Executives at children’s clothing retailer Carter’s said this week that tariffs are causing its business significant turmoil—and expect such issues to continue into 2026.
The retailer reported its earnings on Monday, seeing a significant downturn in net income as compared with Q3 2024. Net income for the quarter declined about 80 percent year on year to $11.6 million; in 2024, that figure stood at $58.3 million.
Carter’s said that, as part of its transformation, led by recently instated CEO Douglas Palladini, it has plans to save about $45 million per year as of 2026. Its executives said the company will achieve that, in large part, by eliminating 15 percent of its corporate employees’ roles and instituting other cost mitigation strategies.
Related Stories
Douglas Palladini, the company’s CEO, said Carter’s will part ways with the impacted employees—roughly 300—by the end of the year. He said he expects that change alone to save the company $35 million annually, and that the layoffs will also “streamline processes and decision making at Carter’s.” The company did not immediately disclose which of its business units will be impacted by the cuts.
Carter’s also plans to close 150 stores across North America by 2026, Palladini said, noting that the company will also halt any further store fleet expansion in an effort to save costs. On the call, executives said the impacted stores accounted for about $110 million in revenue over the course of the past year. Ahead of this call, executives had previously said they had plans to close 100, so Monday’s information reflects an addition of 50 stores.
Palladini said that investors should focus on the long-term impacts of the store closures, rather than on the immediate profit hits.
“Closing these stores does result in short-term revenue loss, but historical perspective suggests there will be offsetting sales transfer benefits by leveraging Carter’s digital platforms, existing stores and nearby wholesale partners,” Palladini told investors this week.
Stores and personnel aren’t the only ways Carter’s is shrinking; it also expects to axe 20 to 30 percent of its overall product assortment, as part of its “broader organizational objective of ensuring that our makeup, from personnel, to infrastructure, to systems and processes reflects the agility necessary to both confront challenges and seize opportunities in a dynamic marketplace,” Palladini said.
Richard Westenberger, executive vice president and chief financial officer at Carter’s, said tariffs are delivering blows to the business, which has caused the company to hike its prices and decrease its discounting efforts.
Westenberger told investors that President Donald Trump’s tariffs have had a “considerable impact” on the company’s business, noting that the duties could have about a $40 million impact on the business for Q4 2025 because they impact “most every country, including those from which we source the majority of our products.”
“These full reciprocal rates are much higher than those which have been in place historically and higher than what we have modeled and discussed with [investors] previously,” Westenberger said. “The tariff rates now in effect bring our effective duty rate into the high 30-percent range versus about 13 percent historically.”
Westenberger further told investors that executives expect that, pre-tax, tariffs’ impact on the business for 2026 could be “in the range of $200 million to $250 million.” If Trump’s attempts to use the International Emergency Economic Powers Act (IEEPA) to justify what he calls “reciprocal” tariffs are found unconstitutional by the Supreme Court, Carter’s “will obviously seek to recover the significant amounts already paid,” Westenberger said.
