CATO REPORTS 2Q RESULTS

Rhea-AI Summary

The Cato (NYSE: CATO) reported Q2 2024 results with net income of $0.1 million or $0.01 per diluted share, down from $1.1 million or $0.06 per share in Q2 2023. Sales decreased 8% to $166.9 million, primarily due to closed stores and a 2% same-store sales decline. For the first half of 2024, net income was $11.1 million or $0.54 per share, up from $5.6 million or $0.27 per share in 2023. Gross margin decreased to 34.6% from 35.1%, while SG&A expenses increased to 34.9% of sales from 34.0%. The company closed five stores during Q2, operating 1,166 stores across 31 states as of August 3, 2024.

Positive

• Net income for the first half of 2024 increased to $11.1 million from $5.6 million in 2023
• SG&A expenses in Q2 were $3.4 million lower than last year
• Year-to-date SG&A expenses were $8.6 million lower than last year

Negative

• Q2 2024 net income decreased to $0.1 million from $1.1 million in Q2 2023
• Sales for Q2 2024 decreased 8% to $166.9 million
• Same-store sales decreased 2% in Q2 2024 compared to 2023
• Gross margin decreased from 35.1% to 34.6% in Q2 2024
• SG&A expenses as a percent of sales increased from 34.0% to 34.9% in Q2 2024
• Company closed five stores during Q2 2024

Insights

Financial Analyst

Cato's Q2 results reveal concerning trends for investors. Sales dropped 8% year-over-year to $166.9 million, with same-store sales declining 2%. Net income plummeted to just $0.1 million ($0.01 per share) from $1.1 million ($0.06 per share) last year. The gross margin contracted from 35.1% to 34.6%, while SG&A expenses increased as a percentage of sales.

Despite cost-cutting efforts, Cato's profitability is under pressure. The company's store count reduction (1,166 vs. 1,247 last year) hasn't translated to improved efficiency. With management expecting a challenging second half, investors should closely monitor Cato's ability to stem the sales decline and protect margins in a tough retail environment.

Retail Industry Expert

Cato's performance reflects broader challenges in the value-priced fashion sector. The 2% same-store sales decrease suggests Cato is struggling to attract customers despite its value proposition. This could indicate either increased competition or shifting consumer preferences.

The company's multi-brand strategy (Cato, Versona, It's Fashion) and e-commerce expansion are positive, but haven't offset brick-and-mortar weaknesses. With 81 store closures year-over-year, Cato needs to optimize its remaining locations and accelerate digital growth. The management's cautious outlook for H2 2024 implies continued headwinds in discretionary spending, a concern for the entire retail sector.

Market Research Analyst

Cato's results highlight the ongoing pressure on discretionary spending among value-conscious consumers. Despite offering "fashion and quality comparable to mall specialty stores at low prices," Cato is experiencing difficulty in maintaining its customer base. This suggests that even budget-friendly retailers are not immune to the current economic challenges.

The company's focus on exclusive merchandise and expansion into e-commerce are steps in the right direction. However, the 4% year-to-date same-store sales decrease indicates that Cato needs to reassess its product mix and marketing strategies to better align with evolving consumer preferences in the post-pandemic retail landscape.

CHARLOTTE, N.C., Aug. 22, 2024 /PRNewswire/ -- The Cato Corporation (NYSE: CATO) today reported net income of $0.1 million or $0.01 per diluted share for the second quarter ended August 3, 2024, compared to net income of $1.1 million or $0.06 per diluted share for the second quarter ended July 29, 2023. 

Sales for the second quarter ended August 3, 2024 were $166.9 million, a decrease of 8% from sales of $181.2 million for the second quarter ended July 29, 2023 primarily due to closed stores in 2023 and a 2% same-store sales decrease for the quarter compared to 2023.

For the six months ended August 3, 2024, the Company reported net income of $11.1 million or $0.54 per diluted share, compared to net income of $5.6 million or $0.27 per diluted share for the six months ended July 29, 2023.  Sales for the six months ended August 3, 2024 were $342.2 million, a decrease of 8% from sales of $371.5 million for the six months ended July 29, 2023 primarily due to closed stores in 2023 and a 4% same-store sales decrease compared to 2023.

 "Although the second quarter sales trend improved, the sales environment continues to be challenged by negative pressure on our customers' discretionary spending," stated John Cato, Chairman, President, and Chief Executive Officer.  "We continue to manage our SG&A expenses tightly in line with our current sales trend.  We believe the back half of the year will remain challenging."

Gross margin decreased from 35.1% to 34.6% of sales in the quarter due to higher distribution costs and deleveraging of occupancy and buying costs, partially offset by higher merchandise margins.  SG&A expenses as a percent of sales increased from 34.0% to 34.9% of sales during the quarter primarily due to deleveraging of payroll costs partially offset by lower closed store and advertising expenses.  However, SG&A expenses in the quarter were $3.4 million lower than last year due to lower payroll and insurance costs, equity compensation and advertising expenses.  Tax expense for the quarter was $0.6 million versus $1.3 million in the prior year. The decrease in tax expense is primarily due to lower taxable income, valuation allowances against net deferred tax assets and the impact of the foreign rate differential and lower state income taxes.

Year-to-date gross margin decreased from 35.5% of sales to 35.2% primarily due to higher distribution costs and deleveraging of occupancy and buying costs, partially offset by higher merchandise margins.  Year-to-date SG&A expenses were 33.6% as a percent of sales versus 33.3% in the prior year primarily due to deleveraging of payroll costs and higher insurance costs, partially offset by lower closed store and advertising expenses.  SG&A expenses year-to-date were $8.6 million lower than last year due to lower payroll costs and equity compensation, and closed store and advertising expenses, partially offset by higher insurance expense.  Income tax expense for the first half decreased to $1.3 million from $3.5 million last year, primarily due to valuation allowances against net deferred tax assets and the impact of the foreign rate differential and lower state income taxes.

During the second quarter ended August 3, 2024, the Company closed five stores.  As of August 3, 2024, the Company had 1,166 stores in 31 states, compared to 1,247 stores in 31 states as of July 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 the coronavirus 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 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 and the availability of credit; changes in laws or regulations 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; adverse weather, public health threats (including the global coronavirus (COVID-19) outbreak) 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 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 AUGUST 3, 2024 AND JULY 29, 2023
(Dollars in thousands, except per share data)
	Quarter Ended								Six Months Ended
	August 3,		%		July 29,		%		August 3,		%		July 29,		%
	2024		Sales		2023		Sales		2024		Sales		2023		Sales
REVENUES
Retail sales	$	166,934	100.0 %		$	181,181	100.0 %		$	342,206	100.0 %		$	371,492	100.0 %
Other revenue (principally finance,
late fees and layaway charges)		1,694	1.0 %			1,690	0.9 %			3,521	1.0 %			3,429	0.9 %
Total revenues		168,628	101.0 %			182,871	100.9 %			345,727	101.0 %			374,921	100.9 %
GROSS MARGIN (Memo)		57,812	34.6 %			63,564	35.1 %			120,579	35.2 %			131,788	35.5 %
COSTS AND EXPENSES, NET
Cost of goods sold		109,122	65.4 %			117,617	64.9 %			221,627	64.8 %			239,704	64.5 %
Selling, general and administrative		58,181	34.9 %			61,618	34.0 %			114,933	33.6 %			123,552	33.3 %
Depreciation		2,329	1.4 %			2,510	1.4 %			4,369	1.3 %			4,867	1.3 %
Interest and other income		(1,742)	-1.0 %			(1,334)	-0.7 %			(7,563)	-2.2 %			(2,231)	-0.6 %
Costs and expenses, net		167,890	100.6 %			180,411	99.6 %			333,366	97.4 %			365,892	98.5 %
Income Before Income Taxes		738	0.4 %			2,460	1.4 %			12,361	3.6 %			9,029	2.4 %
Income Tax Expense		643	0.4 %			1,333	0.7 %			1,292	0.4 %			3,475	0.9 %
Net Income	$	95	0.1 %		$	1,127	0.6 %		$	11,069	3.2 %		$	5,554	1.5 %
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
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
	August 3,				February 3,
	2024				2024
	(Unaudited)				(Unaudited)
ASSETS
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		29,772				29,751
Merchandise inventories		95,972				98,603
Other current assets		9,506				7,783
Total Current Assets		243,478				243,062
Property and Equipment - net		63,975				64,022
Noncurrent Deferred Income Taxes		0				0
Other Assets		22,340				25,047
Right-of-Use Assets, net		125,779				154,686
TOTAL	$	455,572			$	486,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities	$	122,498			$	126,900
Current Lease Liability		51,091				61,108
Noncurrent Liabilities		14,573				14,475
Lease Liability		72,348				92,013
Stockholders' Equity		195,062				192,321
TOTAL	$	455,572			$	486,817

 

View original content:https://www.prnewswire.com/news-releases/cato-reports-2q-results-302228095.html

SOURCE The Cato Corporation

FAQ

What was Cato's (CATO) net income for Q2 2024?

Cato reported a net income of $0.1 million or $0.01 per diluted share for Q2 2024.

How did Cato's (CATO) Q2 2024 sales compare to Q2 2023?

Cato's sales for Q2 2024 were $166.9 million, an 8% decrease from $181.2 million in Q2 2023.

What was Cato's (CATO) same-store sales performance in Q2 2024?

Cato experienced a 2% same-store sales decrease in Q2 2024 compared to Q2 2023.

How many stores did Cato (CATO) operate as of August 3, 2024?

As of August 3, 2024, Cato operated 1,166 stores across 31 states.