Carter’s Inc.’s pricing strategies for the second half of 2024 helped the company best fourth-quarter expectations, but retail traffic will continue to be a challenge in 2025.
Following a high single-digit decline in U.S. retail comparable sales, Carter’s invested $65 million in the business through $55 million in lower prices and $10 million in additional brand marketing. Lowering prices by $1 or $2 allowed Carter’s to be more competitively priced relative to its competitors, said Richard F. Westenberger, the company’s interim CEO, senior executive vice president and chief financial and operating officer. Former CEO Michael D. Casey retired on Jan. 7, and the company’s board has initiated an external search for a permanent CEO.
“These actions drove a meaningful lift across several important retail performance metrics and contributed to stabilization of unit volume overall,” Westenberger said.
He noted that Carter’s core Baby and Toddler apparel offerings, which represent 80 percent of the total apparel business, remains the best performing and most consistent part of the assortment.
“After several years of declining share, we grew our share of both the Baby and Toddler markets in the U.S. in 2024,” Westenberger said. “On style, our higher priced and elevated product offerings including Little Planet, PurelySoft and licensed product have continued to perform very well, and we believe these products are attracting a new segment of consumers to our business.”
He also said that new personalization capabilities online in the past year are helping to drive incremental sales, as well as deepen relationships with its customers. The company also rebranded and relaunched it loyalty program last year, he added, noting that more than 90 percent of U.S. retail sales are through the loyalty program. For wholesale, Carter’s is working with the largest retailers of children’s apparel, a move that gives it access to the consumer shift to the mass channel.
Westenberger said one of the challenges for 2025 will occur in the first half due to tougher comparisons. Because the company lowered prices in the second half of 2024, the back half comparisons for 2025 will be more favorable. He also said that while the company will keep an eye on pricing in the current retail environment, “Continuing to lower prices is not envisioned to be a component of our longer-term strategy,” he emphasized.
In general, the fundamental issue in retail is traffic, and Westenberger said Carter’s “principal issue really is driving traffic to the retail business.” And while exclusive brands allows Carter’s to reach the mass customer, Westenberger said the goal is to improve the assortment and drive traffic back to the company’s stores.
The company said in November 2023 that plans to open 250 U.S. doors by 2027, a move expected to help grow sales by $250 million. Nearly 70 percent of children’s apparel is purchased in stores and the doors also represent Carter’s best source for new customer acquisition.
While the fourth-quarter customer counts were up and the re-engagement with customers is “critical” for long-term growth, Westenberger said those gains ‘have come at a significant impact to our profitability.” And while competitive pricing is expected to continue, the CEO also said the company’s primary focus is on “enhancing our product assortments and improving our marketing initiatives, as well as other strategies to grow market share and improve profitability.”
Net income for the quarter ended Dec. 28, 2024, fell 42.2 percent to $61.5 million, or $1.71 a diluted share, from net income of $106.5 million, or $2.90, a year ago. On an adjusted basis, diluted earnings per share (EPS) was $2.39. Net sales rose 0.2 percent to $859.7 million from $857.9 million.
Wall Street was expecting adjusted diluted EPS of $1.92 on revenue of $835.8 million.
Westenberger said sales were lower to department store customers, a continuing trend in that distribution channel. And because of its low excess inventory position for the year, that led to lower sales to the off-price channel, which was down over 50 percent in 2024. Westenberger said operating margin is over 20 percent in the fourth quarter, making wholesale a “very profitable part of our business.”
The wholesale business includes the exclusive brands Just One You, Child of Mine, and Simple Joys that were developed for Target, Walmart, and Amazon, respectively.
For the year, net income was down 20.2 percent to $185.5 million, or $5.12 a diluted share, from $232.5 million, or $6.24, in 2023. Net sales slipped 3.4 percent to $2.84 billion from $2.95 billion.
Looking ahead, the company forecasted adjusted EPS of $3.20 to $3.80 for Fiscal Year 2025 on a net sales projection range of $2.78 billion to $2.86 billion.
As for its Carter’s and OshKosh B’gosh brands, Kendra D. Krugman, Carter’s senior executive vice president and chief creative and growth officer, she said the company will increase its investment in trend-forward assortment, as well as additional product flow to help drive frequency and increase customer spend. For spring, the collections will feature new fabrications and trim details. Examples include its easy-to-wear linen-line fabric and crochet sweater knits. She said the company’s multi-brand customers spend 3.5 times more per year and a single-brand customer.
“In 2025, we expect our new brands and line extensions to grow nearly 40 percent in retail sales versus 2024,” Krugman said. She added that included in that growth is its PurelySoft collection, where the ultra-soft, super-stretchy premium fabric is a favorite among customers. In addition, Little Planet achieved double-digit sales comps in 2024.
Noting the company’s ability to build and launch brands, Krugman said Carter’s plans to launch a brand—developed with the toddler in mind—in early fall through its digital channels and select stores. As for its kids business, Krugman said this segment underperformed the total business, in part due to a reduction its the assortment. The company is adjusting its inventory position for the 4-to-14 size range for the back half of 2025, and is planning depth across categories that include fashion denim, girls’ tops and active, plus its licensed properties. Fashion denim as a category saw a surge for kids last fall for back-to-school.
“The kid segment remains an important part of the 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,” she said. Helping the company with its execution of product strategies is an AI-enabled allocation tool, which will get the “right product assortment into the right stores at the right time,” Krugman said.
