It has been about a month since the last earnings report for Carter's (CRI Quick QuoteCRI - Free Report) . Shares have lost about 1% in that time frame, outperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Carter's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important catalysts.

Carter's Q3 Earnings Miss Estimates, U.S. Retail Sales Up Y/Y

Carter's announced mixed third-quarter 2025 results, wherein the top line beat the Zacks Consensus Estimate while the bottom line missed. Also, earnings declined from the year-ago quarter’s respective number.

Quarterly performance showed ongoing improvements in the U.S. Retail business, as it accomplished positive comparable sales and improved pricing for the second straight time in the reported quarter. On the flip side, higher product costs, in part owing to higher tariffs and additional investment, hurt its profits.

Carter’s adjusted earnings per share (EPS) of 74 cents per share missed the Zacks Consensus Estimate of 78 cents. Also, the bottom line plunged 54.9% from $1.64 reported in the prior-year quarter.

The company reported consolidated net sales of $757.8 million, which beat the Zacks Consensus Estimate of $751 million. The metric was comparable year over year, owing to lower U.S. Wholesale segment sales, somewhat offset by higher U.S. Retail and International segment sales. Foreign currency translation had a negligible impact on consolidated sales.

Insights Into CRI’s Segment

Sales of the U.S. Retail segment increased 2.6% year over year to $299.6 million. The segment’s comparable net sales rose 2% in the third quarter. 

The U.S. Wholesale segment’s sales dipped 5.1% year over year at $192.9 million.

The International segment recorded a 4.9% year-over-year increase in sales to $92.8 million.

Focus on CRI’s Margins & Costs

Gross profit fell 4% year over year to $341.6 million. The gross margin contracted 180 basis points (bps) to 45.1% from 46.9% in the third quarter of 2024.

Adjusted operating income fell 48.9% to $39.4 million. The adjusted operating margin also decreased 500 bps to 5.2% mainly due to increased tariff costs, investments in product make, fall in unit volume and investments in new stores, partly offset by a rise in pricing.

Adjusted selling, general and administrative (SG&A) expenses increased 8.1% year over year to $307.7 million in the quarter. As a percentage of net sales, SG&A expenses increased 310 bps year over year to 40.6%.

CRI’s Financial Snapshot

Carter’s ended third-quarter 2025 with cash and cash equivalents of $184.2 million, net long-term debt of $498.7 million and shareholders’ equity of $864.6 million.

In the third quarter of 2025, the company paid a cash dividend of 25 cents a share, amounting to $9.1 million. For the first nine months of the year, total cash dividends paid were $47.2 million. There was no share repurchase in the three quarters of 2025.

With respect to refinancing, Carter’s wholly-owned subsidiaries, The William Carter Company and The Genuine Canadian Corp., got commitments for a five-year asset-based revolving credit facility with initial borrowing commitments of no less than $750 million.  This is subject to the borrowing base under the new facility. CRI forecasts closing on the asset-based revolving credit facility in the fourth quarter. It has been evaluating opportunities to refinance its current $500-million senior notes that will mature in March 2027.

Productivity-Improvement Efforts

As part of its constant transformation moves, Carter’s has been making efforts to rightsize its cost structure and boost productivity. The company intends to cut down on its office-based roles by nearly 300 positions or 15% by the end of 2025. It registered a $6.1-million charge in the third quarter and projects incurring a $4-$5 million charge in the final quarter, to be paid in the first half of 2026. This action is likely to yield annualized savings of about $35 million starting in 2026.

Carter’s is targeting above $10 million annual spending reductions across numerous categories, with savings beginning in 2026. It plans to shut down approximately 150 stores at lease expiration in North America in the next three years, reflecting a rise from its earlier-disclosed target of about 100 stores, with approximately 100 stores to be shut in the 2025 and 2026 periods. The 150 stores collectively account for roughly $110 million in annual net sales on a last 12-month basis.

Given the sales transfer to nearby CRI’s stores and online, and the elimination of fixed store expenses, the net effect of the closures is likely to be accretive to its profitability. Carter’s plans to reinvest a part of the productivity-associated savings in high-return, growth-led initiatives, to include demand creation.

CRI’s FY25 Outlook

The new tariffs on products imported into the United States have been concerning. Such additional tariffs have resulted in approximately $110 million in duties on imported products paid by CRI in 2024.

Carter’s anticipates that Vietnam, Cambodia, Bangladesh and India will collectively account for nearly 75%, and China less than 3%, of its product sourcing expenditure in 2025. It estimated the gross pre-tax earnings impact of additional import duties to be roughly $200-$250 million on an annualized basis. Over time, management plans to partly offset such additional costs through a blend of changes to its product assortments, cost sharing with its vendors, changes to the mix of its production by country, and higher prices to end consumers and its wholesale customers. 

In the fourth quarter of 2025, it projects a net adverse effect to pre-tax income of about $25-$35 million with respect to the additional tariffs. Considering the uncertainty surrounding incremental tariffs and the potential associated impact on CRI’s business, Carter’s has suspended its 2025 guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -13.74% due to these changes.

VGM Scores

Currently, Carter's has a poor Growth Score of F, a score with the same score on the momentum front. However, the stock was allocated a score of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Carter's has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.