Q2 2026 Carter's Inc Earnings Call Transcript
Key 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.
- 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.
Welcome to Carter's second quarter Fiscal 2026 Earnings Conference Call. On the call are Sharon Price-John, Chief Executive Officer and President Richard Westenberg, Chief Financial Officer and Chief Operating Officer Allison Peterson, Chief Retail and Digital Officer and T.C. Robillard, Vice President, Investor Relations. Please note that today's call is being recorded. I'll now turn the call over to T.C. Robillard.
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Thank you. Good morning, everyone. We issued our second quarter 2026 earnings release earlier today. The release and presentation materials for today's call are available on our investor relations website at ir.carters.com.
Note that statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings as well as the earnings release and presentation
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