Carter's Q2 Earnings Call Highlights

Carter’s exceeded its Q2 outlook: Net sales rose 5% to $615 million, while adjusted operating income increased 54% to $18 million and adjusted EPS climbed 53% to $0.26. Results benefited from U.S. retail comparable-sales growth, strong wholesale demand and cost savings. Tariff recovery significantly boosted reported results and liquidity: The company recognized a $132 million recovery of previously paid tariffs and related interest, ending the quarter with more than $650 million in cash. However, incremental tariffs reduced adjusted gross profit by $28 million. Full-year sales expectations were narrowed: Carter’s now expects net-sales growth of 2% to 3%, citing softer second-half wholesale demand and cautious consumer pricing. It maintained its adjusted operating-income growth outlook, raised operating-cash-flow guidance to $230 million-$240 million and expects Q3 sales to be roughly flat year over year.

Carter's CRI reported second-quarter fiscal 2026 results that exceeded its prior outlook, with net sales rising 5% from a year earlier to $615 million and adjusted operating income increasing 54% to $18 million. The company also narrowed its full-year sales outlook while maintaining its forecast for low- to mid-single-digit adjusted operating-income growth. Sharon Price John, who recently joined Carter's as chief executive officer and president, said the company delivered solid results despite a complex macroeconomic environment. She highlighted a fifth consecutive quarter of comparable-sales growth in U.S. retail and continued customer gains among Gen Z consumers, whose sales grew in the mid-teens during the quarter.

“Our objective is to deliver consistent, profitable growth,” John said, describing plans to emphasize consumer-centric, data-driven decision-making, brand building and continued adaptation to changing consumer behavior.

On a reported basis, Carter's recorded operating income of $140 million and earnings per share of $2.87 in the second quarter. Those figures included a $132 million recovery of previously paid tariffs and related interest from the U.S. government. Of that amount, $128 million benefited gross profit and $4 million was recorded as interest income, according to Chief Financial Officer and Chief Operating Officer Richard Westenberger. The tariff recovery was taxable, prompting the company to record an approximately $30 million tax provision that it expects to pay in September. Carter's also recorded roughly $6 million in charges during the quarter, primarily tied to its leadership transition. Excluding unusual items, adjusted earnings per share rose 53% to $0.26 from $0.17 a year earlier. Adjusted operating margin improved 90 basis points to 2.9%, supported by sales growth and lower spending. Adjusted gross margin declined 180 basis points to 46.3%. Westenberger said incremental tariffs pressured gross margin by $28 million during the quarter, while investments in product make also weighed on profitability. Higher pricing, tariff-mitigation actions and productivity initiatives partially offset those effects. Adjusted selling, general and administrative expenses fell 1% to $270 million. Savings from productivity efforts and store closures more than offset higher marketing spending and inflationary pressures on wages and rent, the company said.

U.S. retail net sales increased 2% in the quarter, while comparable sales rose 5%. Comparable sales increased in both stores and e-commerce, with baby products remaining the primary driver of growth across the retailer's core age segments. Chief Retail and Digital Officer Allison Peterson said e-commerce comparable sales rose by double digits for t...