Carter’s (NYSE:CRI) reported second-quarter fiscal 2026 results that exceeded its prior outlook, with net sales rising 5% from a year earlier to $615 million and adjusted operating income increasing 54% to $18 million. The company also narrowed its full-year sales outlook while maintaining its forecast for low- to mid-single-digit adjusted operating-income growth.
Sharon Price John, who recently joined Carter’s as chief executive officer and president, said the company delivered solid results despite a complex macroeconomic environment. She highlighted a fifth consecutive quarter of comparable-sales growth in U.S. retail and continued customer gains among Gen Z consumers, whose sales grew in the mid-teens during the quarter.
Second-Quarter Results and Tariff Recovery
On a reported basis, Carter’s recorded operating income of $140 million and earnings per share of $2.87 in the second quarter. Those figures included a $132 million recovery of previously paid tariffs and related interest from the U.S. government. Of that amount, $128 million benefited gross profit and $4 million was recorded as interest income, according to Chief Financial Officer and Chief Operating Officer Richard Westenberger.
The tariff recovery was taxable, prompting the company to record an approximately $30 million tax provision that it expects to pay in September. Carter’s also recorded roughly $6 million in charges during the quarter, primarily tied to its leadership transition.
Excluding unusual items, adjusted earnings per share rose 53% to $0.26 from $0.17 a year earlier. Adjusted operating margin improved 90 basis points to 2.9%, supported by sales growth and lower spending.
Adjusted gross margin declined 180 basis points to 46.3%. Westenberger said incremental tariffs pressured gross margin by $28 million during the quarter, while investments in product make also weighed on profitability. Higher pricing, tariff-mitigation actions and productivity initiatives partially offset those effects.
Adjusted selling, general and administrative expenses fell 1% to $270 million. Savings from productivity efforts and store closures more than offset higher marketing spending and inflationary pressures on wages and rent, the company said.
Retail Momentum and Digital Growth
U.S. retail net sales increased 2% in the quarter, while comparable sales rose 5%. Comparable sales increased in both stores and e-commerce, with baby products remaining the primary driver of growth across the retailer’s core age segments.
Chief Retail and Digital Officer Allison Peterson said e-commerce comparable sales rose by double digits for the fourth consecutive quarter, fueled by strong traffic and marketing investments aimed at Gen Z families. The company has introduced enhanced outfitting functions, AI-optimized product reviews, passwordless login and an updated AI chat tool.
Peterson said consumers who use the new digital features have shown higher visit frequency, conversion and units per transaction. The AI chat function now handles about one-third of customer contacts, enabling Carter’s to redirect productivity savings toward higher-touch service for its top customers.
Store traffic was comparable with the prior year, though it slowed from the first quarter. Peterson said the company’s traffic performance outpaced the industry and accelerated on a two-year basis. She also noted that second-quarter retail growth was driven by units, as average unit retail was comparable with the prior year.
Higher clearance activity related to softer performance in selected seasonal products weighed on retail pricing and gross margin. Carter’s said it had cleared through those goods and entered the second half with inventory in a comfortable position. Inventory units were down 9% at quarter-end, while total net inventories fell 7% to $578 million.
The company plans to focus its second-half retail assortment on baby products, opening price points, OshKosh denim for back-to-school and sleepwear. Peterson also cited positive consumer engagement from the company’s Umbro collaboration, which was launched during the quarter around World Cup-related activity.
Wholesale, International and Liquidity
U.S. wholesale sales increased 12% in the quarter, exceeding Carter’s expectations as some fall-product demand arrived earlier than planned, primarily from mass-channel customers. Sales rose in both average unit retail and units. Exclusive wholesale brands, including Carter’s Child of Mine and Just One You, grew from a year earlier, while Little Planet and Skip Hop also posted growth.
Wholesale operating profit increased 10%, with higher realized pricing, tariff mitigation and expense leverage offsetting tariff and product-cost pressures.
International reported net sales increased 3%, though sales were comparable with the prior year on a constant-currency basis. Growth in Canada and Mexico offset declines in the company’s international partners business. International operating income rose 50% to more than $5 million, aided by productivity savings and favorable foreign-exchange-related product costs.
Carter’s ended the quarter with more than $650 million in cash, boosted by the tariff recovery. First-half operating cash flow exceeded $200 million, compared with an $8 million use of cash a year earlier. The company paid $18 million in dividends during the first half.
Updated Outlook
Carter’s revised its full-year net-sales forecast to growth of 2% to 3%, compared with its previous outlook for low- to mid-single-digit growth. The company cited lighter expected wholesale demand in the second half and more conservative assumptions for retail pricing as consumers remain value-conscious.
The company continues to expect low-single-digit full-year sales growth in both U.S. retail and U.S. wholesale, with retail comparable sales expected to increase in the mid-single digits. International sales are still projected to rise in the mid-single digits.
Management maintained its forecast for low- to mid-single-digit growth in full-year adjusted operating income. It improved its adjusted earnings-per-share outlook to a decline in the high-single-digit to low-double-digit percentage range, citing stronger interest income from its higher cash balance. Carter’s also raised its operating cash flow outlook to $230 million to $240 million and reduced expected capital expenditures to about $50 million.
For the third quarter, Carter’s expects net sales of approximately $750 million, comparable with the prior year, adjusted operating income of about $50 million and adjusted earnings per share of approximately $0.85. The company expects U.S. wholesale sales to decline by a high-single-digit percentage, partly reflecting second-quarter pull-forward demand, while U.S. retail sales are expected to grow in the low single digits and international sales are projected to increase by a mid- to high-single-digit percentage.
About Carter’s (NYSE:CRI)
Carter’s, Inc (NYSE: CRI) is a leading designer and marketer of infant and young children’s apparel in North America. Headquartered in Atlanta, Georgia, the company’s core business focuses on creating clothing and accessories for babies and children, including bodysuits, sleepwear, layette, outerwear and accessories that blend comfort, safety and style. Carter’s flagship brand is complemented by its OshKosh B’gosh line, which offers heritage-inspired designs and durable fabrics for toddlers and young kids.
The company distributes its products through a diversified platform that includes wholesale partnerships with major department stores and mass merchandisers, direct‐to‐consumer e-commerce sites, and an extensive network of company-operated retail stores.
