Cato Reports Record Net Income and EPS for 2010

CHARLOTTE, N.C., March 17, 2011 /PRNewswire via COMTEX/ --

The Cato Corporation (NYSE: CATO) today reported net income for the fourth quarter and year ended January 29, 2011. For the fourth quarter, the Company reported net income of $7.9 million or $0.27 per diluted share, compared to net income of $7.3 million or $0.25 per diluted share for the fourth quarter ended January 30, 2010. For the quarter, both net income and earnings per diluted share increased 8% over the prior year. Full year 2010 net income was a record $57.7 million or $1.96 per diluted share compared to $45.8 million or $1.55 per diluted share for 2009. For the year, both net income and earnings per diluted share increased 26% over the prior year.

Sales for fiscal fourth quarter ended January 29, 2011 were $224.3 million, a 3% increase over sales of $217.7 million for the fourth quarter ended January 30, 2010. For the quarter, same-store sales increased 1%. The Company's sales for 2010 were $913.9 million, an increase of 5% over 2009 sales of $872.1 million. For the year, same-store sales increased 3%.

"Cato delivered record earnings in 2010, the Company's third straight year of strong growth, by continuing to offer our customers great fashion and customer service at a great value," said John Cato, Chairman, President and Chief Executive Officer. "Weaker than expected sales over the last half of the fourth quarter created higher than expected markdowns and negatively impacted the quarter's results."

2010 REVIEW

For 2010, gross margin increased 140 basis points to 38.1%of sales due to higher merchandise margin as a result of lower markdowns. Selling, general and administrative expenses decreased to 27.5%of sales primarily due to a reduction in store closing costs and leveraging other costs against higher sales, which offset higher workers' compensation insurance costs. The Company's effective income tax rate increased to 36.4% from 33.6% last year primarily due to higher state taxes. Net income was 6.3% of sales vs. 5.2% last year.

"Cato's balance sheet remains strong with approximately $235 million in cash and short-term investments and no debt," commented Mr. Cato. During 2010, the Company returned $21.2 million in dividends to shareholders. The Company's annualized dividend of $0.74 per share, after a 12% increase in 2010, represents a yield of approximately 3% based on the March 16 closing price of $23.59.

For the fiscal year ended January 29, 2011, the Company opened 37 stores (including opening 14 It's Fashion Metro stores in markets where existing It's Fashion stores were simultaneously closed), relocated four stores and closed 26 stores including the 14 It's Fashion stores mentioned above.

2011 OUTLOOK

The Company believes that 2011 will continue to be impacted by the uncertainty surrounding the country's economic environment including slow job growth and the negative impact of inflation in food and gasoline prices on consumers. Also, the Company expects rising raw material and freight costs to have a negative effect on the Company's performance in 2011, primarily in the second half of the year.

Accounting Method Change

In anticipation of the adoption of International Financial Reporting Standards ("IFRS"), the Company has elected to change its inventory valuation method from the retail method to the weighted-average cost method. This change will be implemented in the first quarter of 2011. The 2011 full year and first quarter estimates of net income and earnings per diluted share below reflect this change in accounting method for inventory valuation.

For comparative purposes, all 2010 quarterly and annual net income and diluted earnings per share ("EPS") results will be restated to reflect the accounting change. The restatement will be reflected in monthly and quarterly press releases and as well as Forms 10-Q and 10-K during 2011. The change will result in a $12 million increase to inventories on the restated balance sheet at the end of 2010. The impact of the restatement on EPS for 2010 by quarter and for the full year is presented in the table below.

New Store Concept

As a complement to its Cato and It's Fashion divisions, the Company expects to open an additional store concept during the year called Versona Accessories. Versona will offer quality fashion jewelry and accessories accented by key apparel items at exceptional values, every day. The concept will provide an upscale shopping environment comparable to better specialty and department stores. The Company expects to open the first Versona store in the fall of 2011 and also expects the concept to have no significant impact on 2011 results.

Earnings Estimates

For the year 2011, the Company estimates same-store sales will be in a range of down 2% to flat and its gross margin rate will decrease slightly to 38.1% from 38.4% in 2010 as restated, resulting in net income in a range of $59.2 million to $62.3 million, flat to a 5% increase over $59.2 million in 2010 as restated. The Company estimates earnings per diluted share will be in a range of $2.00 to $2.11, flat to a 5% increase over $2.01 in 2010 as restated.

The Company estimates first quarter 2011 net income to be in a range of $27.4 million to $28.4 million, or $0.93 to $0.96 per diluted share, an increase of 9% to 13% over $0.85 in first quarter 2010 as restated. This estimate is based on same-store sales of down 2% to flat.

The Company's net income estimates for 2011 also reflect the following assumptions:

• The Company expects to open 54 new stores during 2011. The expected new store openings include 10 new Cato stores, 34 new It's Fashion Metro stores (including opening approximately 17 Metro stores while simultaneously closing an existing It's Fashion store in the same market) and 10 new Versona Accessories stores.
• The Company anticipates closing up to 27 stores by year-end, including the 17 It's Fashion store closings mentioned above. At this time, two specific stores have been identified for closure.
• Capital expenditures are projected to be approximately $32 million, including $17 million for store development.
• Depreciation is expected to be approximately $22 million for the year.
• The effective tax rate is expected to be approximately 36.4%.

The Cato Corporation is a leading specialty retailer of value-priced fashion apparel and accessories operating two divisions, "Cato" and "It's Fashion". The Cato division offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day. The It's Fashion division offers fashion with a focus on the latest trendy styles and nationally recognized urban brands for the entire family at low prices every day. As of February 26, 2011, the Company operated 1,282 stores in 31 states, compared to 1,271 stores in 31 states as of February 27, 2010. Additional information on The Cato Corporation is available at www.catocorp.com.

Statements in this press release not historical in nature including, without limitation, statements regarding the Company's expected financial results and operational activities for fiscal 2011 and the first quarter of 2011, including statements under the headings "2011 Outlook," "New Concept" and "Earnings Estimates" are considered "forward-looking" within the meaning of The Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, stated expectations and underlying assumptions regarding future net income, same-store sales, expected capital expenditures, store openings and closings and launch of the new Versona Accessories store concept. Such forward-looking statements are based on current expectations that are 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: general economic conditions including, but not limited to, the continuation or worsening of the current adverse or recessionary conditions affecting the U.S. and global economies and consumer spending and adverse conditions in the U.S. and global credit markets; uncertainties regarding the impact of any governmental responses to the foregoing adverse economic and credit market conditions; competitive factors and pricing pressures; our ability to predict fashion trends; consumer apparel and accessory buying patterns; adverse weather conditions; inventory risks due to shifts in market demand; 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 30, 2010, as amended or supplemented, and in other reports we file with or furnish to the 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, even if experience or future changes make it clear that the projected results expressed or implied therein will not be realized. The Company is not responsible for any changes made to this press release by wire or internet services.

SOURCE The Cato Corporation