(Adds analyst comments, updates share movement)
By Swagata Gupta
BANGALORE, April 23 (Reuters) - Children's clothing retailer Carter's Inc (CRI.N) cut its 2008 earnings outlook as it sees continued weakness in its OshKosh retail stores and consumer spending, sending its shares down to their lowest in more than three years.
The company, which also warned of a higher inventory, said it expects 2008 earnings to be down 5 percent or more.
In February, the company forecast 2008 earnings to be flat year-over-year. It had reported adjusted earnings of $1.37 a share and total net sales of $1.41 billion for 2007.
"It's no surprise that this remains an uncertain period. No one knows the depth of this recession or the timing of the recovery. Given that, it makes it very difficult to gather the market with any certainty," Chief Executive Fred Rowan said in a conference call.
Analysts on average were expecting earnings of $1.36 a share, before items, on revenue of $1.45 billion, according to Reuters Estimates.
OshKosh, which was bought by Carter's in July 2005, has weighed on the company's profitability throughout last year.
On Tuesday, Carter's reported better-than-expected first-quarter profit, but said sales of its OshKosh brand fell 11 percent to $62.8 million.
OshKosh might swing back to profitability in the second half of the year, Monness, Crespi & Hardt analyst Jim Chartier said.
The company had 229 Carter's stores and 163 OshKosh stores as of March 29. OshKosh sells clothing and accessories for children, with the bulk of its business being in the two-to-seven year age group.
Carter's had reduced prices, revamped its OshKosh stores, and pushed the sale of denim, which had been performing well, to make the brand profitable, Chartier said.
"....but if it doesn't work, the company would sell their brand and cut their losses," he added.
The Atlanta-based company, which sells its Child of Mine brand to Wal-Mart Stores Inc (WMT.N) and Just One Year brand to Target Corp (TGT.N), said second-quarter inventories may trend higher and could be up 15 percent to 20 percent mid-year.
Carter's expects inventories to be up about 4 percent to 6 percent at the end of the year.
The company's shares, which had fallen to a low of $13.12 earlier, pared some losses and were down 13 percent at $13.69 in afternoon trade. The stock was one of the top percentage losers on the New York Stock Exchange.
"It is a great buying opportunity for the long-term shareholders," Chartier, who has a "buy" rating on the stock, said. (Editing by Deepak Kannan)