Release Date: July 31, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Carter's Inc CRI exceeded its second-quarter outlook, with net sales growing 5% year-over-year and adjusted operating profit increasing 54%.
- The company delivered its fifth consecutive quarter of comparable retail sales growth, with U.S. Retail comps up 5% in Q2 and 8% in the first half.
- Carter's Inc (CRI) successfully recovered approximately $130 million in previously paid tariffs and related interest, significantly strengthening its balance sheet and liquidity.
- The company saw strong growth in its e-commerce channel, with double-digit comp sales growth driven by effective marketing investments and enhanced digital features.
- Carter's Inc (CRI) is gaining traction with Gen Z consumers, who grew mid-teens in the quarter, and saw strong engagement from its Umbro World Cup collaboration.
- The company's international segment showed improved profitability, with operating income up 50% and operating margin expanding 180 basis points to 5.7%.
- Carter's Inc (CRI) maintained its adjusted operating income growth guidance of low to mid-single-digits, despite a challenging environment, and improved its adjusted EPS outlook.
- The company's balance sheet is in good shape with over $650 million in cash, and it generated over $200 million in operating cash flow in the first half.
- Carter's Inc (CRI) is seeing strong forward demand in wholesale, with fall bookings up year-over-year and winter bookings up even more.
- The company's new CEO, Sharon Price-John, brings extensive experience in the children's market and has identified significant opportunities to leverage the company's iconic brands and market leadership.
Negative Points
- Carter's Inc (CRI) experienced a decline in adjusted gross margin of 180 basis points in Q2, pressured by tariffs and investments in product mix.
- The company faced higher-than-planned clearance activity in Q2 due to soft performance of select seasonal products, which weighed on AUR and gross margin.
- Carter's Inc (CRI) moderated its full-year net sales outlook to 2-3% growth, down from low to mid-single-digit growth, due to lighter second-half wholesale demand and more conservative customer commitments.
- The company is planning for a more value-conscious consumer in the second half, with data indicating price resistance and a loss of unit velocity in the broader market.
- Carter's Inc (CRI) faces ongoing tariff uncertainty, with new Section 301 tariffs replacing expired Section 122 tariffs, and the potential for rates to increase.
- The company's U.S. Retail store traffic decelerated in Q2, with traffic comparable to prior year but slower than Q1, as consumers shifted towards e-commerce.
- Carter's Inc (CRI) is experiencing a more modest outlook for second-half retail AUR, planning for improved but more conservative pricing assumptions.
- The company's international partners business saw lower sales, partially offsetting growth in Canada and Mexico.
- Carter's Inc (CRI) faces risks from sustained high gas prices and persistent inflation, which could impact consumer sentiment and promotional activity during the holiday season.
- The company's Q3 net sales are expected to be comparable to last year, with U.S. Wholesale sales expected to decline high single-digits due to the pull-forward of demand into Q2.
Q & A Highlights
Q: Can you quantify the potential EPS upside if tariff rates remain unchanged through year-end, and what are the plans for using the cash from the tariff refunds?
A: Richard Westenberger (CFO & COO) stated that while he wouldn't provide a specific number, there is "clearly some upside" relative to original tariff assumptions. The gross tariff impact was originally estimated at ~$200 million over the historic baseline, but is now expected to be lower, around $75 million. Some of this benefit has been offset by lower wholesale volume and discounting, but a portion remains as potential upside. Regarding the cash, he noted the company is "thrilled to have it back" but emphasized continued uncertainty around tariffs and the broader economy. He stated that maintaining more liquidity is prudent, and the company will evaluate uses for the cash during its planning season with the new CEO.
Q: What is your first order of business as the new CEO, and what can you accomplish this year and in 2027?
A: Sharon Price John (CEO & President) stated that her initial focus is on getting to know the leadership team, understanding the financials, and analyzing the customer base. She emphasized finding the intersection of the company's core competencies, brand assets, and consumer needs to build a strategy that optimizes these opportunities. She indicated that more details on strategic expectations will be shared on future calls.
Q: Can you help connect the dots between wholesale partners wanting product earlier and your comments about them being more conservative? Also, what was the accounting for the tariff refund?
A: Richard Westenberger (CFO & COO) explained that the wholesale dynamic reflects a mix of factors: good reception for fall product and improved bookings (fall bookings up YoY, winter bookings up even more, and early spring '27 demand notably above last year), but also a more aggressive initial plan that hasn't fully materialized. He noted that different customers have different outlooks. Regarding the tariff refund, he clarified that the accounting did not reduce inventory because the company has already sold through the goods tariffed at the higher IEFA level. The remaining inventory balance reflects the +10% tariffs implemented after IEFA was invalidated.
Q: Can you define what success looks like for you and the organization, and what is your ambition for the company?
A: Sharon Price John (CEO & President) stated that her ambition is to drive shareholder value through profitable growth. She emphasized that this is not "growth for growth's sake" but also not entirely focused on the bottom line, as market share is crucial for long-term success. She highlighted the company's strong operational structure and the opportunity to leverage its iconic brands and consumer trust to operate on "multiple cylinders" with a consumer-centric approach.
Q: Can you quantify the clearance activity drag on gross margin in Q2, and what are the drivers for Q3 and Q4 gross margin?
A: Richard Westenberger (CFO & COO) noted that Q2 gross margin was ~80 basis points worse than forecast, driven by additional discounting in U.S. Retail and a higher balance of wholesale sales due to pull-forward volume. For Q3, the company plans considerable gross margin expansion of just under 200 basis points, driven by anniversarying the higher tariffs from last year, improved retail contribution, and continued pricing gains. Q4 expansion is planned but at a much lower level due to a higher mix of wholesale volume.
Q: Do you think the shift from store traffic to e-commerce is a function of inflation and gas prices, and is that dynamic part of your thinking for 2H?
A: Allison Peterson (Chief Retail and Digital Officer) confirmed that both channels grew, and while store traffic decelerated, it still outpaced the industry. She noted that consumers are increasingly choosing the convenience of e-commerce, evidenced by strong growth in buy-online-pick-up-in-store metrics. However, outlet stores, which typically require longer drives, still performed strongly. Sharon Price John added that the omnichannel strategy is a key asset, and consumers who shop across both channels have greater lifetime value.
Q: How do margins compare between stores and e-commerce, and how would a shift to e-commerce impact overall margin rates?
A: Richard Westenberger (CFO & COO) explained that while e-commerce has lower gross margins due to shipping costs, it is a "very good operating margin business." This is driven by larger basket sizes online, low return rates, and a highly automated distribution network. He noted that people are often surprised by the strong operating margin profile of the e-commerce business.
Q: Can you comment on quarter-to-date trends in July and any volatility you're seeing in the retail environment?
A: Allison Peterson (Chief Retail and Digital Officer) stated that July comps are flat, which is in line with expectations. Sharon Price John added that July is a difficult month for retail projections and that the quarter is back-end weighted, with September being a historically significant month representing the majority of Q3 sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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