The Cato Corporation
05/26/2022 | Press release | Distributed by Public on 05/26/2022 08:11
Quarterly Report (Form 10-Q)
cato-20220430
UNITED STATES
SECURITIESAND EXCHANGECOMMISSION
Washington, D.C.20549
FORM
10-Q
☑
QUARTERLY REPORT PURSUANTTO SECTION13 OR 15(d)OF THE SECURITIESEXCHANGEACT OF
1934
For the quarterlyperiod ended
April 30, 2022
OR
☐
TRANSITIONREPORT PURSUANTTO SECTION13 OR 15(d)OF THE SECURITIESEXCHANGEACT OF
1934
For the transitionperiod from________________to__________________
Commissionfile number
1-31340
THE CATO CORPORATION
(Exactname ofregistrantas specifiedin itscharter)
Delaware
56-0484485
(Stateor otherjurisdictionof incorporationor organization)
(I.R.S.EmployerIdentificationNo.)
8100 Denmark Road
,
Charlotte
,
North Carolina
28273-5975
(Addressof principalexecutiveoffices)
(Zip Code)
(704)
554-8510
(Registrant'stelephonenumber,includingarea code)
Not Applicable
(Formername, formeraddressand formerfiscalyear, ifchangedsince lastreport)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A - Common Stock, par value $.033 per share
CATO
New York Stock Exchange
Indicateby checkmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledby Section13or15(d)oftheSecurities
Exchange Act of 1934during the preceding 12months (or for such shorterperiod that the registrantwas required to file suchreports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmitted
pursuant to Rule405 of RegulationS-T during thepreceding 12 months(or for suchshorter periodthat the registrantwas required to
submit and post such files).
Yes
X
No
Indicate by checkmark whether theregistrant is alarge accelerated filer, anaccelerated filer, anon-accelerated filer, smaller reporting
company,oranemerginggrowthcompany.Seethedefinitions of"largeaccelerated filer,""accelerated filer,""smallerreporting
company," and"emerginggrowth company"in Rule12b-2 ofthe ExchangeAct.
Large acceleratedfiler
☐
Accelerated filer
☑
Non-acceleratedfiler
☐
Smallerreportingcompany
☐
Emerginggrowth company
☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodfor
complying with any new or revised financial accounting standards providedpursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐
As of April 30,2022, there were
19,223,633
shares of ClassA common stockand
1,763,652
shares of ClassB common stockoutstanding.
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended April 30, 2022
Tableof Contents
Page No.
PARTI - FINANCIAL INFORMATION(UNAUDITED)
Item 1.
Financial Statements (Unaudited):
CondensedConsolidatedStatementsof Incomeand ComprehensiveIncome
2
For theThree MonthsEndedApril 30,2022 andMay 1,2021
CondensedConsolidatedBalance Sheets
3
At April30, 2022andJanuary29, 2022
CondensedConsolidatedStatementsof CashFlows
4
For theThree MonthsEnded April30, 2022and May1, 2021
CondensedConsolidatedStatementsof Stockholders'Equity
5
For theThree MonthsEnded April30, 2022and May1, 2021
Notes toCondensedConsolidatedFinancialStatements
6 - 18
For theThree MonthsEnded April30, 2022and May1, 2021
Item 2.
Management's Discussion and Analysisof Financial Condition and Results
of Operations
19 - 25
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
26
Item 4.
Controls and Procedures
26
PARTII - OTHER INFORMATION
Item 1.
Legal Proceedings
27
Item 1A.
Risk Factors
27
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
27
Item 3.
Defaults Upon Senior Securities
27
Item 4.
Mine Safety Disclosures
28
Item 5.
Other Information
28
Item 6.
Exhibits
28
Signatures
29
2
PARTI FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
April 30, 2022
May 1, 2021
(Dollars in thousands, except per share data)
REVENUES
Retail sales
$
204,933
$
211,234
Other revenue (principally finance charges, late fees and
layaway charges)
1,788
1,851
Total revenues
206,721
213,085
COSTS AND EXPENSES, NET
Cost of goods sold (exclusive of depreciation shown below)
132,243
123,675
Selling, general and administrative (exclusive of depreciation
shown below)
60,441
63,237
Depreciation
2,743
3,042
Interest and other income
(403)
(663)
Costs and expenses, net
195,024
189,291
Income before income taxes
11,697
23,794
Income tax expense
1,949
3,081
Net income
$
9,748
$
20,713
Basic earnings per share
$
0.46
$
0.92
Diluted earnings per share
$
0.46
$
0.92
Comprehensive income:
Net income
$
9,748
$
20,713
Unrealized gain (loss) on available-for-sale securities, net
of deferred income taxes of ($
362
) and ($
40
) for April 30, 2022
(1,206)
(134)
and May 1, 2021, respectively
Comprehensive income
$
8,542
$
20,579
See notes to condensed consolidated financial statements (unaudited).
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2022
January 29, 2022
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
$
25,881
$
19,759
Short-term investments
120,021
145,998
Restricted cash
3,920
3,919
Accounts receivable, net of allowance for customer credit losses of
$
801
and $
803
at April 30, 2022 and January 29, 2022, respectively
60,121
55,812
Merchandise inventories
127,576
124,907
Prepaid expenses and other current assets
6,029
5,273
Total Current Assets
343,548
355,668
Property and equipment - net
67,079
63,083
Noncurrent deferred income taxes
9,674
9,313
Other assets
23,192
24,437
Right-of-Use assets - net
168,537
181,265
Total Assets
$
612,030
$
633,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
106,229
$
109,546
Accrued expenses
45,377
40,373
Accrued bonus and benefits
18,901
26,488
Accrued income taxes
2,062
920
Current lease liability
63,175
66,808
Total Current Liabilities
235,744
244,135
Other noncurrent liabilities
17,797
17,914
Lease liability
107,837
117,521
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;
19,223,633
and
19,824,093
shares issued
at April 30, 2022 and January 29, 2022, respectively
649
669
Convertible Class B common stock, $
0.033
par value per share,
15,000,000
shares authorized;
1,763,652
and
1,763,652
shares issued at April 30, 2022 and January 29, 2022, respectively
59
59
Additional paid-in capital
120,249
119,540
Retained earnings
131,181
134,208
Accumulated other comprehensive income
(1,486)
(280)
Total Stockholders' Equity
250,652
254,196
Total Liabilities and Stockholders' Equity
$
612,030
$
633,766
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS
(UNAUDITED)
Three Months Ended
April 30, 2022
May 1, 2021
(Dollars in thousands)
Operating Activities:
Net income
$
9,748
$
20,713
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation
2,743
3,042
Provision for customer credit losses
72
113
Purchase premium and premium amortization of investments
388
(1,121)
Share-based compensation
624
306
Deferred income taxes
-
(1)
Loss on disposal of property and equipment
16
58
Changes in operating assets and liabilities which provided (used) cash:
Accounts receivable
(4,382)
(2,510)
Merchandise inventories
(2,669)
(726)
Prepaid and other assets
474
(493)
Operating lease right-of-use assets and liabilities
(590)
(1,242)
Accrued income taxes
1,142
356
Accounts payable, accrued expenses and other liabilities
(8,331)
26,005
Net cash provided (used) by operating activities
(765)
44,500
Investing Activities:
Expenditures for property and equipment
(4,440)
(554)
Purchase of short-term investments
(1,529)
(62,075)
Sales of short-term investments
25,566
28,397
Net cash provided (used) by investing activities
19,597
(34,232)
Financing Activities:
Dividends paid
(3,638)
-
Repurchase of common stock
(9,162)
(5,629)
Proceeds from employee stock purchase plan
91
128
Net cash provided (used) by financing activities
(12,709)
(5,501)
Net increase (decrease) in cash, cash equivalents, and restricted cash
6,123
4,767
Cash, cash equivalents, and restricted cash at beginning of period
23,678
21,022
Cash, cash equivalents, and restricted cash at end of period
$
29,801
$
25,789
Non-cash activity:
Accrued other assets and property and equipment
$
2,971
$
263
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance - January 29, 2022
$
728
$
119,540
$
134,208
$
(280)
$
254,196
Comprehensive income:
Net income
-
-
9,748
-
9,748
Unrealized net losses on available-for-sale securities, net of deferred
income tax benefit of ($
362
)
-
-
-
(1,206)
(1,206)
Dividends paid ($
0.17
per share)
-
-
(3,638)
-
(3,638)
Class A common stock sold through employee stock purchase
plan -
9,468
shares
-
111
-
-
111
Class A common stock issued through restricted stock grant plans-
0 shares
-
598
5
-
603
Repurchase and retirement of treasury shares -
609,928
shares
(20)
-
(9,142)
-
(9,162)
Balance - April 30, 2022
$
708
$
120,249
$
131,181
$
(1,486)
$
250,652
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance - January 30, 2021
$
762
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
Net income
-
-
20,713
-
20,713
Unrealized net losses on available-for-sale securities, net of deferred
income tax benefit of ($
40
)
-
-
-
(134)
(134)
Dividends paid ($0.00 per share)
-
-
-
-
-
Class A common stock sold through employee stock purchase
plan -
19,248
shares
1
150
-
-
151
Class A common stock issued through restricted stock grant plans-
396,558
shares
13
271
-
-
284
Repurchase and retirement of treasury shares -
425,661
shares
(14)
-
(5,615)
-
(5,629)
Balance - May 1, 2021
$
762
$
115,699
$
144,401
$
1,021
$
261,883
See notes to condensed consolidated financial statements (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
6
NOTE 1- GENERAL
:
The condensedconsolidated financialstatements asof April30, 2022and forthe thirteen-weekperiods
endedApril30,2022andMay1,2021havebeenpreparedfromtheaccountingrecordsofTheCato
Corporation andits wholly-ownedsubsidiaries (the"Company"), andall amountsshown areunaudited.
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial
statementshave beenincluded.All suchadjustments areof anormal, recurringnature unlessotherwise
noted.The results of the interim period may not be indicative of the results expectedfor the entire year.
The interim financialstatements should be readin conjunction withthe consolidated financial statements
andnotesthereto,includedintheCompany'sAnnualReportonForm10-Kforthefiscalyearended
January 29, 2022.Amounts as of January 29, 2022 have been derived from the audited balance sheet, but
do not include all disclosures required byaccounting principles generally accepted in the United States of
America.
Asplanned,inMay2022,theCompanymadea$14.4millioncontributiontoitsEmployeeStock
OwnershipPlan,whichisincludedinAccruedbonusandbenefitsontheaccompanyingCondensed
Consolidated Balance Sheets.
Subsequent toApril 30,2022, theCompany received$18 millionof itsincome taxreceivable, whichis
included in Accounts receivable. The Company anticipates that the remaining balance willbe received by
the end of the second quarter of fiscal 2022.
On May 19, 2022, the Board of Directors declared the quarterly dividendat $0.17 per share.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
7
NOTE 2- EARNINGSPER SHARE:
AccountingStandardCodification("ASC")260 -
EarningsPer Share
requiresdual presentationof basicand
diluted EarningsPer Share ("EPS")on the face of all incomestatementsfor all entitieswith complexcapital
structures.The Companyhas presentedone basicEPS andone dilutedEPS amountfor allcommonsharesin
the accompanying CondensedConsolidatedStatements of Income and Comprehensive Income.While the
Company's certificateof incorporationprovides the rightfor the Board of Directorsto declare dividendson
ClassAshareswithoutdeclarationofcommensurate dividendsonClassBshares,theCompanyhas
historicallypaid thesame dividendsto both ClassA and ClassB shareholdersand the Boardof Directorshas
resolvedto continuethis practice.Accordingly,the Company'sallocationof incomefor purposesof the EPS
computationis the same for ClassA and Class B sharesand the EPS amountsreportedherein are applicable
to bothClassA and ClassB shares.
Basic EPSiscomputed as netincome less earnings allocated tonon-vested equity awards divided bythe
weighted average numberof common shares outstandingfor the period.Diluted EPS reflects the potential
dilution thatcouldoccurfromcommonsharesissuable throughstockoptions andtheEmployee Stock
PurchasePlan.
Three Months Ended
April 30, 2022
May 1, 2021
(Dollars in thousands)
Numerator
Net earnings
$
9,748
$
20,713
Earnings allocated to non-vested equity awards
(541)
(942)
Net earnings available to common stockholders
$
9,207
$
19,771
Denominator
Basic weighted average common shares outstanding
20,149,201
21,489,162
Diluted weighted average common shares outstanding
20,149,201
21,489,162
Net income per common share
Basic earnings per share
$
0.46
$
0.92
Diluted earnings per share
$
0.46
$
0.92
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
8
NOTE 3- ACCUMULATEDOTHER COMPREHENSIVEINCOME:
ThefollowingtablesetsforthinformationregardingthereclassificationoutofAccumulatedother
comprehensiveincome(in thousands)for thethree monthsended April30, 2022:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280)
Other comprehensive income (loss) before
reclassification
(1,203)
Amounts reclassified from accumulated
other comprehensive income (b)
(3)
Net current-period other comprehensive income (loss)
(1,206)
Ending Balance at April 30, 2022
$
(1,486)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
4
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
1
.
ThefollowingtablesetsforthinformationregardingthereclassificationoutofAccumulatedother
comprehensiveincome(in thousands)for thethree monthsendedMay 1,2021:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 30, 2021
$
1,155
Other comprehensive income (loss) before
reclassification
(173)
Amounts reclassified from accumulated
other comprehensive income (b)
39
Net current-period other comprehensive income (loss)
(134)
Ending Balance at May 1, 2021
$
1,021
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
51
impact of Accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The tax impact of this reclassification was $
12
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
9
NOTE 4 - FINANCING ARRANGEMENTS:
AtApril30,2022,theCompanyhadanunsecuredrevolvingcreditagreement,whichprovidedfor
borrowings of up to $35.0 million less the balance of lettersof credit discussed below and was committed
throughMay2022.InMay2022,theCompanysignedanewunsecuredrevolvingcreditagreement,
which replacesthe priorcredit agreement,provides upto $35.0million incommitted availabilityand is
committedthroughMay2027.Thepriorcreditagreementcontainedvariousfinancialcovenantsand
limitations,includingthemaintenanceofspecificfinancialratioswithwhichtheCompanywasin
compliance as of April 30, 2022.The new credit agreement also contains various financial covenants and
limitations, including the maintenance of specific financial ratios.There were no outstanding borrowings
under the prior credit facility as of April 30, 2022 or January 29, 2022.The weighted average interest rate
under the prior credit facility was zero at April 30, 2022 due to no outstandingborrowings.
AtApril30,2022andJanuary29,2022,theCompany hadnooutstanding lettersofcreditrelating to
purchasecommitments.
NOTE 5 - REPORTABLE SEGMENT INFORMATION:
The Company has determined that it has four operatingsegments, as defined underASC 280-10, including
Cato,It'sFashion, VersonaandCredit.Asoutlined inASC280-10,theCompany hastworeportable
segments: Retailand Credit.The Company has aggregated its three retailoperating segments,including e-
commerce,based onthe aggregationcriteriaoutlinedin ASC 280-10,which statesthat twoor moreoperating
segments may be aggregatedinto a single reportablesegment if aggregationis consistent with the objective
and basic principles ofASC 280-10, which require thesegments to havesimilar economic characteristics,
products,productionprocesses,clientsand methodsof distribution.
TheCompany'sretailoperatingsegmentshavesimilareconomiccharacteristics andsimilaroperating,
financial and competitive risks.They aresimilar in natureof product, asthey alloffer women'sapparel,
shoes and accessories.Merchandiseinventoryfor the Company's retail operatingsegments is sourcedfrom
the same countries and some of the same vendors,using similar productionprocesses.Merchandisefor the
Company's operating segmentsisdistributed toretail storesinasimilar mannerthrough theCompany's
singledistributioncenterand issubsequentlydistributedto clientsin a similarmanner.
TheCompanyoperatesitswomen'sfashionspecialtyretailstoresin32statesasofApril30,2022,
principally inthe southeasternUnited States. The Company offers its own credit card to its customersand
all credit authorizations,payment processingand collectionefforts are performedby a separate subsidiaryof
the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
10
NOTE 5 - REPORTABLESEGMENT INFORMATION (CONTINUED):
The followingschedulesummarizescertainsegmentinformation(in thousands):
Three Months Ended
April 30, 2022
Retail
Credit
Total
Revenues
$206,208
$513
$206,721
Depreciation
2,743
-
2,743
Interest and other income
(403)
-
(403)
Income before taxes
11,613
84
11,697
Capital expenditures
4,440
-
4,440
Three Months Ended
May 1, 2021
Retail
Credit
Total
Revenues
$212,547
$538
$213,085
Depreciation
3,042
-
3,042
Interest and other income
(663)
-
(663)
Income before taxes
23,540
254
23,794
Capital expenditures
554
-
554
Retail
Credit
Total
Total assets as of April 30, 2022
$574,601
$37,429
$612,030
Total assets as of January 29, 2022
595,487
38,279
633,766
TheCompany evaluatessegmentperformance basedonincomebeforetaxes.TheCompany doesnot
allocatecertaincorporateexpensesor incometaxes tothe creditsegment.
The followingschedule summarizesthe direct expensesof the credit segmentwhich are reflectedin Selling,
generaland administrativeexpenses(in thousands):
Three Months Ended
April 30, 2022
May 1, 2021
Payroll
$
137
$
117
Postage
93
78
Other expenses
199
89
Total expenses
$
429
$
284
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
11
NOTE 6 - STOCK BASED COMPENSATION:
As ofApril 30, 2022,the Company had twolong-term compensationplans pursuant to which stock-based
compensation wasoutstanding orcouldbegranted.The2018IncentiveCompensation Planand2013
IncentiveCompensation Planareforthegrantingofvariousformsofequity-based awards,including
restrictedstock andstock optionsfor grant,to officers,directorsand key employees.EffectiveMay 24, 2018,
sharesfor grantwere nolongeravailableunderthe 2013IncentiveCompensationPlan.
The following tablepresents the numberofoptions andshares ofrestricted stock initially authorized and
availablefor grantundereach ofthe plansas of April30, 2022:
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
1,500,000
4,725,000
6,225,000
Options and/or restricted stock available for grant:
April 30, 2022
-
3,580,471
3,580,471
In accordancewith ASC 718,the fairvalue of currentrestricted stock awardsis estimated onthe dateof
grant basedon themarket priceof theCompany'sstock andis amortizedto compensationexpense ona
straight-line basis overthe related vestingperiods. As ofApril 30, 2022and January 29,2022, there was
$
9,868,000
and$
11,096,000
,respectively,oftotalunrecognizedcompensationexpenserelatedto
unvested restricted stock awards, which had a remaining weighted-averagevesting period of
2.4
years and
2.3
years,respectively.ThetotalcompensationexpenseduringthethreemonthsendedApril30,2022
was$
603,000
comparedto$
283,000
forthethreemonthsendedMay1,2021.Theseexpensesare
classified as a componentof Selling, general andadministrative expenses in theCondensed Consolidated
Statements of Income.
The following summaryshows the changes in the sharesof unvested restrictedstock outstandingduring the
three months ended April30, 2022:
Weighted
Average
Number of
Grant Date Fair
Shares
ValuePer Share
Restricted stock awards at January 29, 2022
1,196,288
$
13.76
Granted
-
-
Vested
-
-
Forfeited or expired
-
-
Restricted stock awards at April 30, 2022
1,196,288
$
13.76
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
12
The Company'sEmployee Stock Purchase Planallows eligible full-time employees topurchase alimited
number of shares ofthe Company's Class ACommon Stock during each semi-annual offering period at a
15% discount throughpayroll deductions.During the three months ended April30, 2022 and May 1, 2021,
the Companysold
9,468
and
19,248
sharesto employeesat an averagediscountof $
2.21
and $
1.17
per share,
respectively, under the Employee Stock PurchasePlan. The compensation expenserecognized for the 15%
discount given underthe Employee StockPurchase Plan wasapproximately $
21,000
and $
23,000
for the
threemonths endedApril30,2022andMay1,2021,respectively.Theseexpenses areclassified asa
component ofSelling, general andadministrative expenses in theCondensed Consolidated Statements of
Income.
NOTE 7- FAIR VALUE MEASUREMENTS:
The following tablesset forth information regarding the Company's financial assets and liabilities that are
measuredat fairvalue(in thousands)as of April30, 2022and January29, 2022:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
April 30, 2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
28,514
$
-
$
28,514
$
-
Corporate Bonds
56,515
-
56,515
-
U.S. Treasury/Agencies Notes and Bonds
21,112
-
21,112
-
Cash Surrender Value of Life Insurance
11,033
-
-
11,033
Asset-backed Securities (ABS)
13,512
-
13,512
-
Corporate Equities
803
803
-
-
Commercial Paper
367
-
367
-
Total Assets
$
131,856
$
803
$
120,020
$
11,033
Liabilities:
Deferred Compensation
(9,272)
-
-
(9,272)
Total Liabilities
$
(9,272)
$
-
$
-
$
(9,272)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
13
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 29,
2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
30,451
$
-
$
30,451
$
-
Corporate Bonds
76,909
-
76,909
-
U.S. Treasury/Agencies Notes and Bonds
19,715
-
19,715
-
Cash Surrender Value of Life Insurance
11,472
-
-
11,472
Asset-backed Securities (ABS)
18,556
-
18,556
-
Corporate Equities
818
818
-
-
Commercial Paper
367
-
367
-
Total Assets
$
158,288
$
818
$
145,998
$
11,472
Liabilities:
Deferred Compensation
(10,020)
-
-
(10,020)
Total Liabilities
$
(10,020)
$
-
$
-
$
(10,020)
The Company's investmentportfolio was primarilyinvested in corporatebonds and tax-exemptand taxable
governmental debt securitiesheld inmanaged accounts with underlying ratings of A orbetter at April30,
2022 andJanuary 29,2022.The state,municipal and corporate bondshave contractual maturities which
range from one day to 4.6 years. The U.S. Treasury Noteshave contractualmaturities whichrange from 46
daysto2.4years.Thesesecuritiesareclassifiedasavailable-for-sale andarerecordedasShort-term
investments,Restrictedcash andOther assetson the accompanyingCondensedConsolidatedBalanceSheets.
These assets are carried at fair value with unrealizedgains and losses reported net of taxes in Accumulated
other comprehensiveincome. Theasset-backedsecuritiesare bonds comprisedof auto loans and bankcredit
cards that carry AAA ratings.The auto loan asset-backedsecuritiesare backed by static pools of auto loans
that wereoriginatedand servicedby captiveauto financeunits, banksor financecompanies.The bankcredit
card asset-backed securitiesare backed byrevolving pools of credit card receivables generated by account
holdersof cardsfrom AmericanExpress,Citibank,JPMorganChase,CapitalOne, andDiscover.
Additionally,atApril30,2022,theCompanyhad$
0.8
millionofcorporateequitiesanddeferred
compensationplan assetsof $
11.0
million.At January29, 2022, theCompanyhad $
0.8
millionof corporate
equitiesand deferredcompensationplan assetsof $
11.5
million.All of theseassetsare recordedwithin Other
assetsin theCondensedConsolidatedBalanceSheets.
Level 1 categorysecuritiesare measuredat fair valueusing quotedactive marketprices.Level 2 investment
securities include corporate andmunicipal bonds forwhich quotedprices maynotbeavailable onactive
exchanges for identical instruments.Their fair value isprincipally based on market values determined by
management withassistance ofathird-party pricingservice.Sincequotedprices inactivemarkets for
identical assetsare not available,these prices are determinedby the pricing serviceusing observablemarket
informationsuchasquotesfromlessactivemarketsand/orquotedpricesofsecuritieswithsimilar
characteristics,amongother factors.
Deferred compensationplan assets consistof life insurancepolicies.These life insurancepolicies arevalued
based on thecash surrendervalue of theinsurancecontract,which is determinedbased on suchfactorsas the
fair valueof the underlyingassets anddiscountedcash flowand are thereforeclassifiedwithin Level3 of the
valuation hierarchy. TheLevel 3liability associated with thelife insurance policies represents adeferred
compensationobligation, the value of which is tracked via underlying insurancefunds' net asset values, as
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
14
recorded inOthernoncurrent liabilitiesintheCondensed Consolidated BalanceSheet.Thesefundsare
designedto mirrormutualfunds andmoneymarketfundsthat areobservableand activelytraded.
The following tablessummarize the change infair valueof theCompany's financial assets andliabilities
measuredusingLevel3 inputsas of April30, 2022and January29, 2022(dollarsin thousands):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 29, 2022
$
11,472
Redemptions
-
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
(439)
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
11,033
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 29, 2022
$
(10,020)
Redemptions
489
Additions
(149)
Total (gains) or losses
Included in interest and other income (or changes in net assets)
408
Included in other comprehensive income
-
Ending Balance at April 30, 2022
$
(9,272)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 30, 2021
$
11,263
Redemptions
-
Additions
-
Total gains or (losses)
Included in interest and other income (or changes in net assets)
209
Included in other comprehensive income
-
Ending Balance at January 29, 2022
$
11,472
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
15
Deferred Compensation
Beginning Balance at January 30, 2021
$
(10,316)
Redemptions
1,010
Additions
(304)
Total (gains) or losses
Included in interest and other income (or changes in net assets)
(410)
Included in other comprehensive income
-
Ending Balance at January 29, 2022
$
(10,020)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
16
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS:
None.
NOTE 9 - INCOME TAXES:
The Company had an effective tax rate for thefirst quarter of 2022 of
16.7
% compared to an effective tax
rate of
12.9
% for the first quarter of 2021. The increase in the 2022 first quarter taxrate was primarily due
tohigher
GlobalIntangible Low-taxedIncome (GILTI),partiallyoffsetby theability torealize foreign
tax credits.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
includinglitigationregardingthemerchandisethatitsells,litigationregardingintellectualproperty,
litigation institutedby personsinjured uponpremises underits control,litigation withrespect tovarious
employmentmatters,includingallegeddiscrimination andwageandhourlitigation,andlitigationwith
present or former employees.
Although suchlitigation isroutine andincidental tothe conductof theCompany's business,as withany
businessofitssizewithasignificantnumberofemployeesandsignificantmerchandisesales,such
litigation couldresult inlargemonetary awards.Based oninformation currentlyavailable, management
doesnotbelievethatanyreasonablypossiblelossesarisingfrom currentpending litigationwillhave a
material adverseeffecton itscondensed consolidatedfinancial statements.However,given theinherent
uncertainties involved insuch matters, anadverse outcome inone ormore such matterscould materially
andadverselyaffecttheCompany'sfinancialcondition,resultsofoperationsandcashflowsinany
particular reporting period. The Company accrues forthese matters when the liability isdeemed probable
and reasonably estimable.
NOTE 11 - REVENUE RECOGNITION:
TheCompanyrecognizessalesatthepointofpurchasewhenthecustomertakespossessionofthe
merchandiseandpaysforthepurchase,generallywithcashorcredit.Salesfrompurchasesmadewith
Catocredit,giftcardsandlayawaysalesfromstoresarealsorecordedwhenthecustomertakes
possession ofthe merchandise. E-commercesales arerecorded when therisk ofloss istransferred to the
customer. Gift cardsare recorded as deferred revenue until they areredeemed or forfeited. Layaway sales
arerecordedasdeferredrevenueuntilthecustomertakespossessionorforfeitsthemerchandise.Gift
cards do not haveexpiration dates. A provision ismade for estimated merchandise returnsbased on sales
volumesandtheCompany'sexperience;actualreturnshavenotvariedmateriallyfromhistorical
amounts.Aprovisionismadeforestimatedwrite-offsassociatedwithsalesmadewiththeCompany's
proprietarycreditcard.Amountsrelatedtoshippingandhandlingbilledtocustomersinasales
transaction areclassified asOther revenueand thecosts relatedto shippingproduct tocustomers (billed
and accrued) are classified as Cost of goods sold.
The Companyoffers itsown proprietarycredit cardto customers.All creditactivity isperformed bythe
Company'swholly-owned subsidiaries.None ofthecredit cardreceivables aresecured.TheCompany
estimated customer creditlosses of $
86,000
and $
131,000
for the periodsended April 30,2022 and May
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
17
1,2021,respectively,onsalespurchased bytheCompany'sproprietary creditcardof$
5.7
million and
$
4.4
million for the periods ended April 30, 2022 and May 1, 2021,respectively.
Thefollowingtableprovidesinformationaboutreceivablesandcontractliabilitiesfromcontractswith
customers (in thousands):
Balance as of
April 30, 2022
January 29, 2022
Proprietary Credit Card Receivables, net
$
9,522
$
8,998
Gift Card Liability
$
6,556
$
8,308
NOTE 12 - LEASES:
TheCompany determineswhetheranarrangementisaleaseatinception.TheCompanyhasoperating
leasesforstores,officesandequipment.Itsleaseshave remainingleasetermsofoneyearto10years,
some ofwhich includeoptions toextend thelease termfor upto fiveyears, andsome ofwhich include
options toterminate thelease withinone year.The Companyconsiders theseoptions indetermining the
lease termused toestablish itsright-of-use assetsand leaseliabilities. TheCompany'slease agreements
do not contain any material residual value guarantees or materialrestrictive covenants.
AsmostoftheCompany'sleasesdonotprovideanimplicitrate,itusesitsestimatedincremental
borrowing rate basedon the informationavailable at commencement dateof the leasein determining the
present value of lease payments.
The components of lease cost are shown below (in thousands):
Three Months Ended
April 30, 2022
May 1, 2021
Operating lease cost (a)
$
17,754
$
16,726
Variablelease cost (b)
$
768
$
793
(a) Includes right-of-use asset amortization of ($0.4) million and($1.2) million for the three months ended
April 30, 2022 and May 1, 2021, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
Supplemental cash flowinformation and non-cashactivity related tothe Company'soperating leases are
as follows (in thousands):
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021
18
Operating cash flow information:
Three Months Ended
April 30, 2022
May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities
$
16,836
$
15,947
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
3,515
$
734
Weighted-averageremainingleasetermanddiscountratefortheCompany'soperatingleasesareas
follows:
As of
April 30, 2022
May 1, 2021
Weighted-average remaining lease term
2.4 years
2.7 years
Weighted-average discount rate
2.92%
3.73%
As ofApril 30,2022,
the maturitiesof leaseliabilities by fiscalyear forthe Company'soperating leases
are as follows (in thousands):
Fiscal Year
2022 (a)
$
53,370
2023
53,633
2024
36,956
2025
21,875
2026
10,602
Thereafter
2,986
Total lease payments
179,422
Less: Imputed interest
8,410
Present value of lease liabilities
$
171,012
(a) Excluding the 3 months ended April 30, 2022.
19
THE CATO CORPORATION
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
ThefollowinginformationshouldbereadalongwiththeunauditedCondensedConsolidatedFinancial
Statements,includingtheaccompanyingNotesappearinginthisreport.Anyofthefollowingare
"forward-looking"statementswithinthemeaningofSection 27AoftheSecuritiesActof1933,as
amended,andSection 21EoftheSecuritiesExchangeActof1934,asamended:(1) statementsinthis
Form 10-Qthatreflectprojectionsorexpectationsofourfuturefinancialoreconomicperformance;
(2) statementsthatarenothistoricalinformation;(3) statementsofourbeliefs,intentions,plansand
objectives for future operations,including those contained in"Management's Discussion andAnalysis of
Financial Conditionand Results ofOperations"; (4) statements relatingto ouroperations or activitiesfor
ourfiscalyearendingJanuary28,2023("fiscal2022")andbeyond,including,butnotlimitedto,
statements regarding expectedamounts ofcapital expenditures andstore openings, relocations,remodels
andclosuresandstatementsregardingthepotentialimpactoftheCOVID-19pandemicandrelated
responsesandmitigationeffortsonourbusiness,resultsofoperationsandfinancialcondition;and
(5) statements relatingto our future contingencies. When possible, we have attempted to identify forward-
looking statementsby usingwordssuchas"will," "expects,""anticipates," "approximates,""believes,"
"estimates,""hopes,""intends,""may,""plans,""could,""would,""should"andanyvariationsor
negative formationsof suchwords andsimilar expressions.Wecan giveno assurancethat actualresults
oreventswillnotdiffermateriallyfromthoseexpressedorimpliedinanysuchforward-looking
statements. Forward-looking statements included in this report are based on information available to us as
of thefiling dateof thisreport, butsubject toknown andunknown risks,uncertainties andother factors
thatcouldcauseactualresultstodiffermateriallyfromthosecontemplatedbytheforward-looking
statements.Suchfactorsinclude,butarenotlimitedto,thefollowing:anyactualorperceived
deterioration in the conditions that drive consumer confidence and spending, including, but not limited to,
prevailingsocial,economic,politicalandpublichealthconditionsanduncertainties,levelsof
unemployment, fuel,energy andfood costs,wage rates,tax rates,interest rates,home values,consumer
networth,theavailability ofcreditandinflation;changes inlaws,regulations andgovernment policies
affectingourbusiness,includingbutnotlimitedtotariffs;uncertaintiesregardingtheimpactofany
governmental action regarding, orresponses to, theforegoing conditions; competitive factorsand pricing
pressures; ourability topredict andrespond torapidly changingfashion trendsand consumerdemands;
our ability tosuccessfully implement ournew store developmentstrategy to increasenew store openings
and ourability ofany suchnew storesto growand performas expected;adverse weather,public health
threats (including the COVID-19 pandemic)or similar conditions thatmay affect oursales or operations;
inventoryrisksduetoshiftsinmarketdemand,includingtheabilitytoliquidateexcessinventoryat
anticipatedmargins;andotherfactorsdiscussedunder"RiskFactors"inPartI,Item1Aofourannual
reportonForm10-KforthefiscalyearendedJanuary29,2022("fiscal2021"),asamendedor
supplemented,and inother reportswefilewithorfurnishtotheSecurities andExchangeCommission
("SEC")from timetotime.Wedonotundertake, andexpresslydecline,any obligationtoupdateany
such forward-looking information containedin this report,whether as aresult of newinformation, future
events, or otherwise.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
20
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company's accountingpolicies are morefully describedin "Management's Discussionand Analysis of
FinancialConditionand Resultsof Operations"in the Company'sAnnualReporton Form10-K forthe fiscal
yearendedJanuary29,2022.Asdisclosedin"Management'sDiscussionandAnalysisofFinancial
Condition and Results of Operations,"the preparation of the Company's financialstatements in conformity
with generallyaccepted accountingprinciplesin the United States ("GAAP")requires managementto make
estimatesand assumptionsabout futureeventsthat affectthe amountsreportedin the financialstatementsand
accompanyingnotes. Futureevents andtheir effectscannot bedeterminedwith absolutecertainty. Therefore,
the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from
thoseestimates, andsuchdifferences maybematerial tothefinancial statements.Themostsignificant
accountingestimatesinherentin the preparationof the Company'sfinancialstatementsincludethe allowance
forcustomercreditlosses,inventoryshrinkage, thecalculation ofpotentialassetimpairment, workers'
compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and
uncertaintax positions.
The Company'scriticalaccountingpoliciesand estimatesare discussedwith theAudit Committee.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
21
RESULTS OF OPERATIONS:
The followingtable setsforth, forthe periodsindicated,certainitems inthe Company'sunauditedCondensed
ConsolidatedStatementsof Incomeas a percentageof totalretailsales:
Three Months Ended
April 30, 2022
May 1, 2021
Total retail sales
100.0
%
100.0
%
Other revenue
0.9
0.9
Total revenues
100.9
100.9
Cost of goods sold (exclusive of depreciation)
64.5
58.5
Selling, general and administrative (exclusive of depreciation)
29.5
29.9
Depreciation
1.3
1.4
Interest and other income
(0.2)
(0.3)
Income before income taxes
5.7
11.3
Net income
4.8
9.8
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
22
RESULTS OF OPERATIONS(CONTINUED):
Management'sDiscussion andAnalysis ofFinancial Conditionand Resultsof Operations("MD&A") is
intendedtoprovideinformationtoassistreadersinbetterunderstandingandevaluatingourfinancial
conditionandresultsofoperations.WerecommendreadingthisMD&Ainconjunctionwithour
CondensedConsolidatedFinancialStatementsandtheNotestothosestatementsincludedinthe
"Financial Statements" section of this Quarterly Report on Form10-Q, as well as our 2021 Form 10-K.
COVID-19Update
ThereisstillsignificantuncertaintyregardingthelingeringeffectsoftheCOVID-19 pandemiconour
business, financial condition, resultsof operations, cash flows,and liquidity.These uncertainties include
theimpactofneworpotentialvariantsofthevirusthataremoretransmissibleorsevere,stagnant
vaccination ratesand relatedfactors thatmay continuetofuelperiodic surgesofthevirus orotherwise
impedeprogresstowardthereturntopre-pandemicactivitiesandlevelsofconsumerconfidenceand
commercialactivity.TheCompanyalsofacesuncertaintyfromtheimpactsofCOVID-19andthe
governmentalresponsestoCOVID-19 surges,includinglockdowns,intheforeigncountrieswhereour
merchandise is produced.The Company is also subject to the continued effects of disruption in the global
supplychain,inflationanditsimpactonourcostofproducts,transportation,wageratesandother
operatingcosts,aswellas,theimpactonourcustomers'disposableincomes,andtheavailabilityof
workers.The Companyexpects thatthese uncertaintiesand perhapsothers relatedto thepandemic will
continuetoimpacttheCompanyinfiscal2022.Theadversefinancialimpactsassociatedwiththese
continued effects of, and uncertainties relatedto, the COVID-19 pandemic include, but arenot limited to,
(i) lower netsales in marketsaffected by actualor potential adversechanges in conditionsrelating to the
pandemic, whetherdue toincreases incase counts,state andlocal orders,reductions instore trafficand
customerdemand,laborshortages,orallofthesefactors,(ii)lowernetsalescausedbythedelayof
inventoryproductionandfulfillment,(iii)andincrementalcostsassociatedwitheffortstomitigatethe
effects of the outbreak, including increased freight and logistics costs and otherexpenses.
While the Company currently anticipates a continuation of theuncertainties listed above and the potential
adverse impactsof COVID-19during fiscal2022, theduration andseverity ofthese effectswill depend
onthecourse offuture developments,which arehighly uncertain.Theextent towhich theCOVID-19
pandemicultimatelyimpactstheCompany'sbusiness,financialcondition,resultsofoperations,cash
flows,andliquiditymaydifferfrommanagement'scurrentestimatesduetoinherentuncertainties
regardingthedurationandfurtherspreadoftheoutbreakoritsvariants,itsseverity,actionstakento
contain thevirus ortreat itsimpact, and howquickly and towhat extentnormal economic andoperating
conditions can resume.
Comparisonof First Quarterof 2022with 2021
Total retail salesfor the firstquarter were$204.9 millioncomparedto last year'sfirst quartersales of $211.2
million.Salesdecreased primarilyduetoadecrease insame-store sales,partially offsetbysalesfrom
noncomparable stores. The decrease insame-store sales wasprimarily due tocooler, wetterweather, late
merchandiseshipmentsduetosupplychaindisruptionsandinflationarypressureonourcustomers'
disposable income. Same store sales include stores that have been open more than15 months.Stores that
have been relocated or expanded are also included inthe same store sales calculation after they have been
open morethan 15months.The methodof calculatingsame storesales variesacross theretail industry.As a
result, our samestore sales calculationmay not be comparableto similarlytitled measuresreportedby other
companies.E-commercesales wereless than5.0% ofsalesfor thefirst quarterof fiscal2022 andare included
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
23
in the same-store sales calculation.Total revenues, comprised of retail salesand other revenue (principally
financechargesandlatefeesoncustomeraccountsreceivable,shippingchargedtocustomersfore-
commerce purchases andlayaway fees),were$206.7 millionforthefirstquarter endedApril 30,2022,
compared to $213.1 millionfor the first quarter endedMay 1, 2021. The Company operated1,315 stores at
April 30,2022 comparedto 1,325storesat the endof lastfiscal year'sfirst quarter.For thefirst threemonths
of fiscal 2022, the Company openedfive stores and permanentlyclosed one store.The Company currently
expectsto closeapproximately25 storesin fiscal2022.
Credit revenueof $0.5millionrepresented0.2% oftotal revenuesin the firstquarterof fiscal2022, compared
to 2021credit revenue of$0.5 million or0.3% oftotal revenues.Credit revenue iscomprised of interest
earned onthe Company'sprivatelabel creditcard portfolioand relatedfee income.Relatedexpensesinclude
principallypayroll,postage and otheradministrativeexpenses,and totaled $0.4million inthe first quarterof
2022, comparedto lastyear'sfirst quarterexpensesof $0.3million.
Other revenue,a componentof total revenues,was $1.8 millionfor the firstquarterof fiscal 2022,compared
to$1.9million fortheprioryear'scomparable firstquarter.Theslightdecrease wasduetolowere-
commerceshippingrevenueand financecharges,slightlyoffset byhigherlayawayfees.
Cost of goods soldwas $132.2 million,or 64.5% of retailsales for the firstquarter of fiscal2022, compared
to $123.7 million, or 58.5% of retailsales in the first quarter of fiscal 2021.The overall increasein cost of
goods soldas a percentof retailsales forfirst quarterof 2022 resultedprimarilyfrom highermarkdownsales
and an increasein freight costsdue to higher fuelprices.Cost of goods soldincludesmerchandisecosts (net
ofdiscountsandallowances),buyingcosts,distribution costs,occupancycosts,freightandinventory
shrinkage.Netmerchandise costsandin-bound freightarecapitalized asinventory costs.Buyingand
distribution costs include payroll, payroll-relatedcosts andoperating expenses for thebuying departments
anddistributioncenter.Occupancycostsincluderent,realestatetaxes,insurance,commonarea
maintenance,utilitiesand maintenancefor storesand distributionfacilities.Total gross margindollars(retail
sales lesscost ofgoods soldexclusive ofdepreciation) decreased by 17.0% to$72.7 million forthe first
quarterof fiscal2022 comparedto $87.6millionin the firstquarterof fiscal2021.Gross marginas presented
may notbe comparableto thoseof otherentities.
Selling,generaland administrativeexpenses("SG&A")primarilyincludecorporateand storepayroll,related
payroll taxesand benefits,insurance,supplies,advertising,and bank andcredit cardprocessingfees.SG&A
expenses were 29.5% of retailsales for the first quarter of fiscal 2022, comparedto 29.9% of retail sales in
the first quarterof fiscal 2021.SG&A as a percentof retail salesdecreasedprimarilydue to lowerincentive
compensation, partiallyoffset by increased payroll costs reflecting more normalized operations.
Depreciationexpensewas $2.7million,or 1.3%of retailsales forthe firstquarterof fiscal2022, comparedto
$3.0 million,or 1.4% of retail salesfor the first quarterof fiscal 2021. The decreasein depreciationexpense
was attributableto olderstoresbeingfully depreciated.
Interest andotherincomewas$0.4million, or0.2%ofretailsalesforthefirstquarter offiscal2022,
compared to$0.7million, or0.3%ofretail salesforthefirst quarteroffiscal 2021.Thedecrease was
primarilyattributableto a decreasein short-terminvestments.
Income tax expensewas $1.9 million or1.0% of retail salesfor the first quarterof fiscal 2022, compared
toanincometaxexpenseof$3.1million,or1.5%ofretailsalesforthefirstquarteroffiscal2021.
Income taxexpenseforthefirstquarteroffiscal2022decreasedprimarilyasaresultoflowerpre-tax
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
24
earnings.The effective incometax rate forthe first quarterof fiscal 2022was 16.7%compared to 12.9%
forthefirstquarter of2021. Theincrease inthe2022firstquarter taxrate wasprimarily duetohigher
Global Intangible Low-taxed Income (GILTI), partially offset by the ability to realize foreign tax credits.
LIQUIDITY, CAPITALRESOURCESAND MARKETRISK:
The Company believes that its cash, cash equivalents and short-terminvestments,together with cash flows
from operationsand borrowingsavailable underits revolving creditagreement,will be adequate to fund the
Company's regularoperatingrequirementsand expectedcapital expendituresfor fiscal 2022and the next 12
months.
Cash usedby operatingactivitiesfor thefirst threemonthsof fiscal2022 wasprimarilygeneratedby earnings
adjustedfor depreciationand changesin working capital.The decreasein cash providedof $45.3 millionfor
the firstthree monthsof fiscal2022 as comparedto the firstthree monthsof fiscal2021 was primarilydue to
lower net incomeand a decreasein accountspayable andaccrued liabilitiesfrom fiscal2021 year endversus
an increasefrom 2020year end,partiallyoffset bya decreasein prepaidand otherassets.
AtApril30,2022,theCompany hadworking capitalof$107.8million comparedto$111.5million at
January 29, 2022.This decrease is primarilyattributableto lower short-terminvestments,partially offsetby
lower accruedincentivecompensation.
AtApril30,2022,theCompanyhadanunsecuredrevolvingcreditagreement,whichprovidedfor
borrowings of up to $35.0 million less the balance of lettersof credit discussed below and was committed
throughMay2022.InMay2022,theCompanysignedanewunsecuredrevolvingcreditagreement,
which replacesthe priorcredit agreement,provides upto $35.0million incommitted availabilityand is
committedthroughMay2027.Thepriorcreditagreementcontainedvariousfinancialcovenantsand
limitations,includingthemaintenanceofspecificfinancialratioswithwhichtheCompanywasin
compliance as of April 30, 2022.The new credit agreement also contains various financial covenants and
limitations, including the maintenance of specific financial ratios.There were no outstanding borrowings
under the prior credit facility as of April 30, 2022 or January 29, 2022.
AtApril30,2022andJanuary29,2022,theCompanyhadnooutstanding lettersofcreditrelating to
purchasecommitments.
Expenditures forpropertyandequipment totaled$4.4millioninthefirstthreemonthsoffiscal2022,
compared to $0.6million inlast year'sfirst threemonths.The increase inexpenditures for property and
equipment was primarily duetocosts associated withopening fivenew storesand capitalinvestments in
information technologyand thedistribution center.For thefull fiscal 2022year, theCompany expects to
investapproximately$22.6millionin capitalexpenditures,includingdistributioncenterautomationprojects.
Netcashprovided byinvesting activitiestotaled$19.6million inthefirstthreemonthsoffiscal2022
comparedto $34.2 millionused in the comparableperiod of fiscal2021, primarilydue to lower purchasesof
short-terminvestments,partiallyoffset byan increasein capitalexpenditures.
Net cash used by financingactivitiestotaled $12.7 millionin the first three monthsof fiscal 2022 compared
to $5.5millionused inthe comparableperiodof fiscal2021, primarilydue toan increasein sharerepurchases
and dividendspaid.
On May19, 2022,the Boardof Directorsdeclaredthe quarterlydividendat $0.17per share.
THE CATO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(CONTINUED)
25
AsofApril 30,2022, theCompany had840,119 sharesremaining inopen authorizations under itsshare
repurchaseprogram.
The Companydoes notuse derivativefinancialinstruments.
The Company's investmentportfolio was primarilyinvested in corporatebonds and tax-exemptand taxable
governmental debt securitiesheld inmanaged accounts with underlying ratings of A orbetter at April30,
2022 andJanuary 29,2022.The state,municipal and corporate bondshave contractual maturities which
range from one day to 4.6 years. The U.S. Treasury Notes have contractualmaturities whichrange from 46
daysto2.4years.Thesesecuritiesareclassifiedasavailable-for-sale andarerecordedasShort-term
investments,Restrictedcash andOther assetson the accompanyingCondensedConsolidatedBalanceSheets.
These assets are carried at fair value with unrealizedgains and losses reported net of taxes in Accumulated
other comprehensiveincome. Theasset-backedsecuritiesare bonds comprisedof auto loans and bankcredit
cards that carry AAA ratings.The auto loan asset-backedsecuritiesare backed by static pools of auto loans
that wereoriginatedand servicedby captiveauto financeunits, banksor financecompanies.The bankcredit
card asset-backed securitiesare backed byrevolving pools of credit card receivables generated by account
holdersof cardsfrom AmericanExpress,Citibank,JPMorganChase,CapitalOne, andDiscover.
Additionally,atApril30,2022,theCompanyhad$0.8millionofcorporateequitiesanddeferred
compensationplan assetsof $11.0 million.At January29, 2022, theCompanyhad $0.8 millionof corporate
equitiesand deferredcompensationplan assetsof $11.5 million.All of theseassetsare recordedwithin Other
assetsin theCondensedConsolidatedBalanceSheets.See Note7, FairValue Measurements.
RECENTACCOUNTINGPRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
26
ITEM 3. QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK:
TheCompanyissubjecttomarketrateriskfromexposuretochangesininterestratesbasedonits
financing, investing andcash management activities,but the Companydoes notbelieve such exposureis
material.
ITEM 4. CONTROLS AND PROCEDURES:
We carried outan evaluation,with theparticipationof ourPrincipalExecutiveOfficerand PrincipalFinancial
Officer, of theeffectivenessof our disclosure controls and procedures as of April 30, 2022.Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as ofApril 30,
2022,our disclosure controls and procedures, as defined in Rule 13a-15(e), under theSecurities Exchange
Act of1934 (the"ExchangeAct"), wereeffectiveto ensurethat informationwe arerequiredto disclosein the
reports thatwefileorsubmit undertheExchange Actisrecorded, processed, summarized andreported
within the timeperiods specifiedin the SEC's rules and formsand that suchinformationis accumulatedand
communicatedto our management,includingour PrincipalExecutiveOfficerand PrincipalFinancialOfficer,
as appropriateto allowtimelydecisionsregardingrequireddisclosure.
CHANGESIN INTERNALCONTROLOVER FINANCIALREPORTING:
No change inthe Company'sinternalcontrol overfinancialreporting(as definedin ExchangeAct Rule 13a-
15(f)) hasoccurredduring theCompany's fiscalquarterended April30,2022 that hasmateriallyaffected,or
isreasonablylikelytomateriallyaffect,theCompany'sinternalcontroloverfinancialreporting.
THE CATO CORPORATION
PARTII OTHERINFORMATION
27
ITEM 1.LEGAL PROCEEDINGS:
Not Applicable
ITEM 1A.RISK FACTORS:
In additionto theotherinformationin thisreport,you shouldcarefullyconsiderthe factorsdiscussedin PartI,
"Item 1A. RiskFactors" in ourAnnual Report on Form10-K forour fiscal yearended January 29, 2022.
These risks could materiallyaffect our business, financialcondition or future results;however, they are not
the onlyrisks weface.Additionalrisks anduncertaintiesnot currentlyknown tous or thatwe currentlydeem
tobeimmaterialmayalsomateriallyadverselyaffectourbusiness,financialconditionorresultsof
operations.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS:
The following table summarizes the Company's purchases of its common stock for the three months
ended April 30, 2022:
ISSUERPURCHASESOF EQUITYSECURITIES
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value)of Shares that may
of Shares
Price Paid
Announced Plans or
Yet be PurchasedUnder
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2022
70,967
$
16.61
70,967
March 2022
327,897
15.01
327,897
April 2022
211,064
14.50
211,064
Total
609,928
$
15.02
609,928
840,119
(1)
Prices include trading costs.
(2)
As of January29, 2022, theCompany's sharerepurchase program had450,047 shares remaining
inopenauthorizations.TheBoardofDirectorsauthorizedanadditional1,000,000sharesfor
repurchase undertheprogram atitsFebruary 24,2022 meeting.During thefirstquarter ended
April30,2022,theCompanyrepurchasedandretired609,928sharesunderthisprogramfor
approximately $9,161,613 or anaverage market price of$15.02 per share.As of April 30,2022,
theCompanyhad840,119sharesremaininginopenauthorizations.Thereisnospecified
expiration date for the Company's repurchase program.
ITEM 3.DEFAULTSUPON SENIOR SECURITIES:
Not Applicable
THE CATO CORPORATION
PARTII OTHERINFORMATION
28
ITEM 4.MINE SAFETY DISCLOSURES:
Not Applicable
ITEM 5.OTHER INFORMATION:
Not Applicable
ITEM 6.EXHIBITS:
ExhibitNo.
Item
3.1
3.2
10.1
31.1*
Rule 13a-14(a)/15d-14(a)Certificationof PrincipalExecutiveOfficer.
31.2*
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
32.1*
Section 1350 Certification of Principal Executive Officer.
32.2*
Section 1350 Certification of Principal Financial Officer.
101.1*
The following materials from Registrant's Quarterly Report onForm
10-Q forthe fiscalquarter ended April30, 2022,formatted in Inline
XBRL:(i)CondensedConsolidatedStatementsofIncomeand
Comprehensive Income fortheThree Monthsended April30,2022
and May1, 2021;(ii) CondensedConsolidatedBalanceSheetsat April
30,2022andJanuary29,2022;(iii)CondensedConsolidated
Statementsof Cash Flows for the ThreeMonths EndedApril 30, 2022
andMay1,2021;(iv)CondensedConsolidatedStatementsof
Stockholders'Equity for the Three Months Ended April 30, 2022 and
May1,2021;and(v)NotestoCondensedConsolidated Financial
Statements.
104.1
CoverPageInteractiveDataFile(FormattedinInlineXBRLand
contained in the Interactive Data Files submitted as Exhibit 101.1*)
* Submitted electronically herewith.
THE CATO CORPORATION
PARTII OTHERINFORMATION
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this
report to be signed on its behalf by the undersigned thereunto dulyauthorized.
THE CATOCORPORATION
May 26, 2022
/s/ John P.D. Cato
Date
John P.D. Cato
Chairman, President and
Chief Executive Officer
May 26, 2022
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer