CARTERS INCCRI
CARTERS INC Income Taxes Disclosure
INCOME TAXES
Provision for Income Taxes
The provision for income taxes consisted of the following:
| Fiscal year ended | |||||||||||||||||
| January 3, 2026 | December 28, 2024 | December 30, 2023 | |||||||||||||||
| (dollars in thousands) | (53 weeks) | (52 weeks) | (52 weeks) | ||||||||||||||
| Current tax provision: | |||||||||||||||||
| Federal | $ | 10,719 | $ | 33,397 | $ | 47,643 | |||||||||||
| State | 2,362 | 7,422 | 8,943 | ||||||||||||||
| Foreign | 9,119 | 10,903 | 13,756 | ||||||||||||||
| Total current provision | $ | 22,200 | $ | 51,722 | $ | 70,342 | |||||||||||
| Deferred tax (benefit) provision: | |||||||||||||||||
| Federal | $ | (16) | $ | (3,965) | $ | (148) | |||||||||||
| State | (444) | (25) | (512) | ||||||||||||||
| Foreign | 298 | (2,432) | 60 | ||||||||||||||
| Total deferred benefit | (162) | (6,422) | (600) | ||||||||||||||
| Total provision | $ | 22,038 | $ | 45,300 | $ | 69,742 | |||||||||||
The foreign portion of the tax provision substantially relates to the Company’s international operations in Canada, Hong Kong and Mexico, in addition to foreign tax withholdings related to the Company’s foreign royalty income.
The Company plans to repatriate undistributed earnings from Hong Kong and has provided for deferred income taxes related to these earnings. Since the current U.S. tax regime taxes foreign earnings in the year earned, taxes associated with repatriation are not material. Deferred income taxes have not been provided for undistributed foreign earnings from Canada or Mexico, or any additional outside basis difference inherent in all foreign entities, as these amounts continue to be indefinitely reinvested in foreign operations. Total undistributed earnings from the Company’s subsidiaries in Canada and Mexico amounted to $75.9 million. Unrecognized deferred tax liability related to undistributed earnings from the Company’s subsidiaries in Canada and Mexico is estimated to be approximately $3 million, based on applicable withholding taxes, levels of foreign income previously taxed in the U.S. and applicable foreign tax credit limitations. The Company accounts for the additional U.S. income tax on its foreign earnings under Global Intangible Low-Taxed Income (“GILTI”) as a period expense in the period in which additional tax is due.
The components of income before income taxes were as follows:
| Fiscal year ended | |||||||||||||||||
| January 3, 2026 | December 28, 2024 | December 30, 2023 | |||||||||||||||
| (dollars in thousands) | (53 weeks) | (52 weeks) | (52 weeks) | ||||||||||||||
| Domestic | $ | 48,915 | $ | 167,741 | $ | 240,627 | |||||||||||
| Foreign | 64,919 | 63,068 | 61,615 | ||||||||||||||
| Total | $ | 113,834 | $ | 230,809 | $ | 302,242 | |||||||||||
Effective Rate Reconciliation
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:
| Fiscal year ended | |||||||||||
| January 3, 2026 | |||||||||||
| (dollars in thousands) | % | $ | |||||||||
| Statutory federal income tax rate | 21.0 | % | $ | 23,902 | |||||||
State income taxes, net of federal income tax benefit(*) | 1.7 | % | 1,905 | ||||||||
| Impact of foreign operations | |||||||||||
| Hong Kong | |||||||||||
| Statutory tax rate difference between Hong Kong and U.S. | (2.5) | % | (2,799) | ||||||||
| Income excluded from Hong Kong tax base | (4.7) | % | (5,309) | ||||||||
| Mexico | |||||||||||
| Statutory tax rate difference between Mexico and U.S. | (0.3) | % | (377) | ||||||||
| Impact related to foreign currency | 1.9 | % | 2,201 | ||||||||
| Other | 0.6 | % | 644 | ||||||||
| Canada | |||||||||||
| Statutory tax rate difference between Canada and U.S. | 0.4 | % | 431 | ||||||||
| Withholding tax | 1.1 | % | 1,287 | ||||||||
| Other countries | 0.3 | % | 220 | ||||||||
| Impact of changes in cross border tax laws | |||||||||||
| Global intangible low-taxed income (“GILTI”) | 0.4 | % | 500 | ||||||||
| Foreign-derived intangible income (“FDII”) | (2.0) | % | (2,247) | ||||||||
| Tax credits | |||||||||||
| Foreign tax credits | (1.7) | % | (1,916) | ||||||||
| Other tax credits | (0.3) | % | — | (400) | |||||||
| Changes in unrecognized tax benefits | (0.5) | % | (557) | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Share-based payment awards | 2.7 | % | 3,030 | ||||||||
| Non-deductible officer’s compensation | 1.4 | % | 1,596 | ||||||||
| Other adjustments | (0.1) | % | (73) | ||||||||
| Total | 19.4 | % | $ | 22,038 | |||||||
(*)State tax expense primarily relates to California, New York, New Jersey, and Illinois.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows:
| Fiscal year ended | |||||||||||
| December 28, 2024 | December 30, 2023 | ||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal income tax benefit | 2.9 | % | 3.0 | % | |||||||
| Impact of foreign operations | (3.4) | % | (0.8) | % | |||||||
| Settlement of uncertain tax positions | (0.5) | % | (0.6) | % | |||||||
| Other | (0.4) | % | 0.5 | % | |||||||
| Total | 19.6 | % | 23.1 | % | |||||||
The Company and its subsidiaries file a consolidated United States federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions. In most cases, the Company is no longer subject to U.S. federal income tax examinations for years prior to fiscal 2022.
Income Taxes Paid
The components of cash income taxes paid (net of refunds) were as follows:
| Fiscal year ended | |||||
| (dollars in thousands) | January 3, 2026 | ||||
| U.S. federal | $ | 20,639 | |||
U.S. state and local(*) | 3,773 | ||||
| Foreign: | |||||
| Hong Kong | 5,813 | ||||
| Canada | 5,134 | ||||
| Mexico | 1,975 | ||||
| Other | 255 | ||||
| Total | $ | 37,589 | |||
(*)State taxes paid primarily relate to California, New York, Texas, and New Jersey.
Deferred Taxes
The following table reflects the Company’s calculation of the components of deferred tax assets and liabilities as of January 3, 2026 and December 28, 2024.
| (dollars in thousands) | January 3, 2026 | December 28, 2024 | |||||||||
| Deferred tax assets: | Assets (Liabilities) | ||||||||||
| Accounts receivable allowance | $ | 4,986 | $ | 4,321 | |||||||
| Inventory | 12,828 | 12,408 | |||||||||
| Accrued liabilities | 9,792 | 8,810 | |||||||||
| Equity-based compensation | 2,401 | 3,886 | |||||||||
| Deferred employee benefits | 3,105 | 3,062 | |||||||||
| Leasing liabilities | 133,157 | 128,904 | |||||||||
| Other | 4,778 | 5,078 | |||||||||
| Total deferred tax assets | 171,047 | 166,469 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation | (18,872) | (19,060) | |||||||||
| Leasing assets | (120,285) | (115,419) | |||||||||
| Tradenames and licensing agreements | (63,546) | (63,144) | |||||||||
| Other | (2,843) | (2,712) | |||||||||
| Total deferred tax liabilities | (205,546) | (200,335) | |||||||||
| Net deferred tax liability | $ | (34,499) | $ | (33,866) | |||||||
Amounts recognized in the consolidated balance sheets:
| (dollars in thousands) | January 3, 2026 | December 28, 2024 | |||||||||
| Assets (Liabilities) | |||||||||||
| Deferred tax assets | $ | 4,881 | $ | 4,344 | |||||||
| Deferred tax liabilities | (39,380) | (38,210) | |||||||||
| Net deferred tax liability | $ | (34,499) | $ | (33,866) | |||||||
Uncertain Tax Positions
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| (dollars in thousands) | |||||
| Balance at December 31, 2022 | $ | 7,093 | |||
| Additions based on tax positions related to fiscal 2023 | 1,545 | ||||
| Additions for prior year tax positions | — | ||||
| Reductions for lapse of statute of limitations | (2,373) | ||||
| Balance at December 30, 2023 | $ | 6,265 | |||
| Additions based on tax positions related to fiscal 2024 | 1,500 | ||||
| Additions for prior year tax positions | — | ||||
| Reductions for lapse of statute of limitations | (1,255) | ||||
| Balance at December 28, 2024 | $ | 6,510 | |||
| Additions based on tax positions related to fiscal 2025 | 750 | ||||
| Additions for prior year tax positions | 200 | ||||
| Reductions for lapse of statute of limitations | (1,277) | ||||
| Balance at January 3, 2026 | $ | 6,183 | |||
As of January 3, 2026, the Company had gross unrecognized tax benefits of $6.2 million, of which $5.3 million, if ultimately recognized, will affect the Company’s effective tax rate in the period settled. The Company has recorded tax positions for which the ultimate deductibility is more likely than not, but for which there is uncertainty about the timing of such deductions. Because of deferred tax accounting, changes in the timing of these deductions would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authorities.
The Company recognizes interest related to unrecognized tax benefits as a component of interest expense and penalties related to unrecognized tax benefits as a component of income tax expense. During fiscal 2025, fiscal 2024, and fiscal 2023, expense recorded on uncertain tax positions was not material. The Company had accrued interest on uncertain tax positions of $1.5 million and $1.6 million as of January 3, 2026 and December 28, 2024, respectively.About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.