Carter's, Inc. (CRI) Deep Research Report: Tariffs, Amazon Risk, and 2026 Reset Milestones Investors Can’t Ignore

Carter’s, Inc. (NYSE: CRI) has quietly become one of the more interesting “show-me” stories in consumer retail heading into 2026.

On the surface, the stock looks unremarkable: at $36.79 per share (as of February 6, 2026), Carter’s trades around 14.6x earnings and 6.8x EV/EBITDA, with a market cap of roughly $1.34 billion and net debt of about $717 million. Those are not nosebleed multiples for a well-known children’s apparel brand.

But once we dig into the latest SEC filings and management commentary, we see a very different picture. The next 6–12 months are set up as a tight execution window defined by tariffs, a major cost reset, and an uncomfortable reliance on Amazon channel dynamics.

Our team at DeepValue currently rates Carter’s as a “WAIT”, with a conviction score of 3.5/5. We think investors get better risk‑adjusted returns by sitting tight until FY2026 guidance and early‑year cash flow data clarify whether this reset is actually working.

Before we dive into valuation, we’ll walk through the business reset, the key risks, and the specific checkpoints we’re watching in 2026.

Carter’s business in 2026: more reset than steady compounder

Carter’s is best known for baby and kids basics sold under the Carter’s and OshKosh brands. The company operates across three segments:

• U.S. Retail – stores, eCommerce, and mobile app
• U.S. Wholesale – sales to major partners including Amazon
• International – owned stores and eCommerce in Canada/Mexico plus international wholesale and licensing

According to the 10-Q (2025), p.19, the business model has historically relied on:

• Direct-to-consumer control of price, promotions, and inventory clearance
• Wholesale scale via big partners like Amazon, Target, and Walmart
• A large physical store base that once drove growth through net openings

That playbook isn’t working the same way in 2024–2026. Instead, three forces are reshaping the story:

1. Tariffs have structurally raised unit costs.

Management estimates $200–$250 million in gross incremental tariff costs on an annualized basis, with a $25–35 million net unfavorable pre-tax impact expected in 4Q FY2025 alone, per the 10-Q (2025), p.24.

2. The Amazon Simple Joys wholesale business is structurally weaker.

A business-model change at Amazon cut Simple Joys visibility, traffic, and demand. Management now explicitly expects reduced demand for Simple Joys to continue into FY2026, as disclosed in the 10-Q (2025), p.29.

3. Carter’s is executing a multi-year cost and footprint reset.

The company plans to close about 150 stores from FY2025–2028, including roughly 100 closures across FY2025–FY2026, and cut about 15% of office-based roles by the end of 2Q FY2026. Management targets around $35 million in annual savings beginning FY2026, as laid out in the 10-Q (2025), p.25.

This is not a typical “steady grower with mild margin pressure.” It’s a business in the middle of a heavy reset, where self-help must overcome both macro and partner-specific headwinds.

How the investment case stacks up: our base, bear, and bull views

We frame Carter’s around three scenarios with explicit value anchors:

At today’s price near $37, the market is roughly in between our base and bear views, assigning some credit for self-help but not fully reflecting the cash flow and balance sheet sensitivity we see in the filings.

Our stance: we want clearer proof that:

• Tariff pass-through via higher average unit retail (AUR) and lower promotion is sustainable, and
• Cost takeaway actually flows through SG&A, not just “gross savings” that get re-spent.

Until then, we think “WAIT” is the more disciplined posture.

Will Carter’s deliver long-term growth or just survive the reset?

The big strategic question for investors is whether Carter’s is laying the groundwork for renewed, sustainable growth, or merely buying time.

What management is trying to do

From the 10-Q (2025), pp.24–25 and 10-K (2025), p.34, the playbook looks like this:

1. Offset tariffs with pricing and promotion discipline.

• Raise prices (driving a mid-single-digit AUR lift).
• Run fewer and shallower promotions.
• Use vendor cost-sharing, assortment tweaks, and country-of-origin shifts to ease cost pressure.

2. Reset the store fleet and corporate cost base.

• Close ~150 low-margin stores by FY2028, with about 100 closures front-loaded in FY2025–2026.
• Pause new U.S. store openings under the current model while testing new formats.
• Cut ~15% of office-based roles, targeting ~$35 million annual savings starting FY2026.

3. Remix Amazon wholesale away from Simple Joys.

Management has described a “new strategy” with Amazon in which Simple Joys “reduces in significance over time,” with more emphasis on core brands. That shift was discussed in the Investing.com earnings call transcript, Oct 2025.

Are there early signs this can work?

There are some encouraging data points:

Retail comps are improving.

U.S. Retail posted two consecutive quarters of positive comparable net sales, and customer count grew year over year for a second straight quarter, according to the 10-Q (2025), pp.25, 29.

Pricing power is showing up in Q4 prelims.

Q4 FY2025 preliminary commentary highlighted mid-single-digit AUR increases driven by “pricing up” and “less promotional activity,” alongside high-single-digit consolidated sales growth, per the 8-K (2026), 2026-01-09 and related Investing.com report, Jan 2026.

Liquidity is adequate, with a new ABL facility.

Carter’s reported $184.2 million in cash and no borrowings under its revolving credit facility as of September 27, 2025, per the 10-Q (2025), p.22. A new $750 million asset-based revolver supports liquidity through the reset, as discussed in the Motley Fool Q3 2025 transcript.

But there are also stubborn challenges:

Traffic is still down.

In 3Q FY2025, U.S. Retail comps were up 2%, yet traffic was still lower in both stores and eCommerce, according to the 10-Q (2025), p.29. That means AUR and merchandising did the heavy lifting.

Tariffs are hammering working capital.

Inventories reached $656.1 million at 9/27/2025, including $34.0 million of incremental tariffs, and operating cash flow for the first three quarters of FY2025 was - $136.3 million, driven by inventory purchases. That’s directly from the 10-Q (2025), p.36.

Wholesale remains a drag.

Management expects reduced Simple Joys demand to continue into FY2026, as stated in the 10-Q (2025), p.29. The core-brand remix on Amazon is more of a plan than a fully realized outcome at this point.

Our interpretation: Carter’s can likely stabilize, but the bar for sustained growth is meaningfully higher. That’s why we want to see what FY2026 guidance and 1H 2026 cash flows look like before upgrading our stance.

Is CRI stock a buy in 2026, or is patience the better strategy?

Let’s bring the discussion back to what matters if you own or are considering CRI today.

Valuation snapshot

Using financial data summarized in our report (sourced from Financial Modeling Prep and the company’s filings):

• Share price: $36.79 (as of 2026‑02‑06)
• Market cap: $1.34 billion
• P/E: 14.6x
• EV/EBITDA: 6.8x
• EPS: $5.12
• Net debt: $717 million
• Net debt / EBITDA: 2.09x
• Interest coverage: 4.59x

On these numbers, the stock screens like a moderately leveraged, mid-teens P/E retail name with no obvious distress signal.

The catch is cash flow and asset sensitivity:

• Operating cash flow was negative $136.3 million in the first nine months of FY2025, primarily due to inventory investments, per the 10-Q (2025), p.36.
• Reporting unit fair values stood only 4–7% above carrying value, and management disclosed that a 50 bps margin decline in U.S. Retail could trigger about $50 million of goodwill impairment, according to the 10-Q (2025), p.38.

Add in $500 million of senior notes due March 2027, which management is already evaluating refinancing options for as noted on 10-Q (2025), p.22, and you get a picture where:

• Liquidity is fine today
• But the margin of safety is thinner than it looks if tariffs and weak wholesale demand keep cash conversion under pressure

Our view: at ~14–15x earnings, you’re not being overcharged for CRI, but you’re also not getting a deep-discount, “heads I win, tails I don’t lose much” setup. Upside requires execution, not multiple expansion.

What we’re watching before turning more positive

To move from “WAIT” toward “BUY,” we need evidence on three fronts:

1. FY2026 gross margin and pricing proof

By late February 2026, management will report FY2025 results and share FY2026 guidance. We want a clear bridge between:

• The $200–250 million incremental tariff headwind
• The mid-single-digit AUR lift and lower promotions
• Any offsets via vendor negotiations and cost savings

If the FY2026 guide shows gross margin stabilizing or improving with this bridge clearly laid out, it strengthens the bull case. If the bridge is ambiguous or clearly short, our thesis weakens.

2. SG&A leverage from the cost program

Targeted annual savings of $35 million beginning FY2026 from the ~15% corporate role reduction are meaningful at Carter’s size. But we’ll be looking at:

• Whether the role reductions are completed on schedule by end of 2Q FY2026
• Whether the SG&A rate (as a % of sales) improves, net of restructuring and reinvestment, per the 10-Q (2025), p.25

If we see severance and consulting costs persist without SG&A leverage, the value of the restructuring is far less compelling.

3. Inventory and cash flow normalization

A big part of our caution is cash flow volatility. Over the next two to three quarters, we want to see:

• Inventory levels begin trending down or at least stop climbing, particularly the tariff-driven component
• Operating cash flow move back toward neutral or positive, instead of remaining dominated by inventory purchases

Stagnant or worsening working capital metrics would heighten our concern about refinancing flexibility as the 2027 debt maturity draws closer.

How fragile is Carter’s moat in kids’ apparel?

Carter’s advantage has never been about luxury pricing power. It’s about:

• Brand recognition with parents and gift-givers
• Scale in baby and young kids categories
• A multi-channel footprint combining DTC with mass wholesale

According to the 10-K (2025), p.38, Carter’s relies on strategic relationships with major retailers and marketplaces. The 10-Q (2025), p.19 reinforces that DTC and wholesale are both central to the business model.

The Simple Joys episode on Amazon underscores the vulnerability here. When Amazon changed its merchandising model, Simple Joys visibility, traffic, and demand all fell, dragging the wholesale segment despite the brand still existing on the platform, as detailed in the 10-Q (2025), p.29. That’s not a classic “moat” story—it’s a reminder that platform partners can move demand with algorithm changes.

On the plus side:

• Positive comps and customer growth in U.S. Retail
• Q4 2025 preliminary strength driven by higher AUR and less discounting

These suggest Carter’s still has real consumer pull, especially online. The 8-K (2026) and Investing.com coverage highlight mid-single-digit AUR growth and high-single-digit sales growth as evidence that pricing can move without collapsing demand—at least for now.

The durability question is whether that remains true if:

• Competitors re-accelerate promotions
• Consumers feel more stretched
• Wholesale partners push back on higher pricing

From our perspective, Carter’s moat is operational and relational, not structural. It can support decent returns if management executes, but it won’t save the stock if tariffs, traffic, and Amazon all break the same way.

Risk checklist: what could break the thesis?

We think about Carter’s through a risk-monitoring lens. Here are the key “thesis breakers” we’re watching, drawing from the company’s own risk language:

1. Tariff mitigation fails in FY2026 guidance

Carter’s explicitly warns that mitigation actions “may not fully offset” the tariff impacts and may “materially harm revenues and gross margins,” per the 10-Q (2025), pp.24–25.

If FY2026 guidance or early commentary shows tariffs overwhelming pricing and cost savings, the equity case weakens substantially.

2. Cost savings slip or get eaten by new costs

If by mid-2026 the company has not delivered the planned 15% corporate role reduction, or if SG&A margins fail to improve despite spending on severance and consulting, investors should assume less value from the restructuring. The timing and magnitude of savings are spelled out in the 10-Q (2025), pp.25, 33.

3. Simple Joys declines persist without Amazon core-brand offset

In management’s own guidance, reduced demand for Simple Joys is expected to carry into FY2026. If commentary through 2026 suggests ongoing weakness with no tangible shift toward Carter’s and OshKosh core brands on Amazon, wholesale could remain a structural drag, as flagged in both the 10-Q (2025), p.29 and the Zacks coverage, Jan 2026.

4. Working capital and goodwill signals deteriorate

• Inventories and operating cash flow fail to normalize versus the tariff-driven build described in the 10-Q (2025), p.36.
• Goodwill impairment sensitivity tightens further, with fair value cushions below the already-thin 4–7%, per 10-Q (2025), p.38.

Individually, these are warning signs. Together, they could tip CRI from “turnaround in progress” to “value trap.”

Management quality and capital allocation: are they helping or hurting?

We think management’s behavior is more proactive than the headline narrative suggests.

Evidence of adaptability

• In 2H FY2024, Carter’s spent approximately $65 million on a strategic investment to strengthen the DTC value proposition, including $55 million toward lower pricing in opening price points and faster clearance, as disclosed in the 10-K (2025), p.34.
• By 3Q FY2025, leadership pivoted to a bigger cost reset: ~150 store closures, a ~15% corporate role reduction, and product development simplification, per the 10-Q (2025), p.25.
• Management has been willing to take impairments when forecasts weaken, including a $30 million tradename impairment in 4Q FY2024, according to 10-Q (2025), p.22.

These actions suggest a team willing to adjust strategy rather than cling to a failing formula.

Dividend cut and reinvestment

Capital allocation also shows a bias toward protecting liquidity:

• The quarterly dividend was cut from $0.80 to $0.25 in 2Q and 3Q FY2025, explicitly tied to higher tariff-driven product costs and current profitability, as stated in the 10-Q (2025), p.33.
• At the same time, Carter’s funded $13.5 million in operating model improvement consulting costs and planned $60 million of FY2025 capex across stores, distribution, and IT, per the 10-Q (2025), pp.33, 36.

We read this as a management team prioritizing:

• Liquidity and flexibility over short-term income yield
• Reinvestment to get the model back to health, even during margin stress

That’s rational behavior for long-term shareholders—if the reset works. If cash conversion remains consistently negative and margins don’t recover into FY2026, those investments will look like sunk costs rather than value-accretive spending.

For investors trying to sift through complex turnarounds like this across multiple names, Read our AI-powered value investing guide to see how automation can compress weeks of manual filing work into minutes and help you compare reset stories with a consistent, data-backed framework.

Our bottom line on Carter’s: why “WAIT” makes sense right now

Pulling all of this together:

• Carter’s is not broken, but it’s not yet clearly fixed.
• Tariffs, Amazon wholesale exposure, and a large restructuring program make the next 6–12 months unusually important.
• Valuation is middling rather than distressed, so you’re paying for execution you haven’t seen fully delivered yet.

Our internal guideposts:

• Rating: WAIT
• Conviction: 3.5 / 5
• Attractive entry: around $30
• Trim above: around $48
• Re-assessment window: 3–6 months, anchored on FY2026 guidance and early‑year cash flow data

What could change our call:

For now, we think investors get better risk-adjusted returns by waiting for clarity rather than reaching for a turnaround that still has real execution risk.

Sources

• 10-K (2025) – Carter’s, Inc. Annual Report, filed 2025-02-25
• 10-Q (2025) – Carter’s, Inc. Quarterly Report for period ended 2025-09-27
• 8-K (2026) – Carter’s, Inc. Current Report, filed 2026-01-09
• DEF 14A (2025) – Carter’s, Inc. Proxy Statement, filed 2025-04-04
• Barchart – “Carter’s, Inc. Reports Third Quarter Fiscal 2025 Results” (Oct 27, 2025)
• Retail Dive – “Carter’s to lay off 300 workers, close 150 stores amid tariff pressure” (Oct 2025)
• Fortune – “Carter’s is closing 150 stores as tariffs and investments squeeze profits” (Oct 31, 2025)
• Benzinga – “Carter’s Says Higher Prices, Fewer Deals Helped It Push Past Tariffs” (Jan 2026)
• Investing.com – “Carter’s reports high single-digit growth in Q4 2025 sales” (Jan 9, 2026)
• Investing.com – “Earnings Call Transcript: Carter’s Q3 2025” (Oct 2025)
• Zacks – “Carter’s Wholesale Weakness: Temporary Reset or Structural Shift?” (Jan 2026)
• The Motley Fool – “Carter’s (CRI) Q3 2025 Earnings Call Transcript” (Oct 27, 2025)