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Carter's (CRI) Up 0.6% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Carter's (CRI - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Carter's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Carter's Q3 Earnings Surpass Estimates, Sales Miss
Carter's came out with third-quarter 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate while sales lagged the same. Despite a solid start, the back-to-school season witnessed muted demand. However, demand bounced back in September with solid Labor Day sales growth of 15%, driven by demand for winter wear. Also, a robust product portfolio, lesser promotions, reduced spending and sturdy e-commerce growth contributed to quarterly results.
Moreover, the company continued to witness healthy demand from a few of its largest customers, like Target, Amazon and Walmart. Although store traffic is expected to remain drab, Carter’s expects to sustain momentum in online demand and gross margin in the fourth quarter. However, management refrained from providing any 2020 guidance citing continued uncertainties related to the COVID-19 outbreak, resurge in cases and a tough market environment.
Q3 Highlights
Carter’s reported third-quarter 2020 adjusted earnings of $1.96 per share, exceeding the Zacks Consensus Estimate of $1.67. Moreover, the figure advanced 4.8% year over year from $1.87 in the prior-year quarter.
Net sales decreased 8.3% to $865.1 million and missed the Zacks Consensus Estimate of $882 million. The year-over-year decline was due to lower wholesale sales, soft store traffic and sluggish back-to-school sales, which were somewhat offset by strong e-commerce sales.
Further, the company is witnessing healthy demand for its baby apparel and sleepwear products, which represented 70% of total apparel sales. Apart from this, its e-commerce business is performing well, with its stores fulfilling 24% of online orders. Moreover, its revamped website with improved products, convenient shopping options and enhanced checkout experience aided online sales. Also, management is offering same-day pickup and curbside pickup facilities across 600 stores in the United States. Encouragingly, online sales are anticipated to reach the $1-billion mark in 2020.
Segmental Sales
Sales at the U.S. Retail segment fell 3.2% year over year to $449.2 million due to soft store sales. During the quarter, retail comparable sales declined 3.5% with e-commerce growth of 17%.
The U.S. Wholesale segment sales witnessed a decrease of 14.2% to $302.1 million due to delayed shipments. Despite soft sales, demand for fall products and Little Baby Basics remained positive.
The International segment witnessed a 10.4% decline in revenues to $113.8 million in the third quarter due to lower wholesale shipments stemming from unfavorable currency and market disruptions related to the ongoing COVID-19 situation.
Margins
Gross profit decreased 4.6% year over year to $383.7 million, while gross margin expanded 180 basis points (bps) to 44.4%. The uptick can be attributable to improved pricing efforts and better inventory management.
The company’s adjusted operating income came in at $119.5 million, up 4.2% year over year from $114.7 million reported in the prior-year quarter. Additionally, adjusted operating margin of 13.8% expanded 160 bps in the quarter under review. This is mainly due to reduced SG&A expenses and a solid gross margin. SG&A expenses fell 5.9% to $279.3 million in the quarter.
Balance Sheet & Shareholder-Friendly Moves
The company ended the quarter with cash and cash equivalents of $831.2 million, net long-term debt of $989.1 million and shareholders’ equity of $821.9 million. In the first nine months ending Sep 26, 2020, the company provided cash flow of $320.1 million for operating activities.
Earlier, Carter’s had suspended share repurchase and quarterly dividends on a temporary basis. Also, it did not incur any capital spending in the reported quarter.
The company repaid $244 million of borrowings under its $750-million revolving credit facility. That said, it boasts a liquidity of $1.6 billion at the end of the reported quarter, which is likely to help it stay afloat amid this crisis.
Store Update
Carter’s intends to open less than 100 co-branded stores in the next five years and shut down 25% of stores whose leases have expired. Of these, 60% of store closures are likely to take place by the end of 2021 and 80% of such stores are expected to close by the end of 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.13% due to these changes.
VGM Scores
Currently, Carter's has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Carter's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Carter's (CRI) Up 0.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Carter's (CRI - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Carter's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Carter's Q3 Earnings Surpass Estimates, Sales Miss
Carter's came out with third-quarter 2020 results, wherein the bottom line surpassed the Zacks Consensus Estimate while sales lagged the same. Despite a solid start, the back-to-school season witnessed muted demand. However, demand bounced back in September with solid Labor Day sales growth of 15%, driven by demand for winter wear. Also, a robust product portfolio, lesser promotions, reduced spending and sturdy e-commerce growth contributed to quarterly results.
Moreover, the company continued to witness healthy demand from a few of its largest customers, like Target, Amazon and Walmart. Although store traffic is expected to remain drab, Carter’s expects to sustain momentum in online demand and gross margin in the fourth quarter. However, management refrained from providing any 2020 guidance citing continued uncertainties related to the COVID-19 outbreak, resurge in cases and a tough market environment.
Q3 Highlights
Carter’s reported third-quarter 2020 adjusted earnings of $1.96 per share, exceeding the Zacks Consensus Estimate of $1.67. Moreover, the figure advanced 4.8% year over year from $1.87 in the prior-year quarter.
Net sales decreased 8.3% to $865.1 million and missed the Zacks Consensus Estimate of $882 million. The year-over-year decline was due to lower wholesale sales, soft store traffic and sluggish back-to-school sales, which were somewhat offset by strong e-commerce sales.
Further, the company is witnessing healthy demand for its baby apparel and sleepwear products, which represented 70% of total apparel sales. Apart from this, its e-commerce business is performing well, with its stores fulfilling 24% of online orders. Moreover, its revamped website with improved products, convenient shopping options and enhanced checkout experience aided online sales. Also, management is offering same-day pickup and curbside pickup facilities across 600 stores in the United States. Encouragingly, online sales are anticipated to reach the $1-billion mark in 2020.
Segmental Sales
Sales at the U.S. Retail segment fell 3.2% year over year to $449.2 million due to soft store sales. During the quarter, retail comparable sales declined 3.5% with e-commerce growth of 17%.
The U.S. Wholesale segment sales witnessed a decrease of 14.2% to $302.1 million due to delayed shipments. Despite soft sales, demand for fall products and Little Baby Basics remained positive.
The International segment witnessed a 10.4% decline in revenues to $113.8 million in the third quarter due to lower wholesale shipments stemming from unfavorable currency and market disruptions related to the ongoing COVID-19 situation.
Margins
Gross profit decreased 4.6% year over year to $383.7 million, while gross margin expanded 180 basis points (bps) to 44.4%. The uptick can be attributable to improved pricing efforts and better inventory management.
The company’s adjusted operating income came in at $119.5 million, up 4.2% year over year from $114.7 million reported in the prior-year quarter. Additionally, adjusted operating margin of 13.8% expanded 160 bps in the quarter under review. This is mainly due to reduced SG&A expenses and a solid gross margin. SG&A expenses fell 5.9% to $279.3 million in the quarter.
Balance Sheet & Shareholder-Friendly Moves
The company ended the quarter with cash and cash equivalents of $831.2 million, net long-term debt of $989.1 million and shareholders’ equity of $821.9 million. In the first nine months ending Sep 26, 2020, the company provided cash flow of $320.1 million for operating activities.
Earlier, Carter’s had suspended share repurchase and quarterly dividends on a temporary basis. Also, it did not incur any capital spending in the reported quarter.
The company repaid $244 million of borrowings under its $750-million revolving credit facility. That said, it boasts a liquidity of $1.6 billion at the end of the reported quarter, which is likely to help it stay afloat amid this crisis.
Store Update
Carter’s intends to open less than 100 co-branded stores in the next five years and shut down 25% of stores whose leases have expired. Of these, 60% of store closures are likely to take place by the end of 2021 and 80% of such stores are expected to close by the end of 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.13% due to these changes.
VGM Scores
Currently, Carter's has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Carter's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.