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).
As of October 28, 2023, there were
outstanding.
2
THE CATO CORPORATION
FORM 10-Q
Quarter Ended October 28, 2023
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)
3
For the Three Months and Nine Months Ended October 28, 2023 and October 29,
2022
Condensed Consolidated Balance Sheets
4
At October 28, 2023 and January 28, 2023
Condensed Consolidated Statements of Cash Flows
5
For the Nine Months Ended October 28, 2023 and October 29, 2022
Condensed Consolidated Statements of Stockholders’ Equity
6 – 7
For the Nine Months Ended October 28, 2023 and October 29, 2022
Notes to Condensed Consolidated Financial Statements
8 – 22
For the Three Months and Nine Months Ended October 28, 2023 and October 29,
2022
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
23 – 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
32
Item 3.
Defaults Upon Senior Securities
32
Item 4.
Mine Safety Disclosures
32
Item 5.
Other Information
32
Item 6.
Exhibits
32
Signatures
33
3
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
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
(Dollars in thousands, except per share data)
REVENUES
$
$
$
$
COSTS AND EXPENSES, NET
(1,523 )
(2,278 )
(3,754 )
(4,565 )
Income (loss) before income taxes
(10,349 )
(9,109 )
(1,320 )
Income tax (benefit) expense
(4,272 )
(4,656 )
(797 )
Net income (loss)
$
(6,077 )
$
(4,453 )
$
(523 )
$
Basic earnings (loss) per share
$
(0.30 )
$
(0.21 )
$
(0.02 )
$
Diluted earnings (loss) per share
$
(0.30 )
$
(0.21 )
$
(0.02 )
$
Comprehensive income:
Net income (loss)
$
(6,077 )
$
(4,453 )
$
(523 )
$
Unrealized gain (loss) on available-for-sale securities, net of
) and ($
) for
(629 )
(1,774 )
Comprehensive income (loss)
$
(5,876 )
$
(5,082 )
$
$
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 28, 2023
January 28, 2023
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
Noncurrent deferred income taxes
Other assets
Right-of-Use assets – net
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
$
Accrued expenses
Accrued employee benefits and bonus
Accrued income taxes
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 (loss)
(515 )
(1,238 )
$
$
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
October 28, 2023
October 29, 2022
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
(523 )
$
Adjustments to reconcile net income (loss) to net cash provided
(226 )
(1,981 )
(1,815 )
(1,716 )
(1,499 )
(1,895 )
(6,099 )
(34,418 )
Net cash provided by operating activities
Investing Activities:
Expenditures for property and equipment
(10,271 )
(14,382 )
Purchase of short-term investments
(44,595 )
(53,765 )
Sales of short-term investments
Net cash provided by investing activities
Financing Activities:
Dividends paid
(10,457 )
(10,870 )
Repurchase of common stock
(2,563 )
(11,561 )
Proceeds from employee stock purchase plan
Net cash used in financing activities
(12,663 )
(22,152 )
Net increase (decrease) in cash, cash equivalents, and restricted cash
(2,653 )
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
$
$
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)
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 issuances and exercises
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 issuances and exercises
Share-based compensation expense
(1 )
Repurchase and retirement of treasury shares
Balance — October 28, 2023
$
$
$
$
(515 )
$
See notes to condensed consolidated financial statements (unaudited).
7
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)
Balance — January 29, 2022
$
$
$
$
(280 )
$
Comprehensive income:
(1,206 )
(1,206 )
Dividends paid ($
(3,638 )
(3,638 )
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
(20 )
(9,142 )
(9,162 )
Balance — April 30, 2022
$
$
$
$
(1,486 )
$
Comprehensive income:
(2,274 )
(2,274 )
Dividends paid ($
(3,632 )
(3,632 )
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
(1 )
(433 )
(434 )
Balance — July 30, 2022
$
$
$
$
(1,425 )
$
Comprehensive income:
(4,453 )
(4,453 )
(629 )
(629 )
Dividends paid ($
(3,600 )
(3,600 )
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
(308 )
(308 )
Share-based compensation expense
(3 )
(228 )
(226 )
Repurchase and retirement of treasury shares
(7 )
(1,958 )
(1,965 )
Balance — October 29, 2022
$
$
$
$
(2,054 )
$
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 OCTOBER 28, 2023 AND
OCTOBER 29, 2022
8
NOTE 1 - GENERAL
:
The condensed consolidated financial statements as of October 28, 2023 and for the thirty-nine-week
periods ended October 28, 2023 and October 29, 2022 have been prepared from the accounting records of
The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown are
unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation of
the financial statements have been included. All such adjustments are of a normal, recurring nature unless
otherwise noted. The results of the interim period may not be indicative of the results expected for the
entire year.
The interim financial statements should be read in conjunction with the consolidated financial statements
and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended
January 28, 2023. Amounts as of January 28, 2023 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 November 16, 2023, the Board of Directors maintained the quarterly dividend at $
During the third quarter of the current fiscal year, the Company received an estimate for costs to repair its
corporate jet, which had sustained damage at the end of the second quarter. The Company determined
that the cost of repair is recoverable and recorded a receivable for the estimated repair cost of $
million.
Management has determined that it is more likely than not that the aircraft will be sold within the next 12
months. The Company reclassified the aircraft as an asset held for sale at its estimated fair value of $
million, which is included in Other assets in the accompanying Condensed Consolidated Balance Sheets
as of October 28, 2023.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
9
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 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
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
(Dollars in thousands)
Numerator
Net earnings (loss)
$
(6,077 )
$
(4,453 )
$
(523 )
$
(Earnings) loss allocated to non-vested equity awards
(153 )
Net earnings (loss) available to common stockholders
$
(5,731 )
$
(4,213 )
$
(474 )
$
Denominator
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
Net income (loss) per common share
Basic earnings (loss) per share
$
(0.30 )
$
(0.21 )
$
(0.02 )
$
Diluted earnings (loss) per share
$
(0.30 )
$
(0.21 )
$
(0.02 )
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
10
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 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
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 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
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 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 OCTOBER 28, 2023 AND
OCTOBER 29, 2022
11
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 29, 2022:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at July 30, 2022
$
(1,425 )
(637 )
Net current-period other comprehensive income
(629 )
Ending Balance at October 29, 2022
$
(2,054 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
income for net 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 29, 2022:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280 )
(1,788 )
Net current-period other comprehensive income
(1,774 )
Ending Balance at October 29, 2022
$
(2,054 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
(b) Includes $
income for net 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 OCTOBER 28, 2023 AND
OCTOBER 29, 2022
12
NOTE 4 – FINANCING ARRANGEMENTS:
As of October 28, 2023, the Company has an unsecured revolving credit line, which provides for borrowings
of up to $
and is committed through May 2027. The revolving credit agreement contains various financial covenants
and limitations, including the maintenance of specific financial ratios. On October 24, 2023, the Company
amended the revolving credit agreement to link the calculation of the Company’s EBITDAR coverage ratio
to the amount of the Company’s cash and investments. Though the effect of the amendment reduced the
minimum EBITDAR coverage ratio for the quarter ended October 28, 2023 and is expected to do so going
forward, the Company was in compliance with the amended credit agreement for the quarter ended October
28, 2023 and also would have been in compliance without giving effect to the amendment. There were
borrowings outstanding,
r any outstanding letters of credit that reduced borrowing availability, as of
October 28, 2023. The weighted average interest rate under the credit facility was
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 a wholly-owned
subsidiary of the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
13
NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):
The following schedule summarizes certain segment information (in thousands):
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
Three Months Ended
Nine Months Ended
October 29, 2022
Retail
Credit
Total
October 29, 2022
Retail
Credit
Total
Revenues
$176,057
$569
$176,626
Revenues
$578,580
$1,631
$580,211
Depreciation
Depreciation
Interest and other income
(2,278 )
(2,278 )
Interest and other income
(4,565 )
(4,565 )
Income (loss) before
(9,280 )
(9,109 )
Income before
Capital expenditures
Capital expenditures
Retail
Credit
Total
Total assets as of October 28, 2023
$450,420
$36,948
$487,368
Total assets as of January 28, 2023
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
October 28,
2023
October 29,
2022
October 28,
2023
October 29,
2022
Payroll
$
$
$
$
Postage
Other expenses
Total expenses
$
$
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
14
NOTE 6 – STOCK-BASED COMPENSATION:
As of October 28, 2023, the Company had
compensation was outstanding or could be granted. The 2018 Incentive Compensation Plan and 2013
Incentive Compensation Plan are for the granting of various forms of equity-based awards, including
restricted stock and stock options for grant, to officers, directors and key employees. Effective May 24, 2018,
shares for grant were no longer available under the 2013 Incentive Compensation Plan.
The following table presents the number of options and shares of restricted stock initially authorized and
available for grant under each of the plans as of October 28, 2023:
2013
2018
Plan
Plan
Total
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 October
28, 2023 and January 28, 2023, 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 October 28, 2023 was $
, respectively,
compared to total compensation benefit of $
the three and nine months ended October 29, 2022, respectively. These amounts are classified as a
component of Selling, general and administrative expenses in the Condensed Consolidated Statements of
Income (Loss) and Comprehensive Income (Loss).
The following summary shows the changes in the number of shares of unvested restricted stock outstanding
during the nine months ended October 28, 2023:
Weighted Average
Number of
Grant Date Fair
Shares
Value Per Share
Restricted stock awards at January 28, 2023
$
Granted
Vested
(217,238 )
Forfeited or expired
(109,705 )
Restricted stock awards at October 28, 2023
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
15
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 October 28, 2023 and October 29,
2022, 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 approximately $
for the nine months ended October 28, 2023 and October 29, 2022, 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 October 28, 2023 and January 28, 2023:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
October 28, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(8,311 )
$
$
$
(8,311 )
Total Liabilities
$
(8,311 )
$
$
$
(8,311 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
16
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 28, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(8,903 )
$
$
$
(8,903 )
Total Liabilities
$
(8,903 )
$
$
$
(8,903 )
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at October 28,
2023 and January 28, 2023. The state, municipal and corporate bonds have contractual maturities which
range from
s to
investments, Restricted cash and Other assets on the accompanying Condensed Consolidated Balance Sheets.
These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated
other comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit
cards that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans
that were originated and serviced by captive auto finance units, banks or finance companies. The bank credit
card asset-backed securities are backed by revolving pools of credit card receivables generated by account
holders of cards from American Express, Citibank, JPMorgan Chase, Capital One and Discover.
Additionally, at October 28, 2023, the Company had $
compensation plan assets of $
equities and deferred compensation plan assets of $
assets in the Condensed Consolidated Balance Sheets.
Level 1 securities are measured at fair value using quoted active market prices. Level 2 investment securities
include corporate bonds, municipal bonds and asset-backed securities for which quoted prices may not be
available on active exchanges for identical instruments. Their fair value is principally based on market values
determined by management with assistance of a third-party pricing service. Since quoted prices in active
markets for identical assets are not available, these prices are determined by the pricing service using
observable market information such as quotes from less active markets and/or quoted prices of securities with
similar characteristics, among other factors.
Deferred compensation plan assets consist 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
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
17
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 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 October 28, 2023 and the year ended January 28,
2023 (in thousands):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
Redemptions
Additions
Total gains or (losses):
changes in net assets)
(236 )
Ending Balance at October 28, 2023
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
(8,903 )
(231 )
changes in net assets)
Ending Balance at October 28, 2023
$
(8,311 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
18
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 29, 2022
$
Redemptions
(1,718 )
Additions
Total gains or (losses):
changes in net assets)
(480 )
Ending Balance at January 28, 2023
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 29, 2022
$
(10,020 )
(379 )
changes in net assets)
Ending Balance at January 28, 2023
$
(8,903 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
19
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
The Company has reviewed recent accounting pronouncements and believe none will have a material
impact on the Company’s financial statements.
NOTE 9 – INCOME TAXES:
The Company had an effective tax rate for the first nine months of 2023 of
% compared to
% for
the first nine months of 2022. The change in the effective tax rate for the first nine months was primarily
due to increases in foreign rate differential and the release of reserves for uncertain tax positions, offset by
decreases in Global Intangible Low-taxed Income (GILTI), state income taxes, non-deductible officer’s
compensation, and foreign tax credits, as percentages on a pre-tax loss.
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
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. Layaway sales
are recorded as deferred revenue until the customer takes possession of, or forfeits, the merchandise. Gift
cards do not have expiration dates. A provision is made for estimated merchandise returns based on sales
volumes and the Company’s experience; actual returns have not varied materially from historical
amounts. A provision is made for estimated write-offs associated with sales made with the Company’s
proprietary credit card. 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 CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 28, 2023 AND
OCTOBER 29, 2022
20
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 October 28, 2023, the Company estimated customer credit losses of $
$
, respectively, compared to $
29, 2022, respectively. Sales purchased on the Company’s proprietary credit card for the three and nine
months ended October 28, 2023 were $
million and $
The following table provides information about receivables and contract liabilities from contracts with
customers (in thousands):
Balance as of
October 28, 2023
January 28, 2023
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 OCTOBER 28, 2023 AND
OCTOBER 29, 2022
21
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
October 28, 2023
October 29, 2022
Operating lease cost (a)
$
$
Variable lease cost (b)
$
$
(a) Includes right-of-use asset amortization of ($
) million and ($
) million for the three months ended October 28, 2023 and
October 29, 2022, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.
Nine Months Ended
October 28, 2023
October 29, 2022
Operating lease cost (a)
$
$
Variable lease cost (b)
$
$
(a) Includes right-of-use asset amortization of ($
) million and ($
) million for the nine months ended October 28, 2023 and
October 29, 2022, 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 OCTOBER 28, 2023 AND
OCTOBER 29, 2022
22
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
October 28, 2023
October 29, 2022
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
October 28, 2023
October 29, 2022
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
October 28, 2023
October 29, 2022
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
2023 (a)
$
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
(a) Excluding the nine months ended October 28, 2023
23
THE CATO CORPORATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The following information should be read along with the unaudited Condensed Consolidated Financial
Statements, including the accompanying Notes appearing in this report. Any of the following are
“forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended: (1) statements in this
Form 10-Q that reflect projections or expectations of our future financial or economic performance;
(2) statements that are not historical information; (3) statements of our beliefs, intentions, plans and
objectives for future operations, including those contained in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”; (4) statements relating to our operations or activities for
our fiscal year ending February 3, 2024 (“fiscal 2023”) and beyond, including, but not limited to,
statements regarding expected amounts of capital expenditures and store openings, relocations, remodels
and closures and statements regarding the potential impact of the COVID-19 pandemic and related
responses and mitigation efforts, as well as the potential impact of supply chain disruptions, inflationary
pressures and other economic or market conditions on our business, results of operations and financial
condition and statements regarding new store development strategy; and (5) statements relating to our
future contingencies. When possible, we have attempted to identify forward-looking statements by using
words such as “will,” “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “hopes,”
“intends,” “may,” “plans,” “could,” “would,” “should” and any variations or negative formations of such
words and similar expressions. We can give no assurance that actual results or events will not differ
materially from those expressed or implied in any such forward-looking statements. Forward-looking
statements included in this report are based on information available to us as of the filing date of this
report, but subject to known and unknown risks, uncertainties and other factors that could cause actual
results to differ materially from those contemplated by the forward-looking statements. Such factors
include, but are not limited to, the following: any actual or perceived deterioration in the conditions that
drive consumer confidence and spending, including, but not limited to, prevailing social, economic,
political and public health conditions and uncertainties, levels of unemployment, fuel, energy and food
costs, wage rates, tax rates, interest rates, home values, consumer net worth, the availability of credit and
inflation; changes in laws, regulations or government policies affecting our business, including but not
limited to tariffs; uncertainties regarding the impact of any governmental action regarding, or responses
to, the foregoing conditions; competitive factors and pricing pressures; our ability to predict and respond
to rapidly changing fashion trends and consumer demands; our ability to successfully implement our new
store development strategy to increase new store openings and our ability of any such new stores to grow
and perform as expected; adverse weather, public health threats (including the global COVID-19
pandemic) or similar conditions that may affect our sales or operations; inventory risks due to shifts in
market demand, including the ability to liquidate excess inventory at anticipated margins; adverse
developments or volatility affecting the financial services industry or broader financial markets; and other
factors discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the
fiscal year ended January 28, 2023 (“fiscal 2022”), 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)
24
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company’s accounting policies 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 January 28, 2023. As disclosed in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” 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, 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)
25
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in the Company's unaudited Condensed
Consolidated Statements of Income as a percentage of total retail sales:
Three Months Ended
Nine Months Ended
October 28, 2023
October 29, 2022
October 28, 2023
October 29, 2022
Total retail sales
100.0
%
100.0
%
100.0
%
100.0
%
Other revenue
1.0
1.0
0.9
0.9
Total revenues
101.0
101.0
100.9
100.9
Cost of goods sold (exclusive of depreciation)
67.5
70.7
65.4
67.5
Selling, general and administrative (exclusive
of depreciation)
39.4
35.1
35.1
31.8
Depreciation
1.6
1.6
1.4
1.5
Interest and other income
(1.0)
(1.3)
(0.7)
(0.8)
Income (loss) before income taxes
(6.6)
(5.2)
(0.3)
1.0
Net income (loss)
(3.9)
(2.5)
(0.1)
0.5
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
26
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 2022 Annual Report on Form 10-K.
Recent Developments
Inflationary Cost Pressure and High Interest Rates
Despite some reduction in inflationary pressures from last year, wages, operating supplies, and service
costs continue to be negatively impacted by the current inflationary environment. In addition, our
customers’ disposable income is impacted by increased costs related to fuel, food, housing, including rent,
and other consumable products relative to flattening wage rates, which negatively impact our customers’
willingness to purchase discretionary items such as apparel, jewelry and shoes.
In response, the Federal Reserve began raising, and is committed to continue raising, interest rates until
inflationary pressures subside to acceptable levels. Though the Federal Reserve has paused raising rates,
it has indicated it is committed to reducing inflation to its targeted levels. These high interest rates have
adversely affected the availability and cost of credit for both businesses and our customers. Increasing
costs related to revolving credit, auto loans and mortgages continue to negatively impact our customers’
discretionary income. Our customers’ willingness to purchase our products may continue to be
negatively impacted by these inflationary pressures and high interest rates.
We believe high prices and interest rates negatively impacted the first three quarters of fiscal 2023 and
will likely continue to have a negative impact on consumer behavior and, by extension, our results of
operations and financial condition during the remainder of fiscal 2023.
Comparison of the Three and Nine Months ended October 28, 2023 with October 29, 2022
Total retail sales for the third quarter were $156.7 million compared to last year’s third quarter sales of $174.9
million, a 10% decrease. The Company’s sales decrease in the third quarter of fiscal 2023 was primarily due
to an 8% decrease in same-store sales and closed stores, partially offset by sales from new stores. For the nine
months ended October 28, 2023, total retail sales were $528.2 million compared to last year’s comparable
nine month sales of $574.9 million, an 8% decrease. The decrease in sales in the first nine months of fiscal
2023 was due primarily to a 6% decrease in same-store sales and closed stores, partially offset by sales from
new stores. 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 October 28, 2023 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 $158.3
million and $533.2 million for the three and nine months ended October 28, 2023, compared to $176.6
million and $580.2 million for the three and nine months ended October 29, 2022, respectively. The
Company operated 1,245 stores at October 28, 2023 compared to 1,317 stores at the end of last year’s third
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
27
quarter. During the first nine months of fiscal 2023, the Company opened nine stores and closed 44 stores.
The Company currently expects to close approximately 110 stores in total in fiscal 2023.
Credit revenue of $0.7 million represented 0.4% of total revenues in the third quarter of fiscal 2023,
compared to 2022 credit revenue of $0.6 million or 0.3% of total revenues. Credit revenue is comprised of
interest earned on the Company’s private label credit card portfolio and related fee income. Related expenses
principally include payroll, postage and other administrative expenses and totaled $0.4 million in the third
quarter of fiscal 2023, compared to last year’s third quarter expense of $0.4 million.
Other revenue, a component of total revenues, was $1.6 million and $5.0 million for the three and nine
months ended October 28, 2023, respectively, compared to $1.7 million and $5.4 million for the prior year’s
comparable three and nine month periods. The decrease in Other revenue for both the three and nine months
was due to decreases in gift card breakage and e-commerce shipping revenue partially offset by increases in
finance charges and late fees associated with the Company’s proprietary credit card.
Cost of goods sold was $105.8 million, or 67.5% of retail sales and $345.5 million, or 65.4% of retail sales
for the three and nine months ended October 28, 2023, respectively, compared to $123.8 million, or 70.7% of
retail sales and $387.7 million, or 67.5% of retail sales for the comparable three and nine month periods of
fiscal 2022. The overall decrease in cost of goods sold as a percent of retail sales for the third quarter and
first nine months of fiscal 2023 resulted primarily from lower ocean freight costs and increased sales of
regular priced goods, partially offset by deleveraging of occupancy and buying costs. Cost of goods sold
includes merchandise costs (net of discounts and allowances), buying costs, distribution costs, occupancy
costs, 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 0.6% to $50.9 million for
the third quarter of fiscal 2023 and by 2.4% to $182.6 million for the first nine months of fiscal 2023,
compared to $51.2 million and $187.1 million for the prior year’s comparable three and nine months of fiscal
2022, 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 $61.8 million, or 39.4% of retail sales and $185.3 million, or 35.1% of retail sales for the third
quarter and first nine months of fiscal 2023, respectively, compared to $61.4 million, or 35.1% of retail sales
and $182.6 million, or 31.8% of retail sales for the prior year’s comparable three and nine month periods,
respectively. The increase in SG&A for the third quarter and first nine months of fiscal 2023 was primarily
due to higher payroll and insurance expense.
Depreciation expense was $2.5 million, or 1.6% of retail sales and $7.4 million, or 1.4% of retail sales for the
third quarter and first nine months of fiscal 2023, respectively, compared to $2.9 million, or 1.6% of retail
sales and $8.4 million or 1.5% of retail sales for the comparable three and nine month periods of fiscal 2022,
respectively.
Interest and other income was $1.5 million, or 1.0% of retail sales and $3.8 million, or 0.7% of retail sales for
the three and nine months ended October 28, 2023, respectively, compared to $2.3 million, or 1.3% of retail
sales and $4.6 million, or 0.8% of retail sales for the comparable three and nine month periods of fiscal 2022,
respectively. The decrease for the third quarter and first nine months of fiscal 2023 compared to fiscal 2022
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
28
was primarily attributable to the Company’s receipt of a Business Recovery Grant from the state of North
Carolina in 2022, partially offset by higher amounts earned on investments due to higher interest rates.
Income tax benefit was $4.3 million and $0.8 million for the third quarter and first nine months of fiscal
2023, respectively, compared to a tax benefit of $4.7 million and a tax expense of $3.0 million for the
comparable three and nine month periods of fiscal 2022, respectively. For the first nine months of fiscal
2023, the Company’s effective tax rate was 60.4% compared to 49.7% for the first nine months of fiscal
2022. The change in the 2023 year-to-date effective tax rate was primarily due to increases in foreign rate
differential and the release of reserves for uncertain tax positions, offset by decreases in Global Intangible
Low-taxed Income (GILTI), state income taxes, non-deductible officer’s compensation, and foreign tax
credits, as percentages on a pre-tax loss.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:
The Company believes that its cash, cash equivalents and short-term investments, together with cash flows
from operations and borrowings available under its revolving credit agreement, will be adequate to fund the
Company’s regular operating requirements and expected capital expenditures for fiscal 2023 and the next 12
months.
Cash provided by operating activities during the first nine months of fiscal 2023 was $11.7 million as
compared to $19.3 million provided in the first nine months of fiscal 2022. The decrease in cash provided of
$7.6 million for the first nine months of fiscal 2023 as compared to the first nine months of fiscal 2022 was
primarily due to a net loss in 2023 compared to net income in 2022, and higher accounts receivable, partially
offset by lower accounts payable and accrued liabilities.
At October 28, 2023, the Company had working capital of $76.8 million compared to $74.7 million at
January 28, 2023.
The increase in working capital was primarily attributable to a decrease in current lease
liability and an increase in cash, partially offset by a decrease in inventory and short-term investments.
As of October 28, 2023, the Company has an unsecured revolving credit line, 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 revolving credit agreement contains various financial covenants
and limitations, including the maintenance of specific financial ratios. On October 24, 2023, the Company
amended the revolving credit agreement to link the calculation of the Company’s EBITDAR coverage ratio
to the amount of the Company’s cash and investments. Though the effect of the amendment reduced the
minimum EBITDAR coverage ratio for the quarter ended October 28, 2023 and is expected to do so going
forward, the Company was in compliance with the amended credit agreement for the quarter ended October
28, 2023 and also would have been in compliance without giving effect to the amendment. There were no
borrowings outstanding, nor any outstanding letters of credit that reduced borrowing availability, as of
October 28, 2023. The weighted average interest rate under the credit facility was zero at October 28, 2023
due to no borrowings outstanding.
Expenditures for property and equipment totaled $10.3 million in the first nine months of fiscal 2023,
compared to $14.4 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 2023 year, the Company expects to invest approximately $12.0
million for capital expenditures.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
29
Net cash provided by investing activities totaled $6.1 million in the first nine months of fiscal 2023 compared
to $0.2 million net cash provided in the comparable period of 2022. The increase in net cash provided in
2023 was primarily due to a decrease in capital expenditures.
Net cash used in financing activities totaled $12.7 million in the first nine months of fiscal 2023 compared to
$22.2 million used in the comparable period of fiscal 2022. The decrease in net cash used in fiscal 2023 was
primarily due to lower stock repurchases.
On November 16, 2023, the Board of Directors maintained the quarterly dividend at $0.17 per share.
As of October 28, 2023, the Company had 909,653 shares remaining in open authorizations under its share
repurchase program.
The Company does not use derivative financial instruments.
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at October 28,
2023 and January 28, 2023. The state, municipal and corporate bonds have contractual maturities which
range from four days to 3.1 years. The U.S. Treasury Notes have contractual maturities which range from 79
days to 2.3 years. These securities are classified as available-for-sale and are recorded as Short-term
investments, Restricted cash and Other assets on the accompanying Condensed Consolidated Balance Sheets.
These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated
other comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit
cards that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans
that were originated and serviced by captive auto finance units, banks or finance companies. The bank credit
card asset-backed securities are backed by revolving pools of credit card receivables generated by account
holders of cards from American Express, Citibank, JPMorgan Chase, Capital One and Discover.
Additionally, at October 28, 2023, the Company had $0.8 million of corporate equities and deferred
compensation plan assets of $9.0 million. At January 28, 2023, the Company had $0.9 million of corporate
equities and deferred compensation plan assets of $9.3 million. All of these assets are recorded within Other
assets in the Condensed Consolidated Balance Sheets. See Note 7, Fair Value Measurements.
RECENT ACCOUNTING PRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 October 28, 2023. Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of October 28,
2023, 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 October 28, 2023 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 January 28, 2023.
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.
THE CATO CORPORATION
PART II OTHER INFORMATION
32
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 October 28, 2023:
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 2023
-
$
-
-
September 2023
-
-
-
October 2023
-
-
-
Total
-
$
-
-
909,653
(1)
Prices include trading costs.
(2)
As of July 29, 2023, the Company’s share repurchase program had 909,653 shares remaining in
open authorizations. During the third quarter ended October 28, 2023, the Company did not
repurchase or retire any shares under this program. As of October 28, 2023, the Company had
909,653 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
33
ITEM 4. MINE SAFETY DISCLOSURES:
Not Applicable.
ITEM 5. OTHER INFORMATION:
During the three months ended October 28, 2023, none of the Company’s directors or officers (as defined
in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)
10b5-1 trading arrangement” or a “
Item 408 of Regulation S-K).
ITEM 6. EXHIBITS:
Exhibit No.
Item
10.1**
10.2*
101.1*
The following materials from Registrant’s Quarterly Report on Form 10-Q for the
fiscal quarter ended October 28, 2023, formatted in Inline XBRL: (i) Condensed
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for
the Three Months and Nine Months Ended October 28, 2023 and October 29,
2022; (ii) Condensed Consolidated Balance Sheets at October 28, 2023 and
January 28, 2023; (iii) Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended October 28, 2023 and October 29, 2022; (iv) Condensed
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended
October 28, 2023 and October 29, 2022; and (v) Notes to Condensed Consolidated
Financial Statements.
104.1
Cover Page Interactive Data File (Formatted in Inline XBRL and contained in
the Interactive Data Files submitted as Exhibit 101.1*)
THE CATO CORPORATION
PART II OTHER INFORMATION
34
* Submitted electronically herewith.
THE CATO CORPORATION
PART II OTHER INFORMATION
35
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 21, 2023
/s/ John P. D. Cato
Date
John P. D. Cato
Chairman, President and
Chief Executive Officer
November 21, 2023
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer