Demographic trends do not favor baby apparel maker Carter’s (CRI).
The U.S. birth rate went down in 2015. That trend appears to be worse this year. The math doesn't bode well for Carter's.
Think about it:
Fewer babies = Less demand for Carter’s products
On the flipside, Carter’s rode favorable birth rate trends from 2002 to 2008. “That’s when every hedge fund owned it,” says Hedgeye Retail analyst Brian McGough.
In the video excerpt above, McGough explains that when birth rates started to decline in 2008, “Carter’s started doing acquisitions. They ran out of growth so they had to get creative.”
McGough points out that the company may be out of creative ways to boost its numbers through acquisitions. “When you do the math, you can very easily model a 1-2% headwind in which Carter’s stops beating numbers. Maybe the company even starts missing.”
To be sure, demographics are slow moving trends. But consider the other issues Carter’s is currently contending with, McGough says.
“While it’s an excellent brand and very dominant, its market share gain is slowing, its distribution is under pressure, we’re at the tail end of an economic cycle and we’ve got demographics going the wrong way,” he says.
Bottom line: McGough sees 25% downside from here.
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