Carter’s Inc. (NYSE:CRI) on Monday reported mixed third-quarter results before the market open, with earnings coming in slightly above Wall Street estimates while revenue was marginally below expectations.
The company’s shares have declined notably after the release of its quarterly results.
Carter’s reported third-quarter earnings of 74 cents per share, slightly above the analyst consensus estimate of 73 cents, and declined 54.88% year over year from $1.64 per share in the same quarter last year.
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Quarterly net sales totaled $757.84 million, missing expectations of $769.76 million, slightly down from $758.46 million in the prior-year period.
Adjusted operating income declined 48.9% to $39.4 million from $77.0 million in the third quarter of fiscal 2024.
The adjusted operating margin fell to 5.2% from 10.2% a year earlier, driven by higher tariff costs, investments in product development, lower unit volumes, and new store openings, partially offset by increased pricing.
Adjusted EBITDA for the quarter was $52.3 million, down from $91.1 million in the same quarter of the prior year.
Segment Performance Review
In the third quarter of fiscal 2025, Carter’s reported mixed performance across its business segments.
U.S. Retail net sales increased to $362.3 million from $353.0 million a year ago, though operating income fell sharply to $10.0 million from $27.3 million, resulting in an operating margin of 2.8%.
U.S. Wholesale net sales declined to $283.8 million from $299.0 million, with operating income dropping to $44.0 million from $63.1 million, translating to a 15.5% operating margin.
International net sales rose to $111.7 million from $106.5 million, while operating income slightly decreased to $9.2 million from $10.2 million, yielding an 8.2% operating margin.
CEO Commentary
Douglas C. Palladini, CEO and president, stated, “Our third quarter performance reflected continued improvement in U.S. Retail business demand as we achieved positive comparable sales and improved pricing for the second consecutive quarter.”
“We are pursuing several initiatives, including closing low-margin retail stores, right-sizing our organization, and honing product choices, which we believe will generate significant savings, improve overall cost structure, and provide investment capacity as we establish the foundation to return to consistent, profitable growth going forward. In light of the difficult decisions being made to improve our performance, the Board of Directors and I have also decided to reduce our 2026 compensation,” he added.
Cash Position and Capital Returns
The company held $184.19 million in cash and cash equivalents at the end of the quarter.
In the third quarter of fiscal 2025, the company distributed $9.1 million in cash dividends, or 25 cents per common share. Over the first three quarters of the fiscal year, cash dividends paid totaled $47.2 million, while the company did not repurchase any shares during this period.
Tariff Headwinds
The company anticipates a significant financial impact from new administration tariffs, projecting a gross pre-tax earnings hit of approximately $200 million to $250 million on an annualized basis, an increase from the $110 million in duties paid in fiscal year 2024.
In the near term, the fourth quarter of fiscal 2025 is expected to incur a net adverse impact on pre-tax income of $25 million to $35 million.
To offset these costs over time, the company plans a four-part strategy including changes to product assortments, cost-sharing with vendor partners, adjustments to production country mix, and price increases for customers.
Concurrently, the company is continuing its supply chain diversification, projecting that Vietnam, Cambodia, Bangladesh, and India will collectively account for approximately 75% of product sourcing spend in fiscal 2025, with China representing less than 3%.
Due to the ongoing uncertainty related to incremental tariffs, the company has suspended its fiscal 2025 guidance.
Organizational Restructuring
As part of its accelerated productivity agenda to right-size its cost structure, Carter’s announced several actions.
The company plans an organizational restructuring to reduce office-based roles by approximately 300 positions (15%) by the end of 2025, which is expected to yield approximately $35 million in annualized savings starting in 2026.
This initiative led to a $6.1 million charge in the third quarter and an expected $4 million to $5 million charge in the fourth quarter.
Additionally, the company is increasing its plan for store closures, now targeting to shutter approximately 150 low-margin stores in North America over the next three years, up from its prior target of 100.
These 150 stores represent about $110 million in annual net sales, but the closures are expected to be accretive to profitability after accounting for sales transfer and elimination of fixed expenses.
The company is also targeting over $10 million in other annual SG&A spending reductions starting in 2026.
Price Action: CRI shares were trading lower by 7.11% to $30.05 premarket at last check Monday.
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