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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 October 31, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________to__________________

Commission file number                1-31340

 

THE CATO CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

8100 Denmark Road, Charlotte, North Carolina28273-5975

(Address of principal executive offices)

(Zip Code)

 

(704)554-8510

(Registrant's telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

X

No

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

X

No

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

 

No

X

 

As of October 31, 2020, there were 21,170,417 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 October 31, 2020

Table of Contents

 

Page No.

 

PART I – FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

3

 

 

For the Three Months and Nine Months Ended October 31, 2020 and November 2, 2019

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

At October 31, 2020 and February 1, 2020

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

For the Nine Months Ended October 31, 2020 and November 2, 2019

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

6 – 7

 

 

For the Nine Months Ended October 31, 2020 and November 2, 2019

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8 – 23

 

 

For the Three Months and Nine Months Ended October 31, 2020 and November 2, 2019

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24 – 31

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

 

 

Item 1A.

Risk Factors

33

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

 

 

Item 5.

Other Information

35

 

 

 

 

 

Item 6.

Exhibits

35

 

 

 

 

 

Signatures

36

 

2


 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

October 31, 2020

 

November 2, 2019

 

October 31, 2020

 

November 2, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

REVENUES

 

 

 

 

 

 

 

 

 

 

 

Retail sales

$

149,205

 

$

189,357

 

$

414,283

 

$

627,780

Other revenue (principally finance charges, late fees and

 

 

 

 

 

 

 

 

 

 

 

layaway charges)

 

1,586

 

 

2,166

 

 

5,410

 

 

6,676

Total revenues

 

150,791

 

 

191,523

 

 

419,693

 

 

634,456

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES, NET

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (exclusive of depreciation shown below)

 

109,404

 

 

118,624

 

 

325,738

 

 

385,079

Selling, general and administrative (exclusive of depreciation

 

 

 

 

 

 

 

 

 

 

 

shown below)

 

51,885

 

 

64,681

 

 

148,353

 

 

196,737

Depreciation

 

3,619

 

 

3,844

 

 

11,113

 

 

11,523

Interest and other income

 

(791)

 

 

(1,662)

 

 

(3,603)

 

 

(4,491)

Cost and expenses, net

 

164,117

 

 

185,487

 

 

481,601

 

 

588,848

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

(13,326)

 

 

6,036

 

 

(61,908)

 

 

45,608

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(9,704)

 

 

51

 

 

(22,698)

 

 

6,501

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(3,622)

 

$

5,985

 

$

(39,210)

 

$

39,107

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

$

(0.15)

 

$

0.24

 

$

(1.64)

 

$

1.59

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

$

(0.15)

 

$

0.24

 

$

(1.64)

 

$

1.59

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(3,622)

 

$

5,985

 

$

(39,210)

 

$

39,107

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

 

 

 

 

 

 

 

 

 

 

 

deferred income taxes of ($85) and ($29) for the three and

 

 

 

 

 

 

 

 

 

 

 

nine months ended October 31, 2020 and ($8) and $380 for

 

 

 

 

 

 

 

 

 

 

 

the three and nine months ended November 2, 2019, respectively

 

(282)

 

 

(25)

 

 

(96)

 

 

1,246

Comprehensive income (loss)

$

(3,904)

 

$

5,960

 

$

(39,306)

 

$

40,353

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements (unaudited).

3


 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

October 31, 2020

 

February 1, 2020

 

 

 

 

 

 

ASSETS

(Dollars in thousands)

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

18,812

 

$

11,824

Short-term investments

 

132,574

 

 

200,387

Restricted cash

 

3,102

 

 

2,577

Restricted short-term investments

 

815

 

 

1,319

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

$574 and $726 at October 31, 2020 and February 1, 2020, respectively

 

47,725

 

 

26,088

Merchandise inventories

 

84,281

 

 

115,365

Prepaid expenses and other current assets

 

7,185

 

 

5,237

Total Current Assets

 

294,494

 

 

362,797

Property and equipment – net

 

81,853

 

 

88,667

Noncurrent deferred income taxes

 

7,464

 

 

8,636

Other assets

 

22,722

 

 

24,073

Right-of-Use assets – net

 

184,338

 

 

200,803

Total Assets

$

590,871

 

$

684,976

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

$

74,999

 

$

68,438

Accrued expenses

 

45,843

 

 

47,099

Accrued bonus and benefits

 

259

 

 

18,913

Accrued income taxes

 

1,388

 

 

1,703

Current lease liability

 

54,250

 

 

63,149

Total Current Liabilities

 

176,739

 

 

199,302

Other noncurrent liabilities

 

19,799

 

 

21,976

Lease liability

 

138,196

 

 

147,184

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

Preferred stock, $100 par value per share, 100,000 shares

 

 

 

 

 

authorized, none issued

 

-

 

 

-

Class A common stock, $0.033 par value per share, 50,000,000

 

 

 

 

 

shares authorized; 21,170,417 shares and 22,535,779 shares

 

 

 

 

 

issued at October 31, 2020 and February 1, 2020, respectively

 

717

 

 

761

Convertible Class B common stock, $0.033 par value per share,

 

 

 

 

 

15,000,000 shares authorized; 1,763,652 shares and 1,763,652 shares

 

 

 

 

 

issued at October 31, 2020 and February 1, 2020, respectively

 

59

 

 

59

Additional paid-in capital

 

114,196

 

 

110,813

Retained earnings

 

139,838

 

 

203,458

Accumulated other comprehensive income (loss)

 

1,327

 

 

1,423

Total Stockholders' Equity

 

256,137

 

 

316,514

Total Liabilities and Stockholders' Equity

$

590,871

 

$

684,976

 

See notes to condensed consolidated financial statements (unaudited).

4


 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

October 31, 2020

 

November 2, 2019

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

Net income (loss)

$

(39,210)

 

$

39,107

 

Adjustments to reconcile net income (loss) to net cash provided (used)

 

 

 

 

 

 

by operating activities:

 

 

 

 

 

 

Depreciation

 

11,113

 

 

11,523

 

Provision for doubtful accounts

 

202

 

 

539

 

Purchase premium and premium amortization of investments

 

(613)

 

 

(380)

 

Share-based compensation

 

3,010

 

 

3,450

 

Deferred income taxes

 

1,201

 

 

-

 

Loss on disposal of property and equipment

 

438

 

 

555

 

Impairment of store assets

 

7,525

 

 

-

 

Changes in operating assets and liabilities which provided

 

 

 

 

 

 

(used) cash:

 

 

 

 

 

 

Accounts receivable

 

(21,814)

 

 

119

 

Merchandise inventories

 

31,084

 

 

5,536

 

Prepaid and other assets

 

(2,223)

 

 

37,447

 

Operating lease right-of-use assets and liabilities

 

(1,422)

 

 

-

 

Accrued income taxes

 

(315)

 

 

1,568

 

Accounts payable, accrued expenses and other liabilities

 

(15,041)

 

 

(50,158)

 

Net cash provided (used) by operating activities

 

(26,065)

 

 

49,306

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Expenditures for property and equipment

 

(11,228)

 

 

(4,946)

 

Purchase of short-term investments

 

(54,910)

 

 

(177,807)

 

Sales of short-term investments

 

123,860

 

 

160,858

 

Purchase of other assets

 

-

 

 

(332)

 

Sales of other assets

 

200

 

 

13

 

Net cash provided (used) in investing activities

 

57,922

 

 

(22,214)

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

Dividends paid

 

(7,912)

 

 

(24,461)

 

Repurchase of common stock

 

(16,823)

 

 

(5,032)

 

Proceeds from line of credit

 

34,000

 

 

-

 

Payments on line of credit

 

(34,000)

 

 

-

 

Proceeds from employee stock purchase plan

 

391

 

 

563

 

Net cash provided (used) in financing activities

 

(24,344)

 

 

(28,930)

 

 

 

 

 

 

 

 

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

 

7,513

 

 

(1,838)

 

 

 

 

 

 

 

 

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

 

14,401

 

 

25,209

 

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

$

21,914

 

$

23,371

 

 

 

 

 

 

 

 

Non-cash activity:

 

 

 

 

 

 

Accrued other assets and property and equipment

$

2,604

 

$

1,538

 

Accrued treasury stock

 

556

 

 

-

 

 

See notes to condensed consolidated financial statements (unaudited).

5


 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

Convertible

 

 

 

 

Accumulated

 

 

 

Class A

Class B

Additional

 

 

Other

Total

 

Common

Common

Paid-in

Retained

Comprehensive

Stockholders'

 

Stock

Stock

Capital

Earnings

Income

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — February 1, 2020

$

761

$

59

$

110,813

$

203,458

$

1,423

$

316,514

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

(28,417)

 

-

 

(28,417)

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

 

 

 

 

 

 

 

 

 

 

 

 

deferred income tax benefit of ($90)

 

-

 

-

 

-

 

-

 

(298)

 

(298)

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(7,990)

 

-

 

(7,990)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 26,957 shares

 

1

 

-

 

293

 

-

 

-

 

294

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

307,354 shares

 

10

 

-

 

587

 

8

 

-

 

605

Repurchase and retirement of treasury shares – 618,056 shares

 

(22)

 

-

 

-

 

(9,034)

 

-

 

(9,056)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — May 2, 2020

$

750

$

59

$

111,693

$

158,025

$

1,125

$

271,652

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

(7,170)

 

-

 

(7,170)

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

 

 

 

 

 

 

 

 

 

 

 

 

deferred income tax liability of $146

 

-

 

-

 

-

 

-

 

484

 

484

Dividends paid ($0 per share)

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

(57,805) shares

 

(2)

 

-

 

1,256

 

(1)

 

-

 

1,253

Repurchase and retirement of treasury shares – 0 shares

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — August 1, 2020

$

748

$

59

$

112,949

$

150,854

$

1,609

$

266,219

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

(3,622)

 

-

 

(3,622)

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

 

 

 

 

 

 

 

 

 

 

 

 

deferred income tax benefit of ($85)

 

-

 

-

 

-

 

-

 

(282)

 

(282)

Dividends paid ($0 per share)

 

-

 

-

 

-

 

78

 

-

 

78

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 21,234 shares

 

1

 

-

 

166

 

-

 

-

 

167

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

(8,440) shares

 

-

 

-

 

1,081

 

1

 

-

 

1,082

Repurchase and retirement of treasury shares – 1,036,610 shares

 

(32)

 

-

 

-

 

(7,473)

 

-

 

(7,505)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — October 31, 2020

$

717

$

59

$

114,196

$

139,838

$

1,327

$

256,137

 

See notes to condensed consolidated financial statements (unaudited).

6


 

THE CATO CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

Convertible

 

 

 

 

Accumulated

 

 

 

Class A

Class B

Additional

 

 

Other

Total

 

Common

Common

Paid-in

Retained

Comprehensive

Stockholders'

 

Stock

Stock

Capital

Earnings

Income

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — February 2, 2019

$

767

$

59

$

105,580

$

210,507

$

(77)

$

316,836

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

21,256

 

-

 

21,256

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

 

 

 

 

 

 

 

 

 

 

 

 

deferred income tax liability of $126

 

-

 

-

 

-

 

-

 

412

 

412

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,118)

 

-

 

(8,118)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 20,676 shares

 

1

 

-

 

307

 

-

 

-

 

308

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

355,609 shares

 

11

 

-

 

624

 

10

 

-

 

645

Repurchase and retirement of treasury shares – 208,041 shares

 

(7)

 

-

 

-

 

(2,827)

 

-

 

(2,834)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — May 4, 2019

$

772

$

59

$

106,511

$

220,828

$

335

$

328,505

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

11,866

 

-

 

11,866

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

 

 

 

 

 

 

 

 

 

 

 

 

deferred income tax liability of $262

 

-

 

-

 

-

 

-

 

859

 

859

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,173)

 

-

 

(8,173)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 5,402 shares

 

-

 

-

 

67

 

-

 

-

 

67

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

System.Object[] shares

 

-

 

-

 

1,479

 

15

 

-

 

1,494

Repurchase and retirement of treasury shares – 0 shares

 

-

 

-

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — August 3, 2019

$

772

$

59

$

108,057

$

224,536

$

1,194

$

334,618

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

 

-

 

-

 

5,985

 

-

 

5,985

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

 

 

 

 

 

 

 

 

 

 

 

 

deferred income tax benifit of ($8)

 

-

 

-

 

-

 

-

 

(25)

 

(25)

Dividends paid ($0.33 per share)

 

-

 

-

 

-

 

(8,170)

 

-

 

(8,170)

Class A common stock sold through employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

plan — 18,252 shares

 

-

 

-

 

287

 

-

 

-

 

287

Class B common stock sold through stock option plans —

 

 

 

 

 

 

 

 

 

 

 

 

0 shares

 

-

 

-

 

-

 

-

 

-

 

-

Class A common stock issued through restricted stock grant plans —

 

 

 

 

 

 

 

 

 

 

 

 

System.Object[] shares

 

-

 

-

 

1,199

 

13

 

-

 

1,212

Repurchase and retirement of treasury shares – 129,339 shares

 

(4)

 

-

 

-

 

(2,194)

 

-

 

(2,198)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — November 2, 2019

$

768

$

59

$

109,543

$

220,170

$

1,169

$

331,709

 

See notes to condensed consolidated financial statements (unaudited).

7


 

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

 

 

 

NOTE 1 - GENERAL:

 

The condensed consolidated financial statements have been prepared from the accounting records of The Cato Corporation and its wholly-owned subsidiaries (the “Company”), and all amounts shown as of and for the periods ended October 31, 2020 and November 2, 2019 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included. All such adjustments are of a normal, recurring nature unless otherwise noted. The results of the interim period may not be indicative of the results expected for the entire year.

 

The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020. Amounts as of February 1, 2020 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 August 27, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1 million shares.

 

Subsequent to October 31, 2020, the Company repurchased 320,707 shares for $2,274,610.

 

Additionally, on November 19, 2020, the Board of Directors authorized an increase in the Company’s share repurchase program of 1.5 million shares.

 

COVID-19 Update

 

The COVID-19 pandemic has created, and may continue to create, challenges and uncertainties for our business. In the first quarter of fiscal 2020, the pandemic resulted in state and local orders mandating store closures and other measures to mitigate the spread of the virus. Recently reported increases in infection rates in many areas and the onset of cooler weather raise the possibility of increased or renewed governmental measures or public health guidance to reduce public activity and gatherings in order to mitigate the spread of the virus, as well as continued adverse effect on consumer confidence. Responses by customers, government and the private sector have and will likely continue to adversely impact our business operations for the remainder of fiscal 2020 and possibly beyond. The extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.

 

Beginning March 19, 2020, the Company temporarily closed all Cato, It’s Fashion, It’s Fashion Metro and Versona stores. In addition, the Company suspended its quarterly dividend, significantly reduced capital expenditures and reduced its SG&A expense through the reduction of non-payroll expenses, as well as furloughed associates and in certain instances eliminated positions primarily at its corporate office. Beginning on May 1, 2020, the Company began to re-open stores based on the pertinent state and local orders. As of June 15, 2020, all stores have re-opened. Although all stores have re-opened, stores are operating at reduced hours and stores may be temporarily closed or subject to further operating restrictions in compliance with local regulations or in response to public health guidance due to COIVD-19. There is significant uncertainty around the duration, breadth and severity of continued business disruptions related to

8


 

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

 

 

 

COVID-19, as well as its impact on the U.S. economy, consumer willingness to visit malls and shopping centers, and associate staffing for our stores. At this time, the possible effects of national, state or local action, legislation, guidelines or programs that attempt to mitigate the spread of COVID-19 or address its economic effects on our customers, suppliers or the Company are also uncertain.

 

While the Company currently anticipates that our results for the remainder of fiscal 2020 will be adversely impacted, the extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain, including possible new information and understanding about the severity of COVID-19, related potential economic impacts to customers and suppliers, and the effect of actions taken to contain it or mitigate its impact.

 

Accounting Policies - Impairment of Long-Lived Assets:

 

The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and Information technology equipment and software. An impairment charge is recorded for the amount by which the carrying value exceeds the estimated fair value when the Company determines that projected cash flows associated with those long-lived assets will not be sufficient to recover the carrying value. This determination is based on a number of factors, including the store’s historical operating results and projected cash flows, which include future sales growth rates, margin rates and expense projections. The Company assesses the fair value of each lease by considering market rents and any lease terms that may adjust market rents under certain conditions, such as the loss of an anchor tenant or a leased space in a shopping center not meeting certain criteria. Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change. As a result of store closures during the first quarter of 2020, the Company determined a triggering event occurred, which resulted in an impairment analysis being performed. An asset impairment charge of $5.3 million was recorded in the first quarter of 2020, and no additional impairment was required in the second and third quarters of 2020. During the third quarter of 2020, the Company determined no new stores would be opened during the remainder of 2020, as well as 2021. As a result, during the third quarter of 2020, the Company impaired $2.3 million worth of fixtures planned for new stores.

 

Recently Adopted Accounting Policies

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure and recognize expected credit losses for financial assets held at amortized costs based on expected losses rather than incurred losses. The new accounting rules were effective for the Company in the first quarter of 2020 and had a minimal impact on the financial statements.

9


 

 

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 2020 AND NOVEMBER 2, 2019

 

 

 

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 on Class A shares without declaration of commensurate dividends on Class B shares, the Company has historically paid the same dividends to both Class A and Class B shareholders and the Board of Directors has resolved to continue this practice. Accordingly, the Company’s allocation of income for purposes of the EPS computation is the same for Class A and Class B shares and the EPS amounts reported herein are applicable to both Class A and Class B shares.

 

Basic EPS is computed as net income less earnings allocated to non-vested equity awards divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and the Employee Stock Purchase Plan.

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

October 31, 2020

 

 

November 2, 2019

 

 

October 31, 2020

 

 

November 2, 2019

 

 

(Dollars in thousands)

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(3,622)

 

$

5,985

 

$

(39,210)

 

$

39,107

 

(Earnings) loss allocated to non-vested equity awards

 

 

155

 

 

(220)