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Here's How Carter's (CRI) is Poised Ahead of Q3 Earnings

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Carter's, Inc. (CRI - Free Report) is likely to see a decline in the bottom line from the year-ago quarter’s reported figure when it reports third-quarter 2021 earnings on Oct 29, before the opening bell. Although the Zacks Consensus Estimate for third-quarter earnings has increased a couple of cents in the past seven days to $1.65, the same suggests a fall of more than 15% from the year-ago quarter’s tally. Further, the consensus estimate for quarterly revenues is pegged at $964.4 million, indicating an increase of about 11% from the figure reported in the year-ago quarter.

This branded marketer in North America of apparel, exclusively for babies and children has a trailing four-quarter earnings surprise of 191.7%, on average. In the last reported quarter, the company’s bottom line surpassed the Zacks Consensus Estimate by 131.9%.

Key Factors to Note

Carter’s has been gaining from strength in its product offerings, effective marketing strategies, leaner inventories and better price realization for a while. Higher demand for its brands, mainly in the stores as a result of store reopenings, acceleration of the vaccine program and relaxation of the pandemic-led restrictions continue to aid the company’s performance.

Its September-quarter performance is likely to have further benefited from the acceleration of omni-channel solutions, investment in retail and supply-chain capabilities, and a deepened focus on higher-margin stores. Sturdy international business is also continuously acting as a tailwind.

All the aforesaid factors are expected to have boosted the company’s top-line performance in the third quarter. On its last earnings call on Jul 30, management had projected sales of $960 million for the to-be-reported quarter.

On the flip side, Carter’s persistently witnesses higher adjusted SG&A expenses due to increased store payroll expenses, elevated marketing expenses and the resumption of employee compensation. Management had earlier anticipated making higher investments toward e-commerce capabilities, brand marketing and employee compensation.

Moreover, management had confirmed plans for greater levels of spending for the second half to accelerate deliveries from Asia to boost demand for its brands and overcome the pandemic-led production delays.

While aforementioned factors raise optimism, we cannot ignore the ongoing supply chain issue. Again, operating limitations in certain geographies due to the ongoing pandemic may have hurt sales to an extent. Any increase in labor costs as well as warehouse and distribution expenses might get reflected in the to-be-reported quarter’s margins.

Headwinds like supply-chain disruptions, increased transportation and freight costs, and other pandemic-related issues might have affected the quarterly performance. The company had envisioned an adjusted operating income of $110 million, down from $120 million reported in the year-ago quarter. It had expected adjusted earnings of $1.60 per share.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Carter's this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Carter's, Inc. Price and EPS Surprise

Carter's, Inc. Price and EPS Surprise

Carter's, Inc. price-eps-surprise | Carter's, Inc. Quote

Carter's currently has a Zacks Rank #2 and an Earnings ESP of +0.71%.

Other Stocks With Favorable Combination

Here are a few more companies you may want to consider as our model shows that these also have the right combination of elements to beat on earnings this reporting cycle:

Steven Madden (SHOO - Free Report) has an Earnings ESP of +1.30% and a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hanesbrands (HBI - Free Report) has an Earnings ESP of +1.06% and a Zacks Rank #2, presently.

Gildan Activewear (GIL - Free Report) has an Earnings ESP of +7.14% and a Zacks Rank #3 at present.

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