Carter's Delivered A Q2 Beat, But Will Face Back-Half Headwinds, DA Davidson Says

Carter's, Inc. (NYSE: CRI) beat second-quarter EPS expectations by 14 cents but lowered its third-quarter guidance due to the likely reversal of a shift in timing of SG&A expenses and wholesale order upside, according to DA Davidson.

The Analyst

DA Davidson’s John Morris maintained a Neutral rating on Carter's with a price target of $91.

The Thesis

Carter’s EPS beat was driven by strong retail and wholesale revenues and lower SG&A, Morris said in the note. Management noted, however, that around $4 million-$5 million of SG&A cost savings were pushed from the second quarter into the back-half of the year.

The analyst added that some of the second-quarter wholesale revenue upside also seems to have been pulled forward from third quarter, given that management expects wholesale revenue growth to decline by low-single digits.

Although gross margins were in-line with expectations, this represented a 50bp contraction on a year-on-year basis, Morris said. Management cited slightly higher promotions as the reason for the contraction.

Morris added that gross margins were also impacted by a mix shift in the wholesale channel and higher shipping costs.

The company lowered its third-quarter EPS guidance from $1.87 to $1.67 and left its full-year forecast unchanged, which calls for 4%-6% EPS growth.

Price Action

Shares of Carter’s were down 2.55% at $96.45 at time of publishing.

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