# Cato Corp: Form 10-K for the period ended Jan 29, 2022 - Company: [Cato Corp](/companies/cato.md) (CIK 18255) - Form: 10-K - Filed: 2022-03-23 - Accepted by EDGAR: Mar 23, 2022, 16:49 ET - Period: 2022-01-29 - Accession: 0000018255-22-000011 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/18255/000001825522000011/cato20210130.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/18255/000001825522000011/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2022-01-29. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 12 months, 2021-01-31 to 2022-01-29 | $769.3m | us-gaap:Revenues | | Cost of revenue | 12 months, 2021-01-31 to 2022-01-29 | $453.1m | us-gaap:CostOfGoodsAndServicesSold | | Selling, general and administrative | 12 months, 2021-01-31 to 2022-01-29 | $267.0m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 12 months, 2021-01-31 to 2022-01-29 | $39.0m | us-gaap:OperatingIncomeLoss | | Interest expense | 12 months, 2021-01-31 to 2022-01-29 | $72.0k | us-gaap:InterestExpense | | Income tax | 12 months, 2021-01-31 to 2022-01-29 | $2.1m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 12 months, 2021-01-31 to 2022-01-29 | $36.8m | us-gaap:NetIncomeLoss | | Diluted EPS | 12 months, 2021-01-31 to 2022-01-29 | $1.65 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 12 months, 2021-01-31 to 2022-01-29 | $1.65 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2021-01-31 to 2022-01-29 | 21,113,828 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2021-01-31 to 2022-01-29 | $59.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2021-01-31 to 2022-01-29 | $4.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 12 months, 2021-01-31 to 2022-01-29 | $10.0m | us-gaap:PaymentsOfDividends | | Share repurchases | 12 months, 2021-01-31 to 2022-01-29 | $22.0m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2022-01-29 | $19.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2022-01-29 | $355.7m | us-gaap:AssetsCurrent | | Total assets | at 2022-01-29 | $633.8m | us-gaap:Assets | | Current liabilities | at 2022-01-29 | $244.1m | us-gaap:LiabilitiesCurrent | | Shareholders' equity | at 2022-01-29 | $254.2m | us-gaap:StockholdersEquity | ## Business As filed, 19,905 characters. ### Business: ### Background The Company, founded in 1946, operated 1,311 fashion specialty stores at January 29, 2022, in 32 states, principally in the southeastern United States, under the names “Cato,” “Cato Fashions,” “Cato Plus,” “It’s Fashion,” “It’s Fashion Metro” and “Versona.” The Cato concept seeks to offer quality fashion apparel and accessories at low prices every day, in junior/missy and plus sizes. The Cato concept’s stores and e-commerce website feature a broad assortment of apparel and accessories, including dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry and handbags. A major portion of the Cato concept’s merchandise is sold under its private label and is produced by various vendors in accordance with the concept’s specifications. The It’s Fashion and It’s Fashion Metro concepts offer fashion with a focus on the latest trendy styles for the entire family at low prices every day. The Versona concept’s stores and e-commerce website offer quality fashion apparel items, jewelry and accessories at exceptional values every day. The Company’s stores range in size from 2,100 to 19,000 square feet and are located primarily in strip shopping centers anchored by national discounters or market-dominant grocery stores. The Company emphasizes friendly customer service and coordinated merchandise presentations in an appealing store environment. The Company offers its own credit card and layaway plan. Credit and layaway sales under the Company’s plan represented 5% of retail sales in fiscal 2021. See Note 13 to the Consolidated Financial Statements, “Reportable Segment Information,” for a discussion of information regarding the Company’s two reportable segments: retail and credit. The Company has operated Cato-branded retail stores for approximately 75 years. The Company originated as a family-owned business and made its first initial public offering of stock in 1968. In 1980, the Company went private and in 1987 again conducted an initial public offering. ### Business Strategy The Company’s primary objective is to be the leading fashion specialty retailer for fashion and value in its markets. Management believes the Company’s success is dependent upon its ability to differentiate its stores from department stores, mass merchandise discount stores and competing specialty stores. The key elements of the Company’s business strategy are: #### Merchandise Assortment. The Company’s stores offer a wide assortment of on-trend apparel and accessory items in primarily junior/missy, plus sizes, men and kids sizes, toddler to boys size 20 and girls size 16 with an emphasis on color, product coordination and selection. Colors and styles are coordinated and presented so that outfit selection is easily made. #### Value Pricing. The Company offers quality merchandise that is generally priced below comparable merchandise offered by department stores and mall specialty apparel chains, but is generally more fashionable than merchandise offered by discount stores. Management believes that the Company has positioned itself as the every day low price leader in its market segment. #### Strip Shopping Center Locations. The Company locates its stores principally in convenient strip centers anchored by national discounters or market-dominant grocery stores that attract large numbers of potential customers. #### Customer Service. Store managers and sales associates are trained to provide prompt and courteous service and to assist customers in merchandise selection and wardrobe coordination. #### Credit and Layaway Programs . The Company offers its own credit card and a layaway plan to make the purchase of its merchandise more convenient for its customers. ### Merchandising ### Merchandising The Company seeks to offer a broad selection of high quality and exceptional value apparel and accessories to suit the various lifestyles of fashion and value-conscious customers. In addition, the Company strives to offer on-trend fashion in exciting colors with consistent fit and quality. The Company’s merchandise lines include dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry, handbags, men’s wear and lines for kids and infants. The Company primarily offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices, every day. The Company believes that the collaboration of its merchandising and design teams with an expanded in-house product development and direct sourcing function has enhanced merchandise offerings and delivers quality, exclusive on-trend styles at lower prices. The product development and direct sourcing operations provide research on emerging fashion and color trends, technical services and direct sourcing options. As a part of its merchandising strategy, members of the Company’s merchandising and design staff visit selected stores to monitor the merchandise offerings of other retailers, regularly communicate with store operations associates and frequently confer with key vendors. The Company also takes aggressive markdowns on slow-selling merchandise and typically does not carry over merchandise to the next season. ### Purchasing, Allocation and Distribution Although the Company purchases merchandise from approximately 560 suppliers, most of its merchandise is purchased from approximately 100 primary vendors. In fiscal 2021, purchases from the Company’s largest vendor accounted for approximately 12% of the Company’s total purchases. The Company is not dependent on its largest vendor or any other vendor for merchandise purchases, and the loss of any single vendor or group of vendors would not have a material adverse effect on the Company’s operating results or financial condition. A substantial portion of the Company’s merchandise is sold under its private labels and is produced by various vendors in accordance with the Company’s strict specifications. The Company sources a majority of its merchandise directly from manufacturers overseas, primarily in Southeast Asia. These manufacturers are dependent on materials that are primarily sourced from China. The Company purchases its remaining merchandise from domestic importers and vendors, which typically minimizes the time necessary to purchase and obtain shipments; however, these vendors are dependent on materials primarily sourced from China. The Company opened its own overseas sourcing operations in the fall of 2014, replacing the Company’s former sourcing agent in 2015. Although a significant portion of the Company’s merchandise is manufactured overseas, primarily in Southeast Asia, the Company does not expect that any economic, political, public health or social unrest in any one country would have a material adverse effect on the Company’s ability to obtain adequate supplies of merchandise. However, the Company can give no assurance that any changes or disruptions in its merchandise supply chain would not materially and adversely affect the Company. See “Risk Factors – Risks Relating To Our Business – Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise; changes, disruptions, cost changes or other problems affecting the Company’s merchandise supply chain could materially and adversely affect the Company’s business, results of operations and financial condition.” An important component of the Company’s strategy is the allocation of merchandise to individual stores based on an analysis of sales trends by merchandise category, customer profiles and climatic conditions. A merchandise control system provides current information on the sales activity of each merchandise style in each of the Company’s stores. Point-of-sale terminals in the stores collect and transmit sales and inventory information to the Company’s central database, permitting timely response to sales trends on a store-by-store basis. All merchandise is shipped directly to the Company’s distribution center in Charlotte, North Carolina, where it is inspected and then allocated by the merchandise distribution staff for shipment to individual stores. The flow of merchandise from receipt at the distribution center to shipment to stores is controlled by an on-line system. Shipments are made by common carrier, and each store receives at least one shipment per week. The centralization of the Company’s distribution process also subjects it to risks in the event of damage to or destruction of its distribution facility or other disruptions affecting the distribution center or the flow of goods into or out of Charlotte, North Carolina. See “Risk Factors – Risks Relating To Our Information Technology and Related Systems – A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations.” ### Advertising The Company uses television, in-store signage, graphics, a Company website, two e-commerce websites and social media as its primary advertising media. The Company’s total advertising expenditures were approximately 0.9%, 0.8% and 0.7% of retail sales for fiscal years 2021, 2020 and 2019, respectively. ### Store Operations The Company’s store operations management team consists of three territorial managers, 12 regional managers and 109 district managers. Regional managers receive a salary plus a bonus based on achieving targeted goals for sales and payroll. District managers receive a salary plus a bonus based on achieving targeted objectives for district sales increases. Stores are typically staffed with a manager, two assistant managers and additional part-time sales associates depending on the size of the store and seasonal personnel needs. In general, store managers are paid a salary or on an hourly basis as are all other store personnel. Store managers, assistant managers and sales associates are eligible for monthly and semi- annual bonuses based on achieving targeted goals for their respective store’s sales increases. ### Store Locations Most of the Company’s stores are located in the southeastern United States in a variety of markets ranging from small towns to large metropolitan areas with trade area populations of 20,000 or more. Stores average approximately 4,500 square feet in size. All of the Company’s stores are leased. Approximately 93% are located in strip shopping centers and 7% in enclosed shopping malls. The Company typically locates stores in strip shopping centers anchored by a national discounter, primarily Walmart Supercenters, or market-dominant grocery stores. The Company’s strip center locations provide ample parking and shopping convenience for its customers. The Company’s store development activities consist of opening new stores in new and existing markets, relocating selected existing stores to more desirable locations in the same market area and closing underperforming stores. The following table sets forth information with respect to the Company’s development activities since fiscal 2017: ### Store Development ### Number of Stores ### Beginning of ### Number ### Number ### Number of Stores ### Fiscal Year ### Year ### Opened ### Closed ### End of Year 2017………………….……...…………. 1,371 6 26 1,351 2018………………….……...…………. 1,351 40 1,311 2019……………………….……...……. 1,311 5 35 1,281 2020…………....………….……...……. 1,281 76 27 1,330 2021………….………...….……...……. 1,330 6 25 1,311 The Company periodically reviews its store base to determine whether any particular store should be closed based on its sales trends and profitability. The Company intends to continue this review process to identify underperforming stores. ### Credit and Layaway ### Credit Card Program The Company offers its own credit card, which accounted for 2.5%, 2.7% and 3.3% of retail sales in fiscal 2021, 2020 and 2019, respectively. The Company’s net bad debt expense was 3.0%, 3.6% and 3.2% of credit sales in fiscal 2021, 2020 and 2019, respectively. Customers applying for the Company’s credit card are approved for credit if they have a satisfactory credit record and the Company has considered the customer’s ability to make the required minimum payment. Customers are required to make minimum monthly payments based on their account balances. If the balance is not paid in full each month, the Company assesses the customer a finance charge. If payments are not received on time, the customer is assessed a late fee subject to regulatory limits. The Company introduced its loyalty program in October 2021. The loyalty program credits the customer points based on their purchases of merchandise using the Company’s proprietary credit card. A point is earned for every dollar spent on merchandise purchases. A $5.00 rewards card is earned for every 250 points accumulated by the customer. The rewards card expires 90 days after the rewards card is issued. The fiscal 2021 loyalty program impact is immaterial to the fiscal 2021 financial statements. The loyalty program will be accounted for in accordance with ASU 2014-09, #### Revenue from Contracts #### with Customers (Topic 606) ### Layaway Plan Under the Company’s layaway plan, merchandise is set aside for customers who agree to make periodic payments. The Company adds a nonrefundable administrative fee to each layaway sale. If no payment is made within four weeks, the customer is considered to have defaulted, and the merchandise is returned to the selling floor and again offered for sale, often at a reduced price. All payments made by customers who subsequently default on their layaway purchase are returned to the customer upon request, less the administrative fee and a restocking fee. The Company defers recognition of layaway sales to the accounting period when the customer picks up and completely pays for layaway merchandise. Administrative fees are recognized in the period in which the layaway is initiated. Recognition of restocking fees occurs in the accounting period when the customer defaults on the layaway purchase. Layaway sales represented approximately 2.7%, 2.8% and 4.1% of retail sales in fiscal 2021, 2020 and 2019, respectively. ### Information Technology Systems The Company’s information technology systems provide daily financial and merchandising information that is used by management to enhance the timeliness and effectiveness of purchasing and pricing decisions. Management uses a daily report comparing actual sales with planned sales and a weekly ranking report to monitor and control purchasing decisions. Weekly reports are also produced which reflect sales, weeks of supply of inventory and other critical data by product categories, by store and by various levels of responsibility reporting. Purchases are made based on projected sales, but can be modified to accommodate unexpected increases or decreases in demand for a particular item. Sales information is projected by merchandise category and, in some cases, is further projected and actual performance measured by stock keeping unit (SKU). Merchandise allocation models are used to distribute merchandise to individual stores based upon historical sales trends, climatic differences, customer demographic differences and targeted inventory turnover rates. ### Competition The women’s retail apparel industry is highly competitive. The Company believes that the principal competitive factors in its industry include merchandise assortment and presentation, fashion, price, store location and customer service. The Company competes with retail chains that operate similar women’s apparel specialty stores. In addition, the Company competes with mass merchandise chains, discount store chains, major department stores, off -price retailers and internet-based retailers. Although we believe we compete favorably with respect to the principal competitive factors described above, many of our direct and indirect competitors are well-established national, regional or local chains, and some have substantially greater financial, marketing and other resources. The Company expects its stores in larger cities and metropolitan areas to face more intense competition. ### Seasonality Due to the seasonal nature of the retail business, the Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods. ### Regulation The Company’s business and operations subject it to a wide range of local, state, national and international laws and regulations in a variety of areas, including but not limited to, trade, licensing and permit requirements, import and export matters, privacy and data protection, credit regulation, environmental matters, recordkeeping and information management, tariffs, taxes, intellectual property and anti-corruption. Though compliance with these laws and regulations has not had a material effect on the capital expenditures, results of operations or competitive position of the Company in fiscal 2021, the Company faces ongoing risks related to its efforts to comply with these laws and regulations and risks related to noncompliance, as discussed generally below throughout the “Risk Factors” section and in particular under “Risk Factors – Risks Relating to Accounting and Legal Matters – Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” ### Human Capital As of January 29, 2022, the Company employed approximately 7,500 full-time and part-time associates. The Company also employs additional part-time associates during the peak retailing seasons. The Company’s full-time team associates are engaged in various executive, operating, and administrative functions in the Home Office and distribution center and the remainder are engaged in store operations. The Company is not a party to any collective bargaining agreements and considers its associate relations to be good. The Company offers a broad range of Company paid benefits to its associates including medical and dental plans, paid vacation, a 401(k) plan, Employee Stock Purchase Plan, Employee Stock Ownership Plan, disability insurance, associate assistance programs, life insurance and an associate discount. The level of benefits and eligibility vary depending on the associate’s full-time or part-time status, date of hire, length of service and level of pay. The Company endeavors to promote diversity, to provide opportunities for advancement, and to treat all of its associates with dignity and respect. The Company constantly strives to improve its training programs to develop associates. Over 80% of store and field management are promoted from within, allowing the Company to internally staff its store base. The Company has training programs at each level of store operations. The Company also performs ongoing reviews of its safety protocols, including extensive efforts undertaken during the COVID-19 pandemic to ensure the health and safety of its associates by performing frequent cleanings, ensuring social distancing and providing masks for all of its stores. ## Risk factors As filed, 49,712 characters. ### Risk Factors: An investment in our common stock involves numerous types of risks. You should carefully consider the following risk factors, in addition to the other information contained in this report, including the disclosures under “Forward-looking Information” above in evaluating our Company and any potential investment in our common stock. If any of the following risks or uncertainties occur or persist, our business, financial condition and operating results could be materially and adversely affected, the trading price of our common stock could decline and you could lose all or a part of your investment in our common stock. The risks and uncertainties described in this section are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business, operating results, financial condition and value of our common stock. ### Risks Relating to the COVID-19 Pandemic: ### The outbreak and persistence of the COVID-19 pandemic has and may continue to adversely affect our ### business, financial condition and results of operations. The COVID-19 pandemic has adversely impacted the Company's business, financial condition and operating results through fiscal 2021 and will likely continue to do so in fiscal 2022 and possibly beyond. Adverse financial impacts associated with the outbreak 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. Though recent developments in the U.S. have led to the relaxation of many of the restrictions and mitigation measures that adversely affected the Company’s operations, store traffic, sales and results of operations since March 2020, there continues to be significant uncertainty regarding the course of COVID-19 and its continuing effects on commercial behavior. These uncertainties include the potential emergence of additional variants, seasonal weather changes or other factors that may lead to a resurgence of the virus and a reinstitution of mandated restrictions, public health advisories or decreased willingness of customers, suppliers, associates and other constituencies on whom our business depends to engage in commercial activities. Other uncertainties include the extent to which and pace at which governments, businesses and individuals may adapt to COVID-19 as endemic and no longer a meaningful impediment or deterrent to commercial activity. The resurgence of the virus and its related effects on the global and U.S. economy, or the lingering uncertainties and time it may take to transition to wide acceptance of COVID-19 as endemic, will likely continue to materially and adversely affect our business, operating results and financial condition. While the Company currently anticipates that our results for fiscal 2022 and possibly beyond will likely be adversely impacted, whether and the extent to which COVID-19 impacts the Company’s results will depend on the course of future developments, which are highly uncertain, including potential sporadic surges of the virus, the extent and pace of public acceptance of COVID-19 as endemic, the continuing evolution, acceptance and success of baseline mitigation measures such as vaccines, and possible new information, understanding or innovation that could alter the course and duration of current measures to combat the spread of the virus. It is also possible COVID-19 and its continuing effects may result in longer term behavioral changes by customers and others that could adversely affect our business, including but not limited to a consumer shift to greater reliance on online versus in-person shopping, which could reduce traffic to our stores and more broadly to the strip shopping centers and malls in which most of our stores are located and disadvantage us relative to competitors who are better established in e-commerce sales, and reductions in face-to-face work, travel and socializing occasions, which may lead customers to less frequently desire or perceive the need to update their wardrobes. The far-reaching impacts of COVID-19 may also intensify other risks we discuss in this report and other filings we make from time to time with the SEC. Future outbreaks of disease or similar public health threats, or the fear of such an occurrence, may also have a material adverse effect on the Company’s business, financial condition and operating results. ### Risks Relating to Our Business: ### Increased product costs, freight costs, wage increases and operating costs due to inflation and other factors, ### as well as limitations in our ability to offset these cost increases by increasing the retail prices of our ### products or otherwise, may adversely affect our business, margins, results of operations and financial ### condition. The impact of inflation on the labor and raw materials used to make our products, coupled with the higher cost of ocean freight from Asia resulting from supply chain disruption, is continuing to increase the cost we pay for our products. Tight labor markets are causing wages to increase at the store, distribution center and home office levels, as well as making it more difficult to hire new associates and retain existing associates. The tight labor market and inflation also are driving up our operating costs. If we are unable to offset the effects of these increased costs to our business by increasing the retail prices of our products, reducing other expenses or otherwise, our business, margins, results of operations and financial condition may be adversely affected. Our ability to raise retail prices in response to these cost increases may be limited, in part due to our customers’ unwillingness to pay higher prices for discretionary items in light of actual or perceived effects of inflation in increasing our customers’ cost of essential items and diminishing customers’ disposable income or financial outlook. Moreover, the persistence or worsening of inflationary conditions could also lead our customers to reduce their amount of current discretionary spending on our products even in the absence of price increases, which could erode our sales volume and adversely affect our results of operations and financial condition. ### Unusual weather, natural disasters, public health threats or similar events may adversely affect our sales or ### operations. Extreme changes in weather, natural disasters, public health threats or similar events can influence customer trends and shopping habits. For example, heavy rainfall or other extreme weather conditions, including but not limited to winter weather over a prolonged period, might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions would adversely affect our business. The occurrence or threat of extreme weather, natural disasters, power outages, terrorist acts, outbreaks of flu or other communicable diseases (such as COVID-19) or other catastrophic events could reduce customer traffic in our stores and likewise disrupt our ability to conduct operations, which could materially and adversely affect us. ### Because we source a significant portion of our merchandise directly and indirectly from overseas, we are ### subject to risks associated with international operations and risks that affect the prevailing social, economic, ### political, public health and other conditions in the areas from which we source merchandise; changes, ### disruptions, increased costs or other problems affecting the Company’s merchandise supply chain could ***materially and adversely affect the Company’s business, results of operations and financial condition.*** A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia. We directly import some of this merchandise and indirectly import the remaining merchandise from domestic vendors who acquire the merchandise from foreign sources. Further, our third-party vendors are dependent on materials primarily sourced from China. As a result, political unrest, labor disputes, terrorism, war, public health threats, including but not limited to communicable diseases (such as COVID-19), financial or other forms of instability or other events resulting in the disruption of trade from countries affecting our supply chain, increased security requirements for imported merchandise, or the imposition of, or changes in, laws, regulations or changes in duties, quotas, tariffs, taxes or governmental policies regarding these matters or other factors affecting the availability or cost of imports, could cause significant delays or interruptions in the supply of our merchandise or increase our costs. We are also subject to supply chain disruptions affecting ocean freight, including lack of overall ocean container shipping capacity versus the current demand for container shipping capacity, lack of our ability to access the ocean container capacity that we require, lack of equipment such as containers, port congestion, including increased dwell times for ocean container ships, and other conditions impacting ocean freight. We also are subject to domestic supply chain disruptions, including lack of domestic intermodal transportation (trucks and drivers), domestic port congestion, including increased dwell times for incoming container ships, lack of container yard capacity and lack of available drayage from the ports and other conditions that may impact our domestic supply chain. These supply chain risks may result in both higher costs to transport our merchandise and delayed merchandise arrivals to our stores, which may adversely affect our ability to sell this merchandise and increase markdowns of it. Our costs are also affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies may increase our cost of goods sold. Any of these factors could have a material adverse effect on our business and results of operations. In addition, increased energy and transportation costs have caused us significant cost increases from time to time, and future adverse changes in these costs or the disruption of the means by which merchandise is transported to us could cause additional cost increases or interruptions of our supply chain, which could be significant. Further, we are subject to increased costs or potential disruptions impacting any port or trade route through which our products move, or we may be subject to increased costs and delays if forced to route freight through different ports than the ones through which our products typically move. If we are forced to source merchandise from other countries or other domestic vendors with foreign sources in different countries, those goods may be more expensive or of a different or inferior quality from the ones we now sell. ### The inability of third-party vendors to produce goods on time and to the Company’s specification may ***adversely affect the Company’s business, results of operations and financial condition.*** Our dependence on third-party vendors to manufacture and supply our merchandise subjects us to numerous risks that our vendors will fail to perform as we expect. For example, the deterioration in any of our key vendors’ financial condition, their failure to ship merchandise in a timely manner that meets our specifications, or other failures to follow our vendor guidelines or comply with applicable laws and regulations, including compliant labor, environmental practices and product safety, could expose us to operational, quality, competitive, reputational and legal risks. If we are not able to timely or adequately replace the merchandise we currently source with merchandise produced elsewhere, or if our vendors fail to perform as we expect, our business, results of operations and financial condition could be adversely affected. Activities conducted by us or on our behalf outside the United States further subject us to numerous U.S. and international regulations and compliance risks, as discussed below under “Risk Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” ### Our ability to attract consumers and grow our revenues is dependent on the success of our store location ### strategy and our ability to successfully open new stores as planned. Our sales are dependent in part on the location of our stores in shopping centers and malls where we believe our consumers and potential consumers shop. In addition, our ability to grow our revenues has been substantially dependent on our ability to secure space for and open new stores in attractive locations. Shopping centers and malls where we currently operate existing stores or seek to open new stores may be adversely affected by, among other things, general economic downturns or those particularly affecting the commercial real estate industry, the closing of anchor stores, changes in tenant mix and changes in customer shopping preferences, including but not limited to an increase in preference for online versus in- person shopping. To take advantage of consumer traffic and the shopping preferences of our consumers, we need to maintain and acquire stores in desirable locations where competition for suitable store locations is intense. A decline in customer popularity of the strip shopping centers where we generally locate our stores or in availability of space in desirable centers and locations, or an increase in the cost of such desired space, could limit our ability to open new stores, adversely affect consumer traffic and reduce our sales and net earnings or increase our operating costs. Our ability to open and operate new stores depends on many factors, some of which are beyond our control. These factors include, but are not limited to, our ability to identify suitable store locations, negotiate acceptable lease terms, secure necessary governmental permits and approvals and hire and train appropriate store personnel. In addition, our continued expansion into new regions of the country where we have not done business before may present new challenges in competition, distribution and merchandising as we enter these new markets. Our failure to successfully and timely execute our plans for opening new stores or the failure of these stores to perform up to our expectations could adversely affect our business, results of operations and financial condition. ### If we are unable to anticipate, identify and respond to rapidly changing fashion trends and customer ***demands in a timely manner, our business and results of operations could materially suffer.*** Customer tastes and fashion trends, particularly for women’s apparel, are volatile, tend to change rapidly and cannot be predicted with certainty. Our success depends in part upon our ability to consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a timely manner. Accordingly, any failure by us to anticipate, identify, design and respond to changing fashion trends could adversely affect consumer acceptance of our merchandise, which in turn could adversely affect our business, results of operations and our image with our customers. If we miscalculate either the market for our merchandise or our customers’ tastes or purchasing habits, we may be required to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which would adversely affect our margins and results of operations. ### Fluctuating comparable sales or our inability to effectively manage inventory may negatively impact our ### gross margin and our overall results of operations. Comparable sales are expected to continue to fluctuate in the future. Factors affecting comparable sales include fashion trends, customer preferences, calendar and holiday shifts, competition, weather, supply chain issues, actual or potential public health threats and economic conditions. In addition, merchandise must be ordered well in advance of the applicable selling season and before trends are confirmed by sales. If we are not able to accurately predict customers’ preferences for our fashion items, we may have too much inventory, which may cause excessive markdowns. If we are unable to accurately predict demand for our merchandise, we may end up with inventory shortages, resulting in missed sales. A decrease in comparable sales or our inability to effectively manage inventory may adversely affect our gross margin and results of operations. ### Existing and increased competition in the women’s retail apparel industry may negatively impact our ### business, results of operations, financial condition and market share. The women’s retail apparel industry is highly competitive. We compete primarily with discount stores, mass merchandisers, department stores, off-price retailers, specialty stores and internet-based retailers, many of which have substantially greater financial, marketing and other resources than we have. Many of our competitors offer frequent promotions and reduce their selling prices. In some cases, our competitors are expanding into markets in which we have a significant market presence. In addition, our competitors also compete for the same retail store space. As a result of this competition, we may experience pricing pressures, increased marketing expenditures, increased costs to open new stores, as well as loss of market share, which could materially and adversely affect our business, results of operations and financial condition. ***The operation of our sourcing offices in Asia may present increased legal and operational risks.*** In October 2014, we established our own sourcing offices in Asia. Our experience with legal and regulatory practices and requirements in Asia is limited. If our sourcing offices are unable to successfully oversee merchandise production to ensure that product is produced on time and within the Company’s specifications, our business, brand, reputation, costs, results of operations and financial condition could be materially and adversely affected. Further, the activities conducted by our sourcing offices outside the United States subject us to foreign operational risks, as well as U.S. and international regulations and compliance risks, as discussed elsewhere in this “Risk Factors” section, in particular below under “Risk Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” ### Any actual or perceived deterioration in the conditions that drive consumer confidence and spending may ### materially and adversely affect consumer demand for our apparel and accessories and our results of ### operations. Consumer spending habits, including spending for our apparel and accessories, are affected by, among other things, prevailing social, economic, political and public health conditions and uncertainties (such as matters under debate in the U.S. from time to time regarding budgetary, spending and tax policies and the impact of COVID-19), levels of employment, fuel, energy and food costs, salaries and wage rates and other sources of income, tax rates, home values, consumer net worth, the availability of consumer credit, inflation, consumer confidence and consumer perceptions of adverse changes in or trends affecting any of these conditions. Any perception that these conditions may be worsening or continuing to trend negatively may significantly weaken many of these drivers of consumer spending habits. Adverse perceptions of these conditions or uncertainties regarding them also generally cause consumers to defer purchases of discretionary items, such as our merchandise, or to purchase cheaper alternatives to our merchandise, all of which may also adversely affect our net sales and results of operations. In addition, numerous events, whether or not related to actual economic conditions, such as downturns in the stock markets, acts of war or terrorism, political unrest or natural disasters, outbreaks of disease or similar events, may also dampen consumer confidence, and accordingly, lead to reduced consumer spending. Any of these events could have a material adverse effect on our business, results of operations and financial condition. ### Fluctuations in the price, availability and quality of inventory may result in higher cost of goods, which the ### Company may not be able to pass on to its customers. Vendors are increasingly passing on higher production costs, including the costs to ship product, which may impact our ability to maintain or grow our margins. The price and availability of raw materials may be impacted by demand, regulation, weather and crop yields, currency value fluctuations, inflation, as well as other factors. Additionally, manufacturers have and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit costs. These increases in production costs result in higher merchandise costs to the Company. Due to the Company’s limited flexibility in price point, the Company may not be able to pass on those cost increases to the consumer, which could have a material adverse effect on our margins, results of operations and financial condition. ### If the Company is unable to successfully integrate new businesses into its existing business, the Company’s ### financial condition and results of operations will be adversely affected. The Company’s long-term business strategy includes opportunistic growth through the development of new store concepts. This growth may require significant capital expenditures and management attention. The Company may not realize any of the anticipated benefits of a new business and integration costs may exceed anticipated amounts. We have incurred substantial financial commitments and fixed costs related to our retail stores that we will not be able to recover if our stores are not successful and that could potentially result in impairment charges. If we cannot successfully execute our growth strategies, our financial condition and results of operations may be adversely impacted. ### Failure to attract, train, and retain skilled personnel could adversely affect our business and our financial ### condition. Like most retailers, we experience significant associate turnover rates, particularly among store sales associates and managers. Moreover, attracting and retaining skilled personnel has become increasingly challenging in the tight labor market that has persisted since the onset of the COVID-19 pandemic. To offset this turnover as well as support new store growth, we must continually attract, hire and train new store associates to meet our staffing needs. A significant increase in the turnover rate among our store sales associates and managers would increase our recruiting and training costs, as well as possibly cause a decrease in our store operating efficiency and productivity. We compete for qualified store associates, as well as experienced management personnel, with other companies in our industry or other industries, many of whom have greater financial resources than we do. In addition, we depend on key management personnel to oversee the operational divisions of the Company for the support of our existing business and future expansion. The success of executing our business strategy depends in large part on retaining key management. We compete for key management personnel with other retailers, and our inability to attract and retain qualified personnel could limit our ability to continue to grow. If we are unable to retain our key management and store associates or attract, train, or retain other skilled personnel in the future, we may not be able to service our customers effectively or execute our business strategy, which could adversely affect our business, operating results and financial condition. The currently competitive environment for hiring new associates and retaining existing associates is causing wages to increase, which could adversely affect our business, margins, operating results and financial condition if we cannot offset these cost increases. ### Risks Relating to Our Information Technology and Related Systems: ***A failure or disruption relating to our information technology systems could adversely affect our business.*** We rely on our existing information technology systems for merchandise operations, including merchandise planning, replenishment, pricing, ordering, markdowns and product life cycle management. In addition to merchandise operations, we utilize our information technology systems for our distribution processes, as well as our financial systems, including accounts payable, general ledger, accounts receivable, sales, banking, inventory and fixed assets. Despite the precautions we take, our information systems are or may be vulnerable to disruption or failure from numerous events, including but not limited to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts of war or terrorism, similar catastrophic events or other causes beyond our control or that we fail to anticipate. Any disruption or failure in the operation of our information technology systems, our failure to continue to upgrade or improve such systems, or the cost associated with maintaining, repairing or improving these systems, could adversely affect our business, results of operations and financial condition. Modifications and/or upgrades to our current information technology systems may also disrupt our operations. ### A disruption or shutdown of our centralized distribution center or transportation network could materially ### and adversely affect our business and results of operations. The distribution of our products is centralized in one distribution center in Charlotte, North Carolina and distributed through our network of third-party freight carriers. The merchandise we purchase is shipped directly to our distribution center, where it is prepared for shipment to the appropriate stores and subsequently delivered to the stores by our third-party freight carriers. If the distribution center or our third-party freight carriers were to be shut down or lose significant capacity for any reason, including but not limited to, any of the causes described above under “A failure or disruption relating to our information technology systems could adversely affect our business,” our operations would likely be seriously disrupted. Such problems could occur as the result of any loss, destruction or impairment of our ability to use our distribution center, as well as any broader problem generally affecting the ability to ship goods into our distribution center or deliver goods to our stores. As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to reopen or replace the distribution center and/or our transportation network. Any such occurrence could adversely affect our business, results of operations and financial condition. ### A security breach that results in unauthorized access to or disclosure of employee, Company or customer ### information could adversely affect our costs, reputation and results of operations, and efforts to mitigate ### these risks may continue to increase our costs. The protection of employee, Company and customer data is critical to the Company. Any security breach, mishandling, human or programming error or other event that results in the misappropriation, loss or other unauthorized disclosure of employee, Company or customer information, including but not limited to credit card data or other personally identifiable information, could severely damage the Company's reputation, expose it to remediation and other costs and the risks of legal proceedings, disrupt its operations and otherwise adversely affect the Company's business and financial condition. The security of certain of this information also depends on the ability of third-party service providers, such as those we use to process credit and debit card payments as described below under “We are subject to payment-related risks,” to properly handle and protect such information. Our information systems and those of our third-party service providers are subject to ongoing and persistent cybersecurity threats from those seeking unauthorized access through means which are continually evolving and may be difficult to anticipate or detect for long periods of time. Despite measures the Company takes to protect confidential information against unauthorized access or disclosure, which are ongoing and may continue to increase our costs, there is no assurance that such measures will prevent the compromise of such information. If any such compromise or unauthorized access to or disclosure of this information were to occur, it could have a material adverse effect on the Company's reputation, business, operating results, financial condition and cash flows. ### We are subject to payment -related risks. We accept payments using a variety of methods, including third-party credit cards, our own branded credit card, debit cards, gift cards and physical and electronic bank checks. For existing and future payment methods we offer to our customers, we may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in increased costs and reduce the ease of use of certain payment methods), as well as fraud risk. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time, raising our operating costs and lowering profitability. We rely on third- party service providers for payment processing services, including the processing of credit and debit cards. In each case, it could disrupt our business if these third-party service providers become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card-issuing banks’ costs, subject to fines and higher transaction fees. In addition, we may lose our ability to accept credit and debit card payments from our customers and process electronic funds transfers or facilitate other types of payments, and our business and operating results could be adversely affected. ### The Company’s failure to successfully operate its e-commerce websites or fulfill customer expectations could ### adversely impact customer satisfaction, our reputation and our business. Although the Company's e-commerce platform provides another channel to drive incremental sales, provide existing customers the on-line shopping experience and introduce the Company to a new customer base, it also exposes us to numerous risks. We are subject to potential failures in the efficient and uninterrupted operation of our websites, customer contact center or our distribution center, including system failures caused by telecommunication system providers, order volumes that exceed our present system capabilities, electrical outages, mechanical problems and human error. Our e-commerce platform may also expose us to greater potential for security or data breaches involving the unauthorized access to or disclosure of customer information, as discussed above under “A security breach that results in unauthorized access to or disclosure of employee, Company or customer information could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs.” We are also subject to risk related to delays or failures in the performance of third parties, such as shipping companies, including delays associated with labor strikes or slowdowns or adverse weather conditions. If the Company does not successfully meet the challenges of operating e- commerce websites or fulfilling customer expectations, the Company's business and sales could be adversely affected. ### Risks Relating to Accounting and Legal Matters: ### Changes to accounting rules and regulations may adversely affect our reported results of operations and ### financial condition. In an effort to provide greater comparability of financial reporting in an increasing global environment, accounting regulatory authorities have been in discussions for many years regarding efforts to either converge U.S. Generally Accepted Accounting Principles with International Financial Reporting Standards (“IFRS”), have U.S. companies provide supplemental IFRS-based information or continue to work toward a single set of globally accepted accounting standards. If implemented, these potential changes in accounting rules or regulations could significantly impact our future reported results of operations and financial position. Changes in accounting rules or regulations and varying interpretations of existing accounting rules and regulations have significantly affected our reported financial statements and those of other participants in the retail industry in the past and may continue to do so in the future. Future changes to accounting rules or regulations may adversely affect our reported results of operations and financial position or perceptions of our performance and financial condition. ***Adverse litigation matters may adversely affect our business and our financial condition.*** From time to time the Company is involved in litigation and other claims against our business. Primarily these arise from our normal course of business but are subject to risks and uncertainties, and could require significant management time. The Company’s periodic evaluation of litigation-related matters may change our assessment in light of the discovery of facts with respect to legal actions pending against us, not presently known to us or by determination of judges, juries or other finders of fact. We may also be subjected to legal matters not yet known to us. Adverse decisions or settlements of disputes may negatively impact our business, reputation and financial condition. ### Our business operations subject us to legal compliance and litigation risks, as well as regulations and ### regulatory enforcement priorities, which could result in increased costs or liabilities, divert our ### management’s attention or otherwise adversely affect our business, results of operations and financial ### condition. Our operations are subject to federal, state and local laws, rules and regulations, as well as U.S. and foreign laws and regulations relating to our activities in foreign countries from which we source our merchandise and operate our sourcing offices. Our business is also subject to regulatory and litigation risk in all of these jurisdictions, including foreign jurisdictions that may lack well-established or reliable legal systems for resolving legal disputes. Compliance risks and litigation claims have arisen and may continue to arise in the ordinary course of our business and include, among other issues, intellectual property issues, employment issues, commercial disputes, product-oriented matters, tax, customer relations and personal injury claims. International activities subject us to numerous U.S. and international regulations, including but not limited to, restrictions on trade, license and permit requirements, import and export license requirements, privacy and data protection laws, environmental laws, records and information management regulations, tariffs and taxes and anti-corruption laws, such as the Foreign Corrupt Practices Act, violations of which by employees or persons acting on the Company’s behalf may result in significant investigation costs, severe criminal or civil sanctions and reputational harm. These and other liabilities to which we may be subject could negatively affect our business, operating results and financial condition. These matters frequently raise complex factual and legal issues, which are subject to risks and uncertainties and could divert significant management time. The Company may also be subject to regulatory review and audits, which results may have the potential to materially and adversely affect our business, results of operations and financial condition. In addition, governing laws, rules and regulations, and interpretations of existing laws are subject to change from time to time. Compliance and litigation matters could result in unexpected expenses and liability, as well as have an adverse effect on our operations and our reputation. New legislation or regulation and interpretation of existing laws and regulations, including those related to data privacy, could increase our costs of compliance, technology and business operations. The interpretation of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost. ### If we fail to protect our trademarks and other intellectual property rights or infringe the intellectual property ### rights of others, our business, brand image, growth strategy, results of operations and financial condition ### could be adversely affected. We believe that our “Cato”, “It’s Fashion”, “It’s Fashion Metro” and “Versona” trademarks are integral to our store designs, brand recognition and our ability to successfully build consumer loyalty. Although we have registered these trademarks with the U.S. Patent and Trademark Office (“PTO”) and have also registered, or applied for registration of, additional trademarks with the PTO that we believe are important to our business, we cannot give assurance that these registrations will prevent imitation of our trademarks, merchandising concepts, store designs or private label merchandise or the infringement of our other intellectual property rights by others. Infringement of our names, concepts, store designs or merchandise generally, or particularly in a manner that projects lesser quality or carries a negative connotation of our image could adversely affect our business, financial condition and results of operations. In addition, we cannot give assurance that others will not try to block the manufacture or sale of our private label merchandise by claiming that our merchandise violates their trademarks or other proprietary rights. In the event of such a conflict, we could be subject to lawsuits or other actions, the ultimate resolution of which we cannot predict; however, such a controversy could adversely affect our business, financial condition and results of operations. ### Maintaining and improving our internal control over financial reporting and other requirements necessary ### to operate as a public company may strain our resources, and any material failure in these controls may ### negatively impact our business, the price of our common stock and market confidence in our reported ### financial information. As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the rules of the SEC and New York Stock Exchange and certain aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and related rule-making that has been and may continue to be implemented over the next several years under the mandates of the Dodd-Frank Act. The requirements of these rules and regulations have increased, and may continue to increase, our compliance costs and place significant strain on our personnel, systems and resources. To satisfy the SEC’s rules implementing the requirements of Section 404 of the Sarbanes- Oxley Act of 2002, we must continue to document, test, monitor and enhance our internal control over financial reporting, which is a costly and time-consuming effort that must be re-evaluated frequently. We cannot give assurance that our disclosure controls and procedures and our internal control over financial reporting, as defined by applicable SEC rules, will be adequate in the future. Any failure to maintain the effectiveness of internal control over financial reporting or to comply with the other various laws and regulations to which we are and will continue to be subject, or to which we may become subject in the future, as a public company could have an adverse material impact on our business, our financial condition and the price of our common stock. In addition, our efforts to comply with these existing and new requirements could significantly increase our compliance costs. ### Risks Relating to Our Investments and Liquidity: ### We may experience market conditions or other events that could adversely impact the valuation and liquidity ### of, and our ability to access, our short-term investments, cash and cash equivalents and our revolving line of ### credit. Our short-term investments and cash equivalents are primarily comprised of investments in federal, state, municipal and corporate debt securities. The value of those securities may be adversely impacted by factors relating to these securities, similar securities or the broader credit markets in general. Many of these factors are beyond our control, and include but are not limited to changes to credit ratings, rates of default, collateral value, discount rates, and strength and quality of market credit and liquidity, potential disruptions in the capital markets and changes in the underlying economic, financial and other conditions that drive these factors. As federal, state and municipal entities struggle with declining tax revenues and budget deficits, we cannot be assured of our ability to timely access these investments if the market for these issues declines. Similarly, the default by issuers of the debt securities we hold or similar securities could impair the liquidity of our investments. The development or persistence of any of these conditions could adversely affect our financial condition, results of operations and ability to execute our business strategy. In addition, we have significant amounts of cash and cash equivalents at financial institutions that are in excess of the federally insured limits. An economic downturn or development of adverse conditions affecting the financial sector and stability of financial institutions could cause us to experience losses on our deposits. Our ability to access credit markets and our revolving line of credit, either generally or on favorable market terms, may be impacted by the factors discussed in the preceding paragraph, as well as continued compliance with covenants under our revolving credit agreement. The development or persistence of any of these adverse factors or failure to comply with covenants on which our borrowing is conditioned may adversely affect our financial condition, results of operations and our ability to execute our business strategy. ### Risks Relating to the Market Value of Our Common Stock: ### Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the ### market price of our common stock. Our business varies with general seasonal trends that are characteristic of the retail apparel industry. As a result, our stores typically generate a higher percentage of our annual net sales and profitability in the first and second quarters of our fiscal year compared to other quarters. Accordingly, our operating results for any one fiscal period are not necessarily indicative of results to be expected from any future period, and such seasonal and quarterly fluctuations could adversely affect the market price of our common stock. ### The interests of our principal shareholder may limit the ability of other shareholders to influence the ### direction of the Company and otherwise affect our corporate governance and the market price of our ### common stock. As of March 23, 2022, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially owned approximately 49.8% of the combined voting power of our common stock. As a result, Mr. Cato has the ability to substantially influence or determine the outcome of all matters requiring approval by the shareholders, including the election of directors and the approval of mergers and other business combinations or other significant Company transactions. Mr. Cato may have interests that differ from those of other shareholders, and may vote in a way with which other shareholders disagree or perceive as adverse to their interests. The concentration of voting power held by Mr. Cato could discourage potential investors from acquiring our common stock and could also have the effect of preventing, discouraging or deferring a change in control of the Company or other fundamental transaction, all of which could depress the market price of our common stock. In addition, Mr. Cato has the ability to control the management of the Company as a result of his position as Chief Executive Officer. If Mr. Cato acquires beneficial ownership of more than 50% of the combined voting power of our common stock (including as a result of continued Company stock repurchases from time to time under our stock repurchase program that would reduce our outstanding shares), we would qualify for exemption as a “controlled company” from compliance with certain New York Stock Exchange corporate governance rules, including the requirements that we have a majority of independent directors on our Board, an independent compensation committee and an independent corporate governance and nominating committee. If we became eligible and elected to utilize these “controlled company” exceptions, our other shareholders could lose the benefit of these corporate governance requirements and the market value of our common stock could be adversely affected. ### Conditions in the stock market generally, or particularly relating to our industry, Company or common ### stock, may materially and adversely affect the market price of our common stock and make its trading price ### more volatile. The trading price of our common stock at times has been, and is likely to continue to be, subject to significant volatility. A variety of factors may cause the price of our common stock to fluctuate, perhaps substantially, including, but not limited to, those discussed elsewhere in this report, as well as the following: low trading volume; general market fluctuations resulting from factors not directly related to our operations or the inherent value of our common stock; announcements of developments related to our business; fluctuations in our reported operating results; general conditions or trends affecting or perceived to affect the fashion and retail industry; conditions or trends affecting or perceived to affect the domestic or global economy or the domestic or global credit or capital markets; changes in financial estimates or the scope of coverage given to our Company by securities analysts; negative commentary regarding our Company and corresponding short-selling market behavior; adverse customer relations developments; significant changes in our senior management team; and legal proceedings. Over the past several years the stock market in general, and the market for shares of equity securities of many retailers in particular, have experienced extreme price fluctuations that have at times been unrelated to the operating performance of those companies. Such fluctuations and market volatility based on these or other factors may materially and adversely affect the market price of our common stock. ## Properties As filed, 778 characters. ### Properties: The Company’s distribution center and general offices are located in a Company-owned building of approximately 552,000 square feet located on a 15-acre tract in Charlotte, North Carolina. The Company’s automated merchandise handling and distribution activities occupy approximately 418,000 square feet of this building and its general offices and corporate training center are located in the remaining 134,000 square feet. A building of approximately 24,000 square feet located on a 2-acre tract adjacent to the Company’s existing location is used for receiving and distribution of store and office operating supplies. The Company also owns approximately 185 acres of land in York County, South Carolina as a potential new site for our distribution center. ## Legal proceedings As filed, 410 characters. ### Legal Proceedings From time to time, claims are asserted against the Company arising out of operations in the ordinary course of business. The Company currently is not a party to any pending litigation that it believes is likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows. See Note 15, “Commitments and Contingencies,” for more information. ## Management's discussion and analysis As filed, 25,091 characters. ### Management's Discussion and Analysis of Financial Condition and Results of Operations: Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist readers in better understanding and evaluating our financial condition and results of operations. The following information should be read in conjunction with the Consolidated Financial Statements, including the accompanying Notes appearing in Part II, Item 8 of this report on Form 10-K. This section of the Form 10-K generally discusses fiscal 2021 and fiscal 2020 and year-to- year comparisons between fiscal 2021 and fiscal 2020, as well, as certain fiscal 2019 items. Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and fiscal 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021. ### COVID-19 Update The COVID-19 pandemic adversely impacted the Company's business, financial condition and operating results through fiscal 2020 and to a lesser extent through 2021. In 2021, the Company saw significant improvements in sales compared to 2020. This improvement was primarily attributable to government stimulus, increased customer traffic, states lifting capacity limits as more people were vaccinated, consumers’ increasing comfort level with venturing out to social events and customers’ preparing to return to work. However, the Company’s 2021 sales remain below pre-pandemic 2019 sales for the comparable period, and there is still significant uncertainty regarding the lingering effects of the pandemic, as well as concerns over 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 faces additional uncertainty from 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 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 pre-pandemic economic and operating conditions can resume. ### Results of Operations The table below sets forth certain financial data of the Company expressed as a percentage of retail sales for the years indicated: ### Fiscal Year Ended ### January 29, ### 2022 January 30, 2021 Retail sales ………………………………………………………….. ### 100.0 100.0 Other revenue………………………………………………………… ### 1.0 1.3 Total revenues ………………………………………………………. ### 101.0 101.3 Cost of goods sold ………………………………………………….. ### 59.5 76.3 Selling, general and administrative…………………………………. ### 35.1 36.4 Depreciation ………………………………………………………… ### 1.6 2.6 Interest and other income …………………………………………… ### 0.3 1.2 Income (loss) before income taxes …………………………… ### 5.1 (12.8) Net income (loss) …………………………………………………… ### 4.8 (8.4) ### Fiscal 2021 Compared to Fiscal 2020 Retail sales increased by 34.2% to $761.4 million in fiscal 2021 compared to $567.5 million in fiscal 2020. The increase in retail sales in fiscal 2021 was primarily due to a 34% increase in same-store sales and sales from new stores, partially offset by permanently closed stores in 2020. Same-store sales for the fiscal year 2021 increased primarily due to increased store operating hours in fiscal 2021 as opposed to the store closures that persisted from March 19, 2020 into the second quarter of 2020. Same-store sales includes 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. In fiscal 2021 and fiscal 2020, e-commerce sales were less than 5% of total sales and same-store sales. 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. Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts receivable, gift card breakage, shipping charges for e-commerce purchases and layaway fees), increased by 33.8% to $769.3 million in fiscal 2021 compared to $575.1 million in fiscal 2020. The Company operated 1,311 stores at January 29, 2022 compared to 1,330 stores operated at January 30, 2021. In fiscal 2021, the Company opened 6 new stores and closed 25 stores. Other revenue in total increased to $7.9 million in fiscal 2021 from $7.6 million in fiscal 2020. The increase resulted primarily due to increases in gift card breakage income, e-commerce shipping revenues and layaway charges, partially offset by a decrease in finance charges. Credit revenue of $2.1 million represented 0.3% of total revenue in fiscal 2021, a $0.6 million decrease compared to fiscal 2020 credit revenue of $2.7 million or 0.5% of total revenue. The decrease in credit revenue was primarily due to reductions in finance and late charge income as a result of lower accounts receivable balances. 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 $1.4 million in fiscal 2021 compared to $1.5 million in fiscal 2020. See Note 13 of Notes to Consolidated Financial Statements for a schedule of credit-related expenses. Total credit segment income before taxes decreased $0.6 million to $0.6 million in fiscal 2021 from $1.2 million in fiscal 2020. Cost of goods sold was $453.1 million, or 59.5% of retail sales, in fiscal 2021 compared to $433.2 million, or 76.3% of retail sales, in fiscal 2020. The decrease in cost of goods sold as a percentage of sales resulted primarily from the leveraging of occupancy, buying and distribution costs due to more normalized sales and higher sales of regular priced goods. 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 expenses 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 and excluding depreciation) increased by 129.5% to $308.3 million in fiscal 2021 from $134.3 million in fiscal 2020. Gross margin as presented may not be comparable to that of other companies. Selling, general and administrative expenses (“SG&A”), which primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees were $267.0 million in fiscal 2021 compared to $206.7 million in fiscal 2020, an increase of 29.2%. As a percent of retail sales, SG&A was 35.1% compared to 36.4% in the prior year. The dollar increase in SG&A expense was primarily attributable to higher employee benefit/bonus expense, store productivity initiatives and store operating expenses as store operating hours have increased substantially compared to the prior year’s phased store reopening following the extended store closure due to COVID-19, partially offset by lower impairment charges. Depreciation expense was $12.4 million in fiscal 2021 compared to $14.7 million in fiscal 2020. Depreciation expense decreased from fiscal 2020 due to fully depreciated older stores and prior period impairments of leasehold improvements and fixtures, partially offset by store development and information technology expenditures. Interest and other income decreased to $2.1 million in fiscal 2021 compared to $6.6 million in fiscal 2020. The decrease is primarily due to a gain on the sale of land held for investment in 2020 and lower interest rates on our short-term investments, partially offset by an increase in short-term investments. Income tax expense was $2.1 million, or 0.3% of retail sales in fiscal 2021 compared to an income tax benefit of $25.3 million, or 4.5% of retail sales in fiscal 2020. The income tax expense was primarily due to higher pre-tax earnings, partially offset by the ability to realize foreign tax credits, release of reserves for uncertain tax positions due to the expiration of the statute of limitations, a favorable adjustment to the federal net operating loss carryback and a partial release of valuation allowances against state net operating losses. The effective tax rate was 5.4% (Expense) in fiscal 2021 compared to 34.8% (Benefit) in fiscal 2020. See Note 12 to the Consolidated Financial Statements, “Income Taxes,” for further details. ### Off-Balance Sheet Arrangements None. ### Critical Accounting Policies and Estimates The Company’s accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. As disclosed in Note 1 of Notes to the Consolidated Financial Statements, 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. ### Allowance for Customer Credit Losses The Company evaluates the collectability of customer accounts receivable and records an allowance for customer credit losses based on the accounts receivable aging and estimates of actual write-offs. The allowance is reviewed for adequacy and adjusted, as necessary, on a quarterly basis. The Company also provides for estimated uncollectible late fees charged based on historical write-offs. The Company’s financial results can be impacted by changes in customer loss write-off experience and the aging of the accounts receivable portfolio. ### Merchandise Inventories The Company’s inventory is valued using the weighted-average cost method and is stated at the net realizable value. Physical inventories are conducted throughout the year to calculate actual shrinkage and inventory on hand. Estimates based on actual shrinkage results are used to estimate inventory shrinkage, which is accrued for the period between the last physical inventory and the financial reporting date. The Company regularly reviews its inventory levels to identify slow moving merchandise and uses markdowns to clear slow moving inventory. ### Lease Accounting 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, the Company 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. See Note 11 for further information. ### Impairment of Long-Lived Assets The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and Information technology equipment and software. An impairment charge is recorded for the amount by which the carrying value exceeds the estimated fair value when the Company determines that projected cash flows associated with those long-lived assets will not be sufficient to recover the carrying value. This determination is based on a number of factors, including the store’s historical operating results and future projected cash flows, which include contribution margin projections. The Company assesses the fair value of each lease by considering market rents and any lease terms that may adjust market rents under certain conditions, such as the loss of an anchor tenant or a leased space in a shopping center not meeting certain criteria. Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change. ### Insurance Liabilities The Company is primarily self-insured for healthcare, workers’ compensation and general liability costs. These costs are significant primarily due to the large number of the Company’s retail locations and associates. The Company’s self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted. Management reviews current and historical claims data in developing its estimates. The Company also uses information provided by outside actuaries with respect to healthcare, workers’ compensation and general liability claims. If the underlying facts and circumstances of the claims change or the historical experience upon which insurance provisions are recorded is not indicative of future trends, then the Company may be required to make adjustments to the provision for insurance costs that could be material to the Company’s reported financial condition and results of operations. Historically, actual results have not significantly deviated from estimates. ### Uncertain Tax Positions The Company records liabilities for uncertain tax positions primarily related to state income taxes as of the balance sheet date. These liabilities reflect the Company’s best estimate of its ultimate income tax liability based on the tax codes, regulations, and pronouncements of the jurisdictions in which we do business. Estimating our ultimate tax liability involves significant judgments regarding the application of complex tax regulations across many jurisdictions. Despite the Company’s belief that the estimates and judgments are reasonable, differences between the estimated and actual tax liabilities can and do exist from time to time. These differences may arise from settlements of tax audits, expiration of the statute of limitations, or the evolution and application of the various jurisdictional tax codes and regulations. Any differences will be recorded in the period in which they become known and could have a material effect on the results of operations in the period the adjustment is recorded. ### Liquidity, Capital Resources and Market Risk The Company believes that its cash, cash equivalents and short-term investments, together with cash flows from operations, will be adequate to fund the Company’s regular operating requirements including $71.3 million of lease obligations and planned investments of $23.0 million of capital expenditures for fiscal 2022 and for the foreseeable future. Cash provided by operating activities during fiscal 2021 was $59.8 million as compared to $30.7 million used in fiscal 2020 and $53.4 million provided in fiscal 2019. Cash provided by operating activities during 2021 was primarily attributable to net income adjusted for depreciation, share-based compensation, impairment and changes in working capital. The increase of $90.5 million for fiscal 2021 compared to fiscal 2020 is primarily due to net operating income versus a net operating loss and an increase in accounts payable, partially offset by higher merchandise inventories and lower store impairment charges. At January 29, 2022, the Company had working capital of $111.5 million compared to $108.6 million and $163.5 million at January 30, 2021 and February 1, 2020, respectively. The slight increase in working capital compared to the prior year is primarily due to higher short-term investments, inventory and cash and cash equivalents, partially offset by higher accrued liabilities and accounts payable. At January 29, 2022, the Company had an unsecured revolving credit agreement, which provided for borrowings of up to $35.0 million less the balance of any revocable letters of credit discussed below. The revolving credit agreement is committed until May 2022. The Company is in the process of obtaining a new revolving credit agreement and expects this to be completed by May of 2022. The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of January 29, 2022. There were no borrowings outstanding under this credit facility as of the fiscal year ended January 29, 2022 or the fiscal year ended January 30, 2021. The Company had no outstanding revocable letters of credit relating to purchase commitments at January 29, 2022, January 30, 2021 and February 1, 2020. Expenditures for property and equipment totaled $4.1 million, $14.0 million and $8.3 million in fiscal 2021, 2020 and 2019, respectively. The expenditures for fiscal 2021 were primarily for additional investments in six new stores, distribution center and information technology. Net cash used by investing activities totaled $25.3 million for fiscal 2021 compared to $64.5 million provided for fiscal 2020 and $22.6 million used in fiscal 2019. In fiscal 2021, the cash used was primarily attributable to the increase in net purchases of short-term investments, partially offset by lower expenditures for property and equipment. Net cash used by financing activities totaled $31.8 million in fiscal 2021 compared to net cash used of $27.2 million for fiscal 2020 and $41.6 million for fiscal 2019. The increase in cash used was primarily due to higher dividend payments and higher share repurchase amounts. The Company does not use derivative financial instruments. See Note 4, “Fair Value Measurements,” for information regarding the Company’s financial assets that are measured at fair value. 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 January 29, 2022. The state, municipal and corporate bonds and asset-backed securities have contractual maturities which range from three days to 4.9 years. The U.S. Treasury Notes have contractual maturities which range from 4.5 months to 1.1 years. These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash, Restricted short-term investments and Other assets on the accompanying 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 January 29, 2022, the Company had $0.8 million of corporate equities, which are recorded within Other assets in the Consolidated Balance Sheets. At January 30, 2021, the Company had $0.7 million of corporate equities, which are recorded within Other assets in the 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 primarily 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 recorded in Other noncurrent liabilities in the Consolidated Balance Sheets. These funds are designed to mirror the return of existing mutual funds and money market funds that are observable and actively traded. ### Contractual Obligations Contractual obligations for future payments at January 29, 2022 relate primarily to operating lease commitments for store leases. Operating leases represent minimum required lease payments under non- cancellable lease terms. Most store leases also require payment of related operating expenses such as taxes, utilities, insurance and maintenance, which are not included in our estimated lease obligations. See Note 11, Leases in Notes to the Consolidated Financial Statements for the maturities of our operating lease obligations. ### Recent Accounting Pronouncements See Note 1, Summary of Significant Accounting Policies, Recently Adopted Accounting Policies and Recently Issued Accounting Pronouncements. ## Market risk As filed, 276 characters. ### 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. ## Controls and procedures As filed, 2,455 characters. ### Controls and Procedures: ### Conclusion Regarding the Effectiveness of Disclosure 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 January 29, 2022. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of January 29, 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. ### Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of January 29, 2022 based on the #### Internal Control – Integrated Framework #### (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of January 29, 2022. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of January 29, 2022, as stated in its report which is included herein. ### 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 January 29, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Filed Mar 23, 2022. Source: SEC EDGAR, the filing index for accession 0000018255-22-000011. Last ingested by Listed: Oct 24, 2026, 14:51 ET. No prices; not investment advice.