Carter's (CRI) Q2 2024 earnings summary

Executive summary

• Q2 2024 net sales declined 6% year-over-year to $564.4 million, but operating income rose 5% to $39.5 million and diluted EPS increased 18.8% to $0.76, exceeding guidance, with record gross margin driven by lower input and freight costs.

• First half 2024 net sales fell 5% to $1.23 billion, with net income up 9.7% to $65.7 million and adjusted diluted EPS up 13.2% to $1.80.

• U.S. Wholesale outperformed with 3.2% sales growth, while U.S. Retail and International segments saw declines of 10.3% and 9.6%, respectively.

• Cash flow exceeded expectations, with over $1 billion in liquidity, no seasonal borrowings, and inventory down 12% year-over-year.

• $92 million was returned to shareholders in the first half via dividends and share repurchases.

Financial highlights

• Q2 2024 net sales: $564.4 million (down 6.0% year-over-year); Q2 gross margin: 50.1% (up 150 bps); Q2 operating income: $39.5 million (up 5.0%); Q2 diluted EPS: $0.76 (up 18.8%).

• First half 2024 net sales: $1.23 billion (down 5.4%); first half net income: $65.7 million (up 9.7%); first half adjusted EPS: $1.80 (up 13.2%).

• Q2 2024 operating margin: 7.0% (up from 6.3%); Q2 adjusted EBITDA: $53.5 million.

• Inventory at quarter-end: $599.3 million (down 12.1% year-over-year); cash and cash equivalents: $317 million.

• Free cash flow for the first half was $67 million, down from $183 million last year.

Outlook and guidance

• FY 2024 net sales expected at $2.785–$2.825 billion (vs. $2.95 billion in 2023); adjusted operating income $240–$260 million; adjusted diluted EPS $4.60–$5.05.

• Q3 2024 net sales guidance: $735–$755 million; adjusted EPS $1.10–$1.35; U.S. Retail comp sales expected to decline 9–12%.

• Q3 gross margin expected to decline 50–70 bps year-over-year; Q4 gross margin to decline over 200 bps.

• FY 2024 operating cash flow expected to exceed $200 million; CapEx trimmed to $75 million.

• Guidance reflects continued macroeconomic headwinds, higher SG&A, and increased investments in pricing and marketing.