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Why Carter's Stock Dropped 20.6% in May

Steve Symington, The Motley Fool

What happened

Shares of Carter's (NYSE: CRI) declined 20.6% in May, according to data from S&P Global Market Intelligence, even after the kid's clothing retailer announced solid quarterly results and reaffirmed its full-year guidance.

On the former, shares were initially little changed following Carter's first-quarter 2019 release on April 30, 2019. But then Carter's stock pulled back hard over the next several weeks, largely in tandem with the broader market -- as the S&P 500 sank nearly 7% last month -- while investors worried over escalating trade tensions between the U.S. and both Mexico and China.

Stack of folded children's clothing on a wood floor.

IMAGE SOURCE: GETTY IMAGES.

So what

It didn't help that Carter's stock had climbed 30% year to date leading up to its quarterly report, leaving shares ripe for a correction. But the company also told investors that international sales during the quarter declined 2.8% (to $88.6 million), as lower sales and currency headwinds in Canada and China were partially offset by strength in Mexico. I suspect the ramping up of trade wars with China and Mexico, in particular -- potentially including retaliatory tariffs from both countries -- will do Carter's no favors in the coming quarters.

To be fair, Carter's international sales are relatively small compared to its core U.S. retail and wholesale segments, where first-quarter sales fell 1.7%, to $377.1 million, and 1.9%, to $275.4 million, respectively.

Now what

But when Carter's releases second-quarter results in late July, it will still be interesting to see whether the company is able to meet its forecast for net sales growth of 4% to 6% and flat adjusted earnings of $0.79 per share. For additional perspective, Carter's full fiscal-year 2019 outlook currently calls for net sales growth of 1% to 2% and adjusted earnings growth of 4% to 6% (from $6.29 per share in 2018).

In the end, whether this pullback proves short-lived may depend on Carter's ability to hold its global business steady despite today's macroeconomic uncertainties.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Carter's. The Motley Fool has a disclosure policy.