Carter's (CRI) Q2 2025 Earnings Call July 25, 2025 08:30 AM ET Speaker0Welcome to Carter's Second Quarter Fiscal twenty twenty five Earnings Call. On the call are Doug Paladini, Chief Executive Officer and President Richard Westenberger, Chief Financial Officer and Chief Operating Officer Kendrick Kruman, Chief Product Officer and Sean McHugh, Treasurer. Please note that today's call is being recorded. I'll now turn the call over to Mr. McHugh.Speaker1Thank you, and good morning, everyone. We issued our sec ...

Financial Data and Key Metrics Changes - The company reported net sales of $630 million in Q1 2025, down 5% from the previous year [17] - Adjusted operating income was $35 million, representing an adjusted operating margin of 5.6%, with adjusted EPS at $0.66 compared to $1.40 in Q1 2024 [18][21] - Gross margin declined to 46.2%, a decrease of 140 basis points year-over-year, primarily due to pricing investments in U.S. Retail and negative foreign exchange impacts [18][19] Business Segment Data and Key Metrics Changes - U.S. Retail net sales declined 4%, with comparable sales down about 5%, although March showed significant improvement [23][27] - U.S. Wholesale sales also decreased by 5%, with operating margin at 22.1%, down from 24% a year ago [28] - International segment sales fell 5%, impacted by unfavorable foreign currency exchange rates, but showed strong comparable sales growth in Canada and Mexico [30] Market Data and Key Metrics Changes - The company faced a tumultuous market backdrop due to proposed record tariffs, leading to concerns about inflation and consumer confidence [12][13] - The pricing investments in U.S. Retail were approximately $12 million for Q1, with plans to maintain a total of $20 million for the first half of the year [24] Company Strategy and Development Direction - The new CEO emphasized a focus on sustainable, long-term growth rather than short-term sales boosts through discounts [5][6] - The company is suspending forward-looking guidance due to leadership transition and economic uncertainty related to tariffs [8][41] - A clear strategy is being developed to return the brand to accretive growth, with a focus on financial efficiency and product quality [9][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the current tariff situation and its impact on financial forecasting [9][41] - The leadership team is optimistic about the company's long-term prospects despite current market challenges [41] Other Important Information - The company has a solid balance sheet with total liquidity exceeding $1 billion and cash on hand of over $300 million [31] - Capital expenditures were $10 million, primarily for new stores and distribution network improvements [32] Q&A Session Summary Question: Initial thoughts on the business and opportunities for financial performance improvement - The new CEO expressed optimism about the brand's strength and market distribution, looking forward to sharing a revised strategy [44] Question: Clarification on estimated annual effective tariff rates - Management clarified that the tariff rates presented were hypothetical and based on proposed reciprocal tariffs, which would significantly increase product costs if implemented [46] Question: Potential for reducing reliance on China for production - Management indicated that while reliance on China has decreased significantly, some production, particularly for accessories, remains [52] Question: Timing of tariff-impacted goods hitting shelves and mitigation efforts - The first imports subject to tariffs are expected around May, but existing inventory provides some buffer [56] Question: Visibility on other costs such as cotton, freight, and labor - Cotton prices are favorable, while labor costs are expected to see some inflation, and transportation costs are manageable due to successful renegotiations [80][83]