Cato Incurs Wider Q3 Loss, Sales Drop Y/Y Amid Operational Challenges

Core Insights - Cato Corporation's shares have declined 40.3% since the earnings report for the quarter ended Nov. 2, 2024, significantly underperforming the S&P 500 index's 0.6% growth during the same period [1] - The company reported a net loss of 79 cents per share for the third quarter, which is wider than the net loss of 30 cents per share in the same quarter of 2023 [2] - Quarterly sales fell 8% year over year to $144.6 million, down from $156.7 million in the prior-year period [2] Financial Performance - Cato's gross margin for the quarter decreased to 28.8% of sales, down from 32.5% in the same quarter last year, attributed to increased markdowns, higher freight and distribution expenses, and elevated occupancy costs [4] - Selling, general, and administrative (SG&A) expenses represented 40% of sales, slightly up from 39.4% in the third quarter of 2023, mainly due to deleveraging payroll costs, although SG&A expenses decreased by $3.9 million year over year [5] - The net loss widened to $15.1 million from $6.1 million in the prior-year period [6] Management Commentary - The chairman, president, and CEO, John Cato, noted several challenges affecting performance, including three major hurricanes, supply chain disruptions, and pressure on customers' disposable income [7] - The bankruptcy of a logistics carrier servicing 50% of Cato's stores further complicated distribution, increasing costs [7] - Management anticipates continued headwinds in the fourth quarter due to sustained cost pressures and challenging economic conditions [8] Operational Developments - During the quarter, Cato opened one new store but closed 13 year to date, reducing its total store count to 1,167 across 31 states as of Nov. 2, 2024, compared to 1,245 stores as of Oct. 28, 2023 [9]