Carter’s(CRI) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, the company reported net sales of $925 million, representing an 8% increase over the previous year's fourth quarter. On a comparable 13-week basis, net sales increased by 3% [10][11] - Gross margin for Q4 was 43.2%, a decrease of 460 basis points year-over-year, primarily due to tariff impacts amounting to $40 million [11][12] - Adjusted operating income for Q4 was $89 million, with an adjusted operating margin of nearly 10%, down from 13.4% the previous year [12][14] - Adjusted earnings per share for Q4 were $1.90, compared to $2.39 in the prior year [13] Business Segment Data and Key Metrics Changes - U.S. retail net sales grew by 9% in Q4, with comparable sales increasing by 4.7%, marking the third consecutive quarter of comp sales gains [16] - U.S. wholesale net sales increased by 3% year-over-year, benefiting from an additional week in the fiscal calendar [18] - International segment reported a 10% increase in net sales year-over-year, with a growth of nearly 30% in Mexico [19] Market Data and Key Metrics Changes - The company experienced broad-based demand across its business segments during the holiday season, indicating a strong consumer shopping environment [9] - The company noted that consumer counts are growing, particularly among Gen Z and millennial families, who are increasingly purchasing higher-priced products [5][6] Company Strategy and Development Direction - The company aims to return to sustainable and profitable growth by reducing promotional activity, enhancing pricing power, and focusing on emotional brand storytelling [4][5] - Strategic pillars for 2026 include consumer-led initiatives, brand focus, and a direct-to-consumer (D2C) model [24] - The company plans to close approximately 150 lower-margin stores by 2028, with around 60 closures planned for 2026 to improve fleet productivity [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's path forward despite uncertainties related to tariffs, indicating that productivity initiatives and demand creation investments are expected to yield positive results [8][31] - For 2026, the company anticipates low to mid-single-digit net sales growth and adjusted operating income growth, with a focus on mitigating tariff impacts through pricing and supply chain actions [33][34] Other Important Information - The company ended the year with strong liquidity of over $1 billion and successfully refinanced its debt, issuing $575 million in new senior notes [19][20] - The effective tax rate for Q4 was 15.4%, lower than expected, due to a higher mix of income outside the U.S. [13] Q&A Session Summary Question: Can you talk more about your full price realization and the drag from tariffs? - Management indicated that full price realization is improving, with less promotional activity and higher average unit retail (AUR) sales. The gross impact of tariffs is expected to be around $200 million for the year [43][46] Question: Can you provide more detail on U.S. wholesale margins in Q4? - The decline in wholesale margins was primarily driven by the net impact of tariffs, with approximately $20 million of the $40 million tariff impact affecting gross margins [55][56] Question: When does pricing at wholesale take effect? - Pricing increases are planned across all segments, with more significant benefits expected in the second half of the year [64][66] Question: What is the impact of the early Easter on sales? - Management expects the early Easter to provide a benefit of one to two percentage points in comparable sales [82] Question: Can you discuss the cadence of marketing and demand build investments? - The company is ramping up investments in marketing to drive demand and improve brand equity, with early signs of positive returns [91]