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On Monday, Barclays (LON:BARC) initiated coverage on Carter’s shares (NYSE:CRI), assigning an Underweight rating and establishing a price target of $25.00, significantly below the current trading price of $33.87. The research firm’s analysis suggests that the children’s apparel sector faces significant structural challenges, which influenced the decision for the lower rating. According to InvestingPro data, the stock is currently trading near its 52-week low of $32.12, having declined nearly 49% over the past year.
According to Barclays, the decision for the Underweight rating stems from a variety of factors that are seen as detrimental to the children’s apparel category. These include declining birth rates, limited population growth due to factors such as immigration, pricing pressure, and few opportunities for revenue growth. The decline in U.S. birth rates is viewed as a long-term issue driven by numerous factors, which are unlikely to see a turnaround in the near future. InvestingPro analysis shows the company’s revenue declined 3.39% in the last twelve months, with forecasts suggesting a further 2% drop in 2025. Despite these challenges, Carter’s maintains a healthy dividend yield of 9.45% and has sustained dividend payments for 13 consecutive years.
Barclays’ analysis also points to the sensitivity of the children’s apparel category to price changes, with an elasticity measure that suggests it is the most responsive within the garment sector. This indicates that changes in price have a greater impact on demand for children’s apparel compared to other clothing categories. Despite these pricing pressures, Carter’s maintains strong profitability with a gross margin of 47.68% and trades at an attractive P/E ratio of 7.5x. Get deeper insights into Carter’s valuation and 12 additional key metrics with a InvestingPro subscription.
Furthermore, the research highlights potential negative impacts from tariffs on Chinese imports, which include essential items such as strollers, car seats, and cribs, as well as discretionary items like toys and shoes. The tariffs could disproportionately affect the children’s category, and as a result, the core customer base of new parents might face increased financial stress, leading to heightened price sensitivity for children’s apparel.
The firm’s analysis underscores the challenges facing Carter’s and the children’s apparel market as a whole. These challenges are expected to persist, which has led to the Underweight rating and a price target that reflects these concerns.
In other recent news, Carter’s Inc. reported its first-quarter 2025 earnings, showing an earnings per share (EPS) of $0.66, which exceeded the forecast of $0.62. The company’s revenue for the quarter was $630 million, slightly above the expected $624.86 million, although this represented a 5% decrease year-over-year. Despite the positive earnings surprise, Carter’s has suspended its forward guidance due to a leadership transition and uncertainties surrounding tariffs. The company is focusing on strategic investments, particularly in the Baby category, which showed a 4% comparable growth. The gross margin declined to 46.2%, influenced by pricing and foreign exchange effects. Analysts have noted the challenges Carter’s faces, including potential tariff impacts and declining consumer confidence. The company is actively working on diversifying its supply chain to mitigate these risks.
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