Carter's, Inc. Reports 4.8% Decline in Net Sales and 59.1% Drop in Net Income for Q1 Fiscal 2025

Carter's, Inc. reported a decline in financial performance for the first quarter of fiscal 2025, with net sales decreasing by $31.7 million, or 4.8%, to $629.8 million compared to the same period last year. The company's gross profit also fell by $24.1 million, or 7.6%, to $291.1 million, resulting in a gross margin decrease of 140 basis points to 46.2%. The decline in sales and profitability was attributed to decreased consumer demand, influenced by macroeconomic factors such as inflation, declining consumer confidence, and geopolitical uncertainties. Net income for the quarter was $15.5 million, a significant drop of 59.1% from $38.0 million in the prior year, leading to a diluted net income per share of $0.43, down from $1.04.

In terms of operational changes, Carter's experienced a shift in its sales channels, with a noted increase in sales to off-price wholesale customers, which partially offset the overall decline in net sales. The U.S. Retail segment saw a 4.3% decrease in net sales to $294.4 million, while the U.S. Wholesale segment's sales fell by 5.3% to $250.1 million. The International segment also reported a 4.9% decline in sales to $85.3 million, primarily due to unfavorable foreign currency exchange rates. The company opened five new stores and closed seven during the quarter, reflecting its ongoing efforts to optimize its retail footprint.

Carter's has also undergone significant leadership changes, with the appointment of Douglas C. Palladini as the new CEO and President, effective April 3, 2025. This transition follows the retirement of former CEO Michael D. Casey. The company is focusing on enhancing its operating model to better respond to changing consumer preferences and improve product offerings. Operating model improvement costs incurred during the quarter amounted to $3.2 million, with additional costs expected to range between $8 million and $10 million for the remainder of the fiscal year.

The company's balance sheet as of March 29, 2025, showed total assets of $2.33 billion, a decrease from $2.43 billion at the end of the previous fiscal year. Cash and cash equivalents were reported at $320.8 million, down from $412.9 million. Total liabilities decreased to $1.48 billion, with current liabilities significantly reduced to $409.3 million from $508.8 million. The company declared a cash dividend of $0.80 per share, consistent with the previous year, reflecting its commitment to returning value to shareholders despite the challenging market conditions.

Looking ahead, Carter's management remains cautious about the impact of macroeconomic factors on consumer demand and overall financial performance. The company is actively monitoring changes in trade policies and tariffs that could affect its supply chain and cost structure. While the leadership transition and operational improvements are expected to position the company for future growth, the ongoing economic challenges may continue to influence its performance in the near term.