Carter's (CRI): Assessing Valuation Following Steep Profit Drop in Third Quarter Results

Carter's (NYSE:CRI) reported a significant year-over-year drop in net income and earnings per share for the third quarter, even though sales stayed relatively flat. This shift in profitability is catching investors’ attention.

See our latest analysis for Carter's.

This drop in profitability comes amid a volatile year for Carter's shareholders. While the stock has rebounded sharply with a 32% three-month share price return, the year-to-date share price return is still down more than 41%, and total shareholder return over the past year sits at negative 34%. Momentum has improved recently, but long-term performance remains well below where it stood a few years ago.

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The big question now, after such a sharp pullback and recent rebound, is whether Carter's stock is undervalued at these levels or if the market is already factoring in all the growth still to come.

Most Popular Narrative: 10% Overvalued

With Carter's last closing at $31.70 and the narrative fair value set at $28.80, there is a clear gap between where the stock trades and what the narrative's modeling suggests it should be worth. This context frames a debate about the credibility of the recent rebound and what truly underpins analyst expectations for future growth.

Persistent declines in U.S. and developed market birth rates present structural headwinds to Carter's future revenue growth, as its core customer base shrinks and limits long-term addressable demand. The accelerating shift to e-commerce and proliferation of direct-to-consumer, digitally native competitors is expected to intensify pricing pressure and erode Carter's gross and net margins through increased price transparency and customer acquisition costs.

Read the complete narrative.

Wondering what’s driving that lower fair value? A handful of major growth assumptions and margin forecasts could flip the whole model. See which leverage points the narrative thinks will make or break Carter’s valuation. One big surprise might upend how investors think about the next few years.

Result: Fair Value of $28.80 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, stronger-than-expected international expansion or a rebound in baby apparel demand could challenge this cautious outlook and potentially boost Carter’s future growth trajectory.

Find out about the key risks to this Carter's narrative.

Story Continues

Another View: Market Ratios Suggest Better Value

Looking at where Carter’s trades based on its earnings, the company sits at 13.3 times earnings, which is not only lower than the US Luxury industry average of 18.4 times but also closely matches the fair ratio that markets could move towards, which is 13.4 times. This suggests slightly less downside risk than the fair value narrative points to, though it does not guarantee upside. Will the market continue to reward patience, or does this just mean less room to fall?

See what the numbers say about this price — find out in our valuation breakdown.NYSE:CRI PE Ratio as at Nov 2025

Build Your Own Carter's Narrative

If these numbers and narratives are not quite convincing, you can dig into the data and develop your own valuation take. Try it yourself in just a few minutes with Do it your way.

A great starting point for your Carter's research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include CRI.

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