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Carter's (CRI) Q3 Earnings Beat Estimates, Sales Fall Y/Y

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Carter's, Inc. (CRI - Free Report) reported mixed third-quarter 2022 results, wherein the top line lagged the Zacks Consensus Estimate while the bottom line beat the same. Both metrics fell year over year. Results were hurt by tough year-over-year comparisons along with the surge in gas and food prices. Inflation has also been weighing on demand for CRI’s brands.

Over the past three months, shares of Carter's have declined 9.7% compared with the industry’s 17.7% decrease.

Q3 in Detail

Carter’s reported third-quarter 2022 adjusted earnings of $1.67 per share, beating the Zacks Consensus Estimate of $1.65. However, the figure fell 13.5% from $1.93 reported in the prior-year quarter.

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Net sales dropped 8.1% year over year to $818.6 million and lagged the Zacks Consensus Estimate of $857 million. The downside can be attributed to lower sales across the U.S. Retail, U.S. Wholesale and International divisions. Unfavorable foreign currency translations hurt sales $2.9 million or 0.3%.

Segmental Sales

Sales at the U.S. Retail segment decreased 12.3% year over year to $408.2 million due to lower comparable sales. U.S. Retail comparable net sales fell 11%.

The U.S. Wholesale segment’s sales dipped 1.9% to $288.5 million.

The International segment witnessed a 6.7% drop in revenues to $122 million in the third quarter.

Margins

Gross profit declined 9.4% year over year to $370.5 million, while the gross margin contracted 70 basis points (bps) to 45.2%.

SG&A expenses dipped 2.4% to $286.2 million in the quarter. Further, adjusted operating income declined 26.1% year over year to $91.6 million in the reported quarter. The adjusted operating margin contracted 270 bps to 11.2% in the quarter under review due to deleveraged fixed costs, and increased ocean freight rates and distribution expenses, partly offset by a fall in air freight costs and lower performance-based compensation provisions.

Balance Sheet & Shareholder-Friendly Moves

This presently Zacks Rank #3 (Hold) player ended the quarter with cash and cash equivalents of $121.6 million, net long-term debt of $736.4 million and shareholders’ equity of $788.2 million. In the first nine months of 2022, CRI used a cash flow of $217.5 million for operating activities.

In the nine months of 2022, Carter’s returned $331.4 million via share repurchases and dividends. During the third quarter, CRI bought back  and retired 0.9 million shares for $65.4 million. In the nine months of the year, management repurchased and retired 2.9 million shares for $241.8 million.

Year to date through Oct 27, 2022, management repurchased and retired 3.3 million shares for $264.6 million. As of Oct 27, 2022, the overall remaining capacity under its earlier announced repurchase authorizations was roughly $785 million.

Outlook

For fourth-quarter 2022, net sales are expected to be $845-$885 million. Adjusted earnings are likely to be $1.40-$2.00, down from $2.31 reported in the prior-year quarter. Adjusted operating income is expected in the $85-$115 million band, down from $137.9 million recorded in the year-ago quarter.

The fourth-quarter outlook reflects a tough macroeconomic environment, U.S. Retail comparable sales drop of nearly 10-15%, lower U.S. Wholesale and International sales, improved price realization, lower discretionary spending, reduced interest expenses and
gains from share repurchases.

For 2022, Carter’s now projects net sales of $3.145-$3.185 billion compared with the prior view of $3.25-$3.30 billion. Adjusted earnings per share are now expected to be $6.05-$6.65, down from $7.87 reported in 2021 and $7.10-$7.60 projected earlier. Adjusted operating income is forecast to be $355-$385 million compared with $415-$440 million guided earlier. An amount of $500.8 million was reported in 2021.

Stocks to Consider

Here we highlighted three better-ranked stocks, namely, Designer Brands (DBI - Free Report) , Delta Apparel (DLA - Free Report) and Caleres (CAL - Free Report) .

Designer Brands designs, manufactures, and retails footwear and accessories. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Designer Brands’ current financial-year revenues and earnings per share (EPS) suggests growth of 6.9% and 23.5%, respectively, from the corresponding year-ago reported figures. DBI has a trailing four-quarter earnings surprise of 55.1%, on average.

Delta Apparel is a manufacturer of activewear and lifestyle apparel products. DLA has a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for Delta Apparel’s current financial-year sales and EPS suggests growth of 12.6% and 27.4%, respectively, from the year-ago corresponding figures. DLA has a trailing four-quarter earnings surprise of 34.2%, on average.

Caleres, a footwear dealer, has a Zacks Rank of 2 at present. CAL has a trailing four-quarter earnings surprise of 34.9%, on average.

The Zacks Consensus Estimate for Caleres’ current financial-year sales and EPS suggests growth of 5.6% and 0.9%, respectively, from the year-ago corresponding figures.


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