Carter's, Inc. (CRI Quick QuoteCRI - Free Report) has been capitalizing from its pricing strategy, efficient inventory management and enhanced product offerings. By focusing on competitively priced, essential core products, Carter's has positioned itself as a value-driven option for budget-conscious consumers, particularly during inflationary times.

Investments in pricing and marketing of nearly $60 million for the second half of 2024 further underscore its commitment to driving demand and market relevance. These efforts, coupled with innovative campaigns like "More Than Just Cute," position Carter’s as a preferred choice for quality and affordability, especially in inflationary markets.

Its focus on competitively priced essential core products, with an average retail price of around $11, has strengthened its value proposition. Carter's maintains a competitive edge while leveraging its brand equity by pricing of its offerings within $1 or $2 of private label brands.

Factors Contributing to CRI’s Growth

The company’s U.S Wholesale business has been aiding its results, gaining from leaner inventories with wholesale customers. In the third quarter of 2024, the company achieved solid growth in its exclusive brands, with the U.S. Wholesale unit delivering an impressive operating margin exceeding 21%. Additionally, product costs fell year over year, further supporting profitability.

Carter’s supply chain remains a key strength, ensuring efficiency and timely fulfillment of wholesale orders. Looking ahead, the company anticipates U.S. Wholesale sales to grow in the mid-to-high single digits year over year for the fourth quarter of 2024, driven by continued demand for exclusive brands. For the full year, CRI expects U.S. Wholesale sales to surpass $1 billion, reflecting a low single-digit increase.

Carter's has been leveraging its omni-channel capabilities to drive growth and improve profitability. In the third quarter, nearly 38% of the company’s digital orders were fulfilled through its stores, a notable increase from 35% recorded last year. These transactions are margin-accretive as they reduce the need for shipping, enhancing operational efficiency. To further strengthen its retail footprint, Carter’s opened 40 high-margin outlets this year while closing around 30 low-margin stores in declining traffic areas as leases expired.

The company has also invested in advanced marketing personalization technology powered by artificial intelligence, enabling it to cater to consumers' product preferences more effectively in the digital space. These efforts have led to improved performance metrics, with higher conversion rates and increased units per transaction year over year in both stores and e-commerce. E-commerce, in particular, has seen mid-single-digit growth in these key metrics.

Looking ahead, Carter’s management plans to continue prioritizing investments in enhancing brand experiences, both digitally and in-store, in collaboration with its wholesale partners. These strategic initiatives are expected to further solidify the company's market position and support long-term growth.

Challenges Impacting Carter’s Growth Trajectory

Carter’s continues to face significant challenges due to inflationary pressures, high interest rates and the cessation of pandemic-related stimulus payments to child-care centers. These factors have placed financial strain on families with children, reducing demand for the company’s products. Reflecting these trends, Carter’s third-quarter 2024 sales dropped by 4.2% year over year, following a 5.9% decline in the prior quarter.

Adverse currency fluctuations further impacted the company’s performance, reducing net sales by $3.1 million. In the third quarter, the U.S. Retail segment reported a 5.8% decline in sales, with comparable net sales down 7.1%. The U.S. Wholesale segment also experienced a marginal 0.5% decline, while the International segment saw an 8.6% drop in sales.

Several risks, including a challenging macroeconomic environment, wavering consumer confidence, rising inflation and heightened promotional activity, continue to weigh on CRI’s performance. For the fourth quarter of 2024, Carter’s expects net sales of $800-$840 million, indicating a decline from $858 million recorded in the year-ago quarter. For 2024, Carter’s expects net sales of $2.79-$2.83 billion compared with $2.95 billion in 2023.

Shares of this Zacks Rank #3 (Hold) company have lost 19.7% in the past three months compared with the industry’s decline of 7.8%.

Three Picks You Can’t Miss

Some better-ranked stocks in the Consumer Discretionary space are Wolverine World Wide (WWW Quick QuoteWWW - Free Report) , GIII Apparel Group (GIII Quick QuoteGIII - Free Report) and Steven Madden, Ltd. (SHOO Quick QuoteSHOO - Free Report) .

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G-III Apparel is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It carries a Zacks Rank #2 (Buy) at present.

GIII Apparel has a trailing four-quarter earnings surprise of 113.44%, on average. The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales indicates growth of 2.9% from the year-ago figure.

Steven Madden designs, sources, markets and sells fashion-forward name-brand and private-label footwear. It currently has a Zacks Rank #2.

The Zacks Consensus Estimate for Steven Madden’s 2024 earnings and sales indicates growth of 8.6% and 13.6%, respectively, from the year-ago actuals. SHOO has a trailing four-quarter average earnings surprise of 9.8%.