CATO CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS THE CATO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended May 2, 2026 May 3, 2025 (Dollars in thousands, except per share data) REVENUES Retail sales $ 169,410 $ 168,419 Other revenue (principally finance charges, late fees and layaway charges) 1,694 1,823 Total revenues 171,104 170,242 COSTS AND EXPENSES, NET Cost of goods sold (exclusive of depreciation shown below) 106,340 109,318 Selling, general and administrative (exclusive of depreciation shown below) 53,930 55,325 Depreciation 2,236 2,564 Interest and other income, net ( 1,233 ) ( 1,202 ) Costs and expenses, net 161,273 166,005 Income before income taxes 9,831 4,237 Income tax expense 522 928 Net income $ 9,309 $ 3,309 Basic earnings per share $ 0.47 $ 0.17 Diluted earnings per share $ 0.47 $ 0.17 Comprehensive income: Net income $ 9,309 $ 3,309 Net unrealized gain (loss) on available-for-sale securities, net of deferred income taxes of $ 0 for each of the three months ( 260 ) 38 ended May 2, 2026 and May 3, 2025 Comprehensive income $ 9,049 $ 3,347 See notes to condensed consolidated financial statements (unaudited). 3 THE CATO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) May 2, 2026 January 31, 2026 (Dollars in thousands, except per share data) ASSETS Current Assets: Cash and cash equivalents $ 25,412 $ 16,788 Short-term investments 55,558 56,859 Restricted cash 2,675 2,675 Accounts receivable, net of allowance for customer credit losses of $ 676 and $ 682 at May 2, 2026 and January 31, 2026, respectively 33,159 25,462 Merchandise inventories 92,490 83,696 Prepaid expenses and other current assets 7,928 7,787 Total Current Assets 217,222 193,267 Property and equipment – net 52,504 53,748 Other assets 20,720 20,471 Right-of-Use assets – net 148,734 153,933 Total Assets $ 439,180 $ 421,419 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 79,702 $ 64,958 Accrued expenses 34,590 37,101 Accrued bonus and benefits 1,838 326 Current lease liability 52,088 53,507 Total Current Liabilities 168,218 155,892 Other noncurrent liabilities 11,318 11,272 Lease liability 92,939 96,941 Commitments and contingencies (Note 10) - - Stockholders' Equity: Preferred stock, $ 100 par value per share, 100,000 shares authorized, none issued - - Class A common stock, $ 0.033 par value per share, 50,000,000 shares authorized; 18,195,206 and 17,976,854 shares issued at May 2, 2026 and January 31, 2026, respectively 615 608 Convertible Class B common stock, $ 0.033 par value per share, 15,000,000 shares authorized; 1,763,652 shares issued at May 2, 2026 and January 31, 2026 59 59 Additional paid-in capital 131,989 131,347 Retained earnings 34,028 25,026 Accumulated other comprehensive income 14 274 Total Stockholders' Equity 166,705 157,314 Total Liabilities and Stockholders’ Equity $ 439,180 $ 421,419 See notes to condensed consolidated financial statements (unaudited). 4 THE CATO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended May 2, 2026 May 3, 2025 (Dollars in thousands) Operating Activities: Net income $ 9,309 $ 3,309 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,236 2,564 Provision for customer credit losses 207 215 Purchase premium and premium amortization of investments ( 98 ) ( 81 ) Gain on sale of assets held for investment - ( 34 ) Share-based compensation 578 193 Gain on disposal of property and equipment ( 2 ) ( 30 ) Changes in operating assets and liabilities which provided (used) cash: Accounts receivable ( 8,642 ) ( 2,505 ) Merchandise inventories ( 8,794 ) 1,309 Prepaid and other assets ( 390 ) ( 38 ) Operating lease right-of-use assets and liabilities ( 221 ) ( 156 ) Accounts payable, accrued expenses and other liabilities 13,866 ( 878 ) Net cash provided by operating activities 8,049 3,868 Investing Activities: Expenditures for property and equipment ( 1,067 ) ( 1,019 ) Purchase of short-term investments ( 6,836 ) ( 2,262 ) Sales of short-term investments 7,974 11,195 Sales of other assets - 34 Proceeds from cash value of life insurance policy 738 - Net cash provided by investing activities 809 7,948 Financing Activities: Repurchase of common stock ( 311 ) ( 935 ) Proceeds from employee stock purchase plan 77 62 Net cash used in financing activities ( 234 ) ( 873 ) Net increase in cash, cash equivalents, and restricted cash 8,624 10,943 Cash, cash equivalents, and restricted cash at beginning of period 19,463 23,078 Cash, cash equivalents, and restricted cash at end of period $ 28,087 $ 34,021 Non-cash activity: Accrued other assets and property and equipment expenditures $ 260 $ 284 Accrued treasury stock 1 - See notes to condensed consolidated financial statements (unaudited). 5 THE CATO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) Accumulated Additional Other Total Common Paid-in Retained Comprehensive Stockholders' Stock Capital Earnings Income (Loss) Equity (Dollars in thousands) Balance — January 31, 2026 $ 667 $ 131,347 $ 25,026 $ 274 $ 157,314 Comprehensive income: Net income - - 9,309 - 9,309 Unrealized net loss on available-for-sale securities, net of deferred income tax benefit of $ 0 - - - ( 260 ) ( 260 ) Class A common stock sold through employee stock purchase plan 1 88 - - 89 Share-based compensation issuances and exercises 10 ( 10 ) - - - Share-based compensation expense - 564 - - 564 Repurchase and retirement of treasury shares ( 4 ) - ( 307 ) - ( 311 ) Balance — May 2, 2026 $ 674 $ 131,989 $ 34,028 $ 14 $ 166,705 Accumulated Additional Other Total Common Paid-in Retained Comprehensive Stockholders' Stock Capital Earnings Income (Loss) Equity (Dollars in thousands) Balance — February 1, 2025 $ 678 $ 129,530 $ 31,935 $ 153 $ 162,296 Comprehensive income: Net income - - 3,309 - 3,309 Unrealized net gain on available-for-sale securities, net of deferred income tax benefit of $ 0 - - - 38 38 Class A common stock sold through employee stock purchase plan - 72 - - 72 Share-based compensation issuances and exercises ( 2 ) - - - ( 2 ) Share-based compensation expense - 184 - - 184 Repurchase and retirement of treasury shares ( 10 ) - ( 897 ) - ( 907 ) Other - - ( 73 ) - ( 73 ) Balance — May 3, 2025 $ 666 $ 129,786 $ 34,274 $ 191 $ 164,917 See notes to condensed consolidated financial statements (unaudited). THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6 NOTE 1 - GENERAL : The condensed consolidated financial statements as of May 2, 2026 and for the three months ended May 2, 2026 and May 3, 2025 have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown are unaudited. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements have been included. All such adjustments are of a normal, recurring nature unless otherwise noted. The results of the interim period may not be indicative of the results expected for the entire year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026. Amounts as of January 31, 2026 have been derived from the audited annual financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. In February 2026, the U.S. Supreme Court issued a ruling that tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) on goods imported into the United States were unauthorized, effectively invalidating IEEPA tariffs. In April 2026, following the Supreme Court’s invalidation of the IEEPA tariffs and the establishment of procedures for processing tariff refunds, the Company submitted a refund claim and recorded a $ 5.7 million reduction in cost of goods sold in the first quarter of fiscal 2026. Subsequent Events: Subsequent to May 2, 2026, the Company repurchased 4,471 shares for $ 12,824 . On May 15, 2026, the Company received a $ 2.6 million partial payment for its tariff refund claim. The Company anticipates receiving payment for the balance of its tariff refund claim by the end of the second quarter of fiscal 2026. The Company received a $ 5.6 million payment for the outstanding balance of the income tax refund receivable due from the IRS. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7 NOTE 2 - EARNINGS PER SHARE: Accounting Standard Codification (“ASC”) 260 – Earnings Per Share requires dual presentation of basic and diluted Earnings Per Share (“EPS”) on the face of all income statements for all entities with complex capital structures. The Company has presented one basic EPS and one diluted EPS amount for all common shares in the accompanying Condensed Consolidated Statements of Income and Comprehensive Income. While the Company’s certificate of incorporation provides the right for the Board of Directors to declare dividends on Class A shares without declaration of commensurate dividends on Class B shares, the Company has historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors has resolved to continue this practice. Accordingly, the Company’s allocation of income for purposes of the EPS computation is the same for Class A and Class B shares and the EPS amounts reported herein are applicable to both Class A and Class B shares. Basic EPS is computed as net income less earnings allocated to non-vested equity awards divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and the Employee Stock Purchase Plan. Three Months Ended May 2, 2026 May 3, 2025 (Dollars in thousands, except per share data) Numerator Net earnings $ 9,309 $ 3,309 Earnings allocated to non-vested equity awards ( 427 ) ( 192 ) Net earnings available to common stockholders $ 8,882 $ 3,117 Denominator Basic weighted average common shares outstanding 18,818,492 18,684,837 Diluted weighted average common shares outstanding 18,818,492 18,684,837 Net income per common share Basic earnings per share $ 0.47 $ 0.17 Diluted earnings per share $ 0.47 $ 0.17 Unvested restricted stock excluded from the calculation of diluted EPS for the periods ended May 2, 2026 and May 3, 2025 were 904,000 and 1,151,000 , respectively, because the effect of including them in the calculation of diluted EPS would have been antidilutive. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8 NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME: The following table sets forth information regarding the changes in Accumulated other comprehensive income (in thousands) for the three months ended May 2, 2026: Changes in Accumulated Other Comprehensive Income (Loss) (a) Unrealized Gains and (Losses) on Available-for-Sale Securities Beginning Balance at January 31, 2026 $ 274 Other comprehensive income (loss) before reclassification ( 260 ) Amounts reclassified from accumulated other comprehensive income - Net current-period other comprehensive income (loss) ( 260 ) Ending Balance at May 2, 2026 $ 14 (a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income. The following table sets forth information regarding the changes in Accumulated other comprehensive income (in thousands) for the three months ended May 3, 2025: Changes in Accumulated Other Comprehensive Income (Loss) (a) Unrealized Gains and (Losses) on Available-for-Sale Securities Beginning Balance at February 1, 2025 $ 153 Other comprehensive income (loss) before reclassification 72 Amounts reclassified from accumulated other comprehensive income (b) ( 34 ) Net current-period other comprehensive income (loss) 38 Ending Balance at May 3, 2025 $ 191 (a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income. + (b) Includes $ 34 impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on available-for-sale securities. The tax impact of this reclassification was $ 0 . THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 9 NOTE 4 – FINANCING ARRANGEMENTS: On March 13, 2025, the Company, as borrower, and certain other domestic subsidiaries, as borrowers and guarantors, entered into a Credit Agreement (the “ABL Credit Agreement”) and related loan documents, by and among the Company, certain other of the Company’s domestic subsidiaries, and Wells Fargo Bank, National Association, as the lender (the “Lender”), to establish an asset-based revolving credit facility (the “ABL Facility”) in an amount up to $ 35.0 million. The proceeds from the ABL Facility may be used to provide funding for ongoing working capital and general corporate purposes. The ABL Credit Agreement is committed through March 2028 and is secured primarily by inventory and third-party credit card receivables. There were no borrowings outstanding and the availability under the facility was $ 30.0 million before giving effect to a $ 3.0 million outstanding letter of credit that reduced borrowing availability to $ 27.0 million as of May 2, 2026 and January 31, 2026. The weighted average interest rate under the credit facility was zero at May 2, 2026 and January 31, 2026 due to no outstanding borrowings. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 10 NOTE 5 – REPORTABLE SEGMENT INFORMATION: The Company has determined that it has four operating segments, as defined under ASC 280 – Segment Reporting (“ASC 280”), including Cato, It’s Fashion, Versona and Credit. The Company has two reportable segments: Retail and Credit. The Company has aggregated its three retail operating segments, including e- commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating segments may be aggregated into a single reportable segment if aggregation is consistent with the objective and basic principles of ASC 280-10, which require the segments to have similar economic characteristics, products, production processes, clients and methods of distribution. The Company’s retail operating segments have similar economic characteristics and similar operating, financial and competitive risks. The products sold in each retail operating segment are similar in nature, as they all offer women’s apparel, shoes and accessories. Merchandise inventory of the Company’s retail operating segments is sourced from the same countries and some of the same vendors, using similar production processes. Merchandise for the Company’s retail operating segments is distributed to retail stores in a similar manner through the Company’s single distribution center and is subsequently distributed to customers in a similar manner. The Company operates its women’s fashion specialty retail stores in 31 states as of May 2, 2026, principally in the southeastern United States. The Company offers its own credit card to its customers and all credit authorizations, payment processing and collection efforts are performed by a wholly-owned subsidiary of the Company. The Company does not allocate certain corporate expenses to the Credit segment. The Company’s President and Chief Executive Officer is the Company’s chief operating decision maker (“CODM”). The structure described above reflects the manner in which the CODM regularly assesses information for decision-making purposes, including the allocation of resources. The Company also provides corporate services, including finance, information technology, and corporate administration, to its segments which are fully allocated to the retail segment. Interest and other income from assets held for investment and sale are not included in assessing the segments’ performance and therefore not allocated to either segment. The CODM manages and evaluates the segments’ operating performance based on segment sales, expenses, and segment income before income taxes as presented in the Company’s annual budget and forecasting process, as well as monthly analyses of budget-to-actual and prior year variances. Segment expenses and other items primarily include cost of goods sold, selling, general and administrative expenses, depreciation and interest and other income. Assessment and approval of all capital expenditures are determined to be in support of and based on the needs of the retail segment; however, the CODM does not evaluate performance or allocate resources based on segment asset balances and, therefore, total segment assets are not presented in the tables below. The measure of segment assets is reported on the balance sheet as total consolidated assets. The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 1 of the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11 NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED): The following schedule summarizes certain segment information (in thousands): Three Months Ended May 2, 2026 Retail Credit Total Revenues $ 170,439 $ 665 $ 171,104 Cost of goods sold (a) 106,340 - 106,340 Selling, general, and administrative (b) 38,717 397 39,114 Corporate overhead 14,816 - 14,816 Depreciation 2,236 - 2,236 Interest and other income, net ( 87 ) ( 270 ) ( 357 ) Segment income before income taxes $ 8,417 $ 538 $ 8,955 Corporate interest and other income ( 876 ) Income before income taxes $ 9,831 Capital expenditures $ 1,067 $ - $ 1,067 Three Months Ended May 3, 2025 Retail Credit Total Revenues $ 169,577 $ 665 $ 170,242 Cost of goods sold (a) 109,318 - 109,318 Selling, general, and administrative (b) 39,159 387 39,546 Corporate overhead 15,779 - 15,779 Depreciation 2,564 - 2,564 Interest and other income, net ( 105 ) ( 303 ) ( 408 ) Segment income before income taxes $ 2,862 $ 581 $ 3,443 Corporate interest and other income ( 794 ) Income before income taxes $ 4,237 Capital expenditures $ 1,019 $ - $ 1,019 (a) 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. (b) Selling, general, and administrative expense include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 12 NOTE 6 – SHARE-BASED COMPENSATION: As of May 2, 2026, the Company’s 2018 Incentive Compensation Plan allows for the granting of various forms of equity-based awards, including restricted stock and stock options for grant to officers, directors and key employees. The following table presents the number of options and shares of restricted stock initially authorized and available for grant under this plan as of May 2, 2026: 2018 Plan Options and/or restricted stock initially authorized 4,725,000 Options and/or restricted stock available for grant 2,575,134 In accordance with ASC 718 – Compensation–Stock Compensation , the fair value of current restricted stock awards is estimated on the date of grant based on the market price of the Company’s stock and is amortized to compensation expense on a straight-line basis over the related vesting periods. As of May 2, 2026 and January 31, 2026, there was $ 4,162,000 and $ 4,064,000 , respectively, of total unrecognized compensation expense related to unvested restricted stock awards, which had a remaining weighted- average vesting period of 2.0 years and 1.4 years, respectively. The total compensation expense during the three months ended May 2, 2026 and May 3, 2025 was $ 564,000 and $ 109,000 , respectively. This compensation activity is classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income. The following summary shows the changes in the number of shares of unvested restricted stock outstanding during the three months ended May 2, 2026: Weighted Average Number of Grant Date Fair Shares Value Per Share Restricted stock awards at January 31, 2026 905,052 $ 8.06 Granted 298,494 2.88 Vested ( 268,303 ) 11.50 Forfeited or expired ( 3,822 ) 7.54 Restricted stock awards at May 2, 2026 931,421 $ 5.41 THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 13 NOTE 6 – SHARE-BASED COMPENSATION (CONTINUED): The Company’s Employee Stock Purchase Plan allows eligible full-time employees to purchase a limited number of shares of the Company’s Class A Common Stock during each semi-annual offering period at a 15 % discount through payroll deductions. During the three months ended May 2, 2026 and May 3, 2025, the Company sold 31,503 and 21,736 shares to employees at an average discount of $ 0.43 and $ 0.50 per share, respectively, under the Employee Stock Purchase Plan. The compensation expense recognized for the 15 % discount given under the Employee Stock Purchase Plan was approximately $ 13,000 and $ 11,000 for the three months ended May 2, 2026 and May 3, 2025, respectively. These expenses are classified as a component of Selling, general and administrative expenses in the Condensed Consolidated Statements of Income. NOTE 7 – FAIR VALUE MEASUREMENTS: The following tables set forth information regarding the Company’s financial assets and liabilities that are measured at fair value (in thousands) as of May 2, 2026 and January 31, 2026: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable May 2, 2026 Assets Inputs Inputs Description Level 1 Level 2 Level 3 Assets: Corporate Bonds $ 55,558 $ - $ 55,558 $ - Cash Surrender Value of Life Insurance 9,827 - - 9,827 Total Assets $ 65,385 $ - $ 55,558 $ 9,827 Liabilities: Deferred Compensation $ ( 8,343 ) $ - $ - $ ( 8,343 ) Total Liabilities $ ( 8,343 ) $ - $ - $ ( 8,343 ) THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 14 NOTE 7 – FAIR VALUE MEASUREMENTS (CONTINUED): Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable January 31, 2026 Assets Inputs Inputs Description Level 1 Level 2 Level 3 Assets: Corporate Bonds $ 54,822 $ - $ 54,822 $ - U.S. Treasury/Agencies Notes and Bonds 2,037 - 2,037 - Cash Surrender Value of Life Insurance 9,693 - - 9,693 Total Assets $ 66,552 $ - $ 56,859 $ 9,693 Liabilities: Deferred Compensation $ ( 8,383 ) $ - $ - $ ( 8,383 ) Total Liabilities $ ( 8,383 ) $ - $ - $ ( 8,383 ) The Company’s investment portfolio was primarily invested in corporate bonds held in managed accounts with underlying ratings of A or better at May 2, 2026. The corporate bonds have contractual maturities which range from 13 days to 2.9 years. Additionally, at May 2, 2026, the Company had deferred compensation plan assets of $ 9.8 million. At January 31, 2026, the Company had deferred compensation plan assets of $ 9.7 million. These assets are recorded within Other assets in the Condensed Consolidated Balance Sheets. Level 2 investment securities include corporate 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 the 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 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 Condensed Consolidated Balance Sheet. These funds are designed to mirror mutual funds and money market funds that are observable and actively traded. The following tables summarize the change in fair value of the Company’s financial assets and liabilities measured using Level 3 inputs for the three months ended May 2, 2026 and the year ended January 31, 2026 (dollars in thousands): THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 15 NOTE 7 – FAIR VALUE MEASUREMENTS (CONTINUED): Fair Value Measurements Using Significant Unobservable Asset Inputs (Level 3) Cash Surrender Value Beginning Balance at January 31, 2026 $ 9,693 Redemptions - Additions - Total gains or (losses): Included in interest and other income, net (or changes in net assets) 134 Ending Balance at May 2, 2026 $ 9,827 Fair Value Measurements Using Significant Unobservable Liability Inputs (Level 3) Deferred Compensation Beginning Balance at January 31, 2026 $ ( 8,383 ) Redemptions 231 Additions ( 30 ) Total (gains) or losses: Included in interest and other income, net (or changes in net assets) ( 161 ) Ending Balance at May 2, 2026 $ ( 8,343 ) Fair Value Measurements Using Significant Unobservable Asset Inputs (Level 3) Cash Surrender Value Beginning Balance at February 1, 2025 $ 9,301 Redemptions ( 365 ) Additions - Total gains or (losses): Included in interest and other income, net (or changes in net assets) 757 Ending Balance at January 31, 2026 $ 9,693 Fair Value Measurements Using Significant Unobservable Liability Inputs (Level 3) Deferred Compensation Beginning Balance at February 1, 2025 $ ( 8,548 ) Redemptions 1,246 Additions ( 206 ) Total (gains) or losses: Included in interest and other income, net (or changes in net assets) ( 875 ) Ending Balance at January 31, 2026 $ ( 8,383 ) THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 16 NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS: In September 2025, the FASB issued ASU 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Targeted Improvements to the Accounting for Internal-Use Software” (ASU 2025-06). The FASB issued ASU 2025-06 to modernize the accounting for costs related to internal-use software to better align with how software is developed and to clarify the threshold to be applied to begin capitalizing costs. ASU 2025-06 is effective for our annual and quarterly reporting periods beginning January 30, 2028. Early adoption is permitted. The Company is currently assessing the impact that the adoption of ASU 2025-06 will have on our consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which requires public entities to disclose, on an annual and interim basis, disaggregated information in the footnotes about specified information related to certain costs and expenses. This guidance is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently in the process of evaluating the potential impact of adoption of this new guidance on its consolidated financial statements and related disclosures. NOTE 9 – INCOME TAXES: The Company had an effective tax rate for the first quarter of fiscal 2026 of 5.3 % compared to an effective tax rate of 21.9 % for the first quarter of fiscal 2025. Income tax expense for the quarter decreased to $ 0.5 million in 2026 from $ 0.9 million in 2025. The decrease in tax expense was primarily due to lower foreign income taxes. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 17 NOTE 10 – COMMITMENTS AND CONTINGENCIES: The Company is, from time to time, involved in routine litigation incidental to the conduct of its business, including litigation regarding the merchandise that it sells, litigation regarding intellectual property, litigation instituted by persons injured upon premises under its control, litigation with respect to various employment matters, including alleged discrimination and wage and hour litigation, and litigation with present or former employees. Although such litigation is routine and incidental to the conduct of the Company’s business, as with any business of its size with a significant number of employees and significant merchandise sales, such litigation could result in large monetary awards. Based on information currently available, management does not believe that any reasonably possible losses arising from current pending litigation will have a material adverse effect on its condensed consolidated financial statements. However, given the inherent uncertainties involved in such matters, an adverse outcome in one or more of such matters could materially and adversely affect the Company’s financial condition, results of operations and cash flows in any particular reporting period. The Company accrues for these matters when the liability is deemed probable and reasonably estimable. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 18 NOTE 11 – REVENUE RECOGNITION: The Company recognizes sales at the point of purchase when the customer takes possession of the merchandise and pays for the purchase, generally with cash or credit. Sales from purchases made with Cato credit, gift cards and layaway sales from stores are also recorded when the customer takes possession of the merchandise. E-commerce sales are recorded when the risk of loss is transferred to the customer. Gift cards are recorded as deferred revenue until they are redeemed or forfeited. Gift cards do not have expiration dates. Layaway transactions are recorded as deferred revenue until the customer takes possession or forfeits the merchandise. A provision is made for estimated merchandise returns based on sales volumes and the Company’s experience; actual returns have not varied materially from historical amounts. A provision is made for estimated write-offs associated with sales made with the Company’s proprietary credit card. In addition, a provision is made for estimated rewards cards issued to customers based on their purchases with the Company’s propriety credit card. The rewards cards issued by the Company have a 90-day expiration. Amounts related to shipping and handling billed to customers in a sales transaction are classified as Other revenue and the costs related to shipping product to customers (billed and accrued) are classified as Cost of goods sold. The Company offers its own proprietary credit card to customers. All credit activity is performed by the Company’s wholly-owned subsidiaries. No ne of the credit card receivables are secured. The Company estimated customer credit losses of $ 207,000 and $ 215,000 for the periods ended May 2, 2026 and May 3, 2025, respectively, on sales purchased using the Company’s proprietary credit card of $ 5.2 million and $ 5.4 million for the periods ended May 2, 2026 and May 3, 2025, respectively. The following table provides information about receivables and contract liabilities from contracts with customers (in thousands): Balance as of May 2, 2026 January 31, 2026 Proprietary Credit Card Receivables, net $ 10,444 $ 10,711 Gift Card Liability $ 6,919 $ 7,475 THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 19 NOTE 12 – LEASES: The Company determines whether an arrangement is a lease at inception. The Company has operating leases for stores, offices, warehouse space 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 the commencement date of the lease in determining the present value of lease payments. The components of lease cost are shown below (in thousands): ` Three Months Ended May 2, 2026 May 3, 2025 Operating lease cost $ 16,319 $ 16,588 Variable lease cost (a) $ 519 $ 438 (a) Primarily relates to monthly percentage rent for stores not presented on the balance sheet. THE CATO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 20 NOTE 12 – LEASES (CONTINUED): Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows (in thousands): Operating cash flow information: Three Months Ended May 2, 2026 May 3, 2025 Cash paid for amounts included in the measurement of lease liabilities $ 13,939 $ 14,534 Non-cash activity: Right-of-use assets obtained in exchange for lease obligations, net of rent violations $ 8,836 $ 1,206 Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows: As of May 2, 2026 May 3, 2025 Weighted-average remaining lease term 2.3 Years 2.1 Years Weighted-average discount rate 6.29 % 5.90 % As of May 2, 2026, the maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands): Fiscal Year 2026 (a) $ 47,815 2027 47,369 2028 32,929 2029 20,990 2030 11,566 Thereafter 2,313 Total lease payments 162,982 Less: Imputed interest 17,955 Present value of lease liabilities $ 145,027 (a) Excluding the 3 months ended May 2, 2026. 21 THE CATO CORPORATION