Bear of the Day: Carter's Inc. (CRI)

Carter's, Inc. (CRI) is experiencing significant financial pressure, with its stock down 19% in 2024 and underperforming its industry over the past decade. The company reported an 8% revenue decline in FY22 and FY23, and further lowered its FY24 outlook, projecting a 5% revenue drop and a 13% adjusted earnings decline, leading to substantial downward revisions of its FY24 and FY25 EPS estimates. CEO Michael Casey attributed these challenges to persistent inflation impacting discretionary spending among its core customer base, resulting in a Zacks Rank #5 (Strong Sell) rating and a recommendation to avoid the stock until a turnaround is evident.

Analysis

Carter’s, Inc. (CRI) is facing significant fundamental and market pressure, reflected in its stock's 19% decline in 2024 and a 20% drop over the last decade, starkly underperforming its industry's 90% gain. The company's financial performance has deteriorated, with revenue falling approximately 8% in both FY22 and FY23. The outlook remains negative, as the company lowered its guidance, now projecting a further 5% revenue decline and a 13% drop in adjusted earnings for FY24. This weak forecast has triggered substantial downward revisions from analysts, with the FY24 EPS estimate cut by 15% and the FY25 consensus estimate lowered by 17%. Management directly attributes this poor performance to persistent inflation, which has elevated living costs and constrained the discretionary spending of its core customer base—families with young children. The combination of declining sales, a weak outlook, and negative earnings revisions has culminated in a Zacks Rank #5 (Strong Sell) rating, signaling a strong bearish sentiment.

Key Decisions for Investors

• Given the back-to-back years of revenue decline and a forward-looking projection for a 13% drop in adjusted earnings, investors should exercise extreme caution as the company's fundamentals continue to weaken.
• Monitor key macroeconomic indicators, specifically inflation rates and consumer spending habits among lower-income families, as the CEO has directly linked these factors to the company's performance challenges.
• The stock's severe long-term underperformance relative to its industry suggests deep-seated issues, making it prudent to avoid the stock until management demonstrates a clear and sustainable operational turnaround.
• The Zacks Rank #5 (Strong Sell) and significant downward EPS revisions indicate a strong bearish consensus, suggesting investors should wait for a material improvement in company guidance and analyst sentiment before considering an entry point.