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, an 8% increase compared to the previous year, with a 3% increase on a comparable 13-week basis [11][12] - Gross margin was 43.2%, down 460 basis points year-over-year, primarily due to tariffs impacting $40 million [12][14] - Adjusted operating income was $89 million, with an adjusted operating margin of nearly 10%, down from 13.4% the previous year [13][15] - Adjusted earnings per share were $1.90, compared to $2.39 last year [14] Business Segment Data and Key Metrics Changes - U.S. retail net sales grew 9% in Q4, with comparable sales increasing 4.7%, marking the third consecutive quarter of comp sales gains [16] - U.S. wholesale net sales increased 3%, benefiting from an additional week in the fiscal calendar [18] - International segment reported a 10% increase in net sales, with a constant currency growth of 8% [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 [10] - The active consumer count continued to grow, particularly among Gen Z and millennial families, indicating a shift in consumer demographics [5][8] Company Strategy and Development Direction - The company aims to return to sustainable and profitable growth by reducing promotional activity and focusing on higher-priced products [5][24] - Strategic pillars include consumer-led initiatives, brand focus, and a direct-to-consumer model to enhance consumer connectivity and brand loyalty [24] - Plans to close approximately 150 lower-margin stores by 2028 to improve fleet productivity and profitability [26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty surrounding tariffs but expressed optimism about the company's path forward, citing strong consumer demand and improved financial outcomes [4][9] - The outlook for 2026 includes expected net sales growth in the low to mid-single digits, with adjusted operating income also anticipated to grow in the same range [32][36] Other Important Information - The company ended the year with strong liquidity of over $1 billion, including nearly $500 million in cash [19][20] - Operating cash flow for 2025 was $122 million, reflecting a decline due to lower earnings and higher inventories [22] Q&A Session Summary Question: Can you talk more about your full price realization and the drag from tariffs? - Management noted an increase in full price realization with less promotional activity, particularly in emerging brands like Little Planet [42][44] - The gross impact of tariffs is expected to be over $200 million for the year, with pricing increases planned to offset this [46][47] Question: Can you provide details on U.S. wholesale margins in Q4? - The primary driver of margin decline was the net impact of tariffs, with approximately $20 million of the $40 million impact attributed to this factor [54][55] Question: What is the timing of pricing at wholesale? - Pricing increases are planned across the year, with more significant benefits expected in the second half [62][64] Question: How does the early Easter impact sales? - Early Easter is expected to provide a benefit of one to two percentage points in comp sales [80][82] Question: What are the key drivers underpinning your confidence in the sales guidance? - The assumption includes a mid-single digit increase in pricing, with strong growth planned in e-commerce and retail channels [74][76]