Carter's, Inc. CRI has faced a challenging period in 2024, with its shares dropping 21.5% over the past month. This decline contrasts with the broader performance of the Zacks Shoes and Retail Apparel industry, which saw a moderate decrease of 3.7%. The company's dismal performance is due to the curtailed consumer discretionary spending, owing to rising inflation and higher interest rates.
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Carter’s current stock price of $52.84 reflects a 40% discount from its 52-week high of $88.03. Moreover, Carter's stock has fallen below the critical technical threshold of its 50-day and 200-day moving average. The moving average is an important indicator for gauging market trends and momentum. The breach of this threshold heightens investor concerns about the stock’s short-term outlook.
Factors Derailing Carter's Momentum
Carter’s has been contending with softness in the top line, which declined 4.2% during the first quarter of 2024 following a decline of 5.9% in the preceding quarter. The company’s sales were impacted by reduced demand for its brands due to the ongoing macroeconomic headwinds, like inflation and elevated interest rates, which have strained families with young children.
Sales in the U.S. Retail segment underperformed this quarter, driven by lower traffic and weaker conversion rates. Adverse currency rates impacted net sales by $3.1 million. In third-quarter 2024, sales in the U.S. Retail segment fell 5.8%, with U.S. Retail comparable net sales declining 7.1%. The U.S. Wholesale segment’s sales dipped 0.5% year over year, while the International segment’s sales declined 8.6% in the reported quarter.
CRI’s Bleak Outlook
Several risks, including a challenging macroeconomic environment, wavering consumer confidence, rising inflation and heightened promotional activity, continue to weigh on CRI’s performance. These factors have collectively impacted consumer spending habits, profit margins, and demand for discretionary items. Ongoing economic uncertainties are expected to result in increased discounting, affecting CRI’s pricing power and revenue growth in the coming months.
For the fourth quarter of 2024, Carter’s expects net sales of $800-$840 million, indicating a decline from $858 million recorded in the year-ago quarter. Adjusted earnings are expected to be $1.32-$1.72 per share, down from $2.76 reported in the prior-year quarter. Adjusted operating income is expected to be $70-$90 million, implying a decrease from $136 million in the year-ago quarter.
In the U.S. Retail business, total sales are expected to fall in the high-single digits to low-double digits for the fourth quarter. Sales in International are likely to decline in the mid to high-single digits for the impending quarter. For the U.S. Retail business, the company expects a fall of 9-12% in comparable sales.
For 2024, Carter’s expects net sales of $2.79-$2.83 billion compared with $2.95 billion in 2023. The company anticipates adjusted operating income of $240-$260 million, lower than $328 million in 2023. It expects adjusted earnings per share of $4.70-$5.15 compared with $6.19 in 2023 and the earlier projected range of $4.60-$5.05.
Factors Supporting CRI Amid Challenges
This Zacks Rank #3 (Hold) company has worked hard to adjust its pricing to match market conditions and improve profits. Customers have responded well to its products, thanks to new pricing and marketing strategies introduced recently. The company is focusing on key essential items, which are especially important for families dealing with rising costs. This approach helps Carter's stay relevant and meet customer needs during tough economic times.
Carter's omni-channel strategy integrates online and in-store sales effectively. In the third quarter, 38% of digital orders were fulfilled by stores, up from 35% last year. These transactions improve margins by reducing shipping costs. To enhance store performance, Carter's opened 40 high-margin outlets this year while closing about 30 underperforming stores in low-traffic areas. Notably, 98% of its stores were cash-flow positive over the last year.
CRI has invested in new marketing personalization technology, backed by artificial intelligence to resonate well with the consumers’ product preferences digitally. The company has been seeing higher conversion and units per transaction in stores and e-commerce year over year, with e-commerce delivering mid-single-digit increases in both metrics. Going forward, management will continue to prioritize investments in the brand experiences with the company’s wholesale partners digitally and in-store.
Three Picks You Can't Miss
We have highlighted three better-ranked stocks, namely Wolverine World Wide WWW Gildan Activewear Inc. GIL, and Steven Madden, Ltd. SHOO.
Wolverine is engaged in the designing, manufacturing and distribution of a wide variety of casual and active apparel and footwear. It flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Wolverine’s 2024 EPS of 85 cents indicates a substantial increase from the 5 cents reported in the year-ago quarter. WWW has a trailing four-quarter earnings surprise of 17%, on average.
Gildan Activewear, a distributor and manufacturer of activewear products, currently carries a Zacks Rank #2 (Buy). GIL has a trailing four-quarter earnings surprise of 5.4%, on average.
The Zacks Consensus Estimate for Gildan Activewear's current fiscal-year earnings and sales suggests an improvement of 15.6% and 1.5%, respectively, from the year-earlier levels.
Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank of 2.
The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.2% and 13.4%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.
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