Carter's to cut 15 percent office jobs, close stores as tariffs hit Q3 profit

Carter’s, Inc., the apparel company for babies and young children in North America, reported its third-quarter fiscal 2025 results, reflecting both improved consumer demand and significant pressure on profitability. While the company achieved positive comparable sales and improved pricing in its U.S. Retail segment for the second consecutive quarter (up 2 percent), overall net sales were nearly flat at 757.8 million dollars compared to the prior year.

However, elevated product costs, driven in part by the impact of higher tariffs, weighed heavily on the results. Operating income plummeted by 62.2 percent to 29.1 million dollars, with the operating margin shrinking from 10.2 percent to 3.8 percent. Net income fell sharply to 11.6 million dollars, or 32 cents per diluted share, down from 58.3 million dollars, or 1.62 dollars per diluted share, a year ago.

Carter's to reduce workforce, close stores

In response to the profitability challenges, CEO Douglas C. Palladini announced a "significant acceleration of our productivity agenda" to "right-size" the organisation and improve the cost structure.

The company is implementing several decisive actions, including reducing office-based roles by approximately 15 percent (300 positions) by the end of 2025, which is expected to yield annualised savings of approximately 35 million dollars starting in 2026. Furthermore, Carter's will increase its planned store closures over the next three years to approximately 150 stores in North America, up from a previous target of 100.

The company is grappling with substantial costs from new tariffs, estimating the annualised pre-tax earnings impact of additional import duties to be between 200 million and 250 million dollars. The company sources approximately 75 percent of its product from Vietnam, Cambodia, Bangladesh, and India, while China accounts for less than 3 percent.

Cost-cutting measures to boost results

Carter’s is planning to offset these costs over time through pricing increases, cost-sharing with vendors, and changes to its product mix. In the meantime, the company anticipates an adverse net impact to pre-tax income of approximately 25 million dollars to 35 million dollars related to tariffs in the fourth quarter of fiscal 2025.

Carter's obtained commitments for a new five-year asset-based revolving credit facility of at least 750 million dollars and is evaluating options to refinance its existing 500 million dollars in senior notes due in March 2027.