Children's apparel firm Carter's has reported a 3.5% drop in third quarter profit as the cost of closing a distribution facility took its toll, but said performance was "better than expected" after sales rose in all channels.

Net income fell to US$33.4m, down from $34.6m in the same period last year. Excluding costs of closing a distribution facility, profit increased $0.2m the company said.

"Our third quarter performance was better than expected, particularly given the challenges of the current retail environment," said Michael D Casey, chief executive officer.

"We believe the strength of our brands and the significant value we are providing to our consumers will enable us to weather this difficult retail and economic period."

Net sales increased 6.2% to $436.4m for the period. Sales of the Carter's brands rose 6.6% to $341.0m, while OshKosh increased 4.8% to $95.4m.

Consolidated retail store sales increased 12.0% to $185.1m.

The company operates 234 Carter's and 163 OshKosh stores, and plans to open 19 Carter's and three OshKosh stores during the fourth quarter.

Sales to the mass channel, which consist of the Just One Year brand to Target and the Child of Mine brand to Wal-Mart, increased $9.1m, or 13.4%, to $76.7m.

Carter's wholesale sales increased $1.9m, or 1.3%, to $151.8m due to better product performance and higher demand, partially offset by the impact of cancelled orders from high credit risk customers.