VIDEO Carter's (CRI ), a Zack Rank #1 (Strong Buy), is the leading marketer of children's apparel in the United States. The company is known for its namesake Carter's and OshKosh B'gosh brands sold through wholesale, retail, and e-commerce channels.
The company just delivered a beat-and-raise quarter, and the stock saw a healthy pullback from post-earnings highs. This is giving investors a shot at buying the dip at levels that have worked all year.
About the Company Carter's is the market share leader in young children's apparel, built on a diversified wholesale, direct-to-consumer, and international business. New CEO Sharon Price John recently stepped into the role, inheriting a company with iconic, well-established brands and a business model built for durability across economic cycles.
The company is valued at $1.2 billion and has a forward PE of 10. The stock has Zacks Style Scores of "A" in Value, "C" in Growth, and "A" in Momentum.
Earnings Beat Carter's posted Q2 EPS of $0.26, up from $0.17 in the year-ago quarter, and 1200% above estimates. Revenue came in at $615 million, up from $585 million last year. Adjusted operating income jumped to $18 million from $11.8 million, with margin expanding to 2.9% from 2.0%.
Management pointed to improved marketing, early productivity gains, and continued strength in the Baby segment as the drivers. U.S. retail comps grew 5%, marking a third straight quarter of net sales growth, while e-commerce comps posted double-digit growth for a fourth consecutive quarter.
Guidance Hiked Management guided Q3 EPS to $0.85, a big step up from $0.02 in the prior-year period. Revenue is expected around $750 million, roughly flat y/y. The company narrowed its FY26 sales growth outlook to 2-3% and improved its adjusted EPS outlook to a high-single-digit to low-double-digit decline. This is a meaningful upgrade from the prior forecast of a low-double-digit to mid-teens decline.
Operating cash flow guidance was raised to $230-240 million, and capex guidance was lowered to roughly $50 million. Tariff costs are now tracking about $75 million below original assumptions, giving the company room to breathe on the cost side even as some benefit gets offset by softer wholesale volume.
Estimates Moving Higher Analyst sentiment has moved higher, with every revision over the last 60 days pointing up and none pointing down.
The current quarter estimate has climbed to $0.85 from $0.77, or 10%. The current year number has moved to $3.28 from $3.09 over the same period, while next year's estimate has risen to $3.44 from $3.25.
This has reversed a trend that saw estimates going lower, which can still be seen over the last 90 days for the next quarter.
The Technical Take
The stock has been out of favor in recent years and hit decade lows last year. But CRI has been seeing strong support in the lows $30s all year.
CRI dropped saw volatile trade after earnings, moving down to $36 and then bouncing to $41 before slowly selling off to the $34 area. This has been a nice level of support and investors that like the earnings story can nibble between $31 and $34. This is a long-term Fibonacci support level that looks to be holding up.
This pullback, like the others before it, looks technical rather than fundamental, coming even as estimates continue to climb.
In Summary
Carter's delivered a clean beat-and-raise quarter, backed it up with improving guidance across nearly every metric. The company is also seeing estimates move up in unison across every timeframe.
With the stock resting at a support level that has held throughout the year, this pullback looks like an opportunity rather than a warning sign.
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Carter's, Inc. (CRI): Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com).
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