CARTERS INC
For the period ended Jan 3, 2026. Filed Feb 27, 2026.
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FY2026 · Filed Feb 27, 2026
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Carter’s, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Carter’s, Inc. and its subsidiaries (the “Company”) as of January 3, 2026 and December 28, 2024, and the related consolidated statements of operations, of comprehensive income, of changes in shareholders’ equity and of cash flows for each of the three years in the period ended January 3, 2026, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of January 3, 2026, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 3, 2026 and December 28, 2024, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2026 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2026, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - U.S. Wholesale
As described in Notes 2 and 3 to the consolidated financial statements, the Company’s U.S. wholesale revenue was $1.00 billion for the year ended January 3, 2026. The Company relies on shipping terms to determine when performance obligations are satisfied and recognizes revenue once control passes to the customer. When goods are shipped to wholesale customers “FOB Shipping Point,” control of the goods is transferred to the customer at the time of shipment. When goods are shipped to wholesale customers “FOB Destination,” control of the goods is transferred to the customer when the goods reach the customer. The transaction price is the amount of consideration the Company expects to receive under the arrangement. The Company is required to estimate variable consideration (if any) and to factor that estimation into the determination of the transaction price. The Company may offer sales incentives to wholesale and retail customers, including discounts.
The principal consideration for our determination that performing procedures relating to U.S. wholesale revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s U.S. wholesale revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the recording of U.S. wholesale revenue at the transaction price once control passes to the customer. These procedures also included, among others (i) testing U.S. wholesale revenue transactions by evaluating the issuance and settlement of invoices and credit memos, tracing transactions not settled to a detailed listing of accounts receivable, and testing the completeness and accuracy of data provided by management; (ii) testing, on a sample basis, sales incentive transactions by obtaining and inspecting source documents, including support for the nature of the incentive, amount, and agreement with the customer; and (iii) testing, on a sample basis, outstanding customer invoice balances as of January 3, 2026 by obtaining and inspecting source documents, such as invoices, proof of shipment or delivery, and subsequent payment receipts.
Interim and Annual Indefinite-Lived Intangible Asset Impairment Assessments - OshKosh Tradename
As described in Note 6 to the consolidated financial statements, the Company’s consolidated indefinite-lived tradename balance was $266.2 million as of January 3, 2026, of which $40.0 million related to the OshKosh tradename. The carrying values of indefinite-lived tradename assets are subject to annual impairment reviews as of the last day of each fiscal year. Between annual assessments, impairment reviews may also be triggered by any significant events or changes in circumstances affecting the business. As disclosed by management, the process of estimating the fair value of a tradename incorporates the relief-from-royalty valuation method, which requires management to make assumptions and to apply judgment, including forecasting revenue growth and profitability and selecting the appropriate terminal growth rate, discount rate, and royalty rate. If a tradename is considered impaired, management recognizes a loss equal to the difference between the carrying amount and the estimated fair value of the tradename. During the second and third quarters of fiscal 2025, management identified triggering events related to the OshKosh tradename. As a result, management performed an interim quantitative impairment test on the value of its OshKosh tradename in both the second and third quarters of fiscal 2025. In the fourth quarter of fiscal 2025, management performed an annual quantitative impairment test on the value of its OshKosh tradename as of January 3, 2026. Based upon the interim and annual assessments, there were no impairments on the value of the OshKosh tradename.
The principal considerations for our determination that performing procedures relating to the interim and annual indefinite-lived intangible asset impairment assessments of the OshKosh tradename is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the OshKosh tradename; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth, discount rate, and royalty rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s interim and annual indefinite-lived tradename impairment assessment, including controls over the valuation of the OshKosh tradename. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the OshKosh tradename; (ii) evaluating the appropriateness of the relief-from-royalty valuation method used by management; (iii) testing the completeness and accuracy of underlying data used in the relief-from-royalty valuation method; and (iv) evaluating the reasonableness of significant assumptions used by management related to revenue growth, discount rate, and royalty rate. Evaluating management’s assumption related to revenue growth involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the OshKosh brand; (ii) the consistency with external market and industry data; and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief-from-royalty valuation method and (ii) the reasonableness of the discount rate and royalty rate assumptions.
Interim and Annual Goodwill Impairment Assessments – U.S. Retail and Canada Reporting Units
As described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $209.0 million as of January 3, 2026, and as disclosed by management, the goodwill allocated to the US Retail reporting unit was $83.9 million and the goodwill allocated to the Canada reporting unit was $38.6 million. The carrying value of goodwill assets are subject to annual impairment reviews as of the last day of each fiscal year. Between annual assessments, impairment reviews may be triggered by any significant events or changes in circumstances affecting the business. An impairment is recorded for any excess carrying value above the fair value of the reporting unit, not to exceed the carrying value of goodwill. Fair value is estimated using a 50% weighting of the “income approach” (discounted cash flow method) and a 50% weighting of the “market approach” (guideline public companies method). Key assumptions used in these approaches include projected revenue growth and profitability, terminal growth rates, discount rates, market multiples and applicable control premiums. During the second and third quarters of fiscal 2025, management identified triggering events. As a result, the management performed an interim quantitative impairment test on the goodwill ascribed to each of the Company’s reporting units in both the second and third quarters of fiscal 2025. In the fourth quarter of fiscal 2025, management performed an annual quantitative impairment test on the goodwill ascribed to each of the Company’s reporting units as of January 3, 2026. Based upon the interim and annual assessments, there were no impairments on the value of goodwill of the US Retail and Canada reporting units.
The principal considerations for our determination that performing procedures relating to the interim and annual goodwill impairment assessments of the US Retail and Canada reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the US Retail and Canada reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to (a) for the second quarter interim impairment assessment: revenue growth, profitability, and discount rate used in the discounted cash flow method for the US Retail reporting unit; revenue growth and discount rate used in the discounted cash flow method for the Canada reporting unit; and market multiples used in the guideline public companies method for the Canada reporting unit, (b) for the third quarter interim impairment assessment: revenue growth, profitability, terminal growth rate, and discount rate used in the discounted cash flow method for the US Retail reporting unit; revenue growth, profitability, and discount rate used in the discounted cash flow method for the Canada reporting unit; and market multiples used in the guideline public companies method for the US Retail and Canada report units, and (c) for the fourth quarter annual impairment assessment: profitability used in the discounted cash flow method for the US Retail reporting unit; revenue growth, profitability, and discount rate used in the discounted cash flow method for the Canada reporting unit; and market multiples used in the guideline public companies method for the Canada report unit; collectively referred to as the significant assumptions and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the US Retail and Canada reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the US Retail and Canada reporting units; (ii) evaluating the appropriateness of the discounted cash flow and guideline public companies methods; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow and guideline public companies method; and (iv) evaluating the reasonableness of significant assumptions described above used by management related to revenue growth, profitability, terminal growth rate, discount rate, and market multiples, as applicable. Evaluating management’s assumptions related to revenue growth and profitability involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the US Retail and Canada reporting units; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow and guideline public companies methods and (ii) the reasonableness of the terminal growth rate, discount rate, and market multiples assumptions.
/s/PricewaterhouseCoopers LLP
Atlanta, Georgia
February 27, 2026
We have served as the Company’s auditor since at least 1968. We have not been able to determine the specific year we began serving as auditor of the Company.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
| January 3, 2026 | December 28, 2024 | |
|---|---|---|
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $487,075 | $412,926 |
| Accounts receivable, net of allowance for credit losses of $7,587 and $5,663, respectively | 178,566 | 194,834 |
| Finished goods inventories | 544,624 | 502,332 |
| Prepaid expenses and other current assets | 60,508 | 32,580 |
| Total current assets | 1,270,773 | 1,142,672 |
| Property, plant, and equipment, net | 186,307 | 180,956 |
| Operating lease assets | 591,806 | 577,133 |
| Tradenames, net | 268,659 | 268,008 |
| Goodwill | 208,994 | 206,875 |
| Customer relationships, net | 20,128 | 23,543 |
| Other assets | 18,803 | 33,980 |
| Total assets | $2,565,470 | $2,433,167 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $235,700 | $248,200 |
| Current operating lease liabilities | 136,488 | 130,564 |
| Other current liabilities | 133,809 | 130,052 |
| Total current liabilities | 505,997 | 508,816 |
| Long-term debt, net | 567,173 | 498,127 |
| Deferred income taxes | 39,380 | 38,210 |
| Long-term operating lease liabilities | 508,461 | 501,503 |
| Other long-term liabilities | 19,411 | 31,949 |
| Total liabilities | $1,640,422 | $1,578,605 |
| Shareholders’ equity: | ||
| Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or outstanding | $— | $— |
| Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 36,425,877 and 36,041,995 shares issued and outstanding, respectively | 364 | 360 |
| Additional paid-in capital | 19,584 | 3,856 |
| Accumulated other comprehensive loss | (24,361) | (43,678) |
| Retained earnings | 929,461 | 894,024 |
| Total shareholders’ equity | 925,048 | 854,562 |
| Total liabilities and shareholders’ equity | $2,565,470 | $2,433,167 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
| Fiscal year ended | |||
|---|---|---|---|
| January 3, 2026 | December 28, 2024 | December 30, 2023 | |
| (53 weeks) | (52 weeks) | (52 weeks) | |
| Net sales | $2,898,426 | $2,844,102 | $2,945,594 |
| Cost of goods sold | 1,583,790 | 1,478,936 | 1,549,659 |
| Gross profit | 1,314,636 | 1,365,166 | 1,395,935 |
| Royalty income, net | 18,102 | 19,251 | 21,410 |
| Selling, general, and administrative expenses | 1,188,805 | 1,099,689 | 1,093,940 |
| Intangible asset impairment | — | 30,000 | — |
| Operating income | 143,933 | 254,728 | 323,405 |
| Interest expense | 34,227 | 31,331 | 33,973 |
| Interest income | (13,474) | (11,039) | (4,776) |
| Other (income) expense, net(*) | (1,086) | 2,678 | (8,034) |
| Pension plan settlement(*) | 8,777 | 949 | — |
| Loss on extinguishment of debt | 1,655 | — | — |
| Income before income taxes | 113,834 | 230,809 | 302,242 |
| Income tax provision | 22,038 | 45,300 | 69,742 |
| Net income | $91,796 | $185,509 | $232,500 |
| Basic net income per common share | $2.53 | $5.12 | $6.24 |
| Diluted net income per common share | $2.53 | $5.12 | $6.24 |
| Dividend declared and paid per common share | $1.55 | $3.20 | $3.00 |
(*)Pension plan settlement charges for the fiscal year ended December 28, 2024, have been reclassified to the Pension plan settlement line item. These charges were previously included in Other (income) expense, net.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Fiscal year ended | |||
|---|---|---|---|
| January 3, 2026 | December 28, 2024 | December 30, 2023 | |
| (53 weeks) | (52 weeks) | (52 weeks) | |
| Net income | $91,796 | $185,509 | $232,500 |
| Other comprehensive income: | |||
| Pension settlement charge, net of tax of $(1,279) and $(224) for fiscal years 2025 and 2024 | 4,117 | 725 | — |
| Unrealized gain on OshKosh defined benefit plan, net of tax of $(281), $(396), and $(50) for fiscal years 2025, 2024, and 2023, respectively | 905 | 1,275 | 160 |
| Unrealized gain (loss) on Carter’s post-retirement benefit obligation, net of tax of $–, $80, and $100 for fiscal years 2025, 2024, and 2023, respectively | 1 | (274) | (330) |
| Foreign currency translation adjustments | 14,294 | (21,489) | 10,593 |
| Total other comprehensive income (loss) | 19,317 | (19,763) | 10,423 |
| Comprehensive income | $111,113 | $165,746 | $242,923 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal year ended | |||
|---|---|---|---|
| January 3, 2026 | December 28, 2024 | December 30, 2023 | |
| (53 weeks) | (52 weeks) | (52 weeks) | |
| Cash flows from operating activities: | |||
| Net income | $91,796 | $185,509 | $232,500 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation of property, plant, and equipment | 51,544 | 54,233 | 60,407 |
| Amortization of intangible assets | 3,719 | 3,693 | 3,732 |
| Provisions for (recoveries of) excess and obsolete inventory, net | 401 | (348) | (10,439) |
| Intangible asset impairment | — | 30,000 | — |
| Gain on partial termination of corporate lease | — | — | (4,366) |
| Loss on disposal of property, plant and equipment | 189 | 865 | 3,078 |
| Amortization of debt issuance costs | 1,712 | 1,630 | 1,586 |
| Stock-based compensation expense | 20,248 | 17,841 | 19,463 |
| Unrealized foreign currency exchange (gain) loss, net | (457) | 380 | (207) |
| Provisions for doubtful accounts receivable from customers | 2,417 | 1,086 | 471 |
| Loss on extinguishment of debt | 1,655 | — | — |
| Unrealized gain on investments | (2,229) | (2,214) | (2,237) |
| Pension plan settlement | 8,777 | 949 | — |
| Deferred income tax benefit | (162) | (6,422) | (600) |
| Effect of changes in operating assets and liabilities: | |||
| Accounts receivable | 15,169 | (13,743) | 15,453 |
| Finished goods inventories | (37,101) | 26,131 | 222,920 |
| Prepaid expenses and other assets | (8,098) | (2,962) | 4,317 |
| Accounts payable and other liabilities | (27,246) | 2,159 | (16,946) |
| Net cash provided by operating activities | $122,334 | $298,787 | $529,132 |
| Cash flows from investing activities: | |||
| Capital expenditures | $(53,704) | $(56,165) | $(59,860) |
| Net cash used in investing activities | $(53,704) | $(56,165) | $(59,860) |
| Cash flows from financing activities: | |||
| Proceeds from senior notes due 2031 | $575,000 | $— | $— |
| Payment of senior notes due 2027 | (500,000) | — | — |
| Payments of debt issuance costs | (11,711) | — | — |
| Borrowings under secured revolving credit facility | — | — | 70,000 |
| Payments on secured revolving credit facility | — | — | (190,000) |
| Repurchases of common stock | — | (50,526) | (100,034) |
| Dividends paid | (56,359) | (116,178) | (112,005) |
| Withholdings from vesting of restricted stock | (4,516) | (7,579) | (5,024) |
| Proceeds from exercise of stock options | — | 367 | 4,418 |
| Other | (370) | (900) | — |
| Net cash provided by (used in) financing activities | $2,044 | $(174,816) | $(332,645) |
| Net effect of exchange rate changes on cash and cash equivalents | 3,475 | (6,093) | 2,838 |
| Net increase in cash and cash equivalents | $74,149 | $61,713 | $139,465 |
| Cash and cash equivalents, beginning of fiscal year | 412,926 | 351,213 | 211,748 |
| Cash and cash equivalents, end of fiscal year | $487,075 | $412,926 | $351,213 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
| Common stock - shares | Commonstock - $ | Additionalpaid-incapital | Accumulated other comprehensive(loss)income | Retainedearnings | Totalshareholders’equity | |
|---|---|---|---|---|---|---|
| Balance at December 31, 2022 | 37,692,132 | $377 | $— | $(34,338) | $830,370 | $796,409 |
| Exercise of stock options | 64,700 | 1 | 4,417 | — | — | 4,418 |
| Withholdings from vesting of restricted stock | (64,952) | (1) | (4,652) | — | (371) | (5,024) |
| Restricted stock activity | 305,610 | 3 | (3) | — | — | — |
| Stock-based compensation expense | — | — | 19,463 | — | — | 19,463 |
| Repurchases of common stock | (1,446,269) | (14) | (18,325) | — | (81,695) | (100,034) |
| Cash dividends declared and paid of $3.00 per common share | — | — | — | — | (112,005) | (112,005) |
| Comprehensive income | — | — | — | 10,423 | 232,500 | 242,923 |
| Other | — | — | (900) | — | — | (900) |
| Balance at December 30, 2023 | 36,551,221 | $366 | $— | $(23,915) | $868,799 | $845,250 |
| Exercise of stock options | 4,408 | — | 367 | — | — | 367 |
| Withholdings from vesting of restricted stock | (94,143) | (1) | (5,735) | — | (1,843) | (7,579) |
| Restricted stock activity | 316,932 | 3 | (3) | — | — | — |
| Stock-based compensation expense | — | — | 17,841 | — | — | 17,841 |
| Repurchases of common stock | (736,423) | (8) | (8,255) | — | (42,263) | (50,526) |
| Cash dividends declared and paid of $3.20 per common share | — | — | — | — | (116,178) | (116,178) |
| Comprehensive income | — | — | — | (19,763) | 185,509 | 165,746 |
| Other | — | — | (359) | — | — | (359) |
| Balance at December 28, 2024 | 36,041,995 | $360 | $3,856 | $(43,678) | $894,024 | $854,562 |
| Withholdings from vesting of restricted stock | (103,831) | (1) | (4,515) | — | — | (4,516) |
| Restricted stock activity | 487,713 | 5 | (5) | — | — | — |
| Stock-based compensation expense | — | — | 20,248 | — | — | 20,248 |
| Repurchases of common stock | — | — | — | — | — | — |
| Cash dividends declared and paid of $1.55 per common share | — | — | — | — | (56,359) | (56,359) |
| Comprehensive income | — | — | — | 19,317 | 91,796 | 111,113 |
| Other | — | — | — | — | — | — |
| Balance at January 3, 2026 | 36,425,877 | $364 | $19,584 | $(24,361) | $929,461 | $925,048 |
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.