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Carter's (CRI) Down on High Costs & Soft Sales: Can it Revive?

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  • CRI

Carter’s, Inc. CRI continues to reel under sluggish sales performance stemming from the pandemic-led uncertainties. As a result, sales not only lagged the Zacks Consensus Estimate but also declined year over year in fourth-quarter 2020 due to lower wholesale sales, soft store traffic and muted demand from international customers. Further, sales in the U.S. Retail, U.S. Wholesale and International segments declined year over year in the said quarter.

Also, elevated costs including compensation-related costs, promotional activities, increased investment in marketing and digital media, and expansion of omnichannel capabilities have been hurting the company’s bottom line. Moreover, direct costs including health and safety-related expenses stemming from the COVID-19 crisis act as headwinds. In fact, the company is likely to incur costs related to additional protective equipment and cleaning supplies to the tune of $7 million and $3 million for 2021 and the first quarter, respectively. Such downsides remain a threat to the bottom line, which is expected to be nearly 25 cents for the first quarter of 2021, suggesting a sharp decline from the year-ago quarter’s 81 cents.

Notably, shares of this Zacks Rank #5 (Strong Sell) company have lost 8.3% year to date compared with the industry‘s decline of 1.7% and against the Consumer Discretionary sector’s growth of 5.4%.

Efforts to Overcome Hurdles

Despite a sluggish sales performance, the e-commerce business has been performing well. Consequently, Carter’s is seeking opportunities to strengthen e-commerce capabilities through investments to speed up deliveries. Some notable efforts include a revamped website with improved products, a new mobile app and an enhanced checkout experience. Notably, the company witnessed sturdy e-commerce demand in the wholesale channel to the tune of 36%. Also, it gained more than 2 million new customers since the onset of the pandemic. Driven by these, online sales surpassed the $1-billion mark in 2020.

Also, the company has been gaining from the same-day pickup service for online orders, curbside pickup, easy access to a broad array of online products when shopping in stores and easy access to its new credit card program. As consumers shift to the online platform due to the ongoing pandemic is likely to continue, the company remains focused on expanding omnichannel options such as the ship-from-store facility. Driven by these, management anticipates omnichannel to increase roughly 40% of online sales by 2025.

Encouragingly, Carter’s expects sales growth and improved profitability in 2021. It also highlighted that 2021 started on a positive note, driven by spring product offerings and gains from government stimulus payments to families with young children. In fact, the top and bottom lines are envisioned to grow almost 5% and 10%, respectively, for 2021 with both the metrics likely to be heavily weighted in the first half of 2021.

Wrapping Up

All said, we hope that sturdy e-commerce growth and increased omnichannel facilities are likely to provide some cushion to the stock. Also, management remains optimistic about the path to recovery as vaccines are being distributed across the United States.

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