Carter's Well-Dressed Strategy

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So many people will give you the line, "It seems like it was just yesterday..." but I'm not one of them. I can remember shopping for an endless supply of baby and kid clothes for my two children years ago at the Carter's (NYSE: CRI) outlet store, but I am a long way from diapers, formula, and strollers. My kids are now nearing double digits, and they test the parental boundaries as much as they eat pizza.

You always hear people complain about how spoiled kids are these days, and I'm never far from that discussion. Even though I didn't have to "walk 5 miles in the snow to school every day" like my parents, I had a lone pair of sneakers and only a few drawers of clothes. My kids probably have a pair of shoes for every day of the week (although most of them get buried in the back of the closet and are discovered when they no longer fit) and enough clothes to make a Vegas headliner envious. This desire to outfit the next generation is a wonderful trend for companies like Carter's, Gap (NYSE: GPS), Disney (NYSE: DIS), Gymboree (Nasdaq: GYMB), Oshkosh (Nasdaq: GOSHA), and Children's Place (Nasdaq: PLCE).

What sets Carter's apart from most of its competitors is its willingness to partner with popular retailers such as Target (NYSE: TGT) and Wal-Mart (NYSE: WMT). The company's sales to "mass channels" in the second quarter grew a whopping 84%, to $55.7 million from $30.2 million the previous year. This boom helped push the company's earnings of $0.20 per share well past the consensus estimate of $0.15. Carter's has been selling its Child of Mine brand at Wal-Mart since last year and also sells its Tykes brand at Target. Both stores offer the clothing at attractive price points that ease the transition from display rack to home.

I was pleasantly surprised the last time I shopped at the Carter's store to find it carried a line of men's pants and shirts. I guess it figured that men usually walk around aimlessly until their wives are done shopping, so they might as well do something to keep themselves busy (I bought a few pair of pants that fit great!).

The company's management apparently has a very close connection with consumers because they continue to make decisions that will keep the company's earnings rolling (upgraded growth of 29% in 2004; 16% for 2005). With Carter's trading at 15 times the 2005 estimate of $1.75 per share, which is a discount to the company's five-year projected growth rate of 17%, the shares are very attractive for purchase.

Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.