10-K 1 cato20210130.htm FORM 10-K cato20210130
728 762 FALSE 2021 --01-29 0000018255 FY No No Yes Yes 0000018255 2020-02-02 2021-01-30 0000018255 2019-02-03 2020-02-01 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-02-03 2020-02-01 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-02-02 2021-01-30 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-31 2022-01-29 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2021-01-31 2022-01-29 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2019-02-03 2020-02-01 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2020-02-02 2021-01-30 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2021-01-30 0000018255 us-gaap:RetainedEarningsMember 2020-02-02 2021-01-30 0000018255 us-gaap:RetainedEarningsMember 2019-02-03 2020-02-01 0000018255 us-gaap:RetainedEarningsMember 2021-01-31 2022-01-29 0000018255 us-gaap:RetainedEarningsMember 2021-01-30 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2022-01-29 0000018255 us-gaap:RetainedEarningsMember 2022-01-29 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-29 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-30 0000018255 2021-01-31 2022-01-29 0000018255 us-gaap:USStatesAndPoliticalSubdivisionsMember 2022-01-29 0000018255 us-gaap:CorporateDebtSecuritiesMember 2022-01-29 0000018255 us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-30 0000018255 us-gaap:CorporateDebtSecuritiesMember 2021-01-30 0000018255 us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-31 2022-01-29 0000018255 us-gaap:CorporateDebtSecuritiesMember 2020-02-02 2021-01-30 0000018255 us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-02-02 2021-01-30 0000018255 us-gaap:CorporateDebtSecuritiesMember 2021-01-31 2022-01-29 0000018255 us-gaap:DebtSecuritiesMember 2021-01-31 2022-01-29 0000018255 us-gaap:EquitySecuritiesMember 2021-01-31 2022-01-29 0000018255 us-gaap:EquitySecuritiesMember 2020-02-02 2021-01-30 0000018255 us-gaap:DebtSecuritiesMember 2020-02-02 2021-01-30 0000018255 2022-01-29 0000018255 us-gaap:CreditCardReceivablesMember 2022-01-29 0000018255 2021-01-30 0000018255 us-gaap:CreditCardReceivablesMember 2021-01-30 0000018255 us-gaap:LandMember 2022-01-29 0000018255 us-gaap:BuildingMember 2022-01-29 0000018255 us-gaap:LeaseholdsAndLeaseholdImprovementsMember 2022-01-29 0000018255 us-gaap:FurnitureAndFixturesMember 2022-01-29 0000018255 us-gaap:ComputerEquipmentMember 2022-01-29 0000018255 us-gaap:AssetUnderConstructionMember 2022-01-29 0000018255 us-gaap:LandMember 2021-01-30 0000018255 us-gaap:FurnitureAndFixturesMember 2021-01-30 0000018255 us-gaap:ComputerEquipmentMember 2021-01-30 0000018255 us-gaap:AssetUnderConstructionMember 2021-01-30 0000018255 us-gaap:LeaseholdsAndLeaseholdImprovementsMember 2021-01-30 0000018255 us-gaap:BuildingMember 2021-01-30 0000018255 cato:ReportablesegmentsmembercreditMember 2021-01-31 2022-01-29 0000018255 cato:ReportablesegmentsmembercreditMember 2020-02-02 2021-01-30 0000018255 cato:ReportablesegmentsmemberretailMember 2021-01-31 2022-01-29 0000018255 cato:ReportablesegmentsmemberretailMember 2020-02-02 2021-01-30 0000018255 cato:Cato_stockplan2013memberMember 2022-01-29 0000018255 cato:Cato_stockplan2013memberMember 2021-01-30 0000018255 2020-02-01 0000018255 cato:ReportablesegmentsmembercreditMember 2019-02-03 2020-02-01 0000018255 cato:ReportablesegmentsmemberretailMember 2019-02-03 2020-02-01 0000018255 cato:ReportablesegmentsmemberretailMember 2022-01-29 0000018255 cato:ReportablesegmentsmembercreditMember 2022-01-29 0000018255 cato:ReportablesegmentsmemberretailMember 2021-01-30 0000018255 cato:ReportablesegmentsmembercreditMember 2021-01-30 0000018255 us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member 2021-01-30 0000018255 us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member 2021-01-30 0000018255 us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:DomesticCorporateDebtSecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:DomesticCorporateDebtSecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:DomesticCorporateDebtSecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:CommonStockMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:CommonStockMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:CommonStockMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:AssetBackedSecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:AssetBackedSecuritiesMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:CashSurrenderValueMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:CashSurrenderValueMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:CashSurrenderValueMember 2021-01-30 0000018255 us-gaap:LiabilityMember us-gaap:FairValueInputsLevel1Member 2022-01-29 0000018255 us-gaap:LiabilityMember us-gaap:FairValueInputsLevel2Member 2022-01-29 0000018255 us-gaap:LiabilityMember us-gaap:FairValueInputsLevel3Member 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:USStatesAndPoliticalSubdivisionsMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:USStatesAndPoliticalSubdivisionsMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:USStatesAndPoliticalSubdivisionsMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:DomesticCorporateDebtSecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:DomesticCorporateDebtSecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:DomesticCorporateDebtSecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasurySecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasurySecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasurySecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:CommonStockMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:CommonStockMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:CommonStockMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:AssetBackedSecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:AssetBackedSecuritiesMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:CashSurrenderValueMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:CashSurrenderValueMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:CashSurrenderValueMember 2022-01-29 0000018255 us-gaap:LiabilityMember 2021-01-30 0000018255 us-gaap:LiabilityMember 2022-01-29 0000018255 us-gaap:LiabilityMember 2020-02-02 2021-01-30 0000018255 us-gaap:LiabilityMember 2020-02-01 0000018255 us-gaap:LiabilityMember 2021-01-31 2022-01-29 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-02-01 0000018255 us-gaap:RetainedEarningsMember 2020-02-01 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2020-02-01 0000018255 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-02-02 0000018255 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2019-02-02 0000018255 us-gaap:RetainedEarningsMember 2019-02-02 0000018255 cato:Stockplan2018memberMember 2021-01-30 0000018255 cato:Stockplan2018memberMember 2022-01-29 0000018255 2019-02-02 0000018255 us-gaap:CashSurrenderValueMember 2022-01-29 0000018255 us-gaap:AssetBackedSecuritiesMember 2022-01-29 0000018255 us-gaap:CommonStockMember 2022-01-29 0000018255 us-gaap:USTreasurySecuritiesMember 2022-01-29 0000018255 us-gaap:DomesticCorporateDebtSecuritiesMember 2022-01-29 0000018255 us-gaap:USStatesAndPoliticalSubdivisionsMember 2022-01-29 0000018255 us-gaap:CashSurrenderValueMember 2021-01-30 0000018255 us-gaap:AssetBackedSecuritiesMember 2021-01-30 0000018255 us-gaap:CommonStockMember 2021-01-30 0000018255 us-gaap:USTreasurySecuritiesMember 2021-01-30 0000018255 us-gaap:DomesticCorporateDebtSecuritiesMember 2021-01-30 0000018255 us-gaap:USStatesAndPoliticalSubdivisionsMember 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member 2021-01-30 0000018255 us-gaap:FairValueInputsLevel2Member 2021-01-30 0000018255 us-gaap:FairValueInputsLevel3Member 2021-01-30 0000018255 us-gaap:FairValueInputsLevel1Member 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member 2022-01-29 0000018255 us-gaap:CashSurrenderValueMember 2021-01-31 2022-01-29 0000018255 us-gaap:CashSurrenderValueMember 2020-02-02 2021-01-30 0000018255 us-gaap:CashSurrenderValueMember 2020-02-01 0000018255 us-gaap:TradeAccountsReceivableMember 2021-01-30 0000018255 cato:BankcardreceivableMember 2021-01-30 0000018255 us-gaap:TradeAccountsReceivableMember 2022-01-29 0000018255 cato:BankcardreceivableMember 2022-01-29 0000018255 cato:RevolvingcreditfacilitymemberMember 2022-01-29 0000018255 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2021-01-31 2022-01-29 0000018255 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2020-02-02 2021-01-30 0000018255 2021-07-31 0000018255 us-gaap:CommonClassAMember 2022-01-29 0000018255 us-gaap:CommonClassBMember 2022-01-29 0000018255 us-gaap:CommonClassAMember 2021-01-30 0000018255 us-gaap:CommonClassBMember 2021-01-30 0000018255 us-gaap:CertificatesOfDepositMember 2021-01-30 0000018255 us-gaap:CertificatesOfDepositMember us-gaap:FairValueInputsLevel1Member 2021-01-30 0000018255 us-gaap:CertificatesOfDepositMember us-gaap:FairValueInputsLevel2Member 2021-01-30 0000018255 us-gaap:CertificatesOfDepositMember us-gaap:FairValueInputsLevel3Member 2021-01-30 0000018255 us-gaap:CommercialPaperMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel1Member us-gaap:CommercialPaperMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel2Member us-gaap:CommercialPaperMember 2022-01-29 0000018255 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialPaperMember 2022-01-29 0000018255 cato:IncomeTaxReceivableMember 2021-01-30 0000018255 cato:IncomeTaxReceivableMember 2022-01-29 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2021-01-31 2022-01-29 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2020-02-02 2021-01-30 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2019-02-03 2020-02-01 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2022-01-29 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2021-01-30 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2020-02-01 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember cato:StockPlan2004MemberMember 2019-02-02 0000018255 us-gaap:CommonClassAMember us-gaap:EmployeeStockMember 2021-01-31 2022-01-29 0000018255 us-gaap:CommonClassAMember us-gaap:EmployeeStockMember 2020-02-02 2021-01-30 0000018255 us-gaap:CommonClassAMember us-gaap:EmployeeStockMember 2019-02-03 2020-02-01 0000018255 us-gaap:CommonClassAMember us-gaap:EmployeeStockMember 2022-01-29 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember 2021-01-31 2022-01-29 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember 2020-02-02 2021-01-30 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember 2019-02-03 2020-02-01 0000018255 us-gaap:CommonClassAMember us-gaap:RestrictedStockMember 2022-01-29 0000018255 us-gaap:CommonStockMember 2019-02-02 0000018255 us-gaap:CommonStockMember 2020-02-01 0000018255 us-gaap:CommonStockMember 2021-01-30 0000018255 us-gaap:CommonStockMember 2022-01-29 0000018255 us-gaap:CommonStockMember 2019-02-03 2020-02-01 0000018255 us-gaap:CommonStockMember 2020-02-02 2021-01-30 0000018255 us-gaap:CommonStockMember 2021-01-31 2022-01-29 iso4217:USD xbrli:pure xbrli:shares iso4217:USD xbrli:shares
 
 
 
 
 
 
 
 
 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended
January 29, 2022
 
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number
1-31340
The Cato Corporation
Registrant
 
 
 
Delaware
 
56-0484485
State of Incorporation
 
I.R.S. Employer Identification Number
 
8100 Denmark Road
Charlotte
,
North Carolina
28273-5975
Address of Principal Executive Offices
 
704
/
554-8510
Registrant’s Telephone
 
Number
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
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate
 
by
 
check
 
mark
 
if
 
the
 
Registrant
 
is
 
a
 
well-known
 
seasoned
 
issuer,
 
as
 
defined
 
in
 
Rule
 
405
 
of
 
the
 
Securities
 
Act.
 
Yes
 
No
 
Indicate by check mark if the
 
Registrant is not required
 
to file reports pursuant
 
to Section 13 or
 
Section 15(d) of the Exchange
 
Act.
 
Yes
 
No
 
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
 
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 (§ 232.405
 
of this chapter) during the preceding
 
12 months (or for such
 
shorter period that the
registrant was required to submit such files). Yes
 
No
 
Indicate by check
 
mark whether the
 
registrant is
 
a large accelerated
 
filer, an
 
accelerated filer,
 
a non-accelerated
 
filer, a
 
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
 
Emerging Growth Company
Non-accelerated filer
 
Smaller reporting 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
 
has
 
filed
 
a
 
report
 
on
 
and
 
attestation
 
to
 
its
 
management’s
 
assessment
 
of
 
the
effectiveness of
 
its internal
 
control over
 
financial reporting
 
under Section
 
404(b) of
 
the Sarbanes-Oxley
 
Act (15
 
U.S.C. 7262(b))
 
by
the registered public accounting firm that prepared or issued its audit report.
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange
 
Act Rule 12b-2). Yes
 
 
No
 
The aggregate market value
 
of the Registrant’s
 
Class A Common Stock held
 
by non-affiliates of the
 
Registrant as of July 31,
 
2021,
the last
 
business day
 
of the
 
Company’s
 
most recent
 
second quarter,
 
was $
327,122,516
 
based on
 
the last
 
reported sale
 
price per
 
share
on the New York
 
Stock Exchange on that date.
 
 
As
 
of
 
January 29,
 
2022,
 
there were
19,824,093
 
shares of
 
Class
A
 
co
mmon stock
 
and
1,763,652
 
shares of
 
Class B common
 
stock
outstanding.
DOCUMENTS INCORPORATED
 
BY REFERENCE
 
Portions of the proxy statement relating to the 2022 annual meeting of shareholders are incorporated
 
by reference into the
following part of this annual report:
Part III — Items 10, 11, 12, 13 and 14
 
2
THE CATO CORPORATION
FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
PART
 
I
Item 1.
 
Business
 
..........................................................................................................................
 
 
 
5 – 10
 
Item 1A.
Risk Factors
 
....................................................................................................................
 
10 – 21
Item 1B.
Unresolved Staff Comments
 
...........................................................................................
 
21
Item 2.
 
Properties
 
........................................................................................................................
 
 
 
21
 
Item 3.
 
Legal Proceedings
 
...........................................................................................................
 
 
 
22
 
Item 3A.
 
Executive Officers of the Registrant
 
...............................................................................
 
 
 
23
 
Item 4.
Mine Safety Disclosures
 
.................................................................................................
 
23
 
PART
 
II
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 
........................................................................................
 
 
 
24 – 26
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................................................................
 
 
 
27 – 33
 
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
........................................
 
 
 
33
 
Item 8.
 
Financial Statements and Supplementary Data ..............................................................
 
 
 
34 – 63
 
Item 9.
 
Changes in and Disagreements with Accountants on Accounting
 
and Financial
Disclosure
 
.......................................................................................................................
 
 
 
64
 
Item 9A.
 
Controls and Procedures
 
.................................................................................................
 
 
 
64
 
Item 9B.
Other Information
 
...........................................................................................................
 
64
Item 9C.
Disclosures Regarding Foreign Jurisdictions That Prevent Inspections
 
.........................
 
64
 
PART
 
III
Item 10.
 
Directors, Executive Officers and Corporate Governance .............................................
 
 
 
64
 
Item 11.
 
Executive Compensation
 
................................................................................................
 
 
 
66
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 
........................................................................................................
 
 
 
66
 
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
...............
 
 
 
66
 
Item 14.
 
Principal Accountant Fees and Services
 
.........................................................................
 
 
 
66
 
 
PART
 
IV
Item 15.
 
Exhibits and Financial Statement Schedules
 
..................................................................
 
 
 
68
 
 
Item 16.
Form 10-K Summary ………………………………………………………………….
70
 
3
Forward-looking Information
 
The
 
following
 
information
 
should
 
be
 
read
 
along
 
with
 
the
 
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-K and any documents
incorporated
 
by
 
reference
 
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
 
January
 
28,
 
2023
 
(“fiscal
 
2022”)
 
and
 
beyond,
 
including,
 
but
 
not
limited to, statements regarding expected amounts of capital expenditures and store openings, relocations,
remodels and closures,
 
statements regarding the
 
potential impact of
 
the COVID-19 pandemic and
 
related
responses and
 
mitigation efforts,
 
as well
 
as the
 
potential impact
 
of supply
 
chain disruptions,
 
inflationary
pressures and other economic conditions on our business, results of operations and
 
financial condition and
statements
 
regarding
 
new
 
store
 
development
 
strategy;
 
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
 
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
 
governmental
 
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; adverse
 
weather,
 
public health
 
threats (including
 
the global
 
COVID-19 pandemic)
or
 
similar
 
conditions
 
that
 
may
 
affect
 
our
 
sales
 
or
 
operations;
 
inventory
 
risks
 
due
 
to
 
shifts
 
in
 
market
demand,
 
including
 
the
 
ability
 
to
 
liquidate
 
excess
 
inventory
 
at
 
anticipated
 
margins;
 
and
 
other
 
factors
discussed under
 
“Risk Factors”
 
in Part
 
I, Item
 
1A of
 
this annual
 
report on
 
Form 10-K
 
for the
 
fiscal year
ended January 29, 2022 (“fiscal 2021”), 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.
 
As used herein,
 
the terms “we,”
 
“our,”
 
“us,” the “Company”
 
or “Cato”
 
include The Cato
 
Corporation
and
 
its
 
subsidiaries,
 
unless
 
the
 
context
 
indicates
 
another
 
meaning
 
and
 
except
 
that
 
when
 
used
 
with
reference
 
to
 
common
 
stock
 
or
 
other
 
securities
 
described
 
herein
 
and
 
in
 
describing
 
the
 
positions
 
held
 
by
management of
 
the Company,
 
such terms
 
include only
 
The Cato
 
Corporation.
 
Our website
 
is located
 
at
www.catofashions.com
 
where
 
we
 
make
 
available,
 
free
 
of
 
charge,
 
our
 
annual
 
reports
 
on
 
Form 10-K,
quarterly
 
reports
 
on
 
Form 10-Q,
 
current
 
reports
 
on
 
Form 8-K,
 
proxy
 
statements
 
and
 
other
 
reports
(including amendments
 
to
 
these
 
reports) filed
 
or
 
furnished
 
pursuant to
 
Section 13(a) or
 
15(d)
 
under
 
the
Securities Exchange
 
Act of
 
1934. These
 
reports are
 
available as
 
soon as
 
reasonably practicable
 
after we
electronically file
 
these
 
materials with
 
the
 
SEC. We
 
also post
 
on our
 
website the
 
charters of
 
our
 
Audit,
Compensation
 
and
 
Corporate
 
Governance
 
and
 
Nominating
 
Committees;
 
our
 
Corporate
 
Governance
Guidelines; Code of Business Conduct and Ethics and
 
Code of Ethics for the
 
Principal Executive Officer,
 
4
Principal Financial Officer
 
and Principal Accounting
 
Officer and
 
any amendments or
 
waivers thereto for
any of our directors or executive officers; and any other publicly available corporate governance materials
contemplated
 
by
 
SEC
 
or
 
New
 
York
 
Stock
 
Exchange
 
regulations.
 
The
 
information
 
contained
 
on
 
our
website,
www.catofashions.com
, is
 
not, and
 
should in no
 
way be construed
 
as, a part
 
of this or
 
any other
report that we filed with or furnished to the SEC.
 
5
PART
 
I
Item 1.
 
Business:
Background
 
The
 
Company,
 
founded
 
in
 
1946,
 
operated
 
1,311
 
fashion
 
specialty
 
stores
 
at
 
January
 
29,
 
2022,
 
in
 
32
states,
 
principally
 
in
 
the
 
southeastern
 
United
 
States,
 
under
 
the
 
names
 
“Cato,”
 
“Cato
 
Fashions,”
 
“Cato
Plus,”
 
“It’s
 
Fashion,”
 
“It’s
 
Fashion
 
Metro”
 
and
 
“Versona.”
 
The
 
Cato
 
concept
 
seeks
 
to
 
offer
 
quality
fashion
 
apparel
 
and
 
accessories
 
at
 
low
 
prices
 
every
 
day,
 
in
 
junior/missy
 
and
 
plus
 
sizes.
 
The
 
Cato
concept’s stores and e-commerce website feature a broad assortment of apparel and accessories, including
dressy,
 
career,
 
and
 
casual
 
sportswear,
 
dresses,
 
coats,
 
shoes,
 
lingerie,
 
costume
 
jewelry
 
and
 
handbags.
 
A
major portion of the Cato concept’s
 
merchandise is sold under its private label and is produced by various
vendors
 
in
 
accordance
 
with
 
the
 
concept’s
 
specifications.
 
The
 
It’s
 
Fashion
 
and
 
It’s
 
Fashion
 
Metro
concepts offer fashion with a focus on the latest trendy styles for the entire family at low prices every day.
 
The
 
Versona
 
concept’s
 
stores
 
and
 
e-commerce website
 
offer
 
quality fashion
 
apparel items,
 
jewelry
 
and
accessories at
 
exceptional values
 
every day.
 
The
 
Company’s
 
stores
 
range in
 
size from
 
2,100 to
 
19,000
square
 
feet
 
and
 
are
 
located
 
primarily
 
in
 
strip
 
shopping
 
centers
 
anchored
 
by
 
national
 
discounters
 
or
market-dominant
 
grocery
 
stores.
 
The
 
Company
 
emphasizes
 
friendly
 
customer
 
service
 
and
 
coordinated
merchandise
 
presentations
 
in
 
an
 
appealing
 
store
 
environment.
 
The
 
Company
 
offers
 
its
 
own
 
credit
 
card
and layaway
 
plan. Credit
 
and layaway
 
sales under
 
the Company’s
 
plan represented
 
5% of
 
retail sales
 
in
fiscal
 
2021.
 
See
 
Note
 
13
 
to
 
the
 
Consolidated Financial
 
Statements, “Reportable
 
Segment
 
Information,”
for a discussion of information regarding the Company’s two reportable segments: retail and credit.
 
 
The
 
Company
 
has
 
operated
 
Cato-branded
 
retail
 
stores
 
for
 
approximately
 
75
 
years.
 
The
 
Company
originated as a family-owned business and
 
made its first initial public offering
 
of stock in 1968.
 
In 1980,
the Company went private and in 1987 again conducted an initial public
 
offering.
Business Strategy
 
The Company’s
 
primary objective
 
is to
 
be the
 
leading fashion
 
specialty retailer
 
for fashion
 
and value
in its
 
markets. Management believes the
 
Company’s success
 
is dependent upon
 
its ability to
 
differentiate
its stores
 
from department
 
stores, mass
 
merchandise discount
 
stores and
 
competing specialty
 
stores. The
key elements of the Company’s business strategy are:
 
Merchandise
 
Assortment.
 
The
 
Company’s
 
stores
 
offer
 
a
 
wide
 
assortment
 
of
 
on-trend
 
apparel
 
and
accessory items in primarily junior/missy,
 
plus sizes, men and kids sizes, toddler to
 
boys size 20 and girls
size 16 with
 
an emphasis on color,
 
product coordination and selection.
 
Colors and styles are
 
coordinated
and presented so that outfit selection is easily made.
 
Value
 
Pricing.
 
The
 
Company offers
 
quality
 
merchandise that
 
is
 
generally priced
 
below comparable
merchandise
 
offered
 
by
 
department
 
stores
 
and
 
mall
 
specialty
 
apparel
 
chains,
 
but
 
is
 
generally
 
more
fashionable
 
than
 
merchandise
 
offered
 
by
 
discount
 
stores.
 
Management
 
believes
 
that
 
the
 
Company
 
has
positioned itself as the every day low price leader in its market segment.
 
Strip
 
Shopping
 
Center
 
Locations.
The
 
Company
 
locates
 
its
 
stores
 
principally
 
in
 
convenient
 
strip
centers anchored by
 
national discounters or
 
market-dominant grocery stores
 
that attract large
 
numbers of
potential customers.
 
Customer Service.
 
Store managers
 
and sales
 
associates are
 
trained
 
to
 
provide prompt
 
and courteous
service and to assist customers in merchandise selection and wardrobe
 
coordination.
 
Credit and
 
Layaway Programs
.
 
The Company offers
 
its own credit
 
card and a
 
layaway plan to
 
make
the purchase of its merchandise more convenient for its customers.
6
Merchandising
 
Merchandising
 
The
 
Company
 
seeks
 
to
 
offer
 
a
 
broad
 
selection
 
of
 
high
 
quality
 
and
 
exceptional
 
value
 
apparel
 
and
accessories
 
to
 
suit
 
the
 
various
 
lifestyles
 
of
 
fashion
 
and
 
value-conscious
 
customers.
 
In
 
addition,
 
the
Company strives to offer on-trend fashion in exciting colors with consistent fit and
 
quality.
 
The Company’s merchandise lines
 
include dressy, career,
 
and casual sportswear, dresses,
 
coats, shoes,
lingerie, costume
 
jewelry,
 
handbags, men’s
 
wear and
 
lines for
 
kids and
 
infants. The
 
Company primarily
offers exclusive
 
merchandise with
 
fashion and
 
quality comparable
 
to mall
 
specialty stores
 
at low
 
prices,
every day.
 
The Company believes that the collaboration of its merchandising and design teams with an expanded
in-house
 
product
 
development
 
and
 
direct
 
sourcing
 
function
 
has
 
enhanced
 
merchandise
 
offerings
 
and
delivers quality,
 
exclusive on-trend
 
styles at
 
lower prices.
 
The product
 
development and
 
direct sourcing
operations provide
 
research on
 
emerging fashion
 
and color
 
trends, technical
 
services and
 
direct sourcing
options.
 
As a
 
part of
 
its merchandising
 
strategy,
 
members of
 
the Company’s
 
merchandising and
 
design staff
visit selected
 
stores to
 
monitor the
 
merchandise offerings
 
of other
 
retailers, regularly
 
communicate with
store operations
 
associates and frequently
 
confer with
 
key vendors.
 
The Company
 
also takes
 
aggressive
markdowns
 
on
 
slow-selling
 
merchandise
 
and
 
typically
 
does
 
not
 
carry
 
over
 
merchandise
 
to
 
the
 
next
season.
 
Purchasing, Allocation and Distribution
 
Although
 
the
 
Company
 
purchases
 
merchandise
 
from
 
approximately
 
560
 
suppliers,
 
most
 
of
 
its
merchandise is
 
purchased from
 
approximately 100
 
primary vendors.
 
In
 
fiscal
 
2021,
 
purchases from
 
the
Company’s
 
largest
 
vendor
 
accounted
 
for
 
approximately
 
12%
 
of
 
the
 
Company’s
 
total
 
purchases.
 
The
Company is
 
not dependent
 
on its
 
largest vendor
 
or any
 
other vendor
 
for merchandise
 
purchases, and
 
the
loss of any single vendor or group of
 
vendors would not have a material adverse effect on
 
the Company’s
operating results or financial condition. A substantial portion of the Company’s merchandise is sold under
its
 
private
 
labels
 
and
 
is
 
produced
 
by
 
various
 
vendors
 
in
 
accordance
 
with
 
the
 
Company’s
 
strict
specifications. The Company sources a majority of its
 
merchandise directly from manufacturers overseas,
primarily in
 
Southeast Asia.
 
These manufacturers
 
are dependent
 
on materials
 
that are
 
primarily sourced
from
 
China. The
 
Company purchases
 
its
 
remaining merchandise
 
from
 
domestic importers
 
and
 
vendors,
which typically
 
minimizes the
 
time necessary to
 
purchase and
 
obtain shipments; however,
 
these vendors
are
 
dependent
 
on
 
materials
 
primarily
 
sourced
 
from
 
China.
 
The
 
Company
 
opened
 
its
 
own
 
overseas
sourcing operations in the fall of 2014, replacing the Company’s former sourcing agent in 2015. Although
a
 
significant
 
portion
 
of
 
the
 
Company’s
 
merchandise
 
is
 
manufactured
 
overseas,
 
primarily
 
in
 
Southeast
Asia, the Company does
 
not expect that any
 
economic, political, public health
 
or social unrest in
 
any one
country
 
would
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Company’s
 
ability
 
to
 
obtain
 
adequate
 
supplies
 
of
merchandise.
 
However,
 
the
 
Company
 
can
 
give
 
no
 
assurance
 
that
 
any
 
changes
 
or
 
disruptions
 
in
 
its
merchandise supply
 
chain would
 
not materially
 
and adversely
 
affect the
 
Company.
 
See “Risk
 
Factors –
Risks
 
Relating To
 
Our
 
Business –
 
Because
 
we
 
source a
 
significant
 
portion of
 
our
 
merchandise directly
and indirectly from overseas, we are subject to risks associated with international operations and risks that
affect
 
the
 
prevailing
 
social,
 
economic,
 
political,
 
public
 
health
 
and
 
other
 
conditions
 
in
 
the
 
areas
 
from
which
 
we
 
source
 
merchandise;
 
changes,
 
disruptions,
 
cost
 
changes
 
or
 
other
 
problems
 
affecting
 
the
Company’s
 
merchandise
 
supply
 
chain
 
could
 
materially
 
and
 
adversely
 
affect
 
the
 
Company’s
 
business,
results of operations and financial condition.”
 
 
An
 
important
 
component
 
of
 
the
 
Company’s
 
strategy
 
is
 
the
 
allocation
 
of
 
merchandise
 
to
 
individual
stores
 
based
 
on
 
an
 
analysis
 
of
 
sales
 
trends
 
by
 
merchandise
 
category,
 
customer
 
profiles
 
and
 
climatic
7
conditions.
 
A
 
merchandise
 
control
 
system
 
provides
 
current
 
information
 
on
 
the
 
sales
 
activity
 
of
 
each
merchandise
 
style
 
in
 
each
 
of
 
the
 
Company’s
 
stores.
 
Point-of-sale
 
terminals
 
in
 
the
 
stores
 
collect
 
and
transmit sales and inventory information to the Company’s central database, permitting timely response to
sales trends on a store-by-store basis.
 
All merchandise is shipped directly to the Company’s distribution
 
center in Charlotte, North Carolina,
where it
 
is inspected
 
and then
 
allocated by
 
the merchandise
 
distribution staff
 
for shipment
 
to individual
stores. The flow
 
of merchandise from
 
receipt at
 
the distribution center
 
to shipment to
 
stores is controlled
by
 
an
 
on-line
 
system.
 
Shipments
 
are
 
made
 
by
 
common
 
carrier,
 
and
 
each
 
store
 
receives
 
at
 
least
 
one
shipment per
 
week.
 
The centralization
 
of the
 
Company’s
 
distribution process
 
also subjects
 
it to
 
risks in
the
 
event
 
of
 
damage
 
to
 
or
 
destruction
 
of
 
its
 
distribution
 
facility
 
or
 
other
 
disruptions
 
affecting
 
the
distribution
 
center
 
or
 
the
 
flow
 
of
 
goods
 
into
 
or
 
out
 
of
 
Charlotte,
 
North
 
Carolina.
 
See
 
“Risk
 
Factors
 
Risks Relating
 
To
 
Our Information
 
Technology
 
and Related
 
Systems –
 
A disruption
 
or shutdown
 
of our
centralized
 
distribution
 
center
 
or
 
transportation
 
network
 
could
 
materially
 
and
 
adversely
 
affect
 
our
business and results of operations.”
 
Advertising
 
The
 
Company
 
uses
 
television,
 
in-store
 
signage,
 
graphics,
 
a
 
Company
 
website,
 
two
 
e-commerce
websites
 
and
 
social
 
media
 
as
 
its
 
primary
 
advertising
 
media.
 
The
 
Company’s
 
total
 
advertising
expenditures
 
were
 
approximately
 
0.9%,
 
0.8%
 
and
 
0.7%
 
of
 
retail
 
sales
 
for
 
fiscal
 
years
 
2021,
 
2020
 
and
2019, respectively.
Store Operations
 
The Company’s
 
store operations management team
 
consists of
 
three territorial managers, 12
 
regional
managers and 109 district managers. Regional managers receive
 
a salary plus a bonus based
 
on achieving
targeted goals
 
for sales
 
and payroll.
 
District managers
 
receive a
 
salary plus
 
a bonus
 
based on
 
achieving
targeted
 
objectives for
 
district sales
 
increases. Stores
 
are typically
 
staffed
 
with a
 
manager,
 
two assistant
managers
 
and
 
additional
 
part-time
 
sales
 
associates
 
depending
 
on
 
the
 
size
 
of
 
the
 
store
 
and
 
seasonal
personnel needs.
 
In general,
 
store managers
 
are paid
 
a salary
 
or on
 
an hourly
 
basis as
 
are all
 
other store
personnel.
 
Store
 
managers,
 
assistant
 
managers
 
and
 
sales
 
associates
 
are
 
eligible
 
for
 
monthly
 
and
 
semi-
annual bonuses based on achieving targeted goals for their respective store’s sales increases.
Store Locations
 
Most
 
of
 
the
 
Company’s
 
stores
 
are
 
located
 
in
 
the
 
southeastern
 
United
 
States in
 
a
 
variety of
 
markets
ranging
 
from
 
small
 
towns
 
to
 
large
 
metropolitan
 
areas
 
with
 
trade
 
area
 
populations
 
of
 
20,000
 
or
 
more.
Stores average approximately 4,500 square feet in size.
 
All of the
 
Company’s stores
 
are leased. Approximately 93% are
 
located in strip shopping
 
centers and
7% in enclosed
 
shopping malls. The
 
Company typically locates stores
 
in strip shopping
 
centers anchored
by
 
a
 
national
 
discounter,
 
primarily
 
Walmart
 
Supercenters,
 
or
 
market-dominant
 
grocery
 
stores.
 
The
Company’s strip center locations provide ample parking and shopping convenience for its customers.
 
The
 
Company’s
 
store
 
development
 
activities
 
consist
 
of
 
opening
 
new
 
stores
 
in
 
new
 
and
 
existing
markets,
 
relocating
 
selected
 
existing
 
stores
 
to
 
more
 
desirable
 
locations
 
in
 
the
 
same
 
market
 
area
 
and
closing underperforming stores. The following table sets forth information
 
with respect to the Company’s
development activities since fiscal 2017:
 
 
 
 
 
8
Store Development
Number of Stores
Beginning of
Number
Number
Number of Stores
Fiscal Year
Year
Opened
Closed
End of Year
2017………………….……...………….
1,371
 
6
 
26
1,351
2018………………….……...………….
1,351
 
-
 
40
1,311
2019……………………….……...…….
1,311
 
5
 
35
1,281
2020…………....………….……...…….
1,281
 
76
 
27
1,330
2021………….………...….……...…….
1,330
 
6
 
25
1,311
 
The Company periodically
 
reviews its store
 
base to determine
 
whether any particular
 
store should be
closed based on its sales
 
trends and profitability.
 
The Company intends to continue this
 
review process to
identify underperforming stores.
 
Credit and Layaway
 
Credit Card Program
The Company offers its own credit card, which accounted for 2.5%, 2.7% and 3.3% of retail
 
sales in
fiscal 2021, 2020 and 2019, respectively. The Company’s net bad debt expense was 3.0%, 3.6% and 3.2%
of credit sales in fiscal 2021, 2020 and 2019, respectively.
Customers applying for the Company’s credit card are approved for credit if
 
they have a satisfactory
credit
 
record
 
and
 
the
 
Company
 
has
 
considered
 
the
 
customer’s
 
ability
 
to
 
make
 
the
 
required
 
minimum
payment.
 
Customers are required
 
to make minimum
 
monthly payments based
 
on their account
 
balances.
If
 
the
 
balance
 
is
 
not
 
paid
 
in
 
full
 
each
 
month,
 
the
 
Company
 
assesses
 
the
 
customer
 
a
 
finance
 
charge.
 
If
payments are not received on time, the customer is assessed a late
 
fee subject to regulatory limits.
The
 
Company
 
introduced
 
its
 
loyalty
 
program
 
in
 
October
 
2021.
 
The
 
loyalty
 
program
 
credits
 
the
customer points based on their purchases of
 
merchandise using the Company’s proprietary
 
credit card.
 
A
point
 
is
 
earned
 
for
 
every
 
dollar
 
spent
 
on
 
merchandise
 
purchases.
 
A
 
$5.00
 
rewards
 
card
 
is
 
earned
 
for
every 250
 
points accumulated by
 
the customer.
 
The rewards card
 
expires 90 days
 
after the rewards
 
card
is issued.
 
The fiscal
 
2021 loyalty
 
program impact
 
is immaterial
 
to
 
the fiscal
 
2021 financial
 
statements.
 
The
 
loyalty
 
program
 
will
 
be
 
accounted
 
for
 
in
 
accordance
 
with
 
ASU
 
2014-09,
Revenue
 
from
 
Contracts
with Customers (Topic 606)
.
 
Layaway Plan
Under
 
the
 
Company’s
 
layaway
 
plan,
 
merchandise
 
is
 
set
 
aside
 
for
 
customers
 
who
 
agree
 
to
 
make
periodic
 
payments.
 
The
 
Company adds
 
a
 
nonrefundable
 
administrative
 
fee
 
to
 
each
 
layaway
 
sale.
 
If
 
no
payment is made within four weeks,
 
the customer is considered to have
 
defaulted, and the merchandise is
returned
 
to
 
the
 
selling floor
 
and again
 
offered
 
for
 
sale, often
 
at
 
a reduced
 
price. All
 
payments made
 
by
customers who subsequently default on their layaway purchase are returned to the customer upon request,
less the administrative fee and a restocking fee.
 
The Company defers recognition of layaway sales to the accounting period when the customer picks
up
 
and
 
completely pays
 
for
 
layaway
 
merchandise.
 
Administrative fees
 
are
 
recognized
 
in
 
the
 
period
 
in
which the
 
layaway is
 
initiated.
 
Recognition of
 
restocking fees occurs
 
in the
 
accounting period
 
when the
customer
 
defaults
 
on
 
the
 
layaway
 
purchase.
 
Layaway
 
sales
 
represented
 
approximately
 
2.7%,
 
2.8%
 
and
4.1% of retail sales in fiscal 2021, 2020 and 2019, respectively.
9
Information Technology Systems
 
The
 
Company’s
 
information
 
technology
 
systems
 
provide
 
daily
 
financial
 
and
 
merchandising
information
 
that
 
is
 
used
 
by
 
management to
 
enhance
 
the
 
timeliness
 
and
 
effectiveness
 
of
 
purchasing and
pricing
 
decisions.
 
Management
 
uses
 
a
 
daily
 
report
 
comparing
 
actual
 
sales
 
with
 
planned
 
sales
 
and
 
a
weekly
 
ranking
 
report
 
to
 
monitor
 
and
 
control
 
purchasing
 
decisions.
 
Weekly
 
reports
 
are
 
also
 
produced
which reflect
 
sales, weeks
 
of
 
supply of
 
inventory and
 
other critical
 
data by
 
product categories,
 
by store
and by various levels of
 
responsibility reporting. Purchases are made based
 
on projected sales, but can
 
be
modified to accommodate unexpected increases or decreases in demand
 
for a particular item.
 
Sales information
 
is projected
 
by merchandise
 
category and,
 
in
 
some cases,
 
is
 
further projected
 
and
actual
 
performance measured
 
by
 
stock
 
keeping
 
unit
 
(SKU).
 
Merchandise
 
allocation
 
models
 
are
 
used
 
to
distribute
 
merchandise
 
to
 
individual
 
stores
 
based
 
upon
 
historical
 
sales
 
trends,
 
climatic
 
differences,
customer demographic differences and targeted inventory turnover rates.
Competition
 
The women’s
 
retail apparel
 
industry is
 
highly competitive.
 
The Company
 
believes that
 
the principal
competitive factors
 
in its
 
industry include
 
merchandise assortment
 
and presentation,
 
fashion, price,
 
store
location
 
and
 
customer
 
service. The
 
Company competes
 
with
 
retail
 
chains that
 
operate similar
 
women’s
apparel specialty stores. In addition, the Company competes with
 
mass merchandise chains, discount store
chains, major
 
department stores, off
 
-price retailers
 
and internet-based
 
retailers.
 
Although we
 
believe we
compete favorably
 
with respect
 
to the
 
principal competitive
 
factors described
 
above, many
 
of our
 
direct
and
 
indirect
 
competitors
 
are
 
well-established
 
national,
 
regional
 
or
 
local
 
chains,
 
and
 
some
 
have
substantially greater
 
financial, marketing
 
and other
 
resources.
 
The Company
 
expects its
 
stores in
 
larger
cities and metropolitan areas to face more intense competition.
Seasonality
 
Due
 
to
 
the
 
seasonal
 
nature
 
of
 
the
 
retail
 
business,
 
the
 
Company
 
has
 
historically
 
experienced
 
and
expects to continue to
 
experience seasonal fluctuations in its
 
revenues, operating income and net
 
income.
 
Results of
 
a period
 
shorter than
 
a full
 
year may
 
not be
 
indicative of
 
results expected
 
for the
 
entire year.
 
Furthermore, the seasonal nature of our business may affect comparisons between
 
periods.
 
Regulation
 
The
 
Company’s
 
business
 
and
 
operations
 
subject
 
it
 
to
 
a
 
wide
 
range
 
of
 
local,
 
state,
 
national
 
and
international laws
 
and regulations
 
in a
 
variety of
 
areas, including
 
but not
 
limited to,
 
trade, licensing
 
and
permit
 
requirements,
 
import
 
and
 
export
 
matters,
 
privacy
 
and
 
data
 
protection,
 
credit
 
regulation,
environmental
 
matters,
 
recordkeeping
 
and
 
information
 
management,
 
tariffs,
 
taxes,
 
intellectual
 
property
and anti-corruption.
 
Though compliance with these
 
laws and regulations has
 
not had a
 
material effect on
the capital
 
expenditures, results of
 
operations or competitive
 
position of the
 
Company in
 
fiscal 2021, the
Company faces
 
ongoing
 
risks
 
related
 
to
 
its
 
efforts
 
to
 
comply with
 
these
 
laws
 
and
 
regulations
 
and
 
risks
related
 
to
 
noncompliance,
 
as
 
discussed
 
generally
 
below
 
throughout
 
the
 
“Risk
 
Factors”
 
section
 
and
 
in
particular
 
under
 
“Risk
 
Factors
 
 
Risks
 
Relating
 
to
 
Accounting
 
and
 
Legal
 
Matters
 
 
Our
 
business
operations
 
subject
 
us
 
to
 
legal
 
compliance
 
and
 
litigation
 
risks,
 
as
 
well
 
as
 
regulations
 
and
 
regulatory
enforcement
 
priorities,
 
which
 
could
 
result
 
in
 
increased
 
costs
 
or
 
liabilities,
 
divert
 
our
 
management’s
attention or otherwise adversely affect our business, results of operations and financial condition.”
Human Capital
 
As
 
of
 
January
 
29,
 
2022,
 
the
 
Company
 
employed
 
approximately
 
7,500
 
full-time
 
and
 
part-time
associates. The
 
Company also
 
employs additional
 
part-time associates
 
during the
 
peak retailing
 
seasons.
The Company’s
 
full-time team associates are
 
engaged in various executive, operating,
 
and administrative
10
functions in
 
the Home
 
Office
 
and distribution
 
center and
 
the remainder
 
are engaged
 
in store
 
operations.
The Company is
 
not a party
 
to any
 
collective bargaining agreements
 
and considers its
 
associate relations
to
 
be
 
good.
 
The
 
Company
 
offers
 
a
 
broad
 
range
 
of
 
Company
 
paid
 
benefits
 
to
 
its
 
associates
 
including
medical and
 
dental plans,
 
paid vacation,
 
a 401(k)
 
plan, Employee
 
Stock Purchase
 
Plan, Employee
 
Stock
Ownership
 
Plan,
 
disability
 
insurance,
 
associate
 
assistance
 
programs,
 
life
 
insurance
 
and
 
an
 
associate
discount.
 
The
 
level
 
of
 
benefits
 
and
 
eligibility
 
vary
 
depending
 
on
 
the
 
associate’s
 
full-time
 
or
 
part-time
status, date
 
of hire,
 
length of
 
service and
 
level of
 
pay.
 
The Company
 
endeavors to
 
promote diversity,
 
to
provide
 
opportunities
 
for
 
advancement,
 
and
 
to
 
treat
 
all
 
of
 
its
 
associates
 
with
 
dignity
 
and
 
respect.
 
The
Company constantly
 
strives
 
to
 
improve
 
its
 
training
 
programs
 
to
 
develop
 
associates.
 
Over
 
80%
 
of
 
store
and field
 
management are promoted from
 
within, allowing the
 
Company to internally
 
staff its
 
store base.
The
 
Company
 
has
 
training
 
programs
 
at
 
each
 
level
 
of
 
store
 
operations.
 
The
 
Company
 
also
 
performs
ongoing
 
reviews
 
of
 
its
 
safety
 
protocols,
 
including
 
extensive
 
efforts
 
undertaken
 
during
 
the
 
COVID-19
pandemic
 
to
 
ensure
 
the
 
health
 
and
 
safety
 
of
 
its
 
associates
 
by
 
performing
 
frequent
 
cleanings,
 
ensuring
social distancing and providing masks for all of its stores.
Item 1A.
 
Risk Factors:
 
An investment in our common stock involves numerous types of risks.
 
You
 
should carefully consider
the
 
following
 
risk
 
factors,
 
in
 
addition
 
to
 
the
 
other
 
information
 
contained
 
in
 
this
 
report,
 
including
 
the
disclosures
 
under
 
“Forward-looking
 
Information”
 
above
 
in
 
evaluating
 
our
 
Company
 
and
 
any
 
potential
investment
 
in
 
our
 
common
 
stock.
 
If
 
any
 
of
 
the
 
following
 
risks
 
or
 
uncertainties
 
occur
 
or
 
persist,
 
our
business, financial condition and
 
operating results could
 
be materially and
 
adversely affected, the
 
trading
price
 
of
 
our
 
common
 
stock
 
could
 
decline
 
and
 
you
 
could
 
lose
 
all
 
or
 
a
 
part
 
of
 
your
 
investment
 
in
 
our
common
 
stock.
 
The
 
risks
 
and
 
uncertainties
 
described
 
in
 
this
 
section
 
are
 
not
 
the
 
only
 
ones
 
facing
 
us.
 
Additional risks
 
and uncertainties
 
not presently
 
known to
 
us or
 
that we
 
currently deem
 
immaterial
 
may
also materially
 
and adversely
 
affect
 
our business,
 
operating results,
 
financial condition
 
and value
 
of our
common stock.
Risks Relating to the COVID-19 Pandemic:
The outbreak and persistence of the COVID-19 pandemic has and may continue
 
to adversely affect our
business, financial condition and results of operations.
 
The
 
COVID-19
 
pandemic
 
has
 
adversely
 
impacted
 
the
 
Company's
 
business,
 
financial
 
condition
 
and
operating results through fiscal 2021 and will likely
 
continue to do so in fiscal 2022 and
 
possibly beyond.
Adverse financial impacts
 
associated with the
 
outbreak include, but
 
are not limited
 
to, (i)
 
lower net sales
in markets affected by actual or
 
potential adverse changes in conditions relating to the pandemic,
 
whether
due to
 
increases in
 
case counts,
 
state and
 
local orders,
 
reductions in
 
store traffic
 
and customer
 
demand,
labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and
fulfillment,
 
(iii)
 
and
 
incremental
 
costs
 
associated
 
with
 
efforts
 
to
 
mitigate
 
the
 
effects
 
of
 
the
 
outbreak,
including increased freight and logistics costs and other expenses.
 
 
Though
 
recent
 
developments
 
in
 
the
 
U.S.
 
have
 
led
 
to
 
the
 
relaxation
 
of
 
many
 
of
 
the
 
restrictions
 
and
mitigation measures
 
that adversely
 
affected
 
the Company’s
 
operations, store
 
traffic,
 
sales
 
and results
 
of
operations
 
since
 
March
 
2020,
 
there
 
continues
 
to
 
be
 
significant
 
uncertainty
 
regarding
 
the
 
course
 
of
COVID-19 and
 
its continuing
 
effects on
 
commercial behavior.
 
These uncertainties
 
include the
 
potential
emergence of additional variants, seasonal weather
 
changes or other factors that may
 
lead to a resurgence
of the virus
 
and a reinstitution
 
of mandated restrictions, public
 
health advisories or decreased
 
willingness
of customers,
 
suppliers, associates
 
and other
 
constituencies on
 
whom our
 
business depends
 
to engage
 
in
commercial activities.
 
Other uncertainties
 
include the
 
extent
 
to
 
which and
 
pace at
 
which
 
governments,
businesses and
 
individuals may adapt
 
to COVID-19 as
 
endemic and
 
no longer
 
a meaningful
 
impediment
or deterrent
 
to commercial activity.
 
The resurgence
 
of the
 
virus and its
 
related effects
 
on the
 
global and
U.S.
 
economy,
 
or
 
the
 
lingering
 
uncertainties
 
and
 
time
 
it
 
may
 
take
 
to
 
transition
 
to
 
wide
 
acceptance
 
of
11
COVID-19
 
as
 
endemic,
 
will
 
likely
 
continue
 
to
 
materially
 
and
 
adversely
 
affect
 
our
 
business,
 
operating
results and financial condition.
 
 
 
While
 
the
 
Company
 
currently
 
anticipates
 
that
 
our
 
results
 
for
 
fiscal
 
2022
 
and
 
possibly
 
beyond
 
will
likely be adversely impacted,
 
whether and the extent
 
to which COVID-19 impacts the
 
Company’s results
will
 
depend
 
on
 
the
 
course
 
of
 
future
 
developments,
 
which
 
are
 
highly
 
uncertain,
 
including
 
potential
sporadic
 
surges
 
of
 
the
 
virus,
 
the
 
extent
 
and
 
pace
 
of
 
public
 
acceptance
 
of
 
COVID-19
 
as
 
endemic,
 
the
continuing
 
evolution,
 
acceptance
 
and
 
success
 
of
 
baseline
 
mitigation
 
measures
 
such
 
as
 
vaccines,
 
and
possible new information, understanding or innovation
 
that could alter the course and
 
duration of current
measures to combat the spread of the virus.
 
It is also possible
 
COVID-19 and its continuing effects
 
may result in longer term
 
behavioral changes
by customers and others
 
that could adversely affect
 
our business, including but
 
not limited to a
 
consumer
shift to greater
 
reliance on online
 
versus in-person shopping, which
 
could reduce traffic
 
to our stores
 
and
more
 
broadly
 
to
 
the
 
strip
 
shopping
 
centers
 
and
 
malls
 
in
 
which
 
most
 
of
 
our
 
stores
 
are
 
located
 
and
disadvantage us relative to
 
competitors who are better
 
established in e-commerce sales,
 
and reductions in
face-to-face work, travel and socializing occasions, which may lead
 
customers to less frequently desire or
perceive the need to update their wardrobes.
 
The
 
far-reaching
 
impacts
 
of
 
COVID-19 may
 
also
 
intensify other
 
risks we
 
discuss
 
in
 
this
 
report and
other filings we make from time to time with the SEC.
 
Future
 
outbreaks of
 
disease
 
or
 
similar
 
public
 
health
 
threats,
 
or
 
the
 
fear
 
of
 
such
 
an
 
occurrence,
 
may
also have a material adverse effect on the Company’s business, financial condition and operating results.
Risks Relating to Our Business:
Increased product costs, freight costs, wage increases and operating costs due to
 
inflation and other factors,
as well as limitations in our ability to offset these cost increases by increasing
 
the retail
 
prices of our
products or otherwise,
 
may adversely affect our business, margins, results of operations and
 
financial
condition.
 
The impact
 
of inflation
 
on the
 
labor and
 
raw materials
 
used to
 
make our
 
products, coupled
 
with the
higher
 
cost of
 
ocean freight
 
from Asia
 
resulting from
 
supply chain
 
disruption, is
 
continuing to
 
increase
the
 
cost
 
we
 
pay
 
for
 
our
 
products.
 
Tight
 
labor
 
markets
 
are
 
causing
 
wages
 
to
 
increase
 
at
 
the
 
store,
distribution center
 
and home office
 
levels, as
 
well as
 
making it
 
more difficult
 
to hire
 
new associates
 
and
retain existing associates.
 
The tight labor market
 
and inflation also are
 
driving up our operating
 
costs.
 
If
we are unable to offset the effects of these increased costs to our business by increasing the retail prices of
our
 
products,
 
reducing
 
other
 
expenses
 
or
 
otherwise,
 
our
 
business,
 
margins,
 
results
 
of
 
operations
 
and
financial condition may be adversely affected.
Our ability to
 
raise retail
 
prices in response
 
to these
 
cost increases may
 
be limited,
 
in part
 
due to
 
our
customers’
 
unwillingness
 
to
 
pay
 
higher
 
prices
 
for
 
discretionary
 
items
 
in
 
light
 
of
 
actual
 
or
 
perceived
effects
 
of
 
inflation
 
in
 
increasing
 
our
 
customers’
 
cost
 
of
 
essential
 
items
 
and
 
diminishing
 
customers’
disposable
 
income
 
or
 
financial
 
outlook.
 
Moreover,
 
the
 
persistence
 
or
 
worsening
 
of
 
inflationary
conditions could also
 
lead our customers
 
to reduce their
 
amount of current
 
discretionary spending on our
products even in the
 
absence of price increases,
 
which could erode our
 
sales volume and adversely
 
affect
our results of operations and financial condition.
 
 
Unusual weather, natural disasters, public
 
health threats or similar events may adversely affect
 
our sales or
operations.
12
 
Extreme
 
changes
 
in
 
weather,
 
natural
 
disasters,
 
public
 
health
 
threats
 
or
 
similar
 
events
 
can
 
influence
customer trends
 
and shopping
 
habits.
 
For example,
 
heavy rainfall
 
or other
 
extreme weather
 
conditions,
including
 
but
 
not
 
limited
 
to
 
winter
 
weather
 
over
 
a
 
prolonged
 
period,
 
might
 
make
 
it
 
difficult
 
for
 
our
customers
 
to
 
travel
 
to
 
our
 
stores
 
and
 
thereby
 
reduce
 
our
 
sales
 
and
 
profitability.
 
Our
 
business
 
is
 
also
susceptible
 
to
 
unseasonable weather
 
conditions.
 
For example,
 
extended
 
periods
 
of
 
unseasonably warm
temperatures during
 
the winter
 
season or
 
cool weather
 
during the
 
summer season
 
could render
 
a portion
of
 
our
 
inventory
 
incompatible
 
with
 
those
 
unseasonable
 
conditions.
 
Reduced
 
sales
 
from
 
extreme
 
or
prolonged
 
unseasonable
 
weather
 
conditions
 
would
 
adversely
 
affect
 
our
 
business.
 
The
 
occurrence
 
or
threat
 
of
 
extreme
 
weather,
 
natural
 
disasters,
 
power
 
outages,
 
terrorist
 
acts,
 
outbreaks
 
of
 
flu
 
or
 
other
communicable diseases (such as COVID-19) or other catastrophic events could reduce customer
 
traffic in
our
 
stores
 
and
 
likewise
 
disrupt
 
our
 
ability
 
to
 
conduct
 
operations,
 
which
 
could
 
materially
 
and
 
adversely
affect us.
Because we source a significant portion of our merchandise directly and indirectly from
 
overseas, we are
subject to risks associated with international operations and risks that affect
 
the prevailing social, economic,
political, public health and other conditions in the areas from which we source merchandise;
 
changes,
disruptions, increased costs
 
or other problems affecting the Company’s
 
merchandise supply chain could
materially and adversely affect the Company’s
 
business, results of operations and financial condition.
 
A significant amount of
 
our merchandise is manufactured
 
overseas, principally in Southeast
 
Asia. We
directly import some of this merchandise and
 
indirectly import the remaining merchandise from domestic
vendors
 
who
 
acquire
 
the
 
merchandise
 
from
 
foreign
 
sources.
 
Further,
 
our
 
third-party
 
vendors
 
are
dependent
 
on
 
materials
 
primarily
 
sourced
 
from
 
China.
 
As
 
a
 
result,
 
political
 
unrest,
 
labor
 
disputes,
terrorism,
 
war,
 
public
 
health
 
threats,
 
including
 
but
 
not
 
limited
 
to
 
communicable
 
diseases
 
(such
 
as
COVID-19), financial or other forms of instability or other events resulting in the disruption of trade from
countries
 
affecting
 
our
 
supply
 
chain,
 
increased
 
security
 
requirements
 
for
 
imported
 
merchandise,
 
or
 
the
imposition of, or changes
 
in, laws, regulations or
 
changes in duties, quotas, tariffs,
 
taxes or governmental
policies regarding
 
these matters
 
or other
 
factors affecting
 
the availability
 
or cost
 
of imports,
 
could cause
significant
 
delays
 
or
 
interruptions
 
in
 
the
 
supply
 
of
 
our
 
merchandise
 
or
 
increase
 
our
 
costs.
 
We
 
are
 
also
subject
 
to
 
supply
 
chain
 
disruptions
 
affecting
 
ocean
 
freight,
 
including
 
lack
 
of
 
overall
 
ocean
 
container
shipping capacity versus
 
the current demand
 
for container shipping
 
capacity,
 
lack of our
 
ability to access
the
 
ocean
 
container
 
capacity
 
that
 
we
 
require,
 
lack
 
of
 
equipment
 
such
 
as
 
containers,
 
port
 
congestion,
including increased
 
dwell times
 
for ocean
 
container ships,
 
and other
 
conditions impacting
 
ocean freight.
 
We
 
also
 
are
 
subject
 
to
 
domestic
 
supply
 
chain
 
disruptions,
 
including
 
lack
 
of
 
domestic
 
intermodal
transportation
 
(trucks
 
and
 
drivers),
 
domestic
 
port
 
congestion,
 
including
 
increased
 
dwell
 
times
 
for
incoming container ships, lack of container yard capacity and lack of available drayage from the ports and
other conditions that may impact
 
our domestic supply chain.
 
These supply chain risks may
 
result in both
higher
 
costs
 
to
 
transport
 
our
 
merchandise
 
and
 
delayed
 
merchandise
 
arrivals
 
to
 
our
 
stores,
 
which
 
may
adversely
 
affect
 
our
 
ability
 
to
 
sell
 
this
 
merchandise
 
and
 
increase
 
markdowns
 
of
 
it.
 
Our
 
costs
 
are
 
also
affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies may
increase our cost of goods
 
sold. Any of these factors
 
could have a material adverse effect
 
on our business
and
 
results
 
of
 
operations.
 
In
 
addition,
 
increased
 
energy
 
and
 
transportation
 
costs
 
have
 
caused
 
us
significant cost increases from time to time,
 
and future adverse changes in these
 
costs or the disruption of
the means by which merchandise is transported to us could cause additional cost increases
 
or interruptions
of
 
our
 
supply
 
chain,
 
which
 
could
 
be
 
significant.
 
Further,
 
we
 
are
 
subject
 
to
 
increased
 
costs
 
or
 
potential
disruptions impacting any
 
port or trade
 
route through which
 
our products move,
 
or we may
 
be subject
 
to
increased costs
 
and delays
 
if forced
 
to route
 
freight through
 
different ports
 
than the
 
ones through
 
which
our
 
products
 
typically
 
move.
 
If
 
we
 
are
 
forced
 
to
 
source
 
merchandise
 
from
 
other
 
countries
 
or
 
other
domestic vendors with foreign
 
sources in different
 
countries, those goods
 
may be more expensive
 
or of a
different or inferior quality from the ones we now sell.
The inability of third-party vendors to produce goods on time and to the Company’s
 
specification may
adversely affect the Company’s
 
business, results of operations and financial condition.
13
 
Our
 
dependence
 
on
 
third-party
 
vendors
 
to
 
manufacture
 
and
 
supply
 
our
 
merchandise
 
subjects
 
us
 
to
numerous risks that
 
our vendors will
 
fail to perform
 
as we expect.
 
For example, the
 
deterioration in any
of
 
our key
 
vendors’ financial
 
condition, their
 
failure to
 
ship merchandise
 
in a
 
timely manner
 
that meets
our specifications,
 
or other
 
failures to
 
follow our
 
vendor guidelines
 
or comply
 
with applicable
 
laws and
regulations,
 
including
 
compliant
 
labor,
 
environmental
 
practices
 
and
 
product
 
safety,
 
could
 
expose
 
us
 
to
operational, quality,
 
competitive, reputational and
 
legal risks.
 
If we
 
are not
 
able to
 
timely or
 
adequately
replace the merchandise we currently
 
source with merchandise produced elsewhere,
 
or if our vendors fail
to
 
perform as
 
we
 
expect,
 
our
 
business, results
 
of
 
operations
 
and
 
financial
 
condition
 
could
 
be
 
adversely
affected.
 
Activities
 
conducted
 
by
 
us
 
or
 
on
 
our
 
behalf
 
outside
 
the
 
United
 
States
 
further
 
subject
 
us
 
to
numerous
 
U.S.
 
and
 
international
 
regulations
 
and
 
compliance
 
risks,
 
as
 
discussed
 
below
 
under
 
“Risk
Factors –
 
Risks Relating
 
to Accounting
 
and Legal
 
Matters -
 
Our business
 
operations subject
 
us to
 
legal
compliance and litigation
 
risks, as well
 
as regulations and
 
regulatory enforcement priorities, which
 
could
result in increased costs or liabilities,
 
divert our management’s attention
 
or otherwise adversely affect our
business, results of operations and financial condition.”
Our ability to attract consumers and grow our revenues is dependent on the success of our store location
strategy and our ability to successfully open new stores as planned.
 
Our sales are
 
dependent in part
 
on the location
 
of our stores
 
in shopping centers
 
and malls where
 
we
believe our
 
consumers and
 
potential consumers
 
shop.
 
In addition,
 
our ability
 
to grow
 
our
 
revenues has
been substantially dependent on our ability to secure space for and open new stores in attractive locations.
 
Shopping centers and malls where we currently
 
operate existing stores or seek to open
 
new stores may be
adversely affected by, among other
 
things, general economic downturns or those particularly affecting the
commercial
 
real
 
estate
 
industry,
 
the
 
closing
 
of
 
anchor
 
stores,
 
changes
 
in
 
tenant
 
mix
 
and
 
changes
 
in
customer shopping preferences, including but not limited to an increase in preference for online versus in-
person shopping.
 
To
 
take advantage of
 
consumer traffic and
 
the shopping preferences of
 
our consumers,
we
 
need
 
to
 
maintain
 
and
 
acquire
 
stores
 
in
 
desirable
 
locations
 
where
 
competition
 
for
 
suitable
 
store
locations
 
is
 
intense.
 
A
 
decline
 
in
 
customer
 
popularity of
 
the
 
strip
 
shopping
 
centers
 
where we
 
generally
locate our stores or
 
in availability of space
 
in desirable centers and locations,
 
or an increase in
 
the cost of
such
 
desired
 
space,
 
could
 
limit
 
our
 
ability
 
to
 
open
 
new
 
stores,
 
adversely
 
affect
 
consumer
 
traffic
 
and
reduce our sales and net earnings or increase our operating costs.
 
Our ability
 
to open
 
and operate
 
new stores
 
depends on
 
many factors,
 
some of
 
which are
 
beyond our
control.
 
These
 
factors
 
include,
 
but
 
are
 
not
 
limited
 
to,
 
our
 
ability
 
to
 
identify
 
suitable
 
store
 
locations,
negotiate acceptable lease terms, secure
 
necessary governmental permits and approvals and
 
hire and train
appropriate store personnel.
 
In addition, our
 
continued expansion into
 
new regions of
 
the country
 
where
we
 
have
 
not
 
done
 
business
 
before
 
may
 
present
 
new
 
challenges
 
in
 
competition,
 
distribution
 
and
merchandising as we enter these new markets. Our failure to successfully and timely
 
execute our plans for
opening new stores
 
or the failure
 
of these stores
 
to perform up
 
to our expectations
 
could adversely affect
our business, results of operations and financial condition.
If we are unable to anticipate, identify and respond to rapidly changing fashion trends and
 
customer
demands in a timely manner, our business
 
and results of operations could materially suffer.
 
 
Customer
 
tastes
 
and
 
fashion
 
trends,
 
particularly
 
for
 
women’s
 
apparel,
 
are
 
volatile,
 
tend
 
to
 
change
rapidly
 
and
 
cannot
 
be
 
predicted
 
with
 
certainty.
 
Our
 
success
 
depends
 
in
 
part
 
upon
 
our
 
ability
 
to
consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a
timely
 
manner.
 
Accordingly,
 
any
 
failure
 
by
 
us
 
to
 
anticipate,
 
identify,
 
design
 
and
 
respond
 
to
 
changing
fashion
 
trends
 
could
 
adversely
 
affect
 
consumer
 
acceptance
 
of
 
our
 
merchandise,
 
which
 
in
 
turn
 
could
adversely affect our business, results
 
of operations and our image with
 
our customers.
 
If we miscalculate
either the
 
market for
 
our merchandise
 
or our
 
customers’ tastes or
 
purchasing habits, we
 
may be required
to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which
would adversely affect our margins and results of operations.
14
Fluctuating comparable sales or our inability to effectively
 
manage inventory may negatively impact our
gross margin and our overall results of operations.
 
Comparable
 
sales
 
are
 
expected
 
to
 
continue
 
to
 
fluctuate
 
in
 
the
 
future.
 
Factors
 
affecting
 
comparable
sales
 
include
 
fashion
 
trends,
 
customer
 
preferences,
 
calendar
 
and
 
holiday
 
shifts,
 
competition,
 
weather,
supply
 
chain
 
issues,
 
actual
 
or
 
potential
 
public
 
health
 
threats
 
and
 
economic
 
conditions.
 
In
 
addition,
merchandise
 
must
 
be
 
ordered
 
well
 
in
 
advance
 
of
 
the
 
applicable
 
selling
 
season
 
and
 
before
 
trends
 
are
confirmed by sales.
 
If we are
 
not able to
 
accurately predict customers’
 
preferences for our
 
fashion items,
we may have too
 
much inventory, which
 
may cause excessive markdowns. If we
 
are unable to accurately
predict demand
 
for our
 
merchandise, we may
 
end up
 
with inventory shortages,
 
resulting in
 
missed sales.
A decrease in
 
comparable sales or
 
our inability to
 
effectively manage inventory may
 
adversely affect our
gross margin and results of operations.
Existing and increased competition in the women’s
 
retail apparel industry may negatively impact our
business, results of operations, financial condition and market share.
 
The
 
women’s
 
retail
 
apparel
 
industry
 
is
 
highly
 
competitive.
 
We
 
compete
 
primarily
 
with
 
discount
stores,
 
mass
 
merchandisers,
 
department
 
stores,
 
off-price
 
retailers,
 
specialty
 
stores
 
and
 
internet-based
retailers, many of which have substantially greater financial, marketing and
 
other resources than we have.
 
Many
 
of
 
our
 
competitors offer
 
frequent
 
promotions and
 
reduce
 
their
 
selling prices.
 
In some
 
cases,
 
our
competitors are expanding into
 
markets in which we
 
have a significant market
 
presence.
 
In addition, our
competitors
 
also
 
compete
 
for
 
the
 
same
 
retail
 
store
 
space.
 
As
 
a
 
result
 
of
 
this
 
competition,
 
we
 
may
experience
 
pricing
 
pressures,
 
increased
 
marketing
 
expenditures,
 
increased
 
costs
 
to
 
open
 
new
 
stores,
 
as
well
 
as
 
loss
 
of
 
market
 
share,
 
which
 
could
 
materially
 
and
 
adversely
 
affect
 
our
 
business,
 
results
 
of
operations and financial condition.
The operation of our sourcing offices in Asia may present increased legal
 
and operational risks.
 
In
 
October
 
2014,
 
we
 
established
 
our
 
own
 
sourcing
 
offices
 
in
 
Asia.
 
Our
 
experience
 
with
 
legal
 
and
regulatory practices and requirements in Asia
 
is limited. If our sourcing offices
 
are unable to successfully
oversee
 
merchandise
 
production
 
to
 
ensure
 
that
 
product
 
is
 
produced
 
on
 
time
 
and
 
within
 
the
 
Company’s
specifications, our business, brand, reputation, costs, results of operations
 
and financial condition could be
materially
 
and
 
adversely
 
affected.
 
Further,
 
the
 
activities
 
conducted
 
by
 
our
 
sourcing
 
offices
 
outside
 
the
United
 
States
 
subject
 
us
 
to
 
foreign
 
operational
 
risks,
 
as
 
well
 
as
 
U.S.
 
and
 
international
 
regulations
 
and
compliance risks,
 
as discussed
 
elsewhere in
 
this “Risk
 
Factors” section,
 
in particular
 
below under
 
“Risk
Factors –
 
Risks Relating
 
to Accounting
 
and Legal
 
Matters -
 
Our business
 
operations subject
 
us to
 
legal
compliance and litigation
 
risks, as well
 
as regulations and
 
regulatory enforcement priorities, which
 
could
result in increased costs or liabilities,
 
divert our management’s attention
 
or otherwise adversely affect our
business, results of operations and financial condition.”
Any actual or perceived deterioration in the conditions that drive consumer confidence
 
and spending may
materially and adversely affect consumer demand for our apparel
 
and accessories and our results of
operations.
 
Consumer spending habits, including spending for our apparel and accessories, are affected by, among
other things, prevailing social, economic,
 
political and public health
 
conditions and uncertainties (such as
matters under debate in the U.S. from time to time
 
regarding budgetary, spending and tax policies and
 
the
impact
 
of
 
COVID-19), levels
 
of
 
employment, fuel,
 
energy
 
and
 
food
 
costs,
 
salaries
 
and
 
wage
 
rates
 
and
other sources of
 
income, tax rates,
 
home values, consumer net
 
worth, the availability
 
of consumer credit,
inflation, consumer confidence and consumer perceptions of adverse changes in or trends affecting any of
these
 
conditions.
 
Any
 
perception
 
that
 
these
 
conditions
 
may
 
be
 
worsening
 
or
 
continuing
 
to
 
trend
negatively
 
may
 
significantly
 
weaken
 
many
 
of
 
these
 
drivers
 
of
 
consumer
 
spending
 
habits.
 
Adverse
perceptions of
 
these conditions
 
or
 
uncertainties regarding
 
them also
 
generally cause
 
consumers to
 
defer
purchases
 
of
 
discretionary
 
items,
 
such
 
as
 
our
 
merchandise,
 
or
 
to
 
purchase
 
cheaper
 
alternatives
 
to
 
our
merchandise, all
 
of which
 
may also
 
adversely affect
 
our net
 
sales and
 
results of
 
operations.
 
In addition,
15
numerous events,
 
whether or
 
not
 
related to
 
actual
 
economic conditions,
 
such
 
as downturns
 
in
 
the
 
stock
markets,
 
acts
 
of
 
war
 
or
 
terrorism,
 
political
 
unrest
 
or
 
natural
 
disasters,
 
outbreaks
 
of
 
disease
 
or
 
similar
events,
 
may
 
also
 
dampen
 
consumer
 
confidence,
 
and
 
accordingly,
 
lead
 
to
 
reduced
 
consumer
 
spending.
 
Any
 
of
 
these
 
events
 
could
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
our
 
business,
 
results
 
of
 
operations
 
and
financial condition.
Fluctuations in the price, availability and quality of inventory may result in higher
 
cost of goods, which the
Company may not be able to pass on to its customers.
 
Vendors
 
are
 
increasingly
 
passing
 
on
 
higher
 
production
 
costs,
 
including
 
the
 
costs
 
to
 
ship
 
product,
which may impact our ability to maintain or grow our margins. The price and availability of raw materials
may be
 
impacted by
 
demand, regulation,
 
weather and
 
crop yields,
 
currency value
 
fluctuations, inflation,
as
 
well as
 
other factors.
 
Additionally,
 
manufacturers have
 
and may
 
continue to
 
have increases
 
in
 
other
manufacturing costs,
 
such as
 
transportation, labor
 
and benefit
 
costs. These
 
increases in
 
production costs
result
 
in
 
higher
 
merchandise
 
costs
 
to
 
the
 
Company.
 
Due
 
to
 
the
 
Company’s
 
limited
 
flexibility
 
in
 
price
point, the Company
 
may not be
 
able to pass
 
on those cost
 
increases to the
 
consumer, which could
 
have a
material adverse effect on our margins, results of operations and financial condition.
If the Company is unable to successfully integrate new businesses into its existing business,
 
the Company’s
financial condition and results of operations will be adversely affected.
 
The Company’s
 
long-term business
 
strategy includes
 
opportunistic growth
 
through the
 
development
of
 
new
 
store
 
concepts.
 
This
 
growth
 
may
 
require
 
significant
 
capital
 
expenditures
 
and
 
management
attention. The Company may not
 
realize any of the
 
anticipated benefits of a
 
new business and integration
costs
 
may
 
exceed
 
anticipated
 
amounts.
 
We
 
have
 
incurred
 
substantial
 
financial
 
commitments
 
and
 
fixed
costs related to our retail stores that we
 
will not be able to recover if our stores
 
are not successful and that
could
 
potentially result
 
in
 
impairment charges.
 
If we
 
cannot
 
successfully execute
 
our
 
growth
 
strategies,
our financial condition and results of operations may be adversely
 
impacted.
 
Failure to attract, train, and retain skilled personnel could adversely affect
 
our business and our financial
condition.
 
Like most
 
retailers, we
 
experience significant
 
associate turnover rates,
 
particularly among store
 
sales
associates and
 
managers.
 
Moreover,
 
attracting and
 
retaining skilled
 
personnel has
 
become increasingly
challenging in
 
the tight
 
labor market
 
that has
 
persisted since
 
the onset
 
of the
 
COVID-19 pandemic.
 
To
offset this
 
turnover as
 
well as
 
support new
 
store growth,
 
we must
 
continually attract,
 
hire and
 
train new
store
 
associates
 
to
 
meet
 
our
 
staffing
 
needs.
 
A
 
significant
 
increase
 
in
 
the
 
turnover
 
rate
 
among
 
our
 
store
sales associates and managers would increase our recruiting and training costs, as well as possibly cause a
decrease in our store operating
 
efficiency and productivity.
 
We
 
compete for qualified store associates, as
well
 
as
 
experienced
 
management
 
personnel,
 
with
 
other
 
companies
 
in
 
our
 
industry
 
or
 
other
 
industries,
many of whom have greater financial resources than we do.
 
 
In
 
addition,
 
we
 
depend
 
on
 
key
 
management
 
personnel
 
to
 
oversee
 
the
 
operational
 
divisions
 
of
 
the
Company
 
for
 
the
 
support
 
of
 
our
 
existing
 
business
 
and
 
future
 
expansion.
 
The
 
success
 
of
 
executing
 
our
business strategy
 
depends in
 
large part
 
on retaining
 
key management.
 
We
 
compete for
 
key management
personnel
 
with
 
other
 
retailers, and
 
our
 
inability
 
to
 
attract
 
and
 
retain
 
qualified personnel
 
could
 
limit
 
our
ability to continue to grow.
 
If
 
we
 
are
 
unable
 
to
 
retain
 
our
 
key
 
management
 
and
 
store
 
associates
 
or
 
attract,
 
train,
 
or
 
retain
 
other
skilled
 
personnel in
 
the
 
future,
 
we
 
may not
 
be
 
able
 
to
 
service
 
our
 
customers
 
effectively
 
or
 
execute
 
our
business strategy, which could adversely affect our business, operating results and financial condition.
16
 
The currently
 
competitive environment
 
for
 
hiring new
 
associates and
 
retaining existing
 
associates is
causing
 
wages
 
to
 
increase,
 
which
 
could
 
adversely
 
affect
 
our
 
business,
 
margins,
 
operating
 
results
 
and
financial condition if we cannot offset these cost increases.
Risks Relating to Our Information Technology and Related Systems:
A failure or disruption relating to our information technology systems could
 
adversely affect our business.
 
We
 
rely
 
on
 
our
 
existing
 
information
 
technology
 
systems
 
for
 
merchandise
 
operations,
 
including
merchandise planning,
 
replenishment, pricing, ordering,
 
markdowns and
 
product life
 
cycle management.
 
In addition to
 
merchandise operations, we utilize
 
our information technology systems for
 
our distribution
processes,
 
as
 
well
 
as
 
our
 
financial
 
systems,
 
including
 
accounts
 
payable,
 
general
 
ledger,
 
accounts
receivable, sales,
 
banking, inventory
 
and fixed
 
assets.
 
Despite the
 
precautions we
 
take, our
 
information
systems are or may be vulnerable to disruption
 
or failure from numerous events, including but not limited
to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts
of
 
war
 
or
 
terrorism,
 
similar
 
catastrophic
 
events
 
or
 
other
 
causes
 
beyond
 
our
 
control
 
or
 
that
 
we
 
fail
 
to
anticipate. Any disruption or failure in the operation of our information technology systems, our failure to
continue
 
to
 
upgrade
 
or
 
improve
 
such
 
systems,
 
or
 
the
 
cost
 
associated
 
with
 
maintaining,
 
repairing
 
or
improving
 
these
 
systems,
 
could
 
adversely
 
affect
 
our
 
business,
 
results
 
of
 
operations
 
and
 
financial
condition. Modifications and/or upgrades to
 
our current information technology systems may also
 
disrupt
our operations.
 
 
A disruption or shutdown of our centralized distribution center or transportation network
 
could materially
and adversely affect our business and results of operations.
 
The distribution
 
of our
 
products is
 
centralized in
 
one distribution
 
center in
 
Charlotte, North
 
Carolina
and
 
distributed
 
through
 
our
 
network
 
of
 
third-party
 
freight
 
carriers.
 
The
 
merchandise
 
we
 
purchase
 
is
shipped directly to
 
our distribution center,
 
where it is
 
prepared for shipment
 
to the appropriate
 
stores and
subsequently delivered
 
to
 
the
 
stores
 
by our
 
third-party freight
 
carriers.
 
If the
 
distribution
 
center or
 
our
third-party freight carriers were
 
to be shut down
 
or lose significant capacity
 
for any reason, including but
not limited to, any of the causes described above under “A failure or disruption
 
relating to our information
technology
 
systems
 
could
 
adversely
 
affect
 
our
 
business,”
 
our
 
operations
 
would
 
likely
 
be
 
seriously
disrupted.
 
Such problems could occur as the result of any loss, destruction or impairment of our ability to
use
 
our
 
distribution center,
 
as
 
well
 
as
 
any broader
 
problem generally
 
affecting
 
the ability
 
to
 
ship
 
goods
into our distribution center or deliver goods
 
to our stores.
 
As a result, we could incur significantly higher
costs and longer lead
 
times associated with distributing our
 
products to our stores during
 
the time it takes
for us to reopen or
 
replace the distribution center and/or our transportation network. Any such
 
occurrence
could adversely affect our business, results of operations and financial condition.
A security breach that results in unauthorized access to or disclosure of employee,
 
Company or customer
information could adversely affect our costs, reputation and
 
results of operations, and efforts to mitigate
these risks may continue to increase our costs.
 
 
The
 
protection
 
of
 
employee,
 
Company and
 
customer
 
data
 
is
 
critical
 
to
 
the
 
Company.
 
Any
 
security
breach, mishandling, human or programming error or other event that results in the misappropriation, loss
or
 
other
 
unauthorized
 
disclosure
 
of
 
employee,
 
Company
 
or
 
customer
 
information,
 
including
 
but
 
not
limited
 
to
 
credit
 
card
 
data
 
or
 
other
 
personally
 
identifiable
 
information,
 
could
 
severely
 
damage
 
the
Company's reputation, expose it to
 
remediation and other costs
 
and the risks of legal
 
proceedings, disrupt
its
 
operations
 
and
 
otherwise
 
adversely
 
affect
 
the
 
Company's
 
business
 
and
 
financial
 
condition.
 
The
security of certain of
 
this information also depends on
 
the ability of third-party
 
service providers, such as
those
 
we
 
use
 
to
 
process
 
credit
 
and
 
debit
 
card
 
payments
 
as
 
described
 
below
 
under
 
“We
 
are
 
subject
 
to
payment-related
 
risks,”
 
to
 
properly
 
handle
 
and
 
protect
 
such
 
information.
 
Our
 
information
 
systems
 
and
those of our
 
third-party service providers are
 
subject to ongoing and
 
persistent cybersecurity threats from
those seeking unauthorized
 
access through means
 
which are
 
continually evolving and
 
may be difficult
 
to
17
anticipate or detect for long periods
 
of time.
 
Despite measures the Company takes
 
to protect confidential
information against
 
unauthorized access
 
or
 
disclosure, which
 
are ongoing
 
and
 
may continue
 
to
 
increase
our costs,
 
there is
 
no assurance
 
that such
 
measures will
 
prevent the
 
compromise of
 
such information.
 
If
any such
 
compromise or
 
unauthorized access
 
to or
 
disclosure of
 
this information
 
were to
 
occur,
 
it could
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Company's
 
reputation,
 
business,
 
operating
 
results,
 
financial
condition and cash flows.
We are subject to payment
 
-related risks.
 
We
 
accept payments
 
using a
 
variety of
 
methods, including
 
third-party credit
 
cards, our
 
own branded
credit
 
card,
 
debit
 
cards,
 
gift
 
cards
 
and
 
physical
 
and
 
electronic
 
bank
 
checks.
 
For
 
existing
 
and
 
future
payment
 
methods
 
we
 
offer
 
to
 
our
 
customers,
 
we
 
may
 
become
 
subject
 
to
 
additional
 
regulations
 
and
compliance
 
requirements
 
(including
 
obligations
 
to
 
implement
 
enhanced
 
authentication
 
processes
 
that
could result
 
in increased
 
costs and
 
reduce the
 
ease of
 
use of
 
certain payment
 
methods), as
 
well as
 
fraud
risk. For
 
certain payment
 
methods, including
 
credit
 
and debit
 
cards, we
 
pay interchange
 
and other
 
fees,
which
 
may increase
 
over
 
time, raising
 
our
 
operating costs
 
and
 
lowering profitability.
 
We
 
rely on
 
third-
party
 
service
 
providers
 
for
 
payment
 
processing
 
services,
 
including
 
the
 
processing
 
of
 
credit
 
and
 
debit
cards. In
 
each case,
 
it could
 
disrupt our
 
business if
 
these third-party
 
service providers
 
become unwilling
or unable to provide these services to
 
us. We
 
are also subject to payment card association operating rules,
including
 
data
 
security
 
rules,
 
certification
 
requirements
 
and
 
rules
 
governing
 
electronic
 
funds
 
transfers,
which could
 
change or
 
be reinterpreted
 
to make
 
it difficult
 
or impossible
 
for us
 
to comply.
 
If we
 
fail
 
to
comply with these rules or requirements, or if our data security systems are breached or compromised, we
may be
 
liable for
 
card-issuing banks’
 
costs, subject
 
to fines
 
and higher
 
transaction fees.
 
In addition,
 
we
may lose
 
our ability
 
to accept
 
credit and
 
debit card
 
payments from
 
our customers
 
and process
 
electronic
funds
 
transfers
 
or
 
facilitate
 
other
 
types
 
of
 
payments,
 
and
 
our
 
business
 
and
 
operating
 
results
 
could
 
be
adversely affected.
The Company’s
 
failure to successfully operate its e-commerce websites or fulfill customer expectations
 
could
adversely impact customer satisfaction, our reputation and our business.
 
Although
 
the
 
Company's e-commerce
 
platform
 
provides
 
another
 
channel
 
to
 
drive
 
incremental
 
sales,
provide
 
existing
 
customers
 
the
 
on-line
 
shopping
 
experience
 
and
 
introduce
 
the
 
Company
 
to
 
a
 
new
customer base,
 
it also
 
exposes us
 
to numerous
 
risks. We
 
are subject
 
to potential
 
failures in
 
the efficient
and uninterrupted operation
 
of our
 
websites, customer contact center
 
or our distribution
 
center, including
system
 
failures
 
caused
 
by
 
telecommunication
 
system
 
providers,
 
order
 
volumes
 
that
 
exceed
 
our
 
present
system capabilities, electrical outages,
 
mechanical problems and human error.
 
Our e-commerce platform
may also expose us
 
to greater potential for
 
security or data
 
breaches involving the unauthorized access
 
to
or
 
disclosure
 
of
 
customer
 
information,
 
as
 
discussed
 
above
 
under
 
“A
 
security
 
breach
 
that
 
results
 
in
unauthorized
 
access
 
to
 
or
 
disclosure
 
of
 
employee,
 
Company
 
or
 
customer
 
information
 
could
 
adversely
affect
 
our costs,
 
reputation and
 
results of
 
operations, and
 
efforts to
 
mitigate these
 
risks may
 
continue to
increase
 
our
 
costs.” We
 
are also
 
subject to
 
risk related
 
to
 
delays or
 
failures in
 
the
 
performance of
 
third
parties,
 
such
 
as
 
shipping
 
companies,
 
including
 
delays
 
associated
 
with
 
labor
 
strikes
 
or
 
slowdowns
 
or
adverse
 
weather
 
conditions.
 
If
 
the
 
Company
 
does
 
not
 
successfully
 
meet
 
the
 
challenges
 
of
 
operating
 
e-
commerce
 
websites
 
or
 
fulfilling
 
customer
 
expectations,
 
the
 
Company's
 
business
 
and
 
sales
 
could
 
be
adversely affected.
Risks Relating to Accounting and Legal Matters:
Changes to accounting rules and regulations may adversely affect
 
our reported results of operations and
financial condition.
 
In
 
an
 
effort
 
to
 
provide
 
greater
 
comparability
 
of
 
financial
 
reporting
 
in
 
an
 
increasing
 
global
environment, accounting regulatory authorities
 
have been in
 
discussions for many years
 
regarding efforts
to either converge U.S.
 
Generally Accepted Accounting Principles with International Financial
 
Reporting
18
Standards (“IFRS”),
 
have U.S.
 
companies
 
provide supplemental
 
IFRS-based information
 
or
 
continue to
work
 
toward
 
a
 
single
 
set
 
of
 
globally
 
accepted
 
accounting
 
standards.
 
If
 
implemented,
 
these
 
potential
changes
 
in
 
accounting
 
rules
 
or
 
regulations
 
could
 
significantly
 
impact
 
our
 
future
 
reported
 
results
 
of
operations and financial
 
position.
 
Changes in accounting
 
rules or
 
regulations and varying interpretations
of existing
 
accounting rules
 
and regulations
 
have significantly
 
affected our
 
reported financial
 
statements
and those
 
of other
 
participants in
 
the retail
 
industry in
 
the past
 
and may
 
continue to
 
do so
 
in the
 
future.
Future changes to
 
accounting rules or
 
regulations may adversely
 
affect our
 
reported results of
 
operations
and financial position or perceptions of our performance and financial
 
condition.
Adverse litigation matters may adversely affect our business and
 
our financial condition.
 
From
 
time
 
to
 
time
 
the
 
Company
 
is
 
involved
 
in
 
litigation
 
and
 
other
 
claims
 
against
 
our
 
business.
Primarily these
 
arise from
 
our
 
normal
 
course
 
of
 
business
 
but
 
are
 
subject to
 
risks and
 
uncertainties, and
could
 
require
 
significant
 
management
 
time.
 
The
 
Company’s
 
periodic
 
evaluation
 
of
 
litigation-related
matters may change our assessment in light
 
of the discovery of facts with respect to
 
legal actions pending
against
 
us, not
 
presently known
 
to
 
us
 
or
 
by determination
 
of
 
judges, juries
 
or
 
other finders
 
of
 
fact.
 
We
may also
 
be subjected
 
to legal
 
matters not
 
yet known to
 
us. Adverse
 
decisions or settlements
 
of disputes
may negatively impact our business, reputation and financial condition.
Our business operations subject us to legal compliance and litigation risks, as well as regulations
 
and
regulatory enforcement priorities, which could result in increased costs or liabilities,
 
divert our
management’s
 
attention or otherwise adversely affect our business, results of operations
 
and financial
condition.
 
Our operations
 
are subject
 
to federal,
 
state and
 
local laws,
 
rules and
 
regulations, as
 
well as
 
U.S. and
foreign
 
laws
 
and
 
regulations
 
relating
 
to
 
our
 
activities
 
in
 
foreign
 
countries
 
from
 
which
 
we
 
source
 
our
merchandise
 
and
 
operate our
 
sourcing
 
offices.
 
Our
 
business is
 
also
 
subject
 
to
 
regulatory and
 
litigation
risk in
 
all of
 
these jurisdictions, including
 
foreign jurisdictions
 
that may
 
lack well-established
 
or reliable
legal
 
systems
 
for
 
resolving
 
legal
 
disputes.
 
Compliance
 
risks
 
and
 
litigation
 
claims
 
have
 
arisen
 
and
 
may
continue
 
to
 
arise
 
in
 
the
 
ordinary
 
course
 
of
 
our
 
business
 
and
 
include,
 
among
 
other
 
issues,
 
intellectual
property
 
issues,
 
employment
 
issues,
 
commercial
 
disputes,
 
product-oriented
 
matters,
 
tax,
 
customer
relations and personal injury claims. International
 
activities subject us to numerous U.S.
 
and international
regulations, including but not limited to, restrictions on trade, license and permit requirements, import and
export
 
license
 
requirements,
 
privacy
 
and
 
data
 
protection
 
laws,
 
environmental
 
laws,
 
records
 
and
information
 
management
 
regulations,
 
tariffs
 
and
 
taxes
 
and
 
anti-corruption
 
laws,
 
such
 
as
 
the
 
Foreign
Corrupt Practices Act, violations
 
of which by employees
 
or persons acting on
 
the Company’s
 
behalf may
result in
 
significant investigation
 
costs, severe
 
criminal or
 
civil sanctions
 
and reputational
 
harm.
 
These
and
 
other
 
liabilities
 
to
 
which we
 
may
 
be
 
subject
 
could
 
negatively
 
affect
 
our
 
business, operating
 
results
and financial condition. These matters frequently raise complex factual and legal issues, which are subject
to
 
risks
 
and
 
uncertainties
 
and
 
could
 
divert
 
significant
 
management
 
time.
 
The
 
Company
 
may
 
also
 
be
subject to
 
regulatory review and
 
audits, which results
 
may have the
 
potential to materially
 
and adversely
affect
 
our
 
business, results
 
of
 
operations and
 
financial condition.
 
In addition,
 
governing laws,
 
rules and
regulations, and interpretations of existing laws are subject to
 
change from time to time.
 
Compliance and
litigation matters
 
could result
 
in unexpected
 
expenses and
 
liability,
 
as well
 
as have
 
an adverse
 
effect on
our operations and our reputation.
 
New
 
legislation
 
or
 
regulation
 
and
 
interpretation
 
of
 
existing
 
laws
 
and
 
regulations,
 
including
 
those
related to
 
data privacy,
 
could increase
 
our costs
 
of compliance,
 
technology and
 
business operations.
 
The
interpretation of existing or
 
new laws to
 
existing technology and practices
 
can be uncertain and
 
may lead
to additional compliance risk and cost.
If we fail to
 
protect our trademarks and
 
other intellectual property
 
rights or infringe the
 
intellectual property
rights
 
of
 
others,
 
our
 
business,
 
brand
 
image,
 
growth
 
strategy,
 
results
 
of
 
operations
 
and
 
financial
 
condition
could be adversely affected.
19
 
We
 
believe
 
that
 
our
 
“Cato”,
 
“It’s
 
Fashion”,
 
“It’s
 
Fashion
 
Metro”
 
and
 
“Versona”
 
trademarks
 
are
integral
 
to
 
our
 
store
 
designs,
 
brand
 
recognition
 
and
 
our
 
ability
 
to
 
successfully
 
build
 
consumer
 
loyalty.
Although we
 
have registered
 
these trademarks
 
with the
 
U.S. Patent
 
and Trademark
 
Office
 
(“PTO”) and
have also registered, or applied for registration of, additional trademarks with the PTO that we believe are
important to
 
our business,
 
we cannot
 
give assurance that
 
these registrations will
 
prevent imitation
 
of our
trademarks, merchandising concepts, store designs or private label merchandise or
 
the infringement of our
other
 
intellectual
 
property
 
rights
 
by
 
others.
 
Infringement
 
of
 
our
 
names,
 
concepts,
 
store
 
designs
 
or
merchandise
 
generally,
 
or
 
particularly
 
in
 
a
 
manner
 
that
 
projects
 
lesser
 
quality
 
or
 
carries
 
a
 
negative
connotation
 
of
 
our
 
image
 
could
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition
 
and
 
results
 
of
operations.
 
In addition,
 
we cannot
 
give assurance
 
that others will
 
not try
 
to block
 
the manufacture
 
or sale
 
of our
private label merchandise by claiming
 
that our merchandise violates
 
their trademarks or other
 
proprietary
rights.
 
In
 
the
 
event
 
of
 
such
 
a
 
conflict,
 
we
 
could
 
be
 
subject
 
to
 
lawsuits
 
or
 
other
 
actions,
 
the
 
ultimate
resolution of
 
which we
 
cannot predict;
 
however,
 
such a
 
controversy could
 
adversely affect
 
our business,
financial condition and results of operations.
Maintaining and improving our internal control over financial reporting and
 
other requirements necessary
to operate as a public company may strain our resources, and any material failure
 
in these controls may
negatively impact our business, the price of our common stock and market
 
confidence in our reported
financial information.
 
As a
 
public company,
 
we are
 
subject to
 
the reporting
 
requirements of
 
the Securities
 
Exchange Act
 
of
1934, the
 
Sarbanes-Oxley Act
 
of 2002,
 
the rules
 
of the
 
SEC and
 
New York
 
Stock Exchange
 
and certain
aspects of the Dodd-Frank Wall
 
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
related rule-making that
 
has been and
 
may continue to
 
be implemented over
 
the next several
 
years under
the mandates of the Dodd-Frank Act. The
 
requirements of these rules and regulations have increased, and
may continue to increase, our compliance costs and
 
place significant strain on our personnel, systems and
resources.
 
To
 
satisfy
 
the
 
SEC’s
 
rules
 
implementing
 
the
 
requirements
 
of
 
Section
 
404
 
of
 
the
 
Sarbanes-
Oxley Act
 
of
 
2002, we
 
must continue
 
to
 
document, test,
 
monitor and
 
enhance our
 
internal control
 
over
financial reporting, which is
 
a costly and time-consuming effort
 
that must be re-evaluated
 
frequently. We
cannot give
 
assurance that
 
our disclosure
 
controls and
 
procedures and
 
our internal
 
control over
 
financial
reporting, as
 
defined by applicable
 
SEC rules,
 
will be adequate
 
in the future.
 
Any failure
 
to maintain the
effectiveness
 
of
 
internal
 
control
 
over
 
financial
 
reporting
 
or
 
to
 
comply
 
with
 
the
 
other
 
various
 
laws
 
and
regulations to
 
which we
 
are and
 
will continue
 
to be
 
subject, or
 
to
 
which we
 
may become
 
subject in
 
the
future,
 
as
 
a
 
public
 
company
 
could
 
have
 
an
 
adverse
 
material
 
impact
 
on
 
our
 
business,
 
our
 
financial
condition and
 
the price
 
of our
 
common stock.
 
In addition,
 
our efforts
 
to comply
 
with these
 
existing and
new requirements could significantly increase our compliance costs.
Risks Relating to Our Investments and Liquidity:
We may experience market
 
conditions or other events that could adversely impact the valuation and liquidity
of, and our ability to access, our short-term investments, cash and cash equivalents and
 
our revolving line of
credit.
 
Our
 
short-term investments
 
and
 
cash
 
equivalents
 
are
 
primarily
 
comprised
 
of
 
investments
 
in
 
federal,
state, municipal
 
and corporate
 
debt securities.
 
The value
 
of those
 
securities may
 
be adversely
 
impacted
by factors relating to these securities,
 
similar securities or the broader credit
 
markets in general.
 
Many of
these factors
 
are beyond our
 
control, and include
 
but are
 
not limited to
 
changes to
 
credit ratings, rates
 
of
default, collateral
 
value, discount
 
rates, and
 
strength and
 
quality of
 
market credit
 
and liquidity,
 
potential
disruptions in the capital
 
markets and changes in the
 
underlying economic, financial and other
 
conditions
that drive these
 
factors.
 
As federal, state
 
and municipal entities
 
struggle with declining
 
tax revenues and
budget deficits,
 
we cannot
 
be assured
 
of our
 
ability to
 
timely access
 
these investments
 
if the
 
market for
20
these issues declines.
 
Similarly,
 
the default by
 
issuers of the
 
debt securities we
 
hold or similar
 
securities
could impair the liquidity
 
of our investments.
 
The development or persistence
 
of any of these
 
conditions
could
 
adversely
 
affect
 
our
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
ability
 
to
 
execute
 
our
 
business
strategy.
 
In
 
addition,
 
we
 
have significant
 
amounts
 
of
 
cash
 
and
 
cash
 
equivalents at
 
financial
 
institutions
that
 
are
 
in
 
excess
 
of
 
the
 
federally
 
insured
 
limits.
 
An
 
economic
 
downturn
 
or
 
development
 
of
 
adverse
conditions affecting the financial sector
 
and stability of financial institutions could cause
 
us to experience
losses on our deposits.
 
Our ability
 
to access
 
credit markets
 
and our
 
revolving line
 
of credit,
 
either generally
 
or on
 
favorable
market terms, may be
 
impacted by the
 
factors discussed in
 
the preceding paragraph, as
 
well as continued
compliance with covenants under
 
our revolving credit agreement. The
 
development or persistence of
 
any
of these
 
adverse factors or
 
failure to
 
comply with covenants
 
on which our
 
borrowing is conditioned
 
may
adversely
 
affect
 
our
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
our
 
ability
 
to
 
execute
 
our
 
business
strategy.
 
Risks Relating to the Market Value of Our Common Stock:
Our operating results are subject to seasonal and quarterly fluctuations, which could
 
adversely affect the
 
market price of our common stock.
 
Our business
 
varies with
 
general seasonal
 
trends that
 
are characteristic
 
of the
 
retail apparel
 
industry.
 
As a
 
result, our
 
stores typically
 
generate a
 
higher percentage
 
of our
 
annual net
 
sales and
 
profitability in
the
 
first
 
and second
 
quarters of
 
our
 
fiscal
 
year
 
compared to
 
other
 
quarters.
 
Accordingly,
 
our
 
operating
results for
 
any one
 
fiscal period
 
are not
 
necessarily indicative
 
of results
 
to
 
be expected
 
from any
 
future
period,
 
and
 
such
 
seasonal
 
and
 
quarterly
 
fluctuations
 
could
 
adversely
 
affect
 
the
 
market
 
price
 
of
 
our
common stock.
The interests of our principal shareholder may limit the ability of other shareholders to
 
influence the
direction of the Company and otherwise affect our corporate governance
 
and the market price of our
common stock.
 
As of March 23, 2022, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially
owned approximately 49.8%
 
of the combined
 
voting power of
 
our common stock.
 
As a result,
 
Mr.
 
Cato
has the ability to substantially influence or determine the outcome of all matters requiring approval by the
shareholders,
 
including
 
the
 
election
 
of
 
directors
 
and
 
the
 
approval
 
of
 
mergers
 
and
 
other
 
business
combinations
 
or
 
other
 
significant
 
Company
 
transactions.
 
Mr.
 
Cato
 
may
 
have
 
interests
 
that
 
differ
 
from
those of other shareholders, and
 
may vote in a
 
way with which other shareholders disagree
 
or perceive as
adverse to their interests.
 
The concentration of voting power held by Mr.
 
Cato could discourage potential
investors from acquiring our
 
common stock and could
 
also have the effect
 
of preventing, discouraging or
deferring a change in control of the Company or other fundamental transaction,
 
all of which could depress
the market price of our common stock.
 
In addition, Mr.
 
Cato has the ability to control the
 
management of
the
 
Company
 
as
 
a
 
result
 
of
 
his
 
position
 
as
 
Chief
 
Executive
 
Officer.
 
If
 
Mr.
 
Cato
 
acquires
 
beneficial
ownership of more than 50% of the combined voting power of our common stock (including as a result of
continued Company stock
 
repurchases from time
 
to time under
 
our stock repurchase
 
program that would
reduce
 
our
 
outstanding
 
shares),
 
we
 
would
 
qualify
 
for
 
exemption
 
as
 
a
 
“controlled
 
company”
 
from
compliance
 
with
 
certain
 
New
 
York
 
Stock
 
Exchange
 
corporate
 
governance
 
rules,
 
including
 
the
requirements
 
that
 
we
 
have
 
a
 
majority
 
of
 
independent
 
directors
 
on
 
our
 
Board,
 
an
 
independent
compensation
 
committee
 
and
 
an
 
independent
 
corporate
 
governance
 
and
 
nominating
 
committee.
 
If
 
we
became
 
eligible
 
and
 
elected
 
to
 
utilize
 
these
 
“controlled
 
company”
 
exceptions,
 
our
 
other
 
shareholders
could lose
 
the benefit
 
of these
 
corporate governance
 
requirements and
 
the market
 
value of
 
our common
stock could be adversely affected.
Conditions in the stock market generally, or particularly
 
relating to our industry, Company or common
stock, may materially and adversely affect the market
 
price of our common stock and make its trading price
21
more volatile.
 
The trading
 
price of
 
our common
 
stock at
 
times has
 
been, and
 
is likely
 
to continue
 
to be,
 
subject to
significant volatility.
 
A variety of
 
factors may cause
 
the price of
 
our common stock to
 
fluctuate, perhaps
substantially,
 
including,
 
but
 
not
 
limited
 
to,
 
those
 
discussed
 
elsewhere
 
in
 
this
 
report,
 
as
 
well
 
as
 
the
following: low
 
trading volume;
 
general market
 
fluctuations resulting
 
from factors
 
not directly
 
related to
our operations or the inherent value of
 
our common stock; announcements of developments related to our
business; fluctuations in our reported operating results; general conditions or trends affecting or perceived
to affect
 
the fashion and
 
retail industry; conditions or
 
trends affecting or
 
perceived to affect
 
the domestic
or global
 
economy or
 
the domestic
 
or global
 
credit or
 
capital markets;
 
changes in
 
financial estimates
 
or
the scope
 
of coverage
 
given to
 
our Company
 
by securities
 
analysts; negative
 
commentary regarding
 
our
Company
 
and
 
corresponding
 
short-selling
 
market
 
behavior;
 
adverse
 
customer
 
relations
 
developments;
significant changes
 
in our
 
senior management
 
team; and
 
legal proceedings.
 
Over the
 
past several
 
years
the stock
 
market in
 
general, and the
 
market for shares
 
of equity
 
securities of many
 
retailers in
 
particular,
have
 
experienced
 
extreme
 
price
 
fluctuations
 
that
 
have
 
at
 
times
 
been
 
unrelated
 
to
 
the
 
operating
performance of
 
those companies.
 
Such fluctuations
 
and market
 
volatility based
 
on these
 
or other
 
factors
may materially and adversely affect the market price of our common stock.
 
Item 1B.
 
Unresolved Staff Comments:
 
None.
Item 2.
 
Properties:
 
The Company’s
 
distribution center
 
and general
 
offices
 
are located
 
in a
 
Company-owned building
 
of
approximately
 
552,000
 
square
 
feet
 
located
 
on
 
a
 
15-acre
 
tract
 
in
 
Charlotte,
 
North
 
Carolina.
 
The
Company’s
 
automated
 
merchandise
 
handling
 
and
 
distribution
 
activities
 
occupy
 
approximately
 
418,000
square
 
feet
 
of
 
this
 
building
 
and
 
its
 
general
 
offices
 
and
 
corporate
 
training
 
center
 
are
 
located
 
in
 
the
remaining 134,000
 
square feet.
 
A building
 
of approximately
 
24,000 square
 
feet located
 
on a
 
2-acre tract
adjacent
 
to
 
the
 
Company’s
 
existing
 
location
 
is
 
used
 
for
 
receiving
 
and
 
distribution
 
of
 
store
 
and
 
office
operating
 
supplies.
 
The
 
Company also
 
owns
 
approximately 185
 
acres
 
of
 
land
 
in
 
York
 
County,
 
South
Carolina as a potential new site for our distribution center.
22
Item 3.
 
Legal Proceedings
:
 
From time
 
to time,
 
claims are
 
asserted against
 
the Company
 
arising out
 
of operations
 
in the
 
ordinary
 
course
 
of
 
business.
 
The
 
Company
 
currently
 
is
 
not
 
a
 
party
 
to
 
any
 
pending
 
litigation
 
that
 
it
 
believes
 
is
likely to have a
 
material adverse effect on
 
the Company’s
 
financial position, results of
 
operations or cash
flows. See Note 15, “Commitments and Contingencies,” for more
 
information.
 
 
 
23
Item 3A.
 
Executive Officers of the Registrant:
 
The executive officers of the Company and their ages as of March 23, 2022
 
are as follows:
Name
Age
 
Position
John P.
 
D. Cato............................
 
 
 
71
 
Chairman, President and Chief Executive Officer
Charles D. Knight........................
 
 
57
Executive Vice President, Chief Financial Officer
John R. Howe
 
..............................
 
 
59
Executive Vice President
Gordon Smith
 
..............................
 
 
 
66
 
Executive Vice President, Chief Real Estate and
Store Development Officer
John
 
P.
 
D.
 
Cato
has
 
been
 
employed
 
as
 
an
 
officer
 
of
 
the
 
Company
 
since
 
1981
 
and
 
has
 
been
 
a
director of the Company since 1986. Since January 2004,
 
he has served as Chairman, President and Chief
Executive Officer.
 
From May 1999 to
 
January 2004, he served
 
as President, Vice
 
Chairman of the
 
Board
and Chief Executive Officer.
 
From June 1997 to May 1999,
 
he served as President, Vice
 
Chairman of the
Board and
 
Chief Operating Officer.
 
From August 1996
 
to June
 
1997, he served
 
as Vice
 
Chairman of the
Board
 
and Chief
 
Operating Officer.
 
From 1989
 
to
 
1996, he
 
managed the
 
Company’s
 
off-price
 
concept,
serving
 
as
 
Executive Vice
 
President
 
and
 
as
 
President and
 
General Manager
 
of
 
the
 
It’s
 
Fashion
 
concept
from 1993
 
to
 
August 1996.
 
Mr. Cato
 
is
 
a former
 
director of
 
Harris Teeter
 
Supermarkets, Inc.,
 
formerly
Ruddick Corporation.
Charles D. Knight
 
has been employed as Executive Vice President, Chief Financial Officer by the
Company
 
since
 
January
 
of
 
2022.
 
From
 
2018
 
to
 
2020,
 
he
 
served
 
in
 
various
 
roles
 
with
 
The
 
Vitamin
Shoppe,
 
first
 
as
 
Senior
 
Vice
 
President,
 
Chief
 
Accounting
 
Officer
 
from
 
2018
 
to
 
2019,
 
and
 
then
 
as
Executive Vice
 
President, Chief Financial
 
Officer from 2019
 
to 2020.
 
Prior to
 
that, he
 
served in various
roles with Toys
 
“R” Us for 28
 
years, including as Senior Vice
 
President, Corporate Controller from 2010
to 2018.
John R. Howe
 
has been employed by the Company since 1986.
 
Since January 2022 he has served
as
 
Executive Vice
 
President.
 
From
 
September
 
2008 to
 
January
 
2022, he
 
has
 
served
 
as
 
Executive Vice
President,
 
Chief
 
Financial
 
Officer.
 
From
 
June
 
2007
 
until
 
September
 
2008,
 
he
 
served
 
as
 
Senior
 
Vice
President, Controller.
 
From 1999 to 2007,
 
he served as Vice
 
President, Assistant Controller.
 
From 1997
to 1999,
 
he served
 
as Assistant Vice
 
President, Budgets and
 
Planning.
 
From 1995
 
to 1997,
 
he served
 
as
Director, Budgets and Planning.
 
From 1990 to 1995, he served as
 
Assistant Tax Manager.
 
From 1986 to
1990, Mr. Howe held various positions within the finance area.
 
Gordon Smith
 
has been employed by the
 
Company since 1989. Since July
 
2011, he has
 
served as
Executive Vice
 
President, Chief
 
Real
 
Estate and
 
Store Development
 
Officer.
 
From February
 
2008 until
July 2011
 
Mr. Smith served
 
as Senior Vice
 
President, Real Estate. From
 
October 1989 to
 
February 2008,
Mr. Smith served as Assistant Vice President, Corporate Real Estate.
Item 4.
 
Mine Safety Disclosures:
 
No matters requiring disclosure.
24
PART
 
II
 
 
 
Item 5.
 
Market for Registrant’s
 
Common Equity, Related Stockholder Matters and Issuer Purchases
 
of
Equity Securities:
Market & Dividend Information
 
The
 
Company’s
 
Class A Common
 
Stock
 
trades
 
on the
 
New York
 
Stock
 
Exchange (“NYSE”) under
the symbol CATO.
 
 
As of March 23, 2022, the approximate number of record holders of the Company’s Class A Common
Stock was 5,000 and there were 2 record holders of the Company’s Class B Common Stock.
cato20210130p25i0.gif
 
 
 
 
 
 
 
 
 
 
 
 
 
25
Stock Performance Graph
 
The
 
following
 
graph
 
compares
 
the
 
yearly
 
change
 
in
 
the
 
Company’s
 
cumulative
 
total
 
shareholder
return on
 
the Company’s
 
Common Stock (which
 
includes Class
 
A Stock
 
and Class
 
B Stock)
 
for each
 
of
the
 
Company’s
 
last
 
five
 
fiscal
 
years
 
with
 
(i)
 
the
 
Dow
 
Jones
 
U.S.
 
Retailers,
 
Apparel
 
Index
 
and
 
(ii)
 
the
Russell 2000 Index.
THE CATO
 
CORPORATION
STOCK PERFOMANCE TABLE
(BASE 100 – IN DOLLARS)
LAST TRADING DAY
OF THE FISCAL YEAR
THE CATO
CORPORATION
DOW JONES U.S.
RETAILERS,
 
APPL
INDEX
RUSSELL 2000
 
INDEX
1/27/2017
100
100
100
2/2/2018
50
114
117
2/1/2019
68
124
113
1/31/2020
81
138
123
1/29/2021
58
147
161
1/28/2022
87
163
159
 
The graph assumes an initial investment of $100 on January 27, 2017,
 
the last trading day prior to the
commencement of the Company’s 2017 fiscal year, and that all dividends were reinvested.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Issuer Purchases of Equity Securities
 
The following table summarizes the Company’s purchases of its common stock for the three months
ended January 29, 2022:
Total Number of
Maximum Number
 
Shares Purchased as
(or Approximate Dollar
Total Number
 
Part of Publicly
Value) of Shares that may
 
of Shares
Average Price
Announced Plans or
yet be Purchased Under
Period
Purchased
Paid per Share (1)
 
Programs (2)
the Plans or Programs (2)
November 2021
111,582
$
16.25
111,582
December 2021
310,884
16.30
310,884
January 2022
-
-
-
Total
422,466
$
16.29
422,466
450,047
(1)
Prices
 
include
 
trading
 
costs.
(2)
During the
 
fourth quarter ended January
 
29, 2022,
 
the Company repurchased and
 
retired 422,466
shares under this program for
 
approximately
 
$6,881,294 or an average market price of
 
$16.29 per
share. As of the fourth
 
quarter ended
 
January 29, 2022,
 
the Company had
 
450,047 shares
 
remaining
in open authorizations.
 
There is no specified
 
expiration
 
date for the Company’s
 
repurchase
 
program.
 
The
 
Board
 
of
 
Directors authorized
 
an
 
increase
 
in
 
the
 
Company’s
 
share
 
repurchase program
 
of
1,000,000
 
shares
 
at the
 
February
 
24, 2022
 
Board
 
of Directors’
 
meeting.
27
Item 7.
 
Management's Discussion and Analysis of Financial Condition and Results of
 
Operations:
 
Management’s
 
Discussion and
 
Analysis of
 
Financial Condition
 
and Results
 
of Operations
 
is intended
to provide information to assist readers in better
 
understanding and evaluating our financial condition and
results
 
of
 
operations.
 
The
 
following
 
information
 
should
 
be
 
read
 
in
 
conjunction
 
with
 
the
 
Consolidated
Financial
 
Statements,
 
including
 
the
 
accompanying
 
Notes
 
appearing
 
in
 
Part
 
II,
 
Item
 
8
 
of
 
this
 
report
 
on
Form 10-K.
 
This section
 
of the
 
Form 10-K
 
generally discusses
 
fiscal 2021
 
and fiscal
 
2020 and
 
year-to-
year comparisons between fiscal
 
2021 and fiscal
 
2020, as well,
 
as certain fiscal
 
2019 items.
 
Discussions
of
 
fiscal
 
2019
 
items
 
and
 
year-to-year
 
comparisons
 
between
 
fiscal
 
2020
 
and
 
fiscal
 
2019
 
that
 
are
 
not
included
 
in
 
this
 
Form
 
10-K
 
can
 
be
 
found
 
in
 
“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
Condition and
 
Results of
 
Operations” in
 
Part II,
 
Item 7
 
of the
 
Company’s
 
Annual Report
 
on Form
 
10-K
for the fiscal year ended January 30, 2021.
COVID-19 Update
 
The
 
COVID-19
 
pandemic
 
adversely
 
impacted
 
the
 
Company's
 
business,
 
financial
 
condition
 
and
operating
 
results
 
through
 
fiscal
 
2020
 
and
 
to
 
a
 
lesser
 
extent
 
through
 
2021.
 
In
 
2021,
 
the
 
Company
 
saw
significant
 
improvements
 
in
 
sales
 
compared
 
to
 
2020.
 
This
 
improvement
 
was
 
primarily
 
attributable
 
to
government
 
stimulus,
 
increased
 
customer
 
traffic,
 
states
 
lifting
 
capacity
 
limits
 
as
 
more
 
people
 
were
vaccinated,
 
consumers’
 
increasing
 
comfort
 
level
 
with
 
venturing
 
out
 
to
 
social
 
events
 
and
 
customers’
preparing to return
 
to work. However,
 
the Company’s
 
2021 sales remain
 
below pre-pandemic 2019
 
sales
for the
 
comparable period,
 
and there
 
is still
 
significant uncertainty
 
regarding the
 
lingering effects
 
of the
pandemic,
 
as
 
well
 
as
 
concerns
 
over
 
the
 
impact
 
of
 
new
 
or
 
potential
 
variants
 
of
 
the
 
virus
 
that
 
are
 
more
transmissible or
 
severe, stagnant
 
vaccination rates
 
and related
 
factors that
 
may continue
 
to fuel
 
periodic
surges of the virus or otherwise impede progress toward the return to pre-pandemic
 
activities and levels of
consumer
 
confidence
 
and
 
commercial
 
activity.
 
The
 
Company
 
faces
 
additional
 
uncertainty
 
from
 
the
continued effects of disruption in the global supply chain, inflation and its
 
impact on our cost of products,
transportation, wage
 
rates and
 
other operating
 
costs, as
 
well as,
 
the impact
 
on our
 
customers’ disposable
incomes,
 
and
 
the
 
availability
 
of
 
workers.
 
The
 
Company
 
expects
 
that
 
these
 
uncertainties
 
and
 
perhaps
others related to
 
the pandemic will continue
 
to impact the
 
Company in fiscal 2022.
 
The adverse financial
impacts associated with
 
these continued effects
 
of, and
 
uncertainties related to,
 
the COVID-19 pandemic
include,
 
but
 
are
 
not
 
limited
 
to,
 
(i)
 
lower
 
net
 
sales
 
in
 
markets
 
affected
 
by
 
actual
 
or
 
potential
 
adverse
changes in
 
conditions relating
 
to
 
the
 
pandemic, whether
 
due to
 
increases in
 
case
 
counts, state
 
and local
orders, reductions in
 
store traffic and
 
customer demand, labor shortages,
 
or all of
 
these factors, (ii)
 
lower
net
 
sales
 
caused
 
by
 
the
 
delay
 
of
 
inventory
 
production
 
and
 
fulfillment,
 
(iii)
 
and
 
incremental
 
costs
associated
 
with
 
efforts
 
to
 
mitigate
 
the
 
effects
 
of
 
the
 
outbreak,
 
including
 
increased
 
freight
 
and
 
logistics
costs and other expenses.
 
While
 
the
 
Company
 
currently
 
anticipates
 
a
 
continuation
 
of
 
the
 
uncertainties
 
listed
 
above
 
and
 
the
potential
 
adverse
 
impacts
 
of
 
COVID-19
 
during
 
2022,
 
the
 
duration
 
and
 
severity
 
of
 
these
 
effects
 
will
depend
 
on
 
the
 
course
 
of
 
future
 
developments,
 
which
 
are
 
highly
 
uncertain.
 
The
 
extent
 
to
 
which
 
the
COVID-19
 
pandemic
 
ultimately
 
impacts
 
the
 
Company’s
 
business,
 
financial
 
condition,
 
results
 
of
operations,
 
cash
 
flows,
 
and
 
liquidity
 
may
 
differ
 
from
 
management’s
 
current
 
estimates
 
due
 
to
 
inherent
uncertainties regarding the duration
 
and further spread of
 
the outbreak or its
 
variants, its severity,
 
actions
taken to contain the
 
virus or treat its impact,
 
and how quickly and to
 
what extent pre-pandemic economic
and operating conditions can resume.
 
 
 
28
Results of Operations
 
The table below sets forth certain financial data of the Company expressed as a percentage of retail
sales for the years indicated:
Fiscal Year Ended
January 29,
2022
January 30,
2021
Retail sales …………………………………………………………..
100.0
%
100.0
%
Other revenue…………………………………………………………
1.0
1.3
Total revenues ……………………………………………………….
101.0
101.3
Cost of goods sold …………………………………………………..
59.5
76.3
Selling, general and administrative………………………………….
35.1
36.4
Depreciation …………………………………………………………
1.6
2.6
Interest and other income ……………………………………………
0.3
1.2
Income (loss) before income taxes ……………………………
5.1
(12.8)
Net income (loss) ……………………………………………………
4.8
%
(8.4)
%
Fiscal 2021 Compared to Fiscal 2020
 
Retail sales increased by 34.2% to $761.4 million in fiscal 2021 compared to $567.5 million in fiscal 2020.
The increase in retail sales in fiscal 2021 was primarily
 
due to a 34% increase in same-store sales
and sales
 
from
new stores, partially offset by permanently closed stores in 2020.
 
Same-store sales
 
for the
 
fiscal year
 
2021 increased
primarily due
 
to increased
 
store operating
 
hours in
 
fiscal 2021
 
as opposed
 
to the
 
store closures
 
that persisted
 
from
March 19, 2020
 
into the second
 
quarter of 2020.
 
Same-store sales includes 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.
 
In fiscal
 
2021 and
 
fiscal 2020,
 
e-commerce sales were
 
less
than 5% of total
 
sales and same-store sales. The method of
 
calculating 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.
 
Total
 
revenues, comprised of retail sales and
 
other revenue (principally finance
charges and
 
late
 
fees
 
on
 
customer accounts
 
receivable, gift
 
card
 
breakage,
 
shipping charges
 
for
 
e-commerce
purchases and layaway
 
fees),
increased by 33.8%
 
to $769.3 million
 
in fiscal 2021
 
compared to $575.1
 
million
in fiscal
 
2020. The
 
Company operated 1,311
 
stores at January
 
29, 2022
 
compared to
 
1,330 stores
 
operated at
January 30, 2021.
 
In fiscal 2021, the Company opened 6 new stores
 
and closed 25 stores.
 
Other
 
revenue
 
in
 
total
 
increased
 
to
 
$7.9
 
million
 
in
 
fiscal
 
2021
 
from
 
$7.6
 
million
 
in
 
fiscal
 
2020.
 
The
increase resulted
 
primarily due
 
to increases
 
in gift
 
card breakage
 
income, e-commerce shipping
 
revenues and
layaway charges, partially offset by a decrease in finance charges.
 
Credit revenue
 
of
 
$2.1 million
 
represented
 
0.3% of
 
total
 
revenue
 
in
 
fiscal
 
2021,
 
a
 
$0.6
 
million decrease
compared
 
to
 
fiscal
 
2020
 
credit
 
revenue
 
of
 
$2.7
 
million
 
or
 
0.5%
 
of
 
total
 
revenue.
 
The
 
decrease
 
in
 
credit
revenue
 
was
 
primarily
 
due
 
to
 
reductions
 
in
 
finance
 
and
 
late
 
charge
 
income
 
as
 
a
 
result
 
of
 
lower
 
accounts
receivable balances.
 
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 $1.4
 
million in
 
fiscal 2021
 
compared to
 
$1.5 million
 
in fiscal
 
2020.
 
See
Note 13
 
of Notes
 
to Consolidated Financial
 
Statements for
 
a schedule
 
of credit-related
 
expenses. Total
 
credit
segment income before
 
taxes decreased $0.6
 
million to $0.6
 
million in fiscal
 
2021 from $1.2
 
million in fiscal
2020.
 
 
Cost
 
of
 
goods sold
 
was $453.1
 
million, or
 
59.5%
 
of
 
retail
 
sales,
 
in
 
fiscal
 
2021
 
compared to
 
$433.2
million, or 76.3% of retail sales, in fiscal 2020. The decrease in cost of goods sold as a percentage of sales
resulted primarily
 
from the leveraging of occupancy, buying and distribution costs
 
due to more normalized
sales and
 
higher sales
 
of
 
regular priced
 
goods.
 
Cost
 
of
 
goods
 
sold
 
includes
 
merchandise
 
costs,
 
net
 
of
discounts
 
and
 
allowances,
 
buying
 
costs,
 
distribution
 
costs,
 
occupancy
 
costs,
 
freight
 
and
 
inventory
29
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
 
expenses
 
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 and
 
excluding depreciation) increased by 129.5% to
 
$308.3 million in
fiscal 2021 from
 
$134.3 million in
fiscal 2020. Gross
 
margin as presented
 
may not be
 
comparable to that
 
of
other companies.
 
 
Selling,
 
general
 
and
 
administrative
 
expenses
 
(“SG&A”),
 
which
 
primarily
 
include
 
corporate
 
and
 
store
payroll,
 
related
 
payroll
 
taxes
 
and
 
benefits,
 
insurance,
 
supplies,
 
advertising,
 
bank
 
and
 
credit
 
card
 
processing
fees were $267.0 million in
 
fiscal 2021 compared to $206.7
 
million in fiscal 2020, an
 
increase of 29.2%. As
 
a
percent of
 
retail sales,
 
SG&A was
 
35.1% compared
 
to 36.4%
 
in the
 
prior year.
 
The dollar
 
increase in
 
SG&A
expense
 
was
 
primarily
attributable to higher employee benefit/bonus expense, store productivity initiatives
and
 
store operating expenses
 
as
 
store operating hours
 
have increased
 
substantially compared to
 
the
 
prior
year’s phased
 
store reopening following the
 
extended store closure
 
due to
 
COVID-19,
 
partially offset by
lower
 
impairment
 
charges.
 
Depreciation
 
expense
 
was
 
$12.4
 
million
 
in
 
fiscal
 
2021
 
compared
 
to
 
$14.7
 
million
 
in
 
fiscal
 
2020.
Depreciation
 
expense
 
decreased
 
from
 
fiscal
 
2020
 
due
 
to
 
fully
 
depreciated
 
older
 
stores
 
and
 
prior
 
period
impairments of
 
leasehold
 
improvements and
 
fixtures,
 
partially
 
offset
 
by
 
store
 
development
 
and
 
information
technology expenditures.
 
Interest and other income decreased to $2.1
 
million in fiscal 2021 compared to
 
$6.6 million in fiscal 2020.
The decrease is primarily due to
 
a gain on the sale
 
of land held for investment in
 
2020 and lower interest rates
on our short-term investments, partially
 
offset by an increase in short-term investments.
 
Income tax
 
expense
 
was $2.1
 
million, or
 
0.3%
 
of
 
retail sales
 
in
 
fiscal 2021
 
compared to
 
an
 
income tax
benefit of
 
$25.3 million,
 
or 4.5%
 
of retail
 
sales in
 
fiscal 2020.
 
The income
 
tax expense
 
was primarily
 
due to
higher
 
pre-tax
 
earnings,
 
partially
 
offset
 
by
 
the
 
ability
 
to
 
realize
 
foreign
 
tax
 
credits,
 
release
 
of
 
reserves
 
for
uncertain tax positions due
 
to the expiration
 
of the statute
 
of limitations, a
 
favorable adjustment to
 
the federal
net operating loss carryback and a partial release
 
of valuation allowances against state net
 
operating losses. The
effective tax rate
 
was 5.4% (Expense) in
 
fiscal 2021 compared to
 
34.8% (Benefit) in fiscal 2020.
 
See Note 12
to the Consolidated Financial Statements,
 
“Income Taxes,” for further details.
Off-Balance Sheet Arrangements
 
None.
Critical Accounting Policies and Estimates
 
The Company’s
 
accounting policies are
 
more fully described
 
in Note
 
1 to
 
the Consolidated Financial
Statements. As disclosed
 
in Note 1
 
of Notes to
 
the Consolidated Financial
 
Statements, 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
 
allowance
 
for
 
customer
credit losses,
 
inventory shrinkage,
 
the calculation
 
of potential
 
asset impairment,
 
workers’ compensation,
general and
 
auto insurance liabilities,
 
reserves relating to
 
self-insured health insurance,
 
and uncertain tax
positions.
 
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
30
Allowance for Customer Credit Losses
 
The
 
Company evaluates
 
the
 
collectability of
 
customer accounts
 
receivable and
 
records an
 
allowance
for customer
 
credit losses
 
based on
 
the accounts
 
receivable aging and
 
estimates of
 
actual write-offs.
 
The
allowance is
 
reviewed for
 
adequacy and
 
adjusted, as
 
necessary,
 
on a
 
quarterly basis.
 
The Company
 
also
provides
 
for
 
estimated
 
uncollectible
 
late
 
fees
 
charged
 
based
 
on
 
historical
 
write-offs.
 
The
 
Company’s
financial results
 
can be
 
impacted by
 
changes in
 
customer loss
 
write-off experience
 
and the
 
aging of
 
the
accounts receivable portfolio.
 
 
Merchandise Inventories
 
The Company’s
 
inventory is
 
valued using
 
the weighted-average
 
cost method
 
and is
 
stated at
 
the net
realizable value. Physical inventories
 
are conducted throughout the
 
year to calculate actual
 
shrinkage and
inventory on
 
hand. Estimates
 
based on
 
actual shrinkage results
 
are used
 
to estimate
 
inventory shrinkage,
which is
 
accrued for
 
the period
 
between the
 
last physical
 
inventory and
 
the financial
 
reporting date.
 
The
Company
 
regularly
 
reviews
 
its
 
inventory
 
levels
 
to
 
identify
 
slow
 
moving
 
merchandise
 
and
 
uses
markdowns to clear slow moving inventory.
 
 
Lease Accounting
The Company determines whether an arrangement is a lease at inception. The Company has operating
leases
 
for
 
stores,
 
offices
 
and
 
equipment.
 
Its
 
leases
 
have remaining
 
lease
 
terms
 
of
 
one
 
year
 
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.
 
See Note 11 for further information.
 
Impairment of Long-Lived Assets
 
The
 
Company invests
 
in leaseholds,
 
right-of use
 
assets
 
and equipment
 
primarily in
 
connection with
the opening and remodeling of stores
 
and in computer software and hardware. The
 
Company periodically
reviews its store
 
locations and estimates
 
the recoverability of
 
its long-lived assets,
 
which primarily relate
to
 
Fixtures
 
and
 
equipment,
 
Leasehold
 
improvements,
 
Right-of-use
 
assets
 
net
 
of
 
Lease
 
liabilities
 
and
Information
 
technology
 
equipment
 
and
 
software.
 
An
 
impairment
 
charge
 
is
 
recorded
 
for
 
the
 
amount
 
by
which the
 
carrying value
 
exceeds the
 
estimated fair
 
value when
 
the Company
 
determines that
 
projected
cash flows associated with those long-lived assets will not be sufficient to recover the carrying value.
 
This
determination is based on a
 
number of factors, including the
 
store’s historical
 
operating results and future
projected cash flows, which include contribution margin projections. The Company assesses the fair value
of each lease
 
by considering market
 
rents and
 
any lease terms
 
that may adjust
 
market rents under
 
certain
conditions, such as the loss of
 
an anchor tenant or a leased
 
space in a shopping center not
 
meeting certain
criteria. Further,
 
in determining when
 
to close a
 
store, the Company considers
 
real estate development
 
in
the
 
area and
 
perceived local
 
market conditions,
 
which can
 
be difficult
 
to
 
predict and
 
may be
 
subject
 
to
change.
 
Insurance Liabilities
 
The
 
Company
 
is
 
primarily
 
self-insured
 
for
 
healthcare,
 
workers’
 
compensation
 
and
 
general
 
liability
31
costs. These costs are
 
significant primarily due to the
 
large number of the
 
Company’s retail locations
 
and
associates. The Company’s
 
self-insurance liabilities are
 
based on the
 
total estimated costs
 
of claims filed
and
 
estimates
 
of
 
claims
 
incurred
 
but
 
not
 
reported,
 
less
 
amounts
 
paid
 
against
 
such
 
claims,
 
and
 
are
 
not
discounted.
 
Management
 
reviews
 
current
 
and
 
historical
 
claims
 
data
 
in
 
developing
 
its
 
estimates.
 
The
Company
 
also
 
uses
 
information
 
provided
 
by
 
outside
 
actuaries
 
with
 
respect
 
to
 
healthcare,
 
workers’
compensation and general liability claims.
 
If the underlying facts and
 
circumstances of the claims change
or
 
the
 
historical
 
experience
 
upon
 
which
 
insurance
 
provisions
 
are
 
recorded
 
is
 
not
 
indicative
 
of
 
future
trends, then
 
the Company
 
may be
 
required to
 
make adjustments
 
to the
 
provision for
 
insurance costs
 
that
could
 
be
 
material
 
to
 
the
 
Company’s
 
reported
 
financial condition
 
and
 
results
 
of
 
operations.
 
Historically,
actual results have not significantly deviated from estimates.
 
Uncertain Tax Positions
 
The Company
 
records liabilities
 
for uncertain
 
tax positions
 
primarily related
 
to state
 
income taxes
 
as
of the balance sheet
 
date.
 
These liabilities reflect the
 
Company’s best
 
estimate of its ultimate
 
income tax
liability
 
based
 
on
 
the
 
tax
 
codes,
 
regulations,
 
and
 
pronouncements
 
of
 
the
 
jurisdictions
 
in
 
which
 
we
 
do
business.
 
Estimating our ultimate tax liability involves significant judgments regarding the
 
application of
complex tax
 
regulations across
 
many jurisdictions.
 
Despite the
 
Company’s
 
belief that
 
the estimates
 
and
judgments
 
are
 
reasonable,
 
differences
 
between
 
the
 
estimated
 
and
 
actual
 
tax
 
liabilities
 
can
 
and
 
do
 
exist
from time to time.
 
These differences may arise from settlements
 
of tax audits, expiration of the statute
 
of
limitations, or
 
the evolution
 
and application
 
of the
 
various jurisdictional
 
tax codes
 
and regulations.
 
Any
differences will
 
be recorded
 
in the
 
period in
 
which they become
 
known and
 
could have
 
a material
 
effect
on the results of operations in the period the adjustment is recorded.
Liquidity, Capital Resources and Market Risk
 
The Company
 
believes that
 
its cash,
 
cash equivalents
 
and short-term
 
investments, together
 
with cash
flows from operations,
 
will be adequate
 
to fund the
 
Company’s regular
 
operating requirements including
$71.3 million
 
of lease
 
obligations and
 
planned investments
 
of
 
$23.0 million
 
of capital
 
expenditures for
fiscal 2022 and for the foreseeable future.
 
 
 
Cash
 
provided
 
by
 
operating
 
activities
 
during
 
fiscal
 
2021
 
was
 
$59.8
 
million
 
as
 
compared
 
to
$30.7 million used
 
in fiscal
 
2020 and
 
$53.4 million
 
provided in
 
fiscal 2019.
 
Cash provided
 
by operating
activities
 
during
 
2021
 
was
 
primarily
 
attributable
 
to
 
net
 
income
 
adjusted
 
for
 
depreciation,
 
share-based
compensation, impairment and
 
changes in
 
working capital. The
 
increase of
 
$90.5 million for
 
fiscal 2021
compared to fiscal 2020 is
 
primarily
 
due to net operating
 
income versus
 
a net operating
 
loss and an
 
increase
in accounts
 
payable,
 
partially
 
offset by
 
higher
 
merchandise
 
inventories
 
and lower
 
store impairment
 
charges.
 
At January 29, 2022, the Company had
 
working capital of $111.5
 
million compared
 
to $108.6 million
and $163.5 million at January
 
30, 2021 and February 1,
 
2020, respectively.
 
The slight
 
increase
 
in working
capital compared
 
to the prior year is primarily
 
due to higher short-term
 
investments,
 
inventory
 
and cash and
cash equivalents,
 
partially
 
offset by
 
higher
 
accrued
 
liabilities
 
and accounts
 
payable.
 
At January 29,
 
2022, the Company
 
had an
 
unsecured revolving credit
 
agreement, which provided
 
for
borrowings of up to $35.0 million less
 
the balance of any revocable
 
letters of credit discussed below.
 
The
revolving credit
 
agreement is
 
committed until
 
May 2022.
 
The Company
 
is in
 
the process
 
of obtaining
 
a
new revolving credit
 
agreement and expects this
 
to be completed
 
by May of
 
2022.
 
The credit agreement
contains various financial covenants and limitations, including the maintenance of specific financial ratios
with
 
which
 
the
 
Company
 
was
 
in
 
compliance
 
as
 
of
 
January
 
29,
 
2022.
 
There
 
were
 
no
 
borrowings
outstanding under this credit
 
facility as of
 
the fiscal year ended
 
January 29, 2022
 
or the fiscal
 
year ended
January 30, 2021.
 
 
The
 
Company
 
had
 
no
 
outstanding
 
revocable
 
letters
 
of
 
credit
 
relating
 
to
 
purchase
 
commitments
 
at
32
January 29, 2022, January 30, 2021 and February 1, 2020.
 
 
Expenditures for property and equipment totaled $4.1 million, $14.0
 
million and $8.3 million in fiscal
2021,
 
2020
 
and
 
2019,
 
respectively.
 
The
 
expenditures
 
for
 
fiscal
 
2021
 
were
 
primarily
 
for
 
additional
investments
 
in six
 
new stores,
 
distribution
 
center
 
and information
 
technology.
 
 
Net cash
 
used by
 
investing activities
 
totaled $25.3
 
million for
 
fiscal 2021
 
compared to
 
$64.5 million
provided
 
for
 
fiscal
 
2020
 
and
 
$22.6
 
million
 
used
 
in
 
fiscal
 
2019.
 
In
 
fiscal
 
2021,
 
the
 
cash
 
used
 
was
primarily
 
attributable to the
 
increase in
 
net purchases of
 
short-term investments, partially offset by lower
expenditures
 
for property
 
and equipment.
 
Net cash used by financing activities totaled $31.8 million in fiscal 2021 compared to net cash used of
$27.2 million for fiscal 2020 and $41.6 million for fiscal 2019. The
 
increase
 
in cash
 
used was
 
primarily
 
due
to higher
 
dividend
 
payments
 
and higher
 
share
 
repurchase
 
amounts.
 
The Company does not use derivative financial instruments.
 
 
See
 
Note
 
4,
 
“Fair
 
Value
 
Measurements,”
 
for
 
information
 
regarding
 
the
 
Company’s
 
financial
 
assets
that are measured at fair value.
 
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
January 29,
 
2022. The
 
state, municipal
 
and corporate bonds
 
and asset-backed securities
 
have contractual
maturities which range from three
 
days to 4.9 years. The
 
U.S. Treasury Notes have
 
contractual maturities
which
 
range
 
from
 
4.5
 
months
 
to
 
1.1
 
years.
 
These securities
 
are
 
classified as
 
available-for-sale and are
recorded as Short-term investments,
 
Restricted cash, Restricted
 
short-term investments
 
and Other assets on
the accompanying
 
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
 
January
 
29,
 
2022,
 
the
 
Company
 
had
 
$0.8
 
million
 
of
 
corporate
 
equities,
 
which
 
are
recorded within Other assets in the
 
Consolidated Balance Sheets.
 
At January 30, 2021, the Company had
$0.7
 
million
 
of
 
corporate
 
equities,
 
which
 
are
 
recorded
 
within
 
Other
 
assets
 
in
 
the
 
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 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
 
primarily 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
 
recorded
 
in
 
Other
 
noncurrent
 
liabilities
 
in
 
the
33
Consolidated Balance Sheets.
 
These funds are
 
designed to mirror
 
the return of
 
existing mutual funds
 
and
money market funds that are observable and actively traded.
 
Contractual Obligations
 
Contractual
 
obligations
 
for
 
future
 
payments
 
at
 
January
 
29,
 
2022
 
relate
 
primarily
 
to
 
operating
 
lease
commitments for
 
store leases.
 
Operating leases
 
represent minimum
 
required lease
 
payments under
 
non-
cancellable
 
lease
 
terms.
 
Most
 
store
 
leases
 
also
 
require
 
payment
 
of
 
related
 
operating
 
expenses
 
such
 
as
taxes, utilities, insurance and maintenance, which are not included in our estimated lease obligations.
 
See
Note
 
11,
 
Leases
 
in
 
Notes
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
the
 
maturities
 
of
 
our
 
operating
lease obligations.
Recent Accounting Pronouncements
 
See Note
 
1, Summary of
 
Significant Accounting Policies,
 
Recently Adopted Accounting
 
Policies and
Recently Issued Accounting Pronouncements.
Item 7A.
 
 
Quantitative and Qualitative Disclosures About Market Risk:
 
The
 
Company
 
is
 
subject
 
to
 
market
 
rate
 
risk
 
from
 
exposure
 
to
 
changes
 
in
 
interest
 
rates
 
based
 
on
 
its
financing, investing and
 
cash management activities,
 
but the Company
 
does not
 
believe such exposure
 
is
material.
 
34
 
Item 8.
 
Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 
 
 
 
 
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm (PCAOB ID
238
) .....................................
 
 
 
35
 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
 
for the fiscal
 
 
years ended January 29, 2022, January 30, 2021 and February 1, 2020 ................................
 
...........
 
 
 
38
 
Consolidated Balance Sheets at January 29, 2022 and January 30, 2021
 
.............................................
 
 
 
39
 
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2022,
 
January 30, 2021
 
and February 1, 2020................................
 
................................................................
 
.........................
 
 
 
40
 
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 29,
 
2022,
 
 
January 30, 2021 and February 1, 2020 ................................................................
 
............................
 
 
 
41
 
Notes to Consolidated Financial Statements ..........................................................................................
 
 
 
42
 
Schedule II — Valuation
 
and Qualifying Accounts for the fiscal years ended January 29, 2022,
 
 
January 30, 2021 and February 1, 2020 ................................................................
 
............................
 
 
 
72
 
 
35
Report of Independent Registered Public Accounting Firm
 
To the
Board of Directors and Stockholders of The Cato Corporation
Opinions on the Financial Statements and Internal
 
Control over Financial Reporting
We have audited the accompanying consolidated balance
 
sheets of The Cato Corporation and its
subsidiaries (the “Company”) as of January 29, 2022 and
 
January 30, 2021, and the related consolidated
statements of income (loss) and comprehensive income (loss),
 
of stockholders’ equity and of cash flows
for each of the three years in the period ended January 29, 2022,
 
including the related notes and financial
statement schedule listed in the accompanying index (collectively
 
referred to as the “consolidated
financial statements”). We also have audited the Company's
 
internal control over financial reporting as of
January 29,2022, based on criteria established in
Internal Control - Integrated Framework
 
(2013) issued
by the Committee of Sponsoring Organizations of the
 
Treadway Commission (COSO).
 
In our opinion, the consolidated financial statements referred
 
to above present fairly, in all material
respects, the financial position of the Company as of January
 
29, 2022 and January 30, 2021, and the
results of its operations and its cash flows for each of the
 
three years in the period ended January 29,
2022 in conformity with accounting principles generally
 
accepted in the United States of America. Also in
our opinion, the Company maintained, in all material
 
respects, effective internal control over financial
reporting as of January 29, 2022, based on criteria established
 
in
Internal Control - Integrated
Framework
 
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated
 
financial statements, for maintaining
effective internal control over financial reporting, and for
 
its assessment of the effectiveness of internal
control over financial reporting, included in Management’s
 
Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility
 
is to express opinions on the Company’s
consolidated financial statements and on the Company's
 
internal control over financial reporting based on
our audits. We are a public accounting firm registered with the
 
Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent
 
with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
 
rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
 
of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance
 
about whether the consolidated financial
statements are free of material misstatement, whether due
 
to error or fraud, and whether effective
internal control over financial reporting was maintained
 
in all material respects.
 
Our audits of the consolidated financial statements included
 
performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
 
whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
 
included examining, on a test basis,
evidence regarding the amounts and disclosures in the
 
consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant
 
estimates made by management, as
well as evaluating the overall presentation of the consolidated
 
financial statements. Our audit of internal
control over financial reporting included obtaining an
 
understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing
 
and evaluating the design and
operating effectiveness of internal control based on the
 
assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances.
 
We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control
 
over Financial Reporting
A company’s internal control over financial reporting is a process
 
designed to provide reasonable
assurance regarding the reliability of financial reporting and
 
the preparation of financial statements for
external purposes in accordance with generally accepted
 
accounting principles. A company’s internal
control over financial reporting includes those policies
 
and procedures that (i) pertain to the maintenance
36
of records that, in reasonable detail, accurately and fairly
 
reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance
 
that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
 
generally accepted accounting principles,
and that receipts and expenditures of the company are
 
being made only in accordance with authorizations
of management and directors of the company; and (iii)
 
provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
 
use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
 
reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
 
to future periods are subject to the risk
that controls may become inadequate because of changes in conditions,
 
or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising
 
from the current period audit of the
consolidated financial statements that was communicated
 
or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures
 
that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective,
 
or complex judgments. The
communication of critical audit matters does not alter in any
 
way our opinion on the consolidated
financial
statements, taken as a whole, and we are not, by communicating the
 
critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts
 
or disclosures to which it relates.
Impairment of Long-Lived Assets - Store Location Asset Groupings
As described in Notes 1 and 6 to the consolidated financial
 
statements, the Company’s consolidated
property and equipment, net balance was $63.1 million, of which
 
the store locations were a portion, and
consolidated operating lease right-of-use assets, net balance
 
was $181.3 million as of January 29, 2022.
The Company invests in leaseholds, right-of-use assets and equipment,
 
primarily in connection with the
opening and remodeling of stores, and in computer software
 
and hardware. The Company periodically
reviews its store locations and estimates the recoverability
 
of its long-lived assets, which primarily relate
to fixtures and equipment, leasehold improvements, right-of-use
 
assets net of lease liabilities, and
information technology equipment and software. An impairment charge
 
is recorded for the amount by
which the carrying value exceeds the estimated fair value
 
when management determines that projected
cash flows associated with those long-lived assets will not
 
be sufficient to recover the carrying value. This
determination is based on a number of factors, including
 
the store’s historical operating results and future
projected cash flows, which include contribution margin projections.
 
The Company assesses the fair value
of each lease by considering market rents and any lease
 
terms that may adjust market rents under certain
conditions such as the loss of an anchor tenant or a leased
 
space in a shopping center not meeting certain
criteria. An impairment charge for store assets of $0.9
 
million was recorded during the year ended
January 29, 2022.
The principal considerations for our determination that
 
performing procedures relating to the
impairment of long-lived assets – store location asset groupings
 
is a critical audit matter are (i) the
significant judgment by management when determining the fair
 
value measurement of the store location
asset groupings, which led to (ii) a high degree of auditor
 
judgment, subjectivity, and effort in performing
procedures and evaluating management’s projected cash flow
 
assumptions related to contribution margin
projections.
 
Addressing the matter involved performing procedures
 
and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements.
 
These procedures included testing
the effectiveness of controls relating to management’s long
 
-lived assets – store location recoverability test
and determination of the fair value of the asset group.
 
These procedures also included, among others (i)
testing the completeness and accuracy of underlying data
 
used in the projected cash flows and store
location asset groupings, (ii) evaluating the reasonableness
 
of management’s assumptions related to
contribution margin projections by considering current
 
and historical performance of the store location
asset groupings and whether the assumptions were consistent
 
with evidence obtained in other areas of the
audit, (iii) evaluating the appropriateness of the projected
 
cash flow model, and (iv) evaluating
37
management’s assessment of the fair value of the leased assets
 
included in the store location asset
groupings.
/s/
PricewaterhouseCoopers LLP
 
Charlotte, North Carolina
March 23, 2022
We have served as the Company’s auditor since 2003.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
Fiscal Year Ended
January 29, 2022
January 30, 2021
February 1, 2020
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
761,358
$
567,516
$
816,184
 
Other revenue (principally finance charges,
 
 
late fees and layaway charges)
7,913
7,595
9,151
 
Total revenues
769,271
575,111
825,335
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of
 
 
depreciation shown below)
453,065
433,187
508,906
 
Selling, general and administrative (exclusive
 
 
of depreciation shown below)
266,954
206,492
263,773
 
Depreciation
12,356
14,681
15,485
 
Interest expense
72
187
29
 
Interest and other income
(2,141)
(6,630)
(6,065)
 
Cost and expenses, net
730,306
647,917
782,128
Income (loss) before income taxes
38,965
(72,806)
43,207
Income tax expense (benefit)
2,121
(25,323)
7,310
Net income (loss)
$
36,844
$
(47,483)
$
35,897
Basic earnings (loss) per share
$
1.65
$
(2.01)
$
1.46
Diluted earnings (loss) per share
$
1.65
$
(2.01)
$
1.46
Dividends per share
$
0.45
$
0.33
$
1.32
Comprehensive income:
Net income (loss)
$
36,844
$
(47,483)
$
35,897
Unrealized gain (loss) on available-for-sale
 
securities, net of deferred income taxes of
 
($
433
), ($
79
), and $
453
 
for fiscal 2021, 2020
 
and 2019, respectively
(1,435)
(268)
1,500
Comprehensive income (loss)
$
35,409
$
(47,751)
$
37,397
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
January 29, 2022
January 30, 2021
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
19,759
$
17,510
Short-term investments
145,998
126,416
Restricted cash
3,918
3,512
Restricted short-term investments
1
406
Accounts receivable, net of allowance for customer credit losses of $
803
 
at
 
January 29, 2022 and $
605
 
at January 30, 2021
55,812
52,743
Merchandise inventories
 
124,907
84,123
Prepaid expenses and other current assets
5,273
5,840
 
Total Current Assets
 
355,668
290,550
Property and equipment – net
 
63,083
72,550
Deferred income taxes
9,313
5,685
Other assets
 
24,437
22,850
Right-of-Use assets - net
181,265
199,817
 
Total Assets
 
$
633,766
$
591,452
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
109,546
$
73,769
Accrued expenses
 
40,373
40,790
Accrued bonus and benefits
 
26,488
1,916
Accrued income taxes
 
920
2,038
Current lease liability
66,808
63,421
 
Total Current Liabilities
 
244,135
181,934
Other noncurrent liabilities
17,914
19,705
Lease liability
117,521
143,315
Commitments and contingencies
-
-
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;
19,824,093
 
and
20,839,795
 
shares issued at
 
January 29, 2022 and January 30, 2021, respectively
669
703
Convertible Class B common stock, $
0.033
 
par value per share,
 
15,000,000
 
shares authorized;
1,763,652
 
and
1,763,652
 
shares issued at
 
January 29, 2022 and January 30, 2021, respectively
59
59
Additional paid-in capital
 
119,540
115,278
Retained earnings
 
134,208
129,303
Accumulated other comprehensive income
 
(280)
1,155
 
Total Stockholders' Equity
 
254,196
246,498
 
Total Liabilities and Stockholders’ Equity
 
$
633,766
$
591,452
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
Fiscal Year Ended
January 29, 2022
January 30, 2021
February 1, 2020
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
36,844
$
(47,483)
$
35,897
Adjustments to reconcile net income to net cash provided
 
by (used in) operating activities:
 
Depreciation
12,356
14,681
15,485
 
Provision for customer credit losses
429
306
524
 
Purchase premium and premium amortization of investments
(332)
(691)
(694)
 
Gain on sale of assets held for investment
-
(2,298)
-
 
Share based compensation
4,090
4,092
4,669
 
Deferred income taxes
(3,194)
3,030
2,120
 
Loss on disposal of property and equipment
629
461
837
 
Impairment of assets
901
13,702
470
 
Changes in operating assets and liabilities which provided
 
(used) cash:
 
Accounts receivable
(3,499)
(26,935)
1,525
 
Merchandise inventories
(40,784)
31,242
4,220
 
Prepaid and other assets
(505)
(1,596)
5,072
 
Operating lease right-of-use assets and liabilities
(3,855)
(2,611)
(9,803)
 
Accrued income taxes
(1,118)
335
1,703
 
Accounts payable, accrued expenses and other liabilities
57,826
(16,945)
(8,629)
Net cash provided by (used in) operating activities
59,788
(30,710)
53,396
Investing Activities:
Expenditures for property and equipment
 
(4,105)
(13,956)
(8,306)
Purchase of short-term investments
(141,937)
(74,041)
(218,345)
Sales of short-term investments
121,110
149,298
205,375
Purchase of other assets
(400)
-
(1,357)
Sales of other assets
-
3,205
-
Net cash provided by (used in) investing activities
(25,332)
64,506
(22,633)
Financing Activities:
Dividends paid
(