Welcome to Carter's, Inc.'s Fourth Quarter Fiscal 2025 Earnings Conference Call. On the call are Douglas C. Palladini, Chief Executive Officer and President; Richard F. Westenberger, Chief Financial Officer and Chief Operating Officer; and Sean McHugh, Treasurer. Please note that today's call is being recorded. I will now turn the call over to Mr. McHugh.

Thank you, and good morning, everyone. We issued our fourth quarter 2025 earnings release earlier today. The release and presentation materials for today's call are available on our Investor Relations website at ir.carters.com. The statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings and the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Douglas C. Palladini.

Good morning and thank you for joining us as we share our fourth quarter and full year 2025 results. We are also going to offer some guidance for the year ahead. While we believe the recent news regarding tariffs will be net positive for Carter's, Inc., it will take some time for the proper level of detail to fully emerge. So our comments today will exclude that potential tariff impact. As I approach one year in role in April and reflect on 2025, it is becoming clear that several of the themes I have consistently highlighted are coming to life. As Carter's, Inc. returns to growth that is long-term sustainable and profitable, we continue to experience momentum in our business, doing what is right for our brands and consumers, which is yielding improved financial outcomes. As I characterize the kind of quality growth we want at Carter's, Inc., I am specifically talking about decreasing promotional activity over time, growing our ability to price up and to sell higher priced products overall, and balancing our transactional messaging with more emotion-driven product and brand storytelling that builds consumer connectivity and loyalty. We are creating new products that are truly resonating with consumers across all five brands led by the Carter's, Inc. namesake, embodying holistic value, including style and quality, not just price. In Q4, among our DTC channels, all apparel brands and all age segments grew versus last year. Our brands are increasingly attracting new consumers, particularly among Gen Z and millennial families, with new fans leaning into our better and best product offerings, with higher price points. We are validating what we believe are the equity and pricing power of our brands. Importantly, these newly acquired consumers are demonstrating the potential for higher lifetime value, an essential building block towards sustained…

Thank you, Doug. Good morning, everyone. I will cover our fourth quarter performance, and then we will share some perspective on 2026, including our outlook for the first quarter. Obviously, the developments over the last week have introduced new uncertainty regarding the topic of tariffs. There is a lot left to play out on this subject, including the potential to recover the significant additional tariffs we have already paid to date. Fourth quarter capped off a significant year at Carter's, Inc., one which included leadership transition, initiation of significant transformation and productivity initiatives, and response to the imposition of historic tariffs. As Doug said, while we have much work to do, there are many reasons to be encouraged about our path forward. Overall, we delivered good fourth quarter results. Sales, operating income, and earnings per share all exceeded our prior forecast. Industry data suggests it was a good holiday season for many companies; the consumer was clearly out shopping. We saw broad-based demand across our business in the fourth quarter, and achieved sales growth in each of our business segments. While we saw growth in sales, earnings were still down year over year, although at a lower rate than we saw through much of 2025. Improving our profitability remains one of our overriding priorities as a team. Now turning to the details of our fourth quarter and full year performance. Comments this morning will track along with the presentation materials posted to the Investor Relations portion of our website. On Pages two and three of the materials, we have included our GAAP basis P&Ls for the fourth quarter and fiscal year. On Page four, we have provided a summary of our non-GAAP adjustments for the fourth quarter and full year 2025. We had considerable non-GAAP charges last year, the most…

I will spend a few minutes highlighting the direct actions we are taking to return Carter's, Inc. to growth in both sales and operating income in 2026, then hand the call back to Richard to wrap up our prepared remarks with guidance for Q1 and the fiscal year. Our primary goal in 2025 was returning to top line growth, which we accomplished, and this is growth we intend to sustain as we progress. In 2026, our objective is to grow both sales and operating income as we build on top line momentum from last year and realize the benefits of productivity and cost savings initiatives. I believe Carter's, Inc. possesses all the necessary building blocks to inspire consumers and reward shareholders. These elements include leading awareness and market share in children's apparel, iconic brands that are deeply trusted by families raising young children, a unique multichannel market model with best-in-class availability, and a talented and experienced team. We are organizing our efforts around three strategic pillars: consumer-led, brand-focused, and DTC-first. We believe renewed consumer connectivity, brand revitalization, and emphasis on a strengthened direct-to-consumer model will enable us to achieve our growth objectives in 2026 and beyond. We will continue to be focused on two key areas to drive our performance in 2026: demand creation and productivity. As it relates to delivering top line growth, we plan to continue to invest in demand creation. These investments are driving traffic to our stores and digital platforms, and we believe they are also helping us move the consumer past price-only messaging through product and brand engagement. Results continue to show this is a high-ROI investment. Our share of voice is expanding, and we are experiencing measurable demand and retention gains. We also saw evidence of demand creation impact in Q4 as traffic to…

Thanks, Doug. Turning now to our outlook for 2026 on Page 13 of our presentation materials. As Doug said, we intend to build on the progress we achieved in 2025. It continues to be a challenging time to forecast the business. Consumer spending appears to have held up well while other macro indicators such as consumer confidence and overall inflation are less positive. Tariffs continue to dominate the headlines. Our teams did a very good job in 2025 responding to and largely mitigating the new tariffs which were implemented. As we are still digesting the significant tariff news from last week, there continues to be a great deal of uncertainty about where all this will settle. In our outlook commentary today, we have not incorporated any developments related to last week's Supreme Court decision and subsequent action by the administration. In other words, our forecasts reflect the projected full-year impact of the significant additional tariff implemented last year. It is also worth noting that tariffs become part of inventory cost when inventory is added to our balance sheet. The inventory we are selling now reflects the higher tariffs we have paid on these products. So it will be some time before lower tariffs on new inventory receipts become a benefit to our P&L. Recall that the gross impact of higher tariffs on our P&L in 2025 was approximately $60,000,000. In our 2026 assumptions, this gross impact grows to over $200,000,000. We are assuming significant offsets to this increase in product costs from higher pricing, particularly in our U.S. Retail business, and the benefits of other supply chain mitigation actions and our productivity initiatives. Overall, we are planning good growth in the top line and in adjusted operating income in 2026. We are expecting net sales growth in the low to…

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press. Our first question comes from Paul Lejuez with Citi. Your line is open.

Hey, thanks, guys. Can you talk more about your full price realization? If there is any color you can give around that within the retail business? And maybe could you quantify the drag from tariffs specifically that you build into gross margin assumptions? It would be really helpful if we could get a sense of that by quarter, even beyond Q1. And maybe just along those lines, any other big moving pieces within the gross margin line and how that might look different in the first half or second half? Thanks.

I will start, and then Richard can jump in. Thanks, Paul. I would say, first and foremost, on full price realization, we are selling more clean-ticket product than we have and have less product on promotion than we have traditionally. If you look at an emerging brand like Little Planet, if you look at our best-in-class sleepwear, which we call Purely Soft as part of the Carter's, Inc. line, those are great examples of where we are pricing up in AURs, and more of that is selling out on less of a promotional cadence. Also, as you look at our AUR increase in DTC, to more let the quality, the style, and the total value of the product speak for itself, and we are seeing that. We are also seeing that especially with attraction of new consumers. So as we bring new consumers into the fold, they are mixing into these better and best buckets at a higher rate and accepting the higher AURs, and I will turn it over to Richard for further quantification.

Yeah, Paul, a lot in your question as it relates to the impact of tariffs. And so just a few thoughts on that. Recall, and on our last call, we referenced that we thought the potential of the higher tariffs would put us in a range of a gross effect of $200,000,000 to $250,000,000. We are at the lower end of that range. So for the full year, we are expecting the gross impact to be somewhat over $200,000,000. Now, that compares to the $60,000,000 that we incurred on a gross basis before pricing benefit in 2025. So that is about $150,000,000 of an increase that will hit gross margin across the year. I do not know if I will go by quarter by quarter, but by half. It is reasonably comparable. The gross effect is a bit more weighted to second half, but they are more even than not. And then offsetting that are significant assumed pricing increases across the business, across all of our channels, as well as other supply chain mitigation actions. Our supply chain team has done an extraordinary job using whatever levers they have, moving production around, negotiating with our vendors. Pricing is the most significant offset to the planned tariffs. So I think from a full-year gross margin point of view, the overall gross margin is planned to be more comparable in the second half, as I mentioned, down in the first quarter, down to a lesser extent in second quarter, but we are showing more stability in the second half of the year. As I think about the full year, because of the presumed successful pricing and the proof points that we have had in recent quarters have given us some confidence, to Doug's points around our brands are worth more, the consumer is recognizing the value, and so far, we have not seen resistance to the price increases that we have advanced. On a full-year basis, we more or less offset the impact of tariffs, and what flows through are some other things such as the investment in product make, which we think is going to be important to continue to improve the competitiveness of our assortments, particularly in the Wholesale channel. And we have got some other benefits as well from our productivity initiatives; those cost centers are planned in gross margin. So we would have had to price up even more to hold the rate, but there is substantial pricing that is reflected in this plan. So hopefully those comments are helpful.

They are. And then just to follow up on the Little Planet and Purely Soft, what is the percent of sales that those represent right now? And how much of a driver is that, and how much do you bake into the fiscal 2026 growth rate?

Little Planet just had an important milestone across $100,000,000 in sales. So it is still relatively small, but it is growing off a small base rather rapidly. So we do have good growth plans. I do not know that I have that stat right in front of me, but we do have growth planned in Wholesale and in our Retail channel for Little Planet for the coming year.

Thanks a lot.

Thank you, Paul. One moment for our next question. Next question comes from Jay Daniel Sole with UBS. Your line is open.

Great. Thank you so much. Richard, I have two questions for you. One is can you give us a little bit more detail on the U.S. Wholesale margins in Q4? Maybe talk about the inventory provisions and what component of that was the 810 basis point change in the operating margin? And then just the guidance for SG&A for fiscal 2026, can you give us a little bit of a bridge, like how much of a benefit is the store closures in addition to the $45,000,000 cost saving program you all announced last quarter versus maybe other things that you are investing in to get to what it looks like flat SG&A dollar growth for the year? Thank you.

Right. So Jay, on Wholesale margins, the most dramatic driver and most significant driver was the net impact of tariffs. So that was, on a gross basis, probably $20,000,000 of the $40,000,000 that I referenced. There was less of a pricing offset there. So in terms of just basis point decline, that was the majority of it. We did have an opportunity just opportunistically to move some excess inventory coming out of the mass channel. That was 40 or 50 basis points of the rate deterioration in Wholesale. So it was not the most significant, but it was above what we had initially thought we would do for excess inventory, but it was good to move that inventory. So I would say the headline really on Wholesale profitability is just the net impact of the tariffs. Recall that when the tariffs were implemented, we had already sold in fall, the goods had been ticketed. We certainly had good partnership on the part of our Wholesale customers, but it was not our intention to be able to cover all of that. So that price coverage of tariffs in the Wholesale channel improves over time. As I said, once we get past the first half, there is more significant benefit from pricing in the Wholesale channel, but it will weigh us down. It weighed us down in the fourth quarter. It will weigh us down in the first half as well. On your question on SG&A, we have planned SG&A more or less flat for the year, perhaps up slightly. There is a significant benefit from productivity that is coming through the P&L, about $40,000,000, I would say, on the SG&A line. There is some portion of our productivity initiatives, the $35,000,000 that Doug referenced from organizational savings. A portion of that…

Got it. Okay. Thank you so much.

One moment for our next question. Our next question comes from James Andrew Chartier with Monness, Crespi, Hardt. Your line is open.

Hi. Thanks for taking my question. Can you talk about when the pricing at Wholesale takes effect? Are you going to see the full benefit of price increase at Wholesale in first quarter? Or does that come later in the quarter? And then at Retail, how does the 53rd week last year impact kind of sales by quarter? It looks like it is a benefit to the first quarter.

Well, pricing is planned up, I would say, across the year in each of our segments. It is planned up in Wholesale, including in the first quarter. We just have much more of a benefit offsetting the tariffs in the second half of the year versus the first half. So again, our spring sell-ins took place at a time where we just did not cover as much of the pricing as might have been desired, but that is kind of where we are, and it improves over time. The 53rd week is only a benefit and really a comparison issue in the fourth quarter. It was about $8,000,000 of sales from memory. And to be clear, the new Wholesale pricing is in effect.

Okay. Alright. It looks like you are guiding for Retail sales low single digits for the year despite a mid single-digit comp. But I think for first quarter, you said high single-digit Retail sales growth on a mid single-digit comp. So what is the delta there then if it is not the shift of the weeks in the quarter due to the calendar, maybe the extra week in fourth quarter?

We have a benefit from pricing coming through, and we have the store closures, which is driving a delta as well, Jim.

So those just come later in the year. It is more impactful later in the year, the store closings?

Well, and we also have good ecommerce growth that is planned as well. That may be part of the difference. And just to correct my comment on the 53rd week, it was worth about $12,000,000 at Retail, Jim.

Okay. And then just in the fourth quarter, Wholesale pricing was down low single digits despite higher realized pricing. Other than the excess sales, any other drivers that impacted the pricing at Wholesale in fourth quarter?

Yeah. It was down low single digits in the fourth quarter, Jim. I think that clearance activity did have some impact on the realized pricing in that segment. And also, while we had raised some prices in the fourth quarter in Wholesale, it just was not enough to cover the tariff impact. So the clearance activity definitely had an impact on driving the AUR down a bit.

Great. Thank you.

Sure. One moment for our next question. Our next question comes from Ken with Bank of America. Your line is open.

Hi, good morning. Thanks for taking my question. Curious, so while guidance today obviously does not assume any tariff benefits, curious if the new 15% universal rate were to hold, how should we think about the benefit to your business compared to the rates you are seeing today? And also, what would you expect from the broader marketplace and your ability to take price?

Yeah. So we are not going to offer much conjecture on what could happen. We are going to wait and see, get the details, and then talk about them once we have the facts in front of us. Beyond what we have already said about, we believe the total impact could be positive based on what we know today. I think that is work to come. So please be patient while we sort through and get the details of what we need.

Okay. That is fair. Question was just on sales. Curious, on the guidance for full year up low to mid single digits. What is the assumption on AUR growth as you lap pricing from the prior year? And especially against the extra week last year and planned reductions in the store footprint, what are kind of the key drivers underpinning your confidence in the guide?

Yeah. The assumption is for a mid single-digit increase in full-year pricing. So we started raising prices more meaningfully in the second half of 2025. So we have to comp up against that. But for the entire year on a consolidated basis, it is up mid single digits. Some puts and takes by business, but that is what it is overall.

It is okay. Thanks.

Welcome. One moment for our next question. Our next question comes from Mike Bertrand with Wells Fargo. Your line is open.

Hey, good morning, everyone. And Sean, it has been a pleasure working with you. Best of luck. Welcome, T.C. Two from me. I was going to start with Retail. Maybe, Doug, is there any chance you could give us, or Richard, some kind of read on just your comps have obviously been getting better for the last couple of quarters. Any commentary quarter to date? Curious how weather and storms have impacted you. And then along with that, could you quantify the benefit that the early Easter is going to give you and conversely how that should hurt you in the second quarter?

Yeah. I will take the first part, and Richard can take the second part. I would start by saying that we are not going to worry about the weather. You know, it affects everybody exactly the same. It is winter. There are going to be storms. Some days are better than others. So we are just in line with the rest of the retail community when it comes to our stores and the weather. But what I would say is that, look, we are seeing the impact of better product, focus on newness, on style, reinforcing the quality of what we make. We are seeing the benefit of demand creation driving traffic and really bringing new consumers to the table. So more people coming in the stores, a better in-store experience, more product that is resonating with consumers, and that is elevating our ability to get price, to discount less, and to get more repeat traffic, I would say, as well as very important. The one thing that we are seeing is that we are ratcheting up our ability both in demand and retention as we develop the equity for these brands. So that, I think, is what is most important to reflect in those Retail results.

And, like, quarter to date, we are running positive mid single-digit comp in U.S. Retail. I would say sometimes it is hard to draw a lot of conclusions on business in January and February; it tends to be a clearance period. As we said in our remarks, it is all going to be about March. March is a kahuna month, and that is where half the volume will be for the quarter. I think the earlier Easter historically has been worth a point or two of comp when it has come earlier. So that would be kind of my best guess on that. Do not want to minimize just the strength of our ecommerce at the moment as well. That was a real driver in the fourth quarter. I think some of the investments we have made in demand creation have kind of naturally driven traffic to the ecommerce business, which has continued to be strong. We have good positive comps planned for second quarter. An element of that would be the pricing. So that might affect perhaps some of that early April business, but we have good growth planned in second quarter comps in the U.S.

Got it. Super helpful. And then just a follow-up on Wholesale. So first quarter down low single, full year up mid. Is there something, is there a timing or some issue in the first quarter to call out? Also, can you quantify the Simple Joys headwind and how that should play out? And I guess my main question with all that is, why the channel's growth rate is planned to improve so much out of Q1, especially with the Amazon changes kind of taking place? Thanks.

Yeah. I would say there are multiple things at play here. There certainly was some timing. We did have some earlier demand for spring product that benefited fourth quarter that is pressuring a bit of the growth rate on first-quarter Wholesale volume. I think also, we have been conscious in our comments to talk about the investments in product make. We think that there has been room to improve the assortment, the appeal. We plan that business collaboratively with our Wholesale customers. They provide very good input. To Doug's point, the reception to what we have been showing them for fall already has been tremendous. And so we have got more growth planned, more volume planned in the second half. That helps kind of the Wholesale sales and profitability equation as we get into the second half as well. So I think multiple things at work there. Spring bookings were not as strong as we might have hoped. I think a number of our customers are understandably being cautious in this tariff environment when they are facing price increases as well across probably everything in their assortment. We saw those commitments come in a little lower than we had anticipated. The bookings profile and demand profile improves as you get later in the year.

And I will talk about Amazon for a minute and give everybody an update. You recall on the last call, we talked about moving out of Simple Joys over time as the business model there has shifted, and moving into featuring our own brands, led by Carter's, Inc., on the Amazon platform. That is happening already, and you are seeing the shift is underway. You will see Simple Joys as a percentage of our total sales there come down over time, not disappear, but come down. You would see, and you will see, sales of our existing brands come up. That will be reflected over time in growth in both revenue and profitability on that platform.

Got it. Thanks so much, guys.

One moment for our next question. Our next question comes from Jai Ki with Goldman Sachs. Your line is open.

Hi, guys. Thanks for the question. I was just wondering if you could fill us in on the cadence of marketing and demand build investments. How is that being spent specifically, and where you might be seeing early green shoots in the returns? And then also, in terms of the new customers you are acquiring, I guess from maybe a demographic or an income cohort perspective, you could help kind of fill in the gaps about where that is—like, because you guys mentioned pre-ICR that that was coming from a higher income cohort. I am just wondering how much that has continued or accelerated since the last comments. Thanks.

Yeah. Thank you, John. Yeah. The first part on marketing cadence, I would say that as our renewed investments have kicked in, we have seen our ROI increase. And, again, as I mentioned, that is happening both in terms of demand and retention. Specifically, the outsized impact is coming from places like paid social, and you are seeing those gains in share of voice and our equity rising. We do, as you know, have a pretty significant incremental investment planned in 2026. Still, we are still fairly—vis-à-vis our competitors—humble at marketing as a percentage of total spend. So there is a lot of upside for us as we move forward in how much we invest. That said, we are going to measure along the way. So we are, as long as we are continuing to see the kind of ROI that we are seeing today, we will keep leaning in and investing. But we are going to be careful and make sure that we measure the results every step of the way. On new consumers, yeah, we are seeing—continue to see—acceleration in acquisition of new consumers. And what we know is that they tend to come from higher income than our existing consumer base. Okay? So they are above the—if you just look at U.S. household median income—they are above that median, which is interesting and new for Carter's, Inc. And also, I think, speaks to when you see the AUR increases, when you see better selling in our better and best buckets of product, you are seeing that relative spending power come into the brand. I also would just want to make it clear that our intention is not to replace our existing consumer. We want to serve all of our consumers. And if you come in the door of a Carter's, Inc. store and immediately ask where the clearance rack is, we are going to take great care of you. And so if you are a more price-sensitive consumer, we have great value for you. We have great style, quality, and at a great price. So we are going to take care of those people as well. But as we bring new consumers in, we know that they are coming from higher income brackets, and they also potentially show higher lifetime value as a result. Hope that helps, John.

Yeah. Absolutely. Thank you.

One moment for our next question. Our next question comes from William Reuter with Bank of America. Your line is open.

Good morning. On your price increases at Wholesale, has this resulted in any changes to your shelf space? And are your Wholesale customers asking for you to demonstrate how the product may be improved or offering greater value versus previous offerings?

So the answer to the first part is no. The answer to the second part is that there are no surprises there because we work very closely with them to deliver exactly what they expect from us. So we come in with a clear point of view about what we think is working for our brands, and we work very collaboratively with our Wholesale partners to ensure that we are delivering exactly what they expect. Now, we are in a very fortunate position that we are the number one national brand in most, if not all, of our key Wholesale accounts. And so they are reliant on our continued improvements in what we make, and we are leaning in there to make sure that we continue to show up as the primary brand on their floors.

Got it. And then just as one follow-up, I know that a handful of years ago, you booked some price increases. You then were kind of forced to push down prices a little bit subsequently because the feedback was not great. What are you seeing in terms of private label competition? What is the spread in your current pricing versus where the private label options are?

I would say we are seeing prices go up in the marketplace. Historically, Bill, we have been kind of in that 15% to 20% range. That is kind of a good sweet spot for us to sit next to private label. I think the wild card is just sort of the state of the economy, and if things are a little shaky, does the consumer have more propensity to trade down to private label? Today, we have not seen it. Private label has picked up some share broadly in the market, I would say, over the last year. But we think prices are going up kind of across the marketplace. And a lot of the private label brands that you see in the market were in the same factory. So I do not think we are disadvantaged from a cost structure or a sourcing point of view.

Yeah. I think we are very comfortable being the premium national brand in our key accounts, but we do want our pricing to remain competitive. So when we talk about being competitive, we are talking about it remaining relative. So, yes, we can price up. We can come across as the leading national brand, but it still has to be in the context of what we are selling by product category, and we take that very seriously, and we try to make sure that we are competitive everywhere we are on sale.

Got it. So I guess, Richard, it sounds like the pricing gap with your products and private label, they are pretty similar to what they have always been on a percentage basis. Is that fair?

Yeah. I think so, Bill.

Cool. Alright. That is all for me. Thank you.

Thanks very much.

I am not showing any further questions at this time. I will turn the call over to Mr. Palladini for any further remarks.

Thank you, everyone, for joining us this morning.

As we said earlier, we are pleased with the progress we are making against our core initiatives, but also recognize that there is much work to do to achieve our goal of sustainable and profitable growth over time. We look forward to updating you on our progress on Carter's, Inc.'s next quarterly call. Thank you, and goodbye.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.