CARTERS INC SEC 10-Q Report

Carters Inc., a leading provider of children's apparel, has released its Form 10-Q report for the third quarter of fiscal 2024. The report highlights a slight decline in consolidated net sales, significant decreases in gross profit and net income, and ongoing operational restructuring efforts aimed at optimizing the company's performance amidst challenging market conditions.

Financial Highlights

Consolidated Net Sales: $757.8 million, a slight decrease of $0.6 million or 0.1% compared to the third quarter of fiscal 2024. This decline was driven by lower demand in the U.S. Wholesale segment, partially offset by growth in the U.S. Retail and International segments.

Gross Profit: $341.6 million, a decrease of $14.4 million or 4.0%, with a gross margin decrease of 180 basis points to 45.1%. The decline was primarily due to higher average cost per unit sold, driven by incremental tariffs and investments in product make.

Operating Income: $29.1 million, a significant decrease of $47.9 million or 62.2%, with an operating margin decrease of 640 basis points to 3.8%. This was mainly due to increased SG&A expenses related to organizational restructuring, operating model improvements, and leadership transition.

Net Income: $11.6 million, a decrease of $46.7 million or 80.1%, impacted by a pre-tax, non-cash pension settlement charge of $8.8 million.

Diluted Net Income Per Common Share: $0.32, a decrease of $1.30 or 80.2%, reflecting the significant decrease in net income.

Business Highlights

Revenue Segments:

• U.S. Retail segment net sales increased by 2.6% to $362.3 million, driven by higher average selling prices per unit and growth in the core baby assortment.
• U.S. Wholesale segment net sales decreased by 5.1% to $283.8 million, primarily due to decreased sales of the Simple Joys brand.
• International segment net sales increased by 4.9% to $111.7 million, with significant growth in Mexico.

Geographical Performance:

• The U.S. Retail segment saw a positive trend with a 2.0% increase in comparable net sales, marking the second consecutive quarter of growth.
• In the International segment, Mexico experienced a 30.9% increase in net sales due to new retail stores and higher traffic, while Canadian comparable net sales decreased by 1.5% due to reduced clearance inventory.

Sales Units:

• The U.S. Retail segment experienced a low-single digit percentage decrease in units sold.
• The U.S. Wholesale segment saw a mid-single digit percentage decrease in units sold.
• The International segment's performance was bolstered by increased shipments to international wholesale partners.

Future Outlook:

• The company plans to close approximately 150 low-margin stores in North America by 2028, with 100 closures expected by the end of fiscal 2026. This is part of a strategy to optimize the store portfolio and improve profitability.
• The company is implementing an organizational restructuring to reduce office-based roles by 15% by mid-2026, aiming for $35 million in annual savings.

Operational Challenges:

• The company is facing challenges from increased tariffs, which are expected to have a net unfavorable impact of $25 million to $35 million on pre-tax income in the fourth quarter of fiscal 2025. Mitigation strategies include changes to product assortments and cost-sharing with vendor partners.

Process Efficiency:

• The company has improved its product development calendar by approximately three months and is rationalizing product choices by 20-30% to create a more unified global product assortment.

Marketing and Demand Creation:

• Increased marketing spend is being directed to drive traffic and strengthen consumer loyalty, with a focus on measuring the return on these investments.

Infrastructure and Technology:

• Investments continue in modernizing the distribution network and enhancing technology capabilities, including upgrading equipment and systems and migrating applications to cloud-based platforms.

SEC Filing: CARTERS INC [ CRI ] - 10-Q - Oct. 27, 2025