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