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Here's Why Carter's (CRI) is Marching Ahead of Its Industry

Carter’s Inc. CRI has been gaining from solid demand, robust holiday season, sales growth in the retail, wholesale and international segments, and improved price realization. A few structural changes, including compelling product offerings, shutting down of low-margin stores, better inventory management, improved marketing efforts and enhanced price realization, also bode well.

Driven by these factors, the company delivered strong fourth-quarter 2021 results, wherein the bottom and top lines beat the Zacks Consensus Estimate. Net sales increased 7.3% year over year. The uptick can be attributable to growth across the retail, wholesale and international segments. Favorable currency movements of $3.3 million aided top-line growth. On a comparable basis, sales advanced nearly 11% year over year.

Shares of this Zacks Rank #2 (Buy) stock moved up 4.3% in a year against the industry’s decline of 14.9%.


Image Source: Zacks Investment Research

The company has been witnessing continued strength in the e-commerce business, driven by investments to speed up deliveries. This, along with expanded omni-channel services, including curbside pickup, same-day pickup, buy online and pickup at store, and ship from store, together with easy access to a broad array of online products when shopping in stores, act as an upside. Its mobile app has also been performing well. As a result, management anticipates e-commerce penetration to rise to 42% by 2024.

Carter’s also remains committed to boosting shareholders’ value in the forms of share repurchases and dividend payouts. In the fourth quarter, Carter’s board returned $214.1 million via share repurchases and dividends. It bought back 1.9 million shares worth $189.1 million, while it paid out dividends of $25 million in the said quarter. As of Jan 1, 2022, it has $302 million remaining under its existing share repurchase plan. Management hiked its quarterly dividend by 25% to 75 cents, payable Mar 18 of shareholders’ record as of Mar 8. The company also announced a share repurchase plan of $1 billion.

Going ahead, management anticipates 2022 sales growth of 2-3%, with growth across all segments. Adjusted earnings are likely to rise 12-14% year over year, while adjusted operating income is expected to increase 4-6%. For the first half of 2022, the company projects net sales of $1,550-$1565 million. Adjusted earnings are expected to be $3.05-$3.25 million, down from $3.64 reported in the first half of 2021. Adjusted operating income is forecast to be $195-$205 million, down from $239 million reported in the first half of 2021.

Hurdles on The Path

Carter’s is reeling under elevated transportation costs, higher air freight and ocean container charges. Higher freight costs are likely to dent the first-quarter 2022 results. Net sales are expected to be $740-$750 million, suggesting a decline from $787 million reported in the prior-year quarter. Adjusted earnings are likely to be $1.25-$1.35, indicating a decrease from $1.98 reported in the prior-year quarter. Adjusted operating income is expected to increase $85-$90 million, whereas it reported $128.5 million in the prior-year quarter. The view includes the impacts of supply-chain headwinds and the shift of the Easter holiday season to the second quarter.

Conclusion

Although supply-chain issues remain concerning, Carter’s is likely to sustain the momentum on the back of solid demand, online strength and other growth efforts. The consensus mark for 2022 earnings has moved 9.8% north over the past 30 days to $8.93. Topping it, a VGM Score of A and a long-term earnings growth rate of 10.4% raise optimism.

Other Stocks to Consider

Some other top-ranked stocks are Delta Apparel DLA, Oxford Industries OXM and Columbia Sportswear COLM.

Delta Apparel currently flaunts a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 95.5% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and earnings per share suggests growth of 11.9% and 10.1%, respectively, from the year-ago period's reported numbers.

Columbia Sportswear presently sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 203.3%, on average.

The Zacks Consensus Estimate for Columbia Sportwear’s current financial-year sales and earnings suggests growth of 17.7% and 8.1% from the year-ago period’s reported numbers, respectively.

Oxford Industries currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 96.7%, on average.

The Zacks Consensus Estimate for Oxford Industries’ current financial year’s sales and earnings suggests growth of 51.9% and 523.8%, respectively, from the year-ago period's reported numbers.


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Columbia Sportswear Company (COLM): Free Stock Analysis Report
 
Oxford Industries, Inc. (OXM): Free Stock Analysis Report
 
Carter's, Inc. (CRI): Free Stock Analysis Report
 
Delta Apparel, Inc. (DLA): Free Stock Analysis Report
 
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