8-K: Carters Inc. Reports Mixed Q4 and Fiscal Year 2024 Results; Provides Soft Outlook for 2025

Carters Inc. reported a slight increase in Q4 net sales but a decrease in operating margin and diluted EPS, while also providing a cautious outlook for fiscal year 2025.

Summary

• Carters Inc. reported its fourth quarter and fiscal year 2024 results on February 25, 2025.
• Q4 net sales increased slightly to $860 million from $858 million in Q4 2023.
• However, the operating margin decreased to 9.7% from 15.9% in the same period last year.
• Diluted EPS also declined to $1.71, which includes a non-cash charge of $0.63 related to the impairment of the OshKosh tradename, compared to $2.90 in Q4 2023.
• Adjusted diluted EPS was $2.39, down from $2.76 in the prior year.
• For the full fiscal year 2024, net sales were $2.844 billion, down from $2.946 billion in 2023.
• The operating margin decreased to 9.0% from 11.0% in 2023.
• Diluted EPS was $5.12, compared to $6.24 in the previous year.
• Adjusted diluted EPS was $5.81, down from $6.19 in 2023.
• The company returned $167 million to shareholders through dividends and share repurchases.
• For fiscal year 2025, Carters projects net sales of $2.780 billion to $2.855 billion and adjusted diluted EPS of $3.20 to $3.80.
• The Board of Directors declared a quarterly dividend of $0.80 per share.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there was a slight increase in Q4 net sales, the decrease in operating margin and diluted EPS, along with a soft outlook for 2025, temper any positive aspects. The company is facing macroeconomic headwinds and cost pressures.

Positives

• Net sales increased slightly in Q4 2024 compared to Q4 2023.
• The company has strong liquidity, ending the year with over $1 billion.
• Carters returned $167 million to shareholders through dividends and share repurchases in fiscal year 2024.
• U.S. Wholesale net sales increased 7.3% in Q4 2024.
• The Board of Directors declared a quarterly cash dividend of $0.80 per share.

Negatives

• Operating margin decreased in both Q4 and fiscal year 2024.
• Diluted EPS decreased in both Q4 and fiscal year 2024.
• Fiscal year 2024 net sales decreased compared to fiscal year 2023.
• The company recorded a $30 million non-cash impairment charge related to the OshKosh tradename.
• U.S. Retail comparable net sales declined 3.4% in Q4 2024.
• The company projects lower net sales and adjusted operating income for fiscal year 2025.

Risks

• Macroeconomic factors, including inflation and elevated interest rates, continue to weigh on families with young children.
• The company expects several factors to weigh on profitability in 2025, including lower pricing, higher product costs, and the restoration of variable compensation.
• The company is projecting a decline in U.S. Retail sales for fiscal year 2025.
• Changes in foreign currency exchange rates had an unfavorable effect on consolidated net sales.

Future Outlook

For fiscal year 2025, the company projects net sales of $2.780 billion to $2.855 billion and adjusted diluted EPS of $3.20 to $3.80. Operating cash flow is expected to be $200 million, and capital expenditures are projected at $65 million.

Management Comments

• Our product, pricing and promotional strategies in the fourth quarter drove a continued trend improvement in traffic, conversion and comparable sales in our U.S. Retail businesses, said Richard F. Westenberger, Interim Chief Executive Officer, Senior Executive Vice President, Chief Financial Officer & Chief Operating Officer.
• We also saw strong demand for our exclusive brands in the wholesale channel and continued momentum in our retail businesses in Mexico and Canada.
• Several factors are expected to weigh on our profitability in 2025, including some residual lower pricing in the first half of the year, higher product costs and the restoration of more normalized variable compensation provisions.
• Our ultimate objectives are to return Carters to consistent, profitable growth and to create value for our shareholders, which have historically been hallmarks of this Companys performance over a long period of time.

Industry Context

The results reflect the ongoing challenges in the apparel industry, particularly for companies focused on young children, as macroeconomic factors such as inflation and interest rates impact consumer spending. Carters is navigating these challenges by focusing on product assortment, pricing strategies, and cost management.

Comparison to Industry Standards

• While specific competitor data isn't provided, the report indicates that Carters is facing similar headwinds as other retailers in the children's apparel sector.
• Companies like The Children's Place and Gap (specifically its Baby Gap brand) also cater to the same demographic and are likely experiencing similar pressures on sales and margins.
• Carters' focus on multi-channel distribution (retail, wholesale, and online) is a common strategy in the industry to mitigate risk and reach a broader customer base.
• The decline in operating margin is a concern, as maintaining profitability is crucial in a competitive market; industry leaders typically aim for double-digit operating margins.

Stakeholder Impact

• Shareholders will be impacted by the decreased earnings and lower projected earnings for 2025.
• Employees may be affected by the operating model improvement initiatives.
• Customers may see changes in pricing and product assortments.
• Suppliers may be impacted by the company's efforts to manage inventory and product costs.

Next Steps

• The company intends to rely less on pricing action and lean more into planned improvements in merchandise assortments and a stronger overall inventory position in the second half of 2025.
• The Board of Directors has initiated a comprehensive search to identify a permanent Chief Executive Officer.
• The company will hold a conference call with investors to discuss fourth quarter and fiscal 2024 results and its business outlook on February 25, 2025.

Key Dates

Keywords

Carters, financial results, earnings, net sales, operating margin, diluted EPS, fiscal year 2024, Q4 2024, outlook, dividends, share repurchases, OshKosh, apparel