CATO CORP - Quarter Report: 2021 May (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
May 1, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ________________to__________________
Commission file number
1-31340
THE CATO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
56-0484485
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8100 Denmark Road
,
Charlotte
,
North Carolina
28273-5975
(Address of principal executive offices)
(Zip Code)
(704)
554-8510
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
X
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S -T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
X
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer ,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☑
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant 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 May 1, 2021, there were
20,829,940
1,763,652
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended May 1, 2021
Table of Contents
Page No.
PART I – FINANCIAL INFORMATION (UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
2
For the Three Months Ended May 1, 2021 and May 2, 2020
Condensed Consolidated Balance Sheets
3
At May 1, 2021 and January 30, 2021
Condensed Consolidated Statements of Cash Flows
4
For the Three Months Ended May 1, 2021 and May 2, 2020
Condensed Consolidated Statements of Stockholders’ Equity
5
For the Three Months Ended May 1, 2021 and May 2, 2020
Notes to Condensed Consolidated Financial Statements
6 - 19
For the Three Months Ended May 1, 2021 and May 2, 2020
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
20 - 26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
Item 4.
Controls and Procedures
27
PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
28
Item 1A.
Risk Factors
28
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 3.
Defaults Upon Senior Securities
28
Item 4.
Mine Safety Disclosures
29
Item 5.
Other Information
29
Item 6.
Exhibits
29
Signatures
30
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
May 1, 2021
May 2, 2020
(Dollars in thousands, except per share data)
REVENUES
$
211,234
$
98,813
1,851
1,919
213,085
100,732
COSTS AND EXPENSES, NET
123,675
83,597
63,237
52,511
3,042
4,006
(663)
(1,851)
189,291
138,263
Income (loss) before income taxes
23,794
(37,531)
Income tax expense (benefit)
3,081
(9,114)
Net income (loss)
$
20,713
$
(28,417)
Basic earnings (loss) per share
$
0.92
$
(1.19)
Diluted earnings (loss) per share
$
0.92
$
(1.19)
Comprehensive income:
Net income (loss)
$
20,713
$
(28,417)
Unrealized gain (loss) on available-for-sale securities, net
40
) and ($
90
) for May 1, 2021
(134)
(298)
Comprehensive income (loss)
$
20,579
$
(28,715)
See notes to condensed consolidated financial statements (unaudited).
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
May 1, 2021
January 30, 2021
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
$
22,276
$
17,510
Short-term investments
160,897
126,416
Restricted cash
3,513
3,512
Restricted short-term investments
405
406
Accounts receivable, net of allowance for customer credit losses of
658
605
55,140
52,743
Merchandise inventories
84,849
84,123
Prepaid expenses and other current assets
5,978
5,840
333,058
290,550
Property and equipment – net
69,925
72,550
Noncurrent deferred income taxes
5,726
5,685
Other assets
23,350
22,850
Right-of-Use assets – net
185,861
199,817
$
617,920
$
591,452
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
82,262
$
73,769
Accrued expenses
44,682
40,790
Accrued bonus and benefits
14,834
1,916
Accrued income taxes
2,394
2,038
Current lease liability
58,385
63,421
202,557
181,934
Other noncurrent liabilities
20,327
19,705
Lease liability
133,153
143,315
Stockholders' Equity:
Preferred stock, $
100
100,000
-
-
Class A common stock, $
0.033
50,000,000
20,829,940
20,839,795
703
703
Convertible Class B common stock, $
0.033
15,000,000
1,763,652
1,763,652
59
59
Additional paid-in capital
115,699
115,278
Retained earnings
144,401
129,303
Accumulated other comprehensive income
1,021
1,155
261,883
246,498
$
617,920
$
591,452
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
May 1, 2021
May 2, 2020
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
20,713
$
(28,417)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation
3,042
4,006
Provision for customer credit losses
113
28
Purchase premium and premium amortization of investments
(1,121)
(18)
Share-based compensation
306
650
Deferred income taxes
(1)
313
Loss on disposal of property and equipment
58
66
Impairment of store assets
-
5,270
Changes in operating assets and liabilities which provided (used) cash:
(2,510)
(4,402)
(726)
(7,402)
(493)
(255)
(1,242)
(1,027)
356
(13)
26,005
(40,134)
Net cash provided (used) by operating activities
44,500
(71,335)
Investing Activities:
Expenditures for property and equipment
(554)
(5,311)
Purchase of short-term investments
(62,075)
(8,275)
Sales of short-term investments
28,397
90,435
Sales of other assets
-
94
Net cash provided (used) by investing activities
(34,232)
76,943
Financing Activities:
Dividends paid
-
(7,990)
Repurchase of common stock
(5,629)
(9,875)
Proceeds from line of credit
-
34,000
Payments on line of credit
-
(4,000)
Proceeds from employee stock purchase plan
128
250
Net cash provided (used) by financing activities
(5,501)
12,385
Net increase (decrease) in cash, cash equivalents, and restricted cash
4,767
17,993
Cash, cash equivalents, and restricted cash at beginning of period
21,022
14,401
Cash, cash equivalents, and restricted cash at end of period
$
25,789
$
32,394
Non-cash activity:
Accrued other assets and property and equipment
$
263
$
1,936
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Convertible
Accumulated
Class A
Class B
Additional
Other
Total
Common
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — January 30, 2021
$
703
$
59
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
-
-
-
20,713
-
20,713
40
)
-
-
-
-
(134)
(134)
Dividends paid ($0.00 per share)
-
-
-
-
-
-
Class A common stock sold through employee stock purchase
19,248
1
-
150
-
-
151
Class B common stock sold through stock option plans —
-
-
-
-
-
-
Class A common stock issued through restricted stock grant plans —
396,558
13
-
271
-
-
284
Repurchase and retirement of treasury shares –
425,661
(14)
-
-
(5,615)
-
(5,629)
Balance — May 1, 2021
$
703
$
59
$
115,699
$
144,401
$
1,021
$
261,883
Convertible
Accumulated
Class A
Class B
Additional
Other
Total
Common
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — February 1, 2020
$
761
$
59
$
110,813
$
203,458
$
1,423
$
316,514
Comprehensive income:
-
-
-
(28,417)
-
(28,417)
90
)
-
-
-
-
(298)
(298)
Dividends paid ($
0.33
-
-
-
(7,990)
-
(7,990)
Class A common stock sold through employee stock purchase
26,957
1
-
293
-
-
294
Class B common stock sold through stock option plans —
-
-
-
-
-
-
Class A common stock issued through restricted stock grant plans —
307,354
10
-
587
8
-
605
Repurchase and retirement of treasury shares –
618,056
(22)
-
-
(9,034)
-
(9,056)
Balance — May 2, 2020
$
750
$
59
$
111,693
$
158,025
$
1,125
$
271,652
See notes to condensed consolidated financial statements (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
6
NOTE 1 - GENERAL
:
The condensed consolidated financial statements as of May 1, 2021 and for the thirteen- week periods
ended May 1, 2021 and May 2, 2020 have been prepared from the accounting records of The Cato
Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown are unaudited.
In the opinion of management, all adjustments considered necessary for a fair presentation of the financial
statements have been included. All such adjustments are of a normal, recurring nature unless otherwise
noted. The results of the interim period may not be indicative of the results expected for the entire year.
The interim financial statements should be read in conjunction with the consolidated financial statements
and notes thereto, included in the Company’s Annual Report on Form 10- K for the fiscal year ended
January 30, 2021. Amounts as of January 30, 2021 have been derived from the audited balance sheet, but
do not include all disclosures required by accounting principles generally accepted in the United States of
America.
On May 20, 2021, the Board of Directors declared the quarterly dividend at $0.11 per share.
COVID-19 Update
The COVID-19 pandemic adversely impacted the Company's business, financial condition and operating
results through fiscal 2020. The first quarter of 2021 saw significant improvements in sales compared to
2020. This improvement was primarily attributable to government stimulus, increased customer traffic,
states continuing to lift capacity limits as more people are vaccinated, consumers’ increasing comfort
level with venturing out to social events and customers’ preparing to return to work. However, the
Company’s sales were well below 2019 sales for the comparable period, and there is still a high level of
uncertainty regarding the lingering effects of the COVID-19 pandemic and the continued impact on the
Company’s customers’ buying habits. The Company faces additional uncertainty from the continued
effects of disruption in the global supply chain and available workers as it attempts to hire associates as its
operating hours continue to expand. The Company expects that these uncertainties and perhaps others
related to the pandemic will continue to impact the Company in fiscal 2021 and possibly beyond. The
adverse financial impacts associated with the continued effects of, and uncertainties related to, the
COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by the actual
or potential outbreak, whether due to state and local orders, reductions in store traffic and customer
demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory
production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of
the outbreak, including increased freight and logistics costs and other expenses.
The extent to which the COVID -19 pandemic ultimately impacts the Company’s business, financial
condition, results of operations, cash flows, and liquidity may differ from management’s current estimates
due to inherent uncertainties regarding the duration and further spread of the outbreak or its variants, its
severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume.
While the Company currently anticipates a continuation of the adverse impacts of COVID-19 during 2021
and possibly beyond, the duration and severity of these effects will depend on the course of future
developments, which are highly uncertain, including the relative speed and success of, as well as public
confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S.
and global population, emerging information regarding variants of the virus or new viruses and their
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
7
potential impact on current mitigation efforts, public attitudes toward continued compliance with
containment and mitigation measures, and possible new information and understanding that could alter
the course and duration of current measures to combat the spread of the virus.
Recently Adopted Accounting Policies
In December 2019, the FASB issued ASU 2019- 12,
Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes
. The new accounting rules reduce complexity by removing specific
exceptions to general principles related to intraperiod tax allocations, ownership changes in foreign
investments, and interim period income tax accounting for year-to-date losses that exceed anticipated
losses. The new accounting rules also simplify accounting for franchise taxes that are partially based on
income, transactions with a government that result in a step up in the tax basis of goodwill, separate
financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim
periods. The Company adopted this accounting standards update on the first day of the first quarter of
2021 with no material impact on its Condensed Consolidated Financial Statements.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
8
NOTE 2 - EARNINGS PER SHARE:
Accounting Standard Codification (“ASC”) 260 –
Earnings Per Share
diluted Earnings Per Share (“EPS”) on the face of all income statements for all entities with complex capital
structures. The Company has presented one basic EPS and one diluted EPS amount for all common shares in
the accompanying Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
While the Company’s certificate of incorporation provides the right for the Board of Directors to declare
dividends on Class A shares without declaration of commensurate dividends on Class B shares, the Company
has historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors
has resolved to continue this practice. Accordingly, the Company’s allocation of income for purposes of the
EPS computation is the same for Class A and Class B shares and the EPS amounts reported herein are
applicable to both Class A and Class B shares.
Basic EPS is computed as net income less earnings allocated to non-vested equity awards divided by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options and the Employee Stock
Purchase Plan.
Three Months Ended
May 1, 2021
May 2, 2020
(Dollars in thousands)
Numerator
Net earnings (loss)
$
20,713
$
(28,417)
Earnings (loss) allocated to non-vested equity awards
(942)
1,135
Net earnings (loss) available to common stockholders
$
19,771
$
(27,282)
Denominator
Basic weighted average common shares outstanding
21,489,162
22,959,887
Diluted weighted average common shares outstanding
21,489,162
22,959,887
Net income (loss) per common share
Basic earnings (loss) per share
$
0.92
$
(1.19)
Diluted earnings (loss) per share
$
0.92
$
(1.19)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
9
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:
The following table sets forth information regarding the reclassification out of A ccumulated other
comprehensive income (in thousands) for the three months ended May 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
(173)
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
net gains on available-for-sale securities. The tax impact of this reclassification was $
12
.
The following table sets forth information regarding the reclassification out of A ccumulated other
comprehensive income (in thousands) for the three months ended May 2, 2020:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 1, 2020
$
1,423
(802)
504
Net current-period other comprehensive income (loss)
(298)
Ending Balance at May 2, 2020
$
1,125
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").
(b) Includes $
655
sale securities. The tax impact of this reclassification was $
151
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
10
NOTE 4 – FINANCING ARRANGEMENTS:
As of May 1, 2021, the Company had an unsecured revolving credit agreement allowing the Company to
borrow $
35.0
Company signed an amendment extending the revolving credit agreement through May 2023. The credit
agreement contains various financial covenants and limitations, including the maintenance of specific
financial ratios with which the Company was in compliance as of May 1, 2021. There were no borrowings
outstanding under this credit facility as of May 1, 2021 or January 30, 2021. The weighted average interest
rate under the credit facility was zero at May 1, 2021 due to no borrowings outstanding.
At May 1, 2021 and January 30, 2021, the Company had no outstanding letters of credit relating to purchase
commitments.
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The Company has determined that it has four operating segments, as defined under ASC 280-10, including
Cato, It’s Fashion, Versona and Credit. As outlined in ASC 280-10, the Company has two reportable
segments: Retail and Credit. The Company has aggregated its three retail operating segments, including e-
commerce, based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating
segments may be aggregated into a single reportable segment if aggregation is consistent with the objective
and basic principles of ASC 280 -10, which require the segments to have similar economic characteristics,
products, production processes, clients and methods of distribution.
The Company’s retail operating segments have similar economic characteristics and similar operating,
financial and competitive risks. They are similar in nature of product, as they all offer women’s apparel,
shoes and accessories. Merchandise inventory for the Company’s retail operating segments is sourced from
the same countries and some of the same vendors, using similar production processes. Merchandise for the
Company’s operating segments is distributed to retail stores in a similar manner through the Company’s
single distribution center and is subsequently distributed to clients in a similar manner.
The Company operates its women’s fashion specialty retail stores in 32 states as of May 1, 2021,
principally in the southeastern United States. The Company offers its own credit card to its customers and
all credit authorizations, payment processing and collection efforts are performed by a separate subsidiary of
the Company.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
11
NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):
The following schedule summarizes certain segment information (in thousands):
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 (loss) before taxes
23,540
254
23,794
Capital expenditures
554
-
554
Three Months Ended
May 2, 2020
Retail
Credit
Total
Revenues
$99,890
$842
$100,732
Depreciation
4,006
-
4,006
Interest and other income
(1,851)
-
(1,851)
Income (loss) before taxes
(37,923)
392
(37,531)
Capital expenditures
5,311
-
5,311
Retail
Credit
Total
Total assets as of May 1, 2021
$575,335
$42,585
$617,920
Total assets as of January 30, 2021
549,349
42,103
591,452
The Company evaluates segment performance based on income before taxes. The Company does not
allocate certain corporate expenses or income taxes to the credit segment.
The following schedule summarizes the direct expenses of the credit segment which are reflected in Selling,
general and administrative expenses (in thousands):
Three Months Ended
May 1, 2021
May 2, 2020
Payroll
$
117
$
152
Postage
78
111
Other expenses
89
187
Total expenses
$
284
$
450
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
12
NOTE 6 – STOCK BASED COMPENSATION:
As of May 1, 2021, the Company had two long-term compensation plans pursuant to which stock-based
compensation was outstanding or could be granted. The 2018 Incentive Compensation Plan and 2013
Incentive Compensation Plan are for the granting of various forms of equity-based awards, including
restricted stock and stock options for grant, to officers, directors and key employees. Effective May 24, 2018,
shares for grant were no longer available under the 2013 Incentive Compensation Plan.
The following table presents the number of options and shares of restricted stock initially authorized and
available for grant under each of the plans as of May 1, 2021:
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:
-
3,564,915
3,564,915
In accordance with ASC 718, the fair value of current restricted stock awards is estimated on the date of
grant based on the market price of the Company’s stock and is amortized to compensation expense on a
straight-line basis over the related vesting periods. As of May 1, 2021 and January 30, 2021, there was
$
14,763,000
10,550,000
, respectively, of total unrecognized compensation expense related to
nonvested restricted stock awards, which had a remaining weighted-average vesting period of
3.0
and
2.1
was $
283,000
606,000
classified as a component of Selling, general and administrative expenses in the Condensed Consolidated
Statements of Income (Loss).
The following summary shows the changes in the shares of unvested restricted stock outstanding during the
three months ended May 1, 2021:
Weighted
Average
Number of
Grant Date Fair
Shares
Value Per Share
Restricted stock awards at January 30, 2021
1,023,956
$
15.33
Granted
406,994
13.48
Vested
(175,673)
22.21
Forfeited or expired
(10,436)
13.67
Restricted stock awards at May 1, 2021
1,244,841
$
13.77
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
13
The Company’s Employee Stock Purchase Plan allows eligible full-time employees to purchase a limited
number of shares of the Company’s Class A Common Stock during each semi-annual offering period at a
15% discount through payroll deductions. During the three months ended May 1, 2021 and May 2, 2020, the
Company sold
19,248
26,957
1.17
1.64
respectively, under the Employee Stock Purchase Plan. The compensation expense recognized for the 15%
discount given under the Employee Stock Purchase Plan was approximately $
23,000
44,000
three months ended May 1, 2021 and May 2, 2020, respectively. These expenses ar e classified as a
component of S elling, general and administrative expenses in the Condensed Consolidated Statements o f
Income (Loss).
NOTE 7 – FAIR VALUE MEASUREMENTS:
The following tables set forth information regarding the Company’s financial assets and liabilities that are
measured at fair value (in thousands) as of May 1, 2021 and January 30, 2021:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
May 1, 2021
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
24,490
$
-
$
24,490
$
-
90,093
-
90,093
-
29,120
-
29,120
-
11,585
-
-
11,585
15,778
-
15,778
-
846
846
-
-
1,821
-
1,821
-
Total Assets
$
173,733
$
846
$
161,302
$
11,585
Liabilities:
(10,271)
-
-
(10,271)
Total Liabilities
$
(10,271)
$
-
$
-
$
(10,271)
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
14
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 30,
2021
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
23,254
$
-
$
23,254
$
-
67,566
-
67,566
-
17,869
-
17,869
-
11,263
-
-
11,263
16,064
-
16,064
-
703
703
-
-
2,069
-
2,069
-
Total Assets
$
138,788
$
703
$
126,822
$
11,263
Liabilities:
(10,316)
-
-
(10,316)
Total Liabilities
$
(10,316)
$
-
$
-
$
(10,316)
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at May 1, 2021
and January 30, 2021. The state, municipal and corporate bonds have con tractual maturities which range
from
four days
4.5
14
to
2.5
Restricted cash, Restricted short-term investments and Other assets on the accompanying Condensed
Consolidated Balance Sheets. These assets are carried at fair value with unrealized gains and losses reported
net of taxes in Accumulated other comprehensive income. The asset-backed securities are bonds comprised
of auto loans and bank credit cards that carry AAA ratings. The auto loan asset-backed securities are backed
by static pools of auto loans that were originated and serviced by captive auto finance units, banks or finance
companies. The bank credit card asset -backed securities are backed by revolving pools of credit card
receivables generated by account holders of cards from American Express, Citibank, JPMorgan Chase,
Capital One, and Discover.
Additionally, at May 1, 2021, the Company had $
0.8
plan assets of $
11.6
0.7
deferred compensation plan assets of $
11.3
Condensed Consolidated Balance Sheets.
Level 1 category securities are measured at fair value using quoted active market prices. Level 2 investment
securities include corporate and municipal bonds for which quoted prices may not be available on active
exchanges for identical instruments. Their fair value is principally based on market values determined by
management with assistance of a third -party pricing service. Since quoted prices in active markets for
identical assets are not available, these prices are determined by the pricing service using observable market
information such as quotes from less active markets and/or quoted prices of securities with similar
characteristics, among other factors.
Deferred compensation plan assets consist of life insurance policies. These life insurance policies are valued
based on the cash surrender value of the insurance contract, which is determined based on such factors as the
fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3 of the
valuation hierarchy. The Level 3 liability associated with the life insurance policies represents a deferred
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
15
compensation obligation, the value of which is tracked via underlying insurance funds’ net asset values, as
recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet. These funds are
designed to mirror mutual funds and money market funds that are observable and actively traded.
The following tables summarize the change in fair value of the Company’s financial assets and liabilities
measured using Level 3 inputs as of May 1, 2021 and January 30, 2021 (dollars in thousands):
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)
322
-
Ending Balance at May 1, 2021
$
11,585
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 30, 2021
$
(10,316)
547
(145)
(357)
-
Ending Balance at May 1, 2021
$
(10,271)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at February 1, 2020
$
10,517
Redemptions
-
Additions
-
746
-
Ending Balance at January 30, 2021
$
11,263
Fair Value
Measurements Using
Significant Unobservable
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
16
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 1, 2020
$
(10,391)
1,714
(652)
(987)
-
Ending Balance at January 30, 2021
$
(10,316)
The presentation in the table above has been revised to reflect current year presentation.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
17
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
In March 2020 , the FASB issued ASU 2020- 04,
Reference Rate Reform (Topic 848): Facilitation of the
Effects of Referenc e Rate Reform on Financial Reporting
. In January 2021, the FASB clarified the scope
of that guidance with the issuance of ASU 2021-01, “Reference Rate Reform: Scope.” The new
accounting rules provide optional expedients and exceptions for applying GAAP to contracts and other
transactions affected by reference rate reform. The amendments in this standard can be adopted any time
before the fourth quarter of 2022. The Company is currently in the process of evaluating the impact of
adoption of the new rules on the Company’s financial condition, results of operations, cash flows and
disclosures.
NOTE 9 – INCOME TAXES:
The Company had an effective tax rate for the first quarter of 2021 of
12.9
% (Expense) compared to an
effective tax rate of
24.3
% (Benefit) for the first quarter of 2020. The decrease in the 2021 first quarter
tax rate was primarily due to higher pre-tax earnings and ability to realize foreign tax credits, offset by
increases in state income taxes and an upward adjustment in the reserves for uncertain tax positions
specific to state income taxes in the first quarter of 2020. Further, the Coronavirus Aid, Relief and
Economic Security Act (“ CARES”) allows the Company to carryback losses five years; therefore, the
Company has recorded $33.0 million of estimated refunds calculated through the first quarter of 2021 in
Accounts receivable in the Condensed Consolidated Balance Sheets.
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
including litigation regarding the merchandise that it sells, litigation regarding intellectual property,
litigation instituted by persons injured upon premises under its control, litigation with respect to various
employment matters, including alleged discrimination and wage and hour litigation, and litigation with
present or former employees.
Although such litigation is routine and incidental to the conduct of the Company’s business, as with any
business of its size with a significant number of employees and significant merchandise sales, such
litigation could result in large monetary awards. Based on information currently available, management
does not believe that any reasonably possible losses arising from current pending litigation will have a
material adverse effect on its condensed consolidated financial statements. However, given the inherent
uncertainties involved in such matters, an adverse outcome in one or more such matters could materially
and adversely affect the Company’s financial condition, results of opera tions and cash flows in any
particular reporting period. The Company accrues for these matters when the liability is deemed probable
and reasonably estimable.
NOTE 11 – REVENUE RECOGNITION:
The Company recognizes sales at the point of purchase when the customer takes possession of the
merchandise and pays for the purchase, generally with cash or credit. Sales from purchases made with
Cato credit, gift cards and layaway sales from stores are also recorded when the customer takes
possession of the merchandise. E-commerce sales are recorded when the risk of loss is transferred to the
customer. Gift cards are recorded as deferred revenue until they are redeemed or forfeited. Layaway sales
are recorded as deferred revenue until the customer takes possession or forfeits the merchandise. Gift
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
18
cards do not have expiration dates. A provision is made for estimated merchandise returns based on sales
volumes and the Company’s experience; actual returns have not varied materially from historical
amounts. A provision is made for estimated write-offs associated with sales made with the Company’s
proprietary credit card. Amounts related to shipping and handling billed to customers in a sales
transaction are classified as Other revenue and the costs related to shipping product to customers (billed
and accrued) are classified as Cost of goods sold.
The Company offers its own proprietary credit card to customers. All credit activity is performed by the
Company’s wholly- owned subsidiaries. None of the credit card receivables are secured. The Company
estimated customer credit losses of $
131,000
69,000
2020, respectively, on sales purchased by the Company’s proprietary credit card of $
4.4
2.6
million for the periods ended May 1, 2021 and May 2, 2020, respectively.
The following table provides information about receivables and contract liabilities from contracts with
customers (in thousands):
Balance as of
May 1, 2021
January 30, 2021
Proprietary Credit Card Receivables, net
$
9,094
$
9,606
Gift Card Liability
$
6,832
$
8,155
NOTE 12 – LEASES:
The Company determines whether an arrangement is a lease at inception. The Company has operating
leases for stores, offices and equipment. Its leases have remaining lease terms of one year to 10 years,
some of which include options to extend the lease term for up to five years, and some of which include
options to terminate the lease within one year. The Company considers these options in determining the
lease term used to establish its right-of-use assets and lease liabilities. The Company’s lease agreements
do not contain any material residual value guarantees or material restrictive covenants.
As most of the Company’s leases do not provide an implicit rate, it uses its estimated incremental
borrowing rate based on the information available at commencement date of the lease in determining the
present value of lease payments.
The components of lease cost are shown below (in thousands):
Three Months Ended
May 1, 2021
May 2, 2020
Operating lease cost (a)
$
16,726
$
16,993
Variable lease cost (b)
$
793
$
80
(a) Includes right-of-use asset amortization of ($1.2) million and ($1.7) million for the three months ended
May 1, 2021 and May 2, 2020, respectively.
(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 1, 2021 AND MAY 2, 2020
19
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are
as follows (in thousands):
Operating cash flow information:
Three Months Ended
May 1, 2021
May 2, 2020
Cash paid for amounts included in the measurement of lease liabilities
$
15,947
$
15,499
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
734
$
28,197
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as
follows:
As of
May 1, 2021
May 2, 2020
Weighted-average remaining lease term
2.7 years
3.2 years
Weighted-average discount rate
3.73%
4.36%
As of May 1, 2021,
the maturities of lease liabilities by fiscal year for the Company’s operating leases are
as follows (in thousands):
Fiscal Year
2021 (a)
$
51,803
2022
48,971
2023
36,102
2024
22,731
2025
13,915
Thereafter
36,870
Total lease payments
210,392
Less: Imputed interest
18,854
Present value of lease liabilities
$
191,538
(a) Excluding the 3 months ended May 1, 2021.
20
THE CATO CORPORATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The following information should be read along with the unaudited Condensed Consolidated Financial
Statements, including the accompanying Notes appearing in this report. Any of the following are
“forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended: (1) statements in this
Form 10-Q that reflect projections or expectations of our future financial or economic performance;
(2) statements that are not historical information; (3) statements of our be liefs, intentions, plans and
objectives for future operations, including those contained in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” (4) statements relating to our operations or activities for
our fiscal year ending January 29, 2022 (“fiscal 2021”) and beyond, including, but not limited to,
statements regarding expected amounts of capital expenditures and store openings, relocations, remodels
and closures and statements regarding the potential impact of the COVID-19 pandemic and related
responses and mitigation efforts on our business, results of operations and financial condition; and
(5) statements relating to our future contingencies. When possible, we have attempted to identify forward-
looking statements by using words such as “will,” “expects,” “anticipates,” “approximates,” “believes,”
“estimates,” “hopes,” “intends,” “may,” “plans,” “could,” “would,” “should” and any variations or
negative formations of such words and similar expressions. We can give no assurance that actual results
or events will not differ materially from those expressed or implied in any such forward-looking
statements. Forward-looking statements included in this report are based on information available to us as
of the filing date of this report, but subject to known and unknown risks, uncertainties and other factors
that could cause actual results to differ materially from those contemplated by the forward -looking
statements. Such factors include, but are not limited to, the following: any actual or perceived
deterioration in the conditions that drive consumer confidence and spending, including, but not limited to,
prevailing social, economic, political and public health conditions and uncertainties, levels of
unemployment, fuel, energy and food costs, wage rates, tax rates, interest rates, home values, consumer
net worth and the availability of credit; changes in laws or regulations affecting our business, including
but not limited to tariffs; uncertainties regarding the impact of any governmental action regarding, or
responses to, the foregoing conditions; competitive factors and pricing pressures; our ability to predict
and respond to rapidly changing fashion trends and consumer demands; our ability to successfully
implement our new store development strategy to increase new store openings and our ability of any such
new stores to grow and perform as expected; adverse weather, public health threats (including the
COVID-19 pandemic) or similar conditions that may affect our sales or operations; inventory risks due to
shifts in market demand, including the ability to liquidate excess inventory at anticipated margins; and
other factors discussed under “Risk Factors” in Part I, Item 1A of our annual report on Form 10- K for the
fiscal year ended January 30, 2021 (“fiscal 2020”), as amended or supplemented, and in other reports we
file with or furnish to the Securities and Exchange Commission (“SEC”) from time to time. We do not
undertake, and expressly decline, any obligation to update any such forward- looking information
contained in this report, whether as a result of new information, future events, or otherwise.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
21
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company’s accounting policies are more fully described in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal
year ended January 30, 2021. As disclosed in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the preparation of the Company’s financial statements in conformity
with generally accepted accounting principles in the United States (“GAAP”) requires management to make
estimates and assumptions about future events that affect the amounts reported in the financial statements and
accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore,
the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial statements. The most significant
accounting estimates inherent in the preparation of the Company’s financial statements include the allowance
for customer credit losses, inventory shrinkage, the ca lculation of potential asset impairment, workers’
compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and
uncertain tax positions.
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
22
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in the Company's unaudited Condensed
Consolidated Statements of Income as a percentage of total retail sales:
Three Months Ended
May 1, 2021
May 2, 2020
Total retail sales
100.0
%
100.0
%
Other revenue
0.9
1.9
Total revenues
100.9
101.9
Cost of goods sold (exclusive of depreciation)
58.5
84.6
Selling, general and administrative (exclusive of depreciation)
29.9
53.1
Depreciation
1.4
4.1
Interest and other income
(0.3)
(1.9)
Income (loss) before income taxes
11.3
(38.0)
Net income (loss)
9.8
(28.8)
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
23
RESULTS OF OPERATIONS (CONTINUED):
COVID-19 Update
The COVID-19 pandemic adversely impacted the Company's business, financial condition and operating
results through fiscal 2020. The first quarter of 2021 saw significant improvements in sales compared to
2020. This improvement was primarily attributable to government stimulus, increased customer traffic,
states continuing to lift capacity limits as more people are vaccinated, consumers’ increasing comfort
level with venturing out to social events and customers’ preparing to return to work. However, the
Company’s sales were well below 2019 sales for the comparable period, and there is still a high level of
uncertainty regarding the lingering effects of the COVID-19 pandemic and the continued impact on the
Company’s customers’ buying habits. The Company faces additional uncertainty from the continued
effects of disruption in the global supply chain and available workers as it attempts to hire associates as its
operating hours continue to expand. The Company expects that these uncertainties and perhaps others
related to the pandemic will continue to impact the Company in fiscal 2021 and possibly beyond. The
adverse financial impacts associated with the continued effects of, and uncertainties related to, the
COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by the actual
or potential outbreak, whether due to state and local orders, reductions in store traffic and customer
demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory
production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of
the outbreak, including increased freight and logistics costs and other expenses.
The extent to which the COVID -19 pandemic ultimately impacts the Company’s business, financial
condition, results of operations, cash flows, and liquidity may differ from management’s current estimates
due to inherent uncertainties regarding the duration and further spread of the outbreak or its variants, its
severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume.
While the Company currently anticipates a continuation of the adverse impacts of COVID-19 during 2021
and possibly beyond, the duration and severity of these effects will depend on the course of future
developments, which are highly uncertain, including the relative speed and success of, as well as public
confidence in, mitigation measures such as the current effort to vaccinate substantial portions of the U.S.
and global population, emerging information regarding variants of the virus or new viruses and their
potential impact on current mitigation efforts, public attitudes toward continued compliance with
containment and mitigation measures, and possible new information and understanding that could alter
the course and duration of current measures to combat the spread of the virus.
Comparison of First Quarter of 2021 with 2020
Total retail sales for the first quarter were $211.2 million compared to last year’s first quarter sales of $98.8
million. Sales increased primarily due to an increase in same-store sales and sales from new stores, partially
offset by permanently closed stores in 2020. The 111.0% increase in same-store sales is primarily due to
stores being closed from March 19, 2020 through the end of the first quarter of 2020. Same store sales
include stores that have been open more than 15 months. Stores that have been relocated or expanded are
also included in the same store sales calculation after they have been open more than 15 months. The method
of calculating same store sales varies across the retail industry. 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 5.0% of sales for the first quarter of fiscal 2021 and are included in the same-store sales calculation.
Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
24
customer accounts receivable, shipping charged to customers for e-commerce purchases and layaway fees),
were $213.1 million for the first quarter ended May 1, 2021, compared to $100.7 million for the first quarter
ended May 2, 2020. The Company operated 1,325 stores at May 1, 2021 compared to 1,300 stores at the end
of last fiscal year’s first quarter. For the first three months of fiscal 2021, the Company permanently closed
five stores. The Company currently expects to close approximately 25 stores in fiscal 2021.
Credit revenue of $0.5 million represented 0.3% of total revenues in the first quarter of fiscal 2021, compared
to 2020 credit revenue of $0.8 million or 0.8% of total revenues. Credit revenue is comprised of interest
earned on the Company’s private label credit card portfolio and related fee income. Credit revenue decreased
slightly for the most recent comparable period due to lower finance charge income and lower late fee income
from sales using the Company’s proprietary credit card. Related expenses include principally payroll, postage
and other administrative expenses, and totaled $0.3 million in the first quarter of 2021, compared to last
year’s first quarter expenses of $0.5 million.
Other revenue, a component of total revenues, was $1.9 million for the first quarter of fiscal 2021, compared
to $1.9 million for the prior year’s comparable first quarter.
Cost of goods sold was $123.7 million, or 58.5% of retail sales for the first quarter of fiscal 2021, compared
to $83.6 million, or 84.6% of retail sales in the first quarter of fiscal 2020. The overall decrease in cost of
goods sold as a percent of retail sales for first quarter of 2021 resulted primarily from the leveraging of
occupancy, buying and distribution costs due to normalized sales and higher sales of regular priced goods.
Cost of goods sold includes merchandise costs (net of discounts and allowances), buying costs, distribution
costs, occupancy costs, freight and inventory shrinkage. Net merchandise costs and in -bound freight are
capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and
operating expenses for the buying departments and distribution center. 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 475.4% to $87.6 million for the first quarter of fiscal 2021 compared to $15.2 million in the first quarter of
fiscal 2020. Gross margin as presented may not be comparable to those of other entities.
Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related
payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees. SG&A
expenses were 29.9% of retail sales for the first quarter of fiscal 2021, compared to 53.1% of retail sales in
the first quarter of fiscal 2020. SG&A as a p ercent of retail sales decreased primarily due to leveraging
expenses as a result of normalized sales and a decrease in impairment charges, partially offset by higher
incentive compensation.
Depreciation expense was $3.0 million, or 1.4% of retail sales for the first quarter of fiscal 2021, compared to
$4.0 million, or 4.1% of retail sales for the first quarter of fiscal 2020. The decrease in depreciation expense is
attributable to lower net fixed assets primarily due to $13.7 million of impairment charges in 2020.
Interest and other income was $0.7 million, or 0.3% of retail sales for the first quarter of fiscal 2 021,
compared to $1.9 million, or 1.9% of retail sales for the first quarter of fiscal 2020. The decrease is primarily
attributable to lower interest rates and smaller gains from the sale of investments, partially offset by an
increase in short-term investing.
Income tax expense was $3.1 million or 1.5% of retail sales for the first quarter of fiscal 2021, compared
to an income tax benefit of $9.1 million, or 9.2% of retail sales for the first quarter of fiscal 2020. Income
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
25
tax expense for the first quarter of fiscal 2021 increased primarily as a result of higher pre-tax earnings.
The effective income tax rate for the first quarter of fiscal 2021 was 12.9% (Expense) compared to 24.3%
(Benefit) for the first quarter of 2020. The decrease in the 2021 first quarter tax rate was primarily due to
higher pre-tax earnings and the ability to realize foreign tax credits, partial ly offset by increases in state
income taxes in the first quarter of 2020.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:
The Company believes that its cash, cash equivalents and short-term investments, together with cash flows
from operations and borrowings available under its revolving credit agreement, will be adequate to fund the
Company’s regular operating requirements and expected capital expenditures for fiscal 2021 and the next 12
months.
Cash provided by operating activities for the first three months of fiscal 2021 was primarily generated by
earnings adjusted for depreciation and changes in working capital. The increase in cash provided of $115.8
million for the first three months of fiscal 2021 as compared to the first three months of fiscal 2020 was
primarily due to net income versus a net loss , a decrease in inventory, and an increase in accounts payable
and accrued liabilities, partially offset by a decrease in store impairment charges.
At May 1, 2021, the Company had working capital of $130.5 million compared to $108.6 million at January
30, 2021. This increase is primarily attributable to higher short-term investments, partially offset by higher
accrued incentive compensation.
At May 1, 2021 and January 30, 2021, the Company had an unsecured revolving credit agreement, which
provides for borrow ings of up to $35.0 million less the balance of letters of credit discussed below. The
revolving credit agreement is committed through May 2023. The credit agreement contains various
financial covenants and limitations, including the maintenance of specific financial ratios with which the
Company was in compliance as of May 1, 2021. There were no borrowings outstanding under the credit
facility as of May 1, 2021 or January 30, 2021.
At May 1, 2021 and January 30, 2021, the Company had no outstanding letters of credit relating to purchase
commitments.
Expenditures for pro perty and equipment totaled $0.6 million in the first three months of fiscal 2021,
compared to $5.3 million in last year’s first three months. For the full fiscal 2021 year, the Company expects
to invest approximately $3.1 million in capital expenditures.
Net cash used by investing activities totaled $34.2 million in the first three months of fiscal 2021 compared to
$76.9 million provided in the comparable period of fiscal 2020, primarily due to a decrease in the sale of
short-term investments and an increase in the purchase of short -term investments, partially offset by a
decrease in capital expenditures.
Net cash used by financing activities totaled $5.5 million in the first three months of fiscal 2021 compared to
$12.4 million provided in the comparable period of fiscal 2020, primarily due to a decrease in proceeds from
the line of credit, partially offset by no dividends paid in the first quarter of fiscal 2021 and fewer stock
repurchases.
On May 20, 2021, the Board of Directors declared the quarterly dividend at $0.11 per share.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
26
As of May 1, 2021, the Company had 1,445,488 shares remaining in open authorizations under its share
repurchase program.
The Company does not use derivative financial instruments.
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable
governmental debt securities held in managed accounts with underlying ratings of A or better at May 1, 2021
and January 30, 2021. The state, municipal and corporate bonds have contractual maturities which range
from four days to 4.5 years. The U.S. Treasury Notes have contractual maturities which range from 14 days
to 2.5 years. These securities are classified as available-for-sale and are recorded as Short-term investments,
Restricted cash, Restricted short-term investments and Other assets on the accompanying Condensed
Consolidated Balance Sheets. These assets are carried at fair value with unrealized gains and losses reported
net of taxes in Accumulated other comprehensive income. The asset-backed securities are bonds comprised
of auto loans and bank credit cards that carry AAA ratings. The auto loan asset-backed securities are backed
by static pools of auto loans that were originated and serviced by captive auto finance units, banks or finance
companies. The bank credit card asset -backed securities are backed by revolving pools of credit card
receivables generated by account holders of cards from American Express, Citibank, JPMorgan Chase,
Capital One, and Discover.
Additionally, at May 1, 2021, the Company had $0.8 million of corporate equities and deferred compensation
plan assets of $11.6 million. At January 30, 2021, the Company had $0.7 million of corporate equities and
deferred compensation plan assets of $11.3 million. All of these assets are recorded within Other assets in the
Condensed Consolidated Balance Sheets. See Note 7, Fair Value Measurements.
RECENT ACCOUNTING PRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company is subject to market rate risk from exposure to changes in interest rates based on its
financing, investing and cash management activities, but the Company does not believe such exposure is
material.
ITEM 4. CONTROLS AND PROCEDURES:
We carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial
Officer, of the effectiveness of our disclosure controls and proc edures as of May 1, 2021 . Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of May 1, 2021,
our disclosure controls and procedures, as defined in Rule 13a-15(e), under the Securities Exchange Act of
1934 (the “Exchange Act”), were effective to ensure that information we are required to disclose in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our Principal Executive Officer and Principal Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:
No change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-
15(f)) has occurred during the Company’s fiscal quarter ended May 1, 2021 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
THE CATO CORPORATION
PART II OTHER INFORMATION
28
ITEM 1. LEGAL PROCEEDINGS:
Not Applicable
ITEM 1A. RISK FACTORS:
In addition to the other information in this report, you should carefully consider the factors discussed in Part I,
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended January 30, 2021.
These risks could materially affect our business, financial condition or future results; however, they are not
the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial may also materially adversely affect our business, financial condition or results of
operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:
The following table summarizes the Company’s purchases of its common stock for the three months
ended May 1, 2021:
ISSUER PURCHASES OF EQUITY SECURITIES
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 Purchased Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2021
-
$
-
-
March 2021
122,119
11.77
122,119
April 2021
303,542
13.81
303,542
Total
425,661
$
13.22
425,661
1,445,488
(1)
Prices include trading costs.
(2)
As of January 30, 2021, the Company’s share repurchase program had 1,871,149 shares
remaining in open authorizations. During the first quarter ended May 1, 2021, the Company
repurchased and retired 425,661 shares under this program for approximately $5,629,130 or an
average market price of $13.22 per share. As of May 1, 2021, the Company had 1,445,488 shares
remaining in open authorizations. There is no specified expiration date for the Company’s
repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable
THE CATO CORPORATION
PART II OTHER INFORMATION
29
ITEM 4. MINE SAFETY DISCLOSURES:
Not Applicable
ITEM 5. OTHER INFORMATION:
Not Applicable
ITEM 6. EXHIBITS:
Exhibit No.
Item
101.1*
The following materials from Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended May 1, 2021, formatted in Inline
XBRL: (i) Condensed Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) for the Three Months ended May 1,
2021 and May 2, 2020; (ii) Condensed Consolidated Balance Sheets at
May 1, 2021 and January 30, 2021; (iii) Condensed Consolidated
Statements of Cash Flows for the Three Months Ended May 1, 2021
and May 2, 2020; (iv) Condensed Consolidated Statements of
Stockholders’ Equity for the Three Months Ended May 1, 2021 and
May 2, 2020; and (v) Notes to Condensed Consolidated Financial
Statements.
104.1
Cover Page Interactive Data File (Formatted in Inline XBRL and
contained in the Interactive Data Files submitted as Exhibit 101.1*)
THE CATO CORPORATION
PART II OTHER INFORMATION
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
May 27, 2021
/s/ John P. D. Cato
Date
John P. D. Cato
Chairman, President and
Chief Executive Officer
May 27, 2021
/s/ John R. Howe
Date
John R. Howe
Executive Vice President
Chief Financial Officer
Similar companies
See also Victoria's Secret & Co. - Annual report 2023 (10-K 2023-01-28) Annual report 2023 (10-Q 2023-07-29)See also CHICO'S FAS, INC. - Annual report 2023 (10-K 2023-01-28) Annual report 2023 (10-Q 2023-07-29)
See also CHRISTOPHER & BANKS CORP - Annual report 2020 (10-K 2020-02-01) Annual report 2020 (10-Q 2020-10-31)
See also Destination Maternity Corp - Annual report 2019 (10-K 2019-02-02) Annual report 2019 (10-Q 2019-08-03)