Cato Fashion - 10-Q quarterly report FY2024 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the quarterly period ended

August 3, 2024

☐

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

1-31340

THE CATO CORPORATION

(Exact name of registrant as specified in its

charter)

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

8100 Denmark Road

Charlotte

North Carolina

28273-5975

(Address of principal executive offices)

(Zip Code)

(704)

554-8510

(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

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

Indicate

by check

mark

whether

the

registrant

(1)

has

filed

all

reports

required

filed

by Section

15(d)

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.

Yes

Indicate

check

mark

whether

the

registrant

has

submitted

electronically

every

Interactive

Data

File

required

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).

Yes

Indicate by

check mark

whether the

registrant is

a large

accelerated filer,

an accelerated

filer, a

non-accelerated filer,

a smaller

reporting

company,

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller

reporting

company,” and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

emerging

growth

company,

indicate

check

mark

the

registrant

has

elected

not

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). Yes

☐

☒

As of August 3, 2024, there were

18,804,629

shares of Class A common stock and

1,763,652

shares of Class B common stock outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended August 3, 2024

Table

of Contents

Page No.

PART

I – FINANCIAL INFORMATION

(UNAUDITED)

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income and Comprehensive Income

For the Three Months and Six Months Ended August

3, 2024 and July 29, 2023

Condensed Consolidated Balance Sheets

At August 3, 2024 and February 3, 2024

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended August 3, 2024 and

July 29, 2023

Condensed Consolidated Statements of Stockholders’ Equity

5 – 6

For the Three Months and Six Months Ended August

3, 2024 and July 29, 2023

Notes to Condensed Consolidated Financial Statements

7 – 21

For the Three Months and Six Months Ended August

3, 2024 and July 29, 2023

Item 2.

Management’s Discussion and Analysis

of Financial Condition and

Results of Operations

22 – 28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART

II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART

I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended

Six Months Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

(Dollars in thousands, except per share data)

REVENUES

Retail sales

166,934

181,181

342,206

371,492

Other revenue (principally finance charges, late fees and

layaway charges)

1,694

1,690

3,521

3,429

Total revenues

168,628

182,871

345,727

374,921

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

109,122

117,617

221,627

239,704

Selling, general and administrative (exclusive of

depreciation

shown below)

58,181

61,618

114,933

123,552

Depreciation

2,329

2,510

4,369

4,867

Interest and other income

(1,742)

(1,334)

(7,563)

(2,231)

Costs and expenses, net

167,890

180,411

333,366

365,892

Income before income taxes

738

2,460

12,361

9,029

Income tax expense

643

1,333

1,292

3,475

Net income

1,127

11,069

5,554

Basic earnings per share

0.01

0.06

0.54

0.27

Diluted earnings per share

0.01

0.06

0.54

0.27

Comprehensive income:

Net income

1,127

11,069

5,554

Unrealized gain (loss) on available-for-sale securities, net of

deferred income taxes of $

and $

156

for

the three and six months ended July 29, 2023, respectively

676

167

(72)

522

Comprehensive income

771

1,294

10,997

6,076

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

August 3, 2024

February 3, 2024

ASSETS

(Dollars in thousands)

Current Assets:

Cash and cash equivalents

30,764

23,940

Short-term investments

73,902

79,012

Restricted cash

3,562

3,973

Accounts receivable, net of allowance for customer credit losses of

674

and $

705

at August 3, 2024 and February 3, 2024, respectively

29,772

29,751

Merchandise inventories

95,972

98,603

Prepaid expenses and other current assets

9,506

7,783

Total Current Assets

243,478

243,062

Property and equipment – net

63,975

64,022

Other assets

22,340

25,047

Right-of-Use assets – net

125,779

154,686

Total Assets

455,572

486,817

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

84,623

87,821

Accrued expenses

36,207

37,404

Accrued employee benefits and bonus

1,022

1,675

Accrued income taxes

646

Current lease liability

51,091

61,108

Total Current Liabilities

173,589

188,008

Other noncurrent liabilities

14,573

14,475

Lease liability

72,348

92,013

Stockholders' Equity:

Preferred stock, $

100

par value per share,

100,000

authorized,

none

issued

Class A common stock, $

0.033

par value per share,

50,000,000

shares authorized;

18,804,629

shares and

18,802,742

issued at August 3, 2024 and February 3, 2024, respectively

635

Convertible Class B common stock, $

0.033

par value per share,

15,000,000

shares authorized;

1,763,652

shares issued at August 3, 2024 and February 3, 2024

Additional paid-in capital

127,951

126,953

Retained earnings

66,094

64,279

Accumulated other comprehensive income

323

395

Total Stockholders' Equity

195,062

192,321

Total Liabilities and Stockholders' Equity

455,572

486,817

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(UNAUDITED)

Six Months Ended

August 3, 2024

July 29, 2023

(Dollars in thousands)

Operating Activities:

Net income

11,069

5,554

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation

4,369

4,867

Provision for customer credit losses

338

248

Purchase premium and discount accretion of investments

(577)

(97)

Gain on sale of assets held for investment

(4,223)

Share-based compensation

840

2,192

Deferred income taxes

(832)

Loss on disposal of property and equipment

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

1,041

(666)

Merchandise inventories

2,631

19,338

Prepaid and other assets

(1,891)

(667)

Operating lease right-of-use assets and liabilities

(775)

(1,001)

Accrued income taxes

646

2,948

Accounts payable, accrued expenses and other liabilities

(4,728)

(10,306)

Net cash provided by operating activities

8,836

21,579

Investing Activities:

Expenditures for property and equipment

(4,799)

(8,470)

Purchase of short-term investments

(31,396)

(14,497)

Sales of short-term investments

37,703

46,777

Sales of other assets

5,165

Net cash provided by investing activities

6,673

23,810

Financing Activities:

Dividends paid

(7,050)

(6,962)

Repurchase of common stock

(2,237)

(2,563)

Proceeds from employee stock purchase plan

191

198

Net cash used in financing activities

(9,096)

(9,327)

Net increase in cash, cash equivalents, and restricted cash

6,413

36,062

Cash, cash equivalents, and restricted cash at beginning of period

27,913

23,792

Cash, cash equivalents, and restricted cash at end of period

34,326

59,854

Non-cash activity:

Accrued other assets and property and equipment expenditures

721

572

See notes to condensed consolidated financial statements (unaudited).

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 — February 3, 2024

694

126,953

64,279

395

192,321

Comprehensive income:

Net income

10,974

Unrealized net losses on available-for-sale securities, net of

deferred income tax expense of $0

(748)

Dividends paid ($

0.17

per share)

(3,523)

Class A common stock sold through employee stock purchase

plan

189

190

Share-based compensation issuances and exercises

Share-based compensation expense

(84)

Repurchase and retirement of treasury shares

(14)

(2,223)

(2,237)

Balance — May 4, 2024

694

127,058

69,512

(353)

196,911

Comprehensive income:

Net income

Unrealized net gains on available-for-sale securities, net of

deferred income tax expense of $0

676

Dividends paid ($

0.17

per share)

(3,527)

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

Share-based compensation expense

858

872

Repurchase and retirement of treasury shares

Balance — August 3, 2024

694

127,951

66,094

323

195,062

See notes to condensed consolidated financial statements (unaudited).

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

691

122,431

104,709

(1,238)

226,593

Comprehensive income:

Net income

4,428

Unrealized net gains on available-for-sale securities, net of

deferred income tax expense of $

107

355

Dividends paid ($

0.17

per share)

(3,455)

Class A common stock sold through employee stock purchase

plan

195

Share-based compensation issuances and exercises

Share-based compensation expense

929

Repurchase and retirement of treasury shares

(8)

(2,259)

(2,267)

Balance — April 29, 2023

683

123,555

103,426

(883)

226,781

Comprehensive income:

Net income

1,127

Unrealized net gains on available-for-sale securities, net of

deferred income tax expense of $

167

Dividends paid ($

0.17

per share)

(3,507)

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

Share-based compensation expense

1,212

1,227

Repurchase and retirement of treasury shares

(1)

(293)

(294)

Balance — July 29, 2023

695

124,798

100,756

(716)

225,533

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 AUGUST 3, 2024 AND JULY 29, 2023

NOTE 1 - GENERAL

The

condensed

consolidated

financial

statements

August

2024

and

for

the

twenty-six-week

periods ended August

3, 2024 and

July 29,

2023 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 statement of the

financial statements

have been

included.

All such

adjustments

are

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

the

Company’s

Annual

Report

Form

10-K

for

the

fiscal

year

ended

February 3, 2024.

Amounts as of February 3, 2024 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.

On February 16, 2024, the Company closed on the sale of land held for investment.

The sale resulted in a

net

gain

3.2

million

and

included

Interest

and

other

income

the

accompanying

Condensed

Consolidated Statements of Income and Comprehensive Income

for the period ended August 3, 2024.

Subsequent to

the second

quarter of

the current

fiscal year,

the Company

received $

8.6

million from

the

insurance claim settlement and sale of its corporate jet.

On August 29, 2024, the Board of Directors maintained the quarterly dividend

at $

0.17

per share.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 –

Earnings Per Share

requires dual presentation of basic and

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 and

Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the

right for

the Board of

Directors to

declare dividends

Class

without

declaration

commensurate

dividends

Class

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

computed

net

income

less

earnings

allocated

non-vested

equity

awards

divided

the

weighted average

number of

common shares

outstanding for

the period.

Diluted EPS

reflects the

potential

dilution

that

could

occur

from

common

issuable

through

stock

options

and

the

Employee

Stock

Purchase Plan.

Three Months Ended

Six Months Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

(Dollars in thousands)

Numerator

Net earnings

1,127

11,069

5,554

Earnings (loss) allocated to non-vested equity awards

(54)

(583)

(292)

Net earnings available to common stockholders

104

1,073

10,486

5,262

Denominator

Basic weighted average common shares outstanding

19,297,484

19,395,484

19,327,137

19,349,266

Diluted weighted average common shares outstanding

19,297,484

19,395,484

19,327,137

19,349,266

Net income per common share

Basic earnings per share

0.01

0.06

0.54

0.27

Diluted earnings per share

0.01

0.06

0.54

0.27

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

other

comprehensive income (in thousands) for the

three months ended August 3, 2024:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at May 4, 2024

(353)

Other comprehensive income before

reclassification

776

Gains reclassified from accumulated

other comprehensive income (b)

100

Net current-period other comprehensive income

676

Ending Balance at August 3, 2024

323

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

130

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

other

comprehensive income (in thousands) for the

six months ended August 3, 2024:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 3, 2024

395

Other comprehensive income before

reclassification

714

Gains reclassified from accumulated

other comprehensive income (b)

786

Net current-period other comprehensive loss

(72)

Ending Balance at August 3, 2024

323

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes

$1,022

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

236

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

(CONTINUED):

The

following

table

sets

forth

information

regarding

the

reclassification

out

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)

Other comprehensive income before

reclassifications

164

Gains reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income

167

Ending Balance at July 29, 2023

(716)

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

The

following

table

sets

forth

information

regarding

the

reclassification

out

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)

Other comprehensive income before

reclassifications

519

Gains reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income

522

Ending Balance at July 29, 2023

(716)

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized 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 AUGUST 3, 2024 AND JULY 29, 2023

NOTE 4 – FINANCING ARRANGEMENTS:

August

2024,

the

Company

had

unsecured

revolving

credit

agreement,

which

provides

for

borrowings

35.0

million,

less

the

balance

any

revocable

letters

credit

purchase

commitments,

and

committed

through

May

2027.

The

credit

agreement

contains

various

financial

covenants

and

limitations,

including

the

maintenance

specific

financial

ratios.

April

25,

2024,

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 included in the calculation of

the ratio.

For the

quarter ended

August 3,

2024, after

giving effect

to the

amendment, the

Company was

compliance with the

credit agreement. There

were

borrowings outstanding,

r any outstanding

letters of

credit that reduced borrowing availability, as of August 3, 2024.

The weighted average interest rate under the

credit facility was

zero

at August 3, 2024 due to

outstanding borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

determined

that

has

four

operating

segments,

defined

under

ASC

280

–

Segment

Reporting

, including Cato,

It’s Fashion, Versona

and Credit.

As outlined in

ASC 280-10, the Company

has

two

reportable segments: Retail and Credit.

The Company has aggregated its

three

retail operating segments,

including

e-commerce,

based

on the

aggregation

criteria

outlined in

ASC

280-10, which

states that

two

more operating segments may be aggregated into a single reportable segment if aggregation is consistent with

the

objective

and

basic

principles

ASC

280-10,

which

require

the

segments

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

the

Company’s

retail

operating

segments

sourced

from

the

same

countries

and

some

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

states

August

2024,

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

separate

wholly-

owned subsidiaries of the Company.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 5 – REPORTABLE SEGMENT INFORMATION

(CONTINUED):

The following schedule summarizes certain segment

information (in thousands):

Three Months Ended

Six Months Ended

August 3, 2024

Retail

Credit

Total

August 3, 2024

Retail

Credit

Total

Revenues

$167,954

$674

$168,628

Revenues

$344,384

$1,343

$345,727

Depreciation

2,328

2,329

Depreciation

4,368

4,369

Interest and other income

(1,742)

Interest and other income

(7,563)

Income before

income taxes

485

253

738

Income before

income taxes

11,859

502

12,361

Capital expenditures

1,536

Capital expenditures

4,799

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

2,509

2,510

Depreciation

4,866

4,867

Interest and other income

(1,334)

Interest and other income

(2,231)

Income before

income taxes

2,207

253

2,460

Income before

income taxes

8,590

439

9,029

Capital expenditures

2,300

Capital expenditures

8,470

Retail

Credit

Total

Total assets as of August 3, 2024

$417,112

$38,460

$455,572

Total assets as of February 3, 2024

448,488

38,329

486,817

The Company evaluates segment performance based on

income before income 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

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

Payroll

161

142

314

276

Postage

115

109

217

210

Other expenses

144

154

309

348

Total expenses

420

405

840

834

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 6 – STOCK-BASED COMPENSATION:

As of August

3, 2024, the

Company’s 2018 Incentive

Compensation Plan allows

for the granting

of various

forms of equity-based awards,

including restricted stock

and stock options for

grant to officers, directors

and

key employees.

The

following

table

presents

the

number

options

and

restricted

stock

initially

authorized

and

available for grant under this plan as

of August 3, 2024:

2018

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,753,001

accordance

with

ASC

718

–

Compensation–Stock Compensation

the

fair

value

current

restricted

stock awards

is estimated

on the

date of

grant based

on the

market price

of the

Company’s

stock and

amortized to compensation expense on a straight-line basis

over the related vesting periods. As of

August

3, 2024

and February

3, 2024,

there was

9,148,000

and $

9,334,000

, respectively,

of total

unrecognized

compensation

expense

nonvested

restricted

stock

awards,

which

had

remaining

weighted-

average vesting

period

2.4

years

and

2.1

years,

respectively.

The

total

compensation expense

during

the three and

six months ended

August 3, 2024

was $

872,000

and $

806,000

, respectively,

compared to a

total

compensation

expense

1,230,000

and

2,158,000

for

the

three

and

six

months

ended July

29,

2023,

respectively.

This

compensation

expense

classified

component

Selling,

general

and

administrative expenses in the Condensed Consolidated Statements of Income

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

outstanding

during

the six months ended

August

3, 2024:

Weighted Average

Number of

Grant Date Fair

Value

Per Share

Restricted stock awards at February 3, 2024

1,123,873

11.32

Granted

386,900

4.80

Vested

(232,696)

13.22

Forfeited or expired

(18,296)

9.17

Restricted stock awards at August 3, 2024

1,259,781

8.98

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The

Company’s

Employee

Stock

Purchase

Plan

allows

eligible

full-time

employees

purchase

limited

number of

of the

Company’s

Class

Common Stock

during each

semi-annual offering

period

% discount

through payroll

deductions. During

the six

months ended

August 3,

2024 and

July 29,

2023,

the

Company

sold

38,910

and

26,127

employees

average

discount

0.87

and

1.31

per

share, respectively, under

the Employee Stock

Purchase Plan. The

compensation expense recognized

for the

% discount given under the Employee Stock

Purchase Plan was approximately $

34,000

for each of the six

months ended August 3, 2024 and

July 29, 2023. This compensation expense is

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 August 3, 2024 and

February 3, 2024:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

August 3, 2024

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

3,943

Corporate Bonds

50,558

U.S. Treasury/Agencies Notes and Bonds

18,430

Cash Surrender Value of Life Insurance

8,886

Asset-backed Securities (ABS)

971

Total Assets

82,788

73,902

8,886

Liabilities:

Deferred Compensation

(8,604)

Total Liabilities

(8,604)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

February 3, 2024

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

12,540

Corporate Bonds

45,400

U.S. Treasury/Agencies Notes and Bonds

18,114

Cash Surrender Value of Life Insurance

8,586

Asset-backed Securities (ABS)

2,958

Corporate Equities

1,084

Total Assets

88,682

1,084

79,012

8,586

Liabilities:

Deferred Compensation

(8,654)

Total Liabilities

(8,654)

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 August

2024

and

February

2024.

The

state,

municipal

and

corporate

bonds

and

asset-backed

securities

have

contractual maturities which range from

six days

2.9

years. The U.S. Treasury/Agencies Notes and

Bonds

have

contractual

maturities

which

range

from

14 days

3.0

years.

These

securities

are

classified

available-for-sale and are

recorded as

Short-term investments

and Other

assets on

the respective

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

revolving

pools

credit

card

receivables

generated

account

holders

cards

from

American

Express,

Citibank,

JPMorgan

Chase,

Capital One, and Discover.

At February

2024, the

Company

had $

1.1

million

of corporate

equities and

deferred compensation

plan

assets

8.6

million.

August

2024,

the

Company

had

deferred

compensation

plan

assets

8.9

million.

During the six months ended August

3, 2024, the Company sold its

corporate equities.

All of these

assets are recorded within Other assets

in the Condensed Consolidated Balance Sheets.

Level 1 category securities are measured

at fair value using quoted active

market prices.

Level 2 investment

securities

include

corporate,

state

and

municipal

bonds

for

which

quoted

prices

may

not

available

active exchanges for identical instruments.

Their fair value is principally based on market values determined

by management with the 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

quotes

from

less

active

markets

and/or

quoted

prices

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

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

valuation

hierarchy.

The

Level

liability

associated

with

the

life

insurance

policies

represents

deferred

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

recorded

Other

noncurrent

liabilities

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

fair

value

the

Company’s

financial

assets

and

liabilities

measured using Level 3 inputs for the six months ended August 3, 2024 and the year ended February 3,

2024

(in thousands):

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 3, 2024

8,586

Redemptions

Additions

Total gains or (losses):

Included in interest and other income (or

changes in net assets)

300

Ending Balance at August 3, 2024

8,886

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 3, 2024

(8,654)

Redemptions

543

Additions

(121)

Total (gains) or losses:

Included in interest and other income (or

changes in net assets)

(372)

Ending Balance at August 3, 2024

(8,604)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at January 28, 2023

9,274

Redemptions

(1,168)

Additions

Total gains or (losses):

Included in interest and other income (or

changes in net assets)

480

Ending Balance at February 3, 2024

8,586

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at January 28, 2023

(8,903)

Redemptions

1,119

Additions

(292)

Total (gains) or losses:

Included in interest and other income (or

changes in net assets)

(578)

Ending Balance at February 3, 2024

(8,654)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

November

2023,

the

Financial

Accounting

Standards

Board

(“FASB”)

issued

Accounting

Standards

Update

(“ASU”)

2023-07,

“Segment

Reporting

(Topic

280):

Improvements

Reportable

Segment

Disclosures,”

which

modifies

disclosure

requirements

for

all

public

entities

that

are

required

report

segment

information.

The update

will change

the

reporting of

segments by

adding

significant

segment

expenses,

other

segment

items,

title

and

position

the

chief

operating

decision

maker

(“CODM”) and

how

the

CODM

uses

the

reported

measures

make

decisions.

The

update

also

requires

all

annual

disclosure

about

reportable

segment’s

profit

loss

and

assets

interim

periods.

This

guidance

effective

for

fiscal

years

beginning

after

December

15,

2023

and

interim

periods

within

fiscal

years

beginning

after

December

15,

2024.

Early

adoption

permitted,

and

the

guidance

applicable

retrospectively to all prior periods presented

in the financial statements.

The Company is currently in the

process of

evaluating the

potential impact

of adoption

of this

new guidance

on its

consolidated financial

statements and related disclosures.

December

2023,

the

FASB

issued

ASU

2023-09,

“Income

Taxes

(Topic

740):

Improvements

Income

Tax

Disclosures,”

which

modifies

the

requirements

income

tax

disclosures

require

disaggregated

information

about

reporting

entity’s

effective

tax

rate

reconciliation

well

information on

income taxes

paid.

This guidance

is effective

for fiscal

years beginning

after December

15, 2024 for all public

business entities, with early adoption and retrospective application

permitted.

The

Company is

currently in

the process

of evaluating

the potential

impact of

adoption of

this new

guidance

on its consolidated financial statements and related disclosures.

NOTE 9 – INCOME TAXES:

The Company had

an effective

tax rate for

the first six

months of 2024

10.5

% compared to

38.5

% for

the

first

six

months of

2023.

Income tax

expense

for

the

first

six

months

decreased

1.3

million

fiscal 2024 from $

3.5

million in fiscal 2023.

The decrease in tax expense is primarily due to the valuation

allowance against net

deferred tax assets attributable

to U.S. federal

net operating loss carryforwards

and

the impact of the foreign rate differential and lower state income taxes.

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

sells,

litigation

regarding

intellectual

property,

litigation instituted by persons injured upon premises under the Company’s control, litigation with respect

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

its

size

with

significant

number

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

material adverse

effect

on the

Company’s

condensed consolidated

financial statements.

However,

given

the

inherent uncertainties

involved in

such

matters, an

adverse outcome

one or

more of

such

matters

could

materially and

adversely affect

the

Company’s

financial condition,

results of

operations and

cash

flows

any

particular

reporting

period.

The

Company

accrues

for

these

matters

when

the

liability

deemed probable and reasonably estimable.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

the

point

purchase

when

the

customer

takes

possession

the

merchandise

and

pays

for

the

purchase,

generally

with

cash

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.

Gift cards

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

sales

volumes

and

the

Company’s

experience;

actual

returns

have

not

varied

materially

from

historical

amounts.

provision

made

for

estimated

write-offs

associated

with

sales

made

with

the

Company’s

proprietary

credit

card.

Amounts

shipping

and

handling

billed

customers

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.

None

of the credit

card receivables are

secured. During the

three

and

six

months

ended

August

2024,

the

Company estimated

customer

credit

losses

166,000

and

338,000

, respectively,

compared to

151,000

and $

272,000

for the

three and

six months

ended July 29,

2023,

respectively.

Sales

purchased

the

Company’s

proprietary

credit

card

for

the

three

and

six

months

ended

August

2024

were

5.6

million

and

11.3

million,

respectively,

compared

5.9

million and $

11.7

million for the three and six months ended July 29, 2023, respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

customers (in thousands):

Balance as of

August 3, 2024

February 3, 2024

Proprietary Credit Card Receivables, net

10,788

10,909

Gift Card Liability

6,534

8,143

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND

SIX MONTHS ENDED AUGUST 3, 2024 AND JULY 29, 2023

NOTE 12 – LEASES:

The

Company determines

whether

arrangement is

lease

inception.

The

Company

has

operating

leases for

stores, offices,

warehouse space and

equipment.

Its leases have

remaining lease terms

of up

years based on

the estimated likelihood

of renewal. Some

include options to

extend the lease

term for

up to

five years

, and some include options to terminate the lease

within one year

. The Company considers

these

options in

determining the

lease

term

used

establish

its

right-of-use

assets

and

lease

liabilities.

The

Company’s

lease

agreements

not

contain

any

material

residual

value

guarantees

material

restrictive covenants.

most

the

Company’s

leases

not

provide

implicit

rate,

the

Company

uses

its

estimated

incremental

borrowing

rate

based

the

information

available

commencement

date

the

lease

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Three Months Ended

August 3, 2024

July 29, 2023

Operating lease cost (a)

16,808

17,597

Variable

lease cost (b)

463

504

(a) Includes right-of-use asset amortization of ($

0.2

) million and ($

0.3

) million for the three months ended August 3, 2024 and July

29, 2023, respectively.

(b) Primarily related to monthly percentage rent for stores not presented on the condensed consolidated balance sheets.

Six Months Ended

August 3, 2024

July 29, 2023

Operating lease cost (a)

33,810

35,675

Variable

lease cost (b)

960

1,098

(a) Includes right-of-use asset amortization of ($

0.4

) million and ($

0.6

) million for the six months ended August 3, 2024 and July 29,

2023, 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 AUGUST 3, 2024 AND JULY 29, 2023

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

August 3, 2024

July 29, 2023

Cash paid for amounts included in the measurement of lease liabilities

15,481

16,679

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations

913

999

Six Months Ended

August 3, 2024

July 29, 2023

Cash paid for amounts included in the measurement of lease liabilities

31,088

34,024

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations

1,357

2,903

Weighted-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

follows:

As of

August 3, 2024

July 29, 2023

Weighted-average remaining lease term

1.8

years

2.0

years

Weighted-average discount rate

4.74%

3.26%

Maturities

lease

liabilities

fiscal

year

for

the

Company’s

operating

leases

are

follows

(in

thousands):

Fiscal Year

2024 (a)

32,232

2025

45,606

2026

29,710

2027

16,962

2028

8,034

Thereafter

892

Total lease payments

133,436

Less: Imputed interest

9,997

Present value of lease liabilities

123,439

(a) Excluding the six months ended August 3, 2024

THE CATO CORPORATION

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION:

The

information

contained

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations”

should

read

along

with

the

unaudited

Condensed

Consolidated

Financial

Statements,

including

the

accompanying

Notes

appearing

this

report.

Any

the

following

are

“forward-looking”

statements

within

the

meaning

Section 27A

the

Securities

Act

1933,

amended,

and

Section 21E

the

Securities

Exchange

Act

1934,

amended:

(1) statements

this

Form 10-Q

that

reflect

projections

expectations

our

future

financial

economic

performance;

(2) statements

that

are

not

historical

information;

(3) statements

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

2025

(“fiscal

2024”)

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

supply chain disruptions,

extreme weather

conditions,

inflationary

pressures

and

other

economic

market

conditions

our

business,

results

operations and financial condition and

statements of plans or intentions

regarding new store development

store

closures;

and

(5)

statements

relating

our

future

contingencies.

When

possible,

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

negative

formations

such

words

and

similar

expressions.

can

give

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

this

report

are

based

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

perceived

deterioration

in,

continuation

negative

trends

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

government

policies

affecting

our

business,

including

but

not

limited

tariffs;

uncertainties regarding

the impact

any governmental

action regarding,

responses to,

the

foregoing

conditions;

competitive

factors

and

pricing

pressures;

our

ability

predict

and

respond

rapidly

changing fashion trends and consumer demands; our ability to increase new store openings and the ability

of any such new stores to grow and perform as expected; underperformance or other factors that may lead

to, or affect the volume of, store closures; adverse weather, public health threats, acts of war or aggression

similar conditions

that may

affect

our

merchandise supply

chain,

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

February

2024

(“fiscal

2023”),

amended

supplemented,

and

other

reports

we file

with or

furnish to

the

Securities and

Exchange Commission

(“SEC”) from

time

time.

not

undertake,

and

expressly

decline,

any

obligation

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)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The

Company’s

critical

accounting

policies

and

estimates

are

fully

described

“Management’s

Discussion and Analysis of Financial Condition and Results of Operations” in the

Company’s Annual Report

Form

10-K

for

the

fiscal

year

ended

February

2024.

The

preparation

the

Company’s

financial

statements

conformity

with

generally

accepted

accounting

principles

the

United

States

(“GAAP”)

requires management to make estimates and assumptions about future events that affect the amounts reported

the

financial

statements

and

accompanying

notes.

Future

events

and

their

effects

cannot

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

material

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,

income tax

valuation allowances,

reserves

relating

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)

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

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

Total retail sales

100.0

Other revenue

1.0

0.9

1.0

0.9

Total revenues

101.0

100.9

101.0

100.9

Cost of goods sold (exclusive of depreciation)

65.4

64.9

64.8

64.5

Selling, general and administrative (exclusive

of depreciation)

34.9

34.0

33.6

33.3

Depreciation

1.4

1.3

Interest and other income

(1.0)

(0.7)

(2.2)

(0.6)

Income before income taxes

0.4

1.4

3.6

2.4

Net income

0.1

0.6

3.2

1.5

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS

(CONTINUED):

Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

(“MD&A”)

intended

provide

information

assist

readers

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 2023

Annual Report on Form 10-K.

Recent Developments

Inflationary Cost Pressure and High Interest Rates

The

pressure

our

customers’

disposable

income

continued

the

first

half

fiscal

2024,

due

prolonged

and

persistently

high

inflation

rates,

especially

housing

and

fuel,

well

high

interest rates.

These high

interest rates

have adversely affected

the availability and

cost of

credit for our

customers, including

revolving credit

and auto

loans, and

continue to

negatively impact

our

customers’

disposable income.

Our customers’

willingness to

purchase our

products may

continue to

be negatively

impacted by these inflationary pressures and high interest rates.

believe the

pressure on

our

customers’ disposable

income adversely

impacted the

first half

2024

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 2024.

Merchandise Supply Chain

significant

amount

our

merchandise

manufactured

overseas,

principally

Southeast

Asia,

and

traverses through the

Panama Canal or

the Suez

Canal.

The regional

drought conditions experienced

the region

surrounding the Panama

Canal reduced

the number

of transits

by approximately

37% and

has

also reduced the

permissible draft of

vessels transiting the

Panama Canal, which reduced

the volume and

number of

containers carried

by container

ships and

increased our

costs in

the first

quarter.

During the

second

quarter,

the

Panama

Canal

authority

increased

the

daily

transits

and

the

permissible

draft

vessels,

raising

the

number

transits

95%

pre-drought

operations.

The

hostilities

affecting

the

region surrounding the Suez Canal

are causing container ships

to travel longer distances

around the Cape

of Good Hope,

which is increasing

lead times for

merchandise and our

costs to ship

these goods,

as well

as decreasing the pool of

containers available.

Both of these situations have negatively

impacted the first

six months of 2024. Though conditions in the Panama Canal have incrementally improved, we believe the

totality of these conditions will

likely continue to have a

negative impact on our

results of operations and

financial condition for the foreseeable future.

Comparison of the Three and Six

Months ended August 3, 2024

with July 29, 2023

Total retail sales

for the second

quarter were

$166.9 million

compared to last

year’s second

quarter sales

$181.2

million,

decrease.

The

Company’s

sales

decrease

the

second

quarter

fiscal

2024

was

primarily due

to a

2% decrease

in same-store

sales and

store closures.

For the

six months

ended August

2024,

total

retail

sales

were

$342.2

million

compared

last

year’s

comparable

six

month

sales

$371.5

million, an

8% decrease.

The decrease

in sales

in the

first six

months of

fiscal 2024

was due

primarily to

4% decrease in same-store sales and store closures. Same-store sales include stores that have been open more

than

months.

Stores

that

have

been

relocated

expanded

are

also

included

the

same-store

sales

calculation

after

they

have

been

open

than

months.

The

method

calculating

same-store

sales

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

varies

across

the

retail

industry.

result,

our

same-store

sales

calculation

may

not

comparable

similarly titled measures reported by other

companies. E-commerce sales were less than

5% of total sales for

the six

months ended

August 3,

2024 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

$168.6

million

and

$345.7

million

for

the

three

and

six

months

ended

August 3, 2024,

compared to $182.9

million and $374.9

million for the

three and six

months ended July

29,

2023, respectively. The

Company operated

1,166 stores

at August

3, 2024

compared to 1,247

stores at

July

29, 2023.

During the first six months of fiscal 2024, the Company closed 12 stores.

The Company currently

expects to close approximately 65 stores

in total in fiscal 2024.

Credit

revenue

$0.7

million

represented

0.4%

total

revenues

the

second

quarter

fiscal

2024,

compared to

2023 credit

revenue of

$0.7 million

or 0.4%

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 2024, compared to

last year’s second quarter expense of

$0.4 million.

Other revenue, a component of total revenues, was $1.7 million and $3.5 million for the

three and six months

ended

August

2024,

respectively,

compared

$1.7

million

and

$3.4

million

for

the

prior

year’s

comparable three and six month periods. The slight increase in Other revenue for

the first six months was due

to increases

in gift

card breakage

income and

finance charges

and late

fees associated

with the

Company’s

proprietary credit card, partially offset by a

decrease in e-commerce shipping revenue.

Cost of

goods sold

was $109.1

million, or

65.4% of

retail sales

and $221.6

million, or

64.8% of retail

sales

for the

three and

six months

ended August

3, 2024,

respectively, compared

to $117.6

million, or

64.9% of

retail

sales and

$239.7

million,

or 64.5%

of retail

sales

for the

comparable three

and six

month

periods of

fiscal 2023.

The overall increase

in cost of

goods sold as

a percent of

retail sales for

the second quarter

and

first

six

months

fiscal

2024

versus

the

comparable

three

and

six

month

periods

fiscal

2023

resulted

primarily from

deleveraging of

occupancy and

buying costs

and higher

distribution costs,

partially offset

higher

selling

margins.

Cost

goods

sold

includes

merchandise

costs

(net

discounts

and

allowances),

buying costs, distribution costs, occupancy costs, freight and inventory shrinkage.

Net merchandise costs and

in-bound freight

are

capitalized

inventory

costs.

Buying

and distribution

costs include

payroll,

payroll-

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)

decreased by

9.1% to $57.8

million for the

second quarter

of fiscal

2024 and

by 8.5% to

$120.6 million

for

the

first

six

months

fiscal

2024,

compared

$63.6

million

and

$131.8

million

for

the

prior

year’s

comparable

three

and

six

months

fiscal

2023,

respectively.

Gross

margin

presented

may

not

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

$58.2

million,

34.9%

retail

sales

and

$114.9

million,

33.6%

retail

sales

for

the

second quarter and first six months of fiscal 2024, respectively, compared to $61.6 million, or

34.0% of retail

sales and $123.6 million, or 33.3% of retail sales for the prior year’s comparable three and

six month periods,

respectively.

The decrease in SG&A expenses for the

second quarter and first six months of fiscal

2024 was

primarily

due

lower

payroll,

advertising

and

equity

compensation

expenses,

partially

offset

higher

insurance expense and expenses

related to the startup of

our DC automation

project which will continue

into

the third quarter.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Depreciation expense was $2.3 million, or 1.4% of retail sales and $4.4 million, or 1.3% of

retail sales for the

second quarter

and first

six months

of fiscal

2024, respectively,

compared to

$2.5 million,

or 1.4%

of retail

sales and $4.9

million or 1.3%

of retail sales

for the comparable

three and six

month periods of

fiscal 2023,

respectively.

Interest and other income was $1.7 million, or 1.0% of retail sales and $7.6 million, or 2.2% of retail sales for

the three and six months ended August

3, 2024, respectively, compared to $1.3 million,

or 0.7% of retail sales

and

$2.2

million,

0.6%

retail

sales

for

the

comparable

three

and

six

month

periods

fiscal

2023,

respectively.

The increase for the second quarter of fiscal 2024 compared to fiscal 2023 was

primarily due to

higher

interest

earned

the

Company’s

investments.

The

increase

for

the

first

six

months

fiscal

2024

compared to

fiscal 2023

was primarily

due to

a $3.2

million net

gain on

sale of

land held

for investment

addition to higher interest earned

on the Company’s investments.

Income tax expense was $0.6 million and $1.3 million for the second quarter and first six months of fiscal

2024, respectively,

compared to

a tax

expense of

$1.3 million

and $3.5

million for

the comparable

three

and six month

periods of

fiscal 2023,

respectively.

The effective

income tax

rate for

the first

six months

of fiscal 2024

was 10.5% compared to

38.5% for the

first six months of

fiscal 2023.

The decrease in

tax

expense

primarily

due

the

valuation

allowance

against

net

deferred

tax

assets

attributable

U.S.

federal

net

operating

loss

carryforwards

and

the

impact

the

foreign

rate

differential

and

lower

state

income taxes.

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 the next

12 months.

Cash provided by operating activities during the first six months of fiscal 2024 was $8.8 million as compared

to $21.6

million provided

in the

first six

months of

fiscal 2023.

The decrease

in cash

provided by

operating

activities of $12.8 million

for the first six

months of fiscal 2024

as compared to the

first six months of

fiscal

2023 was

primarily attributable

to the

relative change

in inventory

from year-end

to the

second quarter

for

both years

and a

decrease to

2024 net income

for non-operating

gains on sale

of assets held

for investment,

partially offset by higher net income and the relative change of accounts payable from year-end to

the second

quarter for both years.

At August 3, 2024, the Company had working capital of $69.9 million compared to

$55.1 million at February

3, 2024.

The increase in working capital was 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.

August

2024,

the

Company

had

unsecured

revolving

credit

agreement,

which

provides

for

borrowings

$35.0

million,

less

the

balance

any

revocable

letters

credit

purchase

commitments,

and

committed

through

May

2027.

The

credit

agreement

contains

various

financial

covenants

and

limitations,

including

the

maintenance

specific

financial

ratios.

April

25,

2024,

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 included in the calculation of

the ratio.

For the

quarter ended

August 3,

2024, after

giving effect

to the

amendment, the

Company was

compliance with the

credit agreement. There

were no borrowings

outstanding, nor any

outstanding letters of

credit that reduced borrowing availability, as of August 3, 2024.

The weighted average interest rate under the

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

credit facility was zero at August 3, 2024

due to no outstanding borrowings.

Expenditures for property and equipment totaled $4.8 million in the first six months of fiscal 2024, compared

to $8.5 million in last fiscal

year’s first six months. The decrease in

expenditures for property and equipment

was

primarily

due

finishing

projects

investments

the

distribution

center

and

information

technology.

For

the

full

fiscal

2024

year,

the

Company

expects

invest

approximately

$7.0

million

for

capital expenditures.

Net cash provided by

investing activities totaled $6.7

million in the first six

months of fiscal 2024

compared

to $23.8

million net

cash provided

in the comparable

period of

2023.

The decrease in

net cash

provided by

investing activities

in 2024

was primarily

due to

higher purchases

of short-term

investments, partially

offset

by lower sales of short-term investments,

lower capital expenditures and sale

of other assets.

Net cash

used in

financing activities

totaled $9.1

million in

the first

six months

of fiscal

2024 compared

$9.3

million

used

the

comparable

period

fiscal

2023.

The

decrease

net

cash

used

financing

activities in fiscal 2024 was primarily

due to lower stock repurchases.

On August 29, 2024, the Board of

Directors maintained the quarterly dividend at $0.17

per share.

August

2024,

the

Company

had

478,238

remaining

open

authorizations

under

its

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 August

2024

and

February

2024.

The

state,

municipal

and

corporate

bonds

and

asset-backed

securities

have

contractual maturities which range from

six days to 2.9 years.

The U.S. Treasury/Agencies Notes and

Bonds

have

contractual

maturities

which

range

from

days

3.0

years.

These

securities

are

classified

available-for-sale and are

recorded as

Short-term investments

and Other

assets on

the respective

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

revolving

pools

credit

card

receivables

generated

account

holders

cards

from

American

Express,

Citibank,

JPMorgan

Chase,

Capital One, and Discover.

At February

2024, the

Company

had $1.1

million

of corporate

equities and

deferred compensation

plan

assets

$8.6

million.

August

2024,

the

Company

had

deferred

compensation

plan

assets

$8.9

million.

During the six months ended August

3, 2024, the Company sold its

corporate equities.

All of these

assets

are

recorded

within

Other

assets

the

Condensed

Consolidated

Balance

Sheets.

See

Note

Fair

Value Measurements.

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

THE CATO CORPORATION

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

The

Company

subject

market

rate

risk

from

exposure

changes

interest

rates

based

its

financing, investing and

cash management activities,

but the Company

does not

believe such exposure

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

August 3,

2024.

Based on

this

evaluation, our

Principal Executive

Officer and

Principal Financial

Officer concluded

that, as

August 3,

2024, our

disclosure controls

and

procedures,

as defined

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

file

submit

under

the

Exchange

Act

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 August 3, 2024 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

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”

our

Annual

Report

Form

10-K

for

our

fiscal

year

ended

February

2024.

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

immaterial

may

also

materially

adversely

affect

our

business,

financial

condition

results

operations.

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 August 3, 2024:

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 2024

June 2024

July 2024

Total

478,238

(1)

Prices include trading costs.

(2)

May 4,

2024, the

Company’s

share repurchase

program had

478,238

shares remaining

open

authorizations.

During

the

second

quarter

ended

August

2024,

the

Company

did

not

repurchase

retire

any

under

this

program.

August

2024,

the

Company

had

478,238

remaining

open

authorizations.

There

specified

expiration

date

for

the

Company’s repurchase program.

ITEM 3.

DEFAULTS

UPON SENIOR SECURITIES:

Not Applicable.

THE CATO CORPORATION

PART II OTHER

INFORMATION

ITEM 4.

MINE SAFETY DISCLOSURES:

No matters requiring disclosure.

ITEM 5.

OTHER INFORMATION:

During the three months ended August 3, 2024, 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

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

3.1

Registrant’s Amended and Restated Certificate of Incorporation, incorporated by

reference to Exhibit 3.1 to Form 10-Q of the Registrant for the quarter ended May

2, 2020.

3.2

Registrant’s Amended and Restated By-Laws, incorporated by reference to Exhibit

3.2 to Form 10-Q of the Registrant for the quarter ended May 2, 2020.

31.1*

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2*

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1*

Section 1350 Certification of Principal Executive Officer.

32.2*

Section 1350 Certification of Principal Financial Officer.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase

Document

101.LAB

Inline XBRL Taxonomy Extension Label

Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Document

104.1

Cover Page

Interactive Data

File

(Formatted in

Inline

XBRL

and

contained

the Interactive Data Files submitted as Exhibit 101.1*)

* Submitted electronically herewith.

THE CATO CORPORATION

PART II OTHER

INFORMATION

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.

THE CATO

CORPORATION

August 29, 2024

/s/ John P.

D. Cato

Date

John P.

D. Cato

Chairman, President and

Chief Executive Officer

August 29, 2024

/s/ Charles D. Knight

Date

Charles D. Knight

Executive Vice President

Chief Financial Officer

Cato Fashion - 10-Q quarterly report FY2024 Q2

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