CARTERS INC (CRI): Results of Operations and Financial Condition
CARTERS INC (CRI) filed an SEC Form 8-K — Results of Operations and Financial Condition. EXHIBIT 99.1 Contact: T.C. Robillard Vice President, Investor Relations tc.robillard@carters.com Carter ’ s, Inc. Reports Second Quarter Fiscal 2026 Results • Net sales $615 million vs. $585 million in Q2 2025; growth of 5% • U.S. Retail comparable sales increased 5.1% • Operatin
How this was made
The 30-second read
Why it matters
Traders can update models using the disclosed quarterly revenue, operating income, EPS, and the $132M after-tax tariff recovery, then reassess the sustainability of margins given the stated offsetting tariff costs and one-time items.
Market read
A company-specific earnings release with quantified tariff recovery and profitability improvement, plus an updated full-year outlook, creates a direct trading catalyst for CRI.
What to watch
Adjusted operating income declined in the first half year-over-year, and the release notes ongoing net incremental tariff costs plus leadership transition and IP litigation expenses that could reappear in future quarters.
Carter’s, Inc. Reports Second Quarter Fiscal 2026 Results
Second-quarter net sales increased 5.2%, adjusted operating income increased 54.1%, and adjusted diluted EPS increased 53%, while reported GAAP profit was substantially lifted by a $132 million recovery of previously paid import duties and related interest. First-half adjusted operating income and adjusted diluted EPS declined versus the prior year, and the full-year outlook calls for lower gross margin rate and an adjusted diluted EPS decline.
Key metrics
as reported| Metric | Value | q/q | y/y |
|---|---|---|---|
| Second quarter net salesGAAP | $615.5 million | – | 5.2% |
| Second quarter operating incomeGAAP | $139.8 million | – | – |
| Second quarter operating marginGAAP | 22.7% | – | – |
| Second quarter adjusted operating incomenon-GAAP | $18.1 million | – | 54.1% |
| Second quarter adjusted operating marginnon-GAAP | 2.9% | – | – |
| Second quarter net incomeGAAP | $105.0 million | – | – |
| Second quarter diluted EPSGAAP | $2.87 per diluted share | – | – |
| Second quarter adjusted net incomenon-GAAP | $9.4 million | – | – |
| Second quarter adjusted diluted EPSnon-GAAP | $0.26 | – | 53% |
| Second quarter tariff refund recoveryother | $132 million ($100 million after-tax) | – | – |
| First half net salesGAAP | $1.30 billion | – | 6.7% |
| First half operating incomeGAAP | $168.3 million | – | – |
| First half operating marginGAAP | 13.0% | – | – |
| First half adjusted operating incomenon-GAAP | $46.5 million | – | 1.3% |
| First half adjusted operating marginnon-GAAP | 3.6% | – | – |
| First half net incomeGAAP | $119.3 million | – | – |
| First half diluted EPSGAAP | $3.26 per diluted share | – | – |
| First half adjusted net incomenon-GAAP | $23.7 million | – | – |
| First half adjusted diluted EPSnon-GAAP | $0.65 | – | – |
| First half net cash provided by operationsGAAP | $202.3 million | – | – |
Fiscal year 2026 and third quarter of fiscal 2026 outlook
- Revenue2% to 3% growth in net sales ($2.898 billion in fiscal 2025); ~$750 million in net sales ($758 million in Q3 fiscal 2025)
- Gross marginLower gross margin rate
- Operating expensesLow-single digit increase in SG&A
- Tax rateEffective tax rate of approximately 23%
- NoteLow single-digit to mid-single-digit percentage growth in adjusted operating income ($176 million in fiscal 2025)
- NoteHigh single-digit to low double-digit percentage decline in adjusted diluted earnings per share ($3.47 in fiscal 2025)
- NoteOperating cash flow of $230 million to $240 million
- NoteCapital expenditures of $50 million
- NoteEarnings contributions weighted to the second half due to greater projected net impact of tariffs and investment spending in the first half relative to the second half
- NoteNet interest expense of approximately $35 million
- NoteAverage number of shares outstanding of approximately 36 million
- NoteThird-quarter anticipated non-GAAP adjustment related to IP litigation costs of approximately $1 million
- NoteFull-year anticipated non-GAAP adjustment related to leadership transition costs and IP litigation costs of approximately $8 million
- NoteFull-year recovery of previously paid import duties of $132 million
Capital returns
- In the second quarter of fiscal 2026, the Company paid a cash dividend of $0.25 per common share totaling $9.1 million.
- In the first half of fiscal 2026, the Company paid cash dividends totaling $18.3 million.
- No shares were repurchased in the first half of fiscal 2026.
What drove it
- Second-quarter sales growth reflected growth in each segment.
- U.S. Retail comparable net sales increased 5.1% in the second quarter and 7.8% in the first half.
- Second-quarter adjusted operating income benefited from productivity and supply chain initiatives.
- The Company cited improved marketing efforts, early benefit of productivity initiatives, and continued progress in the Baby segment.
- Changes in foreign currency exchange rates used for translation had a favorable effect on consolidated net sales of approximately $2.4 million, or 0.4% in the second quarter, and approximately $8.0 million, or 0.7% in the first half.
Concerns
- Net incremental tariff costs, investments in demand creation, and general inflationary cost pressure partially offset second-quarter operating-income benefits.
- First-half adjusted operating income decreased $0.6 million, or 1.3%, and adjusted diluted EPS declined to $0.65 from $0.83.
- The fiscal 2026 outlook assumes a lower gross margin rate because of incremental tariff costs, partially offset by higher pricing, tariff mitigation actions, and productivity savings.
- The outlook assumes net interest expense of approximately $35 million, reflecting the higher principal amount and coupon rate associated with the refinancing of senior notes in Q4 2025.
What to watch
- Execution of productivity and supply chain initiatives against net incremental tariff costs and inflationary pressure.
- Whether investments in demand creation and continued Baby segment progress support sales growth.
- Third-quarter net sales projected at ~$750 million versus $758 million in Q3 fiscal 2025.
- Full-year gross-margin performance, SG&A investment levels, and the anticipated weighting of earnings contributions to the second half.
- Operating cash flow versus the fiscal 2026 outlook of $230 million to $240 million.
Balance sheet and cash flow
- Net cash provided by operations in the first half of fiscal 2026 was $202.3 million, compared to net cash used in operations of $8.3 million in the first half of fiscal 2025.
- The improved operating cash flow was primarily driven by the receipt of a refund of previously paid import duties, improved working capital and favorable timing of interest payments as compared to prior year.
Analysis
Carter’s reported a stronger second quarter on sales and adjusted earnings measures. Net sales increased $30.2 million, or 5.2%, to $615.5 million, with growth in U.S. Wholesale, U.S. Retail, and International. U.S. Retail comparable net sales increased 5.1%. The company attributed sales performance to growth in every segment, while management also cited improved marketing efforts and progress in the Baby segment.
Reported profitability was dominated by the recovery of previously paid import duties and related interest. GAAP operating income rose to $139.8 million from $4.0 million and GAAP net income rose to $105.0 million from $0.4 million. The reported quarter included a $132 million, or $100 million after-tax, recovery. Excluding identified items, adjusted operating income increased $6.4 million, or 54.1%, to $18.1 million, and adjusted operating margin improved to 2.9% from 2.0%.
Productivity and supply chain initiatives were the principal adjusted-profit drivers in the quarter. These benefits more than offset net incremental tariff costs, demand-creation investment, and general inflationary cost pressure. The first-half comparison shows the limits of the second-quarter improvement: adjusted operating income declined to $46.5 million from $47.1 million, adjusted operating margin declined to 3.6% from 3.9%, and adjusted diluted EPS declined to $0.65 from $0.83.
Cash generation improved sharply in the first half, with $202.3 million of net cash provided by operations compared with net cash used in operations of $8.3 million in the prior-year period. The company identified the import-duty refund, improved working capital, and favorable interest-payment timing as primary factors. Capital returns consisted of $18.3 million in first-half cash dividends, with no share repurchases.
The fiscal 2026 outlook projects 2% to 3% net-sales growth and low single-digit to mid-single-digit adjusted operating-income growth, but also calls for a high single-digit to low double-digit adjusted diluted EPS decline. The outlook assumes lower gross margin from incremental tariff costs, partly offset by pricing, tariff mitigation, and productivity savings. Management expects earnings contributions to be weighted to the second half, while third-quarter net sales are projected at ~$750 million compared with $758 million in Q3 fiscal 2025.
Management, verbatim
Demonstrating continued momentum, the Company posted positive results for the quarter as net sales increased 5% and adjusted operating profit increased 54%, exceeding the prior outlook. While there were a number of moving parts in the quarter, we believe these results are largely reflective of improved marketing efforts, the early benefit of productivity initiatives, and continued progress in the critical Baby segment.
Sharon Price John, Chief Executive Officer & President
Not in the filing
stated, not guessed- Period-end date
- Second-quarter and first-half gross margin
- Second-quarter and first-half operating expenses
- Segment revenue for U.S. Wholesale, U.S. Retail, and International
- Segment-specific drivers beyond consolidated commentary
- Cash balance
- Debt balance
- Free cash flow
- Share repurchases in the second quarter
- Prior-quarter comparisons for reported metrics
- Prior outlook, preventing a comparison of actual results with prior guidance
- Complete third-quarter fiscal 2026 guidance, as the filing text is truncated after "~$50 million in adjusted operating"
- GAAP reconciliations for forward-looking adjusted operating income and adjusted diluted EPS, which the company does not provide
AlphaAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.
Background
This is an SEC Form 8-K (Item 2.02) with Exhibit 99.1 reporting Carter’s second quarter fiscal 2026 results, including GAAP-to-non-GAAP adjustments and discussion of tariff refunds, productivity initiatives, and transition/litigation costs.
Ticker impact
Carter’s reported Q2 FY2026 net sales of $615.5M (+5%) and operating income of $139.8M, plus a $132M import-duty recovery.
Near-term bias higher as the GAAP and adjusted profitability jump is concrete, though tariff costs and litigation/transition items remain key swing factors.
The 8-K discloses specific quarterly financial results, the tariff refund recovery amount, and the adjusted operating income/EPS changes versus the prior year, which are direct inputs to valuation and near-term positioning.
Market effects
Provides a read-through on apparel retail margin recovery and the earnings sensitivity to tariff-related duty refunds and supply-chain productivity.
Primarily impacts North American specialty apparel sentiment, especially baby and young children retail demand and marketing effectiveness.
Tariff and import-duty mechanics highlighted here can influence broader apparel supply-chain and cost expectations, but the disclosure is company-specific.
Counterpoint
The GAAP surge is heavily influenced by a one-time tariff-duty recovery, while adjusted operating margin is still low versus the prior-year adjusted margin trend.
Key entities
- public_companyCarter’s, Inc.
Reported Q2 FY2026 results including net sales growth, a large operating income rebound, and a tariff-duty recovery, alongside adjusted EPS improvement.
- personSharon Price John
CEO and President quoted on momentum and productivity initiatives, and referenced leadership transition context.
