10-Q 1 cato-20240504.htm FORM 10Q cato-20240504
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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
 
20549
FORM
10-Q
QUARTERLY REPORT PURSUANT
 
TO SECTION
 
13 OR 15(d)
 
OF THE SECURITIES
 
EXCHANGE
 
ACT OF
1934
For the quarterly period ended
May 4, 2024
OR
TRANSITION
 
REPORT PURSUANT
 
TO SECTION
 
13 OR 15(d)
 
OF THE SECURITIES
 
EXCHANGE
 
ACT OF
1934
For the transition period from ________________to__________________
Commission file number
 
1-31340
 
THE CATO CORPORATION
(Exact name of registrant as specified in its
 
charter)
Delaware
56-0484485
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8100 Denmark Road
,
Charlotte
,
North Carolina
28273-5975
(Address of principal executive offices)
(Zip Code)
(
704
)
554-8510
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
 
changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A - Common Stock, par value $.033 per share
CATO
New York Stock Exchange
Indicate
 
by check
 
mark
 
whether
 
the
 
registrant
 
(1)
 
has
 
filed
 
all
 
reports
 
required
 
to
 
be
 
filed
 
by Section
 
13
 
or
 
15(d)
 
of
 
the
 
Securities
Exchange Act of 1934
 
during the preceding 12
 
months (or for such shorter
 
period that the registrant
 
was required to file such
 
reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
Indicate
 
by
 
check
 
mark
 
whether
 
the
 
registrant
 
has
 
submitted
 
electronically
 
every
 
Interactive
 
Data
 
File
 
required
 
to
 
be
 
submitted
pursuant to Rule
 
405 of Regulation
 
S-T during the
 
preceding 12 months
 
(or for such
 
shorter period
 
that the registrant
 
was required to
submit and post such files).
Yes
X
No
Indicate
 
by
 
check
 
mark
 
whether
 
the
 
registrant
 
is
 
a
 
large
 
accelerated
 
filer, an
 
accelerated
 
filer, a
 
non-accelerated
 
filer,
 
smaller reporting
company,
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“smaller
 
reporting
company,” and “emerging growth
 
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If
 
an
 
emerging
 
growth
 
company,
 
indicate
 
by
 
check
 
mark
 
if
 
the
 
registrant
 
has
 
elected
 
not
 
to
 
use
 
the
 
extended
 
transition
 
period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b
 
-2 of the Exchange Act).
As of
 
May 4,
 
2024, there
 
were
18,791,732
 
shares of Class A
 
common stock
 
and
1,763,652
 
shares of
 
Class B common stock
 
outstanding.
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended May 4, 2024
Table
 
of Contents
Page No.
PART
 
I – FINANCIAL INFORMATION
 
(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income and Comprehensive Income
2
For the Three Months Ended
 
May 4, 2024 and April 29, 2023
Condensed Consolidated Balance Sheets
3
At May 4, 2024 and
 
February 3, 2024
 
Condensed Consolidated Statements of Cash Flows
4
For the Three Months Ended May 4, 2024 and
 
April 29, 2023
Condensed Consolidated Statements of Stockholders’ Equity
5
For the Three Months Ended May 4, 2024 and
 
April 29, 2023
Notes to Condensed Consolidated Financial Statements
6 - 19
Item 2.
Management’s Discussion and Analysis
 
of Financial Condition and Results
of Operations
20 - 26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.
Controls and Procedures
27
PART
 
II – OTHER INFORMATION
Item 1.
Legal Proceedings
28
Item 1A.
Risk Factors
28
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 3.
Defaults Upon Senior Securities
28
Item 4.
Mine Safety Disclosures
29
Item 5.
Other Information
29
Item 6.
Exhibits
29
Signatures
30
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I FINANCIAL INFORMATION
ITEM 1.
 
FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
May 4, 2024
April 29, 2023
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
175,272
$
190,311
 
Other revenue (principally finance charges, late fees and
 
layaway charges)
1,827
1,739
 
Total revenues
177,099
192,050
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of depreciation shown below)
112,505
122,087
 
Selling, general and administrative (exclusive of depreciation
 
shown below)
56,752
61,934
 
Depreciation
2,040
2,357
 
Interest and other income
(5,821)
(897)
 
Costs and expenses, net
165,476
185,481
Income before income taxes
11,623
6,569
Income tax expense
649
2,141
Net income
$
10,974
$
4,428
Basic earnings per share
$
0.54
$
0.22
Diluted earnings per share
$
0.54
$
0.22
Comprehensive income:
Net income
$
10,974
$
4,428
Unrealized gain (loss) on available-for-sale securities, net
 
 
of deferred income taxes of $0 and $
107
(748)
355
 
for the three months ended May 4, 2024 and April 29, 2023,
 
respectively
Comprehensive income
$
10,226
$
4,783
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
May 4, 2024
February 3, 2024
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
39,101
$
23,940
Short-term investments
 
66,250
79,012
Restricted cash
3,533
3,973
Accounts receivable, net of allowance for customer credit losses of
 
$
671
 
and $
705
 
at May 4, 2024 and February 3, 2024, respectively
31,716
29,751
Merchandise inventories
 
101,317
98,603
Prepaid expenses and other current assets
7,724
7,783
 
Total Current Assets
 
249,641
243,062
Property and equipment – net
 
64,568
64,022
Other assets
 
23,305
25,047
Right-of-Use assets – net
 
139,635
154,686
 
Total Assets
 
$
477,149
$
486,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
86,966
$
87,821
Accrued expenses
 
38,490
37,404
Accrued bonus and benefits
 
2,023
1,675
Accrued income taxes
 
518
-
Current lease liability
55,800
61,108
 
Total Current Liabilities
 
183,797
188,008
Other noncurrent liabilities
14,607
14,475
Lease liability
81,834
92,013
Stockholders' Equity:
Preferred stock, $
100
 
par value per share,
100,000
 
shares
 
authorized,
none
 
issued
-
-
Class A common stock, $
0.033
 
par value per share,
50,000,000
 
shares authorized;
18,791,732
 
and
18,802,742
 
shares issued
 
at May 4, 2024 and February 3, 2024, respectively
635
635
Convertible Class B common stock, $
0.033
 
par value per share,
 
15,000,000
 
shares authorized;
1,763,652
 
shares issued at May 4, 2024 and February 3, 2024
59
59
Additional paid-in capital
 
127,058
126,953
Retained earnings
 
69,512
64,279
Accumulated other comprehensive income (loss)
(353)
395
 
Total Stockholders' Equity
 
196,911
192,321
 
Total Liabilities and Stockholders’ Equity
 
$
477,149
$
486,817
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(UNAUDITED)
Three Months Ended
May 4, 2024
April 29, 2023
(Dollars in thousands)
Operating Activities:
Net income
$
10,974
$
4,428
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
2,040
2,357
Provision for customer credit losses
171
98
Purchase premium and premium amortization of investments
(136)
(18)
Gain on sale of assets held for investment
(4,093)
-
Share-based compensation
(38)
958
Deferred income taxes
-
(832)
Loss (Gain) on disposal of property and equipment
65
(33)
Changes in operating assets and liabilities which provided (used) cash:
 
Accounts receivable
(1,836)
(1,793)
 
Merchandise inventories
(2,714)
5,243
 
Prepaid and other assets
27
(618)
 
Operating lease right-of-use assets and liabilities
(435)
(532)
 
Accrued income taxes
518
2,066
 
Accounts payable, accrued expenses and other liabilities
1,163
(1,429)
Net cash provided by operating activities
5,706
9,895
Investing Activities:
Expenditures for property and equipment
 
(3,261)
(6,170)
Purchase of short-term investments
(8,572)
(5,914)
Sales of short-term investments
21,413
27,421
Sales of other assets
5,034
-
Net cash provided by investing activities
14,614
15,337
Financing Activities:
Dividends paid
(3,523)
(3,455)
Repurchase of common stock
(2,237)
(2,267)
Proceeds from employee stock purchase plan
161
166
Net cash used by financing activities
(5,599)
(5,556)
Net increase in cash, cash equivalents, and restricted cash
14,721
19,676
Cash, cash equivalents, and restricted cash at beginning of period
27,913
23,792
Cash, cash equivalents, and restricted cash at end of period
 
$
42,634
$
43,468
Non-cash activity:
Accrued other assets and property and equipment expenditures
$
491
$
644
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income (Loss)
Equity
(Dollars in thousands)
Balance — February 3, 2024
$
694
$
126,953
$
64,279
$
395
$
192,321
Comprehensive income:
 
Net income
-
-
10,974
-
10,974
 
Unrealized net gains on available-for-sale securities, net of deferred
 
 
income tax benefit of $0
-
-
-
(748)
(748)
Dividends paid ($
0.17
 
per share)
-
-
(3,523)
-
(3,523)
Class A common stock sold through employee stock purchase
 
plan
1
189
-
-
190
Share-based compensation issuances and exercises
13
-
5
-
18
Share-based compensation expense
-
(84)
-
-
(84)
Repurchase and retirement of treasury shares
(14)
-
(2,223)
-
(2,237)
Balance — May 4, 2024
$
694
$
127,058
$
69,512
$
(353)
$
196,911
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income (Loss)
Equity
(Dollars in thousands)
Balance — January 28, 2023
$
691
$
122,431
$
104,709
$
(1,238)
$
226,593
Comprehensive income:
 
Net income
-
-
4,428
-
4,428
 
Unrealized net losses on available-for-sale securities, net of deferred
 
 
income tax expense of $
107
-
-
-
355
355
Dividends paid ($
0.17
 
per share)
-
-
(3,455)
-
(3,455)
Class A common stock sold through employee stock purchase
 
plan
-
195
-
-
195
Share-based compensation issuances and exercises
-
-
3
-
3
Share-based compensation expense
-
929
-
-
929
Repurchase and retirement of treasury shares
(8)
-
(2,259)
-
(2,267)
Balance — April 29, 2023
$
683
$
123,555
$
103,426
$
(883)
$
226,781
See notes to condensed consolidated financial statements (unaudited).
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
6
 
NOTE 1 - GENERAL
:
The
 
condensed
 
consolidated
 
financial
 
statements
 
as
 
of
 
May
 
4,
 
2024
 
and
 
for
 
the
 
thirteen-week
 
periods
ended
 
May
 
4,
 
2024
 
and
 
April
 
29,
 
2023
 
have
 
been
 
prepared
 
from
 
the
 
accounting
 
records
 
of
 
The
 
Cato
Corporation and
 
its wholly-owned
 
subsidiaries (the
 
“Company”), and
 
all amounts
 
shown are
 
unaudited.
 
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial
statements
 
have been
 
included.
 
All such
 
adjustments are
 
of a
 
normal, recurring
 
nature unless
 
otherwise
noted.
 
The results of the interim period may not be indicative of the results expected
 
for the entire year.
The interim financial
 
statements should be read
 
in conjunction with
 
the consolidated financial statements
and
 
notes
 
thereto,
 
included
 
in
 
the
 
Company’s
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
the
 
fiscal
 
year
 
ended
February 3, 2024.
 
Amounts as of February 3, 2024 have been derived from the audited balance sheet, but
do not include all disclosures required by
 
accounting principles generally accepted in the United States of
America.
On February 16, 2024, the Company closed on the sale of land held for investment.
 
The sale resulted in a
net
 
gain
 
of
 
$
3.2
 
million
 
and
 
is
 
included
 
in
 
Interest
 
and
 
other
 
income
 
in
 
the
 
accompanying
 
Condensed
Consolidated Statements of Income and Comprehensive Income
 
for the period ended May 4, 2024.
On May 23, 2024, the Board of Directors maintained the quarterly dividend at
 
$
0.17
 
per share.
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
7
 
NOTE 2 - EARNINGS PER SHARE:
Accounting Standard Codification (“ASC”) 260 –
Earnings Per Share
 
requires dual presentation of basic and
diluted Earnings Per Share
 
(“EPS”) on the face of
 
all income statements for
 
all entities with complex
 
capital
structures.
 
The Company has presented one basic EPS and one diluted EPS amount for all common shares in
the accompanying
 
Condensed Consolidated
 
Statements of
 
Income and
 
Comprehensive Income.
 
While the
Company’s certificate
 
of incorporation
 
provides the
 
right for
 
the Board of
 
Directors to
 
declare dividends
 
on
Class
 
A
 
shares
 
without
 
declaration
 
of
 
commensurate
 
dividends
 
on
 
Class
 
B
 
shares,
 
the
 
Company
 
has
historically paid the same dividends to both Class A and Class B shareholders and the
 
Board of Directors has
resolved to continue this practice.
 
Accordingly, the Company’s allocation of income for purposes of the EPS
computation is the same
 
for Class A and
 
Class B shares and
 
the EPS amounts reported
 
herein are applicable
to both Class A and Class B
 
shares.
Basic
 
EPS
 
is
 
computed
 
as
 
net
 
income
 
less
 
earnings
 
allocated
 
to
 
non-vested
 
equity
 
awards
 
divided
 
by
 
the
weighted average
 
number of
 
common shares
 
outstanding for
 
the period.
 
Diluted EPS
 
reflects the
 
potential
dilution
 
that
 
could
 
occur
 
from
 
common
 
shares
 
issuable
 
through
 
stock
 
options
 
and
 
the
 
Employee
 
Stock
Purchase Plan.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
May 4, 2024
April 29, 2023
(Dollars in thousands)
Numerator
Net earnings
$
10,974
$
4,428
Earnings allocated to non-vested equity awards
(557)
(227)
Net earnings available to common stockholders
$
10,417
$
4,201
Denominator
Basic weighted average common shares outstanding
19,356,789
19,303,048
Diluted weighted average common shares outstanding
19,356,789
19,303,048
Net income per common share
Basic earnings per share
$
0.54
$
0.22
Diluted earnings per share
$
0.54
$
0.22
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
8
 
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:
The
 
following
 
table
 
sets
 
forth
 
information
 
regarding
 
the
 
reclassification
 
out
 
of
 
Accumulated
 
other
comprehensive income (loss) (in thousands) for
 
the three months ended May 4,
 
2024:
 
 
 
 
 
 
Changes in Accumulated Other
 
Comprehensive Income (Loss) (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 3, 2024
$
395
 
Other comprehensive income (loss) before
 
 
reclassification
(1,434)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
686
Net current-period other comprehensive income (loss)
(748)
Ending Balance at May 4, 2024
$
(353)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive
income.
(b) Includes $
892
 
impact of Accumulated other comprehensive income reclassifications into Interest and other
 
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
206
.
The
 
following
 
table
 
sets
 
forth
 
information
 
regarding
 
the
 
reclassification
 
out
 
of
 
Accumulated
 
other
comprehensive income (loss) (in thousands) for
 
the three months ended April 29,
 
2023:
 
 
 
 
 
 
Changes in Accumulated Other
 
Comprehensive Income (Loss) (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 28, 2023
$
(1,238)
 
Other comprehensive income (loss) before
 
 
reclassification
355
Net current-period other comprehensive income (loss)
355
Ending Balance at April 29, 2023
$
(883)
(a) All amounts are net-of-tax.
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
9
 
NOTE 4 – FINANCING ARRANGEMENTS:
At
 
May
 
4,
 
2024,
 
the
 
Company
 
had
 
an
 
unsecured
 
revolving
 
credit
 
agreement,
 
which
 
provides
 
for
borrowings of
 
up to
 
$
35.0
 
million less
 
the balance
 
of any
 
revocable letters
 
of credit
 
related to
 
purchase
commitments,
 
and
 
is
 
committed
 
through
 
May
 
2027.
 
The
 
credit
 
agreement
 
contains
 
various
 
financial
covenants and
 
limitations, including
 
the maintenance
 
of specific
 
financial ratios.
 
On April
 
25, 2024,
 
the
Company
 
amended
 
the
 
revolving
 
credit
 
agreement
 
to
 
modify
 
a
 
definition
 
used
 
in
 
calculating
 
the
Company’s
 
minimum EBITDAR
 
coverage ratio
 
to
 
add back
 
certain
 
income tax
 
receivables included
 
in
the calculation of
 
the ratio. For
 
the quarter ended
 
May 4, 2024,
 
after giving effect
 
to the
 
amendment, the
Company was
 
in compliance
 
with the
 
credit agreement.
 
There were
no
 
borrowings outstanding,
no
r any
outstanding
 
letters
 
of
 
credit
 
that
 
reduced
 
borrowing
 
availability,
 
as
 
of
 
May
 
4,
 
2024.
 
The
 
weighted
average interest rate under the credit facility was
zero
 
at May 4, 2024 due to
no
 
outstanding borrowings.
 
 
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The
 
Company
 
has
 
determined
 
that
 
it
 
has
four
 
operating
 
segments,
 
as
 
defined
 
under
 
ASC
 
280
 
Segment
Reporting
, including Cato,
 
It’s Fashion, Versona
 
and Credit.
 
As outlined in
 
ASC 280-10, the Company
 
has
two
 
reportable segments: Retail and Credit.
 
The Company has aggregated its
three
 
retail operating segments,
including
 
e-commerce,
 
based
 
on the
 
aggregation
 
criteria
 
outlined in
 
ASC
 
280-10, which
 
states that
 
two
 
or
more operating segments may be aggregated into a single reportable segment if aggregation is consistent with
the
 
objective
 
and
 
basic
 
principles
 
of
 
ASC
 
280-10,
 
which
 
require
 
the
 
segments
 
to
 
have
 
similar
 
economic
characteristics, products, production processes, clients and
 
methods of distribution.
 
The
 
Company’s
 
retail
 
operating
 
segments
 
have
 
similar
 
economic
 
characteristics
 
and
 
similar
 
operating,
financial and
 
competitive risks.
 
The products
 
sold in each
 
retail operating
 
segment are
 
similar in
 
nature, as
they
 
all
 
offer
 
women’s
 
apparel,
 
shoes
 
and
 
accessories.
 
Merchandise
 
inventory
 
of
 
the
 
Company’s
 
retail
operating
 
segments
 
is
 
sourced
 
from
 
the
 
same
 
countries
 
and
 
some
 
of
 
the
 
same
 
vendors,
 
using
 
similar
production processes.
 
Merchandise for the Company’s retail operating segments is distributed to retail stores
in
 
a
 
similar
 
manner
 
through
 
the
 
Company’s
 
single
 
distribution
 
center
 
and
 
is
 
subsequently
 
distributed
 
to
customers in a similar manner.
 
The
 
Company
 
operates
 
its
 
women’s
 
fashion
 
specialty
 
retail
 
stores
 
in
31
 
states
 
as
 
of
 
May
 
4,
 
2024,
principally in
 
the southeastern
 
United States.
 
The Company offers its own credit
 
card to its customers and
all credit authorizations,
 
payment processing and
 
collection efforts are
 
performed by separate
 
wholly-owned
subsidiaries of the Company.
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
10
NOTE 5 – REPORTABLE SEGMENT INFORMATION
 
(CONTINUED):
The following schedule summarizes certain segment
 
information (in thousands):
 
 
 
Three Months Ended
May 4, 2024
Retail
Credit
Total
Revenues
$176,430
$669
$177,099
Depreciation
2,040
-
2,040
Interest and other income
(5,821)
-
(5,821)
Income before taxes
11,374
249
11,623
Capital expenditures
3,261
-
3,261
Three Months Ended
April 29, 2023
Retail
Credit
Total
Revenues
$191,434
$616
$192,050
Depreciation
2,357
-
2,357
Interest and other income
(897)
-
(897)
Income before taxes
6,382
187
6,569
Capital expenditures
6,170
-
6,170
Retail
Credit
Total
Total assets as of May 4, 2024
$438,371
$38,778
$477,149
Total assets as of February 3, 2024
448,488
38,329
486,817
The
 
Company
 
evaluates
 
segment
 
performance
 
based
 
on
 
income
 
before
 
taxes.
 
The
 
Company
 
does
 
not
allocate certain corporate expenses or
 
income taxes to the credit segment.
The following schedule
 
summarizes the direct
 
expenses of the
 
credit segment which
 
are reflected in
 
Selling,
general and administrative expenses (in
 
thousands):
 
 
 
 
 
Three Months Ended
May 4, 2024
April 29, 2023
Payroll
$
153
$
134
Postage
102
101
Other expenses
165
194
Total expenses
$
420
$
429
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
11
 
NOTE 6 – SHARE BASED COMPENSATION:
As
 
of
 
May
 
4,
 
2024,
 
the
 
Company
 
had
 
the
 
2018
 
Incentive
 
Compensation
 
Plan
 
for
 
the
 
granting
 
of
 
various
forms of equity-based awards,
 
including restricted stock
 
and stock options for
 
grant to officers, directors
 
and
key employees.
 
The
 
following
 
table
 
presents
 
the
 
number
 
of
 
options
 
and
 
shares
 
of
 
restricted
 
stock
 
initially
 
authorized
 
and
available for grant under this plan as
 
of May 4, 2024:
 
 
2018
Plan
Options and/or restricted stock initially authorized
4,725,000
Options and/or restricted stock available for grant
2,760,305
In
 
accordance
 
with
 
ASC
 
718
 
Compensation–Stock Compensation
,
 
the
 
fair
 
value
 
of
 
current
 
restricted
stock awards
 
is estimated
 
on the
 
date of
 
grant based
 
on the
 
market price
 
of the
 
Company’s
 
stock and
 
is
amortized to compensation expense on a
 
straight-line basis over the related vesting periods.
 
As of May 4,
2024
 
and
 
February 3,
 
2024,
 
there
 
was
 
$
11,103,000
 
and
 
$
9,334,000
,
 
respectively,
 
of
 
total
 
unrecognized
compensation
 
expense
 
related
 
to
 
unvested
 
restricted
 
stock
 
awards,
 
which
 
had
 
a
 
remaining
 
weighted-
average vesting period of
3.0
 
years and
2.1
 
years, respectively.
 
The total compensation benefit during the
three months ended
 
May 4, 2024
 
was $
66,000
 
compared to an
 
expense of $
932,000
 
for the three
 
months
ended
 
April
 
29,
 
2023.
 
This
 
compensation activity
 
is
 
classified
 
as
 
a
 
component of
 
Selling,
 
general
 
and
administrative expenses in the Condensed Consolidated Statements of Income.
The following summary
 
shows the changes
 
in the number
 
of shares of
 
unvested restricted stock
 
outstanding
during
 
the three months ended May
 
4, 2024:
 
 
 
 
Weighted
Average
Number of
Grant Date Fair
Shares
Value
 
Per Share
Restricted stock awards at February 3, 2024
1,123,873
$
11.32
Granted
389,900
4.76
Vested
(232,696)
13.22
Forfeited or expired
(2,812)
11.81
Restricted stock awards at May 4, 2024
1,278,265
$
8.97
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
12
NOTE 6 – SHARE BASED COMPENSATION (CONTINUED):
The
 
Company’s
 
Employee
 
Stock
 
Purchase
 
Plan
 
allows
 
eligible
 
full-time
 
employees
 
to
 
purchase
 
a
 
limited
number of
 
shares
 
of the
 
Company’s
 
Class
 
A
 
Common Stock
 
during each
 
semi-annual offering
 
period
 
at
 
a
15
% discount
 
through payroll
 
deductions. During
 
the three
 
months ended
 
May 4,
 
2024 and
 
April 29,
 
2023,
the
 
Company
 
sold
33,317
 
and
22,194
 
shares
 
to
 
employees
 
at
 
an
 
average
 
discount
 
of
 
$
0.86
 
and
 
$
1.32
 
per
share, respectively, under
 
the Employee Stock
 
Purchase Plan. The
 
compensation expense recognized
 
for the
15
%
 
discount
 
given
 
under
 
the
 
Employee
 
Stock
 
Purchase
 
Plan
 
was
 
approximately
 
$
29,000
 
for
 
each
 
of
 
the
three
 
months
 
ended
 
May
 
4,
 
2024
 
and
 
April
 
29,
 
2023.
 
These
 
expenses
 
are
 
classified
 
as
 
a
 
component
 
of
Selling, general and administrative expenses in
 
the Condensed Consolidated Statements of Income.
 
NOTE 7
 
– FAIR VALUE MEASUREMENTS:
The following
 
tables
 
set forth
 
information regarding
 
the
 
Company’s financial
 
assets
 
and
 
liabilities that
 
are
measured at fair value (in thousands)
 
as of May 4, 2024 and
 
February 3, 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
May 4, 2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
11,477
$
-
$
11,477
$
-
 
Corporate Bonds
43,290
-
43,290
-
 
U.S. Treasury/Agencies Notes and Bonds
9,873
-
9,873
-
 
Cash Surrender Value of Life Insurance
8,749
-
-
8,749
 
Asset-backed Securities (ABS)
1,610
-
1,610
-
 
Corporate Equities
139
139
-
-
Total Assets
$
75,138
$
139
$
66,250
$
8,749
Liabilities:
 
Deferred Compensation
$
(8,662)
$
-
$
-
$
(8,662)
Total Liabilities
$
(8,662)
$
-
$
-
$
(8,662)
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
13
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
February 3,
2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
12,540
$
-
$
12,540
$
-
 
Corporate Bonds
45,400
-
45,400
-
 
U.S. Treasury/Agencies Notes and Bonds
18,114
-
18,114
-
 
Cash Surrender Value of Life Insurance
8,586
-
-
8,586
 
Asset-backed Securities (ABS)
2,958
-
2,958
-
 
Corporate Equities
1,084
1,084
-
-
Total Assets
$
88,682
$
1,084
$
79,012
$
8,586
Liabilities:
 
Deferred Compensation
$
(8,654)
$
-
$
-
$
(8,654)
Total Liabilities
$
(8,654)
$
-
$
-
$
(8,654)
The Company’s
 
investment portfolio
 
was primarily
 
invested in
 
corporate bonds and
 
tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at May 4, 2024
and February 3, 2024.
 
The state, municipal and corporate bonds and asset-backed securities have contractual
maturities
 
which
 
range
 
from
seven days
 
to
3.0
 
years.
 
The
 
U.S.
 
Treasury/Agencies
 
Notes
 
and
 
Bonds
 
have
contractual maturities which range from
2
 
months to
1.8
 
years. These securities are classified as
 
available-for-
sale
 
and
 
are
 
recorded
 
as
 
Short-term
 
investments
 
and
 
Other
 
assets
 
on
 
the
 
accompanying
 
Condensed
Consolidated Balance Sheets. These
 
assets are carried
 
at fair value
 
with unrealized gains and
 
losses reported
net of
 
taxes in
 
Accumulated other
 
comprehensive income.
 
The asset-backed
 
securities are
 
bonds comprised
of auto loans and
 
bank credit cards that
 
carry AAA ratings. The
 
auto loan asset-backed securities
 
are backed
by static pools of auto loans that were originated and serviced
 
by captive auto finance units, banks or finance
companies.
 
The
 
bank
 
credit
 
card
 
asset-backed
 
securities
 
are
 
backed
 
by
 
revolving
 
pools
 
of
 
credit
 
card
receivables
 
generated
 
by
 
account
 
holders
 
of
 
cards
 
from
 
American
 
Express,
 
Citibank,
 
JPMorgan
 
Chase,
Capital One, and Discover.
Additionally, at May 4, 2024, the Company had $
0.1
 
million of corporate equities and deferred compensation
plan assets
 
of $
8.7
 
million.
 
At February
 
3, 2024,
 
the Company
 
had $
1.1
 
million of
 
corporate equities
 
and
deferred compensation plan assets
 
of $
8.6
 
million. All of these
 
assets are recorded within Other
 
assets in the
Condensed Consolidated Balance Sheets.
 
Level 1 category securities are measured
 
at fair value using quoted active
 
market prices.
 
Level 2 investment
securities
 
include
 
corporate
 
and
 
municipal
 
bonds
 
for
 
which
 
quoted
 
prices
 
may
 
not
 
be
 
available
 
on
 
active
exchanges
 
for
 
identical
 
instruments.
 
Their
 
fair
 
value
 
is
 
principally
 
based
 
on
 
market
 
values
 
determined
 
by
management with
 
the assistance
 
of a
 
third-party pricing
 
service.
 
Since quoted
 
prices in
 
active markets
 
for
identical assets are
 
not available, these
 
prices are determined
 
by the pricing
 
service using observable
 
market
information
 
such
 
as
 
quotes
 
from
 
less
 
active
 
markets
 
and/or
 
quoted
 
prices
 
of
 
securities
 
with
 
similar
characteristics, among other factors.
Deferred compensation plan
 
assets consist of
 
life insurance policies.
 
These life insurance
 
policies are valued
based on the cash surrender value of the insurance contract, which is determined based on
 
such factors as the
fair value of the underlying assets and discounted cash flow and are therefore classified within
 
Level 3 of the
valuation
 
hierarchy.
 
The
 
Level
 
3
 
liability
 
associated
 
with
 
the
 
life
 
insurance
 
policies
 
represents
 
a
 
deferred
compensation obligation,
 
the value
 
of which
 
is tracked
 
via underlying
 
insurance funds’
 
net asset
 
values, as
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
14
 
recorded
 
in
 
Other
 
noncurrent
 
liabilities
 
in
 
the
 
Condensed
 
Consolidated
 
Balance
 
Sheet.
 
These
 
funds
 
are
designed to mirror mutual funds and money
 
market funds that are observable and
 
actively traded.
 
The
 
following
 
tables
 
summarize
 
the
 
change
 
in
 
fair
 
value
 
of
 
the
 
Company’s
 
financial
 
assets
 
and
 
liabilities
measured using Level 3 inputs as of
 
May 4, 2024 and February 3,
 
2024 (dollars in thousands):
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
15
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at February 3, 2024
$
8,586
Redemptions
-
Additions
-
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
163
Ending Balance at May 4, 2024
$
8,749
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 3, 2024
$
(8,654)
 
Redemptions
253
 
Additions
(63)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
(198)
Ending Balance at May 4, 2024
$
(8,662)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
9,274
Redemptions
(1,168)
Additions
-
 
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
480
Ending Balance at February 3, 2024
$
8,586
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
(8,903)
 
Redemptions
1,119
 
Additions
(292)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
(578)
Ending Balance at February 3, 2024
$
(8,654)
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
16
 
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
In
 
November
 
2023,
 
the
 
Financial
 
Accounting
 
Standards
 
Board
 
(“FASB”)
 
issued
 
Accounting
 
Standards
Update
 
(“ASU”)
 
2023-07,
 
“Segment
 
Reporting
 
(Topic
 
280):
 
Improvements
 
to
 
Reportable
 
Segment
Disclosures”,
 
which
 
modifies
 
disclosure
 
requirements
 
for
 
all
 
public
 
entities
 
that
 
are
 
required
 
to
 
report
segment
 
information.
 
The update
 
will change
 
the
 
reporting of
 
segments by
 
adding
 
significant
 
segment
expenses, other segment items, title
 
and position of the chief
 
operating decision maker (“COD”) and how
the
 
COD uses
 
the
 
reported measures
 
to
 
make decisions.
 
The
 
update also
 
requires all
 
annual disclosure
about
 
a reportable
 
segment’s
 
profit or
 
loss and
 
assets in
 
interim periods.
 
This
 
guidance is
 
effective for
fiscal
 
years
 
beginning
 
after
 
December
 
15,
 
2023
 
and
 
interim
 
periods
 
within
 
fiscal
 
years
 
beginning
 
after
December
 
15,
 
2024.
 
Early
 
adoption
 
is
 
permitted,
 
and
 
the
 
guidance
 
is
 
applicable
 
retrospectively
 
to
 
all
prior periods presented in the financial statements.
 
The Company is currently in the process of evaluating
the potential impact
 
of adoption of this
 
new guidance on its
 
consolidated financial statements and
 
related
disclosures.
In
 
December
 
2023,
 
the
 
FASB
 
issued
 
ASU
 
2023-09,
 
“Income
 
Taxes
 
(Topic
 
740):
 
Improvements
 
to
Income
 
Tax
 
Disclosures”,
 
which
 
modifies
 
the
 
requirements
 
on
 
income
 
tax
 
disclosures
 
to
 
require
disaggregated
 
information
 
about
 
a
 
reporting
 
entity’s
 
effective
 
tax
 
rate
 
reconciliation
 
as
 
well
 
as
information on
 
income taxes
 
paid.
 
This guidance
 
is effective
 
for fiscal
 
years beginning
 
after December
15, 2024 for all public
 
business entities, with early adoption and retrospective application
 
permitted.
 
The
Company is
 
currently in
 
the process
 
of evaluating
 
the potential
 
impact of
 
adoption of
 
this new
 
guidance
on its consolidated financial statements and related disclosures.
 
 
NOTE 9 – INCOME TAXES:
The Company had
 
an effective tax
 
rate for the
 
first quarter of
 
2024 of
5.6
% compared to
 
an effective tax
rate of
32.6
% for the
 
first quarter of
 
2023.
 
Income tax expense
 
for the quarter
 
decreased to $
0.6
 
million
in 2024
 
from $
2.1
 
million in
 
2023. The
 
decrease in tax
 
expense is
 
primarily due to
 
valuation allowances
against net deferred tax assets
 
attributable to U.S. federal net
 
operating loss carryforwards and the impact
of the foreign rate differential and lower state income taxes.
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
17
 
 
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
including
 
litigation
 
regarding
 
the
 
merchandise
 
that
 
it
 
sells,
 
litigation
 
regarding
 
intellectual
 
property,
litigation instituted
 
by persons
 
injured upon
 
premises under
 
its control,
 
litigation with
 
respect to
 
various
employment
 
matters,
 
including
 
alleged
 
discrimination and
 
wage
 
and
 
hour
 
litigation,
 
and
 
litigation
 
with
present or former employees.
 
Although such
 
litigation is
 
routine and
 
incidental to
 
the conduct
 
of the
 
Company’s business,
 
as with
 
any
business
 
of
 
its
 
size
 
with
 
a
 
significant
 
number
 
of
 
employees
 
and
 
significant
 
merchandise
 
sales,
 
such
litigation could
 
result in
 
large
 
monetary awards.
 
Based on
 
information currently
 
available, management
does
 
not
 
believe
 
that
 
any
 
reasonably
 
possible
 
losses
 
arising
 
from current
 
pending litigation
 
will
 
have a
material adverse
 
effect
 
on its
 
condensed consolidated
 
financial statements.
 
However,
 
given the
 
inherent
uncertainties
 
involved
 
in
 
such
 
matters,
 
an
 
adverse
 
outcome
 
in
 
one
 
or
 
more
 
of
 
such
 
matters
 
could
materially and adversely affect the Company’s
 
financial condition, results of operations and cash flows in
any
 
particular
 
reporting
 
period.
 
The
 
Company
 
accrues
 
for
 
these
 
matters
 
when
 
the
 
liability
 
is
 
deemed
probable and reasonably estimable.
 
NOTE 11 – REVENUE RECOGNITION:
The
 
Company
 
recognizes
 
sales
 
at
 
the
 
point
 
of
 
purchase
 
when
 
the
 
customer
 
takes
 
possession
 
of
 
the
merchandise
 
and
 
pays
 
for
 
the
 
purchase,
 
generally
 
with
 
cash
 
or
 
credit.
 
Sales
 
from
 
purchases
 
made
 
with
Cato
 
credit,
 
gift
 
cards
 
and
 
layaway
 
sales
 
from
 
stores
 
are
 
also
 
recorded
 
when
 
the
 
customer
 
takes
possession of
 
the merchandise. E-commerce
 
sales are
 
recorded when the
 
risk of
 
loss is
 
transferred to the
customer.
 
Gift cards
 
are recorded
 
as deferred
 
revenue until they
 
are redeemed
 
or forfeited.
 
Gift cards
 
do
not have expiration dates. Layaway transactions are recorded as
 
deferred revenue until the customer takes
possession or
 
forfeits the
 
merchandise. A
 
provision is
 
made for
 
estimated merchandise
 
returns based
 
on
sales
 
volumes
 
and
 
the
 
Company’s
 
experience;
 
actual
 
returns
 
have
 
not
 
varied
 
materially
 
from
 
historical
amounts.
 
A
 
provision
 
is
 
made
 
for
 
estimated
 
write-offs
 
associated
 
with
 
sales
 
made
 
with
 
the
 
Company’s
proprietary
 
credit
 
card.
 
Amounts
 
related
 
to
 
shipping
 
and
 
handling
 
billed
 
to
 
customers
 
in
 
a
 
sales
transaction are
 
classified as
 
Other revenue
 
and the
 
costs related
 
to shipping
 
product to
 
customers (billed
and accrued) are classified as Cost of goods sold.
The Company
 
offers its
 
own proprietary
 
credit card
 
to customers.
 
All credit
 
activity is
 
performed by
 
the
Company’s
 
wholly-owned subsidiaries.
No
ne
 
of the
 
credit card
 
receivables are
 
secured.
 
The
 
Company
estimated customer credit
 
losses of $
171,000
 
and $
121,000
 
for the periods
 
ended May 4,
 
2024 and
 
April
29, 2023,
 
respectively,
 
on sales
 
purchased by
 
the Company’s
 
proprietary credit
 
card of
 
$
5.7
 
million and
$
5.8
 
million for the periods ended May 4, 2024 and April 29, 2023, respectively.
The
 
following
 
table
 
provides
 
information
 
about
 
receivables
 
and
 
contract
 
liabilities
 
from
 
contracts
 
with
customers (in thousands):
 
 
 
 
Balance as of
May 4, 2024
February 3, 2024
Proprietary Credit Card Receivables, net
$
10,972
$
10,909
Gift Card Liability
$
6,849
$
8,143
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
18
 
NOTE 12 – LEASES:
The
 
Company determines
 
whether
 
an
 
arrangement
 
is
 
a
 
lease
 
at
 
inception.
 
The
 
Company
 
has
 
operating
leases for
 
stores, offices,
 
warehouse space
 
and equipment. Its
 
leases have
 
remaining lease terms
 
of up
 
to
10 years
, some of which
 
include options to extend
 
the lease term for
up to five years
, and some of
 
which
include
 
options
 
to
 
terminate
 
the
 
lease
within one year
.
 
The
 
Company
 
considers
 
these
 
options
 
in
determining
 
the
 
lease term
 
used
 
to
 
establish its
 
right-of-use assets
 
and lease
 
liabilities. The
 
Company’s
lease agreements do not contain any material residual value guarantees or material
 
restrictive covenants.
As
 
most
 
of
 
the
 
Company’s
 
leases
 
do
 
not
 
provide
 
an
 
implicit
 
rate,
 
the
 
Company
 
uses
 
its
 
estimated
incremental
 
borrowing
 
rate
 
based
 
on
 
the
 
information
 
available
 
at
 
commencement
 
date
 
of
 
the
 
lease
 
in
determining the present value of lease payments.
The components of lease cost are shown below (in thousands):
 
 
 
 
`
Three Months Ended
May 4, 2024
April 29, 2023
Operating lease cost (a)
$
17,002
$
18,078
Variable
 
lease cost (b)
$
497
$
594
(a) Includes right-of-use asset amortization of ($
0.2
) million and ($
0.3
) million for the three months ended
May 4, 2024 and April 29, 2023, respectively.
(b) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
19
NOTE 12 – LEASES (CONTINUED):
Supplemental cash flow
 
information and non-cash
 
activity related to
 
the Company’s
 
operating leases are
as follows (in thousands):
 
 
 
Operating cash flow information:
Three Months Ended
May 4, 2024
April 29, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
15,607
$
17,345
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
444
$
1,904
Weighted-average
 
remaining
 
lease
 
term
 
and
 
discount
 
rate
 
for
 
the
 
Company’s
 
operating
 
leases
 
are
 
as
follows:
 
 
 
As of
May 4, 2024
April 29, 2023
Weighted-average remaining lease term
2.1
 
Years
2.2
 
Years
Weighted-average discount rate
4.65%
3.20%
As of May 4, 2024, the maturities of lease liabilities by fiscal year for the Company’s
 
operating leases are
as follows (in thousands):
 
 
 
 
 
Fiscal Year
2024 (a)
$
49,240
2025
45,261
2026
29,329
2027
16,591
2028
7,784
Thereafter
690
Total lease payments
148,895
Less: Imputed interest
11,261
Present value of lease liabilities
$
137,634
(a) Excluding the 3 months ended May 4, 2024.
 
 
 
 
20
THE CATO CORPORATION
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The
 
following
 
information
 
should
 
be
 
read
 
along
 
with
 
the
 
unaudited
 
Condensed
 
Consolidated
 
Financial
Statements,
 
including
 
the
 
accompanying
 
Notes
 
appearing
 
in
 
this
 
report.
 
Any
 
of
 
the
 
following
 
are
“forward-looking”
 
statements
 
within
 
the
 
meaning
 
of
 
Section 27A
 
of
 
the
 
Securities
 
Act
 
of
 
1933,
 
as
amended,
 
and
 
Section 21E
 
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934,
 
as
 
amended:
 
(1) statements
 
in
 
this
Form 10-Q
 
that
 
reflect
 
projections
 
or
 
expectations
 
of
 
our
 
future
 
financial
 
or
 
economic
 
performance;
(2) statements
 
that
 
are
 
not
 
historical
 
information;
 
(3) statements
 
of
 
our
 
beliefs,
 
intentions,
 
plans
 
and
objectives for future operations,
 
including those contained in
 
“Management’s Discussion and
 
Analysis of
Financial Condition and
 
Results of Operations”;
 
(4) statements relating to
 
our operations or
 
activities for
our
 
fiscal
 
year
 
ending
 
February
 
1,
 
2025
 
(“fiscal
 
2024”)
 
and
 
beyond,
 
including,
 
but
 
not
 
limited
 
to,
statements regarding expected
 
amounts of
 
capital expenditures and
 
store openings, relocations,
 
remodels
and closures, and
 
statements regarding the
 
potential impact of
 
supply chain disruptions,
 
extreme weather
conditions,
 
inflationary
 
pressures
 
and
 
other
 
economic
 
or
 
market
 
conditions
 
on
 
our
 
business,
 
results
 
of
operations and financial condition and
 
statements of plans or
 
intentions regarding new store development
or
 
store
 
closures;
 
and
 
(5) statements
 
relating
 
to
 
our
 
future
 
contingencies.
 
When
 
possible,
 
we
 
have
attempted to identify forward-looking statements
 
by using words such
 
as “will,” “expects,” “anticipates,”
“approximates,” “believes,” “estimates,” “hopes,” “intends,”
 
“may,” “plans,”
 
“could,” “would,” “should”
and
 
any
 
variations
 
or
 
negative
 
formations
 
of
 
such
 
words
 
and
 
similar
 
expressions.
 
We
 
can
 
give
 
no
assurance
 
that actual
 
results or
 
events
 
will not
 
differ
 
materially
 
from those
 
expressed or
 
implied in
 
any
such
 
forward-looking
 
statements.
 
Forward-looking
 
statements
 
included
 
in
 
this
 
report
 
are
 
based
 
on
information available
 
to us
 
as of
 
the filing
 
date of
 
this report,
 
but subject
 
to known
 
and unknown
 
risks,
uncertainties and other factors that could cause actual results
 
to differ materially from those contemplated
by the forward-looking statements.
 
Such factors include, but
 
are not limited to,
 
the following: any actual
or
 
perceived
 
deterioration
 
in,
 
or
 
continuation
 
of
 
negative
 
trends
 
in,
 
the
 
conditions
 
that
 
drive
 
consumer
confidence and
 
spending, including,
 
but
 
not limited
 
to, prevailing
 
social, economic,
 
political
 
and public
health conditions and
 
uncertainties, levels of
 
unemployment, fuel, energy
 
and food
 
costs, wage rates,
 
tax
rates, interest
 
rates, home
 
values, consumer
 
net worth,
 
the availability
 
of credit
 
and inflation;
 
changes in
laws,
 
regulations
 
or
 
government
 
policies
 
affecting
 
our
 
business,
 
including
 
but
 
not
 
limited
 
to
 
tariffs;
uncertainties regarding
 
the impact
 
of
 
any governmental
 
action regarding,
 
or
 
responses to,
 
the
 
foregoing
conditions;
 
competitive
 
factors
 
and
 
pricing
 
pressures;
 
our
 
ability
 
to
 
predict
 
and
 
respond
 
to
 
rapidly
changing
 
fashion
 
trends
 
and
 
consumer
 
demands;
 
our
 
ability
 
to
 
successfully
 
implement
 
our
 
new
 
store
development strategy to
 
increase new
 
store openings and
 
our ability of
 
any such
 
new stores
 
to grow
 
and
perform as
 
expected; underperformance
 
or
 
other factors
 
that may
 
lead
 
to,
 
or
 
affect
 
the volume
 
of,
 
store
closures; adverse
 
weather,
 
public health
 
threats (including
 
the global
 
COVID-19 pandemic),
 
acts of
 
war
or
 
aggression
 
or
 
similar
 
conditions
 
that
 
may
 
affect
 
our
 
merchandise
 
supply
 
chain,
 
sales
 
or
 
operations;
inventory
 
risks
 
due
 
to
 
shifts
 
in
 
market
 
demand,
 
including
 
the
 
ability
 
to
 
liquidate
 
excess
 
inventory
 
at
anticipated
 
margins;
 
adverse
 
developments
 
or
 
volatility
 
affecting
 
the
 
financial
 
services
 
industry
 
or
broader
 
financial
 
markets;
 
and
 
other
 
factors
 
discussed
 
under
 
“Risk
 
Factors”
 
in
 
Part
 
I,
 
Item
 
1A
 
of
 
our
annual
 
report
 
on
 
Form 10-K
 
for
 
the
 
fiscal
 
year
 
ended February
 
3,
 
2024
 
(“fiscal
 
2023”),
 
as
 
amended or
supplemented,
 
and in
 
other reports
 
we
 
file
 
with
 
or
 
furnish
 
to
 
the
 
Securities and
 
Exchange
 
Commission
(“SEC”)
 
from time
 
to
 
time.
 
We
 
do
 
not
 
undertake, and
 
expressly
 
decline,
 
any obligation
 
to
 
update
 
any
such forward-looking information contained
 
in this report,
 
whether as a
 
result of new
 
information, future
events, or otherwise.
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
21
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The
 
Company’s
 
critical
 
accounting
 
policies
 
and
 
estimates
 
are
 
more
 
fully
 
described
 
in
 
“Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in the
 
Company’s Annual Report
on
 
Form
 
10-K
 
for
 
the
 
fiscal
 
year
 
ended
 
February
 
3,
 
2024.
 
The
 
preparation
 
of
 
the
 
Company’s
 
financial
statements
 
in
 
conformity
 
with
 
generally
 
accepted
 
accounting
 
principles
 
in
 
the
 
United
 
States
 
(“GAAP”)
requires management to make estimates and assumptions about future events that affect the amounts reported
in
 
the
 
financial
 
statements
 
and
 
accompanying
 
notes.
 
Future
 
events
 
and
 
their
 
effects
 
cannot
 
be
 
determined
with absolute
 
certainty. Therefore,
 
the determination
 
of estimates
 
requires the
 
exercise of
 
judgment. Actual
results
 
inevitably
 
will
 
differ
 
from
 
those
 
estimates,
 
and
 
such
 
differences
 
may
 
be
 
material
 
to
 
the
 
financial
statements. The most significant accounting estimates
 
inherent in the preparation of the
 
Company’s financial
statements include
 
the calculation
 
of potential
 
asset impairment,
 
income tax
 
valuation allowances,
 
reserves
relating
 
to
 
self-insured
 
health
 
insurance,
 
workers’
 
compensation,
 
general
 
and
 
auto
 
insurance
 
liabilities,
uncertain tax positions, the allowance for
 
customer credit losses, and inventory shrinkage.
The Company’s critical accounting policies and
 
estimates are discussed with the Audit Committee.
 
 
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
22
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in
 
the Company's unaudited Condensed
Consolidated Statements of Income as a
 
percentage of total retail sales:
Three Months Ended
May 4, 2024
April 29, 2023
Total retail sales
100.0
%
100.0
%
Other revenue
1.0
0.9
Total revenues
101.0
100.9
Cost of goods sold (exclusive of depreciation)
64.2
64.2
Selling, general and administrative (exclusive of depreciation)
32.4
32.5
Depreciation
1.2
1.2
Interest and other income
(3.3)
(0.5)
Income before income taxes
6.6
3.5
Net income
6.3
2.3
 
 
 
 
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
23
RESULTS OF OPERATIONS
 
(CONTINUED):
Management’s
 
Discussion and
 
Analysis of
 
Financial Condition
 
and Results
 
of Operations
 
(“MD&A”) is
intended
 
to
 
provide
 
information
 
to
 
assist
 
readers
 
in
 
better
 
understanding
 
and
 
evaluating
 
our
 
financial
condition
 
and
 
results
 
of
 
operations.
 
We
 
recommend
 
reading
 
this
 
MD&A
 
in
 
conjunction
 
with
 
our
Condensed
 
Consolidated
 
Financial
 
Statements
 
and
 
the
 
Notes
 
to
 
those
 
statements
 
included
 
in
 
the
“Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our 2023
Annual Report
on Form 10-K.
Recent Developments
Inflationary Cost Pressure and High Interest Rates
The
 
pressure
 
on
 
our
 
customers’
 
disposable
 
income
 
continued
 
in
 
the
 
first
 
quarter
 
of
 
fiscal
 
2024,
 
due
 
to
prolonged and persistently high
 
inflation rates, especially related
 
to housing and
 
fuel, as well as
 
high interest
rates.
 
These high
 
interest rates
 
have adversely
 
affected the
 
availability and cost
 
of credit for
 
our customers,
including
 
revolving
 
credit
 
and
 
auto
 
loans,
 
and
 
continue
 
to
 
negatively
 
impact
 
our
 
customers’
 
disposable
income.
 
Our
 
customers’
 
willingness to
 
purchase
 
our
 
products
 
may
 
continue
 
to
 
be
 
negatively impacted
 
by
these inflationary pressures and high interest
 
rates.
We believe
 
continued inflation and
 
high interest
 
rates negatively
 
impacted the first
 
quarter of
 
2024 and
 
will
likely continue
 
to have
 
a negative
 
impact on
 
consumer behavior and,
 
by extension, our
 
results of operations
and financial condition during the remainder of
 
fiscal 2024.
Merchandise Supply Chain
A significant amount of our merchandise is
 
manufactured overseas, principally Southeast Asia,
 
and traverses
through the
 
Panama
 
Canal or
 
the
 
Suez
 
Canal.
 
The regional
 
drought conditions
 
experienced
 
in the
 
region
surrounding the
 
Panama Canal
 
reduced the
 
number of
 
transits by
 
approximately 37%
 
and has
 
also reduced
the
 
permissible
 
draft
 
of
 
vessels
 
transiting
 
the
 
Panama
 
Canal,
 
which
 
reduced
 
the
 
volume
 
and
 
number
 
of
containers carried by container
 
ships and increased our
 
costs in the first quarter.
 
During the second quarter,
the Panama
 
Canal authority
 
plans to increase
 
the daily
 
transits by
 
33% and
 
increase the
 
permissible draft
 
of
vessels depending on weather
 
conditions. The hostilities affecting
 
the region surrounding
 
the Suez Canal are
causing container
 
ships to
 
travel longer
 
distances around
 
the Cape
 
of Good
 
Hope, which
 
is increasing
 
lead
times for merchandise and our costs
 
to ship these goods as well as
 
decreasing the pool of containers available.
 
Both
 
of
 
these
 
situations
 
have
 
negatively
 
impacted
 
2024.
 
Though
 
conditions
 
in
 
the
 
Panama
 
Canal
 
could
incrementally improve
 
if weather
 
conditions allow
 
the easing
 
of existing
 
restrictions, we
 
believe the
 
totality
of these
 
conditions will
 
likely continue
 
to have
 
a negative
 
impact on
 
our results
 
of operations
 
and financial
condition for the foreseeable future.
Comparison of First Quarter of 2024
 
with 2023
Total retail sales for the first quarter
 
were $175.3 million compared to
 
last year’s first quarter sales of
 
$190.3
million.
 
Sales
 
decreased
 
primarily
 
due
 
to
 
a
 
decrease
 
in
 
same-store
 
sales
 
and
 
sales
 
from
 
stores
 
that
 
were
closed in the past 12 months, partially offset by sales from stores opened in the past 12
 
months. The decrease
in
 
same-store
 
sales
 
is
 
primarily
 
from
 
fewer
 
transactions
 
due
 
to
 
the
 
aforementioned
 
pressures
 
on
 
our
customers’ disposable income, as well
 
as lower average sales per transaction. Same
 
store sales include stores
that have been open
 
more than 15 months.
 
Stores that have been
 
relocated or expanded are
 
also included in
the same store
 
sales calculation after
 
they have been
 
open more than
 
15 months.
 
The method of
 
calculating
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
24
same store
 
sales
 
varies
 
across the
 
retail industry.
 
As a
 
result, our
 
same
 
store sales
 
calculation
 
may
 
not
 
be
comparable to similarly titled measures reported by
 
other companies. E-commerce sales were
 
less than 5.0%
of
 
sales
 
for
 
the
 
first
 
quarter
 
of
 
fiscal
 
2024
 
and
 
are
 
included
 
in
 
the
 
same-store
 
sales
 
calculation.
 
Total
revenues, comprised
 
of retail sales
 
and other revenue
 
(principally finance
 
charges and late
 
fees on
 
customer
accounts
 
receivable,
 
shipping
 
charged
 
to
 
customers
 
for
 
e-commerce
 
purchases
 
and
 
layaway
 
fees),
 
were
$177.1 million for the first quarter ended May 4, 2024, compared to $192.1 million for the first
 
quarter ended
April 29,
 
2023. The Company
 
operated 1,171
 
stores at May
 
4, 2024
 
compared to 1,264
 
stores at the
 
end of
last
 
fiscal
 
year’s
 
first
 
quarter.
 
For
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2024,
 
the
 
Company
 
permanently
 
closed
seven stores.
 
The Company currently anticipates closing approximately 75
 
stores in fiscal 2024.
Credit revenue of $0.7 million represented 0.4% of total revenues in the first quarter of fiscal 2024,
 
compared
to
 
2023
 
credit
 
revenue
 
of
 
$0.6
 
million
 
or
 
0.3%
 
of
 
total
 
revenues.
 
Credit
 
revenue
 
is
 
comprised
 
of
 
interest
earned on the Company’s private label credit card portfolio and related fee income.
 
Related expenses include
principally payroll, postage and
 
other administrative expenses, and
 
totaled $0.4 million in
 
the first quarter of
2024, compared to last year’s
 
first quarter expenses of $0.4 million.
 
Other revenue, a component of
 
total revenues, was $1.8 million for the first
 
quarter of fiscal 2024, compared
to $1.7
 
million for the
 
prior year’s
 
comparable first
 
quarter.
 
The slight increase
 
was due
 
to higher
 
gift card
breakage income and late charges, partially
 
offset by lower e-commerce shipping revenue
 
and layaway fees.
Cost of goods
 
sold was $112.5
 
million, or 64.2%
 
of retail sales for
 
the first quarter of
 
fiscal 2024, compared
to
 
$122.1
 
million,
 
or
 
64.2%
 
of
 
retail
 
sales
 
in
 
the
 
first
 
quarter
 
of
 
fiscal
 
2023.
 
Cost
 
of
 
goods
 
sold
 
includes
merchandise costs (net of discounts and
 
allowances), buying costs, distribution costs, occupancy costs,
 
freight
and
 
inventory
 
shrinkage.
 
Net
 
merchandise
 
costs
 
and
 
in-bound
 
freight
 
are
 
capitalized
 
as
 
inventory
 
costs.
 
Buying
 
and
 
distribution
 
costs
 
include
 
payroll,
 
payroll-related
 
costs
 
and
 
operating
 
expenses
 
for
 
the
 
buying
departments and distribution center.
 
Occupancy costs include rent, real estate taxes, insurance, common area
maintenance, utilities and maintenance for stores
 
and distribution facilities.
 
Total gross margin dollars (retail
sales
 
less
 
cost
 
of
 
goods
 
sold
 
exclusive
 
of
 
depreciation)
 
decreased
 
by
 
8.0%
 
to
 
$62.8
 
million
 
for
 
the
 
first
quarter of fiscal 2024 compared to $68.2 million in the first quarter of fiscal 2023.
 
Gross margin as presented
may not be comparable to
 
those of other entities.
Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related
payroll taxes and benefits, insurance, supplies, advertising,
 
and bank and credit card processing fees.
 
SG&A
expenses were
 
32.4% of
 
retail sales for
 
the first
 
quarter of
 
fiscal 2024,
 
compared to
 
32.5% of
 
retail sales
 
in
the first quarter of fiscal 2023. SG&A expense is lower in the first quarter of fiscal 2024 compared
 
to the first
quarter of fiscal
 
2023 primarily due
 
to lower equity
 
compensation, advertising and
 
store expenses, including
payroll, partially offset by an increase
 
in insurance expense.
Depreciation expense was $2.0 million, or 1.2% of retail sales for the first quarter of fiscal 2024, compared to
$2.4 million, or
 
1.2% of retail
 
sales for the
 
first quarter of
 
fiscal 2023. The
 
decrease in depreciation
 
expense
was attributable to older stores being
 
fully depreciated.
Interest
 
and
 
other
 
income
 
was
 
$5.8
 
million,
 
or
 
3.3%
 
of
 
retail
 
sales
 
for
 
the
 
first
 
quarter
 
of
 
fiscal
 
2024,
compared
 
to
 
$0.9
 
million,
 
or
 
0.5%
 
of
 
retail
 
sales
 
for
 
the
 
first
 
quarter
 
of
 
fiscal
 
2023.
 
The
 
increase
 
was
primarily due to a $3.2 million net
 
gain on sale of land held for
 
investment.
Income tax expense was 0.6 million or 0.4% of retail sales for the first quarter of fiscal 2024, compared to
income tax expense of 2.1 million, or 1.1% of retail sales
 
for the first quarter of fiscal 2023. The effective
 
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
25
income tax
 
rate for
 
the first
 
quarter of
 
fiscal 2024
 
was 5.6%
 
compared to
 
32.6%
 
for
 
the first
 
quarter of
2023.
 
The
 
decrease
 
in
 
tax
 
expense
 
is
 
primarily
 
due
 
to
 
the
 
valuation
 
allowance against
 
net
 
deferred
 
tax
assets
 
attributable
 
to
 
U.S.
 
federal
 
net
 
operating
 
loss
 
carryforwards
 
and
 
the
 
impact
 
of
 
the
 
foreign
 
rate
differential and lower state income taxes.
LIQUIDITY, CAPITAL
 
RESOURCES
 
AND MARKET
 
RISK:
 
The Company
 
believes that
 
its cash,
 
cash equivalents
 
and short-term
 
investments, together
 
with cash
 
flows
from operations
 
and borrowings available
 
under its revolving
 
credit agreement,
 
will be
 
adequate to fund
 
the
Company’s regular operating requirements and expected
 
capital expenditures for the next
 
12 months.
Cash
 
provided
 
by
 
operating
 
activities
 
for
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2024
 
was
 
primarily
 
generated
 
by
earnings
 
adjusted
 
for
 
depreciation
 
and
 
changes
 
in
 
working
 
capital.
 
The
 
decrease
 
in
 
cash
 
provided
 
of
 
$4.2
million
 
for
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2024
 
as
 
compared
 
to
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2023
 
was
primarily attributable to the relative change
 
in inventory from year-end to the
 
first quarter for both years and
 
a
decrease to first quarter 2024 net
 
income for non-operating gain on sale of
 
assets held for investment.
At May 4, 2024, the Company had working capital of $65.8 million compared to $55.1 million at February 3,
2024.
 
The increase is
 
primarily attributable to
 
an increase in
 
cash and cash
 
equivalents, inventory, accounts
receivable and lower current lease liability,
 
partially offset by lower short-term
 
investments.
At
 
May
 
4,
 
2024,
 
the
 
Company
 
had
 
an
 
unsecured
 
revolving
 
credit
 
agreement,
 
which
 
provides
 
for
borrowings of
 
up to
 
$35.0 million
 
less the
 
balance of
 
any revocable
 
letters of
 
credit related
 
to purchase
commitments,
 
and
 
is
 
committed
 
through
 
May
 
2027.
 
The
 
credit
 
agreement
 
contains
 
various
 
financial
covenants and
 
limitations, including
 
the maintenance
 
of specific
 
financial ratios.
 
On April
 
25, 2024,
 
the
Company
 
amended
 
the
 
revolving
 
credit
 
agreement
 
to
 
modify
 
a
 
definition
 
used
 
in
 
calculating
 
the
Company’s
 
minimum EBITDAR
 
coverage ratio
 
to
 
add back
 
certain
 
income tax
 
receivables included
 
in
the calculation of
 
the ratio. For
 
the quarter ended
 
May 4, 2024,
 
after giving effect
 
to the
 
amendment, the
Company was
 
in compliance
 
with the
 
credit agreement.
 
There were
 
no borrowings
 
outstanding, nor
 
any
outstanding
 
letters
 
of
 
credit
 
that
 
reduced
 
borrowing
 
availability,
 
as
 
of
 
May
 
4,
 
2024.
 
The
 
weighted
average interest rate under the credit facility was zero at May 4, 2024
 
due to no outstanding borrowings.
Expenditures
 
for
 
property
 
and
 
equipment
 
totaled
 
$3.3
 
million
 
in
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2024,
compared
 
to
 
$6.2
 
million
 
in
 
last
 
year’s
 
first
 
three
 
months.
 
The
 
decrease
 
in
 
expenditures
 
for
 
property
 
and
equipment
 
was
 
primarily
 
due
 
to
 
lower
 
capital
 
investments
 
in
 
information
 
technology
 
and
 
the
 
distribution
center, as well
 
as no new
 
store openings in
 
the first quarter
 
of fiscal 2024.
 
For the full
 
fiscal 2024 year,
 
the
Company expects
 
to invest
 
approximately $9.0
 
million in
 
capital expenditures,
 
including distribution
 
center
automation projects.
Net
 
cash
 
provided
 
by
 
investing
 
activities
 
totaled
 
$14.6
 
million
 
in
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2024
compared to $15.3 million provided in the comparable period of fiscal 2023. The decrease is primarily due
 
to
an increase in purchases of short-term investments and a decrease in sales of short-term investments, partially
offset by the sale of other
 
assets and a decrease in capital expenditures.
Net cash
 
used in
 
financing activities
 
totaled $5.6
 
million in
 
the first
 
three months
 
of fiscal
 
2024 and
 
fiscal
2023.
On May 23, 2024, the Board of
 
Directors maintained the quarterly dividend at
 
0.17 per share.
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
26
As
 
of
 
May
 
4,
 
2024,
 
the
 
Company
 
had
 
478,238
 
shares
 
remaining
 
in
 
open
 
authorizations
 
under
 
its
 
share
repurchase program.
The Company does not use
 
derivative financial instruments.
The Company’s
 
investment portfolio
 
was primarily
 
invested in
 
corporate bonds and
 
tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at May 4, 2024
and February 3, 2024.
 
The state, municipal and corporate bonds and asset-backed securities have contractual
maturities
 
which
 
range
 
from
 
seven
 
days
 
to
 
3.0
 
years.
 
The
 
U.S.
 
Treasury/Agencies
 
Notes
 
and
 
Bonds
 
have
contractual maturities which range from 2 months
 
to 1.8 years. These securities
 
are classified as available-for-
sale
 
and
 
are
 
recorded
 
as
 
Short-term
 
investments
 
and
 
Other
 
assets
 
on
 
the
 
accompanying
 
Condensed
Consolidated Balance Sheets. These
 
assets are carried
 
at fair value
 
with unrealized gains and
 
losses reported
net of
 
taxes in
 
Accumulated other
 
comprehensive income.
 
The asset-backed
 
securities are
 
bonds comprised
of auto loans and
 
bank credit cards that
 
carry AAA ratings. The
 
auto loan asset-backed securities
 
are backed
by static pools of auto loans that were originated and serviced
 
by captive auto finance units, banks or finance
companies.
 
The
 
bank
 
credit
 
card
 
asset-backed
 
securities
 
are
 
backed
 
by
 
revolving
 
pools
 
of
 
credit
 
card
receivables
 
generated
 
by
 
account
 
holders
 
of
 
cards
 
from
 
American
 
Express,
 
Citibank,
 
JPMorgan
 
Chase,
Capital One, and Discover.
Additionally, at May 4, 2024, the Company had $0.1 million of
 
corporate equities and deferred compensation
plan assets
 
of $8.7
 
million.
 
At February
 
3, 2024,
 
the Company
 
had $1.1
 
million of
 
corporate equities
 
and
deferred compensation plan assets
 
of $8.6 million. All
 
of these assets are recorded
 
within Other assets in
 
the
Condensed Consolidated Balance Sheets. See Note 7, Fair
 
Value Measurements.
RECENT ACCOUNTING PRONOUNCEMENTS:
 
See Note 8, Recent Accounting Pronouncements.
 
 
 
 
THE CATO CORPORATION
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
27
ITEM 3. QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK:
The
 
Company
 
is
 
subject
 
to
 
market
 
rate
 
risk
 
from
 
exposure
 
to
 
changes
 
in
 
interest
 
rates
 
related
 
to
 
its
financing, investing and
 
cash management activities,
 
but the Company
 
does not
 
believe such exposure
 
is
material.
ITEM 4. CONTROLS AND PROCEDURES:
We carried out an evaluation, with the
 
participation of our Principal Executive Officer and
 
Principal Financial
Officer,
 
of
 
the
 
effectiveness
 
of
 
our
 
disclosure
 
controls
 
and
 
procedures
 
as
 
of
 
May
 
4,
 
2024.
 
Based
 
on
 
this
evaluation, our Principal Executive Officer and Principal
 
Financial Officer concluded that, as of May
 
4, 2024,
our disclosure
 
controls and
 
procedures, as
 
defined in
 
Rule 13a-15(e),
 
under the
 
Securities Exchange
 
Act of
1934
 
(the
 
“Exchange
 
Act”),
 
were
 
effective
 
to
 
ensure
 
that
 
information
 
we
 
are
 
required
 
to
 
disclose
 
in
 
the
reports
 
that
 
we
 
file
 
or
 
submit
 
under
 
the
 
Exchange
 
Act
 
is
 
recorded,
 
processed,
 
summarized
 
and
 
reported
within the time periods
 
specified in the SEC’s
 
rules and forms and
 
that such information is
 
accumulated and
communicated to our management, including our Principal Executive Officer and Principal Financial Officer,
as appropriate to allow timely decisions
 
regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
No change in the Company’s internal control
 
over financial reporting (as defined in
 
Exchange Act Rule 13a-
15(f)) has occurred during the Company’s fiscal quarter ended May 4, 2024 that has
 
materially affected, or is
reasonably
 
likely
 
to
 
materially
 
affect,
 
the
 
Company’s
 
internal
 
control
 
over
 
financial
 
reporting.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
28
ITEM 1.
 
LEGAL PROCEEDINGS:
Not Applicable
ITEM 1A.
 
RISK FACTORS:
In addition to the other information
 
in this report, you should carefully
 
consider the factors discussed in
 
Part I,
“Item
 
1A.
 
Risk
 
Factors”
 
in
 
our
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
our
 
fiscal
 
year
 
ended
 
February
 
3,
 
2024.
 
These risks
 
could materially
 
affect our
 
business, financial
 
condition or
 
future results;
 
however, they
 
are not
the only risks we face.
 
Additional risks and uncertainties not currently known to
 
us or that we currently deem
to
 
be
 
immaterial
 
may
 
also
 
materially
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition
 
or
 
results
 
of
operations.
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS:
The following table summarizes the Company’s purchases of its common stock for the three months
ended May 4, 2024:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value)
 
of Shares that may
of Shares
Price Paid
Announced Plans or
Yet be Purchased
 
Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2024
-
$
-
-
March 2024
134,209
5.41
134,209
April 2024
297,206
5.05
297,206
Total
431,415
$
5.16
431,415
478,238
(1)
Prices include trading costs.
(2)
As of February
 
3, 2024, the
 
Company’s share
 
repurchase program had
 
909,653 shares remaining
in
 
open authorizations.
 
During
 
the
 
first
 
quarter
 
ended
 
May
 
4,
 
2024,
 
the
 
Company repurchased
and retired 431,415 shares under this program for approximately $2,227,608
 
or an average market
price of $5.16 per share.
 
As of May 4, 2024, the Company had 478,238 shares remaining in open
authorizations.
 
There is no specified expiration date for the Company’s repurchase program.
ITEM 3.
 
DEFAULTS
 
UPON SENIOR SECURITIES:
Not Applicable
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
29
ITEM 4.
 
MINE SAFETY DISCLOSURES:
No matters requiring disclosure.
ITEM 5.
 
OTHER INFORMATION:
During the
 
three months
 
ended May
 
4, 2024,
 
none of
 
the Company’s
 
directors or
 
officers (as
 
defined in
Rule 16a-1(f) of the
 
Securities Exchange Act of 1934,
 
as amended)
adopted
 
or
terminated
 
a “Rule10b5-1
trading arrangement” or
 
a “
non-Rule
10b5-1
 
trading arrangement” (as
 
such terms are
 
defined in Item
 
408
of Regulation S-K).
ITEM 6.
 
EXHIBITS:
 
Exhibit No.
Item
 
3.1
 
3.2
10.1*
 
31.1*
 
31.2*
 
32.1*
 
32.2*
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
 
Document
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase
 
Document
101.LAB
Inline XBRL Taxonomy Extension Label
 
Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
 
Document
104.1
Cover
 
Page
 
Interactive
 
Data
 
File
 
(Formatted
 
in
 
Inline
 
XBRL
 
and
contained in the Interactive Data Files submitted as Exhibit 101.1*)
 
* Submitted electronically herewith.
 
 
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
 
Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
 
authorized.
 
THE CATO
 
CORPORATION
May 30, 2024
/s/ John P.
 
D. Cato
Date
John P.
 
D. Cato
Chairman, President and
Chief Executive Officer
May 30, 2024
/s/ Charles D. Knight
Date
Charles D. Knight
 
Executive Vice President
Chief Financial Officer