CATO REPORTS 1Q EARNINGS

Rhea-AI Summary

Cato (NYSE: CATO) reported a net income of $11.0 million ($0.54 per diluted share) for Q1 2024, up from $4.4 million ($0.22 per share) in Q1 2023.

Sales dropped by 8% to $175.3 million, and same-store sales fell by 6%, attributed to high interest rates and inflation affecting customer spending.

Gross margin remained steady at 35.8%, while Selling, General & Administrative (SG&A) expenses decreased to $56.8 million from $61.9 million.

Interest and other income surged to $5.8 million, driven by a $3.2 million gain on land sale. Tax expenses decreased to $0.6 million.

The company repurchased 431,415 shares, closed seven stores, and ended with 1,171 stores in 31 states.

Positive

• Net income rose to $11.0 million from $4.4 million YoY.
• Earnings per Share (EPS) increased to $0.54 from $0.22 YoY.
• SG&A expenses decreased to $56.8 million from $61.9 million.
• Interest and other income surged to $5.8 million, largely due to a $3.2 million gain on land sale.
• Income tax expense decreased to $0.6 million from $2.1 million.
• The company repurchased 431,415 shares.

Negative

• Sales decreased by 8% YoY to $175.3 million.
• Same-store sales dropped by 6%.
• Cato did not open any new stores and closed seven stores during the quarter.
• The total number of stores decreased to 1,171 from 1,264 YoY.

Financial Analyst

The first quarter earnings report for The Cato Corporation reveals a mixed yet notable financial performance. Net income saw a significant increase to $11 million, or $0.54 per diluted share, compared to $4.4 million, or $0.22 per diluted share, from the same period last year. This reflects a substantial improvement in profitability, which is a positive indicator of operational efficiency and cost management.

Despite this, sales dropped 8% year-over-year to $175.3 million, with same-store sales down 6%. This decline can be attributed to the ongoing economic pressures such as high interest rates and inflation that are reducing discretionary spending among consumers. However, the company managed to maintain its gross margin at 35.8%, demonstrating effective cost control measures.

Regarding expenditure, Selling, General and Administrative expenses decreased both in absolute terms and as a percentage of sales. This suggests better efficiency and cost-cutting measures, including reductions in equity compensation, advertising and store expenses.

Furthermore, the interest and other income increased substantially to $5.8 million from $0.9 million, primarily due to a net gain on the sale of land. This one-time event positively impacted earnings but may not be sustainable in future quarters.

In summary, while the rise in net income is promising, the drop in sales and same-store performance signals caution. Investors should weigh the improved profitability against the challenging retail environment.

Market Research Analyst

The Cato Corporation's decision to close seven stores during the quarter indicates a strategic response to challenging market conditions. The company now operates 1,171 stores, down from 1,264 a year ago. This could be viewed as a move to optimize the retail footprint and focus on more profitable locations.

Importantly, the reduction in store expenses and the maintenance of the gross margin at 35.8% highlights effective cost management. However, the decrease in sales and same-store sales points to a challenging retail environment, exacerbated by high interest rates and inflation. Consumer discretionary spending is under pressure and this trend might continue to impact Cato's performance in the near term.

On a broader scale, the fashion retail sector is experiencing a shift with increased competition from online retailers and changing consumer preferences. While Cato’s effort to enhance its online presence via catofashions.com and shopversona.com is commendable, the decline in physical store sales underscores the urgency of adapting to these market dynamics.

For retail investors, it’s important to monitor how Cato navigates these challenges, particularly their ability to drive online sales and manage costs. The company's cautious outlook for the remainder of the year underscores the uncertainty in the market.

Tax Expert

Analyzing the tax component, The Cato Corporation's income tax expense decreased significantly to $0.6 million from $2.1 million in the previous year. This reduction is primarily due to valuation allowances against net deferred tax assets and the impact of the foreign rate differential and lower state income taxes.

For investors, understanding these tax components is important as they can influence net income. The valuation allowance indicates that the company is cautious about the recoverability of certain deferred tax assets, reflecting a prudent but conservative approach to tax planning.

Given the current economic conditions and the company's operational performance, the reduction in tax expense offers a short-term benefit to net income. However, it’s essential to consider if this lower tax expense is sustainable in the long-term and how it aligns with overall business strategy.

CHARLOTTE, N.C., May 23, 2024 /PRNewswire/ -- The Cato Corporation (NYSE: CATO) today reported net income of $11.0 million or $0.54 per diluted share for the first quarter ended May 4, 2024, compared to net income of $4.4 million or $0.22 per diluted share for the first quarter ended April 29, 2023. 

Sales for the first quarter ended May 4, 2024 were $175.3 million, or a decrease of 8% from sales of $190.3 million for the first quarter ended April 29, 2023.  The Company's same-store sales for the quarter decreased 6%. 

"The pressure on our customers' discretionary spending levels due to high interest rates and inflation continue to negatively impact our sales," said John Cato, Chairman, President and Chief Executive Officer. "With the pressure on our customers' discretionary spending levels, we remain cautious about the remainder of the year."

First quarter gross margin as a percentage of sales was 35.8% in both 2024 and 2023. Selling, General and Administrative expense decreased to $56.8 million in 2024 from $61.9 million in 2023 due to decreases in equity compensation, advertising, and store expenses including payroll, partially offset by increases in insurance expenses.  Selling, General and Administrative expense as a percentage of sales decreased to 32.4% in 2024 compared to 32.5% in 2023.  Interest and other income increased to $5.8 million in 2024 from $0.9 million in 2023 primarily due to a net gain on sale of land of $3.2 million.  Income tax expense for the quarter decreased to $0.6 million in 2024 from $2.1 million in 2023.  The decrease in tax expense is primarily due to valuation allowances against net deferred tax assets and the impact of the foreign rate differential and lower state income taxes.

Additionally, the Company bought back 431,415 shares during the quarter. 

During the first quarter ended May 4, 2024, the Company did not open any stores and permanently closed seven stores.  As of May 4, 2024, the Company operated 1,171 stores in 31 states, compared to 1,264 stores in 32 states as of April 29, 2023. 

The Cato Corporation is a leading specialty retailer of value-priced fashion apparel and accessories operating three concepts, "Cato," "Versona" and "It's Fashion."  The Company's Cato stores offer exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day.  The Company also offers exclusive merchandise found in its Cato stores at www.catofashions.com.  Versona is a unique fashion destination offering apparel and accessories including jewelry, handbags and shoes at exceptional prices every day.  Select Versona merchandise can also be found at www.shopversona.com.  It's Fashion offers fashion with a focus on the latest trendy styles for the entire family at low prices every day.

Statements in this press release that express a belief, expectation or intention, as well as those that are not a historical fact, including, without limitation, statements regarding the Company's expected or estimated operational financial results, activities or opportunities, and potential impacts and effects of interest rates, inflation or other factors that may affect our customers' discretionary spending or our costs are considered "forward-looking" within the meaning of The Private Securities Litigation Reform Act of 1995.  Such forward-looking statements are based on current expectations that are 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, any actual or perceived deterioration in, or continuation of 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, inflation, wage rates, tax rates, interest rates, home values, consumer net worth and the availability of credit; changes in laws, regulations or 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 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 (including the global coronavirus (COVID-19) outbreak), acts of war or aggression or 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 the Company's most recently filed annual report on Form 10-K and in other reports the Company files with or furnishes to the SEC from time to time.  The Company does not undertake to publicly update or revise the forward-looking statements even if experience or future changes make it clear that the projected results expressed or implied therein will not be realized. The Company is not responsible for any changes made to this press release by wire or Internet services.

THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE PERIODS ENDED MAY 4, 2024 AND APRIL 29, 2023
(Dollars in thousands, except per share data)
	Quarter Ended
	May 4,		%		April 29,		%
	2024		Sales		2023		Sales
REVENUES
Retail sales	$	175,272	100.0 %		$	190,311	100.0 %
Other revenue (principally finance,
late fees and layaway charges)		1,827	1.0 %			1,739	0.9 %
Total revenues		177,099	101.0 %			192,050	100.9 %
GROSS MARGIN (Memo)		62,767	35.8 %			68,224	35.8 %
COSTS AND EXPENSES, NET
Cost of goods sold		112,505	64.2 %			122,087	64.2 %
Selling, general and administrative		56,752	32.4 %			61,934	32.5 %
Depreciation		2,040	1.2 %			2,357	1.2 %
Interest and other income		(5,821)	-3.3 %			(897)	-0.5 %
Costs and expenses, net		165,476	94.4 %			185,481	97.5 %
Income Before Income Taxes		11,623	6.6 %			6,569	3.5 %
Income Tax Expense		649	0.4 %			2,141	1.1 %
Net Income	$	10,974	6.3 %		$	4,428	2.3 %
Basic Earnings Per Share	$	0.54			$	0.22
Diluted Earnings Per Share	$	0.54			$	0.22

 

THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
	May 4,				February 3,
	2024				2024
	(Unaudited)				(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	39,101			$	23,940
Short-term investments		66,250				79,012
Restricted cash		3,533				3,973
Accounts receivable - net		31,716				29,751
Merchandise inventories		101,317				98,603
Other current assets		7,724				7,783
Total Current Assets		249,641				243,062
Property and Equipment - net		64,568				64,022
Other Assets		23,305				25,047
Right-of-Use Assets, net		139,635				154,686
TOTAL	$	477,149			$	486,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities	$	127,997			$	126,900
Current Lease Liability		55,800				61,108
Noncurrent Liabilities		14,607				14,475
Lease Liability		81,834				92,013
Stockholders' Equity		196,911				192,321
TOTAL	$	477,149			$	486,817

 

View original content:https://www.prnewswire.com/news-releases/cato-reports-1q-earnings-302153715.html

SOURCE The Cato Corporation

FAQ

What were Cato 's earnings for Q1 2024?

Cato reported a net income of $11.0 million or $0.54 per diluted share for Q1 2024.

How did Cato 's sales perform in Q1 2024?

Sales for Q1 2024 were $175.3 million, an 8% decrease from the previous year.

What was Cato 's same-store sales change in Q1 2024?

Cato 's same-store sales decreased by 6% in Q1 2024.

How did Cato 's SG&A expenses change in Q1 2024?

SG&A expenses decreased to $56.8 million from $61.9 million in Q1 2024.

What was the impact of interest and other income on Cato 's earnings in Q1 2024?

Interest and other income increased to $5.8 million, mainly due to a $3.2 million gain on land sale.

How many stores did Cato operate at the end of Q1 2024?

Cato operated 1,171 stores at the end of Q1 2024.

Did Cato buy back any shares in Q1 2024?

Yes, Cato repurchased 431,415 shares during Q1 2024.