(Adds details, analysts' comments)
By Aditi Samajpati
BANGALORE, Feb 27 (Reuters) - Children's clothing retailer Carter's Inc (CRI.N) said it expects lower first-quarter earnings on continued weakness in its OshKosh retail stores, triggering a 23 percent fall in its shares.
Consumer sentiment faltered over the fourth quarter, and the company said its own expectations for 2008 are muted as all of its customers, such as department stores and apparel retailers, have warned of a weak year ahead.
"This is a tougher market than I remember and it's $101 for a barrel of oil and the mortgage rates are very difficult and it's an election year," Chief Executive Fred Rowan said in a conference call.
Carter's sees low single-digit growth in 2008, and said performance in the first two quarters will be weaker than planned, due to spring line cancellations and lower re-orders expected from department stores.
The Atlanta-based company sees most of the growth to come in the second half of 2008 and earnings for the fiscal to be flat year-over-year.
Carter's, which posted disappointing fourth-quarter profits on Tuesday, said difficult business conditions would continue and sales will be flat in the first quarter.
The company had earned 16 cents a share on revenue of $320.1 million in the first quarter last year. On an adjusted basis, it had earned 22 cents a share.
Analysts on average were expecting earnings of 24 cents a share on revenue of $337.6 million, according to Reuters Estimates.
OshKosh, which accounted for about a quarter of the company's sales last year and was bought by Carter's in July 2005 for about $320 million, has weighed on the company's profitability throughout last year.
While macro issues have hurt the brand, most of its troubles are self-inflicted, Carter's said.
The stores are struggling with poor product and delayed turnaround, Marie Driscoll, retail analyst at Standard & Poor's Equity Research, said in an e-mail. Driscoll downgraded Carter's to "hold" from "buy" and lowered her price target on the stock to $20 from $25.
OshKosh sells clothing and accessories for children, with the bulk of its business being in the two-to-seven year age group.
Monness, Crespi, Hardt & Co analyst Jim Chartier said OshKosh products are priced too high and the colors and artwork the company used in 2007 were more appropriate for older customers.
"The things that are weighing us down will continue to be OshKosh. So when we start to see better performance from OshKosh, then that will make the performance better," Finance Chief Mike Casey said.
In the fourth quarter, Carter's faced problems of higher costs related to inventory disposal and markdowns. Analyst Chartier said since the company is planning sales conservatively now, the need for markdowns should be reduced.
Carter's posted a profit of $28.6 million, or 48 cents a share, on sales of $393.4 million. Excluding items, earnings were 45 cents a share. Analysts had expected 50 cents a share on revenue of $389.3 million.
Carter's, which sells its Child of Mine brand to Wal-Mart Stores Inc (WMT.N) and Just One Year brand to Target Corp (TGT.N), is also likely to see moderating revenue growth in these segments following three years of rapid growth, Banc of America analyst Robert Ohmes said.
The company's shares were off more than 20 percent and lagged the Dow Jones U.S. Clothing & Accessories index .DJUSCF which was about flat in afternoon trade.
Carter's stock, which has fallen nearly 7 percent over the last one year before Wednesday's losses, shed $5.17 to trade at $17.04 and was the top loser on New York Stock Exchange. (Additional reporting by Vikram Subhedar; Editing by Anil D'Silva)