Carter's Stock Dips 6.6% Post Q4 Earnings: Time to Buy or Stay Put?

Core Viewpoint - Carter's, Inc. (CRI) shares have declined by 6.6% since the release of its fourth-quarter 2025 earnings, despite surpassing revenue and earnings estimates, due to declining performance in U.S. Retail and International segments overshadowing growth in the U.S. Wholesale division [1][2][4]. Financial Performance - In the fourth quarter, CRI's U.S. Retail segment experienced a 2.8% year-over-year decline in sales, with comparable net sales falling by 3.4%, attributed to softer consumer demand amid economic pressures [6][7]. - The U.S. Wholesale segment, however, saw a 7.3% increase in sales, benefiting from favorable shipment timing and strong partnerships with key retailers [6]. - The International segment faced a 2% sales decline due to ongoing macroeconomic pressures in key markets [7]. Margin Analysis - Gross margin decreased by 90 basis points to 47.8%, impacted by a $30 million pricing investment in U.S. Retail, higher freight rates, and a greater mix of lower-margin wholesale sales [8]. - Adjusted operating margin declined by 250 basis points to 13.4%, driven by pricing investments, rising marketing/store expenses, inbound freight costs, and increased charitable contributions [9]. Future Outlook - Management provided a cautious outlook for 2025, expecting net sales of $615-$625 million for Q1 2025, down from $661 million in the prior-year quarter, with adjusted EPS projected to decline sharply to 45-55 cents from $1.04 [10][11]. - The company anticipates a sales decline in the U.S. Retail segment between mid-single digits and high-single digits, with U.S. Wholesale sales expected to fall in the high-single digits and International sales projected to decline in the mid-single digits [10]. - Adjusted operating income is forecasted to be $180-$210 million, significantly lower than the previous year's $287 million, with adjusted EPS expected to drop to $3.20-$3.80 from $5.81 in 2024 [11]. Strategic Focus - For 2025, the company plans to address profitability challenges by focusing on improving merchandise assortments and strengthening inventory positions rather than relying heavily on pricing actions [12].