Carter's Q3 Earnings on Deck: Will Adverse Trends Hurt Performance?

Core Viewpoint - Carter's, Inc. is expected to report a decline in both revenue and earnings for the third quarter of 2025, with challenges stemming from macroeconomic pressures and a tough retail environment [1][4]. Revenue and Earnings Estimates - The Zacks Consensus Estimate for third-quarter revenues is $751 million, reflecting a decrease of 0.98% compared to the same quarter last year [2]. - The consensus estimate for quarterly earnings is 78 cents per share, indicating a significant drop of 52.4% from the previous year's figure [2]. Recent Performance and Trends - Carter's has a trailing four-quarter earnings surprise of 7.5% on average, but the last reported quarter saw a substantial miss of 60.5% against the Zacks Consensus Estimate [3]. - The U.S. Retail segment has shown modest improvement, with a 2% comparable sales gain in July and strong sales in the baby category, which increased by double digits [5]. Challenges and Market Conditions - The company faces persistent inflation and high interest rates, which are impacting its core demographic of families with young children [4]. - Discretionary spending constraints are affecting apparel demand, and the promotional marketplace is likely to have restrained top-line growth [6]. - Higher selling, general and administrative expenses (SG&A) as a percentage of sales are straining operating margins due to fixed cost deleverage from lower sales [7]. Strategic Initiatives - Carter's is focusing on strategic initiatives to improve long-term performance, including enhancing merchandise assortments and refining inventory management [9]. - The company is also implementing improved pricing strategies and strengthening its e-commerce capabilities to adapt to changing consumer preferences [9]. Valuation Perspective - From a valuation standpoint, Carter's is trading at a forward 12-month price-to-earnings ratio of 12.12X, which is below its five-year high of 21.14X and the industry average of 28.76X, presenting an attractive opportunity for investors [13]. - Over the past three months, CRI's shares have declined by 9.1%, compared to an 11.4% decline in the industry [14].