What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-30 compared with 2023-11-21 · 320 added, 354 removed, 103 unchanged (87% of the section changed)

17 unchanged sentences

store openings, relocations,

responses and

mitigation efforts,

potential impact

chain disruptions,

future contingencies.

have attempted to

identify forward-looking statements

“anticipates,”

“approximates,”

“intends,” “may,”

“plans,” “could,” “would,”

“should” and any

variations or negative

formations of such

forward-looking

and closures, and

statements regarding the

potential impact of

supply chain disruptions,

extreme weather

operations and financial condition and

statements of plans or

intentions regarding new store development

(5) statements

contingencies.

attempted to identify forward-looking statements

by using words such

as “will,” “expects,” “anticipates,”

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

“may,” “plans,”

“could,” “would,” “should”

forward-looking

uncertainties and

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

health conditions

uncertainties, levels

unemployment, fuel,

costs, wage rates, tax

rates, interest rates, home

values, consumer net worth,

the availability of

deterioration

confidence and

spending, including,

to, prevailing

social, economic,

health conditions and

uncertainties, levels of

unemployment, fuel, energy

costs, wage rates,

rates, interest

values, consumer

the availability

and inflation;

uncertainties regarding

governmental action

regarding, or

foregoing conditions;

competitive factors

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

conditions that

developments or volatility affecting the financial services industry or broader financial markets;

fiscal year ended

January 28, 2023

(“fiscal 2022”), as amended

or supplemented, and in

other reports we

any governmental

action regarding,

responses to,

development strategy to

store openings and

our ability of

underperformance

other factors

public health

threats (including

COVID-19 pandemic),

ended February

supplemented,

other reports

Securities and

Exchange Commission

forward-looking

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

undertake, and

any obligation

such forward-looking information contained

in this report,

result of new

information, future

events, or otherwise.

3 unchanged sentences

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The Company’s accounting

policies are more

fully described in

“Management’s Discussion and

Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal

“Management’s

Condition and

Operations,” the

preparation of

the Company’s

financial statements

in conformity

with generally accepted

accounting principles in

the United States

(“GAAP”) requires management

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.

determination

Discussion and Analysis of Financial Condition and Results of Operations” in the

Company’s Annual Report

requires management to make estimates and assumptions about future events that affect the amounts reported

with absolute

the determination

The most significant accounting estimates

inherent in the preparation of the

Company’s financial

statements include

the calculation

asset impairment,

valuation allowances,

compensation,

credit losses, and inventory shrinkage.

uncertain tax positions, the allowance for

customer credit losses, and inventory shrinkage.

The Company’s critical accounting policies and

9 unchanged sentences

Three Months Ended

Nine Months Ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

Total retail sales

2 unchanged sentences

Cost of goods sold (exclusive of depreciation)

Selling, general and administrative (exclusive

of depreciation)

Selling, general and administrative (exclusive of depreciation)

Interest and other income

Income (loss) before income taxes

Net 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 operations.

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 2022

Annual Report on Form 10-K.

“Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our 2023

Annual Report

on Form 10-K.

Recent Developments

Inflationary Cost Pressure and High Interest Rates

operating supplies,

customers’ disposable income is impacted by increased costs related to

fuel, food, housing, including rent,

consumable products relative

to flattening wage

negatively impact our

willingness to purchase discretionary items such as apparel,

jewelry and shoes.

Reserve began

raising, interest

inflationary pressures subside to

acceptable levels.

Though the Federal

Reserve has paused

raising rates,

indicated it is

committed to reducing

inflation to its

targeted levels.

These high interest

costs related

mortgages continue

to negatively

discretionary

negatively impacted by these inflationary pressures and high interest

prolonged and persistently high

inflation rates, especially related

to housing and

fuel, as well as

high interest

interest rates

have adversely

availability and cost

of credit for

our customers,

willingness to

negatively impacted

three quarters

operations and financial condition during the remainder of fiscal 2023.

Comparison of the Three and Nine

Months ended October 28, 2023 with

October 29, 2022

Total retail sales for the

third quarter were $156.7 million compared to

last year’s third quarter sales

million, a 10% decrease.

The Company’s sales

decrease in the third quarter

of fiscal 2023 was

primarily due

to an 8% decrease in same-store sales and closed stores, partially offset

by sales from new stores.

million compared

$574.9 million,

2023 was due primarily to

a 6% decrease in same-store

sales and closed stores, partially offset

by sales from

Same-store sales include stores

that have been open more than

these inflationary pressures and high interest

continued inflation and

high interest

rates negatively

impacted the first

likely continue

consumer behavior and,

by extension, our

results of operations

and financial condition during the remainder of

Merchandise Supply Chain

A significant amount of our merchandise is

manufactured overseas, principally Southeast Asia,

and traverses

drought conditions

surrounding the

approximately 37%

containers carried by container

ships and increased our

costs in the first quarter.

During the second quarter,

Canal authority

plans to increase

permissible draft

vessels depending on weather

The hostilities affecting

the region surrounding

the Suez Canal are

causing container

travel longer

distances around

is increasing

times for merchandise and our costs

to ship these goods as well as

decreasing the pool of containers available.

incrementally improve

conditions allow

restrictions, we

conditions will

likely continue

of operations

and financial

condition for the foreseeable future.

Comparison of First Quarter of 2024

Total retail sales for the first quarter

were $175.3 million compared to

last year’s first quarter sales of

closed in the past 12 months, partially offset by sales from stores opened in the past 12

aforementioned

customers’ disposable income, as well

as lower average sales per transaction.

store sales include stores

that have been open

more than 15 months.

Stores that have been

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

relocated or expanded are

also included in

the same store

sales calculation after

they have been

open more than

The method of

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

opened nine stores

The Company currently expects to close

approximately 110 stores in total in

interest earned on the Company’s private label credit card portfolio and related fee income.

Related expenses

include payroll,

administrative expenses

quarter of fiscal 2023, compared to

last year’s third quarter expense of

$0.4 million.

months ended October 28,

2023, respectively, compared to

$1.7 million and $5.4

million for the prior

comparable three and

nine month periods.

decrease in Other revenue

for both the three

and nine months

decreases in gift

card breakage and

e-commerce shipping revenue

partially offset by

finance charges and late fees

associated with the Company’s proprietary credit card.

65.4% of retail

for the three and nine months ended October 28, 2023, respectively, compared to $123.8 million, or 70.7% of

comparable three

month periods

third quarter

inventory costs.

distribution costs

include payroll,

payroll-related costs

and operating

for the buying departments and distribution center.

Occupancy costs include rent, real estate taxes, insurance,

common area maintenance, utilities

and maintenance for stores

retail industry.

comparable to similarly titled measures reported by

other companies.

E-commerce sales were

less than 5.0%

revenues, comprised

of retail sales

and other revenue

(principally finance

charges and late

$177.1 million for the first quarter ended May 4, 2024, compared to $192.1 million for the first

quarter ended

operated 1,171

stores at May

compared to 1,264

stores at the

seven stores.

The Company currently anticipates closing approximately 75

stores in fiscal 2024.

Credit revenue of $0.7 million represented 0.4% of total revenues in the first quarter of fiscal 2024,

earned on the Company’s private label credit card portfolio and related fee income.

Related expenses include

principally payroll, postage and

other administrative expenses, and

totaled $0.4 million in

the first quarter of

2024, compared to last year’s

first quarter expenses of $0.4 million.

Other revenue, a component of

total revenues, was $1.8 million for the first

quarter of fiscal 2024, compared

million for the

comparable first

The slight increase

breakage income and late charges, partially

offset by lower e-commerce shipping revenue

and layaway fees.

Cost of goods

sold was $112.5

million, or 64.2%

of retail sales for

the first quarter of

fiscal 2024, compared

merchandise costs (net of discounts and

allowances), buying costs, distribution costs, occupancy 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.

dollars (retail sales less

cost of goods sold

exclusive of depreciation)

decreased by 0.6% to

$50.9 million for

compared to $51.2 million and $187.1 million for the prior year’s comparable three and nine

months of fiscal

2022, respectively.

Gross margin as presented may not be

comparable to those of other entities.

Total gross margin dollars (retail

depreciation)

quarter of fiscal 2024 compared to $68.2 million in the first quarter of fiscal 2023.

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

expenses were $61.8 million, or 39.4% of retail sales and $185.3 million, or 35.1% of retail sales for the

quarter and first nine months of

fiscal 2023, respectively, compared to $61.4

million, or 35.1% of retail sales

comparable three

month periods,

respectively.

The increase in

third quarter and

first nine months

of fiscal 2023

was primarily

due to higher payroll and insurance

Depreciation expense was $2.5 million, or 1.6% of retail sales and $7.4 million, or 1.4% of

retail sales for the

third quarter

2023, respectively,

$2.9 million,

sales and $8.4 million or 1.5%

of retail sales for the comparable three

and nine month periods of fiscal

respectively.

Interest and other income was $1.5 million, or 1.0% of retail sales and $3.8 million, or 0.7% of retail sales for

the three and

nine months ended October

28, 2023, respectively, compared

to $2.3 million, or

payroll taxes and benefits, insurance, supplies, advertising,

and bank and credit card processing fees.

expenses were

retail sales for

the first quarter of fiscal 2023.

SG&A expense is lower in the first quarter of fiscal 2024 compared

quarter of fiscal

2023 primarily due

to lower equity

compensation, advertising and

store expenses, including

payroll, partially offset by an increase

in insurance expense.

Depreciation expense was $2.0 million, or 1.2% of retail sales for the first quarter of fiscal 2024, compared to

$2.4 million, or

1.2% of retail

sales and $4.6 million, or 0.8% of retail sales for the comparable three and nine month periods of fiscal

respectively.

The decrease for the

third quarter and first

nine months of

fiscal 2023 compared

to fiscal 2022

sales for the

first quarter of

decrease in depreciation

was attributable to older stores being

fully depreciated.

primarily due to a $3.2 million net

gain on sale of land held for

Income tax expense was 0.6 million or 0.4% of retail sales for the first quarter of fiscal 2024, compared to

income tax expense of 2.1 million, or 1.1% of retail sales

for the first quarter of fiscal 2023.

The effective

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

Carolina in 2022, partially offset by higher

amounts earned on investments due to

higher interest rates.

million for the

third quarter

nine months of fiscal

respectively,

comparable three

and nine month

respectively.

Company’s effective

was 60.4% compared

for the first

nine months of

The change in the 2023 year-to-date effective tax rate was primarily due to increases in foreign rate

differential and the release of reserves for uncertain tax positions, offset by decreases in

Global Intangible

Income (GILTI),

income taxes,

non-deductible officer’s

compensation, and

credits, as percentages on a pre-tax loss.

allowance against

carryforwards

differential and lower state income taxes.

LIQUIDITY, CAPITAL

8 unchanged sentences

adequate to fund

Company’s regular operating requirements

and expected capital expenditures

for fiscal 2023 and the

compared to $19.3 million provided

in the first nine months of fiscal

The decrease in cash provided

$7.6 million for

the first nine

months of fiscal

2023 as compared

nine months of

fiscal 2022 was

primarily due to a net loss in 2023 compared to net income in 2022,

and higher accounts receivable, partially

offset by lower accounts payable and

accrued liabilities.

primarily attributable

current lease

liability and an increase in

cash, partially offset by a decrease

in inventory and short-term investments.

As of October 28, 2023, the Company has an unsecured revolving credit line, which provides for borrowings

million, less

revocable letters

purchase commitments,

committed through

The revolving

credit agreement

contains various

financial covenants

and limitations,

including the

maintenance of

specific financial

amended the revolving

credit agreement

the calculation

Company’s EBITDAR

coverage ratio

Company’s regular operating requirements and expected

capital expenditures for the next

primarily attributable to the relative change

in inventory from year-end to the

first quarter for both years and

decrease to first quarter 2024 net

income for non-operating gain on sale of

assets held for investment.

At May 4, 2024, the Company had working capital of $65.8 million compared to $55.1 million at February 3,

The increase is

primarily attributable to

an increase in

cash and cash

equivalents, inventory, accounts

receivable and lower current lease liability,

partially offset by lower short-term

borrowings of

$35.0 million

any revocable

credit related

covenants and

limitations, including

the maintenance

financial ratios.

minimum EBITDAR

coverage ratio

quarter ended

forward, the Company

was in compliance

with the amended

credit agreement for

receivables included

the calculation of

the quarter ended

compliance without

giving effect

after giving effect

amendment, the

in compliance

credit agreement.

no borrowings

outstanding, nor

availability,

October 28, 2023.

The weighted average

interest rate under

the credit facility

October 28, 2023

due to no borrowings outstanding.

$14.4 million

fiscal year’s

expenditures for

and equipment

projects related

to investments

distribution center

average interest rate under the credit facility was zero at May 4, 2024

due to no outstanding borrowings.

center, as well

store openings in

the first quarter

of fiscal 2024.

fiscal 2024 year,

Company expects

approximately $9.0

million for capital expenditures.

capital expenditures,

including distribution

automation projects.

compared to $15.3 million provided in the comparable period of fiscal 2023.

The decrease is primarily due

an increase in purchases of short-term investments and a decrease in sales of short-term investments, partially

offset by the sale of other

assets and a decrease in capital expenditures.

financing activities

On May 23, 2024, the Board of

Directors maintained the quarterly dividend at

0.17 per share.

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

Net cash provided by investing activities totaled $6.1 million in the first nine months of fiscal 2023 compared

the comparable

cash provided

2023 was primarily due to a

decrease in capital expenditures.

Net cash used in financing activities totaled $12.7 million in the first nine months of fiscal

2023 compared to

$22.2 million used in the comparable period of fiscal 2022.

The decrease in net cash used in fiscal 2023 was

primarily due to lower stock repurchases.

On November 16, 2023, the Board

of Directors maintained the quarterly dividend at

$0.17 per share.

909,653 shares

open authorizations

authorizations

repurchase program.

6 unchanged sentences

tax-exempt and taxable

governmental debt securities held

in managed accounts with

underlying ratings of A

range from four days to 3.1 years.

Treasury Notes have contractual

maturities which range from 79

available-for-sale

investments, Restricted cash and Other assets on the accompanying Condensed Consolidated Balance Sheets.

unrealized gains

in Accumulated

other comprehensive income.

asset-backed securities are bonds

comprised of auto loans

and bank credit

cards that carry

asset-backed securities

that were originated and serviced by captive auto finance units, banks or finance companies.

The bank credit

card receivables

holders of cards from American Express, Citibank,

JPMorgan Chase, Capital One and Discover.

Additionally,

compensation plan assets

governmental debt securities held in managed accounts with underlying ratings of A or better at May 4, 2024

and February 3, 2024.

The state, municipal and corporate bonds and asset-backed securities have contractual

Treasury/Agencies

contractual maturities which range from 2 months

to 1.8 years.

These securities

are classified as available-for-

Consolidated Balance Sheets.

assets are carried

at fair value

with unrealized gains and

losses reported

Accumulated other

comprehensive income.

The asset-backed

securities are

bonds comprised

of auto loans and

bank credit cards that

carry AAA ratings.

auto loan asset-backed securities

by static pools of auto loans that were originated and serviced

by captive auto finance units, banks or finance

Capital One, and Discover.

Additionally, at May 4, 2024, the Company had $0.1 million of

corporate equities and deferred compensation

corporate equities

deferred compensation plan assets

of $8.6 million.

At January 28,

2023, the Company

had $0.9 million

equities and deferred compensation plan assets of $9.3

All of these assets are recorded within

assets in the Condensed Consolidated Balance

See Note 7, Fair Value Measurements.

of these assets are recorded

within Other assets in

Condensed Consolidated Balance Sheets.

See Note 7, Fair

Value Measurements.

RECENT ACCOUNTING PRONOUNCEMENTS:

10 unchanged sentences

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