Carter’s reports sales growth for FY25 despite significant margin pressure

Atlanta-based apparel group Carter’s (CRI) has reported its financial results for the fourth quarter and fiscal year ended January 3, 2026, revealing a period of topline growth tempered by significant profitability headwinds driven by international trade duties.

The company delivered net sales of 2.90 billion dollars for the full year, representing a 2 percent increase compared to 2.84 billion dollars in fiscal year 2024. This growth was supported by an additional 53rd week in the fiscal calendar, which contributed approximately 37 million dollars to consolidated net sales. On a comparable 52-week basis, net sales grew by 0.6 percent.

Fourth quarter performance and segment growth

During the fourth quarter, net sales rose 8 percent to 925 million dollars, up from 860 million dollars in the prior year period. All three business segments posted growth during the quarter, with the U.S. Retail, International, and U.S. Wholesale segments growing 9.4 percent, 10.2 percent, and 3.4 percent respectively on a reported basis.

U.S. Retail comparable net sales increased 4.7 percent in the final quarter.

Douglas C. Palladini, chief executive officer and president of Carter’s, noted that the results reflect building momentum in product focus and demand creation initiatives.

Profitability and tariff headwinds

Despite the increase in sales, the group’s profit margins faced contraction. The operating margin for the fiscal year fell to 5 percent from 9 percent in 2024. On an adjusted basis, the operating margin was 6.1 percent compared to 10.1 percent in the previous year.

A primary driver of this decline was the impact of international trade duties.

Richard Westenberger, chief financial officer and chief operating officer, quantified the gross impact of tariffs at over 200 million dollars for the full year. This is a substantial increase from the 60 million dollars incurred in fiscal year 2025.

To counter these costs, the company is implementing mid-single-digit price increases across all segments. While higher costs initially pressured margins in Q4 FY25, management expects price coverage in the wholesale channel to improve in the second half of 2026 as new ticketing and sell-in cycles take effect.

Strategic shift and product innovation

Carter’s is shifting its retail model away from transactional, price-oriented messaging toward value and quality. Palladini noted that higher average unit retail (AUR) prices are being accepted by a new, higher-income consumer demographic.

Emerging brands: The 'Little Planet' brand reached a milestone in FY25, crossing 100 million dollars in sales. This brand, along with the 'PurelySoft' sleepwear line, is driving higher price realization with less promotional activity.

Amazon strategy: The group is intentionally transitioning away from its 'Simple Joys' brand on Amazon to feature its core 'Carter’s' brand more prominently, a move expected to improve long-term profitability on the platform.

Outlook for fiscal year 2026

Looking ahead to fiscal year 2026, the company expects net sales to grow at a low single-digit to mid-single-digit percentage. Adjusted operating income is also projected to grow in the low single-digit to mid-single-digit range.

However, the group anticipates a low double-digit to mid-teens decline in adjusted diluted earnings per share (EPS), which is expected to be approximately 3.47 dollars. Palladini concluded that the company remains focused on returning to long-term sustainable growth while navigating the evolving tariff environment.