Carter's, Inc. (CRI): what the price requires

The current priced-in claim for Carter's, Inc. (CRI) is temporarily suppressed because the live engine record is unavailable. The dated report remains a snapshot, not a current market read.

Generated: 2026-07-19 · Source: https://boothcheck.com/report/CRI

Headline

FieldValue
TickerCRI
CompanyCarter's, Inc.
Current price$39.16/sh
CompositionBaby 43% / Playclothes 32% / Sleepwear 12% / Other 13%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed4.9%
Operating margin (mid-cycle)11.1%
Margin compression implied-6.2pp
Trailing margin (depressed year)3.3%
Multiple paid7x mid-cycle operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 6.9% sits below it).

How unusual the bet is: within-range

ReferenceValue
vs own history-0.30σ
cohort percentile (of 212 peers)8
implied end-window share0%

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.38x5expensive
Earnings2.14x5expensive
Relative0.66x3justifies
Growth1.05x2expensive

Families that justify the price: Relative, Growth Families that call it expensive: Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.3%); the inversion above states its own rate.

Per-Model Detail (n=15)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth——no—
DCF Exit MultipleGrowth$52.410.75xyesExit EV/EBITDA: 8.5x / 10.5x / 12.5x (bear / base = today's held flat / bull), 6yr
Relative ValuationRelative$59.120.66xyesP/E 22x (static sector reference · 2026-04), scenarios: 18.4x / 22.0x / 25.6x (bear / base = reference held flat / bull), EV/EBITDA 14x
Simple DDMGrowth——no—
Two-Stage DDMGrowth$1.5325.59xyesStage 1: -46% for 5yr, Stage 2: 3.5% perpetual (excluded from median)
Simple Excess ReturnAsset$27.591.42xyesBV/sh $26.16, ROE (TTM) 9.8%, ke 9.3%
Two-Stage Excess ReturnAsset$28.321.38xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$29.141.34xyesRev $2.9B, growth 5% (input: historical growth; tapered), Terminal P/S: 0.4x / 0.5x / 0.5x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/ERelative——no—
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$94.050.42xyesNormalized EBIT (5y avg op income, one-time charges added back) $0.30B × (1−28%) / WACC 5.3% → EPV (no growth)
Residual IncomeAsset$28.451.38xyesBV $26.16 + 5yr PV of (ROE (TTM) 9.8% − Kₑ 9.3%) × BV; BV grows 6.3%/yr
Graham NumberAsset$38.281.02xyes√(22.5 × EPS $2.49 × BVPS $26.16) — Graham's conservative floor
EV/EBITDA RelativeRelative$59.270.66xyesEBITDA $0.20B × sector EV/EBITDA 14.0x
FCF YieldEarnings$18.342.14xyesFCF $127.1M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$14.022.79xyesSBC-adj FCF $0.11B (FCF $0.13B − SBC $0.01B) capitalized at Kₑ
Ben Graham FormulaEarnings$2.0918.74xyesEPS $2.49 × (8.5 + 2×-5.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$6.146.38xyesBV $26.16 × (ROIC 1.2% / WACC 5.3%)
P/Sales SectorRelative$166.200.24xyesRevenue $2.95B × sector P/S 2.0x
PEG Fair ValueRelative——no—
Earnings YieldEarnings$26.921.45xyesEPS $2.49 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$94.1m
Net debt / NOPAT (after-tax)0.44x
Net debt / operating income (pre-tax)0.32x
Interest coverage8.5x
Share count CAGR (buyback)-3.1%
Burning cashno

Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 11.1%); the trailing year was depressed.

Bullet Takeaways

Bull Case

The single most decisive number for Carter's is the gap between what it earns today and what it has earned through a normal cycle. Operating margin sat at 5.0% in fiscal 2025, against a through-the-cycle level closer to 11%. The entire bull case turns on which of those two numbers is real. If 5% is a trough, dragged down by tariffs, inventory clean-up and a weak consumer, then the earnings power is roughly double what the trailing print shows, and the price is buying that earnings power at a discount. If 5% is the new normal, the stock is fairly valued or worse. The bull case is that 5% is the bottom, not the baseline.

The franchise underneath the bad year is genuinely durable. Carter's is North America's largest and longest-standing children's apparel company, and its filings put its share near "approximately 9%" with "particular strength in the zero to two-year-old segment." That segment matters because it is the least discretionary part of apparel: babies grow out of clothes on a schedule no recession changes, and parents buy the trusted brand at the price point Carter's owns. The company says it is "focused on returning to consistent, profitable growth, recapturing market share, and creating long-term shareholder" value, and it brought in a new CEO, Sharon Price John, in June 2026 to drive that turn.

The recent print gives the bull case a foothold. First-quarter 2026 earnings of $0.39 a share crushed the $0.11 consensus, revenue of $681 million beat, and the stock rose 17% on the day. The balance sheet supports a patient turnaround: net debt is modest at under $100 million, interest is covered well over eight times, and the company has kept buying back stock, shrinking the share count around 3% a year. Management even trimmed the dividend to conserve cash through the uncertain stretch, paying $9 million in the quarter against $29 million a year earlier, which is the right move if the priority is funding the recovery rather than defending a payout. The bull case is a strong brand at a trough margin, a fixable cost problem, and a balance sheet that can wait.

Bear Case

The bear case begins with a simple observation that the cheap multiple invites you to ignore: a children's apparel brand can be both dominant and shrinking in value at the same time. Carter's owns its category, but owning a category whose unit economics are under pressure from tariffs, a cautious consumer, and a long decline in US birth rates is not the same as owning a growth engine. The price looks like a bargain only if the recent earnings collapse is temporary, and the bear case is that some of it is structural.

The leadership instability is the tell that the turnaround is not yet on solid ground. The CEO who was hired to expand the direct-to-consumer and wholesale businesses departed effective April 28, 2026, the CFO ran the company on an interim basis, and a new permanent CEO, Sharon Price John, only joined on June 15, 2026. A company changing chief executives in the middle of a margin crisis is a company still searching for its plan, and a new CEO typically means another reset, another round of investment, and a longer wait before the earnings power the bull case assumes actually shows up. The 2026 guidance already concedes the near term: management expects adjusted earnings per share to fall low double digits to mid-teens, with first-quarter adjusted EPS guided to as little as $0.02 to $0.08 against $0.66 a year earlier.

Tariffs are the external pressure that makes the margin recovery harder to underwrite. The company faced incremental duties that added roughly $26 million to inventory costs in the first quarter of 2026, and its own risk language flags uncertainty around "our ability to recover refunds of incremental tariff amounts or other tariff amounts paid" alongside "increased competition in the marketplace." On the valuation, the methods split exactly as a value trap would: the relative-multiple view says cheap against the apparel sector, but the asset-value methods say the price is already above book-value-plus-profitability, because the return on equity has fallen toward the cost of equity. State the requirement plainly: the price needs the 5% operating margin to climb back toward the company's through-cycle 11%, and if it instead settles somewhere in between because birth rates, tariffs, and competition each take a permanent bite, the stock is not cheap, it is correctly priced for a smaller, lower-margin Carter's.

Valuation

The price is unusually pessimistic, and the way to see it is to value the company on its normal margins rather than this year's depressed ones. On its own through-the-cycle operating margin applied to current revenue, the price pays only about eight times mid-cycle operating income, low enough that it sits below what even a 5%-a-year decline in operating profit would warrant. That is a bound, not a forecast: the market is pricing Carter's as if its earnings power is permanently impaired, not merely cyclically depressed. The near-term pace the company can deliver is not the stretch; the question is whether the margin reverts at all.

The methods we use to triangulate split into the pattern of a classic value-versus-trap debate. The relative-multiple methods, comparing Carter's against the apparel sector, land above the price, calling it cheap. The cash-flow and growth methods also land above the price once normalized earnings are used. But the asset-value methods land below the price, because return on equity has fallen to roughly the cost of equity, which means the business is currently earning little more than its capital costs. So the disagreement is not noise. It is the whole question: the peer-multiple and earnings-power lenses say the stock is cheap if margins normalize, and the asset-value lens says it is not cheap if they do not. The reader is being asked to pick which lens the next two years prove right.

Solvency removes the doom scenario without resolving the debate. Net debt is modest at under $100 million, interest coverage runs above eight times, and the company is generating free cash flow rather than burning it, so there is no distress here and the balance sheet can fund a multi-year turnaround. Management's decision to cut the dividend payout and keep buying back shares is the capital-allocation signal that it is prioritizing the recovery, paying $9 million in dividends in the quarter against $29 million a year earlier. The downside is bounded by a clean balance sheet and a dominant brand; the upside depends entirely on whether the margin is a trough or a ceiling.

Catalysts

The most important catalyst is the new CEO and the strategy that follows her. Sharon Price John became chief executive on June 15, 2026, ending a stretch of leadership turnover that saw the prior CEO depart in late April and the CFO serve as interim. Her first strategic plan, and the early evidence of whether it stabilizes margins, is the single biggest swing factor for the turnaround thesis. A credible plan to lift the operating margin back toward its through-cycle level is what the bull case needs; another reset would push the recovery further out.

Tariffs are the external catalyst, and the direction is unhelpful. Incremental duties added about $26 million to inventory costs in the first quarter of 2026, and the 2026 guidance explicitly excludes the potential impact of further tariff developments while warning of a lower gross margin rate partly offset by pricing and productivity. How much of the tariff cost the company can pass through or recover is a live question its own filings flag.

On the numbers, the Q1 2026 print on May 6 was the encouraging data point: adjusted EPS of $0.39 against $0.11 consensus and revenue of $681 million ahead of forecasts, which sent the stock up 17%. Set against that, the full-year guidance still points to an adjusted EPS decline of low double digits to mid-teens, so a single beat does not yet make a trend. Analyst opinion is divided and cautious, ranging from a Sell at a $33 target to Goldman Sachs upgrading to Neutral at $38. The next earnings print is the test of whether the Q1 beat was the start of margin stabilization or a one-quarter reprieve.

Peer Cohorts (Per Segment, With Filing Citations)

U.S. Retail (reported)

U.S. Wholesale (reported)

Core business (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

CRI FY2025 10-K, accession 0001060822-26-000016 · Carter's CEO announcement, 2026 · Carter's Q1 2026 results · CRI solvency, latest filings · Carter's CEO transition, 2026 · Carter's 2026 guidance · analyst notes, 2026

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