Carter’s Profit Rebounded as Wholesale Growth Accelerated
A $132 million import-duty and interest recovery lifted the children’s apparel maker’s reported results.
Children’s apparel maker Carter’s Inc. (CRI) posted a 53% increase in second-quarter adjusted earnings to $0.26 a share, reversing the prior quarter’s year-over-year decline.
The improvement came as sales growth cooled and shifted toward U.S. Wholesale. Net sales rose 5.2% to $615.5 million, slowing from 8.1% growth in the first quarter, while adjusted operating income increased 54.1% to $18.1 million after falling 19.6% in the preceding period.
Adjusted operating margin expanded 0.9 percentage point from a year earlier to 2.9%, following a 1.4-point contraction in the first quarter. The margin remained below the first quarter’s 4.2% as sales and adjusted operating income declined sequentially.
U.S. Wholesale sales rose 11.7%, accelerating from 0.5% growth in the first quarter. U.S. Retail growth slowed to 1.7% from 12.8%, while International growth eased to 2.7% from 14.3%. Comparable sales in U.S. Retail increased 5.1%, down from 10.5% in the prior quarter.
Adjusted gross margin contracted 1.8 percentage points to 46.3% as tariffs, demand-creation spending and inflation partly offset productivity and supply-chain savings. U.S. Retail and International posted modest operating-margin gains, while U.S. Wholesale’s margin narrowed to 13.8% from 14.0% despite leading sales growth.
The $132 million import-duty and interest recovery produced a $127.7 million operating-income benefit and lifted reported diluted earnings to $2.87 a share from $0.01. The recovery, improved working capital and the timing of interest payments also helped first-half operating cash flow rise to $202.3 million from an $8.3 million use of cash.
Carter’s now expects full-year sales growth of 2% to 3%, low- to mid-single-digit adjusted operating-income growth and a high-single- to low-double-digit decline in adjusted earnings a share. For the third quarter, the company projects roughly $750 million in sales, about $50 million in adjusted operating income and adjusted earnings of approximately $0.85 a share, with a higher gross-margin rate supporting the profit outlook. The company paid $18.3 million in dividends during the first half and repurchased no shares.