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Carter's (CRI) Robust Strategic Efforts Appear Encouraging

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Carter's, Inc. (CRI - Free Report) has been doing well thanks to its robust business strategies. The company is benefiting from the success of its pricing strategy, inventory management efforts and improved product offerings. Management is focused on creating a trend-right merchandise assortment, deepening relations with customers via marketing, expanding international markets and efficiently controlling expenses.

The company has made significant efforts in pricing to address market conditions and enhance profitability. In third-quarter 2023, the company saw improved price realization and profit margins primarily due to the strength of its product offerings, lower ocean freight rates and better inventory management. This approach improved its cash flow and supported its overall financial performance.

Carter’s is focused on efficient cost management and operational improvements, as evident from expansion in the margin rates. Higher margins are driven in part by lower ocean freight rates, which were a significant contributor to the 228 basis points (bps) gross margin expansion in the third quarter. Lower inventory levels also have been aiding gross margin. Looking ahead, the company anticipates lower product costs, which is expected to enable it to strengthen its product offerings and sharpen price points, thus improving profitability.

Management has been focused on boosting essential core products, which, coupled with a compelling value proposition, wherein average retail price points are around $11, makes Carter's an attractive option for budget-conscious consumers. The company’s pricing strategy involves keeping its brands competitively priced — usually within $1 or $2 of private label brands — which has proven effective in maintaining competitiveness in the market.

Carter’s is focused on its commitment to rewarding shareholders through dividend payments and share repurchases. In the third quarter and the first three quarters of fiscal 2023, the company returned $55.4 million and $152.0 million to shareholders, respectively, through share repurchases and cash dividends. In the third quarter, it repurchased and retired 0.4 million shares of its common stock for $27.6 million at an average price of $70.69 per share. As of Oct 26, 2023, the company had a $670-million remaining capacity under its previously-announced repurchase authorization. Also, it paid out a dividend of 75 cents per common share in the third quarter.

What’s More?

Although Carter has been witnessing the impacts of inflation and consequently reduced consumer spending, the demand trends in the wholesale segment have been showing improvement. Its wholesale segment is gaining from leaner inventories with wholesale customers since the start of 2023. As a result, CRI experienced higher-than-planned demand in its wholesale business for the fourth consecutive quarter in the third quarter of 2023. The U.S. wholesale segment’s sales increased 4.1% year over year in the third quarter.

Analysts seem quite optimistic about the company. The Zacks Consensus Estimate for 2024 sales and earnings per share (EPS) is currently pegged at $3 billion and $6.41, respectively. These estimates show corresponding growth of 2.6% and 7.4% year over year.

Carter’s, which shares space with Skechers (SKX - Free Report) , Wolverine (WWW - Free Report) and Caleres (CAL - Free Report) , seems to be doing well going ahead, given all the positives mentioned above.

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