Carter's Q2 Earnings Coming Up: What's in the Cards?

Carter's, Inc. CRI is scheduled to release second-quarter 2024 results on Jul 26 before the opening bell. The branded marketer of apparel, exclusively for babies and children in North America, is likely to witness a decline in the bottom and top lines when it reports the quarterly numbers.

The Zacks Consensus Estimate for second-quarter revenues is pegged at $566.8 million, indicating a fall of 5.6% from the figure reported in the year-ago quarter. The consensus estimate for quarterly earnings, which has remained unchanged at 45 cents per share in the past 30 days, indicates a decrease of 29.7% from the year-ago quarter's reported figure.

The company has a trailing four-quarter earnings surprise of 26.6%, on average. In the last reported quarter, CRI's bottom line beat the Zacks Consensus Estimate by 47.8%.

Factors to Note

Carter's has been reeling under inflationary pressures, which have been affecting consumers' discretionary spending. The second-quarter performance is likely to have been hurt by inflation, elevated interest rates and the suspension of pandemic-related stimulus payments to child-care centers, thereby leading to soft demand for the company's products. In addition, higher selling, general and administrative expenses (SG&A), reflecting investments in new stores and higher store payroll expenses, are expected to have strained margins and reduced profitability. Also, soft online sales trends are anticipated to have further weighed on the company's quarterly numbers.

Management had projected second-quarter net sales to be in the range of $560-$570 million, down from $600 million recorded in the year-ago quarter. This included declines of mid-to-high single-digits in the U.S. Retail, low-to-mid single-digits in the U.S. Wholesale and mid-to-high single-digits in the International segments' sales. Management had envisioned adjusted earnings per share to be in the range of 35-45 cents, indicating a decline from 64 cents reported in the year-ago quarter. Carter's anticipated an adjusted operating income of $25-$30 million for the impending quarter, indicating a drop from $38 million recorded in the year-ago quarter.

Our model predicts a sales drop of 5.7% in the U.S. Retail, 4.8% in the U.S. Wholesale and 6.1% in the International segment. We expect adjusted operating income to plunge 34% year over year to $25 million.

On the flip side, Carter's is making efforts to maneuver such challenges. The company has been implementing measures like improved pricing and optimized inventory management, apart from strengthening its e-commerce capabilities. Some other notable efforts include expanded omnichannel facilities, including curbside pickup, same-day pickup, buy online and pickup at store, and ship from store. CRI has been experiencing higher-than-expected demand in its U.S. wholesale business for a while.

Valuation Picture

From a valuation perspective, Carter's offers an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-earnings ratio of 9.57x, which is below the five-year high of 21.14x and the Shoes and Retail Apparel industry's average of 20.16x, the stock offers compelling value for investors seeking exposure to the sector.

However, the recent market movements show that CRI's shares have fallen 14.1% in the past six months compared with the industry's 22% decline.

What the Zacks Model Unveils

Our proven model doesn't conclusively predict an earnings beat for Carter's this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that's not the case here.

Stocks Poised to Beat Earnings Estimates

Here are some companies, which according to our model, have the right combination of elements to post an earnings beat:

Adidas ADDYY currently has an Earnings ESP of +0.05% and a Zacks Rank of 2.

ADDYY is likely to register bottom and top-line growth when it reports second-quarter 2024 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $6.4 billion, indicating 9.2% growth from the figure reported in the year-ago quarter.

The consensus estimate for ADDYY's earnings is pegged at 69 cents a share, indicating a sharp rise from earnings of 26 cents a share reported in the year-ago quarter. The consensus mark has risen from 42 cents per share in the past 30 days.

MGM Resorts International MGM currently has an Earnings ESP of +15.35% and a Zacks Rank of 3. MGM is likely to register bottom and top-line growth when it reports second-quarter results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $4.2 billion, indicating 6% growth from the figure reported in the year-ago quarter.

The consensus estimate for MGM Resorts' earnings is pegged at 66 cents a share, implying an 11.9% increase from the year-earlier quarter. The consensus mark has moved down by a penny in the past seven days.

Planet Fitness PLNT currently has an Earnings ESP of +1.24% and a Zacks Rank of 3. PLNT is likely to have register bottom and top-line growth in its second-quarter results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $294.4 million, indicating 2.8% growth from the figure reported in the year-ago quarter.

The consensus estimate for Planet Fitness' quarterly earnings is pegged at 66 cents per share, indicating a 1.5% rise from the year-ago quarter. The consensus mark has risen by a penny in the past 30 days.

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