Carter's Inc. (CRI, Financial), a $4.29 billion market cap company, is the largest branded marketer in the U.S. of apparel and related products exclusively for babies and young children. The company has declined earnings per share in the most recent quarter compared to the same quarter a year ago, to 95 cents from $1.04. As we can appreciate in the next chart, it has demonstrated a pattern of positive earnings-per-share growth over time. During the past fiscal year, the company increased its bottom line: Carter´s earned $5.11 versus $4.52 in the previous year. For this year, Mr. Market expects an improvement in earnings ($5.62 versus $5.11).
Key ratios
Competition is always a threat in this industry, where the primary competitors include the ones in the next table. Let´s compare some key metrics:
Company Name | P/E | P/S | P/B | Div. Yield |
Carter´s's Inc | 17.8 | 1.4 | 5.6 | 1.6 |
VF Corp | 21.4 | 2.1 | 5.4 | 2.8 |
PVH Corp | 24.1 | 1.1 | 1.9 | 0.1 |
Under Armour Inc | 51.6 | 1.9 | 4.5 | — |
Hanesbrands Inc | 17.1 | 1.5 | 9.0 | 2.2 |
Gildan Activewear Inc | 19.3 | 2.7 | 3.3 | 1.1 |
Ralph Lauren Corp | — | 0.9 | 1.8 | 2.7 |
Michael Kors Holdings Ltd | 10.7 | 1.3 | 3.4 | — |
Hugo Boss AG | 21.9 | 1.6 | 4.8 | 3.9 |
G-III Apparel Group Ltd | 30.0 | 0.5 | 1.2 | — |
Belluna Co Ltd | 22.1 | 0.9 | 1.5 | 0.5 |
Onward Holdings Co Ltd | 28.8 | 0.6 | 0.9 | — |
Industry Average | 26.3 | 1.4 | 3.2 | 1.5 |
Regarding valuation, the stock sells at a trailing P/E of 17.8x, trading at a discount compared to an average of 26.3x for the industry. To use another metric, its price-book ratio of 5.6x indicates a premium versus the industry average of 3.20x. Finally, the price-sales ratio of 1.4x is in line with the industry average of 3.73x.
Considering the three ratios, the current price level shows a fair valuation relative to its peers. Michael Kors (KORS, Financial) trades for almost 10.7 times trailing earnings and looks the most attractively valued.
As we can appreciate in the next chart, the stock price has a positive trend in the past five-year period. If you had invested $10,000 five years ago, today you could have $15.913, a 9.8% compound annual growth rate.
The return on equity has improved slightly when compared to the same quarter one year prior. As of March, the ROE is at 23.93% which I believe is a strength of Carter's. When compared to other companies in the Apparel & Furniture industry and the overall market, Carter's ROE exceeds that of the industry average and also exceeds that of the S&P 500. The ROE is ranked higher than 91% of the 749 Companies in the Global Apparel Manufacturing industry.
Final comment
The company operates in a competitive industry and makes Carter's adapt to new and renovated demand regularly. In international markets, consumers can have a different behavior because of different cultures or trends.
The company´s revenue growth, an impressive return on equity and attractive profit margins with a solid financial position make it a reasonable candidate for a long-term portfolio.
Hedge fund gurus like Jim Simons (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), and Paul Tudor Jones (Trades, Portfolio) initiated new positions in the stock in the first quarter of 2017, with 339,200; 204,811 and 20,515 shares, respectively. Pioneer Investment also opened a new position with 117,292 shares in the trimester.
Disclosure: The author holds no position in any stocks mentioned.