What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-28 compared with 2025-11-25 · 317 added, 329 removed, 90 unchanged (88% of the section changed)

3 unchanged sentences

“forward-looking”

projections or

expectations of

future financial

economic performance;

objectives for

future operations;

(1) statements

our operations

or activities

ending January

(“fiscal 2025”)

including, but

to, statements

efforts, as well as the potential impact of supply chain disruptions, extreme weather conditions, tariffs and

(2) statements

(3) statements

objectives for future operations,

including those contained in

“Management’s Discussion and

Financial Condition and

Results of Operations”;

(4) statements relating to

our operations or

activities for

statements regarding expected

capital expenditures and

store openings, relocations,

and closures, statements

regarding the potential

impact of public

health threats and

related responses and

mitigation efforts, as well as the potential impact of supply chain disruptions, extreme weather conditions,

contingencies.

statements by

“will,” “expects,”

“anticipates,” “approximates,”

negative formations

similar expressions.

forward-looking

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

unknown risks,

uncertainties and

other factors

“anticipates,”

“approximates,” “believes,” “estimates,” “hopes,” “intends,”

“may,” “plans,”

“could,” “would,” “should”

materially from

forward-looking

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

prevailing social, economic, political and public health threats and uncertainties, levels

of unemployment,

costs, inflation, wage

rates, tariffs,

interest rates, home

values, consumer

net worth and

the availability of credit;

changes in laws, regulations

or government policies affecting

Forward-looking

information available

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:

deterioration in

the conditions

consumer confidence

and spending,

including, but

uncertainties,

governmental action regarding,

or responses to,

the foregoing conditions;

factors and pricing

rapidly changing

fashion trends

our ability to

successfully implement our

new store development

strategy to increase

new store openings

underperformance

unemployment,

uncertainties regarding

any governmental

action regarding,

changing fashion

consumer demands;

to successfully

new stores in attractive locations and

the ability of any such new

stores to grow and perform as

underperformance or

profitability,

threats, acts

conditions and

related consequences

or operations;

inventory risks

market demand,

including the

other pandemics),

aggression or

similar conditions

financial services industry or

broader financial markets;

other factors discussed under

“Risk Factors”

our annual report

ended February 1,

2025 (“fiscal

supplemented, and

Securities and

services industry or broader

financial markets;

factors discussed under “Risk Factors”

(“fiscal 2025”), as amended or supplemented, and in other reports

we file with or furnish to the

and Exchange Commission (“SEC”) from

time to time.

do not undertake, and expressly

obligation to update any such

1 unchanged sentence

whether as a result of

ew information, future events, or otherwise.

new information, future events, or otherwise.

THE CATO CORPORATION

5 unchanged sentences

Form 10-K for the

fiscal year ended February

fiscal year ended January

The preparation

statements in

with generally

accepted accounting

16 unchanged sentences

compensation,

he Company’s critical accounting policies and

The Company’s critical accounting policies and

estimates are discussed with the Audit Committee.

3 unchanged sentences

RESULTS OF OPERATIONS:

The following table sets forth, for the periods indicated, certain items

in the Company's unaudited Condensed

Consolidated Statements of Income (Loss) as

a percentage of total retail sales:

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

Nine Months Ended

November 1, 2025

November 2, 2024

November 1, 2025

November 2, 2024

Total retail sales

1 unchanged sentence

Total revenues

Cost of goods sold (exclusive of

depreciation)

Selling, general and administrative

(exclusive of depreciation)

Cost of goods sold (exclusive of depreciation)

Selling, general and administrative (exclusive of depreciation)

Interest and other income

Income (loss) before income taxes

et income (loss)

Income before income taxes

THE CATO CORPORATION

2 unchanged sentences

RESULTS OF OPERATIONS

Discussion and

Financial Condition

of Operations

understanding

condition and results of

We recommend reading this

MD&A in conjunction with

our Condensed

Consolidated Financial

Statements and

statements included in

the “Financial

section of this Quarterly Report on

Form 10-Q, as well as our

2024 Annual Report on Form 10-K.

“Financial Statements”

this Quarterly

Annual Report

Form 10-K for fiscal 2025.

Recent Developments

countries are subject

implemented reciprocal tariffs,

an additional Section

valorem tariff on

Chinese products.

In the third quarter,

products from China were subject

to the Section

India’s tariffs

increased to 50% from 10% in

Though China’s tariffs

remained at 30% during

negatively impacted by these additional costs.

increases will

negatively impact

of operations

and financial

successfully mitigate

their effects

by increasing

retail pricing

without losing

and/or sharing these

product categories,

such as shoes

and handbags that

are predominately made in China, will be difficult to source in countries with lower

Comparison of the Three and Nine

Months ended November 1, 2025 with November

Total retail sales for the

third quarter were $153.7 million compared to

last year’s third quarter sales

million, a 6%

Company’s sales increased

Tariff Issues

There remains a

significant degree of

uncertainty regarding the

status of U.S.

trade policy and

the types and

amount of tariffs to

which the Company will

On February 20, 2026,

the Supreme Court issued

International

Emergency Powers Act (“IEEPA”) beginning in February

In response, the administration transitioned

scheduled to expire in July 2026 unless otherwise extended by Congress.

On May 7, 2026, the U.S.

International

permanent injunction to

the specific plaintiffs

in that case,

and these tariffs

continue to be

collected from all

administration

uncertain whether these duties will remain

in effect or possibly be replaced

by other tariffs.

On March 11, 2026, the U.S.

Representative announced investigations under Section 301

manufactured,

Representative

certain countries,

including countries

extent to which

these hearings will

result in increased

tariffs is currently

Our acquisition costs

future periods will

be negatively impacted

to the extent

that any tariffs

imposed due to

Section 301 findings

are greater than the current

Section 122 tariffs.

establishment

procedures for processing

tariff refunds, the

Company submitted a

refund claim and

recorded a $5.7

reduction in cost of goods sold in the first quarter of fiscal 2026.

On May 15, 2026, the Company received a

partial payment

tariff refund

Company anticipates

receiving payment

balance of its tariff refund claim

by the end of the second

quarter of fiscal 2026.

2025 primarily due

in same-store

sales, partially

comparable nine month sales

of $486.8 million, a

in sales in the

first nine months

due primarily

in same-store

sales, offset

sales include

also included

same-store sales

calculation after

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.

(principally finance

accounts receivable

respectively.

Company operated 1,101 stores at November 1, 2025 compared to 1,167 stores at the end of last fiscal year’s

third quarter.

For the first

nine months of

fiscal 2025, the

Company permanently closed

he Company currently expects to close

approximately 50 stores in fiscal 2025.

customers’ discretionary

income continued

first quarter

with increasing

Additionally,

discretionary income both now and into the foreseeable future.

We believe these additional pricing pressures

discretionary

pass through costs

caused by rising

fuel prices and

potential increased tariff

costs will be

limited due in

to the pressure on our customers’ discretionary spending.

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

months ended November 1, 2025, respectively, compared to $1.5 million and $5.0 million for the prior

comparable three and nine month periods.

Included in Other revenue is credit revenue of $0.7 million, which

percentage compared to fiscal 2024.

Credit revenue is comprised of interest earned on the Company’s private

Comparison of First Quarter of 2026

Total retail sales for the first quarter

were $169.4 million compared to

last year’s first quarter sales of

Sales increased due

to a same-store

sales increase of

3%, partially offset

by stores that

in the past 12 months.

Same store sales include stores

that have been open more than

also included

sales calculation

open more than 15 months.

The method of calculating same store sales varies across the retail industry.

result, our same

store sales calculation

comparable to similarly

titled measures reported

E-commerce sales were less than 4.0%

of sales for the first quarter of

fiscal 2026 and are included

same-store sales

Total revenues,

revenue (principally

compared to $170.2

quarter ended May

Company operated

May 2, 2026 compared

to 1,109 stores at

the end of last fiscal

year’s first quarter.

For the first three

open up to 15 new stores

and close approximately 35 stores in

Other revenue, a component of

total revenues, was $1.7 million for the first

quarter of fiscal 2026, compared

year’s comparable

first quarter.

Other revenue

which represented

total revenues

first quarter

and percentage compared

Credit revenue is comprised

of interest earned on

the Company’s private

label credit card

portfolio and related

Related expenses principally

include payroll, postage

other administrative

year’s third quarter expense of

$0.4 million.

and $325.3 million,

for the three and

nine months ended November

1, 2025, respectively, compared

to $103.0 million, or

of retail sales and $324.6 million, or 66.7% of retail sales for the comparable three and nine month periods of

third quarter

comparable three

month periods

2024 resulted

primarily from lower

buying, distribution and

occupancy costs, partially

offset by increased

sales of marked

Cost of goods sold includes merchandise costs (net of discounts and allowances), buying costs,

freight are capitalized as

inventory costs.

Buying and distribution costs

include payroll, payroll-related costs

and operating

buying departments

distribution center.

include rent,

taxes, insurance,

maintenance, utilities

and maintenance

and distribution

margin dollars (retail

sales less cost

of goods sold

exclusive of depreciation)

by 18.0% to $49.2 million for the third quarter of fiscal 2025 and by 5.7% to $171.5 million for the first

$41.7 million

year’s comparable

and nine months

of fiscal 2024,

respectively.

Gross margin as

presented may not

be comparable to

Related expenses include

principally payroll, postage

other administrative expenses,

and totaled $0.4

million in the

first quarter of

2026, flat to

the first quarter

Cost of goods

sold was $106.3

million, or 62.8%

of retail sales for

the first quarter of

fiscal 2026, compared

first quarter

pre-tax tariff

lower freight

inventory shrinkage.

Net merchandise costs and

in-bound freight are capitalized

as inventory costs.

payroll-related

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) increased by 6.8% to $63.1 million for the first quarter

2026 compared

million in the

first quarter

not be comparable to those of

other entities.

Selling, general and administrative (“SG&A”) expenses primarily include corporate and store payroll, related

payroll taxes and

benefits, insurance, supplies,

advertising, and bank

and credit card

processing fees.

expenses were $57.0 million, or 37.1% of retail sales and $169.7 million, or 34.2% of retail sales

for the third

quarter and first nine months of fiscal 2025, respectively, compared to $57.9 million, or 40.0% of retail sales,

$172.8 million,

comparable three

respectively.

The decrease in SG&A

expenses for the third

quarter and first nine

months of fiscal 2025

primarily due to lower corporate and

field payroll expense, as well as

lower insurance costs.

Depreciation expense was $2.4 million, or 1.6% of retail sales and $7.5 million, or

1.5% of retail sales for the

third quarter

2025, respectively,

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.

expenses were

$53.9 million,

sales and $7.1 million, or 1.5% of retail sales for the comparable three and nine month periods of fiscal 2024,

respectively.

Interest and other income was $2.2 million, or 1.4% of retail sales and $4.8 million, or 1.0% of retail sales

the three and nine months ended November 1, 2025, respectively, compared to $2.6 million, or 1.8% of retail

respectively.

primarily due to a net gain on the sale of land held for

investment and the sale of equity securities recorded in

the first quarter of 2024, as well as a net gain on the disposal of the Company’s corporate aircraft recorded in

the third quarter of 2024.

primarily due

corporate payroll

expense, insurance costs and

equipment maintenance, partially offset

by increases in incentive compensation

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

million for the

third quarter

nine months of fiscal

2025, respectively, compared to tax expense of $0.3 million and $1.6 million for the comparable three and

nine month periods of fiscal 2024,

respectively.

The effective income tax

first nine months of

considered the

material impact on the Company’s effective tax rate.

The Company continues to monitor impacts moving

Depreciation expense was $2.2 million, or 1.3% of retail sales for the first quarter of fiscal 2026, compared to

$2.6 million, or

1.5% of retail

sales for the

first quarter of

decrease in depreciation

was due to fully depreciated older

compared to $1.2 million, or 0.7% of

retail sales for the first

quarter of fiscal 2025.

Income tax expense

was $0.5 million or

0.3% of retail sales

for the first quarter

of fiscal 2026, compared

quarter of fiscal 2025.

The decrease in tax expense was primarily due to lower

foreign income taxes.

LIQUIDITY, CAPITAL

4 unchanged sentences

from operations and its asset-backed revolving line of credit, will be adequate to fund the Company’s

financial statements.

was primarily

attributable to

current fiscal

year compared

loss for the prior fiscal year, the relative change in inventory from year-end to the third quarter for both years

non-operating

offset by the relative change of

accounts payable from year-end to

the third quarter for both

February 1, 2025.

The increase in working capital was

primarily attributable to an increase in

cash and cash

equivalents and decreases in accrued expenses, current lease liability and accounts payable, partially offset by

a decrease in inventories.

borrower, and

other domestic

subsidiaries, as

guarantors, entered

Credit Agreement

capital expenditures

quarterly report on Form 10-Q.

primarily attributable to

higher net income

and the relative

change in accounts

payable from year-end

first quarter

years, partially

receivable and

inventory from year-end to the first

quarter for both years.

At May 2, 2026, the Company had working capital of $49.0 million compared to $37.4 million at January 31,

partially offset by higher accounts payable.

Credit Agreement

loan documents,

subsidiaries,

National Association,

“Lender”), to

asset-based revolving

credit facility

provide funding for ongoing working capital

and general corporate purposes.

The ABL Credit Agreement is committed through May 2027 and is secured primarily by inventory and third-

million before

giving effect

outstanding letter

(“ABL Facility”)

$35.0 million

weighted average

interest rate

facility was zero at November 1, 2025

due to no outstanding borrowings.

compared to $6.5 million in last fiscal year’s first nine months.

The decrease in expenditures for property and

nformation technology

during fiscal

store openings

through March

and is secured primarily by inventory and

third-party credit card receivables.

The proceeds from the

facility was zero at May 2, 2026 and January 31, 2026 due to no outstanding

compared to $1.0

million in last

fiscal year’s first

three months.

fiscal 2026 year,

expects to invest approximately $7.4 million in

capital expenditures.

compared to $7.9

million provided in

the comparable period

of fiscal 2025.

The decrease was

primarily due

to an increase in purchases of short-term

investments, partially offset by a

decrease in the sales of

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

current fiscal

Company expects

approximately $5.9

for capital expenditures.

Net cash used in investing activities was negligible for the first nine months

of fiscal 2025 compared to $21.5

million net cash provided

in the comparable

period of 2024.

The decrease in net

cash provided by investing

partially offset by lower capital

expenditures.

Net cash used

in financing activities

totaled $0.9 million

nine months of

fiscal 2025 compared

activities in fiscal

primarily due

to the elimination

stock repurchases.

As of November

1, 2025, the Company

had 680,740 shares remaining

in open authorizations under

repurchase program.

Net cash used in

financing activities totaled $0.2

million in the first

three months of fiscal

2026 compared to

illion used in the comparable period of fiscal 2025.

was primarily

The Company purchased

107,823 shares in

the first quarter

572,917 shares remaining in open

authorizations under its share repurchase program.

The Company does not use

derivative financial instruments.

maturities which

Treasury/Agencies

contractual maturity of up to 3.5

Additionally, at November 1, 2025, the

Company had deferred compensation plan assets

of $9.8 million.

Measurements, included in Part 1, Item 1 Financial Statements (Unaudited) in this Quarterly Report on Form

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Company’s investment

primarily invested

managed accounts

contractual maturities which range from 13 days

to 2.9 years.

Additionally,

Measurements.

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements, included in Part 1, Item 1

Financial Statements

Unaudited) in this Quarterly Report on Form 10-Q.

See Note 8, Recent Accounting Pronouncements.

THE CATO CORPORATION

6 unchanged sentences

but the Company

does not believe

such exposure is

believe such exposure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis