CARTERS INC Q1 FY2025 earnings call

• Doug Palladini joined as CEO, focusing on returning Carter's to quality, sustainable growth. - Richard Westenberger discussed Q1 results: net sales $630M, down 5% y-o-y; adjusted operating income $35M, margin 5.6%; adjusted EPS $0.66. - Supply chain: Reduced reliance on China, diversified production; Skip Hop still more reliant on China. - Tariffs: Proposed tariffs would increase product costs; mitigation efforts include price increases, sourcing shifts, and inventory adjustments.

U.S. Retail: First quarter net sales declined 4%, with comp sales down about 5%. Baby category achieved a plus 4% comp. Retail exceeded internal profit plan, but operating margin declined due to pricing investment and expense deleverage. U.S. Wholesale: Sales declined 5% year-over-year, operating margin 22.1% vs 24% last year, driven by customer mix changes, lower pricing, etc. International: Sales declined 5% due to unfavorable FX, but Canada had strong comps. Revenue contributions: U.S. Retail is the largest segment, followed by U.S. Wholesale and International.

• Suspended forward-looking guidance due to leadership transition and tariff uncertainty. - Leadership team working on strategy to return brands to accretive growth.

• Tariffs introducing substantial uncertainty, complicating financial outlook. - Potential significant increase in product costs from proposed tariffs. - Impact on consumer confidence and potential volume/revenue declines from pricing actions.

Q: Doug, initial thoughts on improving financial performance and origin of tariff rates?

A: Doug honored to lead, sees brand strength; Richard explained tariff rates were hypothetical based on proposed reciprocal tariffs.

Q: China exposure and tariff impact timing?

A: Little branded apparel left in China; tariff-impacted goods expected mid-May; mitigation efforts include price increases, sourcing shifts, inventory adjustments.

Q: Inventory scaling back and retail comp improvement?

A: Modest inventory adjustments in U.S. retail; Retail comp improvement from product strategies, competitive pricing, and marketing driving new customers.

Q: Impact of new management and tariffs on guidance?

A: New management assessment and tariff uncertainty contributed to suspending guidance; previous marketing expenditure plan still in place