Carter's Inc - Fundamental Investment Case

Qualitative Concerns

• Amazon, Target, Walmart, Macy’s and many others that Carter’s sells through are creating private label brands of their own.
• The number of retail subscription box offerings has exploded offering the consumer convenience and pressuring traditional brands.
• CRI consistently lags the shipping demands of the consumer and those offered by others.
• The long-term headwind of declining birth rates continues to pressure the industry.
• Estimates rely heavily on recapturing lost volume from recent customer bankruptcies.

Fundamental Concerns

• Underneath a seemingly stable top line, volumes are negative and price growth continues to decelerate.
• eCommerce growth is driving positive total comparable sales growth but retail SSS remains negative.
• Gross margins remain intact, but EBIT margins have already started falling from increased cotton prices, store closures, ecommerce expenses and shipping costs.
• Receivables and inventory are both starting to trend in the wrong direction, cash flow yield has come down slightly, and net debt is growing.
• Valuation is in line with or above historical averages.