2Q ahead, but heightened price sensitivity keeps us cautious

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Carter's Inc

2Q ahead, but heightened price sensitivity

keeps us cautious

Reiterate Rating: UNDERPERFORM | PO: 30.00 USD | Price: 38.57 USD

Raising estimates post 2Q beat

02 August 2026

We reiterate our Underperform on CRI; we see risks that increasing price sensitivity in

children’s/baby could pressure sales and margins. CRI reported 2Q adj. EPS of $0.26,

ahead of BofA/Visible Alpha consensus $0.02/0.06 on sales and SG&A upside, partially

offset by lower-than-expected gross margins (given clearance and channel mix). The

sales beat was largely driven by a wholesale timing shift that will pressure 3Q. We raise

26E/27E EPS 2%/4% and maintain $30 PO based on ~4x (unchanged) 27E EV/EBITDA.

Equity

See upside on tariffs, but growing price elasticity risk

CRI raised its full-year EPS guidance on higher interest income (given cash from tariff

refunds, which we note are not incl. in guidance), but maintained operating income as

more favorable tariff rates are offset by higher clearance and a lower sales outlook for

2H. While we see further cushion on tariff assumptions for 2H if current rates hold, we

remain cautious on potential for accelerating industry promos amid consumer price

sensitivity (which intensified through 2Q) that could pressure both sales and margins.

More muted 2H sales outlook, partly on wholesale timing

We are modeling 3Q total sales -1% (vs. 2Q +5%), which reflects our outlook for lower

wholesale revenue due to: 1) $15mn that was pulled forward from 3Q into 2Q (~700bp

impact) and 2) lower volumes than initially planned as certain partners have become

more conservative in their orders (though bookings for fall, winter, and early spring

remain positive). This also incorporates our outlook for moderating retail comps into 2H

(3% vs. 5% in 2Q) as CRI is planning for lower, but still positive AURs amidst a more

value conscious consumer. July QTD comps are tracking flat y/y, though management

noted 3Q is back-end weighted (with September accounting for the majority of sales).

Less price-sensitive Gen Z customers remain resilient

While CRI has seen increasing price sensitivity overall, it continues to see strong

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