UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ________________to__________________
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
,
,
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
X
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
X
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☑
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 29, 2023, there were
2
THE CATO CORPORATION
FORM 10-Q
Quarter Ended July 29, 2023
Table of Contents
Page No.
PART I – FINANCIAL INFORMATION (UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
3
For the Three Months and Six Months Ended July 29, 2023 and July 30, 2022
Condensed Consolidated Balance Sheets
4
At July 29, 2023 and January 28, 2023
Condensed Consolidated Statements of Cash Flows
5
For the Six Months Ended July 29, 2023 and July 30, 2022
Condensed Consolidated Statements of Stockholders’ Equity
6 – 7
For the Six Months Ended July 29, 2023 and July 30, 2022
Notes to Condensed Consolidated Financial Statements
8 – 22
For the Three Months and Six Months Ended July 29, 2023 and July 30, 2022
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
23 – 29
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29
Item 4.
Controls and Procedures
29
PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
30
Item 1A.
Risk Factors
30
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
Item 3.
Defaults Upon Senior Securities
31
Item 4.
Mine Safety Disclosures
31
Item 5.
Other Information
31
Item 6.
Exhibits
31
Signatures
32
3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
Six Months Ended
July 29, 2023
July 30, 2022
July 29, 2023
July 30, 2022
(Dollars in thousands, except per share data)
REVENUES
$
$
$
$
COSTS AND EXPENSES, NET
(1,334 )
(1,884 )
(2,231 )
(2,287 )
Income before income taxes
Income tax expense
Net income (loss)
$
$
(2,274 )
$
$
Basic earnings (loss) per share
$
$
(0.11 )
$
$
Diluted earnings (loss) per share
$
$
(0.11 )
$
$
Comprehensive income:
Net income (loss)
$
$
(2,274 )
$
$
Unrealized gain (loss) on available-for-sale securities, net of
) for
(1,145 )
Comprehensive income (loss)
$
$
(2,213 )
$
$
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
July 29, 2023
January 28, 2023
ASSETS
(Dollars in thousands)
Current Assets:
Cash and cash equivalents
$
$
Short-term investments
Restricted cash
Accounts receivable, net of allowance for customer credit losses of
Merchandise inventories
Prepaid expenses and other current assets
Property and equipment – net
Noncurrent deferred income taxes
Other assets
Right-of-Use assets – net
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
$
Accrued expenses
Accrued employee benefits and bonus
Accrued income taxes
Current lease liability
Other noncurrent liabilities
Lease liability
Stockholders' Equity:
Preferred stock, $
Class A common stock, $
Convertible Class B common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
(716 )
(1,238 )
$
$
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
July 29, 2023
July 30, 2022
(Dollars in thousands)
Operating Activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided
(97 )
(832 )
(666 )
(667 )
(24 )
(1,001 )
(1,207 )
(10,306 )
(42,013 )
Net cash provided by operating activities
Investing Activities:
Expenditures for property and equipment
(8,470 )
(10,384 )
Purchase of short-term investments
(14,497 )
(28,385 )
Sales of short-term investments
Net cash provided by investing activities
Financing Activities:
Dividends paid
(6,962 )
(7,270 )
Repurchase of common stock
(2,563 )
(9,596 )
Proceeds from employee stock purchase plan
Net cash used in financing activities
(9,327 )
(16,719 )
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
$
Non-cash activity:
Accrued other assets and property and equipment
$
$
See notes to condensed consolidated financial statements (unaudited).
6
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 28, 2023
$
$
$
$
(1,238 )
$
Comprehensive income:
Dividends paid ($
(3,455 )
(3,455 )
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
Share-based compensation expense
Repurchase and retirement of treasury shares
(8 )
(2,259 )
(2,267 )
Balance — April 29, 2023
$
$
$
$
(883 )
$
Comprehensive income:
Dividends paid ($
(3,507 )
(3,507 )
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
Share-based compensation expense
Repurchase and retirement of treasury shares
(1 )
(293 )
(294 )
Balance — July 29, 2023
$
$
$
$
(716 )
$
See notes to condensed consolidated financial statements (unaudited).
7
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 29, 2022
$
$
$
$
(280 )
$
Comprehensive income:
(1,206 )
(1,206 )
Dividends paid ($
(3,638 )
(3,638 )
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
Share-based compensation expense
Repurchase and retirement of treasury shares
(20 )
(9,142 )
(9,162 )
Balance — April 30, 2022
$
$
$
$
(1,486 )
$
Comprehensive income:
(2,274 )
(2,274 )
Dividends paid ($
(3,632 )
(3,632 )
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
Share-based compensation expense
Repurchase and retirement of treasury shares
(1 )
(433 )
(434 )
Balance — July 30, 2022
$
$
$
$
(1,425 )
$
See notes to condensed consolidated financial statements (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
8
NOTE 1 - GENERAL
:
The condensed consolidated financial statements as of July 29, 2023 and for the
twenty-six-week
ended July 29, 2023 and July 30, 2022 have been prepared from the accounting records of The Cato
Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown are unaudited.
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial
statements have been included. All such adjustments are of a normal, recurring nature unless otherwise
noted. The results of the interim period may not be indicative of the results expected for the entire year.
The interim financial statements should be read in conjunction with the consolidated financial statements
and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended
January 28, 2023. Amounts as of January 28, 2023 have been derived from the audited balance sheet, but
do not include all disclosures required by accounting principles generally accepted in the United States of
America.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
9
NOTE 2 - EARNINGS PER SHARE:
Accounting Standard Codification (“ASC”) 260 –
Earnings Per Share
diluted Earnings Per Share (“EPS”) on the face of all income statements for all entities with complex capital
structures. The Company has presented one basic EPS and one diluted EPS amount for all common shares in
the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
While the Company’s certificate of incorporation provides the right for the Board of Directors to declare
dividends on Class A shares without declaration of commensurate dividends on Class B shares, the Company
has historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors
has resolved to continue this practice. Accordingly, the Company’s allocation of income for purposes of the
EPS computation is the same for Class A and Class B shares and the EPS amounts reported herein are
applicable to both Class A and Class B shares.
Basic EPS is computed as net income less earnings allocated to non-vested equity awards divided by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options and the Employee Stock
Purchase Plan.
Three Months Ended
Six Months Ended
July 29, 2023
July 30, 2022
July 29, 2023
July 30, 2022
(Dollars in thousands)
Numerator
Net earnings (loss)
$
$
(2,274 )
$
$
(Earnings) loss allocated to non-vested equity awards
(54 )
(292 )
(405 )
Net earnings (loss) available to common stockholders
$
$
(2,142 )
$
$
Denominator
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
Net income (loss) per common share
Basic earnings (loss) per share
$
$
(0.11 )
$
$
Diluted earnings (loss) per share
$
$
(0.11 )
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
10
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) for the three months ended July 29, 2023:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at April 29, 2023
$
(883 )
Net current-period other comprehensive income
Ending Balance at July 29, 2023
$
(716 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
.
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) for the six months ended July 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 )
Net current-period other comprehensive income
Ending Balance at July 29, 2023
$
(716 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
11
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED):
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) for the three months ended July 30, 2022:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at April 30, 2022
$
(1,486 )
(3 )
Net current-period other comprehensive income
Ending Balance at July 30, 2022
$
(1,425 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
.
The following table sets forth information regarding the reclassification out of Accumulated other
comprehensive income (in thousands) for the six months ended July 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 )
(1,139 )
(6 )
Net current-period other comprehensive income
(1,145 )
Ending Balance at July 30, 2022
$
(1,425 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income.
(b) Includes $
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
12
NOTE 4 – FINANCING ARRANGEMENTS:
As of July 29, 2023, the Company has an unsecured revolving credit line, which provides for borrowings of
up to $
committed through May 2027. The revolving credit agreement contains various financial covenants and
limitations, including the maintenance of specific financial ratios. On August 9, 2023, the Company
amended the revolving credit agreement to modify a definition used in calculating the Company’s minimum
EBITDAR coverage ratio to add back certain income tax receivables for purposes of calculating the ratio. For
the quarter ended July 29, 2023, after giving effect to the amendment, the Company was in compliance with
the credit agreement. There were
r any outstanding letters of credit that
reduced borrowing availability, as of July 29, 2023. The weighted average interest rate under the credit
facility was
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The Company has determined that it has
Segment
Reporting
, including Cato, It’s Fashion, Versona and Credit. As outlined in ASC 280-10, the Company has
including e-commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or
more operating segments may be aggregated into a single reportable segment if aggregation is consistent with
the objective and basic principles of ASC 280-10, which require the segments to have similar economic
characteristics, products, production processes, clients and methods of distribution.
The Company’s retail operating segments have similar economic characteristics and similar operating,
financial and competitive risks. The products sold in each retail operating segment are similar in nature, as
they all offer women’s apparel, shoes and accessories. Merchandise inventory of the Company’s retail
operating segments is sourced from the same countries and some of the same vendors, using similar
production processes. Merchandise for the Company’s retail operating segments is distributed to retail stores
in a similar manner through the Company’s single distribution center and is subsequently sold to customers in
a similar manner.
The Company operates its women’s fashion specialty retail stores in
principally in the southeastern United States. The Company offers its own credit card to its customers and
all credit authorizations, payment processing and collection efforts are performed by a wholly-owned
subsidiary of the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
13
NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):
The following schedule summarizes certain segment information (in thousands):
Three Months Ended
Six Months Ended
July 29, 2023
Retail
Credit
Total
July 29, 2023
Retail
Credit
Total
Revenues
$182,213
$658
$182,871
Revenues
$373,648
$1,273
$374,921
Depreciation
Depreciation
Interest and other income
(1,334 )
(1,334 )
Interest and other income
(2,231 )
(2,231 )
Income before
Income before
Capital expenditures
Capital expenditures
Three Months Ended
Six Months Ended
July 30, 2022
Retail
Credit
Total
July 30, 2022
Retail
Credit
Total
Revenues
$196,314
$550
$196,864
Revenues
$402,523
$1,062
$403,585
Depreciation
Depreciation
Interest and other income
(1,884 )
(1,884 )
Interest and other income
(2,287 )
(2,287 )
Income before
Income before
Capital expenditures
Capital expenditures
Retail
Credit
Total
Total assets as of July 29, 2023
$468,923
$38,744
$507,667
Total assets as of January 28, 2023
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
Six Months Ended
July 29, 2023
July 30, 2022
July 29, 2023
July 30, 2022
Payroll
$
$
$
$
Postage
Other expenses
Total expenses
$
$
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
14
NOTE 6 – STOCK-BASED COMPENSATION:
As of July 29, 2023, 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 July 29, 2023:
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
Options and/or restricted stock available for grant:
In accordance with ASC 718 –
Compensation–Stock Compensation
, the fair value of current restricted
stock awards is estimated on the date of grant based on the market price of the Company’s stock and is
amortized to compensation expense on a straight-line basis over the related vesting periods. As of July 29,
2023 and January 28, 2023, there was $
, respectively, of total unrecognized
compensation expense related to nonvested restricted stock awards, which had a remaining weighted-
average vesting period of
three and six months ended July 29, 2023 was $
, respectively, compared to
$
classified as a component of Selling, general and administrative expenses in the Condensed Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss).
The following summary shows the changes in the shares of unvested restricted stock outstanding during the
six months ended July 29, 2023:
Weighted Average
Number of
Grant Date Fair
Shares
Value Per Share
Restricted stock awards at January 28, 2023
$
Granted
Vested
(217,238 )
Forfeited or expired
(74,338 )
Restricted stock awards at July 29, 2023
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
15
NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):
The Company’s Employee Stock Purchase Plan allows eligible full-time employees to purchase a limited
number of shares of the Company’s Class A Common Stock during each semi-annual offering period at a
% discount through payroll deductions. During the six months ended July 29, 2023 and July 30, 2022, the
Company sold
respectively, under the Employee Stock Purchase Plan. The compensation expense recognized for the
%
discount given under the Employee Stock Purchase Plan was approximately $
months ended July 29, 2023 and July 30, 2022, respectively. These expenses are classified as a component of
Selling, general and administrative expenses.
NOTE 7 – FAIR VALUE MEASUREMENTS:
The following tables set forth information regarding the Company’s financial assets and liabilities that are
measured at fair value (in thousands) as of July 29, 2023 and January 28, 2023:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
July 29, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(8,724 )
$
$
$
(8,724 )
Total Liabilities
$
(8,724 )
$
$
$
(8,724 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
16
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 28, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(8,903 )
$
$
$
(8,903 )
Total Liabilities
$
(8,903 )
$
$
$
(8,903 )
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at July 29, 2023
and January 28, 2023. The state, municipal and corporate bonds have contractual maturities which range
from
Restricted cash and Other assets on the accompanying Condensed Consolidated Balance Sheets. These assets
are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other
comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit cards
that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans that
were originated and serviced by captive auto finance units, banks or finance companies. The bank credit card
asset-backed securities are backed by revolving pools of credit card receivables generated by account holders
of cards from American Express, Citibank, JPMorgan Chase, Capital One and Discover.
Additionally, at July 29, 2023, the Company had $
compensation plan assets of $
equities and deferred compensation plan assets of $
assets in the Condensed Consolidated Balance Sheets.
Level 1 securities are measured at fair value using quoted active market prices. Level 2 investment securities
include corporate bonds, municipal bonds and asset-backed securities for which quoted prices may not be
available on active exchanges for identical instruments. Their fair value is principally based on market values
determined by management with assistance of a third-party pricing service. Since quoted prices in active
markets for identical assets are not available, these prices are determined by the pricing service using
observable market information such as quotes from less active markets and/or quoted prices of securities with
similar characteristics, among other factors.
Deferred compensation plan assets consist of life insurance policies. These life insurance policies are valued
based on the cash surrender value of the insurance contract, which is determined based on such factors as the
fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3 of the
valuation hierarchy. The Level 3 liability associated with the life insurance policies represents a deferred
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
17
compensation obligation, the value of which is tracked via underlying insurance funds’ net asset values, as
recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet. These funds are
designed to mirror mutual funds and money market funds that are observable and actively traded.
The following tables summarize the change in fair value of the Company’s financial assets and liabilities
measured using Level 3 inputs for the six months ended July 29, 2023 and the year ended January 28, 2023
(in thousands):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
Redemptions
Additions
Total gains or (losses):
changes in net assets)
Ending Balance at July 29, 2023
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
(8,903 )
(162 )
changes in net assets)
(305 )
Ending Balance at July 29, 2023
$
(8,724 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
18
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 29, 2022
$
Redemptions
(1,718 )
Additions
Total gains or (losses):
changes in net assets)
(480 )
Ending Balance at January 28, 2023
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 29, 2022
$
(10,020 )
(379 )
changes in net assets)
Ending Balance at January 28, 2023
$
(8,903 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
19
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
The Company has reviewed recent accounting pronouncements and believe none will have a material
impact on the Company’s financial statements.
NOTE 9 – INCOME TAXES:
The Company had an effective tax rate for the first six months of 2023 of
% compared to
% for
the first six months of 2022. The change in the effective tax rate for the first six months of 2023 compared
to the prior year was primarily due to a decrease in Global Intangible Low-taxed Income (GILTI), state
income taxes, non-deductible officer’s compensation, and increases in foreign tax credits and employment
credits, partially offset by the foreign rate differential.
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 the Company’s condensed consolidated financial statements. However, given
the inherent uncertainties involved in such matters, an adverse outcome in one or more of such matters
could materially and adversely affect the Company’s financial condition, results of operations and cash
flows in any particular reporting period. The Company accrues for these matters when the liability is
deemed probable and reasonably estimable.
NOTE 11 – REVENUE RECOGNITION:
The Company recognizes sales at the point of purchase when the customer takes possession of the
merchandise and pays for the purchase, generally with cash or credit. Sales from purchases made with
Cato credit, gift cards and layaway sales from stores are also recorded when the customer takes
possession of the merchandise. E-commerce sales are recorded when the risk of loss is transferred to the
customer. Gift cards are recorded as deferred revenue until they are redeemed or forfeited. Layaway sales
are recorded as deferred revenue until the customer takes possession of, or forfeits, the merchandise. Gift
cards do not have expiration dates. A provision is made for estimated merchandise returns based on sales
volumes and the Company’s experience; actual returns have not varied materially from historical
amounts. A provision is made for estimated write-offs associated with sales made with the Company’s
proprietary credit card. Amounts related to shipping and handling billed to customers in a sales
transaction are classified as Other revenue and the costs related to shipping product to customers (billed
and accrued) are classified as Cost of goods sold.
The Company offers its own proprietary credit card to customers. All credit activity is performed by the
Company’s wholly-owned subsidiaries.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
20
and six months ended July 29, 2023, the Company estimated customer credit losses of $
$
, respectively, compared to $
2022, respectively. Sales purchased on the Company’s proprietary credit card for the three and six
months ended July 29, 2023 were $
and $
The following table provides information about receivables and contract liabilities from contracts with
customers (in thousands):
Balance as of
July 29, 2023
January 28, 2023
Proprietary Credit Card Receivables, net
$
$
Gift Card Liability
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
21
NOTE 12 – LEASES:
The Company determines whether an arrangement is a lease at inception. The Company has operating
leases for stores, offices, warehouse space and equipment. Its leases have remaining lease terms of up to
up to
, and some include options to terminate the lease
. The Company considers
these options in determining the lease term used to establish its right-of-use assets and lease liabilities.
The Company’s lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated
incremental borrowing rate based on the information available at commencement date of the lease in
determining the present value of lease payments.
The components of lease cost are shown below (in thousands):
Three Months Ended
July 29, 2023
July 30, 2022
Operating lease cost (a)
$
$
Variable lease cost (b)
$
$
(a) Includes right-of-use asset amortization of ($
) million and ($
) million for the three months ended July 29, 2023 and July 30,
2022, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.
Six Months Ended
July 29, 2023
July 30, 2022
Operating lease cost (a)
$
$
Variable lease cost (b)
$
$
(a) Includes right-of-use asset amortization of ($
) million and ($
) million for the six months ended July 29, 2023 and July 30,
2022, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 29, 2023 AND JULY 30, 2022
22
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are
as follows (in thousands):
Operating cash flow information:
Three Months Ended
July 29, 2023
July 30, 2022
Cash paid for amounts included in the measurement of lease liabilities
$
$
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
$
Six Months Ended
July 29, 2023
July 30, 2022
Cash paid for amounts included in the measurement of lease liabilities
$
$
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
$
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as
follows:
As of
July 29, 2023
July 30, 2022
Weighted-average remaining lease term
Weighted-average discount rate
Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in
thousands):
Fiscal Year
2023 (a)
$
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
(a) Excluding the six months ended July 29, 2023
23
THE CATO CORPORATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The following information should be read along with the unaudited Condensed Consolidated Financial
Statements, including the accompanying Notes appearing in this report. Any of the following are
“forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended: (1) statements in this
Form 10-Q that reflect projections or expectations of our future financial or economic performance;
(2) statements that are not historical information; (3) statements of our beliefs, intentions, plans and
objectives for future operations, including those contained in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”; (4) statements relating to our operations or activities for
our fiscal year ending February 3, 2024 (“fiscal 2023”) and beyond, including, but not limited to,
statements regarding expected amounts of capital expenditures and store openings, relocations, remodels
and closures and statements regarding the potential impact of the COVID-19 pandemic and related
responses and mitigation efforts, as well as the potential impact of supply chain disruptions, inflationary
pressures and other economic or market conditions on our business, results of operations and financial
condition and statements regarding new store development strategy; and (5) statements relating to our
future contingencies. When possible, we have attempted to identify forward-looking statements by using
words such as “will,” “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “hopes,”
“intends,” “may,” “plans,” “could,” “would,” “should” and any variations or negative formations of such
words and similar expressions. We can give no assurance that actual results or events will not differ
materially from those expressed or implied in any such forward-looking statements. Forward-looking
statements included in this report are based on information available to us as of the filing date of this
report, but subject to known and unknown risks, uncertainties and other factors that could cause actual
results to differ materially from those contemplated by the forward-looking statements. Such factors
include, but are not limited to, the following: any actual or perceived deterioration in the conditions that
drive consumer confidence and spending, including, but not limited to, prevailing social, economic,
political and public health conditions and uncertainties, levels of unemployment, fuel, energy and food
costs, wage rates, tax rates, interest rates, home values, consumer net worth, the availability of credit and
inflation; changes in laws, regulations or government policies affecting our business, including but not
limited to tariffs; uncertainties regarding the impact of any governmental action regarding, or responses
to, the foregoing conditions; competitive factors and pricing pressures; our ability to predict and respond
to rapidly changing fashion trends and consumer demands; our ability to successfully implement our new
store development strategy to increase new store openings and our ability of any such new stores to grow
and perform as expected; adverse weather, public health threats (including the global COVID-19
pandemic) or similar conditions that may affect our sales or operations; inventory risks due to shifts in
market demand, including the ability to liquidate excess inventory at anticipated margins; adverse
developments or volatility affecting the financial services industry or broader financial markets; and other
factors discussed under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the
fiscal year ended January 28, 2023 (“fiscal 2022”), as amended or supplemented, and in other reports we
file with or furnish to the Securities and Exchange Commission (“SEC”) from time to time. We do not
undertake, and expressly decline, any obligation to update any such forward-looking information
contained in this report, whether as a result of new information, future events, or otherwise.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
24
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company’s accounting policies are more fully described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal
year ended January 28, 2023. As disclosed in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the preparation of the Company’s financial statements in conformity
with generally accepted accounting principles in the United States (“GAAP”) requires management to make
estimates and assumptions about future events that affect the amounts reported in the financial statements and
accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore,
the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial statements. The most significant
accounting estimates inherent in the preparation of the Company’s financial statements include the
calculation of potential asset impairment, reserves relating to self-insured health insurance, workers’
compensation, general and auto insurance liabilities, uncertain tax positions, the allowance for customer
credit losses, and inventory shrinkage.
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
25
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in the Company's unaudited Condensed
Consolidated Statements of Income as a percentage of total retail sales:
Three Months Ended
Six Months Ended
July 29, 2023
July 30, 2022
July 29, 2023
July 30, 2022
Total retail sales
100.0
%
100.0
%
100.0
%
100.0
%
Other revenue
0.9
1.0
0.9
0.9
Total revenues
100.9
101.0
100.9
100.9
Cost of goods sold (exclusive of depreciation)
64.9
67.6
64.5
66.0
Selling, general and administrative (exclusive
of depreciation)
34.0
31.2
33.3
30.3
Depreciation
1.4
1.4
1.3
1.4
Interest and other income
(0.7)
(1.0)
(0.6)
(0.6)
Income before income taxes
1.4
1.8
2.4
3.8
Net income (loss)
0.6
(1.2)
1.5
1.9
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
26
RESULTS OF OPERATIONS (CONTINUED):
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is
intended to provide information to assist readers in better understanding and evaluating our financial
condition and results of operations. We recommend reading this MD&A in conjunction with our Condensed
Consolidated Financial Statements and the Notes to those statements included in the “Financial Statements”
section of this Quarterly Report on Form 10-Q, as well as our 2022 Annual Report Form 10-K.
Recent Developments
Inflationary Cost Pressure and Rising Interest Rates
Despite some reduction in inflationary pressures from last year, Cato’s operating costs, including higher
wages, operating supplies, and service costs continue to be negatively impacted by the current inflationary
environment. In addition, our customers’ disposable income is impacted by increased costs related to
fuel, food, and housing, including rent, as well as other consumable products across the economy which,
in part, negatively impact our customers’ willingness to purchase discretionary items such as apparel,
jewelry and shoes.
In response to inflationary pressures, the Federal Reserve began raising and is committed to continue
raising interest rates until inflationary pressures subside to acceptable levels. These rising interest rates
have adversely affected the availability and cost of credit for both businesses and our customers.
Increasing costs related to revolving credit, auto loans and mortgages continue to have a negative impact
on our customers’ discretionary income. Our customers’ willingness to purchase our products may
continue to be negatively impacted by high interest rates.
We believe high prices and interest rates impacted the first half of fiscal 2023 and will likely continue to
have a negative impact on consumer behavior and, by extension, our results of operations and financial
condition during the remainder of fiscal 2023.
Comparison of the Three and Six Months ended July 29, 2023 with July 30, 2022
Total retail sales for the second quarter were $181.2 million compared to last year’s second quarter sales of
$195.0 million, a 7% decrease. The Company’s sales decrease in the second quarter of fiscal 2023 is
primarily due to a 5% decrease in same-store sales and permanently closed stores, partially offset by sales
from new stores. For the six months ended July 29, 2023, total retail sales were $371.5 million compared to
last year’s comparable six month sales of $399.9 million, a 7% decrease. The decrease in sales in the first six
months of fiscal 2023 was also due primarily to a 5% decrease in same-store sales and permanently closed
stores, partially offset by sales from new stores. Same-store sales include stores that have been open more
than 15 months. Stores that have been relocated or expanded are also included in the same-store sales
calculation after they have been open more than 15 months. The method of calculating same-store sales
varies across the retail industry. As a result, our same-store sales calculation may not be comparable to
similarly titled measures reported by other companies. E-commerce sales were less than 5% of total sales for
the six months ended July 29, 2023 and are included in the same-store sales calculation. Total revenues,
comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts
receivable and layaway fees), were $182.9 million and $374.9 million for the three and six months ended July
29, 2023, compared to $196.9 million and $403.6 million for the three and six months ended July 30, 2022,
respectively. The Company operated 1,247 stores at July 29, 2023 compared to 1,312 stores at the end of last
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
27
year’s second quarter. During the first six months of fiscal 2023, the Company opened eight stores and
closed 41 stores. The Company currently expects to close approximately 80 stores in total in fiscal 2023.
Credit revenue of $0.7 million represented 0.4% of total revenues in the second quarter of fiscal 2023,
compared to 2022 credit revenue of $0.6 million or 0.3% of total revenues. Credit revenue is comprised of
interest earned on the Company’s private label credit card portfolio and related fee income. Related expenses
principally include payroll, postage and other administrative expenses and totaled $0.4 million in the second
quarter of fiscal 2023, compared to last year’s second quarter expense of $0.4 million.
Other revenue, a component of total revenues, was $1.7 million and $3.4 million for the three and six months
ended July 29, 2023, respectively, compared to $1.9 million and $3.6 million for the prior year’s comparable
three and six month periods. The decrease in Other revenue for both the three and six months is due to a
decrease in gift card breakage and e-commerce shipping revenue partially offset by increases in finance
charges and late fees associated with the Company’s proprietary credit card.
Cost of goods sold was $117.6 million, or 64.9% of retail sales and $239.7 million, or 64.5% of retail sales
for the three and six months ended July 29, 2023, respectively, compared to $131.7 million, or 67.6% of retail
sales and $264.0 million, or 66.0% of retail sales for the comparable three and six month periods of fiscal
2022. The overall decrease in cost of goods sold as a percent of retail sales for the second quarter and first
half of fiscal 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) increased by 0.5% to $63.6 million for the second
quarter of fiscal 2023 and decreased by 3.0% to $131.8 million for the first six months of fiscal 2023,
compared to $63.3 million and $135.9 million for the prior year’s comparable three and six months 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, bank and credit card processing fees. SG&A
expenses were $61.6 million, or 34.0% of retail sales and $123.6 million, or 33.3% of retail sales for the
second quarter and first six months of fiscal 2023, respectively, compared to $60.8 million, or 31.2% of retail
sales and $121.2 million, or 30.3% of retail sales for the prior year’s comparable three and six month periods.
The increase in SG&A for the second quarter and first six months of fiscal 2023 is primarily due to higher
payroll and insurance expense.
Depreciation expense was $2.5 million, or 1.4% of retail sales and $4.9 million, or 1.3% of retail sales for the
second quarter and first six months of fiscal 2023, respectively, compared to $2.8 million, or 1.4% of retail
sales and $5.6 million or 1.4% of retail sales for the comparable three and six month periods of fiscal 2022,
respectively.
Interest and other income was $1.3 million, or 0.7% of retail sales and $2.2 million, or 0.6% of retail sales for
the three and six months ended July 29, 2023, respectively, compared to $1.9 million, or 1.0% of retail sales
and $2.3 million, or 0.6% of retail sales for the comparable three and six month periods of fiscal 2022,
respectively. The decrease for the second quarter and first six months of fiscal 2023 compared to fiscal 2022
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
28
is primarily attributable to the Company’s receipt of insurance proceeds in the second quarter of fiscal 2022
related to hurricane damage in 2021.
Income tax expense was $1.3 million and $3.5 million for the second quarter and first six months of fiscal
2023, respectively, compared to $5.7 million and $7.6 million for the comparable three and six month
periods of fiscal 2022, respectively. For the first six months of fiscal 2023, the Company’s effective tax
rate was 38.5% compared to 50.6% for the first six months of fiscal 2022. The change in the 2023 year-
to-date effective tax rate was primarily due to a decrease in Global Intangible Low-taxed Income (GILTI),
state income taxes, non-deductible officer’s compensation, and increases in foreign tax credits and
employment credits, partially offset by the foreign rate differential.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:
The Company believes that its cash, cash equivalents and short-term investments, together with cash flows
from operations and borrowings available under its revolving credit agreement, will be adequate to fund the
Company’s regular operating requirements and expected capital expenditures for fiscal 2023 and the next 12
months.
Cash provided by operating activities during the first six months of fiscal 2023 was $21.6 million as
compared to $17.0 million provided in the first six months of fiscal 2022. Cash provided by operating
activities for the first six months of fiscal 2023 was primarily generated by earnings adjusted for depreciation
and changes in working capital. The increase in cash provided of $4.6 million for the first six months of fiscal
2023 as compared to the first six months of fiscal 2022 was primarily due to a smaller decrease in accounts
payable and accrued liabilities from the fiscal year end and lower inventory, partially offset by higher
accounts receivable and lower net income.
At July 29, 2023, the Company had working capital of $103.4 million compared to $74.7 million at January
28, 2023.
The increase in working capital is primarily attributable to a decrease in current lease liability and
an increase in cash, partially offset by a decrease in inventory and short-term investments.
As of July 29, 2023, the Company has an unsecured revolving credit line, which provides for borrowings of
up to $35.0 million, less the balance of any revocable letters of credit related to purchase commitments, and is
committed through May 2027. The revolving credit agreement contains various financial covenants and
limitations, including the maintenance of specific financial ratios. On August 9, 2023, the Company
amended the revolving credit agreement to modify a definition used in calculating the Company’s minimum
EBITDAR coverage ratio to add back certain income tax receivables for purposes of calculating the ratio. For
the quarter ended July 29, 2023, after giving effect to the amendment, the Company was in compliance with
the credit agreement. There were no borrowings outstanding, nor any outstanding letters of credit that
reduced borrowing availability, as of July 29, 2023. The weighted average interest rate under the credit
facility was zero at July 29, 2023 due to no borrowings outstanding.
Expenditures for property and equipment totaled $8.5 million in the first six months of fiscal 2023, compared
to $10.4 million in last fiscal year’s first six months. The decrease in expenditures for property and equipment
was primarily due to finishing projects related to investments in the distribution center and information
technology. For the full fiscal 2023 year, the Company expects to invest approximately $17.0 million for
capital expenditures.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
29
Net cash provided by investing activities totaled $23.8 million in the first six months of fiscal 2023 compared
to $10.1 million net cash provided in the comparable period of 2022. The increase in net cash provided in
2023 was primarily due to a net decrease in the purchase of short-term investments and a decrease in capital
expenditures.
Net cash used in financing activities totaled $9.3 million in the first six months of fiscal 2023 compared to
$16.7 million used in the comparable period of fiscal 2022. The decrease in net cash used in fiscal 2023 was
primarily due to lower stock repurchases and lower dividends.
As of July 29, 2023, the Company had 909,653 shares remaining in open authorizations under its share
repurchase program.
The Company does not use derivative financial instruments.
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at July 29, 2023
and January 28, 2023. The state, municipal and corporate bonds have contractual maturities which range
from one day to 2.6 years. The U.S. Treasury Notes have contractual maturities which range from two days to
2.6 years. These securities are classified as available-for-sale and are recorded as Short-term investments,
Restricted cash and Other assets on the accompanying Condensed Consolidated Balance Sheets. These assets
are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other
comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit cards
that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans that
were originated and serviced by captive auto finance units, banks or finance companies. The bank credit card
asset-backed securities are backed by revolving pools of credit card receivables generated by account holders
of cards from American Express, Citibank, JPMorgan Chase, Capital One and Discover.
Additionally, at July 29, 2023, the Company had $0.9 million of corporate equities and deferred
compensation plan assets of $9.5 million. At January 28, 2023, the Company had $0.9 million of corporate
equities and deferred compensation plan assets of $9.3 million. All of these assets are recorded within Other
assets in the Condensed Consolidated Balance Sheets. See Note 7, Fair Value Measurements.
RECENT ACCOUNTING PRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company is subject to market rate risk from exposure to changes in interest rates based on its
financing, investing and cash management activities, but the Company does not believe such exposure is
material.
ITEM 4. CONTROLS AND PROCEDURES:
We carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial
Officer, of the effectiveness of our disclosure controls and procedures as of July 29, 2023. Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of July 29,
2023, our disclosure controls and procedures, as defined in Rule 13a-15(e), under the Securities Exchange
Act of 1934 (the “Exchange Act”), were effective to ensure that information we are required to disclose in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our Principal Executive Officer and Principal Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
No change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-
15(f)) has occurred during the Company’s fiscal quarter ended July 29, 2023 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
THE CATO CORPORATION
PART II OTHER INFORMATION
31
ITEM 1. LEGAL PROCEEDINGS:
Not Applicable.
ITEM 1A. RISK FACTORS:
In addition to the other information in this report, you should carefully consider the factors discussed in Part I,
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended January 28, 2023.
These risks could materially affect our business, financial condition or future results; however, they are not
the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial may also materially adversely affect our business, financial condition or results of
operations.
THE CATO CORPORATION
PART II OTHER INFORMATION
32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:
The following table summarizes the Company’s purchases of its common stock for the three months
ended July 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
Fiscal
of Shares
Price Paid
Announced Plans or
Yet be Purchased Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
May 2023
34,726
$
8.30
34,726
June 2023
-
-
-
July 2023
-
-
-
Total
34,726
$
8.30
34,726
909,653
(1)
Prices include trading costs.
(2)
As of April 29, 2023, the Company’s share repurchase program had 944,379 shares remaining in
open authorizations. During the second quarter ended July 29, 2023, the Company repurchased
and retired 34,726 shares under this program for approximately $288,226 or an average market
price of $8.30 per share. As of July 29, 2023, the Company had 909,653 shares remaining in
open authorizations. There is no specified expiration date for the Company’s repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
THE CATO CORPORATION
PART II OTHER INFORMATION
33
ITEM 4. MINE SAFETY DISCLOSURES:
Not Applicable.
ITEM 5. OTHER INFORMATION:
During the three months ended July 29, 2023, none of the Company’s directors or officers (as defined in
Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5-1
trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408
of Regulation S-K).
ITEM 6. EXHIBITS:
Exhibit No.
Item
10.1*
101.1*
The following materials from Registrant’s Quarterly Report on Form 10-Q for the
fiscal quarter ended July 29, 2023, formatted in Inline XBRL: (i) Condensed
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for
the Three Months and Six Months Ended July 29, 2023 and July 30, 2022; (ii)
Condensed Consolidated Balance Sheets at July 29, 2023 and January 28, 2023;
(iii) Condensed Consolidated Statements of Cash Flows for the Six Months Ended
July 29, 2023 and July 30, 2022; (iv) Condensed Consolidated Statements of
Stockholders’ Equity for the Six Months Ended July 29, 2023 and July 30, 2022;
and (v) Notes to Condensed Consolidated Financial Statements.
104.1
Cover Page Interactive Data File (Formatted in Inline XBRL and contained in
the Interactive Data Files submitted as Exhibit 101.1*)
THE CATO CORPORATION
PART II OTHER INFORMATION
34
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.
August 23, 2023
/s/ John P. D. Cato
Date
John P. D. Cato
Chairman, President and
Chief Executive Officer
August 23, 2023
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer
1
Execution
Version
SECOND
AMENDMENT
TO CREDIT
AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT
(this “Amendment”), dated
as of August 9, 2023, is by and among THE CATO CORPORATION, a Delaware corporation (the
“Borrower”), the Banks (as defined below) party hereto and WELLS FARGO BANK, NATIONAL
ASSOCIATION, as agent on behalf of the Banks under the Credit Agreement (as hereinafter defined)
(in such capacity, the “Agent”). Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed thereto in the Credit Agreement.
W I T N E S S E T
H
WHEREAS
, the Borrower, certain Domestic Subsidiaries of the Borrower as may be from time
to time party thereto, certain banks and financial
institutions
from time to time party thereto (the “Banks”)
and the Agent are parties to that certain Credit Agreement dated as of May 19, 2022 (as amended by that
certain First Amendment to Credit Agreement, dated as of June 6, 2022, and as further amended,
modified, extended, restated, replaced, or supplemented from time to time, the “Credit Agreement”);
WHEREAS
, the Borrower has requested that the Required Banks and Agent amend certain
provisions of the Credit Agreement; and
WHEREAS
, the Required Banks and the Agent are willing to make such amendments to the
Credit Agreement, in accordance with and subject to the terms and conditions set forth herein.
NOW, THEREFORE
, in consideration of the agreements hereinafter set forth, and for other
good and valuable
consideration,
the receipt and adequacy of which are hereby
acknowledged,
the parties
hereto agree as follows:
ARTICLE
I
AMENDMENTS
TO CREDIT
AGREEMENT
1.1 Amendment to Definition of EBITDAR
. The definition of EBITDAR set forth in
Section 1.01 of the Credit Agreement is hereby amended by changing the second clause “(a)” to clause
“(b)”.
1.2 Amendment to Definition of Minimum EBITDAR Coverage Ratio
. The definition
of Minimum EBITDAR Coverage Ratio set forth in Section 1.01 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
“Minimum EBITDAR Coverage Ratio” means, as of the end of any Fiscal Quarter, the
ratio of (i) EBITDAR for the four-Fiscal Quarter period then ended, minus (a) Taxes paid in
Cash for such four-Fiscal Quarter period, plus (b) following the date the financial statements
are delivered pursuant to Section 5.01 for the Fiscal Quarter ended July 29,2023 and without
duplication of any amounts set forth in clause (b)(ii) of the definition of EBITDAR, the amount
of income tax returns anticipated by the Borrower in good faith to be received from the Internal
Revenue Service after August 1, 2023 in connection with taxes paid during the 2021 Fiscal Year
(the “Income Tax Receivables”); provided, that (A) the amount added back pursuant to this
clause (b) shall not exceed the lesser of (x) $5,325,000 and (y) the actual amount of Income Tax
2
Receivables received from the Internal Revenue Service and (B) the addback set forth in this
clause (b) shall no longer be available from and after the earlier of (I) receipt by the Borrower
of any Income Tax Receivables from the Internal Revenue Service and (II) any reporting period
2
following the end of the Fiscal Year ending February 3, 2024, to (ii) the Fixed Charges for
such four-Fiscal Quarter period.
ARTICLE II
CONDITIONS TO
EFFECTIVENESS
This Amendment shall become effective as of the day and year set forth above (the
“Second Amendment Effective Date”) when the Agent shall have received a copy of this Amendment
duly executed by each of the Borrower, the Required Banks and the Agent.
ARTICLE
III
MISCELLANEO
US
3.1 Amended
Te
rms.
On and after the Second Amendment Effective Date, all
references to the Credit Agreement in each of the Loan Documents shall hereafter mean the Credit
Agreement as amended by this Amendment. Except as specifically amended hereby or otherwise
agreed, the Credit Agreement is hereby ratified and confirmed and shall remain in full force and
effect according to its terms.
3.2 Reaffirmation of Obligations.
The Borrower hereby ratifies the Credit Agreement
as amended by this Amendment and acknowledges and reaffirms (a) that it is bound by all terms of
the Credit Agreement as so amended applicable to it and (b) that it is responsible for the observance
and full performance of its Obligations.
3.3 Loan Document.
This Amendment shall constitute a Loan Document under the
terms of the Credit Agreement.
3.4 Further Assurances.
The Borrower agrees to promptly take such action, upon
the request of the Agent, as is necessary to carry out the intent of this Amendment.
3.5 Entirety.
This Amendment and the other Loan Documents embody the
entire agreement among the parties hereto relating to the subject matter hereof and thereof and
supersede all previous documents, agreements and
understandings,
oral or written, relating to the
subject matter hereof and thereof.
3.6 Counterparts; Telecopy.
This Amendment may be executed in counterparts (and
by different parties hereto in different counterparts), each of which when so executed and delivered
will constitute an original, but all of which when taken together will constitute a single contract.
Delivery of an executed counterpart to this Amendment by telecopy or other electronic means shall
be effective as an original and shall constitute a representation that an original will be delivered.
3.7 No Actions, Claims, Etc.
As of the date hereof, the Borrower hereby
acknowledges and confirms that it has no knowledge of any actions, causes of action, claims,
demands, damages and liabilities of whatever kind or nature, in law or in equity, against the Agent, the
Banks, or the Agent’s or the Banks’ respective officers, employees, representatives, agents, counsel or
directors arising from any action by such Persons, or failure of such Persons to act under the Credit
Agreement on or prior to the date hereof.
3.8 NORTH CAROLINA L
AW.
THIS AMENDMENT SHALL BE CONSTRUED IN
3
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NORTH
CAROLINA.
3.9 Successors and Assigns.
This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
3.10 Expenses.
Notwithstanding the provisions of Section 9.03 of the Credit Agreement,
each party hereto agrees that it shall be responsible for its own expenses in connection with this
Amendment;
provided
however the Borrower shall pay fees and disbursements of outside counsel for
the Agent in connection with the preparation of this Amendment in the amount of $6,000.
3.11 Consent to Jurisdiction; Service of Process; Waiver of Jury Trial.
The jurisdiction,
service of process and waiver of jury trial provisions set forth in Section 9.16 of the Credit Agreement
are hereby incorporated by reference,
mutatis mutandis.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be duly executed
on the date first above written.
BORROWER:
5
THE CATO CORPORATION
By:
_/s/ Charles D. Knight
Charles D. Knight
Executive Vice President and Chief Financial Officer
6
AGENT AND
BANKS:
7
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent, Issuing Bank and as a Bank
By:
/s/ Brad D. Bostick
Name: Brad D. Bostick: Title: Senior Vice President
1
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1.
I have reviewed this report on Form 10-Q of The Cato Corporation (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: August 23, 2023
/s/ John P. D. Cato
John P. D. Cato
Chairman, President and
Chief Executive Officer
1
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO
SECURITIES EXCHANGE ACT OF 1934 RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles D. Knight, certify that:
1.
I have reviewed this report on Form 10-Q of The Cato Corporation (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: August 23, 2023
/s/ Charles D. Knight
Charles D. Knight
Executive Vice President
Chief Financial Officer
1
EXHIBIT 32.1
CERTIFICATION OF PERIODIC REPORT
I, John P. D. Cato, Chairman, President and Chief Executive Officer of The Cato Corporation (the
“Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that on the date of this Certification:
1.
the Form 10-Q of the Company for the quarter ended July 29, 2023 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 23, 2023
/s/ John P. D. Cato
John P. D. Cato
Chairman, President and
Chief Executive Officer
1
EXHIBIT 32.2
CERTIFICATION OF PERIODIC REPORT
I, Charles D. Knight, Executive Vice President, Chief Financial Officer of The Cato Corporation (the
“Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that on the date of this Certification:
1.
the Form 10-Q of the Company for the quarter ended July 29, 2023 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 23, 2023
/s/ Charles D. Knight
Charles D. Knight
Executive Vice President
Chief Financial Officer