Carter's, Inc. (CRI Quick QuoteCRI - Free Report) is scheduled to release third-quarter 2024 results on Oct. 25, before the opening bell. The branded marketer of apparel exclusively for babies and children in North America is likely to witness a decline in the top and bottom lines when it reports the quarterly numbers.

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The Zacks Consensus Estimate for third-quarter revenues is pegged at $748 million, indicating a decline of 5.5% from the figure reported in the year-ago quarter. The consensus estimate for quarterly earnings, which has moved up a penny to $1.29 per share in the past 30 days, indicates a decrease of 29.9% from the year-ago quarter’s figure.

The company has a trailing four-quarter earnings surprise of 37.4%, on average. In the last reported quarter, CRI’s bottom line beat the Zacks Consensus Estimate by 68.9%.

What the Zacks Model Unveils for CRI

Our proven model doesn’t conclusively predict an earnings beat for Carter's this season. 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. But that’s not the case here. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Carter's currently has an Earnings ESP of 0.00% and a Zacks Rank of 3.

Trends to Drive CRI’s Q3 Results

Carter’s third-quarter performance is expected to have been hurt by inflation, elevated interest rates and the suspension of pandemic-related stimulus payments to child-care centers, thereby leading to soft demand for its products. In addition to the impacts of inflation, the company has been witnessing currency headwinds. These factors are expected to have particularly dented the top-line performance of its U.S. Retail and International segments.

Carter’s also continues to witness soft online sales trends due to the recently shifted consumer behavior to more deliberate store visits for immediate needs, which is in contrast with the more impulsive nature of e-commerce purchases. This has resulted in reduced online traffic and a slowdown in consumer spending.

In addition, the company has been witnessing higher selling, general and administrative expenses (SG&A), as a percentage of sales, due to a decline in volume-related expenses, mainly distribution and freight, and lower provisions for performance-based compensation. The higher SG&A expense rate is expected to have strained operating margins and reduced profitability.

On the last reported quarter’s earnings call, management expected several risks including a challenging macroeconomic environment, wavering consumer confidence, rising inflation and heightened promotional activity to continue weighing on CRI’s performance. These factors have been collectively impacting consumer spending habits, profit margins and overall demand for discretionary items. The company expected the ongoing economic uncertainties to result in higher discounting, thereby affecting its pricing power and revenue growth in the coming months.

For the third quarter, CRI expected net sales to be in the range of $735-$755 million, down from $792 million recorded in the year-ago quarter. Adjusted earnings are expected to be in the band of $1.10-$1.35 per share, down from $1.84 reported in the prior-year quarter. Management projected adjusted operating income in the range of $60-$70 million, implying a decrease from the $96 million recorded in the year-ago quarter. We expect adjusted operating income to plunge 33.4% year over year, with operating margin expected to contract 360 bps year over year to 8.6%.
 

Carter's, Inc. Price and EPS Surprise

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

For the U.S. Retail business, the company’s guidance for the second half of 2024 assumes a 9-12% decline in comparable sales. For the third quarter, it expects total sales for the U.S. Retail business to fall in the high-single-digits to low-double-digits. Meanwhile, for the U.S. Wholesale business, management projects strong growth in the second half. However, the U.S. Wholesale revenues are expected to be flat to down low-single-digits year over year in the third quarter.

For the International division, the company expects pressures on consumer demand, mainly in Canada, and certain changes in the timing of shipments to its international wholesale partners to affect its top line in the second half. For the third quarter, sales for the International business are likely to decline in the mid to high-single-digits.

Our model predicts a sales decline of 8.1% in the U.S. Retail, 1.8% in the U.S. Wholesale and 7% in the International segment.

On the flip side, Carter’s has been making efforts to maneuver such challenges. The company has been implementing measures like improved pricing and optimized inventory, while strengthening its e-commerce capabilities. Management expects about $50 million with respect to the incremental investments in pricing and marketing in the second half.

Some other notable efforts include expanded omnichannel facilities, including curbside pickup, same-day pickup, buy-online and pickup-at-store, and ship-from-store. CRI has been experiencing higher-than-expected demand in its U.S. wholesale business for a while. The company noted that its wholesale segment is gaining from leaner inventories with wholesale customers.

Valuation Picture

From a valuation perspective, Carter’s offers an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 13.36x, which is below the five-year high of 12.1x and the Shoes and Retail Apparel industry’s average of 26.31x, the stock offers compelling value for investors seeking exposure to the sector.

The recent market movements show that CRI’s shares have risen 9.6% in the past three months compared with the industry's 13% growth.

Image Source: Zacks Investment Research

Stocks Poised to Beat Earnings Estimates

Here are some companies, which according to our model, have the right combination of elements to post an earnings beat:

Adidas (ADDYY Quick QuoteADDYY - Free Report) currently has an Earnings ESP of +5.19% and a Zacks Rank of 1. ADDYY is likely to register top and bottom-line growth when it reports third-quarter 2024 results.  You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for its quarterly revenues is pegged at $7.01 billion, indicating 7.4% growth from the figure reported in the year-ago quarter. The consensus estimate for ADDYY’s earnings is pegged at $1.09 per share, indicating a 43.4% rise from the year-ago quarter. The consensus mark has declined 1.8% in the past 30 days.

Crocs (CROX Quick QuoteCROX - Free Report) currently has an Earnings ESP of +0.97% and a Zacks Rank of 2. CROX is likely to register top-line growth when it reports third-quarter 2024 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $1.1 billion, indicating 0.1% growth from the figure reported in the year-ago quarter.

The consensus estimate for Crocs’ earnings is pegged at $3.11 per share, implying a 4.3% decline from the year-earlier quarter. The consensus mark has moved down a penny in the past seven days.

Gildan Activewear (GIL Quick QuoteGIL - Free Report) currently has an Earnings ESP of +0.40% and a Zacks Rank of 2. GIL is likely to register top and bottom-line growth in its third-quarter results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $882.2 million, indicating 1.4% growth from the figure reported in the year-ago quarter.

The consensus estimate for Gildan Activewear’s earnings is pegged at 84 cents per share, indicating a 13.5% rise from the year-ago quarter. The consensus mark has risen by a penny in the past 30 days.