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Moody’s may be regretting singling out Carter’s (CRI) as an exception to its negative outlook for the apparel industry. Last week, we quoted Moody’s as saying:

“A well-executed retail strategy can turn a profit, grow the business, and increase market share. Our upgrade of Carter’s rating in September partly reflected the company’s sustained same-store sales growth and margin expansion in its retail business, even in the recession.” [ Analysts at BMO Capital Markets initiated coverage of Carter on Oct 28 with an "outperform" rating. Analysts at Sterne Agee upgraded the company from "neutral" to "buy" on Oct 4.]

Now Moody’s has placed the company on review for possible downgrade.

Carter’s Inc. on Nov. 10 announced a delay in its 10-Q filing and restatements of its prior period financial statements, an ongoing review of the company’s treatment of margin support payments, and the nondisclosure of such margin payments to the company’s finance team.

Standard & Poor’s placed Carter’s ‘BB+’ long-term corporate credit rating and ‘BBB’ senior secured debt ratings on CreditWatch with negative implications.

We are concerned about Carter’s ability to remain in compliance with its bank loan covenants and uncertainty surrounding the materiality of any findings in the investigations. – S&P

However, Margaret Whitfield, senior analyst at Sterne Agee & Leach, supports Moody’s underlying view.”The restatement and the filing of the 10 Q may be weeks away, hopefully in December, but it could possibly drag into the New Year,” she said. adding that Carter’s “underlying business is quite healthy and that the issues related to the mark down accommodations which may involve restatements detract from what is going on with the company overall.”

Source: Carter's Placed on Ratings Watch After Restatements