Carter's, Inc. (CRI Quick QuoteCRI - Free Report) delivered improved profitability in the third quarter of fiscal 2026, but management lowered its revenue outlook amid weakening consumer demand and uncertainty surrounding holiday spending.

The earnings call highlighted stronger pricing, productivity improvements and brand revitalization efforts. However, executives emphasized the need to manage promotional pressures while pursuing longer-term growth opportunities.

CRI Moderates Outlook Amid Consumer Spending Pressures

Carter's lowered its fiscal 2026 revenue outlook to $2.91 billion-$2.93 billion, reflecting softer U.S. retail demand and reduced wholesale replenishment expectations.

Richard Westenberger, chief financial officer and chief operating officer, projected fourth-quarter revenues of $860 million-$880 million, adjusted operating income of $74 million-$83 million and adjusted earnings of $1.37-$1.55 per share.

Management maintained full-year adjusted operating income guidance of $178 million-$187 million and adjusted earnings guidance of $3.05-$3.23 per share. Westenberger attributed the expected earnings decline partly to higher interest expenses following debt refinancing.

Carter's Retail Recovery Faces Holiday Uncertainty

Chief commercial officer Allison Peterson highlighted uneven retail trends, with weaker August demand followed by double-digit comparable sales growth in September.

U.S. Retail comparable sales increased 0.4% during the quarter, supported by targeted promotions, stronger baby-category demand and improved merchandising.

However, during the analyst discussion, Westenberger acknowledged that fourth-quarter comparable sales were running negative. Management expects purchasing activity to remain concentrated closer to the holidays, making November and December particularly important.

CRI Strengthens Profitability Despite Revenue Decline

Carter's reported adjusted earnings of $1.03 per share, topping the Zacks Consensus Estimate of 85 cents. Adjusted earnings increased 39% from 74 cents in the prior-year quarter.

Quarterly revenues of $752.5 million surpassed the Zacks Consensus Estimate of $750.2 million. However, revenues declined 0.7% year over year.

Carter's, Inc. Price, Consensus and EPS Surprise

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

Westenberger attributed profitability improvements to higher realized pricing, productivity initiatives and favorable retail mix. Adjusted gross margin expanded 200 basis points to 47.1%, while adjusted operating margin increased 240 basis points to 7.6%.

Carter's Wholesale and International Trends Diverge

U.S. Wholesale revenues declined 3.8%, reflecting lower unit volumes and shipment timing. Nevertheless, segment operating income increased approximately 11% as pricing improvements and productivity initiatives supported profitability.

During questioning from a BMO Capital Markets analyst, Westenberger clarified that most of the downward revenue revision reflected U.S. Retail rather than wholesale weakness.

International revenues increased 4.5%, supported by growth across Canada, Mexico and international wholesale operations. Mexico comparable sales increased 8%, while international operating margin improved to 10%.

CRI Advances Brand Renewal and Leadership Changes

Sharon Price John, chief executive officer and president, emphasized rebuilding Carter's emotional connection with younger parents through refreshed branding and consumer-focused innovation.

The brand campaign generated more than 1.6 billion media impressions and nearly 20% growth in branded searches. The Stellar Sleep initiative also delivered double-digit growth in unit and dollar sales.

John outlined leadership restructuring intended to integrate retail, wholesale and e-commerce operations. Longer-term priorities include expanding into older children's apparel, premium product categories and asset-light international markets.

Carter's Addresses Tariff and Promotional Concerns

A Wells Fargo analyst questioned gross margin sustainability and tariff benefits. Westenberger explained that fourth-quarter tariff expenses should be approximately $10 million-$11 million lower year over year.

Responding to a Goldman Sachs analyst, Westenberger highlighted rising cotton and transportation costs, with cotton inflation expected to affect product costs more significantly during the second half of 2027.

A Needham analyst also raised concerns about competitive discounting. Peterson acknowledged expectations for heavier holiday promotions, which management incorporated into its revised outlook.

CRI Maintains Focus on Profitable Growth

Management's commentary reflected confidence in pricing execution, productivity improvements and early brand-repositioning results, balanced against uncertainty surrounding consumer demand.

Executives remain focused on protecting profitability, strengthening customer engagement and executing organizational changes while navigating a challenging holiday retail environment.

Carter's Zacks Rank and Style Scores Outlook

CRI reflects favorable near-term earnings estimate revision trends. Its Value Score of A indicates attractive valuation characteristics, while its Growth Score of B highlights favorable growth attributes.

The stock also holds a VGM Score of A, reflecting a favorable combination of value, growth and momentum characteristics on a weighted basis. However, its Momentum Score of F indicates weak price momentum, presenting a contrasting signal. Although the combination of a Zacks Rank #2 (Buy) and favorable Style Scores is generally associated with stronger potential performance, the Zacks Rank can change as analysts revise earnings estimates following the latest quarterly results. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.