Summary Of Accounting Policies - (Policies)

12 Months Ended

Jan. 29, 2022

General Dsiclosure [Abstract]

Principles Of Consolidation

Principles of Consolidation:

The Consolidated Financial Statements include the accounts of The Cato

Corporation and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts

and transactions have been eliminated.

Description of Fiscal Year

Description of Business and Fiscal

Year:

 The Company has two reportable segments — the

operation of a fashion specialty stores segment (“Retail Segment”) and a credit card segment (“Credit

Segment”). The apparel specialty stores operate under the names “Cato,” “Cato Fashions,” “Cato Plus,”

“It’s Fashion,” “It’s Fashion Metro” and “Versona,” including e-commerce websites. The stores are

located primarily in strip shopping centers principally in the southeastern United States. The Company’s

fiscal year ends on the Saturday nearest January 31 of the subsequent year.

Use Of Estimates

Use of Estimates:

 The preparation of the Company’s financial statements in conformity with

accounting principles generally accepted in the United States (“GAAP”) requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of

contingent assets and liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant accounting estimates reflected in the Company’s financial statements include the allowance

for customer credit losses, inventory shrinkage, the calculation of potential asset impairment, workers’

compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, and

uncertain tax positions.

Cash And Cash Equivalents

Cash and Cash Equivalents: 

Cash and cash equivalents consist of highly liquid investments with

original maturities of three months or less.

Short-Term Investments

Short-Term Investments:

 Investments with original maturities beyond three months are classified

as short-term investments. See Note 3 for the Company’s estimated fair value of, and other information

regarding, its short-term investments.

The Company’s short-term investments are all classified as

available-for-sale. As they are available for current operations, they are classified on the Consolidated

Balance Sheets as Current Assets. Available-for-sale securities are carried at fair value, with unrealized

gains and temporary losses, net of income taxes, reported as a component of Accumulated other

comprehensive income. Other than temporary declines in the fair value of investments are recorded as a

reduction in the cost of the investments in the accompanying Consolidated Balance Sheets and a

reduction of Interest and other income in the accompanying Consolidated Statements of Income and

Comprehensive Income. The cost of debt securities is adjusted for amortization of premiums and

accretion of discounts to maturity. The amortization of premiums, accretion of discounts and realized

gains and losses are included in Interest and other income.

Restricted Cash And Short-Term Investments

Restricted Cash and Restricted Short-term Investments:

The Company had $

3.9

 million and $

3.9

million in escrow at January 29, 2022 and January 30, 2021, respectively, as security and collateral for

administration of the Company’s self-insured workers’ compensation and general liability coverage,

which is reported as Restricted cash and Restricted short-term investments on the Consolidated Balance

Sheets.

Supplemental Cash Flow Information

Supplemental Cash Flow Information:

Income tax payments, net of refunds received, for the fiscal

years ended January 29, 2022, January 30, 2021 and February 1, 2020 were a payment of $

13,176,000

, a

payment of $

6,825,000

 and a refund of $

4,681,000

, respectively.

Inventories

Inventories:

Merchandise inventories are stated at the net realizable value as determined by the

weighted-average cost method.

PropertyAnd Equipment

Property and Equipment:

Property and equipment are recorded at cost, including land. Maintenance

and repairs are expensed to operations as incurred; renewals and betterments are capitalized. Depreciation

is determined on the straight-line method over the estimated useful lives of the related assets excluding

leasehold improvements. Leasehold improvements are amortized over the shorter of the estimated useful

life or lease term. For leases with renewal periods at the Company’s option, the Company generally uses

the original lease term plus reasonably assured renewal option periods (generally one five-year option

period) to determine estimated useful lives. Typical estimated useful lives are as follows:

`

Estimated

Classification

Useful Lives

Land improvements 

10 years

Buildings 

30-40 years

Leasehold improvements 

5-10 years

Fixtures and equipment 

3-10 years

Information technology equipment and software 

3-10 years

Aircraft

20 years

Impairment Of Long-Lived Assets

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 future projected cash flows, which include contribution margin 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. Asset impairment charges of $

900,719

, $

13,702,022

 and $

146,026

were incurred in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

Leases

Leases:

In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard

Codification (“ASC”) 842 -

Leases

, with amendments issued in 2018. The guidance requires lessees to

recognize most leases on the balance sheet but does not change the manner in which expenses are

recorded in the income statement. For lessors, the guidance modifies the classification criteria and the

accounting for sales-type and direct financing leases.

 The Company utilized a comprehensive approach to assess the impact of this guidance on its financial

statements and related disclosures, including the increase in the assets and liabilities on its balance sheet

and the impact on its current lease portfolio from a lessee perspective. The Company completed its

comprehensive review of its lease portfolio, which includes mostly store leases impacted by the new

guidance. The Company reviewed its internal controls over leases and, as a result, the Company enhanced

these controls; however, these changes are not considered material. In addition, the Company

implemented a new software platform, and corresponding controls, for administering its leases and

facilitating compliance with the new guidance.

 The Company elected the transition package of practical expedients that is permitted by the standard.

The package of practical expedients allows the Company to not reassess previous accounting conclusions

regarding whether existing arrangements are or contain leases, the classification of existing leases, and the

treatment of initial direct costs. The Company did not elect the hindsight transition practical expedient

allowed for by the new standard, which allows entities to use hindsight when determining lease term and

impairment of right-of-use assets.

 The Company adopted ASC 842 utilizing the modified retrospective approach as of February 3, 2019. 

The modified retrospective approach the Company selected provides a method of transition allowing

recognition of existing leases as of the beginning of the period of adoption (i.e., February 3, 2019), and

which does not require the adjustment of comparative periods. See Note 11 for further information.

 The Company leases all of its retail stores. Most lease agreements contain construction allowances

and rent escalations. For purposes of recognizing incentives and minimum rental expenses on a straight-

line basis over the terms of the leases, including renewal periods considered reasonably assured, the

Company begins amortization as of the initial possession date which is when the Company enters the

space and begins to make improvements in preparation for intended use.

Revenue Recognition

Revenue Recognition:

The Company recognizes sales at the point of purchase when the customer

takes possession of the merchandise and pays for the purchase, generally with cash or 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 as deferred revenue until the customer takes possession or 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. A provision is made for estimated write-offs associated with sales made with the

Company’s proprietary credit card. Amounts related to shipping and handling billed to customers in a

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.

 In accordance with ASU 2014-09,

Revenue from Contracts with Customers (Topic 606)

 (“Topic 606”),

in fiscal 2021, 2020 and 2019, the Company recognized $

1,482,000

, $

891,000

 and $

921,000

,

respectively, of income on unredeemed gift cards (“gift card breakage”) as a component of Other

Revenue on the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). Under

Topic 606, the Company recognizes gift card breakage using an expected breakage percentage based on

redeemed gift cards. See Note 2 for further information on miscellaneous income.

 The Company offers its own proprietary credit card to customers. All credit activity is performed by

the Company’s wholly-owned subsidiaries. None of the credit card receivables are secured. The

Company estimated customer credit losses of $

485,000

 and $

435,000

 for the twelve months ended

January 29, 2022 and January 30, 2021, respectively, on sales purchased on the Company’s proprietary

credit card of $

18.7

 million and $

15.2

 million for the twelve months ended January 29, 2022 and January

30, 2021, respectively.

 The following table provides information about receivables and contract liabilities from contracts with

customers (in thousands):

`

Balance as of

January 29, 2022

January 30, 2021

Proprietary Credit Card Receivables, net

$

8,998

$

9,606

Gift Card Liability

$

8,308

$

8,155

Cost Of Goods Sold

Cost of Goods Sold:

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 our buying departments and distribution center.

Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and

maintenance for stores and distribution facilities. Buying, distribution, occupancy and internal transfer

costs are treated as period costs and are not capitalized as part of inventory. The direct costs associated

with shipping goods to customers are recorded as a component of Cost of goods sold.

Stock Repurchase Program

Stock Repurchase Program: 

For the fiscal year ended January 29, 2022, the Company had 

450,047

shares remaining in open authorizations. There is no specified expiration date for the Company’s

repurchase program. Share repurchases are recorded in Retained earnings, net of par value. From year

end through March 23, 2022, the Company repurchased 156,707 shares for $2,515,310. The Board of

Directors increased the Company’s open share repurchase authorization by one million shares at the

February 24, 2022 Board of Directors meeting.

Advertising

Advertising:

Advertising costs are expensed in the period in which they are incurred. Advertising

expense was approximately $

6,037,000

, $

4,385,000

 and $

5,600,000

 for the fiscal years ended January 29,

2022, January 30, 2021 and February 1, 2020, respectively.

Earnings Per Share

Earnings Per Share:

ASC 260 -

Earnings Per Share

 requires dual presentation of basic EPS and

diluted 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 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). 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

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.

 The following table reflects the basic and diluted EPS calculations for the fiscal years ended January

29, 2022, January 30, 2021 and February 1, 2020:

`

Fiscal Year Ended

January 29, 2022

January 30, 2021

February 1, 2020

Numerator

(Dollars in thousands)

Net earnings (loss)

$

36,844

$

(47,483)

$

35,897

(Earnings) loss allocated to non-vested equity awards

(1,937)

2,096

(1,280)

Net earnings (loss) available to common stockholders

$

34,907

$

(45,387)

$

34,617

Denominator

Basic weighted average common shares outstanding

21,113,828

22,536,090

23,738,443

Diluted weighted average common shares outstanding

21,113,828

22,536,090

23,738,443

Net income (loss) per common share

Basic earnings (loss) per share

$

1.65

$

(2.01)

$

1.46

Diluted earnings (loss) per share

$

1.65

$

(2.01)

$

1.46

Income Taxes

Income Taxes:

The Company files a consolidated federal income tax return. Income taxes are

provided based on the asset and liability method of accounting, whereby deferred income taxes are

provided for temporary differences between the financial reporting basis and the tax basis of the

Company’s assets and liabilities.

 Unrecognized tax benefits for uncertain tax positions are established in accordance with ASC 740 –

Income Taxes

 when, despite the fact that the tax return positions are supportable, the Company believes

these positions may be challenged and the results are uncertain. The Company adjusts these liabilities in

light of changing facts and circumstances. Potential accrued interest and penalties related to

unrecognized tax benefits within operations are recognized as a component of Income before income

taxes. 

 The Company assesses the likelihood that deferred tax assets will be able to be realized, and based on

that assessment, the Company will determine if a valuation allowance should be recorded.

 In addition, the Tax Cuts and Jobs Act implemented a new minimum tax on global intangible low-

taxed income (“GILTI”). The Company has elected to account for GILTI tax in the period in which it is

incurred, which is included as a component of its current year provision for income taxes.

Store Opening Costs

Store Opening Costs:

Costs relating to the opening of new stores or the relocating or 

expanding of existing stores are expensed as incurred. A portion of construction, design, and site

selection costs are capitalized to new, relocated and remodeled stores.

Insurance

Insurance:

The Company is self-insured with respect to employee health care, workers’ compensation

and general liability. The Company’s self-insurance liabilities are based on the total estimated cost of

claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and

are not discounted. Management reviews current and historical claims data in developing its estimates.

The Company has stop-loss insurance coverage for individual claims in excess of $

325,000

 for employee

healthcare, $

350,000

 for workers’ compensation and $

250,000

 for general liability.

Fair Value Of Financial Instruments

Fair Value of Financial Instruments:

 The Company’s carrying values of financial instruments, such

as cash and cash equivalents, short-term investments, restricted cash and short-term investments,

approximate their fair values due to their short terms to maturity and/or their variable interest rates.

Stock Based Compensation

Stock Based Compensation:

 The Company records compensation expense associated with restricted

stock and other forms of equity compensation in accordance with ASC 718 -

Compensation – Stock

Compensation.

 Compensation cost associated with stock awards recognized in all years presented

includes: 1) amortization related to the remaining unvested portion of all stock awards based on the grant

date fair value and 2) adjustments for the effects of actual forfeitures versus initial estimated forfeitures.

Recent Accounting Pronouncements

Recently Adopted Accounting Policies: 

In December 2019, the FASB issued ASU 2019-12,

Income

Taxes (Topic 740): Simplifying the Accounting for Income Taxes

. The new accounting rules reduce

complexity by removing specific exceptions to general principles related to intraperiod tax allocations,

ownership changes in foreign investments, and interim period income tax accounting for year-to-date

losses that exceed anticipated losses. The new accounting rules also simplify accounting for franchise

taxes that are partially based on income, transactions with a government that result in a step up in the tax

basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted

changes in tax laws in interim periods. The Company adopted this accounting standards update on the

first day of the first quarter of 2021 with no material impact on its Condensed Consolidated Financial

Statements.

Other Asset Accounting Policy

Other Assets:

Other assets are comprised of long-term assets, primarily insurance contracts related to

deferred compensation assets and land held for investment purposes.

`

Fiscal Year Ended

January 29,

2022

January 30,

2021

(Dollars in thousands)

Other Assets

 Deferred Compensation Investments

$

11,472

$

11,264

 Miscellaneous Investments

1,818

1,264

 Other Deposits

1,319

522

 Land Held for Investment

9,334

9,334

 Other

494

466

Total Other Assets

$

24,437

$

22,850