Key Takeaways:
- Carter’s said second quarter data showed consumer resistance to pricing alongside a loss of unit velocity, prompting the company to moderate its second-half pricing assumptions and plan for a more value-conscious shopper.
- The caution comes despite a strong quarter overall: U.S. Retail comparable sales grew 5.1%, marking a fifth consecutive quarter of growth, and Carter’s received a $100 million after-tax tariff refund that strengthened its balance sheet.
- Carter’s narrowed its full-year net sales outlook to 2% to 3% growth from a prior low to mid-single digit range, citing both the pricing dynamic and lighter expected wholesale demand.
Carter’s, Inc. flagged a notable shift in consumer behavior during its second quarter fiscal 2026 earnings call, telling analysts that broader market data showed shoppers pushing back on price increases and buying fewer units as a result. The company is now building that caution into its plans for the back half of the year, even as it posted another quarter of solid comparable sales growth.
“Data from the broader market in second quarter indicated some price resistance from consumers with an accompanying loss of unit velocity,” said Richard Westenberger, Chief Financial Officer and Chief Operating Officer, on the call. “We think it’s prudent to plan for a more value-conscious consumer.”
The comment came as Carter’s explained a downward revision to its full-year outlook. The company narrowed its projection for full-year net sales growth to 2% to 3%, down from a previously guided low to mid-single digit range. Westenberger said the revision reflects two factors: lighter second-half wholesale demand as some customers adopt more conservative inventory commitments, and moderated pricing assumptions for the second half.
Pricing Pressure Already Visible in Q2
The dynamic was not purely forward-looking. It also weighed on second-quarter performance. Gross margin came in roughly 80 basis points below the company’s internal forecast, according to Westenberger, driven in part by additional discounting in U.S. retail and a higher mix of wholesale sales tied to fall demand that was pulled forward from the third quarter.
Allison Peterson, Chief Retail and Digital Officer, said the company saw higher clearance activity in the quarter tied to soft performance of select seasonal product offerings, which weighed on both pricing and gross margin. Consolidated average unit retail improved in the mid-single digits and units were up in the low single digits, but within U.S. retail specifically, average pricing was comparable to prior year rather than up, meaning comp growth there was driven by units, not price.
Sharon Price John, Chief Executive Officer and President, offered additional color on the decisions behind the margin miss.
“Like many companies going into the quarter, we still were holding onto some pricing increases,” she said. “As we’re responding to the marketplace, we did modify some of that in certain sectors of the business, not across the board. This is a very scalped approach.”
A Strong Quarter, With a Note of Caution
The pricing resistance commentary adds a layer of caution to what was otherwise a strong quarter for Carter’s. U.S. retail comparable sales rose 5.1%, the fifth consecutive quarter of growth and the third consecutive quarter of growth on a two-year basis. Ecommerce comp sales grew by double digits for the fourth straight quarter, and the company received $132 million ($100 million after-tax) in recovered tariffs and interest, boosting total liquidity to $1.2 billion.
The quarter’s store count continued to reflect the fleet rationalization plan Carter’s announced last November, when it said it would close approximately 150 stores over three years alongside 300 office position cuts. The company ended the second quarter with 1,042 total stores, down from 1,062 at the end of the first quarter, a net reduction of 20 stores driven primarily by U.S. closures.
The U.S. store count fell to 779 from 798 over the same period, while Canada and Mexico each ended the quarter with 190 and 73 stores, respectively.
Despite the moderated outlook, Carter’s said it still expects a year-over-year pricing gain in U.S. retail for the full second half, just a smaller one than the company had originally planned, building on pricing gains made in the second half of last year.
The company continues to expect full-year comparable sales growth in the mid-single digit range, and said it still expects gross margin expansion in the third quarter, driven by a mix shift toward higher-margin U.S. retail sales, the anniversarying of higher tariffs from a year ago, and continued pricing gains.
