Carter’s Plans 1,000 New Stores as Online is Challenged

Carter's storefront feature

Children’s apparel retailer Carter’s plans to open 50 new stores this year, and at least 1,000 by 2027, seeing an opportunity as its SKU rationalization, price realization between selling periods and inventory management have improved the unit economics for retail, while the online-store mix shifts a bit toward brick and mortar.

“We believe our stores provide the very best presentation of our brands and are our highest source of new customer acquisition,” said Carter’s CEO Michael Casey on the company’s Q1 earnings call. “And when we open stores, we also see a lift in our high-margin ecommerce sales.”

There will be a net gain of 40 stores in 2023, Casey said, as 10 underperforming locations will be closing as their leases expire. Ecommerce as a percentage of sales is projected to be 33% of the total this year, down from 37% in 2022, reflecting a broader market trend. “We view the consumers shifting back to stores positively, given the high fixed cost structure of that channel,” Casey said.

As have many other retail executives, Casey noted that Carter’s omnichannel shoppers are much more valuable than those accessing a single channel, shopping more frequently and spending three times as much.

Even with the new stores contributing $40 million in revenue this year, Carter’s 2023 forecast calls for a 7% decrease in retail sales. In March, the U.S. Census Bureau reported a 1% decline in retail sales, compared to an adjusted 0.2% drop in February.

Wholesale was better than planned due to more favorable replenishment trends and earlier demand for Carter’s exclusive brands, but still lower than 2022, Casey said. This was driven by a nearly 30% decrease in sales to off-price outlets, lower sales to department stores and club retailers, and the loss of orders to buybuyBaby as a result of the Bed Bath & Beyond bankruptcy.

Even with drops in both store and online traffic in Q1, as well as in units purchased per transaction, and overall U.S. retail down, Casey said consumer confidence is in a better place than a 2022 plagued with high inflation and formula shortages. President and CFO Brian Lynch added traffic is down more online than in stores.

“I wouldn’t say the arrow is pointing way up,” he said. “But the consumer is recovering from that historic shock to their lives a year ago.”

Overall, Carter’s Q1 net sales were $696 million, ahead of the Zacks consensus figure of $647.7 million but down 10.9% from $781.3 million in 2022. Similarly, adjusted earnings per share of $0.98 was ahead of the consensus of $0.52 cents but down considerably from $1.66 in the year-ago quarter. Gross margin slipped from 45.4% to 44.5%.