Carter's, Inc. — Third Quarter Fiscal 2026 Earnings Summary

Financial Performance:

• Consolidated net sales for the third quarter were $752.5 million, a 0.7% decrease from $757.8 million in Q3 2025; for the first three quarters, net sales were $2.05 billion, a 3.9% increase from $1.97 billion in the prior year period.
• U.S. Retail comparable sales increased 0.4% in Q3 2026 and 5.0% in the first three quarters of 2026.
• Operating income for Q3 2026 was $55.8 million (7.4% of net sales), compared to $29.1 million (3.8%) in Q3 2025; for the first three quarters, operating income was $224.0 million (10.9%) compared to $59.2 million (3.0%).
• Adjusted operating income for Q3 2026 was $56.9 million (7.6% margin), up 44.6% from $39.4 million in Q3 2025; for the first three quarters, adjusted operating income was $103.5 million (5.0% margin), up 19.6% from $86.5 million.
• Diluted EPS was $1.00 for Q3 2026 versus $0.32 in Q3 2025; for the first three quarters, diluted EPS was $4.27 versus $0.75.
• Adjusted diluted EPS was $1.03 for Q3 2026 (up 39% from $0.74) and $1.68 for the first three quarters (up 7% from $1.57).
• Net cash provided by operating activities for the first three quarters of 2026 was $101.8 million, a significant improvement from $136.3 million used in the same period in 2025, driven by a tariff refund and working capital improvements.
• Capital expenditures for the first three quarters were $29.7 million.

Guidance and Future Outlook:

• For full-year fiscal 2026 (52 weeks), the company projects net sales of $2.91 billion to $2.93 billion, adjusted operating income of $178 million to $187 million, and adjusted diluted EPS of $3.05 to $3.23.
• Full-year fiscal 2026 outlook includes anticipated non-GAAP adjustments for leadership transition and IP litigation costs of $8 million to $9 million and a tariff refund recovery of $132 million.
• For the fourth quarter of fiscal 2026 (13 weeks), the company projects net sales of $860 million to $880 million, adjusted operating income of $74 million to $83 million, and adjusted diluted EPS of $1.37 to $1.55.
• Q4 2026 outlook assumes a higher gross margin rate and comparable to low-single digit decrease in SG&A expense.
• The company anticipates an IP litigation cost adjustment of $1 million to $2 million in Q4 2026.
• Fiscal 2026 operating cash flow is projected at $240 million to $250 million, with capital expenditures of $50 million.

Business Segments and Product Lines:

• In Q3 2026, International net sales increased 4.5%, U.S. Retail net sales were comparable to the prior year, and U.S. Wholesale net sales decreased 3.8%.
• In the first three quarters of 2026, International net sales grew 6.8%, U.S. Retail grew 4.5%, and U.S. Wholesale grew 1.8%.
• Segment operating margins in Q3 2026 were: U.S. Retail 5.3% (vs. 2.8% prior year), U.S. Wholesale 17.8% (vs. 15.5%), and International 10.0% (vs. 8.2%).
• The company launched a comprehensive initiative for its flagship Carter's brand, including a reimagined logo and the brand promise "let every child's light shine."
• Emerging brands include Little Planet, Otter Avenue, and Skip Hop.

Market and Competitive Landscape:

• The company cited an uneven macroeconomic environment and ongoing economic and geopolitical uncertainty as factors impacting consumer spending.
• The company noted the non-recurrence of organizational restructuring and operating model improvement costs in the prior year period as a driver for margin expansion.
• Foreign currency exchange rates had a favorable effect of $0.9 million on Q3 2026 sales and $8.9 million on the first three quarters of 2026.

Risks and Challenges:

• Risks include continued pressure on consumers from economic and geopolitical uncertainty, potential changes in global economic conditions, and consumer discretionary spending habits.
• The company faces risks related to the organizational restructuring plan, including the ability to achieve expected savings.
• Risks include failure to protect intellectual property, diminished brand value, and increased competition.
• The company faces risks related to international trade agreements, tariffs, and the ability to recover refunds of previously paid import duties.
• Supply chain risks include disruptions, increased freight costs, and reliance on a relatively small number of vendors.
• Pending and threatened lawsuits, including intellectual property litigation, remain a risk.

Management Commentary and Tone:

• CEO Sharon Price John expressed pleasure with the progress of profitability improvement initiatives, noting slight growth in U.S. Retail comparable sales and net sales slightly above outlook.
• Management highlighted the effective adjustment of marketing and promotional efforts in response to challenges during the quarter.
• The CEO emphasized a strategic framework focused on keeping the consumer at the center, leveraging market-leading brands, and utilizing data to drive innovation.
• Management stated they are encouraged by early progress and believe the company is well-positioned to unlock potential and deliver meaningful shareholder returns.

Other Key Points:

• The company returned $27.5 million to shareholders through dividends in the first three quarters of fiscal 2026, including a $0.25 per share dividend paid in Q3.
• No shares were repurchased in the first three quarters of fiscal 2026.
• The company announced a strategic evolution of its leadership structure to increase synergy and align with its go-forward strategy.
• Fiscal 2025 included a 53rd week which contributed approximately $37 million in consolidated net sales; fiscal 2026 is a 52-week year.
• A tariff refund recovery of $127.7 million (related to $128 million in IEEPA tariff recoveries) significantly impacted first three quarters 2026 results.
• The company has $568.1 million in long-term debt, net, as of October 3, 2026.
• Cash and cash equivalents stood at $451.0 million as of October 3, 2026.