Carter's Reports 3.7% Sales Increase but 98.4% Drop in Net Income for Q2 Fiscal 2025

Carter's, Inc. reported its financial results for the second quarter of fiscal 2025, revealing a consolidated net sales increase of $20.9 million, or 3.7%, to $585.3 million compared to the same period last year. The growth was attributed to higher unit volumes in the U.S. Retail segment, increased demand in Canada and Mexico, and favorable timing of shipments to international wholesale partners. However, the company experienced a decline in gross profit, which fell by $1.2 million to $281.8 million, resulting in a gross margin decrease of 200 basis points to 48.1%. This decline was influenced by lower average selling prices per unit and a shift towards off-price wholesale channel customers.

In terms of profitability, Carter's reported a significant decrease in operating income, which plummeted by 89.7% to $4.0 million. The operating margin also decreased to 0.7%, down from 7.0% in the prior year. The increase in selling, general, and administrative (SG&A) expenses by 13.5% to $281.0 million contributed to this decline, driven by costs associated with operating model improvements, leadership transition, and increased performance-based compensation. Net income for the quarter fell sharply by 98.4% to $446, resulting in a basic net income per share of $0.01, down from $0.76 in the previous year.

Carter's has also undergone strategic changes, including the appointment of Douglas C. Palladini as CEO in April 2025, succeeding Richard F. Westenberger, who remains as CFO. The company is focusing on enhancing its operating model to better respond to consumer preferences and improve product offerings. Additionally, the company opened 14 new stores and closed 9 in the U.S. during the first two quarters of fiscal 2025, reflecting its commitment to optimizing its retail footprint.

Operationally, the U.S. Retail segment saw a 3.2% increase in net sales to $299.5 million, while the U.S. Wholesale segment remained relatively flat at $193.0 million. The International segment experienced a notable 14.1% increase in net sales to $92.8 million, driven by improved traffic and demand in Canada and Mexico. However, the overall performance was tempered by a decrease in average product selling prices and increased SG&A expenses across all segments.

Looking ahead, Carter's anticipates challenges due to new tariffs and trade policies that could impact its cost structure and supply chain. The company expects to incur additional costs of approximately $125 million to $150 million related to these tariffs, which may affect its profitability in the second half of fiscal 2025. Despite these challenges, Carter's remains focused on leveraging its strong brand portfolio and multi-channel business model to navigate the evolving market landscape.