3. Carter’s, Inc. (NYSE:CRI)
Market Cap: $1.91 billion
Forward P/E: 9.96
Number of Hedge Fund Holders: 30
Carter’s, Inc. (NYSE:CRI) is all about babies and young kids. It manufactures and sells apparel and related accessories for this age group under its vast portfolio of brands, including Carter’s, OshKoshB’gosh, Precious Firsts, Just One You, Child of Mine, Simple Joys, and Skip Hop.
The company exceeded its fiscal Q3 2024 sales and earnings objectives, as its US retail sales surpassed expectations due to the strength of its product offerings and the effectiveness of its brand marketing strategies and pricing. In July, Carter’s, Inc. (NYSE:CRI) initiated a plan to invest around $40 million in more competitive pricing and $10 million in additional brand marketing. Coupled with better online and in-store shopping experiences, these investments significantly improved the company’s US retail sales. It saw improving trends in unit volume, conversation rates, transactions, and new customer acquisition.
Carter’s, Inc. (NYSE:CRI) holds a competitive market advantage as the largest supplier of young children’s apparel to big brand retailers. It is thus benefiting from consumers preferring one-stop shopping experiences in big brand retailers in this inflationary cycle. Looking forward, the company’s growth strategies are focused on the fundamentals, which include improving the value and style of its product offerings, improving its marketing effectiveness and capabilities, and leveraging its multi-channel market presence to boost the reach of its brands. The strength of its high-margin business model and cash flow generation lend it the resources to invest in its growth strategies. The company ranks third on our list of the 10 most undervalued small-cap stocks to invest in.
Palm Valley Capital Fund stated the following regarding Carter’s, Inc. (NYSE:CRI) in its Q4 2024 investor letter:
“The three positions contributing most negatively to the Fund’s fourth quarter return were the Sprott Physical Silver Trust (ticker: PSLV), ManpowerGroup (ticker: MAN), and Carter’s, Inc. (NYSE:CRI). Carter’s stock declined during the quarter even after posting stronger than expected operating results. While Carter’s retail business showed signs of improvement last quarter, sales remained under pressure. Management believes inflation has reduced young parents’ discretionary income and ability to spend on children’s clothing. Carter’s has responded by lowering prices at its stores, which has turned volumes positive but reduced profit margins. While the company maintained its profit guidance for the year, margins will likely remain below average, given weak consumer spending and higher promotions. We do not expect business conditions to improve in the near term, but we believe Carter’s depressed stock is trading at an attractive discount to our calculated valuation. The shares are priced at 11x 2024 estimated earnings and offer a 5.9% dividend yield.”
