On Thursday, Citi adjusted its outlook on shares of Carter's (NYSE:CRI), a leading retailer in the children's apparel market. The firm's analyst revised the price target downward to $55 from the previous $60, while maintaining a Sell rating on the stock. The revision reflects expectations of mixed financial performance and market trends affecting the company.
Citi anticipates Carter's will surpass the consensus earnings per share (EPS) estimate for the second quarter of 2024, which is due before market opens on July 26, with a forecasted EPS of $0.62 compared to the consensus of $0.49. This projection is based on stronger wholesale sales and gross margins. However, the firm also predicts weaker direct-to-consumer (DTC) sales in the U.S. retail sector than what the consensus suggests.
The analyst expects Carter's management to revise the full-year 2024 EPS guidance downwards from the current range of $6.30 to $6.50 to approximately $6.00. This adjustment is anticipated due to weaker sales in the second half of the year, specifically within the DTC channel. Despite the company's guidance implying an uptick in comparable sales in the latter half of the year, recent industry data indicates that poor DTC trends have persisted into the third quarter to date.
Investor sentiment toward Carter's is currently very negative, with the stock being identified as one of the most heavily shorted within Citi's coverage area. The debate among investors is largely focused on the expected scale of the guidance reduction for the second half of the year and what may already be reflected in the stock price.
The analyst's continued Sell recommendation is based on the need for visible improvements in Carter's DTC channel, particularly addressing the ongoing loss of market share. The recommendation includes a suggestion that the company should consider closing some retail stores.
Additionally, there is a heightened caution regarding the pricing dynamics in the wholesale channel, especially given the weak average selling prices and price investments by other brands and retailers observed in the first quarter.
In other recent news, Carter's, Inc. reported a stronger-than-expected performance in the first quarter of fiscal year 2024. The company's earnings and sales surpassed market expectations despite challenges such as lower e-commerce traffic and cooler weather impacting spring sales.
Carter's U.S. wholesale business experienced a boost due to early seasonal demand, while international sales met forecasts with strength in Mexico and Brazil offsetting weaker performance in Canada.
The company also reported an improvement in gross profit margin due to reduced product costs and freight charges and declared a 7% increase in their quarterly dividend to $0.80 per share. With a strong liquidity position exceeding $1 billion, Carter's anticipates a return to growth in the current fiscal year, supported by strategic pricing and inventory management.
Looking forward, Carter's expects gradual U.S. retail sales improvement in the second half of the year, with store sales growing in the low single-digits and e-commerce sales decreasing in the mid-single-digits. Full-year net sales are forecasted between $2.950 billion and $3 billion, with earnings per share growth in the low to mid-single-digit range.
These recent developments indicate a strategic approach by the company to navigate a complex retail environment.
InvestingPro Insights
In light of the recent analysis by Citi, it's important for investors to consider additional dimensions of Carter's (NYSE:CRI) financial health and market position. According to InvestingPro data, Carter's has a market capitalization of $2.3 billion and trades at a P/E ratio of 9.86, which is considered low relative to its near-term earnings growth. This aligns with the company's adjusted P/E ratio for the last twelve months as of Q1 2024, which stands at 10.25. Despite a slight revenue decline of 6.91% over the last twelve months as of Q1 2024, Carter's maintains a robust gross profit margin of 48.15%, underscoring the company's ability to manage costs effectively.
InvestingPro Tips highlight key aspects that investors may find encouraging. Carter's boasts a high shareholder yield and has successfully maintained dividend payments for 12 consecutive years, with a current dividend yield of 5.08%. Additionally, the company's liquid assets exceed its short-term obligations, providing a level of financial stability. Analysts predict that Carter's will be profitable this year, which is further corroborated by a profitable performance over the past twelve months. Moreover, the stock is trading near its 52-week low, presenting a potential opportunity for value investors.
While six analysts have revised their earnings downwards for the upcoming period, it's noteworthy that Carter's is trading at a PEG ratio of 0.8, suggesting that its stock price is potentially undervalued relative to its earnings growth. For investors seeking a more in-depth analysis, InvestingPro offers additional tips and metrics. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to a wealth of insights that could inform their investment decisions. There are seven additional InvestingPro Tips available for Carter's, each providing a unique perspective on the company's financial outlook and market positioning.
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