Tariff Toll on Retail: Carter's Cuts 150 Stores, 15% Workforce

Children's clothing retailer Carter's Inc. (CRI) is undergoing a major restructuring, including the closure of 150 stores and the reduction of 15% of its office workforce, as it grapples with the financial strain of elevated tariffs and shifting sourcing strategies, according to a Yahoo Finance report. The company, which operates over 1,000 stores across North America, plans to shutter the locations over fiscal years 2025 and 2026, with approximately 100 closures expected by 2026. The affected stores collectively contribute around $110 million in annual net sales, according to a Syracuse.com report.

The restructuring comes as Carter's adjusts its sourcing strategy in response to tariffs imposed under Donald Trump's administration. The company now sources 75% of its products from countries including Vietnam, Cambodia, Bangladesh, and India for fiscal 2025, while China's share of sourcing will drop to less than 3%, as that Yahoo Finance report noted. CFO Richard Westenberger noted on the Q3 earnings call that tariffs have driven effective duty rates into the "high 30% range," up from 13% historically, with an estimated $200 million to $250 million in annualized gross margin impacts.

Carter's reported a significant decline in third-quarter adjusted operating income, falling to $39 million from $77 million in the prior year, according to a GuruFocus article. The company attributed the drop to elevated product costs, higher tariffs, and investments in product quality and store initiatives. CEO Douglas Palladini emphasized that while U.S. retail sales showed improvement with positive comparable growth, "elevated product costs...weighed meaningfully on our profitability," Syracuse.com reported. The firm also suspended fiscal 2025 guidance due to "ongoing and significant uncertainty surrounding tariffs," according to a Yahoo Finance report.

The restructuring is expected to generate $35 million in annual savings starting in 2026, with $45 million in gross savings anticipated through cost reductions and organizational changes, the GuruFocus article noted. These measures include closing "low-margin" stores as leases expire and reducing office-based roles by 300 positions. The company also plans to cut product offerings by 20-30% and halt new store openings under its current model, according to a Yahoo Finance story.

Market reactions to the news were mixed. Shares of Carter's fell 14.5% following the announcement, despite a slight earnings beat of $0.74 per share, the earlier Yahoo Finance report noted. However, UBS upgraded its price target for CRI to $33 from $26, citing improved gross margin protection and a strong liquidity position of $184 million in cash in an Investing.com note. Analysts noted that while the company's strategies to mitigate tariffs—such as price increases and sourcing diversification—have shown some success, the broader retail environment remains challenging.

Carter's is not alone in navigating tariff pressures. The children's apparel sector faces heightened competition and shifting consumer spending patterns, particularly as online retailers like Amazon dominate distribution channels, the Yahoo Finance story reported. The company's Simple Joys brand, previously a growth driver on Amazon, has seen declining wholesale sales due to changes in the platform's brand management policies, the GuruFocus article said.

As the U.S. and China trade negotiations remain fluid, Carter's is closely monitoring potential tariff relief. Westenberger stated the company is "tracking updates in real time" and would seek to recover "significant amounts already paid" if tariffs are reduced, per the transcript of the Q3 earnings call. For now, the retailer's focus remains on streamlining operations and enhancing profitability in a high-cost environment.