Carter’s, Inc. Reports Strong Q2 2026 Results: Net Sales Rise, Tariff Refund Boosts Profits, Outlook Updated

Key Highlights and Financial Performance

• Net Sales: Carter’s, Inc. reported Q2 2026 net sales of \$615.5 million, up 5.2% from \$585.3 million in Q2 2025. Growth was seen across all segments: U.S. Wholesale (+11.7%), U.S. Retail (+1.7%), and International (+2.7%). U.S. Retail comparable sales increased 5.1%.
• Operating Income: Q2 2026 operating income surged to \$139.8 million from \$4.0 million in Q2 2025, driven primarily by a \$132 million recovery of previously paid import duties and related interest. This is a one-time benefit and not indicative of ongoing operations.
• Adjusted Operating Income: Excluding one-time items, adjusted operating income grew by 54% to \$18.1 million (from \$11.8 million in Q2 2025).
• Diluted EPS: Diluted earnings per share were \$2.87, up dramatically from \$0.01 in Q2 2025. Adjusted diluted EPS (excluding one-time items) rose 53% to \$0.26 from \$0.17 last year.
• Net Income: Net income for Q2 2026 was \$105.0 million, up from \$0.4 million in the prior year. Adjusted net income was \$9.4 million, compared to \$6.3 million in Q2 2025.
• Cash Flow: Net cash provided by operations in the first half of fiscal 2026 was \$202.3 million, a sharp turnaround from net cash used in operations of \$8.3 million in the same period last year.
• Dividend: Carter’s paid \$0.25 per share in Q2 2026, totaling \$9.1 million; total cash dividends in the first half of 2026 were \$18.3 million. No share repurchases were made in H1 2026.

Price Sensitive and Shareholder-Relevant Information

• Tariff Refund: The company received a \$132 million (\$100 million after-tax) recovery of previously paid import duties and related interest. This substantial one-time gain significantly boosted Q2 profit and cash flow, but is not expected to recur. Investors should not extrapolate this into future quarters.
• Leadership Transition: The quarter included costs related to leadership transitions, notably the departure of former CEO Douglas Palladini and the arrival of new CEO Sharon Price John. This is a transitional period for Carter’s, with implications for future strategy and execution.
• Intellectual Property Litigation: Legal defense costs (non-recurring) were incurred in relation to IP litigation. The company expects further IP litigation-related non-GAAP adjustments (~\$1 million in Q3, \$8 million in FY2026).
• Productivity and Supply Chain Initiatives: The company cited early benefits from ongoing productivity and supply chain improvements, offsetting inflationary and tariff pressures. These initiatives are expected to continue supporting profitability.
• Organizational Restructuring: Carter’s is undertaking restructuring and store fleet rationalization, which should deliver savings but comes with execution risk.
• Outlook Update:
  • Fiscal 2026 guidance:
    • Net sales growth of 2% to 3% (vs. \$2.898 billion in FY2025)
    • Low to mid-single-digit percentage growth in adjusted operating income (\$176 million in FY2025)
    • High single-digit to low double-digit percentage decline in adjusted diluted EPS (\$3.47 in FY2025)
    • Operating cash flow of \$230–\$240 million
    • Capital expenditures of \$50 million
  • Q3 2026 guidance:
    • ~\$750 million net sales (\$758 million in Q3 2025)
    • ~\$50 million adjusted operating income (\$39 million in Q3 2025)
    • ~\$0.85 adjusted diluted EPS (\$0.74 in Q3 2025)
  • Assumptions: Earnings will be weighted toward the second half of the year due to tariff and investment spending. Gross margin is expected to be lower due to incremental tariff costs, partially offset by higher pricing and productivity improvements. SG&A will rise slightly, reflecting restructuring savings offset by investments in demand creation and IT.
  • Risks: Tariff uncertainty, leadership changes, litigation costs, restructuring execution, inflationary and supply chain pressures, and potential changes in consumer spending or trade policy.

Segment Details

• U.S. Retail: Net sales were \$304.7 million (49.5% of total), up from \$299.5 million (51.2% of total) last year. Segment operating margin was 1.4%.
• U.S. Wholesale: Net sales were \$215.5 million (35%), up from \$193.0 million (33%). Segment operating margin was 13.8%.
• International: Net sales were \$95.3 million (15.5%), up from \$92.8 million (15.8%). Segment operating margin was 5.7%.

Balance Sheet and Cash Flow

• Cash & Equivalents: \$653.6 million at July 4, 2026, up from \$487.1 million at January 3, 2026.
• Inventories: \$577.7 million, up from \$544.6 million at year-end.
• Total Liabilities: \$1.7 billion, up from \$1.64 billion at year-end.
• Shareholders’ Equity: \$1.03 billion, up from \$925 million at year-end.

EBITDA and Adjusted EBITDA

• Q2 2026 EBITDA: \$153.5 million
• Q2 2026 Adjusted EBITDA: \$30.8 million
• FY2026 Adjusted EBITDA (Trailing 4 Quarters): \$230 million

Important Shareholder Considerations

• One-Time Tariff Refund: The \$132 million tariff refund is a major non-recurring event and has materially impacted reported operating income and cash flows. Shareholders should focus on adjusted results for ongoing performance.
• Leadership Change: With a new CEO, Sharon Price John, Carter’s may see shifts in strategy and execution. This transition period could affect investor confidence and share price.
• Litigation and Transition Costs: Ongoing litigation and leadership costs are expected to affect non-GAAP results in coming quarters.
• Restructuring: Organizational changes may provide future savings but also present risks; execution will be closely watched by the market.
• Dividend Policy: The Board will determine future dividends based on business conditions, performance, and investment priorities.

Risks and Forward-Looking Statements

Carter’s, Inc. cautions that forward-looking statements are subject to numerous risks and uncertainties, including global economic conditions, consumer spending, organizational restructuring, trade and tariff policy, inflation, supply chain constraints, competitive pressures, and legal challenges. Investors are advised to review the most recent SEC filings for a complete list of risk factors.

Conference Call and Additional Information

The company will host a conference call for investors on July 31, 2026, at 8:30 a.m. ET. Presentation materials and a webcast replay will be available at ir.carters.com.

Company Overview

Carter’s, Inc. is North America’s largest branded marketer of apparel exclusively for babies and young children, with iconic brands such as Carter’s and OshKosh B’gosh, and exclusive partnerships with Walmart, Target, and Amazon. The company operates more than 1,000 stores in the U.S., Canada, and Mexico.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a solicitation to buy or sell securities. Financial results and forward-looking statements are subject to risks and uncertainties; investors should conduct their own research and consult professional advisors before making investment decisions. Carter’s, Inc. disclaims any obligation to update the information provided herein except as required by law.

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