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Carter's (CRI) is trading higher after reporting its Q3 results this morning. The babies and kids apparel company beat EPS expectations, a nice bounce back after missing in Q2, while revenue was essentially flat at $757.8 mln (-0.1% yr/yr) and a touch short of estimates. The company did not reinstate guidance amid continued tariff uncertainty, but investors appear more focused on the positive shifts underway in the business.

• Q3 is historically its second-largest quarter. U.S. Retail grew 3% yr/yr with +2% comp growth (second straight positive), International also increased, while U.S. Wholesale lagged.
• Baby remained the key driver with a fifth consecutive quarter of growth; Toddler posted its strongest performance of the year vs. 2024.
• Price increases are sticking, with mid-single-digit AUR increases lifting average transaction values low single digits, although not enough to fully offset higher product costs.
• The company is pursuing cost actions including a roughly 15% workforce reduction by the end of 2025, about $35 mln in annualized savings beginning 2026, about $10 mln in further SG&A reductions, and approximately 150 store closures in North America over about three years.
• Gross margin declined 180 bps to 45.1% due to higher costs including tariffs and mix investments, with tariffs weighing about $20 mln in Q3 and expected to impact Q4 by roughly $25-35 mln, contributing to an annualized gross hit of $200-250 mln.

Briefing.com Analyst Insight

There are some cross currents at play, and investors seem willing to look past tariff pressures and focus on the brighter spots in performance. Carter's bounced back from a Q2 EPS miss, delivered another positive comp, and continues to see solid momentum in Baby and Toddler, with consumers accepting higher pricing. The new CEO's restructuring efforts are being viewed as steps that could support a healthier profit profile. That said, near-term challenges remain and are hard to ignore. Tariffs represent a significant earnings headwind, particularly in Q4, and the absence of formal guidance underscores the uncertainty. Management is also planning for a slower pace of spending growth into 2026, so execution on pricing and cost initiatives will be crucial to sustaining this recent improvement in sentiment.