlook) ~24% (Q3 outlook) Raised modestly
Gross margin (rate)Q4 2025N/A~43% expected New directional
Tariff net impact (pre-tax)Q4 2025~$35M H2 net impact (Q2) ~$25–$35M Q4 net impact Maintained range
Store closures (North America)Multi-year~100 stores plan (Q2) ~150 stores plan over 3 years Raised
Productivity savingsFY2026N/A~$35M org + >$10M SG&A savings New
DividendOngoing$0.80 in Q1 $0.25 in Q2 & Q3 Reduced in H2

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Tariffs/macroBaseline gross impact $125–$150M annualized; H2 net impact ~$35M; guidance suspended Annualized gross impact updated to $200–$250M; Q4 net impact ~$25–$35M; pricing offsets planned Worsening impact, more aggressive mitigation
Pricing/AURRetail AURs down in H1 from pricing investments Retail AURs up mid-single digits; price acceptance; further pricing in 2026 Improving price realization
Supply chainDiversified sourcing; agility to shift geographies Duty reductions >$40M; continued geographic shifts Active mitigation
Retail comps & productBaby category growth; comps turned positive in Q2 (+2%) Second straight positive comps (+2%); toddler strength; inventory quality improved Momentum building
Wholesale/partnersExclusive brands strong; off-price mix in Q2; department stores down Amazon Simple Joys down; pivot to core brands; department stores <20% wholesale Strategic repositioning
InternationalCanada +8% comps; Mexico +19% comps (Q2) International +4.9% sales; Mexico +16% comps; partner demand up Solid growth sustained
Store fleet strategyNew algorithm, ~100 closures planned (Q2) Raised to ~150 closures; accretive profitability expected More aggressive pruning
Demand creation/marketingPlan to increase media spend; early strong returns Q4 media +11% YoY; ~+$16M in 2026; traffic/loyalty focus Increased investment
Tech/AIProcess digitization; design calendar shortened by 3 months Prioritized digitization, AI models, cloud migration Execution continues

Management Commentary

  • “Our third quarter performance reflected continued improvement in U.S. Retail…However, elevated product costs, in part due to the impact of higher tariffs…weighed meaningfully on our profitability.”
  • “We have identified $45 million in gross savings for 2026…reduce office-based roles by approximately 15%…and close approximately 150 stores…expected to be accretive to profitability.”
  • “The tariff rates now…bring our effective duty rate into the high 30% range…annualized incremental impact…$200 to $250 million.”
  • “Consumers accepted higher prices…third quarter AURs in U.S. retail increased in the mid-single digit range.”
  • “We envision our core Carter’s, OshKosh B’gosh, and other brands…will grow in prominence [on Amazon], and Simple Joys will reduce in significance over time.”

Q&A Highlights

  • Amazon/Simple Joys strategy: Management plans to pivot to core brands (Carter’s, OshKosh, Little Planet, Otter Avenue) to rebuild momentum on Amazon; Simple Joys becomes less significant.
  • Store closures economics: ~20% sales transfer assumed to nearby stores and e-commerce; closures expected accretive to operating income.
  • 2026 outlook inputs: Higher AUR driven pricing normalization across industry; productivity savings and targeted marketing spend intended to offset tariffs and inflation.
  • Tariff impact specifics: Q4 gross tariff impact ~$40M; Q4 comps starting strong (+~7% QTD in U.S. retail).
  • Tax rate: ~24% is a decent planning assumption beyond 2025.

Estimates Context

  • Q3 2025 vs S&P Global consensus: Adjusted EPS $0.74 vs 0.7351 consensus () — bold slight beat; Revenue $757.8M vs $773.1M consensus () — bold miss.
  • Trailing two quarters: Q2 2025 EPS $0.17 vs 0.3742 () and revenue $585.3M vs $567.1M () — EPS miss, revenue beat; Q1 2025 EPS $0.66 vs 0.5158 () and revenue $629.8M vs $623.4M () — beat on both.
MetricQ1 2025Q2 2025Q3 2025
EPS Actual ($)$0.66 $0.17 $0.74
EPS Consensus Mean ($)0.5158 (*)0.3742 (*)0.7351 (*)
Revenue Actual ($MM)$629.8 $585.3 $757.8
Revenue Consensus Mean ($MM)623.4 (*)567.1 (*)773.1 (*)

Values with (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Tariffs are the dominant earnings swing factor; watch policy developments and Carter’s price realization cadence. Management guides Q4 net adverse impact at ~$25–$35M and Q4 gross margin ~43%.
  • Price acceptance is improving (mid-single-digit AUR lift), supporting a 2026 plan to offset tariffs via pricing, mix, and supply chain actions.
  • Structural cost reset should materially improve 2026 run-rate (>$45M gross savings); store closures are expected accretive to profitability. Execution discipline is key.
  • Channel mix shift: Transition away from Simple Joys on Amazon toward core brands should strengthen wholesale brand equity over time. Near-term wholesale drag likely persists.
  • International provides steady growth ballast (Mexico, Brazil partner); continued focus on constant-currency monitoring given FX volatility.
  • Liquidity remains solid (ABL commitments of $750M; proposed $500M notes to refinance 2027s), but operating cash flow recovery hinges on holiday execution and inventory normalization.
  • Short-term trading: sensitivity to tariff headlines and Q4 comps/AUR trends is elevated; medium-term thesis depends on pricing power and cost takeout translating to margin stabilization and cash flow inflection.

Supporting Press Releases and Filings

  • Q3 2025 Earnings Press Release and Data Tables
  • Q3 2025 8-K (Items 2.02, 2.05), including productivity actions and segment tables
  • Proposed $500M Senior Notes Offering (due 2031)
  • Q2 2025 Earnings Press Release and Data Tables
  • Q1 2025 Earnings Press Release and Data Tables