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Carter’s, Inc. (CRI - Free Report) reached a new all-time high after reporting yet another strong quarter with earnings that came in 36.6% ahead of the Zacks Consensus Estimate. This branded children’s wear marketer has beaten the Zacks Consensus Estimate for seven straight quarters with an average earnings surprise of 27.8%.

A bullish growth projection for the second half, backed by rising estimates, makes this Zacks #1 Rank stock another momentum pick.

Solid First Quarter Results

On April 26, 2012, Carter’s reported first quarter 2012 adjusted earnings of 56 cents per share, which largely surpassed the Zacks Consensus Estimate of 41 cents. However, earnings were flat on a year-over-year basis as top-line growth was offset by higher product costs related to cotton prices and labor rates.

Total net sales during the quarter grew 17.6% year over year to $551.7 million, which beat the Zacks Consensus Estimate of $529.0 million. All segments (Carter’s retail, Carter’s wholesale, OshKosh retail, OshKosh wholesale and international) registered positive growth with the Carter’s retail and international segments posting the maximum increases. The June 2011 acquisition of Bonnie Togs, a retailer of children's apparel in Canada, boosted international sales.

Gross margins expanded 160 basis points to 35.3% as volume growth and price increases made up for the higher product costs. Adjusted operating income was $55.6 million in the quarter, up 1.7% from the prior-year quarter.

Impressive Outlook

The company forecasts meaningful top- and bottom-line growth in the second half on expectations of lower product costs. For the second quarter, Carter’s expects revenue to increase by 20% year over year. Moreover, adjusted earnings are expected to come in the range of 26 cents to 30 cents, compared with 23 cents in the year-ago quarter.

For the full year, net revenue is expected to increase between 9% and 11% over 2011 levels, while adjusted earnings per share are expected to increase 20% to 25% over the prior-year earnings of $2.09.

Estimates Going Up

Carter’s forecast beating first quarter 2012 earnings resulted in an uptrend in estimate revisions. The Zacks Consensus Estimate has risen by 8.5% to $2.68 for fiscal 2012 and by 8.4% to $3.37 for fiscal 2013 over the last 60 days.

Slightly Expensive Valuation

With Carter’s outperforming quarter after quarter, its valuation is a little expensive. It currently trades at a forward price-to-equity (P/E) of 19.49x, reflecting a 45% premium to the peer group average of 13.44x. On a price-to-sales basis, shares trade at 1.45x, a 104% premium to the peer group average of 0.71. Also, the stock has a trailing 12-month return on equity (ROE) of 15.7%, which is slightly below its peer group average of 16.6%.

Chart Echoing Strength

Shares of Carter’s have been continuously rising since August 2011. The stock price has almost doubled since the announcement of the Bonnie Togs acquisition in June 2011, fueled further by successive upbeat results. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $51.52 and $42.15, respectively. In fact, the stock has been consistently trading above its 200-day moving average since October 3, 2011.

Volume is fairly strong, averaging roughly 835K daily. Carter’s has outperformed the S&P 500 over the past six months. The year-to-date return for the stock is 31.26% compared with the S&P 500’s return of 4.08%.

Company Description

Based in Atlanta, Georgia, Carter’s markets a portfolio of apparel brands, especially for babies and young children. It is the largest children’s wear branded marketer in the U.S. and some of its popular brands include Carter’s, Child of Mine, Just One You, Precious Firsts, and OshKosh. Among these, the most recognized brands are Carter's and OshKosh, which are widely available across department stores, speciality retailers and national chains worldwide. These brands are also sold at more than 600 company operated stores and through e-commerce channels. Other brands are available at Wal-Mart Stores Inc. (WMT). The market cap of the company is $3.11 billion.

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