Carter's (CRI 0.32%), the children’s apparel leader known for its Carter’s, OshKosh, and Skip Hop brands, reported results for Q2 fiscal 2025 on July 25, 2025. The company delivered GAAP revenue of $585 million, ahead of the analyst estimate of $568.1 million (GAAP). However, earnings per share on a non-GAAP basis came in at $0.17, far below non-GAAP expectations of $0.39 and down 77.6% from the prior year’s $0.76. The period saw profits and margins fall across all segments compared to Q2 fiscal 2024, driven by pricing investments, higher costs, and early-stage leadership transition. Despite top-line growth, Carter’s suspended forward financial guidance, citing uncertainty from new tariffs and ongoing organizational changes.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.17 | $0.39 | $0.76 | (77.6%) |
| Revenue (GAAP) | $585 million | $568.1 million | $564 million | 3.7% |
| Operating Income (Non-GAAP) | $11.8 million | $39.5 million | (70.1%) | |
| Operating Margin (Non-GAAP) | 2.0% | 7.0% | (5.0 pp) |
Source: Analyst estimates for the quarter provided by FactSet.
About the Business and Key Success Factors
Founded in 1865, Carter’s builds its business around designing, marketing, and selling infant and young children’s apparel and accessories. It is the largest branded marketer in the U.S. zero to two-year-old segment, with broad recognition driven by its Carter’s, OshKosh, and Skip Hop names. The company sells through three major channels: retail stores, eCommerce sites, and wholesale partner retailers like Walmart and Target.
Recent years have seen Carter’s focus on strengthening its brands, improving multi-channel sales, and investing in product design and assortment. It has prioritized innovation in sustainable and value-oriented products, digital shopping, and customer loyalty initiatives. The ability to stand out in a competitive children's wear market depends on keeping products relevant, managing supply chain risks, and building deep brand relationships with families.
Quarter Highlights: Sales Gains, Margin Pressure, and Segment Performance
The quarter’s most significant result was the return to revenue growth, with the top line (GAAP) surpassing estimates and rising 3.7%. U.S. Retail, delivering just over half of company sales, grew 3.2%. Comparable sales, which measure year-over-year changes at established stores, were up 2.2%. U.S. Retail store traffic, purchase conversion, and demand for core Baby apparel products all showed momentum in the second quarter. However, profits in this channel dropped to $3.8 million from $18.1 million a year ago (GAAP, Q2 fiscal 2025 vs. Q2 fiscal 2024). The segment’s operating margin fell to 1.3% from 6.2% in Q2 fiscal 2024, reflecting investments in pricing, new and remodeled stores, costs related to operating model improvement initiatives and leadership transition, as well as increased performance-based compensation provisions. CEO Doug Palladini noted, “We are encouraged by improving business trends, particularly in U.S. Retail, where store traffic, purchase conversion, and demand for our core Baby apparel products all demonstrated momentum.”
U.S. Wholesale sales, which supply third-party retailers, remained stable year over year at $193 million (GAAP). International operations were the fastest-growing segment, delivering $92.8 million in GAAP sales, up 14.1% from the prior year, as foreign currency exchange rates reduced results by $3.1 million, or 0.5% of company revenue.
Gross profit (GAAP) remained essentially flat year over year, despite higher sales. Costs from pricing investments, new and remodeled stores, and expenses tied to a leadership change, along with rising tariffs, weighed on the bottom line. Adjusted operating income (non-GAAP) fell 70% to $11.8 million, and company-wide adjusted operating margin dropped to 2.0% from 7.0% (non-GAAP, Q2 fiscal 2025 vs. Q2 fiscal 2024). GAAP (Generally Accepted Accounting Principles) operating income tumbled 90% compared to Q2 fiscal 2024, mainly because of $7.7 million in pre-tax charges for consulting and executive transition. Management also pointed to higher performance-based compensation and the first signs of increased tariffs as further margin headwinds.
Product innovation continued, with new lines such as Little Planet (a brand focused on organic and sustainable baby clothes) and Otter Avenue (a toddler collection) underscoring a commitment to modern design and value. Direct-to-consumer comparable sales grew in the U.S., Canada, and Mexico, highlighting the relevance of Carter’s brand to young families. Sourcing strategy took center stage as tariffs rose--Carter’s paid approximately $110 million in duties in fiscal 2024 and expects up to $150 million in new tariff exposure on an annualized basis. Sourcing from China is now mostly limited to licensed accessories and the Skip Hop brand, whose production remains 45% in China. The company is shifting more supply away from China to manage this risk, but expects a $35 million pre-tax impact from tariffs in the second half of fiscal 2025 if proposed new rates are implemented.
Carter’s continued to pay its quarterly dividend of $0.25 per share in Q2 fiscal 2025, totaling $9.1 million for the quarter. No shares were repurchased during the period.
Looking Ahead: No Guidance Amid Tariff and Leadership Uncertainty
Management suspended forward guidance for the rest of fiscal 2025, citing the leadership change in April and ongoing uncertainty around newly proposed tariffs. In a statement, the company said, “given the Company’s leadership transition in April 2025 and the ongoing and significant uncertainty surrounding proposed new tariffs and their potential impact on its business, the Company has suspended its fiscal 2025 guidance.” This lack of forward-looking targets means investors and analysts will have to monitor key indicators, such as further impacts from tariffs, supply chain shifts, and the effects of new promotional and sourcing strategies, to gauge the company’s trajectory.
Net cash from operations (GAAP) turned negative, with $8.3 million used in the first half of fiscal 2025, compared with $91.7 million generated in the first half of fiscal 2024. Inventory levels rose to $619 million as of Q2 fiscal 2025. Debt was stable at about $498 million (GAAP) as of Q2 fiscal 2025. These metrics indicate ongoing pressure from both lower earnings and increased inventory holdings. As the company navigates leadership changes and adapts to a volatile tariff environment, successful cost mitigation, renewed product demand, and clearer communication of strategy will be crucial going forward.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
