Stock Story -
Children’s apparel manufacturer Carter’s (NYSE:CRI) fell short of analysts' expectations in Q2 CY2024, with revenue down 6% year on year to $564.4 million. Next quarter's revenue guidance of $745 million also underwhelmed, coming in 7.6% below analysts' estimates. It made a non-GAAP profit of $0.76 per share, improving from its profit of $0.64 per share in the same quarter last year.
Is now the time to buy Carter's? Find out by reading the original article on StockStory, it's free.
Carter's (CRI) Q2 CY2024 Highlights:
- Revenue: $564.4 million vs analyst estimates of $568.2 million (small miss)
- Operating Profit (non-GAAP): $39.5 million vs analyst estimates of $30.3 million (30.4% beat)
- EPS (non-GAAP): $0.76 vs analyst estimates of $0.50 (53.5% beat)
- Revenue Guidance for Q3 CY2024 is $745 million at the midpoint, below analyst estimates of $805.9 million
- The company dropped its revenue guidance for the full year from $2.98 billion to $2.81 billion at the midpoint, a 5.7% decrease
- EPS (non-GAAP) Guidance for Q3 CY2024 is $1.23 at the midpoint, below analyst estimates of $1.88
- Gross Margin (GAAP): 50.1%, up from 48.6% in the same quarter last year
- Free Cash Flow of $104.9 million is up from -$37.57 million in the previous quarter
- Same-Store Sales fell 11.7% year on year (-15.9% in the same quarter last year) (miss)
- Market Capitalization: $2.18 billion
Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE:CRI) is an American designer and marketer of children's apparel.
Apparel, Accessories and Luxury GoodsWithin apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Carter's revenue declined by 3.8% per year. This shows demand was weak, a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Carter's recent history shows its demand has stayed suppressed as its revenue has declined by 8.5% annually over the last two years.
We can better understand the company's revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, Carter's same-store sales averaged 11.5% year-on-year declines. Because this number is lower than its revenue growth, we can see the opening of new locations is boosting the company's top-line performance.
This quarter, Carter's missed Wall Street's estimates and reported a rather uninspiring 6% year-on-year revenue decline, generating $564.4 million of revenue. The company is guiding for a 5.9% year-on-year revenue decline next quarter to $745 million, a deceleration from the 3.3% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 3.5% over the next 12 months, an acceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Carter's has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 11.8% over the last two years, slightly better than the broader consumer discretionary sector.
Carter's free cash flow clocked in at $104.9 million in Q2, equivalent to a 18.6% margin. The company's cash profitability regressed as it was 7.2 percentage points lower than in the same quarter last year, but it's still above its two-year average. We wouldn't read too much into this quarter's decline because investment needs can be seasonal, leading to short-term swings. Long-term trends trump temporary fluctuations.
Key Takeaways from Carter's Q2 Results We were impressed by how significantly Carter's blew past analysts' EPS expectations this quarter. On the other hand, its full-year revenue guidance was lowered and now sits below expectations. Also its full-year earnings guidance fell short of Wall Street's estimates, so the outlook is worrisome for the retailer. Overall, this was a bad quarter. The stock traded down 7.3% to $55.40 immediately following the results.
