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Carter's (CRI) Benefits From Solid Online Show: Will it Continue?

Shares of Carter’s, Inc. CRI have not only underperformed the industry but also the Consumer Discretionary sector in a year’s time. Notably, the stock has declined 3.2% in the aforementioned period against the industry and sector’s growth of 38.9% and 13.8%, respectively. Such a dismal run on the bourses can be attributable to the sluggish sales performance in the past few months due to pandemic-led disruptions.

Lower wholesale sales, soft store traffic and sluggish back-to-school sales acted as deterrents. Also, sluggish store traffic stemming from the ongoing COVID-19 situation is weighing on sales at the U.S. Retail, U.S. Wholesale and International segments.

Apart from these, it is currently witnessing a spike in freight charges imposed by inbound and outbound carriers due to rising online orders and limited capacity. Management expects increased freight charges to weigh on fourth-quarter earnings to the tune of roughly $2 million.

 

E-commerce Business to Aid Growth

Nevertheless, Carter’s is looking into every nook and cranny for growth prospects. In this regard, the company is investing in its e-commerce platform in a bid to offset the pandemic woes and stay afloat amid this crisis. It is focusing on strengthening e-commerce capabilities through investments to speed up deliveries. Notably, its revamped website with improved products, convenient shopping options and enhanced checkout experience is aiding its online sales. Also, same-day pickup service for online orders, easy access to a broad array of online products when shopping in stores and easy access to its new credit card program remain upsides. Moving on, the company is now progressing well with its ship-from-store facility.

The company witnessed sturdy e-commerce demand in the wholesale channel to the tune of more than 40% in the third quarter, with its top wholesale customers recording triple-digit growth in online demand. The company earlier expected online sales to exceed $1 billion in 2020 with increasing demand for products online, particularly baby, sleepwear and playwear products.

Further, solid margins and reduced expenses contributed to the bottom-line growth in the third quarter. Notably, gross margin expanded 180 basis points (bps) to 44.4% in third-quarter 2020, on improved pricing actions and better inventory management. Also, adjusted operating margin of 13.8% expanded 160 bps in the quarter. Moving ahead into the fourth quarter, gross margin momentum is likely to have continued.

Wrapping Up

All said, we hope that the solid online show, driven by enhanced omnichannel services, along with sustained momentum in margins is expected to help offset pandemic-related woes, including weak in-store traffic. In fact, a VGM Score of B and a long-term earnings growth rate of 6.3% raise optimism in the stock. The company currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Ralph Lauren Corporation RL, a Zacks Rank #1 (Strong Buy) stock, has an impressive long-term earnings growth rate of 8.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs, Inc. CROX, a Zacks Rank #2 (Buy) stock, has an impressive long-term earnings growth rate of 15%.

Deckers Outdoor Corporation DECK has a long-term earnings growth rate of 18.6% and a Zacks Rank #2.

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