Carter’s, Inc. CRI has recently published its fourth-quarter 2023 financial results, presenting a mixed picture for investors to dissect. While the company outperformed the Zacks Consensus Estimate in terms of earnings, it fell short of expectations concerning revenue. The bottom line displayed a robust year-over-year growth, contrasting with a decline in the top line. The financial turbulence stemmed from various factors, with inflation being a primary culprit, leading to a decrease in consumer spending.
The Quarter Unveiled
In the last quarter of 2023, Carter’s reported adjusted earnings of $2.76 per share, surpassing the Zacks Consensus Estimate of $2.52. This marked a notable 20.5% increase compared to the earnings of $2.29 per share during the same period in the previous year.
The company revealed net sales of $857.9 million, missing the anticipated figure of $865 million and displaying a 5.9% decline from the $912 million recorded in the comparable quarter of 2022. The economic headwinds precipitated by inflation, escalating interest rates, burgeoning consumer debt, and the looming specter of a recession collectively stifled demand from both consumers and wholesale clients.
Breakdown of Sales Performance
The U.S. Retail segment observed an 8.9% drop in sales to $479.8 million year over year, while U.S. Retail Comparable net sales plummeted by 10.8% in Q4 2023.
Conversely, the U.S. Wholesale segment witnessed a 5.1% dip in sales, amounting to $247.4 million, compared to the previous year.
International operations faced a 4.6% decline in revenues, totaling $130.7 million, down from $137.6 million in the corresponding quarter.
Despite the challenging environment, Carter’s closed the quarter with a solid financial position, boasting $351.2 million in cash and cash equivalents, with net long-term debts at $497.4 million and shareholders’ equity amounting to $845.3 million.
The company remained equipped with total liquidity of $1.2 billion by the end of 2023, including a substantial $846 million in untapped borrowing capacity within an $850-million secured revolving credit line.
In 2023, Carter’s executed a buyback of approximately 1.4 million shares worth $100 million. As of December 30, 2023, the company retained a remaining capacity of $649.5 million under its existing repurchase authorization.
In tandem, the company dispensed a dividend of 75 cents per common share, aggregating to $112 million for the year. Moreover, on February 26, 2024, the Board sanctioned a 7% increase (5 cents per share) in the quarterly cash dividend, elevating it to 80 cents per share.
Future Projections and Market Positioning
Looking ahead to the first quarter of 2024, Carter’s anticipates net sales in the range of $620-$645 million, reflecting a decrease from the $696 million reported in Q1 of 2023. Adjusted earnings are projected to range from 60-70 cents per share, a reduction from the 98 cents recorded in the same period last year.
The company foresees a nuanced sales landscape across its segments, with an emphasis on potential gross margin expansion driven by strategic cost management. Carter’s leadership remains cautiously optimistic about the future demand trends and the broader economic outlook.
Market Comparison and Investment Recommendations
In light of Carter’s recent performance, it is crucial for investors to evaluate other potential investment opportunities within the retail sector. Notable companies like GIII Apparel, lululemon athletica, and Royal Caribbean have garnered attention in the market for their strong outlook and financial performance.
GIII Apparel stands out with a Zacks Rank #1 (Strong Buy), boasting an impressive four-quarter earnings surprise and robust growth forecasts. Similarly, lululemon athletica showcases a Zacks Rank #2 (Buy) with promising sales and EPS projections. Royal Caribbean, carrying a respectable Zacks Rank of 2, has exhibited consistent earnings surprises and optimistic sales and EPS estimates.
