CRI Options: Is Carter's Set for a Put Play?

The company is the largest branded marketer of young children's apparel in North America. Its core brands include 'Carter's', known for high-quality apparel and accessories for newborns to age 14, and 'OshKosh B'gosh', which focuses on playclothes for toddlers and young children. The company also owns 'Skip Hop', a lifestyle brand for parents, babies, and toddlers, and 'Little Planet', emphasizing organic fabrics and sustainable materials. Exclusive 'Carter's' brands like 'Child of Mine', 'Just One You', and 'Simple Joys' are sold through Walmart, Target, and Amazon, respectively. The company targets families with young children and differentiates itself through a multi-channel global business model including retail stores, eCommerce, and wholesale distribution, providing a broad reach and diverse product offerings.

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CRI's technical outlook is mildly bearish. The stock has experienced a downtrend over the past 90 days, evident from the price decline from approximately $32.11 in early July to $29.66 as of November 4, 2025. The recent closing price is below the 50-day SMA (29.82) and significantly below the 200-day SMA, which is available starting in early September and trending downwards. The EMA-21 is at 30.79, also above the current price, suggesting continued downward pressure. The MACD is showing bearish signals, with the MACD line (0.55) below the signal line (0.60), and the MACDh is negative, indicating decreasing upward momentum. The RSI is at 48.95, suggesting neutral momentum but trending downwards. The STOCHk is at 44.28, and STOCHd is at 51.42, indicating that the stock is not yet oversold, leaving room for further decline. While there was a significant price increase on October 27, this was followed by a series of declines, suggesting that the upward movement was unsustainable. Overall, the technical indicators point towards continued bearish momentum in the short term.

The MD&A reveals a challenging period for the company. `Consolidated net sales` saw a slight decrease of 0.1% to $757.8 million for the quarter. The `Gross profit` margin decreased by 180 bps to 45.1%, primarily attributed to higher average cost per unit sold driven by incremental tariffs impacting product costs by approximately '$20 million'. The company is implementing an 'organizational restructuring' expected to yield '$35 million' in annual savings beginning in fiscal 2026. The dividend was reduced by '69%' in the second and third quarters of fiscal 2025 to '$0.25' per share. For the first three quarters of fiscal 2025, `Net cash used in operating activities` was '$136.3 million', a significant shift from the '$11.3 million' provided in the same period last year. Management anticipates incremental tariffs to unfavorably impact pre-tax income by approximately '$25 million to $35 million' in the fourth quarter of fiscal 2025. They are focused on stabilizing business performance and increasing near-term productivity through store closures and cost reductions, while also investing in long-term growth initiatives.

Carter's Q2 2025 earnings call paints a cautiously optimistic picture, tempered by tariff-related uncertainties and ongoing investment. CEO Doug Palladini, in his first 100 days, believes the business is 'stabilizing' and poised for 'long-term, sustainable and profitable growth.' Sales grew 4% driven by U.S. Retail and International segments, but profitability was down considerably due to pricing investments and higher SG&A. Gross margin decreased 200 basis points to 48.1%, primarily from pricing investments in U.S. retail, though AURs are planned up in the low single digits in the second half. The company faces significant headwinds from tariffs, estimating an additional $125 million to $150 million in gross tariff costs annually. While no guidance was reinstated, the company intends to 'be aggressive in our response' to tariffs, including price increases and vendor negotiations, aiming to fully mitigate the impact by 2026. The company is also closing approximately 100 underperforming stores over the next several years as leases expire. International performance was a bright spot, with strong growth in Canada and Mexico. Overall, the call suggests a company in transition, balancing investments in growth with efforts to manage costs and navigate external pressures.

CRI's financial performance presents a mixed picture. Revenue has shown volatility, starting at $661.49M in Q1 2024, peaking at $859.71M in Q4 2024, and then declining to $757.84M in Q3 2025. The gross profit ratio has fluctuated as well, from 0.476 in Q1 2024, reaching a high of 0.501 in Q2 2024, and then settling at 0.451 in the latest quarter. Operating cash flow has been inconsistent, with Q4 2024 showing a strong positive $287.47M, but Q1 2025 showing a negative -$48.64M, and a more recent positive $40.31M in Q2 2025. Total debt has decreased slightly from $1075.11M in Q1 2024 to $679.69M in Q3 2025. While revenue has generally increased over the period, the inconsistency in operating cash flow and fluctuating profitability metrics raise concerns about the company's short-term financial health and ability to sustain growth. The reduction in total debt is a positive signal, but the inconsistency in other key metrics tempers overall optimism.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.