Valuing Carter’s performance versus other apparel companies

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Dec. 4 2020, Updated 10:53 a.m. ET

Glenview Capital and Carter’s

Larry Robbins’ Glenview Capital filed a Schedule 13G with the SEC last week. The fund disclosed that it increased its stake in Carter’s Inc. (CRI) to 6.84%. Carter’s is a branded marketer of apparel exclusively for babies and young children.

Key comparison

We compared Carter’s with The Gap (GPS), Children’s Place Retail Stores (PLCE)—which competes with the company in the baby and young children apparel space, and other apparel retailers like PVH Corp. (PVH) and Ralph Lauren (RL).

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Carter’s price-to-earnings multiple (P/E) and forward P/E are higher than its main peers The Gap and Children’s Place. The company’s EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) are above the peer average. However, its operating and profit margins are below The Gap’s.

Carter’s free cash flow yield is also the lowest as compared to its peers. The company said its cash flow from operations in 1Q 2014 fell to $30.6 million from $53.1 million in the first quarter of fiscal 2013. Its free cash flow is currently negative, at -$1.5 million.

A positive consumer spending outlook could benefit retailers

Consumer spending has a direct impact on the retail sector. May data from the commerce department has indicated a cautious consumer spending. The Conference Board Consumer Confidence Index stood at 85.2 in June—up from 82.2 in May. This reflects a positive outlook.

A statement from the Conference Board cited Lynn Franco, director of economic indicators, who said, “June’s increase was driven primarily by improving current conditions, particularly consumers’ assessment of business conditions. Expectations regarding the short-term outlook for the economy and jobs were moderately more favorable, while income expectations were a bit mixed. Still, the momentum going forward remains quite positive.”

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U.S. retail sales rose 0.2% in June. May sales saw an upward revision by the U.S. Census Bureau. Sales at clothing and clothing accessory stores grew 0.8% over the previous month and 2.9% year-over-year. Although retail sales figures came in below consensus, the general view is that the U.S economy rebounded in the second quarter. Sluggish consumer spending and severe winter weather contributed to a shaky beginning this year for the sector, and retail ETFs like the SPDR S&P Retail ETF (XRT) and SPDR Consumer Discretionary ETF (XLY) have underperformed the S&P 500 Index (SPY).

Most U.S. apparel retailers posted an increase in sales in June, but Cartier peer Gap said its comparable-store sales (comps) fell 2%. Retail Metrics said June retail sales were better than expected, as retailers posted a 5.5% year-over-year gain due to improving weather and employment coupled with heavy retailer promotions.

These trends could benefit Cartier and its peers. But weak consumer demand and intense competition—especially from online retailers—remain headwinds for these retailers.

More retail analysis

For more on June retail indicators, please read What do June retail sales mean for companies like Walgreens & Amazon?

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