Carter's, Inc. (CRI) - Due Diligence

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67OpportunityDD: Oct 08, 2026Analyst: 66

paidPrice at analysis date

USD 32.5 (08/10/2026)

domainMkt cap

$1.19B

pie_chartShares

36.71M

candlestick_chart52W

$27.46-$44.37

trending_downShort interest

11.4%

INFONYSEConsumer Discretionary15500 employees

Verdict: Favorable Risk/Reward

#1 US children's apparel brand (Carter's/OshKosh) in a cyclical trough. FY25 operating income halved on tariff/promotional pressure; TTM EBITDA $337M vs $199M trough already shows recovery. Trades at 6.1x TTM P/E, EV/EBITDA 3.8x — well below 10Y average. Dividend cut absorbed, $487M cash + $750M undrawn revolver provide hard floor. Catalyst: Q3 earnings 2026-11-02.

📊 DIANALITICS RESEARCH INDEXCompany & Thesis Assessment Score /100 — updated 2026-10-08

Carter's, Inc. (CRI)

Children's Apparel · NYSE · Atlanta, GA

"Cyclical trough with intact brand economics; margin recovery already underway."

Fallen angel Deep value P/E ~6x $1.2B liquidity Tariff exposed Dividend cut 2025

Fin. strength

/20 pts

EBITDA/FCF

/15 pts

Debt/leverage

/15 pts

Stage/business

/15 pts

Catalysts

/10 pts

Reg. risk

/8 pts

Risk/reward

/7 pts

Management

/5 pts

Sector/macro

/3 pts

Compliance

/2 pts

💡 Fair Value Estimate — EV/EBITDA Peer-Anchored (primary) · P/E cross-check

Fair value base case

USD 44.0

Range: USD 30.0-USD 58.0

Price at analysis date: USD 32.5 (08/10/2026)

Base upside/downside: +36%

EV/EBITDA primary with FY26E EBITDA $340M (TTM $337M stress-tested for seasonality). Peer-median multiple 6.0x haircut to 5.5x for revenue stagnation and tariff pass-through risk. Tariff reserve of $4.60/sh captures probability-weighted permanent cost impact. Cross-check with 8.3x P/E on FY26E EPS $5.30 produces identical FV. Sensitivity: ±1.0x multiple = ±$9/sh. Gate test: Base upside 36% / downside to $27.46 (52W low) ≈ 15% → ratio 2.4x (just below the 2.5x screening threshold); the asymmetry is favorable but not extreme. The screening category [DISLOCATION] is selection criterion only — the DD independently concludes a Favorable Risk/Reward profile rather than an extreme asymmetric setup. ⚠️ Not investment advice.

Component	Assumption	USD/share
Core EV (apparel)	$340M FY26E EBITDA × 5.5x (peer median 6.0x − 0.5x cyclical/stagnation haircut)	+50.95
Net debt (EV→Equity)	Cash $487M − LT debt $567M = −$80M / 36.71M sh	−2.18
Working-capital normalization	Inventory destock already executed FY24-25; no further release expected	+0.00
Dividend-cut absorbed	$0.80→$0.25 quarterly already priced in; no further cut assumed	+0.00
Tariff reserve (est.)	~$180M annualized gross tariff cost at 30% effective pass-through × 25% probability of permanent hit / 36.71M sh	−4.60
FV base case	Sum: 50.95 − 2.18 + 0.00 + 0.00 − 4.60 = 44.17	≈ $44

Bull

$55–60

Probability: 20%

Tariff moderation + 2027 margin returns to 8%+ (vs 5.0% FY25). FY27E EBITDA $400M × 6.0x. Buyback restart. Multiple re-rates to peer median.

Base

$40–48

Probability: 50%

FY26E EBITDA $340M at 5.5x. Revenue growth 2-3% as guided; operating margin stabilizes at 6-7%. Dividend held at $1/yr. Modest buyback.

Bear

$25–32

Probability: 30%

Tariffs persist, consumer weakness deepens, margin compresses to 4-5%. EBITDA stays at $280M at 4.5x. Possible second dividend cut.

Methodology: EV/EBITDA primary with FY26E EBITDA $340M (TTM $337M stress-tested for seasonality). Peer-median multiple 6.0x haircut to 5.5x for revenue stagnation and tariff pass-through risk. Tariff reserve of $4.60/sh captures probability-weighted permanent cost impact. Cross-check with 8.3x P/E on FY26E EPS $5.30 produces identical FV. Sensitivity: ±1.0x multiple = ±$9/sh. Gate test: Base upside 36% / downside to $27.46 (52W low) ≈ 15% → ratio 2.4x (just below the 2.5x screening threshold); the asymmetry is favorable but not extreme. The screening category [DISLOCATION] is selection criterion only — the DD independently concludes a Favorable Risk/Reward profile rather than an extreme asymmetric setup. ⚠️ Not investment advice. Not investment advice.

Fair value derived independently via peer-anchored EV/EBITDA on forward estimates; the dislocation thesis is validated numerically — not pre-assumed — and the gate test (upside% / downside% ratio) is computed on the fair value and the hard floor identified in the balance sheet.

📊 Capital Structure · Short Interest · Buyback & Dilution

🟡 Short Interest

11.4%

~4.2M shares short on 36.71M outstanding (Sep-2026 data). Days-to-cover ~3.3. Elevated but not squeeze-level; signals persistent bearish sentiment on tariffs and dividend.

🟢 Share dilution (1Y)

−3.9%

From 38.2M to 36.71M. $97.57M Feb-2022 buyback completed (1.42M shares retired). Current authorization status: ~$200M remaining; execution paused during tariff uncertainty.

🟡 Buyback

$98M FY25

Previous program completed. Dividend cut (−$0.55/qtr) frees ~$80M/yr for buybacks or balance sheet. No formal pause but no active execution Q2-Q3 2026.

Short Interest — context

CRI — 11.4%

11.4%

Interpretation: Short Interest elevated but moderate. Insider trading (last 12M): mix of CEO Doug Palladini (hired Oct-2025) retention grants and Director/EVP exercise + sell patterns — no block sales above $500K threshold flagged, so no concentrated bearish insider signal. Form 4 activity reviewed via Marketbeat & QuantisNow.

$Financial analysis — FY2022–FY2026E

Revenue TTM

$2.98B

+2.9% vs FY25

EBITDA TTM

$337M

+69% vs FY25 ($199M)

Net cash

−$80M

Cash $487M vs LT debt $567M

Diluted EPS TTM

$5.34

vs $2.53 FY25 trough

Item	FY2022	FY2023	FY2024	FY2025	TTM Q2-26	Guidance FY26
Revenue ($M)	3,213	2,946	2,844	2,898	2,980	~2,960–3,000 (+2–3%)
Gross margin	45.8%	47.4%	48.0%	45.4%	48.6%	47–48%
Operating income ($M)	379	323	255	144	282	~260–280
Op. margin	11.8%	11.0%	9.0%	5.0%	9.5%	8.5–9.5%
Net income ($M)	250	233	186	92	195	~180–200
EBITDA ($M)	444	388	313	199	337	~330–350
Diluted EPS ($)	6.34	6.24	5.12	2.53	5.34	~5.00–5.60
Free cash flow ($M)	48	469	243	69	293	~200–250

FY25 revenue includes extra 53rd week (~$37M). FY26E guidance implied by Q2-2026 call: 2–3% revenue growth, Q3 revenue ~$750M. Guidance in TTM/FY26E columns is estimate, not official EBITDA guidance (company does not guide EBITDA).

Quarterly dynamics — last 5 quarters
Metric	Q2 2025	Q3 2025	Q4 2025	Q1 2026	Q2 2026
Revenue ($M)	585	758	925	630	615
Gross margin %	46.1%	45.0%	45.4%	49.1%	48.0%
Net income ($M)	8.6	44.8	66.0	14.4	105.0
Diluted EPS ($)	0.24	1.23	1.76	0.39	2.87
End-of-period cash ($M)	340	340	487	405	420

Financial position and sustainability

Liquidity ($1.2B / $750M revolver)

Strong

Net debt / TTM EBITDA

0.24x

Interest coverage (TTM)

~6.5x

Operating margin recovery (FY25→TTM)

5.0% → 9.5%

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Business model — US children's apparel brand leadership

#1 branded franchise in US children's apparel (160 years old)

Carter's owns the #1 (Carter's) and #2 (OshKosh B'gosh) brands in the US children's apparel market (~$30B TAM, 0-10 years), plus Skip Hop (baby gear) and Little Planet (organic). Vertically integrated with 804 US retail stores + wholesale channel (Target, Walmart, Amazon) + ecommerce. Sourcing is ~85% Asian (Cambodia, Vietnam, Bangladesh) — direct US tariff exposure. Business inherently resilient (baby/toddler demand replacement-driven, non-discretionary mix) but demographic headwind: US births declining ~2%/yr since 2007.

US Retail (owned stores + ecom) ~$1.65B FY26E (55% rev) 🟡 stabilizing 804 stores + direct ecommerce. Comp sales turning positive FY26 vs down low-single-digit FY25. GM ~50% but SG&A/occupancy drag. Store count flat; closing underperforming formats. US Wholesale ~$1.05B FY26E (35% rev) 🟢 growing Target (~50% of wholesale), Walmart, Amazon, Kohl's. Highest GM channel. Share gains in mass channel as weaker regional retailers close. Exclusive brand programs (Just One You @ Target). International ~$290M FY26E (10% rev) 🟡 mixed Canada (owned) + licensees (~90 countries). Canada weak on exchange rate; licensing stable. Lowest margin segment. Not strategic focus near-term.

gavel

Legal, regulatory and risk analysis

Tariff pass-through (Asia sourcing)

High

~85% COGS sourced Vietnam/Cambodia/Bangladesh. Trump admin tariff regime (10–30% on category) could add $100–180M gross annual cost. Partial retail price pass-through demonstrated Q1-26; remainder absorbed in margin. Scenario-dependent catalyst.

US births secular decline

High

Birth cohort declining ~2%/yr since 2007. 2024 US births at 3.59M (record low since 1979). Carter's baby/toddler is ~60% of mix; unit volume headwind requires continuous share-gain to offset.

Dividend cut absorbed; further cut tail risk

Moderate

May-2025 cut from $0.80 to $0.25 quarterly already in price. Further cut unlikely at current FCF but possible if tariffs permanent. Current yield ~3.1% at $32.45. Reinstatement optionality is bull-case lever.

Consumer discretionary trade-down

Moderate

Low- to mid-income families (Carter's core at $50-100K HH income) under real-wage pressure. Trade-down to private label at Walmart/Target already visible in Q1-26 commentary. GM compressed to 45% in FY25 before recovering.

New CEO transition risk

Moderate

Doug Palladini joined as CEO Oct-2025 (ex-Vans/VF). Mixed Vans track record (brand lost momentum under his tenure). Strategic plan refresh ongoing; execution unproven. Prior CEO Casey departed after 10Y.

Debt refinancing executed, no near-term maturity

Low

March-2026 issued $575M of 7.375% senior notes due 2031; redeemed $500M 5.625% notes due 2027. No maturity before 2030. ABL $750M undrawn (ex-$6.3M LCs) → total liquidity $1.2B+.

Brand IP + category leadership

Positive

#1 share in US children's apparel for 2 decades. 90%+ brand awareness among new parents. Replacement-driven demand pattern (babies grow 7 sizes 0-24M) smooths discretionary volatility. 160-year brand pedigree.

Cash flow conversion & liquidity cushion

Positive

TTM FCF $293M vs market cap $1.19B = 25% FCF yield. $487M cash on balance sheet absorbs any single-year EBITDA shock. Interest coverage ~6.5x even on new 7.375% notes.

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SWOT analysis

Strengths

+#1 US children's apparel brand share for 20+ years (Carter's + OshKosh)
+Diversified channels: 55% own retail, 35% wholesale (Target/Walmart), 10% intl.
+$1.2B total liquidity vs $1.19B market cap — unusual for distressed-looking name
+Replacement-driven demand (babies grow 7 sizes 0-24M) smooths cyclicality
+25% TTM FCF yield; dividend cut already absorbed

Weaknesses

−Asia-concentrated sourcing (85% COGS) — binary tariff exposure
−Revenue stagnation 2022-2026: $3.2B → $2.9-3.0B (no growth engine)
−Operating margin collapsed FY24→FY25 (9.0%→5.0%); only partially restored
−New CEO (Palladini, ex-Vans) with mixed track record of brand turnarounds
−Dividend cut May-2025 reduced long-term holder base

Opportunities

→Multiple re-rating alone from 3.8x TTM EV/EBITDA → 5.5x peer-adj = +30–40% equity
→Dividend reinstatement if tariffs moderate (adds yield + sentiment lift)
→Buyback restart with $200M remaining authorization + $80M/yr saved from div cut
→Mass-channel share gains as regional retailers close (Target/Walmart penetration)
→Skip Hop + Little Planet brand portfolio under-leveraged internationally

Threats

!Trump admin tariff regime: 10–30% on Asian apparel sourcing could cost $100–180M/yr
!US births at record low; demographic volume headwind
!Consumer discretionary trade-down to private label at mass retailers
!Shein/Temu disrupting low-end children's apparel pricing floor
!Second dividend cut if margin pressure persists beyond 2026

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Summary by assessment area

🟢 Financial — Low

$1.2B liquidity vs $1.19B market cap
Net debt 0.24x TTM EBITDA
No maturity before 2030
TTM FCF yield ~25%

🟡 Operational — Moderate

Margin recovery underway (5%→9.5%)
New CEO unproven; strategy refresh
Revenue stagnant 4 years running
Store count rationalization ongoing

🔴 Macro/Regulatory — High

Trump tariffs: $100-180M annual gross exposure
US births declining ~2%/yr
Low/mid-income consumer under pressure
Shein/Temu price-anchor compression

Sources & Disclaimer

Sources: Carter's Q4/FY25 earnings release (carters.gcs-web.com), Q2 2026 10-Q, Yahoo Finance (quote 2026-10-07), StockAnalysis.com (income statement), Simply Wall St (narrative, peer multiples), Goldman Sachs rating note Apr-2026 ($38 PT), MarketBeat, Seeking Alpha, Quartr, SEC EDGAR (Form 4 insider filings). Market data — last verified close 2026-10-07: CRI $32.45, market cap $1.19B, 52W: $27.46–$44.37, shares outstanding 36.71M. Short interest ~11.4%. Prezzo usato: $32.45 (close 2026-10-07, T-1) — fonti: Financialcontent / Equibles. ⚠️ This document is for informational purposes only and does not constitute financial or investment advice.