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Item 2. Management’s Discussion and Analysis

2024-11-26 compared with 2024-08-29 · 298 added, 302 removed, 179 unchanged (77% of the section changed)

24 unchanged sentences

operations and financial condition and

statements of plans or intentions

regarding new store development

statements of plans or

intentions regarding new store development

contingencies.

28 unchanged sentences

and inflation;

uncertainties regarding

any governmental

action regarding,

responses to,

changing fashion trends and consumer demands;

our ability to increase new store openings and the ability

of any such new stores to grow and perform as expected;

underperformance or other factors that may lead

to, or affect the volume of, store closures;

adverse weather, public health threats, acts of war or aggression

similar conditions

merchandise supply

due to shifts

in market demand, including

the ability to

liquidate excess inventory at

anticipated margins;

adverse developments

or volatility

affecting the

financial services

financial markets;

factors discussed under

laws, regulations

or government

policies affecting

our business,

including but

uncertainties

to rapidly changing

fashion trends

and consumer demands;

our ability to

underperformance

other factors that may lead to, or affect the

volume of, store closures and negatively affect the Company’s

profitability,

merchandise supply chain,

inventory risks

market demand, including

broader financial

“Risk Factors” in

supplemented,

Part I, Item 1A

Annual Report on Form

fiscal year ended

(“fiscal 2023”),

or supplemented,

other reports

Securities and

Exchange Commission

forward-looking

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

future events, or otherwise.

undertake, and

obligation to

update any such

forward-looking information contained

report, whether

as a result of new information, future events, or otherwise.

THE CATO CORPORATION

26 unchanged sentences

the Company's unaudited Condensed

Consolidated Statements of Income as a

Consolidated Statements of Income (Loss) as a

percentage of total retail sales:

Three Months Ended

Six Months Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

Nine Months Ended

November 2, 2024

October 28, 2023

November 2, 2024

October 28, 2023

Total retail sales

5 unchanged sentences

Interest and other income

Income before income taxes

Loss before income taxes

THE CATO CORPORATION

16 unchanged sentences

Inflationary Cost Pressure and High Interest Rates

interest rates.

interest rates

have adversely affected

the availability and

credit for our

customers, including

revolving credit

negatively impact

disposable income.

Our customers’

willingness to

be negatively

impacted by these inflationary pressures and high interest rates.

customers’ disposable

The pressure on our customers’ disposable income continued in the

first three quarters of fiscal 2024, due

prolonged and

persistently higher

prices caused

inflation rates,

especially related

availability and cost of credit for our customers, including

revolving credit and auto loans, and continue to

products may continue to be negatively impacted by these inflationary

pressures and high interest rates.

income adversely

and will likely continue to have

a negative impact on consumer behavior

and, by extension, our results of

operations and financial condition during the remainder of fiscal 2024.

three quarters

negative impact

behavior and,

by extension,

operations and

condition during the remainder of fiscal 2024.

Merchandise Supply Chain

traverses through the

Panama Canal or

drought conditions experienced

surrounding the Panama

Canal reduced

by approximately

approximately 37% and

also reduced the

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vessels transiting the

Panama Canal, which reduced

the volume and

containers carried

increased our

region surrounding the Suez Canal

are causing container ships

to travel longer distances

around the Cape

of Good Hope,

Panama Canal, which

reduced the volume

and number of

containers carried by container

ships and increased

conditions improved as

Canal authority

increased the

daily transits

permissible draft

of vessels, raising the number of

transits to 95% of pre-drought operations in the

second quarter and back

to pre-drought

The hostilities

affecting the

region surrounding the

are causing container ships to

travel longer distances around the

Cape of Good Hope,

which is increasing

lead times for

merchandise and our

costs to ship

as decreasing the pool of

containers available.

Both of these situations have negatively

impacted the first

six months of 2024.

Though conditions in the Panama Canal have incrementally improved, we believe the

totality of these conditions will

likely continue to have a

negative impact on our

results of operations and

financial condition for the foreseeable future.

Comparison of the Three and Six

Months ended August 3, 2024

with July 29, 2023

Total retail sales

for the second

$166.9 million

compared to last

year’s second

quarter sales

lead times for merchandise and

our costs to ship these

goods, as well as decreasing the

pool of containers

The combination of

these situations

has negatively impacted

merchandise to miss

its shipping windows.

Though conditions have

incrementally improved, we believe

the totality of

these conditions will

likely continue to

have a negative

impact on our

results of operations

and financial condition for the foreseeable future.

Comparison of the Three and Nine

Months ended November 2, 2024 with October

Total retail sales for the

third quarter were $144.6 million compared to

last year’s third quarter sales

million, an 8% decrease.

The Company’s sales

decrease in the third quarter

of fiscal 2024 was

primarily due

in same-store

store closures.

4% decrease in same-store sales and store closures.

Same-store sales include stores that have been open more

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

similarly titled measures reported by other

E-commerce sales were less than

5% of total sales for

month sales of

$528.2 million, an

decrease in sales

nine months of

same-store sales

Total revenues,

revenue (principally

finance charges

Same-store sales

include stores

that have been open

more than 15 months.

Stores that have been

relocated or expanded are

also included in

the same-store sales

calculation after they

have been open

The method of

varies across

retail industry.

comparable to similarly titled measures reported by other companies.

E-commerce sales were less than 5% of

total sales for the nine months ended

November 2, 2024 and are included in

the same-store sales calculation.

customer accounts

August 3, 2024,

compared to $182.9

million and $374.9

million for the

three and six

months ended July

receivable and

layaway fees),

$491.9 million

nine months ended November 2, 2024, compared to $158.3 million and $533.2

million for the three and nine

respectively.

Company operated

compared to 1,247

During the first six months of fiscal 2024, the Company closed 12 stores.

opened one store

The Company currently

expects to close approximately 65 stores

in total in fiscal 2024.

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

Related expenses

principally include payroll,

postage and other

administrative expenses and

totaled $0.4 million

in the second

quarter of fiscal 2024, compared to

last year’s second quarter expense of

close approximately

total in fiscal 2024.

compared to credit revenue of $0.7 million or 0.4% of total revenues in the third quarter of fiscal 2023.

interest earned

Company’s private

card portfolio

Related expenses principally include

payroll, postage and other

administrative expenses and totaled

$0.4 million in the third quarter

of fiscal 2024, compared to

last year’s third quarter expense of

$0.4 million.

Other revenue, a component of total revenues, was $1.7 million and $3.5 million for the

three and six months

respectively,

comparable three and six month periods.

The slight increase in Other revenue for

the first six months was due

card breakage

finance charges

fees associated

proprietary credit card, partially offset by a

decrease in e-commerce shipping revenue.

months ended November 2, 2024, respectively, compared to $1.6 million and $5.0 million for the prior year’s

comparable three

month periods.

Other revenue

with the Company’s proprietary credit

card, partially offset by an increase

in gift card breakage income.

66.7% of retail

for the three and

nine months ended November

2, 2024, respectively, compared

comparable three

The overall increase

goods sold as

retail sales for

the second quarter

primarily from

deleveraging of

occupancy and

distribution costs,

partially offset

buying costs, distribution costs, occupancy costs, freight and inventory shrinkage.

Net merchandise costs and

in-bound freight

and distribution

to $105.8 million, or

of retail sales and $345.5 million, or 65.4% of retail sales for the comparable three and nine month periods of

The overall increase in cost of goods sold as a percent of retail sales for the third

quarter and first

primarily from deleveraging of occupancy and buying costs and higher distribution and freight costs, partially

payroll-related

costs include

include rent, real

estate taxes, insurance,

common area maintenance,

utilities and maintenance

for stores and

estate taxes,

insurance, common

maintenance, utilities

maintenance for

distribution facilities.

Total gross margin

dollars (retail sales less cost of

goods sold exclusive of depreciation)

9.1% to $57.8

dollars (retail

sold exclusive of depreciation) decreased by

18.1% to $41.7 million for the third quarter

of fiscal 2024 and by

million for the

second quarter

$120.6 million

prior year’s comparable

three and nine

months of fiscal

2023, respectively.

comparable to those of other entities.

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

second quarter and first six months of fiscal 2024, respectively, compared to $61.6 million, or

34.0% of retail

sales and $123.6 million, or 33.3% of retail sales for the prior year’s comparable three and

six month periods,

respectively.

The decrease in SG&A expenses for the

second quarter and first six months of fiscal

insurance expense and expenses

related to the startup of

our DC automation

project which will continue

the third quarter.

expenses were $57.9 million, or 40.0% of retail sales and $172.8 million, or 35.5% of retail sales for the

quarter and first nine months of

fiscal 2024, respectively, compared to $61.8

million, or 39.4% of retail sales

comparable three

month periods,

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

respectively.

The decrease in SG&A

expenses for the third

quarter and first nine

months of fiscal 2024

primarily due to lower payroll,

advertising and insurance expenses, partially

offset by expenses related to the

startup of our distribution center automation project.

Depreciation expense was $2.7 million, or 1.9% of retail sales and $7.1 million, or 1.5% of

retail sales for the

second quarter

third quarter

2024, respectively,

$2.5 million,

sales and $4.9

sales and $7.4 million or 1.4%

of retail sales for the comparable three

and nine month periods of fiscal

respectively.

Interest and other

income was $2.6

million, or 1.8%

of retail sales

for the comparable

three and six

month periods of

respectively.

Interest and other income was $1.7 million, or 1.0% of retail sales and $7.6 million, or 2.2% of retail sales for

the three and six months ended August

3, 2024, respectively, compared to $1.3 million,

or 0.7% of retail sales

and $10.2 million,

ended November

respectively, compared to

$1.5 million,

retail sales and $3.8 million,

or 0.7% of retail sales for the

comparable three and nine month periods

2023, respectively.

The increase for the second quarter of fiscal 2024 compared to fiscal 2023 was

primarily due to

was primarily

for investment

addition to higher interest earned

on the Company’s investments.

Income tax expense was $0.6 million and $1.3 million for the second quarter and first six months of fiscal

third quarter

2024 compared

Company’s investments.

Company’s corporate aircraft and higher interest

earned on the Company’s investments.

Income tax expense was

$0.3 million and $1.6 million

for the third quarter

and first nine months of fiscal

2024, respectively,

the comparable

and six month

respectively.

The effective

of fiscal 2024

was 10.5% compared to

38.5% for the

first six months of

The decrease in

carryforwards

income taxes.

increase in tax expense in

2024 is primarily due to

the valuation allowance against net

deferred tax assets

attributable to

net operating

loss carryforwards

smaller release of reserves for uncertain tax positions.

LIQUIDITY, CAPITAL

3 unchanged sentences

investments, together

from operations

and borrowings available

under its revolving

credit agreement,

adequate to fund

Company’s regular operating requirements and expected

capital expenditures for the next

Cash provided by operating activities during the first six months of fiscal 2024 was $8.8 million as compared

million provided

activities of $12.8 million

for the first six

months of fiscal 2024

as compared to the

first six months of

from operations, will be adequate to fund the Company’s regular operating requirements and expected capital

expenditures for the next 12

Cash used in operating activities during the first nine months of fiscal 2024 was $13.3 million as compared

fiscal 2023 was primarily attributable to the

relative change in inventory from year-end to

the third quarter for

non-operating

partially offset by the relative change

of accounts payable from year-end to

the third quarter for both years.

primarily attributable

relative change

from year-end

second quarter

2024 net income

for non-operating

gains on sale

of assets held

for investment,

partially offset by higher net income and the relative change of accounts payable from year-end to

quarter for both years.

At August 3, 2024, the Company had working capital of $69.9 million compared to

$55.1 million at February

The increase in working capital was primarily attributable to a decrease in current lease liability and

an increase in cash, partially offset

by a decrease in inventory

and short-term investments.

Company amended the

revolving credit agreement to

modify a definition used

in calculating the

minimum EBITDAR coverage ratio to add back certain income tax receivables included in the calculation of

quarter ended

giving effect

amendment, the

compliance with the

credit agreement.

were no borrowings

outstanding, nor any

outstanding letters of

credit that reduced borrowing availability, as of August 3, 2024.

The weighted average interest rate under the

current lease

accounts receivable.

At November 2,

2024, the Company had

a revolving credit agreement,

which provides for borrowings of

million, less

revocable letters

purchase commitments,

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

credit facility was zero at August 3, 2024

due to no outstanding borrowings.

Expenditures for property and equipment totaled $4.8 million in the first six months of fiscal 2024, compared

to $8.5 million in last fiscal

year’s first six months.

The decrease in

expenditures for property and equipment

revolving credit

definition used

in calculating

the Company’s

minimum EBITDAR

November 1, 2024, the Company

amended the revolving credit agreement

to lower the minimum EBITDAR

corresponding

coverage ratio in exchange

for a secured position

in any future borrowings.

For the quarter ended

the amendments,

compliance with

availability, as of November 2, 2024.

The weighted average interest rate under

the credit facility was zero at

November 2, 2024 due to

no outstanding borrowings.

$10.3 million

fiscal year’s

expenditures for

and equipment

projects related

to investments

distribution center

approximately

capital expenditures.

Net cash provided by

investing activities totaled $6.7

million in the first six

months of fiscal 2024

cash provided

in the comparable

The decrease in

investing activities

was primarily

higher purchases

million for capital expenditures.

short-term investments,

and lower capital

expenditure spending,

partially offset

by lower sales

of short-term

investments, partially

by lower sales of short-term investments,

lower capital expenditures and sale

of other assets.

financing activities

2024 compared

Net cash used in financing activities totaled $12.6 million in the first nine months of fiscal

2024 compared to

$12.7 million used in the comparable period of fiscal 2023.

The slight decrease in net cash used in financing

activities in fiscal 2024 was primarily

due to lower stock repurchases.

On August 29, 2024, the Board of

Directors maintained the quarterly dividend at $0.17

authorizations

due to lower stock repurchases, partially offset

by dividends paid.

As of November

2, 2024, the Company

had 442,831 shares remaining

in open authorizations under

repurchase program.

1 unchanged sentence

derivative financial instruments.

The Company’s

investment portfolio

was primarily

The Company’s investment portfolio

was primarily invested in

corporate bonds and

tax-exempt and taxable

governmental debt

securities held

Treasury/Agencies

accounts with

underlying ratings

contractual maturities which range from

six days to 2.9 years.

Treasury/Agencies Notes and

available-for-sale and are

Short-term investments

the respective

Consolidated Balance Sheets.

assets are carried

at fair value

with unrealized gains and

losses reported

Accumulated other

February 3, 2024.

The state, municipal and corporate bonds have contractual maturities which range from 13

days to 2.9 years.

Treasury/Agencies notes and bonds have contractual maturities which range from

available-for-sale

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.

deferred compensation

During the six months ended August

3, 2024, the Company sold its

$8.6 million.

compensation plan

During the nine

months ended November

Company sold its

corporate equities.

Value Measurements.

Fair Value Measurements.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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