Carter’s Faces a Downside‑Heavy Storm as Risk Flags Multiply

Four warning signals and a bull‑high‑vol regime raise questions about future returns

CRI Carter's, Inc.

In this report

01

Returns Overview

Period returns, alpha, cumulative performance, distributions

P. 2-3

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02

Volatility Analysis

Annualized volatility, downside deviation, drawdowns

P. 4-5

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03

Beta & Correlation

Trailing, upside, downside beta, systematic risk

P. 6-7

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04

Risk-Adjusted Returns

Sharpe, Sortino, Calmar, Information, Treynor

P. 8-9

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05

Market Regime Analysis

Bull/bear behavior, capture ratios

P. 10-11

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06

Investment Highlights & Risk Summary

Executive summary, risk flags, rankings

P. 12-13

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Returns Overview

Carter's, Inc. (CRI) — Return Performance

Carter's, Inc. (CRI) delivered a mixed return profile over the past eight years, posting strong gains in the near term but substantial underperformance in longer horizons. The stock rallied 27.94% year‑to‑date, outpacing its consumer cyclical peer group by 8.94 percentage points and exceeding the sector ETF by 21.84%, yet it has lost 55.82% over five years, trailing the sector by 127.64% and the sector ETF by 89.37%. This divergence highlights a pronounced short‑term upside swing contrasted with a persistent long‑run downside drift.

Period Returns vs S&P 500 & XLY

Monthly Returns Heatmap

CRI

In the last month CRI posted a modest decline of -1.04% but still generated 1.55% alpha versus its sector, indicating resilience despite broader market softness. The three‑month and six‑month periods showed robust outperformance, with returns of 6.8% (+1.4% sector alpha) and 17.76% (+21.57% sector ETF alpha), respectively, reflecting strong momentum that benefitted short‑term investors. However, the two‑year through five‑year intervals reveal deep negative alphas (-69.55% to -127.64%), underscoring a sustained erosion of value relative to both the sector and its benchmark.

Returns Overview

Carter's, Inc. (CRI) — Return Charts

Volatility Analysis

Carter's, Inc. (CRI) — Volatility Profile

Carter's, Inc. (CRI) exhibits markedly higher volatility than the broader market, with an annualized volatility of 36.64% versus the S&P 500’s 17.78%, indicating more than double the price fluctuations on a yearly basis. The downside risk profile is pronounced: a downside deviation of 28.29% and a historical maximum drawdown of -76.09% over a seven‑year window underscore substantial vulnerability during market stress, with the decline spanning from February 2018 to August 2025 without full recovery. Recent short‑term volatility remains elevated; the 60‑day vol of 47.68% and 252‑day vol of 53.36% both sit well above the long‑term annualized level, suggesting that price swings are currently more intense than the historical average.

Volatility Metrics

CRI

The stock’s volatility is significantly higher than the S&P 500 benchmark, reflecting a riskier return environment for investors. Downside metrics—downward deviation of 28.29% and an unresolved max drawdown of -76.09% over more than seven years—highlight deep and prolonged loss potential. Moreover, both the 60‑day (47.68%) and 252‑day (53.36%) volatilities exceed the long‑term annualized volatility, indicating that recent price movements are unusually turbulent relative to its historical norm.

CRI’s annualized volatility is more than double that of the S&P 500.
Downside deviation stands at 28.29%, pointing to heightened sensitivity to market declines.
The stock has endured a -76.09% max drawdown with no full recovery, signaling prolonged downside exposure.
Current 60‑day and 252‑day volatilities are both above the long‑term average, implying elevated short‑term risk.

Positive Characteristics
Higher volatility can provide larger upside potential during bullish phases if fundamentals improve.
The pronounced price swings may attract opportunistic traders seeking to capitalize on mean‑reversion moves.

Volatility Analysis

Carter's, Inc. (CRI) — Volatility & Drawdown Charts

Beta & Correlation

Carter's, Inc. (CRI) — Beta Profile

Carter's, Inc. (CRI) exhibits a trailing beta of 0.973 versus the S&P 500, positioning it squarely within the market‑like range of 0.8–1.2. This indicates that the stock’s price movements have historically tracked the broad market closely, offering investors exposure comparable to the overall equity index without the heightened volatility of aggressive stocks. The upside beta of 1.053 exceeds the downside beta of 0.913, revealing a modest asymmetry: CRI tends to amplify gains when the market rises while cushioning losses during downturns, an attribute that can be valuable for risk‑averse portfolios. The R-squared of 22.3% signifies that roughly one‑fifth of CRI’s return variability is explained by market movements, leaving a substantial 77.7% driven by idiosyncratic factors such as company‑specific earnings trends and consumer sentiment toward children’s apparel. Consequently, the stock provides meaningful diversification benefits despite its market‑like beta. When decomposing risk sources, the sector beta of 0.838 versus the Consumer Cyclical index (XLY) suggests that a larger share of CRI’s systematic exposure stems from broader market dynamics rather than sector‑specific drivers, underscoring the importance of evaluating both market and sector betas for comprehensive risk management.

Beta & Correlation Metrics

CRI

The trailing beta of 0.973 places CRI in a comfortable middle ground where it mirrors overall market movements without excessive swing. Its upside beta (1.053) being higher than the downside beta (0.913) indicates a slight tilt toward stronger participation in rally environments, while still providing a modest defensive cushion during declines. The sector beta of 0.838 further shows that CRI is less sensitive to Consumer Cyclical fluctuations than to the broader market, meaning company‑specific factors dominate its risk profile.

Trailing beta of 0.973 signals market‑like behavior, offering investors familiar equity exposure.
Upside beta exceeds downside beta (1.053 vs 0.913), suggesting asymmetric performance that favors upside moves.
R-squared of 22.3% implies a low proportion of returns explained by the market, highlighting strong idiosyncratic risk.
Systematic risk accounts for only 22.3% of total variance, leaving 77.7% driven by company‑specific factors.
Sector beta (0.838) is lower than market beta, indicating that CRI’s systematic risk is more tied to the overall market than to Consumer Cyclical dynamics.

Positive Characteristics
Asymmetric upside beta provides modest outperformance potential in bullish markets.
Low R-squared and high idiosyncratic share enhance diversification benefits within a broader portfolio.
Sector beta below 1 reduces exposure to sector‑specific downturns, offering resilience when the Consumer Cyclical segment underperforms.

Beta & Correlation

Carter's, Inc. (CRI) — Rolling Beta

Positive Notes

Asymmetric upside beta provides modest outperformance potential in bullish markets.

Low R-squared and high idiosyncratic share enhance diversification benefits within a broader portfolio.

Sector beta below 1 reduces exposure to sector‑specific downturns, offering resilience when the Consumer Cyclical segment underperforms.

Risk-Adjusted Returns

Carter's, Inc. (CRI) — Risk-Adjusted Performance

Carter's, Inc. (CRI) exhibits risk-adjusted performance that falls below the risk-free rate, as indicated by a negative Sharpe ratio of -0.045 and a negative Sortino ratio of -0.058. Both metrics signal that the stock has underperformed on a risk‑adjusted basis over the measurement period, with the Sortino slightly more adverse than the Sharpe, suggesting that downside volatility is marginally higher than overall volatility. The Calmar ratio of 0.026 points to modest returns relative to the maximum historical drawdown, while the Information Ratio of -0.334 and Treynor ratio of -1.683 reinforce the view that CRI has not generated consistent alpha nor compensated investors for systematic risk.

Risk-free rate: 3.63% (Fed Funds Rate)

Risk-Adjusted Metrics

CRI

The Sharpe and Sortino ratios are both negative, indicating that CRI’s total return lagged the 3.63% risk‑free rate after adjusting for volatility. The slightly more negative Sortino (-0.058 vs -0.045) implies that downside risk contributed disproportionately to underperformance. A Calmar ratio of 0.026 reflects a small excess return per unit of worst drawdown, highlighting vulnerability during market stress. The Information Ratio of -0.334 suggests the stock has not delivered consistent outperformance relative to its benchmark, and the Treynor ratio of -1.683 shows that each unit of systematic risk has eroded value rather than added it.

Negative Sharpe (-0.045) and Sortino (-0.058) ratios indicate underperformance versus the risk‑free rate on a volatility‑adjusted basis.
Sortino being more negative than Sharpe signals that downside volatility is a particular weakness.
Calmar ratio of 0.026 reveals limited return relative to peak‑to‑trough drawdown, implying heightened sensitivity to market declines.
Information Ratio of -0.334 confirms the absence of consistent alpha generation.
Treynor ratio of -1.683 shows that systematic risk has detracted from returns.

Positive Characteristics
Despite overall underperformance, CRI’s modest negative Sharpe suggests volatility is not extreme, leaving room for improvement if earnings trends reverse.

Risk-Adjusted Returns

Carter's, Inc. (CRI) — Rolling Sharpe & Sortino

Positive Notes

Despite overall underperformance, CRI’s modest negative Sharpe suggests volatility is not extreme, leaving room for improvement if earnings trends reverse.

Market Regime Analysis

Carter's, Inc. (CRI) — Regime Behavior

Carter's, Inc. (CRI) exhibits markedly different return profiles depending on the prevailing market regime. In a Bull-LowVol environment—characterized by a steady uptrend and modest volatility—the stock delivers an average monthly gain of 1.55%, reflecting strong alignment with broad equity momentum. Conversely, during Bull-HighVol periods, when the S&P 500 remains above its 50‑day SMA but market turbulence spikes, CRI’s performance collapses to a meager 0.15% average monthly return, indicating heightened sensitivity to volatility despite an overall bullish backdrop. In bear markets, the divergence is even starker: Bear-LowVol conditions see a modest decline of -0.92% per month, whereas Bear-HighVol episodes impose severe pressure, with returns plunging an average of -3.33% per month. The company’s upside capture of 73.7% and downside capture of 136.0% translate into a capture ratio of 0.54, signifying that CRI underperforms the market on both the upside and the downside, but more so during adverse conditions.

Current Market Regime: Bull-HighVol

Bull-LowVol = calm uptrend • Bull-HighVol = volatile uptrend • Bear-LowVol = orderly decline • Bear-HighVol = crisis

Regime Returns & Capture Ratios

CRI

In the current Bull-HighVol regime, CRI’s near‑flat average return (0.15% per month) suggests limited upside potential relative to the broader market, which is typically delivering higher returns in such environments. The elevated downside capture of 136% underscores vulnerability; any shift toward a bear phase could exacerbate losses. While the stock shows some defensive qualities—its loss in Bear-LowVol (-0.92%) is less severe than the market’s typical decline—the high volatility bear scenario (-3.33%) reveals limited resilience, confirming that CRI is not a strong defensive play.

Market Regime Analysis

Carter's, Inc. (CRI) — Regime & Capture Charts

Regime Timeline

CRI generates solid returns (1.55% monthly) only in calm bullish markets; performance deteriorates sharply as volatility rises.
Downside capture of 136% indicates the stock loses more than the market during declines, especially pronounced in Bear-HighVol regimes.
The capture ratio of 0.54 is well below the ideal benchmark of >1.0, reflecting weak asymmetric risk‑return characteristics.
In the present Bull-HighVol regime, CRI’s upside capture (73.7%) suggests limited participation in market gains, limiting its attractiveness for growth‑oriented investors.
Defensive attributes are modest; while losses are less severe in Bear-LowVol periods, the stock remains vulnerable in high‑volatility downturns.

Positive Characteristics
Carter's maintains a positive average return (1.55% per month) during low‑volatility bull markets, indicating capacity to benefit from stable growth cycles.
The modest decline of -0.92% in Bear-LowVol regimes shows some resilience when market drops are orderly.

Investment Highlights & Risk Summary

Carter's, Inc. (CRI) — Summary & Implications

Carter's, Inc. delivered a robust 27.94% total return over the past year and generated an alpha of 8.94% versus the S&P 500, indicating strong absolute performance relative to the broad market. However, the stock’s risk profile is concerning: annualized volatility stands at 36.64%, beta is near market level (0.973), yet the Sharpe ratio is -0.045, meaning returns have lagged the risk‑free rate on a risk‑adjusted basis. The downside capture of 136% and a maximum historical drawdown of -76.09% reveal that the company amplifies market declines and has experienced severe capital loss potential. Investors must weigh the attractive return figures against these pronounced risk flags, especially if they have limited tolerance for large swings or prolonged underperformance.

Summary Dashboard

Investment Highlights

1‑Year total return of 27.94% exceeds the S&P 500’s performance, reflecting strong price appreciation.
Alpha of 8.94% versus the S&P 500 demonstrates outperformance on an absolute basis after accounting for market movements.
Sector alpha of 21.84% shows Carter's outpaced its consumer‑cyclical peers in the XLY index.
Beta of 0.973 indicates overall market sensitivity is close to neutral, suggesting the stock moves roughly in line with broader equity trends.

Risk-Return Rankings

CRI HIGH

High return potential tempered by extreme downside risk and negative risk‑adjusted metrics.

Strength: Strong absolute outperformance (27.94% 1Y return, +8.94% alpha vs S&P).

Concern: Negative Sharpe ratio and 136% downside capture indicate poor risk‑adjusted performance.

Key Takeaways

Carter's delivers impressive headline returns but fails to translate them into favorable risk‑adjusted outcomes.
The stock’s volatility (36.64%) and deep historical drawdown (-76.09%) suggest a high probability of large capital losses in market downturns.
Downside capture exceeding 100% means the company magnifies broader market declines, while upside capture lags at 73.7%.
Investors with low to moderate risk tolerance should approach CRI cautiously or consider limiting exposure.

PORTFOLIO IMPLICATIONS

Given its high volatility and asymmetric downside profile, Carter's may serve as a satellite position for investors seeking return spikes but requiring strict position sizing and stop‑loss discipline. It pairs poorly with defensive assets that aim to reduce portfolio drawdowns, but could complement higher‑beta growth stocks if the overall portfolio beta is managed below 1.0. Portfolio construction should prioritize diversification across sectors and incorporate assets with positive Sharpe ratios to offset CRI’s negative risk‑adjusted performance.

CRI

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Report written 2026-06-07 • Finexus

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This report is generated by Finexus and is provided for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security.

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