CARTERS (CRI) Q2 FY26 earnings call: guidance and Q&A

Clarify the contradiction between earlier wholesale demand and conservative H2 outlook, and explain the accounting for the tariff refund, specifically if it reduced inventory.

Richard explained that earlier fall product demand was strong, but H2 wholesale demand is expected to be lighter due to some customers being more conservative. He clarified that the tariff refund did not reduce inventory as the goods were already sold, and the $18 million in inventory from higher tariffs relates to the +10% tariffs post-IEPA. He also noted strong forward bookings for fall, winter, and early spring 2027.

“So the accounting did not reduce inventory. At this point, we have sold through the goods that were brought into the country and tariffed at the higher level, of tariff rates.”

asked by Paul Leshway from Citi · answered by Richard

How does the new CEO define success for herself and the organization, and what are her financial and qualitative goals?

Sharon stated her objective is to drive shareholder value through profitable growth, emphasizing market share gains and potential global expansion. She highlighted leveraging brand awareness, trust, and operational expertise, focusing on consumer-centricity and data-driven strategies across multiple generations of consumers.

“clearly our objective is to drive shareholder value. we're going to focus on profitable growth. And that's not growth for growth's sake, but it's also not always entirely focused on the bottom line, because we believe that market share is going to be a very important part of how we win in the long run, not just in the markets that we're in, but even at some point when it's right.”

asked by Jason from UBS · answered by Unknown Speaker

What is the biggest thing the new CEO thinks she can do differently from Carter's past, or what "out-of-the-box" idea can unlock profitable growth?

Sharon explained that while strategic language like "consumer-centric" and "brand building" might be similar, the "magic is often in the how." She emphasized optimizing engagement through communication, marketing, and loyalty programs, and finding the intersection of brand meaning, consumer needs, and organizational infrastructure. She deferred specific "next steps" given her short tenure.

“Although a lot of that language is there, it's not just the what from a strategy, it's the how. And the magic is often in the how.”

asked by Jason from UBS · answered by Unknown Speaker

Quantify the impact of Q2 clearance on gross margin, and provide more detail on Q3 and Q4 gross margin drivers and expected expansion.

Richard stated that Q2 gross margin was about 80 bps worse than forecast, partly due to additional discounting in U.S. retail and a higher mix of wholesale sales. For Q3, he expects considerable expansion (just under 200 bps) driven by anniversarying tariffs and continued pricing gains in retail. Q4 is also expected to have expansion, but less than Q3, due to a higher proportion of wholesale volume.

“There are a lot of moving pieces in gross margin in the second quarter. It was probably 80 or so basis points worse than our forecast.”

asked by Ike Boruchow from Wells Fargo · answered by Richard Wolitski

Comment on any notable trends in July, given volatility across retail.

Alison stated that July comps are flat, which is in line with expectations. She noted that July is a difficult month for retail projections and that September is a heavily weighted month for the quarter, so it's a "wait and see" situation.

“I would say that we are seeing flat comps on the month of July, which is very much in line with our expectations.”

asked by Ike Boruchow from Wells Fargo · answered by Alison

How do margins compare between stores and e-commerce, and how would a shift to e-commerce impact overall margin rate?

Richard explained that e-commerce generally has lower gross margins due to shipping costs but is a very good operating margin business. This is because online orders typically have a bigger basket size, lower return rates, and highly automated distribution.

“Well, I would say they tend to be lower gross margin sales because you've got the shipping cost to the end consumer, but it's a very good operating margin business for us.”

asked by Kendall Toscano from Bank of America · answered by Richard

Quantify potential EPS upside if tariff rates remain unchanged, and what are the plans for using the cash from tariff refunds.

Richard declined to quantify specific EPS upside, stating it's too early but acknowledged some opportunity relative to original tariff assumptions. He noted the gross tariff amount was $200 million over baseline, now potentially $75 million lower. Regarding cash, he expressed satisfaction with the refund but highlighted continued tariff uncertainty and the uncertain market ahead. He stated that maintaining liquidity is prudent, and with a new leader, plans for future investment needs will be clearer before deciding on cash deployment.

“I'm not going to share with you, Kendall, what I think the upside is. It's just too early in the year, and we've given ourselves some room here. There is clearly some opportunity, upside relative to the original tariff assumptions that we entered the year with.”

asked by Kendall Toscano from Bank of America · answered by Richard