Why Carter's (CRI) Stock Is Nosediving

What Happened?

Shares of children’s apparel manufacturer Carter’s (NYSE:CRI) fell 21.4% in the afternoon session after the company reported disappointing second-quarter earnings, missed profit estimates, and suspended its full-year financial guidance. 

The children's apparel company posted adjusted earnings of $0.17 per share, falling significantly short of analyst expectations of around $0.37 and marking a steep drop from the $0.76 per share reported a year earlier. While revenue increased slightly by 3.7% to $585.3 million, this was overshadowed by a severe decline in profitability. The company's operating income fell by nearly 90%. Management attributed the poor results to investments in pricing, costs from new stores, and the impact of higher tariffs. 

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What Is The Market Telling Us

Carter’s shares are quite volatile and have had 17 moves greater than 5% over the last year. But moves this big are rare even for Carter's and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 5 months ago when the stock dropped 18.1% on the news that the company reported disappointing Q4 2024 results. Its full-year EPS guidance missed significantly and its EPS guidance for next quarter also fell short of Wall Street's estimates. Revenue was flat, as growth in U.S. Wholesale was offset by declines in U.S. Retail and International segments. Adjusted EBITDA took a hit, with margins shrinking due to higher freight costs and increased promotional spending, which hurt profitability. Management pointed to macroeconomic pressures, high interest rates, and planned pricing investments as ongoing challenges. On the bright side, the company beat analysts' same-store sales expectations, which helped deliver an EPS beat. Still, the weak guidance is weighing on the stock.

Carter's is down 52.2% since the beginning of the year, and at $25.72 per share, it is trading 63.8% below its 52-week high of $71.04 from September 2024. Investors who bought $1,000 worth of Carter’s shares 5 years ago would now be looking at an investment worth $292.34.

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