Carter's Net Income Plunges 80% Amid Flat Sales, Activist Defense

Ticker: CRI · Form: 10-Q · Filed: Oct 27, 2025 · CIK: 1060822

Sentiment: bearish

Topics: Childrenswear, Retail, Earnings Decline, Shareholder Rights Plan, Activist Investor, Tariffs, Pension Settlement, Q3 2025

Related Tickers: CRI

TL;DR

**CRI's earnings are in the gutter, and they're putting up a poison pill – this stock is a hot potato for now.**

AI Summary

Carter's, Inc. (CRI) reported a significant decline in net income for both the fiscal quarter and the first three fiscal quarters ended September 27, 2025. Quarterly net income plummeted by 80.1% to $11.593 million from $58.320 million in the prior year, despite relatively flat net sales of $757.836 million compared to $758.464 million. For the first three quarters, net income decreased by 77.8% to $27.578 million from $123.992 million, with net sales slightly down to $1,972.975 million from $1,984.390 million. A key business change was the adoption of a limited duration shareholder rights agreement on September 22, 2025, in response to rapid stock accumulation by a third party, aiming to protect shareholder value. Risks include the impact of new tariffs enacted by the Trump Administration, which triggered goodwill and tradename impairment tests, although no impairments were recorded. The company also incurred a substantial pension plan settlement charge of $8.777 million in the current quarter, up from $949 thousand in the prior year. Strategic outlook involves managing operating model improvement initiatives, with $13.6 million paid to The Boston Consulting Group in the first three quarters of fiscal 2025.

Why It Matters

This filing reveals a sharp decline in Carter's profitability, with net income down 80% for the quarter, signaling potential operational challenges despite stable revenue. For investors, the adoption of a shareholder rights plan indicates a defensive posture against a potential activist investor, which could lead to strategic shifts or a takeover battle, impacting stock volatility. Employees might face uncertainty if cost-cutting measures are implemented to improve margins. Customers could see changes in product offerings or pricing as the company navigates competitive pressures and tariff impacts. The broader market will watch how Carter's, a leader in childrenswear, responds to these financial headwinds and activist interest, potentially influencing other retail sector valuations.

Risk Assessment

Risk Level: high — The risk level is high due to the dramatic 80.1% decline in quarterly net income to $11.593 million and a 77.8% drop in year-to-date net income to $27.578 million. Furthermore, the company adopted a shareholder rights agreement on September 22, 2025, indicating a perceived threat of a hostile takeover or significant activist pressure, which introduces substantial uncertainty and potential for conflict.

Analyst Insight

Investors should exercise caution and consider holding off on new investments in CRI until there's clearer guidance on how the company plans to reverse its declining profitability and address the activist interest. Current shareholders should monitor developments regarding the shareholder rights plan and any potential strategic responses from management or the activist investor.

Financial Highlights

debt To Equity
1.86
revenue
$757.836M
operating Margin
3.84%
total Assets
$2.469B
total Debt
$997.876M
net Income
$11.593M
eps
$0.32
gross Margin
45.08%
cash Position
$184.190M
revenue Growth
-0.1%

Key Numbers

Key Players & Entities

FAQ

Why did Carter's net income decline so sharply in Q3 2025?

Carter's net income for the fiscal quarter ended September 27, 2025, declined by 80.1% to $11.593 million from $58.320 million in the prior year. This was primarily driven by a significant increase in selling, general, and administrative expenses to $317.963 million from $284.714 million, and a substantial pension plan settlement charge of $8.777 million, up from $949 thousand.

What is the purpose of Carter's shareholder rights agreement?

Carter's adopted a limited duration shareholder rights agreement on September 22, 2025, to reduce the likelihood of any entity or group gaining control of the company through open market accumulation without paying all stockholders an appropriate control premium. It also aims to provide the Board sufficient opportunity to make informed judgments in the best interests of all shareholders.

How have tariffs impacted Carter's operations?

New tariffs enacted by the Trump Administration were identified as a triggering event during the second quarter of fiscal 2025, leading Carter's to perform quantitative impairment tests on goodwill and tradename assets. While no impairments were recorded, the tariffs unfavorably impacted the company's financial forecasts.

What were Carter's net sales for the first three quarters of fiscal 2025?

For the three fiscal quarters ended September 27, 2025, Carter's reported net sales of $1,972.975 million. This represents a slight decrease from $1,984.390 million reported for the same period in the prior fiscal year.

Who is Emily D. Evert and what is her role at Carter's?

Emily D. Evert was appointed to Carter's executive leadership team as Chief Strategy Officer in August 2025. Prior to joining Carter's, she was a managing director and partner at The Boston Consulting Group, Inc., which Carter's has engaged for consulting services.

Did Carter's repurchase any common stock in the first three quarters of fiscal 2025?

No, Carter's did not report any repurchases of common stock for the three fiscal quarters ended September 27, 2025. In contrast, the company repurchased $50.526 million worth of common stock in the same period of fiscal 2024.

What was Carter's cash and cash equivalents balance at the end of Q3 2025?

As of September 27, 2025, Carter's cash and cash equivalents stood at $184.190 million. This is a significant decrease from $412.926 million at the beginning of the period (December 28, 2024).

How much did Carter's pay in dividends per common share in Q3 2025?

Carter's declared and paid a dividend of $0.25 per common share for the fiscal quarter ended September 27, 2025. This is lower than the $0.80 per common share paid in the same quarter of the prior year.

What was the impact of foreign currency translation adjustments on Carter's comprehensive income?

For the three fiscal quarters ended September 27, 2025, foreign currency translation adjustments resulted in a gain of $10.549 million, contributing positively to comprehensive income. This contrasts with a loss of $10.710 million in the same period of fiscal 2024.

What is the expiration date of Carter's shareholder rights agreement?

The shareholder rights agreement adopted by Carter's on September 22, 2025, is a limited duration agreement and is set to expire on September 21, 2026, unless terminated earlier as provided in the agreement.

Risk Factors

Industry Context

Carter's operates in the highly competitive children's apparel market. The industry faces ongoing challenges from shifting consumer preferences, the rise of e-commerce, and supply chain disruptions. Increased competition from both established brands and direct-to-consumer online retailers puts pressure on pricing and margins.

Regulatory Implications

The company is exposed to regulatory risks related to trade policies, such as new tariffs, which can impact costs and profitability. The adoption of a shareholder rights agreement also signals potential scrutiny from regulatory bodies concerning corporate governance and shareholder activism.

What Investors Should Do

  1. Monitor the impact of operating model improvements and associated costs.
  2. Evaluate the sustainability of margins given cost pressures.
  3. Assess the implications of the shareholder rights agreement.

Key Dates

Glossary

Goodwill
An intangible asset that arises when one company acquires another for a price greater than the fair market value of its assets and liabilities. (Subject to impairment tests due to potential impacts from new tariffs.)
Tradename
A name used by a company to identify its products or services, often registered as a trademark. (Also subject to impairment tests due to tariff impacts.)
Pension plan settlement charge
A charge recognized when a company settles its pension obligations, often due to plan terminations or lump-sum payouts. (A significant charge of $8.777 million impacted the current quarter's net income.)
Shareholder Rights Agreement
A defensive measure adopted by a company's board of directors to prevent hostile takeovers. (Adopted by Carter's in response to a third party's stock accumulation.)

Year-Over-Year Comparison

Net sales for the fiscal quarter ended September 27, 2025, were relatively flat at $757.836 million compared to $758.464 million in the prior year. However, net income saw a dramatic decrease of 80.1% to $11.593 million from $58.320 million. This was exacerbated by a substantial increase in the pension plan settlement charge to $8.777 million from $949 thousand and higher selling, general, and administrative expenses. The company also adopted a shareholder rights agreement, a new development not present in the prior period.

Filing Stats: 4,758 words · 19 min read · ~16 pages · Grade level 15.1 · Accepted 2025-10-27 11:53:41

Key Financial Figures

Filing Documents

Financial Information

Part I. Financial Information Page Item 1

Financial Statements

Financial Statements Unaudited Condensed Consolidated Balance Sheets as of September 27, 2025, December 28, 2024, and September 28, 2024 1 Unaudited Condensed Consolidated Statements of Operations for the fiscal quarter and three fiscal quarters ended September 27, 2025 and September 28, 2024 2 Unaudited Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter and three fiscal quarters ended September 27, 2025 and September 28, 2024 3 Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity for the fiscal quarters ended September 27, 2025, June 28, 2025, March 29, 2025, September 28, 2024, June 29, 2024, and March 30, 2024 4 Unaudited Condensed Consolidated Statements of Cash Flows for the three fiscal quarters ended September 27, 2025 and September 28, 2024 6 Notes to the Unaudited Condensed Consolidated Financial Statements 7 Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 3

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 39 Item 4

Controls and Procedures

Controls and Procedures 40

Other Information

Part II. Other Information Item 1

Legal Proceedings

Legal Proceedings 41 Item 1A

Risk Factors

Risk Factors 41 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 42 Item 3 Defaults upon Senior Securities 42 Item 4 Mine Safety Disclosures 42 Item 5 Other Information 42 Item 6 Exhibits 43

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS CARTER'S, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ( dollars in thousands, except per share data ) (unaudited) September 27, 2025 December 28, 2024 September 28, 2024 ASSETS Current assets: Cash and cash equivalents $ 184,190 $ 412,926 $ 175,536 Accounts receivable, net of allowance for credit losses of $ 12,026 , $ 5,663 , and $ 8,303 , respectively 237,866 194,834 247,013 Finished goods inventories, net of inventory reserves of $ 12,347 , $ 8,257 , and $ 17,135 , respectively 656,149 502,332 607,384 Prepaid expenses and other current assets 55,576 32,580 41,577 Total current assets 1,133,781 1,142,672 1,071,510 Property, plant, and equipment, net of accumulated depreciation of $ 599,467 , $ 602,670 , and $ 642,420 , respectively 189,012 180,956 182,292 Operating lease assets 611,569 577,133 560,246 Tradenames, net 268,718 268,008 298,053 Goodwill 208,351 206,875 209,384 Customer relationships, net 20,993 23,543 24,440 Other assets 37,015 33,980 32,460 Total assets $ 2,469,439 $ 2,433,167 $ 2,378,385 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 240,235 $ 248,200 $ 273,909 Current operating lease liabilities 150,548 130,564 130,140 Other current liabilities 110,907 130,052 80,059 Total current liabilities 501,690 508,816 484,108 Long-term debt, net 498,738 498,127 497,930 Deferred income taxes 41,200 38,210 48,890 Long-term operating lease liabilities 529,139 501,503 485,613 Other long-term liabilities 34,030 31,949 32,504 Total liabilities $ 1,604,797 $ 1,578,605 $ 1,549,045 Commitments and contingencies - Note 16 Shareholders' equity: Preferred stock; par value $ 0.01 per share; 100,000 shares authorized; none issued or outstanding $ — $ — $ — Common stock, voting; par value $ 0.01 per share; 150,000,000 shares authorized; 36,518,637 , 36,041,995 , and 36,038,814 shares issued and outstanding, respectively 365 360 360 Additional paid-in capital 18,029 3,856

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