# Cato Corp: Form 10-Q for the period ended Apr 30, 2022 - Company: [Cato Corp](/companies/cato.md) (CIK 18255) - Form: 10-Q - Filed: 2022-05-26 - Accepted by EDGAR: May 26, 2022, 10:10 ET - Period: 2022-04-30 - Accession: 0000018255-22-000024 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/18255/000001825522000024/cato-20220430.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/18255/000001825522000024/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2022-04-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2022-01-30 to 2022-04-30 | $206.7m | us-gaap:Revenues | | Cost of revenue | 3 months, 2022-01-30 to 2022-04-30 | $132.2m | us-gaap:CostOfGoodsAndServicesSold | | Selling, general and administrative | 3 months, 2022-01-30 to 2022-04-30 | $60.4m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2022-01-30 to 2022-04-30 | $11.7m | us-gaap:OperatingIncomeLoss | | Income tax | 3 months, 2022-01-30 to 2022-04-30 | $1.9m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2022-01-30 to 2022-04-30 | $9.7m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2022-01-30 to 2022-04-30 | $0.46 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2022-01-30 to 2022-04-30 | $0.46 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2022-01-30 to 2022-04-30 | 20,149,201 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 3 months, 2022-01-30 to 2022-04-30 | −$765.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2022-01-30 to 2022-04-30 | $4.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 3 months, 2022-01-30 to 2022-04-30 | $3.6m | us-gaap:PaymentsOfDividends | | Share repurchases | 3 months, 2022-01-30 to 2022-04-30 | $9.2m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2022-04-30 | $25.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2022-04-30 | $343.5m | us-gaap:AssetsCurrent | | Total assets | at 2022-04-30 | $612.0m | us-gaap:Assets | | Current liabilities | at 2022-04-30 | $235.7m | us-gaap:LiabilitiesCurrent | | Shareholders' equity | at 2022-04-30 | $250.7m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 20,088 characters. ### CONDITION AND RESULTS OF OPERATIONS ### FORWARD-LOOKING INFORMATION: The following information should be read along with the unaudited Condensed Consolidated Financial Statements, including the accompanying Notes appearing in this report. Any of the following are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended: (1) statements in this Form 10-Q that reflect projections or expectations of our future financial or economic performance; (2) statements that are not historical information; (3) statements of our beliefs, intentions, plans and objectives for future operations, including those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; (4) statements relating to our operations or activities for our fiscal year ending January 28, 2023 (“fiscal 2022”) and beyond, including, but not limited to, statements regarding expected amounts of capital expenditures and store openings, relocations, remodels and closures and statements regarding the potential impact of the COVID-19 pandemic and related responses and mitigation efforts on our business, results of operations and financial condition; and (5) statements relating to our future contingencies. When possible, we have attempted to identify forward- looking statements by using words such as “will,” “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “hopes,” “intends,” “may,” “plans,” “could,” “would,” “should” and any variations or negative formations of such words and similar expressions. We can give no assurance that actual results or events will not differ materially from those expressed or implied in any such forward-looking statements. Forward-looking statements included in this report are based on information available to us as of the filing date of this report, but subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by the forward-looking statements. Such factors include, but are not limited to, the following: any actual or perceived deterioration in the conditions that drive consumer confidence and spending, including, but not limited to, prevailing social, economic, political and public health conditions and uncertainties, levels of unemployment, fuel, energy and food costs, wage rates, tax rates, interest rates, home values, consumer net worth, the availability of credit and inflation; changes in laws, regulations and government policies affecting our business, including but not limited to tariffs; uncertainties regarding the impact of any governmental action regarding, or responses to, the foregoing conditions; competitive factors and pricing pressures; our ability to predict and respond to rapidly changing fashion trends and consumer demands; our ability to successfully implement our new store development strategy to increase new store openings and our ability of any such new stores to grow and perform as expected; adverse weather, public health threats (including the COVID-19 pandemic) or similar conditions that may affect our sales or operations; inventory risks due to shifts in market demand, including the ability to liquidate excess inventory at anticipated margins; and other factors discussed under “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the fiscal year ended January 29, 2022 (“fiscal 2021”), as amended or supplemented, and in other reports we file with or furnish to the Securities and Exchange Commission (“SEC”) from time to time. We do not undertake, and expressly decline, any obligation to update any such forward-looking information contained in this report, whether as a result of new information, future events, or otherwise. 20 ### CRITICAL ACCOUNTING POLICIES AND ESTIMATES: The Company’s accounting policies are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022. As disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include the allowance for customer credit losses, inventory shrinkage, the calculation of potential asset impairment, workers’ compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and uncertain tax positions. The Company’s critical accounting policies and estimates are discussed with the Audit Committee. 21 ### RESULTS OF OPERATIONS: The following table sets forth, for the periods indicated, certain items in the Company's unaudited Condensed Consolidated Statements of Income as a percentage of total retail sales: ### Three Months Ended ### April 30, 2022 May 1, 2021 Total retail sales ### 100.0 100.0 Other revenue ### 0.9 0.9 Total revenues ### 100.9 100.9 Cost of goods sold (exclusive of depreciation) ### 64.5 58.5 Selling, general and administrative (exclusive of depreciation) ### 29.5 29.9 Depreciation ### 1.3 1.4 Interest and other income ### (0.2) (0.3) Income before income taxes ### 5.7 11.3 Net income ### 4.8 9.8 22 ### RESULTS OF OPERATIONS (CONTINUED): Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist readers in better understanding and evaluating our financial condition and results of operations. We recommend reading this MD&A in conjunction with our Condensed Consolidated Financial Statements and the Notes to those statements included in the “Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our 2021 Form 10-K. ### COVID-19 Update There is still significant uncertainty regarding the lingering effects of the COVID-19 pandemic on our business, financial condition, results of operations, cash flows, and liquidity. These uncertainties include the impact of new or potential variants of the virus that are more transmissible or severe, stagnant vaccination rates and related factors that may continue to fuel periodic surges of the virus or otherwise impede progress toward the return to pre-pandemic activities and levels of consumer confidence and commercial activity. The Company also faces uncertainty from the impacts of COVID-19 and the governmental responses to COVID-19 surges, including lockdowns, in the foreign countries where our merchandise is produced. The Company is also subject to the continued effects of disruption in the global supply chain, inflation and its impact on our cost of products, transportation, wage rates and other operating costs, as well as, the impact on our customers’ disposable incomes, and the availability of workers. The Company expects that these uncertainties and perhaps others related to the pandemic will continue to impact the Company in fiscal 2022. The adverse financial impacts associated with these continued effects of, and uncertainties related to, the COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by actual or potential adverse changes in conditions relating to the pandemic, whether due to increases in case counts, state and local orders, reductions in store traffic and customer demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of the outbreak, including increased freight and logistics costs and other expenses. While the Company currently anticipates a continuation of the uncertainties listed above and the potential adverse impacts of COVID-19 during fiscal 2022, the duration and severity of these effects will depend on the course of future developments, which are highly uncertain. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak or its variants, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. ### Comparison of First Quarter of 2022 with 2021 Total retail sales for the first quarter were $204.9 million compared to last year’s first quarter sales of $211.2 million. Sales decreased primarily due to a decrease in same-store sales, partially offset by sales from noncomparable stores. The decrease in same-store sales was primarily due to cooler, wetter weather, late merchandise shipments due to supply chain disruptions and inflationary pressure on our customers’ disposable income. Same store sales include stores that have been open more than 15 months. Stores that have been relocated or expanded are also included in the same store sales calculation after they have been open more than 15 months. The method of calculating same store sales varies across the retail industry. As a result, our same store sales calculation may not be comparable to similarly titled measures reported by other companies. E-commerce sales were less than 5.0% of sales for the first quarter of fiscal 2022 and are included 23 in the same-store sales calculation. Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts receivable, shipping charged to customers for e- commerce purchases and layaway fees), were $206.7 million for the first quarter ended April 30, 2022, compared to $213.1 million for the first quarter ended May 1, 2021. The Company operated 1,315 stores at April 30, 2022 compared to 1,325 stores at the end of last fiscal year’s first quarter. For the first three months of fiscal 2022, the Company opened five stores and permanently closed one store. The Company currently expects to close approximately 25 stores in fiscal 2022. Credit revenue of $0.5 million represented 0.2% of total revenues in the first quarter of fiscal 2022, compared to 2021 credit revenue of $0.5 million or 0.3% of total revenues. Credit revenue is comprised of interest earned on the Company’s private label credit card portfolio and related fee income. Related expenses include principally payroll, postage and other administrative expenses, and totaled $0.4 million in the first quarter of 2022, compared to last year’s first quarter expenses of $0.3 million. Other revenue, a component of total revenues, was $1.8 million for the first quarter of fiscal 2022, compared to $1.9 million for the prior year’s comparable first quarter. The slight decrease was due to lower e- commerce shipping revenue and finance charges, slightly offset by higher layaway fees. Cost of goods sold was $132.2 million, or 64.5% of retail sales for the first quarter of fiscal 2022, compared to $123.7 million, or 58.5% of retail sales in the first quarter of fiscal 2021. The overall increase in cost of goods sold as a percent of retail sales for first quarter of 2022 resulted primarily from higher markdown sales and an increase in freight costs due to higher fuel prices. Cost of goods sold includes merchandise costs (net of discounts and allowances), buying costs, distribution costs, occupancy costs, freight and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses for the buying departments and distribution center. Occupancy costs include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities. Total gross margin dollars (retail sales less cost of goods sold exclusive of depreciation) decreased by 17.0% to $72.7 million for the first quarter of fiscal 2022 compared to $87.6 million in the first quarter of fiscal 2021. Gross margin as presented may not be comparable to those of other entities. Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, and bank and credit card processing fees. SG&A expenses were 29.5% of retail sales for the first quarter of fiscal 2022, compared to 29.9% of retail sales in the first quarter of fiscal 2021. SG&A as a percent of retail sales decreased primarily due to lower incentive compensation, partially offset by increased payroll costs reflecting more normalized operations. Depreciation expense was $2.7 million, or 1.3% of retail sales for the first quarter of fiscal 2022, compared to $3.0 million, or 1.4% of retail sales for the first quarter of fiscal 2021. The decrease in depreciation expense was attributable to older stores being fully depreciated. Interest and other income was $0.4 million, or 0.2% of retail sales for the first quarter of fiscal 2022, compared to $0.7 million, or 0.3% of retail sales for the first quarter of fiscal 2021. The decrease was primarily attributable to a decrease in short-term investments. Income tax expense was $1.9 million or 1.0% of retail sales for the first quarter of fiscal 2022, compared to an income tax expense of $3.1 million, or 1.5% of retail sales for the first quarter of fiscal 2021. Income tax expense for the first quarter of fiscal 2022 decreased primarily as a result of lower pre-tax 24 earnings. The effective income tax rate for the first quarter of fiscal 2022 was 16.7% compared to 12.9% for the first quarter of 2021. The increase in the 2022 first quarter tax rate was primarily due to higher Global Intangible Low-taxed Income (GILTI), partially offset by the ability to realize foreign tax credits. ### LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK: The Company believes that its cash, cash equivalents and short-term investments, together with cash flows from operations and borrowings available under its revolving credit agreement, will be adequate to fund the Company’s regular operating requirements and expected capital expenditures for fiscal 2022 and the next 12 months. Cash used by operating activities for the first three months of fiscal 2022 was primarily generated by earnings adjusted for depreciation and changes in working capital. The decrease in cash provided of $45.3 million for the first three months of fiscal 2022 as compared to the first three months of fiscal 2021 was primarily due to lower net income and a decrease in accounts payable and accrued liabilities from fiscal 2021 year end versus an increase from 2020 year end, partially offset by a decrease in prepaid and other assets. At April 30, 2022, the Company had working capital of $107.8 million compared to $111.5 million at January 29, 2022. This decrease is primarily attributable to lower short-term investments, partially offset by lower accrued incentive compensation. At April 30, 2022, the Company had an unsecured revolving credit agreement, which provided for borrowings of up to $35.0 million less the balance of letters of credit discussed below and was committed through May 2022. In May 2022, the Company signed a new unsecured revolving credit agreement, which replaces the prior credit agreement, provides up to $35.0 million in committed availability and is committed through May 2027. The prior credit agreement contained various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of April 30, 2022. The new credit agreement also contains various financial covenants and limitations, including the maintenance of specific financial ratios. There were no outstanding borrowings under the prior credit facility as of April 30, 2022 or January 29, 2022. At April 30, 2022 and January 29, 2022, the Company had no outstanding letters of credit relating to purchase commitments. Expenditures for property and equipment totaled $4.4 million in the first three months of fiscal 2022, compared to $0.6 million in last year’s first three months. The increase in expenditures for property and equipment was primarily due to costs associated with opening five new stores and capital investments in information technology and the distribution center. For the full fiscal 2022 year, the Company expects to invest approximately $22.6 million in capital expenditures, including distribution center automation projects. Net cash provided by investing activities totaled $19.6 million in the first three months of fiscal 2022 compared to $34.2 million used in the comparable period of fiscal 2021, primarily due to lower purchases of short-term investments, partially offset by an increase in capital expenditures. Net cash used by financing activities totaled $12.7 million in the first three months of fiscal 2022 compared to $5.5 million used in the comparable period of fiscal 2021, primarily due to an increase in share repurchases and dividends paid. On May 19, 2022, the Board of Directors declared the quarterly dividend at $0.17 per share. 25 As of April 30, 2022, the Company had 840,119 shares remaining in open authorizations under its share repurchase program. The Company does not use derivative financial instruments. The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable governmental debt securities held in managed accounts with underlying ratings of A or better at April 30, 2022 and January 29, 2022. The state, municipal and corporate bonds have contractual maturities which range from one day to 4.6 years. The U.S. Treasury Notes have contractual maturities which range from 46 days to 2.4 years. These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash and Other assets on the accompanying Condensed Consolidated Balance Sheets. These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit cards that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans that were originated and serviced by captive auto finance units, banks or finance companies. The bank credit card asset-backed securities are backed by revolving pools of credit card receivables generated by account holders of cards from American Express, Citibank, JPMorgan Chase, Capital One, and Discover. Additionally, at April 30, 2022, the Company had $0.8 million of corporate equities and deferred compensation plan assets of $11.0 million. At January 29, 2022, the Company had $0.8 million of corporate equities and deferred compensation plan assets of $11.5 million. All of these assets are recorded within Other assets in the Condensed Consolidated Balance Sheets. See Note 7, Fair Value Measurements. ### RECENT ACCOUNTING PRONOUNCEMENTS: See Note 8, Recent Accounting Pronouncements. ### QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26 ## Market risk As filed, 213 characters. 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, 1,351 characters. We carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of April 30, 2022. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of April 30, 2022, our disclosure controls and procedures, as defined in Rule 13a-15(e), under the Securities Exchange Act of 1934 (the “Exchange Act”), were effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. ### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING: No change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a- 15(f)) has occurred during the Company’s fiscal quarter ended April 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. ### PART II OTHER INFORMATION 27 ## Risk factors As filed, 558 characters. In addition to the other information in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended January 29, 2022. These risks could materially affect our business, financial condition or future results; however, they are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations. Filed May 26, 2022. Source: SEC EDGAR, the filing index for accession 0000018255-22-000024. Last ingested by Listed: Oct 24, 2026, 14:51 ET. No prices; not investment advice.