Carter’s(CRI)2025-04-25 19:28Financial Data and Key Metrics Changes - The company reported net sales of 35 million, with an adjusted operating margin of 5.6% and adjusted EPS of 1.04 in the same quarter last year [24][28] - 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 [25] Business Segment Data and Key Metrics Changes - U.S. Retail net sales declined 4%, with comparable sales down about 5%, although March showed improvement with comps up about 13% [30][35] - U.S. Wholesale sales also decreased by 5% year-over-year, but were better than planned due to higher demand from several customers [36] - International segment sales fell by 5%, impacted by unfavorable foreign currency exchange rates, but showed strong comparable sales in Canada and Mexico [38] Market Data and Key Metrics Changes - The company faced significant market volatility due to proposed record tariffs on imports, leading to concerns about inflation and consumer confidence [18] - Consumer confidence has dropped rapidly, affecting retail performance and leading to cautious behavior from wholesale customers [90] Company Strategy and Development Direction - The new CEO emphasized a focus on sustainable, long-term growth rather than short-term sales boosts through discounts [9][12] - The company is working on a clear strategy to return to growth, balancing financial efficiency with strategic investments [10][12] - There is a strong emphasis on improving product and brand development processes to better respond to consumer preferences [20] Management's Comments on Operating Environment and Future Outlook - Management suspended forward-looking guidance due to the leadership transition and economic uncertainty related to tariffs [11][52] - The CEO expressed confidence in the company's brand strength and market distribution, indicating a positive long-term outlook despite current challenges [59][62] - The CFO noted that while tariffs would increase product costs, the company is exploring various mitigation strategies [75] Other Important Information - The company has a solid balance sheet with total liquidity over 300 million [40] - Capital expenditures were $10 million, primarily for new stores and distribution network improvements [41] - The company has reduced reliance on China for production, with less than 2% of apparel sourced from there [46] Q&A Session Summary Question: Initial thoughts on the business and opportunities for improvement - The CEO expressed excitement about the brand and confidence in future success, highlighting the strength of brand assets and market distribution [59] Question: Clarification on estimated annual effective tariff rates - The CFO explained that the rates presented were hypothetical and based on proposed tariffs, indicating potential material increases in product costs [60][62] Question: Potential for reducing China exposure - The CFO noted that while most branded apparel is no longer produced in China, some accessories and components still are, but efforts are ongoing to migrate production [70] Question: Timing of tariff-impacted goods hitting shelves - The CFO indicated that the first imports subject to tariffs would arrive around mid-May, but existing inventory would provide some buffer [74] Question: Inventory adjustments and retail partner behavior - The CFO mentioned that inventory adjustments were modest and primarily related to the U.S. retail business, with no significant trends in order cancellations from wholesale partners [88] Question: Retail comp improvement and pricing strategies - Management noted that product strategies are working, with improved conversion rates and sell-throughs, and competitive pricing is driving unit sales [101] Question: Visibility on other costs like cotton and freight - The CFO provided a favorable outlook for cotton prices, while noting some inflation in labor and modest increases in freight costs [106][108] Question: Impact of tariffs on guidance - The CFO stated that both the leadership transition and tariff uncertainty contributed to the decision to suspend guidance [115]