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Palm Valley Capital Management, an investment management firm, released the “Palm Valley Capital Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, Palm Valley Capital Fund appreciated 0.57% compared to an 8.93% decline in the S&P SmallCap 600 and a 6.08% drop in the Morningstar Small Cap Total Return Index. Cash was 77.6% of Fund assets at the start of the quarter and 76.5% at the conclusion. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first quarter 2025 investor letter, Palm Valley Capital Fund emphasized stocks such as Carter’s, Inc. (NYSE:CRI). Carter’s, Inc. (NYSE:CRI) designs, sources, and markets branded childrenswear. The one-month return of Carter’s, Inc. (NYSE:CRI) was -15.42%, and its shares lost 51.69% of their value over the last 52 weeks. On April 4, 2025, Carter’s, Inc. (NYSE:CRI) stock closed at $37.18 per share with a market capitalization of $1.347 billion.
Palm Valley Capital Fund stated the following regarding Carter’s, Inc. (NYSE:CRI) in its Q1 2025 investor letter:
"The three positions most negatively impacting the Fund in the first quarter were Carter’s, Inc. (NYSE:CRI), TrueBlue (ticker: TBI), and Heartland Express. While Carter’s fourth quarter earnings were above the company’s guidance, profits are expected to decline in 2025. The company believes it will earn $3.20-$3.80 in EPS this year, which was below our expected range of $4.00-$5.00 per share. Management blamed continued promotional pricing in their Retail division and rising costs. In addition to higher freight and product costs, Carter’s plans to restore its variable compensation program, adding to its labor expense. We expect the operating environment to remain challenging in the near term due to sluggish consumer discretionary spending and elevated promotions. As a result, we reduced our low-end operating margin assumption from 9% to 7% and cut our valuation. Carter’s remains at a discount to our updated fair value. The company’s balance sheet improved in 2024, and Carter’s currently holds over $400 million in cash. We expect cash generation in 2025 will be more than sufficient to fund Carter’s dividend, which presents a current yield of 7.8%. We reduced our weighting in Carter’s (ticker: CRI) after adjusting our valuation lower due to a change in our assumptions for normalized results."
A colorful assortment of children's apparel with different themes, capturing the dynamism of the business.
Carter’s, Inc. (NYSE:CRI) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held Carter’s, Inc. (NYSE:CRI) at the end of the fourth quarter which was 30 in the previous quarter. While we acknowledge the potential of Carter’s, Inc. (NYSE:CRI) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.