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Is CRI a Buy After Growth Gains Despite Retail Risks Ahead?
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Key Takeaways
Carter's delivered growth across Retail, Wholesale and International, led by a 5.1% U.S. Retail comp gain.
Carter's raised 2026 guidance as sales momentum, cost controls and stronger cash flow improved its outlook.
Tariffs, pricing resistance, clearance activity and store closures could limit Carter's earnings upside.
Carter’s, Inc. (CRI - Free Report) has regained momentum after posting sales growth across its major segments, but investors must weigh improving fundamentals against tariff uncertainty, consumer pressure and retail execution risks. The stock currently carries a Zacks Rank #2 (Buy), with a VGM Score of A. Its Style Scores include a Value Score of A, Growth Score of B and Momentum Score of A.
Shares have gained 25% over the past three months, outperforming the broader industry, as improving U.S. Retail performance, international expansion and cost controls supported sentiment. Carter’s shares were trading at $39.96 as of Aug. 7, 2026, with a 6-12 month price target of $42.00 and a Zacks recommendation of Neutral.
Image Source: Zacks Investment Research
Caleres (CAL - Free Report) operates in the footwear retail space, making it a comparable name within the broader retail apparel and footwear industry, while Steven Madden, Ltd. (SHOO - Free Report) competes in branded footwear and accessories, providing a comparison point for Carter’s valuation and retail execution.
Retail and International Growth Support Upside
Carter’s delivered better-than-expected second-quarter fiscal 2026 results, with net sales rising 5.2% year over year to $615.5 million. Growth came from all three operating segments, including a 5.1% increase in U.S. Retail comparable sales, an 11.7% rise in U.S. Wholesale sales and 2.7% growth in International sales.
U.S. Retail continued to show progress, with comparable sales growth marking the fifth consecutive quarter of gains. The company benefited from demand in its Baby category and improving engagement with Gen Z families. E-commerce comparable sales increased at a double-digit rate during the quarter, supported by digital platform enhancements, higher traffic and improved customer conversion.
International operations also contributed to growth. Mexico sales increased 22% year over year in the second quarter, supported by new store openings, shipment timing and favorable currency effects. International operating income increased 50% year over year, while segment margin expanded to 5.7%.
Earnings Outlook Improves After Q2 Beat
Carter’s raised its outlook after second-quarter results exceeded prior expectations. For fiscal 2026, management expects net sales growth of 2%-3% from fiscal 2025 revenue of $2.898 billion. Adjusted operating income is projected to increase in the low-single-digit to mid-single-digit range from $176 million. The company also expects operating cash flow of $230 million to $240 million and capital expenditures of about $50 million.
For the third quarter, Carter’s expects sales of about $750 million, adjusted operating income of approximately $50 million and adjusted earnings of about 85 cents per share, compared with 74 cents per share in the prior-year quarter.
The company’s financial position has also improved. Carter’s ended the second quarter with more than $650 million in cash, while first-half operating cash flow exceeded $200 million compared with a use of cash in the prior-year period. Inventory declined 7% year over year to $578 million, with units down 9%.
Tariffs and Consumer Pressure Remain Concerns
Despite the recent gains, risks remain. Tariffs continue to pressure margins, with incremental tariff costs reducing second-quarter gross profit. Adjusted gross margin declined 180 basis points to 46.3%, partly due to tariff impacts and product investments.
Carter’s received a $132 million recovery of previously paid import duties and related interest, which supported reported results and liquidity. However, management noted that future tariff rates remain uncertain and that policy changes may affect costs over time.
Consumer sensitivity to pricing is another challenge. Management moderated its second-half pricing assumptions after broader market data showed some resistance to higher prices and weaker unit velocity. Higher clearance activity on seasonal products also pressured retail margins during the quarter.
Store closures and ongoing investments may also affect near-term performance. While fleet optimization is reducing costs, Carter’s must continue shifting customer demand to digital channels and remaining stores to capture the benefits.
Valuation Offers Support
CRI trades at 12.3X forward 12-month earnings, below the Zacks sub-industry average of 19.7X and the S&P 500 multiple of 20.8X, according to Zacks Equity Research. The company’s $42 price target implies a valuation of 13.6X forward 12-month earnings.
Image Source: Zacks Investment Research
The combination of improving sales trends, cost discipline, favorable valuation and positive momentum supports the bullish case. However, tariff uncertainty, pricing pressure and a cautious consumer environment could limit upside.
Carter’s appears better positioned than earlier in 2026, but investors should monitor whether recent growth can translate into sustained earnings improvement as the company moves through the second half of the year.
View the Zacks #1 Rank List
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Is CRI a Buy After Growth Gains Despite Retail Risks Ahead?
Key Takeaways
Carter’s, Inc. (CRI - Free Report) has regained momentum after posting sales growth across its major segments, but investors must weigh improving fundamentals against tariff uncertainty, consumer pressure and retail execution risks. The stock currently carries a Zacks Rank #2 (Buy), with a VGM Score of A. Its Style Scores include a Value Score of A, Growth Score of B and Momentum Score of A.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares have gained 25% over the past three months, outperforming the broader industry, as improving U.S. Retail performance, international expansion and cost controls supported sentiment. Carter’s shares were trading at $39.96 as of Aug. 7, 2026, with a 6-12 month price target of $42.00 and a Zacks recommendation of Neutral.
Image Source: Zacks Investment Research
Caleres (CAL - Free Report) operates in the footwear retail space, making it a comparable name within the broader retail apparel and footwear industry, while Steven Madden, Ltd. (SHOO - Free Report) competes in branded footwear and accessories, providing a comparison point for Carter’s valuation and retail execution.
Retail and International Growth Support Upside
Carter’s delivered better-than-expected second-quarter fiscal 2026 results, with net sales rising 5.2% year over year to $615.5 million. Growth came from all three operating segments, including a 5.1% increase in U.S. Retail comparable sales, an 11.7% rise in U.S. Wholesale sales and 2.7% growth in International sales.
U.S. Retail continued to show progress, with comparable sales growth marking the fifth consecutive quarter of gains. The company benefited from demand in its Baby category and improving engagement with Gen Z families. E-commerce comparable sales increased at a double-digit rate during the quarter, supported by digital platform enhancements, higher traffic and improved customer conversion.
International operations also contributed to growth. Mexico sales increased 22% year over year in the second quarter, supported by new store openings, shipment timing and favorable currency effects. International operating income increased 50% year over year, while segment margin expanded to 5.7%.
Earnings Outlook Improves After Q2 Beat
Carter’s raised its outlook after second-quarter results exceeded prior expectations. For fiscal 2026, management expects net sales growth of 2%-3% from fiscal 2025 revenue of $2.898 billion. Adjusted operating income is projected to increase in the low-single-digit to mid-single-digit range from $176 million. The company also expects operating cash flow of $230 million to $240 million and capital expenditures of about $50 million.
For the third quarter, Carter’s expects sales of about $750 million, adjusted operating income of approximately $50 million and adjusted earnings of about 85 cents per share, compared with 74 cents per share in the prior-year quarter.
The company’s financial position has also improved. Carter’s ended the second quarter with more than $650 million in cash, while first-half operating cash flow exceeded $200 million compared with a use of cash in the prior-year period. Inventory declined 7% year over year to $578 million, with units down 9%.
Tariffs and Consumer Pressure Remain Concerns
Despite the recent gains, risks remain. Tariffs continue to pressure margins, with incremental tariff costs reducing second-quarter gross profit. Adjusted gross margin declined 180 basis points to 46.3%, partly due to tariff impacts and product investments.
Carter’s received a $132 million recovery of previously paid import duties and related interest, which supported reported results and liquidity. However, management noted that future tariff rates remain uncertain and that policy changes may affect costs over time.
Consumer sensitivity to pricing is another challenge. Management moderated its second-half pricing assumptions after broader market data showed some resistance to higher prices and weaker unit velocity. Higher clearance activity on seasonal products also pressured retail margins during the quarter.
Store closures and ongoing investments may also affect near-term performance. While fleet optimization is reducing costs, Carter’s must continue shifting customer demand to digital channels and remaining stores to capture the benefits.
Valuation Offers Support
CRI trades at 12.3X forward 12-month earnings, below the Zacks sub-industry average of 19.7X and the S&P 500 multiple of 20.8X, according to Zacks Equity Research. The company’s $42 price target implies a valuation of 13.6X forward 12-month earnings.
Image Source: Zacks Investment Research
The combination of improving sales trends, cost discipline, favorable valuation and positive momentum supports the bullish case. However, tariff uncertainty, pricing pressure and a cautious consumer environment could limit upside.
Carter’s appears better positioned than earlier in 2026, but investors should monitor whether recent growth can translate into sustained earnings improvement as the company moves through the second half of the year.