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Here's Why You Should Add Carter's (CRI) to Your Portfolio Now

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·4 min read
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Carter’s, Inc. CRI seems an appropriate investment option at the moment as it remains well-positioned to grow on the back of improved demand, recovery in Carter's core brand, robust product portfolio and solid online show. Some other notable initiatives such as better marketing and enhanced pricing bode well.

Shares of the Zacks Rank #2 (Buy) stock have gained 25.6% in the past six months compared with the industry’s growth of 23.3%. The Zacks Consensus Estimate for 2021 earnings is pegged at $7.29 per share, marking an increase of 5.3% from that mentioned 30 days ago.

That said, let’s delve deeper into the factors that are driving the stock.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Strength in E-commerce, A Major Growth Driver

Carter’s has been gaining from enhanced e-commerce capabilities and faster delivery via curbside pickup, same-day pickup, buy online and pick up at store and ship-from-store facilities. Driven by the factors, the company’s e-commerce business has been performing well, with more than 60% growth in the first half of 2021 from the first half of 2019. Easy access to a broad array of online products when shopping in stores and access to its new credit card program acted as major growth drivers.

More than 30% of online orders were fulfilled by stores, which reflects an improvement from 12% in the prior-year quarter. It also launched a mobile app and is investing in RFID capabilities. The rollout of RFID is likely to be completed by this fall and it will be accretive to the fourth-quarter and 2022 results.

Impressive Quarterly Results

The easing of the pandemic-induced restrictions and acceleration of the vaccine program led to store reopenings, which, in turn, contributed to second-quarter 2021 results. The company’s top and bottom lines beat the Zacks Consensus Estimate and advanced year over year. Net sales increased 45%, driven by growth across all segments, particularly the retail segment. The metric also rose from the second-quarter 2019 figure.

Carter’s also delivered the fifth consecutive quarter of a gross margin expansion, backed by sturdy demand, fewer promotions in the retail unit, better product margins and reduced product costs. The company’s adjusted operating income skyrocketed 168.6% year over year in the reported quarter.

Adjusted operating margin expanded 680 bps to 14.8%, driven by solid demand, improved margins stemming from pricing efforts and lower expenses. As a result, adjusted earnings of $1.67 per share surged more than three-fold from 54 cents reported in the prior-year quarter and more than 70% from second-quarter 2019.

Strong Projections

Management raised its 2021 guidance. The company anticipates sales growth of 15%, up from the earlier mentioned 10%. It also expects sales to be higher in the second half of 2021. For 2021, earnings are now envisioned to rise 75% year over year compared with previously mentioned 40% growth. The adjusted operating income is likely to be $475 million, suggesting a rise from the prior year’s reported figure of $279.8 million. The gross profit is expected to be higher in the second half of 2021. It also plans to close 100 low-margin stores in 2021. This is likely to benefit the bottom line and margins in 2021.

The company issued an upbeat fiscal third-quarter view, wherein it expects sales of $960 million. Adjusted earnings are envisioned to be $1.60 per share, with an adjusted operating income of $110 million.

Wrapping Up

Despite the upsides, the company continues to witness elevated expenses, stemming from higher store payroll expenses, a rise in marketing expenses and the resumption of employee compensation. Management expects higher expenses related to faster delivery from Asia along with supply-chain disruptions, rising transportation costs, increased investments in marketing, higher wages and a 53rd-week fiscal year in 2020 to hurt the company’s performance in the second half of 2021.

Carter’s is likely to incur costs related to additional protective equipment and cleaning supplies of $5 million in 2021 and $1 million in the fiscal third quarter. The company expects $3 million of restructuring costs for 2021.

Nevertheless, we believe that strategic initiatives, solid online show and high demand are likely to keep Carter’s stellar show on. Also, a VGM Score of A and a long-term earnings growth rate of 21.1% reflect its inherent strength.

3 Other Stocks to Consider

Nike, Inc. NKE currently has an impressive long-term earnings growth rate of 15.3% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gildan Activewear GIL has a long-term earnings growth rate of 28%. The company has a Zacks Rank #2 at present.

Whirlpool Corporation WHR currently has a Zacks Rank #2 and a long-term earnings growth rate of 8.1%.

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NIKE, Inc. (NKE) : Free Stock Analysis Report

Whirlpool Corporation (WHR) : Free Stock Analysis Report

Gildan Activewear, Inc. (GIL) : Free Stock Analysis Report

Carters, Inc. (CRI) : Free Stock Analysis Report

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