What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-28 compared with 2025-05-29 · 307 added, 259 removed, 113 unchanged (83% of the section changed)

3 unchanged sentences

“forward-looking”

(1) statements

(2) statements

reflect projections

or expectations

future financial

economic performance;

objectives for

future operations;

(4) statements

objectives for future operations,

including those contained in

“Management’s Discussion and

Financial Condition and

Results of Operations”;

(4) statements relating to

our operations or

activities for

statements regarding expected

capital expenditures and

store openings, relocations,

and closures, statements

regarding the potential

impact of the

COVID-19 or other

pandemics and related

weather conditions,

trade policies,

inflationary pressures and

our operations

or activities

ending January

(“fiscal 2025”)

including, but

to, statements

policies, inflationary

pressures and

other economic

1 unchanged sentence

our business,

operations and

financial condition

and statements regarding

development strategy;

(5) statements

to our future

contingencies.

forward-looking

When possible, we

have attempted to

identify forward-looking statements by

“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

our business,

including but

“intends,” “may,”

“plans,” “could,” “would,”

“should” and any

variations or negative

formations of such

forward-looking

Forward-looking

uncertainties and

forward-looking

include, but are

not limited to,

the following:

any actual or

perceived deterioration in the

conditions that

political and public health

threats and uncertainties, levels of

unemployment, fuel, energy and

inflation, wage rates, tax rates, tariffs, interest rates, home values, consumer net worth and the

government policies

business, including

uncertainties regarding

changing fashion

consumer demands;

our ability to

successfully implement our new store

development strategy to increase

underperformance or

continuation or

negatively affect

the Company’s

profitability,

financial condition

and prospects;

adverse weather,

volatility affecting the financial services industry or broader financial markets;

and other factors discussed

any governmental

action regarding,

implement our new store development strategy to increase new store openings and

our ability of any such

underperformance

continuation or acceleration

closures and negatively

Company’s profitability,

ended February

supplemented,

other reports

Securities and

Exchange Commission

expressly decline,

undertake, and

any obligation

forward-looking information

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

such forward-looking information contained

in this report,

result of new

information, future

events, or otherwise.

THE CATO CORPORATION

37 unchanged sentences

Three Months Ended

Six Months Ended

August 2, 2025

August 3, 2024

August 2, 2025

August 3, 2024

Total retail sales

1 unchanged sentence

Total revenues

Cost of goods sold (exclusive of depreciation)

Selling, general and administrative (exclusive of depreciation)

Cost of goods sold (exclusive of

depreciation)

Selling, general and administrative

(exclusive of depreciation)

Interest and other income

4 unchanged sentences

RESULTS OF OPERATIONS

Discussion and

Financial Condition

of Operations

understanding

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

Annual Report

on Form 10-K.

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 2024

Annual Report on Form 10-K.

Recent Developments

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

countries are subject

implemented reciprocal tariffs,

an additional Section

valorem tariffs

products sourced

other countries

Southeast Asia.

Excluding China,

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

20%, depending

anticipate that

the remainder

additional costs.

These cost increases will negatively impact our results of operations and financial condition unless we are

successfully mitigate

their effects

by increasing

retail pricing

without losing

predominately made in China, will be difficult to source in countries with lower tariffs.

Pricing Pressures

of tariffs begins

to impact retail

pricing, our customers may

become more cautious

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.

additional pressure on our ability to mitigate the cost increases caused by

Comparison of the Three and Six

Months ended August 2, 2025

with August 3, 2024

Total retail sales

for the second

$174.7 million

compared to last

year’s second

quarter sales

$166.9 million, a 5% increase.

Company’s sales increased in the second

quarter of fiscal 2025 primarily

due to a 9% increase in same-store sales, partially offset by stores that were closed in

the past 12 months.

comparable six month sales of $342.2 million,

a 0.3% increase.

The increase in sales

in the first six months of

sales include

also included

same-store sales

calculation after

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

As a result, our

same-store sales calculation may not be comparable to similarly titled measures reported by other companies.

E-commerce sales were less than 5% of total sales for the six months ended August 2,

2025 and are included

same-store sales

1 unchanged sentence

revenue (principally

finance charges

customer accounts

receivable and

layaway fees),

$346.8 million

$168.6 million

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

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

million for the three and six months ended August 3, 2024, respectively.

The Company operated 1,101 stores

year’s second

months of fiscal 2025,

the Company permanently closed

The Company currently expects

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

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

Other revenue, a component of total revenues, was $1.9 million and $3.7 million for the

three and six months

respectively,

comparable three

month periods.

Other revenue is

credit revenue of

$0.7 million,

represented 0.4%

and percentage

compared to fiscal 2024.

Credit revenue is comprised of interest earned on the Company’s private label credit

administrative expenses and totaled $0.4 million

in the second quarter of fiscal 2025,

compared to last year’s

second quarter expense of $0.4 million.

64.4% of retail

respectively, compared

comparable three

The overall decrease in

cost of goods sold

as a percent of

retail sales for the

second quarter and

primarily from lower buying and distribution costs, partially offset by increased sales of marked down goods.

includes merchandise

and allowances),

buying costs,

payroll-related

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

payroll taxes and benefits, insurance, supplies, advertising,

and bank and credit card processing fees.

expenses were

margin dollars (retail

sales less cost

of goods sold

exclusive of depreciation)

by 9.3% to $63.2 million for

the second quarter of fiscal 2025 and

by 1.4% to $122.3 million for

the first six

$57.8 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

year’s comparable

respectively.

be comparable

other entities.

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

payroll taxes and

benefits, insurance, supplies,

advertising, and bank

and credit card

processing fees.

second quarter and first six months of fiscal 2025, respectively, compared to $58.2 million, or

34.9% of retail

sales and $114.9 million, or 33.6% 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

increases in advertising and general corporate

Depreciation expense was $2.5 million, or 1.4% of retail sales and $5.1 million, or 1.5% of

retail sales for the

second quarter

2025, respectively,

$2.3 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

sales and $4.4

million or 1.3%

of retail sales

for the first quarter

of fiscal 2025, compared

for the comparable

three and six

month periods of

respectively.

Interest and other income was $1.4 million, or 0.8% of retail sales and $2.6 million, or 0.8% of retail sales for

the three and six months ended August

2, 2025, respectively, compared to $1.7 million,

or 1.0% of retail sales

respectively.

for the first

six months of

fiscal 2025 compared

to fiscal 2024

was primarily due

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

was primarily

to a $3.2 million

net gain on the

held for investment and

the sale of equity securities

the first quarter of 2024.

second quarter

respectively,

comparable three and six month periods of fiscal 2024, respectively.

The effective income tax rate

primarily due

reductions in

foreign income

adjustment to the federal net operating loss carryback claim as

a result of the Coronavirus Aid, Relief and

2025, the One Big

Beautiful Bill Act (the

“OBBBA”) was signed into

Company has considered

and concluded the

material impact on the Company’s effective tax rate.

LIQUIDITY, CAPITAL

3 unchanged sentences

investments, together

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

from operations and its asset-backed revolving line of credit, will be adequate to fund the Company’s

operating requirements and expected capital expenditures

for the next 12 months.

cash provided

operating activities of $6.8

million for the first

six months of fiscal

2025 as compared to

the first six months

non-operating gain

investment in

fiscal 2024, partially offset by the relative change

of accounts payable from year-end to the second quarter

At August 2, 2025, the Company had working capital of $50.5 million compared to

$34.9 million at February

equivalents and decreases in accrued expenses, current lease liability and accounts payable, partially offset by

a decrease in inventories.

borrower, and

other domestic

subsidiaries, as

guarantors, entered

3 unchanged sentences

subsidiaries,

facility (the “ABL

Facility”) in an

$35.0 million.

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

National Association,

“Lender”), to

asset-based revolving

credit facility

provide funding for ongoing working capital

and general corporate purposes.

The ABL Credit Agreement is committed through May 2027 and is secured primarily by inventory and third-

million before

giving effect

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

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

illion used in the comparable

period of fiscal

The decrease was

primarily due to

paid and reduced stock repurchases.

availability to $27.0 million as of August 2, 2025.

The weighted average interest rate under the credit facility

was zero at August 2, 2025 due

to no outstanding borrowings.

Expenditures for property and equipment totaled $2.4 million in the first six months of fiscal 2025, compared

to $4.8 million in last fiscal

year’s first six months.

The decrease in

expenditures for property and equipment

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

technology, as

store openings

current fiscal

fiscal 2025 year, the Company expects

to invest approximately $5.9 million for capital

expenditures.

investing activities

2025 compared

$6.7 million net cash

provided in the comparable

period of 2024.

The increase in net

cash used in investing

partially offset by lower capital

expenditures.

financing activities

2025 compared

activities in fiscal

primarily due

to the elimination

stock repurchases.

authorizations

2 unchanged sentences

derivative financial instruments.

debt securities held in managed accounts

with underlying ratings of A

or better at May 3, 2025

and corporate

asset-backed securities

Treasury/Agencies

maturities which range from 3 months to

contractual maturity of up to 7 months.

Additionally,

Measurements.

compensation plan

Measurements, included in Part 1, Item 1 Financial Statements (Unaudited) in this Quarterly Report on Form

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

See Note 8, Recent Accounting Pronouncements, included in Part 1, Item

1 Financial Statements

(Unaudited) in this Quarterly Report on Form 10-Q.

THE CATO CORPORATION

8 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