CARTERS INC Q1 FY2026 earnings call

• Leadership transition: Doug Palladini departed, Sharon Price-John to join as new CEO. - First quarter performance: Sales and earnings exceeded expectations, impacted by tariffs, spending, and interest costs. - Areas of progress: Positive comparable sales in U.S. retail, new consumers attracted including Gen Z, Disney and Oshkosh collaboration. - Marketing investments: Strong results leading to increased traffic and consumer file growth via social media, connected TV, etc. - Productivity initiatives: $6 million cost reduction in first quarter, funding investment agenda.

Net sales were $681 million. Reported operating income was $28 million vs $26 million last year. Reported earnings per share were 39 cents vs 43 cents last year. First quarter adjusted net sales were $681 million, up 8% y-o-y. Gross margin was 43.1%, down ~300 basis points y-o-y due to tariffs, partially offset by improved pricing, etc. AURs improved in high single digits, units up low single digits. U.S. retail: net sales grew nearly 13% y-o-y, comp sales up over 10% y-o-y and nearly 5% on two-year basis, AURs up low single digits, units up double digits. U.S. wholesale: net sales slightly up y-o-y, improved pricing offset by unit volume reduction. International: total reported net sales up 14% y-o-y, 8% on constant currency basis, Canadian and Mexican businesses strong.

• Full-year net sales growth in low to mid single digits. U.S. retail: low single-digit sales growth, comp sales up mid-single digits. U.S. wholesale: mid-single-digit net sales growth. International: mid-single-digit net sales growth. - Adjusted operating income growth in low to mid single digits, more growth in second half. - 2026 earnings per share expected down low double digits to down mid-teens. - Second quarter net sales expected low single-digit increase, U.S. retail comp sales mid-single-digit up, U.S. wholesale mid to high single-digit net sales up, international roughly comparable. Gross margin down ~100 basis points, adjusted operating income $11M - $13M, adjusted EPS $0.02 - $0.06.

• Evolving tariff landscape with uncertainties, potential reimposition of higher tariffs. - Consumer resilience questions due to ongoing inflation and other pressures. - Marketplace uncertainties affecting pricing and profitability.

Q: Unpack SG&A change from flat to low single-digit increase.

A: Intended store closings pushing out, more marketing spend, higher professional fees and inflationary impacts.

Q: Tariff assumption impact on gross margin.

A: Difficult to precise, $30M upside from lower rates and India tariff elimination but still gross margin pressure.

Q: Initiatives continuing vs paused.

A: Demand creation, product focus, productivity initiatives like store fleet and e-commerce enhancements continuing.

Q: Children's apparel industry growth and share.

A: Market up ~5% y-o-y in first quarter, maintained share.

Q: Tariff refunds, timing, use.

A: $130M in incremental IEPA tariffs filed for refund, not counting on it yet, plan to invest back in business.

Q: Second quarter comp sales confidence despite April softness.

A: April softness due to March strength, May/June easier compares, marketing driving traffic.

Q: Umbro collaboration and future collaborations.

A: Umbro collaboration strong, will do selectively where makes sense.

Q: Wholesale margin and future.

A: Wholesale more impacted by tariffs, more in control in DTC, margin may be lower now but plan to expand over time.

Q: Store openings/closings and wholesale Amazon business.

A: Plan to close ~60 locations, some pushed to Q4, Amazon relationship had growth, SimpleJoys volume improved.

Q: Tariff timing and impact on P&L, unit growth.

A: Inventory turn ~4-5 months, unit growth may moderate, pricing more in second half.