Carter's, Inc. (CRI) - Q1 2026 10-Q Summary
Business Context and Reporting Period
Carter's, Inc. is a leading designer, marketer, and distributor of branded childrenswear, operating under core brands including Carter's, OshKosh B'gosh, and Skip Hop. The company operates through three segments: U.S. Retail, U.S. Wholesale, and International. This report covers the fiscal quarter ended April 4, 2026.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $681.1 million | $629.8 million |
| Gross Profit | $293.9 million | $291.1 million |
| Gross Margin | 43.1% | 46.2% |
| Operating Income | $28.4 million | $26.1 million |
| Net Income | $14.3 million | $15.5 million |
| Diluted EPS | $0.39 | $0.43 |
| Operating Cash Flow | $6.4 million | ($48.6 million) |
| Cash & Equivalents | $473.4 million | $320.8 million |
| Long-Term Debt (Net) | $567.5 million | $498.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 8.1% year-over-year, driven by a 12.8% increase in U.S. Retail sales (10.5% comparable sales growth) and a 14.3% increase in International sales. U.S. Wholesale sales were flat (0.5% increase).
- Margin Compression: Gross margin declined 310 basis points to 43.1%. This was primarily due to a low-teens digit percentage increase in Average Unit Cost (AUC) driven by incremental tariff-related costs (approx. $50 million impact), partially offset by higher Average Unit Retail (AUR).
- Interest Expense: Interest expense surged 50.4% to $11.8 million due to the issuance of $575 million in 7.375% Senior Notes in late 2025 and the redemption of lower-rate notes.
- Profitability: Despite higher sales, Net Income decreased 7.7% to $14.3 million, impacted by higher interest costs and margin pressure.
- Dividends: The quarterly dividend was reduced to $0.25 per share from $0.80 in the prior year.
Guidance, Outlook, and Risks
- Management Commentary: Management highlighted a fourth consecutive quarter of positive comparable sales growth in U.S. Retail. However, they noted that operating results for the first quarter are not necessarily indicative of full-year results due to seasonality.
- Tariff Contingency: Following a U.S. Supreme Court ruling that IEEPA tariffs were unlawful, the company submitted claims for approximately $130 million in tariff refunds. No gain has been recognized yet as the outcome remains uncertain.
- Leadership Transition: Subsequent to the quarter end, the company announced the departure of CEO Douglas C. Palladini and the appointment of Sharon Price John as the new CEO, effective June 15, 2026. Richard F. Westenberger serves as Interim CEO.
- Risks: Key risks include geopolitical instability (specifically conflicts involving the U.S., Israel, and Iran), supply chain disruptions, inflationary pressures on labor and materials, and the uncertainty of recovering tariff refunds.
- Liquidity: The company maintains $473.4 million in cash and $605.2 million in available borrowing capacity under its ABL facility. Capital expenditures for fiscal 2026 are planned at approximately $55 million.
Investor Verification Checklist
- Tariff Refund Status: Monitor the progress of the $130 million IEEPA tariff refund claim and the timeline for potential recognition.
- Margin Recovery: Verify if the company can successfully pass on tariff-related costs to consumers to stabilize gross margins in subsequent quarters.
- Debt Servicing: Assess the impact of the higher interest rate environment (7.375% notes) on future net income and cash flow.
- Wholesale Demand: Track U.S. Wholesale performance, which showed weakness in department store demand despite growth in exclusive brands.
- Leadership Impact: Evaluate the strategic direction and execution under the new CEO, Sharon Price John, starting in mid-2026.