Carter's Q4 Earnings Beat Estimates, Shares Fall on Soft EPS View

Carter's, Inc. CRI reported fourth-quarter 2025 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. While earnings declined from the year-ago quarter’s respective number, sales increased.

Carter’s adjusted earnings per share (EPS) of $1.90 per share beat the Zacks Consensus Estimate of $1.70. However, the bottom line fell 20.5% from $2.39 reported in the prior-year quarter.

The company reported consolidated net sales of $925.5 million, which beat the Zacks Consensus Estimate of $916 million. The metric increased 7.6% year over year, owing to growth across each of its U.S. Retail, International and U.S. Wholesale segments. The additional week in the reported quarter contributed nearly $37 million in consolidated net sales. On a comparable week basis, net sales rose 3.4%. On a reported basis, including the extra week in fiscal 2025, the U.S. Retail, International and U.S. Wholesale segments increased 9.4%, 10.2% and 3.4%, respectively. 

Despite sales and earnings beat in the fourth quarter, Carter’s shares have lost more than 15% during trading hours on soft earnings guidance for the first quarter and 2026.  Also, the adjusted operating income view has been soft for the first quarter. Shares of this Zacks Rank #2 (Buy) company have gained 2.3% year to date versus the industry’s 0.6% rise.

Insights Into CRI’s Segment

Sales of the U.S. Retail segment increased 9.4% year over year to $509.8 million. The segment’s comparable net sales rose 4.7% in the fourth quarter. Our model predicted sales of $506.7 million for the segment.

The U.S. Wholesale segment’s sales jumped 3.4% year over year at $274.4 million. We expected net sales of $271.3 million for the segment.

The International segment recorded a 10.2% year-over-year increase in sales to $141.2 million. We expected net sales of $138.4 million for the segment.

Carter's, Inc. Price and EPS Surprise

Carter's, Inc. price-eps-surprise | Carter's, Inc. Quote

Focus on CRI’s Margins & Costs

Gross profit fell 2.6% year over year to $400.2 million. The gross margin contracted 460 basis points (bps) to 43.2% from 47.8% in the fourth quarter of 2024.

Adjusted operating income decreased 22.2% to $89.5 million. The adjusted operating margin also decreased 370 bps to 9.7%, mainly due to elevated tariff costs, investments in product mix and make, and increased performance-based compensation provisions, partly offset by higher pricing and reduced corporate expenses.

Adjusted selling, general and administrative (SG&A) expenses increased 4.8% year over year to $314.8 million in the quarter. As a percentage of net sales, SG&A expenses decreased 90 bps year over year to 34%.

CRI’s Financial Snapshot

Carter’s ended 2025 with cash and cash equivalents of $487.1 million, net long-term debt of $567.2 million and shareholders’ equity of $925 million.

In the fourth quarter of 2025, the company paid a dividend of 25 cents a share in cash, amounting to $9.1 million. In 2025, total cash dividends paid were $56.4 million. There was no share repurchase in 2025. On Feb. 19, 2026, the company’s board announced a quarterly cash dividend of 25 cents per share, payable March 27, 2026, to shareholders of record as of March 13, 2026.

The company’s total liquidity at fiscal 2025-end was $1.2 billion, with $744 million in available borrowing capacity under its $750-million secured asset-based revolving credit facility. At the end of fiscal 2025, it had no outstanding borrowings under its ABL facility, exclusive of $6.3 million of outstanding letters of credit.

Cater’s has concluded the sale of $575 million aggregate principal amount of 7.375% senior unsecured notes due 2031. Proceeds from this offering were utilized to redeem $500 million principal amount of the 5.625% senior notes due in 2027. The company, through its wholly-owned subsidiary The William Carter Company, has entered into a five-year secured ABL facility of up to $750 million that matures in November 2030. The ABL facility has replaced CRI’s existing $850 million secured cash flow based revolving credit facility due April 2027.

CRI’s Outlook

Management issued the outlook for the first quarter and 2026, which does not show the potential impacts of the recent U.S. Supreme Court decision with respect to tariffs imposed under the International Emergency Economic Powers Act of 1977, as amended, and the global tariffs imposed under Section 122 of the Trade Act of 1974, as amended.

For 2026, which is a 52-week year, Carter’s projects net sales growth in the low single-digit to mid-single-digit percentage compared with $2.898 billion in 2025. Adjusted operating income is likely to increase in the low single-digit to mid-single-digit range compared with $176 million in the prior year. Adjusted earnings per share are expected to decline in the low double-digit to mid-teens from $3.47 reported in fiscal 2025. For the year, management projects an operating cash flow of $110-$120 million and capital expenditures of $55 million.

The outlook includes earnings contributions weighted to the second half owing to higher expected net tariff impacts and investment spending in the first half compared with the second half. Lower gross margin rate is due to incremental tariff costs, somewhat offset by increased pricing, other tariff mitigation actions and productivity savings. Comparable SG&A expenses are likely to reflect organizational restructuring and store fleet rationalization savings, offset by investments in demand creation, information technology and other cost inflation across the business.

For the first quarter of 2026, Carter’s anticipates net sales growth in the mid-single-digit percentage from $630 million seen in the year-earlier quarter. Adjusted operating income is likely to come in the $12-$15 million band compared with $35 million in Q1 2025. Adjusted earnings per share are envisioned to be two-eight cents, significantly down from 66 cents recorded in the year-ago quarter. CRI expects a decreased gross margin rate and low single-digit growth in SG&A for the first quarter.

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