Carter’s, Inc. (NYSE:CRI), North America’s largest and most-enduring apparel company exclusively for babies and young children, today reported its second quarter fiscal 2026 results.
“Demonstrating continued momentum, the Company posted positive results for the second quarter as net sales increased 5% and adjusted operating profit increased 54%, exceeding the prior outlook. While there were a number of moving parts in the quarter, we believe these results are largely reflective of improved marketing efforts, the early benefit of productivity initiatives, and continued progress in the critical Baby segment,” said Sharon Price John, Chief Executive Officer & President. “Separately, having recently joined the organization, I look forward to leading this historic company into its next exciting chapter. Carter’s is the market share leader in its category fueled by a well-established, diversified business model and powerful assets including its iconic brands, providing a wealth of opportunity to unlock value, drive profitable growth and deliver meaningful shareholder returns.”
Adjustments to Reported GAAP Results
In addition to the results presented in this earnings release in accordance with GAAP, the Company has provided adjusted, non-GAAP financial measurements, as presented below. The Company believes these non-GAAP financial measurements provide a meaningful comparison of the Company’s results and afford investors a view of what management considers to be the Company’s underlying performance. These measures are presented for informational purposes only. See “Reconciliation of Adjusted Results to GAAP” section of this release for additional disclosures and reconciliations regarding these non-GAAP financial measures.
Second quarter and first half fiscal 2026 results included a benefit related to the receipt of a refund of previously paid import duties and related interest as well as expenses associated with leadership transition and intellectual property litigation costs. Second quarter and first half fiscal 2025 results included expenses related to operating model improvement initiatives and leadership transition costs.
Consolidated Results
Second Quarter of Fiscal 2026 compared to Second Quarter of Fiscal 2025
Net sales increased $30.2 million, or 5.2%, to $615.5 million, compared to $585.3 million in the second quarter of fiscal 2025, reflecting growth in each segment. Net sales in the U.S. Wholesale, U.S. Retail, and International segments grew 11.7%, 1.7%, and 2.7%, respectively. U.S. Retail comparable net sales increased 5.1%. Changes in foreign currency exchange rates used for translation had a favorable effect on consolidated net sales of approximately $2.4 million, or 0.4% in the second quarter of fiscal 2026, as compared to the second quarter of fiscal 2025.
Operating income increased $135.8 million to $139.8 million, compared to $4.0 million in the second quarter of fiscal 2025, reflecting a recovery of previously paid import duties and benefits from productivity and supply chain initiatives, partially offset by net incremental tariff costs, investments in demand creation, general inflationary cost pressure, as well as costs related to leadership transition. Operating margin increased to 22.7%, compared to 0.7% in the prior year.
Adjusted operating income (a non-GAAP measure) increased $6.4 million, or 54.1% to $18.1 million, compared to $11.8 million in the second quarter of fiscal 2025, principally due to the benefits of productivity and supply chain initiatives, which more than offset net incremental tariff costs, investments in demand creation and general inflationary cost pressure. Adjusted operating margin increased to 2.9%, compared to 2.0% in the prior year period.
Net income was $105.0 million, or $2.87 per diluted share, compared to $0.4 million, or $0.01 per diluted share, in the second quarter of fiscal 2025.
Adjusted net income (a non-GAAP measure) was $9.4 million, compared to $6.3 million in the second quarter of fiscal 2025. Adjusted earnings per diluted share (a non-GAAP measure) was $0.26, compared to $0.17 in the prior-year quarter.
First Half of Fiscal 2026 compared to First Half of Fiscal 2025
Net sales increased $81.5 million, or 6.7%, to $1.30 billion, compared to $1.22 billion in the first half of 2025, reflecting growth in each segment. Net sales in the U.S. Retail, U.S. Wholesale, and International segments grew 7.2%, 5.4%, and 8.2%, respectively. U.S. Retail comparable net sales increased 7.8%. Changes in foreign currency exchange rates used for translation had a favorable effect on consolidated net sales of approximately $8.0 million, or 0.7% in the first half of fiscal 2026, as compared to the first half of fiscal 2025.
Operating income increased $138.1 million to $168.3 million, compared to $30.1 million in the first half of fiscal 2025, reflecting a recovery of previously paid import duties and benefits from productivity and supply chain initiatives, partially offset by net incremental tariff costs, investments in demand creation, general inflationary cost pressure, and costs related to leadership transition. Operating margin increased to 13.0%, compared to 2.5% in the prior year period.
Adjusted operating income (a non-GAAP measure) decreased $0.6 million, or 1.3% to $46.5 million, compared to $47.1 million in the first half of fiscal 2025, principally due to net incremental tariff costs, incremental investments in demand creation and general inflationary cost pressure, partially offset by benefits from productivity and supply chain initiatives. Adjusted operating margin decreased to 3.6%, compared to 3.9% in the prior year period.
Net income was $119.3 million, or $3.26 per diluted share, compared to $16.0 million, or $0.43 per diluted share, in the first half of fiscal 2025.
Adjusted net income (a non-GAAP measure) was $23.7 million, compared to $30.1 million in the first half of fiscal 2025. Adjusted earnings per diluted share (a non-GAAP measure) was $0.65, compared to adjusted earnings per diluted share of $0.83 in the first half of fiscal 2025.
Net cash provided by operations in the first half of fiscal 2026 was $202.3 million, compared to net cash used in operations of $8.3 million in the first half of fiscal 2025. The improved operating cash flow was primarily driven by the receipt of a refund of previously paid import duties, improved working capital and favorable timing of interest payments as compared to prior year.
See “Reconciliation of Adjusted Results to GAAP” sections of this release for additional disclosures regarding non-GAAP measures.
Return of Capital
In the second quarter of fiscal 2026, the Company paid a cash dividend of $0.25 per common share totaling $9.1 million. In the first half of fiscal 2026, the Company paid cash dividends totaling $18.3 million. No shares were repurchased in the first half of fiscal 2026.
Future declarations of quarterly dividends and the establishment of future record and payment dates will be at the discretion of the Company’s Board of Directors based on a number of factors, including business conditions, the Company’s future financial performance, investment priorities, and other considerations.
2026 Business Outlook
We do not reconcile forward-looking adjusted operating income or adjusted diluted earnings per share to their most directly comparable GAAP measures because we cannot predict with reasonable certainty the ultimate outcome of certain components of such reconciliations that are not within our control due to factors described above, or others that may arise, without unreasonable effort. For these reasons, we are unable to assess the probable significance of the unavailable information, which could materially impact the amount of future operating income or diluted EPS, the most directly comparable GAAP metrics to adjusted operating income and adjusted diluted earnings per share, respectively.
The Company’s fiscal year 2025 included a 53rd week, which contributed approximately $37 million in consolidated net sales.
The Company’s outlook (and related assumptions) for the third quarter 2026 include an anticipated non-GAAP adjustment related to IP litigation costs of approximately $1 million. The Company’s full-year fiscal 2026 outlook (and related assumptions) includes an anticipated non-GAAP adjustment related to leadership transition costs and IP litigation costs of approximately $8 million and a recovery of previously paid import duties of $132 million.
For fiscal year 2026 (a 52 week fiscal year), the Company projects approximately:
- 2% to 3% growth in net sales ($2.898 billion in fiscal 2025);
- Low single-digit to mid-single-digit percentage growth in adjusted operating income ($176 million in fiscal 2025);
- High single-digit to low double-digit percentage decline in adjusted diluted earnings per share ($3.47 in fiscal 2025);
- Operating cash flow of $230 million to $240 million; and
- Capital expenditures of $50 million.
The Company’s outlook for fiscal year 2026 assumes (comparisons vs. prior year unless otherwise noted):
- Earnings contributions weighted to the second half due to greater projected net impact of tariffs and investment spending in the first half relative to the second half;
- Lower gross margin rate, reflecting incremental tariff costs partially offset by higher pricing, tariff mitigation actions, and productivity savings;
- Low-single digit increase in SG&A, reflecting organizational restructuring and store fleet rationalization savings offset by investments in demand creation, information technology, and other cost inflation across the business;
- Net interest expense of approximately $35 million, reflecting higher principal amount and coupon rate associated with the refinancing of its senior notes in Q4 2025;
- Effective tax rate of approximately 23%; and
- Average number of shares outstanding of approximately 36 million.
For the third quarter of fiscal 2026, the Company projects approximately:
- ~$750 million in net sales ($758 million in Q3 fiscal 2025);
- ~$50 million in adjusted operating income ($39 million in Q3 fiscal 2025); and
- ~$0.85 in adjusted diluted earnings per share ($0.74 in Q3 fiscal 2025).
The Company’s outlook for third quarter fiscal 2026 assumes (comparisons vs. prior year unless otherwise noted):
- Higher gross margin rate, reflecting a greater mix of U.S. Retail sales and the anniversary of higher incremental tariff costs, which began in third quarter 2025;
- Comparable SG&A expense, reflecting organizational restructuring savings offset by investments in demand creation and other cost inflation across the business;
- Net interest expense of approximately $9 million, reflecting higher principal amount and coupon rate associated with the refinancing of its senior notes in Q4 2025;
- Average number of shares outstanding of approximately 36 million.