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Carter's (CRI) Q4 Earnings Surpass Estimates, Sales Decline Y/Y

Carter's, Inc. CRI has reported mixed fourth-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate while the top line missed. The bottom line rose year over year. However, the top line fell year over year, hurt by the impacts of inflation, which led to reduced spending.

Q4 in Detail

Carter’s reported fourth-quarter 2023 adjusted earnings of $2.76 per share, beating the Zacks Consensus Estimate of $2.52. This figure rose 20.5% from earnings of $2.29 per share posted in the year-ago quarter.

The company reported net sales of $857.9 million, which missed the Zacks Consensus Estimate of $865 million. Also, the metric declined 5.9% from the $912 million posted in the year-ago period. The downside can be attributed to inflation, rising interest rates, higher consumer debt levels and recession risks, which affected the demand from consumers and wholesale customers.

Carter's, Inc. Price and Consensus

 

Carter's, Inc. price-consensus-chart | Carter's, Inc. Quote

 

Segmental Sales

Sales in the U.S. Retail segment decreased 8.9% to $479.8 million year over year and U.S. Retail Comparable net sales fell 10.8% in the fourth quarter of 2023.

The U.S. Wholesale segment’s sales dropped 5.1% year over year to $247.4 million.

The International segment witnessed a 4.6% year-over-year drop in revenues to $130.7 million from $124.9 million in the fourth quarter.

Margins

Gross profit increased 0.6% year over year to $418.2 million and beat our estimate of $291.9 million. Meanwhile, the gross margin expanded 220 basis points to 48.7%.

Further, adjusted operating income increased 14.8% year over year to $136 million in the reported quarter and beat our estimate of $37.9 million. The adjusted operating margin increased 290 basis points to 15.9% in the quarter under review.

Balance Sheet & Shareholder-Friendly Moves

This current Zacks Rank #3 (Hold) player ended the quarter with cash and cash equivalents of $351.2 million, net long-term debt of $497.4 million and shareholders’ equity of $845.3 million.

The company’s total liquidity at the end of 2023 was $1.2 billion, with $846 million in unused borrowing capacity out of an $850-million secured revolving credit facility.

In 2023, the company repurchased and retired about 1.4 million shares for $100 million. As of Dec 30, 2023, CRI had a $649.5-million remaining capacity under its previously announced repurchase authorization.

In addition, it paid out a dividend of 75 cents per common share for a total of $112 million in year. On Feb 26, 2024, the company’s board declared a 7% hike (5 cents per share) to its quarterly cash dividend, to 80 cents per share.

Outlook

For the first quarter of 2024, net sales are expected to be $620-$645 million, indicating a decline from the $696 million recorded in the year-ago quarter. Adjusted earnings are likely to be 60-70 cents, suggesting a decline from 98 cents reported in the year-ago quarter. Adjusted operating income is expected to be $35-$40 million, implying a drop from the $58 million recorded in the year-ago quarter.

The first-quarter guidance indicates a mid-single-digit to high single-digit decrease in U.S. Retail sales, a mid-teens decline in U.S. Wholesale sales, and a low single-digit to mid- single-digit drop in the International sales. Management expects gross margin expansion with lower inbound freight rates, reduced product costs and favorable channel mix. It expects higher SG&A on store openings and increased performance-based compensation provisions, along with lower interest expenses and effective tax rate, and reduced average number of shares outstanding.

For 2024, Carter’s expects low single digit increase in net sales to $3 billion compared with $2.95 billion reported last year. It envisions mid-single digit growth year over year in adjusted operating income and adjusted earnings per share (EPS) for the year. Notably, it reported an adjusted operating income of $328 million and adjusted EPS of $6.19 in 2023.

Management expects an operating cash flow of more than $250 million and capital expenditures of $80 million.

Management envisions an improved demand trend and better macroeconomic landscape as the year progresses, with sales and earnings increases weighted to the second half. CRI anticipates continued conservative inventory commitments by the wholesale customers and gross margin expansion on lower ocean freight rates and product costs, and higher margin retail sales. The company predicts increased SG&A, reflecting increased growth-related investments and inflation, somewhat offset by productivity efforts

Shares of Carter’s have increased 22.5% in the past three months against the industry’s 1.8% drop.

Eye These Solid Picks

Some better-ranked companies are GIII Apparel GIII, lululemon athletica LULU and Royal Caribbean RCL.

GIII Apparel, an accessories dealer, sports a Zacks Rank #1 (Strong Buy), at present. GIII has a trailing four-quarter earnings surprise of 541.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GIII Apparel’s current financial-year EPS suggests growth of 39.3%, respectively, from the year-ago corresponding figure.

lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank #2 (Buy), at present.

The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 18.4% and 23.7%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 9.2%, on average.

Royal Caribbean caries a Zacks Rank of 2 at present. RCL has a trailing four-quarter earnings surprise of 28.3%, on average.

The Zacks Consensus Estimate for RCL’s 2024 sales and EPS indicates increases of 13.7% and 38.1%, respectively, from the year-ago period’s reported levels.

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