The Cato Corporation
08/29/2024 | Press release | Distributed by Public on 08/29/2024 12:01
Quarterly Report for Quarter Ending August 3, 2024 (Form 10-Q)
cato24qtr2q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM
10-Q
☑
QUARTERLY REPORT PURSUANTTO SECTION13 OR 15(d)OF THE SECURITIESEXCHANGEACT OF
1934
For the quarterly period ended
August 3, 2024
OR
☐
TRANSITIONREPORT PURSUANTTO SECTION13 OR 15(d)OF THE SECURITIESEXCHANGEACT OF
1934
For the transition period from ________________to__________________
Commission file number
1-31340
THE CATO CORPORATION
(Exact name of registrant as specified in itscharter)
Delaware
56-0484485
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8100 Denmark Road
,
Charlotte
,
North Carolina
28273-5975
(Address of principal executive offices)
(Zip Code)
(704)
554-8510
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, ifchanged since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A - Common Stock, par value $.033 per share
CATO
New York Stock Exchange
Indicateby checkmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledby Section13or15(d)oftheSecurities
Exchange Act of 1934during the preceding 12months (or for such shorterperiod that the registrantwas required to file suchreports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmitted
pursuant to Rule405 of RegulationS-T (§232.405of this chapter)during the preceding12 months (orfor such shorterperiod that the
registrant was required to submit such files).
Yes
X
No
Indicate bycheck markwhether theregistrant isa largeaccelerated filer,an acceleratedfiler, anon-accelerated filer,a smallerreporting
company,oranemerginggrowthcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler,""smallerreporting
company," and "emerging growthcompany" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☑
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodfor
complying with any new or revised financial accounting standards providedpursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
As of August 3, 2024, there were
18,804,629
shares of Class A common stock and
1,763,652
shares of Class B common stock outstanding.
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended August 3, 2024
Tableof Contents
Page No.
PARTI - FINANCIAL INFORMATION(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income and Comprehensive Income
2
For the Three Months and Six Months Ended August3, 2024 and July 29, 2023
Condensed Consolidated Balance Sheets
3
At August 3, 2024 and February 3, 2024
Condensed Consolidated Statements of Cash Flows
4
For the Six Months Ended August 3, 2024 andJuly 29, 2023
Condensed Consolidated Statements of Stockholders' Equity
5 - 6
For the Three Months and Six Months Ended August3, 2024 and July 29, 2023
Notes to Condensed Consolidated Financial Statements
7 - 21
For the Three Months and Six Months Ended August3, 2024 and July 29, 2023
Item 2.
Management's Discussion and Analysisof Financial Condition and
Results of Operations
22 - 28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29
Item 4.
Controls and Procedures
29
PARTII - OTHER INFORMATION
Item 1.
Legal Proceedings
30
Item 1A.
Risk Factors
30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
Item 3.
Defaults Upon Senior Securities
30
Item 4.
Mine Safety Disclosures
31
Item 5.
Other Information
31
Item 6.
Exhibits
31
Signatures
32
2
PARTI FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
Six Months Ended
August 3, 2024
July 29, 2023
August 3, 2024
July 29, 2023
(Dollars in thousands, except per share data)
REVENUES
Retail sales
$
166,934
$
181,181
$
342,206
$
371,492
Other revenue (principally finance charges, late fees and
layaway charges)
1,694
1,690
3,521
3,429
Total revenues
168,628
182,871
345,727
374,921
COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shownbelow)
109,122
117,617
221,627
239,704
Selling, general and administrative (exclusive ofdepreciation
shown below)
58,181
61,618
114,933
123,552
Depreciation
2,329
2,510
4,369
4,867
Interest and other income
(1,742)
(1,334)
(7,563)
(2,231)
Costs and expenses, net
167,890
180,411
333,366
365,892
Income before income taxes
738
2,460
12,361
9,029
Income tax expense
643
1,333
1,292
3,475
Net income
$
95
$
1,127
$
11,069
$
5,554
Basic earnings per share
$
0.01
$
0.06
$
0.54
$
0.27
Diluted earnings per share
$
0.01
$
0.06
$
0.54
$
0.27
Comprehensive income:
Net income
$
95
$
1,127
$
11,069
$
5,554
Unrealized gain (loss) on available-for-sale securities, net of
deferred income taxes of $
50
and $
156
for
the three and six months ended July 29, 2023, respectively
676
167
(72)
522
Comprehensive income
$
771
$
1,294
$
10,997
$
6,076
See notes to condensed consolidated financial statements (unaudited).
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
August 3, 2024
February 3, 2024
ASSETS
(Dollars in thousands)
Current Assets:
Cash and cash equivalents
$
30,764
$
23,940
Short-term investments
73,902
79,012
Restricted cash
3,562
3,973
Accounts receivable, net of allowance for customer credit losses of
$
674
and $
705
at August 3, 2024 and February 3, 2024, respectively
29,772
29,751
Merchandise inventories
95,972
98,603
Prepaid expenses and other current assets
9,506
7,783
Total Current Assets
243,478
243,062
Property and equipment - net
63,975
64,022
Other assets
22,340
25,047
Right-of-Use assets - net
125,779
154,686
Total Assets
$
455,572
$
486,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
84,623
$
87,821
Accrued expenses
36,207
37,404
Accrued employee benefits and bonus
1,022
1,675
Accrued income taxes
646
-
Current lease liability
51,091
61,108
Total Current Liabilities
173,589
188,008
Other noncurrent liabilities
14,573
14,475
Lease liability
72,348
92,013
Stockholders' Equity:
Preferred stock, $
100
par value per share,
100,000
shares
authorized,
none
issued
-
-
Class A common stock, $
0.033
par value per share,
50,000,000
shares authorized;
18,804,629
shares and
18,802,742
shares
issued at August 3, 2024 and February 3, 2024, respectively
635
635
Convertible Class B common stock, $
0.033
par value per share,
15,000,000
shares authorized;
1,763,652
shares
shares issued at August 3, 2024 and February 3, 2024
59
59
Additional paid-in capital
127,951
126,953
Retained earnings
66,094
64,279
Accumulated other comprehensive income
323
395
Total Stockholders' Equity
195,062
192,321
Total Liabilities and Stockholders' Equity
$
455,572
$
486,817
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS
(UNAUDITED)
Six Months Ended
August 3, 2024
July 29, 2023
(Dollars in thousands)
Operating Activities:
Net income
$
11,069
$
5,554
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation
4,369
4,867
Provision for customer credit losses
338
248
Purchase premium and discount accretion of investments
(577)
(97)
Gain on sale of assets held for investment
(4,223)
-
Share-based compensation
840
2,192
Deferred income taxes
-
(832)
Loss on disposal of property and equipment
96
1
Changes in operating assets and liabilities which provided
(used) cash:
Accounts receivable
1,041
(666)
Merchandise inventories
2,631
19,338
Prepaid and other assets
(1,891)
(667)
Operating lease right-of-use assets and liabilities
(775)
(1,001)
Accrued income taxes
646
2,948
Accounts payable, accrued expenses and other liabilities
(4,728)
(10,306)
Net cash provided by operating activities
8,836
21,579
Investing Activities:
Expenditures for property and equipment
(4,799)
(8,470)
Purchase of short-term investments
(31,396)
(14,497)
Sales of short-term investments
37,703
46,777
Sales of other assets
5,165
-
Net cash provided by investing activities
6,673
23,810
Financing Activities:
Dividends paid
(7,050)
(6,962)
Repurchase of common stock
(2,237)
(2,563)
Proceeds from employee stock purchase plan
191
198
Net cash used in financing activities
(9,096)
(9,327)
Net increase in cash, cash equivalents, and restricted cash
6,413
36,062
Cash, cash equivalents, and restricted cash at beginning of period
27,913
23,792
Cash, cash equivalents, and restricted cash at end of period
$
34,326
$
59,854
Non-cash activity:
Accrued other assets and property and equipment expenditures
$
721
$
572
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance - February 3, 2024
$
694
$
126,953
$
64,279
$
395
$
192,321
Comprehensive income:
Net income
-
-
10,974
-
10,974
Unrealized net losses on available-for-sale securities, net of
deferred income tax expense of $0
-
-
-
(748)
(748)
Dividends paid ($
0.17
per share)
-
-
(3,523)
-
(3,523)
Class A common stock sold through employee stock purchaseplan
1
189
-
-
190
Share-based compensation issuances and exercises
13
-
5
-
18
Share-based compensation expense
-
(84)
-
-
(84)
Repurchase and retirement of treasury shares
(14)
-
(2,223)
-
(2,237)
Balance - May 4, 2024
$
694
$
127,058
$
69,512
$
(353)
$
196,911
Comprehensive income:
Net income
-
-
95
-
95
Unrealized net gains on available-for-sale securities, net of
deferred income tax expense of $0
-
-
-
676
676
Dividends paid ($
0.17
per share)
-
-
(3,527)
-
(3,527)
Class A common stock sold through employee stock purchaseplan
-
35
-
-
35
Share-based compensation issuances and exercises
-
-
-
-
-
Share-based compensation expense
-
858
14
-
872
Repurchase and retirement of treasury shares
-
-
-
-
-
Balance - August 3, 2024
$
694
$
127,951
$
66,094
$
323
$
195,062
See notes to condensed consolidated financial statements (unaudited).
6
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance - January 28, 2023
$
691
$
122,431
$
104,709
$
(1,238)
$
226,593
Comprehensive income:
Net income
-
-
4,428
-
4,428
Unrealized net gains on available-for-sale securities, net of
deferred income tax expense of $
107
-
-
-
355
355
Dividends paid ($
0.17
per share)
-
-
(3,455)
-
(3,455)
Class A common stock sold through employee stock purchaseplan
-
195
-
-
195
Share-based compensation issuances and exercises
-
-
3
-
3
Share-based compensation expense
-
929
-
-
929
Repurchase and retirement of treasury shares
(8)
-
(2,259)
-
(2,267)
Balance - April 29, 2023
$
683
$
123,555
$
103,426
$
(883)
$
226,781
Comprehensive income:
Net income
-
-
1,127
-
1,127
Unrealized net gains on available-for-sale securities, net of
deferred income tax expense of $
50
-
-
-
167
167
Dividends paid ($
0.17
per share)
-
-
(3,507)
-
(3,507)
Class A common stock sold through employee stock purchaseplan
1
31
-
-
32
Share-based compensation issuances and exercises
-
-
-
-
-
Share-based compensation expense
12
1,212
3
-
1,227
Repurchase and retirement of treasury shares
(1)
-
(293)
-
(294)
Balance - July 29, 2023
$
695
$
124,798
$
100,756
$
(716)
$
225,533
See notes to condensed consolidated financial statements (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
7
NOTE 1 - GENERAL
:
ThecondensedconsolidatedfinancialstatementsasofAugust3,2024andforthetwenty-six-week
periods ended August3, 2024 andJuly 29,2023 have beenprepared from theaccounting records ofThe
CatoCorporationanditswholly-ownedsubsidiaries(the"Company"),andallamountsshownare
unaudited.In the opinion of management, all adjustments considered necessary for a fair statement of the
financial statementshave beenincluded.All suchadjustmentsareofanormal, recurringnatureunless
otherwise noted.The resultsof theinterim periodmay notbe indicativeof theresults expectedfor the
entire year.
The interim financialstatements should be readin conjunction withthe consolidated financial statements
andnotesthereto,includedintheCompany'sAnnualReportonForm10-Kforthefiscalyearended
February 3, 2024.Amounts as of February 3, 2024 have been derived from the audited balance sheet, but
do not include all disclosures required byaccounting principles generally accepted in the United States of
America.
On February 16, 2024, the Company closed on the sale of land held for investment.The sale resulted in a
netgainof$
3.2
millionandisincludedinInterestandotherincomeintheaccompanyingCondensed
Consolidated Statements of Income and Comprehensive Incomefor the period ended August 3, 2024.
Subsequent tothe secondquarter ofthe currentfiscal year,the Companyreceived $
8.6
million fromthe
insurance claim settlement and sale of its corporate jet.
On August 29, 2024, the Board of Directors maintained the quarterly dividendat $
0.17
per share.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
8
NOTE 2 - EARNINGS PER SHARE:
Accounting Standard Codification ("ASC") 260 -
Earnings Per Share
requires dual presentation of basic and
diluted Earnings Per Share("EPS") on the face ofall income statements forall entities with complexcapital
structures.The Company has presented one basic EPS and one diluted EPS amount for all common shares in
the accompanyingCondensed ConsolidatedStatements ofIncome andComprehensive Income.While the
Company's certificateof incorporationprovides theright forthe Board ofDirectors todeclare dividendson
ClassAshareswithoutdeclarationofcommensuratedividendsonClassBshares,theCompanyhas
historically paid the same dividends to both Class A and Class B shareholders and theBoard of Directors has
resolved to continue this practice.Accordingly, the Company's allocation of income for purposes of the EPS
computation is the samefor Class A andClass B shares andthe EPS amounts reportedherein are applicable
to both Class A and Class Bshares.
BasicEPSiscomputedasnetincomelessearningsallocatedtonon-vestedequityawardsdividedbythe
weighted averagenumber ofcommon sharesoutstanding forthe period.Diluted EPSreflects thepotential
dilutionthatcouldoccurfromcommonsharesissuablethroughstockoptionsandtheEmployeeStock
Purchase Plan.
Three Months Ended
Six Months Ended
August 3, 2024
July 29, 2023
August 3, 2024
July 29, 2023
(Dollars in thousands)
Numerator
Net earnings
$
95
$
1,127
$
11,069
$
5,554
Earnings (loss) allocated to non-vested equity awards
9
(54)
(583)
(292)
Net earnings available to common stockholders
$
104
$
1,073
$
10,486
$
5,262
Denominator
Basic weighted average common shares outstanding
19,297,484
19,395,484
19,327,137
19,349,266
Diluted weighted average common shares outstanding
19,297,484
19,395,484
19,327,137
19,349,266
Net income per common share
Basic earnings per share
$
0.01
$
0.06
$
0.54
$
0.27
Diluted earnings per share
$
0.01
$
0.06
$
0.54
$
0.27
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
9
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE INCOME:
ThefollowingtablesetsforthinformationregardingthereclassificationoutofAccumulatedother
comprehensive income (in thousands) for thethree months ended August 3, 2024:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at May 4, 2024
$
(353)
Other comprehensive income before
reclassification
776
Gains reclassified from accumulated
other comprehensive income (b)
100
Net current-period other comprehensive income
676
Ending Balance at August 3, 2024
$
323
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
130
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
30
.
ThefollowingtablesetsforthinformationregardingthereclassificationoutofAccumulatedother
comprehensive income (in thousands) for thesix months ended August 3, 2024:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 3, 2024
$
395
Other comprehensive income before
reclassification
714
Gains reclassified from accumulated
other comprehensive income (b)
786
Net current-period other comprehensive loss
(72)
Ending Balance at August 3, 2024
$
323
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes
$1,022
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
236
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
10
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE INCOME(CONTINUED):
ThefollowingtablesetsforthinformationregardingthereclassificationoutofAccumulatedother
comprehensive income (in thousands) for thethree months ended July 29, 2023:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at April 29, 2023
$
(883)
Other comprehensive income before
reclassifications
164
Gains reclassified from accumulated
other comprehensive income (b)
3
Net current-period other comprehensive income
167
Ending Balance at July 29, 2023
$
(716)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
4
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
1
.
ThefollowingtablesetsforthinformationregardingthereclassificationoutofAccumulatedother
comprehensive income (in thousands) for thesix months ended July 29, 2023:
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 before
reclassifications
519
Gains reclassified from accumulated
other comprehensive income (b)
3
Net current-period other comprehensive income
522
Ending Balance at July 29, 2023
$
(716)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
4
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
1
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
11
NOTE 4 - FINANCING ARRANGEMENTS:
AtAugust3,2024,theCompanyhadanunsecuredrevolvingcreditagreement,whichprovidesfor
borrowingsofupto$
35.0
million,lessthebalanceofanyrevocablelettersofcreditrelatedtopurchase
commitments,andiscommittedthroughMay2027.Thecreditagreementcontainsvariousfinancial
covenantsandlimitations,includingthemaintenanceofspecificfinancialratios.OnApril25,2024,the
Company amended therevolving credit agreement tomodify a definition usedin calculating theCompany's
minimum EBITDAR coverage ratio to add back certain income tax receivables included in the calculation of
the ratio.For thequarter endedAugust 3,2024, aftergiving effectto theamendment, theCompany wasin
compliance with thecredit agreement. Therewere
no
borrowings outstanding,
no
r any outstandingletters of
credit that reduced borrowing availability, as of August 3, 2024.The weighted average interest rate under the
credit facility was
zero
at August 3, 2024 due to
no
outstanding borrowings.
NOTE 5 - REPORTABLE SEGMENT INFORMATION:
TheCompanyhasdeterminedthatithas
four
operatingsegments,asdefinedunderASC280-
Segment
Reporting
, including Cato,It's Fashion, Versonaand Credit.As outlined inASC 280-10, the Companyhas
two
reportable segments: Retail and Credit.The Company has aggregated its
three
retail operating segments,
includinge-commerce,basedon theaggregationcriteriaoutlined inASC280-10, whichstates thattwoor
more operating segments may be aggregated into a single reportable segment if aggregation is consistent with
theobjectiveandbasicprinciplesofASC280-10,whichrequirethesegmentstohavesimilareconomic
characteristics, products, production processes, clients andmethods of distribution.
TheCompany'sretailoperatingsegmentshavesimilareconomiccharacteristicsandsimilaroperating,
financial andcompetitive risks.The productssold in eachretail operatingsegment aresimilar innature, as
theyallofferwomen'sapparel,shoesandaccessories.MerchandiseinventoryoftheCompany'sretail
operatingsegmentsissourcedfromthesamecountriesandsomeofthesamevendors,usingsimilar
production processes.Merchandise for the Company's retail operating segments is distributed to retail stores
in a similar manner throughthe Company's single distribution center and issubsequently sold to customers in
a similarmanner.
TheCompanyoperatesitswomen'sfashionspecialtyretailstoresin
31
statesasofAugust3,2024,
principally in the southeastern United States. The Company offers its own credit card to its customers and
allcreditauthorizations,paymentprocessingandcollectioneffortsareperformedbyseparatewholly-
owned subsidiaries of the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
12
NOTE 5 - REPORTABLE SEGMENT INFORMATION(CONTINUED):
The following schedule summarizes certain segmentinformation (in thousands):
Three Months Ended
Six Months Ended
August 3, 2024
Retail
Credit
Total
August 3, 2024
Retail
Credit
Total
Revenues
$167,954
$674
$168,628
Revenues
$344,384
$1,343
$345,727
Depreciation
2,328
1
2,329
Depreciation
4,368
1
4,369
Interest and other income
(1,742)
-
(1,742)
Interest and other income
(7,563)
-
(7,563)
Income before
income taxes
485
253
738
Income before
income taxes
11,859
502
12,361
Capital expenditures
1,536
-
1,536
Capital expenditures
4,799
-
4,799
Three Months Ended
Six Months Ended
July 29, 2023
Retail
Credit
Total
July 29, 2023
Retail
Credit
Total
Revenues
$182,213
$658
$182,871
Revenues
$373,648
$1,273
$374,921
Depreciation
2,509
1
2,510
Depreciation
4,866
1
4,867
Interest and other income
(1,334)
-
(1,334)
Interest and other income
(2,231)
-
(2,231)
Income before
income taxes
2,207
253
2,460
Income before
income taxes
8,590
439
9,029
Capital expenditures
2,300
-
2,300
Capital expenditures
8,470
-
8,470
Retail
Credit
Total
Total assets as of August 3, 2024
$417,112
$38,460
$455,572
Total assets as of February 3, 2024
448,488
38,329
486,817
The Company evaluates segment performance based onincome before income taxes.The Company does not
allocate certain corporate expenses orincome taxes to the credit segment.
The following schedule summarizes the direct expensesof the credit segment, which arereflected in Selling,
general and administrative expenses (inthousands):
Three Months Ended
Six Months Ended
August 3, 2024
July 29, 2023
August 3, 2024
July 29, 2023
Payroll
$
161
$
142
$
314
$
276
Postage
115
109
217
210
Other expenses
144
154
309
348
Total expenses
$
420
$
405
$
840
$
834
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
13
NOTE 6 - STOCK-BASED COMPENSATION:
As of August3, 2024, theCompany's 2018 IncentiveCompensation Plan allowsfor the grantingof various
forms of equity-based awards,including restricted stockand stock options forgrant to officers, directorsand
key employees.
Thefollowingtablepresentsthenumberofoptionsandsharesofrestrictedstockinitiallyauthorizedand
available for grant under this plan asof August 3, 2024:
2018
Plan
Options and/or restricted stock initially authorized
4,725,000
Options and/or restricted stock available for grant
2,753,001
InaccordancewithASC718-
Compensation-Stock Compensation
,thefairvalueofcurrentrestricted
stock awardsis estimatedon thedate ofgrant basedon themarket priceof theCompany'sstock andis
amortized to compensation expense on a straight-line basisover the related vesting periods. As ofAugust
3, 2024and February3, 2024,there was$
9,148,000
and $
9,334,000
, respectively,of totalunrecognized
compensationexpenserelatedtononvestedrestrictedstockawards,whichhadaremainingweighted-
average vestingperiodof
2.4
yearsand
2.1
years,respectively.Thetotalcompensation expenseduring
the three andsix months endedAugust 3, 2024was $
872,000
and $
806,000
, respectively,compared to a
totalcompensationexpenseof$
1,230,000
and$
2,158,000
forthethreeandsixmonthsended July29,
2023,respectively.ThiscompensationexpenseisclassifiedasacomponentofSelling,generaland
administrative expenses in the Condensed Consolidated Statements of Income
.
The following summaryshows the changesin the numberof shares ofunvested restricted stockoutstanding
duringthe six months endedAugust3, 2024:
Weighted Average
Number of
Grant Date Fair
Shares
ValuePer Share
Restricted stock awards at February 3, 2024
1,123,873
$
11.32
Granted
386,900
4.80
Vested
(232,696)
13.22
Forfeited or expired
(18,296)
9.17
Restricted stock awards at August 3, 2024
1,259,781
$
8.98
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
14
NOTE 6 - STOCK BASED-COMPENSATION (CONTINUED):
TheCompany'sEmployeeStockPurchasePlanallowseligiblefull-timeemployeestopurchasealimited
number ofsharesof theCompany'sClassACommon Stockduring eachsemi-annual offeringperiodata
15
% discountthrough payrolldeductions. Duringthe sixmonths endedAugust 3,2024 andJuly 29,2023,
theCompanysold
38,910
and
26,127
sharestoemployeesatanaveragediscountof$
0.87
and$
1.31
per
share, respectively, underthe Employee StockPurchase Plan. Thecompensation expense recognizedfor the
15
% discount given under the Employee StockPurchase Plan was approximately $
34,000
for each of the six
months ended August 3, 2024 andJuly 29, 2023. This compensation expense isclassified as a component of
Selling, general and administrative expenses.
NOTE 7- FAIR VALUE MEASUREMENTS:
The followingtablesset forthinformation regardingtheCompany's financialassets andliabilities thatare
measured at fair value (in thousands)as of August 3, 2024 andFebruary 3, 2024:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
August 3, 2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
3,943
$
-
$
3,943
$
-
Corporate Bonds
50,558
-
50,558
-
U.S. Treasury/Agencies Notes and Bonds
18,430
-
18,430
-
Cash Surrender Value of Life Insurance
8,886
-
-
8,886
Asset-backed Securities (ABS)
971
-
971
-
Total Assets
$
82,788
$
-
$
73,902
$
8,886
Liabilities:
Deferred Compensation
$
(8,604)
$
-
$
-
$
(8,604)
Total Liabilities
$
(8,604)
$
-
$
-
$
(8,604)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
15
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
February 3, 2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
12,540
$
-
$
12,540
$
-
Corporate Bonds
45,400
-
45,400
-
U.S. Treasury/Agencies Notes and Bonds
18,114
-
18,114
-
Cash Surrender Value of Life Insurance
8,586
-
-
8,586
Asset-backed Securities (ABS)
2,958
-
2,958
-
Corporate Equities
1,084
1,084
-
-
Total Assets
$
88,682
$
1,084
$
79,012
$
8,586
Liabilities:
Deferred Compensation
$
(8,654)
$
-
$
-
$
(8,654)
Total Liabilities
$
(8,654)
$
-
$
-
$
(8,654)
The Company'sinvestment portfoliowas primarilyinvested incorporate bonds andtax-exempt and taxable
governmental debtsecurities heldin managedaccounts withunderlying ratingsof Aor betterat August3,
2024andFebruary3,2024.Thestate,municipalandcorporatebondsandasset-backedsecuritieshave
contractual maturities which range from
six days
to
2.9
years. The U.S. Treasury/Agencies Notes andBonds
havecontractualmaturitieswhichrangefrom
14 days
to
3.0
years.Thesesecuritiesareclassifiedas
available-for-sale and arerecorded asShort-term investmentsand Otherassets onthe respectiveCondensed
Consolidated Balance Sheets. Theseassets are carriedat fair valuewith unrealized gains andlosses reported
net oftaxes inAccumulated othercomprehensive income.The asset-backed securitiesare bondscomprised
of auto loans andbank credit cards thatcarry AAA ratings. Theauto loan asset-backed securitiesare backed
by static pools of auto loans that were originated and servicedby captive auto finance units, banks or finance
companies.Thebankcreditcardasset-backedsecuritiesarebackedbyrevolvingpoolsofcreditcard
receivablesgeneratedbyaccountholdersofcardsfromAmericanExpress,Citibank,JPMorganChase,
Capital One, and Discover.
At February3,2024, theCompanyhad $
1.1
millionof corporateequities anddeferred compensationplan
assetsof$
8.6
million.AtAugust3,2024,theCompanyhaddeferredcompensationplanassetsof$
8.9
million.During the six months ended August3, 2024, the Company sold itscorporate equities.All of these
assets are recorded within Other assetsin the Condensed Consolidated Balance Sheets.
Level 1 category securities are measuredat fair value using quoted activemarket prices.Level 2 investment
securitiesincludecorporate,stateandmunicipalbondsforwhichquotedpricesmaynotbeavailableon
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 arenot available, theseprices are determinedby the pricingservice using observablemarket
informationsuchasquotesfromlessactivemarketsand/orquotedpricesofsecuritieswithsimilar
characteristics, among other factors.
Deferred compensation planassets consist oflife insurance policies.These life insurancepolicies are valued
based on the cash surrender value of the insurance contract, which is determined based onsuch factors as the
fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3of the
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
16
valuationhierarchy.TheLevel3liabilityassociatedwiththelifeinsurancepoliciesrepresentsadeferred
compensation obligation,the valueof whichis trackedvia underlyinginsurance funds'net assetvalues, as
recordedinOthernoncurrentliabilitiesintheCondensedConsolidatedBalanceSheet.Thesefundsare
designed to mirror mutual funds and moneymarket funds that are observable andactively traded.
ThefollowingtablessummarizethechangeinfairvalueoftheCompany'sfinancialassetsandliabilities
measured using Level 3 inputs for the six months ended August 3, 2024 and the year ended February 3,2024
(in thousands):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at February 3, 2024
$
8,586
Redemptions
-
Additions
-
Total gains or (losses):
Included in interest and other income (or
changes in net assets)
300
Ending Balance at August 3, 2024
$
8,886
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 3, 2024
$
(8,654)
Redemptions
543
Additions
(121)
Total (gains) or losses:
Included in interest and other income (or
changes in net assets)
(372)
Ending Balance at August 3, 2024
$
(8,604)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
17
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
9,274
Redemptions
(1,168)
Additions
-
Total gains or (losses):
Included in interest and other income (or
changes in net assets)
480
Ending Balance at February 3, 2024
$
8,586
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
(8,903)
Redemptions
1,119
Additions
(292)
Total (gains) or losses:
Included in interest and other income (or
changes in net assets)
(578)
Ending Balance at February 3, 2024
$
(8,654)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
18
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS:
InNovember2023,theFinancialAccountingStandardsBoard("FASB")issuedAccountingStandards
Update("ASU")2023-07,"SegmentReporting(Topic280):ImprovementstoReportableSegment
Disclosures,"whichmodifiesdisclosurerequirementsforallpublicentitiesthatarerequiredtoreport
segmentinformation.The updatewill changethereporting ofsegments byaddingsignificantsegment
expenses,othersegmentitems,titleandpositionofthechiefoperatingdecisionmaker("CODM") and
howtheCODMusesthereportedmeasurestomakedecisions.Theupdatealsorequiresallannual
disclosureaboutareportablesegment'sprofitorlossandassetsininterimperiods.Thisguidanceis
effectiveforfiscalyearsbeginningafterDecember15,2023andinterimperiodswithinfiscalyears
beginningafterDecember15,2024.Earlyadoptionispermitted,andtheguidanceisapplicable
retrospectively to all prior periods presentedin the financial statements.The Company is currently in the
process ofevaluating thepotential impactof adoptionof thisnew guidanceon itsconsolidated financial
statements and related disclosures.
InDecember2023,theFASBissuedASU2023-09,"IncomeTaxes(Topic740):Improvementsto
IncomeTaxDisclosures,"whichmodifiestherequirementsonincometaxdisclosurestorequire
disaggregatedinformationaboutareportingentity'seffectivetaxratereconciliationaswellas
information onincome taxespaid.This guidanceis effectivefor fiscalyears beginningafter December
15, 2024 for all publicbusiness entities, with early adoption and retrospective applicationpermitted.The
Company iscurrently inthe processof evaluatingthe potentialimpact ofadoption ofthis newguidance
on its consolidated financial statements and related disclosures.
NOTE 9 - INCOME TAXES:
The Company hadan effectivetax rate forthe first sixmonths of 2024of
10.5
% compared to
38.5
% for
thefirstsixmonths of2023.Income taxexpenseforthefirstsixmonthsdecreasedto$
1.3
millionin
fiscal 2024 from $
3.5
million in fiscal 2023.The decrease in tax expense is primarily due to the valuation
allowance against netdeferred tax assets attributableto U.S. federalnet operating loss carryforwardsand
the impact of the foreign rate differential and lower state income taxes.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
includinglitigationregardingthemerchandisethatitsells,litigationregardingintellectualproperty,
litigation instituted by persons injured upon premises under the Company's control, litigation with respect
tovariousemploymentmatters,includingallegeddiscriminationandwageandhourlitigation,and
litigation with present or former employees.
Although suchlitigation isroutine andincidental tothe conductof theCompany's business,as withany
businessofitssizewithasignificantnumberofemployeesandsignificantmerchandisesales,such
litigation couldresult inlargemonetary awards.Based oninformation currentlyavailable, management
doesnotbelievethatanyreasonablypossiblelossesarisingfrom currentpending litigationwillhavea
material adverseeffecton theCompany'scondensed consolidatedfinancial statements.However,given
theinherent uncertaintiesinvolved insuchmatters, anadverse outcomeinone ormore ofsuchmatters
couldmaterially andadversely affecttheCompany'sfinancial condition,results ofoperations andcash
flowsinanyparticularreportingperiod.TheCompanyaccruesforthesematterswhentheliabilityis
deemed probable and reasonably estimable.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
19
NOTE 11 - REVENUE RECOGNITION:
TheCompanyrecognizessalesatthepointofpurchasewhenthecustomertakespossessionofthe
merchandiseandpaysforthepurchase,generallywithcashorcredit.Salesfrompurchasesmadewith
Catocredit,giftcardsandlayawaysalesfromstoresarealsorecordedwhenthecustomertakes
possession ofthe merchandise. E-commercesales arerecorded when therisk ofloss istransferred to the
customer.Gift cardsare recordedas deferredrevenue until theyare redeemedor forfeited.Gift cardsdo
not have expiration dates. Layaway transactions are recorded asdeferred revenue until the customer takes
possession orforfeits themerchandise. Aprovision ismade forestimated merchandisereturns basedon
salesvolumesandtheCompany'sexperience;actualreturnshavenotvariedmateriallyfromhistorical
amounts.Aprovisionismadeforestimatedwrite-offsassociatedwithsalesmadewiththeCompany's
proprietarycreditcard.Amountsrelatedtoshippingandhandlingbilledtocustomersinasales
transaction areclassified asOther revenueand thecosts relatedto shippingproduct tocustomers (billed
and accrued) are classified as Cost of goods sold.
The Companyoffers itsown proprietarycredit cardto customers.All creditactivity isperformed bythe
Company's wholly-ownedsubsidiaries.
None
of the creditcard receivables aresecured. During thethree
andsixmonthsendedAugust3,2024,theCompany estimatedcustomercreditlossesof$
166,000
and
$
338,000
, respectively,compared to$
151,000
and $
272,000
for thethree andsix monthsended July 29,
2023,respectively.SalespurchasedontheCompany'sproprietarycreditcardforthethreeandsix
monthsendedAugust3,2024were$
5.6
millionand$
11.3
million,respectively,comparedto$
5.9
million and $
11.7
million for the three and six months ended July 29, 2023, respectively.
Thefollowingtableprovidesinformationaboutreceivablesandcontractliabilitiesfromcontractswith
customers (in thousands):
Balance as of
August 3, 2024
February 3, 2024
Proprietary Credit Card Receivables, net
$
10,788
$
10,909
Gift Card Liability
$
6,534
$
8,143
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
20
NOTE 12 - LEASES:
TheCompany determineswhetheranarrangement isaleaseatinception.TheCompanyhasoperating
leases forstores, offices,warehouse space andequipment.Its leases haveremaining lease termsof upto
10
years based onthe estimated likelihoodof renewal. Someinclude options toextend the leaseterm for
up to
five years
, and some include options to terminate the lease
within one year
. The Company considers
theseoptions indetermining theleasetermusedtoestablishitsright-of-useassetsandleaseliabilities.
TheCompany'sleaseagreementsdonotcontainanymaterialresidualvalueguaranteesormaterial
restrictive covenants.
AsmostoftheCompany'sleasesdonotprovideanimplicitrate,theCompanyusesitsestimated
incrementalborrowingratebasedontheinformationavailableatcommencementdateoftheleasein
determining the present value of lease payments.
The components of lease cost are shown below (in thousands):
Three Months Ended
August 3, 2024
July 29, 2023
Operating lease cost (a)
$
16,808
$
17,597
Variablelease cost (b)
$
463
$
504
(a) Includes right-of-use asset amortization of ($
0.2
) million and ($
0.3
) million for the three months ended August 3, 2024 and July
29, 2023, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.
Six Months Ended
August 3, 2024
July 29, 2023
Operating lease cost (a)
$
33,810
$
35,675
Variablelease cost (b)
$
960
$
1,098
(a) Includes right-of-use asset amortization of ($
0.4
) million and ($
0.6
) million for the six months ended August 3, 2024 and July 29,
2023, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ANDSIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023
21
Supplemental cash flowinformation and non-cashactivity related tothe Company'soperating leases are
as follows (in thousands):
Operating cash flow information:
Three Months Ended
August 3, 2024
July 29, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
15,481
$
16,679
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
913
$
999
Six Months Ended
August 3, 2024
July 29, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
31,088
$
34,024
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
1,357
$
2,903
Weighted-averageremainingleasetermanddiscountratefortheCompany'soperatingleasesareas
follows:
As of
August 3, 2024
July 29, 2023
Weighted-average remaining lease term
1.8
years
2.0
years
Weighted-average discount rate
4.74%
3.26%
MaturitiesofleaseliabilitiesbyfiscalyearfortheCompany'soperatingleasesareasfollows(in
thousands):
Fiscal Year
2024 (a)
$
32,232
2025
45,606
2026
29,710
2027
16,962
2028
8,034
Thereafter
892
Total lease payments
133,436
Less: Imputed interest
9,997
Present value of lease liabilities
$
123,439
(a) Excluding the six months ended August 3, 2024
22
THE CATO CORPORATION
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
Theinformationcontainedin"Management'sDiscussionandAnalysisofFinancialConditionand
ResultsofOperations"shouldbereadalongwiththeunauditedCondensedConsolidatedFinancial
Statements,includingtheaccompanyingNotesappearinginthisreport.Anyofthefollowingare
"forward-looking"statementswithinthemeaningofSection 27AoftheSecuritiesActof1933,as
amended,andSection 21EoftheSecuritiesExchangeActof1934,asamended:(1) statementsinthis
Form 10-Qthatreflectprojectionsorexpectationsofourfuturefinancialoreconomicperformance;
(2) statementsthatarenothistoricalinformation;(3) statementsofourbeliefs,intentions,plansand
objectives for future operations,including those contained in"Management's Discussion andAnalysis of
Financial Condition andResults of Operations";(4) statements relating toour operations oractivities for
ourfiscalyearendingFebruary1,2025("fiscal2024")andbeyond,including,butnotlimitedto,
statements regarding expectedamounts ofcapital expenditures andstore openings, relocations,remodels
and closures, andstatements regarding thepotential impact ofsupply chain disruptions,extreme weather
conditions,inflationarypressuresandothereconomicormarketconditionsonourbusiness,resultsof
operations and financial condition andstatements of plans or intentionsregarding new store development
orstoreclosures;and(5)statementsrelatingtoourfuturecontingencies.Whenpossible,wehave
attempted to identify forward-looking statementsby using words suchas "will," "expects," "anticipates,"
"approximates," "believes," "estimates," "hopes," "intends,""may," "plans,""could," "would," "should"
andanyvariationsornegativeformationsofsuchwordsandsimilarexpressions.Wecangiveno
assurancethat actualresults oreventswill notdiffermaterially fromthoseexpressed orimplied inany
suchforward-lookingstatements.Forward-lookingstatementsincludedinthisreportarebasedon
information availableto usas ofthe filingdate ofthis report,but subjectto knownand unknownrisks,
uncertainties and other factors that could cause actual resultsto differ materially from those contemplated
by the forward-looking statements.Such factors include, butare not limited to,the following: any actual
orperceiveddeteriorationin,orcontinuationofnegativetrendsin,theconditionsthatdriveconsumer
confidence andspending, including,butnot limitedto, prevailingsocial, economic,politicaland public
health conditions anduncertainties, levels ofunemployment, fuel, energyand foodcosts, wage rates,tax
rates, interestrates, homevalues, consumernet worth,the availabilityof creditand inflation;changes in
laws,regulationsorgovernmentpoliciesaffectingourbusiness,includingbutnotlimitedtotariffs;
uncertainties regardingthe impactofany governmentalaction regarding,orresponses to,theforegoing
conditions;competitivefactorsandpricingpressures;ourabilitytopredictandrespondtorapidly
changing fashion trends and consumer demands; our ability to increase new store openings and the ability
of any such new stores to grow and perform as expected; underperformance or other factors that may lead
to, or affect the volume of, store closures; adverse weather, public health threats, acts of war or aggression
orsimilar conditionsthat mayaffectourmerchandise supplychain,sales oroperations; inventoryrisks
due to shiftsin market demand, includingthe ability toliquidate excess inventory atanticipated margins;
adverse developmentsor volatilityaffecting thefinancial servicesindustryor broaderfinancial markets;
and otherfactors discussed under"Risk Factors" inPart I, Item1A ofour AnnualReport onForm 10-K
forthefiscalyearendedFebruary3,2024("fiscal2023"),asamendedorsupplemented,andinother
reportswe filewith orfurnish totheSecurities andExchange Commission("SEC") fromtimetotime.
Wedonotundertake,andexpresslydecline,anyobligationtoupdateanysuchforward-looking
information contained in this report, whether as a result of new information,future events, or otherwise.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
23
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
TheCompany'scriticalaccountingpoliciesandestimatesaremorefullydescribedin"Management's
Discussion and Analysis of Financial Condition and Results of Operations" in theCompany's Annual Report
onForm10-KforthefiscalyearendedFebruary3,2024.ThepreparationoftheCompany'sfinancial
statementsinconformitywithgenerallyacceptedaccountingprinciplesintheUnitedStates("GAAP")
requires management to make estimates and assumptions about future events that affect the amounts reported
inthefinancialstatementsandaccompanyingnotes.Futureeventsandtheireffectscannotbedetermined
with absolutecertainty. Therefore,the determinationof estimatesrequires theexercise ofjudgment. Actual
resultsinevitablywilldifferfromthoseestimates,andsuchdifferencesmaybematerialtothefinancial
statements. The most significant accounting estimatesinherent in the preparation of theCompany's financial
statements includethe calculationof potentialasset impairment,income taxvaluation allowances,reserves
relatingtoself-insuredhealthinsurance,workers'compensation,generalandautoinsuranceliabilities,
uncertain tax positions, the allowance forcustomer credit losses, and inventory shrinkage.
The Company's critical accounting policies andestimates are discussed with the Audit Committee.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
24
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items inthe Company's unaudited Condensed
Consolidated Statements of Income as apercentage of total retail sales:
Three Months Ended
Six Months Ended
August 3, 2024
July 29, 2023
August 3, 2024
July 29, 2023
Total retail sales
100.0
%
100.0
%
100.0
%
100.0
%
Other revenue
1.0
0.9
1.0
0.9
Total revenues
101.0
100.9
101.0
100.9
Cost of goods sold (exclusive of depreciation)
65.4
64.9
64.8
64.5
Selling, general and administrative (exclusive
of depreciation)
34.9
34.0
33.6
33.3
Depreciation
1.4
1.4
1.3
1.3
Interest and other income
(1.0)
(0.7)
(2.2)
(0.6)
Income before income taxes
0.4
1.4
3.6
2.4
Net income
0.1
0.6
3.2
1.5
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
25
RESULTS OF OPERATIONS(CONTINUED):
Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations("MD&A")is
intendedtoprovideinformationtoassistreadersinbetterunderstandingandevaluatingourfinancial
condition and results ofoperations. We recommend readingthis MD&A in conjunctionwith our Condensed
Consolidated FinancialStatements andthe Notesto thosestatements included inthe "FinancialStatements"
section of this Quarterly Report onForm 10-Q, as well as our 2023Annual Report on Form 10-K.
Recent Developments
Inflationary Cost Pressure and High Interest Rates
Thepressureonourcustomers'disposableincomecontinuedinthefirsthalfoffiscal2024,dueto
prolongedandpersistentlyhighinflationrates,especiallyrelatedtohousingandfuel,aswellashigh
interest rates.These highinterest rateshave adversely affectedthe availability andcost ofcredit for our
customers, includingrevolving creditand autoloans, andcontinue tonegatively impactourcustomers'
disposable income.Our customers'willingness topurchase ourproducts maycontinue tobe negatively
impacted by these inflationary pressures and high interest rates.
Webelieve thepressure onourcustomers' disposableincome adverselyimpacted thefirst halfof2024
and will likely continue to havea negative impact on consumer behaviorand, by extension, our results of
operations and financial condition during the remainder of fiscal 2024.
Merchandise Supply Chain
Asignificantamountofourmerchandiseismanufacturedoverseas,principallySoutheastAsia,and
traverses through thePanama Canal orthe SuezCanal.The regionaldrought conditions experiencedin
the regionsurrounding the PanamaCanal reducedthe numberof transitsby approximately37% andhas
also reduced thepermissible draft ofvessels transiting thePanama Canal, which reducedthe volume and
number ofcontainers carriedby containerships andincreased ourcosts inthe firstquarter.During the
secondquarter,thePanamaCanalauthorityincreasedthedailytransitsandthepermissibledraftof
vessels,raisingthenumberoftransitsto95%ofpre-droughtoperations.Thehostilitiesaffectingthe
region surrounding the Suez Canalare causing container shipsto travel longer distancesaround the Cape
of Good Hope,which is increasinglead times formerchandise and ourcosts to shipthese goods,as well
as decreasing the pool ofcontainers available.Both of these situations have negativelyimpacted the first
six months of 2024. Though conditions in the Panama Canal have incrementally improved, we believe the
totality of these conditions willlikely continue to have anegative impact on ourresults of operations and
financial condition for the foreseeable future.
Comparison of the Three and SixMonths ended August 3, 2024with July 29, 2023
Total retail salesfor the secondquarter were$166.9 millioncompared to lastyear's secondquarter salesof
$181.2million,an8%decrease.TheCompany'ssalesdecreaseinthesecondquarteroffiscal2024was
primarily dueto a2% decreasein same-storesales andstore closures.For thesix monthsended August3,
2024,totalretailsaleswere$342.2millioncomparedtolastyear'scomparablesixmonthsalesof$371.5
million, an8% decrease.The decreasein salesin thefirst sixmonths offiscal 2024was dueprimarily toa
4% decrease in same-store sales and store closures. Same-store sales include stores that have been open more
than15months.Storesthathavebeenrelocatedorexpandedarealsoincludedinthesame-storesales
calculationaftertheyhavebeenopenmorethan15months.Themethodofcalculatingsame-storesales
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
26
variesacrosstheretailindustry.Asaresult,oursame-storesalescalculationmaynotbecomparableto
similarly titled measures reported by othercompanies. E-commerce sales were less than5% of total sales for
the sixmonths endedAugust 3,2024 andare includedin thesame-store salescalculation.Total revenues,
comprised ofretail salesand otherrevenue (principallyfinance chargesand latefees oncustomer accounts
receivableandlayawayfees),were$168.6millionand$345.7millionforthethreeandsixmonthsended
August 3, 2024,compared to $182.9million and $374.9million for thethree and sixmonths ended July29,
2023, respectively. TheCompany operated1,166 storesat August3, 2024compared to 1,247stores atJuly
29, 2023.During the first six months of fiscal 2024, the Company closed 12 stores.The Company currently
expects to close approximately 65 storesin total in fiscal 2024.
Creditrevenueof$0.7millionrepresented0.4%oftotalrevenuesinthesecondquarteroffiscal2024,
compared to2023 creditrevenue of$0.7 millionor 0.4%of totalrevenues. Creditrevenue iscomprised of
interest earned on the Company's private label credit card portfolio and related fee income.Related expenses
principally include payroll,postage and otheradministrative expenses andtotaled $0.4 millionin the second
quarter of fiscal 2024, compared tolast year's second quarter expense of$0.4 million.
Other revenue, a component of total revenues, was $1.7 million and $3.5 million for thethree and six months
endedAugust3,2024,respectively,comparedto$1.7millionand$3.4millionfortheprioryear's
comparable three and six month periods. The slight increase in Other revenue forthe first six months was due
to increasesin giftcard breakageincome andfinance chargesand latefees associatedwith theCompany's
proprietary credit card, partially offset by adecrease in e-commerce shipping revenue.
Cost ofgoods soldwas $109.1million, or65.4% ofretail salesand $221.6million, or64.8% of retailsales
for thethree andsix monthsended August3, 2024,respectively, comparedto $117.6million, or64.9% of
retailsales and$239.7million,or 64.5%of retailsalesfor thecomparable threeand sixmonthperiods of
fiscal 2023.The overall increasein cost ofgoods sold asa percent ofretail sales forthe second quarterand
firstsixmonthsoffiscal2024versusthecomparablethreeandsixmonthperiodsoffiscal2023resulted
primarily fromdeleveraging ofoccupancy andbuying costsand higherdistribution costs,partially offsetby
highersellingmargins.Costofgoodssoldincludesmerchandisecosts(netofdiscountsandallowances),
buying costs, distribution costs, occupancy costs, freight and inventory shrinkage.Net merchandise costs and
in-bound freightarecapitalizedasinventorycosts.Buyingand distributioncosts includepayroll,payroll-
relatedcostsandoperatingexpensesforthebuyingdepartmentsanddistributioncenter.Occupancycosts
include rent, realestate taxes, insurance,common area maintenance,utilities and maintenancefor stores and
distribution facilities. Total gross margindollars (retail sales less cost ofgoods sold exclusive of depreciation)
decreased by9.1% to $57.8million for thesecond quarterof fiscal2024 andby 8.5% to$120.6 millionfor
thefirstsixmonthsoffiscal2024,comparedto$63.6millionand$131.8millionfortheprioryear's
comparablethreeandsixmonthsoffiscal2023,respectively.Grossmarginaspresentedmaynotbe
comparable to those of other entities.
Selling, general and administrative expenses ("SG&A") primarily include corporate and store payroll, related
payrolltaxesandbenefits,insurance,supplies,advertising,bankandcreditcardprocessingfees.SG&A
expenseswere$58.2million,or34.9%ofretailsalesand$114.9million,or33.6%ofretailsalesforthe
second quarter and first six months of fiscal 2024, respectively, compared to $61.6 million, or34.0% of retail
sales and $123.6 million, or 33.3% of retail sales for the prior year's comparable three andsix month periods,
respectively.The decrease in SG&A expenses for thesecond quarter and first six months of fiscal2024 was
primarilyduetolowerpayroll,advertisingandequitycompensationexpenses,partiallyoffsetbyhigher
insurance expense and expensesrelated to the startup ofour DC automationproject which will continueinto
the third quarter.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
27
Depreciation expense was $2.3 million, or 1.4% of retail sales and $4.4 million, or 1.3% ofretail sales for the
second quarterand firstsix monthsof fiscal2024, respectively,compared to$2.5 million,or 1.4%of retail
sales and $4.9million or 1.3%of retail salesfor the comparablethree and sixmonth periods offiscal 2023,
respectively.
Interest and other income was $1.7 million, or 1.0% of retail sales and $7.6 million, or 2.2% of retail sales for
the three and six months ended August3, 2024, respectively, compared to $1.3 million,or 0.7% of retail sales
and$2.2million,or0.6%ofretailsalesforthecomparablethreeandsixmonthperiodsoffiscal2023,
respectively.The increase for the second quarter of fiscal 2024 compared to fiscal 2023 wasprimarily due to
higherinterestearnedontheCompany'sinvestments.Theincreaseforthefirstsixmonthsoffiscal2024
compared tofiscal 2023was primarilydue toa $3.2million netgain onsale ofland heldfor investmentin
addition to higher interest earnedon the Company's investments.
Income tax expense was $0.6 million and $1.3 million for the second quarter and first six months of fiscal
2024, respectively,compared toa taxexpense of$1.3 millionand $3.5million forthe comparablethree
and six monthperiods offiscal 2023,respectively.The effectiveincome taxrate forthe firstsix months
of fiscal 2024was 10.5% compared to38.5% for thefirst six months offiscal 2023.The decrease intax
expenseisprimarilyduetothevaluationallowanceagainstnetdeferredtaxassetsattributabletoU.S.
federalnetoperatinglosscarryforwardsandtheimpactoftheforeignratedifferentialandlowerstate
income taxes.
LIQUIDITY, CAPITALRESOURCESAND MARKETRISK:
The Companybelieves thatits cash,cash equivalentsand short-terminvestments, togetherwith cashflows
from operationsand borrowings availableunder its revolvingcredit agreement,will beadequate to fundthe
Company's regular operating requirements and expectedcapital expenditures for the next12 months.
Cash provided by operating activities during the first six months of fiscal 2024 was $8.8 million as compared
to $21.6million providedin thefirst sixmonths offiscal 2023.The decreasein cashprovided byoperating
activities of $12.8 millionfor the first sixmonths of fiscal 2024as compared to thefirst six months offiscal
2023 wasprimarily attributableto therelative changein inventoryfrom year-endto thesecond quarterfor
both yearsand adecrease to2024 net incomefor non-operatinggains on saleof assets heldfor investment,
partially offset by higher net income and the relative change of accounts payable from year-end tothe second
quarter for both years.
At August 3, 2024, the Company had working capital of $69.9 million compared to$55.1 million at February
3, 2024.
The increase in working capital was primarily attributable to a decrease in current lease liability and
an increase in cash, partially offsetby a decrease in inventoryand short-term investments.
AtAugust3,2024,theCompanyhadanunsecuredrevolvingcreditagreement,whichprovidesfor
borrowingsofupto$35.0million,lessthebalanceofanyrevocablelettersofcreditrelatedtopurchase
commitments,andiscommittedthroughMay2027.Thecreditagreementcontainsvariousfinancial
covenantsandlimitations,includingthemaintenanceofspecificfinancialratios.OnApril25,2024,the
Company amended therevolving credit agreement tomodify a definition usedin calculating theCompany's
minimum EBITDAR coverage ratio to add back certain income tax receivables included in the calculation of
the ratio.For thequarter endedAugust 3,2024, aftergiving effectto theamendment, theCompany wasin
compliance with thecredit agreement. Therewere no borrowingsoutstanding, nor anyoutstanding letters of
credit that reduced borrowing availability, as of August 3, 2024.The weighted average interest rate under the
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
28
credit facility was zero at August 3, 2024due to no outstanding borrowings.
Expenditures for property and equipment totaled $4.8 million in the first six months of fiscal 2024, compared
to $8.5 million in last fiscalyear's first six months. The decrease inexpenditures for property and equipment
wasprimarilyduetofinishingprojectsrelatedtoinvestmentsinthedistributioncenterandinformation
technology.Forthefullfiscal2024year,theCompanyexpectstoinvestapproximately$7.0millionfor
capital expenditures.
Net cash provided byinvesting activities totaled $6.7million in the first sixmonths of fiscal 2024compared
to $23.8million netcash providedin the comparableperiod of2023.The decrease innet cashprovided by
investing activitiesin 2024was primarilydue tohigher purchasesof short-terminvestments, partiallyoffset
by lower sales of short-term investments,lower capital expenditures and saleof other assets.
Net cashused infinancing activitiestotaled $9.1million inthe firstsix monthsof fiscal2024 comparedto
$9.3millionusedinthecomparableperiodoffiscal2023.Thedecreaseinnetcashusedinfinancing
activities in fiscal 2024 was primarilydue to lower stock repurchases.
On August 29, 2024, the Board ofDirectors maintained the quarterly dividend at $0.17per share.
AsofAugust3,2024,theCompanyhad478,238sharesremaininginopenauthorizationsunderitsshare
repurchase program.
The Company does not usederivative financial instruments.
The Company'sinvestment portfoliowas primarilyinvested incorporate bonds andtax-exempt and taxable
governmental debtsecurities heldin managedaccounts withunderlying ratingsof Aor betterat August3,
2024andFebruary3,2024.Thestate,municipalandcorporatebondsandasset-backedsecuritieshave
contractual maturities which range fromsix days to 2.9 years.The U.S. Treasury/Agencies Notes andBonds
havecontractualmaturitieswhichrangefrom14daysto3.0years.Thesesecuritiesareclassifiedas
available-for-sale and arerecorded asShort-term investmentsand Otherassets onthe respectiveCondensed
Consolidated Balance Sheets. Theseassets are carriedat fair valuewith unrealized gains andlosses reported
net oftaxes inAccumulated othercomprehensive income.The asset-backedsecurities arebonds comprised
of auto loans andbank credit cards thatcarry AAA ratings. Theauto loan asset-backed securitiesare backed
by static pools of auto loans that were originated and servicedby captive auto finance units, banks or finance
companies.Thebankcreditcardasset-backedsecuritiesarebackedbyrevolvingpoolsofcreditcard
receivablesgeneratedbyaccountholdersofcardsfromAmericanExpress,Citibank,JPMorganChase,
Capital One, and Discover.
At February3,2024, theCompanyhad $1.1millionof corporateequities anddeferred compensationplan
assetsof$8.6million.AtAugust3,2024,theCompanyhaddeferredcompensationplanassetsof$8.9
million.During the six months ended August3, 2024, the Company sold itscorporate equities.All of these
assetsarerecordedwithinOtherassetsintheCondensedConsolidatedBalanceSheets.SeeNote7,Fair
Value Measurements.
RECENT ACCOUNTING PRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
29
ITEM 3. QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK:
TheCompanyissubjecttomarketrateriskfromexposuretochangesininterestratesbasedonits
financing, investing andcash management activities,but the Companydoes notbelieve such exposureis
material.
ITEM 4. CONTROLS AND PROCEDURES:
We carried out an evaluation, with theparticipation of our Principal Executive Officer andPrincipal Financial
Officer, ofthe effectivenessof ourdisclosure controlsand proceduresas ofAugust 3,2024.Based onthis
evaluation, ourPrincipal ExecutiveOfficer andPrincipal FinancialOfficer concludedthat, asofAugust 3,
2024, ourdisclosure controlsandprocedures,as definedinRule13a-15(e), undertheSecuritiesExchange
Act of 1934 (the "ExchangeAct"), were effective to ensure thatinformation we are required to disclosein the
reportsthatwefileorsubmitundertheExchangeActisrecorded,processed,summarizedandreported
within the time periodsspecified in the SEC'srules and forms andthat such information isaccumulated and
communicated to our management, including our Principal Executive Officer and Principal Financial Officer,
as appropriate to allow timely decisionsregarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
No change in the Company's internal controlover financial reporting (as defined inExchange Act Rule 13a-
15(f)) has occurred during the Company's fiscal quarter ended August 3, 2024 that has materially affected, or
is reasonably likely to materially affect, the Company'sinternal control over financial reporting.
THE CATO CORPORATION
PART II OTHERINFORMATION
30
ITEM 1.LEGAL PROCEEDINGS:
Not Applicable.
ITEM 1A.RISK FACTORS:
In addition to the other informationin this report, you should carefullyconsider the factors discussed inPart I,
"Item1A.RiskFactors"inourAnnualReportonForm10-KforourfiscalyearendedFebruary3,2024.
These riskscould materiallyaffect ourbusiness, financialcondition orfuture results;however, theyare not
the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem
tobeimmaterialmayalsomateriallyadverselyaffectourbusiness,financialconditionorresultsof
operations.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS:
The following table summarizes the Company's purchases of its common stock for the three months
ended August 3, 2024:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value)of Shares that may
Fiscal
of Shares
Price Paid
Announced Plans or
Yet be PurchasedUnder
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
May 2024
-
$
-
-
June 2024
-
-
-
July 2024
-
-
-
Total
-
$
-
-
478,238
(1)
Prices include trading costs.
(2)
AsofMay 4,2024, theCompany'sshare repurchaseprogram had478,238shares remainingin
openauthorizations.DuringthesecondquarterendedAugust3,2024,theCompanydidnot
repurchaseorretireanysharesunderthisprogram.AsofAugust3,2024,theCompanyhad
478,238sharesremaininginopenauthorizations.Thereisnospecifiedexpirationdateforthe
Company's repurchase program.
ITEM 3.DEFAULTSUPON SENIOR SECURITIES:
Not Applicable.
THE CATO CORPORATION
PART II OTHERINFORMATION
31
ITEM 4.MINE SAFETY DISCLOSURES:
No matters requiring disclosure.
ITEM 5.OTHER INFORMATION:
During the three months ended August 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 "Rule 10b5-1
trading arrangement" or a "
non-Rule
10b5-1
trading arrangement" (as such terms aredefined in Item 408
of Regulation S-K).
ITEM 6.EXHIBITS:
Exhibit No.
Item
3.1
3.2
31.1*
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
31.2*
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
32.1*
Section 1350 Certification of Principal Executive Officer.
32.2*
Section 1350 Certification of Principal Financial Officer.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation LinkbaseDocument
101.DEF
Inline XBRL Taxonomy Extension Definitions LinkbaseDocument
101.LAB
Inline XBRL Taxonomy Extension LabelLinkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation LinkbaseDocument
104.1
Cover PageInteractive DataFile(Formatted inInlineXBRLandcontainedin
the Interactive Data Files submitted as Exhibit 101.1*)
* Submitted electronically herewith.
THE CATO CORPORATION
PART II OTHERINFORMATION
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this
report to be signed on its behalf by the undersigned thereunto dulyauthorized.
THE CATOCORPORATION
August 29, 2024
/s/ John P.D. Cato
Date
John P.D. Cato
Chairman, President and
Chief Executive Officer
August 29, 2024
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer