Business Overview and Chronology
Carter's, Inc. (CRI) is the leading branded marketer of young children's apparel in North America, boasting a rich history that spans over 150 years. Founded in 1865, the company has firmly established itself as a trusted name in the industry, renowned for its high-quality products, innovative designs, and unwavering commitment to serving the needs of families with young children.
Carter's legacy began in 1865 when William Carter started a small business manufacturing children's undergarments in Needham, Massachusetts. Over the decades, the company expanded its product offerings and geographic reach, becoming a dominant force in the young children's apparel market. In 1976, Carter's launched its iconic Carters brand, which quickly gained popularity among parents seeking affordable, durable, and stylish clothing for their little ones.
In 2005, Carter's made a strategic move by acquiring the OshKosh B'gosh brand, further strengthening its position in the market. OshKosh B'gosh, founded in 1895, was already a well-known and trusted brand for high-quality children's playclothes and accessories. This acquisition significantly expanded Carter's portfolio and market reach. The company's growth continued with the addition of the Skip Hop brand in 2017, a leading young children's lifestyle brand known for its innovative and award-winning products.
In the early 2000s, Carter's underwent a major restructuring and transformation, closing underperforming stores and streamlining operations. This strategic move helped position the company for future growth and solidified its leadership in the market. Throughout its history, Carter's has successfully navigated changes in consumer preferences, demographic shifts, and competitive pressures to maintain its position as the go-to destination for families with young children across North America.
More recently, in 2021, Carter's introduced the Little Planet brand, focused on sustainable and organic clothing, accessories, and toys for babies and toddlers. This addition reflects the company's commitment to adapting to evolving consumer demands and sustainability trends.
Today, Carter's operates a global, multichannel business model, with a presence in retail stores, eCommerce platforms, and wholesale channels across North America and international markets. The company's extensive distribution network, which includes over 1,000 company-owned retail stores and approximately 19,500 wholesale locations in North America, as well as international wholesale accounts and licensees in over 1,100 locations outside of North America in over 90 countries, has been a key driver of its success.
Financial Performance and Ratios
In the fiscal year 2024, Carter's reported total revenue of $2.84 billion, a slight decrease of 3.4% compared to the previous year. The company's net income for the same period was $185.5 million, with an adjusted earnings per share of $5.81. The company's gross margin remained strong at 48.0%, reflecting its ability to navigate the competitive landscape and maintain its pricing power.
Carter's financial position is sound, with a current ratio of 2.25 and a quick ratio of 1.26, indicating a robust liquidity profile. The company's debt-to-equity ratio of 0.74 suggests a moderate level of leverage, providing a balanced capital structure to support its growth initiatives.
In terms of cash flow, Carter's generated $298.8 million in operating cash flow and $242.6 million in free cash flow during the fiscal year 2024. This strong cash generation capability has enabled the company to invest in its business, pursue strategic acquisitions, and return capital to shareholders through dividends and share repurchases.
As of December 28, 2024, Carter's had $412.9 million in cash and cash equivalents and $845.3 million available under its secured revolving credit facility, providing ample liquidity to support its operations and strategic initiatives.
Navigating Challenges and Embracing Opportunities
Despite the overall challenging macroeconomic environment, characterized by high inflation, elevated interest rates, and shifting consumer preferences, Carter's has demonstrated its resilience and ability to adapt to the changing landscape.
In response to the softening demand in the retail channel, the company made strategic investments in the second half of fiscal 2024, allocating $65 million to enhance its product offerings and marketing initiatives. Specifically, Carter's lowered prices on approximately 20% of its U.S. retail assortment, while also increasing its brand marketing spending, which led to improvements in customer acquisition, retention, and overall unit velocity.
These initiatives, coupled with the continued strength of the company's exclusive brand partnerships with major retailers like Walmart, Target, and Amazon, have helped to offset the challenges in the direct-to-consumer channel. In the U.S. Wholesale segment, Carter's achieved record sales of its exclusive brand products in 2024, underscoring the growing demand for its value-oriented offerings among consumers.
Looking ahead, Carter's is focused on further strengthening its product portfolio, enhancing its marketing capabilities, and leveraging its extensive multichannel distribution network to drive continued growth. The company's strategic investments in areas such as product development, brand building, and operational efficiency are expected to unlock new opportunities and better position it to navigate the evolving consumer landscape.
Geographic and Segment Performance
Carter's operates through three primary business segments: U.S. Retail, U.S. Wholesale, and International.
The U.S. Retail segment, which includes sales through the company's retail stores and eCommerce websites in the United States, generated net sales of $1.42 billion in fiscal 2024, a decrease of 5.6% compared to the previous year. This decline was primarily driven by lower traffic in eCommerce channels and retail stores, as well as decreased average selling prices per unit. Comparable net sales, including retail stores and eCommerce, decreased 6.9% in this segment. As of the end of fiscal 2024, Carter's operated 804 retail stores in the U.S. Segment operating income for U.S. Retail decreased 30.3% to $132.9 million, primarily due to the decrease in gross profit and an increase in SG&A expenses.
The U.S. Wholesale segment, which includes sales to wholesale customers in the United States, reported net sales of $1.02 billion in fiscal 2024, a slight increase of 0.7% compared to the previous year. This growth was driven by the company's exclusive Carter's brands and the Little Planet brand, offsetting lower seasonal demand for the core Carter's brand and decreased sales to off-price wholesale customers. Segment operating income for U.S. Wholesale increased 9.1% to $217.0 million, primarily due to an increase in gross profit partially offset by an increase in SG&A expenses.
Carter's international operations, which include retail stores and eCommerce platforms in Canada and Mexico, as well as wholesale partnerships globally, have been an important contributor to the company's overall performance. In fiscal 2024, the International segment generated $405.6 million in revenue, representing 14.3% of the company's consolidated net sales. This segment experienced a 5.5% decrease in net sales, driven by decreased net sales in Canada, decreased demand from international wholesale partners, and the strengthening of the U.S. dollar, partially offset by growth in the company's retail stores in Mexico. Comparable net sales in Canada, including retail stores and eCommerce, decreased 2.7%. As of the end of fiscal 2024, Carter's operated 191 retail stores in Canada and 62 retail stores in Mexico. Segment operating income for International decreased 13.7% to $39.0 million, primarily due to an increase in SG&A expenses.
The company's Canadian retail business, which holds the largest market share in the country, delivered a 6% increase in comparable store sales in the fourth quarter of fiscal 2024. Similarly, the company's Mexican retail operations continued to perform well, with a strong 8% improvement in comparable store sales during the same period.
Industry Trends and Market Position
The young children's apparel market in the U.S. is estimated to be approximately $28 billion as of December 2024. The market has grown at a compound annual growth rate (CAGR) of less than 1% since 2019, reflecting the mature nature of the industry and the impact of demographic trends.
As the largest branded marketer of young children's apparel in North America, Carter's is well-positioned to capitalize on its strong brand recognition, extensive distribution network, and innovative product offerings. The company's portfolio of brands, including Carter's, OshKosh B'gosh, Skip Hop, and Little Planet, caters to a wide range of consumer preferences and price points, allowing it to maintain its market leadership position.
Recent Developments and Leadership Changes
In January 2025, Carter's announced that Michael D. Casey had retired as Chief Executive Officer and Chairman of the Board. The board has initiated an external search for a permanent CEO. This leadership transition comes at a crucial time for the company as it navigates the evolving consumer landscape and seeks to drive long-term growth.
Outlook and Guidance
For the fiscal year 2025, Carter's provided guidance that reflects the company's commitment to navigating the evolving consumer landscape and positioning itself for long-term growth. The company expects total net sales to be in the range of $2.78 billion to $2.86 billion, with adjusted earnings per share between $3.20 and $3.80. This guidance includes the impact of a 53rd week in fiscal 2025, which is estimated to contribute approximately $30 million in sales.
Carter's expects operating income to be between $180 million and $210 million in fiscal 2025, compared to $287 million in 2024. The company anticipates a decrease in gross margin of 150 to 200 basis points, impacted by $20 million in residual price reductions, $10 million in customer mix changes, $10 million in foreign exchange effects, and $10 million in higher product costs. SG&A expenses are expected to increase by low single digits, with a $30-35 million increase in variable compensation costs.
The company's outlook for the first quarter of 2025 suggests a more challenging start to the year, with expectations for mid-single-digit declines in sales. Operating income for Q1 2025 is projected to be between $30 million and $35 million, with adjusted earnings per share ranging from $0.45 to $0.55.
Carter's expects operating cash flow to be around $200 million in fiscal 2025, with capital expenditures of approximately $65 million. This strong cash generation capability will enable the company to continue investing in its business while maintaining financial flexibility.
Conclusion
Carter's, Inc. is a well-established and trusted brand in the young children's apparel market, with a rich history and a strong presence across multiple sales channels. Despite the challenging macroeconomic environment, the company has demonstrated its ability to adapt and capitalize on evolving consumer preferences through strategic investments, innovative product offerings, and a focus on operational efficiency.
As Carter's navigates the road ahead, its commitment to delivering high-quality, value-driven products, enhancing its marketing capabilities, and leveraging its extensive distribution network positions the company well to drive long-term growth and create value for its shareholders. With a solid financial foundation, a diversified business model, and a talented leadership team, Carter's is poised to continue its legacy as a leading player in the dynamic young children's apparel industry.