Carter’s, Inc. (CRI, Financial) could deliver an improving stock price performance, in my opinion, after its 2% decline in the past year.
The children’s apparel designer and retailer is investing in its website, expanding internationally and seeking to reduce costs.
Loyalty program
The company launched an enhanced loyalty program in fiscal 2019. It provides Carter’s customers with features such as advanced notice of special offers, free shipping on all orders and instant credit on their purchases. Since its launch, over 4,000 of the retailer’s customers have enrolled in its loyalty program. Around one in five of them were new customers for the business, which suggests that its loyalty program is expanding its appeal to a broader range of consumers.
Sales made by the company through its enhanced loyalty program are more profitable than its other sales. As the program’s number of members grows, it could have a positive impact on the retailer’s bottom line.
Website investment
Carter’s has invested in improving its website to encourage its customers to purchase products online. For example, in fiscal 2019 it improved the search functionality of its website and made the checkout process simpler for customers. This contributed to a six percentage point increase in the proportion of its total sales that were derived from its website in the fiscal 2019 fourth quarter. They now account for 36% of its total sales.
In addition, the retailer changed its e-commerce process so that its stores can now fulfil orders instead of the business being solely reliant on its distribution centers. This could make the company more efficient, and may mean that it requires less inventory in upcoming years. It has also increased the speed at which the company’s online orders are fulfilled, which could improve satisfaction levels.
Cost reductions
The business implemented a restructuring in fiscal 2019, which aims to reduce its costs by $100 million per annum over the next five years. Carter’s plans to improve the efficiency of its distribution centers and inventory management, use new technology to more effectively manage its pricing and target its customers through a greater use of personalized data on their past purchases.
The retailer expects to achieve around 15% of its future cost savings in fiscal 2020. This could catalyze its bottom line and help to improve investor sentiment towards its shares.
Potential challenges
The 2019 performance was disappointing. Its total sales declined 6%, and the company could face a challenging long-term future. Its growth rate may be limited by fewer annual births and a reduced number of international shoppers caused by the stronger dollar. This has contributed to a 1% decline in Carter’s comparable sales for the first six weeks of fiscal 2020.
Additionally, Carter’s faces an uncertain outlook due to the impact of the new coronavirus on its production. This could lead to delays in its products arriving, which may lead to a disappointing sales performance for the business in upcoming quarters.
In response, the company is increasing its investment in international markets. This will be achieved through its partnerships with international retailers such as Amazon (AMZN, Financial), and through Carter’s expansion in growth markets such as Mexico. This could provide it with access to more favourable operating conditions due to higher birth rates in non-U.S. economies. It may also diversify the company’s sales and reduce its overall risks.
Future prospects
Market analysts forecast that the retailer will post a 7% rise in its earnings per share in fiscal 2021. Its forward price-earnings ratio of 13.3 indicates that it offers good value for the money and could deliver an improving stock price performance in upcoming years.
Disclosure: The author has no position in any stocks mentioned.
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