Carter's (CRI) Fell Despite Better-Than-Expected Q1 Results

Palm Valley Capital Management, an investment management firm, released the “Palm Valley Capital Fund” second quarter 2025 investor letter. A copy of the letter can be downloaded here.  In the second quarter, Palm Valley Capital Fund appreciated 0.82% compared to a 4.90% gain for the S&P SmallCap 600 and a 7.28% rise in the Morningstar Small Cap Total Return Index. Cash was 76.7% of Fund assets at the start of the quarter and 73.6% at the conclusion. Year-to-date, the fund gained 1.39% compared to a 4.46% decline for the S&P SmallCap 600 and a 0.75% rise for the Morningstar Small Cap Index. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its second quarter 2025 investor letter, Palm Valley Capital Fund highlighted stocks such as Carter’s, Inc. (NYSE:CRI). Carter’s, Inc. (NYSE:CRI) designs, sources, and markets branded children's wear.  The one-month return of Carter’s, Inc. (NYSE:CRI) was -3.56%, and its shares lost 48.79% of their value over the last 52 weeks. On July 7, 2025, Carter’s, Inc. (NYSE:CRI) stock closed at $31.43 per share with a market capitalization of $1.145 billion.

Palm Valley Capital Fund stated the following regarding Carter’s, Inc. (NYSE:CRI) in its second quarter 2025 investor letter:

"The Fund’s three largest detractors in the quarter were ManpowerGroup (ticker: MAN), Carter’s, Inc. (NYSE:CRI), and Kelly Services (ticker: KELYA). Carter’s first quarter results were better than expected, but management withdrew 2025 guidance due to uncertainty over tariffs and a transition under the new CEO. Most of the company’s supply comes from Vietnam, Cambodia, Bangladesh, and India. The new CEO, who previously ran the shoe brand Vans, may increase marketing spending to grow sales, which could adversely impact margins. We reduced the Fund’s position in Carter’s last quarter due to changing our normalized margin assumption. Nevertheless, the stock appears inexpensive based on revenue and assumed profits that are less than historical levels."

Carter’s, Inc. (NYSE:CRI) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held Carter’s, Inc. (NYSE:CRI) at the end of the first quarter, compared to 29 in the previous quarter. Carter’s, Inc. (NYSE:CRI) reported net sales of $630 million in the first quarter, down 5% from Q1 2024. While we acknowledge the potential of Carter’s, Inc. (NYSE:CRI) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In another article, we covered Carter’s, Inc. (NYSE:CRI) and shared Palm Valley Capital Fund's views on the company. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of CRI as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.