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3 Reasons Why You Should Add Carter's (CRI) to Your Portfolio

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  • CRI

Carter’s, Inc. CRI seems to be an appropriate investment option at the moment, as it is well-positioned to grow on the back of favorable customer demand across all categories. Moreover, strength in the e-commerce business, driven by expanded omnichannel capabilities, is impressive.

Notably, shares of this Zacks Rank #1 (Strong Buy) company have rallied 20.1% in the past three months compared with the industry and the Consumer Discretionary sector’s growth of 15.7% and 2.3%, respectively.

That said, let’s delve into the factors that make the stock a promising bet.

Solid Online Show

With e-commerce trends likely to outlast the pandemic, Carter’s is expected to be a beneficiary as it has been witnessing continued momentum in the digital front, even though stores reopened and consumers have gradually started venturing out of their homes. To further strengthen its e-commerce unit, the company has been making investments to speed up deliveries.

Apart from faster delivery, improved and expanded products, and ease of checkout, site navigation and search capabilities led to 38% e-commerce growth in the first quarter of 2021. Also, strength in babywear acted as a key growth driver. Further, e-commerce sales in the wholesale channel grew more than 60% year over year. About 29% of the company’s stores fulfilled online orders in the first quarter, which reflects an improvement from 16% in the prior-year quarter.

Further, the company is gaining from its same-day pickup service for online orders, easy access to a broad array of online products when shopping in stores and easy access to its new credit card program. Also, the buy online and pick up at store facility acted as a major growth driver. As a result, omnichannel sales surged more than 100% year over year during the first quarter. Management foresees omnichannel to increase roughly 40% of online sales by 2025.

Impressive Results

Carter’s demand improved in March, led by its spring offerings along with government stimulus and accelerated vaccine rollout programs. Encouragingly, the top and bottom lines beat the Zacks Consensus Estimate and advanced year over year in first-quarter 2021.

Moreover, gains from better promotions, productivity and enhanced pricing led to gross margin expansion, which in turn aided the bottom line. Notably, sales increased 20% year over year, backed by solid demand, improved store traffic and favorable currency movements.

Strong Projections

Driven by these factors, Carter’s raised its 2021 guidance. The company now anticipates sales to grow roughly 10%, up from the earlier guided view of almost a 5% increase. Also, the bottom line is now envisioned to rise nearly 40% year over year compared to the prior view of 10% growth for 2021.

It also issued an upbeat second-quarter view, wherein it expects sales to rise nearly 35% with bottom-line growth of roughly 25% year over year. Moreover, adjusted operating income is likely to increase almost 35% year over year. Also, it forecasts robust sales growth across all segments in the second quarter. Further, gross margin is projected to expand year over year.

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Wrapping Up

The company continues to grapple with elevated costs, including store-related expenses, higher compensation expenses and rising freight costs. Moreover, health and safety-related expenses stemming from the COVID-19 crisis remain a concern. In fact, management anticipates incurring costs related to additional protective equipment and cleaning supplies of $7 million in 2021 and $2 million in the second quarter.

Nevertheless, we believe robust e-commerce growth and strong demand to help offset these aforementioned cost headwinds and keep Carter’s positive momentum going. The Zacks Consensus Estimate for 2021 earnings is pegged at $6.02 per share, indicating an increase of 28.9% in the past 60 days.

3 Key Picks

Gildan Activewear, Inc. GIL, which sports a Zacks Rank #1, has a long-term earnings growth rate of 28.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, Ltd. GIII, which also sports a Zacks Rank #1, has a long-term earnings growth rate of 11.6%.

Steven Madden, Ltd. SHOO, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 15%.

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