UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~July 31, ~~2020~~2021
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 1-31340

THE CATO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware	56-0484485
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8100 Denmark Road, Charlotte, North Carolina28273-5975
(Address of principal executive offices) (Zip Code)

(704)554-8510
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, 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
Class A - Common Stock, par value $.033 per share	CATO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐Accelerated filer ☑ Non-accelerated filer ☐Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐

~~Yes~~

As of ~~October~~July 31, ~~2020,~~2021, there were ~~21,170,417~~20,776,585 shares of Class A common stock and 1,763,652 shares of Class B common stock outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended ~~October~~July 31, ~~2020~~2021

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~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019~~August 1, 2020

	Condensed Consolidated Balance Sheets			4
		At ~~October~~July 31, ~~2020~~2021 and ~~February 1, 2020~~January 30, 2021

	Condensed Consolidated Statements of Cash Flows			5
		For the ~~Nine~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019~~August 1, 2020

	Condensed Consolidated Statements of Stockholders’ Equity			6 – 7
		For the ~~Nine~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019~~August 1, 2020

	Notes to Condensed Consolidated Financial Statements			8 – 23
		For the Three Months and ~~Nine~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019~~August 1, 2020

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 – 31

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk	32

	Item 4.		Controls and Procedures	32

PART II – OTHER INFORMATION

	Item 1.		Legal Proceedings	33

	Item 1A.		Risk Factors	33

	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3433

	Item 3.		Defaults Upon Senior Securities	3433

	Item 4.		Mine Safety Disclosures	3534

	Item 5.		Other Information	3534

	Item 6.		Exhibits	3534

	Signatures			3635

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					Three Months Ended			Six Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020

		(Dollars in thousands, except per share data)								(Dollars in thousands, except per share data)
REVENUES
Retail sales	$	149,205	$	189,357	$	414,283	$	627,780	$	205,962	$	166,265	$	417,196	$	265,078
Other revenue (principally finance charges, late fees and
layaway charges)		1,586		2,166		5,410		6,676		1,784		1,905		3,635		3,824
Total revenues		150,791		191,523		419,693		634,456		207,746		168,170		420,831		268,902

COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shown below)		109,404		118,624		325,738		385,079		115,587		132,736		239,262		216,333
Selling, general and administrative (exclusive of depreciation
shown below)		51,885		64,681		148,353		196,737		70,984		43,957		134,221		96,468
Depreciation		3,619		3,844		11,113		11,523		3,137		3,488		6,179		7,494
Interest and other income		(791)		(1,662)		(3,603)		(4,491)		(515)		(961)		(1,178)		(2,812)
Cost and expenses, net		164,117		185,487		481,601		588,848		189,193		179,220		378,484		317,483

Income (loss) before income taxes		(13,326)		6,036		(61,908)		45,608		18,553		(11,050)		42,347		(48,581)

Income tax expense (benefit)		(9,704)		51		(22,698)		6,501		4,561		(3,880)		7,642		(12,994)

Net income (loss)	$	(3,622)	$	5,985	$	(39,210)	$	39,107	$	13,992	$	(7,170)	$	34,705	$	(35,587)

Basic earnings (loss) per share	$	(0.15)	$	0.24	$	(1.64)	$	1.59	$	0.62	$	(0.30)	$	1.54	$	(1.48)

Diluted earnings (loss) per share	$	(0.15)	$	0.24	$	(1.64)	$	1.59	$	0.62	$	(0.30)	$	1.54	$	(1.48)

Comprehensive income:
Net income (loss)	$	(3,622)	$	5,985	$	(39,210)	$	39,107	$	13,992	$	(7,170)	$	34,705	$	(35,587)
Unrealized gain (loss) on available-for-sale securities, net of
deferred income taxes of ($85) and ($29) for the three and
nine months ended October 31, 2020 and ($8) and $380 for
the three and nine months ended November 2, 2019, respectively		(282)		(25)		(96)		1,246
deferred income taxes of ($44) and ($85) for the three and
six months ended July 31, 2021 and $146 and $56 for
the three and six months ended August 1, 2020, respectively										(145)		484		(279)		186
Comprehensive income (loss)	$	(3,904)	$	5,960	$	(39,306)	$	40,353	$	13,847	$	(6,686)	$	34,426	$	(35,401)

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	October 31, 2020		February 1, 2020		July 31, 2021		January 30, 2021

ASSETS	(Dollars in thousands)				(Dollars in thousands)
Current Assets:
Cash and cash equivalents	$	18,812	$	11,824	$	25,354	$	17,510
Short-term investments		132,574		200,387		191,520		126,416
Restricted cash		3,102		2,577		3,918		3,512
Restricted short-term investments		815		1,319		0		406
Accounts receivable, net of allowance for doubtful accounts of
$574 and $726 at October 31, 2020 and February 1, 2020, respectively		47,725		26,088
Accounts receivable, net of allowance for customer credit losses of
$742 and $605 at July 31, 2021 and January 30, 2021, respectively						51,296		52,743
Merchandise inventories		84,281		115,365		72,042		84,123
Prepaid expenses and other current assets		7,185		5,237		5,421		5,840
Total Current Assets		294,494		362,797		349,551		290,550
Property and equipment – net		81,853		88,667		67,280		72,550
Noncurrent deferred income taxes		7,464		8,636		5,770		5,685
Other assets		22,722		24,073		23,441		22,850
Right-of-Use assets – net		184,338		200,803		144,765		199,817
Total Assets	$	590,871	$	684,976	$	590,807	$	591,452
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	74,999	$	68,438	$	71,463	$	73,769
Accrued expenses		45,843		47,099		40,641		40,790
Accrued bonus and benefits		259		18,913
Accrued employee benefits and bonus						30,596		1,916
Accrued income taxes		1,388		1,703		4,096		2,038
Current lease liability		54,250		63,149		54,604		63,421
Total Current Liabilities		176,739		199,302		201,400		181,934
Other noncurrent liabilities		19,799		21,976		20,550		19,705
Lease liability		138,196		147,184		95,045		143,315

Stockholders' Equity:
Preferred stock, $100 par value per share, 100,000 shares
authorized, none issued		0		0		0		0
Class A common stock, $0.033 par value per share, 50,000,000
shares authorized; 21,170,417 shares and 22,535,779 shares
issued at October 31, 2020 and February 1, 2020, respectively		717		761
shares authorized; 20,776,585 shares and 20,839,795 shares
issued at July 31, 2021 and January 30, 2021, respectively						701		703
Convertible Class B common stock, $0.033 par value per share,
15,000,000 shares authorized; 1,763,652 shares and 1,763,652 shares
issued at October 31, 2020 and February 1, 2020, respectively		59		59
issued at July 31, 2021 and January 30, 2021, respectively						59		59
Additional paid-in capital		114,196		110,813		117,312		115,278
Retained earnings		139,838		203,458		154,864		129,303
Accumulated other comprehensive income (loss)		1,327		1,423
Accumulated other comprehensive income						876		1,155
Total Stockholders' Equity		256,137		316,514		273,812		246,498
Total Liabilities and Stockholders' Equity	$	590,871	$	684,976	$	590,807	$	591,452

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Nine Months Ended				Six Months Ended
	October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020

		(Dollars in thousands)				(Dollars in thousands)

Operating Activities:
Net income (loss)	$	(39,210)	$	39,107	$	34,705	$	(35,587)
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation		11,113		11,523		6,179		7,494
Provision for doubtful accounts		202		539
Provision for customer credit losses						246		109
Purchase premium and premium amortization of investments		(613)		(380)		(1,410)		161
Share-based compensation		3,010		3,450		1,906		1,903
Deferred income taxes		1,201		0		0		2,669
Loss on disposal of property and equipment		438		555		283		162
Impairment of store assets		7,525		0		0		5,270
Changes in operating assets and liabilities which provided
(used) cash:
Accounts receivable		(21,814)		119		1,202		(13,058)
Merchandise inventories		31,084		5,536		12,081		27,085
Prepaid and other assets		(2,223)		37,447		(66)		(7,291)
Operating lease right-of-use assets and liabilities		(1,422)		0		(2,035)		(920)
Accrued income taxes		(315)		1,568		2,058		(467)
Accounts payable, accrued expenses and other liabilities		(15,041)		(50,158)		26,808		(35,759)
Net cash provided (used) by operating activities		(26,065)		49,306		81,957		(48,229)

Investing Activities:
Expenditures for property and equipment		(11,228)		(4,946)		(1,125)		(9,801)
Purchase of short-term investments		(54,910)		(177,807)		(113,454)		(8,275)
Sales of short-term investments		123,860		160,858		49,696		108,886
Purchase of other assets		0		(332)
Sales of other assets		200		13		0		199
Net cash provided (used) in investing activities		57,922		(22,214)		(64,883)		91,009

Financing Activities:
Dividends paid		(7,912)		(24,461)		(2,488)		(7,990)
Repurchase of common stock		(16,823)		(5,032)		(6,483)		(9,875)
Proceeds from line of credit		34,000		0		0		34,000
Payments on line of credit		(34,000)		0		0		(34,000)
Proceeds from employee stock purchase plan		391		563		147		250
Net cash provided (used) in financing activities		(24,344)		(28,930)		(8,824)		(17,615)

Net increase (decrease) in cash, cash equivalents, and restricted cash		7,513		(1,838)		8,250		25,165

Cash, cash equivalents, and restricted cash at beginning of period		14,401		25,209		21,022		14,401
Cash, cash equivalents, and restricted cash at end of period	$	21,914	$	23,371	$	29,272	$	39,566

Non-cash activity:
Accrued other assets and property and equipment	$	2,604	$	1,538	$	410	$	1,556
Accrued treasury stock		556		0		194		0

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Convertible

Accumulated

Class A
Class B
Additional

Other
Total

Common
Common
Paid-in
Retained
Comprehensive
Stockholders'

Stock
Stock
Capital
Earnings
Income
Equity

(Dollars in thousands)

Balance — February 1, 2020
$
761
$
59
$
110,813
$
203,458
$
1,423
$
316,514
Comprehensive income:

Net income

0

0

0

(28,417)

0

(28,417)
Unrealized gain (loss) on available-for-sale securities, net of

deferred income tax benefit of ($90)

0

0

0

0

(298)

(298)
Dividends paid ($0.33 per share)

0

0

0

(7,990)

0

(7,990)
Class A common stock sold through employee stock purchase

plan — 26,957 shares

1

0

293

0

0

294
Class B common stock sold through stock option plans —

0 shares

0

0

0

0

0

0
Class A common stock issued through restricted stock grant plans —

307,354 shares

10

0

587

8

0

605
Repurchase and retirement of treasury shares – 618,056 shares

(22)

0

0

(9,034)

0

(9,056)

Balance — May 2, 2020
$
750
$
59
$
111,693
$
158,025
$
1,125
$
271,652
Comprehensive income:

Net income

0

0

0

(7,170)

0

(7,170)
Unrealized gain (loss) on available-for-sale securities, net of

deferred income tax liability of $146

0

0

0

0

484

484
Dividends paid ($0 per share)

0

0

0

0

0

0
Class A common stock sold through employee stock purchase

plan — 0 shares

0

0

0

0

0

0
Class B common stock sold through stock option plans —

0 shares

0

0

0

0

0

0
Class A common stock issued through restricted stock grant plans —

(57,805) shares

(2)

0

1,256

(1)

0

1,253
Repurchase and retirement of treasury shares – 0 shares

0

0

0

0

0

0

Balance — August 1, 2020
$
748
$
59
$
112,949
$
150,854
$
1,609
$
266,219
Comprehensive income:

Net income

0

0

0

(3,622)

0

(3,622)
Unrealized gain (loss) on available-for-sale securities, net of

deferred income tax benefit of ($85)

0

0

0

0

(282)

(282)
Dividends paid ($0 per share)

0

0

0

78

0

78
Class A common stock sold through employee stock purchase

plan — 21,234 shares

1

0

166

0

0

167
Class B common stock sold through stock option plans —

0 shares

0

0

0

0

0

0
Class A common stock issued through restricted stock grant plans —

(8,440) shares

0

0

1,081

1

0

1,082
Repurchase and retirement of treasury shares – 1,036,610 shares

(32)

0

0

(7,473)

0

(7,505)

Balance — October 31, 2020
$
717
$
59
$
114,196
$
139,838
$
1,327
$
256,137

			Convertible						Accumulated
	Class A		Class B		Additional				Other		Total
	Common		Common		Paid-in		Retained		Comprehensive		Stockholders'
	Stock		Stock		Capital		Earnings		Income		Equity

	(Dollars in thousands)


Balance — January 30, 2021	$	703	$	59	$	115,278	$	129,303	$	1,155	$	246,498
Comprehensive income:
Net income (loss)		0		0		0		20,713		0		20,713
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax benefit of ($40)		0		0		0		0		(134)		(134)
Dividends paid ($0.00 per share)		0		0		0		0		0		0
Class A common stock sold through employee stock purchase
plan — 19,248 shares		1		0		150		0		0		151
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
396,558 shares		13		0		271		0		0		284
Repurchase and retirement of treasury shares – 425,661 shares		(14)		0		0		(5,615)		0		(5,629)

Balance — May 1, 2021	$	703	$	59	$	115,699	$	144,401	$	1,021	$	261,883
Comprehensive income:
Net income (loss)		0		0		0		13,992		0		13,992
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax benefit of ($44)		0		0		0		0		(145)		(145)
Dividends paid ($0.11 per share)		0		0		0		(2,488)		0		(2,488)
Class A common stock sold through employee stock purchase
plan — 1,336 shares		0		0		23		0		0		23
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
10,018 shares		0		0		1,590		5		0		1,595
Repurchase and retirement of treasury shares – 64,709 shares		(2)		0		0		(1,046)		0		(1,048)

Balance — July 31, 2021	$	701	$	59	$	117,312	$	154,864	$	876	$	273,812

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

			Convertible						Accumulated						Convertible						Accumulated
	Class A		Class B		Additional				Other		Total		Class A		Class B		Additional				Other		Total
	Common		Common		Paid-in		Retained		Comprehensive		Stockholders'		Common		Common		Paid-in		Retained		Comprehensive		Stockholders'
	Stock		Stock		Capital		Earnings		Income		Equity		Stock		Stock		Capital		Earnings		Income		Equity

	(Dollars in thousands)												(Dollars in thousands)


Balance — February 2, 2019	$	767	$	59	$	105,580	$	210,507	$	(77)	$	316,836
Balance — February 1, 2020													$	761	$	59	$	110,813	$	203,458	$	1,423	$	316,514
Comprehensive income:
Net income		0		0		0		21,256		0		21,256
Net income (loss)														0		0		0		(28,417)		0		(28,417)
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax liability of $126		0		0		0		0		412		412
deferred income tax benefit of ($90)														0		0		0		0		(298)		(298)
Dividends paid ($0.33 per share)		0		0		0		(8,118)		0		(8,118)		0		0		0		(7,990)		0		(7,990)
Class A common stock sold through employee stock purchase
plan — 20,676 shares		1		0		307		0		0		308
plan — 26,957 shares														1		0		293		0		0		294
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
355,609 shares		11		0		624		10		0		645
Repurchase and retirement of treasury shares – 208,041 shares		(7)		0		0		(2,827)		0		(2,834)
307,354 shares														10		0		587		8		0		605
Repurchase and retirement of treasury shares – 618,056 shares														(22)		0		0		(9,034)		0		(9,056)

Balance — May 4, 2019	$	772	$	59	$	106,511	$	220,828	$	335	$	328,505
Balance — May 2, 2020													$	750	$	59	$	111,693	$	158,025	$	1,125	$	271,652
Comprehensive income:
Net income		0		0		0		11,866		0		11,866
Net income (loss)														0		0		0		(7,170)		0		(7,170)
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax liability of $262		0		0		0		0		859		859
Dividends paid ($0.33 per share)		0		0		0		(8,173)		0		(8,173)
deferred income tax liability of $146														0		0		0		0		484		484
Dividends paid ($0.00 per share)														0		0		0		0		0		0
Class A common stock sold through employee stock purchase
plan — 5,402 shares		0		0		67		0		0		67
plan — 0 shares														0		0		0		0		0		0
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
System.Object[] shares		0		0		1,479		15		0		1,494
(57,805) shares														(2)		0		1,256		(1)		0		1,253
Repurchase and retirement of treasury shares – 0 shares		0		0		0		0		0		0		0		0		0		0		0		0

Balance — August 3, 2019	$	772	$	59	$	108,057	$	224,536	$	1,194	$	334,618
Comprehensive income:
Net income		0		0		0		5,985		0		5,985
Unrealized gain (loss) on available-for-sale securities, net of
deferred income tax benifit of ($8)		0		0		0		0		(25)		(25)
Dividends paid ($0.33 per share)		0		0		0		(8,170)		0		(8,170)
Class A common stock sold through employee stock purchase
plan — 18,252 shares		0		0		287		0		0		287
Class B common stock sold through stock option plans —
0 shares		0		0		0		0		0		0
Class A common stock issued through restricted stock grant plans —
System.Object[] shares		0		0		1,199		13		0		1,212
Repurchase and retirement of treasury shares – 129,339 shares		(4)		0		0		(2,194)		0		(2,198)

Balance — November 2, 2019	$	768	$	59	$	109,543	$	220,170	$	1,169	$	331,709
Balance — August 1, 2020													$	748	$	59	$	112,949	$	150,854	$	1,609	$	266,219

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 1 - GENERAL:

The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019~~August 1, 2020 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 ~~February 1, 2020.~~January 30, 2021. Amounts as of ~~February 1, 2020~~January 30, 2021 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 August 27, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1 million shares.~~

Subsequent to ~~October~~July 31, ~~2020,~~2021, the Company repurchased ~~320,707~~168,390 shares for ~~$2,274,610.~~

~~Additionally, on November 19, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1.5 million shares.~~$2,802,850.

COVID-19 Update

The COVID-19 pandemic ~~has created,~~adversely impacted the Company's business, financial condition and operating results through fiscal 2020. The first and second quarters of 2021 saw significant improvements in sales compared to 2020. This improvement was primarily attributable to government stimulus, increased customer traffic, states lifting capacity limits as more people were vaccinated, consumers’ increasing comfort level with venturing out to social events and customers’ preparing to return to work. However, the Company’s sales were well below 2019 sales for the comparable period, and there is still a high level of uncertainty regarding the lingering effects of the pandemic, as well as renewed concerns over the impact of new, more transmissible variants of the virus, slowing vaccination rates and related factors that have in some cases slowed and may continue to ~~create, challenges~~slow progress toward the return to pre-pandemic activities and levels of consumer confidence. The Company faces additional uncertainty from the continued effects of disruption in the global supply chain and available workers as it attempts to hire associates as its operating hours continue to expand. The Company expects that these uncertainties and perhaps others related to the pandemic will continue to impact the Company in fiscal 2021 and possibly beyond. The adverse financial impacts associated with the continued effects of, and uncertainties ~~for our business. In~~related to, the ~~first quarter of fiscal 2020,~~COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by actual or potential adverse changes in conditions relating to the pandemic, ~~resulted~~whether due to increases in case counts, state and local orders, ~~mandating~~reductions in store ~~closures~~traffic and ~~other measures~~customer demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the ~~spread~~effects of the ~~virus. Recently reported increases in infection rates in many areas~~outbreak, including increased freight and ~~the onset of cooler weather raise the possibility of increased or renewed governmental measures or public health guidance to reduce public activity~~logistics costs and gatherings in order to mitigate the spread of the virus, as well as continued adverse effect on consumer confidence. Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of fiscal 2020 and possibly beyond. other expenses.

The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak or its variants, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

~~Beginning March 19, 2020,~~While the Company ~~temporarily closed all Cato, It’s Fashion, It’s Fashion Metro~~currently anticipates a continuation of the adverse impacts of COVID-19 during 2021 and ~~Versona stores. In addition,~~possibly beyond, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as furloughed associates and in certain instances eliminated positions primarily at its corporate office. Beginning on May 1, 2020, the Company began to re-open stores based on the pertinent state and local orders. As of June 15, 2020, all stores have re-opened. Although all stores have re-opened, stores are operating at reduced hours and stores may be temporarily closed or subject to further operating restrictions in compliance with local regulations or in response to public health guidance due to COIVD-19. There is significant uncertainty around the duration ~~breadth~~ and severity of ~~continued business disruptions related to~~these effects will depend on the course of future

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

COVID-19, as well as its impact on the U.S. economy, consumer willingness to visit malls and shopping centers, and associate staffing for our stores. At this time, the possible effects of national, state or local action, legislation, guidelines or programs that attempt to mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the Company are also uncertain.

~~While the Company currently anticipates that our results for the remainder of fiscal 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future~~ developments, which are highly uncertain, including the relative speed and success of, as well as public confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S. and global population, emerging information regarding variants of the virus or new viruses and their potential impact on current mitigation efforts, public attitudes toward continued compliance with containment and mitigation measures, and possible new information and understanding ~~about~~that could alter the ~~severity~~course and duration of ~~COVID-19, related potential economic impacts~~current measures to ~~customers and suppliers, and~~combat the ~~effect~~spread of ~~actions taken to contain it or mitigate its impact.~~

~~Accounting Policies - Impairment of Long-Lived Assets:~~

~~The Company invests in leaseholds, right-of use assets and equipment primarily in connection with~~ the opening and remodeling of stores and in computer software and hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and Information technology equipment and software. An impairment charge is recorded for the amount by which the carrying value exceeds the estimated fair value when the Company determines that projected cash flows associated with those long-lived assets will not be sufficient to recover the carrying value. This determination is based on a number of factors, including the store’s historical operating results and projected cash flows, which include future sales growth rates, margin rates and expense projections. The Company assesses the fair value of each lease by considering market rents and any lease terms that may adjust market rents under certain conditions, such as the loss of an anchor tenant or a leased space in a shopping center not meeting certain criteria. Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change. As a result of store closures during the first quarter of 2020, the Company determined a triggering event occurred, which resulted in an impairment analysis being performed. An asset impairment charge of $5.3 million was recorded in the first quarter of 2020, and no additional impairment was required in the second and third quarters of 2020. During the third quarter of 2020, the Company determined no new stores would be opened during the remainder of 2020, as well as 2021. As a result, during the third quarter of 2020, the Company impaired $2.3 million worth of fixtures planned for new stores.virus.

Recently Adopted Accounting Policies

In ~~June 2016,~~December 2019, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ASU ~~2016-13,~~2019-12, ~~Financial Instruments - Credit Losses~~Income Taxes (Topic ~~326)~~740): ~~Measurement of Credit Losses on Financial Instruments~~Simplifying the Accounting for Income Taxes~~, which requires companies~~. The new accounting rules reduce complexity by removing specific exceptions to ~~measure~~general principles related to intraperiod tax allocations, ownership changes in foreign investments, and ~~recognize expected credit~~interim period income tax accounting for year-to-date losses ~~for financial assets held at amortized costs based on expected losses rather than incurred~~that exceed anticipated losses. The new accounting rules ~~were effective~~also simplify accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The Company inadopted this accounting standards update on the first day of the first quarter of ~~2020 and had a minimal~~2021 with no material impact on ~~the financial statements.~~its Condensed Consolidated Financial Statements.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 – Earnings Per Share requires dual presentation of basic and diluted Earnings Per Share (“EPS”) on the face 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.~~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						Three Months Ended				Six Months Ended
				October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019				July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
		(Dollars in thousands)										(Dollars in thousands)
Numerator	Numerator										Numerator
	Net earnings (loss)		$	(3,622)	$	5,985	$	(39,210)	$	39,107	Net earnings (loss)		$	13,992	$	(7,170)	$	34,705	$	(35,587)
	(Earnings) loss allocated to non-vested equity awards			155		(220)		1,706		(1,390)	(Earnings) loss allocated to non-vested equity awards			(756)		320		(1,739)		1,531
	Net earnings (loss) available to common stockholders		$	(3,467)	$	5,765	$	(37,504)	$	37,717	Net earnings (loss) available to common stockholders		$	13,236	$	(6,850)	$	32,966	$	(34,056)

Denominator	Denominator										Denominator
	Basic weighted average common shares outstanding			22,674,507		23,749,048		22,847,776		23,764,938	Basic weighted average common shares outstanding			21,367,819		22,908,942		21,428,491		22,934,410
	Diluted weighted average common shares outstanding			22,674,507		23,749,048		22,847,776		23,764,938	Diluted weighted average common shares outstanding			21,367,819		22,908,942		21,428,491		22,934,410

Net income (loss) per common share	Net income (loss) per common share										Net income (loss) per common share
	Basic earnings (loss) per share		$	(0.15)	$	0.24	$	(1.64)	$	1.59	Basic earnings (loss) per share		$	0.62	$	(0.30)	$	1.54	$	(1.48)
	Diluted earnings (loss) per share		$	(0.15)	$	0.24	$	(1.64)	$	1.59	Diluted earnings (loss) per share		$	0.62	$	(0.30)	$	1.54	$	(1.48)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

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~~July 31, ~~2020:~~2021:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at August 1, 2020

$
1,609

Other comprehensive income before

reclassification

(350)

Amounts reclassified from accumulated

other comprehensive income (b)

68

Net current-period other comprehensive income

(282)

Ending Balance at October 31, 2020

$
1,327

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $89 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $21.

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at May 1, 2021		$	1,021
Other comprehensive income before
reclassification			(171)

Amounts reclassified from accumulated
other comprehensive income (b)			26

Net current-period other comprehensive income			(145)

Ending Balance at July 31, 2021		$	876

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $34 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $8.

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the ~~nine~~six months ended ~~October~~July 31, ~~2020:~~2021:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 1, 2020

$
1,423

Other comprehensive income before

reclassification

(732)

Amounts reclassified from accumulated

other comprehensive income (b)

636

Net current-period other comprehensive income

(96)

Ending Balance at October 31, 2020

$
1,327

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $827 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $191.

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at January 30, 2021		$	1,155
Other comprehensive income before
reclassification			(344)

Amounts reclassified from accumulated
other comprehensive income (b)			65

Net current-period other comprehensive income			(279)

Ending Balance at July 31, 2021		$	876

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $85 impact of accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $20.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

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 ~~November 2, 2019:~~August 1, 2020:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at August 3, 2019

$
1,194

Other comprehensive income before

reclassifications

(165)

Amounts reclassified from accumulated

other comprehensive income (b)

140

Net current-period other comprehensive income

(25)

Ending Balance at November 2, 2019

$
1,169

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $183 impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $43.

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at May 2, 2020		$	1,125
Other comprehensive income before
reclassifications			420

Amounts reclassified from accumulated
other comprehensive income (b)			64

Net current-period other comprehensive income			484

Ending Balance at August 1, 2020		$	1,609

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $83 impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $19.

The following table sets forth information regarding the reclassification out of Accumulated other comprehensive income (in thousands) for the ~~nine~~six months ended ~~November 2, 2019:~~August 1, 2020:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 2, 2019

$
(77)

Other comprehensive income before

reclassifications

1,067

Amounts reclassified from accumulated

other comprehensive income (b)

179

Net current-period other comprehensive income

1,246

Ending Balance at November 2, 2019

$
1,169

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.

(b) Includes $234 impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $55.

	Changes in Accumulated Other
	Comprehensive Income (a)
			Unrealized Gains
			and (Losses) on
			Available-for-Sale
			Securities
Beginning Balance at February 1, 2020		$	1,423
Other comprehensive income before
reclassifications			(381)

Amounts reclassified from accumulated
other comprehensive income (b)			567

Net current-period other comprehensive income			186

Ending Balance at August 1, 2020		$	1,609

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $738 impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $171.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 4 – FINANCING ARRANGEMENTS:

As of ~~October~~July 31, ~~2020,~~2021, the Company had an unsecured revolving credit agreement, which provides for borrowings of up to ~~borrow~~ $35.0 million, less the balance of any revocable letters of credit ~~as discussed below.~~related to purchase commitments. On June 2, 2020, the Company signed an amendment extending the revolving credit agreement through May 2023. The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of ~~October~~July 31, ~~2020.~~2021. There were no borrowings outstanding under this credit facility, nor any outstanding letters of credit that reduced borrowing availability, as of ~~October~~July 31, ~~2020~~2021 or ~~February 1, 2020.~~January 30, 2021. The weighted average interest rate under the credit facility was zero at ~~October~~July 31, ~~2020~~2021 due to no borrowings outstanding.

At ~~October~~July 31, ~~2020~~2021 and ~~February 1, 2020,~~January 30, 2021, the Company had no outstanding revocable letters of credit relating to purchase commitments.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The Company has determined that it has four operating segments, as defined under ASC 280-10, including Cato, It’s Fashion, Versona and Credit. As outlined in ASC 280-10, the Company has two reportable segments: Retail and Credit. The Company has aggregated its three retail operating segments, including e-commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating segments may be aggregated into a single reportable segment if aggregation is consistent with the objective and basic principles of ASC 280-10, which require the segments 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. They are similar in nature of product, as they all offer women’s apparel, shoes and accessories. Merchandise inventory for 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 operating segments is distributed to retail stores in a similar manner through the Company’s single distribution center and is subsequently distributed to clients in a similar manner.

The Company operates its women’s fashion specialty retail stores in 3332 states as of ~~October~~July 31, ~~2020,~~2021, 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 ~~separate~~wholly-owned subsidiary of the Company.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):

The following schedule summarizes certain segment information (in thousands):

Three Months Ended				Nine Months Ended							Six Months Ended
October 31, 2020	Retail	Credit	Total	October 31, 2020	Retail	Credit	Total
July 31, 2021								Retail	Credit	Total	July 31, 2021	Retail	Credit	Total

Revenues	$150,203	$588	$150,791	Revenues	$417,616	$2,077	$419,693	$207,242	$504	$207,746	Revenues	$419,789	$1,042	$420,831
Depreciation	3,618	1	3,619	Depreciation	11,112	1	11,113	3,137	0	3,137	Depreciation	6,179	0	6,179
Interest and other income	(791)	0	(791)	Interest and other income	(3,603)	0	(3,603)	(515)	0	(515)	Interest and other income	(1,178)	0	(1,178)
Income/(Loss) before income taxes	(13,559)	233	(13,326)	Income/(Loss) before income taxes	(62,851)	943	(61,908)	18,366	187	18,553	Income/(Loss) before income taxes	41,906	441	42,347
Capital expenditures	1,428	0	1,428	Capital expenditures	11,228	0	11,228	570	0	570	Capital expenditures	1,125	0	1,125

Three Months Ended				Nine Months Ended							Six Months Ended
November 2, 2019	Retail	Credit	Total	November 2, 2019	Retail	Credit	Total
August 1, 2020								Retail	Credit	Total	August 1, 2020	Retail	Credit	Total

Revenues	$190,637	$886	$191,523	Revenues	$631,751	$2,705	$634,456	$167,523	$647	$168,170	Revenues	$267,413	$1,489	$268,902
Depreciation	3,843	1	3,844	Depreciation	11,522	1	11,523	3,488	0	3,488	Depreciation	7,494	0	7,494
Interest and other income	(1,662)	0	(1,662)	Interest and other income	(4,491)	0	(4,491)	(961)	0	(961)	Interest and other income	(2,812)	0	(2,812)
Income/(Loss) before income taxes	5,571	465	6,036	Income/(Loss) before income taxes	44,251	1,357	45,608	(11,368)	318	(11,050)	Income/(Loss) before income taxes	(49,291)	710	(48,581)
Capital expenditures	2,729	0	2,729	Capital expenditures	4,946	0	4,946	4,490	0	4,490	Capital expenditures	9,801	0	9,801

	Retail	Credit	Total					Retail	Credit	Total

Total assets as of October 31, 2020	$543,827	$47,044	$590,871
Total assets as of February 1, 2020	636,503	48,473	684,976
Total assets as of July 31, 2021								$547,985	$42,822	$590,807
Total assets as of January 30, 2021								549,349	42,103	591,452

The Company evaluates segment performance based on income before 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				Three Months Ended				Six Months Ended
		October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020

Payroll	$	135	$	164	$	417	$	478	$	79	$	130	$	231	$	282
Postage		85		110		278		351		51		82		162		193
Other expenses		134		146		438		518		187		118		208		305
Total expenses	$	354	$	420	$	1,133	$	1,347	$	317	$	330	$	601	$	780

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 6 – STOCK-BASED COMPENSATION:

As of ~~October~~July 31, ~~2020,~~2021, the Company had two long-term compensation plans pursuant to which stock-based 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~~July 31, ~~2020:~~2021:

	2013	2018		2013	2018
	Plan	Plan	Total	Plan	Plan	Total
Options and/or restricted stock initially authorized	1,500,000	4,725,000	6,225,000	1,500,000	4,725,000	6,225,000
Options and/or restricted stock available for grant:
October 31, 2020	0	3,951,558	3,951,558
July 31, 2021				0	3,554,897	3,554,897

In accordance with ASC 718, 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~~July 31, ~~2020~~2021 and ~~February 1, 2020,~~January 30, 2021, there was ~~$11,778,000~~$13,551,000 and ~~$11,900,000,~~$10,550,000, respectively, of total unrecognized compensation expense related to nonvested restricted stock awards, which had a remaining weighted-average vesting period of ~~2.4~~2.8 years and ~~2.2~~2.1 years, respectively. The total compensation expense during the three and ~~nine~~six months ended ~~October~~July 31, ~~2020~~2021 was ~~$1,082,000~~$1,597,000 and ~~$2,941,000,~~$1,880,000, respectively, compared to ~~$1,211,000~~$1,253,000 and ~~$3,351,000,~~$1,859,000, respectively, for the three and ~~nine~~six months ended ~~November 2, 2019.~~August 1, 2020. These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income (Loss) and Comprehensive ~~Income.~~Income (Loss).

The following summary shows the changes in the shares of unvested restricted stock outstanding during the ~~nine~~six months ended ~~October~~July 31, ~~2020:~~2021:

			Weighted Average			Weighted Average
	Number of		Grant Date Fair	Number of		Grant Date Fair
	Shares		Value Per Share	Shares		Value Per Share
Restricted stock awards at February 1, 2020	942,562	$	19.55
Restricted stock awards at January 30, 2021				1,023,956	$	15.33
Granted	335,317		11.11	407,910		13.49
Vested	(129,682)		34.01	(176,575)		22.22
Forfeited or expired	(114,326)		16.55	(33,429)		13.98
Restricted stock awards at October 31, 2020	1,033,871	$	15.33
Restricted stock awards at July 31, 2021				1,221,862	$	13.76

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The Company’s Amended and Restated Employee Stock Purchase Plan allows eligible full-time employees to purchase a limited number of shares of the Company’s Class A Common Stock during each semi-annual offering period at a 15% discount through payroll deductions. During the ~~nine~~six months ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019,~~August 1, 2020, the Company sold ~~48,191~~20,584 and ~~44,330~~26,957 shares to employees at an average discount of ~~$1.43~~$1.26 and ~~$2.24~~$1.64 per share, respectively, under the Employee Stock Purchase Plan. The compensation expense recognized for the 15% discount given under the Employee Stock Purchase Plan was approximately ~~$69,000~~$26,000 and ~~$99,000~~$44,000 for the ~~nine~~six months ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019,~~August 1, 2020, 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~~July 31, ~~2020~~2021 and ~~February 1, 2020:~~January 30, 2021:

				Quoted											Quoted
				Prices in											Prices in
				Active			Significant								Active			Significant
				Markets for			Other			Significant					Markets for			Other			Significant
				Identical			Observable			Unobservable					Identical			Observable			Unobservable
	October 31, 2020			Assets			Inputs			Inputs		July 31, 2021			Assets			Inputs			Inputs
Description			Level 1			Level 2			Level 3			July 31, 2021		Level 1			Level 2			Level 3
Assets:	October 31, 2020
State/Municipal Bonds	$	29,034		$	0		$	29,034		$	0	$	29,333		$	0		$	29,333		$	0
Corporate Bonds		63,167			0			63,167			0		108,199			0			108,199			0
U.S. Treasury/Agencies Notes and Bonds		20,265			0			20,265			0		32,379			0			32,379			0
Cash Surrender Value of Life Insurance		10,538			0			0			10,538		11,695			0			0			11,695
Asset-backed Securities (ABS)		19,996			0			19,996			0		20,217			0			20,217			0
Corporate Equities		1,515			1,515			0			0		808			808			0			0
Certificates of Deposit		0			0			0			0
Commercial Paper													1,393			0			1,393			0
Total Assets	$	144,515		$	1,515		$	132,462		$	10,538	$	204,024		$	808		$	191,521		$	11,695

Liabilities:
Deferred Compensation		(10,428)			0			0			(10,428)		(10,397)			0			0			(10,397)
Total Liabilities	$	(10,428)		$	0		$	0		$	(10,428)	$	(10,397)		$	0		$	0		$	(10,397)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

			Quoted								Quoted
			Prices in								Prices in
			Active		Significant						Active		Significant
			Markets for		Other		Significant				Markets for		Other		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
		February 1, 2020	Assets		Inputs		Inputs			January 30, 2021	Assets		Inputs		Inputs
Description		February 1, 2020	Level 1		Level 2		Level 3			January 30, 2021	Level 1		Level 2		Level 3
Assets:
State/Municipal Bonds	$	36,014	$	0	$	36,014	$	0	$	23,254	$	0	$	23,254	$	0
Corporate Bonds		90,798		0		90,798		0		67,566		0		67,566		0
U.S. Treasury/Agencies Notes and Bonds		37,410		0		37,410		0		17,869		0		17,869		0
Cash Surrender Value of Life Insurance		10,517		0		0		10,517		11,263		0		0		11,263
Asset-backed Securities (ABS)		37,384		0		37,384		0		16,064		0		16,064		0
Corporate Equities		732		732		0		0		703		703		0		0
Certificates of Deposit		100		100		0		0
Commercial Paper										2,069		0		2,069		0
Total Assets	$	212,955	$	832	$	201,606	$	10,517	$	138,788	$	703	$	126,822	$	11,263

Liabilities:
Deferred Compensation		(10,391)		0		0		(10,391)		(10,316)		0		0		(10,316)
Total Liabilities	$	(10,391)	$	0	$	0	$	(10,391)	$	(10,316)	$	0	$	0	$	(10,316)

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~~July 31, ~~2020~~2021 and ~~February 1, 2020.~~January 30, 2021. The state, municipal and corporate bonds have contractual maturities which range from ~~two weeks~~one day to five years. The U.S. Treasury Notes ~~and Certificates of Deposit~~ have contractual maturities which range from two ~~weeks~~months to ~~three~~two years. These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash and Restricted short-term investments 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~~July 31, ~~2020,~~2021, the Company had ~~$1.5~~$0.8 million of corporate equities and deferred compensation plan assets of ~~$10.5~~$11.7 million. At ~~February 1, 2020,~~January 30, 2021, the Company had $0.7 million of corporate equities and deferred compensation plan assets of ~~$10.5~~$11.3 million. 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 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~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

~~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 following tables summarize the change in fair value of the Company’s financial assets and liabilities measured using Level 3 inputs as of ~~October~~July 31, ~~2020~~2021 and ~~February 1, 2020~~January 30, 2021 (in thousands):

	Fair Value		Fair Value
	Measurements Using		Measurements Using
	Significant Unobservable		Significant Unobservable
	Asset Inputs (Level 3)		Asset Inputs (Level 3)
	Cash Surrender Value		Cash Surrender Value
Beginning Balance at February 1, 2020	$	10,517
Beginning Balance at January 30, 2021			$	11,263
Additions		0		0
Total gains or (losses)
Included in interest and other income (or changes in net assets)		21		432
Included in other comprehensive income		0		0
Ending Balance at October 31, 2020	$	10,538
Ending Balance at July 31, 2021			$	11,695

	Fair Value		Fair Value
	Measurements Using		Measurements Using
	Significant Unobservable		Significant Unobservable
	Liability Inputs (Level 3)		Liability Inputs (Level 3)
	Deferred Compensation		Deferred Compensation
Beginning Balance at February 1, 2020	$	(10,391)
Beginning Balance at January 30, 2021			$	(10,316)
Redemptions				642
Additions		157		(195)
Total (gains) or losses
Included in interest and other income (or changes in net assets)		(194)		(528)
Included in other comprehensive income		0		-
Ending Balance at October 31, 2020	$	(10,428)
Ending Balance at July 31, 2021			$	(10,397)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In ~~December 2019,~~March 2020, the FASB issued ASU ~~2019-12,~~2020-04, ~~Income Taxes~~Reference Rate Reform (Topic ~~740)~~848): ~~Simplifying~~Facilitation of the ~~Accounting for Income Taxes~~Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, Reference Rate Reform: Scope. The new accounting rules ~~reduce complexity~~provide optional expedients and exceptions for applying GAAP to contracts and other transactions affected by ~~removing specific exceptions to general principles related to intraperiod tax allocations, ownership changes~~reference rate reform. The amendments in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The new accounting rules also simplify accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up inthis standard can be adopted any time before the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new accounting rules will be effective for the Company in the firstfourth quarter of ~~2021.~~2022. The Company is currently in the process of evaluating the impact of adoption of the new ~~accounting~~ rules on the Company’s financial ~~position,~~condition, results of operations, cash flows and disclosures.

NOTE 9 – INCOME TAXES:

The Company had an effective tax rate for the first ~~nine~~six months of ~~2020~~2021 of ~~36.7% (Benefit)~~18.0% (Expense) compared to ~~14.3% (Expense)~~26.7% (Benefit) for the first ~~nine~~six months of ~~2019.~~2020. The ~~increase~~change in the effective tax rate for the first ~~nine~~six months was primarily due to ~~the federal net operating loss carryback provisions of the Coronavirus Aid, Relief~~higher pre-tax earnings and ~~Economic Security Act (CARES Act) and release of reserves for uncertain~~ability to realize foreign tax ~~positions due to expiration of statute of limitations,~~credits, offset by ~~valuation allowances against~~increases in state income ~~net operating losses, less income tax credits,~~taxes and an upward adjustment in ~~the~~ reserves for uncertain tax positions specific to state income taxes ~~recorded~~ in the first quarter of 2020.

The Company assessed the likelihood that deferred tax assets related to state net operating loss carryforwards will be realized in light of the adverse impact on the Company's financial statements and operations due to COVID-19. Based on this assessment, the Company concluded that it is more likely than not that the Company will not be able to realize the state net operating losses and, accordingly, has recorded a valuation allowance against the existing deferred tax assets.

The annual effective tax rate for the current fiscal year is impacted by the ability to carryback federal net operating losses due to the CARES Act, partially offset by changes in management’s judgment regarding the ability to realize deferred tax assets, primarily state income net operating losses generated in the current fiscal year. The Company has factored the realizability of these deferred tax assets generated as a result of projected current year losses into its estimated annual effective rate for the current year. To the extent that actual results and/or events differ from the predicted results, the Company may continue to see effects on the annual effective tax rate.

Further, the ~~CARES~~Coronavirus Aid, Relief and Economic Security Act (“CARES”) allows the Company to carryback losses ~~to 2015;~~five years; therefore, the Company has recorded ~~$27.0~~$33.0 million of estimated refunds calculated through the ~~third~~first quarter of ~~2020~~2021 in Accounts receivable inon the Condensed Consolidated Balance Sheets.

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 its control, litigation with respect to various

~~THE CATO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019~~

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 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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 2021 AND AUGUST 1, 2020

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. None of the credit card receivables are secured. ~~The~~During the three and six months ended July 31, 2021, the Company estimated ~~uncollectible amounts~~customer credit losses of ~~$,311000~~$,144000 and ~~$,670000~~$275,000, respectively, compared to $,116000 and $185,000 for the ~~nine~~three and six months ended ~~October 31,~~August 1, 2020, ~~and November 2, 2019, respectively, on sales~~respectively. Sales purchased on the Company’s proprietary credit card ~~of $11.1~~for the three and six months ended July 31, 2021 were $4.8 million and ~~$20.3~~$9.2 million, respectively, compared to $4.3 million and $6.9 million for the ~~nine~~three and six months ended ~~October 31,~~August 1, 2020, ~~and November 2, 2019,~~ respectively.

The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):

	Balance as of				Balance as of
		October 31, 2020		February 1, 2020		July 31, 2021		January 30, 2021

Proprietary Credit Card Receivables, net	$	10,241	$	15,241	$	8,903	$	9,606
Gift Card Liability	$	6,021	$	7,658	$	6,302	$	8,155

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

NOTE 12 – LEASES:

The Company determines whether an arrangement is a lease at inception. The Company has operating leases for stores, offices and equipment. Its leases have remaining lease terms of ~~one year~~up to 10 years ~~some~~based on the estimated likelihood of ~~which~~renewal. Some include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year. The Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

	Three Months Ended				Three Months Ended
		October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020

Operating lease cost (a)	$	17,665	$	16,677	$	17,334	$	17,082
Variable lease cost (b)	$	480	$	466	$	700	$	439
ASC 840 prepaid rent expense (c)	$	0	$	39

(a) Includes right-of-use asset amortization of ($0.8) million and ($1.0) million for the three months ended October 31, 2020 and November 2, 2019, respectively.
(a) Includes right-of-use asset amortization of ($0.5) million and ($1.0) million for the three months ended July 31, 2021 and August 1, 2020, respectively.					(a) Includes right-of-use asset amortization of ($0.5) million and ($1.0) million for the three months ended July 31, 2021 and August 1, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.	(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.				(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
(c) Related to ASC 840 rent expense due to prepaid rent on the balance sheet as of February 3, 2019.

	Nine Months Ended				Six Months Ended
		October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020

Operating lease cost (a)	$	52,522	$	43,074	$	34,060	$	34,075
Variable lease cost (b)	$	999	$	1,580	$	1,493	$	519
ASC 840 prepaid rent expense (c)	$	0	$	6,051

(a) Includes right-of-use asset amortization of ($3.5) million and ($3.9) million for the nine months ended October 31, 2020 and November 2, 2019, respectively.
(a) Includes right-of-use asset amortization of ($1.6) million and ($2.7) million for the six months ended July 31, 2021 and August 1, 2020, respectively.					(a) Includes right-of-use asset amortization of ($1.6) million and ($2.7) million for the six months ended July 31, 2021 and August 1, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.	(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.				(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
(c) Related to ASC 840 rent expense due to prepaid rent on the balance sheet as of February 3, 2019.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 31, ~~2020~~2021 AND ~~NOVEMBER 2, 2019~~AUGUST 1, 2020

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				Three Months Ended
	October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020

Cash paid for amounts included in the measurement of lease liabilities	$	16,109	$	15,503	$	15,726	$	15,946
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	(1,825)	$	2,758	$	(26,157)	$	3,287


	Nine Months Ended				Six Months Ended
	October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020

Cash paid for amounts included in the measurement of lease liabilities	$	47,554	$	40,921	$	31,673	$	31,445
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	29,659	$	3,360	$	(25,423)	$	31,484

During the second quarter of 2021, the Company reassessed its initial accounting term for approximately 80 stores for the likelihood of renewal. After evaluation, the Company now believes it is no longer probable that these stores will be renewed for a second lease term. The remeasurement resulted in a $25.8 million reduction of the Company’s Right-of-Use assets on the Condensed Consolidated Balance Sheets.

Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:

	As of		As of
	October 31, 2020	November 2, 2019	July 31, 2021	August 1, 2020

Weighted-average remaining lease term	2.7 years	2.4 years	2.4 years	2.9 years
Weighted-average discount rate	4.14%	4.64%	3.47%	4.29%

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):

Fiscal Year

2020 (a)	$	17,155
2021		57,224
2021 (a)			$	33,731
2022		41,927		48,846
2023		30,536		36,107
2024		19,546		22,633
2025				12,386
Thereafter		47,987		4,892
Total lease payments		214,375		158,595
Less: Imputed interest		21,929		8,946
Present value of lease liabilities	$	192,446	$	149,649

(a) Excluding the 9 months ended October 31, 2020.
(a) Excluding the 6 months ended July 31, 2021.			(a) Excluding the 6 months ended July 31, 2021.

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 January ~~30, 2021~~29, 2022 (“fiscal ~~2020”~~2021”) 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 on our business, results of operations and financial condition; 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 and the availability of credit; changes in laws, regulations or governmental policies affecting our business, including tariffs; uncertainties regarding the impact of any governmental actions 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 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; 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 1, 2020~~January 30, 2021 (“fiscal ~~2019”~~2020”), 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)

CRITICAL ACCOUNTING ~~POLICIES:~~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 ~~February 1, 2020.~~January 30, 2021. 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 allowance for ~~doubtful accounts,~~customer credit losses, inventory shrinkage, the calculation of potential asset impairment, workers’ compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and uncertain tax positions.

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)

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				Three Months Ended				Six Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019		July 31, 2021		August 1, 2020		July 31, 2021		August 1, 2020
Total retail sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Other revenue	1.1		1.1		1.3		1.1		0.9		1.1		0.9		1.4
Total revenues	101.1		101.1		101.3		101.1		100.9		101.1		100.9		101.4
Cost of goods sold (exclusive of depreciation)	73.3		62.6		78.6		61.3		56.1		79.8		57.4		81.6
Selling, general and administrative (exclusive of depreciation)	34.8		34.2		35.8		31.3		34.5		26.4		32.2		36.4
Depreciation	2.4		2.0		2.7		1.8		1.5		2.1		1.5		2.8
Interest and other income	(0.5)		(0.9)		(0.9)		(0.7)		(0.3)		(0.6)		(0.3)		(1.1)
Income/(loss) before income taxes	(8.9)		3.2		(14.9)		7.3
Net income/(loss)	(2.4)		3.2		(9.5)		6.2
Income (loss) before income taxes									9.0		(6.6)		10.2		(18.3)
Net income (loss)									6.8		(4.3)		8.3		(13.4)

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED):

COVID-19 Update

The COVID-19 pandemic ~~has created,~~adversely impacted the Company's business, financial condition and operating results through fiscal 2020. The first and second quarters of 2021 saw significant improvements in sales compared to 2020. This improvement was primarily attributable to government stimulus, increased customer traffic, states lifting capacity limits as more people were vaccinated, consumers’ increasing comfort level with venturing out to social events and customers’ preparing to return to work. However, the Company’s sales were well below 2019 sales for the comparable period, and there is still a high level of uncertainty regarding the lingering effects of the pandemic, as well as renewed concerns over the impact of new, more transmissible variants of the virus, slowing vaccination rates and related factors that have in some cases slowed and may continue to ~~create, challenges~~slow progress toward the return to pre-pandemic activities and levels of consumer confidence. The Company faces additional uncertainty from the continued effects of disruption in the global supply chain and available workers as it attempts to hire associates as its operating hours continue to expand. The Company expects that these uncertainties and perhaps others related to the pandemic will continue to impact the Company in fiscal 2021 and possibly beyond. The adverse financial impacts associated with the continued effects of, and uncertainties ~~for our business. In~~related to, the ~~first quarter of fiscal 2020,~~COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by actual or potential adverse changes in conditions relating to the pandemic, ~~resulted~~whether due to increases in case counts, state and local orders, ~~mandating~~reductions in store ~~closures~~traffic and ~~other measures~~customer demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the ~~spread~~effects of the ~~virus. Recently reported increases in infection rates in many areas~~outbreak, including increased freight and ~~the onset of cooler weather raise the possibility of increased or renewed governmental measures to reduce public activity~~logistics costs and gatherings in order to mitigate the spread of the virus, as well as continued adverse effect on consumer confidence. Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of fiscal 2020 and possibly beyond. other expenses.

Beginning March 19, 2020, the Company temporarily closed all Cato, It’s Fashion, It’s Fashion Metro and Versona stores. In addition, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as furloughed associates and in certain instances eliminated positions primarily at its corporate office. Beginning on May 1, 2020, the Company began to re-open stores based on the pertinent state and local orders. As of June 15, 2020, all stores have re-opened. Although all stores have re-opened, stores are operating at reduced hours and stores may be temporarily closed or subject to further operating restrictions in compliance with local regulations or in response to public health guidance due to COIVD-19. There is significant uncertainty around the duration, breadth and severity of continued business disruptions related to COVID-19, as well as its impact on the U.S. economy, consumer willingness to visit malls and shopping centers, and associate staffing for our stores. At this time, the possible effects of national, state or local action, legislation, guidelines or programs that attempt to mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the Company are also uncertain.

While the Company currently anticipates ~~that our results for~~a continuation of the ~~remainder~~adverse impacts of ~~fiscal 2020 will be adversely impacted,~~COVID-19 during 2021 and possibly beyond, the ~~extent to which COVID-19 impacts the Company’s results~~duration and severity of these effects will depend on the course of future developments, which are highly uncertain, including the relative speed and success of, as well as public confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S. and global population, emerging information regarding variants of the virus or new viruses and their potential impact on current mitigation efforts, public attitudes toward continued compliance with containment and mitigation measures, and possible new information and understanding ~~about~~that could alter the ~~severity~~course and duration of ~~COVID-19, related potential economic impacts~~current measures to ~~customers and suppliers, and~~combat the ~~effect~~spread of ~~actions taken to contain it or mitigate its impact.~~the virus.

Comparison of the Three and ~~Nine~~Six Months ended ~~October~~July 31, ~~2020~~2021 with ~~November 2, 2019~~August 1, 2020

Total retail sales for the ~~third~~second quarter were ~~$149.2~~$206.0 million compared to last year’s ~~third~~second quarter sales of ~~$189.4~~$166.3 million, a ~~21% decrease.~~24% increase. The Company’s sales ~~decrease~~increase in the ~~third~~second quarter of fiscal ~~2020~~2021 is primarily due to a 23% ~~decrease~~increase in same-store sales and sales from new stores, partially offset by permanently closed stores in 2020. The increase in same-store sales ~~from new store openings. Sales in the third quarter were negatively impacted by reduced operating hours compared to 2019, higher amounts of markdowns and temporary store closings~~is primarily due to ~~COVID-19 cases and hurricanes.~~stores being open in this year’s second quarter, as opposed to closed from March 19, 2020 into the second quarter of 2020. For the ~~nine~~six months ended ~~October~~July 31, ~~2020,~~2021, total retail sales were ~~$414.3~~$417.2 million compared to last year’s comparable ~~nine~~six month sales of ~~$627.8~~$265.1 million, a ~~34% decrease.~~57% increase. Sales in the first ~~nine~~six months of fiscal ~~2020 decreased~~2021 increased primarily due to a ~~35% decrease~~56% increase in same-store sales and sales from new stores, partially offset by sales from new store openings. Sales for the nine months ended October 31, 2020 were negatively impacted primarily by store closures in the first quarter, phased re-opening of stores in the second quarter, reduced store hours and high amounts of markdowns. Same-storepermanently closed

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

stores in 2020. Same-store sales for the six months ended July 31, 2021 increased primarily due to stores being open in the first six months of 2021 as opposed to closed from March 19, 2020 into the second quarter of 2020. 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 6%5% of total sales for the ~~nine~~six months ended ~~October~~July 31, ~~2020~~2021 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 ~~$150.8~~$207.7 million and ~~$419.7~~$420.8 million for the three and ~~nine~~six months ended ~~October~~July 31, ~~2020,~~2021, compared to ~~$191.5~~$168.2 million and ~~$634.5~~$268.9 million for the three and ~~nine~~six months ended ~~November 2, 2019,~~August 1, 2020, respectively. The Company operated ~~1,347~~1,325 stores at ~~October~~July 31, ~~2020~~2021 compared to ~~1,298~~1,333 stores at the end of last year’s ~~third~~second quarter. During the first ~~nine~~six months of fiscal ~~2020,~~2021, the Company closed five stores. The Company currently expects to open fewer than 10 ~~stores. In total, the Company opened 76~~ stores ~~which had leases prior to the COVID-19 pandemic,~~ and ~~expects~~ to close approximately 4025 stores in fiscal ~~2020.~~2021.

Credit revenue of ~~$0.6~~$0.5 million represented ~~0.4%~~0.2% of total revenues in the ~~third~~second quarter of fiscal ~~2020,~~2021, compared to ~~2019~~2020 credit revenue of ~~$0.9~~$0.6 million or ~~0.5%~~0.4% of total revenues. Credit revenue is comprised of interest earned on the Company’s private label credit card portfolio and related fee income. Credit revenue decreased slightly for the most recent comparable period due to lower finance charge income and lower late fee income from sales using the Company’s proprietary credit card. Related expenses principally include payroll, postage and other administrative expenses and totaled ~~$0.4~~$0.3 million in the ~~third~~second quarter of fiscal ~~2020,~~2021, compared to last year’s ~~third~~second quarter expense of ~~$0.4~~$0.3 million.

Other revenue in total, as included in total revenues, was ~~$1.6~~$1.8 million and ~~$5.4~~$3.6 million for the three and ~~nine~~six months ended ~~October~~July 31, ~~2020,~~2021, respectively, compared to ~~$2.2~~$1.9 million and ~~$6.7~~$3.8 million for the prior year’s comparable three and ~~nine~~six month periods. The overall decrease in the three and ~~nine~~six months ended ~~October~~July 31, ~~2020~~2021 is primarily due to decreases in finance ~~and layaway charges,~~charge income, partially offset by increases in ~~e-commerce shipping revenues.~~layaway charges and gift card breakage income.

Cost of goods sold was ~~$109.4~~$115.6 million, or ~~73.3%~~56.1% of retail sales and ~~$325.7~~$239.3 million, or ~~78.6%~~57.3% of retail sales for the three and ~~nine~~six months ended ~~October~~July 31, ~~2020,~~2021, respectively, compared to ~~$118.6~~$132.7 million, or ~~62.6%~~79.8% of retail sales and ~~$385.1~~$216.3 million, or ~~61.3%~~81.6% of retail sales for the comparable three and ~~nine~~six month periods of fiscal ~~2019.~~2020. The overall ~~increase~~decrease in cost of goods sold as a percent of retail sales for the ~~third~~second quarter of fiscal ~~2020~~ 2021 resulted primarily from ~~an increase in markdown sales~~the leveraging of occupancy, buying and distribution costs due to ~~liquidating spring~~more normalized sales and ~~summer merchandise,~~higher sales of regular priced goods ~~marked out of stock, and deleveraging occupancy, distribution 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~~increased by ~~43.7%~~169.9% to ~~$39.8~~$90.4 million for the ~~third~~second quarter of fiscal ~~2020~~2021 and ~~decreased~~increased by ~~63.5%~~265.3% to ~~$88.5~~$177.9 million for the first ~~nine~~six months of fiscal ~~2020,~~2021, compared to ~~$70.7~~$33.5 million and ~~$242.7~~$48.7 million for the prior year’s comparable three and ~~nine~~six months of fiscal ~~2019.~~2020. 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 ~~$51.9~~$71.0 million, or ~~34.8%~~34.5% of retail sales and ~~$148.4~~$134.2 million, or ~~35.8%~~32.2% of retail sales for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2020,~~2021, respectively, compared to ~~$64.7~~$44.0 million, or ~~34.2%~~26.4% of retail sales and $196.7 million, or 31.3% of retail sales for the prior year’s comparable three and nine month periods. The overall decrease in SG&A expense for the third quarter is primarily attributable to lower store expenses due to reduced store operating hours, lower corporate expenses and elimination of incentive compensation, partially offset by an increase in store impairment charges. For the first nine months of fiscal 2020, the overall

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

~~decrease~~sales and $96.5 million, or 36.4% of retail sales for the prior year’s comparable three and six month periods. The overall increase in SG&A expense for the second quarter is primarily due to increased employee benefit/bonus expense and store operating expenses as operating hours have increased substantially compared to the prior year’s phased store reopening following the extended store closure due to COVID-19. For the first six months of fiscal 2021, the overall increase in SG&A expense was primarily attributable to ~~lower~~increased employee benefit/bonus expense and store operating expenses as operating hours have increased substantially compared to the prior year’s phased store reopening following the extended store closure due to ~~stores being closed, phased store re-opening in the second quarter, reduced store operating hours, lower corporate expenses and reduction of incentive compensation,~~COVID-19, partially offset by ~~higher store~~a $5.3 million non-cash impairment ~~charges.~~charge in 2020.

Depreciation expense was ~~$3.6~~$3.1 million, or ~~2.4%~~1.5% of retail sales and ~~$11.1~~$6.2 million, or ~~2.7%~~1.5% of retail sales for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2020,~~2021, respectively, compared to ~~$3.8~~$3.5 million, or ~~2.0%~~2.1% of retail sales and ~~$11.5~~$7.5 million or ~~1.8%~~2.8% of retail sales for the comparable three and ~~nine~~six month periods of fiscal ~~2019,~~2020, respectively. The decrease in depreciation expense is attributable to lower net fixed assets primarily due to $13.7 million of impairment charges in 2020.

Interest and other income was ~~$0.8~~$0.5 million, or ~~0.5%~~0.3% of retail sales and ~~$3.6~~$1.2 million, or ~~0.9%~~0.3% of retail sales for the three and ~~nine~~six months ended ~~October~~July 31, ~~2020,~~2021, respectively, compared to ~~$1.7~~$1.0 million, or ~~0.9%~~0.6% of retail sales and ~~$4.5~~$2.8 million, or ~~0.7%~~1.1% of retail sales for the comparable three and ~~nine~~six month periods of fiscal ~~2019,~~2020, respectively. The decrease for the first ~~nine~~six months of fiscal ~~2020~~2021 compared to ~~2019~~2020 is primarily attributable to ~~a decrease~~lower interest rates and smaller gains from the sale of investments, partially offset by an increase in short-term ~~investments and lower interest rates.~~investments.

Income tax ~~benefit~~expense was ~~$9.7~~$4.6 million and ~~$22.7~~$7.6 million for the ~~third~~second quarter and first ~~nine~~six months of fiscal ~~2020,~~2021, respectively, compared to an income tax ~~expense~~benefit of ~~$0.1~~$3.9 million and ~~$6.5~~$13.0 million for the comparable three and ~~nine~~six month periods of fiscal ~~2019,~~2020, respectively. For the first ~~nine~~six months of ~~2020,~~fiscal 2021, the Company’s effective tax rate was ~~36.7% (Benefit)~~18.0% (Expense) compared to ~~14.3% (Expense)~~26.7% (Benefit) for the first ~~nine~~six months of ~~2019.~~2020. The ~~increase~~change in the ~~2020~~2021 year-to-date effective tax rate was primarily due to ~~the federal net operating loss carryback provisions of the Coronavirus Aid, Relief~~higher pre-tax earnings and ~~Economic Security Act (CARES Act) and release of reserves for uncertain~~ability to realize foreign tax ~~positions due to expiration of statute of limitations,~~credits, partially offset by ~~valuation allowances against~~increases in state income ~~net operating losses, less income tax credits, and an increase in the reserves for uncertain tax positions specific to state income~~ taxes ~~recorded~~ in the first quarter of ~~2020.~~

The Company assessed the likelihood that deferred tax assets related to state net operating loss carryforwards will be realized in light of the adverse impact on the Company's financial statements and operations due to COVID-19. Based on this assessment, the Company concluded that it is more likely than not that the company will not be able to realize the state net operating losses and, accordingly, has recorded a valuation allowance against the existing deferred tax assets.

~~The annual effective tax rate for the current~~ fiscal year is impacted by the ability to carryback federal net operating losses due to the CARES Act, partially offset by changes in management’s judgment regarding the ability to realize deferred tax assets, primarily state income net operating losses generated in the current fiscal year. The Company has factored the realizability of these deferred tax assets generated as a result of projected current year losses into its estimated annual effective rate for the current year. To the extent that actual results and/or events differ from the predicted results, the Company may continue to see effects on the annual effective tax rate.2021.

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 ~~2020~~2021 and the next 12 months.

Cash ~~used~~provided by operating activities during the first ~~nine~~six months of fiscal ~~2020~~2021 was ~~$26.1~~$82.0 million as compared to ~~$49.3~~$48.2 million ~~provided~~used in the first ~~nine~~six months of fiscal ~~2019.~~2020. Cash ~~used~~provided by operating activities for the first ~~nine~~six months of fiscal 2021 was primarily generated by earnings adjusted for depreciation and changes in working capital. The increase in cash provided of $130.2 million for the first six months of fiscal 2021 as compared to the first six months of fiscal 2020 was primarily due to a net income versus a net loss and an increase in accounts payable and accrued liabilities, partially offset by a decrease in store impairment charges.

At July 31, 2021, the Company had working capital of $148.2 million compared to $108.6 million at January 30, 2021.The increase in working capital is primarily attributable to ~~net losses adjusted for depreciation~~higher short-term investments, partially offset by higher accrued employee benefits and ~~changes in~~bonus.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

working capital. The decrease in cash provided of $75.4 million for the first nine months of fiscal 2020 as compared to the first nine months of fiscal 2019 was primarily due to a net loss versus net income, an increase in accounts receivable primarily related to income taxesAt July 31, 2021 and ~~an increase in prepaid expenses, partially offset by lower merchandise inventories and store impairment charges.~~

~~At October 31, 2020, the Company had working capital of $117.8 million compared to $163.5 million at February 1, 2020.The decrease in working capital is primarily due to reduction in short-term investments and lower inventories, partially offset by higher accounts receivables and lower accrued liabilities.~~

~~At October 31, 2020 and February 1, 2020,~~January 30, 2021, the Company had an unsecured revolving credit agreement, which provides for borrowings of up to $35.0 million, less the value of revocable letters of credit ~~discussed below.~~relating to purchase commitments. The revolving credit agreement is committed until May 2023. The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of ~~October~~July 31, ~~2020.~~2021. There were no borrowings outstanding under the credit facility, nor outstanding letters of credit that reduced borrowing availability, as of ~~October~~July 31, ~~2020~~2021 and ~~February 1, 2020.~~January 30, 2021.

Expenditures for property and equipment totaled ~~$11.2~~$1.1 million in the first ~~nine~~six months of fiscal ~~2020,~~2021, compared to ~~$4.9~~$9.8 million in last fiscal year’s first ~~nine~~six months. ~~The expenditures for the first nine months of fiscal 2020 were primarily for additional investments in stores, distribution center and information technology.~~ For the full fiscal ~~2020~~2021 year, the Company expects to invest approximately ~~$13.0~~$4.1 million for capital expenditures.

Net cash ~~provided~~used by investing activities totaled ~~$57.9~~$64.9 million in the first ~~nine~~six months of fiscal ~~2020~~2021 compared to ~~$22.2~~$91.0 million ~~used in~~provided by investing activities in the comparable period of ~~2019.~~2020. The increase in net cash ~~provided~~used in ~~2020~~2021 is primarily ~~attributable~~due to a decrease in the sale of short-term investments and an increase in ~~net sales~~the purchase of short-term investments, partially offset by ~~expenditures for property and equipment.~~a decrease in capital expenditures.

Net cash used in financing activities totaled ~~$24.3~~$8.8 million in the first ~~nine~~six months of fiscal ~~2020~~2021 compared to ~~$28.9~~$17.6 million used in the comparable period of fiscal ~~2019.~~2020. The decrease was primarily due to ~~lower dividend payments, partially offset by higher share repurchase amounts.~~less dividends paid and stock repurchases.

As of ~~October~~July 31, ~~2020,~~2021, the Company had ~~691,856~~1,380,779 shares remaining in open authorizations under its share repurchase program. ~~The Company temporarily suspended dividends in the first quarter of 2020.~~

The Company does not use derivative financial instruments.

Additionally, at July 31, 2021, the Company had $0.8 million of corporate equities and deferred compensation plan assets of $11.7 million. At January 30, 2021, the Company had $0.7 million of corporate equities and deferred compensation plan assets of $11.3 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:

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Additionally, at October 31, 2020, the Company had $1.5 million of corporate equities and deferred compensation plan assets of $10.5 million. At February 1, 2020, the Company had $0.7 million of corporate equities and deferred compensation plan assets of $10.5 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

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~~July 31, ~~2020.~~2021. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of ~~October~~July 31, ~~2020,~~2021, 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~~July 31, ~~2020~~2021 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

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 1, 2020, as supplemented by the risk factor set forth below.~~January 30, 2021. 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 Company has updated the following risk factor related to COVID-19:~~

~~The outbreak of COVID-19 has and will adversely affect our business, financial condition and results of operations.~~

The COVID-19 pandemic has adversely impacted the Company's business, financial condition and operating results through the first nine months of fiscal 2020, and we expect that it will continue to do so throughout the remainder of fiscal 2020 and possibly beyond. Adverse financial impacts associated with the outbreak include, but are not limited to, (i) lower net sales in markets affected by the actual or potential outbreak, whether due to state and local orders to close stores, reductions in store traffic and customer demand, labor shortages, or all, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of the outbreak, including increased freight and logistics costs and other expenses.

The spread of COVID-19 has caused state and local governments to issue orders mandating store closures and other measures to mitigate the spread of the virus. In addition public health officials have issued precautions and guidance intended to reduce the spread of the virus, including particular cautions about congregating in large groups or heavily populated areas, such as malls and shopping centers. We temporarily closed all Cato, It’s Fashion, It’s Fashion Metro and Versona stores March 19, 2020. Beginning on May 1, 2020, we began to re-open stores based on the pertinent state and local orders. As of June 15, 2020, all stores have re-opened, but are operating at reduced hours. Recently reported increases in infection rates in many areas and the onset of cooler weather raise the possibility of increased or renewed governmental measures or public health guidance to reduce public activity and gatherings in order to mitigate the spread of the virus, as well as continued adverse effect on consumer confidence. There is significant uncertainty around the breadth and severity of business disruptions related to COVID-19, as well as its impact on the global and U.S. economy, consumer willingness to visit malls and shopping centers, and appropriate associate staffing levels for our stores. At this time, the possible effects of national, state or local action, legislation, guidelines or programs that attempt to mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the Company are also uncertain.

While the Company currently anticipates that our results for the remainder of fiscal 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including possible new information and understanding about the severity of COVID-19, related potential economic impacts to customers and suppliers and the effect of actions taken to contain it or mitigate its impact.

Future outbreaks of disease or similar public health threats, or the fear of such an occurrence, may also have a material adverse effect on the Company’s business, financial condition and operating results.

~~THE CATO CORPORATION~~

~~PART II OTHER INFORMATION~~

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~~July 31, ~~2020:~~2021:

ISSUER PURCHASES OF EQUITY SECURITIES

				Total Number of	Maximum Number				Total Number of	Maximum Number
				Shares Purchased as	(or Approximate Dollar				Shares Purchased as	(or Approximate Dollar
	Total Number		Average	Part of Publicly	Value) of Shares that may	Total Number		Average	Part of Publicly	Value) of Shares that may
Fiscal	of Shares		Price Paid	Announced Plans or	Yet be Purchased Under	of Shares		Price Paid	Announced Plans or	Yet be Purchased Under
Period	Purchased		per Share (1)	Programs (2)	The Plans or Programs (2)	Purchased		per Share (1)	Programs (2)	The Plans or Programs (2)
August 2020	85,175	$	7.16	85,175
September 2020	217,670		7.93	217,670
October 2020	733,765		7.04	733,765
May 2021						-	$	-	-
June 2021						-		-	-
July 2021						64,709		16.18	64,709
Total	1,036,610	$	7.24	1,036,610	691,856	64,709	$	16.18	64,709	1,380,779

(1) Prices include trading costs.

(2) As of ~~August~~May 1, ~~2020,~~2021, the Company’s share repurchase program had ~~728,466~~1,445,488 shares remaining in open authorizations. During the ~~third~~second quarter ended ~~October~~July 31, ~~2020,~~2021, the Company repurchased and retired ~~1,036,610~~64,709 shares under this program for approximately ~~$7,504,520~~$1,047,060 or an average market price of ~~$7.24~~$16.18 per share. ~~On August 27, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1 million shares.~~ As of ~~October~~July 31, ~~2020,~~2021, the Company had ~~691,856~~1,380,779 shares remaining in open authorizations. There is no specified expiration date for the Company’s repurchase program. ~~Additionally, on November 19, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1.5 million shares.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES:

Not Applicable

THE CATO CORPORATION

PART II OTHER INFORMATION

ITEM 4. MINE SAFETY DISCLOSURES:

Not Applicable

ITEM 5. OTHER INFORMATION:

Not Applicable

ITEM 6. EXHIBITS:

Exhibit No.		Item

3.1		Registrant’s Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant for the quarter ended May 2, 2020.

3.2		Registrant’s Amended and Restated By-Laws, incorporated by reference to Exhibit 3.2 to Form 10-Q of the Registrant for the quarter ended May 2, 2020.

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1*		Section 1350 Certification of Principal Executive Officer.

32.2*		Section 1350 Certification of Principal Financial Officer.

101.1*		The following materials from Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~October~~July 31, ~~2020,~~2021, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Three Months and ~~Nine~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019;~~August 1, 2020; (ii) Condensed Consolidated Balance Sheets at ~~October~~July 31, ~~2020~~2021 and ~~February 1, 2020;~~January 30, 2021; (iii) Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019;~~August 1, 2020; (iv) Condensed Consolidated Statements of Stockholders’ Equity for the ~~Nine~~Six Months Ended ~~October~~July 31, ~~2020~~2021 and ~~November 2, 2019;~~August 1, 2020; 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*)

* Submitted electronically herewith.

THE CATO CORPORATION

PART II OTHER INFORMATION

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.

THE CATO CORPORATION

~~November 24, 2020~~August 25, 2021		/s/ John P. D. Cato
Date		John P. D. Cato Chairman, President and Chief Executive Officer

~~November 24, 2020~~August 25, 2021		/s/ John R. Howe
Date		John R. Howe Executive Vice President Chief Financial Officer