CATO CORP
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
QUARTERLY REPORT PURSUANT
TO SECTION
13 OR 15(d)
OF THE SECURITIES
EXCHANGE
ACT OF
1934
For the quarterly period ended
OR
TRANSITION
REPORT PURSUANT
TO SECTION
13 OR 15(d)
OF THE SECURITIES
EXCHANGE
ACT OF
1934
For the transition period from ________________to__________________
Commission file number
(Exact name of registrant as specified in its
charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
,
,
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
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.
X
No
Indicate
by
check
mark
whether
the
registrant
has
submitted
electronically
every
Interactive
Data
File
required
to
be
submitted
pursuant to Rule
405 of Regulation
S-T (§232.405
of this chapter)
during the preceding
12 months (or
for such shorter
period that the
registrant was required to submit such files).
X
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
☐
☑
☐
If
an
emerging
growth
company,
indicate
by
check
mark
if
the
registrant
has
elected
not
to
use
the
extended
transition
period
for
complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b
-2 of the Exchange Act). Yes
☒
As
of
November
2,
2024,
there
were
outstanding.
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended November 2, 2024
Table
of Contents
Page No.
PART
I – FINANCIAL INFORMATION
(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
2
For the Three Months and Nine Months Ended November
2, 2024 and October 28,
2023
Condensed Consolidated Balance Sheets
3
At November 2, 2024 and February 3, 2024
Condensed Consolidated Statements of Cash Flows
4
For the Nine Months Ended November 2, 2024 and
October 28, 2023
Condensed Consolidated Statements of Stockholders’ Equity
5 – 6
For the Three Months and Nine Months Ended November
2, 2024 and October 28,
2023
Notes to Condensed Consolidated Financial Statements
7 – 21
For the Three Months and Nine Months Ended November
2, 2024 and October 28,
2023
Item 2.
Management’s Discussion and Analysis
of Financial Condition and
Results of Operations
22 – 29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
Item 4.
Controls and Procedures
30
PART
II – OTHER INFORMATION
Item 1.
Legal Proceedings
31
Item 1A.
Risk Factors
31
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
Item 3.
Defaults Upon Senior Securities
31
Item 4.
Mine Safety Disclosures
32
Item 5.
Other Information
32
Item 6.
Exhibits
32
Signatures
33
2
PART
I FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
Nine Months Ended
November 2,
2024
October 28,
2023
November 2,
2024
October 28,
2023
(Dollars in thousands, except per share data)
REVENUES
$
$
$
$
COSTS AND EXPENSES, NET
(
2,646
)
(
1,523
)
(
10,209
)
(
3,754
)
Loss before income taxes
(
14,752
)
(
10,349
)
(
2,391
)
(
1,320
)
Income tax (benefit) expense
(
4,272
)
(
797
)
Net loss
$
(
15,074
)
$
(
6,077
)
$
(
4,005
)
$
(
523
)
Basic loss per share
$
(
0.79
)
$
(
0.30
)
$
(
0.24
)
$
(
0.02
)
Diluted loss per share
$
(
0.79
)
$
(
0.30
)
$
(
0.24
)
$
(
0.02
)
Comprehensive income:
Net loss
$
(
15,074
)
$
(
6,077
)
$
(
4,005
)
$
(
523
)
Unrealized gain (loss) on available-for-sale securities, net of
(
151
)
(
223
)
Comprehensive income (loss)
$
(
15,225
)
$
(
5,876
)
$
(
4,228
)
$
See notes to condensed consolidated financial statements (unaudited).
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
November 2, 2024
February 3, 2024
ASSETS
(Dollars in thousands)
Current Assets:
Cash and cash equivalents
$
$
Short-term investments
Restricted cash
Accounts receivable, net of allowance for customer credit losses of
Merchandise inventories
Prepaid expenses and other current assets
Property and equipment – net
Other assets
Right-of-Use assets – net
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
$
Accrued expenses
Accrued employee benefits and bonus
Current lease liability
Other noncurrent liabilities
Lease liability
Stockholders' Equity:
Preferred stock, $
Class A common stock, $
Convertible Class B common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
$
$
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
November 2, 2024
October 28, 2023
(Dollars in thousands)
Operating Activities:
Net loss
$
(
4,005
)
$
(
523
)
Adjustments to reconcile net loss to net cash (used in) provided
(
848
)
(
226
)
(
5,350
)
(
1,981
)
(
1,815
)
(
8,556
)
(
1,315
)
(
1,716
)
(
1,151
)
(
1,499
)
(
2,619
)
(
6,099
)
Net cash (used in) provided by operating activities
(
13,266
)
Investing Activities:
Expenditures for property and equipment
(
6,509
)
(
10,271
)
Purchase of short-term investments
(
38,659
)
(
44,595
)
Sales of short-term investments
Sales of other assets
Net cash provided by investing activities
Financing Activities:
Dividends paid
(
10,516
)
(
10,457
)
Repurchase of common stock
(
2,398
)
(
2,563
)
Proceeds from employee stock purchase plan
Net cash used in financing activities
(
12,576
)
(
12,663
)
Net (decrease) increase in cash, cash equivalents, and restricted cash
(
4,342
)
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
$
Non-cash activity:
Accrued other assets and property and equipment expenditures
$
$
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands, except per share data)
Balance — February 3, 2024
$
$
$
$
$
Comprehensive income:
(
748
)
(
748
)
Dividends paid ($
(
3,523
)
(
3,523
)
Class A common stock sold through employee stock purchase
plan
Share-based compensation issuances and exercises
Share-based compensation expense
(
84
)
(
84
)
Repurchase and retirement of treasury shares
(
14
)
(
2,223
)
(
2,237
)
Balance — May 4, 2024
$
$
$
$
(
353
)
$
Comprehensive income:
Dividends paid ($
(
3,527
)
(
3,527
)
Class A common stock sold through employee stock purchase
plan
Share-based compensation expense
Balance — August 3, 2024
$
$
$
$
$
Comprehensive income:
(
15,074
)
(
15,074
)
(
151
)
(
151
)
Dividends paid ($
(
3,466
)
(
3,466
)
Class A common stock sold through employee stock purchase
plan
Share-based compensation expense
(
1
)
Repurchase and retirement of treasury shares
(
1
)
(
158
)
(
159
)
Balance — November 2, 2024
$
$
$
$
$
See notes to condensed consolidated financial statements (unaudited).
6
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands, except per share data)
Balance — January 28, 2023
$
$
$
$
(
1,238
)
$
Comprehensive income:
Dividends paid ($
(
3,455
)
(
3,455
)
Class A common stock sold through employee stock purchase
plan
Share-based compensation issuances and exercises
Share-based compensation expense
Repurchase and retirement of treasury shares
(
8
)
(
2,259
)
(
2,267
)
Balance — April 29, 2023
$
$
$
$
(
883
)
$
Comprehensive income:
Dividends paid ($
(
3,507
)
(
3,507
)
Class A common stock sold through employee stock purchase
plan
Share-based compensation expense
Repurchase and retirement of treasury shares
(
1
)
(
293
)
(
294
)
Balance — July 29, 2023
$
$
$
$
(
716
)
$
Comprehensive income:
(
6,077
)
(
6,077
)
Dividends paid ($
(
3,495
)
(
3,495
)
Class A common stock sold through employee stock purchase
plan
Share-based compensation expense
(
1
)
Balance — October 28, 2023
$
$
$
$
(
515
)
$
See notes to condensed consolidated financial statements (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
7
NOTE 1 - GENERAL
:
The
condensed
consolidated
financial
statements
as
of
November
2,
2024
and
for
the
three
and
nine
months ended
November 2, 2024
and October 28,
2023 have been
prepared from the
accounting records
of The Cato
Corporation and its wholly-owned subsidiaries
(the “Company”), and all
amounts shown are
unaudited.
In the opinion of management, all adjustments considered necessary for a fair statement of the
financial statements
have been
included.
All such
adjustments
are
of
a
normal, recurring
nature
unless
otherwise noted.
The results
of the
interim period
may not
be indicative
of the
results expected
for the
entire year.
The interim financial
statements should be read
in conjunction with
the consolidated financial statements
and
notes
thereto,
included
in
the
Company’s
Annual
Report
on
Form
10-K
for
the
fiscal
year
ended
February 3, 2024.
Amounts as of February 3, 2024 have been derived from the audited balance sheet, but
do not include all disclosures required by
accounting principles generally accepted in the United States of
America.
On February 16, 2024, the Company closed on the sale of land held for investment.
The sale resulted in a
net gain
of $
Consolidated Statements of Income
(Loss) and Comprehensive
Income (Loss) for
the nine months
ended
November 2, 2024.
During the current quarter of the fiscal year,
the Company received $
settlement and sale of its corporate jet.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
8
NOTE 2 - EARNINGS PER SHARE:
Accounting Standard Codification (“ASC”) 260 –
Earnings Per Share
diluted Earnings Per Share
(“EPS”) on the face of
all income statements for
all entities with complex
capital
structures.
The Company has presented one basic EPS and one diluted EPS amount for all common shares in
the accompanying Condensed Consolidated Statements of Income (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 the
EPS
computation
is
the
same
for
Class
A
and
Class
B
shares
and
the
EPS
amounts
reported
herein
are
applicable to both Class A and Class
B shares.
Basic EPS
is computed
as net
income (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.
Three Months Ended
Nine Months Ended
November 2,
2024
October 28,
2023
November 2,
2024
October 28,
2023
(Dollars in thousands, except per share data)
Numerator
Net loss
$
(
15,074
)
$
(
6,077
)
$
(
4,005
)
$
(
523
)
Earnings (loss) allocated to non-vested equity awards
(
200
)
(
548
)
Net loss available to common stockholders
$
(
15,274
)
$
(
5,731
)
$
(
4,553
)
$
(
474
)
Denominator
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
Net loss per common share
Basic loss per share
$
(
0.79
)
$
(
0.30
)
$
(
0.24
)
$
(
0.02
)
Diluted loss per share
$
(
0.79
)
$
(
0.30
)
$
(
0.24
)
$
(
0.02
)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
9
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive income (in thousands) for the
three months ended November 2, 2024:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at August 3, 2024
$
(
151
)
Net current-period other comprehensive income (loss)
(
151
)
Ending Balance at November 2, 2024
$
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive income (in thousands) for the
nine months ended November 2, 2024:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 3, 2024
$
(
786
)
Net current-period other comprehensive income (loss)
(
223
)
Ending Balance at November 2, 2024
$
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes
$
1,022
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
10
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME
(CONTINUED):
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive income (in thousands) for the
three months ended October 28, 2023:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at July 29, 2023
$
(
716
)
Net current-period other comprehensive income (loss)
Ending Balance at October 28, 2023
$
(
515
)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
.
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive income (in thousands) for the
nine months ended October 28, 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
)
Net current-period other comprehensive income (loss)
Ending Balance at October 28, 2023
$
(
515
)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
11
NOTE 4 – FINANCING ARRANGEMENTS:
At November 2,
2024, the Company had
a revolving credit agreement,
which provides for borrowings of
up
to $
committed
through
May
2027.
The
credit
agreement
contains
various
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios.
On
April
25,
2024,
the
Company
amended
the
revolving credit
agreement to
modify a
definition used
in calculating
the Company’s
minimum EBITDAR
coverage
ratio
to
add
back
certain
income
tax
receivables
included
in
the
calculation
of
the
ratio.
On
November 1, 2024, the Company
amended the revolving credit agreement
to lower the minimum EBITDAR
coverage
ratio
and
the
corresponding
minimum
cash
and
investments
used
to
determine
the
EBITDAR
coverage ratio in exchange
for a secured position
in any future borrowings.
For the quarter ended
November
2, 2024,
after giving
effect to
the amendments,
the Company
was in
compliance with
the credit
agreement.
There
were
r
any
outstanding
letters
of
credit
that
reduced
borrowing
availability, as of November 2, 2024.
The weighted average interest rate under
the credit facility was
November 2, 2024 due to
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The
Company
has
determined
that
it
has
Segment
Reporting
, including Cato,
It’s Fashion, Versona
and Credit.
As outlined in
ASC 280-10, the Company
has
including
e-commerce,
based
on the
aggregation
criteria
outlined in
ASC
280-10, which
states that
two
or
more operating segments may be aggregated into a single reportable segment if aggregation is consistent with
the
objective
and
basic
principles
of
ASC
280-10,
which
require
the
segments
to
have
similar
economic
characteristics, products, production processes, clients and
methods of distribution.
The
Company’s
retail
operating
segments
have
similar
economic
characteristics
and
similar
operating,
financial and
competitive risks.
The products
sold in each
retail operating
segment are
similar in
nature, as
they
all
offer
women’s
apparel,
shoes
and
accessories.
Merchandise
inventory
of
the
Company’s
retail
operating
segments
is
sourced
from
the
same
countries
and
some
of
the
same
vendors,
using
similar
production processes.
Merchandise for the Company’s retail operating segments is distributed to retail stores
in a similar manner through
the Company’s single distribution center and is
subsequently sold to customers in
a similar
manner.
The Company
operates
its women’s
fashion specialty
retail stores
in
principally in the southeastern United States. The Company offers its own credit card to its customers and
all
credit
authorizations,
payment
processing
and
collection
efforts
are
performed
by
separate
wholly-
owned subsidiaries of the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
12
NOTE 5 – REPORTABLE SEGMENT INFORMATION
(CONTINUED):
The following schedule summarizes certain segment
information (in thousands):
Three Months Ended
Nine Months Ended
November 2, 2024
Retail
Credit
Total
November 2, 2024
Retail
Credit
Total
Revenues
$
145,508
$
662
$
146,170
Revenues
$
489,893
$
2,004
$
491,897
Depreciation
Depreciation
Interest and other income
(
2,646
)
(
2,646
)
Interest and other income
(
10,209
)
(
10,209
)
Income (loss) before
(
14,992
)
(
14,752
)
Income (loss) before
(
3,132
)
(
2,391
)
Capital expenditures
Capital expenditures
Three Months Ended
Nine Months Ended
October 28, 2023
Retail
Credit
Total
October 28, 2023
Retail
Credit
Total
Revenues
$
157,595
$
661
$
158,256
Revenues
$
531,243
$
1,934
$
533,177
Depreciation
Depreciation
Interest and other income
(
1,523
)
(
1,523
)
Interest and other income
(
3,754
)
(
3,754
)
Income (loss) before
(
10,604
)
(
10,349
)
Income (loss) before
(
2,014
)
(
1,320
)
Capital expenditures
Capital expenditures
Retail
Credit
Total
Total assets as of November 2, 2024
$
386,664
$
37,741
$
424,405
Total assets as of February 3, 2024
The Company evaluates segment performance based on
income before income taxes.
The Company does not
allocate certain corporate expenses or
income taxes to the credit segment.
The following schedule summarizes the direct expenses
of the credit segment, which are
reflected in Selling,
general and administrative expenses (in
thousands):
Three Months Ended
Nine Months Ended
November 2,
2024
October 28,
2023
November 2,
2024
October 28,
2023
Payroll
$
$
$
$
Postage
Other expenses
Total expenses
$
$
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
13
NOTE 6 – STOCK-BASED COMPENSATION:
As
of
November
2,
2024,
the
Company’s
2018
Incentive
Compensation
Plan
allows
for
the
granting
of
various
forms
of
equity-based
awards,
including
restricted
stock
and
stock
options
for
grant
to
officers,
directors and key employees.
The
following
table
presents
the
number
of
options
and
shares
of
restricted
stock
initially
authorized
and
available for grant under this plan as
of November 2, 2024:
2018
Plan
Options and/or restricted stock initially authorized
Options and/or restricted stock available for grant
In
accordance
with
ASC
718
–
Compensation–Stock Compensation
,
the
fair
value
of
current
restricted
stock awards
is estimated
on the
date of
grant based
on the
market price
of the
Company’s
stock and
is
amortized
to
compensation
expense
on
a
straight-line
basis
over
the
related
vesting
periods.
As
of
November
2,
2024
and
February
3,
2024,
there
was
$
,
respectively,
of
total
unrecognized compensation expense
related to nonvested
restricted stock awards,
which had a
remaining
weighted-average vesting period of
during the
three and
nine months
ended November
2, 2024
was $
, respectively,
compared
to
a
total
compensation
expense
of
$
ended
October
28,
2023,
respectively.
These
compensation
expenses
are
classified
as
a
component
of
Selling,
general
and
administrative
expenses
in
the
Condensed
Consolidated
Statements
of
Income
(Loss).
The following summary
shows the changes
in the number
of shares of
unvested restricted stock
outstanding
during the nine months ended November 2, 2024:
Weighted Average
Number of
Grant Date Fair
Shares
Value
Per Share
Restricted stock awards at February 3, 2024
$
Granted
Vested
(
232,696
)
Forfeited or expired
(
48,077
)
Restricted stock awards at November 2, 2024
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
14
NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):
The
Company’s
Employee
Stock
Purchase
Plan
allows
eligible
full-time
employees
to
purchase
a
limited
number of
shares
of the
Company’s
Class
A
Common Stock
during each
semi-annual offering
period
at
a
% discount through payroll deductions. During the nine
months ended November 2, 2024
and October 28,
2023, the
Company sold
per share, respectively,
under the Employee
Stock Purchase Plan.
The compensation expense
recognized for
the
%
discount
given
under
the
Employee
Stock
Purchase
Plan
was
$
months
ended
November
2,
2024
and
October
28,
2023,
respectively.
These
expenses
are
classified
as
a
component of Selling, general and administrative expenses.
NOTE 7
– FAIR VALUE MEASUREMENTS:
The following
tables
set forth
information regarding
the
Company’s financial
assets and
liabilities that
are
measured at fair value (in thousands)
as of November 2, 2024 and February
3, 2024:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
November 2, 2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(
8,886
)
$
$
$
(
8,886
)
Total Liabilities
$
(
8,886
)
$
$
$
(
8,886
)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 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:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(
8,654
)
$
$
$
(
8,654
)
Total Liabilities
$
(
8,654
)
$
$
$
(
8,654
)
The Company’s investment portfolio
was primarily invested in
corporate bonds and
U.S. Treasury/Agencies
notes and
bonds held
in managed
accounts with
underlying ratings
of A
or better
at November
2, 2024
and
February 3, 2024.
The state, municipal and corporate bonds have contractual maturities which range from
investments
and
Other
assets
on
the
respective
Condensed
Consolidated
Balance
Sheets.
These
assets
are
carried
at
fair
value
with
unrealized
gains
and
losses
reported
net
of
taxes
in
Accumulated
other
comprehensive income.
At February
3,
2024, the
Company
had $
assets of
$
million.
During the nine
months ended November
2, 2024, the
Company sold its
corporate equities.
All of
these assets are recorded within Other
assets in the Condensed Consolidated Balance
Sheets.
Level 1 category securities are measured
at fair value using quoted active
market prices.
Level 2 investment
securities
include
corporate,
state
and
municipal
bonds
for
which
quoted
prices
may
not
be
available
on
active exchanges for identical instruments.
Their fair value is principally based on market values determined
by management with the assistance of a third-party pricing service.
Since quoted prices in active markets for
identical assets are
not available, these
prices are determined
by the pricing
service using observable
market
information
such
as
quotes
from
less
active
markets
and/or
quoted
prices
of
securities
with
similar
characteristics, among other factors.
Deferred compensation plan
assets consist of
life insurance policies.
These life insurance
policies are valued
based on the cash surrender value of the insurance contract, which is determined based on
such factors as the
fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3
of the
valuation
hierarchy.
The
Level
3
liability
associated
with
the
life
insurance
policies
represents
a
deferred
compensation obligation,
the value
of which
is tracked
via underlying
insurance funds’
net asset
values, as
recorded
in
Other
noncurrent
liabilities
in
the
Condensed
Consolidated
Balance
Sheet.
These
funds
are
designed to mirror mutual funds and money
market funds that are observable and
actively traded.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
16
The
following
tables
summarize
the
change
in
fair
value
of
the
Company’s
financial
assets
and
liabilities
measured using Level 3 inputs
for the nine months ended November
2, 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
$
Redemptions
Additions
Total gains or (losses):
changes in net assets)
Ending Balance at November 2, 2024
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 3, 2024
$
(
8,654
)
(
175
)
changes in net assets)
(
630
)
Ending Balance at November 2, 2024
$
(
8,886
)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
17
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
Redemptions
(
1,168
)
Additions
Total gains or (losses):
changes in net assets)
Ending Balance at February 3, 2024
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
(
8,903
)
(
292
)
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 AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
18
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
In
November
2023,
the
Financial
Accounting
Standards
Board
(“FASB”)
issued
Accounting
Standards
Update
(“ASU”)
2023-07,
“Segment
Reporting
(Topic
280):
Improvements
to
Reportable
Segment
Disclosures,”
which
modifies
disclosure
requirements
for
all
public
entities
that
are
required
to
report
segment
information.
The update
will change
the
reporting of
segments by
adding
significant
segment
expenses,
other
segment
items,
title
and
position
of
the
chief
operating
decision
maker
(“CODM”) and
how
the
CODM
uses
the
reported
measures
to
make
decisions.
The
update
also
requires
all
annual
disclosures
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.
In
November
2024,
the
FASB
issued
ASU
2024-03,
“Income
Statement—Reporting
Comprehensive
Income—Expense
Disaggregation
Disclosures
(Subtopic
220-40):
Disaggregation
of
Income
Statement
Expenses,”
which
requires
public
entities
to
disclose,
on
an
annual
and
interim
basis,
disaggregated
information
in
the
footnotes
about
specified
information
related
to
certain
costs
and
expenses.
This
guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning
after
December
15,
2027,
with
early
adoption
permitted.
The
Company
is
currently
in
the
process
of
evaluating the
potential impact
of adoption
of this
new guidance
on its
consolidated financial statements
and related disclosures.
NOTE 9 – INCOME TAXES:
The
Company
had
an
effective
tax
rate
for
the
first
nine
months
of
2024
of
(
%)
compared
to
an
effective tax
rate of
% for the
first nine months
of fiscal 2023.
Income tax expense
for the first
nine
months increased to $
The increase
in tax
expense in
2024 is
primarily due
to the
valuation allowance
against net
deferred tax
assets attributable
to U.S.
federal net operating
loss carryforwards recorded
in the fourth
quarter of 2023
and a smaller release of reserves for uncertain tax positions.
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
including
litigation
regarding
the
merchandise
that
it
sells,
litigation
regarding
intellectual
property,
litigation instituted by persons injured upon premises under the Company’s control, litigation with respect
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
19
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
condensed consolidated
financial statements.
However,
given
the
inherent uncertainties
involved in
such
matters, an
adverse outcome
in
one or
more of
such
matters
could
materially and
adversely affect
the
Company’s
financial condition,
results of
operations and
cash
flows
in
any
particular
reporting
period.
The
Company
accrues
for
these
matters
when
the
liability
is
deemed probable and reasonably estimable.
NOTE 11 – REVENUE RECOGNITION:
The
Company
recognizes
sales
at
the
point
of
purchase
when
the
customer
takes
possession
of
the
merchandise
and
pays
for
the
purchase,
generally
with
cash
or
credit.
Sales
from
purchases
made
with
Cato
credit,
gift
cards
and
layaway
sales
from
stores
are
also
recorded
when
the
customer
takes
possession of
the merchandise. E-commerce
sales are
recorded when the
risk of
loss is
transferred to the
customer.
Gift cards
are recorded
as deferred
revenue until they
are redeemed
or forfeited.
Gift cards
do
not have expiration dates. Layaway transactions are recorded as
deferred revenue until the customer takes
possession or
forfeits the
merchandise. A
provision is
made for
estimated merchandise
returns based
on
sales
volumes
and
the
Company’s
experience;
actual
returns
have
not
varied
materially
from
historical
amounts.
A
provision
is
made
for
estimated
write-offs
associated
with
sales
made
with
the
Company’s
proprietary
credit
card.
Amounts
related
to
shipping
and
handling
billed
to
customers
in
a
sales
transaction are
classified as
Other revenue
and the
costs related
to shipping
product to
customers (billed
and accrued) are classified as Cost of goods sold.
The Company
offers its
own proprietary
credit card
to customers.
All credit
activity is
performed by
the
Company’s wholly-owned
subsidiaries.
and
nine
months ended
November 2,
2024, the
Company estimated
customer
credit
losses
of
$
and
$
,
respectively,
compared
to
$
October 28,
2023, respectively.
Sales purchased
on the
Company’s
proprietary credit
card for
the three
and nine months ended November 2, 2024 were $
$
The
following
table
provides
information
about
receivables
and
contract
liabilities
from
contracts
with
customers (in thousands):
Balance as of
November 2, 2024
February 3, 2024
Proprietary Credit Card Receivables, net
$
$
Gift Card Liability
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
20
NOTE 12 – LEASES:
The
Company determines
whether
an
arrangement is
a
lease
at
inception.
The
Company
has
operating
leases for
stores, offices,
warehouse space
and equipment.
Its leases have
remaining lease terms
of up
to
up to
, and some include options to terminate the lease
. The Company considers
these
options in
determining the
lease
term
used
to
establish
its
right-of-use
assets
and
lease
liabilities.
The
Company’s
lease
agreements
do
not
contain
any
material
residual
value
guarantees
or
material
restrictive covenants.
As
most
of
the
Company’s
leases
do
not
provide
an
implicit
rate,
the
Company
uses
its
estimated
incremental
borrowing
rate
based
on
the
information
available
at
commencement
date
of
the
lease
in
determining the present value of lease payments.
The components of lease cost are shown below (in thousands):
Three Months Ended
November 2, 2024
October 28, 2023
Operating lease cost (a)
$
$
Variable
lease cost (b)
$
$
(a) Includes right-of-use asset amortization of ($
) million and ($
) million for the three months ended November 2, 2024 and
October 28, 2023, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.
Nine Months Ended
November 2, 2024
October 28, 2023
Operating lease cost (a)
$
$
Variable
lease cost (b)
$
$
(a) Includes right-of-use asset amortization of ($
) million and ($
) million for the nine months ended November 2, 2024 and
October 28, 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 AND NINE MONTHS ENDED
NOVEMBER 2, 2024 AND
OCTOBER 28, 2023
21
Supplemental cash flow
information and non-cash
activity related to
the Company’s
operating leases are
as follows (in thousands):
Operating cash flow information:
Three Months Ended
November 2, 2024
October 28, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
$
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
$
(
1,468
)
Nine Months Ended
November 2, 2024
October 28, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
$
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
$
Weighted-average
remaining
lease
term
and
discount
rate
for
the
Company’s
operating
leases
are
as
follows:
As of
November 2, 2024
October 28, 2023
Weighted-average remaining lease term
Weighted-average discount rate
Maturities
of
lease
liabilities
by
fiscal
year
for
the
Company’s
operating
leases
are
as
follows
(in
thousands):
Fiscal Year
2024 (a)
$
2025
2026
2027
2028
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
(a) Excluding the nine months ended November 2, 2024
22
THE CATO CORPORATION
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The
information
contained
in
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations”
should
be
read
along
with
the
unaudited
Condensed
Consolidated
Financial
Statements,
including
the
accompanying
Notes
appearing
in
this
report.
Any
of
the
following
are
“forward-looking”
statements
within
the
meaning
of
Section 27A
of
the
Securities
Act
of
1933,
as
amended,
and
Section 21E
of
the
Securities
Exchange
Act
of
1934,
as
amended:
(1) statements
in
this
Form 10-Q
that
reflect
projections
or
expectations
of
our
future
financial
or
economic
performance;
(2) statements
that
are
not
historical
information;
(3) statements
of
our
beliefs,
intentions,
plans
and
objectives for future operations,
including those contained in
“Management’s Discussion and
Analysis of
Financial Condition and
Results of Operations”;
(4) statements relating to
our operations or
activities for
our
fiscal
year
ending
February
1,
2025
(“fiscal
2024”)
and
beyond,
including,
but
not
limited
to,
statements regarding expected
amounts of
capital expenditures and
store openings, relocations,
remodels
and closures, and
statements regarding the
potential impact of
supply chain disruptions,
extreme weather
conditions,
inflationary
pressures
and
other
economic
or
market
conditions
on
our
business,
results
of
operations and financial condition and
statements of plans or
intentions regarding new store development
or
store
closures;
and
(5)
statements
relating
to
our
future
contingencies.
When
possible,
we
have
attempted to identify forward-looking statements
by using words such
as “will,” “expects,” “anticipates,”
“approximates,” “believes,” “estimates,” “hopes,” “intends,”
“may,” “plans,”
“could,” “would,” “should”
and
any
variations
or
negative
formations
of
such
words
and
similar
expressions.
We
can
give
no
assurance
that actual
results or
events
will not
differ
materially from
those
expressed or
implied in
any
such
forward-looking
statements.
Forward-looking
statements
included
in
this
report
are
based
on
information available
to us
as of
the filing
date of
this report,
but subject
to known
and unknown
risks,
uncertainties and other factors that could cause actual results
to differ materially from those contemplated
by the forward-looking statements.
Such factors include, but
are not limited to,
the following: any actual
or
perceived
deterioration
in,
or
continuation
of
negative
trends
in,
the
conditions
that
drive
consumer
confidence and
spending, including,
but
not limited
to, prevailing
social, economic,
political
and public
health conditions and
uncertainties, levels of
unemployment, fuel, energy
and food
costs, wage rates,
tax
rates, interest
rates, home
values, consumer
net worth,
the availability
of credit
and inflation;
changes in
laws, regulations
or government
policies affecting
our business,
including but
not limited
to current
and
potentially
new
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
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 and negatively affect the Company’s
profitability,
financial
condition,
prospects,
and
ability
to
comply
with
its
debt
covenants;
adverse
weather,
public
health
threats,
acts
of
war
or
aggression
or
similar
conditions
that
may
affect
our
merchandise supply chain,
sales or
operations; inventory risks
due to
shifts in
market demand, including
the
ability
to
liquidate
excess
inventory
at
anticipated
margins;
adverse
developments
or
volatility
affecting
the
financial
services
industry
or
broader financial
markets;
and
other
factors
discussed
under
“Risk Factors” in
Part I, Item 1A
of our
Annual Report on Form
10-K for the
fiscal year ended
February
3, 2024
(“fiscal 2023”),
as amended
or supplemented,
and in
other reports
we file
with or
furnish to
the
Securities and
Exchange Commission
(“SEC”) from
time to
time.
We
do not
undertake, and
expressly
decline, any
obligation to
update any such
forward-looking information contained
in this
report, whether
as a result of new information, future events, or otherwise.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
23
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The
Company’s
critical
accounting
policies
and
estimates
are
more
fully
described
in
“Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in the
Company’s Annual Report
on
Form
10-K
for
the
fiscal
year
ended
February
3,
2024.
The
preparation
of
the
Company’s
financial
statements
in
conformity
with
generally
accepted
accounting
principles
in
the
United
States
(“GAAP”)
requires management to make estimates and assumptions about future events that affect the amounts reported
in
the
financial
statements
and
accompanying
notes.
Future
events
and
their
effects
cannot
be
determined
with absolute
certainty. Therefore,
the determination
of estimates
requires the
exercise of
judgment. Actual
results
inevitably
will
differ
from
those
estimates,
and
such
differences
may
be
material
to
the
financial
statements. The most significant accounting estimates
inherent in the preparation of the
Company’s financial
statements include
the calculation
of potential
asset impairment,
income tax
valuation allowances,
reserves
relating
to
self-insured
health
insurance,
workers’
compensation,
general
and
auto
insurance
liabilities,
uncertain tax positions, the allowance for
customer credit losses, and inventory shrinkage.
The Company’s critical accounting policies and
estimates are discussed with the Audit Committee.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
24
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in
the Company's unaudited Condensed
Consolidated Statements of Income (Loss) as a
percentage of total retail sales:
Three Months Ended
Nine Months Ended
November 2, 2024
October 28, 2023
November 2, 2024
October 28, 2023
Total retail sales
100.0
%
100.0
%
100.0
%
100.0
%
Other revenue
1.1
1.0
1.0
0.9
Total revenues
101.1
101.0
101.0
100.9
Cost of goods sold (exclusive of depreciation)
71.2
67.5
66.7
65.4
Selling, general and administrative (exclusive
of depreciation)
40.0
39.4
35.5
35.1
Depreciation
1.9
1.6
1.5
1.4
Interest and other income
(1.8)
(1.0)
(2.1)
(0.7)
Loss before income taxes
(10.2)
(6.6)
(0.5)
(0.3)
Net loss
(10.4)
(3.9)
(0.8)
(0.1)
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
25
RESULTS OF OPERATIONS
(CONTINUED):
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
(“MD&A”)
is
intended
to
provide
information
to
assist
readers
in
better
understanding
and
evaluating
our
financial
condition and results of
operations. We recommend reading
this MD&A in conjunction
with our Condensed
Consolidated Financial
Statements and
the Notes
to those
statements included in
the “Financial
Statements”
section of this Quarterly Report on
Form 10-Q, as well as our 2023
Annual Report on Form 10-K.
Recent Developments
Inflationary Cost Pressure and High Interest Rates
The pressure on our customers’ disposable income continued in the
first three quarters of fiscal 2024, due
to
prolonged and
persistently higher
prices caused
by high
inflation rates,
especially related
to
housing,
groceries
and
fuel,
as
well
as
high
interest
rates.
These
high
interest
rates
have
adversely
affected
the
availability and cost of credit for our customers, including
revolving credit and auto loans, and continue to
negatively
impact
our
customers’
disposable
income.
Our
customers’
willingness
to
purchase
our
products may continue to be negatively impacted by these inflationary
pressures and high interest rates.
Although
interest
rates
and
inflation
have
decreased,
we
believe
the
pressure
on
our
customers’
disposable
income adversely
impacted
the
first
three quarters
of
fiscal
2024
and will
likely
continue to
have a
negative impact
on consumer
behavior and,
by extension,
our results
of
operations and
financial
condition during the remainder of fiscal 2024.
Merchandise Supply Chain
A
significant
amount
of
our
merchandise
is
manufactured
overseas,
principally
in
Southeast
Asia,
and
traverses
through
the
Panama
Canal
or
the
Suez
Canal.
In
the
first
quarter
of
2024,
the
drought
conditions
experienced
in
the
region
surrounding
the
Panama
Canal
reduced
the
number
of
transits
by
approximately 37% and
also reduced the
permissible draft of
vessels transiting the
Panama Canal, which
reduced the volume
and number of
containers carried by container
ships and increased
our costs.
These
conditions improved as
the Panama
Canal authority
increased the
daily transits
and the
permissible draft
of vessels, raising the number of
transits to 95% of pre-drought operations in the
second quarter and back
to pre-drought
levels in
the third
quarter.
The hostilities
affecting the
region surrounding the
Suez Canal
are causing container ships to
travel longer distances around the
Cape of Good Hope,
which is increasing
lead times for merchandise and
our costs to ship these
goods, as well as decreasing the
pool of containers
available.
The combination of
these situations
has negatively impacted
the first
nine months
of 2024.
In
addition,
the
third
quarter
was
impacted
by
later
shipments
in
part
due
to
congestion
at
certain
Asian
ports,
the
U.S.
port
strike
on
the
east
coast,
and
civil
unrest
in
some
Asian
countries
that
caused
merchandise to miss
its shipping windows.
Though conditions have
incrementally improved, we believe
the totality of
these conditions will
likely continue to
have a negative
impact on our
results of operations
and financial condition for the foreseeable future.
Comparison of the Three and Nine
Months ended November 2, 2024 with October
28, 2023
Total retail sales for the
third quarter were $144.6 million compared to
last year’s third quarter sales
of $156.7
million, an 8% decrease.
The Company’s sales
decrease in the third quarter
of fiscal 2024 was
primarily due
to
a
3%
decrease
in
same-store
sales
and
stores
closed
in
the
fourth
quarter
of
2023.
For
the
nine
months
ended
November
2,
2024,
total
retail
sales
were
$486.8
million
compared
to
last
year’s
comparable
nine
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
26
month sales of
$528.2 million, an
8% decrease. The
decrease in sales
in the first
nine months of
fiscal 2024
was due
primarily to
a 4%
decrease in
same-store sales
and store
closures.
Same-store sales
include stores
that have been open
more than 15 months.
Stores that have been
relocated or expanded are
also included in
the same-store sales
calculation after they
have been open
more than 15
months.
The method of
calculating
same-store
sales
varies across
the
retail industry.
As
a
result,
our
same-store
sales
calculation
may
not
be
comparable to similarly titled measures reported by other companies. E-commerce sales were less than 5% of
total sales for the nine months ended
November 2, 2024 and are included in
the same-store sales calculation.
Total
revenues,
comprised
of
retail
sales
and
other
revenue
(principally
finance
charges
and
late
fees
on
customer accounts
receivable and
layaway fees),
were $146.2
million and
$491.9 million
for the
three and
nine months ended November 2, 2024, compared to $158.3 million and $533.2
million for the three and nine
months
ended
October
28,
2023,
respectively.
The
Company
operated
1,167
stores
at
November
2,
2024
compared
to
1,245 stores
at
October
28,
2023.
During
the first
nine
months of
fiscal
2024, the
Company
opened one store
and closed
13 stores.
The Company currently
expects to
close approximately
65 stores
in
total in fiscal 2024.
Credit
revenue
of
$0.7
million
represented
0.5%
of
total
revenues
in
the
third
quarter
of
fiscal
2024,
compared to credit revenue of $0.7 million or 0.4% of total revenues in the third quarter of fiscal 2023. Credit
revenue is
comprised of
interest earned
on the
Company’s private
label credit
card portfolio
and related
fee
income.
Related expenses principally include
payroll, postage and other
administrative expenses and totaled
$0.4 million in the third quarter
of fiscal 2024, compared to
last year’s third quarter expense of
$0.4 million.
Other
revenue,
a
component
of
total
revenues,
was
$1.5
million
and
$5.0
million
for
the
three
and
nine
months ended November 2, 2024, respectively, compared to $1.6 million and $5.0 million for the prior year’s
comparable three
and nine
month periods.
The slight
decrease in
Other revenue
for the
three months
ended
November
2,
2024
was
due
to
decreases
in
e-commerce
shipping
revenue
and
finance
charges
associated
with the Company’s proprietary credit
card, partially offset by an increase
in gift card breakage income.
Cost of
goods sold
was $103.0
million, or
71.2% of
retail sales
and $324.6
million, or
66.7% of retail
sales
for the three and
nine months ended November
2, 2024, respectively, compared
to $105.8 million, or
67.5%
of retail sales and $345.5 million, or 65.4% of retail sales for the comparable three and nine month periods of
fiscal 2023.
The overall increase in cost of goods sold as a percent of retail sales for the third
quarter and first
nine
months
of
fiscal
2024
versus
the
comparable
three
and
nine
month
periods
of
fiscal
2023
resulted
primarily from deleveraging of occupancy and buying costs and higher distribution and freight costs, partially
offset
by
higher
selling
margins.
Cost
of
goods
sold
includes
merchandise
costs
(net
of
discounts
and
allowances),
buying
costs,
distribution
costs,
occupancy
costs,
freight
and
inventory
shrinkage.
Net
merchandise
costs
and
in-bound
freight
are
capitalized
as
inventory
costs.
Buying
and
distribution
costs
include
payroll,
payroll-related
costs
and
operating
expenses
for
the
buying
departments
and
distribution
center.
Occupancy
costs include
rent,
real
estate taxes,
insurance, common
area
maintenance, utilities
and
maintenance for
stores and
distribution facilities.
Total gross
margin
dollars (retail
sales less
cost of
goods
sold exclusive of depreciation) decreased by
18.1% to $41.7 million for the third quarter
of fiscal 2024 and by
11.1%
to
$162.3
million
for
the
first
nine
months
of
fiscal
2024,
compared
to
$50.9
million
and
$182.6
million for the
prior year’s comparable
three and nine
months of fiscal
2023, respectively.
Gross margin as
presented may not be comparable to those
of other entities.
Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related
payroll
taxes
and
benefits,
insurance,
supplies,
advertising,
bank
and
credit
card
processing
fees.
SG&A
expenses were $57.9 million, or 40.0% of retail sales and $172.8 million, or 35.5% of retail sales for the
third
quarter and first nine months of
fiscal 2024, respectively, compared to $61.8
million, or 39.4% of retail sales
and
$185.3
million,
or 35.1%
of retail
sales
for the
prior
year’s
comparable three
and
nine
month periods,
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
27
respectively.
The decrease in SG&A
expenses for the third
quarter and first nine
months of fiscal 2024
was
primarily due to lower payroll,
advertising and insurance expenses, partially
offset by expenses related to the
startup of our distribution center automation project.
Depreciation expense was $2.7 million, or 1.9% of retail sales and $7.1 million, or 1.5% of
retail sales for the
third quarter
and first
nine months
of fiscal
2024, respectively,
compared to
$2.5 million,
or 1.6%
of retail
sales and $7.4 million or 1.4%
of retail sales for the comparable three
and nine month periods of fiscal
2023,
respectively.
Interest and other
income was $2.6
million, or 1.8%
of retail sales
and $10.2 million,
or 2.1% of
retail sales
for the
three and
nine months
ended November
2, 2024,
respectively, compared to
$1.5 million,
or 1.0%
of
retail sales and $3.8 million,
or 0.7% of retail sales for the
comparable three and nine month periods
of fiscal
2023, respectively.
The increase
for the
third quarter
of fiscal
2024 compared
to fiscal
2023 was
primarily
due
to
a
gain
on
the
disposal
of
the
Company’s
corporate
aircraft
and
higher
interest
earned
on
the
Company’s investments.
The increase
for the
first nine
months of
fiscal 2024
compared to
fiscal 2023
was
primarily
due
to
a
$3.2
million
net
gain
on
sale
of
land
held
for
investment,
gain
on
the
disposal
of
the
Company’s corporate aircraft and higher interest
earned on the Company’s investments.
Income tax expense was
$0.3 million and $1.6 million
for the third quarter
and first nine months of fiscal
2024, respectively,
compared to
a tax
benefit of
$4.3 million
and $0.8
million for
the comparable
three
and
nine
month
periods
of
fiscal
2023,
respectively.
The
effective
income
tax
rate
for
the
first
nine
months
of
fiscal
2024
was
(67.5%)
compared
to
60.4%
for
the
first
nine
months
of
fiscal
2023.
The
increase in tax expense in
2024 is primarily due to
the valuation allowance against net
deferred tax assets
attributable to
U.S. federal
net operating
loss carryforwards
recorded in
the fourth
quarter of
2023 and
a
smaller release of reserves for uncertain tax positions.
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 and expected capital
expenditures for the next 12
months.
Cash used in operating activities during the first nine months of fiscal 2024 was $13.3 million as compared
to
$11.7
million
provided
in
the
first
nine
months
of
fiscal
2023.
The
increase
in
cash
used
by
operating
activities
of
$25.0
million
for the
first
nine
months of
fiscal
2024
as
compared to
the
first nine
months of
fiscal 2023 was primarily attributable to the
relative change in inventory from year-end to
the third quarter for
both
years
and
a
subtraction
of
net
income
for
non-operating
gains
on
sale
of
assets
held
for
investment,
partially offset by the relative change
of accounts payable from year-end to
the third quarter for both years.
At
November
2,
2024,
the
Company
had
working
capital
of
$60.7
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
inventory,
partially
offset
by
a
decrease
in
short-term
investments,
cash
and
accounts receivable.
At November 2,
2024, the Company had
a revolving credit agreement,
which provides for borrowings of
up
to $35.0
million, less
the balance
of any
revocable letters
of credit
related to
purchase commitments,
and is
committed
through
May
2027.
The
credit
agreement
contains
various
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios.
On
April
25,
2024,
the
Company
amended
the
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
28
revolving credit
agreement to
modify a
definition used
in calculating
the Company’s
minimum EBITDAR
coverage
ratio
to
add
back
certain
income
tax
receivables
included
in
the
calculation
of
the
ratio.
On
November 1, 2024, the Company
amended the revolving credit agreement
to lower the minimum EBITDAR
coverage
ratio
and
the
corresponding
minimum
cash
and
investments
used
to
determine
the
EBITDAR
coverage ratio in exchange
for a secured position
in any future borrowings.
For the quarter ended
November
2, 2024,
after giving
effect to
the amendments,
the Company
was in
compliance with
the credit
agreement.
There
were
no
borrowings
outstanding,
nor
any
outstanding
letters
of
credit
that
reduced
borrowing
availability, as of November 2, 2024.
The weighted average interest rate under
the credit facility was zero at
November 2, 2024 due to
no outstanding borrowings.
Expenditures
for
property
and
equipment
totaled
$6.5
million
in
the
first
nine
months
of
fiscal
2024,
compared to
$10.3 million
in last
fiscal year’s
first nine
months. The
decrease in
expenditures for
property
and equipment
was
primarily
due to
finishing
projects related
to investments
in the
distribution center
and
information
technology.
For
the
full
fiscal
2024
year,
the
Company
expects
to
invest
approximately
$7.0
million for capital expenditures.
Net
cash
provided
by
investing
activities
totaled
$21.5
million
in
the
first
nine
months
of
fiscal
2024
compared
to
$6.1
million
net
cash
provided
in
the
comparable
period
of
2023.
The
increase
in
net
cash
provided
by
investing
activities
in
2024
was
primarily
due
to
the
sale
of
other
assets,
lower
purchases
of
short-term investments,
and lower capital
expenditure spending,
partially offset
by lower sales
of short-term
investments.
Net cash used in financing activities totaled $12.6 million in the first nine months of fiscal
2024 compared to
$12.7 million used in the comparable period of fiscal 2023.
The slight decrease in net cash used in financing
activities in fiscal 2024 was primarily
due to lower stock repurchases, partially offset
by dividends paid.
As of November
2, 2024, the Company
had 442,831 shares remaining
in open authorizations under
its share
repurchase program.
The Company does not use
derivative financial instruments.
The Company’s investment portfolio
was primarily invested in
corporate bonds and
U.S. Treasury/Agencies
notes and
bonds held
in managed
accounts with
underlying ratings
of A
or better
at November
2, 2024
and
February 3, 2024.
The state, municipal and corporate bonds have contractual maturities which range from 13
days to 2.9 years. The U.S. Treasury/Agencies notes and bonds have contractual maturities which range from
3
days
to
2.7
years.
These
securities
are
classified
as
available-for-sale
and
are
recorded
as
Short-term
investments
and
Other
assets
on
the
respective
Condensed
Consolidated
Balance
Sheets.
These
assets
are
carried
at
fair
value
with
unrealized
gains
and
losses
reported
net
of
taxes
in
Accumulated
other
comprehensive income.
At February
3,
2024, the
Company
had $1.1
million
of corporate
equities and
deferred
compensation
plan
assets of
$8.6 million.
At November
2, 2024,
the Company
had deferred
compensation plan
assets of
$9.1
million.
During the nine
months ended November
2, 2024, the
Company sold its
corporate equities.
All of
these assets
are recorded
within
Other assets
in the
Condensed
Consolidated
Balance
Sheets.
See
Note
7,
Fair Value Measurements.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
29
RECENT ACCOUNTING PRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
30
ITEM 3. 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.
ITEM 4. CONTROLS AND PROCEDURES:
We carried out an evaluation, with the
participation of our Principal Executive Officer and
Principal Financial
Officer, of the effectiveness of
our disclosure controls and procedures as of November
2, 2024.
Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of November 2,
2024, our
disclosure controls
and
procedures,
as defined
in
Rule
13a-15(e), under
the
Securities
Exchange
Act of 1934 (the “Exchange
Act”), were effective to ensure that
information we are required to disclose
in the
reports
that
we
file
or
submit
under
the
Exchange
Act
is
recorded,
processed,
summarized
and
reported
within the time periods
specified in the SEC’s
rules and forms and
that such information is
accumulated and
communicated to our management, including our Principal Executive Officer and Principal Financial Officer,
as appropriate to allow timely decisions
regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
No change in the Company’s internal control
over financial reporting (as defined in
Exchange Act Rule 13a-
15(f))
has
occurred
during
the
Company’s
fiscal
quarter
ended
November
2,
2024
that
has
materially
affected, or is
reasonably likely to
materially affect, the
Company’s internal control
over financial reporting.
THE CATO CORPORATION
PART II OTHER
INFORMATION
31
ITEM 1.
LEGAL PROCEEDINGS:
Not Applicable.
ITEM 1A.
RISK FACTORS:
In addition to the other information
in this report, you should carefully
consider the factors discussed in
Part I,
“Item
1A.
Risk
Factors”
in
our
Annual
Report
on
Form
10-K
for
our
fiscal
year
ended
February
3,
2024.
These risks
could materially
affect our
business, financial
condition or
future results;
however, they
are not
the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem
to
be
immaterial
may
also
materially
adversely
affect
our
business,
financial
condition
or
results
of
operations.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS:
The following table summarizes the Company’s purchases of its common stock for the three months
ended November 2, 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 Purchased
Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
August 2024
-
$
-
-
September 2024
35,407
4.49
35,407
October 2024
-
-
-
Total
35,407
$
4.49
35,407
442,831
(1)
Prices include trading costs.
(2)
As of August 3, 2024, the Company’s
share repurchase program had 478,238 shares remaining in
open authorizations. During the third quarter ended November 2, 2024, the Company repurchased
and
retired 35,407
shares under
this
program for
approximately $158,827
or
an average
market
price of $4.49 per share.
As of November 2, 2024, the Company had 442,831 shares remaining
in
open authorizations. There is no specified expiration date for the Company’s repurchase program.
ITEM 3.
DEFAULTS
UPON SENIOR SECURITIES:
Not Applicable.
THE CATO CORPORATION
PART II OTHER
INFORMATION
32
ITEM 4.
MINE SAFETY DISCLOSURES:
No matters requiring disclosure.
ITEM 5.
OTHER INFORMATION:
During
the
three
months
ended
November
2,
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)
“Rule
10b5-1
trading
arrangement”
or
a
“
defined in Item 408 of Regulation S-K).
ITEM 6.
EXHIBITS:
Exhibit No.
Item
10.1*
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*)
* Submitted electronically herewith.
THE CATO CORPORATION
PART II OTHER
INFORMATION
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
November
26, 2024
/s/ John P.
D. Cato
Date
John P.
D. Cato
Chairman, President and
Chief Executive Officer
November 26, 2024
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsNote 1 - General:Note 1 - GeneralNote 2 - Earnings Per Share:Note 3 Accumulated Other Comprehensive Income:Note 3 Accumulated Other Comprehensive Income (continued):Note 4 Financing Arrangements:Note 5 Reportable Segment Information:Note 5 Reportable Segment Information (continued):Note 6 Stock-based Compensation:Note 6 Stock Based-compensation (continued):Note 7 Fair Value Measurements:Note 8 Recent Accounting Pronouncements:Note 9 Income Taxes:Note 10 Commitments and Contingencies:Note 11 Revenue Recognition:Note 12 Leases:Item 2. Management S Discussion and Analysis Of FinancialItem 3. Quantitative and Qualitative Disclosures About Market Risk:Item 4. Controls and Procedures:Part II Other InformationItem 1. Legal Proceedings:Item 1A. Risk Factors:Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds:Item 3. Defaults Upon Senior Securities:Item 4. Mine Safety Disclosures:Item 5. Other Information:Item 6. Exhibits: