Carter announces withdrawal of guidance due to declining profits and impending tariffs
In a recent development, Douglas Palladini has taken over as the CEO of Carter's, succeeding interim CEO Richard Westenberger. Westenberger continues to serve in his previous positions as CFO and COO.
The Q1 net sales for Carter's declined 4.8% year over year to $629.8 million. The company's retail comparable net sales in the U.S. dropped 5.2% compared to the previous year. However, Carter's e-commerce sales outperformed its brick-and-mortar business.
Palladini, who took office in April 2021, believes in the tenet that "we 'do what we say' and intends to meet that commitment." He aims to return Carter's to growth, focusing on quality, sustainable, long-term, and accretive growth.
The ongoing economic uncertainty caused by President Trump's tariffs has led Carter's to suspend forward-looking guidance. This decision allows Palladini time to assess what is required to return to growth. The company has partnered with some of its vendors to share costs in an attempt to mitigate the impact of the tariffs.
Vietnam, Cambodia, Bangladesh, and India are Carter's largest countries of origin. The company has been evaluating the potential impact of tariff increases on its products, with a focus on its Skip Hop brand. The current tariff situation has introduced substantial uncertainty, complicating Carter's ability to accurately predict its financial outlook.
The company is "continuing to move production around to lower tariff geographies." This strategy, along with the cost-sharing efforts with vendors, is an attempt to navigate the challenging tariff environment.
Retailers, including Walmart, Home Depot, and Target, have recently met with President Trump regarding proposed tariffs on U.S. imports. All three companies described the meeting as constructive. A report from PitchBook suggests that tariffs pose an elevated risk to discretionary product categories, including apparel.
Carter's net income decreased nearly 60% to $15.5 million compared to the year-ago quarter. The company has raised prices on a number of items to offset the impact of the tariffs. However, the potential for further price increases due to tariff increases is still under evaluation by Carter's.
In conclusion, Carter's is navigating a challenging economic environment caused by tariffs. The new CEO, Douglas Palladini, is focused on returning the company to growth while maintaining its commitment to quality and sustainability. The company continues to work with vendors to share costs and move production to lower tariff geographies. The future outlook for Carter's remains uncertain, but the company remains committed to its mission and its customers.
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