Image source: Carter's, Inc.

Carter's Inc. (CRI 0.69%) released third-quarter 2016 results Thursday before the market opened, and shares of the kids' clothing retailer jumped around 4% yesterday as a result.  

For perspective, recall that while Carter's technically exceeded expectations on earnings for its 12th straight quarter in July, the company's admittedly underwhelming outlook left the market disappointed on wholesale channel weakness and moderating international growth. This time, however, Carter's curiously came in at the lower end of its guidance.

Let's take a closer look, then, at what has the market so excited right now.

Carter's headline numbers

Carter's quarterly revenue grew 6.1% year over year, to $901.4 million, while adjusted net income increased 1.5%, to $81.1 million. Adjusted net income per diluted share grew 6.2% year over year, to $1.61, a figure bolstered by repurchases over the past year, including $58.9 million spent to buy back 587,100 shares in the third quarter.

By comparison, Carter's guidance called for revenue to increase 6% to 7%, or to a rough range of $900.8 million to $909.3 million, with 6% to 10% growth in adjusted earnings per share, to a range of $1.61 to $1.67. But even though Carter's came in at the lower end of those respective ranges, CEO Michael Casey noted these figures represent "a record level of sales and earnings with sales growth in all channels of distribution."

"Our performance in the quarter reflects significant growth in online sales and higher demand from international customers," Casey elaborated. "Given the current trends in our business, we expect to achieve our growth objectives this year and 28th consecutive years of sales growth."

On Carter's segment, geographic results

Carter's retail segment sales grew 6.7% year over year, to $314.7 million. Retail comparable-store sales grew 2.1%, including 25.2% growth in e-commerce comparable sales, which was offset by a comparable-sales decline of 4.1% at physical store locations. In addition, Carter's wholesale segment grew net sales 3.7% year over year, to $356.3 million, driven by a combination of early customer demand and favorable product mix.

Meanwhile, Carter's OshKosh retail segment revenue increased 8.9% year over year, to $107 million, including OshKosh retail comps growth of 4.1%. Within that was a 34.8% increase in e-commerce comparable sales, offset by 3% decline in comps at OshKosh stores. On the wholesale side, OshKosh revenue declined 7% year over year, to $17.5 million, driven by lower seasonal bookings and a decrease in average unit prices.

On a geographic basis, Carter's international segment enjoyed 12.5% year-over-year growth (12.2% at constant currency), with revenue of $106 million. This result was driven by growth in Carter's Canadian retail business (where comps increased 1.6%, including e-commerce comps growth of 37.2%, which was held back by a stores comps decline of 0.5%), higher international wholesale demand, and continued strength from e-commerce in China. This also represents an encouraging acceleration from last quarter's more modest 8% year-over-year sales growth outside the U.S., which contributed to management's decision to revise guidance downward three months ago.

Overall, Carter's believes comparable-store sales were negatively affected by lower demand from international consumers shopping both in its U.S. stores and on its website as a likely consequence of the relative strength of the U.S. dollar. 

Relatedly -- and this is one reason driving yesterday's optimism for Carter's stock -- Carter's noted in its press release, "However, the company believes these effects were less pronounced in the third quarter of fiscal 2016 as its U.S. retail business experienced improvement in demand from international consumers."

On guidance

For the current quarter, Carter's expects revenue will increase roughly 5% to 6% year over year, or to an approximate range of $909.9 million to $918.5 million. On the bottom line, Carter's says, that should translate to adjusted earnings per diluted share of $1.65 to $1.70, representing earnings growth of 18% to 21% from last year's fourth quarter.

While we don't typically pay close attention to Wall Street's near-term expectations, it's worth mentioning that, in contrast to management's projections, analysts' consensus estimates predicted Carter's would achieve higher fourth-quarter revenue of $919.7 million, but lower adjusted earnings of $1.64 per share.

As things stand, Carter's continues to expect full-year 2016 revenue growth of 5% to 6%, and now anticipates adjusted earnings per diluted share will increase 9% to 10%, compared to its previous, more specific guidance for 10% EPS growth.

But considering signs of improvement at Carter's both internationally and at its U.S. locations, as well as its upbeat earnings outlook for the current quarter, it's no surprise shareholders were willing to overlook Carter's relative weakness in Q3. Assuming Carter's can sustain this momentum, investors are rightly excited at the prospect of the company returning to its market-beating ways going forward.