Young children's apparel retailer Carter's is closing 150 low-margin stores and letting go of 300 office employees as it reels from the impact of tariffs like other U.S. chains.
The Atlanta-based company, with over 1,000 retail locations in North America and Mexico, on Monday announced the belt-tightening measures when it reported its fiscal third-quarter earnings. Carter's cited the hit that President Donald Trump's tariffs are taking on its business, cutting into its profits. It estimated that the gross pre-tax earnings impact of additional import duties will be about $200 million to $250 million on an annualized basis.
“Our third-quarter performance reflected continued improvement in U.S. retail business demand as we achieved positive comparable sales and improved pricing for the second consecutive quarter,” Carter's CEO and President Douglas Palladini said in a statement. “However, elevated product costs, in part due to the impact of higher tariffs, as well as additional investment, weighed meaningfully on our profitability."
Carter's — owner of its namesake and OshKosh B’gosh brands — is among the U.S. retailers that have felt the sting of tariffs on the goods they import, an impact that has prompted other chains to plan store closings and staff cuts. And like other retailers, Carter's is trying to mitigate the impact by reducing the amount of merchandise it sources from countries that have had high tariffs imposed.
Exits after leases expire
The roughly 150 stores that will be shut are underperforming locations, with most in the United States, but a few in Canada and Mexico, according to Carter's officials.
"As we've discussed previously, our physical store fleet must be honed," Palladini said on the earnings call.
Those locations will go dark when their leases expire over the next three years, according to Carter's, an increase from a previous target of about 100 stores. Roughly 100 stores will be closed over fiscal year 2025 and 2026. Those stores collectively represent around $110 million in annual net sales on a 12-month basis, Carter's said.
When accounting for sales transfers to nearby Carter’s stores and online, and the elimination of fixed store expenses, Carter's said the net impact of the store closings is expected to add to the company’s profitability.
Carter's will also do an organizational restructuring, reducing its office-based workforce by about 300 positions, or 15%, by the end of the year. The company recorded a $6.1 million charge in its fiscal third quarter and expects to incur a $4 million to $5 million charge in the fourth quarter related to severance and outplacement services, to be paid in the first half of 2026. Those cuts are expected to yield annualized savings of roughly $35 million beginning in 2026, according to Carter's.
Offsetting tariffs
In the third quarter, Carter's net sales were basically flat, dipping $600,000, or 0.1%, to $757.8 million, compared to $758.5 million in the third quarter of fiscal 2024. But net income had a nosedive, to $11.6 million, down from $58.3 million in the prior-year period.
"Additional tariffs have begun to add substantially to the approximately $110 million in duties on imported product paid by the company in fiscal 2024," according to Carter's.
"The company estimates that Vietnam, Cambodia, Bangladesh and India will collectively represent approximately 75%, and China less than 3%, of its product sourcing spend in fiscal year 2025," Carter's said.
Over time, Carter's plans to offset additional tariff costs by making changes to its product assortments; cost-sharing with its vendor partners; changing the mix of its production by country; and raising prices to end consumers and its wholesale customers.
The retailer suspended its fiscal 2025 guidance due to the uncertainty surrounding incremental tariffs.
Carter's not only has its own stores but is also the largest supplier of young children’s apparel to department stores, national chains and specialty retailers domestically and internationally. That list includes Walmart, Target and Amazon.com.