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Factors Likely to Shape Carter's (CRI) Q1 Earnings Outcome

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Carter's, Inc. (CRI - Free Report) is scheduled to report first-quarter fiscal 2019 numbers on Apr 30, before the opening bell. In the trailing four quarters, the company has outperformed the Zacks Consensus Estimate, recording average positive earnings surprise of 14.8%. In the last reported quarter, it delivered a positive earnings surprise of 10.5%. Let’s see what awaits this quarterly release.

How Are Estimates Faring?

The Zacks Consensus Estimate for first-quarter earnings is pegged at 69 cents, indicating 36.7% decline from $1.09 reported in the year-ago quarter. Notably, the consensus mark has moved south by 5 cents over the past 30 days. For revenues, the consensus estimate stands at $748.7 million, down approximately 1% from the year-ago quarter.

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

Factors to Consider

Carter’s has been in the doldrums, presumably due to the bankruptcy of Toys “R” Us, the company’s key wholesale customer. The closure of Toys “R” Us stores across the country largely weighed on Carter’s top line performance in the past few quarters, with more impacts to be seen in the quarters to come. Notably, the U.S. Wholesale business is the most impacted due to the loss of planned sales to Toys “R” Us and Bon-Ton.

Moreover, the company expects net sales and adjusted earnings per share for first-quarter 2019 to be affected by the discontinued sales to Toys “R” Us and Bon-Ton in the prior year as well as the shift of Easter holiday to second-quarter 2019 from the first quarter in 2018. The company estimates a net sales decline of 4-5% against the first quarter of 2018. Adjusted earnings per share are anticipated to be 65-70 cents compared with $1.09 reported in the prior-year quarter.

The company has been extensively investing in initiatives to boost business, mostly for its e-commerce channel. Carter’s continues to make investments in technology, brand marketing and expedited shipping to drive growth. This has resulted in higher expenses, which is likely to weigh on operating margin growth as seen in the past quarters.

The company’s performance in the first quarter should be cushioned by the synergies from its retail strategy. This strategy focuses on improving store productivity, strengthening e-commerce business and enhancing product offerings, which should offset some of the shortcomings for top line growth.

Additionally, the company is witnessing positive response for its co-branded stores, which is a one-stop shop for families with young children. These stores have been the most productive lately, receiving the maximum return on investment. Continued strength in this format is likely to boost sales in the first quarter.

The company’s International business presents a compelling opportunity. It aims to strengthen e-commerce capabilities through investments to speed up deliveries. The company has the largest share of e-commerce sales in the young children’s category in the United States, which is the double of its closest competitor. It has been witnessing double-digit growth in e-commerce sales, mainly backed by higher domestic demand.

Moreover, the company has received favorable response for its omni-channel capabilities rolled out in the last few years, including the “Buy Online and Pick Up in Stores” and "free ship to store." These initiatives are likely to aid the impending results.

In the past three months, the stock has gained around 26%, outperforming the industry’s 11.6% rally.

What Our Model Says

Our proven model does not show that Carter's is likely to beat estimates in first-quarter fiscal 2019. This is because a stock needs to have — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) as well as a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Carter's currently has a Zacks Rank #2, but an Earnings ESP of -0.73% makes surprise prediction difficult.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat.

Amazon.com, Inc. (AMZN - Free Report) has an Earnings ESP of +10.7% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores, Inc. (ROST - Free Report) has an Earnings ESP of +2.20% and a Zacks Rank #3.

Big Lots, Inc. (BIG - Free Report) has an Earnings ESP of +0.92% and a Zacks Rank #3.

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