Carter's Q1 Earnings on Deck: Will Adverse Trends Hurt Performance?

Carter's, Inc. CRI is scheduled to release first-quarter 2025 results on April 25, before the opening bell. The branded marketer of apparel  exclusively for babies and children in North America  is likely to witness a decline in the bottom and top lines when it reports the quarterly numbers.

The Zacks Consensus Estimate for first-quarter revenues is pegged at $621.3 million, indicating a fall of 6.1% from the figure reported in the year-ago quarter. The consensus estimate for quarterly earnings, which has remained unchanged at 53 cents per share in the past 30 days, indicates a decrease of 48% from the year-ago quarter’s figure. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Carter's, Inc. Price, Consensus and EPS Surprise

Carter's, Inc. price-consensus-eps-surprise-chart | Carter's, Inc. Quote

The company has a trailing four-quarter earnings surprise of 45.7%, on average. In the last reported quarter, CRI’s bottom line beat the Zacks Consensus Estimate by 39%.

Factors to Note Ahead of CRI’s Results

Carter’s continues to navigate a challenging macroeconomic environment as it enters the first quarter of fiscal 2025. Persistent inflationary pressures and elevated interest rates remain significant hurdles, particularly for families with young children, the brand’s core demographic. With less discretionary income and the absence of pandemic-era financial support, consumer demand for Carter’s products has faced headwinds.

These dynamics are likely to influence Carter’s performance in the first quarter of 2025, especially in the retail segment, where softness in consumer spending could persist. While the wholesale business has shown some resilience, it may not be enough to offset ongoing weakness in retail and international markets. Currency headwinds may also continue to act as a drag on overall revenue growth.

In addition, the company has been witnessing higher selling, general and administrative expenses (SG&A) as a percentage of sales, owing to fixed cost deleverage from lower sales, with investments in brand marketing and retail stores, higher distribution expenses and rising transportation costs. The higher SG&A expense rate is expected to have strained operating margins and reduced profitability.

Moreover, the company has been witnessing a tough retail landscape and adverse effects of foreign currency translations. These factors, along with reduced online traffic, are expected to have particularly dented its top-line performance during the quarter under review.

On its last reported quarter’s earnings call, Carter’s had projected net sales in the range of $615-$625 million for the first quarter of 2025, down from $661 million in the year-ago quarter. It had envisioned adjusted earnings of $45-55 cents per share, a decline from $1.04 reported in the prior-year quarter. Adjusted operating income is expected to be $30-$35 million, implying a decrease from $55 million in the year-ago quarter. We expect an adjusted operating income of $31.4 million, down 43% year over year.

In the U.S. Retail business, total sales are expected to fall in the mid-single-digit to high-single-digit range for the first quarter. In U.S. Wholesale, the company anticipates sales to decrease high-single digits year over year, whereas international sales are expected to dip mid-single digits year over year. For the U.S. Retail business, the company expects comparable sales to be down mid- to high-single digits. Our model predicts a sales decline of 6% in the U.S. Retail and 6.9% in the U.S. Wholesale.

On the flip side, Carter’s has been making efforts to overcome such challenges by doubling down on strategic initiatives aimed at improving long-term performance. The company is enhancing its merchandise assortments to better align with evolving consumer preferences and focusing on refining its inventory management to ensure more efficient stock levels. The company has been implementing measures like improved pricing and optimized inventory management, apart from strengthening its e-commerce capabilities.

What the Zacks Model Unveils for CRI Stock

Our proven model does not conclusively predict an earnings beat for Carter's this season. The combination of a positive Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Carter's currently has an Earnings ESP of 0.00% and a Zacks Rank of 5 (Strong Sell).

Carter’s Valuation Picture

From a valuation perspective, Carter’s offers an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 9.89X, which is below the five-year high of 21.14X and the Shoes and Retail Apparel industry’s average of 21.58X, the stock offers compelling value for investors seeking exposure to the sector.

The recent market movements show that CRI’s shares have lost 30.5% in the past three months compared with the industry's 24.5% decline.

CRI Stock's Price Performance

Stocks With the Favorable Combination

Here are three companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Ralph Lauren RL currently has an Earnings ESP of +2.14% and a Zacks Rank of 3. The company is expected to register an increase in the bottom and top lines when it reports fourth-quarter fiscal 2025 results. The Zacks Consensus Estimate for quarterly earnings per share of $1.95 indicates a rise of 3.8% from the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for RL’s revenues is pegged at $1.95 billion, which implies an increase of 14.04% from the year-ago quarter. RL has a trailing four-quarter earnings surprise of 6.5%, on average.

Royal Caribbean Cruises RCL currently has an Earnings ESP of +0.79% and a Zacks Rank #3. RCL is likely to register growth in its top and bottom lines when it reports first-quarter 2025 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $4.0 billion, indicating 7.4% growth from the figure reported in the year-ago quarter.

The consensus estimate for Royal Caribbean’s earnings is pegged at $2.52 per share, implying a 42.4% increase from the year-earlier quarter. The consensus mark for earnings has remained stable in the past 30 days.

Planet Fitness PLNT presently has an Earnings ESP of +3.45% and a Zacks Rank #3. The company is expected to register an increase in its top and bottom lines when it reports first-quarter 2025 numbers. The Zacks Consensus Estimate for PLNT’s quarterly revenues is pegged at $280.7 million, which indicates growth of 13.2% from the prior-year quarter’s reported figure.

The consensus mark for Planet Fitness’ quarterly earnings remained stable in the past 30 days at 61 cents per share. The estimate indicates an increase of 15.1% from the year-ago quarter. PLNT delivered an earnings surprise of 10.2% in the trailing four quarters, on average.

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This article originally published on Zacks Investment Research (zacks.com).

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