North American children's apparel company Carter's has reported a 3.7% rise in net sales to $585.3m for the second quarter (Q2) of fiscal 2025, up from $564.4m during the same period of 2024.
The increase was primarily due to sales gains in the international and US retail segments, which climbed 14.1% and 3.2% respectively.
The US wholesale segment's net sales remained stable compared to the previous year, with US retail comparable net sales growing 2.2%.
Foreign currency exchange rate fluctuations negatively impacted consolidated net sales by $3.1m or 0.5%.
Carter's chief executive officer and president Douglas Palladini stated: “Our second quarter sales performance showed stabilisation and momentum, particularly in our direct-to-consumer businesses, which achieved comparable sales growth in the US, Canada and Mexico. We are encouraged by improving business trends, particularly in US retail, where store traffic, purchase conversion and demand for our core baby apparel products all demonstrated momentum in the second quarter.”
Operating income saw a significant drop of $35.4m, plummeting 89.7% to $4m from the $39.5m reported in the second quarter of fiscal 2024.
The operating margin fell sharply to 0.7% from the previous year's figure of 7%, due to investments in pricing strategies, store renovations and openings, costs associated with operational improvements and leadership changes, and higher provision for performance-based compensation.
Net income stood at $0.4m or $0.01 per diluted share, a stark contrast to the $27.6m or $0.76 per diluted share recorded in the second quarter of fiscal 2024.
Palladini added: “I am disappointed, however, in our decline in profitability in the quarter, affected in part by selective investments in pricing, new stores and more normalised levels of performance-based compensation. We’ve also begun to see some impact from higher tariffs imposed on product imported into the United States. Returning Carter’s to long-term, sustainable and profitable growth is our highest imperative and we believe we are making informed and thoughtful investments to accomplish this objective”.
Carter's is monitoring potential new tariffs proposed by the US government that could significantly impact imports, adding considerably to the $110m in duties on imported products paid by the company in fiscal 2024.
It estimates that additional import duties could affect gross pre-tax earnings by between $125m and $150m annually under a scenario with baseline tariffs set at varying rates for different countries: 30% for China, 20% for Vietnam, 19% for Indonesia and 10% for other countries.
