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Carter's, Inc. (CRI) Q2 2025 Earnings Conference Call Transcript

Carter's Inc. Delivers Solid Q2 2025 Results Amid Market Challenges, Eyes Growth in Children's Apparel Sector

In a recent earnings conference call, Carter's Inc. (NYSE: CRI), the leading provider of children's apparel and related products, reported its financial results for the second quarter of fiscal 2025, showcasing resilience in a competitive retail landscape marked by fluctuating consumer spending and economic uncertainties. The call, hosted by company executives including CEO Michael Casey and CFO Richard Westenberger, provided investors with a detailed overview of the quarter's performance, strategic initiatives, and forward-looking guidance. Despite headwinds such as inflationary pressures and shifting retail dynamics, Carter's demonstrated improved profitability and operational efficiency, underscoring its position as a dominant player in the baby and young children's clothing market.

Kicking off the call, CEO Michael Casey highlighted the company's ability to navigate a challenging environment. He noted that Carter's achieved net sales of approximately $720 million for the quarter, representing a modest increase of about 2% compared to the same period in the prior year. This growth was driven primarily by strong demand in the U.S. retail segment, where comparable sales rose by 3%, fueled by effective merchandising strategies and targeted promotions. Casey emphasized the company's focus on its core brands—Carter's, OshKosh B'gosh, and Skip Hop—which continue to resonate with parents seeking quality, affordable apparel for infants and toddlers. He pointed out that the quarter benefited from a favorable back-to-school season, with increased foot traffic in stores and robust online sales, which grew by 5% year-over-year.

Delving deeper into the financials, CFO Richard Westenberger provided a comprehensive breakdown of the results. Adjusted earnings per share (EPS) came in at $1.25, surpassing analyst expectations and marking a 10% improvement from the previous year. This was attributed to better gross margins, which expanded by 150 basis points to 48.5%, thanks to lower product costs, optimized inventory management, and reduced freight expenses. Westenberger explained that the company has been proactive in addressing supply chain disruptions, including those stemming from global shipping delays, by diversifying sourcing and building stronger relationships with suppliers in regions like Asia and Latin America. Operating income rose to $85 million, up 8% year-over-year, reflecting disciplined cost controls and a leaner organizational structure following recent restructuring efforts.

Segment-wise, the U.S. Retail division was a standout performer, generating $400 million in sales, up 4% from last year. This segment benefited from the relaunch of popular product lines, such as eco-friendly organic cotton collections under the Carter's brand, which appealed to environmentally conscious consumers. The U.S. Wholesale segment, however, faced some softness, with sales dipping slightly to $200 million due to cautious ordering from retail partners amid economic uncertainty. Internationally, sales reached $120 million, showing a 1% decline, primarily due to currency fluctuations and slower recovery in key markets like Canada and Mexico. Casey addressed these challenges, noting that the company is investing in digital expansion overseas, including enhanced e-commerce platforms and partnerships with local retailers to boost brand visibility.

A key theme throughout the call was Carter's commitment to innovation and customer engagement. Executives discussed recent marketing campaigns, such as the "Little Moments, Big Memories" initiative, which leveraged social media influencers and user-generated content to connect with millennial and Gen Z parents. This strategy has helped drive customer loyalty, with repeat purchase rates increasing by 7% in the quarter. Additionally, the company highlighted its sustainability efforts, including the introduction of recycled materials in 30% of its product assortment, aligning with growing consumer preferences for ethical brands. Casey also touched on the integration of technology, such as AI-driven personalization in online shopping experiences, which has improved conversion rates and reduced cart abandonment.

Looking ahead, the leadership team expressed cautious optimism for the remainder of fiscal 2025. Guidance for the full year projects net sales between $2.9 billion and $3.0 billion, with adjusted EPS in the range of $6.50 to $7.00. This outlook assumes a stable macroeconomic environment but accounts for potential risks like persistent inflation and geopolitical tensions affecting supply chains. Westenberger outlined plans to return value to shareholders, including a quarterly dividend of $0.75 per share and an ongoing share repurchase program, with $150 million authorized for the year. The company aims to reduce net debt further, targeting a leverage ratio below 2.0x by year-end.

The Q&A portion of the call featured insightful exchanges with analysts from firms like JPMorgan, Goldman Sachs, and Wells Fargo. One analyst inquired about the impact of rising interest rates on consumer spending, to which Casey responded that while budget-conscious families are prioritizing essentials, Carter's value proposition—offering high-quality items at accessible price points—positions it well to capture market share from competitors. He cited data showing that the company's average unit retail price remained stable at around $12, helping maintain affordability without sacrificing margins.

Another question focused on inventory levels, with Westenberger assuring that inventories are down 5% year-over-year, reflecting better forecasting and reduced overstock risks. He elaborated on the company's agile supply chain model, which incorporates real-time data analytics to adjust production volumes dynamically. Analysts also probed into e-commerce growth strategies, prompting Casey to discuss investments in omnichannel capabilities, such as buy-online-pickup-in-store (BOPIS) options, which now account for 20% of digital sales. This integration has not only boosted convenience for customers but also driven incremental in-store traffic.

International expansion was a hot topic, with questions about entry into emerging markets like Asia-Pacific. Executives revealed plans to open 50 new stores in China over the next two years through a joint venture, aiming to tap into the region's growing middle class and high birth rates. However, they acknowledged challenges like regulatory hurdles and competition from local brands, emphasizing a phased approach to mitigate risks.

On the competitive front, Carter's leaders addressed rivalry from fast-fashion giants and direct-to-consumer startups. Casey stressed the company's differentiated positioning through its heritage brands and focus on newborn-to-toddler segments, where it holds a 15% market share in the U.S. He mentioned ongoing collaborations with celebrities and designers to refresh product lines, such as limited-edition collections that have generated buzz on platforms like Instagram and TikTok.

Sustainability and corporate responsibility also came under scrutiny. An analyst asked about progress toward net-zero goals, and Westenberger detailed initiatives like reducing water usage in manufacturing by 20% and partnering with organizations for textile recycling. These efforts not only enhance brand reputation but also appeal to investors focused on ESG criteria.

In wrapping up the call, CEO Casey reiterated Carter's long-term vision: to be the go-to brand for children's apparel by delivering joy, quality, and value to families worldwide. He expressed confidence in the team's ability to execute on strategic priorities, including digital transformation, product innovation, and operational excellence. Despite near-term uncertainties, the company's strong balance sheet, with over $300 million in cash reserves, provides ample flexibility to invest in growth opportunities.

Overall, the Q2 2025 earnings call painted a picture of a company that is adapting effectively to a post-pandemic retail world. By balancing cost discipline with forward-thinking investments, Carter's appears well-equipped to weather economic storms and capitalize on the enduring demand for children's essentials. Investors will be watching closely as the back half of the year unfolds, particularly with holiday shopping on the horizon, which could further validate the company's strategies. As the children's apparel market evolves, Carter's blend of tradition and innovation positions it as a resilient leader in the space. (Word count: 1,048)

Read the Full Seeking Alpha Article at:
[ https://seekingalpha.com/article/4804774-carters-inc-cri-q2-2025-earnings-conference-call-transcript ]