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Cato Fashion
CATO
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๐Ÿ‘š Clothing๐Ÿ›๏ธ Retail
Categories
  1. Cato Fashion
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q1

Cato Fashion - 10-Q quarterly report FY2022 Q1


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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
April 30, 2022
OR
☐
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
 
to
 
be
 
filed
 
by Section
 
13
 
or
 
15(d)
 
of
 
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
X
No
Indicate
 
by
 
check
 
mark
 
whether
 
the
 
registrant
 
has
 
submitted
 
electronically
 
every
 
Interactive
 
Data
 
File
 
required
 
to
 
be
 
submitted
pursuant to Rule
 
405 of Regulation
 
S-T during the
 
preceding 12 months
 
(or for such
 
shorter period
 
that the registrant
 
was required to
submit and post such files).
Yes
X
No
Indicate by check
 
mark whether the
 
registrant is a
 
large accelerated filer, an
 
accelerated filer, a
 
non-accelerated filer, smaller reporting
company,
 
or
 
an
 
emerging
 
growth
 
company.
 
See
 
the
 
definitions of
 
“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
☐
If
 
an
 
emerging
 
growth
 
company,
 
indicate
 
by
 
check
 
mark
 
if
 
the
 
registrant
 
has
 
elected
 
not
 
to
 
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).
☐
As of April 30,
 
2022, there were
19,223,633
 
shares of Class
 
A common stock
 
and
1,763,652
 
shares of Class
 
B common stock
 
outstanding.
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended April 30, 2022
Table
 
of Contents
Page No.
PART
 
I – FINANCIAL INFORMATION
 
(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed
 
Consolidated
 
Statements
 
of Income
 
and Comprehensive
 
Income
2
For the
 
Three Months
 
Ended
 
April 30,
 
2022 and
 
May 1,
 
2021
Condensed
 
Consolidated
 
Balance Sheets
3
At April
 
30, 2022
 
and
 
January
 
29, 2022
 
Condensed
 
Consolidated
 
Statements
 
of Cash
 
Flows
4
For the
 
Three Months
 
Ended April
 
30, 2022
 
and May
 
1, 2021
Condensed
 
Consolidated
 
Statements
 
of Stockholders’
 
Equity
5
For the
 
Three Months
 
Ended April
 
30, 2022
 
and May
 
1, 2021
Notes to
 
Condensed
 
Consolidated
 
Financial
 
Statements
6 - 18
For the
 
Three Months
 
Ended April
 
30, 2022
 
and May
 
1, 2021
Item 2.
Management’s Discussion and Analysis
 
of Financial Condition and Results
of Operations
19 - 25
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 4.
Controls and Procedures
26
PART
 
II – OTHER INFORMATION
Item 1.
Legal Proceedings
27
Item 1A.
Risk Factors
27
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
27
Item 3.
Defaults Upon Senior Securities
27
Item 4.
Mine Safety Disclosures
28
Item 5.
Other Information
28
Item 6.
Exhibits
28
Signatures
29
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
PART
 
I FINANCIAL INFORMATION
ITEM 1.
 
FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
April 30, 2022
May 1, 2021
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
204,933
$
211,234
 
Other revenue (principally finance charges, late fees and
 
layaway charges)
1,788
1,851
 
Total revenues
206,721
213,085
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of depreciation shown below)
132,243
123,675
 
Selling, general and administrative (exclusive of depreciation
 
shown below)
60,441
63,237
 
Depreciation
2,743
3,042
 
Interest and other income
(403)
(663)
 
Costs and expenses, net
195,024
189,291
Income before income taxes
11,697
23,794
Income tax expense
1,949
3,081
Net income
$
9,748
$
20,713
Basic earnings per share
$
0.46
$
0.92
Diluted earnings per share
$
0.46
$
0.92
Comprehensive income:
Net income
$
9,748
$
20,713
Unrealized gain (loss) on available-for-sale securities, net
 
 
of deferred income taxes of ($
362
) and ($
40
) for April 30, 2022
(1,206)
(134)
 
and May 1, 2021, respectively
Comprehensive income
$
8,542
$
20,579
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2022
January 29, 2022
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
25,881
$
19,759
Short-term investments
 
120,021
145,998
Restricted cash
3,920
3,919
Accounts receivable, net of allowance for customer credit losses of
 
$
801
 
and $
803
 
at April 30, 2022 and January 29, 2022, respectively
60,121
55,812
Merchandise inventories
 
127,576
124,907
Prepaid expenses and other current assets
6,029
5,273
 
Total Current Assets
 
343,548
355,668
Property and equipment – net
 
67,079
63,083
Noncurrent deferred income taxes
9,674
9,313
Other assets
 
23,192
24,437
Right-of-Use assets – net
 
168,537
181,265
 
Total Assets
 
$
612,030
$
633,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
106,229
$
109,546
Accrued expenses
 
45,377
40,373
Accrued bonus and benefits
 
18,901
26,488
Accrued income taxes
 
2,062
920
Current lease liability
63,175
66,808
 
Total Current Liabilities
 
235,744
244,135
Other noncurrent liabilities
17,797
17,914
Lease liability
107,837
117,521
Stockholders' Equity:
Preferred stock, $
100
 
par value per share,
100,000
 
shares
 
authorized, none issued
 
-
-
Class A common stock, $
0.033
 
par value per share,
50,000,000
 
shares authorized;
19,223,633
 
and
19,824,093
 
shares issued
 
at April 30, 2022 and January 29, 2022, respectively
649
669
Convertible Class B common stock, $
0.033
 
par value per share,
 
15,000,000
 
shares authorized;
1,763,652
 
and
 
1,763,652
 
shares issued at April 30, 2022 and January 29, 2022, respectively
59
59
Additional paid-in capital
 
120,249
119,540
Retained earnings
 
131,181
134,208
Accumulated other comprehensive income
 
(1,486)
(280)
 
Total Stockholders' Equity
 
250,652
254,196
 
Total Liabilities and Stockholders’ Equity
 
$
612,030
$
633,766
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(UNAUDITED)
Three Months Ended
April 30, 2022
May 1, 2021
(Dollars in thousands)
Operating Activities:
Net income
$
9,748
$
20,713
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation
2,743
3,042
Provision for customer credit losses
72
113
Purchase premium and premium amortization of investments
388
(1,121)
Share-based compensation
624
306
Deferred income taxes
-
(1)
Loss on disposal of property and equipment
16
58
Changes in operating assets and liabilities which provided (used) cash:
 
Accounts receivable
(4,382)
(2,510)
 
Merchandise inventories
(2,669)
(726)
 
Prepaid and other assets
474
(493)
 
Operating lease right-of-use assets and liabilities
(590)
(1,242)
 
Accrued income taxes
1,142
356
 
Accounts payable, accrued expenses and other liabilities
(8,331)
26,005
Net cash provided (used) by operating activities
(765)
44,500
Investing Activities:
Expenditures for property and equipment
 
(4,440)
(554)
Purchase of short-term investments
(1,529)
(62,075)
Sales of short-term investments
25,566
28,397
Net cash provided (used) by investing activities
19,597
(34,232)
Financing Activities:
Dividends paid
(3,638)
-
Repurchase of common stock
(9,162)
(5,629)
Proceeds from employee stock purchase plan
91
128
Net cash provided (used) by financing activities
(12,709)
(5,501)
Net increase (decrease) in cash, cash equivalents, and restricted cash
6,123
4,767
Cash, cash equivalents, and restricted cash at beginning of period
23,678
21,022
Cash, cash equivalents, and restricted cash at end of period
 
$
29,801
$
25,789
Non-cash activity:
Accrued other assets and property and equipment
$
2,971
$
263
See notes to condensed consolidated financial statements (unaudited).
 
 
 
 
5
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 29, 2022
$
728
$
119,540
$
134,208
$
(280)
$
254,196
Comprehensive income:
 
Net income
-
-
9,748
-
9,748
 
Unrealized net losses on available-for-sale securities, net of deferred
 
 
income tax benefit of ($
362
)
-
-
-
(1,206)
(1,206)
Dividends paid ($
0.17
 
per share)
-
-
(3,638)
-
(3,638)
Class A common stock sold through employee stock purchase
 
 
plan —
9,468
 
shares
-
111
-
-
111
Class A common stock issued through restricted stock grant plans
 
—
 
 
0 shares
-
598
5
-
603
Repurchase and retirement of treasury shares –
609,928
 
shares
 
(20)
-
(9,142)
-
(9,162)
Balance — April 30, 2022
$
708
$
120,249
$
131,181
$
(1,486)
$
250,652
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 30, 2021
$
762
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
 
Net income
-
-
20,713
-
20,713
 
Unrealized net losses on available-for-sale securities, net of deferred
 
 
income tax benefit of ($
40
)
-
-
-
(134)
(134)
Dividends paid ($0.00 per share)
-
-
-
-
-
Class A common stock sold through employee stock purchase
 
 
plan —
19,248
 
shares
1
150
-
-
151
Class A common stock issued through restricted stock grant plans
 
—
 
 
396,558
 
shares
13
271
-
-
284
Repurchase and retirement of treasury shares –
425,661
 
shares
 
(14)
-
(5,615)
-
(5,629)
Balance — May 1, 2021
$
762
$
115,699
$
144,401
$
1,021
$
261,883
See notes to condensed consolidated financial statements (unaudited).
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
6
NOTE 1
 
- GENERAL
:
The condensed
 
consolidated financial
 
statements as
 
of April
 
30, 2022
 
and for
 
the thirteen-week
 
periods
ended
 
April
 
30,
 
2022
 
and
 
May
 
1,
 
2021
 
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 presentation of the financial
statements
 
have been
 
included.
 
All such
 
adjustments are
 
of a
 
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
 
in
 
the
 
Company’s
 
Annual
 
Report
 
on
 
Form
 
10-K
 
for
 
the
 
fiscal
 
year
 
ended
January 29, 2022.
 
Amounts as of January 29, 2022 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.
As
 
planned,
 
in
 
May
 
2022,
 
the
 
Company
 
made
 
a
 
$14.4
 
million
 
contribution
 
to
 
its
 
Employee
 
Stock
Ownership
 
Plan,
 
which
 
is
 
included
 
in
 
Accrued
 
bonus
 
and
 
benefits
 
on
 
the
 
accompanying
 
Condensed
Consolidated Balance Sheets.
Subsequent to
 
April 30,
 
2022, the
 
Company received
 
$18 million
 
of its
 
income tax
 
receivable, which
 
is
included in Accounts receivable. The Company anticipates that the remaining balance will
 
be received by
the end of the second quarter of fiscal 2022.
On May 19, 2022, the Board of Directors declared the quarterly dividend
 
at $0.17 per share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
7
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
 
on
Class
 
A
 
shares
 
without
 
declaration
 
of
 
commensurate dividends
 
on
 
Class
 
B
 
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
 
is
 
computed as net
 
income less earnings allocated to
 
non-vested equity awards divided by
 
the
weighted average number
 
of common shares outstanding
 
for the period.
 
Diluted EPS reflects the potential
dilution that
 
could
 
occur
 
from
 
common
 
shares
 
issuable through
 
stock
 
options and
 
the
 
Employee Stock
Purchase
 
Plan.
 
Three Months Ended
April 30, 2022
May 1, 2021
(Dollars in thousands)
Numerator
Net earnings
$
9,748
$
20,713
Earnings allocated to non-vested equity awards
(541)
(942)
Net earnings available to common stockholders
$
9,207
$
19,771
Denominator
Basic weighted average common shares outstanding
20,149,201
21,489,162
Diluted weighted average common shares outstanding
20,149,201
21,489,162
Net income per common share
Basic earnings per share
$
0.46
$
0.92
Diluted earnings per share
$
0.46
$
0.92
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
8
NOTE 3
 
– ACCUMULATED
 
OTHER COMPREHENSIVE
 
INCOME:
The
 
following
 
table
 
sets
 
forth
 
information
 
regarding
 
the
 
reclassification
 
out
 
of
 
Accumulated
 
other
comprehensive
 
income
 
(in thousands)
 
for the
 
three months
 
ended April
 
30, 2022:
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280)
 
Other comprehensive income (loss) before
 
 
reclassification
(1,203)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
(3)
Net current-period other comprehensive income (loss)
(1,206)
Ending Balance at April 30, 2022
$
(1,486)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
4
 
impact of Accumulated other comprehensive income reclassifications into Interest and other
 
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
1
.
The
 
following
 
table
 
sets
 
forth
 
information
 
regarding
 
the
 
reclassification
 
out
 
of
 
Accumulated
 
other
comprehensive
 
income
 
(in thousands)
 
for the
 
three months
 
ended
 
May 1,
 
2021:
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 30, 2021
$
1,155
 
Other comprehensive income (loss) before
 
 
reclassification
(173)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
39
Net current-period other comprehensive income (loss)
(134)
Ending Balance at May 1, 2021
$
1,021
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
51
 
impact of Accumulated other comprehensive income reclassifications into Interest and other
 
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
12
.
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
9
NOTE 4 – FINANCING ARRANGEMENTS:
At
 
April
 
30,
 
2022,
 
the
 
Company
 
had
 
an
 
unsecured
 
revolving
 
credit
 
agreement,
 
which
 
provided
 
for
borrowings of up to $35.0 million less the balance of letters
 
of credit discussed below and was committed
through
 
May
 
2022.
 
In
 
May
 
2022,
 
the
 
Company
 
signed
 
a
 
new
 
unsecured
 
revolving
 
credit
 
agreement,
which replaces
 
the prior
 
credit agreement,
 
provides up
 
to $35.0
 
million in
 
committed availability
 
and is
committed
 
through
 
May
 
2027.
 
The
 
prior
 
credit
 
agreement
 
contained
 
various
 
financial
 
covenants
 
and
limitations,
 
including
 
the
 
maintenance
 
of
 
specific
 
financial
 
ratios
 
with
 
which
 
the
 
Company
 
was
 
in
compliance as of April 30, 2022.
 
The new credit agreement also contains various financial covenants and
limitations, including the maintenance of specific financial ratios.
 
There were no outstanding borrowings
under the prior credit facility as of April 30, 2022 or January 29, 2022.
 
The weighted average interest rate
under the prior credit facility was zero at April 30, 2022 due to no outstanding
 
borrowings.
At
 
April
 
30,
 
2022
 
and
 
January
 
29,
 
2022,
 
the
 
Company had
 
no
 
outstanding letters
 
of
 
credit
 
relating to
purchase
 
commitments.
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The Company has determined that it has four operating
 
segments, as defined under
 
ASC 280-10, 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
 
or more
 
operating
segments may be aggregated
 
into a single reportable
 
segment if aggregation
 
is consistent with the objective
and basic principles of
 
ASC 280-10, which require the
 
segments to 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.
 
They are
 
similar in nature
 
of product, as
 
they all
 
offer women’s
 
apparel,
shoes and accessories.
 
Merchandise
 
inventory
 
for the Company’s retail operating
 
segments is sourced
 
from
the same countries and some of the same vendors,
 
using similar production
 
processes.
 
Merchandise
 
for the
Company’s operating segments
 
is
 
distributed to
 
retail stores
 
in
 
a
 
similar manner
 
through the
 
Company’s
single
 
distribution
 
center
 
and is
 
subsequently
 
distributed
 
to clients
 
in a similar
 
manner.
 
The
 
Company
 
operates
 
its
 
women’s
 
fashion
 
specialty
 
retail
 
stores
 
in
 
32
 
states
 
as
 
of
 
April
 
30,
 
2022,
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
 
by a separate subsidiary
 
of
the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
10
NOTE 5 – REPORTABLE
 
SEGMENT INFORMATION (CONTINUED):
The following
 
schedule
 
summarizes
 
certain
 
segment
 
information
 
(in thousands):
Three Months Ended
April 30, 2022
Retail
Credit
Total
Revenues
$206,208
$513
$206,721
Depreciation
2,743
-
2,743
Interest and other income
(403)
-
(403)
Income before taxes
11,613
84
11,697
Capital expenditures
4,440
-
4,440
Three Months Ended
May 1, 2021
Retail
Credit
Total
Revenues
$212,547
$538
$213,085
Depreciation
3,042
-
3,042
Interest and other income
(663)
-
(663)
Income before taxes
23,540
254
23,794
Capital expenditures
554
-
554
Retail
Credit
Total
Total assets as of April 30, 2022
$574,601
$37,429
$612,030
Total assets as of January 29, 2022
595,487
38,279
633,766
The
 
Company evaluates
 
segment
 
performance based
 
on
 
income
 
before
 
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
April 30, 2022
May 1, 2021
Payroll
$
137
$
117
Postage
93
78
Other expenses
199
89
Total expenses
$
429
$
284
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
11
NOTE 6 – STOCK BASED COMPENSATION:
As of
 
April 30, 2022,
 
the Company had two
 
long-term compensation
 
plans pursuant to which stock-based
compensation was
 
outstanding or
 
could
 
be
 
granted.
 
The
 
2018
 
Incentive
 
Compensation Plan
 
and
 
2013
Incentive
 
Compensation Plan
 
are
 
for
 
the
 
granting
 
of
 
various
 
forms
 
of
 
equity-based awards,
 
including
restricted
 
stock and
 
stock options
 
for grant,
 
to officers,
 
directors
 
and key employees.
 
Effective
 
May 24, 2018,
shares
 
for grant
 
were no
 
longer
 
available
 
under
 
the 2013
 
Incentive
 
Compensation
 
Plan.
The following table
 
presents the number
 
of
 
options and
 
shares of
 
restricted stock initially authorized and
available
 
for grant
 
under
 
each of
 
the plans
 
as of April
 
30, 2022:
 
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
1,500,000
4,725,000
6,225,000
Options and/or restricted stock available for grant:
 
 
 
April 30, 2022
-
3,580,471
3,580,471
In accordance
 
with ASC 718,
 
the fair
 
value of current
 
restricted stock awards
 
is estimated on
 
the date
 
of
grant based
 
on the
 
market price
 
of the
 
Company’s
 
stock and
 
is amortized
 
to compensation
 
expense on
 
a
straight-line basis over
 
the related vesting
 
periods. As of
 
April 30, 2022
 
and January 29,
 
2022, there was
$
9,868,000
 
and
 
$
11,096,000
,
 
respectively,
 
of
 
total
 
unrecognized
 
compensation
 
expense
 
related
 
to
unvested restricted stock awards, which had a remaining weighted-average
 
vesting period of
2.4
 
years and
2.3
 
years,
 
respectively.
 
The
 
total
 
compensation
 
expense
 
during
 
the
 
three
 
months
 
ended
 
April
 
30,
 
2022
was
 
$
603,000
 
compared
 
to
 
$
283,000
 
for
 
the
 
three
 
months
 
ended
 
May
 
1,
 
2021.
 
These
 
expenses
 
are
classified as a component
 
of Selling, general and
 
administrative expenses in the
 
Condensed Consolidated
Statements of Income.
The following summary
 
shows the changes in the shares
 
of unvested restricted
 
stock outstanding
 
during the
three months ended April
 
30, 2022:
Weighted
Average
Number of
Grant Date Fair
Shares
Value
 
Per Share
Restricted stock awards at January 29, 2022
1,196,288
$
13.76
 
Granted
-
-
Vested
-
-
Forfeited or expired
-
-
Restricted stock awards at April 30, 2022
1,196,288
$
13.76
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
12
The Company’s
 
Employee Stock Purchase Plan
 
allows eligible full-time employees to
 
purchase a
 
limited
number of shares of
 
the Company’s Class A
 
Common Stock during each semi-annual offering period at a
15% discount through
 
payroll deductions.
 
During the three months ended April
 
30, 2022 and May 1, 2021,
the Company
 
sold
9,468
 
and
19,248
 
shares
 
to employees
 
at an average
 
discount
 
of $
2.21
 
and $
1.17
 
per share,
respectively, under the Employee Stock Purchase
 
Plan. The compensation expense
 
recognized for the 15%
discount given under
 
the Employee Stock
 
Purchase Plan was
 
approximately $
21,000
 
and $
23,000
 
for the
three
 
months ended
 
April
 
30,
 
2022
 
and
 
May
 
1,
 
2021,
 
respectively.
 
These
 
expenses are
 
classified as
 
a
component of
 
Selling, general and
 
administrative expenses in the
 
Condensed Consolidated Statements of
Income.
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 April
 
30, 2022
 
and January
 
29, 2022:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
April 30, 2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
28,514
$
-
$
28,514
$
-
 
Corporate Bonds
56,515
-
56,515
-
 
U.S. Treasury/Agencies Notes and Bonds
21,112
-
21,112
-
 
Cash Surrender Value of Life Insurance
11,033
-
-
11,033
 
Asset-backed Securities (ABS)
13,512
-
13,512
-
 
Corporate Equities
803
803
-
-
 
Commercial Paper
367
-
367
-
Total Assets
$
131,856
$
803
$
120,020
$
11,033
Liabilities:
 
Deferred Compensation
(9,272)
-
-
(9,272)
Total Liabilities
$
(9,272)
$
-
$
-
$
(9,272)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
13
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 29,
2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
30,451
$
-
$
30,451
$
-
 
Corporate Bonds
76,909
-
76,909
-
 
U.S. Treasury/Agencies Notes and Bonds
19,715
-
19,715
-
 
Cash Surrender Value of Life Insurance
11,472
-
-
11,472
 
Asset-backed Securities (ABS)
18,556
-
18,556
-
 
Corporate Equities
818
818
-
-
 
Commercial Paper
367
-
367
-
Total Assets
$
158,288
$
818
$
145,998
$
11,472
Liabilities:
 
Deferred Compensation
(10,020)
-
-
(10,020)
Total Liabilities
$
(10,020)
$
-
$
-
$
(10,020)
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 April
 
30,
2022 and
 
January 29,
 
2022.
 
The state,
 
municipal and corporate bonds
 
have contractual maturities which
range from one day to 4.6 years. The U.S. Treasury Notes
 
have contractual
 
maturities which
 
range from 46
days
 
to
 
2.4
 
years.
 
These
 
securities
 
are
 
classified
 
as
 
available-for-sale and
 
are
 
recorded
 
as
 
Short-term
investments,
 
Restricted
 
cash and
 
Other assets
 
on the accompanying
 
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 by
 
revolving pools of credit card receivables generated by account
holders
 
of cards
 
from American
 
Express,
 
Citibank,
 
JPMorgan
 
Chase,
 
Capital
 
One, and
 
Discover.
Additionally,
 
at
 
April
 
30,
 
2022,
 
the
 
Company
 
had
 
$
0.8
 
million
 
of
 
corporate
 
equities
 
and
 
deferred
compensation
 
plan assets
 
of $
11.0
 
million.
 
At January
 
29, 2022, the
 
Company
 
had $
0.8
 
million
 
of corporate
equities
 
and deferred
 
compensation
 
plan assets
 
of $
11.5
 
million.
 
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 and
 
municipal bonds for
 
which quoted
 
prices may
 
not
 
be
 
available on
 
active
exchanges for identical instruments.
 
Their fair value is
 
principally based on market values determined by
management with
 
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
 
as
 
quotes
 
from
 
less
 
active
 
markets
 
and/or
 
quoted
 
prices
 
of
 
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
valuation hierarchy. The
 
Level 3
 
liability associated with the
 
life insurance policies represents a
 
deferred
compensation
 
obligation, the value of which is tracked via underlying insurance
 
funds’ net asset values, as
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
14
recorded in
 
Other
 
noncurrent liabilities
 
in
 
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 in
 
fair value
 
of the
 
Company’s financial assets and
 
liabilities
measured
 
using
 
Level
 
3 inputs
 
as of April
 
30, 2022
 
and January
 
29, 2022
 
(dollars
 
in thousands):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 29, 2022
$
11,472
Redemptions
-
Additions
-
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
(439)
 
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
11,033
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 29, 2022
$
(10,020)
 
Redemptions
489
 
Additions
(149)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
408
 
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
(9,272)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 30, 2021
$
11,263
Redemptions
-
Additions
-
 
Total gains or (losses)
 
Included in interest and other income (or changes in net assets)
209
 
Included in other comprehensive income
-
Ending Balance at January 29, 2022
$
11,472
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
15
Deferred Compensation
Beginning Balance at January 30, 2021
$
(10,316)
 
Redemptions
1,010
 
Additions
(304)
 
Total (gains) or losses
 
Included in interest and other income (or changes in net assets)
(410)
 
Included in other comprehensive income
-
Ending Balance at January 29, 2022
$
(10,020)
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
16
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
None.
NOTE 9 – INCOME TAXES:
The Company had an effective tax rate for the
 
first quarter of 2022 of
16.7
% compared to an effective tax
rate of
12.9
% for the first quarter of 2021. The increase in the 2022 first quarter tax
 
rate was primarily due
to
 
higher
 
Global
 
Intangible Low-taxed
 
Income (GILTI),
 
partially
 
offset
 
by the
 
ability to
 
realize foreign
tax credits.
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
 
it
 
sells,
 
litigation
 
regarding
 
intellectual
 
property,
litigation instituted
 
by persons
 
injured upon
 
premises under
 
its control,
 
litigation with
 
respect to
 
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
 
of
 
its
 
size
 
with
 
a
 
significant
 
number
 
of
 
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 a
material adverse
 
effect
 
on its
 
condensed consolidated
 
financial statements.
 
However,
 
given the
 
inherent
uncertainties involved in
 
such matters, an
 
adverse outcome in
 
one or
 
more such matters
 
could materially
and
 
adversely
 
affect
 
the
 
Company’s
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
cash
 
flows
 
in
 
any
particular reporting period. The Company accrues for
 
these matters when the liability is
 
deemed probable
and reasonably estimable.
NOTE 11 – REVENUE RECOGNITION:
The
 
Company
 
recognizes
 
sales
 
at
 
the
 
point
 
of
 
purchase
 
when
 
the
 
customer
 
takes
 
possession
 
of
 
the
merchandise
 
and
 
pays
 
for
 
the
 
purchase,
 
generally
 
with
 
cash
 
or
 
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. Layaway sales
are
 
recorded
 
as
 
deferred
 
revenue
 
until
 
the
 
customer
 
takes
 
possession
 
or
 
forfeits
 
the
 
merchandise.
 
Gift
cards do not have
 
expiration dates. A provision is
 
made for estimated merchandise returns
 
based on sales
volumes
 
and
 
the
 
Company’s
 
experience;
 
actual
 
returns
 
have
 
not
 
varied
 
materially
 
from
 
historical
amounts.
 
A
 
provision
 
is
 
made
 
for
 
estimated
 
write-offs
 
associated
 
with
 
sales
 
made
 
with
 
the
 
Company’s
proprietary
 
credit
 
card.
 
Amounts
 
related
 
to
 
shipping
 
and
 
handling
 
billed
 
to
 
customers
 
in
 
a
 
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.
 
The
 
Company
estimated customer credit
 
losses of $
86,000
 
and $
131,000
 
for the periods
 
ended April 30,
 
2022 and May
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
17
1,
 
2021,
 
respectively,
 
on
 
sales
 
purchased by
 
the
 
Company’s
 
proprietary credit
 
card
 
of
 
$
5.7
 
million and
$
4.4
 
million for the periods ended April 30, 2022 and May 1, 2021,
 
respectively.
The
 
following
 
table
 
provides
 
information
 
about
 
receivables
 
and
 
contract
 
liabilities
 
from
 
contracts
 
with
customers (in thousands):
Balance as of
April 30, 2022
January 29, 2022
Proprietary Credit Card Receivables, net
$
9,522
$
8,998
Gift Card Liability
$
6,556
$
8,308
NOTE 12 – LEASES:
The
 
Company determines
 
whether
 
an
 
arrangement
 
is
 
a
 
lease
 
at
 
inception.
 
The
 
Company
 
has
 
operating
leases
 
for
 
stores,
 
offices
 
and
 
equipment.
 
Its
 
leases
 
have remaining
 
lease
 
terms
 
of
 
one
 
year
 
to
 
10
 
years,
some of
 
which include
 
options to
 
extend the
 
lease term
 
for up
 
to five
 
years, and
 
some of
 
which include
options to
 
terminate the
 
lease within
 
one year.
 
The Company
 
considers these
 
options in
 
determining the
lease term
 
used to
 
establish its
 
right-of-use assets
 
and lease
 
liabilities. The
 
Company’s
 
lease agreements
do not contain any material residual value guarantees or material
 
restrictive covenants.
As
 
most
 
of
 
the
 
Company’s
 
leases
 
do
 
not
 
provide
 
an
 
implicit
 
rate,
 
it
 
uses
 
its
 
estimated
 
incremental
borrowing rate based
 
on the information
 
available at commencement date
 
of the lease
 
in determining the
present value of lease payments.
The components of lease cost are shown below (in thousands):
Three Months Ended
April 30, 2022
May 1, 2021
Operating lease cost (a)
$
17,754
$
16,726
Variable
 
lease cost (b)
$
768
$
793
(a) Includes right-of-use asset amortization of ($0.4) million and
 
($1.2) million for the three months ended
April 30, 2022 and May 1, 2021, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
Supplemental cash flow
 
information and non-cash
 
activity related to
 
the Company’s
 
operating leases are
as follows (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
18
Operating cash flow information:
Three Months Ended
April 30, 2022
May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
$
16,836
$
15,947
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
3,515
$
734
Weighted-average
 
remaining
 
lease
 
term
 
and
 
discount
 
rate
 
for
 
the
 
Company’s
 
operating
 
leases
 
are
 
as
follows:
As of
April 30, 2022
May 1, 2021
Weighted-average remaining lease term
2.4 years
2.7 years
Weighted-average discount rate
2.92%
3.73%
As of
 
April 30,
 
2022,
the maturities
 
of lease
 
liabilities by fiscal
 
year for
 
the Company’s
 
operating leases
are as follows (in thousands):
Fiscal Year
2022 (a)
$
53,370
2023
53,633
2024
36,956
2025
21,875
2026
10,602
Thereafter
2,986
Total lease payments
179,422
Less: Imputed interest
8,410
Present value of lease liabilities
$
171,012
(a) Excluding the 3 months ended April 30, 2022.
 
 
19
THE CATO CORPORATION
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The
 
following
 
information
 
should
 
be
 
read
 
along
 
with
 
the
 
unaudited
 
Condensed
 
Consolidated
 
Financial
Statements,
 
including
 
the
 
accompanying
 
Notes
 
appearing
 
in
 
this
 
report.
 
Any
 
of
 
the
 
following
 
are
“forward-looking”
 
statements
 
within
 
the
 
meaning
 
of
 
Section 27A
 
of
 
the
 
Securities
 
Act
 
of
 
1933,
 
as
amended,
 
and
 
Section 21E
 
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934,
 
as
 
amended:
 
(1) statements
 
in
 
this
Form 10-Q
 
that
 
reflect
 
projections
 
or
 
expectations
 
of
 
our
 
future
 
financial
 
or
 
economic
 
performance;
(2) statements
 
that
 
are
 
not
 
historical
 
information;
 
(3) statements
 
of
 
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
 
January
 
28,
 
2023
 
(“fiscal
 
2022”)
 
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
 
the
 
COVID-19
 
pandemic
 
and
 
related
responses
 
and
 
mitigation
 
efforts
 
on
 
our
 
business,
 
results
 
of
 
operations
 
and
 
financial
 
condition;
 
and
(5) statements relating
 
to our future contingencies. When possible, we 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
 
or
negative formations
 
of such
 
words and
 
similar expressions.
 
We
 
can give
 
no 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 in this report are based on 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
 
or
 
perceived
deterioration 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 and
 
government policies
affecting
 
our
 
business,
 
including
 
but
 
not
 
limited
 
to
 
tariffs;
 
uncertainties
 
regarding
 
the
 
impact
 
of
 
any
governmental action regarding, or
 
responses to, the
 
foregoing conditions; competitive factors
 
and pricing
pressures; our
 
ability to
 
predict and
 
respond to
 
rapidly changing
 
fashion trends
 
and consumer
 
demands;
our ability to
 
successfully implement our
 
new store development
 
strategy to increase
 
new store openings
and our
 
ability of
 
any such
 
new stores
 
to grow
 
and perform
 
as expected;
 
adverse weather,
 
public health
threats (including the COVID-19 pandemic)
 
or similar conditions that
 
may affect our
 
sales or operations;
inventory
 
risks
 
due
 
to
 
shifts
 
in
 
market
 
demand,
 
including
 
the
 
ability
 
to
 
liquidate
 
excess
 
inventory
 
at
anticipated
 
margins;
 
and
 
other
 
factors
 
discussed
 
under
 
“Risk
 
Factors”
 
in
 
Part
 
I,
 
Item
 
1A
 
of
 
our
 
annual
report
 
on
 
Form
 
10-K
 
for
 
the
 
fiscal
 
year
 
ended
 
January
 
29,
 
2022
 
(“fiscal
 
2021”),
 
as
 
amended
 
or
supplemented,
 
and in
 
other reports
 
we
 
file
 
with
 
or
 
furnish
 
to
 
the
 
Securities and
 
Exchange
 
Commission
(“SEC”)
 
from time
 
to
 
time.
 
We
 
do
 
not
 
undertake, and
 
expressly
 
decline,
 
any obligation
 
to
 
update
 
any
such forward-looking information contained
 
in this report,
 
whether as a
 
result of new
 
information, future
events, or otherwise.
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
20
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company’s accounting
 
policies are more
 
fully described
 
in “Management’s Discussion
 
and Analysis of
Financial
 
Condition
 
and Results
 
of Operations”
 
in the Company’s
 
Annual
 
Report
 
on Form
 
10-K for
 
the fiscal
year
 
ended
 
January
 
29,
 
2022.
 
As
 
disclosed
 
in
 
“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
Condition and Results of Operations,”
 
the preparation of the Company’s financial
 
statements in conformity
with generally
 
accepted accounting
 
principles
 
in the United States (“GAAP”)
 
requires management
 
to make
estimates
 
and assumptions
 
about future
 
events
 
that affect
 
the amounts
 
reported
 
in the financial
 
statements
 
and
accompanying
 
notes. Future
 
events and
 
their effects
 
cannot be
 
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
 
be
 
material to
 
the
 
financial statements.
 
The
 
most
 
significant
accounting
 
estimates
 
inherent
 
in the preparation
 
of the Company’s
 
financial
 
statements
 
include
 
the allowance
for
 
customer
 
credit
 
losses,
 
inventory
 
shrinkage, the
 
calculation of
 
potential
 
asset
 
impairment, workers’
compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and
uncertain
 
tax positions.
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)
21
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
April 30, 2022
May 1, 2021
Total retail sales
100.0
%
100.0
%
Other revenue
0.9
0.9
Total revenues
100.9
100.9
Cost of goods sold (exclusive of depreciation)
64.5
58.5
Selling, general and administrative (exclusive of depreciation)
29.5
29.9
Depreciation
1.3
1.4
Interest and other income
(0.2)
(0.3)
Income before income taxes
5.7
11.3
Net income
4.8
9.8
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
22
RESULTS OF OPERATIONS
 
(CONTINUED):
Management’s
 
Discussion and
 
Analysis of
 
Financial Condition
 
and Results
 
of Operations
 
(“MD&A”) is
intended
 
to
 
provide
 
information
 
to
 
assist
 
readers
 
in
 
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 2021 Form 10-K.
COVID-19
 
Update
There
 
is
 
still
 
significant
 
uncertainty
 
regarding
 
the
 
lingering
 
effects
 
of
 
the
 
COVID-19 pandemic
 
on
 
our
business, financial condition, results
 
of operations, cash flows,
 
and liquidity.
 
These uncertainties include
the
 
impact
 
of
 
new
 
or
 
potential
 
variants
 
of
 
the
 
virus
 
that
 
are
 
more
 
transmissible
 
or
 
severe,
 
stagnant
vaccination rates
 
and related
 
factors that
 
may continue
 
to
 
fuel
 
periodic surges
 
of
 
the
 
virus or
 
otherwise
impede
 
progress
 
toward
 
the
 
return
 
to
 
pre-pandemic
 
activities
 
and
 
levels
 
of
 
consumer
 
confidence
 
and
commercial
 
activity.
 
The
 
Company
 
also
 
faces
 
uncertainty
 
from
 
the
 
impacts
 
of
 
COVID-19
 
and
 
the
governmental
 
responses
 
to
 
COVID-19 surges,
 
including
 
lockdowns,
 
in
 
the
 
foreign
 
countries
 
where
 
our
merchandise is produced.
 
The Company is also subject to the continued effects of disruption in the global
supply
 
chain,
 
inflation
 
and
 
its
 
impact
 
on
 
our
 
cost
 
of
 
products,
 
transportation,
 
wage
 
rates
 
and
 
other
operating
 
costs,
 
as
 
well
 
as,
 
the
 
impact
 
on
 
our
 
customers’
 
disposable
 
incomes,
 
and
 
the
 
availability
 
of
workers.
 
The Company
 
expects that
 
these uncertainties
 
and perhaps
 
others related
 
to the
 
pandemic will
continue
 
to
 
impact
 
the
 
Company
 
in
 
fiscal
 
2022.
 
The
 
adverse
 
financial
 
impacts
 
associated
 
with
 
these
continued effects of, and uncertainties related
 
to, the COVID-19 pandemic include, but are
 
not limited to,
(i) lower net
 
sales in markets
 
affected by actual
 
or potential adverse
 
changes in conditions
 
relating to the
pandemic, whether
 
due to
 
increases in
 
case counts,
 
state and
 
local orders,
 
reductions in
 
store traffic
 
and
customer
 
demand,
 
labor
 
shortages,
 
or
 
all
 
of
 
these
 
factors,
 
(ii)
 
lower
 
net
 
sales
 
caused
 
by
 
the
 
delay
 
of
inventory
 
production
 
and
 
fulfillment,
 
(iii)
 
and
 
incremental
 
costs
 
associated
 
with
 
efforts
 
to
 
mitigate
 
the
effects of the outbreak, including increased freight and logistics costs and other
 
expenses.
While the Company currently anticipates a continuation of the
 
uncertainties listed above and the potential
adverse impacts
 
of COVID-19
 
during fiscal
 
2022, the
 
duration and
 
severity of
 
these effects
 
will depend
on
 
the
 
course of
 
future developments,
 
which are
 
highly uncertain.
 
The
 
extent to
 
which the
 
COVID-19
pandemic
 
ultimately
 
impacts
 
the
 
Company’s
 
business,
 
financial
 
condition,
 
results
 
of
 
operations,
 
cash
flows,
 
and
 
liquidity
 
may
 
differ
 
from
 
management’s
 
current
 
estimates
 
due
 
to
 
inherent
 
uncertainties
regarding
 
the
 
duration
 
and
 
further
 
spread
 
of
 
the
 
outbreak
 
or
 
its
 
variants,
 
its
 
severity,
 
actions
 
taken
 
to
contain the
 
virus or
 
treat its
 
impact, and how
 
quickly and to
 
what extent
 
normal economic and
 
operating
conditions can resume.
 
Comparison
 
of First Quarter
 
of 2022
 
with 2021
Total retail sales
 
for the first
 
quarter were
 
$204.9 million
 
compared
 
to last year’s
 
first quarter
 
sales of $211.2
million.
 
Sales
 
decreased primarily
 
due
 
to
 
a
 
decrease in
 
same-store sales,
 
partially offset
 
by
 
sales
 
from
noncomparable stores. The decrease in
 
same-store sales was
 
primarily due to
 
cooler, wetter
 
weather, late
merchandise
 
shipments
 
due
 
to
 
supply
 
chain
 
disruptions
 
and
 
inflationary
 
pressure
 
on
 
our
 
customers’
disposable income. Same store sales include stores that have been open more than
 
15 months.
 
Stores that
have been relocated or expanded are also included in
 
the same store sales calculation after they have been
open more
 
than 15
 
months.
 
The method
 
of calculating
 
same store
 
sales varies
 
across the
 
retail industry.
 
As a
result, our same
 
store sales calculation
 
may not be comparable
 
to similarly
 
titled measures
 
reported
 
by other
companies.
 
E-commerce
 
sales were
 
less than
 
5.0% of
 
sales
 
for the
 
first quarter
 
of fiscal
 
2022 and
 
are included
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
23
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,
 
shipping
 
charged
 
to
 
customers
 
for
 
e-
commerce purchases and
 
layaway fees),
 
were
 
$206.7 million
 
for
 
the
 
first
 
quarter ended
 
April 30,
 
2022,
compared to $213.1 million
 
for the first quarter ended
 
May 1, 2021. The Company operated
 
1,315 stores at
April 30,
 
2022 compared
 
to 1,325
 
stores
 
at the end
 
of last
 
fiscal year’s
 
first quarter.
 
For the
 
first three
 
months
of fiscal 2022, the Company opened
 
five stores and permanently
 
closed one store.
 
The Company currently
expects
 
to close
 
approximately
 
25 stores
 
in fiscal
 
2022.
Credit revenue
 
of $0.5
 
million
 
represented
 
0.2% of
 
total revenues
 
in the first
 
quarter
 
of fiscal
 
2022, compared
to 2021
 
credit revenue of
 
$0.5 million or
 
0.3% 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
 
include
principally
 
payroll,
 
postage and other
 
administrative
 
expenses,
 
and totaled $0.4
 
million in
 
the first quarter
 
of
2022, compared
 
to last
 
year’s
 
first quarter
 
expenses
 
of $0.3
 
million.
 
Other revenue,
 
a component
 
of total revenues,
 
was $1.8 million
 
for the first
 
quarter
 
of fiscal 2022,
 
compared
to
 
$1.9
 
million for
 
the
 
prior
 
year’s
 
comparable first
 
quarter.
 
The
 
slight
 
decrease was
 
due
 
to
 
lower
 
e-
commerce
 
shipping
 
revenue
 
and finance
 
charges,
 
slightly
 
offset by
 
higher
 
layaway
 
fees.
Cost of goods sold
 
was $132.2 million,
 
or 64.5% of retail
 
sales for the first
 
quarter of fiscal
 
2022, compared
to $123.7 million, or 58.5% of retail
 
sales in the first quarter of fiscal 2021.
 
The overall increase
 
in cost of
goods sold
 
as a percent
 
of retail
 
sales for
 
first quarter
 
of 2022 resulted
 
primarily
 
from higher
 
markdown
 
sales
and an increase
 
in freight costs
 
due to higher fuel
 
prices.
 
Cost of goods sold
 
includes
 
merchandise
 
costs (net
of
 
discounts
 
and
 
allowances),
 
buying
 
costs,
 
distribution costs,
 
occupancy
 
costs,
 
freight
 
and
 
inventory
shrinkage.
 
Net
 
merchandise costs
 
and
 
in-bound freight
 
are
 
capitalized as
 
inventory costs.
 
Buying
 
and
distribution costs include payroll, payroll-related
 
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 17.0% to
 
$72.7 million for
 
the first
quarter
 
of fiscal
 
2022 compared
 
to $87.6
 
million
 
in the first
 
quarter
 
of fiscal
 
2021.
 
Gross margin
 
as presented
may not
 
be 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,
 
and bank and
 
credit card
 
processing
 
fees.
 
SG&A
expenses were 29.5% of retail
 
sales for the first quarter of fiscal 2022, compared
 
to 29.9% of retail sales in
the first quarter
 
of fiscal 2021.
 
SG&A as a percent
 
of retail sales
 
decreased
 
primarily
 
due to lower
 
incentive
compensation, partially
 
offset by increased payroll costs reflecting more normalized operations.
Depreciation
 
expense
 
was $2.7
 
million,
 
or 1.3%
 
of retail
 
sales for
 
the first
 
quarter
 
of fiscal
 
2022, compared
 
to
$3.0 million,
 
or 1.4% of retail sales
 
for the first quarter
 
of fiscal 2021. The decrease
 
in depreciation
 
expense
was attributable
 
to older
 
stores
 
being
 
fully depreciated.
Interest and
 
other
 
income
 
was
 
$0.4
 
million, or
 
0.2%
 
of
 
retail
 
sales
 
for
 
the
 
first
 
quarter of
 
fiscal
 
2022,
compared to
 
$0.7
 
million, or
 
0.3%
 
of
 
retail sales
 
for
 
the
 
first quarter
 
of
 
fiscal 2021.
 
The
 
decrease was
primarily
 
attributable
 
to a decrease
 
in short-term
 
investments.
Income tax expense
 
was $1.9 million or
 
1.0% of retail sales
 
for the first quarter
 
of fiscal 2022, compared
to
 
an
 
income
 
tax
 
expense
 
of
 
$3.1
 
million,
 
or
 
1.5%
 
of
 
retail
 
sales
 
for
 
the
 
first
 
quarter
 
of
 
fiscal
 
2021.
Income tax
 
expense
 
for
 
the
 
first
 
quarter
 
of
 
fiscal
 
2022
 
decreased
 
primarily
 
as
 
a
 
result
 
of
 
lower
 
pre-tax
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
24
earnings.
 
The effective income
 
tax rate for
 
the first quarter
 
of fiscal 2022
 
was 16.7%
 
compared to 12.9%
for
 
the
 
first
 
quarter of
 
2021. The
 
increase in
 
the
 
2022
 
first
 
quarter tax
 
rate was
 
primarily due
 
to
 
higher
Global Intangible Low-taxed Income (GILTI), partially offset by the ability to realize foreign tax credits.
 
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 fiscal 2022
 
and the next 12
months.
Cash used
 
by operating
 
activities
 
for the
 
first three
 
months
 
of fiscal
 
2022 was
 
primarily
 
generated
 
by earnings
adjusted
 
for depreciation
 
and changes
 
in working capital.
 
The decrease
 
in cash provided
 
of $45.3 million
 
for
the first
 
three months
 
of fiscal
 
2022 as compared
 
to the first
 
three months
 
of fiscal
 
2021 was primarily
 
due to
lower net income
 
and a decrease
 
in accounts
 
payable and
 
accrued liabilities
 
from fiscal
 
2021 year end
 
versus
an increase
 
from 2020
 
year end,
 
partially
 
offset by
 
a decrease
 
in prepaid
 
and other
 
assets.
At
 
April
 
30,
 
2022,
 
the
 
Company had
 
working capital
 
of
 
$107.8
 
million compared
 
to
 
$111.5
 
million at
January 29, 2022.
 
This decrease is primarily
 
attributable
 
to lower short-term
 
investments,
 
partially offset
 
by
lower accrued
 
incentive
 
compensation.
At
 
April
 
30,
 
2022,
 
the
 
Company
 
had
 
an
 
unsecured
 
revolving
 
credit
 
agreement,
 
which
 
provided
 
for
borrowings of up to $35.0 million less the balance of letters
 
of credit discussed below and was committed
through
 
May
 
2022.
 
In
 
May
 
2022,
 
the
 
Company
 
signed
 
a
 
new
 
unsecured
 
revolving
 
credit
 
agreement,
which replaces
 
the prior
 
credit agreement,
 
provides up
 
to $35.0
 
million in
 
committed availability
 
and is
committed
 
through
 
May
 
2027.
 
The
 
prior
 
credit
 
agreement
 
contained
 
various
 
financial
 
covenants
 
and
limitations,
 
including
 
the
 
maintenance
 
of
 
specific
 
financial
 
ratios
 
with
 
which
 
the
 
Company
 
was
 
in
compliance as of April 30, 2022.
 
The new credit agreement also contains various financial covenants and
limitations, including the maintenance of specific financial ratios.
 
There were no outstanding borrowings
under the prior credit facility as of April 30, 2022 or January 29, 2022.
 
At
 
April
 
30,
 
2022
 
and
 
January
 
29,
 
2022,
 
the
 
Company
 
had
 
no
 
outstanding letters
 
of
 
credit
 
relating to
purchase
 
commitments.
Expenditures for
 
property
 
and
 
equipment totaled
 
$4.4
 
million
 
in
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2022,
compared to $0.6
 
million in
 
last year’s
 
first three
 
months.
 
The increase in
 
expenditures for property and
equipment was primarily due
 
to
 
costs associated with
 
opening five
 
new stores
 
and capital
 
investments in
information technology
 
and the
 
distribution center.
 
For the
 
full fiscal 2022
 
year, the
 
Company expects to
invest
 
approximately
 
$22.6
 
million
 
in capital
 
expenditures,
 
including
 
distribution
 
center
 
automation
 
projects.
Net
 
cash
 
provided by
 
investing activities
 
totaled
 
$19.6
 
million in
 
the
 
first
 
three
 
months
 
of
 
fiscal
 
2022
compared
 
to $34.2 million
 
used in the comparable
 
period of fiscal
 
2021, primarily
 
due to lower purchases
 
of
short-term
 
investments,
 
partially
 
offset by
 
an increase
 
in capital
 
expenditures.
Net cash used by financing
 
activities
 
totaled $12.7 million
 
in the first three months
 
of fiscal 2022 compared
to $5.5
 
million
 
used in
 
the comparable
 
period
 
of fiscal
 
2021, primarily
 
due to
 
an increase
 
in share
 
repurchases
and dividends
 
paid.
On May
 
19, 2022,
 
the Board
 
of Directors
 
declared
 
the quarterly
 
dividend
 
at $0.17
 
per share.
 
 
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
(CONTINUED)
25
As
 
of
 
April 30,
 
2022, the
 
Company had
 
840,119 shares
 
remaining in
 
open authorizations under its
 
share
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 April
 
30,
2022 and
 
January 29,
 
2022.
 
The state,
 
municipal and corporate bonds
 
have contractual maturities which
range from one day to 4.6 years. The U.S. Treasury Notes have contractual
 
maturities which
 
range from 46
days
 
to
 
2.4
 
years.
 
These
 
securities
 
are
 
classified
 
as
 
available-for-sale and
 
are
 
recorded
 
as
 
Short-term
investments,
 
Restricted
 
cash and
 
Other assets
 
on the accompanying
 
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 by
 
revolving pools of credit card receivables generated by account
holders
 
of cards
 
from American
 
Express,
 
Citibank,
 
JPMorgan
 
Chase,
 
Capital
 
One, and
 
Discover.
Additionally,
 
at
 
April
 
30,
 
2022,
 
the
 
Company
 
had
 
$0.8
 
million
 
of
 
corporate
 
equities
 
and
 
deferred
compensation
 
plan assets
 
of $11.0 million.
 
At January
 
29, 2022, the
 
Company
 
had $0.8 million
 
of corporate
equities
 
and deferred
 
compensation
 
plan assets
 
of $11.5 million.
 
All of these
 
assets
 
are recorded
 
within Other
assets
 
in the
 
Condensed
 
Consolidated
 
Balance
 
Sheets.
 
See Note
 
7, Fair
 
Value Measurements.
RECENT
 
ACCOUNTING
 
PRONOUNCEMENTS:
 
See Note 8, Recent Accounting Pronouncements.
 
 
 
 
THE CATO CORPORATION
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
26
ITEM 3. QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK:
The
 
Company
 
is
 
subject
 
to
 
market
 
rate
 
risk
 
from
 
exposure
 
to
 
changes
 
in
 
interest
 
rates
 
based
 
on
 
its
financing, investing and
 
cash management activities,
 
but the Company
 
does not
 
believe such exposure
 
is
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 April 30, 2022.
 
Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of
 
April 30,
2022,
 
our disclosure controls and procedures, as defined in 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
 
we
 
file
 
or
 
submit under
 
the
 
Exchange Act
 
is
 
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 April
 
30,
 
2022 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
27
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” in our
 
Annual Report on Form
 
10-K for
 
our fiscal year
 
ended January 29, 2022.
 
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
to
 
be
 
immaterial
 
may
 
also
 
materially
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition
 
or
 
results
 
of
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 April 30, 2022:
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
of Shares
Price Paid
Announced Plans or
Yet be Purchased
 
Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2022
70,967
$
16.61
70,967
March 2022
327,897
15.01
327,897
April 2022
211,064
14.50
211,064
Total
609,928
$
15.02
609,928
840,119
(1)
Prices include trading costs.
(2)
As of January
 
29, 2022, the
 
Company’s share
 
repurchase program had
 
450,047 shares remaining
in
 
open
 
authorizations.
 
The
 
Board
 
of
 
Directors
 
authorized
 
an
 
additional
 
1,000,000
 
shares
 
for
repurchase under
 
the
 
program at
 
its
 
February 24,
 
2022 meeting.
 
During the
 
first
 
quarter ended
April
 
30,
 
2022,
 
the
 
Company
 
repurchased
 
and
 
retired
 
609,928
 
shares
 
under
 
this
 
program
 
for
approximately $9,161,613 or an
 
average market price of
 
$15.02 per share.
 
As of April 30,
 
2022,
the
 
Company
 
had
 
840,119
 
shares
 
remaining
 
in
 
open
 
authorizations.
 
There
 
is
 
no
 
specified
expiration date for the Company’s repurchase program.
ITEM 3.
 
DEFAULTS
 
UPON SENIOR SECURITIES:
Not Applicable
 
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
28
ITEM 4.
 
MINE SAFETY DISCLOSURES:
Not Applicable
ITEM 5.
 
OTHER INFORMATION:
Not Applicable
 
ITEM 6.
 
EXHIBITS:
 
Exhibit
 
No.
Item
 
3.1
 
3.2
10.1
 
31.1*
Rule 13a-14(a)/15d-14(a)
 
Certification
 
of Principal
 
Executive
 
Officer.
 
31.2*
 
32.1*
 
32.2*
101.1*
The following materials from Registrant’s Quarterly Report on
 
Form
10-Q for
 
the fiscal
 
quarter ended April
 
30, 2022,
 
formatted in Inline
XBRL:
 
(i)
 
Condensed
 
Consolidated
 
Statements
 
of
 
Income
 
and
Comprehensive Income for
 
the
 
Three Months
 
ended April
 
30,
 
2022
and May
 
1, 2021;
 
(ii) Condensed
 
Consolidated
 
Balance
 
Sheets
 
at April
30,
 
2022
 
and
 
January
 
29,
 
2022;
 
(iii)
 
Condensed
 
Consolidated
Statements
 
of Cash Flows for the Three
 
Months Ended
 
April 30, 2022
and
 
May
 
1,
 
2021;
 
(iv)
 
Condensed
 
Consolidated
 
Statements
 
of
Stockholders’
 
Equity for the Three Months Ended April 30, 2022 and
May
 
1,
 
2021;
 
and
 
(v)
 
Notes
 
to
 
Condensed
 
Consolidated Financial
Statements.
104.1
Cover
 
Page
 
Interactive
 
Data
 
File
 
(Formatted
 
in
 
Inline
 
XBRL
 
and
contained in the Interactive Data Files submitted as Exhibit 101.1*)
 
* Submitted electronically herewith.
 
 
 
 
 
 
 
THE CATO CORPORATION
PART
 
II OTHER
 
INFORMATION
29
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
May 26, 2022
/s/ John P.
 
D. Cato
Date
John P.
 
D. Cato
Chairman, President and
Chief Executive Officer
May 26, 2022
/s/ Charles D. Knight
Date
Charles D. Knight
 
Executive Vice President
Chief Financial Officer

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