Carter’s Inc (NYSE:CRI), a leading children’s clothing retailer, delivered mixed second-quarter results on Friday, reporting earnings that fell short of analyst projections even as revenue surpassed expectations. The earnings release comes as the company adjusts to new leadership and grapples with a profitability squeeze.
The company posted adjusted earnings per share of $0.17, falling well below the Street’s forecast of $0.34, missing by $0.17. However, revenue reached $585.3 million, beating the consensus estimate of $563.4 million and marking a 4% increase year-over-year.
Following the results, Carter’s stock edged up by 1.8%.
Profit margins declined sharply during the quarter. Adjusted operating income dropped more than 70% to $11.8 million, down from $39.5 million in the same period last year. The adjusted operating margin also fell, shrinking to 2.0%, compared to 7.0% a year ago. The decline was largely driven by higher costs associated with pricing strategies, investments in store renovations and expansions, and performance-based compensation.
“Our second quarter sales performance showed stabilization and momentum, particularly in our direct-to-consumer businesses,” said Douglas C. Palladini, the newly appointed CEO and President of Carter’s.
“I am disappointed, however, in our decline in profitability in the quarter, affected in part by selective investments in pricing, new stores, and more normalized levels of performance-based compensation.”
The retailer also acknowledged headwinds from rising import duties. Carter’s stated that newly imposed tariffs on goods brought into the U.S. are beginning to take a toll. Management estimates the full-year gross impact of these tariffs could be between $125 million and $150 million, with a net hit of about $35 million expected during the second half of fiscal 2025.
On a positive note, U.S. Retail comparable sales rose 2.2%, while the International segment grew 14.1%, showing strength in overseas markets.
In line with its capital return strategy, Carter’s distributed $38 million in dividends to shareholders during the first half of the fiscal year.
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