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Solid Demand & Online Strength to Drive Carter's (CRI) Growth

Despite cost headwinds, Carter's (CRI) remains well-placed for growth on the back of enhanced digital capabilities and strong demand.

This story originally appeared on Zacks

Carter’s, Inc. CRI has been benefiting from improved demand, particularly in stores, driven by store re-openings, the acceleration of the vaccine program, and the relaxing of the pandemic-led restrictions. Also, it has been witnessing healthy demand for its babywear products from a few of its largest customers like Target TGT, Amazon AMZN and Walmart WMT. Some other notable initiatives, including robust product portfolio, solid online show, better marketing and enhanced pricing, bode well.

The company’s online strength remains a major growth driver on the back of enhanced e-commerce capabilities and faster delivery via curbside pickup, same-day pickup, buy online and pick up at store, and ship-from-store services. Driven by the factors, the company’s e-commerce business has been performing well, with more than 60% growth in the first half of 2021 from the first half of 2019. Easy access to a broad array of online products when shopping in stores and access to its new credit card program acted as major growth drivers.

In second-quarter 2021, more than 30% of online orders were fulfilled by stores, which reflects an improvement from 12% in the prior-year quarter. It also launched a mobile app and is investing in RFID capabilities. The rollout of RFID is likely to be completed by this fall and it will be accretive to the fourth-quarter and 2022 results.

Management raised its 2021 guidance. The company anticipates sales growth of 15%, up from the earlier mentioned 10%. For 2021, earnings are envisioned to rise 75% year over year compared with the previously mentioned 40% growth. Adjusted operating income is likely to be $475 million, up from the prior year’s reported figure of $279.8 million. The guidance includes $5 million of costs related to additional protective equipment and cleaning supplies, and $3 million of restructuring costs.

The company also issued an upbeat third-quarter view, wherein it expects sales of $960 million. Adjusted earnings are envisioned to be $1.60 per share, with an adjusted operating income of $110 million. Management also expects sales to be higher in the second half of 2021.

However, it continues to witness elevated expenses, stemming from higher store payroll expenses, a rise in marketing expenses and the resumption of employee compensation. Management expects higher expenses related to faster delivery from Asia along with supply-chain disruptions, rising transportation costs, increased investments in marketing, higher wages and a 53rd-week fiscal year in 2020 to hurt the company’s performance in the second half of 2021.

Carter’s is likely to incur costs related to additional protective equipment and cleaning supplies of $5 million in 2021 and $1 million in the fiscal third quarter. The company expects $3 million of restructuring costs for 2021.

We believe that strategic initiatives, solid online shows and high demand are likely to keep Carter’s stellar show on.

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