What happened

Shares of Carter's (NYSE:CRI) rose 17.5% in February, according to data from S&P Global Market Intelligence, after the kid's clothing retailer announced strong fourth-quarter 2018 results

After drifting higher for the first few weeks of last month, Carter's stock soared more than 8% on Feb. 25, 2019, alone after the company released its quarterly results that morning.

Stack of colorful children's clothes folded on a wooden floor


So what

Carter's quarterly revenue rose a modest 5.7% year over year to $1.08 billion, while adjusted earnings climbed a much better 21.8% to $2.84 per share. Both the top and bottom lines easily outpaced Carter's guidance, provided in late October, for 5% revenue growth and adjusted earnings of $2.56 per share. 

In particular, revenue growth was driven by a combination of 7.1% growth in U.S. retail sales, to $40.1 million, and a 6.5% increase in Carter's core U.S. wholesale business (to $351.4 million), helped by what Carter's chairman and CEO Michael Casey described as the "less discretionary nature of young children's apparel purchases."

This feat was made all the more impressive considering the company estimates it lost around $32 million in net sales to the bankruptcies of Toys R Us and Bon-Ton last year. 

Check out the latest earnings call transcript for Carter's.

Now what

As if that weren't enough, Carter's increased its quarterly dividend by 11%, to $0.50 per share. And while the company told investors to expect sales in the first quarter of 2019 to decline 4% to 5% year over year, that wasn't entirely surprising considering both the impact of customer bankruptcies and a later Easter holiday last year.

Sure enough, Carter's anticipates 2019 revenue will rise 1% to 2%, with adjusted earnings climbing 4% to 6%. These goals might not seem like much, but Wall Street came into the report expecting earnings near the bottom end of that range on revenue near the high end of guidance -- and make no mistake, it's impressive that Carter's is able to deliver outsized profits on such small top-line increases. Thus, last month's news gave investors and analysts alike plenty of reason to be optimistic for Carter's future as it laps a tough year.

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