On Friday, Evercore ISI adjusted its outlook on shares of Carter's (NYSE:CRI), reducing the price target to $60 from the previous $80 while maintaining an In Line rating. The adjustment follows a significant guide-down in the company's second-half comparable sales forecast.
The reduction in the price target is attributed to a mix of temporary and more persistent challenges faced by the company. Carter's is currently dealing with heavy promotions and excess inventory in its category, which, in combination with the company's strategy to keep strong pricing discipline, has led to decreased direct-to-consumer (DTC) traffic. Additionally, there is an ongoing structural challenge from increased digital competition, notably from Amazon (NASDAQ:AMZN), which is impacting the discretionary segment of Carter's assortment.
The analyst noted that while near-term sales and earnings risks are expected to lean towards the downside, there are several potential positive catalysts for Carter's on a slightly longer horizon. This outlook is in line with the market's reaction, as Carter's stock only saw a modest decline of 5% following the announcement of a 15-point guide-down for second-half retail comparable sales.
Carter's current situation illustrates the difficulties traditional retailers face in an increasingly competitive digital marketplace. The company's decision to maintain pricing discipline amidst heavy category promotions and inventory surpluses is a strategic choice that has affected traffic to its direct-to-consumer channels.
Despite these challenges, the analyst's perspective indicates that Carter's may have opportunities for recovery and growth in the future. The market's measured response to the company's guide-down suggests that investors might also be anticipating these potential developments.
In other recent news, Carter's, a leading retailer in the children's apparel market, has been the subject of revised earnings per share (EPS) projections by Citi. The firm anticipates that Carter's will exceed the consensus EPS estimate for the second quarter of 2024, projecting an EPS of $0.62 versus the consensus of $0.49.
However, Citi also forecasts a cut in Carter's full-year 2024 EPS guidance from the current range of $6.30 to $6.50 to roughly $6.00, citing weaker sales expectations for the latter half of the year.
In addition to these financial adjustments, Carter's recently reported a stronger-than-expected performance for the first quarter of 2024, with earnings and sales surpassing market expectations. This was achieved despite challenges such as lower e-commerce traffic and cooler weather impacting spring sales.
The company's U.S. wholesale business saw a boost due to early seasonal demand, while international sales met forecasts with strength in Mexico and Brazil offsetting weaker performance in Canada.
These recent developments indicate a strategic approach by Carter's to navigate a complex retail environment. Despite the predicted reduction in EPS guidance, the company maintains a strong liquidity position exceeding $1 billion and anticipates a return to growth in the current fiscal year, supported by strategic pricing and inventory management.
InvestingPro Insights
As Carter's (NYSE:CRI) navigates a challenging retail landscape, real-time data from InvestingPro provides additional context to the company's financial health and market position. With a market capitalization of $2.11 billion and an attractive P/E ratio of 9.11, Carter's stands out for its value proposition relative to near-term earnings growth. The company's commitment to returning value to shareholders is evident through a substantial dividend yield of 5.35%, complemented by a history of maintaining dividend payments for 12 consecutive years.
InvestingPro Tips highlight Carter's trading at a low P/E ratio, which, paired with a strong free cash flow yield, suggests that the stock may be undervalued. Additionally, Carter's liquidity position is robust, with liquid assets surpassing short-term obligations. For investors considering Carter's prospects, there is an opportunity to delve deeper into the company’s financials and market potential. InvestingPro offers a suite of additional tips to guide investment decisions, and by using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 8 more InvestingPro Tips available, investors have ample resources to assess the company's trajectory beyond the near-term headwinds.
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