Q1 2025 Carter's Inc Earnings Call and Business Update

https://www.youtube.com or the link in the description below. Have a great day.

Speaker Change: Welcome to Carter's first quarter fiscal 2025 earnings conference call. On the call are Doug Paladini, Chief Executive Officer and President, Richard Westenberger, Chief Financial Officer and Chief Operating Officer, Kendra Krugman, Chief Pre-Day Creative and Growth Officer, and Sean McHugh, Treasurer. Please note that today's call has been recorded. I'll now turn the call over to Mr. McHugh.

Speaker Change: Thank you and good morning everyone. We issued our first quarter 2025 earnings release earlier today. The release and presentation materials for today's call are available on our Investor Relations website at ir.carters.com

Sean Mchugh: Note that statements on today's call about items such as the company's expectations and plans are forward looking statements. For 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.

Sean Mchugh: In these materials, you will also find reconciliations of various non-GAAP financial measurements reference during this call.

Sean Mchugh: After today's prepare remarks, we will take questions as time allows. I will now turn the call over to Doug.

Doug Palladini: Thank you, Sean. Good morning, everyone. After almost two decades at the end of the year, and the past three years, building my own practice as a consultant, board member, and executive coach, it feels just great to be back in a brand leadership role with Carter's, one of America's most iconic companies.

Doug Palladini: I'm sincerely grateful to the Carter's Board of Directors for the faith they have placed in me to return Carter's to growth, and I very much look forward to earning the trust of all of our valuable stakeholders, including consumers, employees, key accounts, and

Doug Palladini: At Vans, I was able to help the brand grow from 350 million in sales to more than 4 billion, from a mostly California skate brand to a global lifestyle brand, and from an experiment for VF and to the company's leading source of revenue and profits.

Doug Palladini: Along the way, we were able to dramatically deepen consumer connectivity and loyalty

Doug Palladini: Long term and accretive growth.

Doug Palladini: I'm not going to buy sales our goal is to earn them.

Doug Palladini: We're not going to bogo or way to sales growth. Our goal is to increase profitability are ideal is to grow Carter's consistently and sustainably.

Doug Palladini: April 3rd was my first day of work.

Doug Palladini: All underway in my analysis of the company and our potential opportunities based on what I've gleaned. So far I can tell you that our drive for maximum financial efficiency must be balanced with strategic X surgical investment.

Doug Palladini: Our historic focus on maintaining a certain level of operating margins must be paired with a focus on making quality products that resonate.

Doug Palladini: Our transactional efforts must be equal by emotional loyalty drivers and above all else, we must honor and revere that most human of life's milestones raising children.

Doug Palladini: As I get up to speed on our business and assess what must be true for a return to growth we are going to suspend forward looking guidance at this time.

Doug Palladini: Strongly believe in the tenant that we do what we say and I'm assessing what is required to meet that commitment. In addition, the current tariff situation has introduced substantial uncertainty greatly complicating our ability to accurately predict Carter's financial outlook.

Doug Palladini: Our leadership team is already hard at work on a clear simplified and focused strategy of priorities and commensurate investments with the goal of returning our brands to accretive growth as soon as possible and I look forward to articulating that strategy soon.

Richard Westenberger: I will now turn the call over to Richard who has done a commendable work bridging the gap between Carter's leaders to walk you through our first quarter results.

Richard Westenberger: Thank you Doug glad to have you with us and welcome to your first quarters earnings call.

Speaker Change: Good morning, everyone before I walk through the presentation on our website I'd like to share some overall thoughts on our business with you.

Speaker Change: It's only been about 60 days since our last call with you in late February.

Speaker Change: He's been a tremendous amount of activity here at Carter's and of course in the broader marketplace and that time, we'll try to give you a good update on everything in this morning.

Doug Palladini: At the top of the list of courses Doug's arrival as our new CEO as you have heard that has a tremendous background in brand management and a strong track record of driving growth.

Doug Palladini: Jumped right and with all of Us and as I said is taking the time required to come up to speed on our business and to align on the initiatives, which we believe will return us to sustained growth.

Doug Palladini: <unk> will focus on our first quarter performance.

Doug Palladini: We had a good first quarter sales and earnings were in line with our plan and consistent with the outlook, we shared with you on our last call.

Doug Palladini: While we achieved our planned first quarter results were below last year and our objective is of course to be driving growth.

Doug Palladini: It's difficult to imagine a mark to market backdrop, and we've experienced over the last couple of months.

Doug Palladini: The plans, which have been announced to impose record tariffs on virtually everything being imported into the United States have led to renewed concerns about inflation significant declines in consumer confidence and dramatic market volatility, especially for retail and consumer companies such as Carter's.

Doug Palladini: Our objective is to continue to execute amid these broader market and consumer backdrops.

Doug Palladini: Carter's has proven its staying power over the decades, and we expect to weather. These current challenges as well.

Doug Palladini: So now to cover our Q1 results I will turn to the presentation materials posted on our website.

Doug Palladini: On page two we have our GAAP basis P&L for the first quarter. Our first quarter reported operating income of $26 million included $9 million of charges, which we have detailed on the following page.

Doug Palladini: In the first quarter, we incurred $6 million of charges related to our leadership transition.

Doug Palladini: Additionally, we incurred $3 million in costs related to the work we described on our last call.

Doug Palladini: Namely we have several work streams underway, focusing on improving our product and brand development processes to be faster nimbler and better able to respond to changing consumer preferences.

Doug Palladini: This operating model work as very foundational to improving our capabilities and will ultimately facilitate a number of growth related initiatives, particularly related to our direct to consumer businesses.

Doug Palladini: I will speak to our results on an adjusted basis, which excludes these items.

Doug Palladini: On page four we have a summary of our first quarter performance relative to the expectations, we shared on our last call.

Doug Palladini: As you can see we achieved all of our first quarter objectives was slightly higher than forecasted consolidated sales.

Doug Palladini: Importantly, U S retail the largest part of our business achieved its sales and earnings plan for the quarter.

Doug Palladini: We also had some favorable timing of wholesale demand, which benefited first quarter sales.

Doug Palladini: From a product perspective across our channels, we've seen strong sell through of seasonal spring and summer product well ahead of last year's pace.

Doug Palladini: In our core newborn to 24 month Baby business has continued to have good momentum in the market.

Doug Palladini: Our net operating income was consistent with our plan a couple of non operating items, including higher interest income and a lower effective tax rate drove a bit more earnings per share than we had forecasted.

Doug Palladini: Our overall sales and profitability metrics are summarized on page five.

Doug Palladini: We posted $630 million of net sales in the first quarter down 5% from last year.

Doug Palladini: And sales in each of our each of our business segments were also down about 5% versus 2024.

Doug Palladini: Adjusted operating income was $35 million, representing an adjusted operating margin of five 6% and adjusted EPS was <unk> 66 cents.

Our adjusted P&L is on page six.

Doug Palladini: On the $630 million in first quarter sales. Our gross margin was 46, 2% a decline of 140 basis points versus last year.

Doug Palladini: The decline in gross margin was largely driven by the continued pricing investment in U S retail, which we told you about on our last call and the negative impact of FX on product costs in Canada and Mexico.

Doug Palladini: There were some favorable offsets to these pressures, including lower product input costs and favorable channel mix with a lower mix of wholesale sales year over year.

Doug Palladini: Royalty income was $5 million up modestly from last year <unk>.

Doug Palladini: SG&A was well controlled at $261 million down 2% from last year.

Doug Palladini: Incremental costs related to new stores and investments in retail technology were offset by favorable foreign currency translation and lower spending across a number of other areas.

Doug Palladini: Operating income was $35 million compared to $55 million last year, principally a result of lower sales and the pricing investments in our U S retail business first quarter net interest and other expense was roughly comparable to last year at $5 million.

Doug Palladini: Our first quarter effective tax rate increased to approximately 27% from about 24% last year largely due to the vesting of restricted stock.

Doug Palladini: For the full year, we're forecasting an effective tax rate of approximately 23%.

Doug Palladini: Our share count was down modestly compared to last year driven by share repurchases in 2024. So again on the bottom line adjusted diluted EPS was <unk> 66 compared to $1 four in the first quarter of last year.

Doug Palladini: Yes.

Doug Palladini: A summary of our business business segment performance is on page eight.

Doug Palladini: As we had planned operating income declined versus last year lower profitability in U S retail and U S. Wholesale were the primary drivers.

Doug Palladini: Corporate expenses were $3 million lower due to lower marketing and lower performance based compensation provisions.

Doug Palladini: I'll provide some additional perspective on the performance of each of our business segments, beginning with U S retail on page nine.

Doug Palladini: U S retail first quarter net sales declined 4% with comp sales down about 5%.

Doug Palladini: These comps were at the better end of our forecast for a decline in the mid to high single digit range.

Doug Palladini: In terms of pacing during the quarter, we had a good January largely weighted towards clearance, which is usually the case early in the year.

Doug Palladini: Business weakened in February as we believe that broadly across the market.

Doug Palladini: Q1 was always going to be all of that March since it has historically represented one of the bigger volume months of the entire year.

Doug Palladini: We concentrated our pricing investment in promotional firepower and March in total our pricing investment was approximately $12 million. This is in relation to our plan for approximately $20 million in first half pricing, which we spoke about on our last call.

Doug Palladini: And our go forward forecast reflect we intend to largely hold to that 20 million dollar amount.

Doug Palladini: We believe the pricing investments have continued to drive good benefits in the business business accelerated meaningfully in March particularly online.

Doug Palladini: We saw some of the best performance in several years.

Doug Palladini: We saw left in units store conversion and continued growth in the number of new customers and improvement in our customer retention rates.

Doug Palladini: In terms of product performance as I said previously the baby category continues to be our strongest performing portion of our assortments, achieving a plus 4% comp in the first quarter.

Doug Palladini: While we saw improvement in ecommerce trends store traffic declined in the high single digits, we obviously need to drive better performance here.

Doug Palladini: And sales in our older Kid product categories declined although in line with plan lower inventory levels as we shifted our inventory investment in favor of our baby and toddler categories.

Doug Palladini: As we mentioned on our last call, we have increased our inventory investment and CAD for the back half increasing choice counts and options available.

Doug Palladini: To serve our multichannel customers.

Doug Palladini: In terms of profitability retail exceeded its internal profit plan in the quarter the year over year decline in retail segment operating margin was largely driven by the pricing investment I mentioned and expense deleverage from lower sales.

Doug Palladini: To finish off on retail sales momentum has continued into April and part due to the later timing of Easter holiday April month to date comps in the year end U S retail are running up about 13%.

Doug Palladini: For the combined March April month to date period U S retail comps are up about 4%.

Doug Palladini: On page 10, we have some highlights of our wholesale and international segments.

Doug Palladini: Sales in U S wholesale declined 5% year over year in the first quarter, we had planned first quarter wholesale sales down year over year in part due to differences in the planned timing of shipments versus last year.

Doug Palladini: First quarter wholesale sales were somewhat better than we had planned due to higher demand from several customers right.

Doug Palladini: Bright spots in the quarter included year over year growth in skip hop and the clubs and off price channels.

Doug Palladini: U S wholesale operating margin remained strong at 22, 1% compared to 24% a year ago.

Doug Palladini: The decline reflects changes in customer mix, lower pricing and higher freight rates and expense deleverage.

International segment sales declined 5% unfavorable movements in foreign currency exchange rates.

Doug Palladini: We're a $6 million headwind too.

Doug Palladini: First quarter International sales.

Doug Palladini: We had strong comparable sales in Canada, and higher sales to our wholesale customers outside of North America.

Doug Palladini: Similar to the trends in the U S. We have seen strong April month to date sales in Canada, and Mexico, driven in part by the Easter holiday.

Doug Palladini: April month to date comps in Canada are running up 9% and up 25% in Mexico.

Doug Palladini: International posted a slight loss in the first quarter compared to an operating margin of two 4% in last year's first quarter. This decline principally reflects the net impact of foreign currency.

Doug Palladini: We have some highlights of our balance sheet and cash flow on page 11.

Our balance sheet remains very solid total liquidity at quarter end was over $1 billion with over $300 million of cash on hand, and virtually all of the capacity under our revolver available to US inventories were also in good shape comparable to a year ago in total and we feel good about the composition of the inventory on hand at quarter end.

Doug Palladini: The decline in operating and free cash flow tracks to the lower level of earnings year over year.

Doug Palladini: Capex was $10 million down $10 million from last year investments in the first quarter, mostly related to eight new stores in the U S and Mexico and improvements to our distribution network.

Doug Palladini: And the distribution of capital of $29 million represented the payment of our quarterly dividend.

On page 12 as has been the case a number of times over the years supply chain has returned to the top of the list of key issues in our industry.

Doug Palladini: To provide a little background, we are a highly capable supply chain at Carter's which has been built to support the complexity of our business model as you know we operate in multiple channels with multiple brands.

Doug Palladini: So a differentiating aspect of our product assortment is the relatively high penetration of products sold as sets.

Doug Palladini: Multiple product configurations, and <unk> far more complexity than single garment items that most companies produce.

Doug Palladini: The evolution of our supply chain has merit developments and trends in our industry and the rise of production capabilities outside of the United States.

Doug Palladini: We have established strong direct sourcing capabilities based primarily in Hong Kong, we have approximately 350 of our own employees located in eight countries across Asia to work with our suppliers and our teams here in the United States.

Doug Palladini: Over the years for a number of reasons, including declining labor cost competitiveness and increasing tariffs, we have meaningfully reduced our reliance on China.

Doug Palladini: We now have a broadly diversified production base, Vietnam, Cambodia, Bangladesh and India represent our largest countries of origin.

Doug Palladini: In 2020 for China production represented less than 2% of our apparel and accessories, FRB and less than 4% of total F&B when including Skip hop.

Doug Palladini: In addition to reducing cut and sew operations in China. We've also eliminated the use of China sourced cotton fiber cotton use in our products is traceable back to its origin and comes primarily from the United States, Brazil, India and Australia.

Doug Palladini: Our skip hop business, which is more concentrated in hard lines, including those involving electronics remains more penetrated in China with roughly 45% of its production base. There we continue to modify our sourcing for skip hop to further reduce our reliance on China based manufacturing.

Doug Palladini: On the following page obviously, the big topic over the past several weeks has been the announcement by the administration of significantly increased tariffs on products imported into the United States.

Doug Palladini: We already pay significant duties on the import of our our products into the U S. In 2020 for that amount was approximately $110 million.

Doug Palladini: On page 13, we summarize the significant increase in tariffs, which have been have been proposed.

Doug Palladini: As part of our response to this issue we've engaged advisers and have participated in varying lobbying events efforts with Congress and the administration to make our point of view none on these matters.

We understand the objective of expanding manufacturing activity in the United States very little baby, our children's apparel is produced outside of Asia.

Doug Palladini: Important data suggest that less than 5% of baby apparel, specifically is produced in the western hemisphere.

Doug Palladini: Manufacturing of these products in the United States would be even less than this.

Doug Palladini: We've evaluated nearshore production alternatives, specifically in Latin America, a number of times over the years, while there are certainly benefits from shorter transportation times and reduced or no duties. They are offset by uncompetitive labor costs, a lack of availability of important components beyond fabric, such as snaps zippers and a general absence of the capable.

Doug Palladini: <unk> and expertise required to produce our products we.

Doug Palladini: We do not believe baby and childrens apparel production will return to the United States anytime soon and if it is a dead. We believe the resulting cost of these items to the end consumer would prove extremely prohibited.

Doug Palladini: We have already taken action across a number of areas in response to the higher tariffs, which have already been implemented some of these actions are summarized here.

Doug Palladini: The higher tariffs would result in meaningful increases to our product costs, if not otherwise mitigated certainly raising prices is under evaluation as well. This obviously is not our preference.

Doug Palladini: Tariffs have the potential to raise prices on a range of essential items, including our products that families with young children rely upon.

Doug Palladini: To close and just to reiterate doug's comments, we're suspending our forward guidance today. This.

Doug Palladini: This decision reflects the unique circumstances of our leadership transition and the tremendous economic uncertainty related to the proposed tariffs. We think it's the prudent thing to do.

Doug Palladini: I feel very good about the current momentum of the business and continue to believe that our long term prospects of long term prospects of Carters are very very attractive.

Doug Palladini: Those are our prepared remarks today, and we're ready to take your questions.

Speaker Change: Thank you to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Doug Palladini: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Jay sole with UBS. Your line is now open.

Jay Sole: Great. Thank you so much I have two questions first up.

Speaker Change: Doug.

To your first call obviously, its charter CEO I'd love any initial thoughts you have about.

Speaker Change: What you've seen as you've gotten into the business got to know the company and the opportunities you see to improve the financial performance.

Speaker Change: And then secondly, I wanted to ask you about slide 13 in the slide deck that has the 2020 estimated annual effective tariff rates.

Speaker Change: These potential rates.

Speaker Change: For example, a 44% of Vietnam is that based on the rates as of today, given the current pause versus the reciprocal rates that were announced.

Speaker Change: On April 2nd or is this something because the number it doesn't.

Speaker Change: If you can explain where these numbers confirm it as it stands today or theoretical and if it is theoretical sort of can you talk about what what the impact would be today, just based on the rates that exist out there right now. Thank you so much.

Jay Sole: Yes, Thanks Jay.

Speaker Change: I'm not going to get into too much detail as I said looking forward down the road to really sharing a revised strategy with you all but what I would say is that I'm truly honored to be at the helm of these iconic brands.

Jay Sole: I'm.

Jay Sole: Seriously inspired by the people and the culture here and I already have myriad reasons to believe in our future success. There is a lot of strength in our brand assets our market distribution and we have substantial equity with generations of consumers. So look forward to adding a lot of specificity.

Jay Sole: As we move forward.

Jay Sole: Richard you want to take the second part of that chart on page 13. This was an attempt to be able to be helpful. In what we've done is we've gone kind of item item by item through the various import codes and such.

Jay Sole: Looking at what the reciprocal tariffs would mean and kind of aggregating that up. So obviously, China has been hit, particularly hard thats relatively low as I said in terms of our country of origin, but significant exposure for Vietnam, Cambodia, Bangladesh. So you can see it's going from an initial.

Jay Sole: Low kind of teens low double digit at tariff rate to something that would be much much more meaningful. So this is a bit of a hypothetical it does assume that the reciprocal tariffs with the administration has proposed to become effective that's obviously not the case at the moment with deposits and in fact, so we certainly have done our measure of internal quantification of it it would be a material increase to our product.

Jay Sole: But since it is hypothetical and we're certainly hoping that.

Jay Sole: <unk> has more rational heads will prevail agreements will be rates, we're not going to quote a number today, but just wanted to make the point that.

Jay Sole: For a company that I think has done an excellent job diversifying our sourcing base, creating broad based capabilities around the world, reducing our reliance on China for all the right reasons.

Jay Sole: This would be punitive to us and it would be for I think everyone in the apparel industry.

Jay Sole: Hopefully thats helpful. Thats, what it was intended debate.

Jay Sole: Okay understood that it is sort of based on the April 2nd reciprocal rates, that's alright, I think making that clear is super helpful. So thank you so much I'll pass it on thanks for helping us clarify Jay.

Speaker Change: Our next question comes from the line of Iceberg Chow with Wells Fargo. Your line is now open.

Iceberg Chow: Hey, good morning, everyone.

Doug Palladini: Talk to you Doug.

Speaker Change: A couple of questions for me.

Speaker Change: In order I guess the first question.

Speaker Change: The China exposure, you guys deciding to less than four.

Speaker Change: Maybe Richard I mean is that is that a number that can go to zero is that a number that's kind of like you need you need what's produced there so thats as low as it can go up I'm kind of curious.

Speaker Change: Over time, I give you that number move lower how should we think about that.

Speaker Change: Yes, sure I would say in terms of our branded apparel, there's very very little bit flat in China. It's largely our accessories vendors are third parties, who are produced licensed product for us.

Speaker Change: Footwear is a good example of some of that product is still manufactured in China. We've been working with those license vendors to continue to migrate their production to other countries and that's underway as well. So I think it can go down from here.

Speaker Change: But that probably will take some time and skip hop is probably more dependent as I mentioned is that then we would like it to be on China, a lot of that business is resident in China, particularly the component that has to do with electronics I think the capabilities to produce those products have been slower to ramp up in the other countries that we are continuing to actively work on that as well.

Speaker Change: Got it and then to two more.

Speaker Change: So I know you're not going to go into guidance in specifics, but I guess I'll try to ask somebody at a high level just well first when are you expecting that the tariff impacted goods to begin to hit your shelves and then how are you thinking about mitigation efforts near term and long term and then a follow up to that is just.

Speaker Change: Are you expecting to price out.

Speaker Change: The pressure and how are you thinking about price elasticity and potential declines in volume or total revenue as a repercussion of what you might need to do just to kind of maintain or keep the gross margins steady.

Speaker Change: Sure.

Speaker Change: I would say, we're importing product on kind of a continuous basis I think the first imports will be subject to these tariffs kind of in the middle of May from memory, but we probably have on order.

Speaker Change: On hand at something like 150 days of supply across our various businesses. So like a lot of other retailers, we have inventory in stock that's not not subject to the tariffs and so we have a little bit of time before it really bleeds into the cost structure.

Speaker Change: The mitigation efforts I would tell you have been pretty effective in what's been implemented so far so.

Speaker Change: We have raised prices on some items, particularly related to skip hop we have partnered with some of our vendors to share. Some of those costs. We are continuing to move production around to lower tariffs at geographies. So those mitigation actions.

Speaker Change: Have already been taken in some cases, we would have to do more of that pricing is the big question, Mark I think there'll be some measure of that that we would have to implement.

Speaker Change: I don't know that I'm going to probably say much more at this point because it is so we're in the realm of speculation at this point, but this would be a material increase to our product cost and I think like everybody in the industry. We're trying to figure out exactly how much can the consumer bear probably makes sense to perhaps do it on some products versus others and that's all part of the analysis that we have underway and.

Speaker Change: And we will look at our unit.

Speaker Change: Investment to offset price increases as necessary with.

Speaker Change: Nevertheless impacts are minimal liability yes.

Speaker Change: I would say one other steps we have taken is taking a look at our kind of late year inventory commitments. We have scale those back slightly just out of Prudence, we probably don't think we're going to need as many units as we thought it initially and I think that reduces a bit of our exposure also.

Speaker Change: Got it thank you guys.

Speaker Change: Thank you. Our next question comes from the line of Paul Lajoie with Citi. Your line is now open.

Speaker Change: Hey, Thanks, guys.

Richard Westenberger: Richard just building on that last.

Speaker Change: Comment.

Speaker Change: Scaling back inventories can you quantify that for us how much are you pulling back second half inventory relative to your plan and I'm also curious what you're seeing from <unk>.

Speaker Change: Partners specifically the.

Speaker Change: The big three have you already started to see some order cancellations and that's what's driving you pulling back.

Speaker Change: Or are you just anticipating that you might see some of those cancellations and then.

Speaker Change: Second I'm just curious what product is already on hand are you already fully stocked.

Speaker Change: Product for back to school and I guess how much.

Speaker Change: Still on the come for for holiday. If you could just maybe talk about the timing.

Speaker Change: What you're receiving and win.

Speaker Change: Yes, I would say most of what we have on hand is spring summer inventory.

Speaker Change: Paul Winter product with chart to arrive in kind of late May June and the holiday product would come after that so the balance of our inventory receipts quite clearly are still ahead of us, but we have a good portion of our business as you know thats on replenishment. So we have those products on hand kind of at all times I would say the inventory adjustments.

Speaker Change: Largely relate to our own our own businesses are on U S retail business and I would say, it's fairly modest in the scheme of things we are committed pretty far out at this point. So it's kind of the late holiday winter deliveries that were talking about impacting I don't think im going to quantify for you exactly how much that is.

Speaker Change: Largely relates to our own retail business I would say our momentum in wholesale continues to be good. We continue to have an active dialogue with our wholesale customers I think they are approaching this situation with a great deal of caution as well there is great uncertainty.

Speaker Change: All of them and all of their business models as well, we have not seen any meaningful trend towards.

Speaker Change: Reduced inventory commitments coming from the wholesale channel not a significant trend towards order cancellations.

Speaker Change: But we're obviously watching watchful for that but everyone's.

Speaker Change: Uncertain right now.

Aspect of having to raise prices.

And I think just looking at what's happened in the consumer backdrop is one of the last couple of months, we've seen consumer confidence dropped extremely rapidly and significantly over the last couple of months and I think our wholesale customers are trying to evaluate.

Speaker Change: The health of their consumer and what the outlook will look like for the balance of the year.

Speaker Change: Paul.

Speaker Change: Understood.

Speaker Change: Got it.

Speaker Change: Got it alright.

Speaker Change: It's going to add on to what Richard was saying we have we have.

Speaker Change: We have a robust time in auction calendar that the teams are managing that well.

Speaker Change: Well hold off on any decisions around units are cancellations or pricing as long as we possibly can.

Speaker Change: Yes, and just to clarify did you could be.

Speaker Change: Back to school season will be the first full season that would be subject to tariffs that would have products subject to the new tax.

Speaker Change: I think more of that assortment would be subject to it because it would be in that product will be imported later.

Paul: Got it okay. Thank you good luck guys. Thank you Paul.

Speaker Change: Our next question comes from the line of Chris <unk> with Bank of America. Your line is now open.

Chris: Thanks, guys good morning.

Speaker Change: So I wanted to ask on the retail comp improvement you saw in the last two months I know you probably received an impact from the Easter shift, but is there a way you could parse out how much of the improvement has come in some products, where you had been more sharp on price and then Ken just given the changing macro dynamics. Since we last spoke are there any changes to your strategy.

Chris: He used to help drive some improved performance in your retail business in the back half of the year sure. So.

Chris: We have some signals that are some significant signals that our product strategies are working at least spoken about over the last few calls.

Chris: Where we've leaned into fashion with styling and fabric and details our customers responding and we're seeing that in our conversion rates in our stores that are very positive versus last year and our sell throughs are up across channels.

Chris: We're also more competitive pricing to answer that question is driving <unk> at retail specifically.

Chris: Not a big portion of our assortment that is like Super sharp pricing and we've made adjustments on but we are seeing that <unk> lift on those products and that consumers are adding additional products to those basket. So it is not.

Chris: Opening price point styles are standing alone our marketing strategies are also driving new customers to our channel.

Chris: Driving new customers that are very style centric and baby customers. So that has been a great metric that we're seeing.

Chris: Regarding macro trends they are certainly having an impact on our business. It's hard to know exactly how much I would say that we have and some typical channel shifts across our retailers and our channels that we normally see but also there is likely a little bit of pull forward of demand as consumers are planning ahead to avoid tariff related price increases.

Chris: And in the back half we have some significant inventory investments in the Kid category, which is where we've seen the most challenging portion of our business both in breadth and depth of investments in kit that will help to continue the momentum in products, but other than that the same strategy as we've been working towards and we will continue in the back half to drive our business.

Jay Sole: Got it Okay. That's very helpful. And then just a quick follow up for Richard if we put carriers to aside for a second can you just talk about your visibility you have into other costs.

Chris: Cotton.

Speaker Change: Labor, maybe if you can just talk through the cadence as we move through the year, which may be good guys that guys anything that could help us think through our margin forecast.

Speaker Change: Sure sure well the outlook for cotton has been pretty benign it's somewhere in the low 60 range I was looking at some data the other day.

Speaker Change: Crop yields around the world have been have been good and so that is taking some.

Speaker Change: Some price pressure out of out of the system. So I think the outlook for cotton is actually very favorable at the moment, we've got and we've procured all of our cotton for the for the balance of the year. So I think we're in good shape. There I think on labor, we have seen a trend towards labour inflation, we'll see what happens with the global economy that tends to drive kind.

Speaker Change: Kind of the outlook for labor rates in Asia, and I think it's been a bit mix that we had seen some pressure there I was looking at some data cost a couple of other countries and it looked like it had moderated a bit so we're still planning for a bit of inflation. There I think wages tend to only go in and kind of one direction.

Speaker Change: I would say on transportation costs freight costs, we've got some modest inflation kind of going forward. We just finished renegotiated renegotiating our ocean freight contracts. I think you are aware that we have that going on and I think that procurement team and the supply chain teams did an outstanding job with that with those renegotiations I think the rate impact that we're expecting this year.

Speaker Change: A couple of million dollars across our across our P&L. So thats, obviously very manageable, we had some extraordinary costs last year, probably $12 million to $13 million of unusual cost I would say in transportation related to rerouting vessels. Some of the surcharges. The disruption that was coming out of the middle East and such we don't expect to have those costs. This year, so even with a bit of.

Speaker Change: Rates inflation, and our new contracts, it's a fairly modest dollar amount of exposure to the P&L.

Speaker Change: Okay. Thank you and good luck guys. Thank you Chris Good luck.

Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one one on your Touchstone telephone. Our next question comes from the line of William Reuter with Bank of America. Your line is now open.

William Reuter: Hi, Good morning, I have two so the first in.

Speaker Change: In the event that there are tariffs had been eliminated.

Speaker Change: Last week would you have still pulled guidance, meaning I guess with the.

Speaker Change: Change in management and consumer uncertainty was was that.

Speaker Change: A large part of the decision to pull guidance or is that mostly related to the tariffs and who knows where that's going to go.

Speaker Change: I think both factors contributed to at Bell.

Speaker Change: I would love to be a net zero tariff world that you just described that that sounds pretty pretty pretty attractive at this point, but I think it's not it's not uncommon to have a new CEO come in and take the time that's required to.

Speaker Change: That's what's underway. So I think likely we would have we would've made the same the same decision.

Speaker Change: I'd like no tariffs too.

Speaker Change: Secondarily.

Speaker Change: I think in your prepared remarks, you mentioned marketing was down a bit.

Speaker Change: Higher a little bit year over year last year I think it was expected to be flat. This year and 25 is that still the expectation or are you going to pull back a little bit.

Speaker Change: You plan to pull back a little bit that given kind of uncertainty around consumer confidence et cetera.

Speaker Change: And I think that the.

Speaker Change: Previous plan is still the case around anticipated marketing expenditures to comment related to that portion of marketing costs that remain in the unallocated bucket and they will get pushed out so that tends to be more technology costs and personnel costs and such but not really the consumer facing portion of marketing. So those costs are resident in the business segments, that's a bit of.

Speaker Change: Accounting geography.

Speaker Change: Got it alright, that's all for me. Thank you. Thank you Bill.

Speaker Change: Thank you and I'm currently showing no further questions at this time I'd like to hand, the call back over to Doug <unk> for closing remarks.

Speaker Change: Thank you all for your time and your interest in Carter's.

Speaker Change: Despite all the uncertainty we reviewed today I've been incredibly impressed by the drive and the acumen are people are exemplifying everyday and we really look forward to sharing future strategic specificity as we move forward. Thank you all.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.