CARTERS INCCRI
CARTERS INC Stock Compensation Disclosure
STOCK-BASED COMPENSATION
Under the Company’s Amended and Restated Equity Incentive Plan (the “ Equity Incentive Plan”), the Compensation Committee of the Board may award incentive stock options, stock appreciation rights, restricted stock (including time-based awards, performance-based awards, and market-based awards), stock awards, and stock deliverable on a deferred basis (including restricted stock units).
As of January 3, 2026, the maximum number of shares available under the Equity Incentive Plan was 18,778,392, and there were 1,336,742 remaining shares available for grant under the Equity Incentive Plan. The Equity Incentive Plan makes a provision for the treatment of awards upon termination of service or in the case of a merger or similar corporate transaction. Participation in the Equity Incentive Plan is limited to members of the Company’s Board, executive officers and other key employees.
The limit on shares available under the Equity Incentive Plan, the individual limits, and other award terms are subject to adjustment to reflect stock splits or stock dividends, combinations, and certain other events. All stock options issued under the Equity Incentive Plan expire no later than ten years from the date of grant. The Company periodically evaluates the sufficiency of shares available for issuance under the Plan and may seek shareholder approval to increase shares available for future grants, as needed.
The Company recorded stock-based compensation cost as follows:
| Fiscal year ended | |||||||||||||||||
| (dollars in thousands) | January 3, 2026 | December 28, 2024 | December 30, 2023 | ||||||||||||||
| Restricted stock: | |||||||||||||||||
Time-based awards(1) | $ | 16,907 | $ | 16,388 | $ | 17,243 | |||||||||||
Performance-based awards(2) | 975 | (935) | 670 | ||||||||||||||
| Market-based awards | 766 | 788 | — | ||||||||||||||
| Stock awards | 1,600 | 1,600 | 1,550 | ||||||||||||||
| Total | $ | 20,248 | $ | 17,841 | $ | 19,463 | |||||||||||
(1)Fiscal 2025 includes accelerated vesting of outstanding time-based restricted stock awards related to the retirement of our former CEO.
(2)During fiscal 2024, the revision of performance target estimates resulted in a reversal of previously recognized stock-based compensation expense for outstanding performance-based awards.
Stock Options
Stock options vest in equal annual installments over a four-year period. The Company issues new shares to satisfy stock option exercises. There were no stock options granted in fiscal 2025, 2024, and 2023.
Changes in the Company’s stock options for the fiscal year ended January 3, 2026 were as follows:
| Number of shares | Weighted- average exercise price | Weighted-average remaining contractual terms (years) | Aggregate intrinsic value (in thousands) | ||||||||||||||||||||
| Outstanding, December 28, 2024 | 389,026 | $ | 96.47 | ||||||||||||||||||||
| Expired | (259,455) | $ | 94.46 | ||||||||||||||||||||
Outstanding, January 3, 2026(*) | 129,571 | $ | 100.51 | 1.31 | $ | — | |||||||||||||||||
(*)All outstanding stock options were fully vested and exercisable as of January 3, 2026.
There were no stock options granted or exercised during the fiscal year ended January 3, 2026. The intrinsic value of stock options exercised during the fiscal years ended December 28, 2024 and December 30, 2023 was $0.1 million, and $0.3 million, respectively.
Restricted Stock Awards
Restricted stock awards issued under the Plan vest based upon: 1) continued service (time-based) 2) a combination of continued service and performance targets (performance-based) or 3) a combination of continued service and market-based conditions (market-based).
The following table summarizes activity related to all restricted stock awards during the fiscal year ended January 3, 2026:
| Restricted stock awards | Weighted-average grant date fair value per award | ||||||||||
| Outstanding, December 28, 2024 | 822,651 | $ | 81.31 | ||||||||
| Granted | 791,501 | $ | 34.97 | ||||||||
| Vested | (305,638) | $ | 75.80 | ||||||||
| Forfeited | (292,461) | $ | 71.13 | ||||||||
| Outstanding, January 3, 2025 | 1,016,053 | $ | 49.80 | ||||||||
During fiscal 2024, a total of 254,244 shares of restricted stock vested with a weighted-average fair value of $89.57 per share. During fiscal 2023, a total of 184,803 shares of restricted stock vested with a weighted-average fair value of $91.84 per share.
At January 3, 2026, there was $24.4 million of unrecognized compensation cost (net of estimated forfeitures) related to all restricted stock awards, which is expected to be recognized over a weighted-average period of approximately 2.7 years.
Time-based Restricted Stock Awards
| Fiscal year | Number of awards granted | Weighted-average grant date fair value per award | ||||||||||||
| 2023 | 272,509 | $ | 73.80 | |||||||||||
| 2024 | 266,539 | $ | 77.00 | |||||||||||
| 2025 | 649,011 | $ | 37.94 | |||||||||||
Time-based restricted stock awards vest in equal annual installments or cliff vest after a three-year or four-year period. During fiscal years 2025, 2024, and 2023, a total of 261,548 shares, 254,244 shares, and 184,803 shares, respectively, of time-based restricted stock vested with a weighted-average fair value of $82.58 per share, $89.57 per share, and $91.84 per share, respectively. At January 3, 2026, there was $22.7 million of unrecognized compensation cost (net of estimated forfeitures) related to time-based restricted stock awards, which is expected to be recognized over a weighted-average period of approximately 2.7 years.
On April 3, 2025, the Company granted 98,400 shares of time-based restricted stock to Douglas C. Palladini in connection with his appointment as CEO and President of the Company and a member of the Board. The grant-date fair value of the awards was based on the closing price of the Company’s stock on the grant date, which was $35.57.
Performance-based Restricted Stock Awards
| Fiscal year | Number of awards granted | Weighted-average grant date fair value per award | ||||||||||||
| 2023 | 112,284 | $ | 74.06 | |||||||||||
| 2024 | 55,089 | $ | 81.95 | |||||||||||
| 2025 | — | $ | — | |||||||||||
Performance-based restricted stock awards cliff vest after a three-year period, subject to the achievement of the performance target. During the fiscal years 2025, 2024, and 2023, no performance shares vested. As of January 3, 2026, a total of 133,559 performance shares were unvested with a weighted-average fair value of $76.59 per share. As of January 3, 2026, there was $0.4 million unrecognized compensation cost (net of estimated forfeitures) related to the unvested performance-based restricted
stock awards, which is expected to be recognized over a weighted-average period of approximately 1.0 year. The Company recognizes compensation cost ratably over the applicable performance periods based on the estimated probability of achievement of its performance targets at the end of each period.
Market-based Restricted Stock Awards
| Fiscal year | Number of awards granted | Weighted-average grant date fair value per award | ||||||||||||
| 2024 | 28,375 | $ | 117.28 | |||||||||||
| 2025 | 98,400 | $ | 14.79 | |||||||||||
During the fiscal years 2025 and 2024, no market-based restricted stock awards vested. As of January 3, 2026, a total of 120,497 market-based restricted stock awards were unvested with a weighted-average fair value of $33.58 per share. As of January 3, 2026, there was $1.3 million unrecognized compensation cost (net of estimated forfeitures) related to the unvested market-based restricted stock awards based which is expected to be recognized over a weighted-average period of approximately 1.9 years.
2024 Awards
The market-based restricted stock awards cliff vest after a three-year period, subject to the performance of the Company’s TSR relative to the TSR of a select group of peer companies over the three-year period.
A Monte-Carlo simulation was utilized to determine the grant-date fair value of the market-based restricted stock awards in fiscal 2024, using the following assumptions: beginning TSR price of $73.60, grant-date share price of $81.95, simulation term of 3 years, expected volatility of 32.9%, and risk-free interest rate of 4.5%.
2025 Awards
On April 3, 2025, the Company granted 98,400 shares of market-based restricted stock awards to Douglas C. Palladini in connection with his appointment as CEO and President of the Company and a member of the Board. The market-based restricted stock awards issued to Mr. Palladini are eligible to be earned upon achieving share price hurdles for 20 consecutive trading days over a three-year period, starting on the award grant date. The share price hurdles were set based on growth rates of 30%, 60%, and 90% above the closing stock price on grant date, which was $35.57. One-third of the award will be earned upon achievement of each of the applicable share price hurdles, but no earned shares will vest until the end of the three-year period, subject to Mr. Palladini’s continued employment through the end of the three-year period.
A Monte-Carlo simulation was utilized to determine the grant-date fair value of the market-based restricted stock awards in fiscal 2025, using the following assumptions: beginning share price (based on 20-trading day average closing price as of grant date) of $41.25, grant-date share price of $35.57, simulation term of 3 years, expected volatility of 35.9%, and risk-free interest rate of 3.7%.
Stock Awards
Included in restricted stock awards are grants to non-management members of the Company’s Board. At issuance, these awards were fully vested and issued as shares of the Company’s common stock. The Company records the stock-based compensation expense immediately as there are no vesting terms. During fiscal years 2025, 2024, and 2023, such awards were as follows:
| Fiscal year | Number of shares issued | Weighted-average grant date fair value per share | ||||||||||||
| 2023 | 23,850 | $ | 65.01 | |||||||||||
| 2024 | 22,930 | $ | 69.78 | |||||||||||
| 2025 | 44,090 | $ | 36.29 | |||||||||||
The Company received no proceeds from the issuance of these shares.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.