Carter's Faces Financial Struggles and Strategic Hurdles, Analyst Downgrades Stock to Sell

Carter's has received a Sell rating from Bank of America Securities analyst Christopher Nardone due to financial challenges and strategic uncertainties. The company's Q2 earnings per share missed expectations, and increased expenses raised concerns about margin management amidst ongoing tariffs. A leadership transition and tariff uncertainties also contributed to the cautious outlook. Nardone lowered his price target to $25.00.

Carter's, Inc. (NYSE:CRI) has received a Sell rating from Bank of America Securities analyst Christopher Nardone, citing financial challenges and strategic uncertainties. The company's second-quarter earnings per share (EPS) fell short of expectations, raising concerns about margin management amidst ongoing tariff challenges. Increased selling, general, and administrative expenses (SG&A) and a leadership transition further contributed to the cautious outlook.

Nardone lowered his price target to $25.00, reflecting the analyst's concerns about Carter's ability to manage its margins effectively. The company reported a 77.6% decline in adjusted EPS to 17 cents per share, missing the Zacks Consensus Estimate of 43 cents. Meanwhile, revenue growth of 4% year-over-year to $585.3 million was driven by strong performance in the U.S. Retail and International segments [3].

The company's gross margin contracted by 200 basis points (bps) to 48.1% due to pricing investments in the U.S. Retail segment. Adjusted operating income decreased by 70.2% year-over-year to $11.8 million, while SG&A expenses increased by 10% year-over-year to $273 million. Carter's ended the second quarter with $338.2 million in cash and cash equivalents, $498.5 million in long-term debt, and $853.9 million in shareholders' equity [3].

The new CEO's strategic initiatives, such as focusing on higher-quality products and rationalizing the store fleet, are promising but may take time to yield results. Additionally, the anticipated pricing adjustments to counteract tariff impacts might be difficult to implement without affecting consumer demand. The company's outlook for the second half of fiscal 2025 is uncertain, with a $35 million hit to pre-tax earnings expected due to newly proposed U.S. import tariffs [1, 2].

References:
[1] https://www.tipranks.com/news/ratings/carters-financial-challenges-and-strategic-uncertainties-prompt-sell-rating-ratings
[2] https://seekingalpha.com/article/4805134-carters-q2-results-were-not-good-and-tariffs-impact-is-still-incoming?source=affiliate_program:stockanalysis.com&utm_medium=affiliate&utm_source=stockanalysis.com&affid=858&oid=16&transaction=2cfc98fb191144ae9b962f00cb4960d4
[3] https://finance.yahoo.com/news/carters-q2-earnings-miss-estimates-174100008.html