What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-27 compared with 2026-05-28 · 321 added, 274 removed, 133 unchanged (82% of the section changed)

3 unchanged sentences

“forward-looking”

(1) statements

(2) statements

(3) statements

reflect projections

or expectations

future financial

economic performance;

objectives for future operations,

3 unchanged sentences

Results of Operations”;

(4) statements relating to

our operations or

activities for

(4) statements relating

operations or activities

statements regarding expected

17 unchanged sentences

information available

uncertainties and other factors that could cause actual results

to differ materially from those contemplated

uncertainties and other factors that could cause

actual results to differ materially from those contemplated

by the forward-looking statements.

7 unchanged sentences

unemployment,

uncertainties regarding

any governmental

action regarding,

changing fashion

consumer demands;

to successfully

new stores in attractive locations and

the ability of any such new

stores to grow and perform as

underperformance or

profitability,

threats, acts

including but not

tariffs, taxes

and customs enforcement;

uncertainties regarding the

underperformance

continuation or acceleration

closures and negatively

Company’s profitability,

conditions and

related consequences

related consequences that

or operations;

inventory risks

market demand,

including the

services industry or broader

financial markets;

factors discussed under “Risk Factors”

(“fiscal 2025”), as amended or supplemented, and in other reports

we file with or furnish to the

and Exchange Commission (“SEC”) from

time to time.

do not undertake, and expressly

obligation to update any such

forward-looking information contained in this report,

whether as a result of

new information, future events, or otherwise.

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

factors discussed under “Risk Factors” in Part I, Item 1A of the Company’s

Annual Report on Form 10-K

supplemented,

Securities and

Exchange Commission

forward-looking

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

future events, or otherwise.

THE CATO CORPORATION

37 unchanged sentences

Three Months Ended

Six Months Ended

August 1, 2026

August 2, 2025

August 1, 2026

August 2, 2025

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”

this Quarterly

Annual Report

Form 10-K for fiscal 2025.

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 Annual Report

on Form 10-K for fiscal 2025.

Recent Developments

Tariff Issues

There remains a

significant degree of

uncertainty regarding the

status of U.S.

trade policy and

the types and

amount of tariffs to

which the Company will

On February 20, 2026,

the Supreme Court issued

International

Emergency Powers Act (“IEEPA”) beginning in February

In response, the administration transitioned

scheduled to expire in July 2026 unless otherwise extended by Congress.

On May 7, 2026, the U.S.

International

permanent injunction to

the specific plaintiffs

in that case,

and these tariffs

continue to be

collected from all

administration

uncertain whether these duties will remain

in effect or possibly be replaced

by other tariffs.

On March 11, 2026, the U.S.

Representative announced investigations under Section 301

manufactured,

Representative

certain countries,

including countries

extent to which

these hearings will

result in increased

tariffs is currently

Our acquisition costs

future periods will

be negatively impacted

to the extent

that any tariffs

imposed due to

Section 301 findings

are greater than the current

Section 122 tariffs.

establishment

procedures for processing

tariff refunds, the

Company submitted a

refund claim and

recorded a $5.7

reduction in cost of goods sold in the first quarter of fiscal 2026.

On May 15, 2026, the Company received a

partial payment

tariff refund

Company anticipates

receiving payment

balance of its tariff refund claim

by the end of the second

quarter of fiscal 2026.

customers’ discretionary

income continued

first quarter

with increasing

Additionally,

discretionary income both now and into the foreseeable future.

We believe these additional pricing pressures

discretionary

pass through costs

caused by rising

fuel prices and

potential increased tariff

costs will be

limited due in

to the pressure on our customers’ discretionary spending.

Pricing Pressures

discretionary income.

Higher fuel prices,

persistent inflation

elevated interest rates

exert downward

our customers’

discretionary income,

our customers

more cautious

discretionary spending

foreseeable future.

cost increases

prices, potential

increased tariffs

will be limited due in part

to the pressure on our

customers’ discretionary spending.

Representative (“USTR”)

significant portion

manufactured, following investigation

conducting additional

investigations

additional investigations, that may change in the future.

Increased Customs Enforcement

On June 3, 2026, President Trump issued an executive order “Strengthening Customs Enforcement.”

executive order instructs

the Department of

Homeland Security and

Border Protection

overhaul import

regulations, target

minimums, among

our suppliers

additional U.S.

Customs review

and inspections,

These delays,

timing and duration,

could cause us

to take additional

markdowns due to

the seasonality of

our products.

These additional inspections and potential new regulations may

also cause additional compliance costs.

Comparison of the Three and Six

Months ended August 1, 2026

with August 2, 2025

Total retail sales

for the second

$163.9 million

compared to last

year’s second

quarter sales

$174.7 million, a 6% decrease.

The Company’s sales decreased in the second quarter of fiscal 2026 primarily

3.7% decrease in

same-store sales, as

well as stores

that were closed

$333.3 million

six month sales of $343.1 million,

The decrease in

sales in the first six months

of fiscal 2026

flat same-store

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 CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

Comparison of First Quarter of 2026

Total retail sales for the first quarter

were $169.4 million compared to

last year’s first quarter sales of

Sales increased due

to a same-store

sales increase of

3%, partially offset

by stores that

in the past 12 months.

Same store sales include stores

that have been open more than

also included

sales calculation

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 4.0%

of sales for the first quarter of

fiscal 2026 and are included

same-store sales

Total revenues,

revenue (principally

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

customer accounts receivable and layaway fees), were $165.5 million and $336.6 million for the three

2026, compared

$346.8 million

for the three

respectively.

Company opened two new stores and closed 14 stores.

The Company currently expects to open up to 10 new

stores and close approximately 50 stores

in fiscal 2026.

Other revenue, a component of total revenues, was $1.6 million and $3.3 million for the

three and six months

respectively,

comparable three

month periods.

lower layaway

and e-commerce shipping revenue

for the three and

six months ended August

1, 2026 compared to

quarter ended May

Company operated

May 2, 2026 compared

to 1,109 stores at

the end of last fiscal

year’s first quarter.

For the first three

open up to 15 new stores

and close approximately 35 stores in

Other revenue, a component of

total revenues, was $1.7 million for the first

quarter of fiscal 2026, 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

$0.7 million,

percentage compared to fiscal 2025.

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

label credit card

portfolio and related

Related expenses include

principally payroll, postage

Related expenses principally

include payroll, postage

other administrative expenses

1 unchanged sentence

million in the

first quarter of

2026, flat to

the first quarter

Cost of goods

sold was $106.3

million, or 62.8%

of retail sales for

the first quarter of

second quarter of

fiscal 2026, compared

first quarter

pre-tax tariff

lower freight

year’s second quarter expense of $0.4 million.

65.0% of retail

respectively, compared

comparable three

The overall increase

goods sold as

retail sales for

the second quarter

primarily from increased

sales of marked

down goods and

deleveraging of our

occupancy costs.

benefited from

tariff refund,

reduced cost of

goods sold by $5.7

million, or 1.7%

of retail sales.

of goods sold

includes merchandise

inventory shrinkage.

5 unchanged sentences

Occupancy costs include rent, real estate taxes, insurance, common area

maintenance, utilities and maintenance for stores

and distribution facilities.

Total gross margin dollars (retail

sales less cost of goods sold exclusive of depreciation) increased by 6.8% to $63.1 million for the first quarter

2026 compared

million in the

first quarter

not be comparable to those of

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.

expenses were

$53.9 million,

primarily due

corporate payroll

expense, insurance costs and

equipment maintenance, partially offset

by increases in incentive compensation

maintenance, utilities and

maintenance for stores and

distribution facilities.

margin dollars (retail

depreciation) decreased

respectively.

Gross margin as presented may not be

comparable to those of other entities.

Selling, general and administrative (“SG&A”) expenses 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 2026, respectively, compared to $57.4 million, or

32.8% of retail

sales, and $112.7 million, or 32.8% 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

primarily due to lower payroll costs and

equipment costs partially offset by

litigation and professional fees.

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

Depreciation expense was $2.2 million, or 1.3% of retail sales for the first quarter of fiscal 2026, compared to

$2.6 million, or

1.5% of retail

sales for the

first quarter of

decrease in depreciation

was due to fully depreciated older

compared to $1.2 million, or 0.7% of

retail sales for the first

quarter of fiscal 2025.

Income tax expense

was $0.5 million or

0.3% of retail sales

for the first quarter

of fiscal 2026, compared

quarter of fiscal 2025.

The decrease in tax expense was primarily due to lower

foreign income taxes.

Depreciation expense was $2.2 million, or 1.4% of retail sales and $4.5 million, or 1.3% of

retail sales for the

second quarter

2026, respectively,

$2.5 million,

sales and $5.1 million,

or 1.5% of retail

sales for the comparable three

and six month periods

of fiscal 2025,

respectively.

Interest and other income was $2.3 million, or 1.4% of retail sales and $3.5 million, or 1.1% of retail sales for

the three and six months ended August

1, 2026, respectively, compared to $1.4 million,

or 0.8% of retail sales

respectively.

The increase for

the three and

six months ended

August 1, 2026

compared to the

three and six

months ended August 2, 2025 was primarily

due to interest income received as

part of the Company’s IEEPA

tariff refund and interest on

an IRS refund.

respectively,

expense of $0.6 million

for the comparable three

months and six

months of fiscal

The increase in tax

expense is due to the non-recurring prior year favorable adjustment to the federal net operating loss

claim as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), partially

lower foreign and state income taxes.

second quarter of

received a $5.6

million payment for

the outstanding

balance of its income tax

refund receivable due from the IRS.

LIQUIDITY, CAPITAL

3 unchanged sentences

investments, together

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

capital expenditures

quarterly report on Form 10-Q.

primarily attributable to

higher net income

and the relative

change in accounts

payable from year-end

first quarter

years, partially

receivable and

inventory from year-end to the first

quarter for both years.

At May 2, 2026, the Company had working capital of $49.0 million compared to $37.4 million at January 31,

partially offset by higher accounts payable.

Credit Agreement

(“ABL Facility”)

$35.0 million

through March

and is secured primarily by inventory and

third-party credit card receivables.

The proceeds from the

facility was zero at May 2, 2026 and January 31, 2026 due to no outstanding

compared to $1.0

million in last

fiscal year’s first

three months.

fiscal 2026 year,

expects to invest approximately $7.4 million in

capital expenditures.

from operations

and availability

asset-backed revolving

be adequate to

Company’s regular operating requirements and expected capital

expenditures for the next 12 months

issuance of this quarterly report

on Form 10-Q.

compared to $15.6

million provided in

the comparable period

of fiscal 2025.

The decrease was

primarily due

to an increase in purchases of short-term

investments, partially offset by a

decrease in the sales of

the first six

cash provided

operating activities of $6.9

million for the first

six months of fiscal

2026 as compared to

the first six months

of fiscal 2025 was primarily attributable

to a decrease in accounts receivable

in 2026 and the relative

of accounts payable from year-end to the second quarter for both years, partially offset by the relative change

in inventories from year-end to the second quarter for both years.

The decrease in accounts receivable is due

in large part to receiving the

remaining IRS refund pertaining to the 2020

On August 1, 2026, the Company had working capital of $55.0 million compared

to $37.4 million at January

inventories and an increase in accounts

The ABL Credit Agreement (“ABL Facility”) of up to

$35.0 million is committed through March

secured primarily

and third-party

proceeds from

to provide funding

for ongoing working

capital and general

corporate purposes.

borrowings outstanding and the availability under the facility was $30.0 million before giving effect to a

million outstanding letter

of credit that reduced

borrowing availability to $27.0

million as of

August 1, 2026

and January 31, 2026.

The weighted average interest rate under the credit facility was zero at August 1, 2026

and January 31, 2026 due

to no outstanding borrowings.

THE CATO CORPORATION

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

Net cash used in

financing activities totaled $0.2

million in the first

three months of fiscal

2026 compared to

illion used in the comparable period of fiscal 2025.

was primarily

The Company purchased

107,823 shares in

the first quarter

572,917 shares remaining in open

authorizations under its share repurchase program.

Expenditures for property and equipment totaled $2.4 million in the first six months of fiscal 2026, compared

approximately

million for capital expenditures for

the full fiscal 2026 year.

Net cash used in investing activities was $3.9 million for the first six

months of fiscal 2026 compared to $0.9

million net cash used in the

comparable period of 2025.

The increase in net cash used

by investing activities

in 2026 was primarily

due to an increase

in the purchase of

short-term investments, partially

offset by lower

sales of short-term investments and proceeds

from life insurance policies.

financing activities

2026 compared

activities in fiscal 2026 was primarily

due to lower stock repurchases.

Company had 533,770 shares remaining

in open authorizations under its share

repurchase program.

The Company does not use

3 unchanged sentences

managed accounts

contractual maturities which range from 13 days

to 2.9 years.

Additionally,

Measurements.

with underlying

The corporate

contractual maturities

which range from two days to 2.7 years.

Additionally, at

deferred compensation

Measurements, in the “Financial Statements” section of

this Quarterly Report on Form 10-Q.

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

See Note 8, Recent Accounting Pronouncements, in the “Financial Statements”

section of this Quarterly

Report on Form 10-Q.

THE CATO CORPORATION

1 unchanged sentence

DISCLOSURES ABOUT MARKET RISK

AND QUALITATIVE

VE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

2 unchanged sentences

but the Company

believe such exposure

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