10-K 1 cato2023012810K.htm FORM 10K cato2023012810K
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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
February 3, 2024
 
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.
 
If securities are registered
 
pursuant to Section
 
12(b) of the
 
Act, indicate by check
 
mark whether the
 
financial statements of
 
the registrant included
in the filing reflect the correction of an error to previously issued financial statements.
 
Indicate by check
 
mark whether any
 
of those error
 
corrections are restatements
 
that required a
 
recovery analysis of incentive-based
 
compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
 
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 29, 2023, the last business
day of the Company’s most recent second quarter, was $
146,852,671
 
based on the last reported sale price per share on the New York Stock Exchange
on that date.
 
 
As of February 3, 2024, there were
18,802,742
 
shares of Class A common stock and
1,763,652
 
shares of Class B common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the proxy statement relating to the 2024 annual meeting of shareholders are incorporated by reference into Part III.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
THE CATO CORPORATION
FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
PART
 
I
Item 1.
 
Business
 
..........................................................................................................................
 
 
 
5 – 10
 
Item 1A.
Risk Factors
 
....................................................................................................................
 
10 – 22
Item 1B.
Unresolved Staff Comments
 
...........................................................................................
 
22
Item 1C.
Cybersecurity
 
..................................................................................................................
 
22
Item 2.
 
Properties
 
........................................................................................................................
 
 
 
23
 
Item 3.
 
Legal Proceedings
 
...........................................................................................................
 
 
 
24
 
Item 3A.
 
Executive Officers of the Registrant
 
...............................................................................
 
 
 
25
 
Item 4.
Mine Safety Disclosures
 
.................................................................................................
 
25
 
PART
 
II
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 
........................................................................................
 
 
 
26 – 28
 
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................................................................
 
 
 
29 – 35
 
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
........................................
 
 
 
35
 
Item 8.
 
Financial Statements and Supplementary Data ..............................................................
 
 
 
36 – 66
 
Item 9.
 
Changes in and Disagreements with Accountants on Accounting
 
and Financial
Disclosure
 
.......................................................................................................................
 
 
 
67
 
Item 9A.
 
Controls and Procedures
 
.................................................................................................
 
 
 
67
 
Item 9B.
Other Information
 
...........................................................................................................
 
68
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
 
............................
 
68
 
PART
 
III
Item 10.
 
Directors, Executive Officers and Corporate Governance .............................................
 
 
 
69
 
 
Item 11.
 
Executive Compensation
 
................................................................................................
 
 
 
69
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 
........................................................................................................
 
 
 
69
 
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
...............
 
 
 
70
 
Item 14.
 
Principal Accountant Fees and Services
 
.........................................................................
 
 
 
70
 
 
PART
 
IV
Item 15.
 
Exhibits and Financial Statement Schedules
 
..................................................................
 
 
 
71
 
 
Item 16.
Form 10-K Summary ………………………………………………………………….
73
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 ended February 3, 2024 (“fiscal 2023”) 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,
 
extreme
weather
 
conditions,
 
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, inflation,
 
wage rates,
 
tax
 
rates, interest
 
rates, home
 
values,
consumer
 
net
 
worth
 
and
 
the
 
availability
 
of
 
credit;
 
changes
 
in
 
laws,
 
regulations
 
or
 
government
 
policies
affecting
 
our
 
business,
 
including
 
but
 
not
 
limited
 
to
 
tariffs;
 
uncertainties
 
regarding
 
the
 
impact
 
of
 
any
governmental action regarding, or
 
responses to, the
 
foregoing conditions; competitive factors
 
and pricing
pressures; our
 
ability to
 
predict and
 
respond to
 
rapidly changing
 
fashion trends
 
and consumer
 
demands;
our ability to
 
successfully implement our
 
new store development
 
strategy to increase
 
new store openings
and our
 
ability of
 
any such
 
new stores
 
to grow
 
and perform
 
as expected;
 
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;
 
adverse
 
developments
 
or
 
volatility
 
affecting
 
the
 
financial
 
services
industry or broader financial markets; and
 
other factors discussed under “Risk Factors”
 
in Part I, Item 1A
of this annual report on Form 10-K for the fiscal year ended February 3, 2024 (“fiscal 2023”), as amended
or supplemented, and in
 
other reports we file
 
with or furnish to
 
the Securities and Exchange
 
Commission
(“SEC”)
 
from
 
time
 
to
 
time.
 
We
 
do
 
not
 
undertake, and
 
expressly
 
decline,
 
any
 
obligation
 
to
 
update
 
any
such forward-looking information contained
 
in this report,
 
whether as a
 
result of new
 
information, future
events, or otherwise.
 
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,
 
4
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,
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
 
1,178
 
fashion
 
specialty
 
stores
 
at
 
February
 
3,
 
2024,
 
in
 
31
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
 
2,400 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
 
6% of
 
retail sales
 
in
fiscal
 
2023.
 
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
 
77
 
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
6
the purchase of its merchandise more convenient for its customers.
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
 
600
 
suppliers,
 
most
 
of
 
its
merchandise is
 
purchased from
 
approximately 100
 
primary vendors.
 
In
 
fiscal
 
2023,
 
purchases from
 
the
Company’s
 
largest
 
vendor
 
accounted
 
for
 
approximately
 
13%
 
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 changes,
 
disruptions, increased costs
 
or
other problems
 
affecting the
 
Company’s
 
merchandise supply
 
chain; the
 
risks of
 
conducting international
operations
 
and
 
risks
 
that
 
affect
 
the
 
prevailing
 
social,
 
economic,
 
political,
 
public
 
health
 
and
 
other
conditions
 
in
 
the
 
areas
 
from
 
which
 
we
 
source
 
merchandise
 
have
 
and
 
could
 
continue
 
to
 
materially
 
and
adversely affect the Company’s business, results of operations and financial condition.”
 
7
 
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
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
 
online
 
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,
 
Related
 
Systems
 
and
 
Cybersecurity
 
 
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
 
1.0%,
 
1.0%
 
and
 
0.9%
 
of
 
retail
 
sales
 
for
 
fiscal
 
years
 
2023,
 
2022
 
and
2021, respectively.
Store Operations
 
The Company’s
 
store operations
 
management team
 
consists of
 
four territorial
 
managers, 11
 
regional
managers and 104 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 2019:
 
 
 
 
 
8
Store Development
Number of Stores
Beginning of
Number
Number
Number of Stores
Fiscal Year
Year
Opened
Closed
End of Year
2019………………….……...………….
1,311
 
5
 
35
1,281
2020………………….……...………….
1,281
 
76
 
27
1,330
2021……………………….……...…….
1,330
 
6
 
25
1,311
2022…………....………….……...…….
1,311
 
19
 
50
1,280
2023………….………...….……...…….
1,280
 
9
 
111
1,178
 
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 3.4%, 3.1% and 2.5% of
 
retail sales in
fiscal 2023, 2022 and 2021, respectively. The Company’s net bad debt expense was 3.6%, 2.0% and 3.0%
of credit sales in fiscal 2023, 2022 and 2021, 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 2023 loyalty program impact is immaterial to the fiscal 2023 financial statements.
 
The
loyalty
 
program
 
is
 
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
 
3.0%,
 
2.7%
 
and
2.7% of retail sales in fiscal 2023, 2022 and 2021, 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
 
conditions,
customer demographics 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.
 
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.
 
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
our capital
 
expenditures, results
 
of operations
 
or competitive
 
position in
 
fiscal 2023,
 
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
10
 
As
 
of
 
February
 
3,
 
2024,
 
the
 
Company
 
employed
 
approximately
 
7,300
 
full-time
 
and
 
part-time
associates. The
 
Company also
 
employs additional
 
part-time associates
 
during the
 
peak retailing
 
seasons.
The
 
Company’s
 
full-time
 
associates
 
are
 
engaged
 
in
 
various
 
executive,
 
operating,
 
and
 
administrative
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
 
measures
 
to
 
promote
 
the
 
health
 
and
 
safety
 
of
 
its
associates.
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 Our Business:
Continued high interest rates and inflationary conditions have and
 
may continue to adversely
impact our customers’ discretionary income or willingness to purchase
 
discretionary items, which
may adversely affect our business, margins, results of operations and financial
 
condition.
Continued high interest rates have adversely affected our customers’ discretionary income, in part due
to increased
 
interest costs
 
associated with
 
credit accounts
 
including revolving
 
credit accounts,
 
car loans,
mortgage loans and other credit accounts.
 
In addition, the increased payments due to
 
higher interest rates
deter our
 
customers from
 
purchasing discretionary
 
items such
 
as apparel,
 
shoes and
 
jewelry.
 
Continued
inflationary pressures
 
limit our
 
customers’ willingness
 
to purchase
 
apparel, shoe
 
or jewelry
 
products, as
prices associated
 
with non-discretionary
 
items, including
 
food, fuel
 
and shelter
 
costs increase
 
or remain
high,
 
reducing
 
our
 
customers’
 
discretionary
 
income.
 
Any
 
reduction
 
in
 
our
 
customers’
 
discretionary
spending on our products could
 
erode our sales volume and
 
adversely affect our results
 
of operations and
financial condition.
 
Because we source a significant portion of our merchandise directly
 
and indirectly from overseas,
we are subject to risks associated with changes, disruptions, increased
 
costs or other problems
affecting the Company’s merchandise supply chain; the risks of conducting international
operations and risks that affect the prevailing social, economic, political, public health
 
and other
conditions in the areas from which we source merchandise have
 
and could continue to materially
and adversely affect the Company’s business, results of operations and financial condition.
11
A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia. We
are
 
subject
 
to
 
supply
 
chain
 
disruptions
 
affecting
 
transit
 
times
 
and
 
costs,
 
including
 
issues
 
related
 
to
 
a
sustained drought
 
in Panama
 
that is
 
causing longer
 
transit times
 
through the
 
Panama Canal
 
and limiting
the number of containers on a vessel due to vessel draft restrictions.
 
We
 
also face disruptions from issues
related to
 
vessels transiting the
 
Suez Canal and
 
Red Sea, which
 
are being forced
 
to travel
 
a much
 
longer
distance around the
 
Cape of Good
 
Hope due to
 
the hostilities in
 
the Middle East.
 
These continued issues
have and
 
may continue to
 
drive up our
 
ocean freight costs,
 
delay merchandise deliveries,
 
and impact our
ability to access the already limited supply of
 
ocean container shipping capacity that we require.
 
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 impact our domestic
 
supply chain.
 
These supply chain risks
 
have and may continue
 
to result in
 
both
higher costs to transport our merchandise and delayed merchandise arrivals to our stores, which adversely
affect our ability to sell this merchandise and increase markdowns of it.
 
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,
 
we are subject
 
to numerous risks
 
that
can cause significant delays or interruptions in the supply of our merchandise
 
or increase our costs.
 
These
risks
 
include
 
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 or
 
responses to
 
these matters
 
or other
factors
 
affecting
 
the
 
availability
 
or
 
cost
 
of
 
imports.
 
In
 
addition,
 
geopolitical
 
tensions,
 
sanctions,
prohibitions,
 
additional
 
tariffs,
 
compliance
 
and
 
reporting
 
requirements
 
have
 
resulted
 
in
 
increased
 
costs
associated
 
with
 
merchandise
 
produced
 
in
 
certain
 
regions.
 
Any
 
new
 
sanctions,
 
tariffs
 
and
 
reporting
requirements enacted in
 
the future may
 
further increase our
 
costs associated with
 
sourcing products from
those
 
regions
 
or
 
limit
 
our
 
ability
 
to
 
procure
 
the
 
products
 
we
 
source,
 
and
 
our
 
ability
 
to
 
source
 
these
products from other regions may be limited or result in increased sourcing
 
costs.
Our costs are
 
also affected by currency
 
fluctuations, and changes in
 
the value of the
 
dollar relative to
foreign currencies have impacted and may continue to impact our cost of goods sold. Any of these
 
factors
can materially
 
and adversely affect
 
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 operation of our sourcing offices in Asia presents increased operational and
 
legal risks.
 
In October
 
2014, we
 
established our
 
own sourcing
 
offices in
 
Asia. 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.
 
In addition, the current business environment, including geopolitical issues, make operating in
 
certain
Asian
 
markets
 
challenging.
 
To
 
the
 
extent
 
we
 
explore
 
other
 
countries
 
to
 
source
 
our
 
product
 
or
 
explore
12
increasing
 
the
 
amount
 
of
 
product
 
sourced
 
from
 
current
 
countries,
 
we
 
may
 
be
 
subject
 
to
 
additional
increased
 
legal
 
and
 
operational risks
 
associated
 
with
 
doing
 
business
 
in
 
new
 
countries
 
or
 
increasing our
business in other countries.
 
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 have and may continue to 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), levels
of
 
employment,
 
fuel,
 
inflation,
 
interest
 
rates,
 
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,
 
-
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, 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.
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, have and may continue to adversely
 
affect our business,
margins, results of operations and financial condition.
Tight
 
labor markets
 
have caused
 
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
 
continued
 
inflation
 
also
 
are
 
driving
 
up
 
our
 
operating
 
costs.
 
In
 
addition,
 
inflationary
pressures on labor and raw materials
 
used to make our products may continue
 
to increase the cost we
 
pay
for
 
our
 
products.
 
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
 
is
 
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, sentiment or financial outlook.
 
Moreover, the persistence or worsening of inflationary
conditions
 
and
 
high
 
interest
 
rates
 
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.
 
13
Adverse
 
developments
 
affecting
 
the
 
financial
 
services
 
industry
 
or
 
events
 
or
 
concerns
 
involving
liquidity,
 
defaults
 
or
 
non-performance
 
by
 
financial
 
institutions
 
or
 
transactional
 
counterparties
could adversely affect our business, financial condition or results of operations.
Actual
 
events
 
involving limited
 
liquidity,
 
defaults,
 
non-performance or
 
other
 
adverse
 
developments
that affect
 
financial institutions,
 
transactional counterparties
 
or other
 
companies in
 
the financial
 
services
industry
 
or
 
the
 
financial
 
services
 
industry
 
generally,
 
or
 
concerns
 
or
 
rumors
 
about
 
any
 
events
 
of
 
these
kinds
 
or
 
other
 
similar
 
risks,
 
have
 
in
 
the
 
past
 
and
 
may
 
in
 
the
 
future
 
lead
 
to
 
sporadic
 
or
 
market-wide
liquidity problems that
 
could adversely affect
 
us.
 
If any of
 
our transactional counterparties,
 
such as
 
our
merchandise vendors
 
and their
 
factors, our
 
landlords, our
 
payment processors
 
including credit
 
card, gift
card and checks, our transportation vendors and other vendors that provide services and supplies to us, are
unable to
 
access funds
 
or lending
 
arrangements with
 
such
 
a financial
 
institution, such
 
parties’ ability
 
to
pay their obligations could be adversely affected.
 
If this occurred we could be
 
adversely impacted by not
receiving
 
the
 
product
 
we
 
ordered
 
or
 
the
 
payments
 
generated
 
by
 
our
 
sales,
 
by
 
not
 
being
 
able
 
to
 
receive
products to our distribution center or
 
our stores in a timely
 
manner or at all, or
 
by not being able to
 
retain
services from
 
third parties
 
that we
 
require.
 
These impacts
 
may adversely
 
affect our
 
financial condition,
results
 
of
 
operations
 
and
 
our
 
ability
 
to
 
execute
 
our
 
business
 
strategy.
 
Furthermore,
 
these
 
adverse
developments affecting the financial services or related perceptions may negatively
 
impact our customers’
discretionary income or
 
our customers’
 
willingness to purchase
 
apparel, shoes or
 
jewelry products.
 
Any
reduction
 
in
 
our
 
customers’
 
discretionary
 
spending
 
on
 
our
 
products
 
could
 
erode
 
our
 
sales
 
volume
 
and
adversely affect our results of operations and financial condition.
 
 
Extreme weather, natural disasters, impacts of climate change, public health threats or similar
events have and may continue to adversely affect our sales or operations from time
 
to time.
 
Extreme
 
changes
 
in
 
weather,
 
natural
 
disasters,
 
physical
 
impacts
 
of
 
climate
 
change,
 
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 can
 
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
 
would
materially and adversely affect us.
 
The
 
long-term
 
impacts
 
of
 
global
 
climate
 
change
 
are
 
expected
 
to
 
be
 
unpredictable
 
and
 
widespread.
 
The
 
potential
 
impacts
 
of
 
climate
 
change
 
present
 
a
 
variety
 
of
 
potential
 
risks.
 
The
 
physical
 
effects
 
of
climate
 
change
 
such
 
as
 
extreme
 
weather
 
and
 
drought
 
could
 
adversely
 
affect
 
our
 
results
 
of
 
operations,
including disrupting our
 
supply chain, the
 
costs of our
 
products and negatively
 
impacting our workforce.
 
In
 
addition,
 
the
 
potential
 
impacts
 
of
 
climate
 
change
 
present
 
transition
 
risks
 
including
 
regulatory
 
and
reputational
 
risks.
 
The
 
potential
 
cost
 
of
 
compliance
 
with
 
any
 
future
 
regulations
 
may
 
substantially
increase our
 
costs. For
 
example, the
 
use of
 
certain commodities
 
in the
 
manufacture of
 
our products
 
and
energy
 
we
 
use
 
in
 
our
 
operations
 
may
 
face
 
increased
 
regulation
 
due
 
to
 
climate
 
change
 
or
 
other
environmental concerns, which could
 
increase our costs.
 
Furthermore, any failure of
 
or perceived failure
by us
 
to comply
 
with any
 
potential future
 
climate change
 
regulatory requirements
 
including stakeholder
expectations regarding the environment, could adversely affect our reputation and
 
results of operations.
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.
14
 
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 have
been and
 
may continue
 
to 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, has limited and could further limit our ability to open new
stores,
 
adversely
 
affecting
 
consumer
 
traffic
 
and
 
reducing
 
our
 
sales
 
and
 
net
 
earnings
 
or
 
increasing
 
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 inventory at below-average markups over
 
cost, or below cost, which would
adversely affect our margins and results of operations.
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.
 
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
15
result in increased costs or liabilities,
 
divert our management’s attention
 
or otherwise adversely affect our
business, results of operations and financial condition.”
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.
Our inability to effectively manage inventory has impacted and may continue
 
to negatively impact
our gross margin and our overall results of operations.
 
Factors
 
affecting
 
sales
 
include
 
fashion
 
trends,
 
customer
 
preferences,
 
calendar
 
and
 
holiday
 
shifts,
competition,
 
weather,
 
supply
 
chain
 
issues,
 
actual
 
or
 
potential
 
public
 
health
 
threats
 
and
 
economic
conditions, including
 
but not
 
limited to
 
continued high
 
interest rates
 
and persistent
 
inflation. 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.
Our
 
inability
 
to
 
effectively
 
manage
 
inventory
 
may
 
adversely
 
affect
 
our
 
gross
 
margin
 
and
 
results
 
of
operations.
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
 
has
 
affected
 
and
 
could
 
continue
 
to
 
adversely
 
affect
 
our
 
business,
margins, operating results and financial condition if we cannot offset these cost increases.
Fluctuations in the price, availability and quality of inventory have and
 
may continue to result in
higher cost of goods, which the Company may not be able to pass on
 
to its customers.
 
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 may 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
have
 
resulted
 
in
 
and
 
could
 
result
 
in
 
future
 
impairment
 
charges.
 
If
 
we
 
cannot
 
successfully
 
execute
 
our
growth strategies, our financial condition and results of operations may
 
be adversely impacted.
 
Risks Relating to Our Information Technology, Related Systems and Cybersecurity:
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,
 
cyberattacks, 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 security breach that results in unauthorized access to or disclosure of
 
employee, Company or
customer information or a ransomware attack 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
17
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
anticipate or detect for long periods
 
of time.
 
Despite measures the Company takes
 
to protect confidential
information against
 
unauthorized access
 
or disclosure, which
 
measures are
 
ongoing and
 
may continue
 
to
increase
 
our
 
costs,
 
there
 
is
 
no
 
assurance
 
that
 
such
 
measures
 
will
 
prevent
 
the
 
compromise
 
of
 
such
information. If
 
our measures
 
are unsuccessful
 
due to
 
cyberattacks or
 
otherwise, it
 
could have
 
a material
adverse
 
effect
 
on
 
the
 
Company's
 
reputation,
 
business,
 
operating
 
results,
 
financial
 
condition
 
and
 
cash
flows.
 
In addition, the
 
Company may be
 
subject to ransomware
 
attacks, which if
 
successful could result
in
 
disruptions
 
to
 
the
 
Company’s
 
operations
 
and
 
expose
 
it
 
to
 
remediation
 
and
 
other
 
costs,
 
risks
 
of
 
legal
proceedings,
 
damage the
 
Company’s
 
reputation
 
and
 
otherwise adversely
 
affect
 
the
 
Company's business
and financial condition.
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.
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 online 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
 
or
 
a
 
ransomware
attack 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.
18
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 are subject to fraud risk and
 
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).
 
For
 
certain
payment
 
methods,
 
including
 
credit
 
and
 
debit
 
cards,
 
we
 
pay
 
interchange
 
and
 
other
 
fees,
 
which
 
have
increased
 
from
 
time
 
to
 
time
 
and
 
may
 
continue
 
to
 
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.
Risks Relating to Accounting and Legal Matters:
Continued scrutiny and changing
 
expectations surrounding environmental, social and governance
(“ESG”)
 
matters
 
from
 
investors,
 
customers,
 
government
 
regulators
 
and
 
other
 
stakeholders
 
may
impose additional reporting requirements, additional costs and compliance
 
risks.
 
Public companies from
 
across all
 
industries are facing
 
increasing scrutiny from
 
investors, customers,
government regulators and other stakeholders concerning ESG matters.
 
In the U.S., there are various new
rules
 
or
 
proposals
 
for
 
new
 
or
 
enhanced
 
disclosure
 
requirements
 
regarding
 
climate
 
emissions,
sustainability,
 
workforce
 
diversity
 
and
 
other
 
human
 
capital
 
resources
 
metrics,
 
among
 
other
 
topics.
 
Complying
 
with
 
these
 
complex
 
reporting
 
obligations or
 
expectations
 
may
 
increase
 
our
 
costs
 
associated
with compliance, disclosure and reporting.
 
Furthermore, evolving ESG laws, regulations and stakeholder
expectations may
 
result in
 
uncertain and
 
potentially burdensome
 
reporting requirements
 
as stakeholders,
agencies and government authorities adjust
 
their expectations or change laws
 
and regulations, such as the
new rules regarding climate emissions reporting and
 
auditing requirements.
 
Failure to comply with all
 
of
the
 
new
 
rules
 
and
 
regulations
 
and
 
proposed
 
regulatory requirements
 
in
 
a
 
timely
 
manner
 
may
 
adversely
affect our reputation, business and financial performance.
Changes to accounting rules and regulations may adversely affect our reported
 
results of
operations and financial condition.
 
U.S.
 
Generally
 
Accepted
 
Accounting
 
Principles
 
and
 
SEC
 
accounting,
 
disclosures
 
and
 
reporting
changes are
 
common and have
 
become more frequent
 
and significant
 
in the
 
past several years.
 
Changes
in
 
accounting
 
rules,
 
disclosures
 
or
 
regulations
 
and
 
varying
 
interpretations
 
of
 
existing
 
accounting
 
rules,
disclosures 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,
 
disclosures
 
or
 
regulations may
 
adversely
 
affect
 
our
 
reported
 
results
 
of
 
operations and
financial position or perceptions of our performance and financial condition.
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”,
 
“Versona”,
 
“Cache”
 
and
 
“Body
Central”
 
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.
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,
 
the
 
results
 
of
 
which
 
could
 
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,
 
climate
 
change
 
or
 
ESG
 
matters
 
could
 
increase
 
our
 
costs
 
of
 
compliance,
technology and business operations. The interpretation of existing or new laws
 
to existing technology and
business practices can be uncertain and may lead to additional compliance
 
risk and cost.
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 in the
 
normal course of business but are
 
subject to risks and uncertainties, and
 
could
20
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.
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
these issues declines.
 
Similarly,
 
the default by
 
issuers of the
 
debt securities we
 
hold or similar
 
securities
could impair
 
the
 
value or
 
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
21
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
 
access our
 
revolving line
of credit and to execute our business strategy.
 
Risks Relating to the Market Value 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 27, 2024, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially
owned approximately 51.9%
 
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.
 
We
 
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
 
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.
There can be no assurance that we will choose to declare or be able
 
to declare cash dividends in
the future.
 
The declaration and payment of any dividend is subject to the approval of our Board of Directors.
 
Our
Board of
 
Directors regularly
 
evaluates
 
our ability
 
to
 
pay a
 
dividend based
 
on many
 
factors,
 
such as
 
but
not
 
limited
 
to,
 
applicable
 
legal
 
requirements,
 
the
 
financial
 
position
 
of
 
the
 
Company,
 
contractual
restrictions
 
and
 
our
 
capital
 
allocation strategy.
 
There
 
can
 
be
 
no
 
assurance
 
that a
 
cash
 
dividend
 
will
 
be
declared in the future in any particular amount, or at all.
 
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.
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 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
22
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 1C.
 
Cybersecurity:
Risk Management Strategy
 
We
 
recognize
 
the
 
importance
 
of
 
effectively
 
managing
 
cybersecurity
 
risk
 
in
 
protecting
 
our
 
business,
customers
 
and
 
employees,
 
and
 
we
 
manage
 
cybersecurity
 
risk
 
as
 
part
 
of
 
our
 
overall
 
risk
 
management
system
 
and
 
compliance
 
processes.
 
We
 
maintain
 
a
 
process
 
designed
 
to
 
identify,
 
assess
 
and
 
manage
material
 
risks
 
from
 
cybersecurity
 
threats,
 
including
 
risks
 
relating
 
to
 
theft
 
of
 
customer
 
data,
 
primarily
payment cards, disruption
 
to business operations
 
or financial reporting
 
systems, fraud, extortion,
 
harm to
employee
 
data
 
and
 
violation
 
of
 
privacy
 
laws.
 
In
 
recent
 
years,
 
we
 
have
 
increased
 
our
 
investments
 
in
cybersecurity
 
risk
 
management within
 
our
 
environment and
 
have
 
developed an
 
enterprise
 
cybersecurity
program designed
 
to
 
detect, identify,
 
classify and
 
mitigate cybersecurity
 
and other
 
data security
 
threats.
This
 
program classifies
 
potential threats
 
by
 
risk
 
levels,
 
and
 
we
 
typically prioritize
 
our
 
threat
 
mitigation
efforts
 
based
 
on those
 
risk classifications.
 
In the
 
event
 
we
 
identify a
 
potential cybersecurity,
 
privacy or
other data security issue,
 
we have defined procedures for
 
responding to such issues,
 
including procedures
that
 
address
 
when
 
and
 
how
 
to
 
engage
 
with
 
Company
 
executives,
 
our
 
Board
 
of
 
Directors,
 
other
stakeholders and
 
law enforcement
 
when responding
 
to
 
such
 
issues. Additionally,
 
various aspects
 
of
 
our
cybersecurity program,
 
particularly compliance
 
with the
 
Payment Card
 
Industry standards,
 
are regularly
reviewed by independent third
 
parties. We
 
also maintain cybersecurity insurance, which
 
we believe to
 
be
commensurate
 
with
 
our
 
size
 
and
 
the
 
nature
 
of
 
our
 
operations,
 
as
 
part
 
of
 
our
 
comprehensive
 
insurance
portfolio.
 
We
 
utilize
 
third-party
 
intrusion
 
detection
 
and
 
prevention
 
systems
 
and
 
vulnerability
 
and
 
penetration
testing to
 
monitor our
 
environment. We
 
also use
 
third-party software
 
to test
 
our employees' responses
 
to
suspicious emails and to
 
inform targeted cyber
 
awareness training.
 
Our information security and
 
privacy
policies
 
are
 
informed
 
by
 
regulatory
 
requirements
 
and
 
are
 
reviewed
 
periodically
 
for
 
compliance
 
and
alignment
 
with
 
current
 
state
 
and
 
federal
 
laws
 
and
 
regulations.
 
We
 
comply
 
with
 
applicable
 
industry
security
 
standards,
 
including the
 
Payment Card
 
Industry
 
Data
 
Security
 
Standard (“PCI
 
DSS”).
 
Because
we
 
are
 
aware
 
of
 
the
 
risks
 
associated
 
with
 
third-party
 
service
 
providers,
 
we
 
also
 
have
 
implemented
processes
 
to
 
oversee
 
and manage
 
these
 
risks.
 
We
 
conduct
 
security
 
assessments
 
of
 
third-party
 
providers
before
 
engagement
 
and
 
maintain ongoing
 
monitoring to
 
help
 
ensure
 
compliance with
 
our
 
cybersecurity
standards.
 
23
 
Additionally,
 
we
 
maintain
 
a
 
cybersecurity
 
incident
 
response
 
plan,
 
which
 
is
 
reviewed
 
regularly,
 
and
provides
 
a
 
framework
 
for
 
handling
 
and
 
escalating
 
cybersecurity
 
incidents
 
based
 
on
 
the
 
severity
 
of
 
the
incident and facilitates cross-functional coordination across the Company.
 
Through the
 
processes described
 
above,
 
we
 
did
 
not
 
identify
 
risks
 
during the
 
year
 
ended
 
February 3,
2024 from current or
 
past cybersecurity threats or cybersecurity
 
incidents that have materially affected
 
or
are
 
reasonably
 
likely
 
to
 
materially
 
affect
 
our
 
business
 
strategy,
 
results
 
of
 
operations,
 
or
 
financial
condition.
 
However,
 
we
 
face
 
ongoing
 
risks
 
from
 
certain
 
cybersecurity
 
threats
 
that,
 
if
 
realized,
 
are
reasonably likely
 
to
 
materially affect
 
our
 
business strategy,
 
results
 
of
 
operations, or
 
financial condition.
See
 
the
 
risk
 
factors
 
discussed
 
under
 
the
 
heading,
 
“Risk
 
Factors
 
 
Risks
 
Relating
 
to
 
Our
 
Information
Technology,
 
Related Systems and Cybersecurity” for further information.
Governance
 
Our
 
Board
 
of
 
Directors
 
recognizes
 
the
 
important
 
roles
 
that
 
information
 
security
 
and
 
mitigating
cybersecurity and other data security threats
 
play in our efforts
 
to protect and maintain the
 
confidentiality
and security of
 
customer, employee and
 
vendor information, as
 
well as non-public
 
information about our
Company.
 
Although
 
the
 
Board
 
as
 
a
 
whole
 
is
 
ultimately
 
responsible
 
for
 
the
 
oversight
 
of
 
our
 
risk
management
 
function,
 
the
 
Board
 
has
 
delegated
 
to
 
its
 
Audit
 
Committee
 
primary
 
responsibility
 
for
oversight
 
of
 
risk
 
assessment
 
and
 
risk
 
management,
 
including
 
risks
 
related
 
to
 
cybersecurity
 
and
 
other
technology
 
issues.
 
The
 
Audit
 
Committee
 
also
 
oversees
 
the
 
Company’s
 
internal
 
control
 
over
 
financial
reporting, including
 
with respect
 
to financial
 
reporting-related information
 
systems. The
 
Chief Financial
Officer (CFO) and Chief
 
Accounting Officer (CAO) meet regularly
 
with the Audit Committee and
 
Board
of Directors.
 
The
 
Audit
 
Committee
 
reviews
 
quarterly
 
our
 
cybersecurity
 
activities,
 
including
 
review
 
of
 
annual
external assessment
 
results, training
 
results, and
 
discussion of
 
cybersecurity risks
 
and resolutions,
 
and is
responsible for elevating
 
significant matters to
 
the Board as
 
events arise.
 
The Audit
 
Committee receives
reports
 
from
 
our
 
Chief
 
Information
 
Officer
 
(CIO)
 
annually
 
regarding
 
our
 
cybersecurity
 
framework,
 
as
well as our plans to mitigate cybersecurity risks and respond to any data breaches.
 
 
From
 
a
 
management
 
perspective,
 
our
 
enterprise
 
cybersecurity
 
is
 
overseen
 
by
 
our
 
cybersecurity
committee, which is chaired by our
 
CFO and includes our CAO, CIO, Chief
 
Information Security Officer
(CISO),
 
as
 
well
 
as
 
key
 
members
 
of
 
financial
 
management,
 
information
 
technology
 
and
 
audit.
 
Our
cybersecurity infrastructure
 
is
 
overseen by
 
our
 
CISO, who
 
reports
 
to
 
our
 
CIO.
 
Our
 
CIO reports
 
to
 
our
CFO
 
and
 
has
 
served
 
in
 
various
 
roles
 
in
 
information
 
technology
 
and
 
information
 
security
 
for
 
over
 
30
years.
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
 
e-commerce
 
storage.
 
The
 
Company also
 
owns
approximately
 
185
 
acres
 
of
 
land
 
in
 
York
 
County,
 
South
 
Carolina
 
as
 
a
 
potential
 
new
 
site
 
for
 
our
distribution center.
24
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.
 
 
 
 
 
 
25
Item 3A.
 
Executive Officers of the Registrant:
 
The executive officers of the Company and their ages as of March 27, 2024
 
are as follows:
Name
Age
 
Position
John P.
 
D. Cato............................
 
 
 
73
 
 
Chairman, President and Chief Executive Officer
Charles D. Knight........................
 
 
59
Executive Vice President, Chief Financial Officer
Gordon Smith
 
..............................
 
 
 
68
 
 
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.
 
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.
26
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 25, 2024, 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.
cato2023012810Kp27i0
 
 
 
 
 
 
 
 
 
 
 
 
 
27
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
2/1/2019
100
100
100
1/31/2020
118
111
109
1/29/2021
86
119
142
1/28/2022
128
132
140
1/27/2023
82
144
136
2/2/2024
61
161
139
 
The graph assumes an initial investment of $100 on February 1, 2019,
 
the last trading day prior to the
commencement of the Company’s 2019 fiscal year, and that all dividends were reinvested.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
Issuer Purchases of Equity Securities
 
The following table summarizes the Company’s purchases of its common stock for the three months
ended February 3, 2024:
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 2023
-
$
-
-
December 2023
-
-
-
January 2024
-
-
-
Total
-
$
-
-
909,653
(1)
Prices include trading costs.
(2)
During
 
the
 
fourth
 
quarter
 
ended
 
February
 
3,
 
2024,
 
the
 
Company
 
did
 
not
 
repurchase
 
or
 
retire
 
any
shares under
 
this program.
 
As of
 
February 3,
 
2024, the
 
Company had
 
909,653 shares
 
remaining in
open authorizations. There is no
 
specified expiration date for the Company’s
 
repurchase program.
 
 
 
 
 
 
29
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
 
annual report
on Form 10-K.
 
This section of the annual report
 
on Form 10-K generally discusses fiscal 2023
 
and fiscal
2022
 
and
 
year-to-year
 
comparisons
 
between
 
fiscal
 
2023
 
and
 
fiscal
 
2022,
 
as
 
well
 
as
 
certain
 
fiscal
 
2021
items.
 
Discussions
 
of
 
fiscal
 
2021
 
items
 
and
 
year-to-year
 
comparisons
 
between
 
fiscal
 
2022
 
and
 
fiscal
2021 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 28, 2023.
Recent Developments
Inflationary Cost Pressure and High Interest Rates
 
Our
 
customers’
 
disposable
 
income
 
was
 
negatively
 
impacted
 
by
 
high
 
interest
 
rates
 
and
 
continued
inflation related to
 
fuel, food, housing,
 
including rent, and
 
other consumable products
 
and a flattening
 
of
wage rates in 2023. The
 
persistence of high interest rates and
 
inflation negatively affected our customers’
willingness to purchase discretionary items such as apparel, jewelry
 
and shoes.
 
Though the Federal Reserve paused
 
raising rates in the
 
fall of 2023, it
 
has indicated it is
 
committed to
maintaining
 
interest
 
rates
 
at
 
or
 
near
 
these
 
elevated
 
levels
 
until
 
inflation
 
subsides
 
to
 
its
 
targeted
 
levels.
 
These high interest rates have adversely affected the availability and cost of credit for both businesses and
our
 
customers.
 
Increasing
 
costs
 
related
 
to
 
revolving
 
credit,
 
auto
 
loans
 
and
 
mortgages
 
continue
 
to
negatively
 
impact
 
our
 
customers’
 
discretionary
 
income.
 
Our
 
customers’
 
willingness
 
to
 
purchase
 
our
products may continue to be negatively impacted by these inflationary
 
pressures and high interest rates.
 
We
 
believe continued
 
inflation and
 
high interest
 
rates negatively
 
impacted fiscal
 
2023 and
 
will likely
continue to have a negative impact on
 
consumer behavior and, by extension, our results of
 
operations and
financial condition during fiscal 2024.
Merchandise Supply Chain
 
A
 
significant
 
amount
 
of
 
our
 
merchandise
 
is
 
manufactured
 
overseas,
 
principally
 
Southeast
 
Asia,
 
and
traverses through the Panama Canal or
 
the Suez Canal.
 
Due to a sustained regional
 
drought, the Panama
Canal
 
has
 
reduced
 
the
 
number
 
of
 
transits
 
by
 
approximately
 
37%
 
and
 
has
 
also
 
reduced
 
the
 
permissible
draft of vessels
 
transiting the Panama Canal,
 
which reduces the volume
 
and number of
 
containers carried
by container
 
ships and
 
increases our
 
costs.
 
The recent
 
hostilities affecting
 
the Red
 
Sea and
 
Suez Canal
are
 
causing
 
container
 
ships
 
to
 
travel
 
a
 
much
 
longer
 
distance
 
around
 
the
 
Cape
 
of
 
Good
 
Hope,
 
which
 
is
increasing both lead times for merchandise during our key selling times and our costs to ship
 
these goods.
 
Both of these situations have negatively impacted 2023 and will likely continue to have a negative impact
on our results of operations and financial condition during fiscal 2024.
 
 
 
 
 
 
 
 
 
 
 
 
30
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
February 3, 2024
January 28, 2023
Retail sales …………………………………………………………..
100.0
%
100.0
%
Other revenue…………………………………………………………
1.1
0.9
Total revenues ……………………………………………………….
101.1
100.9
Cost of goods sold …………………………………………………..
66.3
67.7
Selling, general and administrative………………………………….
36.1
32.3
Depreciation …………………………………………………………
1.4
1.5
Interest and other income ……………………………………………
0.7
0.8
Income (loss) before income taxes …………………………………………
(2.0)
0.2
Net income (loss)…………………………………………………………..
(3.4)
%
-
%
Fiscal 2023 Compared to Fiscal 2022
 
Retail sales
 
decreased by
 
6.9% to
 
$700.3 million
 
in fiscal
 
2023 compared
 
to $752.4
 
million in
 
fiscal
2022. The decrease in
 
retail sales in fiscal
 
2023 was primarily due
 
to a 5.9% decrease
 
in same-store sales
and
 
sales from
 
closed stores
 
in
 
2022
 
and
 
stores
 
closed
 
in
 
the
 
first
 
half
 
of
 
2023,
 
partially offset
 
by
 
an
additional
 
week of sales
 
in 2023 and a
 
small increase in
 
sales from stores opened in 2023. Fiscal
 
2023 had
53 weeks
 
versus 52
 
weeks in
 
fiscal 2022.
 
Same-store sales
 
for the
 
fiscal year
 
2023 decreased
 
primarily
due
 
to
 
lower
 
transactions,
 
partially
 
offset
 
by
 
fewer
 
returns
 
and
 
slightly
 
higher
 
average
 
sales
 
per
transaction. 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
 
2023 and
 
fiscal
 
2022,
 
e-commerce sales
 
were less
 
than
 
5%
 
and
 
6%
 
of
total sales and same-store sales, respectively.
 
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), decreased by 6.7%
 
to $708.1
 
million in
 
fiscal 2023
compared
 
to
 
$759.3
 
million
 
in
 
fiscal
 
2022.
 
The
 
Company
 
operated
 
1,178
 
stores
 
at
 
February
 
3,
 
2024
compared to 1,280 stores operated at January 28, 2023.
 
In fiscal 2023, the Company opened nine new stores and closed 111 stores.
 
Other
 
revenue,
 
a
 
component
 
of
 
total
 
revenues,
 
increased
 
to
 
$7.7
 
million
 
in
 
fiscal
 
2023
 
from
 
$6.9
million
 
in
 
fiscal
 
2022.
 
The
 
increase
 
was
 
due
 
to
 
increases
 
in
 
gift
 
card
 
breakage
 
and
 
finance
 
charges
associated
 
with
 
the
 
Company’s
 
proprietary
 
credit
 
card,
 
partially
 
offset
 
by
 
decreases
 
in
 
e-commerce
shipping revenue.
 
Credit
 
revenue
 
of
 
$2.6
 
million
 
represented
 
0.4%
 
of
 
total
 
revenue
 
in
 
fiscal
 
2023,
 
a
 
$0.4
 
million
increase compared to fiscal 2022 credit
 
revenue of $2.2 million or 0.3% of
 
total revenue.
 
The increase in
credit revenue was
 
primarily due to
 
increases in finance
 
charges and late
 
fee income as
 
a result of
 
higher
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
 
$1.7
 
million
 
in
 
fiscal
 
2023
 
compared
 
to
 
$1.7
 
million
 
in
fiscal
 
2022.
 
See
 
Note 13
 
to
 
the
 
Consolidated Financial
 
Statements,
 
“Reportable Segment
 
Information”
for
 
a schedule
 
of
 
credit-related expenses.
 
Total
 
credit segment
 
income before
 
taxes
 
was $0.9
 
million in
fiscal 2023 and $0.6 million in fiscal 2022.
 
 
31
 
Cost
 
of
 
goods sold
 
was $464.3
 
million, or
 
66.3% of
 
retail
 
sales, in
 
fiscal
 
2023 compared
 
to
 
$509.7
million, or 67.7% of retail sales, in fiscal 2022. The decrease in cost of goods sold as a percentage of sales
resulted
 
primarily
 
from
 
lower
 
ocean
 
freight
 
costs
 
and
 
increased
 
sales
 
of
 
regular
 
priced
 
goods,
 
partially
offset
 
by deleveraging
 
of
 
occupancy and
 
buying costs.
 
Cost of
 
goods sold
 
includes
 
merchandise costs,
net
 
of
 
discounts
 
and
 
allowances,
 
buying
 
costs,
 
distribution
 
costs,
 
occupancy
 
costs,
 
and
 
freight
 
and
inventory
 
shrinkage.
 
Net
 
merchandise
 
costs
 
and
 
in-bound
 
freight
 
are
 
capitalized
 
as
 
inventory
 
costs.
Buying and distribution costs include
 
payroll, payroll-related costs and operating expenses for
 
the buying
departments
 
and
 
distribution
 
center.
 
Occupancy
 
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)
 
decreased
 
by
 
2.8%
 
to
$236.0 million
 
in fiscal
 
2023 from
 
$242.7 million
 
in fiscal
 
2022. 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 $252.8 million in fiscal
 
2023 compared to $242.6 million in fiscal
 
2022, an increase
of 4.2%. As a percent of retail sales, SG&A was 36.1% compared to 32.3% in the prior year. The increase
in SG&A
 
expense in
 
fiscal 2023
 
was primarily
 
attributable to
 
higher payroll,
 
insurance and
 
closed store
expenses.
 
Depreciation
 
expense
 
was
 
$9.9
 
million
 
in
 
fiscal
 
2023
 
compared
 
to
 
$11.1
 
million
 
in
 
fiscal
 
2022.
Depreciation
 
expense
 
decreased
 
from
 
fiscal
 
2022
 
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
 
$5.1 million
 
in fiscal
 
2023 compared
 
to $5.9
 
million in
 
fiscal
2022.
 
The
 
decrease
 
is
 
primarily
 
attributable
 
to
 
receiving
 
a
 
Business
 
Recovery
 
Grant
 
from
 
the
 
State
 
of
North
 
Carolina
 
in
 
fiscal
 
2022,
 
partially
 
offset
 
by
 
higher
 
amounts
 
earned
 
on
 
investments
 
due
 
to
 
higher
interest rates.
 
Income tax expense was
 
$10.1 million, or 1.4%
 
of retail sales in
 
fiscal 2023 compared to
 
income tax
expense
 
of
 
$1.7
 
million,
 
or
 
0.2%
 
of
 
retail
 
sales
 
in
 
fiscal
 
2022.
 
The
 
income
 
tax
 
expense
 
increase
 
was
primarily due to a valuation allowance
 
recorded against U.S. federal and state
 
deferred tax assets due to
 
a
pre-tax loss,
 
partially offset
 
by foreign
 
rate differential.
 
The effective
 
tax rate
 
was (73.5%)
 
(Expense) in
fiscal
 
2023
 
compared
 
to
 
98.4%
 
(Expense)
 
in
 
fiscal
 
2022.
 
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
 
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 calculation of potential asset
impairment, income tax
 
valuation allowances, reserves relating
 
to self-insured health
 
insurance, workers’
32
compensation, general
 
and auto
 
insurance liabilities,
 
uncertain tax
 
positions, the
 
allowance for
 
customer
credit losses, and inventory shrinkage.
 
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
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,
 
warehouse space
 
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
 
to the
 
Consolidated Financial Statements,
“Leases” 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.
33
 
Insurance Liabilities
 
The
 
Company
 
is
 
primarily
 
self-insured
 
for
 
healthcare,
 
workers’
 
compensation
 
and
 
general
 
liability
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, and 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.
 
Deferred Tax Valuation
 
Allowance
 
The
 
Company
 
assesses
 
the
 
likelihood
 
that
 
deferred
 
tax
 
assets
 
will
 
be
 
realized
 
in
 
light
 
of
 
the
Company’s
 
current
 
financial
 
performance
 
and
 
projected
 
future
 
financial
 
performance.
 
Based
 
on
 
this
assessment, the
 
Company then
 
determines if
 
a valuation
 
allowance should
 
be recorded.
 
If the
 
Company
concludes
 
that
 
it
 
is
 
more
 
likely
 
than
 
not
 
that
 
the
 
Company
 
will
 
not
 
be
 
able
 
to
 
realize
 
its
 
tax
 
deferred
assets, a valuation allowance is recorded for the proportion of the deferred tax asset it
 
determines may not
be realized.
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
$66.9
 
million
 
of
 
lease
 
obligations
 
and
 
planned
 
investments
 
of
 
$8.7
 
million
 
of
 
capital
 
expenditures,
 
for
fiscal 2024 and for the foreseeable future.
 
 
Cash
 
provided
 
by
 
operating
 
activities
 
during
 
fiscal
 
2023
 
was
 
$0.5
 
million
 
as
 
compared
 
to
$13.4 million in
 
fiscal 2022
 
and $59.8
 
in fiscal
 
2021. Cash
 
provided by
 
operating activities
 
during 2023
was primarily attributable to net income adjusted for depreciation, share-based compensation, impairment
and changes in
 
working capital. The
 
decrease of $12.9
 
million for fiscal
 
2023 compared to
 
fiscal 2022 is
primarily
 
due
 
to
 
lower
 
net
 
operating
 
income
 
partially
 
offset
 
by
 
a
 
decrease
 
in
 
merchandise
 
inventories
 
and
deferred taxes.
 
At
 
February 3,
 
2024,
 
the
 
Company had
 
working
 
capital
 
of
 
$55.1 million compared
 
to
 
$74.7 million
and
 
$111.5
 
million
 
at
 
January
 
28,
 
2023
 
and
 
January
 
29,
 
2022,
 
respectively.
 
The
 
decrease in
 
working
34
capital
 
compared
 
to
 
the
 
prior
 
year
 
is
 
primarily
 
due
 
to
 
lower
 
short-term
 
investments
 
and
 
lower
 
inventory,
partially offset by lower accounts payable
 
and current lease liability.
 
 
At February 3,
 
2024, 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 related
 
to
 
purchase
commitments,
 
and
 
was
 
committed
 
through
 
May
 
2027.
 
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
 
February 3,
 
2024. There
 
were no
 
borrowings outstanding,
 
nor
 
any outstanding
letters of
 
credit that
 
reduced borrowing
 
availability,
 
under this
 
credit facility
 
as of
 
the fiscal
 
year ended
February 3, 2024 or the fiscal year ended January 28, 2023.
 
The
 
Company
 
had
 
no
 
outstanding
 
revocable
 
letters
 
of
 
credit
 
relating
 
to
 
purchase
 
commitments
 
at
February 3, 2024 or at January 28, 2023.
 
 
Expenditures
 
for
 
property
 
and
 
equipment
 
totaled
 
$12.5
 
million,
 
$19.4
 
million
 
and
 
$4.1
 
million
 
in
fiscal 2023,
 
2022 and
 
2021, respectively.
 
The
 
expenditures for
 
fiscal 2023
 
were primarily
 
for additional
investments in nine new stores, our
 
distribution center and information technology.
 
 
Net
 
cash
 
provided
 
by
 
investing
 
activities
 
totaled
 
$19.8
 
million
 
for
 
fiscal
 
2023
 
compared
 
to
 
$16.0
million provided
 
in fiscal
 
2022 and
 
$25.3 million
 
used in
 
fiscal 2021.
 
In fiscal
 
2023, the
 
cash provided
was primarily
 
attributable to
 
the net
 
sales of
 
short-term investments,
 
partially offset
 
by expenditures
 
for
property and equipment.
 
Net cash used in financing activities totaled
 
$16.1 million in fiscal 2023 compared to
 
net cash used of
$29.3
 
million
 
for
 
fiscal
 
2022
 
and
 
$31.8
 
million
 
for
 
fiscal
 
2021.
 
The decrease in
 
cash used during
 
fiscal
2023 was primarily due to lower
 
share repurchase amounts.
 
The Company does not use derivative financial instruments.
 
 
See
 
Note
 
4
 
to
 
the
 
Consolidated
 
Financial
 
Statements,
 
“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
 
taxable
governmental debt securities held in managed accounts
 
with underlying ratings of A or
 
better at February
3, 2024. The state,
 
municipal and corporate bonds and
 
asset-backed securities have contractual maturities
which
 
range
 
from
 
seven
 
days
 
to
 
3.1
 
years.
 
The
 
U.S.
 
Treasury
 
Notes
 
have
 
contractual
 
maturities
 
which
range
 
from
 
four
 
days to
 
2.0
 
years. These
 
securities are
 
classified as
 
available-for-sale and
 
are recorded
 
as
Short-term investments, Restricted cash, 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
 
February
 
3,
 
2024
 
and
 
January
 
28,
 
2023,
 
the
 
Company
 
had
 
$1.1
 
and
 
$0.9
 
million,
respectively,
 
of
 
corporate
 
equities,
 
which
 
are
 
recorded
 
within
 
Other
 
assets
 
in
 
the
 
accompanying
Consolidated Balance Sheets.
 
 
Level
 
1
 
category
 
securities
 
are
 
measured
 
at
 
fair
 
value
 
using
 
quoted
 
active
 
market
 
prices.
 
Level
 
2
investment securities include corporate and municipal bonds for which quoted prices may
 
not be available on
active exchanges for identical instruments.
 
Their fair value is principally based on market values determined
by management with the assistance of a third-party pricing service.
 
Since quoted prices in active markets for
35
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
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
 
February
 
3,
 
2024
 
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
 
to
 
the
 
Consolidated
 
Financial
 
Statements,
 
“Leases”
 
for
 
the
 
maturities
 
of
 
our
 
operating
 
lease
obligations.
Recent Accounting Pronouncements
 
See
 
Note 1
 
to
 
the
 
Consolidated Financial
 
Statements,
 
“Summary of
 
Significant Accounting
 
Policies,
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.
 
 
 
 
 
 
 
 
 
 
36
 
Item 8.
 
Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 
 
 
 
 
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm (PCAOB ID
238
) .....................................
 
 
 
37
 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
 
for the fiscal
 
 
years ended February 3, 2024, January 28, 2023 and January 29, 2022 ................................
 
...........
 
 
 
40
 
Consolidated Balance Sheets at February 3, 2024 and January 28, 2023
 
.............................................
 
 
 
41
 
Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2024,
 
January 28, 2023
 
and January 29, 2022................................
 
................................................................
 
.........................
 
 
 
42
 
Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 3,
 
2024,
 
 
January 28, 2023 and January 29, 2022 ................................................................
 
............................
 
 
 
43
 
Notes to Consolidated Financial Statements ..........................................................................................
 
 
 
44
 
Schedule II — Valuation
 
and Qualifying Accounts for the fiscal years ended February 3, 2024,
 
 
January 28, 2023 and January 29, 2022 ................................................................
 
............................
 
 
 
75
 
 
37
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 February 3, 2024 and
 
January 28, 2023, and the related consolidated
statements of income (loss), of comprehensive income (loss), of stockholders’
 
equity and of cash flows
for each of the three years in the period ended February 3, 2024, 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
February 3, 2024, 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 February
 
3, 2024 and January 28, 2023, and the
results of its operations and its cash flows for each of the three years
 
in the period ended February 3, 2024
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 February 3, 2024, 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
38
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
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 $64.0 million, of which the store
 
locations were a portion, and
consolidated operating lease right-of-use assets, net balance was $154.7
 
million as of February 3, 2024.
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 $1.8 million was recorded during
 
the year ended
February 3, 2024.
 
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.
 
39
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
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 27, 2024
We have served as the Company’s
 
auditor since 2003.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
Fiscal Year Ended
February 3, 2024
January 28, 2023
January 29, 2022
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
700,318
$
752,370
$
761,358
 
Other revenue (principally finance charges,
 
 
late fees and layaway charges)
7,741
6,890
7,913
 
Total revenues
708,059
759,260
769,271
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of
 
 
depreciation shown below)
464,313
509,664
453,065
 
Selling, general and administrative (exclusive
 
 
of depreciation shown below)
252,742
242,561
266,954
 
Depreciation
9,871
11,080
12,356
 
Interest expense
35
87
72
 
Interest and other income
(5,101)
(5,902)
(2,141)
 
Costs and expenses, net
721,860
757,490
730,306
Income (loss) before income taxes
(13,801)
1,770
38,965
Income tax expense
10,140
1,741
2,121
Net income (loss)
$
(23,941)
$
29
$
36,844
Basic earnings (loss) per share
$
(1.17)
$
-
$
1.65
Diluted earnings (loss) per share
$
(1.17)
$
-
$
1.65
Dividends per share
$
0.68
$
0.68
$
0.45
Comprehensive income:
Net income (loss)
$
(23,941)
$
29
$
36,844
Unrealized gain (loss) on available-for-sale
 
securities, net of deferred income taxes of
 
$
489
, ($
287
), and ($
433
) for fiscal 2023, 2022
 
and 2021, respectively
1,633
(958)
(1,435)
Comprehensive income (loss)
$
(22,308)
$
(929)
$
35,409
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
February 3, 2024
January 28, 2023
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
23,940
$
20,005
Short-term investments
79,012
108,652
Restricted cash
3,973
3,787
Accounts receivable, net of allowance for customer credit losses of $
705
 
at
 
February 3, 2024 and $
761
 
at January 28, 2023
29,751
26,497
Merchandise inventories
 
98,603
112,056
Prepaid expenses and other current assets
7,783
6,676
 
Total Current Assets
 
243,062
277,673
Property and equipment – net
 
64,022
70,382
Deferred income taxes
-
9,213
Other assets
 
25,047
21,596
Right-of-Use assets - net
154,686
174,276
 
Total Assets
 
$
486,817
$
553,140
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
87,821
$
91,956
Accrued expenses
 
37,404
41,338
Accrued bonus and benefits
 
1,675
1,690
Accrued income taxes
 
-
613
Current lease liability
61,108
67,360
 
Total Current Liabilities
 
188,008
202,957
Other noncurrent liabilities
14,475
16,183
Lease liability
92,013
107,407
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;
18,802,742
 
and
18,723,225
 
shares issued at
 
February 3, 2024 and January 28, 2023, respectively
635
632
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
 
February 3, 2024 and January 28, 2023, respectively
59
59
Additional paid-in capital
 
126,953
122,431
Retained earnings
 
64,279
104,709
Accumulated other comprehensive income
 
395
(1,238)
 
Total Stockholders' Equity
 
192,321
226,593
 
Total Liabilities and Stockholders’ Equity
 
$
486,817
$
553,140
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
Fiscal Year Ended
February 3, 2024
January 28, 2023
January 29, 2022
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
(23,941)
$
29
$
36,844
Adjustments to reconcile net income (loss) to net cash provided
 
by operating activities:
 
Depreciation
9,871
11,080
12,356
 
Provision for customer credit losses
554
280
429
 
Purchase premium and premium amortization of investments
(711)
537
(332)
 
Gain on sale of assets held for investment
8
-
-
 
Share based compensation
4,170
2,606
4,090
 
Deferred income taxes
8,724
386
(3,194)
 
Loss on disposal of property and equipment
84
199
629
 
Impairment of assets
1,811
884
901
 
Changes in operating assets and liabilities which provided
 
(used) cash:
 
Accounts receivable
(608)
29,034
(3,499)
 
Merchandise inventories
13,453
12,851
(40,784)
 
Prepaid and other assets
(216)
1,543
(505)
 
Operating lease right-of-use assets and liabilities
(2,056)
(2,573)
(3,855)
 
Accrued income taxes
(613)
(307)
(1,118)
 
Accounts payable, accrued expenses and other liabilities
(10,053)
(43,179)
57,826
Net cash provided by operating activities
477
13,370
59,788
Investing Activities:
Expenditures for property and equipment
 
(12,532)
(19,433)
(4,105)
Purchase of short-term investments
(48,055)
(54,734)
(141,937)
Sales of short-term investments
80,371
90,190
121,110
Purchase of other assets
-
-
(400)
Sales of other assets
(8)
-
-
Net cash provided by (used in) investing activities
19,776
16,023
(25,332)
Financing Activities:
Dividends paid
(13,954)
(14,369)
(9,972)
Repurchase of common stock
(2,562)
(15,216)
(22,033)
Proceeds from employee stock purchase plan
384
307
204
Net cash used in financing activities
(16,132)
(29,278)
(31,801)
Net increase in cash, cash equivalents, and restricted cash
4,121
115
2,655
Cash, cash equivalents, and restricted cash at beginning of period
23,792
23,677
21,022
Cash, cash equivalents, and restricted cash at end of period
 
$
27,913
$
23,792
$
23,677
Non-cash activity:
Accrued property and equipment expenditures
$
942
$
685
$
657
See notes to consolidated financial statements.
 
 
 
 
43
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS' EQUITY
Accumulated
Additional
 
Other
Total
Common
Paid-In
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 30, 2021
$
762
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
 
Net income
-
-
36,844
-
36,844
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax benefit of ($
433
)
-
-
-
(1,435)
(1,435)
Dividends paid ($
0.45
 
per share)
-
-
(9,972)
-
(9,972)
Class A common stock sold through employee stock purchase
 
plan
-
239
-
-
239
Share-based compensation expense
13
4,023
19
-
4,055
Repurchase and retirement of treasury shares
(47)
-
(21,986)
-
(22,033)
Balance — January 29, 2022
$
728
$
119,540
$
134,208
$
(280)
$
254,196
Comprehensive income:
 
Net income
-
-
29
-
29
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax benefit of ($
287
)
-
-
-
(958)
(958)
Dividends paid ($
0.68
 
per share)
-
-
(14,369)
-
(14,369)
Class A common stock sold through employee stock purchase
 
plan
-
360
-
-
360
Share-based compensation expense
4
2,531
17
-
2,552
Repurchase and retirement of treasury shares
(41)
-
(15,176)
-
(15,217)
Balance — January 28, 2023
$
691
$
122,431
$
104,709
$
(1,238)
$
226,593
Comprehensive income:
 
Net loss
-
-
(23,941)
-
(23,941)
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax expense of $
489
-
-
-
1,633
1,633
Dividends paid ($
0.68
 
per share)
-
-
(13,954)
-
(13,954)
Class A common stock sold through employee stock purchase
 
plan
2
445
-
-
447
Share-based compensation expense
10
4,077
18
-
4,105
Repurchase and retirement of treasury shares
(9)
-
(2,553)
-
(2,562)
Balance — February 3, 2024
$
694
$
126,953
$
64,279
$
395
$
192,321
See notes to consolidated financial statements.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
44
1.
 
Summary of Significant Accounting Policies:
 
Principles of Consolidation:
The Consolidated Financial Statements include the accounts of The Cato
Corporation and
 
its
 
wholly-owned subsidiaries
 
(the “Company”).
 
All
 
significant intercompany
 
accounts
and transactions have been eliminated.
 
Description
 
of
 
Business
 
and
 
Fiscal
Year:
 
The
 
Company
 
has
two
 
reportable
 
segments
 
 
the
operation
 
of
 
a
 
fashion
 
specialty
 
stores
 
segment
 
(“Retail
 
Segment”)
 
and
 
a
 
credit
 
card
 
segment
 
(“Credit
Segment”). The
 
apparel specialty
 
stores operate
 
under the
 
names “Cato,”
 
“Cato Fashions,”
 
“Cato Plus,”
“It’s Fashion,” “It’s
 
Fashion Metro,” “Versona
 
 
and “Cache,” including e-commerce websites. The stores
are
 
located
 
primarily
 
in
 
strip
 
shopping
 
centers
 
principally
 
in
 
the
 
southeastern
 
United
 
States.
 
The
Company’s fiscal year ends on the Saturday nearest January 31 of the subsequent year. Fiscal year 2023 is
a 53-week year and 2022 and 2021 are
52
-week years.
 
Use
 
of
 
Estimates:
 
The
 
preparation
 
of
 
the
 
Company’s
 
financial
 
statements
 
in
 
conformity
 
with
accounting
 
principles
 
generally accepted
 
in
 
the
 
United
 
States
 
(“GAAP”)
 
requires
 
management to
 
make
estimates
 
and
 
assumptions
 
that
 
affect
 
the
 
reported
 
amounts
 
of
 
assets
 
and
 
liabilities
 
and
 
disclosure
 
of
contingent
 
assets
 
and
 
liabilities
 
at
 
the
 
date
 
of
 
the
 
financial
 
statements
 
and
 
the
 
reported
 
amounts
 
of
revenues
 
and
 
expenses
 
during
 
the
 
reporting
 
period.
 
Actual
 
results
 
could
 
differ
 
from
 
those
 
estimates.
Significant
 
accounting
 
estimates
 
reflected
 
in
 
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,
uncertain tax positions and valuation allowances on deferred tax
 
assets.
 
Cash
 
and
 
Cash
 
Equivalents:
 
Cash
 
and
 
cash
 
equivalents
 
consist
 
of
 
highly
 
liquid
 
investments
 
with
original maturities of three months or less.
 
Short-Term
 
Investments:
 
Investments with
 
original maturities
 
beyond three
 
months are
 
classified
as short-term
 
investments. See
 
Note 3
 
for the
 
Company’s
 
estimated fair
 
value of,
 
and other
 
information
regarding,
 
its
 
short-term
 
investments.
The
 
Company’s
 
short-term
 
investments
 
are
 
all
 
classified
 
as
available-for-sale.
 
As
 
they
 
are
 
available
 
for
 
current
 
operations,
 
they
 
are
 
classified
 
on
 
the
 
Consolidated
Balance Sheets
 
as
 
Current Assets.
 
Available-for-sale
 
securities are
 
carried at
 
fair value,
 
with
 
unrealized
gains
 
and
 
temporary
 
losses,
 
net
 
of
 
income
 
taxes,
 
reported
 
as
 
a
 
component
 
of
 
Accumulated
 
other
comprehensive income.
 
Other than
 
temporary declines
 
in the
 
fair value
 
of investments
 
are recorded
 
as a
reduction
 
in
 
the
 
cost
 
of
 
the
 
investments
 
in
 
the
 
accompanying
 
Consolidated
 
Balance
 
Sheets
 
and
 
a
reduction
 
of
 
Interest
 
and
 
other
 
income
 
in
 
the
 
accompanying
 
Consolidated
 
Statements
 
of
 
Income
 
and
Comprehensive
 
Income.
 
The
 
cost
 
of
 
debt
 
securities
 
is
 
adjusted
 
for
 
amortization
 
of
 
premiums
 
and
accretion
 
of
 
discounts
 
to
 
maturity.
 
The
 
amortization
 
of
 
premiums,
 
accretion
 
of
 
discounts
 
and
 
realized
gains and losses are included in Interest and other income.
 
Restricted Cash:
The Company had $
4.0
 
million and $
3.8
 
million in escrow at February 3, 2024 and
January 28, 2023, respectively, as security and collateral for administration of the Company’s
 
self-insured
workers’
 
compensation
 
and
 
general
 
liability
 
coverage,
 
which
 
is
 
reported
 
as
 
Restricted
 
cash
 
on
 
the
Consolidated Balance Sheets.
 
Supplemental Cash Flow
 
Information:
Income tax
 
payments, net
 
of refunds
 
received, for
 
the fiscal
years ended
 
February 3,
 
2024, January
 
28, 2023
 
and January
 
29, 2022
 
were a
 
payment of
 
$
4,121,000
, a
refund of $
29,206,000
 
and a payment of $
13,176,000
, respectively.
 
 
Inventories:
Merchandise
 
inventories
 
are
 
stated
 
at
 
the
 
net
 
realizable
 
value
 
as
 
determined
 
by
 
the
weighted-average cost method.
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
45
 
Property and Equipment:
Property and equipment are
 
recorded at cost, including
 
land. Maintenance
and repairs are expensed to operations as incurred; renewals and betterments are capitalized. Depreciation
is
 
determined on
 
the
 
straight-line method
 
over the
 
estimated useful
 
lives of
 
the
 
related assets
 
excluding
leasehold improvements.
 
Leasehold improvements are amortized over the
 
shorter of the estimated useful
life or lease term.
 
For leases with renewal periods at
 
the Company’s
 
option, the Company generally uses
the
 
original
 
lease
 
term
 
plus
 
reasonably
 
assured
 
renewal
 
option
 
periods
 
(generally
 
one
 
five-year
 
option
period) to determine estimated useful lives.
 
Typical estimated useful lives are as follows:
 
 
`
Estimated
Classification
Useful Lives
Land improvements
 
10
 
years
Buildings
 
30
-
40
 
years
Leasehold improvements
 
5
-
10
 
years
Fixtures and equipment
 
3
-
10
 
years
Information technology equipment and software
 
3
-
10
 
years
Aircraft
20
 
years
 
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. Asset
 
impairment charges of $
1,811,000
, $
884,000
 
and $
901,000
 
were
incurred in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
 
Other Assets:
Other assets are comprised
 
of long-term assets, primarily
 
insurance contracts related to
deferred compensation assets and land held for investment purposes.
 
 
 
`
Balance as of
February 3, 2024
January 28, 2023
(Dollars in thousands)
Other Assets
 
Deferred Compensation Investments
$
8,586
$
9,274
 
Land Held for Investment
9,334
9,334
 
Miscellaneous Investments
2,076
1,923
 
Asset Held for Sale
4,183
-
 
Other Deposits
604
571
 
Other
264
494
Total
 
Other Assets
$
25,047
$
21,596
 
Leases:
The
 
Company
 
leases
 
all
 
of
 
its
 
retail
 
stores.
 
Most
 
lease
 
agreements
 
contain
 
construction
allowances and rent escalations.
 
For purposes of recognizing incentives and minimum rental expenses on
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
46
a straight-line basis over the terms of the leases, including renewal periods considered reasonably
 
assured,
the Company begins amortization
 
as of the
 
initial possession date which
 
is when the Company
 
enters the
space and begins to make improvements in preparation for intended use.
 
Revenue
 
Recognition:
The
 
Company
 
recognizes
 
sales
 
at
 
the
 
point
 
of
 
purchase
 
when
 
the
 
customer
takes possession
 
of the
 
merchandise and pays
 
for the
 
purchase, generally with
 
cash or
 
credit. Sales
 
from
purchases
 
made
 
with
 
Cato
 
credit,
 
gift
 
cards
 
and
 
layaway
 
sales
 
from
 
stores
 
are
 
also
 
recorded
 
when
 
the
customer
 
takes
 
possession
 
of
 
the
 
merchandise.
 
E-commerce sales
 
are
 
recorded when
 
the
 
risk
 
of
 
loss
 
is
transferred
 
to
 
the
 
customer.
 
Gift
 
cards
 
are
 
recorded
 
as
 
deferred
 
revenue
 
until
 
they
 
are
 
redeemed
 
or
forfeited. Layaway
 
sales are
 
recorded as
 
deferred revenue
 
until the
 
customer takes
 
possession or
 
forfeits
the merchandise. Gift
 
cards do not
 
have expiration dates.
 
A provision is
 
made for estimated
 
merchandise
returns based
 
on sales
 
volumes and
 
the Company’s
 
experience; actual
 
returns have
 
not varied
 
materially
from historical amounts. A provision is made for estimated write-offs associated with sales made with
 
the
Company’s proprietary credit card.
 
In addition, a provision is made for estimated rewards cards issued
 
to
customers
 
based
 
on
 
their
 
purchases
 
with
 
the
 
Company’s
 
propriety
 
credit
 
card.
 
Amounts
 
related
 
to
shipping and
 
handling billed
 
to
 
customers in
 
a sales
 
transaction
 
are classified
 
as
 
Other
 
revenue and
 
the
costs related to shipping product to customers (billed and accrued) are classified
 
as Cost of goods sold.
 
In accordance with ASU 2014-09,
Revenue from Contracts with Customers (Topic
 
606)
 
(“Topic 606”),
in
 
fiscal
 
2023,
 
2022
 
and
 
2021,
 
the
 
Company
 
recognized
 
$
1,116,000
,
 
$
256,000
 
and
 
$
1,482,000
,
respectively,
 
of
 
income
 
on
 
unredeemed
 
gift
 
cards
 
(“gift
 
card
 
breakage”)
 
as
 
a
 
component
 
of
 
Other
Revenue
 
on
 
the
 
Consolidated
 
Statements
 
of
 
Income (Loss)
 
and
 
Comprehensive Income
 
(Loss).
 
Under
Topic
 
606, the
 
Company recognizes
 
gift card
 
breakage using
 
an expected
 
breakage percentage
 
based on
redeemed
 
gift
 
cards.
 
See
 
Note
 
2
 
for
 
further
 
information
 
on
 
miscellaneous
 
income.
 
The
 
rewards
 
cards
issued by the Company have a 90-day expiration.
 
The Company
 
offers
 
its own
 
proprietary credit
 
card to
 
customers. All
 
credit activity
 
is performed
 
by
the
 
Company’s
 
wholly-owned
 
subsidiaries.
 
None
 
of
 
the
 
credit
 
card
 
receivables
 
are
 
secured.
 
The
Company
 
estimated
 
customer
 
credit
 
losses
 
of
 
$
578,000
 
and
 
$
349,000
 
for
 
the
 
twelve
 
months
 
ended
February 3,
 
2024 and
 
January 28,
 
2023, respectively,
 
on sales
 
purchased on
 
the Company’s
 
proprietary
credit card of $
23.5
 
million and $
23.3
 
million for the twelve months
 
ended February 3, 2024 and January
28, 2023, respectively.
 
The following table provides information about receivables
 
and contract liabilities from contracts with
customers (in thousands):
 
 
 
`
Balance as of
February 3, 2024
January 28, 2023
Proprietary Credit Card Receivables, net
$
10,909
$
10,553
Gift Card Liability
$
8,143
$
8,523
 
Cost of Goods Sold:
Cost of goods sold
 
includes merchandise costs, net of
 
discounts and allowances,
buying costs, distribution costs, occupancy costs, freight,
 
and inventory shrinkage. Net merchandise costs
and
 
in-bound
 
freight
 
are
 
capitalized
 
as
 
inventory
 
costs.
 
Buying
 
and
 
distribution
 
costs
 
include
 
payroll,
payroll-related
 
costs
 
and
 
operating
 
expenses
 
for
 
the
 
Company’s
 
buying
 
departments
 
and
 
distribution
center.
 
Occupancy expenses include rent, real
 
estate taxes, insurance, common area
 
maintenance, utilities
and
 
maintenance
 
for
 
stores
 
and
 
distribution
 
facilities.
 
Buying,
 
distribution,
 
occupancy
 
and
 
internal
transfer
 
costs
 
are
 
treated
 
as
 
period
 
costs
 
and
 
are
 
not
 
capitalized
 
as
 
part
 
of
 
inventory.
 
The
 
direct
 
costs
associated with shipping goods to customers are recorded as a component
 
of Cost of goods sold.
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
47
 
Advertising:
Advertising
 
costs
 
are
 
expensed
 
in
 
the
 
period
 
in
 
which
 
they
 
are
 
incurred.
 
Advertising
expense was approximately $
6,277,000
, $
6,868,000
 
and $
6,037,000
 
for the fiscal years ended February 3,
2024, January 28, 2023 and January 29, 2022, respectively.
 
 
Stock Repurchase Program:
 
For the fiscal year ended
 
February 3, 2024, the Company had
 
909,653
shares
 
remaining
 
in
 
open
 
authorizations.
 
There
 
is
 
no
 
specified
 
expiration
 
date
 
for
 
the
 
Company’s
repurchase program. Share repurchases are recorded in Retained
 
earnings, net of par value.
 
 
Earnings
 
Per
 
Share:
ASC
 
260
 
Earnings
 
Per
 
Share
 
requires
 
dual
 
presentation
 
of
 
basic
 
EPS
 
and
diluted
 
EPS
 
on
 
the
 
face
 
of
 
all
 
income
 
statements
 
for
 
all
 
entities
 
with
 
complex
 
capital
 
structures.
 
The
Company
 
has
 
presented
 
one
 
basic
 
EPS
 
and
 
one
 
diluted
 
EPS
 
amount
 
for
 
all
 
common
 
shares
 
in
 
the
accompanying Consolidated Statements of
 
Income (Loss) and Comprehensive
 
Income (Loss).
 
While the
Company’s certificate
 
of incorporation provides
 
the right for
 
the Board
 
of Directors to
 
declare dividends
on Class
 
A shares
 
without declaration
 
of commensurate
 
dividends on
 
Class B
 
shares, the
 
Company has
historically paid the same dividends
 
to both Class A and
 
Class B shareholders and the
 
Board of Directors
has resolved to
 
continue this practice.
 
Accordingly, the
 
Company’s allocation
 
of income for
 
purposes of
EPS
 
computation is
 
the
 
same for
 
Class
 
A and
 
Class B
 
shares and
 
the
 
EPS
 
amounts reported
 
herein are
applicable to both Class A and Class B shares.
 
Basic
 
EPS
 
is
 
computed
 
as
 
net
 
earnings
 
(loss)
 
less
 
earnings
 
allocated
 
to
 
non-vested
 
equity
 
awards
divided
 
by
 
the
 
weighted
 
average
 
number
 
of
 
common
 
shares
 
outstanding
 
for
 
the
 
period.
 
Diluted
 
EPS
reflects the potential dilution that could occur from common shares issuable through stock options and the
Employee Stock Purchase Plan.
 
The following table reflects
 
the basic and
 
diluted EPS calculations for
 
the fiscal years ended
 
February
3, 2024, January 28, 2023 and January 29, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Fiscal Year Ended
February 3, 2024
January 28, 2023
January 29, 2022
Numerator
(Dollars in thousands)
Net earnings (loss)
$
(23,941)
$
29
$
36,844
(Earnings) loss allocated to non-vested equity awards
1,347
12
(1,937)
Net earnings (loss) available to common stockholders
$
(22,594)
$
41
$
34,907
Denominator
Basic weighted average common shares outstanding
19,389,907
19,930,960
21,113,828
Diluted weighted average common shares outstanding
19,389,907
19,930,960
21,113,828
Net income (loss) per common share
Basic earnings (loss) per share
$
(1.17)
$
-
$
1.65
Diluted earnings (loss) per share
$
(1.17)
$
-
$
1.65
 
Vendor
 
Allowances:
The
 
Company
 
receives
 
certain
 
allowances
 
from
 
vendors
 
primarily
 
related
 
to
purchase discounts and markdown and
 
damage allowances. All allowances are
 
reflected in Cost of
 
goods
sold
 
as
 
earned
 
when
 
the
 
related
 
products
 
are
 
sold.
 
Cash
 
consideration
 
received
 
from
 
a
 
vendor
 
is
presumed
 
to
 
be
 
a
 
reduction
 
of
 
the
 
purchase
 
cost
 
of
 
merchandise
 
and
 
is
 
reflected
 
as
 
a
 
reduction
 
of
inventory.
 
The Company does not receive cooperative advertising allowances.
 
Income
 
Taxes:
The
 
Company
 
files
 
a
 
consolidated
 
federal
 
income
 
tax
 
return.
 
Income
 
taxes
 
are
provided
 
based
 
on
 
the
 
asset
 
and
 
liability
 
method
 
of
 
accounting,
 
whereby
 
deferred
 
income
 
taxes
 
are
provided
 
for
 
temporary
 
differences
 
between
 
the
 
financial
 
reporting
 
basis
 
and
 
the
 
tax
 
basis
 
of
 
the
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
48
Company’s assets and liabilities.
 
Unrecognized tax
 
benefits for
 
uncertain tax
 
positions are
 
established in
 
accordance
 
with
 
ASC 740
 
Income Taxes
 
when, despite
 
the fact
 
that the
 
tax return
 
positions are
 
supportable, the
 
Company believes
these positions may be
 
challenged and the
 
results are uncertain.
 
The Company adjusts
 
these liabilities in
light
 
of
 
changing
 
facts
 
and
 
circumstances.
 
Potential
 
accrued
 
interest
 
and
 
penalties
 
related
 
to
unrecognized
 
tax
 
benefits
 
within
 
operations
 
are
 
recognized
 
as
 
a
 
component
 
of
 
Income
 
before
 
income
taxes.
 
 
The Company assesses the
 
likelihood that deferred tax
 
assets will be
 
able to be
 
realized, and based
 
on
that assessment, the Company will determine if a valuation allowance should
 
be recorded.
 
In addition,
 
the Tax
 
Cuts and
 
Jobs
 
Act implemented
 
a
 
new minimum
 
tax
 
on
 
global intangible
 
low-
taxed income
 
(“GILTI”).
 
The Company has
 
elected to
 
account for
 
GILTI
 
tax in
 
the period
 
in which
 
it is
incurred, which is included as a component of its current year provision
 
for income taxes.
 
Deferred
 
Tax
 
Valuation
 
Allowance:
The
 
Company assesses
 
the
 
likelihood
 
that
 
deferred
 
tax
 
assets
will
 
be
 
realized
 
in
 
light
 
of
 
the
 
Company’s
 
current
 
financial
 
performance
 
and
 
projected
 
future
 
financial
performance. Based on this
 
assessment, the Company then
 
determines if a valuation
 
allowance should be
recorded.
 
If the
 
Company concludes that
 
it is
 
more likely than
 
not that
 
the Company will
 
not be
 
able to
realize its tax deferred assets, a valuation allowance is recorded for
 
the proportion of the deferred tax asset
it determines may not be realized.
 
Store
 
Opening
 
Costs:
Costs
 
relating
 
to
 
the
 
opening
 
of
 
new
 
stores
 
or
 
the
 
relocating
 
or
 
expanding
 
of
 
existing
 
stores
 
are
 
expensed
 
as
 
incurred.
 
A
 
portion
 
of
 
construction,
 
design,
 
and
 
site
selection costs are capitalized to new, relocated and remodeled stores.
 
Insurance:
The Company is self-insured with respect to employee health care, workers’ compensation
and
 
general
 
liability.
 
The
 
Company’s
 
self-insurance
 
liabilities
 
are
 
based
 
on
 
the
 
total
 
estimated
 
cost
 
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 has stop-loss
 
insurance coverage for individual claims in
 
excess of $
325,000
 
for employee
healthcare, $
350,000
 
for workers’ compensation and $
250,000
 
for general liability.
 
 
Fair Value
 
of Financial Instruments:
 
The Company’s
 
carrying values of
 
financial instruments, such
as
 
cash
 
and
 
cash
 
equivalents,
 
short-term
 
investments,
 
and
 
restricted
 
cash,
 
approximate their
 
fair
 
values
due to their short terms to maturity and/or their variable interest rates.
 
Stock Based
 
Compensation:
 
The Company records
 
compensation expense associated
 
with restricted
stock
 
and
 
other
 
forms
 
of
 
equity
 
compensation
 
in
 
accordance
 
with
 
ASC
 
718
 
-
Compensation
 
 
Stock
Compensation.
 
Compensation
 
cost
 
associated
 
with
 
stock
 
awards
 
recognized
 
in
 
all
 
years
 
presented
includes: 1) amortization related to
 
the remaining unvested portion of
 
all stock awards based
 
on the grant
date fair value and 2) adjustments for the effects of actual forfeitures versus initial
 
estimated forfeitures.
 
Subsequent
 
Events:
 
On
 
February
 
16,
 
2024,
 
the
 
Company
 
closed
 
on
 
the
 
sale
 
of
 
land
 
held
 
for
investment
 
for
 
$
4.2
 
million,
 
less
 
commissions.
 
This
 
transaction
 
will
 
be
 
reflected
 
in
 
the
 
Company’s
consolidated financial statements in the first quarter of fiscal 2024.
 
Recently
 
Issued
 
Accounting
 
Pronouncements:
 
In
 
November
 
2023,
 
the
 
Financial
 
Accounting
Standards Board (“FASB”)
 
issued Accounting Standards
 
Update (“ASU”) 2023-07,
 
“Segment Reporting
(Topic 280):
 
Improvements to Reportable Segment Disclosures”, which modifies disclosure requirements
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
49
for
 
all
 
public
 
entities
 
that
 
are
 
required
 
to
 
report
 
segment
 
information.
 
The
 
update
 
will
 
change
 
the
reporting of
 
segments by
 
adding significant
 
segment expenses, other
 
segment items, title
 
and position
 
of
the
 
chief
 
operating
 
decision
 
maker
 
(“COD”)
 
and
 
how
 
the
 
COD
 
uses
 
the
 
reported
 
measures
 
to
 
make
decisions.
 
The update
 
also requires
 
all annual
 
disclosure about
 
a reportable
 
segment’s
 
profit or
 
loss and
assets in
 
interim periods.
 
This guidance
 
is effective
 
for fiscal
 
years beginning
 
after December
 
15, 2023
and interim
 
periods within fiscal
 
years beginning after
 
December 15,
 
2024.
 
Early adoption is
 
permitted,
and
 
the
 
guidance
 
is
 
applicable
 
retrospectively to
 
all
 
prior
 
periods
 
presented
 
in
 
the
 
financial
 
statements.
 
The
 
Company
 
is
 
currently
 
in
 
the
 
process
 
of
 
evaluating
 
the
 
potential
 
impact
 
of
 
adoption
 
of
 
this
 
new
guidance on its consolidated financial statements and related disclosures.
 
In
 
December
 
2023,
 
the
 
FASB
 
issued
 
ASU
 
2023-09,
 
“Income
 
Taxes
 
(Topic
 
740):
 
Improvements
 
to
Income
 
Tax
 
Disclosures”,
 
which
 
modifies
 
the
 
requirements
 
on
 
income
 
tax
 
disclosures
 
to
 
require
disaggregated
 
information
 
about
 
a
 
reporting
 
entity’s
 
effective
 
tax
 
rate
 
reconciliation
 
as
 
well
 
as
information on
 
income taxes
 
paid.
 
This guidance
 
is effective
 
for fiscal
 
years beginning
 
after December
15, 2024 for all public
 
business entities, with early adoption and retrospective application
 
permitted.
 
The
Company is
 
currently in
 
the process
 
of evaluating
 
the potential
 
impact of
 
adoption of
 
this new
 
guidance
on its consolidated financial statements and related disclosures.
 
 
 
 
 
 
 
2.
 
Interest and Other Income:
The components of Interest and other income are shown below (in thousands):
Fiscal Year Ended
February 3, 2024
January 28, 2023
January 29, 2022
Dividend income
$
(78)
$
(47)
$
(76)
Interest income
(3,919)
(1,876)
(1,321)
State recovery grant
-
(1,431)
-
Insurance proceeds
-
(1,683)
-
Miscellaneous income
(1,079)
(896)
(580)
Net loss (gain) on investment sales
(25)
31
(164)
Interest and other income
$
(5,101)
$
(5,902)
$
(2,141)
 
In
 
fiscal
 
2022,
 
the
 
Company
 
received
 
$
1.4
 
million
 
from
 
the
 
state
 
of
 
North
 
Carolina’s
 
Business
Recovery
 
Program,
 
which
 
provided
 
aid
 
to
 
eligible
 
North
 
Carolina
 
businesses
 
that
 
suffered
 
significant
economic
 
damage from
 
the
 
COVID-19 pandemic.
 
Additionally,
 
in
 
fiscal
 
2022,
 
the
 
Company received
$
1.7
 
million in property insurance claims, including business interruption, from Hurricanes
 
Ida and Laura
in 2021 and 2020.
 
3.
 
Short-Term Investments:
 
At
 
February
 
3,
 
2024,
 
the
 
Company’s
 
investment
 
portfolio
 
was
 
primarily
 
invested
 
in
 
corporate
 
and
governmental debt
 
securities held
 
in managed
 
accounts.
 
These securities
 
are classified
 
as available-for-
sale as they are highly liquid and are recorded on the Consolidated Balance Sheets at estimated fair value,
with
 
unrealized
 
gains
 
and
 
temporary
 
losses
 
reported
 
net
 
of
 
taxes
 
in
 
Accumulated
 
other
 
comprehensive
income.
 
The
 
table
 
below
 
reflects
 
gross
 
accumulated
 
unrealized
 
gains
 
(losses)
 
in
 
short-term
 
investments
 
at
February 3, 2024 and January 28, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
50
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
February 3, 2024
January 28, 2023
Debt securities
Debt securities
issued by the U.S
issued by the U.S
Government, its various
Government, its various
States, municipalities
Corporate
States, municipalities
Corporate
and agencies
debt
and agencies
debt
of each
securities
Total
of each
securities
Total
Cost basis
$
30,989
$
48,320
$
79,309
$
51,372
$
59,541
$
110,913
Unrealized gains
-
38
38
-
-
-
Unrealized (loss)
(335)
-
(335)
(1,020)
(1,241)
(2,261)
Estimated fair value
$
30,654
$
48,358
$
79,012
$
50,352
$
58,300
$
108,652
 
Accumulated
 
other
 
comprehensive
 
income
 
on
 
the
 
Consolidated
 
Balance
 
Sheets
 
reflects
 
the
accumulated
 
unrealized
 
gains
 
and
 
losses
 
in
 
short-term investments
 
in
 
addition
 
to
 
unrealized
 
gains
 
and
losses
 
from
 
equity
 
investments
 
and
 
restricted
 
cash
 
investments.
 
The
 
table
 
below
 
reflects
 
gross
accumulated unrealized
 
gains and
 
losses in
 
these investments
 
at February
 
3, 2024
 
and January
 
28, 2023
(in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
February 3, 2024
January 28, 2023
Deferred
Unrealized
Deferred
Unrealized
Unrealized
Tax Benefit/
Net Gain/
Unrealized
Tax Benefit/
Net Gain/
Security Type
Gain/(Loss)
(Expense)
(Loss)
Gain/(Loss)
(Expense)
(Loss)
Short-Term Investments
$
(297)
$
68
$
(229)
$
(2,261)
$
521
$
(1,740)
Equity Investments
811
(187)
624
652
(150)
502
Total
$
514
$
(119)
$
395
$
(1,609)
$
371
$
(1,238)
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
51
4.
 
Fair Value Measurements:
 
The following tables set forth information regarding the Company’s financial
 
assets that are measured
at fair value as of February 3, 2024 and January 28, 2023 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Prices in
 
Active
Significant
 
Markets for
Other
Significant
 
Identical
Observable
Unobservable
 
February 3, 2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
12,540
$
-
$
12,540
$
-
 
Corporate Bonds
45,400
-
45,400
-
 
U.S. Treasury/Agencies Notes and Bonds
18,114
-
18,114
-
 
Cash Surrender Value of Life Insurance
8,586
-
-
8,586
 
Asset-backed Securities (ABS)
2,958
-
2,958
-
 
Corporate Equities
1,084
1,084
-
-
Total Assets
$
88,682
$
1,084
$
79,012
$
8,586
Liabilities:
 
Deferred Compensation
$
(8,654)
$
-
$
-
$
(8,654)
Total Liabilities
$
(8,654)
$
-
$
-
$
(8,654)
Prices in
 
Active
Significant
 
Markets for
Other
Significant
 
Identical
Observable
Unobservable
 
January 28, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
23,102
$
-
$
23,102
$
-
 
Corporate Bonds
47,901
-
47,901
-
 
U.S. Treasury/Agencies Notes and Bonds
27,250
-
27,250
-
 
Cash Surrender Value of Life Insurance
9,274
-
-
9,274
 
Asset-backed Securities (ABS)
9,373
-
9,373
-
 
Corporate Equities
923
923
-
-
 
Commercial Paper
1,026
-
1,026
-
Total Assets
$
118,849
$
923
$
108,652
$
9,274
Liabilities:
 
Deferred Compensation
$
(8,903)
$
-
$
-
$
(8,903)
Total Liabilities
$
(8,903)
$
-
$
-
$
(8,903)
 
The
 
Company’s
 
investment
 
portfolio
 
was
 
primarily
 
invested
 
in
 
corporate
 
bonds
 
and
 
taxable
governmental debt securities held in managed accounts
 
with underlying ratings of A or
 
better at February
3, 2024. The state,
 
municipal and corporate bonds and
 
asset-backed securities have contractual maturities
which
 
range
 
from
seven days
 
to
 
3.1
 
years.
 
The
 
U.S.
 
Treasury
 
Notes
 
have
 
contractual
 
maturities
 
which
range from
four days
 
to 2.0 years. These
 
securities are classified as
 
available-for-sale and are recorded
 
as
Short-term
 
investments,
 
Restricted
 
cash,
 
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
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
52
receivables
 
generated
 
by
 
account
 
holders
 
of
 
cards
 
from American
 
Express,
 
Citibank,
 
JPMorgan
 
Chase,
Capital One, and Discover.
 
Additionally,
 
at
 
February
 
3,
 
2024
 
and
 
January
 
28,
 
2023,
 
the
 
Company
 
had
 
$
1.1
 
and
 
$
0.9
 
million,
respectively,
 
of
 
corporate
 
equities,
 
which
 
are
 
recorded
 
within
 
Other
 
assets
 
in
 
the
 
accompanying
Consolidated Balance Sheets.
 
Level
 
1
 
category
 
securities
 
are
 
measured
 
at
 
fair
 
value
 
using
 
quoted
 
active
 
market
 
prices.
 
Level
 
2
investment securities include corporate and municipal bonds for which quoted prices may
 
not be available on
active exchanges for identical instruments.
 
Their fair value is principally based on market values determined
by management with the assistance of a third-party pricing service.
 
Since quoted prices in active markets for
identical assets are
 
not available, these
 
prices are determined
 
by the pricing
 
service using observable
 
market
information
 
such
 
as
 
quotes
 
from
 
less
 
active
 
markets
 
and/or
 
quoted
 
prices
 
of
 
securities
 
with
 
similar
characteristics, among other factors.
 
Deferred
 
compensation
 
plan
 
assets
 
consist
 
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
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.
 
The following tables summarize
 
the change in fair
 
value of the Company’s
 
financial assets and liabilities
measured using Level 3 inputs for the
 
years ended February 3, 2024 and
January 28, 2023
 
(in thousands):
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
53
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at January 28, 2023
$
9,274
 
Redemptions
(1,168)
 
Total gains or (losses)
 
Included in interest and other income (or
 
changes in net assets)
480
Ending Balance at February 3, 2024
$
8,586
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at January 28, 2023
$
(8,903)
 
Redemptions
1,119
 
Additions
(292)
 
Total (gains) or losses
 
Included in interest and other income (or
 
changes in net assets)
(578)
Ending Balance at February 3, 2024
$
(8,654)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at January 29, 2022
$
11,472
 
Redemptions
(1,718)
 
Total gains or (losses)
 
Included in interest and other income (or
 
changes in net assets)
(480)
Ending Balance at January 28, 2023
$
9,274
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at January 29, 2022
$
(10,020)
 
Redemptions
1,142
 
Additions
(379)
 
Total (gains) or losses
 
Included in interest and other income (or
 
changes in net assets)
354
Ending Balance at January 28, 2023
$
(8,903)
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
54
 
 
 
 
 
 
5.
Accounts Receivable:
Accounts receivable consist of the following (in thousands):
February 3, 2024
January 28, 2023
Customer accounts — principally deferred payment accounts
 
$
11,614
$
11,313
Income tax receivable
6,285
6,442
Miscellaneous receivables
 
7,171
3,991
Bank card receivables
5,386
5,512
Total
 
30,456
27,258
Less allowance for customer credit losses
705
761
Accounts receivable — net
 
$
29,751
$
26,497
 
Finance charge
 
and late
 
charge
 
revenue on
 
customer deferred
 
payment accounts
 
totaled $
2,640,000
,
$
2,243,000
 
and $
2,066,000
 
for the fiscal
years ended February 3, 2024, January 28, 2023
 
and January 29,
2022,
 
respectively,
 
and
 
charges
 
against
 
the
 
allowance
 
for
 
customer
 
credit
 
losses
 
were
 
approximately
$
554,000
,
 
$
280,000
 
and
 
$
429,000
 
for
 
the
 
fiscal
 
years
 
ended
 
February
 
3,
 
2024,
 
January
 
28,
 
2023
 
and
January
 
29,
 
2022,
 
respectively.
 
Expenses
 
relating
 
to
 
the
 
allowance
 
for
 
customer
 
credit
 
losses
 
are
classified
 
as
 
a
 
component
 
of
 
Selling,
 
general
 
and
 
administrative
 
expense
 
in
 
the
 
accompanying
Consolidated Statements of Income (Loss) and Comprehensive Income
 
(Loss).
 
Current
 
year
 
Miscellaneous
 
receivables
 
includes
 
$
3.2
 
million
 
for
 
the
 
estimated
 
cost
 
to
 
repair
 
the
Company’s corporate jet, which had sustained damage at the end of the second quarter.
 
 
 
 
 
 
 
 
 
 
6.
Property and Equipment:
Property and equipment consist of the following (in thousands):
February 3, 2024
January 28, 2023
Land and improvements
 
$
13,755
$
13,595
Buildings
 
35,756
35,537
Leasehold improvements
 
74,782
77,609
Fixtures and equipment
 
155,357
174,640
Information technology equipment and software
39,904
38,202
Construction in progress
 
18,034
12,989
Total
 
337,588
352,572
Less accumulated depreciation
 
273,566
282,190
Property and equipment — net
 
$
64,022
$
70,382
 
Construction in progress primarily represents costs related to new
 
store development,
distribution center improvements and investments in new technology.
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
55
 
 
 
 
7.
Accrued Expenses:
Accrued expenses consist of the following (in thousands):
February 3, 2024
January 28, 2023
Accrued employment and related items
 
$
4,736
$
7,377
Property and other taxes
 
13,544
16,546
Accrued self-insurance
 
9,500
7,968
Fixed assets
942
685
Other
 
8,682
8,762
Total
 
$
37,404
$
41,338
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
56
8.
 
Financing Arrangements:
 
As of
 
February 3,
 
2024, 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
 
related
 
to
purchase
 
commitments,
 
and
 
is
 
committed
 
through
 
May
 
2027.
 
The
 
revolving
 
credit
 
agreement
 
contains
various
 
financial
 
covenants
 
and
 
limitations,
 
including
 
the
 
maintenance
 
of
 
specific
 
financial
 
ratios.
 
On
August
 
9,
 
2023,
 
the
 
Company
 
amended
 
the
 
revolving
 
credit
 
agreement
 
to
 
modify
 
a
 
definition
 
used
 
in
calculating
 
the
 
Company’s
 
minimum
 
EBITDAR
 
coverage
 
ratio
 
to
 
add
 
back
 
certain
 
income
 
tax
receivables
 
for
 
purposes
 
of
 
calculating
 
the
 
ratio
 
through
 
February
 
3,
 
2024.
 
On
 
October
 
24,
 
2023,
 
the
Company further
 
amended
 
the
 
revolving
 
credit
 
agreement to
 
flex
 
the
 
Company’s
 
minimum EBITDAR
coverage
 
ratio
 
based
 
upon
 
the
 
amount
 
of
 
the
 
Company’s
 
cash
 
and
 
investments.
 
The
 
Company
 
was
 
in
compliance
 
with
 
the
 
amended
 
revolving
 
credit
 
agreement
 
as
 
of
 
February
 
3,
 
2024.
 
There
 
were
no
borrowings outstanding,
no
r any
 
outstanding letters
 
of credit
 
that reduced
 
borrowing availability,
 
under this
credit facility
 
as of
 
the fiscal
 
year ended
 
February 3,
 
2024 or
 
the fiscal
 
year ended
 
January 28,
 
2023.
 
The
weighted
 
average interest
 
rate
 
under the
 
credit facility
 
was
zero
 
at
 
February
 
3, 2024
 
due
 
to
no
 
borrowings
outstanding.
 
The Company had
no
 
outstanding revocable letters of credit relating to purchase commitments at February
3, 2024 or at January 28, 2023.
9.
 
Stockholders’ Equity:
 
The
 
holders
 
of
 
Class A
 
Common
 
Stock
 
are
 
entitled
 
to
one vote per share
,
 
whereas
 
the
 
holders
 
of
Class B Common Stock are entitled
 
to
ten votes per share
. Each share of
 
Class B Common Stock may be
converted at any time into one share of Class A Common Stock
. Subject to the rights of the holders of any
shares of
 
Preferred Stock
 
that may
 
be outstanding
 
at the
 
time, in
 
the event
 
of liquidation,
 
dissolution or
winding
 
up
 
of
 
the
 
Company,
 
holders
 
of
 
Class A
 
Common
 
Stock
 
are
 
entitled
 
to
 
receive
 
a
 
preferential
distribution of $
1.00
 
per share of the
 
net assets of the Company.
 
Cash dividends on the
 
Class B Common
Stock cannot be
 
paid unless cash
 
dividends of at
 
least an equal
 
amount are paid
 
on the Class A
 
Common
Stock.
 
The
 
Company’s
 
certificate of
 
incorporation
 
provides that
 
shares
 
of
 
Class B Common
 
Stock
 
may be
transferred
 
only
 
to
 
certain
 
“Permitted
 
Transferees”
 
consisting
 
generally
 
of
 
the
 
lineal
 
descendants
 
of
holders
 
of
 
Class B
 
Common
 
Stock,
 
trusts
 
for
 
their
 
benefit,
 
corporations
 
and
 
partnerships controlled
 
by
them and the
 
Company’s employee benefit
 
plans. Any transfer
 
of Class B Common Stock
 
in violation of
these
 
restrictions,
 
including
 
a
 
transfer
 
to
 
the
 
Company,
 
results
 
in
 
the
 
automatic
 
conversion
 
of
 
the
transferred
 
shares
 
of
 
Class B
 
Common
 
Stock
 
held
 
by
 
the
 
transferee
 
into
 
an
 
equal
 
number
 
of
 
shares
 
of
Class A Common Stock.
10.
 
Employee Benefit Plans:
 
The
 
Company
 
has
 
a
 
defined
 
contribution
 
retirement
 
savings
 
plan
 
(“401(k)
 
plan”)
 
which
 
covers
 
all
associates
 
who
 
meet
 
minimum
 
age
 
and
 
service
 
requirements.
The 401(k) plan allows participants to
contribute up to 75% of their annual compensation up to the maximum elective deferral, designated by
the Internal Revenue Service.
 
The Company
 
is obligated
 
to make
 
a minimum
 
contribution to
 
cover plan
administrative expenses.
 
Further Company
 
contributions
 
are
 
at the
 
discretion of
 
the
 
Board of
 
Directors.
The
 
Company’s
 
contributions
 
for
 
the
 
years
 
ended
 
February 3,
 
2024,
 
January
 
28,
 
2023
 
and
 
January
 
29,
2022 were approximately $
1,099,000
, $
1,184,000
 
and $
1,210,000
, respectively.
 
The Company has a trusteed, non-contributory Employee Stock Ownership Plan (“ESOP”), which
covers substantially all associates who meet minimum age and service requirements.
 
The amount
 
of the
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
57
Company’s discretionary
 
contribution to the ESOP
 
is determined by the
 
Compensation Committee of the
Board of Directors and can be
 
made in Company Class A Common stock or
 
cash.
 
Due to a net operating
loss
 
in
 
fiscal
 
2023,
 
the
 
Committee
 
did
 
not
 
approve
 
a
 
contribution
 
to
 
the
 
ESOP
 
for
 
the
 
year
 
ended
February
 
3,
 
2024.
 
The
 
Company’s
 
contributions
 
were
 
$
32,510
 
and
 
$
29,430,000
 
for
 
the
 
years
 
ended
January 28, 2023 and January 29, 2022, respectively.
 
 
The Company is primarily self-insured for healthcare.
 
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.
 
Management
 
reviews
 
current
 
and
 
historical
 
claims
 
data
 
in
developing its
 
estimates. If
 
the underlying
 
facts and
 
circumstances of
 
the claims
 
change or
 
the historical
trend is not indicative of future trends, then the Company may be required to record
 
additional expense or
a
 
reduction
 
to
 
expense
 
which
 
could
 
be
 
material
 
to
 
the
 
Company’s
 
reported
 
results
 
of
 
operations
 
in
 
the
period recorded. The Company funds healthcare contributions
 
to a third-party provider.
 
11.
 
Leases:
 
The Company determines whether an
 
arrangement is a lease
 
at inception. The Company has
 
operating
leases for
 
stores,
 
offices,
 
warehouse space
 
and equipment.
 
Its
 
leases
 
have remaining
 
lease terms
 
of
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.
 
The components of lease cost are shown below (in thousands):
 
 
 
`
Fiscal Year Ended
February 3, 2024
January 28, 2023
Operating lease cost (a)
$
70,363
$
71,513
Variable
 
lease cost (b)
$
2,646
$
3,127
(a) Includes right-of-use asset amortization of ($
1.3
) million and ($
1.7
) million for the twelve months
ended February 3, 2024 and January 28, 2023, respectively.
(b) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.
 
Supplemental cash flow
 
information and
 
non-cash activity related
 
to the
 
Company’s operating
 
leases
are as follows (in thousands):
 
 
 
Operating cash flow information:
Fiscal Year Ended
February 3, 2024
January 28, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
65,872
$
67,194
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
44,284
$
57,628
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
58
 
Weighted-average
 
remaining lease
 
term and
 
discount rate
 
for the
 
Company’s
 
operating leases
 
are as
follows:
 
 
 
`
As of
February 3, 2024
January 28, 2023
Weighted-average remaining lease term
2.3
 
years
2.5
 
years
Weighted-average discount rate
4.58%
3.13%
 
Maturities
 
of
 
lease
 
liabilities
 
by
 
fiscal
 
year
 
for
 
the
 
Company’s
 
operating
 
leases
 
are
 
as
 
follows
 
(in
thousands):
 
 
 
Fiscal Year
2024
$
66,868
2025
45,125
2026
29,070
2027
16,517
2028
7,716
Thereafter
690
Total lease payments
165,986
Less: Imputed interest
12,865
Present value of lease liabilities
$
153,121
12.
 
Income Taxes:
 
Unrecognized
 
tax
 
benefits
 
for
 
uncertain
 
tax
 
positions,
 
primarily
 
recorded
 
in
 
Other
 
noncurrent
liabilities, are established in accordance
 
with ASC 740 when, despite
 
the fact that the
 
tax return positions
are
 
supportable, the
 
Company believes
 
these
 
positions may
 
be
 
challenged
 
and the
 
results
 
are
 
uncertain.
 
The
 
Company adjusts
 
these
 
liabilities
 
in
 
light
 
of
 
changing
 
facts
 
and
 
circumstances.
 
As
 
of
 
February
 
3,
2024,
 
the
 
Company had
 
gross
 
unrecognized
 
tax
 
benefits
 
totaling
 
approximately
 
$
3.9
 
million,
 
of
 
which
approximately
 
$
5.0
 
million (inclusive
 
of
 
interest)
 
would
 
affect
 
the
 
effective
 
tax
 
rate
 
if
 
recognized.
 
The
Company had approximately $
1.8
 
million, $
2.0
 
million and $
2.0
 
million of interest and
 
penalties accrued
related
 
to
 
uncertain
 
tax
 
positions
 
as
 
of
 
February
 
3,
 
2024,
 
January
 
28,
 
2023
 
and
 
January
 
29,
 
2022,
respectively.
 
The
 
Company recognizes
 
interest
 
and
 
penalties
 
related
 
to
 
the
 
resolution
 
of
 
uncertain
 
tax
positions
 
as
 
a
 
component
 
of
 
income
 
tax
 
expense.
 
The
 
Company
 
recognized
 
$
393,000
,
 
$
517,000
 
and
$
452,000
 
of interest
 
and penalties
 
in the
 
Consolidated Statements
 
of Income
 
(Loss) and
 
Comprehensive
Income (Loss) for the years ended February 3, 2024, January 28, 2023
 
and January 29, 2022, respectively.
 
The
 
Company is
 
no
 
longer
 
subject
 
to
 
U.S.
 
federal
 
income
 
tax
 
examinations
 
for
 
years
 
before
 
2020.
 
In
state
 
and
 
local
 
tax
 
jurisdictions,
 
the
 
Company
 
has
 
limited
 
exposure
 
before
 
2013.
 
During
 
the
 
next
 
12
months,
 
various
 
state
 
and
 
local
 
taxing
 
authorities’
 
statutes
 
of
 
limitations
 
will
 
expire
 
and
 
certain
 
state
examinations
 
may
 
close,
 
which
 
could
 
result
 
in
 
a
 
potential
 
reduction
 
of
 
unrecognized
 
tax
 
benefits
 
for
which a range cannot be determined.
 
A reconciliation
 
of the
 
beginning and
 
ending amount
 
of gross
 
unrecognized tax
 
benefits is
 
as follows
(in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
59
 
 
 
 
 
 
 
`
February 3, 2024
January 28, 2023
January 29, 2022
Fiscal Year
 
Ended
Balances, beginning
$
4,886
$
5,286
$
5,946
 
Additions for tax positions of the current year
76
431
1,312
 
Additions for tax positions of prior years
-
137
680
Reduction for tax positions of prior years for:
 
Lapses of applicable statutes of limitations
(1,065)
(968)
(2,652)
Balances, ending
$
3,897
$
4,886
$
5,286
 
The provision for income taxes consists of
 
the following (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
February 3, 2024
January 28, 2023
January 29, 2022
Fiscal Year
 
Ended
Current income taxes:
 
Federal
$
(148)
$
(817)
$
2,532
 
State
(334)
(231)
802
 
Foreign
1,898
2,403
1,984
 
Total
1,416
1,355
5,318
Deferred income taxes:
 
Federal
6,613
200
(2,558)
 
State
2,093
186
(639)
 
Foreign
18
-
-
 
Total
8,724
386
(3,197)
Total income tax expense
$
10,140
$
1,741
$
2,121
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
60
 
Significant
 
components of
 
the
 
Company’s deferred
 
tax assets
 
and liabilities
 
as of
 
February 3,
 
2024
 
and
January 28, 2023 are as follows
 
(in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
February 3, 2024
January 28, 2023
Deferred tax assets:
Allowance for customer credit losses
$
150
$
162
Inventory valuation
1,076
1,042
Non-deductible accrued liabilities
1,367
1,435
Other taxes
862
875
Federal benefit of uncertain tax positions
712
851
Equity compensation expense
2,975
2,892
Federal tax credits
379
-
Net operating losses
7,854
5,567
Charitable contribution carryover
265
216
State tax credits
-
340
Lease liabilities
34,810
40,090
Property and equipment
3,885
3,400
Amortization
1,401
-
Other
2,150
2,822
Total deferred
 
tax assets before valuation allowance
57,886
59,692
Valuation
 
allowance
(17,998)
(5,058)
Total deferred
 
tax assets after valuation allowance
39,888
54,634
Deferred tax liabilities:
Right-of-Use assets
39,721
44,732
Accrued self-insurance reserves
167
689
Total deferred
 
tax liabilities
39,888
45,421
Net deferred tax assets
$
-
$
9,213
The changes in the valuation allowance are presented below:
February 3, 2024
January 28, 2023
Valuation
 
Allowance Beginning Balance
$
(5,058)
$
(4,473)
 
Net Valuation
 
Allowance (Additions) / Reductions
(12,940)
(585)
Valuation
 
Allowance Ending Balance
$
(17,998)
$
(5,058)
 
The Company had $
0.3
 
million of state tax credits to offset future state income tax expense, which expired
during fiscal 2023. The Company had previously
 
recorded a valuation allowance of $
0.3
 
million.
 
As of February
 
3, 2024, the
 
Company had $
6.8
 
million of net
 
deferred tax assets
 
attributable to state
 
net
operating
 
loss
 
carryforwards
 
and
 
$
0.3
 
million
 
of
 
other
 
deferred
 
tax
 
assets
 
affecting
 
state
 
income
 
tax.
 
The
Company assessed the likelihood that deferred tax
 
assets related to state net operating
 
loss carryforwards and
other deferred tax
 
assets affecting state
 
income tax will
 
be realized. Based
 
on this assessment,
 
the Company
concluded that it is more likely than not the Company will not be able to
 
realize $
6.8
 
million and $
0.3
 
million
of the
 
net operating losses
 
and other
 
deferred assets, respectively,
 
and accordingly, has
 
recorded a
 
valuation
allowance for the same amount.
 
As
 
of
 
February
 
3,
 
2024,
 
the
 
Company
 
had
 
$
11.0
 
million
 
of
 
net
 
deferred
 
tax
 
assets
 
attributable
 
to
 
U.S.
federal net
 
operating
 
loss
 
carryforwards,
 
other
 
credit carryforwards
 
and
 
all
 
other deferred
 
tax assets
 
net of
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
61
deferred tax liabilities.
 
The Company assessed the likelihood that deferred tax
 
assets related to net operating
loss
 
carryforwards,
 
credit
 
carryforwards
 
and
 
all
 
other
 
remaining
 
deferred
 
tax
 
assets
 
net
 
of
 
deferred
 
tax
liabilities will be
 
realized.
 
Based on this
 
assessment, the Company
 
concluded that it
 
is more likely
 
than not
the
 
Company
 
will
 
not
 
be
 
able
 
to
 
realize
 
$
1.1
 
million
 
of
 
net
 
operating
 
loss
 
carryforwards,
 
$
0.4
 
million
 
of
credit carryforwards and $
9.5
 
million of remaining deferred tax assets
 
net of deferred tax liabilities.
The net change in the
 
valuation allowance of $
12.9
 
million for the year ended February
 
3, 2024 is due to
recording a valuation allowance of $
11.0
 
million against net deferred tax assets
 
attributable to U.S. federal net
operating loss
 
carryforwards, other
 
credit carryforwards
 
and all
 
other deferred
 
tax assets
 
net of
 
deferred tax
liabilities
 
and
 
increases
 
in
 
state
 
net
 
operating
 
losses
 
and
 
state
 
tax
 
credits.
 
The
 
net
 
change
 
in
 
the
 
valuation
allowance for the year ended January 28, 2023
 
is due to state net operating losses and
 
state tax credits.
 
 
As
 
of
 
February
 
3,
 
2024,
 
the
 
Company’s
 
position
 
is
 
that
 
its
 
overseas
 
subsidiaries
 
will
 
not
 
invest
undistributed
 
earnings
 
indefinitely.
 
Future
 
unremitted
 
earnings
 
when
 
distributed
 
are
 
expected
 
to
 
be
 
either
distributions
 
of
 
GILTI-previously
 
taxed income
 
or eligible
 
for
 
a
100
%
 
dividends received
 
deduction.
 
The
withholding
 
tax
 
rate
 
on
 
any
 
unremitted
 
earnings
 
is
zero
 
and
 
state
 
income
 
taxes
 
on
 
such
 
earnings
 
are
considered
 
immaterial.
 
Therefore,
 
the
 
Company
 
has
 
not
 
provided
 
deferred
 
U.S.
 
income
 
taxes
 
on
approximately $
27.4
 
million of cumulative earnings from non-U.S. subsidiaries.
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
62
 
The reconciliation of the Company’s effective
 
income tax rate with the
 
statutory rate is as follows:
 
 
 
 
 
 
 
 
 
 
 
`
February 3, 2024
January 28, 2023
January 29, 2022
Fiscal Year
 
Ended
Federal income tax rate
21.0
%
21.0
%
21.0
%
State income taxes
4.5
(36.4)
2.7
CARES ACT - Carryback differential
-
-
(5.8)
Global intangible low-taxed income
(33.4)
333.0
6.7
Foreign tax credit
0.3
(11.2)
(4.3)
Foreign rate differential
7.8
(74.4)
(2.8)
Offshore claim
15.2
(141.2)
(5.5)
Limitation on officer compensation
(3.1)
27.2
1.9
Work opportunity credit
1.5
(63.7)
(1.8)
Addback on wage related credits
(0.3)
13.4
0.4
Tax exempt interest
0.5
(14.4)
-
Insurance
-
(8.1)
(1.0)
Charitable contribution of inventory
(0.6)
-
(1.1)
Uncertain tax positions
7.4
(18.7)
(3.5)
Deferred rate change
-
1.1
0.1
Valuation
 
allowance
(96.0)
70.9
(2.1)
Other
1.7
(0.1)
0.5
Effective income tax rate
(73.5)
%
98.4
%
5.4
%
 
The
 
largest
 
driver
 
for
 
the
 
difference
 
between
 
the
 
Company’s
 
effective
 
income
 
tax
 
rate
 
for
 
the
 
year
ended February 3, 2024 and the
 
U.S. federal income tax rate is
 
the valuation allowance (discussed above)
recorded
 
against
 
the
 
Company’s
 
net
 
deferred
 
tax
 
assets
 
attributable
 
to
 
U.S.
 
federal
 
net
 
operating
 
loss
carryforwards, other credit carryforwards and all other deferred tax assets
 
net of deferred tax liabilities.
 
 
13.
 
Reportable Segment Information:
The
 
Company
 
has
 
determined
 
that
 
it
 
has
four
 
operating
 
segments,
 
as
 
defined
 
under
 
ASC
 
280-10
 
Segment
 
Reporting
,
 
including Cato,
 
It’s
 
Fashion, Verso
 
na
 
and
 
Credit.
 
As
 
outlined in
 
ASC
 
280-10, the
Company
 
has
two
 
reportable
 
segments:
 
Retail
 
and
 
Credit.
 
The
 
Company
 
has
 
aggregated
 
its
 
three
 
retail
operating segments, including e-commerce, based on
 
the aggregation criteria outlined in ASC
 
280-10, which
states that two or more operating segments may be aggregated into a single reportable segment if aggregation
is consistent with the objective
 
and basic principles of ASC 280-10,
 
which require the segments have similar
economic characteristics, products, production processes, customers
 
and methods of distribution.
The
 
Company’s
 
retail
 
operating
 
segments
 
have
 
similar
 
economic
 
characteristics
 
and
 
similar
 
operating,
financial and
 
competitive risks.
 
The products
 
sold in
 
each retail
 
operating segment
 
are similar
 
in nature,
 
as
they
 
all
 
offer
 
women’s
 
apparel,
 
shoes
 
and
 
accessories.
 
Merchandise
 
inventory
 
of
 
the
 
Company’s
 
retail
operating
 
segments
 
is
 
sourced
 
from
 
the
 
same
 
countries
 
and
 
some
 
of
 
the
 
same
 
vendors,
 
using
 
similar
production processes.
 
Merchandise for the Company’s retail operating segments is distributed to retail stores
in a similar manner through
 
the Company’s single distribution center and is
 
subsequently sold to customers in
a similar
 
manner.
 
The Company offers its own credit
 
card to its customers and
 
all credit authorizations, payment processing
and collection efforts are performed by a
 
wholly-owned subsidiary of the Company.
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
63
The following schedule summarizes certain segment
 
information (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Fiscal 2023
Retail
Credit
Total
Revenues
$
705,419
$
2,640
$
708,059
Depreciation
9,869
2
9,871
Interest and other income
5,101
-
5,101
Income (loss) before taxes
(14,746)
945
(13,801)
Capital expenditures
12,532
-
12,532
Fiscal 2022
Retail
Credit
Total
Revenues
$
757,017
$
2,243
$
759,260
Depreciation
11,078
2
11,080
Interest and other income
5,902
-
5,902
Income before taxes
1,179
591
1,770
Capital expenditures
19,433
-
19,433
Fiscal 2021
Retail
Credit
Total
Revenues
$
767,205
$
2,066
$
769,271
Depreciation
12,354
2
12,356
Interest and other income
2,141
-
2,141
Income before taxes
38,340
625
38,965
Capital expenditures
4,101
4
4,105
Retail
Credit
Total
Total assets as of February 3,
 
2024
$
448,488
$
38,329
$
486,817
Total assets as of January 28,
 
2023
514,609
38,531
553,140
The accounting
 
policies of
 
the segments are
 
the same
 
as those
 
described in the
 
Summary of
 
Significant
Accounting Policies in
 
Note 1. The Company
 
evaluates performance based on
 
profit or loss from
 
operations
before income taxes. The Company does not
 
allocate certain corporate expenses to the
 
Credit segment.
The
 
following
 
schedule
 
summarizes
 
the
 
direct
 
expenses
 
of
 
the
 
Credit
 
segment
 
which
 
are
 
reflected
 
in
Selling, general and administrative expenses (in thousands):
 
 
 
 
 
 
 
Fiscal Year
 
Ended
`
February 3, 2024
January 28, 2023
January 29, 2022
Payroll
$
578
$
527
$
501
Postage
452
406
342
Other expenses
662
717
595
Total expenses
$
1,692
$
1,650
$
1,438
 
 
 
14.
 
Stock Based Compensation:
 
As
 
of
 
February
 
3,
 
2024,
 
the
 
Company
 
had the
 
2018
 
Incentive
 
Compensation
 
Plan for
 
the
 
granting of
various
 
forms
 
of
 
equity-based
 
awards,
 
including
 
restricted
 
stock
 
and
 
stock
 
options
 
for
 
grant,
 
to
 
officers,
directors and key employees.
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
64
 
The following table presents the number of options and shares of restricted
 
stock initially authorized
and available for grant under this plan as of February 3, 2024:
 
 
`
2018
Plan
Options and/or restricted stock initially authorized
4,725,000
Options and/or restricted stock available for grant:
 
 
January 28, 2023
3,461,061
 
February 3, 2024
3,147,393
 
In accordance with
 
ASC 718, the
 
fair value of
 
restricted stock awards
 
is estimated on
 
the date
 
of
grant based
 
on the
 
market price
 
of the
 
Company’s
 
stock and
 
is amortized
 
to compensation
 
expense on
 
a
straight-line basis
 
over a
five-year
 
vesting period.
 
As of
 
February 3,
 
2024, there
 
was $
9,334,000
 
of total
unrecognized compensation
 
expense related
 
to unvested
 
restricted stock
 
awards, which
 
is expected
 
to be
recognized over a remaining weighted-average vesting period of
2.1
 
years.
 
The total grant date fair value
of
 
the
 
shares
 
recognized
 
as
 
compensation
 
expense
 
during
 
the
 
twelve
 
months
 
ended
 
February
 
3,
 
2024,
January 28,
 
2023 and
 
January 29,
 
2022 was
 
$
4,105,000
, $
2,556,000
 
and $
4,055,000
, respectively.
 
The
increase in total compensation expense for fiscal 2023 is
 
due to a true-up in fiscal 2022 that
 
resulted from
forfeitures
 
driven
 
by
 
the
 
retirement
 
of
 
several
 
senior
 
members
 
of
 
management.
 
The
 
expenses
 
are
classified as a
 
component of Selling, general
 
and administrative expenses in
 
the Consolidated Statements
of Income (Loss) and Comprehensive Income (Loss).
The following summary shows
 
the changes in the
 
shares of unvested
 
restricted stock outstanding
 
during
the years ended February 3, 2024,
 
January 28, 2023 and January 29, 2022:
 
 
 
 
 
 
 
`
Weighted Average
Number of
Grant Date Fair
Shares
Value Per
 
Share
Restricted stock awards at January 30, 2021
1,023,956
$
15.33
 
Granted
407,910
13.49
 
Vested
(176,575)
22.22
 
Forfeited or expired
(59,003)
13.95
 
Restricted stock awards at January 29, 2022
1,196,288
$
13.76
 
Granted
319,441
13.70
Vested
(231,638)
16.99
 
Forfeited or expired
(224,658)
13.43
 
Restricted stock awards at January 28, 2023
1,059,433
$
13.10
 
Granted
414,502
8.29
 
Vested
(217,238)
13.97
 
Forfeited or expired
(132,824)
11.73
 
Restricted stock awards at February 3, 2024
1,123,873
$
11.32
 
 
The
 
Company’s
 
Employee
 
Stock
 
Purchase
 
Plan
 
allows
 
eligible
 
full-time
 
employees
 
to
 
purchase
 
a
limited
 
number
 
of
 
shares
 
of
 
the
 
Company’s
 
Class
 
A
 
Common
 
Stock
 
during
 
each
 
semi-annual
 
offering
period at
 
a
15
% discount through
 
payroll deductions. During
 
the twelve
 
month period ended
 
February 3,
2024, the
 
Company sold
54,889
 
shares to
 
employees at an
 
average discount of
 
$
1.22
 
per share
 
under the
Employee Stock Purchase Plan.
 
The compensation expense
 
recognized for the
15
% discount given
 
under
the
 
Employee
 
Stock
 
Purchase
 
Plan
 
was
 
approximately
 
$
67,000
,
 
$
54,000
 
and
 
$
36,000
 
for
 
fiscal
 
years
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
65
2023, 2022 and 2021,
 
respectively.
 
These expenses are classified
 
as a component of
 
Selling, general and
administrative expenses.
 
15.
 
Commitments and Contingencies:
 
The
 
Company
 
is,
 
from
 
time
 
to
 
time,
 
involved
 
in
 
routine
 
litigation
 
incidental
 
to
 
the
 
conduct
 
of
 
its
business,
 
including
 
litigation
 
regarding
 
the
 
merchandise
 
that
 
it
 
sells,
 
litigation
 
regarding
 
intellectual
property,
 
litigation instituted
 
by persons
 
injured upon
 
premises under
 
our control,
 
litigation with
 
respect
to
 
various
 
employment
 
matters,
 
including
 
alleged
 
discrimination
 
and
 
wage
 
and
 
hour
 
litigation,
 
and
litigation with present or former employees.
 
 
Although such
 
litigation is
 
routine and
 
incidental to
 
the conduct
 
of the
 
Company’s
 
business, as
 
with
any business
 
of its
 
size with
 
a significant
 
number of
 
employees and
 
significant merchandise
 
sales, such
litigation could
 
result in
 
large
 
monetary awards.
 
Based on
 
information currently
 
available,
 
management
does
 
not
 
believe
 
that
 
any
 
reasonably
 
possible
 
losses
 
arising
 
from current
 
pending litigation
 
will
 
have a
material adverse effect
 
on the Company’s
 
consolidated financial statements. However,
 
given the inherent
uncertainties
 
involved
 
in
 
such
 
matters,
 
an
 
adverse
 
outcome
 
in
 
one
 
or
 
more
 
of
 
such
 
matters
 
could
materially and adversely affect the Company’s
 
financial condition, results of operations and cash flows in
any
 
particular
 
reporting
 
period.
 
The
 
Company
 
accrues
 
for
 
these
 
matters
 
when
 
the
 
liability
 
is
 
deemed
probable and reasonably estimable.
16.
 
Accumulated Other Comprehensive Income:
The
 
following
 
table
 
sets
 
forth
 
information
 
regarding
 
the
 
reclassification
 
out
 
of
 
Accumulated
 
other
comprehensive income (in thousands) for the
 
year ended February 3, 2024:
 
 
 
 
 
 
`
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 28, 2023
$
(1,238)
 
Other comprehensive income (loss) before
 
 
reclassification
1,614
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
19
Net current-period other comprehensive income
(loss)
1,633
Ending Balance at February 3, 2024
$
395
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to
 
accumulated other
comprehensive income.
(b) Includes $
25
 
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The
 
tax impact of this reclassification was $
6
. Amounts
in parentheses indicate a debit/reduction to accumulated other comprehensive income.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
66
 
The following table sets forth information regarding the reclassification
 
out of Accumulated other
comprehensive income (in thousands) for the year ended January 28, 2023:
 
 
 
 
 
 
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280)
 
Other comprehensive income (loss) before
 
 
reclassification
(982)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
24
Net current-period other comprehensive income (loss)
(958)
Ending Balance at January 28, 2023
$
(1,238)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to
 
accumulated other
comprehensive income.
(b) Includes $
31
 
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The
 
tax impact of this reclassification was $
7
. Amounts in
parentheses indicate a debit/reduction to accumulated other comprehensive income.
67
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and
 
Financial Disclosure:
 
 
None.
Item 9A.
 
Controls and Procedures:
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
We
 
carried out
 
an evaluation,
 
with the
 
participation of
 
our Principal
 
Executive Officer
 
and Principal
Financial Officer,
 
of the
 
effectiveness of
 
our disclosure
 
controls and
 
procedures as
 
of February
 
3, 2024.
 
Based on this
 
evaluation, our Principal
 
Executive Officer
 
and Principal Financial
 
Officer concluded that,
as
 
of
 
February 3,
 
2024, our
 
disclosure controls
 
and procedures,
 
as
 
defined in
 
Rule 13a-15(e),
 
under the
Securities Exchange Act
 
of 1934
 
(the “Exchange
 
Act”), were effective
 
to ensure that
 
information we are
required to
 
disclose in
 
the reports
 
that we
 
file or
 
submit under
 
the Exchange
 
Act is
 
recorded, processed,
summarized
 
and
 
reported
 
within
 
the
 
time
 
periods
 
specified
 
in
 
the
 
SEC’s
 
rules and
 
forms
 
and
 
that
 
such
information
 
is
 
accumulated
 
and
 
communicated
 
to
 
our
 
management,
 
including
 
our
 
Principal
 
Executive
Officer
 
and
 
Principal
 
Financial
 
Officer,
 
as
 
appropriate
 
to
 
allow
 
timely
 
decisions
 
regarding
 
required
disclosure.
Management’s Report on Internal Control Over Financial Reporting
 
Management is
 
responsible
 
for
 
establishing
 
and
 
maintaining adequate
 
internal
 
control
 
over
 
financial
reporting, as defined in Exchange Act Rule 13a-15(f).
 
Under the supervision and with the participation of
our
 
management, including
 
our
 
Principal
 
Executive Officer
 
and
 
Principal
 
Financial
 
Officer,
 
we
 
carried
out
 
an
 
evaluation
 
of
 
the
 
effectiveness
 
of
 
our
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
February
 
3,
2024
 
based
 
on
 
the
 
Internal
 
Control
 
 
Integrated
 
Framework
(2013)
 
issued
 
by
 
the
 
Committee
 
of
Sponsoring
 
Organizations
 
of
 
the
 
Treadway
 
Commission
 
(“COSO”).
 
Based
 
on
 
this
 
evaluation,
management concluded
 
that our
 
internal control
 
over financial
 
reporting was
 
effective as
 
of February
 
3,
2024.
 
PricewaterhouseCoopers
 
LLP,
 
an
 
independent
 
registered
 
public
 
accounting
 
firm,
 
has
 
audited
 
the
effectiveness of our internal
 
control over financial reporting as
 
of February 3, 2024, as
 
stated in its report
which is included herein.
Changes in Internal Control Over Financial Reporting
 
No
 
change
 
in
 
the
 
Company’s
 
internal
 
control
 
over
 
financial
 
reporting
 
(as
 
defined
 
in
 
Exchange
 
Act
Rule
 
13a-15(f))
 
has
 
occurred
 
during
 
the
 
Company’s
 
fiscal
 
quarter
 
ended
 
February
 
3,
 
2024
 
that
 
has
materially
 
affected,
 
or
 
is
 
reasonably
 
likely
 
to
 
materially
 
affect,
 
the
 
Company’s
 
internal
 
control
 
over
financial reporting.
Inherent Limitations on Effectiveness of Controls
 
The
 
Company’s
 
management,
 
including
 
its
 
Principal
 
Executive
 
Officer
 
and
 
Principal
 
Financial
Officer,
 
does not
 
expect our
 
disclosure controls
 
and procedures
 
or internal
 
controls to
 
prevent all
 
errors
and all
 
fraud. A
 
control system, no
 
matter how
 
well conceived or
 
operated, can provide
 
only reasonable,
not absolute,
 
assurance that
 
the objectives
 
of the
 
control system are
 
met. Further,
 
the design
 
of a
 
control
system
 
must
 
reflect
 
the
 
fact
 
that
 
there
 
are
 
resource
 
constraints,
 
and
 
the
 
benefits
 
of
 
controls
 
must
 
be
considered relative to their costs.
 
Because of the inherent limitations
 
in all control systems,
 
no evaluation
of
 
controls
 
can
 
provide
 
absolute
 
assurance
 
all
 
control
 
issues
 
and
 
instances
 
of
 
fraud,
 
if
 
any,
 
within
 
the
company have
 
been detected.
 
These inherent
 
limitations include
 
the realities
 
that judgments
 
in decision-
making can be faulty and that breakdowns can occur because of simple
 
error or mistake. Controls can also
be
 
circumvented
 
by
 
the
 
individual
 
acts
 
of
 
some
 
persons,
 
by
 
collusion
 
of
 
two
 
or
 
more
 
people,
 
or
 
by
management
 
override
 
of
 
the
 
controls.
 
The
 
design
 
of
 
any
 
system
 
of
 
controls
 
is
 
based
 
in
 
part
 
on
 
certain
assumptions about the likelihood
 
of future events,
 
and there can
 
be no assurance any
 
design will succeed
 
68
in
 
achieving
 
its
 
stated
 
goals
 
under
 
all
 
potential
 
future
 
conditions.
 
Over
 
time,
 
controls
 
may
 
become
inadequate because of changes
 
in conditions or
 
deterioration in the degree
 
of compliance with policies
 
or
procedures.
 
Because
 
of
 
the inherent
 
limitations in
 
a
 
cost-effective
 
control
 
system, misstatements
 
due to
error or fraud may occur and not be detected.
Item 9B.
 
Other Information:
 
During
 
the
 
three
 
months
 
ended
 
February
 
3,
 
2024,
 
none
 
of
 
the
 
Company’s
 
directors
 
or
 
officers
 
(as
defined
 
in
 
Rule 16a-1(f)
 
of
 
the
 
Securities Exchange
 
Act
 
of
 
1934,
 
as
 
amended)
adopted
 
or
terminated
 
a
“Rule10b5-1 trading arrangement” or a “
non
-
Rule10b5-1
 
trading arrangement” (as such terms are defined
in Item 408 of Regulation S-K).
Item 9C.
 
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
:
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
69
PART
 
III
 
 
Item 10.
Directors, Executive Officers and Corporate Governance:
 
Information
 
contained
 
under
 
the
 
captions
 
“Election
 
of
 
Directors,”
 
“Meetings
 
and
 
Committees,”
“Corporate
 
Governance
 
Matters”
 
and
 
“Delinquent
 
Section
 
16(a)
 
Reports”
 
in
 
the
 
Registrant’s
 
Proxy
Statement
 
for
 
its
 
2024
 
annual
 
stockholders’
 
meeting
 
(the
 
“2024
 
Proxy
 
Statement”)
 
is
 
incorporated
 
by
reference
 
in
 
response
 
to
 
this
 
Item 10.
 
The
 
information
 
in
 
response
 
to
 
this
 
Item 10
 
regarding
 
executive
officers
 
of the
 
Company is
 
contained in
 
Item 3A, Part I
 
hereof under
 
the caption
 
“Executive Officers
 
of
the Registrant.”
Item 11.
Executive Compensation:
 
Information contained under the captions
 
“2023 Executive Compensation” (except for
 
the information
under
 
the
 
heading
 
“Pay
 
Versus
 
Performance”),
 
“Fiscal
 
Year
 
2023
 
Director
 
Compensation,”
 
and
“Corporate
 
Governance
 
Matters-Compensation
 
Committee
 
Interlocks
 
and
 
Insider
 
Participation”
 
in
 
the
Company’s 2024 Proxy Statement is incorporated by reference in response to this Item.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
 
Related Stockholder
 
Matters:
Equity Compensation Plan Information
 
The
 
following
 
table
 
provides
 
information
 
about
 
stock
 
options
 
outstanding
 
and
 
shares
 
available
 
for
future awards under all of the Company’s equity compensation plans. The information is as of February
 
3,
2024.
(a)
Number of Securities to
be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(1)
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(1)
(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a)) (2)
Plan Category
 
 
 
Equity compensation plans approved
 
by security holders
 
-
-
3,305,360
Equity compensation plans not
 
approved by security holders
 
-
-
-
Total
 
-
-
3,305,360
 
 
(1)
 
There are no outstanding stock options, warrants or stock appreciation
 
rights.
 
 
(2)
 
Includes the following:
 
 
 
Under
 
the
 
Company’s
 
stock
 
incentive
 
plan,
 
referred
 
to
 
as
 
the
 
2018
 
Incentive
 
Compensation
 
Plan,
 
3,147,393
 
shares
 
are
 
available
 
for
 
grant.
 
Under
 
this
 
plan,
 
non-
qualified stock options may be granted to key associates.
 
 
Under
 
the
 
2021
 
Employee Stock
 
Purchase
 
Plan,
 
157,967 shares
 
are
 
available. Eligible
 
associates
may
 
participate
 
in
 
the
 
purchase
 
of
 
designated
 
shares
 
of
 
the
 
Company’s
 
common
 
stock.
 
The
purchase price of this stock is equal to 85% of the lower of the
 
closing price at the beginning or the
end of each semi-annual stock purchase period.
 
Information contained under “Security Ownership of Certain Owners
 
and Management” in the
2024 Proxy Statement is incorporated by reference in response to this Item.
70
Item 13.
Certain Relationships and Related Transactions, and Director Independence:
 
Information
 
contained
 
under
 
the
 
caption
 
“Certain
 
Relationships
 
and
 
Related
 
Person
 
Transactions,”
“Corporate
 
Governance
 
Matters-Director
 
Independence”
 
and
 
“Meetings
 
and
 
Committees”
 
in
 
the
 
2024
Proxy Statement is incorporated by reference in response to this Item.
 
Item 14.
Principal Accountant Fees and Services:
 
Information contained
 
under the
 
captions “Ratification
 
of
 
Independent Registered
 
Public Accounting
Firm-Audit Fees”
 
and
 
“-Policy on
 
Audit
 
Committee Pre-Approval
 
of
 
Audit
 
and Permissible
 
Non-Audit
Services
 
by
 
the
 
Independent
 
Registered
 
Public
 
Accounting
 
Firm”
 
in
 
the
 
2024
 
Proxy
 
Statement
 
is
incorporated by reference in response to this Item.
 
 
 
 
 
 
 
 
 
 
 
71
PART
 
IV
Item 15.
Exhibits and Financial Statement Schedules:
 
(a) The following documents are filed as part of this report:
 
(1) Financial Statements:
 
 
 
 
 
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm
 
....................................................................
 
37
Consolidated Statements of Income (Loss) and Comprehensive Income
 
(Loss) for the fiscal
 
 
years ended February 3, 2024, January 28, 2023 and January 29, 2022
 
................................................
 
40
Consolidated Balance Sheets at February 3, 2024 and January 28, 2023
 
.................................................
 
41
Consolidated Statements of Cash Flows for the fiscal years ended
 
February 3, 2024, January 28, 2023
 
and January 29, 2022 ................................................................................................................................
 
42
Consolidated Statements of Stockholders’ Equity for the fiscal years ended
 
February 3, 2024,
 
January 28, 2023 and January 29, 2022
 
....................................................................................................
 
43
Notes to Consolidated Financial Statements
 
.............................................................................................
 
44
 
(2) Financial Statement Schedule: The following report and
 
financial statement schedule is filed
 
 
herewith:
Schedule II — Valuation and Qualifying Accounts .................................................................................
 
75
 
All
 
other
 
schedules
 
are
 
omitted
 
as
 
the
 
required
 
information
 
is
 
inapplicable
 
or
 
the
 
information
 
is
presented in the Consolidated Financial Statements or related Notes thereto.
 
(3) Index to Exhibits: The
 
following exhibits listed in
 
the Index below are
 
filed with this report
 
or, as
noted, incorporated by reference herein.
 
The Company will supply copies of the following exhibits to any
shareholder upon receipt of a written request addressed to the Corporate Secretary,
 
The Cato Corporation,
8100 Denmark
 
Road, Charlotte,
 
NC 28273
 
and the
 
payment of
 
$.50 per
 
page to
 
help defray
 
the costs
 
of
handling,
 
copying
 
and
 
postage.
 
In
 
most
 
cases,
 
documents
 
incorporated
 
by
 
reference
 
to
 
exhibits
 
to
 
our
registration
 
statements,
 
reports
 
or
 
proxy
 
statements
 
filed
 
by
 
the
 
Company
 
with
 
the
 
Securities
 
and
Exchange
 
Commission
 
are
 
available
 
to
 
the
 
public
 
over
 
the
 
Internet
 
from
 
the
 
SEC’s
 
web
 
site
 
at
http://www.sec.gov.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
 
 
 
 
Exhibit
 
 
Number
 
Description of Exhibit
 
 
3.1
 
 
3.2
 
4.1
10.1*
10.2*
10.3*
 
 
10.4*
 
 
10.5*
 
 
10.6*
 
 
10.7*
 
10.8*
10.9*
10.10
 
10.11
10.12
10.13
 
21.1**
 
 
23.1**
 
 
31.1**
 
 
31.2**
 
 
32.1**
 
 
 
 
73
 
32.2**
 
97.1**
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.1
Cover Page Interactive Data File (Formatted in Inline XBRL and
 
contained in the Interactive
Data Files submitted as Exhibit 101.1**).
___________
* Management contract or compensatory plan required to be filed under Item 15 of this report and Item
 
601
of Regulation S-K.
** Filed or submitted electronically herewith.
Item 16.
Form 10-K Summary:
 
None.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
74
SIGNATURES
 
Pursuant
 
to
 
the
 
requirements
 
of
 
Section 13
 
or
 
15(d)
 
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934,
 
Cato
 
has
 
duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Cato Corporation
By
/s/ JOHN P.
 
D. CATO
By
/s/ CHARLES D. KNIGHT
 
John P.
 
D. Cato
Chairman, President and
Chief Executive Officer
Charles D. Knight
Executive Vice President
Chief Financial Officer
By
/s/ JEFFREY R. SHOCK
Jeffrey R. Shock
Senior Vice President
Controller
Date: March 27, 2024
 
Pursuant to the
 
requirements of the
 
Securities Exchange
 
Act of 1934,
 
this report has
 
been signed below
 
on March 27,
 
2024
by the following persons on behalf of the Registrant and in the capacities indicated:
 
 
 
 
 
/s/ JOHN P.
 
D. CATO
John P.
 
D. Cato
(President and Chief Executive Officer
(Principal Executive Officer) and Director)
/s/ BAILEY W.
 
PATRICK
Bailey W.
 
Patrick
(Director)
 
 
/s/ CHARLES D. KNIGHT
Charles D. Knight
(Executive Vice President
Chief Financial Officer (Principal Financial Officer))
/s/ THOMAS B. HENSON
Thomas B. Henson
 
(Director)
/s/ JEFFREY R. SHOCK
Jeffrey R. Shock
(Senior Vice President
Controller (Principal Accounting Officer))
/s/ BRYAN
 
F. KENNEDY
 
III
Bryan F. Kennedy III
(Director)
/s/ THOMAS E. MECKLEY
Thomas E. Meckley
(Director)
/s/ D. HARDING STOWE
D. Harding Stowe
 
(Director)
/s/ THERESA J. DREW
Theresa J. Drew
(Director)
/s/ PAMELA
 
L. DAVIES
Pamela L. Davies
(Director)
75
 
 
 
 
 
 
 
 
 
 
 
 
Schedule II
VALUATION
 
AND QUALIFYING ACCOUNTS
(in thousands)
Allowance
for
Customer
Self Insurance
Credit Losses(a)
Reserves(b)
Balance at January 30, 2021
$
605
$
10,975
Additions charged to costs and expenses
 
485
13,464
Additions (reductions) charged to other accounts
 
98
(c)
(1,447)
Deductions
 
(385)
(d)
(14,721)
Balance at January 29, 2022
$
803
$
8,271
Additions charged to costs and expenses
 
349
13,287
Additions (reductions) charged to other accounts
 
84
(c)
638
Deductions
 
(475)
(d)
(14,523)
Balance at January 28, 2023
$
761
$
7,673
Additions charged to costs and expenses
 
578
16,063
Additions (reductions) charged to other accounts
 
72
(c)
467
Deductions
 
(706)
(d)
(15,075)
Balance at February 3, 2024
$
705
$
9,128
(a)
 
Deducted from trade accounts receivable.
(b)
 
Reserve for Workers' Compensation,
 
General Liability and Healthcare.
(c)
 
Recoveries of amounts previously written off.
(d)
 
Uncollectible accounts written off.