CRI — Carter's, Inc.

Summary of Carter's Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Net Sales: $681 million, an 8% increase year-over-year.
• Operating Income: $28 million, up from $26 million in Q1 2025.
• Earnings Per Share (EPS): $0.39, down from $0.43 in the prior year.
• Gross Margin: 43.1%, a decline of over 300 basis points due to higher tariffs impacting costs.
• Adjusted SG&A: Increased by 3% to $270 million, driven by demand creation investments and inflationary pressures.
• Adjusted Operating Margin: 4.2%, lower than the previous year.
• International Sales: Increased by 14%, with a notable 40% growth in Mexico.

2. Strategic Updates and Business Highlights

• A leadership transition is underway with the departure of CEO Doug Palladini and the upcoming arrival of Sharon Price John.
• The U.S. Retail business showed strong performance with nearly 13% sales growth and over 10% comparable sales growth.
• Successful marketing investments have driven higher traffic to both stores and e-commerce platforms.
• New collaborations, such as with Disney's OshKosh brand, have attracted new consumers, particularly Gen-Z.
• Productivity initiatives have yielded approximately $6 million in cost reductions.

3. Forward Guidance and Outlook

• Full-year sales growth is expected in the low to mid-single digits, with adjusted operating income growth also anticipated in the same range.
• For Q2 2026, net sales are expected to increase in the low single digits, with comparable sales projected to be up mid-single digits.
• Anticipated gross margin decline of approximately 100 basis points due to tariffs, though pricing improvements are expected to offset some of this pressure in the second half of the year.
• EPS for the full year is projected to decline by low double digits to mid-teens compared to 2025's adjusted EPS of $3.47.

4. Bad News, Challenges, or Points of Concern

• Tariff Impact: Higher tariffs have negatively affected gross margins, with an estimated $50 million impact in Q1 alone.
• Consumer Sentiment: Ongoing inflation and economic pressures have led consumers to be more price-sensitive, impacting sales dynamics.
• Profitability Concerns: Despite growth, profitability remains a challenge, particularly in the wholesale segment, which has seen declining margins.
• Market Uncertainty: Potential reimposition of higher tariffs creates uncertainty in pricing strategies and overall market conditions.

5. Notable Q&A Insights

• Management indicated that SG&A expenses are expected to rise due to increased marketing spend and delayed store closures.
• The company has filed for $130 million in tariff refunds, with plans to reinvest any received funds back into the business.
• There is cautious optimism regarding the second quarter's comp sales despite April's softness, attributed to strong performance in March.
• Collaboration initiatives are seen as a positive driver for traffic and consumer engagement, with plans to increase such partnerships in the future.
• Management expressed confidence in maintaining market share despite competitive pressures and highlighted the importance of pricing strategies in response to market conditions.

This summary encapsulates the financial performance, strategic direction, and challenges faced by Carter's in Q1 2026, providing a balanced view of the company's current status and future outlook.