CARTERS INC

Previous wording

Statements in this Quarterly Report on Form 10-Q that are not historical fact and use predictive words such as “estimates”, “outlook”, “guidance”, “expect”, “believe”, “intend”, “designed”, “target”, “plans”, “may”, “will”, “are confident” and similar words are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed in this Form 10-Q. These risks and uncertainties include, but are not limited to, those disclosed in Part II, Item 1A. “Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2025 and Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024, and otherwise in our reports and filings with the Securities and Exchange Commission, as well as the following factors: changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits; risks related to public health crises; risks related to consumer tastes and preferences, as well as fashion trends; the failure to protect our intellectual property; the diminished value of our brands, potentially as a result of negative publicity or unsuccessful branding and marketing efforts; delays, product recalls, or loss of revenue due to a failure to meet our quality standards; risks related to uncertainty regarding the future of international trade agreements and the United States’ position on international trade, as well as significant political, trade, and regulatory developments and other circumstances beyond our control; increased competition in the marketplace; financial difficulties for one or more of our major customers; identification of locations and negotiation of appropriate lease terms for our retail stores; distinct risks facing our eCommerce business; failure to forecast demand for our products and our failure to manage our inventory; increased margin pressures, including increased cost of materials and labor and our inability to successfully increase prices to offset these increased costs; continued inflationary pressures with respect to labor and raw materials and global supply chain constraints that have, and could continue, to affect freight, transit, and other costs; fluctuations in foreign currency exchange rates; unseasonable or extreme weather conditions; risks associated with corporate responsibility issues; our foreign sourcing arrangements; a relatively small number of vendors supply a significant amount of our products; disruptions in our supply chain, including increased transportation and freight costs; our ability to effectively source and manage inventory; problems with our Braselton, Georg…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Statements in this Quarterly Report on Form 10-Q that are not historical fact and use predictive words such as “estimates”, “outlook”, “guidance”, “expect”, “believe”, “intend”, “designed”, “target”, “plans”, “may”, “will”, “are confident” and similar words are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements and related assumptions involve risks and uncertainties that could cause actual results and outcomes to differ materially from any forward-looking statements or views expressed in this Form 10-Q. These risks and uncertainties include, but are not limited to, those disclosed in Part II, Item 1A. “Risk Factors” of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2025 and Part I, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024, and otherwise in our reports and filings with the Securities and Exchange Commission, as well as the following factors: changes in global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits; risks related to public health crises; risks related to the organizational restructuring plan, including, but not limited to, our ability to achieve the expected savings from the plan and to fully implement the plan; risks related to consumer tastes and preferences, as well as fashion trends; the failure to protect our intellectual property; the diminished value of our brands, potentially as a result of negative publicity or unsuccessful branding and marketing efforts; delays, product recalls, or loss of revenue due to a failure to meet our quality standards; risks related to uncertainty regarding the future of international trade agreements and the United States’ position on international trade, as well as significant political, trade, and regulatory developments and other circumstances beyond our control; increased competition in the marketplace; financial difficulties for one or more of our major customers; identification of locations and negotiation of appropriate lease terms for our retail stores; distinct risks facing our eCommerce business; failure to forecast demand for our products and our failure to manage our inventory; increased margin pressures, including increased cost of materials and labor and our inability to successfully increase prices to offset these increased costs; continued inflationary pressures with respect to labor and raw materials and global supply chain constraints that have, and could continue, to affect freight, transit, and other costs; fluctuations in foreign currency exchange rates; unseasonable or extreme weather conditions; risks associated with corporate responsibility issues; our foreign sourcing arrangements; a relatively small number of vendors supply a significant amount of our prod…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our purpose is to embrace the wonder of childhood and uplift those shaping the future. We believe our brands are complementary to one another in product offering and aesthetic. Each brand is uniquely positioned in the marketplace and offers great value to families with young children. Our multichannel global business model, which includes retail stores, eCommerce, and wholesale distribution channels, as well as omni-channel capabilities in the United States and Canada, enables us to reach a broad range of consumers around the world. As of June 28, 2025, our channels included 1,065 company-owned retail stores in North America, eCommerce websites, approximately 19,500 wholesale locations in North America, as well as our international wholesale accounts and licensees who operate in over 1,100 locations outside of North America in over 90 countries.

Current wording

Our purpose is to embrace the wonder of childhood and uplift those shaping the future. We believe our brands are complementary to one another in product offering and aesthetic. Each brand is uniquely positioned in the marketplace and offers great value to families with young children. Our multichannel, global business model, which includes retail stores, eCommerce, mobile app, and wholesale distribution channels, as well as omni-channel capabilities in the United States and Canada, enables us to reach a broad range of consumers around the world. As of September 27, 2025, our channels included 1,065 company-operated retail stores in North America, eCommerce websites, approximately 19,500 wholesale locations in North America, as well as our international wholesale accounts and licensees who operate in over 1,100 locations outside of North America in over 90 countries.

Previous wording

We have identified three operating and reportable segments: U.S. Retail, U.S. Wholesale, and International. Our U.S. Retail segment consists of revenue primarily from sales of products in the United States through our retail stores and eCommerce websites. Similarly, our U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our wholesale customers. Our International segment consists of revenue primarily from sales of products outside the United States, largely through our retail stores and eCommerce websites in Canada and Mexico, and sales to our international wholesale customers and licensees. The Company sells similar products in each of its three segments.

Current wording

We have three operating and reportable segments: U.S. Retail, U.S. Wholesale, and International. Our U.S. Retail segment consists of revenue primarily from sales of products in the United States through our retail stores, eCommerce websites, and mobile app. Similarly, our U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our wholesale customers. Our International segment consists of revenue primarily from sales of products outside the United States, largely through our retail stores and eCommerce websites in Canada and Mexico, and sales to our international wholesale customers and licensees. The Company sells similar products in each of its three segments.

Previous wording

In fiscal 2024, the Company changed its measure of segment profitability to segment operating income. Segment operating income includes net sales, royalty income, and related cost of goods sold and selling, general, and administrative (“SG&A”) expenses attributable to each segment. Segment operating income excludes unallocated corporate expenses as well as specific charges that are not directly attributable to segment operations, including restructuring costs, operating model improvement costs, leadership transition costs, and impairment charges related to goodwill and indefinite-lived intangible assets, which were included in our previous measure of segment profitability. This change has no impact on our consolidated operating income. Management believes this updated presentation more accurately reflects how the business is managed and provides better insight into segment performance. Prior period segment operating income for the fiscal quarter and two fiscal quarters ended June 29, 2024 have been recast to conform to the current presentation.

Current wording

In fiscal 2024, the Company changed its measure of segment profitability to segment operating income. Segment operating income includes net sales, royalty income, and related cost of goods sold and selling, general, and administrative (“SG&A”) expenses attributable to each segment. Segment operating income excludes unallocated corporate expenses as well as specific charges that are not directly attributable to segment operations, including restructuring costs, operating model improvement costs, leadership transition costs, and impairment charges related to goodwill and indefinite-lived intangible assets, which were included in our previous measure of segment profitability. This change has no impact on our consolidated operating income. Management believes this updated presentation more accurately reflects how the business is managed and provides better insight into segment performance. Prior period segment operating income for the fiscal quarter and three fiscal quarters ended September 28, 2024 have been recast to conform to the current presentation.

Previous wording

We present comparable sales metrics because we consider them an important supplemental measure of our U.S. Retail and International performance, and the Company uses such information to assess the performance of the U.S. Retail and International segments. Additionally, we believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of our business.

Current wording

We present comparable sales metrics because we consider them an important supplemental measure of our U.S. Retail and International performance, and the Company uses such information to assess the performance of the U.S. Retail and

Previous wording

Our comparable sales metrics include sales for all stores and eCommerce sites that were open and operated by us during the comparable fiscal period, including stand-alone format stores that converted to multi-branded format stores and certain remodeled or relocated stores. A store or site becomes comparable following 13 consecutive full fiscal months of operations. If a store relocates within the same center with no business interruption or material change in square footage, the sales of such store will continue to be included in the comparable store metrics. If a store relocates to another center more than five miles away, or there is a material change in square footage, such store is treated as a new store. Stores that are closed during the relevant fiscal period are included in the comparable store sales metrics up to the last full fiscal month of operations.

Current wording

Our comparable sales metrics include sales for all stores and eCommerce sites, including the mobile app, that were open and operated by us during the comparable fiscal period, including stand-alone format stores that converted to multi-branded format stores and certain remodeled or relocated stores. A store or site becomes comparable following 13 consecutive full fiscal months of operations. If a store relocates within the same center with no business interruption or material change in square footage, the sales of such store will continue to be included in the comparable store metrics. If a store relocates to another center more than five miles away, or there is a material change in square footage, such store is treated as a new store. Stores that are closed during the relevant fiscal period are included in the comparable store sales metrics up to the last full fiscal month of operations.

Previous wording

During the first quarter of fiscal 2025, with the assistance of external industry experts, we conducted a comprehensive assessment of our business with the goal of identifying long-term growth opportunities and to scope the strategies and investments needed to realize them in the coming years.

Current wording

Throughout the second half of fiscal 2024 and continuing into fiscal 2025, with the assistance of external industry experts, we conducted a comprehensive assessment of our business with the goal of identifying long-term growth opportunities and to scope the strategies and investments needed to realize them in the coming years.

Previous wording

This review highlighted many strengths, including our brand assets, significant awareness and equity with consumers, and the unique reach of our multi-channel business model. It also identified a number of opportunities to improve the focus and appeal of our product offerings in order to capture new customer segments and market share going forward.

Current wording

This review highlighted many strengths, including our brand assets, significant awareness and equity with consumers, and the unique reach of our multi-channel business model. It also identified several opportunities to improve the focus and appeal of our product offerings, enabling us to capture new customer segments and market share going forward.

Previous wording

Based on learnings from the review, we are pursuing enhancements to our operating model, which include improving our product and brand development processes to be faster, nimbler, and more responsive to changing consumer preferences. We believe this operating model work is very foundational to improving our capabilities and will better position us for future growth. At the same time, we remain focused on disciplined cost management and plan to pursue additional productivity initiatives across the business.

Current wording

Based on learnings from the review, we are pursuing enhancements to our operating model, which include improving our product and brand development processes to be faster, nimbler, and more responsive to changing consumer preferences. We believe this operating model work is very foundational to improving our capabilities and will better position us for future growth.

Previous wording

Operating model improvement costs, primarily related to third-party consulting fees, were $6.6 million and $9.8 million for the fiscal quarter and two fiscal quarters ended June 28, 2025, respectively. These costs were included in SG&A expenses in our condensed consolidated statement of operations. We anticipate incurring additional costs of approximately $4 million to $5 million for the remainder of fiscal 2025.

Current wording

Operating model improvement costs, primarily related to third-party consulting fees, were $3.7 million and $13.5 million for the fiscal quarter and three fiscal quarters ended September 27, 2025, respectively. These costs were included in SG&A expenses in our condensed consolidated statement of operations. We anticipate incurring additional costs of approximately $1 million to $2 million for the remainder of fiscal 2025.

Previous wording

In the second quarter of fiscal 2025, the Board of Directors declared, and the Company paid, a cash dividend per common share of $0.25, which represented a 69% reduction when compared to the cash dividend per common share paid of $0.80 in the first quarter of fiscal 2025. The action was taken to realign our dividend with our current level of profitability, especially against the backdrop of a challenging market environment and the possibility the Company may incur significantly higher product costs as the result of the new proposed tariffs on products imported into the United States.

Current wording

In each of the second and third quarters of fiscal 2025, the Board of Directors declared, and the Company paid, a cash dividend per common share of $0.25, which represented a 69% reduction when compared to the cash dividend per common share paid of $0.80 in the first quarter of fiscal 2025. The action was taken to realign our dividend with our current level of profitability, especially against the backdrop of a challenging market environment and the significantly higher product costs the Company will incur as the result of the incremental tariffs on products imported into the United States.

Previous wording

On March 26, 2025, the Company announced the appointment of Douglas C. Palladini as Chief Executive Officer and President and a member of the Board of Directors, effective April 3, 2025. Mr. Palladini brings extensive leadership and brand-building experience to the role and succeeded Richard F. Westenberger, then serving as Interim Chief Executive Officer. Mr. Westenberger continues to serve as Chief Financial Officer & Chief Operating Officer.

Current wording

On March 26, 2025, the Company announced the appointment of Douglas C. Palladini as Chief Executive Officer and President and a member of the Board of Directors, effective April 3, 2025. Mr. Palladini brings extensive leadership and brand-building experience to the role and succeeded Richard F. Westenberger, then serving as Interim Chief Executive Officer. Mr. Westenberger continues to serve as our Chief Financial Officer & Chief Operating Officer.

Previous wording

Following its inauguration in January 2025, the second Trump Administration has made numerous announcements and taken action to increase tariffs assessed on products imported into the United States, which introduced heightened uncertainty across the global economy. Given that we source all of our apparel and other products from a global network of third-party suppliers—primarily located in Asia—any new or increased tariffs, quotas, embargoes, or other trade barriers have the potential to adversely affect our supply chain, cost structure, margins, and competitiveness. Additionally, retaliatory actions taken by impacted countries could further disrupt global trade and create additional inflationary pressures in raw materials and logistics.

Current wording

Following its inauguration in January 2025, the second Trump Administration has made numerous announcements and taken action to increase tariffs assessed on products imported into the United States, which introduced heightened uncertainty across the global economy. Given that we source all of our apparel and other products from a global network of third-party suppliers—primarily located in Asia—any new or increased tariffs, quotas, embargoes, or other trade barriers have the potential to adversely affect our supply chain, cost structure, margins, and competitiveness. Additionally, retaliatory actions taken by impacted countries could further disrupt global trade and create additional inflationary pressures in raw materials and logistics. We estimate that Vietnam, Cambodia, Bangladesh, and India will collectively represent approximately 75%, and China less than 3%, of our product sourcing spend in fiscal 2025. In fiscal 2024, 60% of the fabric used in the manufacture of our products was sourced from China; however, the fibers used to produce that fabric were sourced from outside of China.

Previous wording

While these recently announced tariffs did not have a material impact on the Company’s financial results during the second quarter of fiscal 2025, we expect incremental tariffs related to imports from China, Vietnam, Indonesia, and other countries to negatively impact our pre-tax income by approximately $35 million in the second half of fiscal 2025. On an annualized gross basis, the Company estimates to incur additional costs of approximately $125 million to $150 million related to these incremental tariffs. The Company is pursuing actions to mitigate the impact, which include, but are not limited to, pricing of our products, product configurations, inventory management, country of origin mix, and sharing the costs of incremental tariffs with our vendor partners. These actions that we take may not fully offset the impact of tariffs and, as a result, our revenues, gross margins, and overall financial performance may be materially harmed.

Current wording

While these recently announced tariffs did not have a material impact on the Company’s financial results during the first three quarters of fiscal 2025, we expect incremental tariffs related to imports from Vietnam, Cambodia, Bangladesh, India, and other countries to have a net unfavorable impact to our pre-tax income of approximately $25 million to $35 million in the fourth quarter of fiscal 2025. On an annualized basis, the Company estimates gross incremental costs of approximately $200 million to $250 million related to these incremental tariffs. While the Company expects pressure on gross margin in fiscal 2026, the Company is pursuing actions to mitigate the impact, which include, but are not limited to, changes to our product assortments, cost sharing with our vendor partners, changes to the mix of production by country, and raising prices to end consumers and our wholesale customers. These actions that we take may not fully offset the impact of tariffs and, as a result, our revenues, gross margins, and overall financial performance may be materially harmed.

Previous wording

Second Fiscal Quarter 2025 Financial Highlights

Current wording

Third Fiscal Quarter 2025 Financial Highlights

Previous wording

Unless otherwise stated, comparisons are to the second quarter of fiscal 2024:

Current wording

Unless otherwise stated, comparisons are to the third quarter of fiscal 2024:

Previous wording

•Consolidated SG&A expenses increased $33.5 million, or 13.5%, to $281.0 million. SG&A as a percentage of consolidated net sales (“SG&A rate”) increased 420 bps to 48.0%, driven by factors that include costs related to operating model improvements and leadership transition, investments in new and remodeled retail stores, and increased performance-based compensation.

Current wording

•Consolidated SG&A expenses increased $33.2 million, or 11.7%, to $318.0 million. SG&A as a percentage of consolidated net sales (“SG&A rate”) increased 450 bps to 42.0%, driven by factors that include costs related to organizational restructuring, operating model improvements and leadership transition, investments in new and remodeled retail stores, and increased performance-based compensation.

Previous wording

•Consolidated operating income decreased $35.4 million, or 89.7%, to $4.0 million and adjusted consolidated operating income, a non-GAAP financial measure, decreased $27.7 million, or 70.2%, to $11.8 million. Operating margin decreased 630 bps to 0.7%, and adjusted operating margin decreased 500 bps to 2.0%, driven by the factors discussed in detail below.

Current wording

•Consolidated operating income decreased $47.9 million, or 62.2%, to $29.1 million and adjusted consolidated operating income, a non-GAAP financial measure, decreased $37.7 million, or 48.9%, to $39.4 million. Operating margin decreased 640 bps to 3.8%, and adjusted operating margin decreased 500 bps to 5.2%, driven by the factors discussed in detail below.

Previous wording

•Consolidated net income decreased $27.2 million, or 98.4%, to $0.4 million, driven by the factors discussed in detail below.

Current wording

•Consolidated net income decreased $46.7 million, or 80.1%, to $11.6 million, driven by the factors discussed in detail below, including a pre-tax, non-cash pension settlement charge of $8.8 million.

Previous wording

•Diluted net income per common share decreased $0.75, or 98.7%, to $0.01, and adjusted diluted net income per common share decreased $0.59, or 77.6%, to $0.17.

Current wording

•Diluted net income per common share decreased $1.30, or 80.2%, to $0.32, and adjusted diluted net income per common share decreased $0.90, or 54.9%, to $0.74.

Previous wording

•As a result of our strong financial position and available liquidity, we returned $9.1 million in cash dividends to our shareholders in the second quarter of fiscal 2025.

Current wording

•As a result of our strong financial position and available liquidity, we returned $9.1 million in cash dividends to our shareholders in the third quarter of fiscal 2025.

Previous wording

(*)Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.

Current wording

(2)Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.

Previous wording

Average product selling prices per unit decreased by a mid-single digit percentage and units sold increased by a low-single digit percentage. Changes in foreign currency exchange rates used for translation had an unfavorable effect on our consolidated net sales of $9.5 million.

Current wording

Average selling prices per unit increased by a low-single digit percentage and units sold decreased by a low-single digit percentage. Changes in foreign currency exchange rates used for translation had an unfavorable effect on our consolidated net sales of $0.2 million.

Previous wording

Consolidated operating income decreased $35.4 million, or 89.7%, to $4.0 million and decreased as a percentage of net sales by 630 bps to 0.7%, primarily due to the factors previously discussed.

Current wording

Consolidated operating income decreased $47.9 million, or 62.2%, to $29.1 million and decreased as a percentage of net sales by 640 bps to 3.8%, primarily due to the factors previously discussed.

Previous wording

Consolidated income tax provision decreased $5.5 million, or 81.3%, to $1.3 million and the effective tax rate increased to 73.8%. The increase in the effective tax rate is driven by the lower level of income before income taxes in the second quarter of fiscal 2025 quarter, incremental tax expense of $0.9 million related to expiring stock-based compensation, and incremental tax expense of $0.5 million related to Hong Kong’s implementation of the Pillar Two global minimum tax legislation. This was partially offset by a lower proportion of income generated in the United States, where the tax rate is higher relative to some of our international jurisdictions, compared to the second quarter of fiscal 2024.

Current wording

Consolidated income tax provision decreased $9.2 million, or 73.9%, to $3.2 million and the effective tax rate increased 430 bps to 21.8%. The increase in the effective tax rate is driven by the lower level of income before income taxes in the third quarter of fiscal 2025, incremental nondeductible officers’ compensation, and Hong Kong’s implementation of the Pillar Two global minimum tax legislation. This was partially offset by a lower proportion of income generated in the United States, where the tax rate is higher relative to some of our international jurisdictions, compared to the third quarter of fiscal 2024.

Previous wording

The following table summarizes net sales by segment and segment operating income for the second quarter of fiscal 2025 and the second quarter of fiscal 2024:

Current wording

The following table summarizes net sales by segment and segment operating income for the third quarter of fiscal 2025 and the third quarter of fiscal 2024:

Previous wording

U.S. Retail segment net sales increased $9.3 million, or 3.2%, to $299.5 million. The increase in net sales was driven by improved conversion rates and higher units per transaction, resulting in a high-single digit percentage increase in units sold. We believe this reflects the positive impact of our selective investments in pricing and the timing of the Easter holiday. Other contributing factors to the increase in net sales include sales contribution of our new retail stores and growth with our core baby assortment. These factors were partially offset by a low-single digit percentage decrease to average product selling prices per unit due to selective investments in our pricing and product mix, as well as lower demand for other product offerings, including our kid-sized assortment.

Current wording

U.S. Retail segment net sales increased $9.3 million, or 2.6%, to $362.3 million. The increase in net sales was driven by a mid-single digit percentage increase in average selling prices per unit, growth in our core baby assortment, and a strong Labor Day performance, resulting in a second consecutive quarter of positive comparable net sales. Other contributing factors to the increase include sales contribution of our new retail stores. These factors were partially offset by a low-single digit percentage decrease in units sold and lower traffic in both retail stores and eCommerce.

Previous wording

Comparable net sales, including retail store and eCommerce, increased 2.2% primarily driven by the factors mentioned above. As of June 28, 2025, we operated 809 retail stores in the U.S. compared to 804 as of December 28, 2024, and 789 as of June 29, 2024.

Current wording

Comparable net sales, including retail store and eCommerce, increased 2.0% primarily driven by the factors mentioned above. As of September 27, 2025, we operated 808 retail stores in the U.S. compared to 804 as of December 28, 2024, and 795 as of September 28, 2024.

Previous wording

U.S. Retail segment operating income decreased $14.3 million, or 79.2%, to $3.8 million, primarily due to a decrease in gross profit of $0.3 million and an increase in SG&A expenses of $13.9 million. Segment operating margin decreased 490 bps to 1.3%, primarily driven by a 210 bps decrease in gross margin and a 290 bps increase in SG&A rate. The decrease in gross margin was driven by decreased average product selling prices per unit mentioned above and product mix. The increase in SG&A rate was driven by continued investments in new and remodeled retail stores and higher performance-based compensation expense.

Current wording

U.S. Retail segment operating income decreased $17.3 million, or 63.5%, to $10.0 million, primarily due to a decrease in gross profit of $2.7 million and an increase in SG&A expenses of $14.5 million. Segment operating margin decreased 490 bps to 2.8%, primarily driven by a 230 bps decrease in gross margin and a 270 bps increase in SG&A rate. The decrease in gross margin was driven by a low-teens percentage increase in average cost per unit sold as a result of incremental tariffs and investments in product make, partially offset by increased average selling prices per unit. The increase in SG&A rate was driven by continued investments in new and remodeled retail stores, higher performance-based compensation expense, increased marketing spend, and higher distribution and transportation costs.

Previous wording

As of June 28, 2025, we operated 192 stores and 64 stores in Canada and Mexico, respectively. As of December 28, 2024, we operated 191 and 62 stores in Canada and Mexico, respectively. As of June 29, 2024, we operated 186 and 52 stores in Canada and Mexico, respectively.

Current wording

As of September 27, 2025, we operated 192 stores and 65 stores in Canada and Mexico, respectively. As of December 28, 2024, we operated 191 and 62 stores in Canada and Mexico, respectively. As of September 28, 2024, we operated 188 and 56 stores in Canada and Mexico, respectively.

Previous wording

International segment operating income decreased $2.0 million, or 35.1%, to $3.6 million, primarily due to an increase in SG&A expenses of $4.0 million, partially offset by an increase in gross profit of $2.3 million. Segment operating margin decreased 290 bps to 3.9%, driven by a 380 bps decrease in gross margin, partially offset by a 130 bps decrease in the SG&A rate. The decrease in gross margin was due to decreased average product selling prices per unit and higher average cost per unit sold. Average cost per unit sold increased by a high-single digit percentage due to higher product input costs. The decrease in the SG&A rate was driven by fixed cost leverage on increased net sales, partially offset by increased performance-based compensation expense, retail store rent, retail store employee costs and bad debt expense.

Current wording

International segment operating income decreased $1.1 million, or 10.4%, to $9.2 million, primarily due to an increase in SG&A expenses of $4.5 million, partially offset by an increase in gross profit of $3.0 million and an increase in royalty income of $0.4 million. Segment operating margin decreased 140 bps to 8.2%, driven by a 220 bps increase in the SG&A rate, partially offset by a 40 bps increase in gross margin and a 40 bps increase in royalty income. The increase in gross margin was driven by higher average selling prices per unit and product mix, partially offset by higher average cost per unit sold. Average cost per unit sold increased by a mid-single digit percentage, reflecting the impact of incremental tariffs in Mexico and product mix. The increase in the SG&A rate was driven by increased performance-based compensation expense, retail store rent, and retail store employee costs, partially offset by decreased bad debt expense and fixed cost leverage on increased net sales.

Previous wording

(*)Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.

Current wording

(2)Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.

Previous wording

Consolidated net sales decreased $10.8 million, or 0.9%, to $1.22 billion. The decrease in net sales was driven by lower demand for our exclusive Carter’s brands, decreased average product selling prices per unit driven by selective investments in pricing, reduced traffic in U.S. Retail, and the unfavorable impact of foreign currency exchange rates due to a stronger U.S. dollar compared to the first two quarters of fiscal 2024. These decreases were partially offset by increased units per transaction driven by our selective investments in pricing, increased sales to off-price wholesale channel customers, and increased demand in Canada and from our international wholesale partners.

Current wording

Consolidated net sales decreased $11.4 million, or 0.6%, to $1.97 billion. The decrease in net sales was driven by lower sales of our Simple Joys brand, lower replenishment and demand with department stores, and the unfavorable impact of foreign currency exchange rates due to a stronger U.S. dollar compared to the first three quarters of fiscal 2024. These factors were partially offset by growth in our International segment and increased sales to off-price wholesale channel customers.

Previous wording

Units sold increased by a high-single digit percentage and average product selling prices per unit decreased by a mid-single digit percentage. Changes in foreign currency exchange rates used for translation had an unfavorable effect on our consolidated net sales of $3.1 million.

Current wording

Average selling prices per unit decreased by a low-single digit percentage reflecting selected investments in pricing in the first half of fiscal 2025, partially offset by pricing actions in the third quarter of fiscal 2025 in response to incremental tariffs. Units sold increased by a low-single digit percentage. Changes in foreign currency exchange rates used for translation had an unfavorable effect on our consolidated net sales of $9.7 million.

Previous wording

Consolidated gross profit decreased $25.3 million, or 4.2%, to $572.9 million and consolidated gross margin decreased 170 bps to 47.1%. The decrease in consolidated gross profit and gross margin was driven by decreased net sales, lower average product selling prices per unit, and increased sales to off-price wholesale channel customers, partially offset by channel mix and decreased inventory provisions driven by improved utilization of excess inventory.

Current wording

Consolidated gross profit decreased $39.7 million, or 4.2%, to $914.5 million and consolidated gross margin decreased 170 bps to 46.4%. The decrease in consolidated gross profit and gross margin was driven by decreased net sales, higher average cost per unit sold, and increased sales to off-price wholesale channel customers, partially offset by channel mix and decreased inventory provisions driven by improved utilization of excess inventory. Average cost per unit sold increased by a low-single digit percentage driven by incremental tariffs and investments in product make.

Previous wording

Consolidated SG&A expenses increased $38.4 million, or 7.5%, to $551.3 million and increased as a percentage of consolidated net sales by 360 bps to 45.4%. This increase in SG&A rate was driven by fixed cost deleverage on decreased sales, costs related to operating model improvements and leadership transition, increased performance-based compensation expense, increased distribution costs due to increased units shipped and higher third-party logistics costs, investments in new and remodeled retail stores, and higher recruiting costs. Performance-based compensation expense as a percentage of net sales increased 50 bps, due to a higher projected attainment of annual incentive objectives relative to the prior period.

Current wording

Consolidated SG&A expenses increased $71.7 million, or 9.0%, to $869.2 million and increased as a percentage of consolidated net sales by 390 bps to 44.1%. This increase in SG&A rate was driven by fixed cost deleverage on decreased sales, costs related to operating model improvements and leadership transition, organizational restructuring, higher performance-based compensation expense, and investments in new and remodeled retail stores. Performance-based compensation expense as a percentage of net sales increased 60 bps, due to a higher projected attainment of annual incentive objectives relative to the prior period.

Previous wording

Consolidated operating income decreased $64.3 million, or 68.1%, to $30.1 million and decreased as a percentage of net sales by 520 bps to 2.5%, primarily due to the factors previously discussed.

Current wording

Consolidated operating income decreased $112.3 million, or 65.5%, to $59.2 million and decreased as a percentage of net sales by 560 bps to 3.0%, primarily due to the factors previously discussed.

Previous wording

Consolidated interest income increased $1.1 million to $4.3 million due to increased cash balances during the period and interest recognized on federal tax refunds.

Current wording

Consolidated interest income increased $1.4 million to $10.0 million, due to increased cash balances during the period and interest recognized on federal tax refunds.

Previous wording

Consolidated other income was $1.1 million in the first two quarters of fiscal 2025 compared to consolidated other expense of $0.7 million in the first two quarters of fiscal 2024. The change was driven by favorable changes in foreign currency exchange rates during the period.

Current wording

Consolidated other income was $0.3 million in the first three quarters of fiscal 2025 compared to consolidated other expense of $1.0 million in the first three quarters of fiscal 2024. The change was driven by favorable changes in foreign currency exchange rates during the period.

Previous wording

Consolidated income tax provision decreased $11.6 million, or 62.1%, to $7.1 million and the effective tax rate increased 860 bps to 30.7%. The increase in the effective tax rate was driven by the lower income before income taxes in the first two quarters of fiscal 2025, incremental tax expense of $1.8 million related to expiring stock-based compensation, and incremental tax expense of $0.5 million related to Hong Kong’s implementation of the Pillar Two global minimum tax legislation. This was partially offset by a lower proportion of income generated in the United States, where the tax rate is higher relative to some of our international jurisdictions, compared to the first quarters of fiscal 2024.

Current wording

Consolidated income tax provision decreased $20.7 million, or 66.8%, to $10.3 million and the effective tax rate increased 720 bps to 27.2%. The increase in the effective tax rate was driven by lower income before income taxes in the first three quarters of fiscal 2025, incremental nondeductible officers’ compensation, and Hong Kong’s implementation of the Pillar Two global minimum tax legislation. This was partially offset by a lower proportion of income generated in the United States, where the tax rate is higher relative to some of our international jurisdictions, compared to the first three quarters of fiscal 2024.