CARTER'S INC (NYSE:CRI) reported its third quarter fiscal 2025 results, delivering a mixed performance that fell short of revenue expectations while meeting adjusted earnings estimates. The market reacted negatively to the report, with the stock declining sharply in pre-market trading.
Earnings Snapshot Versus Estimates
The children's apparel manufacturer reported revenue of $757.8 million for the quarter, essentially flat compared to the same period last year but below analyst expectations of $772.1 million. This represents a revenue miss of approximately 1.8%.
The company's non-GAAP earnings per share of $0.74 matched analyst consensus estimates precisely. However, this figure represents a significant decline from the $1.64 per share reported in the prior year period.
Key performance metrics compared to expectations:
- Revenue: $757.8 million reported versus $772.1 million estimated
- Non-GAAP EPS: $0.74 reported versus $0.74 estimated
- Stock Reaction: Approximately 9.6% decline in pre-market trading
Market Reaction and Performance Context
The immediate market response reflects investor concern over the revenue shortfall and broader profitability challenges. The pre-market drop of nearly 10% suggests the earnings miss outweighed the positive aspect of meeting bottom-line expectations.
This negative reaction comes despite relatively stable recent performance, with the stock having shown modest gains over the past month and two-week periods. The sharp decline indicates that the quarterly results failed to meet market expectations for growth and operational performance.
Operational Challenges and Strategic Shifts
The earnings release highlighted several significant headwinds affecting profitability. CEO Douglas C. Palladini noted that while the U.S. Retail business showed improvement with positive comparable sales for the second consecutive quarter, "elevated product costs, in part due to the impact of higher tariffs, as well as additional investment, weighed meaningfully on our profitability."
The company announced aggressive cost-cutting measures in response to these challenges, including:
- A 15% reduction in office-based roles (approximately 300 positions)
- Plans to close approximately 150 stores in North America over the next three years
- Targeted SG&A reductions exceeding $10 million annually
These restructuring initiatives are expected to generate approximately $35 million in annualized savings beginning in 2026, with the company planning to reinvest a portion into growth-driving initiatives.
Tariff Impact and Outlook Suspension
A significant factor in the company's performance has been increased tariff costs, with management estimating the gross pre-tax earnings impact of additional import duties to be approximately $200-250 million on an annualized basis. For the fourth quarter, the company anticipates a net adverse impact to pre-tax income of $25-35 million related to these tariffs.
Due to the "ongoing and significant uncertainty surrounding incremental tariffs," Carter's has suspended its fiscal 2025 guidance. This creates a challenging comparison environment against analyst expectations for the full year, which currently project revenue of approximately $2.88 billion.
Financial Position and Capital Management
The company maintained its dividend payment, distributing $0.25 per common share totaling $9.1 million during the quarter. No share repurchases were executed in the first three quarters of fiscal 2025.
Carter's also provided updates on its financing strategy, noting commitments for a new five-year asset-based revolving credit facility and ongoing evaluation of opportunities to refinance its existing $500 million in senior notes maturing in March 2027.
For detailed historical earnings data and future estimates, view the complete earnings and estimates overview for CRI.
Disclaimer: This article presents financial information for informational purposes only and does not constitute investment advice, recommendation, or endorsement of any particular security or investment strategy. Readers should conduct their own research and consult with a qualified financial advisor before making investment decisions.
