Cato Corporation — Form 10-Q Summary
Reporting period: Second quarter and six months ended July 31, 2021. Financial statements are unaudited. The filing covers fiscal 2021; the requested “2020 Q2” metadata does not match the period shown in the filing.
Financial results
| Metric | Three months ended July 31, 2021 | Six months ended July 31, 2021 | Prior-year comparison |
|---|---|---|---|
| Total revenue | $207.7 million | $420.8 million | $168.2 million and $268.9 million, respectively |
| Net income (loss) | $14.0 million | $34.7 million | $(7.2) million and $(35.6) million, respectively |
| Diluted EPS | $0.62 | $1.54 | $(0.30) and $(1.48), respectively |
| Gross margin dollars | $90.4 million | $177.9 million | $33.5 million and $48.7 million, respectively |
Retail sales rose 24% in the quarter and 57% in the six-month period year over year; same-store sales increased 23% and 56%, respectively. The comparisons reflect stores being open in 2021 after pandemic-related closures in 2020, and management said sales remained well below comparable 2019 levels.
As a share of retail sales, cost of goods sold was 56.1% for the quarter and 57.3% year to date, versus 79.8% and 81.6% a year earlier. SG&A was 34.5% and 32.2%, versus 26.4% and 36.4%. Net margin was 6.8% for the quarter and 8.3% year to date, compared with losses of 4.3% and 13.4%.
Six-month operating cash flow was $82.0 million, versus $48.2 million used in the prior-year period. Capital expenditures were $1.1 million. At July 31, cash and cash equivalents were $25.4 million and short-term investments were $191.5 million; working capital was $148.2 million. The company had no revolving-credit borrowings and reported $35 million of available facility capacity, with the credit agreement committed through May 2023. Lease liabilities totaled $149.6 million, including $54.6 million current. Total assets were $590.8 million and stockholders’ equity was $273.8 million.
Changes and notable items
- Year-over-year earnings improved from losses to profits, alongside higher sales and substantially lower cost of goods sold as a percentage of sales. The comparison is heavily affected by 2020 store closures and impairment charges.
- SG&A expense rose in the quarter, primarily due to employee benefit and bonus expense and higher store operating costs as operating hours expanded.
- During the quarter, reassessment of renewal likelihood for about 80 stores reduced right-of-use assets by $25.8 million. The filing does not identify this as a separate cash charge.
- The company repurchased 64,709 shares during the quarter for approximately $1.0 million. After July 31, it repurchased 168,390 additional shares for approximately $2.8 million.
- The company recorded estimated CARES Act tax refunds of $33.0 million in accounts receivable, calculated through the first quarter of 2021.
Outlook, risks and contingencies
Management expected fewer than 10 store openings and approximately 25 store closures in fiscal 2021, with about $4.1 million in capital expenditures. It stated that cash, investments, operating cash flows and available credit should fund regular operations and expected capital spending for fiscal 2021 and the following 12 months. These are management expectations, not a detailed earnings forecast.
Management cited continuing uncertainty from COVID-19 and variants, consumer traffic and confidence, supply-chain disruption, inventory delays, labor availability, and higher freight and logistics costs. Other stated risks include fashion and demand shifts, competition and pricing, weather, and inventory liquidation at anticipated margins. Routine litigation is disclosed; management did not believe currently pending matters would have a material adverse effect, while noting outcomes remain uncertain. The company reported compliance with credit covenants and effective disclosure controls.
Important facts for investors to verify
- How sales and margins compare with pre-pandemic 2019 levels, given the unusually weak 2020 comparison.
- Whether sales recovery persists as stimulus effects, store traffic, operating hours and consumer confidence change.
- Progress on store openings and closures, and the financial impact of lease renewals and the approximately 80-store lease reassessment.
- Whether supply-chain, freight, labor and inventory conditions affect margins and the stated capital-spending and liquidity expectations.
- The timing and realization of the estimated $33.0 million tax refund and the availability and performance of short-term investments.