Item 1. Financial Statements
ITEM 1.
FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
May 4, 2024
April 29, 2023
(Dollars in thousands, except per share data)
REVENUES
Retail sales
$
175,272
$
190,311
Other revenue (principally finance charges, late fees and
layaway charges)
1,827
1,739
Total revenues
177,099
192,050
COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shown below)
112,505
122,087
Selling, general and administrative (exclusive of depreciation
shown below)
56,752
61,934
Depreciation
2,040
2,357
Interest and other income
( 5,821 )
( 897 )
Costs and expenses, net
165,476
185,481
Income before income taxes
11,623
6,569
Income tax expense
649
2,141
Net income
$
10,974
$
4,428
Basic earnings per share
$
0.54
$
0.22
Diluted earnings per share
$
0.54
$
0.22
Comprehensive income:
Net income
$
10,974
$
4,428
Unrealized gain (loss) on available-for-sale securities, net
of deferred income taxes of $0 and $
107
( 748 )
355
for the three months ended May 4, 2024 and April 29, 2023,
respectively
Comprehensive income
$
10,226
$
4,783
See notes to condensed consolidated financial statements (unaudited).
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
May 4, 2024
February 3, 2024
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
$
39,101
$
23,940
Short-term investments
66,250
79,012
Restricted cash
3,533
3,973
Accounts receivable, net of allowance for customer credit losses of
$
671
and $
705
at May 4, 2024 and February 3, 2024, respectively
31,716
29,751
Merchandise inventories
101,317
98,603
Prepaid expenses and other current assets
7,724
7,783
Total Current Assets
249,641
243,062
Property and equipment – net
64,568
64,022
Other assets
23,305
25,047
Right-of-Use assets – net
139,635
154,686
Total Assets
$
477,149
$
486,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
86,966
$
87,821
Accrued expenses
38,490
37,404
Accrued bonus and benefits
2,023
1,675
Accrued income taxes
518
-
Current lease liability
55,800
61,108
Total Current Liabilities
183,797
188,008
Other noncurrent liabilities
14,607
14,475
Lease liability
81,834
92,013
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;
18,791,732
and
18,802,742
shares issued
at May 4, 2024 and February 3, 2024, respectively
635
635
Convertible Class B common stock, $
0.033
par value per share,
15,000,000
shares authorized;
1,763,652
shares issued at May 4, 2024 and February 3, 2024
59
59
Additional paid-in capital
127,058
126,953
Retained earnings
69,512
64,279
Accumulated other comprehensive income (loss)
( 353 )
395
Total Stockholders' Equity
196,911
192,321
Total Liabilities and Stockholders’ Equity
$
477,149
$
486,817
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Three Months Ended
May 4, 2024
April 29, 2023
(Dollars in thousands)
Operating Activities:
Net income
$
10,974
$
4,428
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
2,040
2,357
Provision for customer credit losses
171
98
Purchase premium and premium amortization of investments
( 136 )
( 18 )
Gain on sale of assets held for investment
( 4,093 )
-
Share-based compensation
( 38 )
958
Deferred income taxes
-
( 832 )
Loss (Gain) on disposal of property and equipment
65
( 33 )
Changes in operating assets and liabilities which provided (used) cash:
Accounts receivable
( 1,836 )
( 1,793 )
Merchandise inventories
( 2,714 )
5,243
Prepaid and other assets
27
( 618 )
Operating lease right-of-use assets and liabilities
( 435 )
( 532 )
Accrued income taxes
518
2,066
Accounts payable, accrued expenses and other liabilities
1,163
( 1,429 )
Net cash provided by operating activities
5,706
9,895
Investing Activities:
Expenditures for property and equipment
( 3,261 )
( 6,170 )
Purchase of short-term investments
( 8,572 )
( 5,914 )
Sales of short-term investments
21,413
27,421
Sales of other assets
5,034
-
Net cash provided by investing activities
14,614
15,337
Financing Activities:
Dividends paid
( 3,523 )
( 3,455 )
Repurchase of common stock
( 2,237 )
( 2,267 )
Proceeds from employee stock purchase plan
161
166
Net cash used by financing activities
( 5,599 )
( 5,556 )
Net increase in cash, cash equivalents, and restricted cash
14,721
19,676
Cash, cash equivalents, and restricted cash at beginning of period
27,913
23,792
Cash, cash equivalents, and restricted cash at end of period
$
42,634
$
43,468
Non-cash activity:
Accrued other assets and property and equipment expenditures
$
491
$
644
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 — February 3, 2024
$
694
$
126,953
$
64,279
$
395
$
192,321
Comprehensive income:
Net income
-
-
10,974
-
10,974
Unrealized net gains on available-for-sale securities, net of deferred
income tax benefit of $0
-
-
-
( 748 )
( 748 )
Dividends paid ($
0.17
per share)
-
-
( 3,523 )
-
( 3,523 )
Class A common stock sold through employee stock purchase
plan
1
189
-
-
190
Share-based compensation issuances and exercises
13
-
5
-
18
Share-based compensation expense
-
( 84 )
-
-
( 84 )
Repurchase and retirement of treasury shares
( 14 )
-
( 2,223 )
-
( 2,237 )
Balance — May 4, 2024
$
694
$
127,058
$
69,512
$
( 353 )
$
196,911
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income (Loss)
Equity
(Dollars in thousands)
Balance — January 28, 2023
$
691
$
122,431
$
104,709
$
( 1,238 )
$
226,593
Comprehensive income:
Net income
-
-
4,428
-
4,428
Unrealized net losses on available-for-sale securities, net of deferred
income tax expense of $
107
-
-
-
355
355
Dividends paid ($
0.17
per share)
-
-
( 3,455 )
-
( 3,455 )
Class A common stock sold through employee stock purchase
plan
-
195
-
-
195
Share-based compensation issuances and exercises
-
-
3
-
3
Share-based compensation expense
-
929
-
-
929
Repurchase and retirement of treasury shares
( 8 )
-
( 2,259 )
-
( 2,267 )
Balance — April 29, 2023
$
683
$
123,555
$
103,426
$
( 883 )
$
226,781
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
4,
2024
and
for
the
thirteen-week
periods
ended
May
4,
2024
and
April
29,
2023
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 presentation 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
February 3, 2024.
Amounts as of February 3, 2024 have been derived from the audited balance sheet, but
do not include all disclosures required by
accounting principles generally accepted in the United States of
America.
On February 16, 2024, the Company closed on the sale of land held for investment.
The sale resulted in a
net
gain
of
$
3.2
million
and
is
included
in
Interest
and
other
income
in
the
accompanying
Condensed
Consolidated Statements of Income and Comprehensive Income
for the period ended May 4, 2024.
On May 23, 2024, the Board of Directors maintained the quarterly dividend at
$
0.17
per share.
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 4, 2024
April 29, 2023
(Dollars in thousands)
Numerator
Net earnings
$
10,974
$
4,428
Earnings allocated to non-vested equity awards
( 557 )
( 227 )
Net earnings available to common stockholders
$
10,417
$
4,201
Denominator
Basic weighted average common shares outstanding
19,356,789
19,303,048
Diluted weighted average common shares outstanding
19,356,789
19,303,048
Net income per common share
Basic earnings per share
$
0.54
$
0.22
Diluted earnings per share
$
0.54
$
0.22
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
reclassification
out
of
Accumulated
other
comprehensive income (loss) (in thousands) for
the three months ended May 4,
2024:
Changes in Accumulated Other
Comprehensive Income (Loss) (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 3, 2024
$
395
Other comprehensive income (loss) before
reclassification
( 1,434 )
Amounts reclassified from accumulated
other comprehensive income (b)
686
Net current-period other comprehensive income (loss)
( 748 )
Ending Balance at May 4, 2024
$
( 353 )
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive
income.
(b) Includes $
892
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $
206
.
The
following
table
sets
forth
information
regarding
the
reclassification
out
of
Accumulated
other
comprehensive income (loss) (in thousands) for
the three months ended April 29,
2023:
Changes in Accumulated Other
Comprehensive Income (Loss) (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 28, 2023
$
( 1,238 )
Other comprehensive income (loss) before
reclassification
355
Net current-period other comprehensive income (loss)
355
Ending Balance at April 29, 2023
$
( 883 )
(a) All amounts are net-of-tax.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9
NOTE 4 – FINANCING ARRANGEMENTS:
At
May
4,
2024,
the
Company
had
an
unsecured
revolving
credit
agreement,
which
provides
for
borrowings of
up to
$
35.0
million less
the balance
of any
revocable letters
of credit
related to
purchase
commitments,
and
is
committed
through
May
2027.
The
credit
agreement
contains
various
financial
covenants and
limitations, including
the maintenance
of specific
financial ratios.
On April
25, 2024,
the
Company
amended
the
revolving
credit
agreement
to
modify
a
definition
used
in
calculating
the
Company’s
minimum EBITDAR
coverage ratio
to
add back
certain
income tax
receivables included
in
the calculation of
the ratio. For
the quarter ended
May 4, 2024,
after giving effect
to the
amendment, the
Company was
in compliance
with the
credit agreement.
There were
no
borrowings outstanding,
no
r any
outstanding
letters
of
credit
that
reduced
borrowing
availability,
as
of
May
4,
2024.
The
weighted
average interest rate under the credit facility was
zero
at May 4, 2024 due to
no
outstanding borrowings.
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The
Company
has
determined
that
it
has
four
operating
segments,
as
defined
under
ASC
280
–
Segment
Reporting
, including Cato,
It’s Fashion, Versona
and Credit.
As outlined in
ASC 280-10, 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
4,
2024,
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 separate
wholly-owned
subsidiaries of the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10
NOTE 5 – REPORTABLE SEGMENT INFORMATION
(CONTINUED):
The following schedule summarizes certain segment
information (in thousands):
Three Months Ended
May 4, 2024
Retail
Credit
Total
Revenues
$ 176,430
$ 669
$ 177,099
Depreciation
2,040
-
2,040
Interest and other income
( 5,821 )
-
( 5,821 )
Income before taxes
11,374
249
11,623
Capital expenditures
3,261
-
3,261
Three Months Ended
April 29, 2023
Retail
Credit
Total
Revenues
$ 191,434
$ 616
$ 192,050
Depreciation
2,357
-
2,357
Interest and other income
( 897 )
-
( 897 )
Income before taxes
6,382
187
6,569
Capital expenditures
6,170
-
6,170
Retail
Credit
Total
Total assets as of May 4, 2024
$ 438,371
$ 38,778
$ 477,149
Total assets as of February 3, 2024
448,488
38,329
486,817
The
Company
evaluates
segment
performance
based
on
income
before
taxes.
The
Company
does
not
allocate certain corporate expenses or
income taxes to the credit segment.
The following schedule
summarizes the direct
expenses of the
credit segment which
are reflected in
Selling,
general and administrative expenses (in
thousands):
Three Months Ended
May 4, 2024
April 29, 2023
Payroll
$
153
$
134
Postage
102
101
Other expenses
165
194
Total expenses
$
420
$
429
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11
NOTE 6 – SHARE BASED COMPENSATION:
As
of
May
4,
2024,
the
Company
had
the
2018
Incentive
Compensation
Plan
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 4, 2024:
2018
Plan
Options and/or restricted stock initially authorized
4,725,000
Options and/or restricted stock available for grant
2,760,305
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 4,
2024
and
February 3,
2024,
there
was
$
11,103,000
and
$
9,334,000
,
respectively,
of
total
unrecognized
compensation
expense
related
to
unvested
restricted
stock
awards,
which
had
a
remaining
weighted-
average vesting period of
3.0
years and
2.1
years, respectively.
The total compensation benefit during the
three months ended
May 4, 2024
was $
66,000
compared to an
expense of $
932,000
for the three
months
ended
April
29,
2023.
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
4, 2024:
Weighted
Average
Number of
Grant Date Fair
Shares
Value
Per Share
Restricted stock awards at February 3, 2024
1,123,873
$
11.32
Granted
389,900
4.76
Vested
( 232,696 )
13.22
Forfeited or expired
( 2,812 )
11.81
Restricted stock awards at May 4, 2024
1,278,265
$
8.97
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12
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 4,
2024 and
April 29,
2023,
the
Company
sold
33,317
and
22,194
shares
to
employees
at
an
average
discount
of
$
0.86
and
$
1.32
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
$
29,000
for
each
of
the
three
months
ended
May
4,
2024
and
April
29,
2023.
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 4, 2024 and
February 3, 2024:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
May 4, 2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
11,477
$
-
$
11,477
$
-
Corporate Bonds
43,290
-
43,290
-
U.S. Treasury/Agencies Notes and Bonds
9,873
-
9,873
-
Cash Surrender Value of Life Insurance
8,749
-
-
8,749
Asset-backed Securities (ABS)
1,610
-
1,610
-
Corporate Equities
139
139
-
-
Total Assets
$
75,138
$
139
$
66,250
$
8,749
Liabilities:
Deferred Compensation
$
( 8,662 )
$
-
$
-
$
( 8,662 )
Total Liabilities
$
( 8,662 )
$
-
$
-
$
( 8,662 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
February 3,
2024
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
12,540
$
-
$
12,540
$
-
Corporate Bonds
45,400
-
45,400
-
U.S. Treasury/Agencies Notes and Bonds
18,114
-
18,114
-
Cash Surrender Value of Life Insurance
8,586
-
-
8,586
Asset-backed Securities (ABS)
2,958
-
2,958
-
Corporate Equities
1,084
1,084
-
-
Total Assets
$
88,682
$
1,084
$
79,012
$
8,586
Liabilities:
Deferred Compensation
$
( 8,654 )
$
-
$
-
$
( 8,654 )
Total Liabilities
$
( 8,654 )
$
-
$
-
$
( 8,654 )
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 May 4, 2024
and February 3, 2024.
The state, municipal and corporate bonds and asset-backed securities have contractual
maturities
which
range
from
seven days
to
3.0
years.
The
U.S.
Treasury/Agencies
Notes
and
Bonds
have
contractual maturities which range from
2
months to
1.8
years. These securities are classified as
available-for-
sale
and
are
recorded
as
Short-term
investments
and
Other
assets
on
the
accompanying
Condensed
Consolidated Balance Sheets. These
assets are carried
at fair value
with unrealized gains and
losses reported
net of
taxes in
Accumulated other
comprehensive income.
The asset-backed
securities are
bonds comprised
of auto loans and
bank credit cards that
carry AAA ratings. The
auto loan asset-backed securities
are backed
by static pools of auto loans that were originated and serviced
by captive auto finance units, banks or finance
companies.
The
bank
credit
card
asset-backed
securities
are
backed
by
revolving
pools
of
credit
card
receivables
generated
by
account
holders
of
cards
from
American
Express,
Citibank,
JPMorgan
Chase,
Capital One, and Discover.
Additionally, at May 4, 2024, the Company had $
0.1
million of corporate equities and deferred compensation
plan assets
of $
8.7
million.
At February
3, 2024,
the Company
had $
1.1
million of
corporate equities
and
deferred compensation plan assets
of $
8.6
million. All of these
assets are recorded within Other
assets in the
Condensed Consolidated Balance Sheets.
Level 1 category securities are measured
at fair value using quoted active
market prices.
Level 2 investment
securities
include
corporate
and
municipal
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
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14
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 as of
May 4, 2024 and February 3,
2024 (dollars in thousands):
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
15
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at February 3, 2024
$
8,586
Redemptions
-
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
163
Ending Balance at May 4, 2024
$
8,749
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 3, 2024
$
( 8,654 )
Redemptions
253
Additions
( 63 )
Total (gains) or losses
Included in interest and other income (or changes in net assets)
( 198 )
Ending Balance at May 4, 2024
$
( 8,662 )
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 28, 2023
$
9,274
Redemptions
( 1,168 )
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
480
Ending Balance at February 3, 2024
$
8,586
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 28, 2023
$
( 8,903 )
Redemptions
1,119
Additions
( 292 )
Total (gains) or losses
Included in interest and other income (or changes in net assets)
( 578 )
Ending Balance at February 3, 2024
$
( 8,654 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
16
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
In
November
2023,
the
Financial
Accounting
Standards
Board
(“FASB”)
issued
Accounting
Standards
Update
(“ASU”)
2023-07,
“Segment
Reporting
(Topic
280):
Improvements
to
Reportable
Segment
Disclosures”,
which
modifies
disclosure
requirements
for
all
public
entities
that
are
required
to
report
segment
information.
The update
will change
the
reporting of
segments by
adding
significant
segment
expenses, other segment items, title
and position of the chief
operating decision maker (“COD”) and how
the
COD uses
the
reported measures
to
make decisions.
The
update also
requires all
annual disclosure
about
a reportable
segment’s
profit or
loss and
assets in
interim periods.
This
guidance is
effective for
fiscal
years
beginning
after
December
15,
2023
and
interim
periods
within
fiscal
years
beginning
after
December
15,
2024.
Early
adoption
is
permitted,
and
the
guidance
is
applicable
retrospectively
to
all
prior periods presented in the financial statements.
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.
In
December
2023,
the
FASB
issued
ASU
2023-09,
“Income
Taxes
(Topic
740):
Improvements
to
Income
Tax
Disclosures”,
which
modifies
the
requirements
on
income
tax
disclosures
to
require
disaggregated
information
about
a
reporting
entity’s
effective
tax
rate
reconciliation
as
well
as
information on
income taxes
paid.
This guidance
is effective
for fiscal
years beginning
after December
15, 2024 for all public
business entities, with early adoption and retrospective application
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
2024 of
5.6
% compared to
an effective tax
rate of
32.6
% for the
first quarter of
2023.
Income tax expense
for the quarter
decreased to $
0.6
million
in 2024
from $
2.1
million in
2023. The
decrease in tax
expense is
primarily due to
valuation allowances
against net deferred tax assets
attributable to U.S. federal net
operating loss carryforwards and the impact
of the foreign rate differential and lower state 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.
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.
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 $
171,000
and $
121,000
for the periods
ended May 4,
2024 and
April
29, 2023,
respectively,
on sales
purchased by
the Company’s
proprietary credit
card of
$
5.7
million and
$
5.8
million for the periods ended May 4, 2024 and April 29, 2023, respectively.
The
following
table
provides
information
about
receivables
and
contract
liabilities
from
contracts
with
customers (in thousands):
Balance as of
May 4, 2024
February 3, 2024
Proprietary Credit Card Receivables, net
$
10,972
$
10,909
Gift Card Liability
$
6,849
$
8,143
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
18
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 up
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
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 4, 2024
April 29, 2023
Operating lease cost (a)
$
17,002
$
18,078
Variable
lease cost (b)
$
497
$
594
(a) Includes right-of-use asset amortization of ($
0.2
) million and ($
0.3
) million for the three months ended
May 4, 2024 and April 29, 2023, respectively.
(b) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
19
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 4, 2024
April 29, 2023
Cash paid for amounts included in the measurement of lease liabilities
$
15,607
$
17,345
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
444
$
1,904
Weighted-average
remaining
lease
term
and
discount
rate
for
the
Company’s
operating
leases
are
as
follows:
As of
May 4, 2024
April 29, 2023
Weighted-average remaining lease term
2.1
Years
2.2
Years
Weighted-average discount rate
4.65 %
3.20 %
As of May 4, 2024, the maturities of lease liabilities by fiscal year for the Company’s
operating leases are
as follows (in thousands):
Fiscal Year
2024 (a)
$
49,240
2025
45,261
2026
29,329
2027
16,591
2028
7,784
Thereafter
690
Total lease payments
148,895
Less: Imputed interest
11,261
Present value of lease liabilities
$
137,634
(a) Excluding the 3 months ended May 4, 2024.
20
THE CATO CORPORATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.