DEF: Carter's Inc. Seeks Shareholder Approval for Equity Plan, Board Elections

Carter's Inc. invites stockholders to its 2026 Annual Meeting to vote on director elections, executive compensation, an amended equity incentive plan, and auditor ratification.

Summary

• The 2026 Annual Meeting of Stockholders will be held virtually on Wednesday, May 13, 2026.
• Stockholders will vote on the election of nine nominated directors, including CEO Douglas C. Palladini.
• An advisory vote on the compensation of named executive officers (NEOs) for fiscal 2025 will be conducted.
• Approval is sought for an amended and restated equity incentive plan, which proposes to increase the maximum number of shares available for issuance by 2,000,000 to a total of 20,778,392 shares.
• The appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for fiscal 2026 is up for ratification.
• Consolidated net sales for fiscal 2025 increased by $54.3 million, or 1.9%, to $2.90 billion.
• Consolidated gross profit decreased by $50.5 million, or 3.7%, to $1.31 billion, resulting in a 260 bps decrease in gross margin to 45.4%.
• Consolidated operating income decreased by $110.8 million, or 43.5%, to $143.9 million; adjusted operating income decreased by $110.6 million, or 38.6%, to $176.0 million.
• Diluted net income per common share decreased by $2.59, or 50.6%, to $2.53; adjusted diluted net income per common share decreased by $2.34, or 40.3%, to $3.47.
• Inventories increased by $42.3 million, or 8.4%, to $544.6 million, primarily due to incremental tariff-related costs.
• The company returned $56.4 million in cash dividends to stockholders in fiscal 2025.
• The executive compensation program for fiscal 2025 included 100% time-based restricted stock grants, a temporary shift from the historical mix of time and performance-based awards due to CEO transition and business transformation initiatives.
• Performance share awards for the fiscal 2023 to fiscal 2025 cycle achieved an overall attainment of 37%.
• Douglas C. Palladini joined as Chief Executive Officer & President on April 3, 2025, with an initial base salary of $1,200,000 and a $7,000,000 sign-on equity grant.
• Richard F. Westenberger served as Interim Chief Executive Officer from January 5, 2025, to April 3, 2025, receiving a monthly cash stipend of $110,000 and restricted stock awards.
• Kendra D. Krugman, former Chief Product Officer, departed effective October 21, 2025, treated as an involuntary termination without cause.
• The company terminated its Deferred Compensation Plan effective September 30, 2025, with lump-sum payouts scheduled within 24 months.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with a negative sentiment due to significant declines in key financial metrics such as gross profit, operating income, and EPS, coupled with underperformance against peer group TSR and increased inventories. While there are strategic initiatives and a new CEO, the immediate financial results are concerning.

Positives

• Consolidated net sales increased by $54.3 million, or 1.9%, to $2.90 billion in fiscal 2025.
• The company returned $56.4 million in cash dividends to stockholders in fiscal 2025, reflecting a strong financial position and available liquidity.
• The executive compensation program received approximately 94% stockholder approval in the 2025 advisory 'say-on-pay' vote, indicating strong alignment with shareholder interests.
• The Board of Directors' composition is well-qualified to exercise oversight, with a diverse combination of backgrounds, skills, and experiences.
• The company has separated the roles of Board Chair and Chief Executive Officer since January 2025, allowing the CEO to focus on strategic execution and operations.
• All non-employee directors are determined to be independent, adhering to NYSE listing standards and corporate governance principles.
• A robust annual Board and committee evaluation process was conducted in fiscal 2025, focusing on effectiveness and areas for improvement.
• The company maintains an Insider Trading Policy and a Clawback Policy, promoting compliance and accountability.
• Equity awards include double-trigger change of control provisions and mandatory clawback provisions, aligning with market best practices.
• The 401(k) plan design was changed to provide safe harbor matching contributions for fiscal 2026, offering 100% on the first 3% and 50% on the next 2% of deferrals.

Negatives

• Consolidated gross profit decreased by $50.5 million, or 3.7%, to $1.31 billion in fiscal 2025.
• Consolidated gross margin decreased by 260 basis points to 45.4% in fiscal 2025.
• Consolidated operating income decreased by $110.8 million, or 43.5%, to $143.9 million in fiscal 2025.
• Adjusted operating income decreased by $110.6 million, or 38.6%, to $176.0 million in fiscal 2025.
• Diluted net income per common share decreased by $2.59, or 50.6%, to $2.53 in fiscal 2025.
• Adjusted diluted net income per common share decreased by $2.34, or 40.3%, to $3.47 in fiscal 2025.
• Inventories increased by $42.3 million, or 8.4%, to $544.6 million, primarily driven by incremental tariff-related costs.
• The fiscal 2023 to 2025 performance share awards (PSAs) achieved only 37% attainment, indicating underperformance against established targets.
• The company's Total Shareholder Return (TSR) of $41.57 for 2025 significantly underperformed the peer group TSR of $68.73.
• The Deferred Compensation Plan was terminated effective September 30, 2025, due to low participation and ongoing administrative complexity and costs.

Risks

• Changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits.
• Risks related to public health crises.
• Risks related to the organizational restructuring plan, including the ability to achieve expected savings and fully implement the plan.
• Risks related to consumer tastes and preferences, as well as fashion trends.
• Failure to protect intellectual property.
• Diminished value of brands, potentially as a result of negative publicity or unsuccessful branding and marketing efforts.
• Delays, product recalls, or loss of revenue due to a failure to meet quality standards.
• Risks related to uncertainty regarding the future of international trade agreements and the United States position on international trade, as well as significant political, trade, and regulatory developments and other circumstances beyond control.
• The roll-back of incremental tariffs imposed under the International Emergency Economic Powers Act and any additional actions taken in response to their roll-back, including tariffs imposed pursuant to Section 122 of the Trade Act of 1974.
• Ability to recover refunds of incremental tariff amounts or other tariff amounts paid.
• Increased competition in the marketplace.
• Financial difficulties for one or more major customers.
• Identification of locations and negotiation of appropriate lease terms for retail stores.
• Distinct risks facing the eCommerce business.
• Failure to forecast demand for products and failure to manage inventory.
• Increased margin pressures, including increased cost of materials and labor and inability to successfully increase prices to offset these increased costs.
• Continued inflationary pressures with respect to labor and raw materials and global supply chain constraints that have, and could continue, to affect freight, transit, and other costs.
• Fluctuations in foreign currency exchange rates.
• Unseasonable or extreme weather conditions.
• Risks associated with corporate responsibility issues.
• Foreign sourcing arrangements and reliance on a relatively small number of vendors supplying a significant amount of products.
• Disruptions in the supply chain, including increased transportation and freight costs.
• Ability to effectively source and manage inventory.
• Problems with the Braselton, Georgia distribution facility.
• Pending and threatened lawsuits.
• A breach of information technology systems and the loss of personal data or a failure to implement new information technology systems successfully.
• Unsuccessful expansion into international markets.
• Failure to comply with various laws and regulations.
• Failure to properly manage strategic initiatives.
• Retention of key individuals.
• Acquisition and integration of other brands and businesses.
• Failure to achieve sales growth plans and profitability objectives to support the carrying value of intangible assets.
• Continued ability to meet obligations related to debt.
• Changes in tax obligations, including additional customs, duties or tariffs.
• Continued ability to declare and pay a dividend.
• Volatility in the market price of common stock.
• The cost or effort required for stockholders to bring certain claims or actions against the company, as a result of the designation of the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings.
• Risks from cybersecurity threats.

Future Outlook

The company's overarching goal is to return to topline growth while maintaining profitability and strategically positioning itself for additional future growth. The 2025 annual incentive plan targets were set below 2024 actual performance, reflecting ongoing uncertainty from the CEO transition and business transformation initiatives. For 2026, the Compensation & Human Capital Committee has approved equity awards for executive officers consisting of a 60% performance-based and 40% time-based restricted stock split, signaling a return to performance-linked incentives. The proposed amended equity incentive plan is designed to provide sufficient shares for equity compensation for the next three years.

Management Comments

• "It is my pleasure to invite you to attend our 2026 Annual Meeting of Stockholders on Wednesday, May 13, 2026 (the Annual Meeting)." Gretchen W. Schar, Non-Executive Chair of the Board of Directors.
• "Whether or not you plan to attend the Annual Meeting, your shares can be represented if you promptly submit your voting instructions over the internet, by telephone, by completing, signing, dating, and returning your proxy card in the enclosed envelope, or by following the instructions you have received from your broker or other nominee." Gretchen W. Schar.
• "On behalf of our Board of Directors and Leadership Team, thank you for your investment in Carter's, Inc." Gretchen W. Schar.
• "We believe a strong management team and governance are essential to demonstrating accountability and driving our desired results when it comes to important ESG matters..."
• "The Committee believes that our executive compensation program is appropriately designed to attract and retain superior executive talent and drive performance."
• "We believe our pay for performance compensation philosophy is demonstrated by the alignment of actual pay with our performance."

Industry Context

StockSavvy.ai notes that Carter's, operating in the retail and apparel sector, faces challenges common to the industry, including global economic conditions, consumer spending shifts, fashion trends, and supply chain disruptions. The company's focus on 'concept-to-consumer transformation' and 'best-in-class direct to consumer experience' aligns with broader industry trends towards digital integration and enhanced customer engagement, similar to strategies adopted by competitors like The Children's Place or American Eagle Outfitters. The increase in inventories due to tariff-related costs highlights the ongoing impact of international trade policies on apparel retailers, a common pressure point across the sector.

Comparison to Industry Standards

• The company's peer group for compensation analysis includes comparable apparel and retail brands such as Abercrombie & Fitch Co., American Eagle Outfitters, Inc., Columbia Sportswear Company, Levi Strauss & Co., and Under Armour, Inc.
• The company's Total Shareholder Return (TSR) of $41.57 for 2025 is significantly lower than the Peer Group Total Shareholder Return of $68.73 for the same period, indicating underperformance relative to its S&P Composite 1500 Apparel, Accessories & Luxury Goods peer group.
• The pay ratio of 542:1 (PEO to median employee) for fiscal 2025 is provided for compliance purposes, with the company noting that comparisons to other companies may not be accurate due to varying methodologies and assumptions.

Management Changes

Corporate Governance

Legal Proceedings

• The company lists "pending and threatened lawsuits" as a general risk factor in its forward-looking statements, but no specific details of any current litigation or regulatory matters are provided in the filing.

Related Party Transactions

• Prior to her appointment as Chief Strategy Officer in August 2025, Emily D. Evert was a managing director and partner at The Boston Consulting Group, Inc. (BCG).
• The company engaged BCG to provide general consulting services and support operating model improvement initiatives.
• Aggregate fees paid to BCG were approximately $4.9 million in fiscal 2024 and $14.8 million in fiscal 2025.
• These transactions were entered into with BCG prior to Ms. Evert joining the company and were believed by management to be consistent with terms negotiated in an arms-length transaction with an unrelated third party.

Stakeholder Impact

• **Shareholders**: Directly impacted by the company's financial performance (decreased EPS, lower TSR), the return of $56.4 million in cash dividends, and the proposed amendment to the Equity Incentive Plan which could lead to potential dilution from an increased share pool. They are also asked to vote on key governance matters.
• **Employees**: Affected by the organizational restructuring plan (which includes severance and termination benefits), changes in executive leadership, and the termination of the Deferred Compensation Plan, which will result in lump-sum payouts.
• **Customers**: Potential impact from strategic objectives focused on 'concept-to-consumer transformation initiative' and 'best-in-class direct to consumer experience' in stores and online, aiming to enhance their experience.
• **Suppliers**: May be impacted by global supply chain constraints, increased costs of materials and labor, and the company's foreign sourcing arrangements, which are listed as risk factors.
• **Creditors**: The company's continued ability to meet obligations related to its debt is a stated risk factor, indicating potential impact on creditors depending on financial health.

Next Steps

• The 2026 Annual Meeting of Stockholders will be held on May 13, 2026, to vote on the proposals outlined in the proxy statement.
• The Compensation & Human Capital Committee plans to continue considering the results from this year's and future advisory votes on executive compensation.
• For 2026, the Committee has approved equity awards for executive officers consisting of a split of 60% performance-based restricted stock and 40% time-based restricted stock.
• The company intends to file a registration statement under the Securities Act of 1933, as amended, covering additional shares of common stock reserved for issuance under the Equity Incentive Plan after stockholder approval.
• Lump-sum payouts for participants in the terminated Deferred Compensation Plan are scheduled to occur as soon as practicable after September 30, 2026, but no later than September 30, 2027.
• Stockholder proposals for the 2027 Annual Meeting using Rule 14a-8 must be received by December 2, 2026.
• Stockholder recommendations for director candidates for the 2027 Annual Meeting should be submitted by December 31, 2026.
• Stockholder notices for business proposals not using Rule 14a-8 for the 2027 Annual Meeting must be received between January 13, 2027, and February 12, 2027.
• Stockholder direct nominations for director candidates under the Bylaws for the 2027 Annual Meeting must be received between January 13, 2027, and February 12, 2027.

Key Dates

Recommendation

The company is undergoing significant leadership and strategic transitions, including a new CEO and several new executive officers, alongside a proposed amended equity incentive plan. While net sales saw a modest increase, key profitability metrics like gross profit, operating income, and EPS experienced substantial declines in fiscal 2025, and the company's TSR significantly underperformed its peer group. The increase in inventories due to tariff-related costs and the low attainment of performance share awards are concerning. However, the company is actively addressing these challenges through strategic initiatives and a focus on returning to growth. Given the mixed financial results and ongoing transformation, a "hold" recommendation is appropriate as investors await clearer signs of successful execution of the new strategy and improved financial performance.

Keywords

Carter's Inc., SEC Filing, Proxy Statement, Corporate Governance, Executive Compensation, Equity Incentive Plan, Director Election, Auditor Ratification, Financial Performance, Net Sales, Operating Income, EPS, Dividends, Risk Factors, Supply Chain, Retail, Apparel, Consumer Goods, Shareholder Meeting, Stock Options, Restricted Stock, Cybersecurity, ESG, Management Changes