Carter’s second quarter results were met with a significant negative market reaction, largely due to profit margins falling well short of Wall Street’s expectations despite sales growth. Management attributed the underperformance to increased investments in retail pricing, higher store-related expenses, and ongoing challenges from tariffs and promotional activity. CFO Richard Westenberger described the quarter as “down considerably versus a year ago,” emphasizing that pricing investments and competitive discounting weighed on margins. CEO Doug Palladini also cited elevated costs from store expansion and maintenance as contributing factors.

Is now the time to buy CRI? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Carter's’s Q2 Earnings Call

• Jay Sole (UBS) pressed for specific growth and margin targets. CEO Doug Palladini declined to provide numbers but reiterated ambitions for “profitable and sustained” growth over time.
• Jay Sole (UBS) also asked about tariff mitigation. CFO Richard Westenberger said price increases are the main tool, but vendor partnerships and shifting sourcing will contribute, with full mitigation targeted for 2026.
• Kelly Crago (Citi) inquired about the timeline and strategy for closing stores. Management said 100 closures will occur gradually as leases expire, with productivity gains expected from transferring sales to remaining stores.
• James Chartier (Moness, Crespi & Hardt) questioned if investments in demand creation would dilute margins. Palladini said returns on investments in store traffic and loyalty are “very high,” justifying increased spending.
• Paul Kearney (Barclays) sought clarity on the ability to fully offset tariffs by 2026. Westenberger confirmed this is the goal, with ongoing efforts to optimize SG&A and marketing spend.

Catalysts in Upcoming Quarters

In the quarters ahead, our analysts will be watching (1) Carter’s ability to raise prices without materially impacting unit volumes, (2) the pace and impact of store closures and relocations on profitability, and (3) traction of new brands and product lines in both retail and wholesale channels. The effectiveness of tariff mitigation strategies and progress on cost management will also be critical markers for assessing the company’s turnaround.

Carter's currently trades at $24.61, down from $32.72 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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