Carter’s third quarter performance drew a positive market response, despite missing Wall Street’s revenue expectations and delivering flat year-on-year sales. Management attributed the results to pockets of strength in U.S. Retail and International segments, partially offset by continued weakness in U.S. Wholesale, particularly due to declining sales of its Simple Joys brand on Amazon. CEO Douglas Palladini emphasized the company’s ongoing transformation efforts and candidly noted, “Our current results do not represent my ambition for Carter’s nor where I believe we can be.” The quarter was shaped by higher product costs, increased tariffs, and investments in marketing and product innovation, all of which pressured operating margins.
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Carter's (CRI) Q3 CY2025 Highlights:
- Revenue: $757.8 million vs analyst estimates of $772.4 million (flat year on year, 1.9% miss)
- Adjusted EPS: $0.74 vs analyst estimates of $0.74 (in line)
- Adjusted EBITDA: $52.3 million vs analyst estimates of $45.55 million (6.9% margin, 14.8% beat)
- Operating Margin: 3.8%, down from 10.2% in the same quarter last year
- Locations: 1,065 at quarter end, up from 1,039 in the same quarter last year
- Same-Store Sales rose 2% year on year (-7.1% in the same quarter last year)
- Market Capitalization: $1.14 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Carter's’s Q3 Earnings Call
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Kelly Crago (Citi): asked about the future of the Simple Joys brand on Amazon and pricing strategies in wholesale. CFO Richard Westenberger explained that Simple Joys will be deemphasized in favor of core brands, and higher prices in wholesale will be reflected from January.
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Jay Sole (UBS): questioned the feasibility of achieving above-average sales growth despite store closures and wholesale declines. Westenberger clarified that price increases, not unit growth, will drive revenue gains, and Carter’s aims to match industry pricing trends.
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Ike Boruchow (Wells Fargo): probed the specifics of store closure impacts and ongoing headwinds from Simple Joys. Westenberger estimated a 20% sales transfer from closed stores to other channels and acknowledged that Simple Joys will remain a modest drag into next year.
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Christopher Nardone (BofA): inquired about Carter’s confidence in passing price increases to consumers and monitoring competition. CEO Douglas Palladini said the company is gaining new consumers through better product mix and expects the industry to follow suit on pricing.
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Paul David Kearney (Barclays): focused on timing and effectiveness of cost savings and marketing reinvestment. Westenberger explained that SG&A reductions will take effect at the start of next year, while demand creation spend will be rigorously tracked for return on investment.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will be closely monitoring (1) the pace and acceptance of price increases across retail and wholesale channels, (2) early indicators of cost savings and sales transfer from store closures and workforce reductions, and (3) continued growth in digital engagement and new product adoption among younger consumer segments. We will also track Carter’s ability to maintain market share and manage margin pressures amid persistent tariff-related cost challenges.
Carter's currently trades at $31.40, down from $32.37 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).
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