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Why Carter's Stock Dropped 20.6% in May

By Steve Symington – Jun 6, 2019 at 3:33PM

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Global trade concerns left shares of the children's clothing company wrinkled last month.

What happened

Shares of Carter's (CRI 0.91%) declined 20.6% in May, according to data from S&P Global Market Intelligence, even after the kid's clothing retailer announced solid quarterly results and reaffirmed its full-year guidance.

On the former, shares were initially little changed following Carter's first-quarter 2019 release on April 30, 2019. But then Carter's stock pulled back hard over the next several weeks, largely in tandem with the broader market -- as the S&P 500 sank nearly 7% last month -- while investors worried over escalating trade tensions between the U.S. and both Mexico and China.

Stack of folded children's clothing on a wood floor.


So what

It didn't help that Carter's stock had climbed 30% year to date leading up to its quarterly report, leaving shares ripe for a correction. But the company also told investors that international sales during the quarter declined 2.8% (to $88.6 million), as lower sales and currency headwinds in Canada and China were partially offset by strength in Mexico. I suspect the ramping up of trade wars with China and Mexico, in particular -- potentially including retaliatory tariffs from both countries -- will do Carter's no favors in the coming quarters.

To be fair, Carter's international sales are relatively small compared to its core U.S. retail and wholesale segments, where first-quarter sales fell 1.7%, to $377.1 million, and 1.9%, to $275.4 million, respectively.

Now what

But when Carter's releases second-quarter results in late July, it will still be interesting to see whether the company is able to meet its forecast for net sales growth of 4% to 6% and flat adjusted earnings of $0.79 per share. For additional perspective, Carter's full fiscal-year 2019 outlook currently calls for net sales growth of 1% to 2% and adjusted earnings growth of 4% to 6% (from $6.29 per share in 2018).

In the end, whether this pullback proves short-lived may depend on Carter's ability to hold its global business steady despite today's macroeconomic uncertainties.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Carter's. The Motley Fool has a disclosure policy.

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