Dive Brief:
- Carter’s reported net sales increased over 8% year over year to $681 million in the first quarter. Net income decreased 7.7% compared to the year-ago quarter to $14.3 million.
- The company has filed for around $130 million in refunds from the government due to IEEPA-related tariff charges.
- “We’re in line for our refund, and we’re monitoring it closely,” interim President and CEO Richard Westenberger said on a call with analysts.
Dive Insight:
Westenberger said the impact of tariffs on Carter’s Q1 is complicated.
On a call with analysts, Westenberger said that the company has always paid import duties and that rates have differed by country of origin. The company historically has paid slightly over $100 million annually to bring products into the U.S., representing an effective tariff rate of around 13%.
However, additional duties have been estimated to add over $200 million to the company’s baseline, bringing the effective tariff rate to above 35%.
The company’s outlook for Q2 includes a lower gross margin rate, which reflects higher net incremental tariffs costs that will be partially offset by pricing, supply chain mitigation and improvements on productivity, per the company. The company also expects low-single-digit net sales growth and an adjusted operating income of between $11 million and $13 million.
“We’re cautious that we’re out of the woods when it comes to tariffs,” Westenberger said. “It’s possible that new tactics could be employed by the government to reinstate the previous IEEPA-level tariffs, or even higher level of tariffs on imports across a range of our sourcing countries.”
Major retailers have filed lawsuits for refunds plus interest, including Lululemon, Reebok International, Dollar General, Ollie’s Bargain Outlet and Kohl’s.
Carter’s announced this fall that it would lay off around 300 corporate employees, or around 15% of that workforce. At that time, the company also said it would close about 150 stores in North America over the next three years.
Carter’s is also in the middle of a leadership change. At the start of the month, it was announced that Build-A-Bear vet Sharon Price John would take over as the company’s chief executive officer and president, effective June 15. Former CEO Douglas Palladini left the company after only a year in the top spot.
