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Zacks Equity Research January 03, 2023
H CRI RICK HGV 
Trades from $1
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Carter’s Inc. (CRI – Free Report) has been reeling under inflationary pressure, leading to a surge in gas and food prices, and dented demand for its brands. As a result, the company witnessed a sluggish year-over-year performance in third-quarter 2022.
Adjusted earnings of $1.67 per share fell 13.5% from $1.93 in the prior-year quarter. Net sales dropped 8.1% year over year to $818.6 million due to lower sales across the U.S. Retail, U.S. Wholesale and International divisions. Sales in the U.S. Retail segment decreased 12.3% year over year to $408.2 million due to lower comparable sales.
U.S. Retail comparable net sales fell 11%. Also, the U.S. Wholesale segment’s sales dipped 1.9% to $288.5 million. The International segment witnessed a 6.7% drop in revenues to $122 million in the third quarter.
Also, increased ocean freight rates and distribution expenses hurt margins in the third quarter. Carter’s gross profit declined 9.4% year over year to $370.5 million, whereas the gross margin contracted 70 basis points (bps) to 45.2%. The adjusted operating income declined 26.1% year over year to $91.6 million in the reported quarter. The adjusted operating margin contracted 270 bps to 11.2%.
Consequently, Carter’s projected 2022 net sales of $3.145-$3.185 billion compared with the prior mentioned $3.25-$3.30 billion. Adjusted earnings per share are expected to be $6.05-$6.65, down from $7.10-$7.60 mentioned earlier. Adjusted operating income is forecast to be $355-$385 million compared with $415-$440 million stated earlier.
For fourth-quarter 2022, net sales are expected to be $845-$885 million. Adjusted earnings are likely to be $1.40-$2.00, down from $2.31 reported in the prior-year quarter. Adjusted operating income is expected to be $85-$115 million, suggesting a decline from $137.9 million reported in the year-ago quarter.
The fourth-quarter outlook reflects a tough macroeconomic environment, with U.S. Retail comparable sales dropping 10-15%, and U.S. Wholesale and International sales declining.
Image Source: Zacks Investment Research
In the past three months, the CRI stock has gained 3.5%, underperforming the industry’s growth of 29.7%.
Carter’s is leaving no stone unturned to strengthen its e-commerce capabilities and speed up deliveries through investments. The company’s solid e-commerce business continued in third-quarter 2022, driven by expanded omnichannel facilities, including curbside pickup, same-day pickup, buy online and pickup at store, and shipping from store.
This, along with easy access to a broad array of online products when shopping in stores, bodes well. About 40% of the online transactions of the company were supported by its stores in the quarter.
Carter’s loyalty and private-label credit card programs also performed well. More than 90% of its active customers are members of its Rewarding Moments loyalty program. The company’s mobile app is performing well. Management earlier anticipated e-commerce penetration to rise to 42% by 2024.
The company has been witnessing a recovery in its stores, owing to improved tourism. Its border and tourist store locations delivered the best comparable sales in the third quarter. Also, improved price realization and potential store openings bode well. Notably, CRI is on track to open 30 stores in the United States, including 20 in the fourth quarter.
Although inflation impacts remain concerning in the near term, we believe that solid online show and recovery in-store performance will aid this Zacks Rank #3 (Hold) stock. A Value Score of B also reflects the company’s inherent strength.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Hilton Grand Vacations (HGV – Free Report) , RCI Hospitality Holdings (RICK – Free Report) and Hyatt Hotels (H – Free Report) .
Hilton Grand Vacations currently sports a Zacks Rank #1 (Strong Buy). HGV has a trailing four-quarter earnings surprise of 3.7% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates increases of 4.7% and 24.6%, respectively, from the year-ago period’s reported levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1% on average.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates growth of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently carries a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3% on average.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates growth of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.
Hyatt Hotels Corporation (H) – free report >>
Carter’s, Inc. (CRI) – free report >>
RCI Hospitality Holdings, Inc. (RICK) – free report >>
Hilton Grand Vacations Inc. (HGV) – free report >>
Our experts picked 7 Zacks Rank #1 Strong Buy stocks with the best chance to skyrocket within the next 30-90 days.
Recent stocks from this report have soared up to +178.7% in 3 months – this month’s picks could be even better. See our report’s 7 new picks today, absolutely FREE.
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