Carter’s adopts limited duration stockholder rights plan

ATLANTA - Carter’s, Inc. (NYSE:CRI), North America’s largest apparel company exclusively for babies and young children, announced Wednesday that its Board of Directors has unanimously adopted a limited duration stockholder rights agreement, commonly known as a "poison pill." The company, currently valued at $1.08 billion and trading at a modest P/E ratio of 7.9x, appears undervalued according to InvestingPro analysis, despite facing significant market challenges with its stock down nearly 54% over the past year.

The decision follows Carter’s discovery that RWWM, Inc. has rapidly accumulated a 16.86% stake in the company, as disclosed in a Schedule 13G/A filing with the SEC on September 4. Carter’s stated it received no advance notice of the stock accumulation and has been unable to establish communication with RWWM despite attempts by management. The company maintains strong fundamentals with a healthy current ratio of 2.2 and has consistently paid dividends for 13 consecutive years, according to InvestingPro data.

Under the rights plan, Carter’s will issue one preferred share purchase right for each outstanding share of common stock to stockholders of record on October 3, 2025. The rights will initially not be exercisable and will trade with the company’s common stock.

The plan is designed to be triggered if an entity acquires beneficial ownership of 15% or more of Carter’s common stock (20% for certain investors filing Schedule 13G) in a transaction not approved by the Board. In such cases, existing shareholders would be entitled to purchase additional shares at a 50% discount to market price.

Any person or group already owning more than the threshold percentage prior to the announcement will be grandfathered at their current ownership levels, though rights would become exercisable if such entities increase their stake.

The rights agreement will expire on September 21, 2026, or earlier as provided in the agreement. For investors seeking deeper insights into Carter’s financial health and growth prospects, InvestingPro offers comprehensive analysis through its Pro Research Report, available as part of its coverage of over 1,400 US stocks.

Carter’s said the plan aims to "promote the fair and equal treatment of all stockholders" and ensure the Board can properly discharge its fiduciary duties. The company noted the agreement is intended to prevent any entity from gaining control through open market accumulation without paying an appropriate control premium.

Additional details about the rights plan will be included in a Form 8-K to be filed with the SEC on Wednesday, according to the company’s press release statement.

In other recent news, Carter’s Inc. reported its second-quarter earnings for 2025, which showed mixed results. The company posted earnings per share of $0.17, significantly below the forecasted $0.34, marking a 50% miss. However, revenue exceeded expectations, coming in at $585 million compared to the estimated $563.37 million. Despite the revenue beat, UBS lowered its price target for Carter’s from $32.00 to $26.00, maintaining a Neutral rating due to the disappointing earnings report. Additionally, Carter’s announced a quarterly dividend of $0.25 per share, payable in September to shareholders of record in late August. These recent developments provide investors with important insights into the company’s financial performance and future outlook as assessed by analysts.

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