Cato(CATO) - 2021 Q4 - Annual Report

Part I Business The Cato Corporation operates 1,330 fashion specialty stores with a value-pricing and convenience-focused strategy - As of January 30, 2021, the Company operated 1,330 fashion specialty stores in 33 states under various brand names[13] - The company's business strategy focuses on offering on-trend merchandise, value pricing, and convenient store locations[15][16][17] Store Development Activity (Fiscal 2016-2020) | Fiscal Year | Stores at Beginning of Year | Opened | Closed | Stores at End of Year | | :--- | :--- | :--- | :--- | :--- | | 2016 | 1,372 | 8 | 9 | 1,371 | | 2017 | 1,371 | 6 | 26 | 1,351 | | 2018 | 1,351 | - | 40 | 1,311 | | 2019 | 1,311 | 5 | 35 | 1,281 | | 2020 | 1,281 | 76 | 27 | 1,330 | - A majority of merchandise is sourced directly from overseas manufacturers, with the largest single vendor comprising 10% of total purchases in fiscal 2020[24] - As of January 30, 2021, the Company employed approximately 7,400 associates, with over 80% of management promoted from within[44][45] Risk Factors The company faces significant risks from the COVID-19 pandemic, supply chain dependencies, and fashion trend volatility - The COVID-19 pandemic has adversely impacted sales and operations and is expected to continue affecting future results[47][48][49] - Significant reliance on overseas manufacturing exposes the company to trade disruptions and supply chain risks[56][57][59] - The business is highly dependent on anticipating fashion trends, where miscalculations could lead to excess inventory and markdowns[65][66] - Operations rely on a single, centralized distribution center, creating a significant operational disruption risk[86][87] - Chairman, President and CEO John P. D. Cato controls approximately 48.1% of the voting power, allowing significant influence over shareholder matters[118][119] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[122] Properties The company owns its main distribution center and offices in North Carolina and land in South Carolina - The Company's main distribution center and general offices are in a Company-owned 552,000 square foot building in Charlotte, North Carolina[123] - The Company owns approximately 185 acres of land in York County, South Carolina, as a potential new distribution center site[123] Legal Proceedings The company is not currently a party to any material pending litigation - The Company is not currently a party to any pending litigation expected to have a material adverse effect on its financial position or operations[125] Executive Officers of the Registrant This section lists the company's executive officers, their ages, positions, and professional backgrounds Executive Officers (as of March 29, 2021) | Name | Age | Position | | :--- | :--- | :--- | | John P. D. Cato | 70 | Chairman, President and Chief Executive Officer | | John R. Howe | 58 | Executive Vice President, Chief Financial Officer | | Gordon Smith | 65 | Executive Vice President, Chief Real Estate and Store Development Officer | Mine Safety Disclosures The company reports no matters requiring disclosure under this item - No matters requiring disclosure[132] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and it actively repurchased shares during the fourth quarter of fiscal 2020 - The Company's Class A Common Stock trades on the New York Stock Exchange (NYSE) under the symbol CATO[135] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | November 2020 | 320,707 | $7.09 | | December 2020 | - | - | | January 2021 | - | - | | Total | 320,707 | $7.09 | - As of January 30, 2021, the Company had 1,871,149 shares remaining in open authorizations for repurchase[141] Selected Financial Data This section presents a five-year summary of key financial data, highlighting a net loss in fiscal 2020 Five-Year Selected Financial Data (in thousands, except per share data) | Fiscal Year | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Retail sales | $567,516 | $816,184 | $821,113 | $841,997 | $947,370 | | Net income (loss) | $(47,483) | $35,897 | $30,461 | $8,540 | $47,212 | | Diluted earnings (loss) per share | $(2.01) | $1.46 | $1.23 | $0.34 | $1.72 | | Cash dividends paid per share | $0.33 | $1.32 | $1.32 | $1.32 | $1.29 | | Stores open at end of year | 1,330 | 1,281 | 1,311 | 1,351 | 1,371 | | Total assets | $591,452 | $684,976 | $497,906 | $516,076 | $606,324 | | Total stockholders' equity | $246,498 | $316,514 | $316,836 | $326,353 | $383,903 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the pandemic's impact on fiscal 2020 results, liquidity measures, and critical accounting policies - The COVID-19 pandemic adversely impacted fiscal 2020 results, prompting cost-saving measures like suspending dividends and reducing capital expenditures[148][150] Fiscal 2020 vs. Fiscal 2019 Results | Metric | Fiscal 2020 | Fiscal 2019 | Change | | :--- | :--- | :--- | :--- | | Retail Sales | $567.5M | $816.2M | -30.5% | | Same-Store Sales | N/A | N/A | -32% | | Gross Margin % of Sales | 23.7% (1) | 37.6% (1) | -13.9 p.p. | | SG&A % of Sales | 36.4% | 32.3% | +4.1 p.p. | | Net Income (Loss) | ($47.5M) | $35.9M | -232.3% | | Diluted EPS | ($2.01) | $1.46 | -237.7% | (1) Gross Margin calculated as (Retail Sales - Cost of Goods Sold) / Retail Sales - The company's most significant accounting estimates involve allowances for credit losses, inventory shrinkage, and potential asset impairment[169] - The company maintains a $35.0 million unsecured revolving credit agreement, with no borrowings outstanding as of January 30, 2021[180][186] Contractual Obligations as of January 30, 2021 (in thousands) | Contractual Obligations | Total | Payments Due in 2021 | 2022-2023 | 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $227,525 | $70,007 | $84,356 | $36,357 | $36,805 | Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risk from changes in interest rates is not considered material - The Company does not believe its exposure to market rate risk from changes in interest rates is material[200] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements and the independent auditor's report - The independent auditor issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[206][207] - The auditor identified the impairment of long-lived assets for store locations as a Critical Audit Matter due to significant management judgment[217][218] Consolidated Statement of Operations Highlights (in thousands) | | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Total Revenues | $575,111 | $825,335 | $829,664 | | Income (loss) before income taxes | $(72,806) | $43,207 | $33,051 | | Net income (loss) | $(47,483) | $35,897 | $30,461 | Consolidated Balance Sheet Highlights (in thousands) | | Jan 30, 2021 | Feb 1, 2020 | | :--- | :--- | :--- | | Total Current Assets | $290,550 | $362,797 | | Total Assets | $591,452 | $684,976 | | Total Current Liabilities | $181,934 | $199,302 | | Total Stockholders' Equity | $246,498 | $316,514 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[339] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of January 30, 2021[339] - Management concluded that the company's internal control over financial reporting was effective as of January 30, 2021[340] Other Information The Compensation Committee approved a discretionary bonus for eligible associates, including named executive officers Discretionary Bonus for Named Executive Officers | Name | Title | Discretionary Bonus | | :--- | :--- | :--- | | John P. D. Cato | Chairman, President and Chief Executive Officer | $391,839 | | John R. Howe | Executive Vice President, Chief Financial Officer | $69,783 | | Gordon D. Smith | Executive Vice President, Chief Real Estate and Store Development Officer | $54,921 | Part III Directors, Executive Officers and Corporate Governance Information regarding directors and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information regarding directors and corporate governance is incorporated by reference from the Registrant's Proxy Statement for its 2021 annual stockholders' meeting[345] Executive Compensation Information concerning executive and director compensation is incorporated by reference from the 2021 Proxy Statement - Information regarding executive compensation is incorporated by reference from the Company's 2021 Proxy Statement[347] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on equity compensation plans and incorporates security ownership details by reference Equity Compensation Plan Information (as of Jan 30, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | - | - | 3,979,491 | | Not approved by security holders | - | - | - | | Total | - | - | 3,979,491 | - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2021 Proxy Statement[351] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement[352] Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement[353] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section lists all financial statements, schedules, and exhibits filed with the report, including governance documents and material contracts[358][359] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[367]