Carter’s (CRI) Struggles Amid Macroeconomic Headwinds: Can the Retail Giant Rebound?

The first quarter of fiscal 2025 has been a challenging period for Carter’s, Inc. (NYSE:CRI), as macroeconomic pressures, leadership transitions, and operational hurdles have dented its financial performance. Net sales fell 4.8% year-over-year to $629.8 million, while diluted EPS plummeted to $0.43 from $1.04 in Q1 2024, underscoring the depth of the company’s struggles.

The decline was not isolated to one segment. U.S. Wholesale sales dropped 5.3%, U.S. Retail comparable net sales fell 5.2%, and International sales dipped 4.9%—though currency fluctuations masked some of the underlying weakness. Even e-commerce, a relative bright spot, could not offset the broader retail slump driven by inflation, high interest rates, and waning consumer confidence.

A Perfect Storm of Challenges

Carter’s faces a trifecta of headwinds:
1. Macroeconomic Pressures: Elevated inflation and interest rates have squeezed consumer spending, particularly on discretionary items like apparel. This environment has led to reduced demand across all segments, with comparable sales declines signaling weaker foot traffic and purchasing power.
2. Leadership Transition: The abrupt retirement of former CEO Michael D. Casey in January 2025 and the subsequent interim leadership under Richard F. Westenberger created uncertainty. While Douglas C. Palladini assumed the CEO role in April, the disruption delayed strategic decision-making and prompted the suspension of forward guidance.
3. Operational Costs: Pricing investments, fixed cost deleverage, and one-time expenses tied to leadership transition and operational improvements eroded margins. Adjusted operating income fell 35.7% to $35.4 million, while operating margin compressed to 4.1%, down from 8.3% in 2024.

Data in Context

The data paints a clear picture of declining profitability. The company’s adjusted EBITDA dropped 30% year-over-year to $48.6 million, while cash flow from operations turned negative, reflecting the strain on working capital. Despite these challenges, Palladini emphasized the resilience of Carter’s brand, citing its strong distribution network and consumer loyalty.

Silver Linings and Risks

While the outlook remains clouded, there are pockets of optimism:
- International Strength: Canada and Mexico’s retail operations performed well, though currency headwinds limited reported growth. This suggests untapped potential in key markets.
- Brand Equity: Palladini highlighted Carter’s enduring reputation for quality and value, which could position it to rebound once macro conditions stabilize.
- E-Commerce Growth: Online sales outperformed physical stores, indicating a shift in consumer behavior that Carter’s could capitalize on with further digital investments.

However, risks loom large. The potential imposition of new tariffs could raise input costs, squeezing margins further. Additionally, the company’s suspension of forward guidance underscores lingering uncertainty about its path to growth.

Conclusion: Navigating a Rocky Road

Carter’s (CRI) recent performance reflects broader retail sector struggles, but its challenges are exacerbated by internal and external disruptions. The stock’s decline—down nearly 30% year-to-date as of early 2025—reflects investor skepticism. Yet, the company’s $1.6 billion market cap still holds promise if it can stabilize operations and navigate the macroeconomic landscape.

Key metrics to watch include:
- Consumer Sentiment: Improvements in retail sales and consumer spending could lift demand.
- Leadership Execution: Palladini’s ability to reduce costs, streamline operations, and restore investor confidence will be critical.
- International Growth: Expanding in high-performing markets like Mexico and Canada could offset U.S. headwinds.

For now, CRI appears stuck in a holding pattern. While its brand and distribution network remain assets, the path to recovery hinges on external macro stability and internal execution. Investors should tread cautiously, monitoring both the company’s operational updates and broader economic indicators before considering a long-term position.