CATO CORP - Quarter Report: 2023 April (Form 10-Q)

cato23qtr1q

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 29, 2023

☐

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

check

mark

whether

the

registrant

large

accelerated

filer, an

accelerated

filer, a

non-accelerated

filer,

smaller reporting

company,

emerging

growth

company.

See

the

definitions

“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 29, 2023, there were

18,479,615

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 29, 2023

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 29, 2023 and April 30, 2022

Condensed Consolidated Balance Sheets

At April 29, 2023 and

January 28, 2023

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended April 29, 2023 and

April 30, 2022

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended April 29, 2023 and

April 30, 2022

Notes to Condensed Consolidated Financial Statements

6 - 18

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 29, 2023

April 30, 2022

(Dollars in thousands, except per share data)

REVENUES

Retail sales

190,311

204,933

Other revenue (principally finance charges, late fees and

layaway charges)

1,739

1,788

Total revenues

192,050

206,721

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

122,087

132,243

Selling, general and administrative (exclusive of depreciation

shown below)

61,934

60,441

Depreciation

2,357

2,743

Interest and other income

(897)

(403)

Costs and expenses, net

185,481

195,024

Income before income taxes

6,569

11,697

Income tax expense

2,141

1,949

Net income

4,428

9,748

Basic earnings per share

0.22

0.46

Diluted earnings per share

0.22

0.46

Comprehensive income:

Net income

4,428

9,748

Unrealized gain (loss) on available-for-sale securities, net

of deferred income taxes of $

107

and an income tax benefit of $

362

355

(1,206)

for April 29, 2023 and April 30, 2022, respectively

Comprehensive income

4,783

8,542

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

April 29, 2023

January 28, 2023

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

39,642

20,005

Short-term investments

87,750

108,652

Restricted cash

3,826

3,787

Accounts receivable, net of allowance for customer credit losses of

761

and $

761

at April 29, 2023 and January 28, 2023, respectively

28,192

26,497

Merchandise inventories

106,813

112,056

Prepaid expenses and other current assets

7,298

6,676

Total Current Assets

273,521

277,673

Property and equipment – net

74,187

70,382

Deferred income taxes

9,938

9,213

Other assets

21,478

21,596

Right-of-Use assets – net

155,512

174,276

Total Assets

534,636

553,140

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

88,508

91,956

Accrued expenses

42,593

41,338

Accrued bonus and benefits

2,154

1,690

Accrued income taxes

2,679

613

Current lease liability

49,707

67,360

Total Current Liabilities

185,641

202,957

Other noncurrent liabilities

16,449

16,183

Lease liability

105,765

107,407

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;

18,479,615

and

18,723,225

shares issued

at April 29, 2023 and January 28, 2023, respectively

624

632

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 29, 2023 and January 28, 2023, respectively

Additional paid-in capital

123,555

122,431

Retained earnings

103,426

104,709

Accumulated other comprehensive income

(883)

(1,238)

Total Stockholders' Equity

226,781

226,593

Total Liabilities and Stockholders’ Equity

534,636

553,140

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(UNAUDITED)

Three Months Ended

April 29, 2023

April 30, 2022

(Dollars in thousands)

Operating Activities:

Net income

4,428

9,748

Adjustments to reconcile net income to net cash provided (used) by operating activities:

Depreciation

2,357

2,743

Provision for customer credit losses

Purchase premium and premium amortization of investments

(18)

388

Share-based compensation

958

624

Deferred income taxes

(832)

(Gain) Loss on disposal of property and equipment

(33)

Changes in operating assets and liabilities which provided (used) cash:

Accounts receivable

(1,793)

(4,382)

Merchandise inventories

5,243

(2,669)

Prepaid and other assets

(618)

474

Operating lease right-of-use assets and liabilities

(532)

(590)

Accrued income taxes

2,066

1,142

Accounts payable, accrued expenses and other liabilities

(1,429)

(8,331)

Net cash provided (used) by operating activities

9,895

(765)

Investing Activities:

Expenditures for property and equipment

(6,170)

(4,440)

Purchase of short-term investments

(5,914)

(1,529)

Sales of short-term investments

27,421

25,566

Net cash provided (used) by investing activities

15,337

19,597

Financing Activities:

Dividends paid

(3,455)

(3,638)

Repurchase of common stock

(2,267)

(9,162)

Proceeds from employee stock purchase plan

166

Net cash provided (used) by financing activities

(5,556)

(12,709)

Net increase (decrease) in cash, cash equivalents, and restricted cash

19,676

6,123

Cash, cash equivalents, and restricted cash at beginning of period

23,792

23,678

Cash, cash equivalents, and restricted cash at end of period

43,468

29,801

Non-cash activity:

Accrued other assets and property and equipment

644

2,971

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 28, 2023

691

122,431

104,709

(1,238)

226,593

Comprehensive income:

Net income

4,428

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

income tax expense of $

107

355

Dividends paid ($

0.17

per share)

(3,455)

Class A common stock sold through employee stock purchase

plan

195

Share-based compensation issuances and exercises

Share-based compensation expense

929

Repurchase and retirement of treasury shares

(8)

(2,259)

(2,267)

Balance — April 29, 2023

683

123,555

103,426

(883)

226,781

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

111

Share-based compensation issuances and exercises

Share-based compensation expense

598

Repurchase and retirement of treasury shares

(20)

(9,142)

(9,162)

Balance — April 30, 2022

708

120,249

131,181

(1,486)

250,652

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL

The condensed

consolidated financial

statements as

of April

29, 2023

and for

the thirteen-week

periods

ended

April 29,

2023 and

April

30,

2022

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 28, 2023.

Amounts as of January 28, 2023 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 18, 2023, the Board of Directors maintained the quarterly dividend at

0.17

per share.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 shares in

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

net

income

less

earnings

allocated

non-vested

equity

awards

divided

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 29, 2023

April 30, 2022

(Dollars in thousands)

Numerator

Net earnings

4,428

9,748

Earnings allocated to non-vested equity awards

(227)

(541)

Net earnings available to common stockholders

4,201

9,207

Denominator

Basic weighted average common shares outstanding

19,303,048

20,149,201

Diluted weighted average common shares outstanding

19,303,048

20,149,201

Net income per common share

Basic earnings per share

0.22

0.46

Diluted earnings per share

0.22

0.46

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 29, 2023:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at January 28, 2023

(1,238)

Other comprehensive income (loss) before

reclassification

355

Amounts reclassified from accumulated

other comprehensive income

Net current-period other comprehensive income (loss)

355

Ending Balance at April 29, 2023

(883)

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to other comprehensive income ("OCI").

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 CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – FINANCING ARRANGEMENTS:

April

29,

2023,

the

Company

had

unsecured

revolving

credit

agreement,

which

provided

for

borrowings of

up to

35.0

million less

the balance

of any

revocable letters

of credit

related to

purchase

commitments,

and

was

committed

through

May

2027.

The

credit

agreement

contains

various

financial

covenants and limitations, including the maintenance of specific financial

ratios with which the Company

was

compliance

April

29,

2023.

There

were

borrowings

outstanding,

nor

any

outstanding

letters of

credit that

reduced borrowing availability,

as of

April 29,

2023.

The weighted

average interest

rate under the credit facility was

zero

at April 29, 2023 due to

outstanding borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

determined

that

has

four

operating

segments,

defined

under

ASC

280

–

Segment

Reporting

, 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

more operating segments may be aggregated into a single reportable segment if aggregation is consistent with

the

objective

and

basic

principles

ASC

280-10,

which

require

the

segments

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.

The products

sold in each

retail operating

segment are

similar in

nature, as

they

all

offer

women’s

apparel,

shoes

and

accessories.

Merchandise

inventory

the

Company’s

retail

operating

segments

sourced

from

the

same

countries

and

some

the

same

vendors,

using

similar

production processes.

Merchandise for the Company’s retail operating segments is distributed to retail stores

similar

manner

through

the

Company’s

single

distribution

center

and

subsequently

distributed

clients in a similar manner.

The

Company

operates

its

women’s

fashion

specialty

retail

stores

states

April

29,

2023,

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)

NOTE 5 – REPORTABLE SEGMENT INFORMATION

(CONTINUED):

The following schedule summarizes certain segment

information (in thousands):

Three Months Ended

April 29, 2023

Retail

Credit

Total

Revenues

$191,434

$616

$192,050

Depreciation

2,357

Interest and other income

(897)

Income before taxes

6,382

187

6,569

Capital expenditures

6,170

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

Retail

Credit

Total

Total assets as of April 29, 2023

$495,730

$38,906

$534,636

Total assets as of January 28, 2023

514,609

38,531

553,140

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 29, 2023

April 30, 2022

Payroll

134

137

Postage

101

Other expenses

194

199

Total expenses

429

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE BASED COMPENSATION:

As of

April 29,

2023, the

Company had

two long-term

compensation plans

pursuant to

which stock-based

compensation

was

outstanding

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,

shares for grant were no longer available

under the 2013 Incentive Compensation Plan.

The

following

table

presents

the

number

options

and

restricted

stock

initially

authorized

and

available for grant under each of

the plans as of April 29,

2023:

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 29, 2023

3,473,475

accordance

with

ASC

718

–

Compensation–Stock Compensation

the

fair

value

current

restricted

stock awards

is estimated

on the

date of

grant based

on the

market price

of the

Company’s

stock and

amortized to

compensation expense

on a

straight-line basis

over the

related vesting

periods. As

of April

29,

2023

and

January

28,

2023,

there

was

9,329,000

and

10,543,000

respectively,

total

unrecognized compensation

expense related

unvested restricted

stock awards,

which had

a remaining

weighted-average vesting period of

1.9

years and

2.1

years, respectively. The

total compensation expense

during the

three months

ended April

29, 2023

was $

932,000

compared to

603,000

for the

three months

ended

April

30,

2022.

These

expenses

are

classified

component

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

29, 2023:

Weighted

Average

Number of

Grant Date Fair

Value

Per Share

Restricted stock awards at January 28, 2023

1,059,433

13.10

Granted

Vested

Forfeited or expired

(12,414)

13.45

Restricted stock awards at April 29, 2023

1,047,019

13.09

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The

Company’s

Employee

Stock

Purchase

Plan

allows

eligible

full-time

employees

purchase

limited

number of

of the

Company’s

Class

Common Stock

during each

semi-annual offering

period

% discount through payroll deductions. During the three months ended April 29, 2023 and

April 30, 2022,

the Company sold

22,194

and

9,468

shares to employees at an average discount of $

1.32

and $

2.21

per share,

respectively, under

the Employee

Stock Purchase

Plan. The

compensation expense

recognized for

the

discount

given

under

the

Employee

Stock

Purchase

Plan

was

approximately

29,000

and

21,000

for

the

three

months

ended

April

29,

2023

and

April

30,

2022,

respectively.

These

expenses

are

classified

component

Selling,

general

and

administrative

expenses

the

Condensed

Consolidated

Statements

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 29, 2023 and January

28, 2023:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

April 29, 2023

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

22,187

Corporate Bonds

40,057

U.S. Treasury/Agencies Notes and Bonds

16,541

Cash Surrender Value of Life Insurance

9,281

Asset-backed Securities (ABS)

7,925

Corporate Equities

801

Commercial Paper

1,039

Total Assets

97,831

801

87,749

9,281

Liabilities:

Deferred Compensation

(8,731)

Total Liabilities

(8,731)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

January 28,

2023

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

23,102

Corporate Bonds

47,901

U.S. Treasury/Agencies Notes and Bonds

27,250

Cash Surrender Value of Life Insurance

9,274

Asset-backed Securities (ABS)

9,373

Corporate Equities

923

Commercial Paper

1,026

Total Assets

118,849

923

108,652

9,274

Liabilities:

Deferred Compensation

(8,903)

Total Liabilities

(8,903)

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

or better

April 29,

2023

and

January

28,

2023.

The

state,

municipal

and

corporate

bonds

and

asset-backed

securities

have

contractual maturities

which range

from

two days

3.6

years. The

U.S. Treasury

Notes and

Certificates of

Deposit have contractual maturities

which range from

one day

2.8

years. These securities are

classified as

available-for-sale

and

are

recorded

Short-term

investments,

Restricted

cash

and

Other

assets

the

accompanying Condensed Consolidated Balance Sheets. These assets are carried at fair value with unrealized

gains

and

losses

reported

net

taxes

Accumulated

other

comprehensive

income.

The

asset-backed

securities

are

bonds

comprised

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

revolving

pools

credit

card

receivables

generated

account

holders

cards

from

American

Express,

Citibank, JPMorgan Chase, Capital One, and

Discover.

Additionally,

April

29,

2023,

the

Company

had

0.8

million

corporate

equities

and

deferred

compensation plan assets

of $

9.3

million.

At January 28,

2023, the Company

had $

0.9

million of corporate

equities and deferred compensation

plan assets of $

9.3

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

active

exchanges

for

identical

instruments.

Their

fair

value

principally

based

market

values

determined

management

with

assistance

third-party

pricing

service.

Since

quoted

prices

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

liability

associated

with

the

life

insurance

policies

represents

deferred

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

recorded

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

fair

value

the

Company’s

financial

assets

and

liabilities

measured using Level 3 inputs as of April

29, 2023 and January 28, 2023

(dollars in thousands):

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at January 28, 2023

9,274

Redemptions

Additions

Total gains or (losses)

Included in interest and other income (or changes in net assets)

Included in other comprehensive income

Ending Balance at April 29, 2023

9,281

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at January 28, 2023

(8,903)

Redemptions

292

Additions

(82)

Total (gains) or losses

Included in interest and other income (or changes in net assets)

(38)

Included in other comprehensive income

Ending Balance at April 29, 2023

(8,731)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at January 29, 2022

11,472

Redemptions

(1,718)

Additions

Total gains or (losses)

Included in interest and other income (or changes in net assets)

(480)

Included in other comprehensive income

Ending Balance at January 28, 2023

9,274

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Deferred Compensation

Beginning Balance at January 29, 2022

(10,020)

Redemptions

1,142

Additions

(379)

Total (gains) or losses

Included in interest and other income (or changes in net assets)

354

Included in other comprehensive income

Ending Balance at January 28, 2023

(8,903)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

The

Company

has

reviewed

recent

accounting

pronouncements

and

believe

none

will

have

material

impact on the Company’s financial statements.

NOTE 9 – INCOME TAXES:

The Company had an effective tax rate for the

first quarter of 2023 of

32.6

% compared to an effective tax

rate of

16.7

% for the first quarter of 2022. The increase in the 2023 first quarter tax

rate was primarily due

higher

Global

Intangible

Low-taxed

Income

(GILTI),

partially

offset

the

foreign

rate

differential

and offshore claim, as a percentage on lower pre-tax earnings.

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

such

matters,

adverse

outcome

one

such

matters

could

materially and adversely affect the Company’s

financial condition, results of operations and cash flows in

any

particular

reporting

period.

The

Company

accrues

for

these

matters

when

the

liability

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.

of the

credit card

receivables are

secured.

The

Company

estimated customer credit losses of

121,000

and $

86,000

for the periods ended April

29, 2023 and April

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

30, 2022,

respectively,

on sales

purchased by

the Company’s

proprietary credit

card of

5.8

million and

5.7

million for the periods ended April 29, 2023 and April 30, 2022, respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

customers (in thousands):

Balance as of

April 29, 2023

January 28, 2023

Proprietary Credit Card Receivables, net

10,749

10,553

Gift Card Liability

7,296

8,523

NOTE 12 – LEASES:

The

Company determines

whether

arrangement

lease

inception.

The

Company

has

operating

leases for

stores,

offices,

warehouse space

and equipment.

Its leases

have remaining

lease terms

one

year

10 years

, some of which include options to

extend the lease term for

up to five years

, and some of

which

include

options

terminate

the

lease

within one year

The

Company considers

these

options

determining

the

lease term

used

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,

the

Company

uses

its

estimated

incremental

borrowing

rate

based

the

information

available

commencement

date

the

lease

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Three Months Ended

April 29, 2023

April 30, 2022

Operating lease cost (a)

18,078

17,754

Variable

lease cost (b)

594

768

(a) Includes right-of-use asset amortization of ($

0.3

) million and ($

0.4

) million for the three months ended

April 29, 2023 and April 30, 2022, respectively.

(b) Primarily relates 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)

Operating cash flow information:

Three Months Ended

April 29, 2023

April 30, 2022

Cash paid for amounts included in the measurement of lease liabilities

17,345

16,836

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

1,904

3,515

Weighted-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

follows:

As of

April 29, 2023

April 30, 2022

Weighted-average remaining lease term

2.2

Years

2.4

Years

Weighted-average discount rate

3.20%

2.92%

As of

April 29,

2023, the maturities

of lease

liabilities by fiscal

year for

the Company’s

operating leases

are as follows (in thousands):

Fiscal Year

2023 (a)

52,516

2024

49,829

2025

32,563

2026

18,657

2027

8,648

Thereafter

1,603

Total lease payments

163,816

Less: Imputed interest

8,344

Present value of lease liabilities

155,472

(a) Excluding the 3 months ended April 29, 2023.

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

February

2024

(“fiscal

2023”)

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,

as well

as the

potential impact

of supply

chain disruptions,

inflationary

pressures

and

other

economic

market

conditions

our

business,

results

operations

and

financial

condition

and

statements

regarding

new

store

development

strategy;

and

(5) statements

relating

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 or negative

formations of such

words

and

similar

expressions.

can

give

assurance

that

actual

results

events

will

not

differ

materially

from

those

expressed

implied

any

such

forward-looking

statements.

Forward-looking

statements

included

this

report

are

based

information

available

the

filing

date

this

report,

but

subject

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

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

unemployment, fuel,

energy

and

food

costs, wage rates, tax

rates, interest rates, home

values, consumer net worth,

the availability of

credit and

inflation;

changes

laws,

regulations

government

policies

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

expected;

adverse

weather,

public

health

threats

(including

the

global

COVID-19

pandemic)

similar

conditions that

may affect

our

sales

operations; inventory

risks

due

shifts

market

demand,

including

the

ability

liquidate

excess

inventory

anticipated

margins;

adverse

developments or volatility affecting the financial services industry or broader financial markets; 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 28,

2023 (“fiscal

2022”), as

amended or

supplemented, and

other reports

we 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

critical

accounting

policies

and

estimates

are

fully

described

“Management’s

Discussion and Analysis of Financial Condition and Results of Operations” in the

Company’s Annual Report

Form

10-K

for

the

fiscal

year

ended

January

28,

2023.

The

preparation

the

Company’s

financial

statements

conformity

with

generally

accepted

accounting

principles

the

United

States

(“GAAP”)

requires management to make estimates and assumptions about future events that affect the amounts reported

the

financial

statements

and

accompanying

notes.

Future

events

and

their

effects

cannot

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

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

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 29, 2023

April 30, 2022

Total retail sales

100.0

Other revenue

0.9

Total revenues

100.9

Cost of goods sold (exclusive of depreciation)

64.2

64.5

Selling, general and administrative (exclusive of depreciation)

32.5

29.5

Depreciation

1.2

1.3

Interest and other income

(0.5)

(0.2)

Income before income taxes

3.5

5.7

Net income

2.3

4.8

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 2022

Form 10-K.

Recent Developments

Inflationary Cost Pressure and Rising Interest Rates

The

current

inflationary

environment

continues

negatively

impact

the

Company’s

operating

costs,

including

higher

wages,

operating

supplies

and

services.

addition,

increased

costs

for

fuel,

food,

and

housing, including rent,

as well as

other consumable products

across the economy,

are negatively impacting

our

customers’

disposable income,

and

our customers’

willingness to

purchase discretionary

items

such as

apparel, jewelry and shoes.

response

inflationary

pressures,

the

Federal

Reserve

began

raising

interest

rates

and

committed

continue raising

interest rates

until inflationary

pressures subside.

These rising interest

rates have

adversely

affected

the

availability

and

cost

credit

for

both

businesses

and

our

customers.

addition,

the

rising

interest rates are increasing the costs

related to revolving credit, auto loans and

mortgages, which continue to

negatively impact

our customers’

discretionary income.

Additionally,

rising interest

rates

may

continue to

negatively impact our customers’ willingness

to purchase our products.

We believe

price increases

and rising

interest rates

impacted the

first quarter

of fiscal

2023 and

will likely

continue

to have

a negative

impact

consumer

behavior and,

extension,

our

results

of operations

and

financial condition during the remainder of

fiscal 2023.

Labor Challenges and Wage Inflation

The

tight

labor

market

has

increased

competition

for

labor

among

consumer-facing

companies.

This

competition

for

labor

has

driven

significant

increases

wages

order

compete

for

sufficient

labor

availability and/or

prevent

the loss

of existing

workforce in

our stores,

distribution center

and corporate

office. We expect these pressures to

continue in fiscal 2023.

Comparison of First Quarter of 2023

with 2022

Total retail sales for the first quarter

were $190.3 million compared to

last year’s first quarter sales of

$204.9

million.

Sales

decreased

primarily

due

decrease

same-store

sales

and

sales

from

stores

that

were

closed in the past 12 months, partially offset by sales from stores opened in the past 12

months. The decrease

same-store

sales

primarily

from

fewer

transactions

due

the

aforementioned

pressures

our

customers’

disposable

income,

partially

offset

higher

average

sales

per

transaction.

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

5.1%

sales

for

the

first

quarter

fiscal

2023

and

are

included

the

same-store

sales

calculation.

Total

revenues,

comprised

retail

sales

and

other

revenue

(principally

finance

charges

and

late

fees

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

customer accounts

receivable, shipping

charged to

customers for

e-commerce purchases

and layaway

fees),

were

$192.1

million

for

the

first

quarter

ended

April

29,

2023,

compared

$206.7

million

for

the

first

quarter ended April 30, 2022. The

Company operated 1,264 stores at April 29,

2023 compared to 1,315 stores

at the

end of

last fiscal

year’s first

quarter.

For the

first three

months of

fiscal 2023,

the Company

opened

four stores

and permanently

closed 20 stores.

The Company

currently anticipates closing

approximately 80

stores in fiscal 2023.

Credit revenue of $0.6 million represented 0.3% of total revenues in the first quarter of fiscal 2023,

compared

2022

credit

revenue

$0.5

million

0.2%

total

revenues.

Credit

revenue

comprised

interest

earned on the Company’s private label credit card portfolio and related fee income.

Related expenses include

principally payroll, postage and

other administrative expenses, and

totaled $0.4 million in

the first quarter of

2023, compared to last year’s

first quarter expenses of $0.4 million.

Other revenue, a component of

total revenues, was $1.7 million for the first

quarter of fiscal 2023, compared

$1.8

million

for

the

prior

year’s

comparable

first

quarter.

The

slight

decrease

was

due

lower

commerce shipping revenue, partially offset by higher finance

charges and layaway fees.

Cost of goods

sold was $122.1

million, or 64.2%

of retail sales for

the first quarter of

fiscal 2023, compared

to $132.2 million,

or 64.5% of

retail sales in

the first quarter

of fiscal 2022.

The overall decrease

in cost of

goods sold as

a percent of

retail sales

for the first

quarter of 2023

resulted primarily

from both

lower ocean

freight

costs

and

outbound

freight

costs

our

stores,

partially

offset

deleveraging

occupancy

and

buying costs. 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) decreased

by 6.1% to

$68.2 million for

the first quarter

of fiscal 2023

compared to $72.7

million in the

first quarter of

fiscal 2022.

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,

and bank and credit card processing fees.

SG&A

expenses were

32.5% of

retail sales for

the first

quarter of

fiscal 2023,

compared to

29.5% of

retail sales

the first quarter of fiscal 2022. The

increase in SG&A as a

percent of retail sales was due

primarily to higher

operating costs, driven in part by higher wages as a result of the tight labor market and expenses

related to the

closure of 20 stores in

the quarter, partially offset by lower insurance

expense.

Depreciation expense was $2.4 million, or 1.2% of retail sales for the first quarter of fiscal 2023, compared to

$2.7 million, or

1.3% of retail

sales for the

first quarter of

fiscal 2022. The

decrease in depreciation

expense

was attributable to older stores being

fully depreciated.

Interest

and

other

income

was

$0.9

million,

0.5%

retail

sales

for

the

first

quarter

fiscal

2023,

compared

$0.4

million,

0.2%

retail

sales

for

the

first

quarter

fiscal

2022.

The

increase

was

primarily attributable

to an

increase in

interest rates

earned on

short-term investments,

partially offset

by a

decrease in short-term investments.

Income tax expense

was $2.1 million or

1.1% of retail sales

for the first quarter

of fiscal 2023,

compared

income

tax

expense

$1.9

million,

1.0%

retail

sales

for

the

first

quarter

fiscal

2022.

The

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

effective

income tax

rate for

the first

quarter of

fiscal 2023

was 32.6%

compared to

16.7% for

the first

quarter

2022.

The

increase

the

2023

first

quarter

tax

rate

was

primarily

due

higher

Global

Intangible Low-taxed Income (GILTI), partially offset by the foreign rate differential and offshore claim.

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 2023 and the

next 12

months.

Cash

provided

operating

activities

for

the

first

three

months

fiscal

2023

was

primarily

generated

earnings adjusted

for

depreciation and

changes in

working

capital. The

increase in

cash

provided

$10.7

million

for

the

first

three

months

fiscal

2023

compared

the

first

three

months

fiscal

2022

was

primarily due

to a

decrease in

inventory and

a smaller

decrease in

accounts payable,

accrued expenses

and

other liabilities compared to year-end,

partially offset by lower net income.

At April 29,

2023, the Company

had working capital

of $87.9 million

compared to $74.7

million at January

28,

2023.

The

increase

primarily

attributable

increase

accounts

receivable,

lower

current

lease

liability and accounts payable partially offset by

lower merchandise inventory.

April

29,

2023,

the

Company

had

unsecured

revolving

credit

agreement,

which

provides

for

borrowings of

up to

$35.0 million

less the

balance of

any revocable

letters of

credit related

to purchase

commitments,

and

committed

through

May

2027.

The

credit

agreement

contains

various

financial

covenants and limitations, including the maintenance of specific financial

ratios with which the Company

was

compliance

April

29,

2023.

There

were

borrowings

outstanding,

nor

any

outstanding

letters of

credit that

reduced borrowing availability,

as of

April 29,

2023.

The weighted

average interest

rate under the credit facility was zero at April 29, 2023 due to no outstanding

borrowings.

Expenditures

for

property

and

equipment

totaled

$6.2

million

the

first

three

months

fiscal

2023,

compared

$4.4

million

last

year’s

first

three

months.

The

increase

expenditures

for

property

and

equipment

was

primarily

due

costs

associated

with

opening

four

new

stores

and

capital

investments

information

technology

and

the

distribution

center.

For

the

full

fiscal

2023

year,

the

Company

expects

invest approximately $22.1 million in capital

expenditures, including distribution center automation projects.

Net

cash

provided

investing

activities

totaled

$15.3

million

the

first

three

months

fiscal

2023

compared to $19.6 million provided in the comparable period of fiscal 2022. The decrease is primarily due

higher purchases of short-term

investments and an increase

in capital expenditures, partially

offset by higher

sales of short-term investments.

Net cash used in

financing activities totaled $5.6

million in the first

three months of fiscal

2023 compared to

$12.7 million used

in the comparable

period of fiscal

2022, primarily due

to a decrease

in share repurchases

and dividends paid.

On May 18, 2023, the Board of

Directors maintained the quarterly dividend at

0.17 per share.

April

29,

2023,

the

Company

had

944,379

remaining

open

authorizations

under

its

repurchase program.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

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

or better

April 29,

2023

and

January

28,

2023.

The

state,

municipal

and

corporate

bonds

and

asset-backed

securities

have

contractual maturities

which range

from two

days to

3.6 years.

The U.S.

Treasury Notes

and Certificates

Deposit have contractual maturities

which range from

one day to 2.8

years. These securities are

classified as

available-for-sale

and

are

recorded

Short-term

investments,

Restricted

cash

and

Other

assets

the

accompanying Condensed Consolidated Balance Sheets. These assets are carried at fair value with unrealized

gains

and

losses

reported

net

taxes

Accumulated

other

comprehensive

income.

The

asset-backed

securities

are

bonds

comprised

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

revolving

pools

credit

card

receivables

generated

account

holders

cards

from

American

Express,

Citibank, JPMorgan Chase, Capital One, and

Discover.

Additionally,

April

29,

2023,

the

Company

had

$0.8

million

corporate

equities

and

deferred

compensation plan assets

of $9.3 million.

At January 28,

2023, the Company

had $0.9 million

of corporate

equities and deferred compensation

plan assets of $9.3

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

ITEM 3. QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

The

Company

subject

market

rate

risk

from

exposure

changes

interest

rates

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 29,

2023.

Based on

this

evaluation,

our

Principal

Executive

Officer

and

Principal

Financial

Officer

concluded

that,

April

29,

2023, our

disclosure controls

and

procedures,

as defined

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 29, 2023

that has materially affected, or

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 I,

“Item

1A.

Risk

Factors”

our

Annual

Report

Form

10-K

for

our

fiscal

year

ended

January

28,

2023.

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 29, 2023:

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 2023

57,930

9.39

57,930

March 2023

195,460

8.81

195,460

April 2023

Total

253,390

8.95

253,390

944,379

(1)

Prices include trading costs.

(2)

As of January

28, 2023, the

Company’s share

repurchase program had

197,769 shares remaining

open

authorizations.

The

Board

Directors

authorized

additional

1,000,000

for

repurchase under

the

program at

its

February 23,

2023 meeting.

During the

first

quarter ended

April

29,

2023,

the

Company

repurchased

and

retired

253,390

under

this

program

for

approximately $2,266,727

or an

average market

price of

$8.95 per

share.

As of

April 29,

2023,

the

Company

had

944,379

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.

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

Form

10-Q

for

the

fiscal

quarter

ended

April

29,

2023,

formatted

Inline

XBRL:

(i)

Condensed

Consolidated

Statements

Income

and

Comprehensive

Income

for

the

Three

Months

ended

April

29,

2023

and

April

30,

2022;

(ii)

Condensed

Consolidated

Balance

Sheets

April

29,

2023

and

January

28,

2023;

(iii)

Condensed

Consolidated

Statements of Cash Flows

for the Three Months

Ended April 29, 2023

and

April

30,

2022;

(iv)

Condensed

Consolidated

Statements

Stockholders’ Equity

for the

Three Months

Ended April

29, 2023

and

April

30,

2022;

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 25, 2023

/s/ John P.

D. Cato

Date

John P.

D. Cato

Chairman, President and

Chief Executive Officer

May 25, 2023

/s/ Charles D. Knight

Date

Charles D. Knight

Executive Vice President

Chief Financial Officer

CATO CORP - Quarter Report: 2023 April (Form 10-Q)

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