Carter's, Inc. (CRI) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: strong growth in emerging brands and e-commerce, but challenges with tariffs and wholesale pricing. Despite optimistic guidance and strategic initiatives like cost reduction and marketing investments, the lack of clarity on tariff impacts and weak wholesale performance weigh on sentiment. The Q&A reveals cautious optimism but also uncertainty, particularly regarding tariffs. Given the market cap of $2.26 billion, the stock is likely to remain stable, with minor fluctuations, resulting in a neutral prediction (-2% to 2%).
Key Financial Performance
Net Sales (Q4 2025) $925 million, an 8% growth over last year's fourth quarter. On a comparable 13-week basis, consolidated net sales increased 3% year-over-year. The growth was driven by broad-based demand across business segments and benefited from an additional week in the fiscal calendar, contributing $37 million.
Gross Margin (Q4 2025) 43.2%, a decrease of 460 basis points compared to last year's fourth quarter. The decline was due to tariffs (gross impact of $40 million), higher product costs from investments in product make, and inflationary pressures.
Adjusted SG&A (Q4 2025) $315 million, a 5% increase year-over-year. The increase was driven by costs related to the 53rd week, investments in demand creation, inflationary pressures in wages and rent, and higher provisions for performance-based compensation.
Adjusted Operating Income (Q4 2025) $89 million, with an adjusted operating margin of nearly 10%, down from 13.4% last year. The decline was driven by higher tariffs, increased product costs, and spending deleverage.
Adjusted Earnings Per Share (Q4 2025) $1.90, compared to $2.39 last year. The decline was due to lower profitability driven by tariffs, higher product costs, and increased SG&A expenses.
U.S. Retail Net Sales (Q4 2025) Increased 9% year-over-year, with comparable sales up 4.7%. Growth was driven by strong e-commerce traffic, reduced promotions, and increased penetration of higher-priced products.
U.S. Wholesale Net Sales (Q4 2025) Increased 3% year-over-year, benefiting from the additional week in the calendar ($12 million). Profitability was impacted by higher product costs, tariffs, and a higher mix of excess inventory sales.
International Net Sales (Q4 2025) Increased 10% year-over-year (8% on a constant currency basis). Growth was driven by strong performance in Canada and Mexico, with Mexico achieving nearly 30% growth due to new stores and double-digit comp sales growth.
Year-End Inventory (2025) $545 million, up 8% year-over-year. Inventory units were 4% lower, but incremental tariffs increased inventory value by $50 million. Excluding tariffs, inventory dollars decreased 2%.
Operating Cash Flow (2025) $122 million, a decline year-over-year due to lower earnings and higher inventories impacted by tariffs.
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Operating Highlights
New Product Development: Carter's is creating new products resonating with consumers across all 5 brands, focusing on holistic value including style and quality, not just price. New fans, particularly Gen Z and millennial families, are leaning into higher-priced product offerings.
Market Expansion: International sales grew 10% year-over-year, driven by strong performance in Canada and Mexico. Mexico saw nearly 30% growth due to new stores and double-digit comp sales growth.
Operational Efficiencies: Carter's implemented productivity initiatives, including rationalizing the store fleet, rightsizing the workforce, and reducing complexity. These actions are expected to save $35 million in 2026. Store closures (150 planned by 2028) and faster development cycles are improving efficiency.
Strategic Shifts: Carter's is focusing on a consumer-led, brand-focused, and D2C-first strategy. Investments in demand creation and technology, such as AI tools and real estate planning platforms, are being leveraged to enhance consumer engagement and operational productivity.
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Risk or Challenges
Tariffs: The company is facing significant challenges due to tariffs, which have increased product costs. The gross impact of higher tariffs on the P&L in 2025 was approximately $60 million, and this is expected to grow to over $200 million in 2026. This has pressured gross margins and will continue to impact profitability, particularly in the first half of 2026.
Product Costs: Higher product costs due to investments in product make and incremental tariff pressure have negatively impacted profitability. These costs are expected to continue affecting the wholesale segment and overall margins in 2026.
Inventory Management: Higher inventory levels, partly due to incremental tariffs, have increased costs. While inventory units decreased, the value of inventory rose due to tariff impacts, creating challenges in managing inventory quality and costs.
Store Closures: The company plans to close approximately 150 lower-margin stores in North America through 2028, including 60 closures in 2026. While this is aimed at improving fleet productivity, it poses risks related to sales transfer and potential consumer dissatisfaction.
Macroeconomic Conditions: Uncertainty in consumer confidence, inflation, and overall macroeconomic conditions could negatively impact consumer spending and the company's sales performance.
Wholesale Segment Challenges: The wholesale segment has been impacted by higher inventory provisions, a higher mix of excess inventory sales, and incremental tariff pressure. These challenges are expected to persist, particularly in the first half of 2026.
Higher Operating Costs: Inflationary pressures in wages and rent, along with higher provisions for performance-based compensation, have increased SG&A expenses, impacting profitability.
Debt Refinancing: The company issued $575 million in new 5-year senior notes with a 7.375% coupon, leading to higher interest expenses. This will increase financial costs and reduce net income in 2026.
Tax Rate Increases: The effective tax rate is expected to rise to approximately 22% in 2026, up from 19% in 2025, due to the implementation of a new global minimum tax rate in Hong Kong and a higher proportion of income generated in the United States.
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Guidance & Outlook
Revenue Growth: Carter's expects net sales growth in the low to mid-single digits over 2025, with growth anticipated in each business segment. U.S. retail is projected to grow in the low single digits, U.S. wholesale in the mid-single digits, and international sales in the mid-single digits.
Profitability: Adjusted operating income is expected to grow in the low to mid-single digits over 2025. However, the first half of 2026 will see lower profitability due to tariff impacts and investment spending, with growth anticipated in the second half.
Tariff Impact: The gross impact of higher tariffs on the P&L in 2026 is projected to grow to over $200 million. Mitigation efforts include higher pricing, supply chain actions, and productivity initiatives.
Gross Margin: Gross margin rate is expected to decline slightly in 2026 compared to 2025, with significant tariff impacts in the first half and improvements in the second half.
Capital Expenditures: CapEx for 2026 is planned at approximately $55 million, focusing on new stores in Mexico, distribution center upgrades, and technology initiatives.
Store Closures: Approximately 60 lower-margin stores in North America are planned for closure in 2026 as part of a broader strategy to close 150 stores by 2028.
Productivity Initiatives: Carter's plans to achieve $35 million in cost savings from workforce rightsizing and discretionary spending reductions. Additional productivity gains are expected from a faster development cycle and reduced product choices.
Wholesale Channel: The wholesale channel is expected to return to growth in 2026, with strong sell-through rates and demand signals for future seasons.
Technology Investments: Carter's is leveraging AI for consumer and product insights and implementing a proprietary real estate market planning platform to optimize fleet operations.
First Quarter 2026 Outlook: Net sales are expected to increase in the mid-single digits, with U.S. retail growing in the high single digits, U.S. wholesale down in the low single digits, and international sales up double digits. Adjusted operating income is projected between $12 million and $15 million, with EPS in the range of $0.02 to $0.08.
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Shareholder Return Plan
Dividends Paid in 2025: $56 million in dividends were distributed to shareholders in 2025.
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Key Q&A
Q:Can you talk more about your full price realization within the Retail business and quantify the drag from tariffs on gross margin assumptions?
A:The company is selling more clean ticket products with less promotional activity. Emerging brands like Little Planet and PurelySoft are driving higher AURs. About half of the AUR increase in D2C is due to reduced promotions. Tariffs are expected to have a gross impact of over $200 million for the year, with a $150 million increase compared to 2025. Pricing increases and supply chain mitigation actions are offsetting the tariff impact, with gross margin expected to stabilize in the second half of the year.
Q:What is the percent of sales represented by Little Planet and PurelySoft, and how much of a driver are they for the F '26 growth rate?
A:Little Planet has crossed $100 million in sales, growing rapidly off a small base. Growth is planned in both wholesale and retail channels for the coming year.
Q:Can you provide more detail on U.S. wholesale margins in Q4 and the guidance for SG&A for fiscal '26?
A:The net impact of tariffs was the most significant driver of wholesale margin decline, accounting for $20 million of the $40 million impact. Inventory provisions contributed 40-50 basis points to the decline. SG&A is planned to be flat for the year, with $40 million in productivity benefits offsetting investments in marketing, technology, and wage costs.
Q:When does the pricing at wholesale take effect, and how does the 53rd week last year impact sales by quarter?
A:Wholesale pricing is planned up across the year, including Q1, but the benefit is more significant in the second half. The 53rd week last year added $12 million in retail sales, impacting Q4 comparisons.
Q:Why is retail sales growth guided at low single digits for the year despite a mid-single-digit comp?
A:The delta is driven by pricing benefits, store closures, and e-commerce growth. Store closures have a more significant impact later in the year.
Q:What drove the low single-digit decline in wholesale pricing in Q4?
A:Clearance activity and insufficient price increases to cover tariff impacts drove the decline in wholesale pricing.
Q:How should we think about the benefit of a new 15% universal tariff rate if it holds?
A:Management avoided providing specific details, stating they would wait for more information before commenting.
Q:What is the assumption on AUR growth for the full year, and what are the key drivers for the sales guidance?
A:AUR is expected to grow mid-single digits for the year, with pricing increases starting in the second half of 2025. Key drivers include pricing, store footprint reductions, and e-commerce growth.
Q:Can you provide a read on retail comps quarter-to-date and the impact of an early Easter?
A:Quarter-to-date retail comps are up mid-single digits. An early Easter historically adds 1-2 points to comps. March is expected to be the most significant month for retail performance.
Q:Why is wholesale growth planned to improve significantly after Q1?
A:Spring bookings were lower than expected, but demand and bookings improve later in the year. Investments in product make and strong reception to fall assortments are expected to drive growth.
Q:What is the status of the shift from Simple Joys to Carter's brands on Amazon?
A:The shift is underway, with Simple Joys sales decreasing and Carter's brand sales increasing. This transition is expected to improve revenue and profitability on the platform over time.
Q:How is marketing investment being spent, and what is the profile of new customers?
A:Marketing investments are focused on paid social, driving demand and retention. New customers tend to come from higher income brackets, showing higher lifetime value. The company aims to serve all consumer segments.
Q:Has the price increase at wholesale affected shelf space or required product improvements?
A:No changes in shelf space have occurred. Wholesale partners work collaboratively with the company to ensure product expectations are met.
Q:What is the pricing gap between the company's products and private label options?
A:The pricing gap remains consistent at 15-20%, with prices increasing across the marketplace. The company remains competitive as a premium national brand.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the potential benefits of a new 15% universal tariff rate, stating they would wait for more information before commenting.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AURs
Baby
Comps
Gen
Pages
Retail
apparel brand
benefit productivity
brand consumer
building block
business
calendar sale
consumer brand
consumer demand
contribution
cost saving
credit facility
debt
demand creation
detail comment
effort
end inventory
experience
fan product
fleet
gain
inventory tariff
investment pricing
line momentum
margin line
optimization
perspective
product deleverage
product investment
productivity cost
sale week
summary
theme
value
week calendar
week sale
wholesale
workforce
CRI Transcript
Carter's, Inc. (CRI) Q4 2025 Earnings Call Transcript
Unknown2-27
The earnings call presents a mixed picture: strong growth in emerging brands and e-commerce, but challenges with tariffs and wholesale pricing. Despite optimistic guidance and strategic initiatives like cost reduction and marketing investments, the lack of clarity on tariff impacts and weak wholesale performance weigh on sentiment. The Q&A reveals cautious optimism but also uncertainty, particularly regarding tariffs. Given the market cap of $2.26 billion, the stock is likely to remain stable, with minor fluctuations, resulting in a neutral prediction (-2% to 2%).
Carter's, Inc. (CRI) Q3 2025 Earnings Call Transcript
Positive10-27
The earnings call reveals a mix of positive and cautious elements. The company is experiencing strong U.S. retail and international growth, and consumer acceptance of price increases is healthy. While gross margins are pressured, strategic initiatives like store closures are expected to improve profitability. The Q&A section highlights confidence in earnings growth and operational efficiency. Despite some uncertainties in pricing and SG&A details, the overall sentiment is positive, with market expansion and strategic brand initiatives supporting a favorable outlook.
Carter's, Inc. (CRI) Q2 2025 Earnings Conference Call Transcript
Unknown7-26
The earnings call summary and Q&A reveal several concerns: sales decline, suspended guidance, and tariff-related uncertainties. Despite some positive elements like product development and strategic focus, the lack of guidance and continued market challenges overshadow these. The market cap suggests a moderate reaction, leading to a negative sentiment prediction.
Carter’s, Inc. (NYSE:CRI) Q1 2025 Earnings Call Transcript
Unknown4-27
The earnings call presents a challenging outlook: declining EPS and net sales, reduced guidance, and economic uncertainties due to tariffs. Despite a modest share repurchase and dividend payment, the lack of clarity in management's responses, especially regarding tariffs and inventory, adds to investor concerns. The suspension of guidance is particularly negative, and the company's small-cap nature suggests a stronger reaction. Therefore, a negative stock price movement between -2% to -8% is expected over the next two weeks.
CRI Slides
CRI Report
Frequently Asked Questions
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