Cato Corporation — Form 10-Q Summary
Period: Fiscal first quarter ended May 1, 2021 (13 weeks), compared with the quarter ended May 2, 2020. The request metadata says “2020 Q1,” but the filing covers 2021 Q1.
Business context and financial performance
Cato operates women’s apparel, footwear and accessories stores, principally in the southeastern United States, and offers a proprietary credit card. Results reflect a substantial recovery from the pandemic-affected prior-year quarter; management said sales remained well below the comparable 2019 period.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Retail sales | $211.2 million | $98.8 million |
| Total revenue | $213.1 million | $100.7 million |
| Income (loss) before tax | $23.8 million | $(37.5) million |
| Net income (loss) | $20.7 million | $(28.4) million |
| Diluted EPS | $0.92 | $(1.19) |
| Operating cash flow | $44.5 million | $(71.3) million |
Comparable-store sales increased 111.0%, primarily because stores had been closed from March 19, 2020 through the end of the prior-year quarter. E-commerce was less than 5% of Q1 2021 sales. Retail gross margin dollars rose to $87.6 million from $15.2 million; gross margin was 41.5% of retail sales versus 15.4%. Cost of goods sold fell to 58.5% of retail sales from 84.6%, reflecting better fixed-cost leverage and more regular-priced sales. SG&A declined to 29.9% of retail sales from 53.1%; depreciation was 1.4% versus 4.1%. Net income was 9.8% of retail sales, compared with a 28.8% loss.
Liquidity, debt and capital
At May 1, 2021, cash and cash equivalents were $22.3 million and short-term investments were $160.9 million. Working capital was $130.5 million. Current assets were $333.1 million and current liabilities $202.6 million. The company had no borrowings under its $35 million revolving facility, committed through May 2023, and was in compliance with its covenants. Lease liabilities totaled $191.5 million, including $58.4 million current. Operating cash flow was supported in part by a $26.0 million increase in accounts payable, accrued expenses and other liabilities. Capital expenditures were $0.6 million; the company reported $5.5 million of net cash used in financing, including $5.6 million of share repurchases. No dividend was paid during the quarter.
Changes, outlook and risks
- Revenue more than doubled year over year, but management cautioned that the comparison was heavily affected by 2020 store closures and that sales remained well below 2019.
- Management expects to close approximately 25 stores in fiscal 2021 and anticipates about $3.1 million of capital expenditures for the year. On May 20, 2021, the board declared a quarterly dividend of $0.11 per share.
- The company expects pandemic-related uncertainty to continue during 2021 and possibly beyond. Risks cited include changing customer demand and store traffic, supply-chain and labor disruption, delayed inventory, and higher freight and logistics costs.
- The CARES Act loss carryback produced an estimated $33.0 million of tax refunds recorded in accounts receivable. The filing reports routine litigation; management did not expect currently pending matters to have a material adverse effect, while noting outcomes remain uncertain.
- Management said cash, investments, operating cash flows and available credit should fund regular operations and expected capital expenditures for fiscal 2021 and the next 12 months. It did not provide a specific sales or earnings forecast.
Most important facts for investors to verify
- Whether the sharp sales and margin rebound persists against less disrupted comparison periods; the 111.0% comparable-store increase is not a like-for-like indication of normalized growth.
- The level of sales and profitability relative to 2019, which management said remained higher than current-quarter results.
- Realization and timing of the estimated $33.0 million tax refund, and the contribution of working-capital changes to operating cash flow.
- Progress on planned store closures, fiscal 2021 capital spending, and the declared $0.11 dividend.
- Ongoing COVID-19, supply-chain, staffing, inventory, lease and litigation risks, and the company’s ability to maintain liquidity without drawing on its credit facility.