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Carter's (CRI) Q2 Earnings Beat, Retail Comps Down 11.7%
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Carter's, Inc. (CRI - Free Report) announced its second-quarter 2024 results, wherein the bottom line beat the Zacks Consensus Estimate and increased year over year. However, the top line remained soft on weak sales across the U.S. Retail and International segments. Also, the impacts of inflation and currency headwinds further hurt the performance.
Carter’s reported adjusted earnings of 76 cents per share, which surpassed the Zacks Consensus Estimate of 45 cents. The figure rose 18.8% from earnings of 64 cents per share posted in the prior-year quarter.
The company reported consolidated net sales of $564.4 million, which missed the Zacks Consensus Estimate of $567 million. Also, the metric declined 6% from the $600.2 million posted in the year-ago period. The ongoing impacts of inflation, coupled with higher interest rates, elevated consumer debt levels and soft consumer confidence, hurt demand.
The foreign currency exchange rate fluctuations adversely impacted consolidated net sales by $0.4 million compared with the year-ago quarter.
CRI shares have lost 15.3% in the past three months compared with the industry’s 16.2% decline.
Segmental Sales
Sales in the U.S. Retail segment decreased 10.3% year over year to $290.2 million and missed our estimate of $305.1 million. The segment’s comparable net sales fell 11.7% in the second quarter.
The U.S. Wholesale segment’s sales rose 3.2% year over year to $192.9 million and beat our estimate of $177.9 million.
The International segment witnessed a 9.6% year-over-year drop in sales to $81.3 million. The metric lagged our estimate of $84.4 million.
Gross profit fell 3.1% year over year to $282.9 million. Meanwhile, the gross margin expanded 150 basis points (bps) to 50.1%, on lower product input costs, a decline in inbound freight rates and soft sales to the off-price channel, which were partly offset by inventory provisions.
Adjusted operating income grew 4% year over year to $39.5 million. The adjusted operating margin increased 70 bps to 7%.
Selling, general and administrative (SG&A) expenses dipped 4.3% year over year to $247.5 million. The company saw a decline in volume-related expenses, mainly distribution and freight, and lower provisions for performance-based compensation, offset by increased spending associated with the new stores and higher store payroll costs. As a percentage of net sales, this metric increased 80 bps year over year to 43.9%.
As part of the fleet-optimization strategy, the company has opened 10 net stores, primarily focused on mall locations and smaller markets. Management remains committed to testing new store models to boost the store openings.
Balance Sheet & Shareholder-Friendly Moves
This Zacks Rank #3 (Hold) player ended the second quarter with cash and cash equivalents of $316.6 million, long-term debt of $497.7 million and shareholders’ equity of $811.8 million.
In the first half of 2024, the company returned $92.3 million to shareholders through share repurchases and cash dividends. During the reported quarter, it repurchased and retired nearly 0.4 million shares of its common stock for $24.8 million at an average price of $69.98 per share. As of Jul 25, 2024, CRI had $604 million remaining under its previously announced repurchase authorization. Also, it paid out a dividend of 80 cents per common share for a total of $29.2 million in the quarter.
Outlook
For the third quarter, net sales are expected to be in the range of $735-$755 million, indicating a decline from the $792 million recorded in the year-ago quarter. Adjusted earnings are likely to be $1.10-$1.35 per share, down from $1.84 reported in the prior-year quarter. Adjusted operating income is expected to be in the range of $60-$70 million, implying a decrease from the $96 million recorded in the year-ago quarter.
In the U.S. Retail business, total sales are likely to fall in the high single digits to low double digits for the third quarter. In U.S. Wholesale, it anticipates sales to be flat to down in the low single digits year over year while sales in International are likely to decline in the mid to high single digits.
For 2024, Carter’s expects net sales of $2.79-$2.83 billion compared with $2.95 billion in 2023 and the earlier projected range of $2.95-$3 billion. The company anticipates adjusted operating income of $240-$260 million, lower than $328 million in 2023. It expects adjusted earnings per share in the bracket of $4.60-$5.05 compared with $6.19 in 2023. Additionally, the operating cash flow is likely to exceed $200 million, while capital expenditure is anticipated to be $75 million. Earlier, management had forecast operating cash flow to exceed $250 million and capital expenditure to be $80 million.
For the U.S. Retail business, the company’s second-half guidance assumes a fall of 9-12% in comparable sales. However, for the U.S. Wholesale business, management projects strong growth in the second half. For the International division, it expects pressures on consumer demand, mainly in Canada, and certain changes in the timing of shipments to the company’s international wholesale partners. For 2024, Carter’s expects lower sales in U.S. Retail and International businesses and growth in the U.S. Wholesale business.
The forecast for 2024 assumes macroeconomic pressure on consumer demand, comparable gross margin, higher SG&A expenses, lower net interest expenses and return of capital.
GPS delivered an average earnings surprise of 202.7% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s current financial-year sales indicates growth of 0.2% from the year-ago reported figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 42.8% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.1% from the year-ago reported figure.
DICK'S Sporting, a sporting goods retailer, currently carries a Zacks Rank of 2. DKS delivered an average earnings surprise of 4.7% in the trailing four quarters.
The consensus estimate for DICK'S Sporting’s current financial-year sales indicates growth of 1.8% from the year-ago reported figure.
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Carter's (CRI) Q2 Earnings Beat, Retail Comps Down 11.7%
Carter's, Inc. (CRI - Free Report) announced its second-quarter 2024 results, wherein the bottom line beat the Zacks Consensus Estimate and increased year over year. However, the top line remained soft on weak sales across the U.S. Retail and International segments. Also, the impacts of inflation and currency headwinds further hurt the performance.
Carter’s reported adjusted earnings of 76 cents per share, which surpassed the Zacks Consensus Estimate of 45 cents. The figure rose 18.8% from earnings of 64 cents per share posted in the prior-year quarter.
The company reported consolidated net sales of $564.4 million, which missed the Zacks Consensus Estimate of $567 million. Also, the metric declined 6% from the $600.2 million posted in the year-ago period. The ongoing impacts of inflation, coupled with higher interest rates, elevated consumer debt levels and soft consumer confidence, hurt demand.
The foreign currency exchange rate fluctuations adversely impacted consolidated net sales by $0.4 million compared with the year-ago quarter.
CRI shares have lost 15.3% in the past three months compared with the industry’s 16.2% decline.
Segmental Sales
Sales in the U.S. Retail segment decreased 10.3% year over year to $290.2 million and missed our estimate of $305.1 million. The segment’s comparable net sales fell 11.7% in the second quarter.
The U.S. Wholesale segment’s sales rose 3.2% year over year to $192.9 million and beat our estimate of $177.9 million.
The International segment witnessed a 9.6% year-over-year drop in sales to $81.3 million. The metric lagged our estimate of $84.4 million.
Carter's, Inc. Price, Consensus and EPS Surprise
Carter's, Inc. price-consensus-eps-surprise-chart | Carter's, Inc. Quote
Margins
Gross profit fell 3.1% year over year to $282.9 million. Meanwhile, the gross margin expanded 150 basis points (bps) to 50.1%, on lower product input costs, a decline in inbound freight rates and soft sales to the off-price channel, which were partly offset by inventory provisions.
Adjusted operating income grew 4% year over year to $39.5 million. The adjusted operating margin increased 70 bps to 7%.
Selling, general and administrative (SG&A) expenses dipped 4.3% year over year to $247.5 million. The company saw a decline in volume-related expenses, mainly distribution and freight, and lower provisions for performance-based compensation, offset by increased spending associated with the new stores and higher store payroll costs. As a percentage of net sales, this metric increased 80 bps year over year to 43.9%.
As part of the fleet-optimization strategy, the company has opened 10 net stores, primarily focused on mall locations and smaller markets. Management remains committed to testing new store models to boost the store openings.
Balance Sheet & Shareholder-Friendly Moves
This Zacks Rank #3 (Hold) player ended the second quarter with cash and cash equivalents of $316.6 million, long-term debt of $497.7 million and shareholders’ equity of $811.8 million.
In the first half of 2024, the company returned $92.3 million to shareholders through share repurchases and cash dividends. During the reported quarter, it repurchased and retired nearly 0.4 million shares of its common stock for $24.8 million at an average price of $69.98 per share. As of Jul 25, 2024, CRI had $604 million remaining under its previously announced repurchase authorization. Also, it paid out a dividend of 80 cents per common share for a total of $29.2 million in the quarter.
Outlook
For the third quarter, net sales are expected to be in the range of $735-$755 million, indicating a decline from the $792 million recorded in the year-ago quarter. Adjusted earnings are likely to be $1.10-$1.35 per share, down from $1.84 reported in the prior-year quarter. Adjusted operating income is expected to be in the range of $60-$70 million, implying a decrease from the $96 million recorded in the year-ago quarter.
In the U.S. Retail business, total sales are likely to fall in the high single digits to low double digits for the third quarter. In U.S. Wholesale, it anticipates sales to be flat to down in the low single digits year over year while sales in International are likely to decline in the mid to high single digits.
For 2024, Carter’s expects net sales of $2.79-$2.83 billion compared with $2.95 billion in 2023 and the earlier projected range of $2.95-$3 billion. The company anticipates adjusted operating income of $240-$260 million, lower than $328 million in 2023. It expects adjusted earnings per share in the bracket of $4.60-$5.05 compared with $6.19 in 2023. Additionally, the operating cash flow is likely to exceed $200 million, while capital expenditure is anticipated to be $75 million. Earlier, management had forecast operating cash flow to exceed $250 million and capital expenditure to be $80 million.
For the U.S. Retail business, the company’s second-half guidance assumes a fall of 9-12% in comparable sales. However, for the U.S. Wholesale business, management projects strong growth in the second half. For the International division, it expects pressures on consumer demand, mainly in Canada, and certain changes in the timing of shipments to the company’s international wholesale partners. For 2024, Carter’s expects lower sales in U.S. Retail and International businesses and growth in the U.S. Wholesale business.
The forecast for 2024 assumes macroeconomic pressure on consumer demand, comparable gross margin, higher SG&A expenses, lower net interest expenses and return of capital.
Key Picks
We have highlighted three better-ranked stocks, namely Gap (GPS - Free Report) , Deckers (DECK - Free Report) and DICK'S Sporting (DKS - Free Report) .
Gap, a leading apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GPS delivered an average earnings surprise of 202.7% in the trailing four quarters.
The Zacks Consensus Estimate for Gap’s current financial-year sales indicates growth of 0.2% from the year-ago reported figure.
Deckers, a footwear and accessories dealer, currently carries a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 42.8% in the trailing four quarters.
The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 11.1% from the year-ago reported figure.
DICK'S Sporting, a sporting goods retailer, currently carries a Zacks Rank of 2. DKS delivered an average earnings surprise of 4.7% in the trailing four quarters.
The consensus estimate for DICK'S Sporting’s current financial-year sales indicates growth of 1.8% from the year-ago reported figure.