Carter’s, Inc. (NYSE:CRI) shares slipped on Friday after weak earnings and mounting tariff concerns clouded the retailer’s outlook. The company reported second-quarter adjusted earnings per share of 17 cents, missing the analyst consensus estimate of 34 cents.
Quarterly sales of $585.31 (+4% year over year) million outpaced the Street view of $561.14 million. The company’s adjusted operating income decreased to $11.8 million in the quarter under review, down from $39.5 million in the year-ago period.
Douglas C. Palladini, Carter’s CEO & president, expressed his disappointment with the profitability decline, attributing it in part to “selective investments in pricing, new stores, and more normalized levels of performance-based compensation.”
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The adjusted operating margin contracted to 2% from 7%, principally due to investments in pricing, new and remodeled stores, and increased performance-based compensation provisions.
International and U.S. Retail segment net sales increased 14.1% and 3.2%, respectively, while U.S. Wholesale segment net sales were comparable to the prior year.
Adjusted EBITDA in the quarter under review was $26.5 million, lower than $53.5 million in the year-ago period. The company exited the quarter with cash and equivalents worth $338.183 million.
Tariff War
The company said it is actively monitoring the U.S. administration’s proposal to impose substantial new tariffs on imported goods. If enacted, these tariffs would add significantly to the $110 million already paid in duties during fiscal 2024.
The company anticipates a net tariff impact of approximately $35 million to pre-tax earnings in the second half of fiscal 2025.
The estimated gross pre-tax impact of these new duties could range from $125 million to $150 million annually, depending on country-specific rates.
To mitigate the financial hit, the company plans to adjust product assortments, share costs with vendors, shift production locations, and increase prices.
Due to leadership changes and uncertainty around tariff policy, the company has suspended its fiscal 2025 guidance.
Price Action: CRI shares are trading lower by 21.1% to $25.84 at last check Friday.
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