[PART I – FINANCIAL INFORMATION (UNAUDITED)](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION%20(UNAUDITED)) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including statements of income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining significant accounting policies, earnings per share, comprehensive income, financing arrangements, segment information, stock-based compensation, fair value measurements, recent accounting pronouncements, income taxes, commitments, revenue recognition, and leases for the periods ended August 2, 2025, and August 3, 2024 [Condensed Consolidated Statements of Income and Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) This section provides the condensed consolidated statements of income and comprehensive income, detailing revenues, expenses, net income, and earnings per share for the three and six months ended August 2, 2025, and August 3, 2024 **Condensed Consolidated Statements of Income and Comprehensive Income (Dollars in thousands, except per share data):** | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:|---:|---:| | Total revenues | $176,509 | $168,628 | $346,751 | $345,727 | | Costs and expenses, net | $169,970 | $167,890 | $335,975 | $333,366 | | Income before income taxes | $6,539 | $738 | $10,776 | $12,361 | | Income tax (benefit) expense | $(293) | $643 | $635 | $1,292 | | Net income | $6,832 | $95 | $10,141 | $11,069 | | Basic earnings per share | $0.35 | $0.01 | $0.51 | $0.54 | | Diluted earnings per share | $0.35 | $0.01 | $0.51 | $0.54 | | Comprehensive income | $6,900 | $771 | $10,247 | $10,997 | - For the three months ended August 2, 2025, total revenues increased by **4.6% YoY to $176.5 million**, and net income significantly increased from **$95 thousand to $6.8 million**, resulting in basic EPS of **$0.35** compared to **$0.01** in the prior year[8](index=8&type=chunk) - For the six months ended August 2, 2025, total revenues slightly increased by **0.3% YoY to $346.8 million**, while net income decreased by **8.4% to $10.1 million**, leading to a basic EPS of **$0.51**, down from **$0.54** in the prior year[8](index=8&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the condensed consolidated balance sheets, outlining assets, liabilities, and stockholders' equity as of August 2, 2025, and February 1, 2025 **Condensed Consolidated Balance Sheets (Dollars in thousands):** | Metric | August 2, 2025 | February 1, 2025 | |:---|---:|---:| | **ASSETS** | | | | Total Current Assets | $225,816 | $223,186 | | Property and equipment – net | $57,641 | $60,326 | | Other assets | $20,201 | $19,979 | | Right-of-Use assets – net | $133,228 | $148,870 | | **Total Assets** | **$436,886** | **$452,361** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total Current Liabilities | $175,347 | $188,239 | | Other noncurrent liabilities | $13,340 | $13,485 | | Lease liability | $76,018 | $88,341 | | Total Stockholders' Equity | $172,181 | $162,296 | | **Total Liabilities and Stockholders' Equity** | **$436,886** | **$452,361** | - Total assets decreased by **3.4% from $452.4 million** at February 1, 2025, to **$436.9 million** at August 2, 2025, primarily driven by a reduction in Right-of-Use assets and Property and equipment – net[10](index=10&type=chunk) - Total current liabilities decreased by **6.8% from $188.2 million to $175.3 million**, while total stockholders' equity increased by **6.1% from $162.3 million to $172.2 million** over the same period[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the condensed consolidated statements of cash flows, showing operating, investing, and financing activities for the six months ended August 2, 2025, and August 3, 2024 **Condensed Consolidated Statements of Cash Flows (Six Months Ended, Dollars in thousands):** | Metric | August 2, 2025 | August 3, 2024 | |:---|---:|---:| | Net cash provided by operating activities | $15,640 | $8,836 | | Net cash (used in) provided by investing activities | $(885) | $6,673 | | Net cash used in financing activities | $(933) | $(9,096) | | Net increase in cash, cash equivalents, and restricted cash | $13,822 | $6,413 | | Cash, cash equivalents, and restricted cash at end of period | $36,900 | $34,326 | - Net cash provided by operating activities increased by **77% to $15.6 million** for the six months ended August 2, 2025, compared to **$8.8 million** in the prior year[11](index=11&type=chunk) - Net cash used in investing activities shifted from a **$6.7 million inflow** in 2024 to an **$0.9 million outflow** in 2025, primarily due to decreased sales of short-term investments and other assets[11](index=11&type=chunk) - Net cash used in financing activities significantly decreased by **89.7% to $0.9 million**, mainly due to the elimination of dividend payments and lower stock repurchases in fiscal 2025[11](index=11&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in stockholders' equity, including net income, dividends, and share repurchases, for the six months ended August 2, 2025, and August 3, 2024 **Changes in Total Stockholders' Equity (Dollars in thousands):** | Metric | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:| | Balance at Beginning of Period | $162,296 | $192,321 | | Net income | $10,141 | $11,069 | | Unrealized net gain (loss) on available-for-sale securities | $106 | $(72) | | Dividends paid | $0 | $(7,050) | | Repurchase and retirement of treasury shares | $(967) | $(2,237) | | Share-based compensation expense | $578 | $806 | | Balance at End of Period | $172,181 | $195,062 | - Total stockholders' equity increased from **$162.3 million** at February 1, 2025, to **$172.2 million** at August 2, 2025, primarily driven by net income and unrealized gains on available-for-sale securities, with no dividends paid[13](index=13&type=chunk) - In the comparable prior year period (six months ended August 3, 2024), stockholders' equity increased from **$192.3 million to $195.1 million**, impacted by dividend payments of **$7.05 million** and share repurchases of **$2.24 million**[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining significant accounting policies, earnings per share, comprehensive income, financing arrangements, segment information, stock-based compensation, fair value measurements, recent accounting pronouncements, income taxes, commitments, revenue recognition, and leases [NOTE 1 - GENERAL](index=8&type=section&id=NOTE%201%20-%20GENERAL) This note provides general information regarding the unaudited nature of the financial statements, interim results, and a significant gain from land sale in fiscal 2024 - The condensed consolidated financial statements are unaudited and include all necessary adjustments for a fair statement, which are generally normal and recurring[16](index=16&type=chunk) - Interim results may not be indicative of full-year results and should be read with the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025[16](index=16&type=chunk)[17](index=17&type=chunk) - A net gain of **$3.2 million** from the sale of land held for investment was recorded in Interest and other income in the first quarter of fiscal 2024[18](index=18&type=chunk) [NOTE 2 - EARNINGS PER SHARE](index=9&type=section&id=NOTE%202%20-%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per share for both Class A and Class B shares, which are presented equally - The Company presents dual basic and diluted EPS, which are the same for both Class A and Class B shares due to historical practice and Board resolution to pay equal dividends[19](index=19&type=chunk) - Basic EPS is calculated as net income less earnings allocated to non-vested equity awards, divided by the weighted average common shares outstanding[20](index=20&type=chunk) **Earnings Per Share (Dollars in thousands, except per share data):** | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:|---:|---:| | Net earnings available to common stockholders | $6,513 | $104 | $9,610 | $10,486 | | Basic weighted average common shares outstanding | 18,809,364 | 19,297,484 | 18,747,100 | 19,327,137 | | Diluted weighted average common shares outstanding | 18,809,364 | 19,297,484 | 18,747,100 | 19,327,137 | | Basic earnings per share | $0.35 | $0.01 | $0.51 | $0.54 | | Diluted earnings per share | $0.35 | $0.01 | $0.51 | $0.54 | [NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME](index=10&type=section&id=NOTE%203%20%E2%80%93%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME) This note explains changes in accumulated other comprehensive income, including unrealized gains and reclassifications to net income **Changes in Accumulated Other Comprehensive Income (in thousands, net-of-tax):** | Period | Beginning Balance | Other Comprehensive Income before Reclassification | Reclassified to Net Income | Ending Balance | |:---|---:|---:|---:|---:| | Three Months Ended Aug 2, 2025 | $191 | $68 | $0 | $259 | | Six Months Ended Aug 2, 2025 | $153 | $140 | $(34) | $259 | | Three Months Ended Aug 3, 2024 | $(353) | $776 | $100 | $323 | | Six Months Ended Aug 3, 2024 | $395 | $714 | $786 | $323 | - For the six months ended August 2, 2025, Accumulated Other Comprehensive Income increased by **$106 thousand**, primarily from unrealized gains on available-for-sale securities, with **$34 thousand** reclassified to net income as realized gains[23](index=23&type=chunk) - In the comparable prior year period (six months ended August 3, 2024), there was a net current-period other comprehensive loss of **$72 thousand**, with **$786 thousand** reclassified to net income for realized gains on available-for-sale securities[25](index=25&type=chunk) [NOTE 4 – FINANCING ARRANGEMENTS](index=12&type=section&id=NOTE%204%20%E2%80%93%20FINANCING%20ARRANGEMENTS) This note describes the Company's asset-based revolving credit facility and its current utilization for working capital and general corporate purposes - On March 13, 2025, the Company entered into an asset-based revolving credit facility (ABL Facility) of up to **$35.0 million**, committed through May 2027, for working capital and general corporate purposes[26](index=26&type=chunk) - As of August 2, 2025, there were no outstanding borrowings under the ABL Facility, with **$27.0 million** available after accounting for a **$3.0 million** outstanding letter of credit[27](index=27&type=chunk) [NOTE 5 – REPORTABLE SEGMENT INFORMATION](index=12&type=section&id=NOTE%205%20%E2%80%93%20REPORTABLE%20SEGMENT%20INFORMATION) This note provides financial information for the Company's two reportable segments: Retail and Credit, detailing revenues, income, and capital expenditures - The Company has two reportable segments: Retail (aggregating Cato, It's Fashion, Versona, and e-commerce) and Credit, based on similar economic characteristics and operations[28](index=28&type=chunk)[29](index=29&type=chunk) - The Chief Operating Decision Maker (CODM) evaluates segment performance based on sales, expenses, and profit or loss from operations before income taxes, with corporate services fully allocated to the retail segment[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) **Segment Information (in thousands):** | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:|---:|---:| | **Retail Segment:** | | | | | | Revenues | $175,856 | $167,954 | $345,433 | $344,384 | | Segment income (loss) before income taxes | $4,996 | $(1,164) | $7,857 | $4,467 | | Capital expenditures | $1,343 | $1,538 | $2,362 | $4,799 | | **Credit Segment:** | | | | | | Revenues | $653 | $674 | $1,318 | $1,343 | | Segment income before income taxes | $527 | $541 | $1,109 | $1,037 | | Capital expenditures | $0 | $0 | $0 | $0 | | **Total Income before income taxes** | **$6,539** | **$738** | **$10,776** | **$12,361** | [NOTE 6 – STOCK-BASED COMPENSATION](index=15&type=section&id=NOTE%206%20%E2%80%93%20STOCK-BASED%20COMPENSATION) This note details stock-based compensation expenses, available options, and unrecognized compensation for restricted stock awards - As of August 2, 2025, **2,853,875 options** and/or restricted stock shares were available for grant under the 2018 Incentive Compensation Plan[37](index=37&type=chunk)[38](index=38&type=chunk) - Total unrecognized compensation expense for nonvested restricted stock awards was **$5.5 million** at August 2, 2025, with a weighted-average vesting period of **1.9 years**[38](index=38&type=chunk) **Stock-Based Compensation Expense (in thousands):** | Period | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:|---:|---:| | Restricted Stock Awards | $394 | $872 | $578 | $806 | | Employee Stock Purchase Plan | N/A | N/A | $11 | $34 | | **Total Compensation Expense** | **$394** | **$872** | **$589** | **$840** | - The Employee Stock Purchase Plan allows eligible employees to purchase Class A Common Stock at a **15% discount**, with **21,736 shares** sold in the first six months of fiscal 2025[40](index=40&type=chunk) [NOTE 7 – FAIR VALUE MEASUREMENTS](index=16&type=section&id=NOTE%207%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) This note describes the fair value measurements of financial assets and liabilities, including investment portfolio composition and valuation methodologies - The Company's investment portfolio primarily consists of corporate bonds and taxable governmental debt securities with ratings of A or better, held in managed accounts[44](index=44&type=chunk) **Fair Value Measurements of Financial Assets and Liabilities (in thousands) as of August 2, 2025:** | Description | Total Fair Value | Level 1 | Level 2 | Level 3 | |:---|---:|---:|---:|---:| | **Assets:** | | | | | | State/Municipal Bonds | $337 | $- | $337 | $- | | Corporate Bonds | $52,946 | $- | $52,946 | $- | | U.S. Treasury/Agencies Notes and Bonds | $2,035 | $- | $2,035 | $- | | Cash Surrender Value of Life Insurance | $9,485 | $- | $- | $9,485 | | Commercial Paper | $1,232 | $- | $1,232 | $- | | **Total Assets** | **$66,035** | **$-** | **$56,550** | **$9,485** | | **Liabilities:** | | | | | | Deferred Compensation | $(8,358) | $- | $- | $(8,358) | | **Total Liabilities** | **$(8,358)** | **$-** | **$-** | **$(8,358)** | - Level 2 investment securities, such as corporate and municipal bonds, are valued using observable market information from third-party pricing services[46](index=46&type=chunk) - Level 3 assets and liabilities, including cash surrender value of life insurance and deferred compensation, are valued based on cash surrender value and underlying insurance funds' net asset values, respectively[47](index=47&type=chunk) [NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS](index=19&type=section&id=NOTE%208%20%E2%80%93%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This note outlines recent FASB ASUs on income taxes and expense disaggregation disclosures, and the Company's evaluation of their potential impact - The FASB issued ASU 2023-09 (Income Taxes) in December 2023, effective for fiscal years beginning after December 15, 2024, requiring disaggregated income tax disclosures[50](index=50&type=chunk) - The FASB issued ASU 2024-03 (Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures) in November 2024, effective for annual periods beginning after December 15, 2026, requiring disaggregated expense information[51](index=51&type=chunk) - The Company is currently evaluating the potential impact of both new ASUs on its consolidated financial statements and related disclosures[50](index=50&type=chunk)[51](index=51&type=chunk) [NOTE 9 – INCOME TAXES](index=19&type=section&id=NOTE%209%20%E2%80%93%20INCOME%20TAXES) This note details the effective income tax rates and expenses, explaining the factors contributing to changes in tax expense **Income Tax Rates and Expense (Six Months Ended):** | Metric | August 2, 2025 | August 3, 2024 | |:---|---:|---:| | Effective tax rate | 5.9% | 10.5% | | Income tax expense (in millions) | $0.6 | $1.3 | - The decrease in tax expense in fiscal 2025 is primarily due to reductions in foreign income taxes and a favorable adjustment to the federal net operating loss carryback claim under the CARES Act, partially offset by increased state income taxes[52](index=52&type=chunk) - The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, is not expected to have a material impact on the Company's effective tax rate[53](index=53&type=chunk) [NOTE 10 – COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=NOTE%2010%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note discusses the Company's routine involvement in litigation and management's assessment of potential material adverse effects on financial statements - The Company is routinely involved in litigation incidental to its business, including merchandise, intellectual property, premises liability, and employment matters[54](index=54&type=chunk) - Management does not believe that any reasonably possible losses from current pending litigation will have a material adverse effect on the condensed consolidated financial statements[55](index=55&type=chunk) - However, an adverse outcome in one or more matters could materially affect the Company's financial condition, results of operations, and cash flows in any particular reporting period[55](index=55&type=chunk)[56](index=56&type=chunk) [NOTE 11 – REVENUE RECOGNITION](index=20&type=section&id=NOTE%2011%20%E2%80%93%20REVENUE%20RECOGNITION) This note explains the Company's revenue recognition policies for sales, e-commerce, gift cards, and layaway, along with proprietary credit card receivables and gift card liabilities - Sales are recognized at the point of purchase when the customer takes possession of merchandise, including cash, credit, gift card, and layaway sales[57](index=57&type=chunk) - E-commerce sales are recorded when the risk of loss transfers to the customer, and gift cards/layaway transactions are recorded as deferred revenue until redemption or possession[57](index=57&type=chunk) **Proprietary Credit Card Receivables and Gift Card Liability (in thousands):** | Metric | August 2, 2025 | February 1, 2025 | |:---|---:|---:| | Proprietary Credit Card Receivables, net | $10,816 | $10,848 | | Gift Card Liability | $5,671 | $7,541 | - Customer credit losses were estimated at **$442 thousand** for the six months ended August 2, 2025, an increase from **$338 thousand** in the prior year[58](index=58&type=chunk) [NOTE 12 – LEASES](index=21&type=section&id=NOTE%2012%20%E2%80%93%20LEASES) This note provides details on the Company's operating leases, including lease costs, weighted-average terms, discount rates, and present value of lease liabilities - The Company has operating leases for stores, offices, warehouse space, and equipment, with remaining terms ranging from one to ten years, including extension and termination options[60](index=60&type=chunk) **Lease Costs (in thousands):** | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:|---:|---:| | Operating lease cost | $16,496 | $16,808 | $33,084 | $33,810 | | Variable lease cost | $420 | $463 | $858 | $960 | **Operating Lease Metrics:** | Metric | As of Aug 2, 2025 | As of Aug 3, 2024 | |:---|---:|---:| | Weighted-average remaining lease term | 2.1 years | 1.8 years | | Weighted-average discount rate | 5.92% | 4.74% | | Present value of lease liabilities (in thousands) | $129,895 | N/A | - Cash paid for amounts included in the measurement of lease liabilities was **$29.4 million** for the six months ended August 2, 2025, down from **$31.1 million** in the prior year[64](index=64&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including forward-looking statements, critical accounting policies, a detailed analysis of operating results, and a discussion of liquidity, capital resources, and market risk. It highlights recent developments such as tariff and pricing pressures, sales performance, cost of goods sold, SG&A expenses, and cash flow changes [FORWARD-LOOKING INFORMATION](index=23&type=section&id=FORWARD-LOOKING%20INFORMATION) This section highlights forward-looking statements regarding future financial performance and operations, noting potential material differences due to various risks - The report contains forward-looking statements regarding future financial performance, operations, capital expenditures, store development, and potential impacts of economic conditions and public health threats[66](index=66&type=chunk) - Actual results may differ materially due to various risks, including consumer confidence, regulatory changes, competitive factors, fashion trends, store performance, and supply chain disruptions[66](index=66&type=chunk) - The Company expressly declines any obligation to update forward-looking information[66](index=66&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=24&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section outlines key accounting estimates requiring significant management judgment, such as asset impairment, income tax valuation, and self-insured liabilities - Key accounting estimates include potential asset impairment, income tax valuation allowances, self-insured liabilities (health, workers' comp, general/auto insurance), uncertain tax positions, allowance for customer credit losses, and inventory shrinkage[67](index=67&type=chunk) - These estimates require significant management judgment, and actual results may differ materially from assumptions[67](index=67&type=chunk) - Critical accounting policies and estimates are discussed with the Audit Committee[68](index=68&type=chunk) [RESULTS OF OPERATIONS](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the Company's operating results, including tariff impacts, sales performance, cost of goods sold, SG&A expenses, and effective income tax rates - The Company faces tariff pressures on products from China and Southeast Asia, with reciprocal tariffs increasing up to **100%** for non-China products, expected to impact product acquisition costs in the latter half of fiscal 2025[71](index=71&type=chunk) - Mitigating tariff effects through retail pricing increases may be challenging due to potential customer caution in discretionary spending[72](index=72&type=chunk)[73](index=73&type=chunk) **Key Operating Metrics (as a percentage of total retail sales):** | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | |:---|---:|---:|---:|---:| | Total retail sales | 100.0% | 100.0% | 100.0% | 100.0% | | Total revenues | 101.1% | 101.0% | 101.1% | 101.0% | | Cost of goods sold (exclusive of depreciation) | 63.8% | 65.4% | 64.4% | 64.8% | | Selling, general and administrative (exclusive of depreciation) | 32.8% | 34.9% | 32.8% | 33.6% | | Depreciation | 1.4% | 1.4% | 1.5% | 1.3% | | Interest and other income | (0.8)% | (1.0)% | (0.8)% | (2.2)% | | Income before income taxes | 3.7% | 0.4% | 3.1% | 3.6% | | Net income | 3.9% | 0.1% | 3.0% | 3.2% | - Total retail sales for the second quarter increased by **5% to $174.7 million**, driven by a **9% increase** in same-store sales, partially offset by store closures. For the six months, sales increased by **0.3% to $343.1 million**, with a **4% increase** in same-store sales[74](index=74&type=chunk) - Cost of goods sold as a percentage of retail sales decreased for both the three and six months ended August 2, 2025, primarily due to lower buying and distribution costs, despite increased sales of marked-down goods[77](index=77&type=chunk) - SG&A expenses decreased for both periods, mainly due to lower corporate and field payroll, and reduced insurance costs, partially offset by increases in advertising and general corporate costs[78](index=78&type=chunk) - Interest and other income decreased for the six months ended August 2, 2025, primarily due to a **$3.2 million** net gain on the sale of land and equity securities recorded in the first quarter of 2024[80](index=80&type=chunk)[81](index=81&type=chunk) - The effective income tax rate for the first six months of fiscal 2025 was **5.9%**, down from **10.5%** in fiscal 2024, due to reductions in foreign income taxes and a favorable adjustment from the CARES Act[82](index=82&type=chunk) [LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK](index=28&type=section&id=LIQUIDITY,%20CAPITAL%20RESOURCES%20AND%20MARKET%20RISK) This section discusses the Company's liquidity, capital resources, and market risk, including cash flow, working capital, capital expenditures, and share repurchase programs - The Company expects its cash, cash equivalents, short-term investments, cash flows from operations, and asset-backed revolving line of credit to be sufficient for operating requirements and capital expenditures for the next 12 months[83](index=83&type=chunk) - Cash provided by operating activities increased by **$6.8 million to $15.6 million** for the first six months of fiscal 2025, primarily due to changes in inventory and a non-operating gain in the prior year[84](index=84&type=chunk) - Working capital increased from **$34.9 million** at February 1, 2025, to **$50.5 million** at August 2, 2025, driven by increased cash and decreased liabilities[85](index=85&type=chunk) - Capital expenditures for the first six months of fiscal 2025 decreased to **$2.4 million from $4.8 million** in the prior year, mainly due to the completion of distribution center and IT projects and no new store openings[88](index=88&type=chunk)[89](index=89&type=chunk) - Net cash used in financing activities decreased significantly to **$0.9 million** in fiscal 2025, primarily due to the elimination of dividend payments and lower stock repurchases[91](index=91&type=chunk) - The Company had **680,740 shares** remaining in open authorizations under its share repurchase program as of August 2, 2025[91](index=91&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=30&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section refers to Note 8 for details on recent FASB ASUs and their potential impact on financial statements - This section cross-references to Note 8, Recent Accounting Pronouncements, for details on new FASB ASUs[94](index=94&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to market rate risk from changes in interest rates related to its financing, investing, and cash management activities, but management does not consider this exposure to be material - The Company is subject to market rate risk from exposure to changes in interest rates[95](index=95&type=chunk) - Management does not believe such interest rate exposure is material[95](index=95&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) The Company's Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective as of August 2, 2025, ensuring timely and accurate reporting. There were no material changes to internal control over financial reporting during the quarter - As of August 2, 2025, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective[96](index=96&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended August 2, 2025[97](index=97&type=chunk) [CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING](index=31&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) This section confirms that no material changes occurred in the Company's internal control over financial reporting during the fiscal quarter ended August 2, 2025 - No change in the Company's internal control over financial reporting has occurred during the fiscal quarter ended August 2, 2025, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting[97](index=97&type=chunk) [PART II – OTHER INFORMATION](index=32&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no legal proceedings requiring disclosure in this report - No legal proceedings requiring disclosure are applicable[98](index=98&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section advises readers to consider the risk factors discussed in the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025, as these risks could materially affect the business, financial condition, or future results - Readers should carefully consider the risk factors discussed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2025[99](index=99&type=chunk) - These risks, along with additional unknown or immaterial risks, could materially adversely affect the business, financial condition, or results of operations[99](index=99&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section summarizes the Company's common stock repurchases for the three months ended August 2, 2025, indicating that 22,679 shares were repurchased and retired, with 680,740 shares remaining in open authorizations **Issuer Purchases of Equity Securities (Three Months Ended August 2, 2025):** | Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may Yet be Purchased Under The Plans or Programs | |:---|---:|---:|---:|---:| | May 2025 | - | $- | - | | | June 2025 | 22,679 | $2.64 | 22,679 | | | July 2025 | - | $- | - | | | **Total** | **22,679** | **$2.64** | **22,679** | **680,740** | - During the second quarter ended August 2, 2025, the Company repurchased and retired **22,679 shares** for approximately **$59,911** at an average market price of **$2.64 per share**[100](index=100&type=chunk) - As of August 2, 2025, **680,740 shares** remained in open authorizations under the Company's share repurchase program, which has no specified expiration date[100](index=100&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there are no defaults upon senior securities to report - No defaults upon senior securities are applicable[101](index=101&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no matters requiring disclosure related to mine safety - No matters requiring disclosure related to mine safety[102](index=102&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) During the three months ended August 2, 2025, none of the Company's directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended August 2, 2025[103](index=103&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Company's Certificate of Incorporation, By-Laws, various certifications (Rule 13a-14(a)/15d-14(a), Section 1350), and Inline XBRL documents - Exhibits include the Registrant's Amended and Restated Certificate of Incorporation and By-Laws[104](index=104&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are submitted electronically[104](index=104&type=chunk) - Inline XBRL documents for the instance, schema, calculation, definitions, label, and presentation linkbases are also included[104](index=104&type=chunk) [Signatures](index=34&type=section&id=Signatures) This section contains the duly authorized signatures of The Cato Corporation's Chairman, President, and Chief Executive Officer, John P. D. Cato, and Executive Vice President, Chief Financial Officer, Charles D. Knight, dated August 28, 2025, certifying the report - The report is signed by John P. D. Cato, Chairman, President and Chief Executive Officer, and Charles D. Knight, Executive Vice President, Chief Financial Officer[108](index=108&type=chunk) - The signatures are dated August 28, 2025[108](index=108&type=chunk)

Core Insights - The Cato Corporation's shares have increased by 39.1% since the fiscal second-quarter results were reported on August 2, 2025, significantly outperforming the S&P 500 index's 0.8% growth during the same period [1] - The company reported a net income of $6.8 million, or 35 cents per share, compared to $0.1 million, or 1 cent per share, in the same quarter last year, indicating a substantial improvement in profitability [2][6] Financial Performance - Sales rose by 5% year over year to $174.7 million, driven by a 9% increase in same-store sales, reflecting a recovery from previous supply chain disruptions [2] - Gross margin improved to 36.2% of sales, up from 34.6% a year earlier, attributed to lower distribution and buying costs, despite some reduction in merchandise margins [3] - Selling, general and administrative (SG&A) expenses decreased as a percentage of sales, falling to 32.8% from 34.9% in the prior-year quarter, due to lower payroll and insurance costs [3] Management Commentary - CEO John Cato noted that sales trends improved in the second quarter, but expressed caution regarding uncertainties in the second half of 2025 related to tariffs and potential cost pressures [4] - The company is focused on tightly managing expenses to navigate these challenges [4] Factors Influencing Results - Improved same-store sales growth and healthier consumer demand were key drivers of the quarter's performance [5] - The company recognized some offsetting factors, including lower merchandise margins and rising advertising and corporate costs [5] Outlook - Management highlighted uncertainties surrounding tariffs and inflationary pressures that could negatively impact product acquisition costs [7] - Broader macroeconomic conditions, such as consumer confidence and discretionary spending trends, were identified as critical variables affecting future performance [7] Other Developments - Cato closed eight stores during the quarter, reducing its total store count to 1,101 in 31 states, down from 1,166 stores a year earlier, reflecting ongoing efforts to optimize its retail footprint [8]

[Second Quarter and Year-to-Date 2025 Financial Results](index=1&type=section&id=Second%20Quarter%20and%20Year-to-Date%202025%20Financial%20Results) The Cato Corporation reported significant improvements in net income and sales for Q2 2025, driven by strong same-store sales growth and improved profitability metrics. Year-to-date results showed a slight decline in net income despite stable sales [Second Quarter 2025 Performance Highlights](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Highlights) The company achieved substantial growth in net income and diluted EPS for Q2 2025, alongside a 5% increase in sales, primarily due to a 9% rise in same-store sales. Profitability improved with higher gross margin and reduced SG&A expenses [Net Income and Earnings Per Share](index=1&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share_Q2) Net income for Q2 2025 surged to $6.8 million, or $0.35 per diluted share, a significant increase from $0.1 million, or $0.01 per diluted share, in Q2 2024 Q2 2025 Net Income and Earnings Per Share | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income | $6.8 million | $0.1 million | +$6.7 million | | Diluted EPS | $0.35 | $0.01 | +$0.34 | [Sales Performance](index=1&type=section&id=Sales%20Performance_Q2) Q2 2025 sales increased by 5% to $174.7 million, primarily driven by a 9% same-store sales increase compared to the prior year Q2 2025 Sales Performance | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $174.7 million | $166.9 million | +5% | | Same-Store Sales | +9% | N/A | +9% | [Profitability and Expense Management](index=1&type=section&id=Profitability%20and%20Expense%20Management_Q2) Gross margin improved to 36.2% of sales, up from 34.6%, due to lower distribution and buying costs. SG&A expenses decreased to 32.8% of sales from 34.9%, mainly from lower payroll and insurance costs Q2 2025 Profitability Metrics | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Gross Margin (% of sales) | 36.2% | 34.6% | +1.6 pts | | SG&A Expenses (% of sales) | 32.8% | 34.9% | -2.1 pts | | Income Tax (Benefit)/Expense | ($0.3 million benefit) | $0.6 million expense | -$0.9 million | - Gross margin increase was due to lower distribution and buying costs, partially offset by lower merchandise margins[5](index=5&type=chunk) - SG&A expenses decrease was primarily due to lower payroll and insurance costs, partially offset by higher advertising and general corporate costs[5](index=5&type=chunk) [Year-to-Date 2025 Performance Highlights](index=1&type=section&id=Year-to-Date%202025%20Performance%20Highlights) For the first six months of 2025, net income slightly decreased to $10.1 million, or $0.51 per diluted share, compared to $11.1 million, or $0.54 per diluted share, in the prior year. Sales remained relatively flat at $343.1 million, with a 4% same-store sales increase offset by store closures [Net Income and Earnings Per Share](index=1&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share_YTD) Year-to-date net income was $10.1 million ($0.51 per diluted share), a decrease from $11.1 million ($0.54 per diluted share) in the same period last year YTD 2025 Net Income and Earnings Per Share | Metric | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income | $10.1 million | $11.1 million | -$1.0 million | | Diluted EPS | $0.51 | $0.54 | -$0.03 | [Sales Performance](index=1&type=section&id=Sales%20Performance_YTD) Year-to-date sales were $343.1 million, a marginal increase of 0.3%, supported by a 4% same-store sales increase, but partially offset by the impact of closed stores YTD 2025 Sales Performance | Metric | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $343.1 million | $342.2 million | +0.3% | | Same-Store Sales | +4% | N/A | +4% | [Profitability and Expense Management](index=1&type=section&id=Profitability%20and%20Expense%20Management_YTD) Year-to-date gross margin increased to 35.6% of sales from 35.2%, driven by lower distribution and buying costs. SG&A expenses decreased to 32.8% of sales from 33.6%, primarily due to lower payroll and insurance costs YTD 2025 Profitability Metrics | Metric | YTD 2025 | YTD 2024 | Change | | :--- | :--- | :--- | :--- | | Gross Margin (% of sales) | 35.6% | 35.2% | +0.4 pts | | SG&A Expenses (% of sales) | 32.8% | 33.6% | -0.8 pts | | Income Tax Expense | $0.6 million | $1.3 million | -$0.7 million | - Year-to-date gross margin increased primarily due to lower distribution and buying costs, partially offset by lower merchandise margins[6](index=6&type=chunk) - Year-to-date SG&A expenses decreased primarily due to lower payroll and insurance costs, partially offset by higher advertising expenses and general corporate costs[6](index=6&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Chairman, President, and CEO John Cato noted continued sales trend improvement in Q2, partly attributing it to overcoming 2024 supply chain disruptions. He anticipates a challenging second half of 2025 due to tariff uncertainties and potential impacts on product acquisition costs, emphasizing tight expense management - Sales trend continued to improve during the second quarter, partly attributed to 2024 sales being impacted by supply chain disruptions[5](index=5&type=chunk) - Anticipates the back half of 2025 to be challenging due to continued uncertainty regarding tariffs and potential negative impact on product acquisition costs[5](index=5&type=chunk) - Company will continue to tightly manage expenses[5](index=5&type=chunk) [Business Operations and Company Profile](index=1&type=section&id=Business%20Operations%20and%20Company%20Profile) The Cato Corporation operates 1,101 stores across 31 states under three distinct retail concepts: "Cato," "Versona," and "It's Fashion," offering value-priced fashion apparel and accessories [Store Operations and Footprint](index=1&type=section&id=Store%20Operations%20and%20Footprint) During Q2 2025, the company closed eight stores, resulting in a total of 1,101 stores in 31 states as of August 2, 2025, down from 1,166 stores a year prior Store Count and Changes | Metric | As of Aug 2, 2025 | As of Aug 3, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Stores | 1,101 | 1,166 | -65 | | Stores Closed (Q2 2025) | 8 | N/A | -8 | | States of Operation | 31 | 31 | No Change | [Retail Concepts](index=1&type=section&id=Retail%20Concepts) The Cato Corporation operates three retail concepts: "Cato" (exclusive value-priced fashion apparel and accessories, also online), "Versona" (unique fashion destination for apparel and accessories, also online), and "It's Fashion" (trendy styles for the entire family at low prices) - Cato stores offer exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day, also available online at www.catofashions.com[7](index=7&type=chunk)[8](index=8&type=chunk) - Versona is a unique fashion destination offering apparel and accessories including jewelry, handbags and shoes at exceptional prices every day, with select merchandise also found at www.shopversona.com[8](index=8&type=chunk) - It's Fashion offers fashion with a focus on the latest trendy styles for the entire family at low prices every day[8](index=8&type=chunk) [Condensed Consolidated Financial Statements](index=3&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated statements of income for the quarter and six months ended August 2, 2025, and August 3, 2024, along with the condensed consolidated balance sheets as of August 2, 2025, and February 1, 2025 [Statements of Income](index=3&type=section&id=Statements%20of%20Income) The condensed consolidated statements of income provide a detailed breakdown of revenues, costs, expenses, and net income for both the second quarter and the first six months of fiscal years 2025 and 2024 Condensed Consolidated Statements of Income (Unaudited, in thousands) | | | Q2 2025 | % Sales | Q2 2024 | % Sales | YTD 2025 | % Sales | YTD 2024 | % Sales | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | REVENUES Retail sales | | $174,653 | 100.0% | $166,934 | 100.0% | $343,072 | 100.0% | $342,206 | 100.0% | | Other revenue (principally finance, late fees and layaway charges) | | 1,856 | 1.1% | 1,694 | 1.0% | 3,679 | 1.1% | 3,521 | 1.0% | | Total revenues | | 176,509 | 101.1% | 168,628 | 101.0% | 346,751 | 101.1% | 345,727 | 101.0% | | GROSS MARGIN (Memo) | | 63,186 | 36.2% | 57,812 | 32.5% | 122,288 | 35.6% | 120,579 | 35.2% | | COSTS AND EXPENSES, NET | | | | | | | | | | | Cost of goods sold | | 111,467 | 63.8% | 109,122 | 67.5% | 220,784 | 64.4% | 221,627 | 64.8% | | Selling, general and administrative | | 57,371 | 32.8% | 58,181 | 39.4% | 112,696 | 32.8% | 114,933 | 33.6% | | Depreciation | | 2,525 | 1.4% | 2,329 | 1.6% | 5,089 | 1.5% | 4,369 | 1.3% | | Interest and other income | | (1,393) | -0.8% | (1,742) | -1.0% | (2,594) | -0.8% | (7,563) | -2.2% | | Costs and expenses, net | | 169,970 | 97.3% | 167,890 | 107.6% | 335,975 | 97.9% | 333,366 | 97.4% | | Income Before Income Taxes | | 6,539 | 3.7% | 738 | -6.6% | 10,776 | 3.1% | 12,361 | 3.6% | | Income Tax Expense | | (293) | -0.2% | 643 | -2.7% | 635 | 0.2% | 1,292 | 0.4% | | Net Income (Loss) | | $6,832 | 3.9% | $95 | -3.9% | $10,141 | 3.0% | $11,069 | 3.2% | | Basic Earnings Per Share | | $0.35 | | $0.01 | | $0.51 | | $0.54 | | | Diluted Earnings Per Share | | $0.35 | | $0.01 | | $0.51 | | $0.54 | | [Balance Sheets](index=4&type=section&id=Balance%20Sheets) The condensed consolidated balance sheets present the company's financial position, detailing assets, liabilities, and stockholders' equity as of August 2, 2025, compared to February 1, 2025 Condensed Consolidated Balance Sheets (Unaudited, in thousands) | | August 2, 2025 | February 1, 2025 | | :--- | :--- | :--- | | ASSETS | | | | Current Assets | | | | Cash and cash equivalents Short-term investments | $34,225 | $20,279 | | Restricted cash Accounts receivable - net | 2,675 | 2,799 | | Merchandise inventories | 97,273 | 110,739 | | Other current assets | 8,941 | 7,406 | | Total Current Assets | 225,816 | 223,186 | | Property and Equipment - net | 57,641 | 60,326 | | Other Assets | 20,201 | 19,979 | | Right-of-Use Assets, net | 133,228 | 148,870 | | TOTAL | $436,886 | $452,361 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current Liabilities | $121,470 | $130,684 | | Current Lease Liability | 53,877 | 57,555 | | Noncurrent Liabilities | 13,340 | 13,485 | | Lease Liability | 76,018 | 88,341 | | Stockholders' Equity | 172,181 | 162,296 | | TOTAL | $436,886 | $452,361 | [Forward-Looking Statements and Risk Factors](index=2&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section contains forward-looking statements based on current expectations, subject to known and unknown risks and uncertainties that could cause actual results to differ materially. Key factors include consumer confidence, economic conditions, regulatory changes (e.g., tariffs), competitive pressures, fashion trends, store development, supply chain disruptions, inventory risks, and financial market volatility. The company disclaims any obligation to publicly update or revise these statements - Forward-looking statements are based on current expectations and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially[9](index=9&type=chunk) - Such factors include, but are not limited to, conditions affecting consumer confidence and spending, changes in laws (including tariffs), competitive factors, ability to predict fashion trends, store development strategy, store closures, adverse weather, supply chain disruptions, inventory risks, and financial market volatility[9](index=9&type=chunk) - The Company does not undertake to publicly update or revise the forward-looking statements[9](index=9&type=chunk)

Financial Performance - Total retail sales for Q1 2025 were $168.4 million, a decrease from $175.3 million in Q1 2024, primarily due to store closures[66] - Total revenues for Q1 2025 were $170.2 million, down from $177.1 million in Q1 2024[67] - Net income for Q1 2025 was $3.4 million, or 2.0% of total revenues, down from $11.0 million, or 6.3% in Q1 2024[60] - Same-store sales were flat for the quarter, with e-commerce sales accounting for less than 5.0% of total sales[66] Cost and Expenses - Cost of goods sold was $109.3 million, or 64.9% of retail sales, compared to $112.5 million, or 64.2% in Q1 2024[69] - SG&A expenses were $55.3 million, or 32.8% of retail sales, compared to $56.8 million, or 32.4% in Q1 2024[70] Tax and Store Closures - The effective income tax rate for Q1 2025 was 21.9%, compared to 5.6% in Q1 2024[74] - The company expects to close approximately 50 stores in fiscal 2025[67] Cash Flow and Investments - Net cash provided by investing activities totaled $7.9 million in Q1 fiscal 2025, down from $14.6 million in Q1 fiscal 2024, primarily due to decreased sales of short-term investments[81] - Net cash used in financing activities was $0.9 million in Q1 fiscal 2025, a decrease from $5.6 million in Q1 fiscal 2024, attributed to no dividends paid and reduced stock repurchases[82] - Capital expenditures for the first three months of fiscal 2025 totaled $1.0 million, down from $3.3 million in the same period last year[80] Share Repurchase and Credit Facility - As of May 3, 2025, the company had 703,419 shares remaining in open authorizations under its share repurchase program[83] - The company has established an asset-based revolving credit facility of up to $35.0 million, with $30.0 million available as of May 3, 2025[78][79] Investment Portfolio - The company's investment portfolio is primarily in corporate bonds and taxable governmental debt securities with ratings of A or better, with maturities ranging from 10 days to 2.9 years[85] - Deferred compensation plan assets were $9.2 million as of May 3, 2025, slightly down from $9.3 million on February 1, 2025[86] Market Risk - The company is subject to market rate risk from interest rate changes related to financing, investing, and cash management activities, but does not consider this exposure to be material[88]

Core Insights - Cato Corporation's shares have increased by 11.5% following the release of its earnings results, significantly outperforming the S&P 500 index's 1.4% growth during the same period [1] - Despite a year-over-year earnings decline, Cato's shares are up 12% over the past month, compared to the S&P 500's 6.5% rise, indicating renewed investor optimism [1] Financial Performance - Cato reported a first-quarter 2025 net income of $3.3 million, or 17 cents per share, a decline of approximately 69% from $11 million, or 54 cents per share, in the same period last year [2][3] - Total revenues decreased by 3.9% to $170.2 million from $177.1 million a year ago, with retail sales making up the majority at $168.4 million; same-store sales remained flat [2] Operating Metrics - Gross margin slightly declined to 35.1% of sales from 35.8% in the prior year quarter, attributed to lower merchandise contribution due to increased markdowns [4] - Selling, General and Administrative (SG&A) expenses decreased by 2.5% year over year to $55.3 million, but as a percentage of sales, SG&A rose to 32.8% from 32.4% [4] Cost Structure - Depreciation costs increased to $2.6 million from $2 million, while interest and other income fell significantly to $1.2 million from $5.8 million, impacted by a prior year's gain from land sales [5] - Income before taxes declined by 63.5% year over year to $4.2 million, with income tax expense rising to $0.9 million from $0.6 million due to changes in tax rates [5] Management Commentary - Cato's leadership highlighted the cautious consumer spending environment, with CEO John Cato noting general economic uncertainty and potential tariff impacts as contributing factors to a restrained outlook [6] - Although sales trends improved later in the quarter, the management maintained a measured tone regarding recovery projections for the remainder of the year [6] Strategic Actions - During the quarter, Cato did not open any new locations and permanently closed eight stores, reducing its total store count to 1,109 from 1,171 a year ago [7] - This contraction reflects the company's adaptation to changing consumer behaviors and efforts to optimize its physical footprint [7] Capital Management - Cato repurchased 294,036 shares during the quarter, indicating confidence in its valuation and commitment to returning capital to shareholders [8] - The company's financial position remained stable, with cash and cash equivalents increasing to $31.3 million from $20.3 million, while short-term investments decreased to $48.6 million from $57.4 million [8]

Financial Performance - Cato Corporation reported net income of $3.3 million or $0.17 per diluted share for Q1 2025, a decrease from $11.0 million or $0.54 per diluted share in Q1 2024[2]. - Sales for Q1 2025 were $168.4 million, down 4% from $175.3 million in Q1 2024, with same-store sales remaining flat[2][9]. - Total revenues for Q1 2025 were $170.2 million, compared to $177.1 million in Q1 2024[9]. Margins and Expenses - Gross margin as a percentage of sales decreased to 35.1% in Q1 2025 from 35.8% in Q1 2024, attributed to higher markdown sales[3][9]. - Selling, General and Administrative expenses decreased to $55.3 million in Q1 2025 from $56.8 million in Q1 2024, but as a percentage of sales, it increased to 32.8% from 32.4%[3][9]. - Interest and other income decreased to $1.2 million in Q1 2025 from $5.8 million in Q1 2024, primarily due to a prior year gain on sale of land[3][9]. Store Operations - The company closed eight stores during the quarter, reducing the total number of stores to 1,109 as of May 3, 2025, down from 1,171 stores a year earlier[4]. - Cato Corporation bought back 294,036 shares during the quarter[4]. Cash and Liabilities - Cash and cash equivalents increased to $31.3 million as of May 3, 2025, from $20.3 million[10]. - Current liabilities stood at $130.0 million as of May 3, 2025, compared to $130.7 million in the previous quarter[10].

Store Operations - The Company operated 1,117 fashion specialty stores as of February 1, 2025, down from 1,178 stores in fiscal 2023, representing a decrease of approximately 5.2%[35] - The Company opened 5 new stores and closed 66 stores in fiscal 2024, resulting in a net decrease of 61 stores[35] - The Company’s stores average approximately 4,500 square feet in size and are primarily located in strip shopping centers[31][32] - The Company's ability to open new stores is dependent on securing suitable locations and navigating economic downturns in the commercial real estate industry[62][63] Financial Performance - Retail sales decreased by 8.3% to $642.1 million in fiscal 2024 compared to $700.3 million in fiscal 2023[135] - Total revenues decreased by 8.2% to $649.8 million in fiscal 2024 compared to $708.1 million in fiscal 2023[135] - Same-store sales decreased by 3.2% in fiscal 2024, primarily due to lower transactions[135] - The net loss for the fiscal year ended February 1, 2025, was $18.1 million, compared to a net loss of $23.9 million in fiscal 2024[187] - Basic and diluted earnings per share for fiscal 2025 were both $(0.97), compared to $(1.17) in fiscal 2024[187] Cost and Expenses - Cost of goods sold increased to 68.0% of retail sales in fiscal 2024, up from 66.3% in fiscal 2023[134] - Total gross margin dollars decreased by 12.8% to $205.7 million in fiscal 2024 from $236.0 million in fiscal 2023[138] - Selling, general and administrative expenses (SG&A) were $231.5 million in fiscal 2024, down 8.4% from $252.8 million in fiscal 2023, maintaining SG&A as 36.1% of retail sales[139] - Dividends paid decreased to $10,516,000 in fiscal 2024 from $13,954,000 in fiscal 2023, a decline of approximately 25%[192] Inventory and Merchandise - Merchandise inventories increased to $110.7 million as of February 1, 2025, compared to $98.6 million in the previous year, reflecting a 12.6% increase[189] - Merchandise inventories decreased by $12,136,000 in fiscal 2024, compared to an increase of $13,453,000 in fiscal 2023, indicating a significant shift in inventory management[191] Credit and Sales - Credit and layaway sales accounted for 6% of retail sales in fiscal 2024, with the Company's credit card program representing 3.4% of retail sales[36] - Layaway sales represented approximately 2.8% of retail sales in fiscal 2024, slightly down from 3.0% in fiscal 2023[40] - Credit revenue increased to $2.7 million, representing 0.4% of total revenue in fiscal 2024[137] Risks and Challenges - The Company is subject to supply chain disruptions, including increased ocean freight costs and delays due to geopolitical tensions and natural disasters, which may adversely affect its ability to sell merchandise[49][50] - Increased costs from tariffs on Chinese products and inflationary pressures on labor and raw materials may negatively impact the Company's financial condition and results of operations[51][54] - Continued high interest rates are expected to reduce customers' discretionary income, adversely affecting their willingness to purchase discretionary items[53] - The Company faces risks related to consumer confidence and spending, which can be influenced by economic conditions, inflation, and public health threats[52] - The women's retail apparel industry is highly competitive, with significant pressure from discount stores, mass merchandisers, and internet-based retailers, potentially impacting market share and financial condition[67] Cybersecurity and Compliance - The company faces risks related to cybersecurity, with potential breaches leading to increased costs and damage to reputation[78] - The company has increased investments in cybersecurity risk management, including an enterprise cybersecurity program to mitigate threats[106] - Compliance with the Payment Card Industry Data Security Standard is maintained, and third-party providers are regularly assessed for cybersecurity compliance[108] - Legal compliance and regulatory risks may lead to increased costs and liabilities, diverting management's attention and adversely affecting business operations[85] Shareholder and Governance - The principal shareholder holds 53.3% of the voting power, which may limit other shareholders' influence and affect corporate governance[104] - The Board of Directors authorized an increase of 1,000,000 shares in the Company's share repurchase program on December 23, 2024[209] Cash Flow and Investments - Cash used in operating activities was $19.7 million in fiscal 2024, a decrease of $20.2 million compared to fiscal 2023[157] - Net cash provided by investing activities was $29.0 million in fiscal 2024, compared to $19.8 million in fiscal 2023[164] - The company had an unsecured revolving credit agreement for borrowings of up to $35.0 million, which was terminated on March 13, 2025, in favor of a new asset-backed revolving line of credit[160] Other Financial Metrics - The Company reported a provision for customer credit losses of $654,000 in fiscal 2024, up from $554,000 in fiscal 2023, marking an increase of about 18%[191] - The company incurred asset impairment charges of $786,000 in fiscal 2024, down from $1,811,000 in fiscal 2023, showing a reduction of about 57%[200] - The Company recognized $1,447,934 in income from unredeemed gift cards in fiscal 2024, compared to $1,116,000 in fiscal 2023 and $256,000 in fiscal 2022, reflecting a significant increase in gift card breakage revenue[205]

Core Viewpoint - The Cato Corporation's stock has significantly outperformed the S&P 500 following its earnings report, reflecting positive investor sentiment due to a narrowed quarterly loss and operational improvements [1] Financial Performance - For the fourth quarter, Cato reported a net loss of $0.74 per share, an improvement from a net loss of $1.14 per share in the same quarter last year [2] - Quarterly sales decreased by 10% year-over-year to $155.3 million, down from $172.1 million; however, on a comparable 13-week basis, the decline was only 5.1% [2] - The company incurred a net loss of $14.1 million, which is narrower than the $23.4 million loss reported in the prior-year quarter [3] Key Business Metrics - Cato's gross margin contracted to 28% from 31% year-over-year, attributed to increased markdowns and higher distribution costs [4] - SG&A expenses fell by $8.8 million, improving as a percentage of sales to 37.8% from 39.2% in the prior-year quarter, mainly due to reductions in various costs [4] Management Insights - The CEO highlighted ongoing macroeconomic challenges affecting discretionary spending and operational disruptions earlier in the year, but noted improvements in the fourth quarter [5] - The company has initiated cost-efficiency measures, including the elimination of approximately 40 corporate positions and plans for further expense reductions [6] Sales and Market Pressures - Weaker sales performance was linked to consumer budget pressures and external disruptions, with increased markdowns and logistics costs impacting margins [7] - A significant drop in income tax expense was noted, from $10.9 million in Q4 2023 to $0.3 million in Q4 2024, due to a non-cash valuation allowance against deferred tax assets [8] Full Year Overview - For fiscal 2024, Cato's net loss narrowed to $18.1 million or $0.97 per share from $23.9 million or $1.17 per share in 2023; annual sales declined by 8.3% to $642.1 million [9] - Gross margin for the full year dropped to 32% from 33.7%, while SG&A expenses decreased by $21.3 million [9] - The company reported $11.8 million in interest and other income for the year, more than doubling from $5.1 million the previous year [9] Operational Developments - Cato closed 62 underperforming stores during fiscal 2024, while opening one and relocating four, resulting in a total of 1,117 stores as of February 1, 2025 [10] - For fiscal 2025, the company plans to open up to 15 new stores and close up to 50 additional underperforming locations, expecting minimal financial impact from these closures [10]

Financial Performance - Cato Corporation reported a net loss of $14.1 million or $0.74 per diluted share for Q4 2024, an improvement from a net loss of $23.4 million or $1.14 per diluted share in Q4 2023[2]. - Total sales for Q4 2024 were $155.3 million, a decrease of 10.0% from $172.1 million in Q4 2023; on a comparable 13-week basis, total sales decreased 5.1%[3]. - For the full year 2024, sales decreased 8.3% to $642.1 million from $700.3 million in 2023, with same-store sales down 3.1%[3]. - Gross margin for Q4 2024 decreased to 28.0% from 31.0% in Q4 2023, attributed to increased markdowns and higher distribution costs[4]. - Income tax expense for Q4 2024 was $0.3 million, significantly lower than $10.9 million in Q4 2023, due to a non-cash valuation allowance recorded last year[4]. Expenses and Cost Management - Selling, general and administrative (SG&A) expenses as a percentage of sales decreased from 39.2% in Q4 2023 to 37.8% in Q4 2024, with total SG&A expenses down by $8.8 million[4]. - The company eliminated approximately 40 corporate positions in February 2025 as part of its focus on reducing expenses[5]. Asset Management - Cato Corporation's total current assets decreased to $223.2 million as of February 1, 2025, down from $243.1 million as of February 3, 2024[11]. - Cato Corporation's stockholders' equity decreased to $162.3 million as of February 1, 2025, compared to $192.3 million as of February 3, 2024[11]. Future Plans - The company plans to open up to 15 new stores and close up to 50 underperforming stores in 2025, anticipating minimal financial impact from these closures[6].

Core Viewpoint - Pomerantz LLP is investigating claims on behalf of investors of The Cato Corporation regarding potential securities fraud or unlawful business practices by the company and its officers or directors [1]. Group 1: Company Actions - On November 22, 2024, Cato announced the suspension of its regular quarterly dividend due to current economic conditions and sales trends, which led to a significant drop in its stock price during intraday trading [1]. Group 2: Legal Context - Pomerantz LLP is recognized as a leading firm in corporate, securities, and antitrust class litigation, with a history of fighting for victims of securities fraud and corporate misconduct [2].