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Kendra Krugman

Thank you, Richard. Starting on page 14. Here at Carter's, our customer is at the heart of everything we do. and we know this next-generation consumer is increasingly more style focused, diverse and digitally native. She demands both value and convenience.
With that in mind, we continue to lean into our customer-centric strategies to enable our return to growth. These efforts are organized around our three areas of focus noted on page 15, product, delivering incredible style and value, marketing, acquiring new customers and deepening our relationship with existing consumers, and leveraging our unparalleled brand reach with more than 20,000 points of distribution worldwide. Our customers rely on us for our expertise in the baby and toddler segment, which is our greatest point of strength and differentiation.
We are America's number one most trusted brand in young children's apparel. And to reiterate Richard, in 2024, we grew our US market share in baby and toddler apparel, helped by a record year with our exclusive brands and Q4 retail growth in baby.
Going a bit deeper into our 2025 product strategies, we are on a journey to modernize our assortment. We will drive this by delivering growth through relevant style expanding our house of brands and increasing depth and breadth in strategic segments and categories. All of these product strategies will be supported by new capabilities to improve operational efficiency and productivity.
First, in delivering relevant style. We know that trends are moving faster than ever from Paris to the playground, highlighted on page 16 and our Carter's and OshKosh brands, newness and relevant style are working. As we move through the year, we are increasing our investment in trend-forward assortments and also in additional product flows to help drive frequency and increase customer spend and conversion.
Our spring collections feature on-trend styles with new fabrications and trim details such as our easy-to-wear Linen like fabric and crochet sweater nit. Many of these beautiful-crossed collections are exclusively offered through our retail channels.
Next, moving to page 17. Our House of Brands delivers customers a range of stylish, high quality and brand-centric product assortment while also achieving market-leading value. Importantly, our multi-brand customers spend 3.5 times more per year than a single branch customer.
In 2025, we expect our new brands and line extensions to grow nearly 40% in retail sales versus 2024. Included in that growth, our new PurelySoft collection shown on page 18, is offered across channels and is expected to be one of our biggest contributors of sales growth this year.
Customers love the ultrasoft super stretchy premium fabric as much as they love PurelySoft exceptional value. Our new limited-edition prints have been well received, and additional retail exclusive drops will flow throughout the year.
And turning to page 19, Little Planet, our quickly growing and most sustainable brand achieved double-digit sales comps in 2024. This growth was realized through increased velocity, broader distribution and additional assortment range, including size extensions into Toddler and little kid. The broader size range generated strong digital demand in 2024 and is expected to roll out to stores this year.
We have a history of successfully building and launching brands in our portfolio. And early this fall, we plan to continue our House of Brands expansion with another launch through our digital channels and select stores. This elevated brand is being developed with a curious toddler in mind. Our expectation is that the stylish assortment will provide us an avenue to reach new consumer segments as well as increase the lifetime value of our existing customers.
Moving to page 20. Our Kids segment has underperformed our total business, in part due to a reduction in our assortment offering. We've recognized the need to increase our inventory position in this 4 to 14 size range and are making investments in the back half of '25 with additional depth and breadth in categories like fashion denim, girls tops, active and licensed properties. The kids segment remains an important part of our business. It represents the largest segment of the market we compete in and helps us to better meet the needs of our multi child customer.
To help us execute all of our product strategies, we have made and will continue to make meaningful investments in our enabling capabilities. One important capability is our new allocation tool. This AI-enabled technology will help us get the right product assortment into the right stores at the right time. We are also leveraging a dynamic demand forecast tool to improve buying and in-season sell-through management. We will begin to realize these benefits in the second half of 2025.
Additionally, we are transforming our concept to consumer process with the help of outside market-leading experts. This is a comprehensive end-to-end evaluation that begins with consumer insights, runs through the entire product development process and ends with the customer purchase. Through this process transformation, we are enabling core capabilities across functions with intention to increase productivity, improve organizational efficiency and accelerate our go-to-market timeline to better respond to customer needs.
Next, moving on to our marketing strategies on page 21. We're constantly evaluating our media mix and personalization efforts to most effectively and efficiently talk to new and existing customers. Our AI-enabled personalization technology is helping to drive an increase in engagement and retention. Our annual retention rate is up versus last year. In 2025, we plan to further develop and increase our personalization capabilities across all channels with an emphasis on our mobile channels, where we saw a significant lift in subscribers year-over-year.
On page 22, through market research, we know that more than ever before, new moms rely on their friends and social media influencers to inform their purchases. In response, we continue to shift our marketing investment into social media channels and are reaching entirely new groups of moms through our influencer partnership.
This was recently brought to life with our innovative Carter's Playground experience at New York Fashion Week. This playful event drew in leading fashion influencers and media outlets who stopped by with their young tods and toe to experience our latest runway inspired trends. They captured their mini needs in our latest styles to share with their fans, generating millions of impressions in less than 24 hours.
Turning to page 23. Today's style-oriented consumer expects a shopping experience as inspiring as the product she is buying. Creating market-leading brand experiences across our channels is a critical component of our marketing strategy.
As part of this effort, we launched numerous digital experience enhancements in Q4, including upgraded navigation, improvements to our search engine optimization, new mobile app discover and deals destinations and a new gifting experience. We also continue to innovate and test store experiences and formats to anticipate evolving needs and expectations of the next-generation consumer.
Finally, turning to page 24. Our product and marketing strategies extend into our wholesale channel to provide a consistent and inspired brand experience. We have strong wholesale partners who help us meet the needs of our customers wherever they are shopping, including at Target, Walmart and Amazon, where, once again, collectively, our 2024 record sales were driven by both assortment and inventory expansion.
And now I'll turn it back to Richard to cover our business assessment and financial outlook.

Richard Westenberger

Thank you, Kendra. Turning to page 26. For the past several months, we've been engaged in a comprehensive review of our business. We've had some very good outside industry experts who have helped us in this effort. This review validated a long list of positive attributes of Carter's, a number of which are summarized on this page.
We've had a long successful history as the leader in the young children's apparel market. However, as summarized on the next page, and as we've noted previously, our performance in the past few years since emerging from the pandemic has been more challenging, particularly in our US retail business. There have been a number of external factors which have affected our business. First, the overall children's apparel market has not been growing significantly. On average, since 2019, the young children's apparel market has grown less than 1%.
There are also certainly demographic factors at work, such as a declining birth rate among Americans, a shift of consumer shopping behavior in favor of mass channel retailers and the sudden onset of inflation across the economy, which has had a significant impact on our target consumers, families with young children.
We've also seen the rise of other brands in the market, including the active and athletic oriented brands and the emergence of numerous small digitally native brands. Within our wholesale business, we've seen strong demand for the exclusive brands, which we've developed for Walmart, Target and Amazon. The Just One You, Child of Mine and Simple Joys brands now account for over 50% of Wholesale segment sales. This strong exclusive brands demand has been offset, though, by lower demand from other customers, including some we exited the market entirely. This group retailers include the department stores, which have historically been very good customers for the flagship Carter's brand at good margins.
On the next page, we summarized some thoughts on our ambitions and objectives for the business going forward. In a market which isn't growing significantly, it's imperative that we grow through capturing more of the market. We believe the growth of the company will be driven by our direct-to-consumer business. As mentioned, we have a strong historical position in the market. Our brands are well known and trusted by consumers.
That said, our research shows there is an opportunity to appeal to a broader group of consumers. Carter's family of brands and OshKosh B'gosh are rich in attributes which are very important to consumers, quality, function, durability and, of course, value.
Our opportunity is to strengthen our appeal with Gen Z consumers, increasing with the part of the population having and raising children. Additionally, we believe there is a meaningful opportunity to serve consumers who are driven more by style and less by promotions and price, and we see an opportunity to connect more fully with multicultural consumers.
As Kendra referenced, we're pursuing a House of Brands strategy, over time, we will develop this strategy further as a way of reaching more of the marketplace, including some consumer segments which we do not serve today.
Little Planet is a very good example of this approach and in a relatively short period of time through the creativity of our internal design and merchandising teams, we've created what we believe to be the leading sustainability-oriented brand in the market, which provides a new and distinct growth path for Carter's.
We have a number of product initiatives focused on improving the style and value of our apparel offerings. We have a history of successful brand building at Carter's, and we expect to do more of this in the future. In Retail, we are increasingly focused on improving the productivity of our existing store fleet.
We stepped up to pay store remodels this past year and have seen a nice lift in sales from these investments. While we believe new stores continue to perform well and generate good returns, we think we will be managing a relatively constant number of stores of our current model over the next several years with closures offsetting new and relocated store locations.
And we see significant potential in making improvements to our operating model. As Kendra referenced, these include improving our product and brand development processes to be faster, nimbler and to respond to changing consumer preferences more rapidly than we do currently. We've also begun investing behind this foundational operating model work, which I believe has significant potential to drive our business going forward.
Wholesale will remain an important part of our strategy, our broad distribution through our multichannel business model which includes our wholesale business, is a key advantage for us. We expect the Wholesale customer landscape will continue to evolve. Our priority in Wholesale has always been to develop strong product offerings and partnerships with those retailers winning with consumers. Of course, we'll continue to pursue opportunities to improve productivity throughout the business and manage spending prudently as we've always done.
In terms of our financial outlook for 2025 on page 30, we're expecting sales in the range of $2.780 billion to $2.855 billion, comparable to 2024 net sales at the high end and down about 2% at the lower end of the range. Fiscal year 2025 will include a 53rd week, which we've estimated to represent net sales of approximately $30 million. We've provided some perspective on expected sales by segment as well.
In US retail, we're expecting sales to be comparable to down mid-single digit with comp sales down low single digit to mid-single digit. We've planned for an improving comparable store sales trend as we move through the year with the second half expected to benefit from an overall improved inventory position and additional progress with our product and promotional strategies.
Our US wholesale sales are expected to be in the range of up low single digits to down low single digits, and we're planning for full year growth of the exclusive brands again in 2025. And international sales are planned comparable to up low single digits as we've discussed, the stronger US dollar versus the peso and Canadian dollar will weigh on the profitability of our businesses outside the United States. We're planning 2025 operating income in the range of $180 million to $210 million compared to $287 million in 2024.
We have a good handle on the factors which are contributing to our outlook for lower operating profit. But clearly, we're not satisfied with the performance of the business. And there are several factors driving our planned operating income in 2025. We expect the gross margin will be down approximately 150 to 200 basis points in 2025. Approximately $20 million relates to targeted residual price reductions in retail in the first half as we've discussed.
Another $10 million relates to changes in customer mix within wholesale. About $10 million relates to FX as a result of the stronger US dollar and then higher product costs, which include select investments in additional make, higher freight rates and tariffs are estimated to represent collectively about $10 million in higher costs.
Where possible for items such as tariffs and FX, our plan will be to offset some portion with pricing and other actions. Overall, SG&A for 2025 has planned up very modestly, up low single digits. Within SG&A, there is a meaningful year-over-year increase of approximately $30 million to $35 million, which relates to restoring our variable compensation programs, which are tied to performance to a more normalized target level. Given our performance in 2024, these provisions were far less than they have typically been. We believe this is an important investment in engaging and retaining our team, but it does disproportionately impact the P&L in 2025. This planned refunding of variable compensation represents about 3 points of SG&A growth year-over-year.
Below the line, we're planning our -- that our effective tax rate will be higher than in 2024 at approximately 23.5% as typical -- there are a number of moving pieces contributing to this higher rate, including FX, higher international tax rates and several compensation-related items. We're planning adjusted earnings per share in the range of $3.20 to $3.80. We're expecting to generate around $200 million of operating cash flow in 2025 and our current forecast for CapEx is $65 million, up about $10 million over last year.
About half of the increase in CapEx relates to the replacement of systems and equipment in our distribution centers, which are intended to improve capabilities and efficiencies going forward. The balance of the increase relates to technology improvements largely in retail and enterprise systems and for new stores in Mexico. Our expectations for the first quarter are summarized on page 32. Sales are expected to be down mid-single digits versus first quarter last year.
In US Retail comparable sales are planned down mid- to high single digits versus 2024, in part due to a later Easter holiday this year. We had a good January in retail with sales above plants. In the last week or so, we've seen some winter weather disruption across the country. Quarter-to-date comparable sales in US retail are currently running down about 7%.
With e-commerce sales above plan and stores a bit behind, March is particularly significant to the first quarter, representing roughly 50% of planned first quarter sales. US Wholesale is planned down in the high single digits due to lower demand with the department stores and changes in the timing of shipments year-over-year. International sales are down in the mid-single digits in part due to the stronger US dollar.
On profitability, we're planning operating income in the range of $30 million to $35 million and adjusted EPS in the range of $0.45 to $0.55. Similar to our full year outlook, there are a handful of items, which account for the majority of the planned decline in operating income, including the residual targeted price investments in retail, lower sales volume and higher inbound freight rates.
Our Q1 effective tax rate is expected to be particularly elevated in the high 20% range. Here again, a number of factors are at play, but primarily it's due to a negative impact related to stock-based compensation.
Key risks that we're monitoring include the level of promotional intensity in the marketplace and the outlook for improvement in inflation and consumer sentiment and the impact these factors have on consumer demand. It's clear from recent headlines that consumers continue to be very concerned about inflation and tariffs and the Federal Reserve is less bullish on further interest rate reductions right now. Other risks include the possible implementation of new or higher tariffs, further strengthening of the US dollar and possible higher transportation costs due to industry capacity constraints and continued geopolitical interest.
To reiterate, we're not satisfied with the performance of the business. Our potential is far greater. We have considerable brand assets, market position and overall resources, and our team feels the appropriate urgency to deliver improved performance.
I'd like to thank our employees across the company for their dedication and tireless efforts. They continue to approach their work with the termination and great passion for our brands and our mission of serving families with young children. I'm grateful for their hard work.
And with those remarks, we're ready to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Jim Chartier, Monness, Crespi & Hardt.

Jim Chartier

Kendra, can you just talk about how dramatic the change in the inventory assortment will be as you modernize it? And then how do you kind of minimize the risk of maybe alienating the different -- the core consumer as you do that?

Kendra Krugman

Yeah, that's a great question. I think that it there's a different answer depending on what segment we're talking about. But in baby in particular, we've been on this journey for a little bit of time, and you've seen it in the results of our business. This is truly -- it's not a dramatic change in the baby and toddler segments. We're leaning more into our best categories of business, collection-based products, that must-have product categories.
And then we're being more intentional with our good buckets of product categories. So your stock up essentials, both in baby and in toddler. Kid is where we have the most opportunity to really push forward and that's where we've not made the changes yet. So that's to come. And I would say, it's a 20-point shift into more style forward categories versus something that we would say is more legacy to our brand. I don't think it will alienate any existing customers. I think it will actually help us retain customers longer to compete more directly with competition that is moving forward faster than us.

Jim Chartier

Great. And then, Richard, you kind of previously, you talked about promotional activity not really driving unit volumes over the last two and half years. And so kind of what's different in terms of the pricing action you took in the back half of this year, which did drive better unit volumes versus what the dynamic has been in the last two-plus years.

Richard Westenberger

Well, I think what we saw in the marketplace was just a fairly dramatic pricing action that some of our peers and competitors in the industry were engaged in. And so where we took action was on those elements of the assortment most comparable to what they were seeing and very easy to compare across our assortments, perhaps less differentiation between our branded product and the (technical difficulty) private label product.
And I think it also converged with just a good holiday season as well, particularly in the fourth quarter. I think, as I mentioned, I think the industry had a good fourth quarter. I think the consumer had some renewed optimism once everything around the election settled down.
And I think our team did a good job around putting the actual promotions together, the messaging, the items that were featured. These really are kind of the key items that everyone needs on a continuing basis. I think the consumer responded well. I think there's a bit of an art to putting these promotions together. A lot has to do with how that message and the offer is communicated.
We really focused on the key market share events around Labor Day, around Black Friday. Increasingly, the consumer seems to wait for those promotions. And I think we put more of our dry powder and energy into those events, and it resulted in the nice lift to unit velocity that we saw.

Operator

Ike Boruchow, Wells Fargo.

Unidentified Participant

This is Robert on behalf of Ike. Just a quick question. Maybe you could talk a little bit more about the challenges on the retail side and when you can expect -- or when we can expect to see the comp return to growth?

Richard Westenberger

Robert, well, I think our principal issue really is driving traffic to the retail business. I think -- we continue to believe that the experience for consumers in our stores and online is the best in the category. But over a multiyear period, really, since emerging from the pandemic, as we said in the remarks earlier, that has been our challenge. And I think that's a combination of things. I think it is certainly the architecture of the product offerings themselves. So Kendra went through some of the assortment changes that we're making. We want to create compelling reasons for folks to come to our direct business.
Clearly, since the pandemic and even going into the pandemic, I think the mass channel business models were inherently strong. I think there's some elegance to the consumer to be able to do all that one-stop shopping in a single trip, getting groceries and housewares and consumables and apparel at one stop. That's been a very powerful model.
Fortunately, we've got our exclusive brands business that allows us to participate in that channel shift. But increasingly, it's around improving the assortment and driving traffic back to our stores. I think marketing is an important element of that. We did step up marketing in the latter part of 2024. Some of that was brand marketing. Our intention is to build on that over time. We've kind of held that level of investment here in 2025 as we plan the business. But I think there is an opportunity.
One of the key findings coming out of the review that we've been conducting of the business is that we do underindex relative to what some of our peers are spending on brand marketing. I think we're going to let the assortment improvements kind of catch up a little bit with that work, some of the in-store experiences that we're working on.
We'll have some of that work catch up a little bit and my guess is that we'll lean a bit more into marketing over time. But the fundamental issue in retail really is traffic. I've been really pleased with the conversion results that we see. Those results significantly lifted in the fourth quarter in particular. So consumers once they come, they enjoy the experience. They like the products that they find, and they convert to purchases at a pretty high rate. So that would be my high-level summary.

Operator

Chris Nardone, BofA.

Chris Nardone

So Richard, can you elaborate on what is giving you the confidence that pricing actions will stabilize as you reach the back half of the year? Is there something you're seeing in terms of pricing pressures alleviating from your competition. And then also what's the level of pricing decline that's embedded in your broader wholesale order book outlook?

Richard Westenberger

Chris, at this point, it is a planning assumption. I think we're going to have to see how we get through the first half. Part of what drove the price competition that we saw in the marketplace last year was that the industry had a poor spring. And it's hard to draw a lot of conclusions. I think, from January and February business. It tends to be a clearance period for us and for the industry.
Certainly, that's been the result of our kind of year-to-date sales so far in 2025. It's really oriented around kind of clearing activity and kind of cleaning up inventory. I think March will tell the tail as it relates to the Easter holiday and some of that important spring selling. But it's our assumption that we certainly feel like our products are competitively priced.
We have had several years of raising prices and perhaps we were a little slower to kind of recalibrate to some sharper price points. So I think we've taken the action we have to. But obviously, we have to swim in the competitive waters that we find ourselves in, and we'll have to evaluate that as we get into the second half.
But that's our assumption for now. I would say pricing in wholesale is down modestly in our assumptions for 2025, that's a combination, probably more leaning into some additional product make and benefits to improve the service there much as we're trying to do in the retail assortment.

Chris Nardone

Great. That was very helpful. And then just a quick follow-up on your wholesale business, specifically your exclusive brand business. I think sales were up 20% during the fourth quarter, obviously, strong results. Is there still an opportunity to add shelf space with your two largest wholesale partners in 2025? And what's the outlook for your off-price and department store business within your guidance for the full year?

Kendra Krugman

I'll answer the first part of the question. Regarding shelf space, yeah, we believe that there is still opportunity. We are still under penetrated, particularly Walmart and Target and our Toddler segment. So similar product growth categories, our growth opportunities for us exist that exist in retail also exists for us in exclusive brands. So I would say we continue to look for opportunities to expand both door count in existing categories as well as with new categories and segments.

Richard Westenberger

Yeah, Chris, the growth in the wholesale segment will be driven by the exclusive brands. That continues to be the engine that part of our business. So that will account for the majority of the growth. We do have a growth plan with some of the other segments from memory clubs. We do have some growth plans in the promotional channel.
Off-price sales are expected to be, I think, roughly comparable. They were down about 50% in 2024. I think those will strike a bit more of a normalized level. You always have some measure of activity in that off-price channel. We do have an upfront component of the business in the promo channel, and so that is expected to grow somewhat. And then we have the department stores continuing to be planned down, which just reflects, I think, sort of broader issues with our business models at the moment.

Operator

Paul Lejuez, Citi.

Unidentified Participant

This is Kelly on for Paul. It sounds like you're leaving some flexibility on the level of pricing investments you're making in US Retail this year. I guess, what metrics are you looking to with these pricing investments to help dictate your strategy as you begin to lap these pricing investments in the second half?

Richard Westenberger

Kelly, I'd say there's a few things we look at. We look at certainly the unit velocity to the previous question we got. We look at whether it's driving store traffic. We look also at the house biometrics in terms of whether it's bringing consumers -- shopping with us, both new customers and retaining the ones that we've had historically a relationship with. So there's a few things.
But we look to actually have a return on that investment that it's driving some incremental velocity of the units. And hopefully, with the items that we've taken pricing action on, it's meant to be the start of the transaction, that these are the more basic items whether they're in the store, they're online. Hopefully, they're adding additional items because of the sharp value of those basket starter items, it's our hope that they're adding other elements to the purchase basket as well. That's kind of how we're thinking about it.

Unidentified Participant

Got it. And then just a question on both US Retail and US Wholesale kind of flowing through the year. So you expected the comp improvement largely to be back half weighted. And I guess we talk about sort of what drives that, I guess, tougher comparisons. And then on the wholesale side, could you quantify with how much the timing shift negatively impacted 1Q and how that kind of flows from there as we move past 1Q and how your fall winter order books are looking?

Richard Westenberger

Yeah, sure. On Retail, we are planning for an improving comp trend across the year. And from memory, our assumption is that we actually get to a positive comp in the fourth quarter in our planning assumptions. That has a lot to do with just the planned improvements in the merchandise assortment and also the overall level of inventory. So when we made our inventory commitments for the first half of 2025, which goes back quite a bit of time right now, that was in a different pricing environment.
That's when we were planning for actually growth in AUR, much more significant growth in AUR. And so there's some pretty well-worn history here that tells us that velocity slows when we raise prices. And so we had to cut back on the inventory buy for the first half. So the inventory position is not as optimal in the first half. That improves meaningfully as we move into the second half.
And part of it also is what Kendra referenced, the investment behind the kid business. The bigger size is the older -- the products are the older -- older children that are part of household. One of the interesting aspects of the research that we've done indicates that increasingly, our customers do have more than one child. We had made some decisions to cut back that bigger kid -- part of the assortment some time ago.
I think that had a bit of a disproportionate effect on sales, certainly, and that's a big business for us, but we have cut back there. And increasingly, that customer is coming in, they're looking for solutions, not only for baby and toddler but they're looking for solutions for their older child as well.
So we're reinvesting back in that kids business, which is fully $410 million of business for us. It's a meaningful part of the assortment. So all of that gets better in the second half. We think that drives some improvement. AURs, as I mentioned, stabilized in the second half.
As it relates to Wholesale bookings, we have downside bookings slightly in the first half. And then we're still in the process for the second half. So I won't comment on second half bookings, we'll have more perspective on that on the call here, just in another month or so in April.
But I would say there continues to be conservatism on the part of department stores, and that's reflected in our kind of placeholder assumptions for bookings. The momentum continues to be around the exclusive brands. And on the timing shift on Q1, actually I don't recall what that was, Kelly, happy to follow up with you on that.

Operator

(Operator Instructions) William Reuter, Bank of America.

William Reuter

My first question is on sourcing. You guys have done a great job of reducing your sourcing from China, you're below 5%. And you continue to source the majority from Asia. I was wondering if you're looking at this point about doing any sort of changes to your sourcing. It's clearly a pretty uncertain environment in terms of what types of tariffs could be put in place.

Richard Westenberger

Yeah, Bill, thanks for the question. I agree with your observation. I think our supply chain team has done extraordinary work in reducing our dependence on China and diversifying our sourcing base. When I joined the company a number of years ago, we were probably well over 55% of the apparel assortment was sourced in China. And China has historically been a great place to have those products made.
For a lot of different reasons over the years, we started to diversify away from China really because of the labor cost situation. China had become a bit uncompetitive price-wise. I think the manufacturing community had wanted to move away from apparel to high-tech and other industries. What we found though interesting was that a number of our apparel suppliers in China built capacity in countries outside of China. So Vietnam, Cambodia, Bangladesh, and to your point, we're down sub-5% in terms of the apparel assortment that is that is now sourced in China.
The opportunity continues to be on the fabric side of things. So most of the fabric continues to be processed in China and then that fabric is sent to those other countries. We have a program that is intended to diversify our -- and reduce our dependence on China fabric as well.
So I would say that's probably the most meaningful thing. We continue to move production around as we see opportunities. We have a great network of strategic vendor partnerships in those other countries like Bangladesh, like Vietnam, like Cambodia, we're continuing to build out those relationships. India has emerged as a significant source for us. So we're building that opportunity. I think you'll see more production migrating to India over time.
But the team has done a nice job. I think we have a well-diversified sourcing model. There's never any easy days in the supply chain. They're always managing a lot of complexity, but we have reduced our exposure to China pretty considerably.

William Reuter

Got it. And then just a follow-up for me. I feel like kids has always represented a big opportunity. It's also incredibly competitive. What are you doing this time around that will make it less risky in terms of entering.
I think you did mention you're going to be investing some units there. You clearly have some styles that you're more excited about. But how do we think about what's different this time around?

Kendra Krugman

We are in the very early stages of building that strategy that is totally comprehensive. But in the near term, getting the right assortment to our right to the right store is necessary. So that's what you're hearing about in the back half. We have an investment in categories of the business that are working for us. So that's fashion denim. It's active. It is our licensed character product categories and licensed [sports]. So those are all areas that we are expanding both our breadth and depth in select stores and online for the back half. So that's 1 near-term investment.
And then going forward, our new concept to consumer process that will speed up our decision-making and get us closer to market, that will help inform our decisions in kid, particularly in girl where we are going to have to be more reactive to the consumer trends. So that will help us as we think about 2026 and forward. But we have a lot of work to do. So still in early stages.

Operator

This concludes the question-and-answer portion of today's conference. I will now turn the call back to Mr. Westenberger for his closing remarks.

Richard Westenberger

All right. Well, thank you, everyone, for joining us this morning. We look forward to updating you on our progress on our next call. Thank you, everyone.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.