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
April 30, 202229, 2023
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 Carolina
28273-5975
(Address
of principal
executive
offices)
(Zip Code)
(704)
554-8510
(Registrant's
telephone
number,
including
area code)
Not Applicable
(Former
name, former
address
and former
fiscal
year, 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
X
No
Indicate
 
by
 
check
 
mark
 
whether
 
the
 
registrant
 
has
 
submitted
 
electronically
 
every
 
Interactive
 
Data
 
File
 
required
 
to
 
be
 
submitted
pursuant to Rule
 
405 of Regulation
 
S-T during the
 
preceding 12 months
 
(or for such
 
shorter period
 
that the registrant
 
was required to
submit and post such files).
Yes
X
No
Indicate
by
check
 
mark
whether
the
 
registrant
is
a
 
large
accelerated
filer, an
 
accelerated
filer, a
 
non-accelerated
filer,
smaller reporting
company,
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions
of
 
“large
 
accelerated
filer,”
 
“accelerated
filer,”
 
“smaller
 
reporting
company,” and “emerging growth
 
“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).
☐
As of April 30,
2022,29, 2023, there were
19,223,63318,479,615
 
shares of Class
A common stock
and
1,763,652
 
shares of Class
B common stock
outstanding.
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended April 30, 202229, 2023
Table
 
of Contents
Page No.
PART
 
I – FINANCIAL INFORMATION
 
(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed
Consolidated
Statements
of Income
and Comprehensive
Income
2
For the
Three Months
Ended
 
April 29, 2023 and April 30,
2022 and
May 1,
2021
Condensed
Consolidated
Balance Sheets
3
At April
30, 2022
29, 2023 and
 
January
29, 2022 28, 2023
 
Condensed
Consolidated
Statements
of Cash
Flows
4
For the Three Months Ended April 29, 2023 and
 
Three Months
Ended April
30, 2022
and May
1, 2021
Condensed
Consolidated
Statements
of Stockholders’
Equity
5
For the Three Months Ended April 29, 2023 and
 
Three Months
Ended April
30, 2022
and May
1, 2021
Notes to
Condensed
Consolidated
Financial
Statements
6 - 18
For the
Three Months
Ended April
30, 2022
and May
1, 2021
Item 2.
Management’s Discussion and Analysis
 
of Financial Condition and Results
of Operations
19 - 25
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 4.
Controls and Procedures
26
PART
 
II – OTHER INFORMATION
Item 1.
Legal Proceedings
27
Item 1A.
Risk Factors
27
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
27
Item 3.
Defaults Upon Senior Securities
27
Item 4.
Mine Safety Disclosures
28
Item 5.
Other Information
28
Item 6.
Exhibits
28
Signatures
29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I FINANCIAL INFORMATION
ITEM 1.
 
FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
April 29, 2023
April 30, 2022
May 1, 2021
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
204,933190,311
$
211,234204,933
 
Other revenue (principally finance charges, late fees and
 
layaway charges)
1,7881,739
1,8511,788
 
Total revenues
206,721192,050
213,085206,721
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of depreciation shown below)
132,243122,087
123,675132,243
 
Selling, general and administrative (exclusive of depreciation
 
shown below)
60,44161,934
63,23760,441
 
Depreciation
2,7432,357
3,0422,743
 
Interest and other income
(403)(897)
(663)(403)
 
Costs and expenses, net
195,024185,481
189,291195,024
Income before income taxes
11,6976,569
23,79411,697
Income tax expense
1,9492,141
3,0811,949
Net income
$
9,7484,428
$
20,7139,748
Basic earnings per share
$
0.460.22
$
0.920.46
Diluted earnings per share
$
0.460.22
$
0.920.46
Comprehensive income:
Net income
$
9,7484,428
$
20,7139,748
Unrealized gain (loss) on available-for-sale securities, net
 
 
of deferred income taxes of ($$
362
) and ($
40
) for April 30, 2022
(1,206)
(134)107
 
and May 1, 2021,an income tax benefit of $
362
355
(1,206)
for April 29, 2023 and April 30, 2022, respectively
Comprehensive income
$
8,5424,783
$
20,5798,542
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 202229, 2023
January 29, 202228, 2023
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
25,88139,642
$
19,75920,005
Short-term investments
 
120,02187,750
145,998108,652
Restricted cash
3,9203,826
3,9193,787
Accounts receivable, net of allowance for customer credit losses of
 
$
801761
 
and $
803761
 
at April 30, 202229, 2023 and January 29, 2022,28, 2023, respectively
60,12128,192
55,81226,497
Merchandise inventories
 
127,576106,813
124,907112,056
Prepaid expenses and other current assets
6,0297,298
5,2736,676
 
Total Current Assets
 
343,548273,521
355,668277,673
Property and equipment – net
 
67,07974,187
63,08370,382
Noncurrent deferredDeferred income taxes
9,6749,938
9,3139,213
Other assets
 
23,19221,478
24,43721,596
Right-of-Use assets – net
 
168,537155,512
181,265174,276
 
Total Assets
 
$
612,030534,636
$
633,766553,140
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
106,22988,508
$
109,54691,956
Accrued expenses
 
45,37742,593
40,37341,338
Accrued bonus and benefits
 
18,9012,154
26,4881,690
Accrued income taxes
 
2,0622,679
920613
Current lease liability
63,17549,707
66,80867,360
 
Total Current Liabilities
 
235,744185,641
244,135202,957
Other noncurrent liabilities
17,79716,449
17,91416,183
Lease liability
107,837105,765
117,521107,407
Stockholders' Equity:
Preferred stock, $
100
 
par value per share,
100,000
 
shares
 
authorized, none issued
 
0-
0-
Class A common stock, $
0.033
 
par value per share,
50,000,000
 
shares authorized;
19,223,63318,479,615
 
and
19,824,09318,723,225
 
shares issued
 
at April 30, 202229, 2023 and January 29, 2022,28, 2023, respectively
649624
669632
Convertible Class B common stock, $
0.033
 
par value per share,
 
15,000,000
 
shares authorized;
1,763,652
 
and
 
1,763,652
 
shares issued at April 30, 202229, 2023 and January 29, 2022,28, 2023, respectively
59
59
Additional paid-in capital
 
120,249123,555
119,540122,431
Retained earnings
 
131,181103,426
134,208104,709
Accumulated other comprehensive income
 
(1,486)(883)
(280)(1,238)
 
Total Stockholders' Equity
 
250,652226,781
254,196226,593
 
Total Liabilities and Stockholders’ Equity
 
$
612,030534,636
$
633,766553,140
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(UNAUDITED)
Three Months Ended
April 29, 2023
April 30, 2022
May 1, 2021
(Dollars in thousands)
Operating Activities:
Net income
$
9,7484,428
$
20,7139,748
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation
2,7432,357
3,0422,743
Provision for customer credit losses
7298
11372
Purchase premium and premium amortization of investments
388(18)
(1,121)388
Share-based compensation
624958
306624
Deferred income taxes
0(832)
(1)-
(Gain) Loss on disposal of property and equipment
16(33)
5816
Changes in operating assets and liabilities which provided (used) cash:
 
Accounts receivable
(4,382)(1,793)
(2,510)(4,382)
 
Merchandise inventories
(2,669)5,243
(726)(2,669)
 
Prepaid and other assets
474(618)
(493)474
 
Operating lease right-of-use assets and liabilities
(590)(532)
(1,242)(590)
 
Accrued income taxes
1,1422,066
3561,142
 
Accounts payable, accrued expenses and other liabilities
(8,331)(1,429)
26,005(8,331)
Net cash provided (used) by operating activities
(765)9,895
44,500(765)
Investing Activities:
Expenditures for property and equipment
 
(4,440)(6,170)
(554)(4,440)
Purchase of short-term investments
(1,529)(5,914)
(62,075)(1,529)
Sales of short-term investments
25,56627,421
28,39725,566
Net cash provided (used) by investing activities
19,59715,337
(34,232)19,597
Financing Activities:
Dividends paid
(3,638)(3,455)
0(3,638)
Repurchase of common stock
(9,162)(2,267)
(5,629)(9,162)
Proceeds from employee stock purchase plan
91166
12891
Net cash provided (used) by financing activities
(12,709)(5,556)
(5,501)(12,709)
Net increase (decrease) in cash, cash equivalents, and restricted cash
6,12319,676
4,7676,123
Cash, cash equivalents, and restricted cash at beginning of period
23,67823,792
21,02223,678
Cash, cash equivalents, and restricted cash at end of period
 
$
29,80143,468
$
25,78929,801
Non-cash activity:
Accrued other assets and property and equipment
$
2,971644
$
2632,971
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 28, 2023
$
691
$
122,431
$
104,709
$
(1,238)
$
226,593
Comprehensive income:
Net income
-
-
4,428
-
4,428
Unrealized net gains on available-for-sale securities, net of deferred
income tax expense of $
107
-
-
-
355
355
Dividends paid ($
0.17
per share)
-
-
(3,455)
-
(3,455)
Class A common stock sold through employee stock purchase
plan
-
195
-
-
195
Share-based compensation issuances and exercises
-
-
3
-
3
Share-based compensation expense
-
929
-
-
929
Repurchase and retirement of treasury shares
(8)
-
(2,259)
-
(2,267)
Balance — April 29, 2023
$
683
$
123,555
$
103,426
$
(883)
$
226,781
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 29, 2022
$
728
$
119,540
$
134,208
$
(280)
$
254,196
Comprehensive income:
 
Net income
-
-
9,748
-
9,748
 
Unrealized net losses on available-for-sale securities, net of deferred
 
 
income tax benefit of ($$
362
)
-
-
-
(1,206)
(1,206)
Dividends paid ($
0.17
 
per share)
-
-
(3,638)
-
(3,638)
Class A common stock sold through employee stock purchase
 
plan —
9,468
shares
-
111
-
-
111
Class A common stock issued through restricted stock grant plans
—
Share-based compensation issuances and exercises
-
-
0 shares
5
-
5
Share-based compensation expense
-
598
5-
-
603598
Repurchase and retirement of treasury shares –
609,928
shares
(20)
-
(9,142)
-
(9,162)
Balance — April 30, 2022
$
708
$
120,249
$
131,181
$
(1,486)
$
250,652
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 30, 2021
$
762
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
Net income
-
-
20,713
-
20,713
Unrealized net losses on available-for-sale securities, net of deferred
income tax benefit of ($
40
)
-
-
-
(134)
(134)
Dividends paid ($0.00 per share)
-
-
0
-
0
Class A common stock sold through employee stock purchase
plan —
19,248
shares
1
150
-
-
151
Class A common stock issued through restricted stock grant plans
—
396,558
shares
13
271
0
-
284
Repurchase and retirement of treasury shares –
425,661
shares
(14)
-
(5,615)
-
(5,629)
Balance — May 1, 2021
$
762
$
115,699
$
144,401
$
1,021
$
261,883
See notes to condensed consolidated financial statements (unaudited).
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
6
NOTE 1
- GENERAL
:
The condensed
 
consolidated financial
 
statements as
 
of April
 
30, 202229, 2023
 
and for
 
the thirteen-week
 
periods
ended
 
April 29,
2023 and
April
 
30,
 
2022
 
and
May
1,
2021
have
been
 
prepared
from
 
the
 
accounting
records
 
of
 
The
 
Cato
Corporation and
 
its wholly-owned
 
subsidiaries (the
 
“Company”), and
 
all amounts
 
shown are
 
unaudited.
 
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial
statements
 
have been
 
included.
 
All such
 
adjustments are
 
of a
 
normal, recurring
 
nature unless
 
otherwise
noted.
 
The results of the interim period may not be indicative of the results expected
 
for the entire year.
The interim financial
 
statements should be read
 
in conjunction with
 
the consolidated financial statements
and
 
notes
 
thereto,
 
included
 
in
 
the
 
Company’s
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
the
 
fiscal
 
year
 
ended
January 29, 2022.28, 2023.
 
Amounts as of January 29, 202228, 2023 have been derived from the audited balance sheet, but
do not include all disclosures required by
 
accounting principles generally accepted in the United States of
America.
As
planned,
in
May
2022,
the
Company
made
a
$14.4
million
contribution
to
its
Employee
Stock
Ownership
Plan,
which
is
included
in
Accrued
bonus
and
benefits
on
the
accompanying
Condensed
Consolidated Balance Sheets.
Subsequent to
April 30,
2022, the
Company received
$18 million
of its
income tax
receivable, which
is
included in Accounts receivable. The Company anticipates that the remaining balance will
be received by
the end of the second quarter of fiscal 2022.
On May 19, 2022,18, 2023, the Board of Directors declaredmaintained the quarterly dividend at
 
at $0.17 $
0.17
per share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
7
NOTE 2
- EARNINGS
PER SHARE:
Accounting
Standard
Codification
(“ASC”)
260 –
Earnings
Per Share
 
requires
dual presentation
of basic
and
diluted Earnings Per Share
 
Per Share (“EPS”)
on the face of
all income statements for
 
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
 
Condensed Consolidated
 
Statements of
Income and
Comprehensive Income.
 
While the
Company’s certificate
 
of incorporation
 
provides the right
 
right for
the Board of Directors
 
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
 
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
 
A and Class B shares and
 
and the EPS amounts
reported
 
herein are applicable
to both
Class
A and Class B
 
B shares.
Basic
EPS
 
is
 
computed
as
net
 
income
less
earnings
allocated
to
 
non-vested
equity
awards
divided
by
 
the
weighted average number
 
number of
common shares outstanding
 
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
April 29, 2023
April 30, 2022
May 1, 2021
(Dollars in thousands)
Numerator
Net earnings
$
9,7484,428
$
20,7139,748
Earnings allocated to non-vested equity awards
(541)(227)
(942)(541)
Net earnings available to common stockholders
$
9,2074,201
$
19,7719,207
Denominator
Basic weighted average common shares outstanding
20,149,20119,303,048
21,489,16220,149,201
Diluted weighted average common shares outstanding
20,149,20119,303,048
21,489,16220,149,201
Net income per common share
Basic earnings per share
$
0.460.22
$
0.920.46
Diluted earnings per share
$
0.460.22
$
0.920.46
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
8
NOTE 3
– ACCUMULATED
OTHER COMPREHENSIVE
INCOME:
The
 
following
 
table
 
sets
 
forth
 
information
 
regarding
 
the
 
reclassification
 
out
 
of
 
Accumulated
 
other
comprehensive
income
(in (in thousands)
for the
 
three months ended April 29, 2023:
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 28, 2023
$
(1,238)
Other comprehensive income (loss) before
reclassification
355
Amounts reclassified from accumulated
other comprehensive income
-
Net current-period other comprehensive income (loss)
355
Ending Balance at April 29, 2023
$
(883)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive income (in thousands) for the
three months ended April
30, 2022:
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280)
 
Other comprehensive income (loss) before
 
 
reclassification
(1,203)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
(3)
Net current-period other comprehensive income (loss)
(1,206)
Ending Balance at April 30, 2022
$
(1,486)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
$4
 
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 $
1
.
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive
income
(in thousands)
for the
three months
ended
May 1,
2021:
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 (loss) before
reclassification
(173)
Amounts reclassified from accumulated
other comprehensive income (b)
39
Net current-period other comprehensive income (loss)
(134)
Ending Balance at May 1 2021
$
1,021
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
51
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 $
12
.
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
9
NOTE 4 – FINANCING ARRANGEMENTS:
At
 
April
 
30,29,
 
2022,2023,
 
the
 
Company
 
had
 
an
 
unsecured
 
revolving
 
credit
 
agreement,
 
which
 
provided
 
for
borrowings of
up to $35.0
$
35.0
million less
the balance
of any
revocable letters
 
of credit discussed below and was committed
through
 
Mayrelated to
 
2022.
In
May
2022,
the
Company
signed
a
new
unsecured
revolving
credit
agreement,purchase
which replaces
the prior
credit agreement,
provides up
to $35.0
million in
committed availabilitycommitments,
 
and is
was
committed
 
through
 
May
 
2027.
 
The
 
prior
credit
 
agreement
 
containedcontains
 
various
 
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios
with
which
the
Company
was
in
compliance as of April 30, 2022.
The new credit agreement also contains various financial covenants and
limitations, including the maintenance of specific financial ratios.
 
There were no outstanding borrowingsratios with which the Company
under the prior credit facility as of April 30, 2022 or January 29, 2022.was
 
The weighted average interest rate
under the prior credit facility was zero at April 30, 2022 due to no outstandingin
 
borrowings.compliance
as
At
of
 
April
 
30,
2022
and
January
29,
 
2022,2023.
 
theThere
 
Company hadwere
no
 
borrowings
outstanding,
nor
any
outstanding
letters of
credit that
reduced borrowing availability,
as of
April 29,
2023.
The weighted
average interest
rate under the credit facility was
zero
at April 29, 2023 due to
no
 
outstanding letters
borrowings.
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
–
Segment
Reporting
, including Cato,
It’s Fashion, Versona
and Credit.
As outlined in
 
ASC 280-10, including
Cato,
It’s
Fashion, Versona
and
Credit.
As
outlined in
ASC
280-10,
the
 
Company has
two
two
 
reportable
segments: Retail
and Credit.
 
The Company has aggregated its
three retail
 
retail operating segments,
including
 
including e-
commerce,e-commerce,
 
based on
 
on the
aggregation
 
criteria
 
outlined in
 
in ASC 280-10,
 
280-10, which states
 
states that
two
 
or more
operating
more operating segments may be aggregated
into a single reportable
segment if aggregation
is consistent with the objective
the
objective
and
basic
principles
of
 
ASC
280-10,
which
require
the
 
segments
to
have
 
similar economic characteristics,
products,
 
economic
characteristics, products, production processes, clients and
 
processes,
clients
and methods
of distribution.
 
The
 
Company’s
 
retail
 
operating
 
segments
 
have
 
similar
 
economic
 
characteristics
and
 
similar
 
operating,
financial and
competitive risks.
 
TheyThe products
sold in each
retail operating
segment are
 
similar in nature
 
of product,nature, as
they
 
they all
 
offer
women’s
 
apparel,
shoes
shoes
and
accessories.
 
Merchandise
 
inventory
 
of
the
Company’s
retail
operating
segments
is
sourced
from
the
same
countries
and
some
of
the
same
vendors,
using
similar
production processes.
Merchandise for the Company’s retail operating
segments is 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
32
32
 
states
 
as
 
of
 
April
 
30,29,
 
2022,2023,
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
 
by a separate subsidiary
of
the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
10
NOTE 5 – REPORTABLE SEGMENT INFORMATION
 
SEGMENT INFORMATION (CONTINUED):
The following
schedule
summarizes
certain
segment
 
information
(in (in thousands):
Three Months Ended
April 29, 2023
Retail
Credit
Total
Revenues
$191,434
$616
$192,050
Depreciation
2,357
-
2,357
Interest and other income
(897)
-
(897)
Income before taxes
6,382
187
6,569
Capital expenditures
6,170
-
6,170
Three Months Ended
April 30, 2022
Retail
Credit
Total
Revenues
$206,208
$513
$206,721
Depreciation
2,743
0-
2,743
Interest and other income
(403)
0-
(403)
Income before taxes
11,613
84
11,697
Capital expenditures
4,440
0-
4,440
Three Months Ended
May 1, 2021
Retail
Credit
Total
Revenues
$212,547
$538
$213,085
Depreciation
3,042
0
3,042
Interest and other income
(663)
0
(663)
Income before taxes
23,540
254
23,794
Capital expenditures
554
0
554
Retail
Credit
Total
Total assets as of April 30, 202229, 2023
$574,601495,730
$37,42938,906
$612,030534,636
Total assets as of January 29, 202228, 2023
595,487514,609
38,27938,531
633,766553,140
The
 
Company
evaluates
 
segment
 
performance
based
 
on
 
income
 
before
 
taxes.
 
The
 
Company
does
 
not
allocate certain corporate expenses or
 
certain
corporate
expenses
or income
taxes to
the credit
segment.
The following schedule
 
schedule summarizes the direct
 
expenses of the direct expenses
 
of the credit segment which
 
which are reflected in
 
in Selling,
general and administrative expenses (in
 
and administrative
expenses
(in thousands):
Three Months Ended
April 29, 2023
April 30, 2022
May 1, 2021
Payroll
$
137134
$
117137
Postage
93101
7893
Other expenses
199194
89199
Total expenses
$
429
$
284429
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
11
NOTE 6 – STOCKSHARE BASED COMPENSATION:
As of
 
April 30, 2022,29,
 
2023, the
Company had two
 
two long-term compensation
 
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
 
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 April 29,
 
30, 2022:2023:
 
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
1,500,000
4,725,000
6,225,000
Options and/or restricted stock available for grant:
 
 
 
April 30, 202229, 2023
-
3,580,4713,473,475
3,580,4713,473,475
In
accordance
 
with
ASC
718
 
–
Compensation–Stock Compensation
,
the
fair
 
value
of
current
 
restricted
stock awards
 
is estimated on
 
on the date
 
date of
grant based
 
on the
 
market price
 
of the
 
Company’s
 
stock and
 
is
amortized to
 
to compensation expense
 
expense on a
 
a
straight-line basis over
 
over the
related vesting
 
periods. As of
 
of April 30, 2022
29,
2023
 
and January 29,
 
2022, January
28,
2023,
there
was
$
9,868,0009,329,000
 
and
 
$
11,096,00010,543,000
,
 
respectively,
 
of
 
total
unrecognized
compensation
 
expense
related
 
to
unvested restricted
stock awards,
which had
a remaining
weighted-average
vesting period of
2.41.9
 
years and
2.32.1
 
years,
respectively.
The
 
total compensation expense
compensation
expense
during
the
 
three
months
 
ended April
29, 2023
was $
932,000
compared to
$
603,000
for the
three months
ended
 
April
 
30,
 
2022
was
$
603,000
compared
to
$
283,000
for
the
three
months
ended
May
1,
2021.2022.
 
These
 
expenses
 
are
classified
classified
as
a
component
 
of Selling, general and
 
Selling,
general
and
administrative expenses in the
Condensed Consolidated
Statements of Income.
The following summary
 
summary shows the
changes in the shares
 
shares of
unvested restricted
 
stock outstanding
 
during the
three months ended April
 
30, 2022:29, 2023:
Weighted
Average
Number of
Grant Date Fair
Shares
Value
 
Per Share
Restricted stock awards at January 29, 202228, 2023
1,196,2881,059,433
$
13.7613.10
 
Granted
0-
0-
Vested
0-
0-
Forfeited or expired
0(12,414)
013.45
Restricted stock awards at April 30, 202229, 2023
1,196,2881,047,019
$
13.7613.09
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
12
The
Company’s
 
Employee
Stock
Purchase
Plan
 
allows
eligible
full-time
employees
to
 
purchase
a
 
limited
number of shares of
 
shares
of the
Company’s
Class
A
 
Common Stock
during each
semi-annual offering
period
at
a
15%15
% discount through
payroll deductions.
During the three months ended April 29, 2023 and
 
April 30, 2022, and May 1, 2021,
the Company sold
22,194
 
soldand
9,468
 
and
19,248
shares
to employees
at an average
discount
of $
2.211.32
 
and $
1.172.21
 
per share,
respectively, under
the Employee
Stock Purchase
 
Plan. The
compensation expense
 
recognized for
the 15%
15
%
discount
given
under
 
the
Employee
Stock
 
Purchase
Plan
was
 
approximately
$
29,000
and
$
21,000
 
and $
23,000
for
 
for the
three
 
months
ended
April
29,
2023
and
 
April
 
30,
 
2022,
 
and
May
1,
2021,
respectively.
 
These
 
expenses
are
 
classified
as
 
a
component
of
 
Selling,
general
and
 
administrative
expenses
in
the
 
Condensed
Consolidated
Statements
of
Income.
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 (in thousands)
 
as of April
30, 2022
29, 2023 and January
 
29, 2022:28, 2023:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
April 30, 202229, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
28,51422,187
$
-
$
28,51422,187
$
-
 
Corporate Bonds
56,51540,057
-
56,51540,057
-
 
U.S. Treasury/Agencies Notes and Bonds
21,11216,541
-
21,11216,541
-
 
Cash Surrender Value of Life Insurance
11,0339,281
-
-
11,0339,281
 
Asset-backed Securities (ABS)
13,5127,925
-
13,5127,925
-
 
Corporate Equities
803801
803801
-
-
 
Commercial Paper
3671,039
-
3671,039
-
Total Assets
$
131,85697,831
$
803801
$
120,02087,749
$
11,0339,281
Liabilities:
 
Deferred Compensation
(9,272)
-
-
(9,272)
Total Liabilities
$
(9,272)(8,731)
$
-
$
-
$
(9,272)(8,731)
Total Liabilities
$
(8,731)
$
-
$
-
$
(8,731)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
13
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 29,28,
20222023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
30,45123,102
$
-
$
30,45123,102
$
-
 
Corporate Bonds
76,90947,901
-
76,90947,901
-
 
U.S. Treasury/Agencies Notes and Bonds
19,71527,250
-
19,71527,250
-
 
Cash Surrender Value of Life Insurance
11,4729,274
-
-
11,4729,274
 
Asset-backed Securities (ABS)
18,5569,373
-
18,5569,373
-
 
Corporate Equities
818923
818923
-
-
 
Commercial Paper
3671,026
-
3671,026
-
Total Assets
$
158,288118,849
$
818923
$
145,998108,652
$
11,4729,274
Liabilities:
 
Deferred Compensation
(10,020)
-
-
(10,020)
Total Liabilities
$
(10,020)(8,903)
$
-
$
-
$
(10,020)(8,903)
Total Liabilities
$
(8,903)
$
-
$
-
$
(8,903)
The Company’s investment
 
investment portfolio
was primarily
 
invested in corporate
 
corporate bonds and tax-exempt
 
tax-exempt and taxable
governmental
debt securities
 
held in
 
managed accounts
with underlying ratings of A or
 
better at Aprilratings
 
30,of
A
or better
at
April 29,
2022 2023
and
 
January 29,
 
2022.28,
2023.
 
The
state,
 
municipal
and
corporate
bonds
 
have contractual maturities which
range from one day to 4.6 years. The U.S. Treasury Notesand
 
have contractual
maturities which
range from 46
days
to
2.4
years.
Theseasset-backed
 
securities
 
have
contractual maturities
which range
from
two days
to
3.6
years. The
U.S. Treasury
Notes and
Certificates of
Deposit have contractual maturities
which range from
one day
to
2.8
years. These securities are
 
classified as
available-for-sale
 
as
available-for-sale and
 
are
 
recorded
 
as
 
Short-term
investments,
 
Restricted
 
cash
and
 
Other
assets
 
on the accompanying
 
Condensed
Consolidated
Balance
Sheets.the
accompanying Condensed Consolidated Balance Sheets. These assets are carried at fair value with unrealized
gains
 
gains and
losses
reported
net
of
taxes
in
Accumulated
other
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 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
 
and serviced by
 
by captive
auto finance units,
 
auto financebanks or
 
units, banks
or finance
companies.
 
The bank
 
credit card
card asset-backed securities
 
are backed
by
revolving
pools
of
credit
card
receivables
generated
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
 
April
 
30,29,
 
2022,2023,
 
the
 
Company
 
had
 
$
0.8
 
million
 
of
 
corporate
 
equities
 
and
 
deferred
compensation
plan assets
 
of $
11.09.3
 
million.
 
At January 28,
 
29, 2022,2023, the
Company
 
had $
0.80.9
 
million
of corporate
equities
and deferred
compensation
 
plan assets
of $
11.59.3
 
million.
All of these
 
assets are recorded within
 
are recorded
within Other
assets
in the
Condensed
Consolidated
Balance
 
Sheets.
 
Level 1 category
securities
are measured
 
at fair value using quoted active
 
using quoted
active market
prices.
 
Level 2 investment
securities
include
corporate
and
 
municipal
bonds
for
 
which
quoted
 
prices
may
 
not
 
be
 
available
on
 
active
exchanges
for
identical
instruments.
 
Their
fair
value
is
 
principally
based
on
market
values
determined
by
management
with
 
assistance
of
 
a
 
third-party
pricing
 
service.
 
Since
 
quoted
 
prices
in
 
active
 
markets
for
identical assets are
 
are not available, these
 
these prices are determined
 
by the pricing service
 
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
 
plan assets consist of
 
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
 
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 underlying
valuation
 
assets andhierarchy.
 
discountedThe
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
14
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
 
to mirror
mutual
market funds that are observable 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 April
 
30, 2022
29, 2023 and January
29, 2022 28, 2023
 
(dollars
in thousands):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
9,274
Redemptions
-
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
7
Included in other comprehensive income
-
Ending Balance at April 29, 2023
$
9,281
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
(8,903)
Redemptions
292
Additions
(82)
Total (gains) or losses
Included in interest and other income (or changes in net assets)
(38)
Included in other comprehensive income
-
Ending Balance at April 29, 2023
$
(8,731)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 29, 2022
$
11,472
Redemptions
-
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
(439)
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
11,033
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 29, 2022
$
(10,020)
Redemptions
489
Additions
(149)
Total (gains) or losses
Included in interest and other income (or changes in net assets)
408
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
(9,272)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 30, 2021
$
11,263
Redemptions
-(1,718)
Additions
-
 
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
209(480)
 
Included in other comprehensive income
-
Ending Balance at January 29, 202228, 2023
$
11,4729,274
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
15
Deferred Compensation
Beginning Balance at January 30, 202129, 2022
$
(10,316)(10,020)
 
Redemptions
1,0101,142
 
Additions
(304)(379)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
(410)354
 
Included in other comprehensive income
-
Ending Balance at January 29, 202228, 2023
$
(10,020)(8,903)
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 202116
16
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
None.The
Company
has
reviewed
recent
accounting
pronouncements
and
believe
none
will
have
a
material
impact on the Company’s financial statements.
NOTE 9 – INCOME TAXES:
The Company had an effective tax rate for the
 
first quarter of 20222023 of
16.732.6
% compared to an effective tax
rate of
12.916.7
% for the first quarter of 2021.2022. The increase in the 20222023 first quarter tax
 
rate was primarily due
to
 
higher
 
Global
 
Intangible
Low-taxed
 
Income
(GILTI),
 
partially
 
offset
 
by
the
 
ability toforeign
 
realize foreignrate
differential
tax credits.and offshore claim, as a percentage on lower pre-tax earnings.
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
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 its
 
condensed consolidated
 
financial statements.
 
However,
 
given the
 
inherent
uncertainties
involved
in
 
such
matters,
an
 
adverse
outcome
in
 
one
or
 
more
of
such
matters
 
could materially
materially and adversely affect the Company’s
 
adverselyfinancial condition, results of operations and cash flows in
any
 
affectparticular
reporting
period.
The
Company
accrues
for
these
matters
when
 
the
 
Company’sliability
 
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
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
 
or
 
forfeits
 
the
 
merchandise.
 
Gift
cards do not have
 
expiration dates. A provision is
 
made for estimated merchandise returns
 
based on sales
volumes
 
and
 
the
 
Company’s
 
experience;
 
actual
 
returns
 
have
 
not
 
varied
 
materially
 
from
 
historical
amounts.
 
A
 
provision
 
is
 
made
 
for
 
estimated
 
write-offs
 
associated
 
with
 
sales
 
made
 
with
 
the
 
Company’s
proprietary
 
credit
 
card.
 
Amounts
 
related
 
to
 
shipping
 
and
 
handling
 
billed
 
to
 
customers
 
in
 
a
 
sales
transaction are
 
classified as
 
Other revenue
 
and the
 
costs related
 
to shipping
 
product to
 
customers (billed
and accrued) are classified as Cost of goods sold.
The Company
 
offers its
 
own proprietary
 
credit card
 
to customers.
 
All credit
 
activity is
 
performed by
 
the
Company’s
 
wholly-owned subsidiaries.
No
ne
 
None of
the
 
credit card
 
receivables are
 
secured.
 
The
 
Company
estimated customer credit losses of
 
losses of$
121,000
and $
86,000
 
and $
131,000
for the periods ended April
 
ended29, 2023 and April 30,
2022 and May
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
17
1,
2021,30, 2022,
 
respectively,
 
on
sales
 
purchased by
 
the
Company’s
 
proprietary credit
 
card
of
 
$
5.75.8
 
million and
$
4.45.7
 
million for the periods ended April 29, 2023 and April 30, 2022, and May 1, 2021,
respectively.
The
 
following
 
table
 
provides
 
information
 
about
 
receivables
 
and
 
contract
 
liabilities
 
from
 
contracts
 
with
customers (in thousands):
Balance as of
April 30, 202229, 2023
January 29, 202228, 2023
Proprietary Credit Card Receivables, net
$
9,52210,749
$
8,99810,553
Gift Card Liability
$
6,5567,296
$
8,3088,523
NOTE 12 – LEASES:
The
 
Company determines
 
whether
 
an
 
arrangement
 
is
 
a
 
lease
 
at
 
inception.
 
The
 
Company
 
has
 
operating
leases
for
 
stores,
 
offices,
 
andwarehouse space
 
and equipment.
 
Its
leases
 
have remaining
 
lease
terms
 
of
one
one
year
year
 
to
10
years
, some of
which 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
 
for upused
 
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,
 
itthe
Company
 
uses
 
its
 
estimated
incremental
 
incrementalborrowing
rate
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
April 29, 2023
April 30, 2022
May 1, 2021
Operating lease cost (a)
$
17,75418,078
$
16,72617,754
Variable
 
lease cost (b)
$
768594
$
793768
(a) Includes right-of-use asset amortization of ($0.4)
0.3
) million and ($
0.4
($1.2)
) million for the three months ended
April 29, 2023 and April 30, 2022, and May 1, 2021, respectively.
(b) Primarily relatedrelates to monthly percentage rent for stores not presented on the balance sheet.
Supplemental cash flow
 
information and non-cash
 
activity related to
 
the Company’s
 
operating leases are
as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
18
Operating cash flow information:
Three Months Ended
April 29, 2023
April 30, 2022
May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
$
16,83617,345
$
15,94716,836
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
1,904
$
3,515
$
734
Weighted-average
 
remaining
 
lease
 
term
 
and
 
discount
 
rate
 
for
 
the
 
Company’s
 
operating
 
leases
 
are
 
as
follows:
As of
April 29, 2023
April 30, 2022
May 1, 2021
Weighted-average remaining lease term
2.4 years2.2
2.7 years
Years
2.4
Years
Weighted-average discount rate
2.92%3.20%
3.73%2.92%
As of
 
April 30,29,
 
2022,
2023, the maturities
 
of lease
 
liabilities by fiscal
 
year for
 
the Company’s
 
operating leases
are as follows (in thousands):
Fiscal Year
20222023 (a)
$
53,370
2023
53,63352,516
2024
36,95649,829
2025
21,87532,563
2026
10,60218,657
2027
8,648
Thereafter
2,9861,603
Total lease payments
179,422163,816
Less: Imputed interest
8,4108,344
Present value of lease liabilities
$
171,012155,472
(a) Excluding the 3 months ended April 30, 2022.29, 2023.
 
 
19
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
 
and Results of Operations”;
 
Operations”; (4) statements relating to
 
to our operations or
 
operations or activities
for
our
 
fiscal
 
year
 
ending
 
JanuaryFebruary
 
28,3,
 
20232024
 
(“fiscal
 
2022”2023”)
 
and
 
beyond,
 
including,
 
but
 
not
 
limited
 
to,
statements regarding expected
 
amounts of
 
capital expenditures and
 
store openings, relocations,
 
remodels
and
 
closures
 
and
 
statements
 
regarding
 
the
 
potential
 
impact
 
of
 
the
 
COVID-19
 
pandemic
 
and
 
related
responses and
mitigation efforts,
as well
as the
potential impact
of supply
chain disruptions,
inflationary
pressures
 
and
 
mitigationother
 
effortseconomic
or
market
conditions
 
on
 
our
 
business,
 
results
 
of
 
operations
 
and
 
financial
condition;condition
 
and
statements
regarding
new
store
development
strategy;
and
(5) statements
relating
 
to
our
future contingencies. When
possible, we
have attempted to
identify forward-
lookingforward-looking statements
 
by using
words
 
such
 
as
 
“will,” “expects,
“expects,”
 
“anticipates,” “approximates,
“approximates,”
 
“believes,”
“estimates,”
 
“hopes,”
“intends,”
“may, “may,”
 
“plans,”
“could, “could,”
“would, “would,”
 
“should” and any
variations or negative
formations of such
words
 
and
 
anysimilar
 
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. Forward-looking statements
included
in
this
report
are
based
on
information
available
to
us
as
of
of
the
 
filing
date
 
of this
 
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
 
perceived
deterioration in
the conditions that drive consumer confidence and spending, including, but not limited to,
prevailing
 
social,that
drive
 
economic,consumer
 
politicalconfidence
 
and
 
public
health
conditions
and
uncertainties,
levels
of
unemployment, fuel,
energy and
food costs,
wage rates,
tax rates,
interest rates,
home values,
consumer
net
worth,
the
availability of
credit
and
inflation;
changes in
laws,
regulations and
government policies
affecting
our
business,spending,
 
including,
 
but
 
not
 
limited
 
to,
 
tariffs;prevailing
social,
economic,
political
and
public
health conditions
and
 
uncertainties,
regarding
the
impact levels
 
of
 
anyunemployment, fuel,
energy
and
food
costs, wage rates, tax
rates, interest rates, home
values, consumer net worth,
the availability of
credit and
inflation;
changes
in
laws,
regulations
or
government
policies
affecting
our
business,
including
but
not
limited to
tariffs;
uncertainties regarding
the impact
of any
governmental action
regarding, or
 
responses
to, the
 
foregoing conditions; competitive factors
 
and pricing
pressures; our ability
 
ability to predict
 
predict and respond
respond to
rapidly changing
fashion trends
 
and consumer
demands;
our ability to
 
successfully implement our new
new store development
strategy to increase new
 
new store openings
and our ability
 
ability of
any such
new stores
 
to grow
and
 
and perform
 
as
expected;
 
adverse
weather,
 
public
health
threats
(including
the
global
COVID-19
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;
 
adverse
developments or volatility affecting the financial services industry or broader financial markets; and
 
other
factors
discussed
under
“Risk
“Risk Factors”
in
Part
I,
Item
1A
of
our
 
annual report on Form 10-K for the fiscal
report
on
Form
10-K
for
the
fiscal
year
ended
 
January 28,
 
29,
2022
(“2023 (“fiscal
 
2021”2022”),
as
 
amended or
 
or
supplemented, and
 
and in
 
other reports
 
we file
file
with
 
or
 
furnish
 
to
 
the
 
Securities
and
 
Exchange
 
Commission
(“SEC”)
 
from
time
 
to
 
time.
 
We
 
do
 
not
undertake,
 
undertake, and
 
expressly
 
decline,
 
any
obligation
 
to
 
update
 
any
such forward-looking information contained
 
such
forward-looking
information
contained in this report,
whether as a
result of new information, future
 
information, future
events, or otherwise.
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
20
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company’s accounting
 
policies are more
fully described
in “Management’s Discussion
and Analysis of
Financial
Condition
and Results
of Operations”
in the Company’s
Annual
Report
on Form
10-K for
the fiscal
year
ended
January
29,
2022.
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
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
more
fully
described
in
“Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in the
Company’s Annual Report
on
Form
10-K
for
the
fiscal
year
ended
January
28,
2023.
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 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)
21
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
 
Statements
of Income
as a percentage
of total
retail
sales:
Three Months Ended
April 29, 2023
April 30, 2022
May 1, 2021
Total retail sales
100.0
%
100.0
%
Other revenue
0.9
0.9
Total revenues
100.9
100.9
Cost of goods sold (exclusive of depreciation)
64.564.2
58.564.5
Selling, general and administrative (exclusive of depreciation)
29.532.5
29.929.5
Depreciation
1.31.2
1.41.3
Interest and other income
(0.2)(0.5)
(0.3)(0.2)
Income before income taxes
5.73.5
11.35.7
Net income
4.82.3
9.84.8
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
22
RESULTS OF OPERATIONS
 
(CONTINUED):
Management’s
 
Discussion and
 
Analysis of
 
Financial Condition
 
and Results
 
of Operations
 
(“MD&A”) is
intended
 
to
 
provide
 
information
 
to
 
assist
 
readers
 
in
 
better
 
understanding
 
and
 
evaluating
 
our
 
financial
condition
 
and
 
results
 
of
 
operations.
 
We
 
recommend
 
reading
 
this
 
MD&A
 
in
 
conjunction
 
with
 
our
Condensed
 
Consolidated
 
Financial
 
Statements
 
and
 
the
 
Notes
 
to
 
those
 
statements
 
included
 
in
 
the
“Financial Statements” section of this Quarterly Report on Form
 
10-Q, as well as our 2021 2022
Form 10-K.
COVID-19Recent Developments
Inflationary Cost Pressure and Rising Interest Rates
The
 
Updatecurrent
inflationary
environment
continues
to
negatively
impact
the
Company’s
operating
costs,
Thereincluding
higher
wages,
operating
supplies
and
services.
In
addition,
increased
costs
for
fuel,
food,
and
housing, including rent,
as well as
other consumable products
across the economy,
are negatively impacting
our
customers’
disposable income,
and
our customers’
willingness to
purchase discretionary
items
such as
apparel, jewelry and shoes.
In
response
to
inflationary
pressures,
the
Federal
Reserve
began
raising
interest
rates
and
 
is
 
stillcommitted
 
significantto
continue raising
 
uncertaintyinterest rates
 
regardinguntil inflationary
pressures subside.
These rising interest
rates have
adversely
affected
 
the
 
lingeringavailability
 
effectsand
cost
 
of
 
thecredit
 
COVID-19 pandemicfor
 
onboth
businesses
and
 
our
business, financial condition, results
 
of operations, cash flows,customers.
 
and liquidity.In
 
These uncertainties include
the
impact
of
new
or
potential
variants
ofaddition,
 
the
 
virusrising
interest rates are increasing the costs
 
thatrelated to revolving credit, auto loans and
 
aremortgages, which continue to
negatively impact
 
moreour customers’
 
transmissiblediscretionary income.
 
orAdditionally,
 
severe,rising interest
 
stagnantrates
may
continue to
vaccination ratesnegatively impact our customers’ willingness
to purchase our products.
We believe
price increases
 
and relatedrising
 
factors thatinterest rates
 
may impacted the
first quarter
of fiscal
2023 and
will likely
continue
 
to have
 
fuel
periodic surges
of
the
virus or
otherwise
impede
progress
toward
the
return
to
pre-pandemic
activities
and
levels
of
consumer
confidence
and
commercial
activity.
The
Company
also
faces
uncertainty
from
the
impacts
of
COVID-19
and
the
governmental
responses
to
COVID-19 surges,
including
lockdowns,
in
the
foreign
countries
where
our
merchandise is produced.
The Company is also subject to the continued effects of disruption in the global
supply
chain,
inflation
and
itsa negative
 
impact
 
on
 
ourconsumer
 
cost
of
products,
transportation,
wage
rates
behavior and,
other
operating
costs,
as
well
as,
the
impact
on
our
customers’
disposable
incomes,
and
the
availability
of
workers.
The Company
expects that
these uncertainties
and perhaps
others related
to the
pandemic will
continue
to
impact
the
Company
in
fiscal
2022.
The
adverse
financial
impacts
associated
with
these
continued effects of, and uncertainties related
to, the 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, whether
due to
increases in
case counts,
state and
local orders,
reductions in
store traffic
and
customer
demand,
labor
shortages,
or
all
of
these
factors,
(ii)
lower
net
sales
caused
 
by
 
theextension,
 
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.
While the Company currently anticipates a continuation of the
uncertainties listed above and the potential
adverse impacts
of COVID-19
during fiscal
2022, the
duration and
severity of
these effects
will depend
on
the
course of
future developments,
which are
highly uncertain.
The
extent to
which the
COVID-19
pandemic
ultimately
impacts
the
Company’s
business,
financial
condition,our
 
results
 
of
operations
 
cashand
flows,financial condition during the remainder of
 
fiscal 2023.
Labor Challenges and Wage Inflation
 
liquidity
The
 
maytight
 
differlabor
 
frommarket
 
management’shas
 
currentincreased
 
estimatescompetition
 
duefor
labor
among
consumer-facing
companies.
This
competition
for
labor
has
driven
significant
increases
in
wages
in
order
 
to
 
inherentcompete
 
uncertaintiesfor
sufficient
labor
regardingavailability and/or
to
prevent
 
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.
Comparison loss
 
of existing
workforce in
our stores,
distribution center
and corporate
office. We expect these pressures to
continue in fiscal 2023.
Comparison of First Quarter
of 20222023
 
with 20212022
Total retail sales
for the first
quarter were
$204.9 million
compared
to last year’s
first quarter
 
were $190.3 million compared to
last year’s first quarter sales of $211.2
$204.9
million.
 
Sales
 
decreased
primarily
 
due
 
to
 
a
 
decrease
in
 
same-store
sales
 
partially offset
byand
 
sales
 
from
stores
that
were
noncomparable stores.closed in the past 12 months, partially offset by sales from stores opened in the past 12
months. The decrease
in
 
same-store
sales was
is
 
primarily due to
 
cooler, wetterfrom
 
weather, late
merchandisefewer
 
shipmentstransactions
 
due
 
to
 
supplythe
 
chainaforementioned
 
disruptions
and
inflationary
pressurepressures
 
on
 
our
customers’
 
customers’disposable
income,
partially
offset
by
higher
average
sales
per
transaction.
Same
store
sales
disposable income. 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
 
more than 15
months.
 
The method
of calculating same
 
of calculating
same store
sales varies
 
across the retail
 
retail industry.
 
As a result,
result, our same store
 
store sales calculation
may not be comparable
to similarly
titled measures
reported
by other
companies.
E-commerce
sales were less
less than
 
5.0% of
sales
for the
first quarter5.1%
 
of fiscal
2022 and
are included
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
23
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,
shipping
charged
to
customers
for
e-
commerce purchases and
layaway fees),
were
$206.7 million
for
the
first
quarter ended
April 30,
2022,
compared to $213.1 million
for the first quarter ended
May 1, 2021. The Company operated
1,315 stores at
April 30,
2022 compared
to 1,325
stores
at the end
of last
fiscal year’s
first quarter.
For the
first three
months
of fiscal 2022, the Company opened
five stores and permanently
closed one store.
The Company currently
expects
to close
approximately
25 stores
in fiscal
2022.
Credit revenue
of $0.5
million
represented
0.2% of
total revenues
in the first
quarter
of fiscal
2022, compared
to 2021
credit revenue of
$0.5 million or
0.3% of
total revenues.
Credit revenue is
comprised of interest
earned on
the Company’s
private
label credit
card portfolio
and related
fee income.
Related
expenses
include
principally
payroll,
postage and other
administrative
expenses,
and totaled $0.4
million in
the first quarter
of
2022, compared
to last
year’s
first quarter
expenses
of $0.3
million.
Other revenue,
a component
of total revenues,
was $1.8 million
for the first
quarter
of fiscal 2022,
compared
to
$1.9
million for
the
prior
year’s
comparable first
quarter.
The
slight
decrease was
due
to
lower
e-
commerce
shipping
revenue
and finance
charges,
slightly
offset by
higher
layaway
fees.
Cost of goods sold
was $132.2 million,
or 64.5% of retail
sales for the first
quarter of fiscal
2022, compared
to $123.7 million, or 58.5% of retail
sales in the first quarter of fiscal 2021.
The overall increase
in cost of
goods sold
as a percent
of retail
sales for
first quarter
of 2022 resulted
primarily
from higher
markdown
sales
and an increase
in freight costs
due to higher fuel
prices.
Cost of goods sold
includes
merchandise
costs (net
of
discounts
and
allowances),
buying
costs,
distribution costs,
occupancy
costs,
freight
and
inventory
shrinkage.
Net
merchandise costs
and
in-bound freight
are
capitalized as
inventory costs.
Buying
and
distribution costs include payroll, payroll-related
costs and
operating expenses for the
buying departments
and
distribution
center.
Occupancy
costs
include
rent,
real
estate
taxes,
insurance,
common
area
maintenance,
utilities
and maintenance
for stores
and distribution
facilities.
Total gross margin
dollars
(retail
sales less
cost of
goods sold
exclusive of
depreciation) decreased by 17.0% to
$72.7 million for
the first
quarter
of fiscal
2022 compared
to $87.6
million
in the first
quarter
of fiscal
2021.
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,
and bank and
credit card
processing
fees.
SG&A
expenses were 29.5% of retail
sales for the first quarter of fiscal 2022, compared
to 29.9% of retail sales in
the first quarter
of fiscal 2021.
SG&A as a percent
of retail sales
decreased
primarily
due to lower
incentive
compensation, partially
offset by increased payroll costs reflecting more normalized operations.
Depreciation
expense
was $2.7
million,
or 1.3%
of retail
sales for
the first
quarter
of fiscal
2022, compared
to
$3.0 million,
or 1.4% of retail sales
for the first quarter
of fiscal 2021. The decrease
in depreciation
expense
was attributable
to older
stores
being
fully depreciated.
Interest and
other
income
was
$0.4
million, or
0.2%
of
retail
sales
for
the
first
quarter of
fiscal
2022,
compared to
$0.7
million, or
0.3%
of
retail sales
for
the
first quarter
of
fiscal 2021.
The
decrease was
primarily
attributable
to a decrease
in short-term
investments.
Income tax expense
was $1.9 million or
1.0% of retail sales
for the first quarter
of fiscal 2022, compared
to
an
income
tax
expense
of
$3.1
million,
or
1.5%
of
retail
 
sales
 
for
 
the
 
first
 
quarter
 
of
 
fiscal
 
2021.
Income tax2023
 
expenseand
 
forare
included
in
 
the
 
firstsame-store
 
quartersales
calculation.
Total
revenues,
comprised
 
of
 
fiscalretail
 
2022sales
 
decreasedand
 
primarilyother
 
asrevenue
 
a(principally
 
resultfinance
 
ofcharges
 
lowerand
 
pre-taxlate
fees
on
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
2423
earnings.customer accounts
receivable, shipping
charged to
customers for
e-commerce purchases
and layaway
fees),
were
$192.1
million
for
the
first
quarter
ended
April
29,
2023,
compared
to
$206.7
million
for
the
first
quarter ended April 30, 2022. The
Company operated 1,264 stores at April 29,
2023 compared to 1,315 stores
at the
end of
last fiscal
year’s first
quarter.
For the
first three
months of
fiscal 2023,
the Company
opened
four stores
and permanently
closed 20 stores.
 
The effective incomeCompany
 
tax ratecurrently anticipates closing
approximately 80
stores in fiscal 2023.
Credit revenue of $0.6 million represented 0.3% of total revenues in the first quarter of fiscal 2023,
compared
to
2022
credit
revenue
of
$0.5
million
or
0.2%
of
total
revenues.
Credit
revenue
is
comprised
of
interest
earned on the Company’s private label credit card portfolio and related fee income.
Related expenses include
principally payroll, postage and
other administrative expenses, and
totaled $0.4 million in
the first quarter of
2023, compared to last year’s
first quarter expenses of $0.4 million.
Other revenue, a component of
total revenues, was $1.7 million for the first
quarter of fiscal 2023, compared
to
$1.8
million
for
the
prior
year’s
comparable
first
quarter.
The
slight
decrease
was
due
to
lower
e-
commerce shipping revenue, partially offset by higher finance
charges and layaway fees.
Cost of goods
sold was $122.1
million, or 64.2%
of retail sales for
the first quarter of
fiscal 2023, compared
to $132.2 million,
or 64.5% of
retail sales in
the first quarter
of fiscal 2022.
The overall decrease
in cost of
goods sold as
a percent of
retail sales
for the first
quarter of 2023
resulted primarily
from both
lower ocean
freight
costs
and
outbound
freight
costs
to
our
stores,
partially
offset
by
deleveraging
of
occupancy
and
buying costs. Cost of goods sold
includes merchandise costs (net of discounts
and allowances), buying costs,
distribution
costs,
occupancy
costs,
freight
and
inventory
shrinkage.
Net
merchandise
costs
and
in-bound
freight are capitalized as
inventory costs.
Buying and distribution costs
include payroll, payroll-related costs
and operating
expenses for
the
buying
departments
and
distribution center.
Occupancy
costs
include rent,
real estate
taxes, insurance,
common area
maintenance, utilities
and maintenance
for stores
and distribution
facilities.
Total gross margin dollars (retail sales
less cost of goods sold exclusive
of depreciation) decreased
by 6.1% to
$68.2 million for
 
the first quarter
 
of fiscal 2022
was 16.7%2023
 
compared to 12.9%$72.7
million in the
first quarter of
fiscal 2022.
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,
and bank and credit card processing fees.
SG&A
expenses were
32.5% of
retail sales for
the first
quarter of
fiscal 2023,
compared to
29.5% of
retail sales
in
the first quarter of fiscal 2022. The
increase in SG&A as a
percent of retail sales was due
primarily to higher
operating costs, driven in part by higher wages as a result of the tight labor market and expenses
related to the
closure of 20 stores in
the quarter, partially offset by lower insurance
expense.
Depreciation expense was $2.4 million, or 1.2% of retail sales for the first quarter of fiscal 2023, compared to
$2.7 million, or
1.3% of retail
sales for the
first quarter of
fiscal 2022. The
decrease in depreciation
expense
was attributable to older stores being
fully depreciated.
Interest
and
other
income
was
$0.9
million,
or
0.5%
of
retail
sales
for
 
the
 
first
 
quarter
of
 
2021. fiscal
2023,
compared
to
$0.4
million,
or
0.2%
of
retail
sales
for
the
first
quarter
of
fiscal
2022.
The
increase
was
primarily attributable
to an
 
increase in
 
theinterest rates
 
2022earned on
short-term investments,
partially offset
by a
decrease in short-term investments.
Income tax expense
was $2.1 million or
1.1% of retail sales
for the first quarter
of fiscal 2023,
compared
to
income
tax
expense
of
$1.9
million,
or
1.0%
of
retail
sales
for
the
 
first
 
quarter
of
fiscal
2022.
The
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
24
effective
income tax
 
rate for
the first
quarter of
fiscal 2023
was 32.6%
compared to
16.7% for
the first
quarter
of
2022.
The
increase
in
the
2023
first
quarter
tax
rate
was
 
primarily
due
 
to
 
higher
Global
Global Intangible Low-taxed Income (GILTI), partially offset by the ability to realize foreign tax credits.
rate differential and offshore claim.
LIQUIDITY, CAPITAL
 
RESOURCES
 
AND MARKET
 
RISK:
 
The Company
believes that
its cash,
cash equivalents
and short-term
 
investments, together
 
together with cash
flows
from operations
 
and borrowings available
 
available under its revolving
 
its revolving credit
agreement,
 
will be
adequate to fund
the
Company’s regular
operating
requirements
 
and expected
capital expenditures
 
for fiscal 20222023 and the
 
and the next 12
months.
Cash used
provided
 
by
operating
 
activities
 
for
the
 
first
three
 
months
 
of
fiscal
 
2022 2023
was
 
primarily
 
generated
 
by earnings
earnings adjusted
 
for depreciation
 
depreciation and changes
 
changes in working capital.
 
The decreaseworking
 
capital. The
increase in
cash
provided
 
of $45.3
$10.7
million
 
for
the
the
first
 
three
months
 
of
fiscal
2023
as
compared
to
the
first
three
months
of
fiscal
 
2022 as compared
was
primarily due
 
to the firsta
 
three monthsdecrease in
inventory and
a smaller
decrease in
accounts payable,
accrued expenses
and
other liabilities compared to year-end,
partially offset by lower net income.
At April 29,
2023, the Company
had working capital
 
of fiscal$87.9 million
 
2021 was compared to $74.7
million at January
28,
2023.
The
increase
is
primarily
 
due to
lower net incomeattributable
 
and a decreaseto
an
increase
 
in
accounts
 
payable andreceivable,
 
accrued liabilitieslower
 
from fiscalcurrent
 
2021 year end
versuslease
an increase
from 2020
year end,
liability and accounts payable partially
offset by
 
a decrease
in prepaid
and other
assets.lower merchandise inventory.
At
 
April
 
30,29,
 
2022,
the
Company had
working capital
of
$107.8
million compared
to
$111.5
million at
January 29, 2022.
This decrease is primarily
attributable
to lower short-term
investments,
partially offset
by
lower accrued
incentive
compensation.
At
April
30,
2022,2023,
 
the
 
Company
 
had
 
an
 
unsecured
 
revolving
 
credit
 
agreement,
 
which
 
providedprovides
 
for
borrowings of
up to $35.0 million less the balance of letters
 
of credit discussed below and was committed
through$35.0 million
 
May
2022.
In
May
2022,
less the
 
Companybalance of
 
signedany revocable
 
a
new
unsecured
revolving
credit
agreement,
which replaces
the priorletters of
 
credit agreement,
provides uprelated
 
to $35.0purchase
million in
committed availabilitycommitments,
 
and
is
committed
 
through
 
May
 
2027.
 
The
 
prior
credit
 
agreement
 
containedcontains
 
various
 
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios
with
which
the
Company
was
in
compliance as of April 30, 2022.
The new credit agreement also contains various financial covenants and
limitations, including the maintenance of specific financial ratios.
 
There were no outstanding borrowingsratios with which the Company
under the prior credit facility as of April 30, 2022 or January 29, 2022.was
 
in
compliance
At
as
of
 
April
 
30,
2022
and
January
29,
 
2022,2023.
 
theThere
 
Company
hadwere
 
no
 
outstanding lettersborrowings
 
outstanding,
nor
any
outstanding
letters of
 
credit that
 
relating to
purchasereduced borrowing availability,
 
commitments.as of
April 29,
2023.
The weighted
average interest
rate under the credit facility was zero at April 29, 2023 due to no outstanding
borrowings.
Expenditures
for
 
property
 
and
 
equipment
totaled
 
$4.46.2
 
million
 
in
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2022,2023,
compared
to $0.6
$4.4
 
million
in
 
last
year’s
 
first
three
 
months.
 
The
increase
in
 
expenditures
for
property
and
equipment
was
primarily
due
 
to
 
costs
associated
with
 
opening five
four
 
new
stores
 
and
capital
 
investments
in
information
technology
 
and
the
 
distribution
center.
 
For
the
 
full
fiscal 2022
2023
 
year,
the
 
Company
expects
to
invest
approximately
$22.6
$22.1 million
in capital
 
expenditures,
including
distribution
center
automation
projects.
Net
 
cash
 
provided
by
 
investing
activities
 
totaled
 
$19.615.3
 
million
in
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
20222023
compared to $19.6 million provided in the comparable period of fiscal 2022. The decrease is primarily due
 
to $34.2 million
higher purchases of short-term
 
investments and an increase
in capital expenditures, partially
offset by higher
sales of short-term investments.
Net cash used in
financing activities totaled $5.6
million in the first
three months of fiscal
2023 compared to
$12.7 million used
in the comparable
 
period of fiscal
 
2021,2022, primarily due
 
due to lower purchases
of
short-term
investments,
partially
offset by
an increase
in capital
expenditures.
Net cash used by financing
activities
totaled $12.7 million
in the first three months
of fiscal 2022 compared
to $5.5
million
used in
the comparable
period
of fiscal
2021, primarily
due to
an increasea decrease
 
in share
repurchases
and dividends
paid.
On May 18, 2023, the Board of
 
19, 2022,Directors maintained the quarterly dividend at
0.17 per share.
As
of
April
29,
2023,
 
the Board
 
of DirectorsCompany
 
declaredhad
 
the quarterly944,379
 
dividendshares
 
at $0.17remaining
 
per share.in
open
authorizations
under
its
share
repurchase program.
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
25
AsThe Company does not use
 
of
April 30,
2022, the
Company had
840,119 shares
remaining in
open authorizations under its
share
repurchase
program.
The Company
does not
use derivative
financial
instruments.
The Company’s investment
 
investment portfolio
was primarily
 
invested in corporate
 
corporate bonds and tax-exempt
 
tax-exempt and taxable
governmental
debt securities
 
held in
 
managed accounts
with underlying ratings of A or
 
better at Aprilratings
 
30,of
A
or better
at
April 29,
2022 2023
and
 
January 29,
 
2022.28,
2023.
 
The
state,
 
municipal
and
corporate
bonds
 
have contractual maturities which
range from one day to 4.6 years. The U.S. Treasury Notes have contractualand
 
maturities which
range from 46
days
to
2.4
years.
Theseasset-backed
 
securities
 
have
contractual maturities
which range
from two
days to
3.6 years.
The U.S.
Treasury Notes
and Certificates
of
Deposit have contractual maturities
which range from
one day to 2.8
years. These securities are
 
classified as
available-for-sale
 
as
available-for-sale and
 
are
 
recorded
 
as
 
Short-term
investments,
 
Restricted
 
cash
and
 
Other
assets
 
on the accompanying
 
Condensed
Consolidated
Balance
Sheets.the
accompanying Condensed Consolidated Balance Sheets. These assets are carried at fair value with unrealized
gains
 
gains and
losses
reported
net
of
taxes
in
Accumulated
other
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 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
 
and serviced by
 
by captive
auto finance units,
 
auto financebanks or
 
units, banks
or finance
companies.
 
The bank
 
credit card
card asset-backed securities
 
are backed
by
revolving
pools
of
credit
card
receivables
generated
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
 
April
 
30,29,
 
2022,2023,
 
the
 
Company
 
had
 
$0.8
 
million
 
of
 
corporate
 
equities
 
and
 
deferred
compensation
plan assets
 
of $11.0$9.3 million.
 
At January 28,
 
29, 2022,2023, the
Company
 
had $0.8$0.9 million
 
of corporate
equities
and deferred
compensation
 
plan assets of $9.3
 
of $11.5 million.
All of these
 
assets are recorded within
 
are recorded
within Other
assets
in the
Condensed
Consolidated
Balance
 
Sheets. See Note 7, Fair Value
 
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
26
ITEM 3. QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK:
The
 
Company
 
is
 
subject
 
to
 
market
 
rate
 
risk
 
from
 
exposure
 
to
 
changes
 
in
 
interest
 
rates
 
basedrelated
 
onto
 
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
April 29,
2023.
Based on
this
evaluation,
our
 
Principal
 
Executive
 
Officer
 
and
Principal
 
Financial
Officer, of the
 
effectivenessOfficer
 
of our disclosure controls and procedures as of April 30, 2022.concluded
 
Based on thisthat,
as
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as
of
 
April 30,
2022,
 
29,
2023, our
disclosure controls
and
procedures,
as defined
in
Rule
13a-15(e), under
the
 
Securities
Exchange
Act of
1934 (the
“Exchange “Exchange
 
Act”), were effective to ensure that
 
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
 
periods specified
in the SEC’s
rules and forms and
 
and that such information is
 
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
 
the Company’sover financial reporting (as defined in
 
internal
control over
financial
reporting
(as defined
in Exchange
Act Rule 13a-
15(f)) has
occurred
during the
Company’s fiscal
 
quarter ended April 29, 2023
 
ended April
30,
2022 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
27
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
 
the factors
discussed
in Part
I,
“Item
1A.
Risk
 
Factors”
in
our
 
Annual
Report
on
Form
 
10-K
for
 
our
fiscal
year
 
ended
January 29, 2022.
28,
2023.
 
These risks
could materially
 
affect our
business, financial
 
condition or
future results;
 
however, they
are not
the only
risks we
face.
 
Additional
risks and
uncertainties
not currently
known to
 
us or that
we currently
deem
to
 
be
 
immaterial
 
may
 
also
 
materially
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition
 
or
 
results
 
of
operations.
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 April 30, 2022:29, 2023:
ISSUER
PURCHASES
OF EQUITY
SECURITIES
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value)
 
of Shares that may
of Shares
Price Paid
Announced Plans or
Yet be Purchased
 
Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 20222023
70,96757,930
$
16.619.39
70,96757,930
March 20222023
327,897195,460
15.018.81
327,897195,460
April 20222023
211,064-
14.50-
211,064-
Total
609,928253,390
$
15.028.95
609,928253,390
840,119944,379
(1)
Prices include trading costs.
(2)
As of January
 
29, 2022,28, 2023, the
 
Company’s share
 
repurchase program had
 
450,047197,769 shares remaining
in
 
open
 
authorizations.
 
The
 
Board
 
of
 
Directors
 
authorized
 
an
 
additional
 
1,000,000
 
shares
 
for
repurchase under
 
the
 
program at
 
its
 
February 24,23,
 
20222023 meeting.
 
During the
 
first
 
quarter ended
April
 
30,29,
 
2022,2023,
 
the
 
Company
 
repurchased
 
and
 
retired
 
609,928253,390
 
shares
 
under
 
this
 
program
 
for
approximately $9,161,613 $2,266,727
or an
 
average market
price of
 
$15.028.95 per
share.
 
As of April 30,
 
2022,April 29,
2023,
the
 
Company
 
had
 
840,119944,379
 
shares
 
remaining
 
in
 
open
 
authorizations.
 
There
 
is
 
no
 
specified
expiration date for the Company’s repurchase program.
ITEM 3.
 
DEFAULTS
 
UPON SENIOR SECURITIES:
Not Applicable
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
28
ITEM 4.
 
MINE SAFETY DISCLOSURES:
Not Applicable
ITEM 5.
 
OTHER INFORMATION:
Not Applicable
 
ITEM 6.
 
EXHIBITS:
 
Exhibit
No.
Item
 
3.1
 
3.2
10.1
 
31.1*
 
31.2*
 
32.1*
 
32.2*
101.1*
The
following
materials
from
Registrant’s
Quarterly
Report
on
 
Form
10-Q
for
 
the
fiscal
 
quarter
ended
April
 
30, 2022,29,
2023,
 
formatted
in
Inline
XBRL:
 
(i)
 
Condensed
 
Consolidated
 
Statements
 
of
 
Income
 
and
Comprehensive
Income
for
 
the
 
Three
Months
 
ended
April
29,
2023
and
April
 
30,
 
2022
and May
1, 2021;2022;
 
(ii)
Condensed
 
Consolidated
 
Balance
 
Sheets
 
at April
30,April
 
202229,
2023
 
and
 
January
 
29,28,
 
2022;2023;
 
(iii)
 
Condensed
 
Consolidated
Statements
of Cash Flows
for the Three Months
 
Months Ended
April 30, 202229, 2023
and
 
MayApril
 
1,30,
 
2021;2022;
 
(iv)
 
Condensed
 
Consolidated
 
Statements
 
of
Stockholders’ Equity
 
Equity for the
Three Months
Ended April 30, 2022
29, 2023
and
MayApril
 
1,30,
 
2021;2022;
 
and
 
(v)
 
Notes
 
to
 
Condensed
 
Consolidated
Financial
Statements.
104.1
Cover
 
Page
 
Interactive
 
Data
 
File
 
(Formatted
 
in
 
Inline
 
XBRL
 
and
contained in the Interactive Data Files submitted as Exhibit 101.1*)
 
* Submitted electronically herewith.
 
 
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
29
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
May 26, 202225, 2023
/s/ John P.
 
D. Cato
Date
John P.
 
D. Cato
Chairman, President and
Chief Executive Officer
May 26, 202225, 2023
/s/ Charles D. Knight
Date
Charles D. Knight
 
Executive Vice President
Chief Financial Officer