Carter's Pricing Actions & Wholesale Channel Bode Well

Carter's, Inc. CRI has been doing well, thanks to its robust business strategies. The company is benefiting from the success of its pricing strategy, inventory-management efforts and better product offerings. Management is focused on creating a trend-right merchandise assortment, deepening relations with customers via marketing, expanding international markets and efficiently controlling expenses.

Delving Deeper

Carter's has made significant pricing actions to address market conditions and enhance profitability. In second-quarter 2024, the company saw improved price realization and profit margins, thanks to the strength in its product offerings and lower inbound freight rates, along with better inventory management.

We note that the company is focused on essential core products. This focus, coupled with a compelling value proposition, wherein average retail price points are around $11, makes Carter's an attractive option for budget-conscious consumers. Its pricing strategy involves keeping its brands competitively priced, which has proven effective in maintaining competitiveness in the market.

The company's new Oshkosh back-to-school launch, the premium fashion denim and bottoms, has received positive feedback from customers. Also, Little Planet and PurelySoft, its newest and sustainable brands, have been performing well. Management expects about $50 million with respect to the incremental investments in pricing and marketing in the second half of 2024. The impact of this price adjustment will be around $40 million on its annual operating income.

Although Carter's top line continued to witness the impacts of inflation on reduced consumer spending, the demand trends in the wholesale segment showed improvement in the second quarter. The company noted that its wholesale segment is gaining from leaner inventories with wholesale customers.

As a result, CRI registered growth in its U.S. Wholesale sales. In the reported quarter, it saw higher demand in its U.S. Wholesale segment, led by the exclusive brands. It experienced double-digit growth in the replenishment wholesale sales in the quarter. The company's supply chain continues to strengthen the business, offsetting lower product costs for the rest of this year. For the U.S. Wholesale business, management projects strong growth in 2024.

Carter's, which shares space with Wolverine WWW, Skechers SKX and Steven Madden SHOO, focuses on efficient cost management and operational improvements. The company has been witnessing a notable expansion in its margin rates, driven in part by lower inbound freight rates, which were the significant contributor to the margins. In the second quarter, the gross margin expanded 150 basis points (bps) on lower product input costs, a decline in inbound freight rates and soft sales to the off-price channel, which were partly offset by inventory provisions. The adjusted operating margin increased 70 bps to 7%.

Margins have been driving the bottom line as well. In the second quarter, Carter's reported adjusted earnings of 76 cents per share, which surpassed the Zacks Consensus Estimate of 45 cents. The figure rose 18.8% from earnings of 64 cents per share in the prior-year quarter.

For the rest of 2024, Carter's anticipates lower product costs, which are expected to enable it to strengthen its product offerings and sharpen price points, thereby improving profitability. It anticipates inbound freight costs down more than 20%.

Other Stocks

Wolverine has been making significant strides in its transformation plan. The company is enhancing its consumer engagement with innovative marketing campaigns and strengthening its global presence. Its strategic initiatives emphasize consumer-centricity, with investments in talent acquisition, consumer insights and innovation. This approach enhances brand loyalty, fosters product innovation and drives long-term growth by meeting evolving consumer demands.  With a consistent focus on product innovation and market positioning, Wolverine is well-positioned for continued growth and increased market share.

Skechers' diversified portfolio of footwear, focusing on comfort-based products and leveraging a multi-brand strategy, is proving successful. The company is investing in global infrastructure, including retail stores, e-commerce platforms and distribution centers. It continues to expand its direct-to-consumer segment and bolsterinternational sales growth. Additionally, the company plans to open new stores, thereby enhancing its omnichannel capabilities. Its top line jumped 7.2% year over year, backed by a 6.9% rise in international sales and a 7.7% increase in domestic sales in second-quarter 2024.

Steven Madden's solid performance across its wholesale, direct-to-consumer and licensing segments highlights the execution of its robust strategic initiatives and positions it well for growth. The company is focused on leveraging digital capabilities, expanding categories beyond footwear, such as handbags and apparel, and enhancing its international market presence. In the second quarter, Steven Madden's revenues increased 17.6% year over year, with Wholesale revenues growing 22.5% and DTC revenues rising 6.4%.

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