Carter’s third-quarter performance presented a mixed picture for investors, falling short of Wall Street’s revenue expectations while exhibiting a modest year-over-year sales figure. The company’s results were attributed to pockets of strength observed within its U.S. Retail and International segments, partially offset by continued weakness in its U.S. Wholesale operations, particularly regarding declining sales of its Simple Joys brand, which is largely sold through Amazon. CEO Douglas Palladini underscored the company’s ongoing transformation initiatives, stating, “Our current results do not represent my ambition for Carter’s nor where I believe we can be.” The quarter was considerably shaped by a confluence of factors, including elevated product costs, increased tariffs, and strategic investments in marketing and product innovation—all of which exerted downward pressure on operating margins.
The company reported key financial figures for the third quarter of 2025. Revenue totaled $757.8 million, a slight decrease compared to the anticipated $772.4 million, representing a 1.9% miss. Adjusted Earnings Per Share (EPS) remained consistent at $0.74, aligning with analyst estimates. Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) reached $52.3 million, exceeding the anticipated $45.55 million by a 6.9% margin. The operating margin stood at 3.8%, a decline from the 10.2% recorded during the same quarter of the previous year. As of the close of the reporting period, Carter’s operated 1,065 stores, an increase from the 1,039 locations at the beginning of the quarter. Same-Store Sales experienced a growth of 2% year-over-year, though this was significantly lower than the observed decline of 7.1% in the equivalent quarter of the prior year. The company’s market capitalization is currently valued at $1.14 billion.
During the earnings call, analysts probed various aspects of Carter’s strategy and operations. Kelly Crago of Citi expressed concern regarding the long-term trajectory of the Simple Joys brand on Amazon and the strategies being employed to manage pricing within its wholesale distribution channels. CFO Richard Westenberger clarified that the Simple Joys brand would be strategically deemphasized, with a shift towards prioritizing core brand offerings. Further, higher wholesale prices would be reflected in January. Jay Sole of UBS questioned the feasibility of achieving above-average sales growth given the ongoing challenges presented by store closures and wholesale declines. Westenberger responded by emphasizing that price increases, rather than unit growth, would drive revenue gains, and that Carter’s aimed to align its pricing with industry trends. Ike Boruchow of Wells Fargo inquired about the specific impacts of store closures and the continued headwinds associated with the Simple Joys brand. Westenberger estimated a 20% sales transfer from closed stores to other channels and acknowledged that Simple Joys would remain a modest drag on performance into the next fiscal year. Christopher Nardone of BofA sought insight into Carter’s confidence in passing price increases to consumers and monitoring competitive pricing. CEO Douglas Palladini indicated the company was attracting new consumer segments through a better product mix and anticipated the industry would follow suit in terms of pricing strategies. Finally, Paul David Kearney of Barclays focused on the timing and effectiveness of cost savings initiatives and marketing investments. Westenberger explained that reductions in Selling, General, and Administrative (SG&A) expenses would take effect at the start of the following year, while demand creation spend would be rigorously tracked for return on investment.
Looking ahead, the StockStory team plans to closely monitor several key developments. These include the pace and acceptance of price increases across retail and wholesale channels, early indicators of cost savings and sales transfer stemming from store closures and workforce reductions, and continued growth in digital engagement and adoption of new product offerings among younger consumer demographics. The team will also track Carter’s ability to maintain market share and effectively manage margin pressures amidst persistent tariff-related cost challenges. As of the reporting date, Carter’s current stock price is $31.40, down from $32.37 shortly before the earnings announcement.
The market has demonstrated a remarkable recovery since Trump’s April 2025 tariff bombshell triggered a significant selloff. This rebound presents an opportunity for investors to re-evaluate their positions. For those seeking guidance, StockStory provides a comprehensive research report—available free of charge for active Edge members. StockStory is currently expanding its team, seeking equity analysts and marketing professionals passionate about the markets and the application of artificial intelligence.
