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Carter's Down More Than 20% YTD: Can It Get Back on Track?

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Carter’s, Inc. (CRI - Free Report) has been struggling to cope up with sluggish demand and loss in sales stemming from temporary store closures related to the ongoing COVID-19 pandemic. As a result, both top and bottom lines declined year over year during the second quarter of 2020. Consequently, shares of the company have declined 20.7% year to date against the industry’s growth of 7.3%.

Further, the company witnessed declining sales at the U.S. Retail, U.S. Wholesale and International segments as store closures extended to April and most of May. Also, soft sales volumes along with dismal royalty income marred margins in the reported quarter. Notably, adjusted operating margin of 8% contracted 70 bps from 8.7% reported in the last-year quarter. Moreover, the company has refrained from providing any full-year guidance citing the unprecedented impacts of COVID-19 and uncertainty related to market recovery.

Nevertheless, management is leaving no stone unturned to get back on track via its solid online show. In this regard, it is strengthening e-commerce capabilities through investments to speed up deliveries. Notably, e-commerce comps surged 101% with triple-digit growth in online demand. As majority of sales are now related to the ship-from-store facility, store fulfillment of its online purchases grew to 30% from 20% during the second quarter. Also, it is gaining from the same-day pickup service, the newly launched curbside pickup and easy access to its new credit card program.

Moreover, the company witnessed sturdy e-commerce demand in the wholesale channel to the tune of more than 100%, with its top wholesale customers recording triple-digit growth in online demand. That said, online sales are expected to exceed $1 billion in 2020 with increasing demand for products online, particularly baby, sleepwear and playwear products. Encouragingly, management has earlier anticipated e-commerce penetration to surge to 42% by 2024.

Currently, with the government easing regulations across states, Carter’s reopened several stores across the United States by the end of June. Following the store reopenings, it is witnessing improved trends with healthy demand. Notably, the company recorded sturdy demand with comps growth of 8% in the United States, driven by higher conversion and transaction.

All said, we hope that improved trends post store reopening and sturdy online demand are likely to provide some cushion to this Zacks Rank #3 (Hold) stock’s top line and help it revive in the near term.

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