CATO CORP - Quarter Report: 2022 April (Form 10-Q)

cato-20220430

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

April 30, 2022

☐

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

filed

by Section

15(d)

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

Indicate

check

mark

whether

the

registrant

has

submitted

electronically

every

Interactive

Data

File

required

submitted

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

Indicate by check

mark whether the

registrant is a

large accelerated filer, an

accelerated filer, a

non-accelerated filer, smaller reporting

company,

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

☑

Non-accelerated

filer

☐

Smaller

reporting

company

☐

Emerging

growth company

☐

emerging

growth

company,

indicate

check

mark

the

registrant

has

elected

not

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 April 30,

2022, there were

19,223,633

shares of Class

A common stock

and

1,763,652

shares of Class

B common stock

outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended April 30, 2022

Table

of Contents

Page No.

PART

I – FINANCIAL INFORMATION

(UNAUDITED)

Item 1.

Financial Statements (Unaudited):

Condensed

Consolidated

Statements

of Income

and Comprehensive

Income

For the

Three Months

Ended

April 30,

2022 and

May 1,

2021

Condensed

Consolidated

Balance Sheets

At April

30, 2022

and

January

29, 2022

Condensed

Consolidated

Statements

of Cash

Flows

For the

Three Months

Ended April

30, 2022

and May

1, 2021

Condensed

Consolidated

Statements

of Stockholders’

Equity

For the

Three Months

Ended April

30, 2022

and May

1, 2021

Notes to

Condensed

Consolidated

Financial

Statements

6 - 18

For the

Three Months

Ended April

30, 2022

and May

1, 2021

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results

of Operations

19 - 25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART

II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART

I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF 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 ($

) 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).

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

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

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).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF 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

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

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

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).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF 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

Unrealized net losses on available-for-sale securities, net of deferred

income tax benefit of ($

362

)

(1,206)

Dividends paid ($

0.17

per share)

(3,638)

Class A common stock sold through employee stock purchase

plan —

9,468

111

Class A common stock issued through restricted stock grant plans

—

0 shares

598

603

Repurchase and retirement of treasury shares –

609,928

(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

Unrealized net losses on available-for-sale securities, net of deferred

income tax benefit of ($

)

(134)

Dividends paid ($0.00 per share)

Class A common stock sold through employee stock purchase

plan —

19,248

150

151

Class A common stock issued through restricted stock grant plans

—

396,558

271

284

Repurchase and retirement of treasury shares –

425,661

(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

NOTE 1

- GENERAL

The condensed

consolidated financial

statements as

of April

30, 2022

and for

the thirteen-week

periods

ended

April

30,

2022

and

May

2021

have

been

prepared

from

the

accounting

records

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

the

Company’s

Annual

Report

Form

10-K

for

the

fiscal

year

ended

January 29, 2022.

Amounts as of January 29, 2022 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.

planned,

May

2022,

the

Company

made

$14.4

million

contribution

its

Employee

Stock

Ownership

Plan,

which

included

Accrued

bonus

and

benefits

the

accompanying

Condensed

Consolidated Balance Sheets.

Subsequent to

April 30,

2022, the

Company received

$18 million

of its

income tax

receivable, which

included in Accounts receivable. The Company anticipates that the remaining balance will

be received by

the end of the second quarter of fiscal 2022.

On May 19, 2022, the Board of Directors declared the quarterly dividend

at $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

NOTE 2

- EARNINGS

PER SHARE:

Accounting

Standard

Codification

(“ASC”)

260 –

Earnings

Per Share

requires

dual presentation

of basic

and

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

the accompanying Condensed

Consolidated

Statements of Income and Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the right

for the Board of Directors

to declare dividends

Class

without

declaration

commensurate dividends

Class

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

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

issuable through

stock

options and

the

Employee Stock

Purchase

Plan.

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

NOTE 3

– ACCUMULATED

OTHER COMPREHENSIVE

INCOME:

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

other

comprehensive

income

(in thousands)

for the

three months

ended April

30, 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 $

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 $

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

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

Other comprehensive income (loss) before

reclassification

(173)

Amounts reclassified from accumulated

other comprehensive income (b)

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 $

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 $

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021

NOTE 4 – FINANCING ARRANGEMENTS:

April

30,

2022,

the

Company

had

unsecured

revolving

credit

agreement,

which

provided

for

borrowings of up to $35.0 million less the balance of letters

of credit discussed below and was committed

through

May

2022.

May

2022,

the

Company

signed

new

unsecured

revolving

credit

agreement,

which replaces

the prior

credit agreement,

provides up

to $35.0

million in

committed availability

and is

committed

through

May

2027.

The

prior

credit

agreement

contained

various

financial

covenants

and

limitations,

including

the

maintenance

specific

financial

ratios

with

which

the

Company

was

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 outstanding

borrowings.

April

30,

2022

and

January

29,

2022,

the

Company had

outstanding letters

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.

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

distributed to

retail stores

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

states

April

30,

2022,

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

the Company.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021

NOTE 5 – REPORTABLE

SEGMENT INFORMATION (CONTINUED):

The following

schedule

summarizes

certain

segment

information

(in thousands):

Three Months Ended

April 30, 2022

Retail

Credit

Total

Revenues

$206,208

$513

$206,721

Depreciation

2,743

Interest and other income

(403)

Income before taxes

11,613

11,697

Capital expenditures

4,440

Three Months Ended

May 1, 2021

Retail

Credit

Total

Revenues

$212,547

$538

$213,085

Depreciation

3,042

Interest and other income

(663)

Income before taxes

23,540

254

23,794

Capital expenditures

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

The

Company evaluates

segment

performance based

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

April 30, 2022

May 1, 2021

Payroll

137

117

Postage

Other expenses

199

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

NOTE 6 – STOCK BASED COMPENSATION:

As of

April 30, 2022,

the Company had two

long-term compensation

plans pursuant to which stock-based

compensation was

outstanding or

could

granted.

The

2018

Incentive

Compensation Plan

and

2013

Incentive

Compensation Plan

are

for

the

granting

various

forms

equity-based awards,

including

restricted

stock and

stock options

for grant,

to officers,

directors

and key employees.

Effective

May 24, 2018,

for grant

were no

longer

available

under

the 2013

Incentive

Compensation

Plan.

The following table

presents the number

options and

shares of

restricted stock initially authorized and

available

for grant

under

each of

the plans

as of April

30, 2022:

2013

2018

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

In accordance

with ASC 718,

the fair

value of current

restricted stock awards

is estimated on

the date

grant based

on the

market price

of the

Company’s

stock and

is amortized

to compensation

expense on

straight-line basis over

the related vesting

periods. As of

April 30, 2022

and January 29,

2022, there was

9,868,000

and

11,096,000

respectively,

total

unrecognized

compensation

expense

unvested restricted stock awards, which had a remaining weighted-average

vesting period of

2.4

years and

2.3

years,

respectively.

The

total

compensation

expense

during

the

three

months

ended

April

30,

2022

was

603,000

compared

283,000

for

the

three

months

ended

May

2021.

These

expenses

are

classified as a component

of Selling, general and

administrative expenses in the

Condensed Consolidated

Statements of Income.

The following summary

shows the changes in the shares

of unvested restricted

stock outstanding

during the

three months ended April

30, 2022:

Weighted

Average

Number of

Grant Date Fair

Value

Per 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

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 April

30, 2022 and May 1, 2021,

the Company

sold

9,468

and

19,248

to employees

at an average

discount

of $

2.21

and $

1.17

per share,

respectively, under the Employee Stock Purchase

Plan. The compensation expense

recognized for the 15%

discount given under

the Employee Stock

Purchase Plan was

approximately $

21,000

and $

23,000

for the

three

months ended

April

30,

2022

and

May

2021,

respectively.

These

expenses are

classified as

component of

Selling, general and

administrative expenses in the

Condensed Consolidated Statements of

Income.

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 April

30, 2022

and January

29, 2022:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

April 30, 2022

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

28,514

Corporate Bonds

56,515

U.S. Treasury/Agencies Notes and Bonds

21,112

Cash Surrender Value of Life Insurance

11,033

Asset-backed Securities (ABS)

13,512

Corporate Equities

803

Commercial Paper

367

Total Assets

131,856

803

120,020

11,033

Liabilities:

Deferred Compensation

(9,272)

Total Liabilities

(9,272)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, 2022 AND MAY 1, 2021

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

January 29,

2022

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

30,451

Corporate Bonds

76,909

U.S. Treasury/Agencies Notes and Bonds

19,715

Cash Surrender Value of Life Insurance

11,472

Asset-backed Securities (ABS)

18,556

Corporate Equities

818

Commercial Paper

367

Total Assets

158,288

818

145,998

11,472

Liabilities:

Deferred Compensation

(10,020)

Total Liabilities

(10,020)

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 April

30,

2022 and

January 29,

2022.

The state,

municipal and corporate bonds

have contractual maturities which

range from one day to 4.6 years. The U.S. Treasury Notes

have contractual

maturities which

range from 46

days

2.4

years.

These

securities

are

classified

available-for-sale and

are

recorded

Short-term

investments,

Restricted

cash 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,

April

30,

2022,

the

Company

had

0.8

million

corporate

equities

and

deferred

compensation

plan assets

of $

11.0

million.

At January

29, 2022, the

Company

had $

0.8

million

of corporate

equities

and deferred

compensation

plan assets

of $

11.5

million.

All of these

assets

are recorded

within Other

assets

in the

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

available on

active

exchanges for identical instruments.

Their fair value is

principally based on market values determined by

management with

assistance of

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

quotes

from

less

active

markets

and/or

quoted

prices

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

compensation

obligation, the value of which is tracked via underlying insurance

funds’ 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

recorded in

Other

noncurrent liabilities

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 April

30, 2022

and January

29, 2022

(dollars

in 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

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

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

None.

NOTE 9 – INCOME TAXES:

The Company had an effective tax rate for the

first 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 tax

rate was primarily due

higher

Global

Intangible Low-taxed

Income (GILTI),

partially

offset

by the

ability to

realize 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,

including

litigation

regarding

the

merchandise

that

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

its

size

with

significant

number

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

operations

and

cash

flows

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

the

point

purchase

when

the

customer

takes

possession

the

merchandise

and

pays

for

the

purchase,

generally

with

cash

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

deferred

revenue

until

the

customer

takes

possession

forfeits

the

merchandise.

Gift

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.

provision

made

for

estimated

write-offs

associated

with

sales

made

with

the

Company’s

proprietary

credit

card.

Amounts

shipping

and

handling

billed

customers

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 $

86,000

and $

131,000

for the periods

ended 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

2021,

respectively,

sales

purchased by

the

Company’s

proprietary credit

card

5.7

million and

4.4

million for the periods ended April 30, 2022 and May 1, 2021,

respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

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:

The

Company determines

whether

arrangement

lease

inception.

The

Company

has

operating

leases

for

stores,

offices

and

equipment.

Its

leases

have remaining

lease

terms

one

year

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.

most

the

Company’s

leases

not

provide

implicit

rate,

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

April 30, 2022

May 1, 2021

Operating lease cost (a)

17,754

16,726

Variable

lease 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 flow

information and non-cash

activity related to

the Company’s

operating 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

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-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

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 of

April 30,

2022,

the maturities

of lease

liabilities by fiscal

year for

the Company’s

operating 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.

THE CATO CORPORATION

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION:

The

following

information

should

read

along

with

the

unaudited

Condensed

Consolidated

Financial

Statements,

including

the

accompanying

Notes

appearing

this

report.

Any

the

following

are

“forward-looking”

statements

within

the

meaning

Section 27A

the

Securities

Act

1933,

amended,

and

Section 21E

the

Securities

Exchange

Act

1934,

amended:

(1) statements

this

Form 10-Q

that

reflect

projections

expectations

our

future

financial

economic

performance;

(2) statements

that

are

not

historical

information;

(3) statements

our

beliefs,

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

28,

2023

(“fiscal

2022”)

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

the

COVID-19

pandemic

and

responses

and

mitigation

efforts

our

business,

results

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

“will,” “expects,”

“anticipates,” “approximates,”

“believes,”

“estimates,”

“hopes,”

“intends,”

“may,”

“plans,”

“could,”

“would,”

“should”

and

any

variations

negative formations

of such

words and

similar expressions.

can give

no assurance

that actual

results

events

will

not

differ

materially

from

those

expressed

implied

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

differ

materially

from

those

contemplated

the

forward-looking

statements.

Such

factors

include,

but

are

not

limited

to,

the

following:

any

actual

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

unemployment, fuel,

energy and

food costs,

wage rates,

tax rates,

interest rates,

home values,

consumer

net

worth,

the

availability of

credit

and

inflation;

changes in

laws,

regulations and

government policies

affecting

our

business,

including

but

not

limited

tariffs;

uncertainties

regarding

the

impact

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

shifts

market

demand,

including

the

ability

liquidate

excess

inventory

anticipated

margins;

and

other

factors

discussed

under

“Risk

Factors”

Part

Item

our

annual

report

Form

10-K

for

the

fiscal

year

ended

January

29,

2022

(“fiscal

2021”),

amended

supplemented,

and in

other reports

file

with

furnish

the

Securities and

Exchange

Commission

(“SEC”)

from time

time.

not

undertake, and

expressly

decline,

any obligation

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)

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

29,

2022.

disclosed

“Management’s

Discussion

and

Analysis

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

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

calculation 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)

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

April 30, 2022

May 1, 2021

Total retail sales

100.0

Other revenue

0.9

Total revenues

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)

RESULTS OF OPERATIONS

(CONTINUED):

Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations

(“MD&A”) is

intended

provide

information

assist

readers

better

understanding

and

evaluating

our

financial

condition

and

results

operations.

recommend

reading

this

MD&A

conjunction

with

our

Condensed

Consolidated

Financial

Statements

and

the

Notes

those

statements

included

the

“Financial Statements” section of this Quarterly Report on Form

10-Q, as well as our 2021 Form 10-K.

COVID-19

Update

There

still

significant

uncertainty

regarding

the

lingering

effects

the

COVID-19 pandemic

our

business, financial condition, results

of operations, cash flows,

and liquidity.

These uncertainties include

the

impact

new

potential

variants

the

virus

that

are

transmissible

severe,

stagnant

vaccination rates

and related

factors that

may continue

fuel

periodic surges

the

virus or

otherwise

impede

progress

toward

the

return

pre-pandemic

activities

and

levels

consumer

confidence

and

commercial

activity.

The

Company

also

faces

uncertainty

from

the

impacts

COVID-19

and

the

governmental

responses

COVID-19 surges,

including

lockdowns,

the

foreign

countries

where

our

merchandise is produced.

The Company is also subject to the continued effects of disruption in the global

supply

chain,

inflation

and

its

impact

our

cost

products,

transportation,

wage

rates

and

other

operating

costs,

well

as,

the

impact

our

customers’

disposable

incomes,

and

the

availability

workers.

The Company

expects that

these uncertainties

and perhaps

others related

to the

pandemic will

continue

impact

the

Company

fiscal

2022.

The

adverse

financial

impacts

associated

with

these

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 actual

or potential adverse

changes in conditions

relating to the

pandemic, whether

due to

increases in

case counts,

state and

local orders,

reductions in

store traffic

and

customer

demand,

labor

shortages,

all

these

factors,

(ii)

lower

net

sales

caused

the

delay

inventory

production

and

fulfillment,

(iii)

and

incremental

costs

associated

with

efforts

mitigate

the

effects of the outbreak, including increased freight and logistics costs and other

expenses.

While the Company currently anticipates a continuation of the

uncertainties listed above and the potential

adverse impacts

of COVID-19

during fiscal

2022, the

duration and

severity of

these effects

will depend

the

course of

future developments,

which are

highly uncertain.

The

extent to

which the

COVID-19

pandemic

ultimately

impacts

the

Company’s

business,

financial

condition,

results

operations,

cash

flows,

and

liquidity

may

differ

from

management’s

current

estimates

due

inherent

uncertainties

regarding

the

duration

and

further

spread

the

outbreak

its

variants,

its

severity,

actions

taken

contain the

virus or

treat its

impact, and how

quickly and to

what extent

normal economic and

operating

conditions can resume.

Comparison

of First Quarter

of 2022

with 2021

Total retail sales

for the first

quarter were

$204.9 million

compared

to last year’s

first quarter

sales of $211.2

million.

Sales

decreased primarily

due

decrease in

same-store sales,

partially offset

sales

from

noncomparable stores. The decrease in

same-store sales was

primarily due to

cooler, wetter

weather, late

merchandise

shipments

due

supply

chain

disruptions

and

inflationary

pressure

our

customers’

disposable income. 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

2022 and

are included

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

in the same-store sales calculation.

Total revenues, comprised of retail sales

and other revenue (principally

finance

charges

and

late

fees

customer

accounts

receivable,

shipping

charged

customers

for

commerce purchases and

layaway fees),

were

$206.7 million

for

the

first

quarter ended

April 30,

2022,

compared to $213.1 million

for the first quarter ended

May 1, 2021. The Company operated

1,315 stores at

April 30,

2022 compared

to 1,325

stores

at the end

of last

fiscal year’s

first quarter.

For the

first three

months

of fiscal 2022, the Company opened

five stores and permanently

closed one store.

The Company currently

expects

to close

approximately

25 stores

in fiscal

2022.

Credit revenue

of $0.5

million

represented

0.2% of

total revenues

in the first

quarter

of fiscal

2022, compared

to 2021

credit revenue of

$0.5 million or

0.3% of

total revenues.

Credit revenue is

comprised of interest

earned on

the Company’s

private

label credit

card portfolio

and related

fee income.

expenses

include

principally

payroll,

postage and other

administrative

expenses,

and totaled $0.4

million in

the first quarter

2022, compared

to last

year’s

first quarter

expenses

of $0.3

million.

Other revenue,

a component

of total revenues,

was $1.8 million

for the first

quarter

of fiscal 2022,

compared

$1.9

million for

the

prior

year’s

comparable first

quarter.

The

slight

decrease was

due

lower

commerce

shipping

revenue

and finance

charges,

slightly

offset by

higher

layaway

fees.

Cost of goods sold

was $132.2 million,

or 64.5% of retail

sales for the first

quarter of fiscal

2022, compared

to $123.7 million, or 58.5% of retail

sales in the first quarter of fiscal 2021.

The overall increase

in cost of

goods sold

as a percent

of retail

sales for

first quarter

of 2022 resulted

primarily

from higher

markdown

sales

and an increase

in freight costs

due to higher fuel

prices.

Cost of goods sold

includes

merchandise

costs (net

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) decreased by 17.0% to

$72.7 million for

the first

quarter

of fiscal

2022 compared

to $87.6

million

in the first

quarter

of fiscal

2021.

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,

payroll taxes

and benefits,

insurance,

supplies,

advertising,

and bank and

credit card

processing

fees.

SG&A

expenses were 29.5% of retail

sales for the first quarter of fiscal 2022, compared

to 29.9% of retail sales in

the first quarter

of fiscal 2021.

SG&A as a percent

of retail sales

decreased

primarily

due to lower

incentive

compensation, partially

offset by increased payroll costs reflecting more normalized operations.

Depreciation

expense

was $2.7

million,

or 1.3%

of retail

sales for

the first

quarter

of fiscal

2022, compared

$3.0 million,

or 1.4% of retail sales

for the first quarter

of fiscal 2021. The decrease

in depreciation

expense

was attributable

to older

stores

being

fully depreciated.

Interest and

other

income

was

$0.4

million, or

0.2%

retail

sales

for

the

first

quarter of

fiscal

2022,

compared to

$0.7

million, or

0.3%

retail sales

for

the

first quarter

fiscal 2021.

The

decrease was

primarily

attributable

to a decrease

in short-term

investments.

Income tax expense

was $1.9 million or

1.0% of retail sales

for the first quarter

of fiscal 2022, compared

income

tax

expense

$3.1

million,

1.5%

retail

sales

for

the

first

quarter

fiscal

2021.

Income tax

expense

for

the

first

quarter

fiscal

2022

decreased

primarily

result

lower

pre-tax

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

earnings.

The effective income

tax rate for

the first quarter

of fiscal 2022

was 16.7%

compared to 12.9%

for

the

first

quarter of

2021. The

increase in

the

2022

first

quarter tax

rate was

primarily due

higher

Global Intangible Low-taxed Income (GILTI), partially offset by the ability to realize foreign tax credits.

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 2022

and the next 12

months.

Cash used

by operating

activities

for the

first three

months

of fiscal

2022 was

primarily

generated

by earnings

adjusted

for depreciation

and changes

in working capital.

The decrease

in cash provided

of $45.3 million

for

the first

three months

of fiscal

2022 as compared

to the first

three months

of fiscal

2021 was primarily

due to

lower net income

and a decrease

in accounts

payable and

accrued liabilities

from fiscal

2021 year end

versus

an increase

from 2020

year end,

partially

offset by

a decrease

in prepaid

and other

assets.

April

30,

2022,

the

Company had

working capital

$107.8

million compared

$111.5

million at

January 29, 2022.

This decrease is primarily

attributable

to lower short-term

investments,

partially offset

lower accrued

incentive

compensation.

April

30,

2022,

the

Company

had

unsecured

revolving

credit

agreement,

which

provided

for

borrowings of up to $35.0 million less the balance of letters

of credit discussed below and was committed

through

May

2022.

May

2022,

the

Company

signed

new

unsecured

revolving

credit

agreement,

which replaces

the prior

credit agreement,

provides up

to $35.0

million in

committed availability

and is

committed

through

May

2027.

The

prior

credit

agreement

contained

various

financial

covenants

and

limitations,

including

the

maintenance

specific

financial

ratios

with

which

the

Company

was

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.

April

30,

2022

and

January

29,

2022,

the

Company

had

outstanding letters

credit

relating to

purchase

commitments.

Expenditures for

property

and

equipment totaled

$4.4

million

the

first

three

months

fiscal

2022,

compared to $0.6

million in

last year’s

first three

months.

The increase in

expenditures for property and

equipment was primarily due

costs associated with

opening five

new stores

and capital

investments in

information technology

and the

distribution center.

For the

full fiscal 2022

year, the

Company expects to

invest

approximately

$22.6

million

in capital

expenditures,

including

distribution

center

automation

projects.

Net

cash

provided by

investing activities

totaled

$19.6

million in

the

first

three

months

fiscal

2022

compared

to $34.2 million

used in the comparable

period of fiscal

2021, primarily

due to lower purchases

short-term

investments,

partially

offset by

an increase

in capital

expenditures.

Net cash used by financing

activities

totaled $12.7 million

in the first three months

of fiscal 2022 compared

to $5.5

million

used in

the comparable

period

of fiscal

2021, primarily

due to

an increase

in share

repurchases

and dividends

paid.

On May

19, 2022,

the Board

of Directors

declared

the quarterly

dividend

at $0.17

per share.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

April 30,

2022, the

Company had

840,119 shares

remaining in

open authorizations under its

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 April

30,

2022 and

January 29,

2022.

The state,

municipal and corporate bonds

have contractual maturities which

range from one day to 4.6 years. The U.S. Treasury Notes have contractual

maturities which

range from 46

days

2.4

years.

These

securities

are

classified

available-for-sale and

are

recorded

Short-term

investments,

Restricted

cash 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,

April

30,

2022,

the

Company

had

$0.8

million

corporate

equities

and

deferred

compensation

plan assets

of $11.0 million.

At January

29, 2022, the

Company

had $0.8 million

of corporate

equities

and deferred

compensation

plan assets

of $11.5 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

ITEM 3. QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

The

Company

subject

market

rate

risk

from

exposure

changes

interest

rates

based

its

financing, investing and

cash management activities,

but the Company

does not

believe such exposure

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 procedures as of April 30, 2022.

Based on this

evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of

April 30,

2022,

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

file

submit under

the

Exchange Act

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 April

30,

2022 that has

materially

affected,

reasonably

likely

materially

affect,

the

Company’s

internal

control

over

financial

reporting.

THE CATO CORPORATION

PART

II OTHER

INFORMATION

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

“Item 1A. Risk

Factors” in our

Annual Report on Form

10-K for

our fiscal year

ended January 29, 2022.

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

immaterial

may

also

materially

adversely

affect

our

business,

financial

condition

results

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 April 30, 2022:

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 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 January

29, 2022, the

Company’s share

repurchase program had

450,047 shares remaining

open

authorizations.

The

Board

Directors

authorized

additional

1,000,000

for

repurchase under

the

program at

its

February 24,

2022 meeting.

During the

first

quarter ended

April

30,

2022,

the

Company

repurchased

and

retired

609,928

under

this

program

for

approximately $9,161,613 or an

average market price of

$15.02 per share.

As of April 30,

2022,

the

Company

had

840,119

remaining

open

authorizations.

There

specified

expiration date for the Company’s repurchase program.

ITEM 3.

DEFAULTS

UPON SENIOR SECURITIES:

Not Applicable

THE CATO CORPORATION

PART

II OTHER

INFORMATION

ITEM 4.

MINE SAFETY DISCLOSURES:

Not Applicable

ITEM 5.

OTHER INFORMATION:

Not Applicable

ITEM 6.

EXHIBITS:

Exhibit

No.

Item

3.1

Registrant’s Amended and Restated Certificate of Incorporation,

incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant

for the quarter ended May 2, 2020.

3.2

Registrant’s Amended and Restated By-Laws, incorporated by

reference to Exhibit 3.2 to Form 10-Q of the Registrant for the quarter

ended May 2, 2020.

10.1

Credit Agreement, dated as of May 19, 2022, among the Registrant, the

guarantors party thereto, the banks party thereto and Wells Fargo Bank,

National Association, as Agent, incorporated by reference to Exhibit

10.1 to Form 8-K of the Registrant filed May 20, 2022.

31.1*

Rule 13a-14(a)/15d-14(a)

Certification

of Principal

Executive

Officer.

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 on

Form

10-Q for

the fiscal

quarter ended April

30, 2022,

formatted in Inline

XBRL:

(i)

Condensed

Consolidated

Statements

Income

and

Comprehensive Income for

the

Three Months

ended April

30,

2022

and May

1, 2021;

(ii) Condensed

Consolidated

Balance

Sheets

at April

30,

2022

and

January

29,

2022;

(iii)

Condensed

Consolidated

Statements

of Cash Flows for the Three

Months Ended

April 30, 2022

and

May

2021;

(iv)

Condensed

Consolidated

Statements

Stockholders’

Equity for the Three Months Ended April 30, 2022 and

May

2021;

and

(v)

Notes

Condensed

Consolidated Financial

Statements.

104.1

Cover

Page

Interactive

Data

File

(Formatted

Inline

XBRL

and

contained in the Interactive Data Files submitted as Exhibit 101.1*)

* Submitted electronically herewith.

THE CATO CORPORATION

PART

II OTHER

INFORMATION

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.

THE CATO

CORPORATION

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

CATO CORP - Quarter Report: 2022 April (Form 10-Q)

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