Breaking Down Carter's, Inc. (CRI) Financial Health: Key Insights for Investors

You're looking at Carter's, Inc. (CRI) right now and the picture is complex, so let's cut through the noise: the company is in a tough, necessary transition, with short-term pain from external headwinds masking a strategic pivot that could pay off in 2026. The Q3 2025 results were a clear signal of this pressure, with adjusted earnings per share (EPS) of only $0.74, missing analyst consensus, and net sales essentially flat at $757.84 million, reflecting a challenging retail environment. The biggest headwind is the tariff impact, which management estimates will hit 2025 operating income by $25 million to $35 million, but they are fighting back with a plan to close up to 150 North American stores and streamline operations for roughly $35 million in annual savings starting next year. This is a classic case of taking a hit now for future margin health, but still, the Street's consensus price target sits at a cautious $29.50, suggesting investors defintely want to see execution before they buy into the turnaround story.

Revenue Analysis

You need to know where Carter's, Inc. (CRI) is making its money, and the picture for 2025 is one of internal rebalancing. The headline is that while overall sales are stabilizing, the engine driving growth has shifted; you're seeing a clear pivot away from wholesale reliance.

For the trailing twelve months ending September 27, 2025, Carter's, Inc.'s total revenue stood at approximately $2.83 billion, which represents a slight year-over-year decline of about -0.34%. This near-flat performance hides some serious segment volatility. The company's multi-channel model-U.S. Retail, U.S. Wholesale, and International-is designed for broad reach, but its performance is uneven.

Here's the quick math on the first nine months of fiscal 2025: Q1 net sales were $629.8 million, Q2 hit $585.3 million, and Q3 brought in $757.8 million. That Q3 number was essentially flat, decreasing by only 0.1% compared to the prior year. Still, the sequential growth from Q2 to Q3 was a solid 29.5%. You want to see that momentum continue.

The primary revenue streams for Carter's, Inc. are its three major operating segments:

• U.S. Retail: Direct-to-consumer sales through company-owned stores and e-commerce.
• U.S. Wholesale: Sales to major retailers like Target and Walmart.
• International: Sales across Canada, Mexico, and other global markets.

The story of 2025 is the segment shift. While the U.S. Wholesale segment net sales decreased by 5.1% in Q3 2025, the U.S. Retail and International segments picked up the slack, growing by 2.6% and 4.9%, respectively. This trend was even more pronounced in Q2 2025, where International sales surged by 14.1%. This shows the direct-to-consumer and global businesses are now the clear growth drivers.

The table below shows the recent quarterly performance, highlighting which segments are creating the drag and which are providing lift:

The most significant change is the planned contraction in U.S. Wholesale. Management is defintely addressing the decline in sales of its Simple Joys brand on Amazon, choosing to de-emphasize it to focus on core, higher-margin brands. They are also taking productivity improvement actions, including closing low-margin retail stores, which will impact the U.S. Retail footprint but should improve overall profitability. This is a strategic move, trading volume for margin and brand control. To get a deeper dive on who is betting on this strategy, you should check out Exploring Carter's, Inc. (CRI) Investor Profile: Who's Buying and Why?

Profitability Metrics

You need to know if Carter's, Inc. (CRI) is making money efficiently, and the short answer is: their margins are contracting fast in 2025, but they still maintain a solid gross buffer compared to some apparel retail averages. The key takeaway from the Q3 2025 results is that cost pressures-specifically tariffs and elevated product costs-are eating into the bottom line, despite stable sales.

Looking at the Trailing Twelve Months (TTM) data as of Q3 2025, which gives us the best near-term picture of the full fiscal year, Carter's, Inc.'s profitability ratios show a significant squeeze. Your gross profit margin, which is the revenue left after covering the Cost of Goods Sold (COGS), sits at 46.79%. That's the first line of defense. But the real story is further down the income statement, where operating and net margins are thin.

The operating profit margin (earnings before interest and taxes, or EBIT) for the TTM period is 5.03%. This is a crucial metric, as it tells you how well the core business is running before debt and taxes. For Q3 2025 specifically, the adjusted operating margin dropped to 5.2%, a sharp decline from 10.2% in Q3 2024. That's a 50% drop in just one year. The net profit margin (what's left for shareholders) is a lean 3.14% TTM.

Here's the quick math on how Carter's, Inc. stacks up against the broader apparel retail industry in 2025:

Carter's, Inc. is defintely ahead on gross margin, which suggests strong product pricing power or efficient sourcing compared to the average 41.9% for apparel retail. However, their operating margin of 5.03% is where the problem lies; it's less than half of the 10-15% range considered a healthy benchmark for clothing retail. This signals that selling, general, and administrative expenses (SG&A) and other operating costs are disproportionately high, or that the company is absorbing significant external cost shocks.

The trend is the biggest risk here. The Q3 2025 gross margin fell to 45.1% and the adjusted operating margin was just 5.2%. This contraction is directly tied to operational efficiency challenges, which the company is actively trying to fix. Management explicitly cited higher tariffs and elevated product costs as major headwinds. They are taking clear actions to manage this cost creep:

• Closing low-margin retail stores.
• Right-sizing the organization (reducing office staff by 15%).
• Honing product choices to improve overall cost structure.

These productivity improvement actions are expected to generate significant savings, but they haven't offset the cost pressures yet, as reflected in the decline. The net margin of 3.14% is barely above the 2.6% industry average, and analysts are forecasting full-year 2025 earnings per share (EPS) of $5.15, but expect profitability to shrink further in the near future. This means every dollar of sales is yielding less profit than before, putting pressure on the stock. You should track the progress of their cost-cutting initiatives very closely. For a deeper look at who's still buying the stock despite these margin pressures, check out Exploring Carter's, Inc. (CRI) Investor Profile: Who's Buying and Why?

Debt vs. Equity Structure

You're looking at Carter's, Inc. (CRI) because you want to know how they fund their operations and what kind of financial cushion they have. The quick takeaway is that Carter's, Inc. maintains a moderate debt-to-equity profile, but their recent refinancing signals a clear move to lock in long-term capital and manage near-term maturity risk.

As of the third quarter of fiscal 2025 (Q3 2025), Carter's, Inc.'s balance sheet shows a total debt of approximately $1.17 billion. This debt is primarily long-term, with net long-term debt standing at about $498.7 million. The company's total debt is composed of both short-term borrowings and long-term notes, but the total debt figure can be confusing because the balance sheet also includes current liabilities of $501.7 million, which covers short-term obligations like accounts payable and current operating lease liabilities.

Here's the quick math on their capital structure using Q3 2025 data:

The Total Debt-to-Equity (D/E) ratio is the key metric here, measuring how much debt Carter's, Inc. uses to finance its assets relative to the value of shareholders' equity (the money invested by owners). With a Total D/E ratio of about 1.36, the company has $1.36 in debt for every dollar of equity. To be fair, other recent analyst reports cite a lower D/E of 0.58, but the 1.36 figure aligns better with the reported total debt and equity figures. The D/E ratio for the broader Consumer Discretionary sector averages around 0.81 (or 81.1% when adjusted). This suggests Carter's, Inc. is operating with a higher degree of financial leverage (more debt) than the sector average, which can amplify returns in good times but also magnify losses in a downturn.

The company is defintely a trend-aware realist when it comes to managing its debt maturity schedule. In November 2025, Carter's, Inc. announced the closing of a major debt issuance: $575 million of 7.375% Senior Notes due 2031. This strategic move was designed to redeem its existing 5.625% Senior Notes that were set to mature in 2027. This is a classic liability management play-they are pushing out the maturity wall to 2031, which removes a significant near-term risk for investors, but it comes at the cost of a higher interest rate (7.375% versus 5.625%), reflecting the current higher-rate environment.

Carter's, Inc. balances debt financing with equity funding by maintaining a consistent dividend policy, paying out $0.25 per share quarterly, but they have paused share repurchases in the first three quarters of 2025. This choice to prioritize debt management and dividend stability over buybacks signals a focus on financial resilience and cash preservation, especially as they navigate a period of margin compression and lower net income, as detailed further in Breaking Down Carter's, Inc. (CRI) Financial Health: Key Insights for Investors.

• Refinanced 2027 notes with new 2031 notes.
• New debt carries a higher 7.375% coupon.
• Pausing buybacks favors debt stability over equity return.

Liquidity and Solvency

You're looking for a clear read on Carter's, Inc.'s (CRI) ability to meet its near-term obligations, and honestly, the picture is mixed. The company has a solid foundation for covering short-term debt, but the recent cash flow trend shows a clear deceleration due to inventory build-up and lower earnings. The liquidity position is defintely strong, but the efficiency of that liquidity is under pressure.

The core liquidity ratios, which measure how easily Carter's, Inc. can convert assets into cash to pay its bills, tell a good story at a glance. The Current Ratio is 2.26, meaning the company has $2.26 in current assets (like cash, receivables, and inventory) for every dollar of current liabilities. A ratio over 2.0 is generally considered healthy. The Quick Ratio (Acid-Test Ratio), which strips out inventory-the least liquid current asset-is 0.84. This is where the retail reality hits; it means that without selling its stock, Carter's, Inc. has less than a dollar ($0.84) of highly liquid assets to cover each dollar of immediate debt.

Here's the quick math on the liquidity position based on the most recent data:

The working capital trend is the real area to watch. The shift in cash flow is directly linked to an increase in inventory levels coupled with lower earnings in 2025. This means more cash is tied up in merchandise sitting in warehouses and on shelves, which is a drag on liquidity even with a high Current Ratio. The company's net cash used in operations for the first three quarters of fiscal 2025 was $136.3 million, a significant drop from cash provided in the prior year. This is the clearest sign of a working capital challenge.

Looking at the cash flow statement overview for the Trailing Twelve Months (TTM) ending Q3 2025, you see the following trends:

• Operating Cash Flow (TTM): $151.16 million in cash generated from core business activities.
• Investing Cash Flow (TTM): -$59.19 million, reflecting capital expenditures (CapEx) for things like new stores and operational improvements.
• Financing Cash Flow: The company paid $47 million in cash dividends in the first three quarters of fiscal 2025, showing a continued commitment to shareholder returns despite the profitability pressures.

The primary liquidity concern is the negative operating cash flow year-to-date, driven by that inventory pile-up and lower earnings. However, Carter's, Inc. has significant strengths that mitigate this risk. They ended Q3 2025 with $184.2 million in cash and cash equivalents. Plus, management is moving decisively to fix the underlying issues, announcing plans to cut nearly 300 office-based roles by 2025-end, which is projected to yield about $35 million in annualized savings starting in 2026. This is a clear, actionable plan to free up cash and improve future profitability. The liquidity is strong enough to weather the near-term working capital issues while those restructuring actions take hold.

For a deeper dive into the company's strategic resilience, you can check out Breaking Down Carter's, Inc. (CRI) Financial Health: Key Insights for Investors.

Next step: Finance: Monitor Q4 2025 inventory levels closely to see if the working capital drain is reversing.

Valuation Analysis

You're looking at Carter's, Inc. (CRI) and asking the core question: is the stock priced fairly? Based on the latest fiscal year data through November 2025, the market is pricing in significant near-term risk, but the stock's valuation multiples suggest it is currently undervalued compared to its historical averages, especially on an earnings basis. The stock is trading at around $28.54 as of mid-November 2025, which is below the Wall Street median target.

The core valuation metrics paint a clear picture of a company with a low earnings multiple but a mixed outlook. The trailing Price-to-Earnings (P/E) ratio is 11.64, which is already low. More importantly, the forward P/E, based on the next year's expected Earnings Per Share (EPS) of $4.77, drops to a very attractive 5.98 (Here's the quick math: $28.54 / $4.77 \approx 5.98$). This is defintely a deep discount. For comparison, the Price-to-Book (P/B) ratio is 1.29, and the Enterprise Value-to-EBITDA (EV/EBITDA) is 8.65.

• Trailing P/E: 11.64-A low multiple, suggesting a cheap stock on current earnings.
• Forward P/E: 5.98-Indicates a significant undervaluation if the $4.77 EPS forecast holds.
• P/B Ratio: 1.29-The stock trades just 29% over its book value, a low figure for a mature retailer.
• EV/EBITDA: 8.65-A reasonable multiple, not signaling extreme overvaluation based on operating cash flow.

The stock's price trend over the last 12 months has been volatile, reflecting broader consumer discretionary concerns and a recent earnings miss in Q3 2025, where the company reported $0.74 EPS, missing the $0.78 consensus. The stock has recently traded between $28.54 and $32.58. The near-term price action is clearly tied to execution on inventory management and revenue growth, which was down 0.1% year-over-year in the last quarter.

Carter's, Inc. remains a solid dividend payer, which provides a floor for the stock price. The annual dividend is $1.00 per share, giving a forward dividend yield of about 3.50%. The current payout ratio is 63.20%, but analysts project the future payout ratio to drop to a comfortable 21.0% based on the expected $4.77 EPS. This suggests the dividend is sustainable, even with modest earnings growth.

Wall Street is split on the stock, which is why the price is depressed. The analyst consensus is a mixed bag, leaning toward a Hold rating with a median price target of $29.50. This target suggests a modest upside from the current $28.54 price. However, a separate consensus of four analysts points to a Sell rating. What this estimate hides is the market's uncertainty about whether management can translate the low valuation multiples into actual stock price gains without a clear catalyst for revenue acceleration. For a deep dive into who is buying and selling, you should check out Exploring Carter's, Inc. (CRI) Investor Profile: Who's Buying and Why?

Action: Use the $29.50 median price target as your initial resistance level. Wait for the company to show clear evidence of a turnaround in same-store sales before committing to a full-scale Buy. Finance: Monitor the forward P/E for any change in the $4.77 EPS forecast, as that is the key to the undervaluation thesis.

Risk Factors

The core takeaway from Carter's, Inc. (CRI)'s 2025 performance is a significant squeeze on profitability driven by external trade policy and internal operational inefficiencies. You are seeing strong top-line momentum in some areas, but the bottom line is being crushed by costs.

The most immediate and material threat is the regulatory risk from tariffs (import duties). Management estimates the gross pre-tax earnings impact of these additional duties to be between $200 million and $250 million on an annualized basis. This is a massive headwind that fundamentally changes the cost of goods sold.

For the fourth quarter of fiscal year 2025 alone, the net adverse impact to pre-tax income is expected to be approximately $25 million to $35 million. That's a clear, near-term drag on performance.

• External Risk: Tariffs: Annualized gross pre-tax impact is up to $250 million.
• External Risk: Consumer Demand: General inflation and consumer confidence trends create uncertainty, which led Carter's, Inc. to suspend its full-year 2025 guidance.
• Internal Risk: Profitability: Despite flat net sales of $758 million in Q3 2025, adjusted operating income fell 48.9% to $39.4 million, and the operating margin compressed dramatically to 3.8% from 10.2% in the prior year.

Operational and Strategic Challenges

The steep decline in operating income is not just tariffs; it highlights a structural issue with cost management. The company's U.S. Wholesale segment is struggling, particularly with declining sales of the Simple Joys brand on Amazon, a key competitive channel. The children's apparel market is defintely competitive, but the wholesale weakness is a self-inflicted wound that needs a strategic pivot.

To combat this, Carter's, Inc. has initiated a comprehensive, high-stakes restructuring plan. This is a necessary move, but it introduces its own execution risks.

The risk here is two-fold: first, the restructuring charges themselves, totaling an expected $10.1 million to $11.1 million in fiscal year 2025 ($6.1 million recorded in Q3, $4.0 million to $5.0 million expected in Q4), and second, the risk that these cuts negatively impact the company's ability to recruit and retain skilled personnel, or that the anticipated benefits are not realized as quickly as planned.

Mitigation Strategies and Next Steps

The good news is that management is not standing still. Their mitigation strategy for the tariff crisis is multi-pronged, focusing on offsetting the costs over time. They are already shifting their supply chain, with Vietnam, Cambodia, Bangladesh, and India collectively accounting for nearly 75% of product sourcing expenditure in 2025, and China less than 3%.

Other strategies include cost-sharing with vendor partners and selective price increases to consumers and wholesale customers. The company maintains strong liquidity, ending Q3 2025 with $184.2 million in cash and total liquidity of $1.0 billion, plus a current ratio of 2.2. This liquidity gives them a cushion to execute the restructuring.

For a deeper dive into the valuation and strategic frameworks, you can read the full post: Breaking Down Carter's, Inc. (CRI) Financial Health: Key Insights for Investors.

Growth Opportunities

You're looking for a clear path through the noise at Carter's, Inc. (CRI), and the short answer is that the company is undergoing a necessary, aggressive operational reset to fuel future growth. The core of the strategy is simple: cut complexity and costs now to invest in the brand and digital channels later. This transformation is crucial because while net sales for Q2 2025 grew 4% to $585 million, the Q3 2025 sales were essentially flat at $757.8 million, showing that organic growth is still a challenge under current tariff and cost pressures.

Here's the quick math: management is targeting $45 million in gross annual savings starting in 2026 by reducing office-based roles by about 15% and closing up to 150 North America stores. This isn't just cost-cutting; it's a strategic funding mechanism. These savings are slated to be reinvested, especially in demand creation, with a planned increase of almost 20% or $16 million in marketing spend for 2026. This shift from a reliance on promotions to true brand-driven demand is defintely a bullish signal for long-term margin health.

• Cost-Out Funding: $45 million in gross annual savings starting in 2026.
• Fleet Optimization: Closing up to 150 North America stores by 2026.
• Brand Investment: Planning a 20% increase in demand creation spend for 2026.

Future Revenue and Earnings Trajectory

The near-term outlook is complicated by external factors, but the strategic moves point to a price-led revenue growth in 2026. For the full fiscal year 2025, the initial net sales guidance was between $2.78 billion and $2.86 billion, but the significant headwind is tariffs. The company estimates the net additional baseline tariff impact on pre-tax earnings for the second half of 2025 alone to be approximately $35 million.

Still, the preliminary plan for 2026 anticipates growth in both sales and earnings, with sales growth expected to be higher than a typical year due to the price increases implemented to offset those tariffs. This means the immediate growth driver isn't unit volume, but price. The core Baby and Toddler categories are driving product innovation, and the company is simplifying its product assortment by eliminating 20% to 30% of product choices to focus on the 'better and best' categories that command higher margins.

Market Expansion and Digital Pivot

International expansion and a crucial wholesale pivot are the two clear market opportunities. The International segment is a bright spot, posting a 10% sales increase to partners in Q3 2025, with strong performance in markets like Mexico, which saw a plus 16% comparable sales growth.

On the digital front, the company is making a key strategic shift on the Amazon platform. They are moving away from the lower-margin Simple Joys brand to focus on growing the prominence of core brands like Carter's and OshKosh. This is a smart move to protect brand equity and improve profitability within the crucial wholesale channel. You can see how this strategy fits into the broader picture by reading Exploring Carter's, Inc. (CRI) Investor Profile: Who's Buying and Why?

Competitive Moats

Carter's, Inc. (CRI) maintains a distinct competitive advantage through its unparalleled brand recognition and multi-channel distribution. The strength of its portfolio-Carter's, OshKosh B'gosh, and Skip Hop-gives it a loyal customer base built on a reputation for quality and value. This brand equity is the foundation that allows them to push through necessary price increases, even with the tariff pressures.

The multi-channel model, which includes over 1,065 retail stores and a robust eCommerce platform, allows them to reach a wide consumer base and adapt to shifting shopping behaviors.