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Item 2. Management’s Discussion and Analysis

2025-05-29 compared with 2024-11-26 · 283 added, 388 removed, 89 unchanged (88% of the section changed)

2 unchanged sentences

FORWARD-LOOKING INFORMATION:

“Management’s

“forward-looking”

13 unchanged sentences

store openings, relocations,

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

and closures, statements

regarding the potential

impact of the

COVID-19 or other

pandemics and related

weather conditions,

trade policies,

inflationary pressures and

other economic

conditions on

our business,

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”

materially from

forward-looking

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

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;

laws, regulations

or government

“anticipates,”

“approximates,”

variations or

negative formations

similar expressions.

materially from

looking statements.

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

report, but subject

unknown risks, uncertainties

factors that could cause actual results to differ materially from those contemplated by the forward-looking

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

uncertainties,

unemployment, fuel,

policies affecting

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including but

uncertainties

to rapidly changing

fashion trends

and consumer demands;

uncertainties regarding

changing fashion

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

successfully implement our new store

development strategy to increase

underperformance or

continuation or

negatively affect

the Company’s

profitability,

merchandise supply chain,

inventory risks

market demand, including

broader financial

“Risk Factors” in

Part I, Item 1A

Annual Report on Form

fiscal year ended

(“fiscal 2023”),

or supplemented,

other reports

financial condition

and prospects;

adverse weather,

volatility affecting the financial services industry or broader financial markets;

and other factors discussed

supplemented,

Securities and

Exchange Commission

undertake, and

obligation to

update any such

forward-looking information contained

report, whether

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

expressly decline,

any obligation

forward-looking information

report, whether as a result of new information, future events, or

THE CATO CORPORATION

3 unchanged sentences

“Management’s

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 Annual Report on

Form 10-K for the

fiscal year ended February

The preparation

statements in

accepted accounting

principles in

States (“GAAP”) requires management to make estimates and assumptions about future events that affect the

amounts reported in the

financial statements and accompanying

Future events

and their effects cannot

determination

Actual results

inevitably will differ

from those estimates,

and such differences

may be material

Company’s financial

2 unchanged sentences

asset impairment,

valuation allowances,

compensation,

uncertain tax positions, the allowance for

customer credit losses, and inventory shrinkage.

The Company’s critical accounting policies and

6 unchanged sentences

the Company's unaudited Condensed

Consolidated Statements of Income (Loss) as a

Consolidated Statements of Income as a

percentage of total retail sales:

Three Months Ended

Nine Months Ended

November 2, 2024

October 28, 2023

November 2, 2024

October 28, 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

Loss before income taxes

Income before income taxes

THE CATO CORPORATION

2 unchanged sentences

RESULTS OF OPERATIONS

Discussion and

Financial Condition

of Operations

understanding

condition and results of

We recommend reading

this MD&A in conjunction

with our Condensed

Consolidated Financial

Statements and

statements included in

the “Financial

section of this Quarterly Report on

Form 10-Q, as well as our 2023

Annual Report on Form 10-K.

“Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our 2024

Annual Report

on Form 10-K.

Recent Developments

Inflationary Cost Pressure and High Interest Rates

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

three quarters

negative impact

behavior and,

by extension,

operations and

condition during the remainder of fiscal 2024.

Merchandise Supply Chain

approximately 37% and

also reduced the

permissible draft of

vessels transiting the

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 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

Tariff Pressures

valorem tariff on Chinese products.

In the quarter, only products from China were subject to the

countries in the latter half of

the first quarter and will continue

to do so in the

second quarter.

cost increases

negatively impact

of operations

and financial

able to successfully mitigate their effects by increasing retail pricing without losing sales and/or sharing these

Certain product

categories such as

handbags will

countries with lower tariffs.

Additionally, our supply

chain may be impacted

in the second quarter

as the flow of

Chinese products to the

United States

reciprocal tariffs

only recently

Potential supply chain

issues such as

products delivered late

congestion, longer transit

dwell times at port, and container availability may impact the costs we pay for

ocean freight or the timeliness

The pressure on our customers’ discretionary income continued into fiscal 2025.

As the cost of tariffs begins

discretionary

mitigate the cost increases caused by

Comparison of First Quarter of 2025

Total retail sales for the first quarter

were $168.4 million compared to

last year’s first quarter sales of

include stores

that have been relocated or expanded

are also included in the same

store sales calculation after they have been

open more than 15 months.

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

result, our same

store sales calculation

comparable to similarly

titled measures reported

E-commerce sales were less than 5.0%

of sales for the first quarter of

fiscal 2025 and are included

same-store sales

Total revenues,

revenue (principally

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

month sales of

$528.2 million, an

decrease in sales

nine months of

same-store sales

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

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.

opened one store

The Company currently

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.

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

comparable three

month periods.

compared to $177.1

quarter ended May

Company operated

May 3, 2025 compared

to 1,171 stores at

the end of last fiscal

year’s first quarter.

For the first three

approximately 50 stores in fiscal 2025.

Other revenue, a component of

total revenues, was $1.8 million for the first

quarter of fiscal 2025, compared

year’s comparable

first quarter.

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

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

estate taxes,

insurance, common

maintenance, utilities

maintenance for

distribution facilities.

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

prior year’s comparable

three and nine

months of fiscal

2023, respectively.

Gross margin as

presented may not be comparable to those

of other entities.

which represented

total revenues

first quarter

and percentage compared

Credit revenue is comprised

of interest earned on

the Company’s private

label credit card

portfolio and related

Related expenses include

principally payroll, postage

other administrative

expenses, and

2025, compared

first quarter expenses of $0.4 million.

Cost of goods

sold was $109.3

million, or 64.9%

of retail sales for

the first quarter of

fiscal 2025, compared

first quarter

percent of sales

was due to increased

sales of marked down

goods, partially offset by

sold includes

merchandise costs

discounts and

allowances), buying

bound freight are capitalized as inventory

Buying and distribution costs include payroll, payroll-related

operating expenses

buying departments

and distribution

Occupancy costs

depreciation)

million in the first quarter of fiscal 2024.

Gross margin as presented may not be comparable to those of other

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

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,

payroll taxes and benefits, insurance, supplies, advertising,

and bank and credit card processing fees.

expenses were

$55.3 million,

quarter of fiscal

2025 compared to

the first quarter

of fiscal 2024

primarily due to

lower corporate and

equipment maintenance.

Depreciation expense was $2.6 million, or 1.5% of retail sales for the first quarter of fiscal 2025, compared to

$2.0 million,

for the first

The increase in

depreciation expense

was due to the distribution center

automation implementation at the end

of the second quarter of 2024.

securities recorded in the first quarter

Income tax expense

was $0.9 million or

0.6% of retail sales

for the first quarter

of fiscal 2025, compared

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

third quarter

2024, respectively,

$2.5 million,

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

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.

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

respectively.

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.

was primarily

LIQUIDITY, CAPITAL

3 unchanged sentences

investments, together

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

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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.

from operations

new asset-backed

revolving line

regular operating requirements and expected

capital expenditures for the next 12

primarily generated

primarily attributable to

lower net income,

partially offset by

the relative change

in inventory from

quarter for both

years and non-operating

sale of assets

held for investment

quarter of fiscal 2024.

At May 3, 2025, the Company had working capital of $43.9 million compared to $34.9 million at February 1,

The increase was primarily attributable to an increase in cash and lower current lease

liability, partially

offset by lower short-term investments and higher

accounts payable.

On March 13, 2025, the Company,

as borrower, and certain other

domestic subsidiaries, as borrowers and

guarantors, entered

Credit Agreement

Credit Agreement”)

loan documents,

subsidiaries,

facility (the “ABL

Facility”) in an

$35.0 million.

fiscal year’s

expenditures for

and equipment

projects related

to investments

distribution center

be used to provide funding for ongoing working capital and general corporate

Credit Agreement

inventory and

third-party credit

card receivables.

borrowings outstanding

availability under

$30.0 million

before giving

outstanding letter

borrowing availability to

$27.0 million

average interest rate

credit facility was zero at May 3, 2025 due to no outstanding borrowings.

center, as well

store openings in

the first quarter

of fiscal 2025.

fiscal 2025 year,

Company expects

approximately $7.3

million for capital expenditures.

short-term investments,

and lower capital

expenditure spending,

partially offset

by lower sales

of short-term

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

capital expenditures,

including distribution

automation projects.

compared to $14.6 million provided in the comparable period of fiscal 2024.

was primarily due

expenditures.

Net cash used in

financing activities totaled $0.9

million in the first

three months of fiscal

2025 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, partially offset

by dividends paid.

As of November

2, 2024, the Company

had 442,831 shares remaining

in open authorizations under

illion used in the comparable

period of fiscal

The decrease was

primarily due to

paid and reduced stock repurchases.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

authorizations

repurchase program.

1 unchanged sentence

derivative financial instruments.

The Company’s investment portfolio

was primarily invested in

corporate bonds and

debt securities held in managed accounts

with underlying ratings of A

or better at May 3, 2025

and corporate

asset-backed securities

Treasury/Agencies

accounts with

underlying ratings

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.

$8.6 million.

compensation plan

During the nine

months ended November

Company sold its

corporate equities.

Fair Value Measurements.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

maturities which range from 3 months to

Additionally,

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