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Item 2. Management’s Discussion and Analysis

2021-05-27 compared with 2020-11-24 · 541 added, 143 removed, 27 unchanged (96% of the section changed)

2 unchanged sentences

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 30, 2021 (“fiscal 2020”) 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 and the availability of credit;

changes in laws, regulations or governmental policies affecting our business, including tariffs;

uncertainties regarding the impact of any governmental actions 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 February 1, 2020 (“fiscal 2019”), as amended or supplemented, and in other reports we file with or furnish to the Securities and Exchange Commission (“SEC”) from time to time.

We do not undertake, and expressly decline, any obligation to update any such forward-looking information contained in this report, whether as a result of new information, future events, or otherwise.

The following

information should

the unaudited

Condensed Consolidated

Statements, including the accompanying Notes

appearing in this report.

of the following are

“forward-looking” statements within the

meaning of Section 27A of the Securities Act of 1933,

Section 21E of

the Securities

(1) statements in

projections or

expectations of

economic performance;

(2) statements that

historical information;

(3) statements of

liefs, intentions,

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

year ending January

29, 2022 (“fiscal 2021”) and beyond, including,

but not limited

statements regarding expected

amounts of capital

expenditures and store

openings, relocations, remodels

and statements

regarding the

potential impact

COVID-19 pandemic

responses and mitigation efforts

on our business, results of operations and financial

(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.

assurance that actual

or events will not

differ materially from those

expressed or implied in any

such forward-looking

Forward-looking statements included in this report are based on information available to us as

of the filing

report, but subject

unknown risks, uncertainties

and other factors

differ materially

contemplated by

Such factors include,

limited to, the

any actual or

deterioration in the conditions that drive consumer confidence and spending, including, but not limited to,

prevailing social,

economic, political

health conditions

and uncertainties,

unemployment, fuel, energy

and food costs,

wage rates, tax

rates, interest rates,

home values, consumer

net worth and

the availability of

laws or regulations

affecting our

business, including

uncertainties regarding

governmental action

regarding, or

responses to,

the foregoing

pricing pressures;

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

new stores to

grow and perform

adverse weather, public health threats (including

COVID-19 pandemic) or similar conditions that may affect

our sales or operations;

inventory risks due to

market demand, including

excess inventory at

anticipated margins;

other factors discussed under “Risk Factors” in Part I, Item

1A of our annual report on Form 10-

fiscal year ended January 30,

2021 (“fiscal 2020”), as amended

or supplemented, and in other

furnish to the

Securities and Exchange

Commission (“SEC”) from

time to time.

undertake, and expressly

decline, any obligation

any such forward-

looking information

contained in this report, whether as a result of new information, future events,

or otherwise.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CRITICAL ACCOUNTING POLICIES:

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 February 1, 2020.

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 doubtful accounts, 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.

CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The Company’s accounting

are more fully

in “Management’s

of Operations”

in the Company’s

year ended January

in “Management’s

and Results of Operations,”

the preparation

of the Company’s financial statements

in conformity

with generally

in the United States

and assumptions

in the financial

their effects

with absolute

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.

most significant

in the preparation

of the Company’s

the allowance

for customer credit

of potential asset

compensation,

and auto insurance liabilities, reserves

to self-insured

tax positions.

The Company’s

and estimates

are discussed

Audit Committee.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CONDITION AND RESULTS OF OPERATIONS

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:

The following

certain items

in the Company's

as a percentage

retail sales:

Three Months Ended

Nine Months Ended

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Total retail sales

8 unchanged sentences

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED):

COVID-19 Update

The COVID-19 pandemic has created, and may continue to create, challenges and uncertainties for our business.

In the first quarter of fiscal 2020, the pandemic resulted in state and local orders mandating store closures and other measures to mitigate the spread of the virus.

Recently reported increases in infection rates in many areas and the onset of cooler weather raise the possibility of increased or renewed governmental measures to reduce public activity and gatherings in order to mitigate the spread of the virus, as well as continued adverse effect on consumer confidence.

Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of fiscal 2020 and possibly beyond.

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, 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.

Beginning March 19, 2020, the Company temporarily closed all Cato, It’s Fashion, It’s Fashion Metro and Versona stores.

In addition, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as furloughed associates and in certain instances eliminated positions primarily at its corporate office.

Beginning on May 1, 2020, the Company began to re-open stores based on the pertinent state and local orders.

As of June 15, 2020, all stores have re-opened.

Although all stores have re-opened, stores are operating at reduced hours and stores may be temporarily closed or subject to further operating restrictions in compliance with local regulations or in response to public health guidance due to COIVD-19.

There is significant uncertainty around the duration, breadth and severity of continued business disruptions related to COVID-19, as well as its impact on the U.S.

economy, consumer willingness to visit malls and shopping centers, and associate staffing for our stores.

At this time, the possible effects of national, state or local action, legislation, guidelines or programs that attempt to mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the Company are also uncertain.

While the Company currently anticipates that our results for the remainder of fiscal 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including possible new information and understanding about the severity of COVID-19, related potential economic impacts to customers and suppliers, and the effect of actions taken to contain it or mitigate its impact.

Comparison of the Three and Nine Months ended October 31, 2020 with November 2, 2019

Total retail sales for the third quarter were $149.2 million compared to last year’s third quarter sales of $189.4 million, a 21% decrease.

The Company’s sales decrease in the third quarter of fiscal 2020 is primarily due to a 23% decrease in same-store sales, partially offset by sales from new store openings.

Sales in the third quarter were negatively impacted by reduced operating hours compared to 2019, higher amounts of markdowns and temporary store closings due to COVID-19 cases and hurricanes.

For the nine months ended October 31, 2020, total retail sales were $414.3 million compared to last year’s comparable nine month sales of $627.8 million, a 34% decrease.

Sales in the first nine months of fiscal 2020 decreased primarily due to a 35% decrease in same-store sales, partially offset by sales from new store openings.

Sales for the nine months ended October 31, 2020 were negatively impacted primarily by store closures in the first quarter, phased re-opening of stores in the second quarter, reduced store hours and high amounts of markdowns.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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 6% of sales for the nine months ended October 31, 2020 and are included 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 and layaway fees), were $150.8 million and $419.7 million for the three and nine months ended October 31, 2020, compared to $191.5 million and $634.5 million for the three and nine months ended November 2, 2019, respectively.

The Company operated 1,347 stores at October 31, 2020 compared to 1,298 stores at the end of last year’s third quarter.

During the first nine months of fiscal 2020, the Company closed 10 stores.

In total, the Company opened 76 stores, which had leases prior to the COVID-19 pandemic, and expects to close approximately 40 stores in fiscal 2020.

Credit revenue of $0.6 million represented 0.4% of total revenues in the third quarter of fiscal 2020, compared to 2019 credit revenue of $0.9 million or 0.5% 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 principally include payroll, postage and other administrative expenses and totaled $0.4 million in the third quarter of fiscal 2020, compared to last year’s third quarter expense of $0.4 million.

Other revenue in total, as included in total revenues, was $1.6 million and $5.4 million for the three and nine months ended October 31, 2020, respectively, compared to $2.2 million and $6.7 million for the prior year’s comparable three and nine month periods.

The overall decrease in the three and nine months ended October 31, 2020 is primarily due to decreases in finance and layaway charges, partially offset by increases in e-commerce shipping revenues.

Cost of goods sold was $109.4 million, or 73.3% of retail sales and $325.7 million, or 78.6% of retail sales for the three and nine months ended October 31, 2020, respectively, compared to $118.6 million, or 62.6% of retail sales and $385.1 million, or 61.3% of retail sales for the comparable three and nine month periods of fiscal 2019.

The overall increase in cost of goods sold as a percent of retail sales for the third quarter of fiscal 2020 resulted primarily from an increase in markdown sales due to liquidating spring and summer merchandise, goods marked out of stock, and deleveraging occupancy, distribution and buying costs.

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 43.7% to $39.8 million for the third quarter of fiscal 2020 and decreased by 63.5% to $88.5 million for the first nine months of fiscal 2020, compared to $70.7 million and $242.7 million for the prior year’s comparable three and nine months of fiscal 2019.

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, bank and credit card processing fees.

SG&A expenses were $51.9 million, or 34.8% of retail sales and $148.4 million, or 35.8% of retail sales for the third quarter and first nine months of fiscal 2020, respectively, compared to $64.7 million, or 34.2% of retail sales and $196.7 million, or 31.3% of retail sales for the prior year’s comparable three and nine month periods.

The overall decrease in SG&A expense for the third quarter is primarily attributable to lower store expenses due to reduced store operating hours, lower corporate expenses and elimination of incentive compensation, partially offset by an increase in store impairment charges.

For the first nine months of fiscal 2020, the overall

CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The COVID-19 pandemic adversely

impacted the Company's business,

financial condition and operating

results through fiscal 2020.

The first quarter of

2021 saw significant improvements in

sales compared to

This improvement was

primarily attributable to

government stimulus, increased

customer traffic,

states continuing

capacity limits

vaccinated, consumers’

increasing comfort

venturing out

customers’ preparing

Company’s sales

were well below 2019

sales for the

comparable period, and there

high level of

uncertainty regarding the

lingering effects of

the COVID-19 pandemic

continued impact on

Company’s customers’

buying habits.

faces additional

uncertainty from

the continued

effects of disruption in the global supply chain and available workers as it attempts

to hire associates as its

operating hours

Company expects

uncertainties and

perhaps others

related to the

pandemic will continue

to impact the

Company in fiscal

2021 and possibly

adverse financial impacts associated with the 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 the actual

outbreak, whether

local orders,

reductions in

store traffic

demand, labor

shortages, or

these factors,

production and fulfillment,

incremental costs associated

to mitigate the

the outbreak, including increased freight and logistics costs and other

ultimately impacts

the Company’s

business, financial

condition, results of operations, cash flows, and liquidity may differ from management’s current

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.

While the Company currently anticipates a continuation of the adverse impacts

of COVID-19 during 2021

these effects

developments, which are

highly uncertain, including

the relative speed

and success of,

confidence in, mitigation measures

such as the current

effort to vaccinate substantial

portions of the U.S.

population, emerging

information regarding

potential impact on

current mitigation efforts,

public attitudes toward

continued compliance with

containment and

mitigation measures, and

possible new information

and understanding that

the course and duration of current measures to combat the spread of the virus.

of First Quarter

Total retail sales for the first

were $211.2 million

to last year’s first

sales of $98.8

Sales increased

due to an increase

in same-store

offset by permanently closed stores in

in same-store sales is primarily due

stores being closed from

March 19, 2020

the first quarter of

that have been open more than 15 months.

that have been relocated or expanded are

also included

of calculating

same store sales

across the retail

As a result, our same

be comparable

titled measures

than 5.0% of sales for

the first quarter of fiscal 2021

and are included in the

sales calculation.

Total revenues, comprised of

retail sales and

other revenue (principally finance charges and

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

decrease in SG&A expense was primarily attributable to lower store expenses due to stores being closed, phased store re-opening in the second quarter, reduced store operating hours, lower corporate expenses and reduction of incentive compensation, partially offset by higher store impairment charges.

Depreciation expense was $3.6 million, or 2.4% of retail sales and $11.1 million, or 2.7% of retail sales for the third quarter and first nine months of fiscal 2020, respectively, compared to $3.8 million, or 2.0% of retail sales and $11.5 million or 1.8% of retail sales for the comparable three and nine month periods of fiscal 2019, respectively.

Interest and other income was $0.8 million, or 0.5% of retail sales and $3.6 million, or 0.9% of retail sales for the three and nine months ended October 31, 2020, respectively, compared to $1.7 million, or 0.9% of retail sales and $4.5 million, or 0.7% of retail sales for the comparable three and nine month periods of fiscal 2019, respectively.

The decrease for the first nine months of fiscal 2020 compared to 2019 is primarily attributable to a decrease in short-term investments and lower interest rates.

Income tax benefit was $9.7 million and $22.7 million for the third quarter and first nine months of fiscal 2020, respectively, compared to income tax expense of $0.1 million and $6.5 million for the comparable three and nine month periods of fiscal 2019, respectively.

For the first nine months of 2020, the Company’s effective tax rate was 36.7% (Benefit) compared to 14.3% (Expense) for the first nine months of 2019.

The increase in the 2020 year-to-date tax rate was primarily due to the federal net operating loss carryback provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and release of reserves for uncertain tax positions due to expiration of statute of limitations, offset by valuation allowances against state income net operating losses, less income tax credits, and an increase in the reserves for uncertain tax positions specific to state income taxes recorded in the first quarter of 2020.

The Company assessed the likelihood that deferred tax assets related to state net operating loss carryforwards will be realized in light of the adverse impact on the Company's financial statements and operations due to COVID-19.

Based on this assessment, the Company concluded that it is more likely than not that the company will not be able to realize the state net operating losses and, accordingly, has recorded a valuation allowance against the existing deferred tax assets.

The annual effective tax rate for the current fiscal year is impacted by the ability to carryback federal net operating losses due to the CARES Act, partially offset by changes in management’s judgment regarding the ability to realize deferred tax assets, primarily state income net operating losses generated in the current fiscal year.

The Company has factored the realizability of these deferred tax assets generated as a result of projected current year losses into its estimated annual effective rate for the current year.

To the extent that actual results and/or events differ from the predicted results, the Company may continue to see effects on the annual effective tax rate.

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 2020 and the next 12 months.

Cash used by operating activities during the first nine months of fiscal 2020 was $26.1 million as compared to $49.3 million provided in the first nine months of fiscal 2019.

Cash used by operating activities for the first nine months of fiscal 2020 was primarily attributable to net losses adjusted for depreciation and changes in

CONDITION AND RESULTS OF OPERATIONS

charged to customers

for e-commerce

and layaway fees),

for the first

1, 2021, compared

for the first

at May 1, 2021

to 1,300 stores

of last fiscal

For the first

of fiscal 2021,

approximately

Credit revenue

total revenues

2021, compared

to 2020 credit revenue of

$0.8 million or 0.8% of

total revenues.

Credit revenue is comprised of interest

the Company’s

card portfolio

Credit revenue

recent comparable

charge income

Company’s proprietary

and other administrative expenses, and totaled $0.3

of 2021, compared to

Other revenue,

of total revenues,

was $1.9 million

for the first

2021, compared

first quarter.

Cost of goods

sold was $123.7

or 58.5% of retail

sales for the

first quarter

of fiscal 2021,

to $83.6 million,

or 84.6% of retail sales in the first quarter of fiscal 2020.

goods sold as

retail sales for first

of 2021 resulted primarily from

the leveraging of

occupancy, buying and distribution

costs due to normalized sales and higher sales of regular priced goods.

Cost of goods sold includes merchandise

costs (net of discounts

and allowances),

buying costs,

costs, occupancy costs, freight and

Net merchandise costs and in

as inventory costs.

and distribution costs

payroll-related

for the buying departments and distribution center.

costs include rent, real

estate taxes, insurance,

area maintenance, utilities and

and distribution

Total gross margin

cost of goods

sold exclusive

of depreciation)

first quarter

2021 compared

be comparable

and administrative

taxes and benefits, insurance, supplies, advertising, bank and

card processing fees.

were 29.9% of retail sales

for the first quarter

of fiscal 2021, compared

to 53.1% of retail sales in

the first quarter of

ercent of retail sales

expenses as a

result of normalized

decrease in impairment

charges, partially offset

incentive compensation.

2021, compared

$4.0 million,

in depreciation

of impairment

and other income

of retail sales

first quarter of

to $1.9 million,

for the first

to lower interest

rates and smaller

gains from the

sale of investments,

in short-term

Income tax expense was $3.1

million or 1.5% of retail

sales for the first

quarter of fiscal 2021, compared

to an income tax benefit of $9.1 million, or 9.2% of

retail sales for the first quarter of fiscal 2020.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

working capital.

The decrease in cash provided of $75.4 million for the first nine months of fiscal 2020 as compared to the first nine months of fiscal 2019 was primarily due to a net loss versus net income, an increase in accounts receivable primarily related to income taxes and an increase in prepaid expenses, partially offset by lower merchandise inventories and store impairment charges.

At October 31, 2020, the Company had working capital of $117.8 million compared to $163.5 million at February 1, 2020.

The decrease in working capital is primarily due to reduction in short-term investments and lower inventories, partially offset by higher accounts receivables and lower accrued liabilities.

At October 31, 2020 and February 1, 2020, the Company had an unsecured revolving credit agreement, which provides for borrowings of up to $35.0 million, less the value of revocable letters of credit discussed below.

The revolving credit agreement is committed until May 2023.

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 October 31, 2020.

There were no borrowings outstanding under the credit facility as of October 31, 2020 and February 1, 2020.

Expenditures for property and equipment totaled $11.2 million in the first nine months of fiscal 2020, compared to $4.9 million in last fiscal year’s first nine months.

The expenditures for the first nine months of fiscal 2020 were primarily for additional investments in stores, distribution center and information technology.

For the full fiscal 2020 year, the Company expects to invest approximately $13.0 million for capital expenditures.

Net cash provided by investing activities totaled $57.9 million in the first nine months of fiscal 2020 compared to $22.2 million used in investing activities in the comparable period of 2019.

The increase in net cash provided in 2020 is primarily attributable to the increase in net sales of short-term investments, partially offset by expenditures for property and equipment.

Net cash used in financing activities totaled $24.3 million in the first nine months of fiscal 2020 compared to $28.9 million used in the comparable period of fiscal 2019.

The decrease was primarily due to lower dividend payments, partially offset by higher share repurchase amounts.

As of October 31, 2020, the Company had 691,856 shares remaining in open authorizations under its share repurchase program.

The Company temporarily suspended dividends in the first quarter of 2020.

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 October 31, 2020 and February 1, 2020.

The state, municipal and corporate bonds have contractual maturities which range from two weeks to five years.

Treasury Notes and Certificates of Deposit have contractual maturities which range from two weeks to three years.

These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash and Restricted short-term investments 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.

CONDITION AND RESULTS OF OPERATIONS

tax expense for

the first quarter

of fiscal 2021

increased primarily as

higher pre-tax earnings.

The effective income tax rate for the first quarter of fiscal

2021 was 12.9%

(Expense) compared to 24.3%

(Benefit) for the first quarter

The decrease in the

2021 first quarter tax rate was

primarily due to

higher pre-tax earnings

and the ability

to realize foreign

tax credits, partial

increases in state

income taxes in the first quarter of 2020.

LIQUIDITY, CAPITAL

The Company believes

that its cash, cash equivalents

and short-term

with cash flows

from operations

and borrowings

under its revolving

will be adequate

Company’s regular

Cash provided by operating activities for the first

three months of fiscal 2021 was

for depreciation

and changes in working

in cash provided of $115.8

for the first three

months of fiscal 2021

as compared to the

first three months of

fiscal 2020 was

due to net income versus a net loss

a decrease in inventory, and an

in accounts payable

At May 1, 2021,

This increase

is primarily attributable

to higher short-term

compensation.

At May 1, 2021 and January 30,

2021, the Company had an unsecured

revolving credit agreement, which

provides for borrow

to $35.0 million

less the balance

of letters of

credit discussed below.

revolving credit

committed through

agreement contains

financial covenants and limitations,

including the maintenance of

specific financial ratios with

Company was in compliance as

of May 1, 2021.

There were no borrowings outstanding

under the credit

facility as of May 1, 2021 or January 30, 2021.

At May 1, 2021

had no outstanding

$0.6 million in

three months of

to $5.3 million

in last year’s

year, the Company

approximately

expenditures.

$34.2 million

2021 compared

$76.9 million provided

in the comparable period of fiscal 2020,

in the sale of

-term investments,

expenditures.

Net cash used

2021 compared

$12.4 million

in the comparable

2020, primarily

due to a decrease

first quarter of fiscal 2021

and fewer stock

the quarterly

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Additionally, at October 31, 2020, the Company had $1.5 million of corporate equities and deferred compensation plan assets of $10.5 million.

At February 1, 2020, the Company had $0.7 million of corporate equities and deferred compensation plan assets of $10.5 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:

CONDITION AND RESULTS OF OPERATIONS

had 1,445,488 shares remaining in open

authorizations

under its share

use derivative

The Company’s investment

was primarily

bonds and tax-exempt

debt securities

held in managed

with underlying

of A or better

at May 1, 2021

and January 30, 2021.

The state, municipal and corporate bonds have contractual maturities which range

from four days

to 4.5 years.

to 2.5 years.

These securities

are classified

as available-for-sale

and are recorded

as Short-term

cash, Restricted

and Other assets

on the accompanying

at fair value with

losses reported

net of taxes in Accumulated

other comprehensive

The asset-backed

are bonds comprised

of auto loans

and bank credit

The auto loan

pools of auto

were originated

credit card asset

are backed by

by account holders

from American Express,

JPMorgan Chase,

Additionally,

plan assets of $11.6 million.

At January 30, 2021, the Company

had $0.7 million

of $11.3 million.

Value Measurements.

PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

THE CATO CORPORATION

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

from exposure

financing, investing and cash

management activities, but the

Company does not believe

such exposure is

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What changed 10-Q

Item 2. Management’s Discussion and Analysis