Earnings call transcript: Carter’s Q2 2025 earnings miss expectations

Carter’s Inc. reported its second-quarter earnings for 2025, revealing mixed results that led to a significant drop in its stock price. The company posted earnings per share (EPS) of $0.17, falling short of the forecasted $0.34, marking a 50% miss. Despite this, revenue came in at $585 million, surpassing the estimate of $563.37 million. Following the announcement, Carter’s stock fell 19.69% in the aftermarket trading session.

Key Takeaways

• Carter’s EPS fell significantly below expectations, missing forecasts by 50%.
• Revenue exceeded projections, reaching $585 million, a 4% year-over-year increase.
• The stock price dropped nearly 20% in aftermarket trading.
• Challenges included pricing investments, tariffs, and higher freight costs.
• Baby category sales showed strong growth with a 10% increase.

Company Performance

Carter’s reported a mixed performance for Q2 2025, with revenue increasing by 4% year-over-year to $585 million. However, the company faced pressure on its margins, with gross margin declining by 200 basis points to 48.1%. Key challenges included pricing investments, tariffs, and elevated inbound freight rates. Despite these hurdles, the baby category experienced double-digit sales growth, driven by new brand launches and a focus on higher average unit retail products.

Financial Highlights

• Revenue: $585 million, up 4% YoY
• Earnings per share: $0.17, down from $0.76 YoY
• Gross margin: 48.1%, down 200 basis points YoY
• Adjusted operating income: $12 million, representing a 2% margin

Earnings vs. Forecast

Carter’s reported an EPS of $0.17, significantly below the forecast of $0.34, resulting in a 50% earnings miss. However, revenue of $585 million exceeded the forecast of $563.37 million by 3.89%. This mixed performance reflects the ongoing challenges the company faces in managing costs and navigating a competitive market.

Market Reaction

Following the earnings announcement, Carter’s stock price fell by 19.69% to $26.15 in aftermarket trading. This decline reflects investor concerns over the significant earnings miss and the company’s ability to manage costs amid tariff pressures and higher freight expenses. The stock’s movement places it closer to its 52-week low of $23.50.

Outlook & Guidance

Carter’s did not provide specific revenue or earnings guidance for the upcoming quarters, citing uncertainty around tariffs. However, the company expects revenue growth in the second half of 2025 and plans to offset the tariff impact by 2026. The estimated net tariff impact for 2025 is $35 million, with average unit retail prices expected to rise in the low single digits.

Executive Commentary

CEO Doug Paladini emphasized the company’s long-standing market position, stating, "Our return to growth will be predicated upon this place of honor, backed by one hundred and sixty years of cumulative trust." CFO Richard Westenberger highlighted the focus on maintaining margins, saying, "We have no interest in running a lower margin business, particularly due to tariffs."

Risks and Challenges

• Tariffs: Ongoing tariff impacts are expected to cost $35 million in 2025.
• Pricing investments: Efforts to remain competitive may pressure margins.
• Freight costs: Higher inbound freight rates continue to challenge profitability.
• Market competition: Increased competition from private label brands.
• Store closures: Plans to close approximately 100 stores over several years.

Q&A

During the earnings call, analysts focused on Carter’s strategies for mitigating tariff impacts and improving store productivity. Executives addressed the current pricing and promotional environment, emphasizing their commitment to sustainable and profitable growth.

Full transcript - Carter’s Inc (CRI) Q2 2025:

Moderator, Carter’s: Welcome to Carter’s Second Quarter Fiscal twenty twenty five Earnings Call. On the call are Doug Paladini, Chief Executive Officer and President Richard Westenberger, Chief Financial Officer and Chief Operating Officer Kendrick Kruman, Chief Product Officer and Sean McHugh, Treasurer. Please note that today’s call is being recorded. I’ll now turn the call over to Mr. McHugh.

Sean McHugh, Treasurer, Carter’s: Thank you, and good morning, everyone. We issued our second quarter twenty twenty five earnings release earlier today. The release and presentation materials for today’s call are available on our Investor Relations website at ir.carters.com. Note that statements on today’s call about items such as the company’s expectations and plans are forward looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward looking statements, please see our most recent SEC filings and the earnings release and presentation materials posted on our website.

In these materials, you will also find reconciliations of various non GAAP financial measurements referenced during this call. After today’s prepared remarks, we will take questions as time allows. I will now turn the call over to Doug.

Doug Paladini, CEO and President, Carter’s: Thank you, Sean. Good morning and thank you for joining us today. Just over one hundred days ago, I began my journey as Carter’s CEO and President. It’s both an honor and privilege to lead this company and its iconic brands, And I’m more energized and inspired than ever about our potential. In the short time I have been here, I visited as many Carter’s stores, key accounts, distribution centers, regional offices and factories as possible to hear directly from our teams where our greatest opportunities lie, and how best to get after them.

I have also listened to feedback from many new, existing and lapsed consumers. And based on my learnings, I’ve been able to develop a clear picture of what success will look like as we move forward, returning all Carter’s brands to growth that is long term, sustainable and profitable. Carter’s brands are truly iconic and our legacy is a source of trust and strength. Our teams possess talent, acumen and drive, all necessary to unlock the company’s next tranche of success. And our market leadership affords Carter’s unparalleled competitive advantage.

I’m going to share some details around the roadmap to future success shortly, but first Richard is going to discuss our twenty twenty five second quarter and first half results, which I believe offer proof that we have stabilized our business and put in a position to grow again.

Richard Westenberger, CFO and COO, Carter’s: Richard? Thank you, Doug. Good morning, everyone. With the first half of the year now behind us, it’s clear we’re navigating an unsettled world and marketplace. As the year has unfolded, tariffs have emerged to present significant uncertainty and challenges to planning our business.

We’re obviously not unique in this higher tariffs are an issue across the industry. The incremental baseline tariffs which have been implemented were not especially meaningful to our results in the second quarter, but they’re expected to have a much more significant impact on our business going forward, not to mention any additional reciprocal tariffs, which might be additive to what’s already been imposed. I’ve been pleased though with how our team is actively responding to these new challenges. Over the years, there’s been no shortage of unexpected events that we’ve had to respond to. Whether it was the sudden emergence of record high cotton prices, record inflation or the market exit of significant wholesale customers, Carter’s has staying power and I’m confident we’ll work through whatever the current environment throws our way.

My comments on our second quarter and first half performance will track to the presentation materials, which are posted to the Investor Relations portion of our website. So beginning on Page two of our materials. On Page two, we have our GAAP basis P and L. Sales in the second quarter were $585,000,000 Our second quarter reported profitability included $8,000,000 in charges, which I’ll comment on in a moment. Our Q2 reported operating income was $4,000,000 Our first half GAAP P and L is on page three.

On first half sales of $1,200,000,000 our reported operating income was $30,000,000 First half reported profitability included $17,000,000 in charges. We detailed the second quarter and first half charges on page four. We’ve treated these items as adjustments to our reported results. In the first half, we incurred approximately $10,000,000 in costs, largely third party professional fees in support of improving our product and brand development processes. We’ll talk further today about the benefits these efforts are yielding.

Overall, we believe this work will improve our capabilities and our ability to more effectively compete and grow in our marketplace. The first half also included $7,000,000 related to our leadership transition earlier this year. We’re expecting far less significant charges related to these matters in the second half of the year, 5,000,000 or less, primarily as our use of third party external support winds down and our internal teams assume our go forward processes and work. As we disclosed on our February earnings release, we also expect a noncash pretax charge in the third quarter of up to $10,000,000 related to the termination of the legacy Oshkosh B’gosh pension plan. This morning, I’ll speak to our results on an adjusted basis, which excludes these items.

Some overall highlights of our adjusted second quarter performance are summarized on Page five. Our second quarter sales of $585,000,000 represented growth of 4% over last year. This growth was driven by our U. S. Retail and International segments.

U. S. Wholesale sales were comparable to last year in the quarter. Our profitability, both adjusted operating income and adjusted earnings per share, were down considerably versus a year ago. We had planned profitability to be down largely due to the year over year investment in pricing and retail and higher spending in some specific areas.

Our objective though is obviously to grow profitability. We have much higher ambitions for our business than our second quarter profitability reflects. Second quarter is historically our smallest quarter of the year. In 2024, second quarter represented about 20% of our full year sales and approximately 14% of full year adjusted operating income. Our adjusted P and L for the second quarter is on Page six.

On our sales of $585,000,000 gross margin in the second quarter was 48.1%, a decrease of 200 basis points from last year. The largest driver of the decline in gross margin was our investment in pricing in U. S. Retail. Recall, we had planned approximately $20,000,000 in incremental pricing for the first half.

Given improved traffic and good sell throughs, we ended up spending a bit less than this. Pricing in U. S. Retail was down about 3% in the second quarter. As we told you previously, these pricing investments were concentrated in key value item basket starters and in our key market share promotional events to be more competitively priced in the market.

At this point, we don’t believe further investment in lowering AURs is needed. In the second half, we’ll anniversary the significant investments we made in pricing and marketing last year. AURs are planned up in the low single digits in our retail business in the second half versus down about 4% in the first half. In recent weeks, we’ve also seen some indications of competitors beginning to raise prices. Gross margin in the second quarter was also pressured by a few other factors, including a higher mix of excess inventory sales to the off price channel in the Wholesale segment, higher inbound freight rates and the net impact of foreign currency.

The impact of higher baseline tariffs on gross margin in the second quarter was approximately $2,000,000 As I’ve said, we expect these incremental tariffs to be more meaningful going forward. Royalty income was about $1,000,000 lower than last year in part due to tariff related order cancellations of licensed product across our channels. Adjusted SG and A in the second quarter increased $26,000,000 to $273,000,000 an increase of about 10%. The largest driver here was higher store related expenses. These include higher volume related costs and having nearly 40 more stores across North America than last year.

Store maintenance expenses were also higher than last year as we caught up on some deferred projects across the fleet. As we told you on our last couple of calls, we expect SG and A to be higher this year as we’re planning for more normalized levels of variable performance based compensation compared to last year. This represented about $8,000,000 of the increase in SG and A in the quarter. Our first half adjusted spending was up about 4%. For the second half, we’re targeting an increase in the mid single digit range.

Our adjusted operating income in the second quarter was $12,000,000 representing an adjusted operating margin of 2%. Below the line, interest and other costs were about $2,000,000 compared to $5,000,000 last year. The improvement here relates to higher interest income and an FX gain driven by the weakening of the U. S. Dollar since the end of the first quarter.

Our effective tax rate in the quarter was unusually high at approximately 74%. This high rate was due to stock option expirations in the quarter and the implementation of a global minimum tax rate in Hong Kong during the quarter. Given the noise in the quarterly rate, it’s more meaningful to consider our full year forecasted effective tax rate, which we’ve estimated to be about 23% compared to about 19.5% in 2024. With all of that, on the bottom line, earnings per share were $0.17 in the quarter compared to $0.76 last year. On Page seven, we summarize our adjusted segment performance in the second quarter.

As mentioned, our U. S. Retail and International businesses drove the revenue growth in the quarter. U. S.

Retail sales grew $9,000,000 and International sales grew by $11,000,000 Wholesale sales were comparable to a year ago. On profitability, our consolidated adjusted operating income declined $28,000,000 with lower profitability in U. S. Retail and Wholesale accounting for most of that. I’ll provide a little more color by business beginning with U.

S. Retail on page eight. Demand in U. S. Retail in the second quarter was good and we achieved a plus 2% total retail comp.

The quarter started out strong with the buildup to the later Easter holiday this year in April. There may have been also some measure of a stock up phenomenon in April as consumers were reading the headlines about potential reciprocal tariffs and may have pulled forward some of their purchasing to get ahead of higher prices in the future. More of our pricing investment in the quarter was also concentrated in April. Business slowed a bit in May and around the Memorial Day holiday in particular, but we had several very good weeks of selling in June to finish the quarter. In terms of product, Baby, the largest part of our apparel business, continues to perform very well with double digit sales growth in the second quarter, which builds on growth we posted in Baby over the past several quarters.

Continuing to win in Baby is a high priority, we’re pleased to see consumers’ response to the changes and improvements we’ve made to our assortment here. Our latest market share information indicates we’ve maintained our share in baby and grown share in the toddler and younger kid segments. We’ve also seen an improvement in the trend of new customer acquisition and retention, building on the progress we began to see in the second half of last year. As expected, second quarter retail profitability was lower than last listed the primary drivers here, including the investment in lower pricing and expense deleverage. Our teams are focused on executing a good second half, supported by several new products and marketing strategies and an overall planned improved inventory position versus a year ago.

Third quarter sales are off to a good start. July month to date comp sales in The U. S. Are running up about 2% with average AURs also higher than last year. We’re also encouraged by back to school selling, which is off to a good and earlier start than last year.

We’ve summarized our U. S. Wholesale and International segment performance for second quarter on Page nine. In wholesale sales were comparable to last year as I’ve noted. There’s always a number of moving pieces in wholesale and second quarter was no exception.

Year over year, we had higher sales in the off price channel as we were able to opportunistically move some excess inventory. I’d characterize this growth as more or less timing with full year clearance of excess inventory through the off price channel forecasted to remain very low by historical standards and planned down year over year in the second half. We had year over year growth with two of our three exclusive brand customers in the quarter and we’ve seen some good momentum for new Skip Hop products within the wholesale channel. On profitability, wholesale had a 14% adjusted operating margin. The decline versus last year reflects lower pricing, changes in customer mix, including the higher clearance sales and expense deleverage.

International was a standout area in the business in the quarter with all components of this segment posting sales growth over last year. The largest component of our operations outside The United States is our Canadian business, which had terrific performance with a plus 8% comp. Mexico has also continued its momentum with consumers in its market, posting a plus 19% comp. In our International Wholesale business, sales also grew in the quarter driven by higher demand from our partner in Brazil. International’s operating margin was approximately 4%, a stronger U.

S. Dollar compared to a year ago, continues to weigh on the profitability of our international businesses. On the next several pages, we’ve summarized our first half performance in total and by business segment and this information is included for your reference. We’ve summarized our balance sheet and cash flow performance on Page 13. Our balance sheet remains in very good shape.

We ended the second quarter with good liquidity, substantial cash on hand, essentially also full availability under our credit facility And our forecast projects good continued liquidity going forward. Inventory was up 3% year over year at the end of the second quarter. About $17,000,000 of our quarter end inventory balance represented higher costs due to tariffs. Excluding the cost impact of tariffs, inventory was comparable to a year ago and inventory units at the end of the quarter were down 1% versus last year. The quality of our inventory heading into the second half is very good.

We have less excess inventory than a year ago and we feel good about the inventory investments we’ve made to drive the business in the second half with more newness and ongoing improvements to our assortments across the baby, toddler and kid categories. Also as summarized here, we’ve had a net use of cash year to date, which tracks to our lower earnings and higher inventory balance, including the cost of higher tariffs. We typically generate most of our cash as a business in the second half of the year and our forecast reflects the same expectation for this year. We’re expecting positive operating and free cash flow for the full year. Turning to a couple of initiative updates on Page 15.

As we’ve mentioned, we’ve had a tremendous amount of work underway the past number of months across several important areas. First, we’ve been comprehensively assessing and redesigning our end to end product development process from initial design concept all the way through delivery of the finished product. We have a complicated product assortment with multiple categories, brands and channels to consider. Our assessment indicated we have an opportunity to shorten our product development lead times and improve this aspect of how we go to market. We’ve also identified an opportunity to reduce the number of changes we make to the assortment during the process and to reduce overdevelopment.

Has been a comprehensive project involving a large portion of our organization with very active participation across our design, merchandising, supply chain, wholesale and retail teams. We’ve already begun to see benefits from this work and have realized a meaningful reduction in our product timeline. We’ve had good partnership from our vendors in Asia as part of this initiative as well. The end objective of this work is for us to become faster, nimbler, better able to react to consumer preferences and continue to induce greater and more frequent newness in our assortments. In recent years, this has been a good spark to consumer spend, purchase frequency and consumer retention.

Additionally, we’ve completed a tremendous amount of work in assessing our retail store portfolio. As Doug will describe more fully, we’ve employed some meaningful new analytics to our store portfolio. This analysis has identified opportunities to close some stores and will also strengthen the way we evaluate future store sites going forward. On the next page, we’ve reprised a page from our last earnings call on tariffs, continue to obviously be a topic of discussion across the industry. The frequently changing outlook for potentially significant additional tariffs has presented a tremendous challenge in planning our business.

We have a very well diversified sourcing footprint. We’ve meaningfully reduced our exposure to China manufacturing over the last number of years. And now as summarized here, our largest countries of origin are Vietnam, Cambodia, Bangladesh and India. Unfortunately, these countries are in scope for additional tariffs as the administration has announced. We’ve assessed the higher incremental tariffs which have already been implemented, an additional 10% duty for all countries and higher incremental duties for products from China, Vietnam and Indonesia.

Relative to a few months ago, we’re preparing for a world with higher and more permanent tariffs above the over $100,000,000 in duties which we have paid historically. Our estimate of the additional baseline tariffs is that it would represent a gross additional tariff amount between 125,000,000 and $150,000,000 on an annualized basis. If this is our new reality and again, this is not an issue unique to Carter’s, it’s our intention to be aggressive in our response as we would for any other meaningful increase to our cost structure. Our intended actions are summarized here on Page 16. We’re in active discussions with our vendor and wholesale partners to share any additional cost of these tariffs depending upon what tariff structures are eventually inactive.

We’ll continue to be dynamic in moving production to more advantageous geographies, and we’ll continue to look at our product assortments. Given the magnitude of the challenge, we also intend to raise our prices. In the past, when we’ve needed to raise prices because of product cost increases, we’ve done so successfully. We will remain focused on the extraordinary quality and value that our brands are known for, but we are also committed to managing a higher operating margin business going forward as well. As this morning’s press release indicated, we’ve not reinstated guidance given the overall uncertainty around tariffs and their potential impact on the business.

I am encouraged by a number of things we’re seeing in the business right now, particularly in U. S. Retail. Consumers are responding well to our product assortments and marketing strategies and wholesale channel demand overall has held up well. We have a number of plans and initiatives intended to drive a good second half.

Our product initiatives are focused on leaning into our best category of product, including Little Planet, Purely Soft and new higher style collections. As mentioned, we’ve also invested in an overall improved inventory position relative to the first half. Average in store inventory in U. S. Retail was down low double digits in the first half and is planned to be comparable in the second half with increases planned during the critical holiday selling season in the fourth quarter.

Additionally, we have increased the depth and breadth of our top performing categories and our assortments will reflect more frequent injection of newness. Our marketing plans also reflect increased investment over last year’s second half. We’ve been seeing very good returns on our marketing spend thus far this year. We’re expecting some near term pressure on gross margin from higher tariffs, but in 2026 and beyond, our planning assumption is that we’ll be able to offset these costs. Our estimate of the net earnings impact in the 2025 of the incremental baseline tariffs, which have been implemented, is approximately $35,000,000 Key risks that we’re monitoring include the prospect of additional tariffs, consumer response to higher prices and the overall level and trend in consumer sentiment.

With these remarks, I’ll turn it back to Doug to share some of his observations and thoughts on our path forward.

Doug Paladini, CEO and President, Carter’s: Thank you, Richard. Our Q2 and H1 results show me that Carter’s business is stabilizing as we control what we can. I also believe that we now have the necessary foundation in place to return Carter’s to long term sustainable and profitable growth. As mentioned at the beginning of today’s call, I’d like to spend some time talking about what I’ve learned during my first one hundred days plus in this role, and where I intend to take Carter’s moving forward. Also, in today’s presentation materials, we’ve provided links to a brand video and illustrative PowerPoint deck to bring this narrative to life.

Everyone I’ve met since my April 3 start date has a story to share about Carter’s or Oshkosh. Something they wore as a baby that their mom stored away as a keepsake. A dress or pair of overalls passed down through generations, or a favorite outfit they have their kids wearing right now. Phones come out, photos and memories are shared, the fondness and warmth are palpable. It’s exactly the powerful emotional response to our brands that any company leader would covet.

And it reinforces the tremendous privilege Carter’s has as a part of people’s lives during such a meaningful time when families are having babies and raising young children. Our return to growth will be predicated upon this place of honor, backed by one hundred and sixty years of cumulative trust and fueled by a commitment to serve a new generation of young families with brands and products that emphasize high quality, modern design, and exceptional value. I think our newly crafted company purpose, to embrace the wonder of childhood and uplift those shaping the future, captures this position perfectly. I’m also inspired by the talent and potential of many leaders and teams across the Carter’s organization. And we will certainly continue to attract and retain the absolute best talent possible as we optimize our organizational model.

To that end, several changes in additions to the Carter’s leadership team have added substantial experience in Acumen where we require it most. Our retail leader, Alison Peterson, joined Carter’s with tremendous experience from Best Buy. Our new Head of Strategy, Emily Everett, joins us officially in August, moving over from Boston Consulting Group after leading our transformation roadmap. And Sarah Crockett recently joined Carter’s from Designer Shoe Warehouse as our Chief Marketing Officer to drive demand creation and consumer connectivity. In my nearly forty years of building and nurturing brands, I’ve consistently seen that thoughtful, measured investment drives profitable growth, And that’s exactly the path we’re back on at Carter’s.

I’ve also learned that the strongest brands are those with a clear sense of identity and purpose, knowing exactly what they stand for and what they don’t. And most importantly, I know that lasting consumer loyalty comes from balancing the transactional with the emotional, combining value with meaning. At Carter’s, we are returning to all these fundamentals. To better know, appreciate and thank our fans, Carter’s is taking several meaningful actions to more impactfully connect with our consumers. We’ve just completed the most significant consumer research study in Carter’s history, which now forms the basis for an always on flow of direct insights and data informing every decision we make.

We’ve successfully removed a full three months from our product development calendar, dramatically increasing our ability to read and react to consumer signals and upscaling agility. Each year, our newest fans represent ninety percent of all U. S. Births, building on Carter’s loyalty member base of more than 9,000,000 known consumers. Through this dynamic platform, we are elevating personalization of product, content and offers for each shopper and presenting a seamless digital experience across apps, stores and websites.

The name atop our Atlanta headquarters is Carter’s. The name above almost every retail door we operate and on website homepages is Carter’s. Carter’s is our flagship brand, full stop. As such, our future success is inextricably tied to the Carter’s brand, and we’re treating it with a commensurate level of care. To regain lost market share and reinforce Carter’s position as the number one baby apparel brand in all points of distribution and across all vital product categories, we have focused and redoubled our efforts to deliver relevant and resonant apparel to today’s new parents.

This prioritization is already showing signs of success. Across U. S. Stores and e commerce, Carter’s baby category sales continue to accelerate for the fourth straight quarter with plus 5% total growth in Q1 and plus 10% in Q2 versus last year. An emphasis on product newness is yielding more consumer acquisition, up 8% versus last year, and these new consumers deliver higher lifetime value.

Carter’s Purely Soft assortment has simply exploded in popularity and is a solid source of growth each season in our must win baby category. This product is truly the softest I have ever felt. In addition to selling at higher non promotional prices, purely soft consumers visit us more often and spend more per visit than average. There’s something very special about Oshkosh B’gosh that goes well beyond its one hundred and thirty years of denim heritage. For many of us shopping regularly for new baby gifts, a pair of Oshkosh overalls and a denim jacket are the perfect set and always adored by recipients.

Due to its tremendous brand equity, we now have a clear line of sight to Oshkosh becoming Carter’s most global and differentiated brand. We’re updating the Oshkosh business model to really get after this opportunity and look forward to sharing details in the coming months. We are also incubating three emerging brands that show tremendous promise, Skip Hop, Little Planet, and Otter Avenue. Skip Hop, our hardline brand, focused by parents for parents, continues to resonate with its powerful blend of thoughtful design and functional innovation. Q2 sales for Skip Hop were up 7% and H1 was up 4.5% to last year.

Since its 2021 relaunch, Little Planet has become a baby, toddler and young children’s leader in sustainable apparel made with eco friendly materials. Little Planet’s high quality make and more sophisticated aesthetic command higher prices and give the brand much greater upmarket potential that we believe will generate solid growth and brand halo. And just this week, Carter’s launched its next emerging brand, Otter Avenue, named for the Wisconsin Street on which Oshkosh B’gosh was founded. This is our first ever brand specifically for toddlers, crafted through insights around how kids begin to dress themselves. And we believe it will keep our infant and baby consumers engaged as their kids grow.

As with Little Planet, Otter Avenue commands higher prices through premium design and make, and we believe it will experience solid growth from its test phase this year into 2026 and beyond. Very early results are highly encouraging. These new brands are resonating. Little Planet, for example, has grown its consumer base by 50% this year, all new fans to Carter’s, with a lifetime value 1.5 times higher than our average consumer. In Q2, our best products with higher AURs outperformed our good and better buckets, with sales up and outpacing inventory investment.

The best product category often features our most style forward assortments and carries an exceptional value overall. I’ve come to understand and appreciate that Carter’s products are not discretionary, but instead vital, necessary, and cherished from birth through all the fast growing and rapidly evolving early stages of life. Infants become babies, babies become toddlers, and toddlers become young kids with strikingly predictable regularity. Our business model and strategic framework reflect this inherent strength. When your name is above the door, consumers come in with higher expectations and rightfully so.

As both a fan and student of retail, I know I do. Shoppers expect curated assortments led by newness, knowledgeable and engaged associates, a clear brand point of view, and total value that’s easy to understand. And that is exactly what we’re striving to deliver across our more than 1,000 Carter’s stores in North America and beyond. At the same time, it’s important to remember that Carter’s reaches consumers with unmatched scale. Last year, we earned more than two fifty million visits to our own stores and digital platforms, not to mention Carter’s presence as a leading brand in nearly 20,000 points of wholesale distribution across North America’s most prominent retailers.

Few brands have the opportunity or the responsibility to show up this consistently and meaningfully for families raising young children. And to that end, each point of interaction must serve our consumer in a much more resonant way to drive brand loyalty and unlock lifetime value. One step we are taking is implementing a new fleet segmentation strategy, providing the right consumer experience at each point of own distribution, from more upmarket style stores to value driven outlets. Beginning to roll out in 2026, I expect these segmented Carter stores to be key growth drivers. We are already iterating on new stores as we open them, and their sales comps are outperforming the balance of the fleet by three fifty basis points.

In addition, we are seeing strong proof points in key retail metrics such as conversion, units per transaction and unit volume, each showing meaningful gains for five quarters running. In fact, year over year active consumers and owned stores have delivered growth for the first time since 2022, and our unit velocity has greatly increased, comping 6.3% versus last year. We have also launched a new proprietary algorithm to help us understand where stores should be opened, moved or closed. The first outcome of this analysis is that we have identified approximately 100 Carter’s doors, which we will close as leases expire. While we employ the same multifaceted set of inputs to relocate or open new doors in high traffic impactful locations, our clear focus will continue to be increasing productivity where we have already invested capital in existing doors.

As we test and learn, we are iterating on Carter’s business model in real time, again to drive sustainable and profitable growth. Our key wholesale accounts remain a vital and substantial part of the CRI business model. Carter’s global multichannel approach will continue to afford us distinct competitive advantage across all points of distribution and among our competitive set. We have remapped our North America wholesale model, anchored by our big three, Walmart, Target and Amazon, to strategically include more of our brands in more doors with more accounts, while continuing to emphasize our exclusive brands, Retaining and growing our number one baby and toddler brand status among all key accounts is expected to continue to drive sales growth through outsized reach and impact. Carter’s aggressive promotional cadence must be rebalanced to support more sustainable profitable growth.

We’re already making progress, investing approximately 15% less in promotions than planned, particularly in must win categories such as baby. Given early success of new investments thus far, we intend to elevate demand creation resources and position much of it to generate revenue growth against two primary areas, store traffic and consumer loyalty. Every point of additional traffic across our current store fleet is worth approximately $10,000,000 in revenue and $5,000,000 in operating income, a good example of the return on investment I’m looking for. We are also building on our base of more than 9,000,000 active loyalty members. For each additional 500,000 members Carter’s adds, we would expect an incremental $70,000,000 or so in sales.

We are also learning how best to generate global scale in international markets, where birth rates outpace that of The US, such as Brazil, where we’ve built a high performing partnership, operating 81 Carter’s stores and more than 200 shop in shops. The outcomes of what we experience here inform how we think about geographic expansion in the future. As we focus on what really matters to drive sustainable long term growth, we expect to become much more efficient and effective in every choice we make, which we believe can yield substantial SG and A savings, some of which we expect to reinvest into our brands and capital expenditures that service our brands, where thoughtful investment will provide the greatest return on capital. Early indicators show that our foundational work is translating into real business momentum, but we’re just getting started. Our plans will evolve as we read signals in the business, and we will remain agile no matter the level of uncertainty.

We will continue to be transparent, pointing to proof in our progress, as well as what we learn from what isn’t working. My confidence in our future prospects emanates from the trust placed in Carter’s by generations of families. We are the largest and most significant company focused exclusively on young children’s apparel, and we must continue to honor that very special relationship at a very special time in people’s lives. I look forward to sharing much more with you as we move forward, thank you. And with these remarks, we’re ready to take your questions.

Moderator, Carter’s: Thank you. If you’d like to ask a question, please press 11. Our first question comes from Jay Sole with UBS. Your line is open.

Jay Sole, Analyst, UBS: Great, thank you so much. Doug, thank you for all the comments today. I’d love to ask you, given everything that you talked about and everything you’ve learned in your first one hundred plus days, what kind of sales growth opportunity do you see going forward What kind of annual sales growth rate do you think you can deliver? What kind of EBIT margin do you think you can get the company to over, say, a three to five year period?

Generally speaking, if you had an earnings goal, what kind of earnings do you think the company should be able to deliver? Thank you.

Doug Paladini, CEO and President, Carter’s: Hey, Jay. Thank you for your questions. Yeah, I have a lot of earnings goals and sales goals, but we’re not going to share specific numbers today. I can tell you, I can just reinforce what I said. We have substantial and meaningful reasons to believe that we can return to growth, that that growth can be profitable and sustained over time, and that accretive.

It’s accretive for our brands. It benefits our consumers. That’s what we’re really focused on. And that’s what we’re driving toward right now.

Jay Sole, Analyst, UBS: Got it, understood. And maybe if I can ask one for Richard, just talking about tariffs, you gave the number, I think it was 125,000,000 to $150,000,000 gross. Can you just talk about how and you gave some ideas about how you’re going to offset the impact, whether it’s changed the product assortment, cost share with vendors, etcetera. Can you dive in a little bit and maybe give us an idea of like what the biggest potential offset would be? Is it price increases?

Is it something else? And how much over time about $125 It sounds like you can offset a lot of it, but like over what timeframe and sort of what might be the impact to next year?

Richard Westenberger, CFO and COO, Carter’s: Right. And this is Jay, our best kind of analysis to date on this. Obviously, the landscape is anything but certain on this. It seems like every day there’s a new announcement or different interpretations even among the countries who are negotiating this. So it’s been tough even to try and run the scenarios that we’ve shared this morning.

I do think probably the most meaningful opportunity is price just in terms of the magnitude of the dollars, just given the size of our business. That said, that’s not the only tool that we intend to employ here. Other ones that were listed in the presentation are very important to us as well. We’ve had good partnership with our vendors. We are sharing some of the price some of the tariff costs with our wholesale partners.

We have raised our prices. It’s tougher to do near term, obviously, because we have goods that have been ticketed, we have goods that have been sold in, and that’s the reference to the impact, the expected impact for the second half of twenty twenty five. It’s just tougher for us to cover near term. But as I said, we’re committed to growing the profitability of the company. We have a long heritage of being a high operating margin business.

We have no interest in running a lower margin business, particularly due to tariffs. And if this is something that’s going be a permanent increase to our cost structure, have to find a way to cover it. And that’s why our ambition is for 2026 and beyond that we would find a way to completely mitigate what we’re estimating. The analysis gets a little circular because ’s a lot of data that suggests that you lose some unit intensity when you raise prices and therefore that affects the number of units that you’re importing into the country that are subject to tariffs. So we’ll see where it all lands.

As I said, I’m pleased with how aggressive our teams have been in responding to this challenge and it’s the challenge of the moment and I think it’s one for the industry as well. As the leader in young kids apparel, we expect to lead in this regard as well and we’ll be as aggressive as we can with it over time.

Doug Paladini, CEO and President, Carter’s: If I could just add one note, I really wanna applaud the agility of our supply chain team. They’ve done incredible work diversifying our existing sourcing base, and we will continue to be agile. So as we get clarity on what’s happening with the tariff situation, we can move among the countries of sourcing that we have. And I think we have tremendous agility and it is a competitive advantage for us. I would just add that as an important factor that’s working in our favor irrespective of the uncertainty.

Jay Sole, Analyst, UBS: Got it, thank you so much.

Moderator, Carter’s: Thank you. Our next question comes from Paul Lejuez with Citi. Your line is open.

Kelly, Analyst, Citi: Hi, this is Kelly on for Paul. Thanks for taking our question. Doug, thanks for all the color. I was wondering if you could just double click on your plans on The U. S.

Retail business. I

Richard Westenberger, CFO and COO, Carter’s: think

Kelly, Analyst, Citi: you talked about closing some stores as leases come up. I guess when we think about sort of the net stores, 100 and change in The U. S, would you expect those stores that the store count to move lower? And just any color on where you’re seeing opportunity to close stores versus opening stores and just more detail around your US DTC strategy. Thanks.

Doug Paladini, CEO and President, Carter’s: Yeah. Thank you, Kelly, for the question. The first thing I would tell you is that I really believe in this new multifaceted algorithm that we have that is proprietary to our company. It’s it’s a more analytical look at our fleet than we’ve ever had before. So we have more inputs, and I think we’re making much more intelligent choices.

That said, all options are on the table. Closing more stores, moving stores, opening new stores, relocating, remodeling. We’re gonna look at every possible option available to us, and we’re gonna use all this insights to decide what’s best moving forward. The other thing that we’re really leaning into, as I discussed, is this fleet segmentation strategy. It’s gonna be very important for us as we want to deepen consumer connectivity and be more resonant with the product assortments in each point of distribution to ensure that our outlet stores, our in line stores, our more upmarket stores reflect the consumer who’s shopping in those spaces.

We believe there’s a tremendous opportunity there. And you’re already seeing us distort assortments in different stores to try new things to appeal to consumers, with good results, by the way, as we’ve detailed today. So we’ll continue to test and learn, and we’ll continue to employ all the information available to us to make the most informed choices possible. And yeah, that’s probably the most detail I can give right now. Just to briefly

Richard Westenberger, CFO and COO, Carter’s: onto that, we are continuing to see good real estate opportunities. I think to Doug’s point, we’re increasing the analytical rigor around those new site selections. But our last two classes of new stores are the best performing in the fleet at the moment. So we’re encouraged by that. Of the 100 stores that Doug mentioned around closing, they represent probably around $155,000,000 of revenue.

We actually think there’s an OI gain that we get when you factor in the fact that we’re going to transfer some of those sales from closed stores to the existing store base. It’s really about improving productivity of the existing store fleet. That’s our focus, but that doesn’t mean we don’t have opportunities to continue to expand over time and open new stores.

Kelly, Analyst, Citi: Any timeline for when you expect to close the 100 stores?

Richard Westenberger, CFO and COO, Carter’s: Over the next several years as the leases expire, we’ve gone through the analysis that there’s really not a strong NPV case to be made for closing the stores before lease expiration. We have some situations where we have lease kick outs. That would be kind of a handful of locations is our expectation. We’re continuing to read it, but we think the best decision is to have these stores close at their lease expiration. So it’s over the next several years that will hit the 100 stores.

Kelly, Analyst, Citi: Got it. Just last question on pricing. So you you’ve made these pricing investments in US DTC. They they seem to to help the comp. You also made some investments in pricing in The US wholesale channel.

I think units were up 6%. Your sales were flat. I guess, how do we square that with your planned price increases in the back half of the year? Like, have you started to raise price and you’re seeing a good consumer response? Like how flexible are you on pricing here and what feedback are you getting from your wholesale partners?

Richard Westenberger, CFO and COO, Carter’s: Right. So we begun to raise prices including in the wholesale channel. That was something that started late last month as we started to ship fall product. I’d say the dialogue with our wholesale customers has been very constructive. This is an issue, as I said, that’s not unique to Carter’s.

They’re seeing it in their own private label sourcing. They’re seeing it from their other vendors. I think it’s just understood that there has to be some measure of sharing. They’ve responded really well. So that’s how we’re handling it in the wholesale channel.

We have probably more flexibility in our own retail channel, obviously, to change prices dynamically based on what we’re seeing. And as I’ve mentioned in recent weeks, we’re actually seeing competitors raise their prices. So it’s our intention to probe up where we can. We’ll obviously read the situation with how the consumers respond. Interestingly, the best performing part of the assortment is our best set of products, the products that have the most added benefits and features and carry the highest price points.

So clearly our consumers recognize when we’ve added to our assortments we’ve added features and benefits, they’re willing to pay for that and that’s why we’re leaning into that part of the assortment in particular. That helps on the pricing front as well.

Doug Paladini, CEO and President, Carter’s: Just to add to that, we are seeing reasons to believe that our consumers, are appreciating those opportunities. Again, I referenced specifically Little Planet and Purely Soft, which is a Carter’s assortment, as examples of where we’re seeing real achievement there. It’s helping bring new consumers in more often as well. So it’s not just what we have to raise prices on, it’s what we want to raise prices on, so that we are being more proactive and directive ourselves already.

Kelly, Analyst, Citi: Great, thank you so much. Best of luck.

Doug Paladini, CEO and President, Carter’s: Thank you.

Moderator, Carter’s: Thank you. Our next question comes from Jim Cartier with Monness, Crespi and Hardt. Your line is open.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Hi, good morning. Doug, you’ve talked about the need to invest to drive sustainable profitable growth. Can you quantify or give us a sense of how meaningful those investments would be? And are those investments near term dilutive to margins?

Doug Paladini, CEO and President, Carter’s: So I’m not gonna quantify the investments. I will tell you that that, historically, I do not believe we have invested sufficiently in demand creation and reaching our consumers with the best possible story. That’s a real opportunity for us going forward. Where we are already investing more, the MROI and the return on the investment is outstanding. And that I will just reiterate the two places where I believe, demand creation investment is going to yield the greatest upside for us.

One is store traffic and website traffic, and the other is consumer loyalty. And again, that return on invested capital, you know, as we model it, is very high, both in terms of revenue and operating income. So we think we can continue to justify these increased investments, and we believe that they will drive growth that is profitable for us.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Great. And then in terms of investing behind the best product and the best performing parts of the assortment, where does kind of second half stand in terms of the changes that were made year over year relative to the first half?

Doug Paladini, CEO and President, Carter’s: Yeah, I will tell you that the assortments are continuing to expand in the best bucket. Again, our reasons to believe are showing us that there’s real resonance with our consumer with these products, and so there’s no reason to slow down. So you will see more inventory, and you will see higher AURs, you will see more of this product in a more expansive way. To reiterate something that Richard said, I think you will see more newness, more frequently from us throughout our platforms as well in the second half.

Kelly, Analyst, Citi: Yeah, breadth and depth of investment.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Great. Thank you. Thank

Moderator, Carter’s: you. Our next question comes from Chris Nardone with Bank of America. Your line is open.

Chris Nardone, Analyst, Bank of America: Thanks, guys. Good morning. So Doug, just to refresh you on the business, I’m curious to hear why you think the category has been relatively weak over the last several years and just how the competitive landscape in the category has changed. Maybe you can put into context how much the category has grown and your confidence in really getting this business back to growth.

Doug Paladini, CEO and President, Carter’s: Yeah. We know the market is down approximately 2% overall. But what we’ve seen is the primary change in the landscape is around private label. When you go into a lot of our key account partners, you will see much greater investment for them in our category. I think that’s primarily what we’re seeing, is growth from them.

But I would also tell you that as I have met with a lot of these key accounts directly, what they have told us is they expect us to grow our business as their primary baby and toddler national brand. So yes, more competition from private label in these key accounts, but also more of an opportunity for us as the leader. And we definitely are leaning into that and plan to continue to build on that as well.

Jay Sole, Analyst, UBS: Yeah, the other

Doug Paladini, CEO and President, Carter’s: note I would have for you just is to keep an eye on international because there’s a lot of bright signs there for us as well. And we are, again, are leaning on our awareness. Know, one hundred and sixty years of trust means something in a lot of places around the world. And we benefit from tremendous awareness, especially around quality. We find that that’s something where we’ve outpaced all the other brands.

And that’s true outside of The United States as well. Richard spoke to our results in Canada and Mexico, and I talked about Brazil, all as good examples there.

Chris Nardone, Analyst, Bank of America: Got it. Very helpful. Then just a quick follow-up on the wholesale business. I noticed the exclusive business, two of the three are growing. Has there been any material change in sell through or just the health of inventory in the channel?

And then also you’re pushing more of your best product into the market. Is there opportunity to expand shelf space with Little Planet, Purely Soft and your newly launched brand? Like how big of an opportunity is that over the next couple of years?

Richard Westenberger, CFO and COO, Carter’s: So, Chris, I’d say that there is an opportunity for us to broaden the availability of our brand portfolio in the wholesale channel. And that’s something that Doug has been helping us prioritize. I think there is an opportunity to see greater penetration of Little Planet. The new brand that we’ve launched this week, Otter Avenue, we’re only days into it, but we think that’s a great opportunity where it’s differentiated product, it’s a white space in the market. And so we think that’s an opportunity with a number of our wholesale customers over time as well.

I would say on balance sell throughs have been good. We’re kind of early into kind of fall winter selling. That will start to ramp up here in coming weeks. We’ll get a better read on back to school here with our key customers in the next number of weeks. But on balance, as I said in my remarks, outlook for demand in the wholesale channel has held up very well for fallwinter product.

And so I’m encouraged about what the next few months could mean in that segment of the business.

Doug Paladini, CEO and President, Carter’s: Yeah, and I would just also refer back to my comments about redrawing our wholesale landscape, Because I think you will see, as I said, more of our brands in more accounts and more doors as we move forward. And traveling the country, visiting these accounts directly with our wholesale leader, we clearly have that opportunity and that invitation from our key accounts.

Chris Nardone, Analyst, Bank of America: All right, thanks guys. Good luck.

Moderator, Carter’s: Thank you. Our next question comes from Ike Boruchow with Wells Fargo. Your line is open.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Hey, good morning, everyone. A couple of questions from me. I guess, I know there’s no guidance on revenue, but I guess, when we think big picture in the back half of the year, which channel, whether it’s direct to consumer or wholesale, would you expect to outperform in the back half? And then I guess from to both channels, would you expect the rate of change on revenue from where we are today to worsen or stay the same as you push price? Now you’re talking about pushing price a little bit more aggressively than you were in the first half.

Richard Westenberger, CFO and COO, Carter’s: I’d say on balance we have higher revenue growth planned in the second half relative to the first half And that would be led by the largest business for us, which is our direct to consumer business. So we have, I’d say, more direct control over what gets executed in our own retail business than we do in the wholesale channel. We’ve sold in obviously fallwinter. Those bookings were planned kind of comparable year over year. We have replenishment demand planned up slightly in the second half.

So I think the outlook across our channels and of course continued momentum to Doug’s point in international, we’ve been on just a great streak there. And so I would expect that demand profile to continue in our International segment. So on balance, forecasting some acceleration of revenue growth in the second half. We do have an extra week in the second half, just to be transparent on that. We’re in a fifty third week year, so that contributes to the second half as well.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Got it. Thanks, Richard. And then, I guess, to move to margin. So on the $35,000,000 that you guys talked about, it’s roughly, I think, 200 basis points in the back half. I guess, just Richard, just you’re talking about AURs that were down for now you’re planning to upload singles.

Can you just do the math for me? If AURs are up low singles how much of that roughly 200 basis points 2H headwind gets offset?

Richard Westenberger, CFO and COO, Carter’s: Well, I’d say it’s a portion. I don’t know if I’ll be as discrete as all the basis points. But as I said, it’s just tougher to cover the impact from the tariffs near term with pricing. There’s some measure of an offset, but it won’t completely offset the impact. The $35,000,000 is the net effect after taking some benefit from pricing, other offsets in terms of vendor sharing and such.

That’s the net amount. To your point though, we are planning AURs up in the second half and so that’s less of a drag. There’s also if you recall from just our guidance earlier in the year, the dynamics was expected to shift a bit independent of tariffs between first half and second half. First half was a bit more of that drag from lower AURs in the retail business, far less so and actually prices planned up in the second half. What becomes a bit more of a swing factor is product costs themselves are higher in the second half independent of tariffs, and that’s conscious on our part.

That’s where we’ve made investments in the product. That’s what’s driving momentum with the consumer. And so that comes through a bit as well, discreetly looking at product costs.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Okay, so the $35,000,000 is after they assume price increases go in?

Richard Westenberger, CFO and COO, Carter’s: That’s a headwind. That’s correct.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Okay, great. That’s helpful. And then my last one for Doug, bigger picture. I think just to go back to the first question, Jay’s question, I think, obviously, we’re all interested in long term earnings power and growth and all that. But I’d like to ask more for the short term, honestly.

I mean, seems like you guys are in reset mode in 2025 and that likely goes deeper into 2026. You’re dealing with tariffs, you

Richard Westenberger, CFO and COO, Carter’s: have to accelerate investment.

Jim Cartier, Analyst, Monness, Crespi and Hardt: Is there any way to frame where you see the bottom of margin or profit dollars as you look to hit stabilization, I assume, in the next twelve plus months? Just any other help you can kinda give us would be great.

Doug Paladini, CEO and President, Carter’s: Yeah. I I really don’t think that there’s much more detail we can provide beyond what we’ve already said. I would just reinforce a couple things to you. My primary long term objective is long term sustainable profitable growth. All three of those things must be true for Carter’s to win.

We’ve given back some market share in the past few years. We have a very clear plan to win that back, and we’re gonna win that back with product that is profitable. Again, we’re already seeing reasons to believe that we can do that, And that’s resonating with our consumers. The newness that we’re putting in the marketplace is yielding the best results that we have. Our wholesale partners are encouraging us to grow with them as they grow this part of their business.

Their dedication to what we do is a big part of their future success as well. So long term, sustainable, profitable growth. I know it sounds like a broken record, but that’s short term, mid term, and long term, what we’re focused on here.

Ike Boruchow, Analyst, Wells Fargo: Thanks a lot.

Moderator, Carter’s: Thank you. And our last question comes from Paul Kearney with Barclays. Your line is open.

Ike Boruchow, Analyst, Wells Fargo: Good morning. Thanks for taking my question. I guess with the outlook for AUR to increase low single digit in the back half, what is your expectation for promotions in the market? And relative to competition, the planned price increases in line with what you are already starting to see competitively in the market?

Richard Westenberger, CFO and COO, Carter’s: I think it continues to be a very promotional marketplace. I don’t know if it’s more so than it has been. As I said, we are starting to see some indication of response from across the industry, across the competitive set to presumably tariffs. And so we will read that. I think our retail team in particular does a great job in kind of scraping the competitive price information out there and making sure that we are competitively priced.

That’s our mission is to not be an outlier. We wanna be competitive, but our brands are worth more and we think that we’ll have the ability to successfully price up cover. So that’s kind of how we’re thinking about it.

Ike Boruchow, Analyst, Wells Fargo: Okay. And then my second is, when you think about improving the store productivity in the DTC business, I know you can’t quantify it, but can you help maybe rank some of the shifts in SG and A spend between maybe taking out some costs and what are the bigger buckets of reallocating and reinvesting between marketing or product or anything else? Just ranking some of the puts and takes on SG and A to improve the productivity long term. Thanks.

Richard Westenberger, CFO and COO, Carter’s: Sure. Well, would say in general stores are expensive to operate. They have a high fixed cost structure. They’re SG and A intensive. And so as we look to close 100 stores, that SG and A comes out of the base.

And these are stores that are kind of marginally productive, they’re making a few million, they’re losing a few million, they’re at the margins by definition. So that SG and A comes out of the base. We have a good ongoing productivity program. I think we’ve done in general a good job managing SG and A over the last number of years. We’re trying to keep a lid on hiring where we can, organizational costs.

We have a great indirect procurement program where we become much more disciplined in how we go to market and procure the things that we need to run the enterprise. We would like to find more savings there and I think a destination would be in some of this marketing investments that we’ve talked about. We wanna drive more demand in the business, so that would be an area of possible reinvestment over time.

Doug Paladini, CEO and President, Carter’s: Yeah, I would just add and reinforce a couple things that I said. Our in store metrics are performing much better, quarter over quarter too, for multiple quarters now. Our opportunity is driving greater traffic. There’s a lot of ways to do that, better real estate decisions, all the way through demand creation. That’s the unlock for us, right?

So that is one of the two key investment buckets I talked about. We need to bring more people into the stores onto our websites. And then once there, I think we’re doing a much better job of converting them and keeping their loyalty.

Ike Boruchow, Analyst, Wells Fargo: Okay, last one, if I can just squeeze one more in. I think just on tariffs, you mentioned you expect to mitigate them in 2026 and beyond. Does that mean you expect to fully offset them in 2026 or should we be looking to 2027 for additional offsets? Thank you.

Richard Westenberger, CFO and COO, Carter’s: Our intention Paul would be to offset them fully in 2026. So we’ll have more to say over time, but that’s the direction we’ve given to the organization and the teams are moving out against that priority.

Ike Boruchow, Analyst, Wells Fargo: Thank you. Best of luck.

Richard Westenberger, CFO and COO, Carter’s: Thank you, Paul.

Moderator, Carter’s: Thank you. That’s all the time we have for questions. I’d to turn the call back over to Doug Paladini for closing remarks.

Doug Paladini, CEO and President, Carter’s: Yeah, we’re at time, so I’ll be very brief here. Thank you all for your time and interest in Carter’s. Hopefully, you’ve seen as I do that our business is stabilizing and that we are in a position to grow again. We see myriad reasons to believe that we’re moving into a phase of long term sustainable and profitable growth. But please remember, we’re just getting started.

I look forward to sharing much more with you as we move forward. Thank you.

Moderator, Carter’s: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.

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