Carter's Q1 FY2026 Earnings Call - Sales Beat Expectations as Tariff Uncertainty and Margin Pressure Persist

Conference Call Operator, Moderator, Conference Services: Welcome to Carter’s first quarter fiscal 2026 earnings conference call. On the call are Richard Westenberger, Interim Chief Executive Officer and President, Chief Financial Officer, and Chief Operating Officer. Allison Peterson, Chief Retail & Digital Officer, and T.C. Robillard, Vice President, Investor Relations. Please note that today’s call is being recorded. I’ll now turn the call over to T.C. Robillard.

T.C. Robillard, Vice President, Investor Relations, Carter’s, Inc.: Thank you. Good morning, everyone. We issued our first quarter 2026 earnings release earlier today. The release and presentation materials for today’s call are available in our investor relations website at ir.carters.com. Note that the statements on today’s call about items such as the company’s expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings as well as the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today’s prepared remarks, we will take questions as time allows. I will now turn the call over to Richard.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Thank you, T.C. Good morning, everyone. We appreciate you joining us on the call this morning for an update on our business. I’m pleased to have my colleague, Allison Peterson, who leads our North American direct consumer businesses, joining me today to provide her thoughts. As usual, we have a lot going on here at Carter’s. As I’m sure many of you saw, we announced a leadership transition last week. Douglas Palladini has departed as our CEO. We have continued progress to report today. I’d like to thank Douglas for his leadership and contributions over the past year. Anyone who met Douglas quickly appreciated his passion for our brands and our mission of serving families with young children. We wish Douglas all the best. We’re looking forward to welcoming Sharon Price John as our new CEO next month.

Sharon has a rich background in the children’s industry, having held senior leadership positions at several outstanding companies in our space, and she has a demonstrated track record of driving transformation and growth. Turning to our 1st quarter performance. The year’s off to a good start. Our 1st quarter performance, both sales and earnings, exceeded the expectations we shared with you on our last call. We saw higher year-over-year demand for our brands across all of our channels in the 1st quarter. The Easter holiday came a bit earlier this year, which benefited demand. Our sense is that consumers were out shopping broadly in the 1st quarter. Earnings, although above our expectations, were impacted by a number of factors, including the net negative impact of higher tariffs, spending, and interest costs.

Areas of progress that we’ll highlight today include continued positive comparable sales in our U.S. retail business, driven in part by the success of our investment in demand creation in driving higher traffic to our U.S. stores and websites. We’re also continuing to attract new consumers to our brands, including Gen Z. Balancing out these encouraging green shoots are multiple and continued uncertainties in the marketplace, including the evolving tariff landscape and questions about the resilience of the consumer in the face of ongoing inflation and other pressures. We remain on our journey to improve the profitability of the company. We know we have continued work to do on this objective in particular. Today, we’ll share our thoughts on these matters and how we’re thinking about our business over the balance of the year.

In reviewing our first quarter performance and our outlook, our comments this morning will track along with the presentation posted to the investor relations portion of our website. Turning to our presentation materials, beginning on page 2, we have our GAAP basis P&L for the first quarter. Our net sales were $681 million. Our reported operating income was $28 million compared to $26 million last year. Our reported earnings per share were $0.39 compared to $0.43 in first quarter last year. On the following page, we’ve summarized our non-GAAP adjustments. We had no adjustments to our reported results in the first quarter of 2026. Last year, we had adjustments related to operating model improvement costs and leadership transition costs, which reduced our reported profitability.

Our comments this morning will speak to our performance on an adjusted basis, which excludes these unusual items in the prior period. Our first quarter adjusted P&L is on page 4. Our net sales in the first quarter, up $681 million, represented growth of 8% over the prior year. On these sales, gross margin was 43.1%, a decrease of slightly more than 300 basis points compared to prior year. As expected, year-over-year, our gross margin rate was pressured by tariffs, a gross incremental impact of roughly $50 million in the quarter. This negative impact was partially offset by improved pricing, other supply chain mitigation initiatives, a higher mix of U.S. retail sales, and the benefit of our productivity initiatives. On a consolidated basis, AURs improved in the high single digits and units were up low single digits.

In U.S. retail, first quarter AURs were up low single digits, and we achieved higher pricing gains in our U.S. wholesale and international segments. First quarter adjusted SG&A increased 3% over prior year to $270 million. The increase was driven by incremental investments in demand creation and general inflationary pressures in wages and rent, which were partially offset by the benefits from our productivity initiatives. We do believe our productivity initiatives are delivering as expected, roughly $6 million in cost reduction in the first quarter between the cost of goods sold and SG&A lines of the P&L. These savings are helping to fund our investment agenda, including the incremental spend on demand creation. While spending was up in dollars, we achieved 180 basis points of leverage in the quarter.

First quarter adjusted operating income was $28 million with an adjusted operating margin of 4.2%. While ahead of our expectations, this profitability was lower than last year. Clearly, we’re focused on delivering growth in both the top line and operating earnings. To this end, we have operating income growth planned in the second half of 2026. Below the line, net interest and other expenses increased over prior year as expected, due to higher interest costs and a higher debt balance related to the refinancing of our senior notes in fourth quarter last year. Our effective tax rate was approximately 28% in the first quarter, up 60 basis points compared to prior year, which was driven primarily by the new higher minimum tax in Hong Kong, which we highlighted last quarter.

For the full year, we’re forecasting an effective tax rate of approximately 22%. The net of all this on the bottom line, first quarter adjusted earnings per share were $0.39 compared to $0.66 last year. The impact of our debt refinancing on first quarter 2026 EPS was approximately $0.08 per share. On page five, we have the details of first quarter performance by business segment. As mentioned, consolidated net sales grew roughly $50 million over last year’s first quarter or by 8% with growth in each of our business segments. Adjusted operating income declined $7 million, resulting in the adjusted operating margin of 4.2%, which I just mentioned. We achieved meaningfully higher profitability year-over-year in our U.S. Retail and International segments.

However, these gains were more than offset by lower profitability in our Wholesale business, which can be attributed to the net negative impact of tariffs. Corporate expenses for the first quarter were comparable to prior year. Allison Peterson will now provide some additional perspective on our U.S. Retail businesses beginning on page 6.

Allison Peterson, Chief Retail & Digital Officer, Carter’s, Inc.: Thank you, Richard. Our US Retail business delivered strong performance for us in the first quarter, continuing to build on momentum we’ve seen over the past several quarters. Total US Retail net sales grew nearly 13% in the first quarter. Comparable retail sales increased over 10% versus last year and nearly 5% on a two-year basis. This was our fourth consecutive quarter of comp growth, and we continue to improve our comp trend on a two-year basis. This quarter, performance was strong across both stores and e-commerce, with strength spanning all product age segments. Our baby assortment remained the primary driver, but we also delivered growth in toddler and kid. We do believe an earlier Easter contributed to business in March as we expected. We estimate the earlier and stronger Easter selling period likely contributed about 2 points of comp in the quarter.

Comps were strong in both retail channels, driven by higher traffic and higher average transaction values. We are seeing some increased penetration of our opening price point product and clearance sales were up in the quarter. We think this reflects a consumer who is more focused on price. This makes sense to us in the context of higher gas prices and volatile consumer confidence, likely in part due to continued persistent inflation across the economy and the unsettled global situation. Despite these factors, we successfully increased AURs by low single digits in the first quarter, while also increasing units by double digits. As Richard mentioned, in addition to the benefit of our demand creation investments improving traffic across our retail channels, we’re also seeing good progress in growing our consumer file.

Our active consumer count continued to grow in the first quarter, and we added new Gen Z consumers to our business who are gravitating to our higher AUR products. Despite the negative net impact of higher tariffs, the strong comp sales performance and benefits from our productivity initiatives led to good improvements in Retail’s operating profit and margin in the first quarter. On page 7, during the first quarter, we launched a collaboration between Disney and our OshKosh brand featuring Winnie the Pooh. This initiative was seamlessly integrated across our digital and physical touchpoints through distinct and compelling consumer experiences. Consumers loved the unique product which leveraged OshKosh iconic denim. While not a material contributor to sales in the quarter, it was a highly successful collaboration, which brought new consumers to our portfolio of brands and over-penetrated toward Gen Z.

Notably, the average AUR of this special product was more than double our U.S. Retail average. On the following page, as we’ve shared previously, continued investment in marketing is a very important element of our growth strategy. We saw strong results from our marketing investments in the quarter, resulting in increased traffic to our channels and growth in our consumer file. We have added tactics to connect to consumers in the places where they are spending significant time discovering brands. Social media and connected TV are two great examples of channels where we are seeing increased engagement while leveraging content creators and influencers for their authenticity and high credibility with consumers. I’ll now turn the call back to Richard.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Thank you, Allison. Turning to our performance in U.S. Wholesale and International on page 9. In U.S. Wholesale, net sales were up slightly over last year. Although we improved pricing in response to tariffs, this was offset by a reduction in unit volume. Exclusive brand sales grew versus last year, driven by the Child of Mine and Just One You brands, while sales of Simple Joys were comparable to prior year in the first quarter. This is an improvement in recent trend for Simple Joys. As expected, profitability in Wholesale was lower than a year ago. Virtually all of this decline can be attributed to the net negative impact of the incremental tariffs. As we mentioned on our last call, we expected first quarter Wholesale sales to be softer and that tariffs would meaningfully affect this segment’s profitability.

As we look to the second half, we believe we’re well positioned for sales and operating profit growth in Wholesale. Our customers have responded well to our fall and winter product offerings, which has driven sequential improvement in our seasonal order bookings. In addition, the net impact from tariffs tapers meaningfully beginning in the third quarter. Our businesses outside the U.S. have continued to deliver good performance. Total reported international net sales increased 14% over last year and by 8% on a constant currency basis. Growth in the quarter was driven by our businesses in Canada and Mexico. The largest component of international, our Canadian business, posted strong total and comp sales growth, similar to the U.S. business likely benefited from the earlier Easter holiday, and we saw strength across both our stores and e-commerce channels. Demand in Mexico was particularly strong in the first quarter.

Easter is very important in this market. Our Q1 business reflected strong holiday demand. Total net sales grew over 40% in Mexico, with $3 million of the growth attributable to better exchange rates. Our team delivered a +21% comp in Mexico in the first quarter. Last year’s business had been negatively impacted by some distribution center disruptions, which benefited this year’s comparison somewhat, but the underlying trends and demand profile of our business in Mexico continue to be very strong. We’re continuing to pursue door growth in this market with plans to open 12 new stores this year. International operating income was approximately $4 million in the first quarter compared to roughly breakeven performance last year. The improved profitability was driven by productivity savings as well as lower product costs resulting from favorable exchange rates.

On page 10, we have some photos of a new store in Mexico. Our team in Mexico has done a great job taking our successful co-branded store model from here in the U.S. and deploying it across the market in Mexico. On page 11, we’ve provided some balance sheet and cash flow highlights. Our balance sheet is in good shape, and we ended the quarter with substantial liquidity. Net inventories were $466 million, down 2% compared to prior year, and down over 14% from year-end. First quarter inventory units were 9% lower than a year ago. The amount of ending inventory value attributable to the incremental tariffs at the end of the first quarter was $26 million. Excluding this amount, inventory dollars year-over-year were down 7%.

We generated positive operating cash flow of $6 million in the first quarter compared to a use of $49 million last year. This better result was due to improved working capital and favorable timing of interest payments versus the prior year. In the quarter, we paid $9 million in dividends. Before I cover our expectations for second quarter and the balance of the year, I’d like to summarize some of our thoughts on tariffs, which can be found on page 12. The impact of tariffs on our results is a complicated topic, and made even more so by the developments in the courts and ongoing uncertainty about the future direction the administration may take. For context, we’ve always paid import duties at Carter’s.

Tariff rates have typically differed somewhat by country of origin, but in total, we historically paid a little over $100 million annually to bring our products into the United States. This represented a historical effective tariff rate of roughly 13%. The imposition of the additional IEEPA tariffs was estimated to add over $200 million of incremental tariffs to this historical baseline, bringing the effective tariff rate above 35%. Our plans for the year were developed assuming these IEEPA tariffs would be in place for the entire year. Given the Supreme Court’s recent decision, the overall tariffs were reduced to a 10% additional tariff rate for all countries. An additional incremental tariff rate in India related to Russian oil purchases was eliminated.

As a reminder, for financial reporting purposes, tariffs become part of inventory costs when product is received. These costs are added to the balance sheet value of inventory. Any changes in tariff rates, including reductions, are not an immediate benefit to the P&L. That benefit occurs over time as products are sold and their cost, including tariffs, become part of cost of goods sold. Our guidance reflects the benefit of the lower 10% incremental tariff rate on imports through the second quarter and the elimination of the India-Russian oil related tariff for the balance of the year. We’ve assumed the higher IEEPA level tariff rates incorporated into our original plan remain in effect for product imported through the second half of the year.

We maintain this assumption for higher than historical tariff rates based in part on comments from the administration that they intend to reimpose higher tariff rates at least commensurate with what was implemented under IEEPA beginning mid-year. If this does not happen or if tariffs return entirely to their historical baseline rates, we may have some upside to our outlook, all else being equal. Needless to say, we expect changing tariff rates may impact the marketplace conditions, especially pricing, which makes it difficult to call significant changes to our previous outlook for the year right now. Turning to our outlook for 2026 on page 14 of the presentation materials. As we indicated in our press release this morning, we are reiterating our full-year sales and earnings guidance. The year’s off to a good start, and we’re certainly pleased by that.

The lion’s share of our year is still ahead of us, and we’re mindful of a number of uncertainties that complicate projecting too far out into the future right now. The consumer continues to spend, but as we noted earlier, has become more value-focused as of late. We believe fluctuations in consumer confidence and inflation may continue to affect demand for our brands. We’re watching the marketplace closely. Some competitors may begin to take their prices down, and we may need to respond accordingly to ensure we’re as competitive in our pricing as needed. To this end, we may need to reinvest some portion of potential upside from lower-than-planned tariffs into sharper pricing in certain parts of the business. It’s certainly our intention to hold on to the pricing gains we’ve achieved to the greatest extent possible.

As I said earlier, we’re cautious that we’re out of the woods when it comes to tariffs. It’s possible that new tactics could be employed by the government to reinstate the previous IEEPA level tariffs or an even higher level of tariffs on imports across a range of our sourcing countries. To reiterate our expectations for the full year, we’re expecting net sales growth in the low to mid-single digits over 2025. This growth reflects anniversarying the extra week in 2025’s calendar. We’re expecting growth in each of our business segments. In our U.S. retail business, we’re planning low single-digit sales growth with comp sales up in the mid-single digits. In U.S. wholesale, we’re planning net sales up in the mid-single digits.

Sales in our international segment are also planned up in the mid-single digits, reflecting growth in each of the principal components in international Canada, Mexico, and international partners. On profitability, we’re expecting adjusted operating income will also grow in the low to mid-single digits over 2025. We continue to forecast that more of our profit growth will occur in the second half of the year. In part, this is due to the higher year-over-year investment spending and interest costs in the first half of the year versus the second. As we indicated on our last call, we’re also expecting a smaller net negative impact from tariffs in the second half of the year as tariffs become more comparable and a more significant benefit from pricing is planned in the second half versus the first half of the year.

2026 EPS are expected to be down low double digits to down mid-teens over 2025’s adjusted EPS of $3.47. Our outlook for operating cash flow in the range of $110 million-$120 million remains unchanged. Also unchanged is our forecast for CapEx of approximately $55 million in 2026, with investments in new stores in Mexico, distribution center upgrades, and technology initiatives accounting for the majority of planned spend. Our expectations for the second quarter are summarized on page 15. Second quarter net sales are expected to increase in the low single digits compared to last year. By segment, we’re expecting in U.S. retail growth in the low single-digit range, with comparable sales planned up mid-single digits.

As expected, we saw some softening of demand in trend in April. In part, we think, given the strength of business in late March in advance of Easter, April comparable sales in our U.S. retail business were down just under 4%. On a combined March and April basis, comps were up in the high single digits. In U.S. wholesale, we’re planning net sales up in the mid-to-high single-digit range. In international, we’re planning net sales roughly comparable to a year ago. We’re planning second quarter gross margin down approximately 100 basis points over last year, principally due to the net unfavorable impact of tariffs, offset somewhat by higher planned pricing, supply chain mitigation actions, a higher mix of U.S. retail sales, and productivity improvements. We’re planning second quarter adjusted operating income in the range of $11 million to $13 million.

Second quarter adjusted EPS is projected in the range of $0.02-$0.06. Before we open it up to questions, I’d like to thank our thousands of employees across the globe who work tirelessly every day and exhibit such passion for our brands and the families we serve. We are extremely grateful for their efforts. With those remarks, we’re ready to take your questions.

Conference Call Operator, Moderator, Conference Services: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from Paul Lejuez with Citi. Paul, go ahead with your question.

Brandon Cheatham, Analyst, Citi: Hey, everyone. This is Brandon Cheatham on for Paul. I just wanted to touch base on the SG&A change. I think previously you were looking for that to be roughly flat year-over-year. Now you’re looking for a low single-digit increase. I was just hoping that you could unpack what changed there.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Sure. Sure. I’ll try and give you a little color on that. First, I would say it’s expected to be at very low single digits, so it’s not something that I’m viewing as an enormous reset to our expectations. A couple of things contributing to that. First, we’ve had a handful of our intended store closings that are pushing out a bit in the year. They’re just gonna happen a bit later for a variety of reasons. That is additive to the SG&A line. Also, we’ve made a decision to spend a bit more on marketing. We feel like we’re generating very good returns from those investments, so there’s a modest uptick in the spend on marketing, driving very good returns. That’s also additive to the SG&A line.

Beyond that, I would say there’s a couple areas that are running a little bit hotter than planned. Professional fees are a little higher, perhaps a little bit more incremental impact from inflation across wages and rent. Those are the primary drivers. We have a good record of managing spend pretty tightly here, and my expectation is we’ll continue to do that.

Brandon Cheatham, Analyst, Citi: Got it. Thanks. Just as a follow-up on the tariff assumption. You’re assuming that you have a 23% effective rate for basically 4 months, and then we return to the 36% rate. Can you just help us, you know, what are you assuming the impact is on gross margin for the balance of the year? By my calculation, it seems like the effective tariff rate that you were assuming before was 36% goes to 32%. Just help us how much of that is flowing through on gross margin in your guide?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah, I would say, you know, it’s a difficult question to answer with a lot of precision around just what may happen in the landscape. I think we’ve given ourselves a little bit of room in terms of what may happen from a marketplace pricing point of view. We absolutely have held our full year guidance. To your point, we’ve assumed those tariff rates go back up to the IEEPA level for the second half of the year. The upside that we’ve reflected in having the benefit of the lower 10% rate and the elimination of the India specific tariff is about $30 million. There is still considerable gross margin pressure in our plan in the second half. There’s a higher benefit from assumed pricing in the second half as well.

It is still dilutive on the gross margin line for the year.

Brandon Cheatham, Analyst, Citi: All else equal, you’re assuming that $30 million flows through the gross profit, or you don’t anticipate, maybe raising prices as much in the second half?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: I think we’ve just given ourselves a little bit more room, a little bit more flexibility on that pricing and gross margin line of the P&L. We have not floated through. We’ve held the full year guidance, but that’s the benefit that all things being equal, if we’re able to achieve our planned pricing and given the reduction in the tariff rates that we will realize in first half imports and such, that’s the amount that would flow through. Again, we’re not flowing it through because there’s just too much uncertainty in the marketplace right now.

Brandon Cheatham, Analyst, Citi: Got it. That’s very helpful. Thank you and good luck.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: You bet. Thank you.

Conference Call Operator, Moderator, Conference Services: Our next question comes from Jay Sole with UBS. Jay, go ahead with your question.

Jay Sole, Analyst, UBS: Great. Thank you so much. Richard, I’m curious what initiatives maybe that have been going on for the last couple of quarters that were, you know, maybe started with Doug and his tenure will continue versus like what stuff might kind of be paused as you wait for Sharon to come in and put her stamp on the business. Can you give us a little sense of that?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Sure. As you know, Jay, having followed us for a long time, we have a number of things underway here that we think are generating good returns for us. I think first and foremost, the investment in demand creation really is, has been an inflection point for us in terms of driving improved traffic both to the stores and to the website. That had been an issue in our U.S. retail business for a couple of years prior. We felt like we under-indexed relative to some of the better brands out there, our peers in the industry. I think we will continue to ramp that up and we’re watching for any signs of inefficiency in that spend. We’ve not reached that point yet, that certainly will continue.

I think the overall emphasis just on brands and product, this is a product-centric centric company, and so we continue to work very hard on our assortments to make sure that we’ve got the most compelling product that attracts and motivates today’s generation of parents. That’s an evolving landscape. I think the attention around the product side of things in particular will continue. I think the emphasis on productivity, and that’s a broad range set of initiatives, starting with our store fleet. As you know, we have pruned a number of unproductive low-margin stores. If you’re gonna have stores, they need to be special, they need to be productive. All the efforts that are looking at improving the productivity of our retail store fleet. We’ve got initiatives also, around the e-commerce side of the house.

Enhancements are being made to the website. That has a lot to do with just the experience for the consumer online, more branding stories. We have a great transactional website. We think there’s an opportunity again to have the power of the brand shine through a bit more distinctly. Our teams, our great e-commerce teams are working on that. I would say more will go forward versus stopping or pausing. Sharon certainly will come in and we expect her to put her fingerprints on the organization and on the strategy. Fortunately, she’s been read in on a number of the things that we have underway here, and I think that was a point of attraction for her, that we’re not starting over, we’re not starting from blank slate.

There’s a lot of good things that are underway here, and I would expect most of those to go forward.

Jay Sole, Analyst, UBS: Got it. All right. That’s super helpful. Maybe if you can also give us a sense of what do you think the children’s apparel industry grew during the, you know, the March, April period? I mean, do you believe you took share? I mean, how do you think about that?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah, I don’t know about the March, April period specifically. For the first quarter, our data suggests that the market was up just under 5% year-over-year. There was healthy growth, and that’s on top of considerable growth in the market in the fourth quarter. The consumer does seem to be out spending on their kids. We think that’s a healthy backdrop for our business. Our data suggests that we’ve maintained our share overall.

Jay Sole, Analyst, UBS: Got it. Okay. Thank you so much.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: You’re welcome.

Conference Call Operator, Moderator, Conference Services: Our next question comes from Christopher Nardone with Goldman Sachs. John, go ahead with your question.

Christopher Nardone, Analyst, Goldman Sachs: Hey, good morning, everybody. Thank you for the question. I have 2 questions. One of them is very quick. The first is just, what can you tell us about tariff refunds you anticipate getting, timing, and potential use of those funds? Then just on advertising as a percent of spend, I think historically you guys have been around 3%, and you have mentioned some willingness to pick that number up to 5. It sounds like acceleration on the advertising is going to be part of the SG&A increase in the guide. I’m just wondering, it seems like the ROI is very good or the ROAS is very good on the advertising piece.

Not to, you know, not to put an even more pointed kind of focus on it, but like why not more, I guess? You know, at what point do you feel like you can really accelerate and get up to that 5 and have it still be incremental and still get the right, return? Thank you.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Right. Right. Yeah. John, thanks for the questions. First, as it relates to tariff refunds, there’s about $130 million of incremental IEEPA tariffs that we paid between last year and early this year before the Supreme Court’s decision. That is the amount that we have filed for refunds with the government. Our claims have been entered into CBP’s portal. We do see some progress. We’ve been tracking this pretty closely as everyone in the industry has. It does look like there is some progress and an intention to start dispersing those funds. We’re not counting on that. We’re not recognizing that until the cash hits the bank account. We’re in line for our refund and we’re monitoring it closely.

As it relates to use of the funds, you know, capital allocation is something that we talk about with our board all the time. We’ll continue to do that. We’re not necessarily in a liquidity crunch. We’re not constraining investment right now based on not having that tariff money. Our first preference would be to put the money back to work in the business. We’re actively looking for opportunities to accelerate the growth of the business. Again, we’re not capital constrained. Where we have good investment cases for investment, we’re continuing with that work. Marketing is a good example of that. I would say, we’re stepping up the investment by a little over $20 million this year, so that 3-ish% number will start to inch up a bit.

I think we’re stepping our way into it and monitoring it and measuring it to make sure that we’re getting the kind of returns that we should and that make the investment justified. To your point, we might be able to go faster, but I think 20, you know, $20-plus million investment is significant for us. We wanna just make sure it’s generating the right returns, and we’ll continue to spend as we start to see these, you know, the benefits in the business.

Christopher Nardone, Analyst, Goldman Sachs: Wonderful. Thank you, guys.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Thank you, John.

Conference Call Operator, Moderator, Conference Services: Our next question comes from Jim Chartier with Monness, Crespi, Hardt & Co. Jim, go ahead with your question.

Jim Chartier, Analyst, Monness, Crespi, Hardt & Co.: Good morning. Thanks for taking my question. Richard, just curious, what gives you the confidence for second quarter comp sales to be at mid-single digits, given the softness that you saw in April?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah. Thanks, Jim. You know, I think that the April softness wasn’t entirely unexpected, just given the strength of business in March. I think Easter was probably a bit more pronounced of a benefit than we had planned. From the commentary that I’ve read, others in the industry saw their businesses soften a bit in April. That combined number of high single-digit comp was terrific. We’re only a few days into May. We’ve started to see business, you know, turn solidly positive again from a comp point of view in our U.S. retail business. The compares become a bit easier. May and June are easier compares than April was a year ago. I think we feel like we’ve got good momentum in the business.

I think, again, the marketing investments appear to be successful in driving traffic to both channels. That’s what gives us the encouragement that we’ll achieve that result. Allison, anything that you would add to that?

Jim Chartier, Analyst, Monness, Crespi, Hardt & Co.: Great.

Allison Peterson, Chief Retail & Digital Officer, Carter’s, Inc.: The only other thing I would add is that as we continue to see our consumer file grow, that gives us some momentum with bringing new and re-returning customers back to the brand.

Jim Chartier, Analyst, Monness, Crespi, Hardt & Co.: Great. Can you talk about the Umbro collaboration? What are you seeing with that? You know, how are you thinking about collaborations going forward? Is that something you think you want to increase the number as you go forward? What does the pipeline look like?

Allison Peterson, Chief Retail & Digital Officer, Carter’s, Inc.: Yeah. Thanks for the question. I think we are feeling very bullish on collaborations. We’ve spent some time on the call talking about our collaboration with Winnie the Pooh and OshKosh, and we’re very, very happy with the results we saw from that collaboration. Umbro has also started out strong. We are seeing, as with most things, people excited to purchase the baby products first as it relates to the size offerings, and we see toddler and kid a little bit purchased closer to the time of the event. Knowing that the World Cup is up and coming, we anticipate that we’ll still see some nice demand.

I would say from an experience perspective, we’re very excited with how the Umbro collaboration has come to life across all of our channels, very similar to what we saw with Winnie-the-Pooh. We do feel pretty confident about our collab pipeline for the rest of the year.

Jim Chartier, Analyst, Monness, Crespi, Hardt & Co.: Great. Thank you.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Jim, I think the collaborations have been a good way for us to introduce something new, some newness in the assortment, which is a bit of a spark, again, on that traffic front. Brings the consumer in, they find something new and different relative to their expectations. We’ll do it selectively, I think, going forward, where it makes sense for our brand and then obviously whoever we’re collaborating with. There’s a place for it in our business in a more meaningful way than we’ve done historically.

Jim Chartier, Analyst, Monness, Crespi, Hardt & Co.: Great. Thank you.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Sure.

Conference Call Operator, Moderator, Conference Services: Our next question comes from Ike Boruchow with Wells Fargo. Ike, go ahead with your question.

Ike Boruchow, Analyst, Wells Fargo: Hey. Morning, guys. Richard, 2 from me. I guess the first question is, I know the Q will come out later, but can you share, at least at a high level, the gross margin details, the decline in the first quarter at retail and what it was at wholesale in the first quarter? I guess I’m asking because it seems clear there’s a much larger decline in wholesale, and I kinda just wanna ask why you’re not able to mitigate the pressure in one channel versus the other. Then the follow-up to that is to stay with wholesale, the wholesale margin run rate now looks like it’s come down to more like a mid-teens versus a low twenties a few years ago.

Do you expect that to regain that lost margin in 2027 and beyond, or do you kind of view this as the new normal with some structural changes in that channel and DTC kind of is the margin opportunity for the consolidated business going forward? Thanks.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Right. Right. Yeah. Good questions. I won’t comment on the specific gross margin changes by channel. Those are in the Q. To be honest, I don’t have them right in front of me, but I’ll speak at a high level. The wholesale business, for sure, has been more impacted by tariffs, and that’s for a variety of reasons. We are much more in control of our destiny in our U.S. DTC business than we are with wholesale. We plan that business collaboratively with our wholesale customers, and this has been an evolution. The landscape has been evolving as it related to the tariffs being put in place and how the industry has responded.

I’d say there’s been good partnership and collaboration with those customers, more of a sharing convention of the cost of the tariffs, as we’ve kind of stepped our way into them. I think we’ve made more progress as we’ve gotten into 2026, that coverage was less than what we had achieved in our U.S. retail business, where we just obviously control much more of the various levers in the business, pricing units and so forth. It was expected coming into the year that we would not fully cover all of the costs of tariffs in the wholesale channel, and that has had, to your second question, the flow-through impact on wholesale segment profitability. There’s other things that have affected it as well.

We’ve made some investments in the product itself, which we felt like we had to make, from a competitiveness of the assortment point of view, and that has caused the margin to run down a bit. It’s been a very margin-rich business over the years for many years. I think the mix has also changed pretty considerably over the years as it relates to the customer profile. The department stores, which are the best margin part of that business, have just continued to decline. I think that’s more structural as it relates to the industry, that nothing to do with their regard for Carter’s or the demand for our products. It’s just that as a channel, it has not grown and has been contracting a bit.

Business is more concentrated in the mass channel than it had been. Target and Walmart continue to be very good margin businesses for us, but probably not quite at the rate that those department stores have been over time. I think for the next little bit, the margins will be lower than they’ve been historically, but our internal plans show margin expansion over time. That’s an important objective for all of us, that every part of this business is expected to grow its profitability over time. That’s how we’re approaching it. Certainly, the impact of tariffs cannot be underestimated in this part of the business. It’s also the part of the business that I think will benefit most directly if tariff rates come down more permanently.

Most impacted on the way in and as tariffs go out, hopefully, this is part of business that should recover more dramatically and more rapidly.

Ike Boruchow, Analyst, Wells Fargo: Richard, you mentioned competitors that may look to take prices lower and you may have to, you know, adjust your business. Is that a comment that’s more related to your direct-to-consumer business, or is that more related to the wholesale business?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Well, I think it’s a comment about the marketplace more broadly. I think tariffs have been an industry issue, our wholesale customers have faced it with developing their private label assortments with everything else that they’re buying and other national brands as well. Certainly in our DTC business, as we look at other near-end competitors, we’re watchful of what they may be doing as well. You know, there’s other challenges as it relates to inflationary pressures as well, which may provide the industry some motivation to keep pricing. As we look into early next year with what’s gone on with oil prices and commodity costs, we’re seeing a bit more inflation than we had originally planned for early next year product deliveries. Transportation costs are going up.

We’re seeing some additional fuel surcharges. We have an awesome supply chain that does a great job, so we’re not disadvantaged in any aspect of how we, how we procure our product. The entire marketplace is gonna see these pressures, including the cost of bringing the goods over to the United States. Tariffs are one element of the cost structure, but I think, you know, we have to look at all the other input costs as well.

Ike Boruchow, Analyst, Wells Fargo: Got it. Thank you.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: You’re welcome.

Conference Call Operator, Moderator, Conference Services: Our next question comes from Tom Nikic with Needham. Tom, go ahead with your question.

Tom Nikic, Analyst, Needham: Hey, good morning. Thanks for taking my question. I’ve got two, hopefully quick ones. First, the question, Richard, I apologize if you said this already, if I missed it, but did you say anything about store openings and closures for this year?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: I don’t know if we commented on it specifically, Tom. The plan is to close about 60 locations across North America, most of those here in the U.S. As I mentioned, there’s a handful of stores that have pushed out timing-wise, probably a bit more into Q4 versus Q3 as originally envisioned. There’s from memory, we closed about 10 stores in the first quarter, though another 20 or so that will close here in the second quarter. We have a handful of new store openings. Those are really just stores that were planned originally as part of last year that kinda lopped over the calendar year-end date, and they’ll happen now in 2026.

Tom Nikic, Analyst, Needham: Got it. Okay. On the wholesale channel, I believe you said that the Amazon business was flat this quarter. Is that sort of a sign that that business is now stabilized and, you know, maybe the declines there are finished, or was there anything kind of, you know, one-timey there or anything timing related on the Amazon front? Thanks.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah, Tom. I would say on Amazon, we actually had growth in the Amazon relationship in the first quarter. My comment was specifically that Simple Joys volume was comparable in the first quarter, which is an improvement over where we’ve been. We do have Simple Joys planned down a bit this year, not at the same rate that we’ve seen over the last couple of years, we’re starting to see the ramp-up of the sale of our flagship brands. Carter’s, OshKosh, Little Planet, they exhibited some growth in the first quarter. There’s stronger growth that’s planned in the second half of those brands, which we intend to offset Simple Joys being down. We planned growth with Amazon for the full year.

Tom Nikic, Analyst, Needham: Sounds good. Thanks, Richard, and best of luck the rest of the year.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Thank you, Tom.

Conference Call Operator, Moderator, Conference Services: Our next question comes from Kendra Krugman with Bank of America. Kendall, go ahead with your question.

Brandon Cheatham, Analyst, Citi1: Hi. Thanks for taking my question. Just as a follow-up on tariffs and just to make sure we’re thinking about the timing correctly. Assuming it takes until July to sell through the inventory you brought in at the 36% rate, starting around August, you’ll start to see some benefits from the lower rates that have been in effect since February 24th. I guess, how long would you assume it reasonably takes to sell through this inventory that you’ve been bringing in at lower rates for the last 4 months? Would it be through the end of the year?

I’m just kinda curious how should we think about if you’re assuming then that the back half of the year tariffs jump back up to a higher rate, assuming the incremental IEEPA tariffs, when does that hit the P&L? Is it during 2026, or would it be beyond?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah. Thanks, Kendall. It would be a mix. I would say on balance, our turn assumption, which drives the, you know, how inventory cost bleeds into the P&L, it’s kinda 4 to 5 months. It depends a little bit on the sales rate of product. The assumption is that we’re going to see higher tariffs again, and that those would be implemented mid-year. To the extent we import product, beginning in that kinda mid-year timeframe, those would go into our inventory cost, and we’d be selling that product over the balance of the year and into early next year. We start to sell, kinda spring product. There’s pre-ship product for spring 2027 that we would sell in the fourth quarter.

All of that in our current hypothesis would be subject to the renewed higher tariff rates. I hope it doesn’t happen. I hope they find a different path forward and we go back to where we’ve been historically. We’ll see.

Brandon Cheatham, Analyst, Citi1: Thanks. That’s helpful. One other question I had was just on unit growth versus AUR, obviously or specifically on the U.S. retail business. You had a pretty nice acceleration in units to up low double-digit % this quarter. Curious how you’re thinking about the balance of the year and whether you’d expect unit growth to remain as strong.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah. I think unit growth may be at the high water mark as it relates to Q1 as we plan the business. I think it will moderate a bit in Q2, and then it will moderate further in the second half where we have more benefit from pricing planned in. That’s just how we’ve planned the business. There’s historically been a pretty elastic relationship as you take prices up. Now, we’ve been benefiting, I would say, from a little bit more stickiness, a little bit more inelasticity, particularly among the baby category where we have the most equity with consumers. I would say among some of our higher priced, higher AUR goods where the aesthetic, the benefits, the features are a little bit more apparent to the consumer. That has shown some greater inelasticity as well.

Pricing is a bigger part of the calculus in the second half and the units won’t be as strong at least as we’re looking at it today.

Brandon Cheatham, Analyst, Citi1: Thanks.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Thank you, Kendall.

Conference Call Operator, Moderator, Conference Services: Our next question comes from William Reuter with Bank of America. William, go ahead with your question.

Brandon Cheatham, Analyst, Citi0: Good morning. You, you know, you mentioned that, you know, you have kind of made the assumption that these Section 301 tariffs, the Office of the United States Trade Representative will indeed move forward with those. Have you talked to your wholesale partners, in terms of Walmart and Target for in the event that they do not put Section 301 tariffs in place if they expect that you will reduce prices based upon the fact that, you know, prices have been set based upon IEEPA tariff from last year?

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Well, Bill, I won’t comment on specific conversations with specific customers. I would say that we plan the business collaboratively with our wholesale customers. They’ve been good partners as we have faced this issue as an industry. I would expect that if we get relief on tariffs, that would be the spirit of conversations going forward as well. Obviously, you know, we have an interest as an industry to see these costs go away. This is a value-oriented product category. Even small cost increases have been historically difficult with pricing increases over the years to cover. We’ll, you know, we’ll face those conversations when that situation emerges.

I hope that situation emerges where tariffs have gone away and we’re looking at a nice benefit to potentially be discussing together.

Brandon Cheatham, Analyst, Citi0: Does every analyst that’s been calculating this for the last couple years.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Yeah.

Brandon Cheatham, Analyst, Citi0: The second part of my question. You mentioned that good sell-through of winter products has resulted in, you know, stronger spring order books, maybe than you’ve seen in a little while. I guess how much visibility do you have into your order books for the remainder of the year? Any way you can give some context for what types of increases we might be seeing? I guess how much remains kind of uncertain, meaning I’m not sure what level of communication from your wholesale customers they provide at this point. Thanks.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Bill, I would say we’ve sold into fall and winter at this point, so I think we have pretty good visibility to the majority of, I would say, seasonal product shipments for the balance of the year. An order doesn’t necessarily mean that it wouldn’t change over time if conditions change. There is some, you know, history that orders could be canceled, but that’s we don’t have a long history of that. I would say reactions by the wholesale customer set to our product itself with the various meetings we have to show them the line and such, and again, we plan the business collaborative with them, we get their input on the kind of products that they’re looking for, has been extremely positive and more positive than in recent seasons.

That translated to an improved order profile for the second half of the year. The other component that is a little bit more of a game time read on business is just what happens with replenishment. Replenishment is between 30% and 40% of the business at wholesale, and that depends on how the register is ringing. If consumer demand continues to be strong, that’s potentially, you know, some upside to the forecast as well. I would say we have good line of sight to seasonal bookings and that’s been an improving outlook for us.

Brandon Cheatham, Analyst, Citi0: Great. That 30%-40% number is very helpful for some context. All right, thanks. I’ll pass to others.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Thank you, Bill.

Conference Call Operator, Moderator, Conference Services: This concludes the question and answer session. I’d now like to turn it back to Richard Westenberger for closing remarks.

Richard Westenberger, Interim Chief Executive Officer, President, Chief Financial Officer, and Chief Operating Officer, Carter’s, Inc.: Well, thank you very much for joining us this morning. We appreciate your participation in the call and your questions and your investment in Carter’s, and we look forward to updating you on our next call. Goodbye, everybody.

Conference Call Operator, Moderator, Conference Services: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.