Carter's (CRI) Q2 Earnings & Sales Miss Estimates, Fall Y/Y

Carter's, Inc. CRI reported second-quarter 2022 results, wherein the bottom and the top line lagged the Zacks Consensus Estimate and fell year over year. Results were hurt by tough year-over-year comparisons along with the surge in gas prices and inflation. These factors affected consumers’ demand for its brands.

Over the past six months, shares of Carter's have declined 32.5% compared with the industry’s 9.5% decrease.

Q2 in Detail

Carter’s reported second-quarter 2022 adjusted earnings of $1.30 per share, missing the Zacks Consensus Estimate of $1.63. Also, the figure fell from $2.97 reported in the prior-year quarter.

Net sales dropped 6.1% year over year to $700.7 million and lagged the Zacks Consensus Estimate of $758 million. The downside can be attributed to lower sales across the U.S. Retail and U.S. Wholesale divisions, somewhat offset by higher sales at the International unit. Unfavorable foreign currency translations hurt sales $2.3 million or 0.3%.

Segmental Sales

Sales at the U.S. Retail segment decreased 11% year over year to $379.1 million due to tough year-over-year comparisons and inflation. U.S. Retail comparable net sales also fell 8%.

The U.S. Wholesale segment’s sales dipped 3% to $224 million due to lower brand sales, caused by late arriving product and sluggish consumer demand.

The International segment witnessed 7% growth in revenues to $97.6 million in the second quarter on increases in revenues in Canada, Mexico and Brazil.

Margins

Adjusted gross profit declined 10% year over year to $331.2 million, while the gross margin contracted 210 basis points (bps) to 47.3%.

Adjusted SG&A expenses dipped 1% to $261.4 million in the quarter. As a percentage of sales, SG&A expenses expanded 180 bps to 37.3%.

This presently Zacks Rank #5 (Strong Sell) player’s adjusted operating income declined 32% year over year to $75.4 million in the reported quarter. The adjusted operating margin contracted 400 bps to 14.8% in the quarter under review due to deleveraged expenses, and increased product and ocean freight rates, which offset improved price realization.

Balance Sheet & Shareholder-Friendly Moves

Carter’s ended the quarter with cash and cash equivalents of $231.3 million, net long-term debt of $616.3 million and shareholders’ equity of $820.9 million. In the first half, CRI used a cash flow of $94 million for operating activities.

In the first half of 2022, Carter’s returned $237 million via share repurchases and dividends. During the second quarter, CRI repurchased and retired 1.3 million shares for $101.8 million. In the first half, management repurchased and retired 2.1 million shares for $176.3 million.

Outlook

For third-quarter 2022, net sales are expected to be $850-$865 million. Adjusted earnings are likely to be $1.50-$1.70, down from $1.93 reported in the prior-year quarter. Adjusted operating income is expected in the $90-$100 million band, down from $123.9 million recorded in the year-ago quarter.

For 2022, Carter’s projects net sales of $3.25-$3.30 million. Adjusted earnings are expected to be $7.10-$7.60 million, down from $7.87 reported in 2021. Adjusted operating income is forecast to be $415-$440 million, down from $500.8 million reported in 2021.

Management expects second-quarter demand trends to continue in the third quarter. Also, it projects lower discretionary costs and interest expenses, better price realization and gains from share repurchases in 2022.

Stocks to Consider

Here we highlighted three better-ranked stocks, namely, Designer Brands DBI, G-III Apparel GIII and Capri Holdings CPRI.

Designer Brands designs, manufactures and, retails footwear and accessories. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Designer Brands’ current financial-year revenues and earnings per share (EPS) suggests growth of 6.9% and 16.5%, respectively, from the comparable year-ago reported figures. DBI has a trailing four-quarter earnings surprise of 102.5%, on average.

G-III Apparel designs, sources and markets apparel and accessories under owned, licensed and private label brands. The stock currently flaunts a Zacks Rank of 1.

The Zacks Consensus Estimate for G-III Apparel’s current financial-year revenues and EPS suggests growth of 13.8% and 8.2%, respectively, from the corresponding year-ago reported figures. G-III Apparel has a trailing four-quarter earnings surprise of 97.5%, on average.

Capri Holdings, a global fashion luxury group, consisting of iconic brands like Versace, Jimmy Choo and Michael Kors, currently carries a Zacks Rank #2 (Buy). CPRI has an expected EPS growth rate of 11.3% for three-five years.

The Zacks Consensus Estimate for Capri Holdings’ current financial-year sales and EPS suggests growth of 3% and 9.8%, respectively, from the corresponding year-ago reported figures.

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