Cato Fashion - 10-Q quarterly report FY2024 Q1

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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

May 4, 2024

☐

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

May 4,

2024, there

were

18,791,732

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 May 4, 2024

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

May 4, 2024 and April 29, 2023

Condensed Consolidated Balance Sheets

At May 4, 2024 and

February 3, 2024

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended May 4, 2024 and

April 29, 2023

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended May 4, 2024 and

April 29, 2023

Notes to Condensed Consolidated Financial Statements

6 - 19

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results

of Operations

20 - 26

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

May 4, 2024

April 29, 2023

(Dollars in thousands, except per share data)

REVENUES

Retail sales

175,272

190,311

Other revenue (principally finance charges, late fees and

layaway charges)

1,827

1,739

Total revenues

177,099

192,050

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

112,505

122,087

Selling, general and administrative (exclusive of depreciation

shown below)

56,752

61,934

Depreciation

2,040

2,357

Interest and other income

(5,821)

(897)

Costs and expenses, net

165,476

185,481

Income before income taxes

11,623

6,569

Income tax expense

649

2,141

Net income

10,974

4,428

Basic earnings per share

0.54

0.22

Diluted earnings per share

0.54

0.22

Comprehensive income:

Net income

10,974

4,428

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

of deferred income taxes of $0 and $

107

(748)

355

for the three months ended May 4, 2024 and April 29, 2023,

respectively

Comprehensive income

10,226

4,783

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

May 4, 2024

February 3, 2024

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

39,101

23,940

Short-term investments

66,250

79,012

Restricted cash

3,533

3,973

Accounts receivable, net of allowance for customer credit losses of

671

and $

705

at May 4, 2024 and February 3, 2024, respectively

31,716

29,751

Merchandise inventories

101,317

98,603

Prepaid expenses and other current assets

7,724

7,783

Total Current Assets

249,641

243,062

Property and equipment – net

64,568

64,022

Other assets

23,305

25,047

Right-of-Use assets – net

139,635

154,686

Total Assets

477,149

486,817

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

86,966

87,821

Accrued expenses

38,490

37,404

Accrued bonus and benefits

2,023

1,675

Accrued income taxes

518

Current lease liability

55,800

61,108

Total Current Liabilities

183,797

188,008

Other noncurrent liabilities

14,607

14,475

Lease liability

81,834

92,013

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;

18,791,732

and

18,802,742

shares issued

at May 4, 2024 and February 3, 2024, respectively

635

Convertible Class B common stock, $

0.033

par value per share,

15,000,000

shares authorized;

1,763,652

shares issued at May 4, 2024 and February 3, 2024

Additional paid-in capital

127,058

126,953

Retained earnings

69,512

64,279

Accumulated other comprehensive income (loss)

(353)

395

Total Stockholders' Equity

196,911

192,321

Total Liabilities and Stockholders’ Equity

477,149

486,817

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(UNAUDITED)

Three Months Ended

May 4, 2024

April 29, 2023

(Dollars in thousands)

Operating Activities:

Net income

10,974

4,428

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

2,040

2,357

Provision for customer credit losses

171

Purchase premium and premium amortization of investments

(136)

(18)

Gain on sale of assets held for investment

(4,093)

Share-based compensation

(38)

958

Deferred income taxes

(832)

Loss (Gain) on disposal of property and equipment

(33)

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

Accounts receivable

(1,836)

(1,793)

Merchandise inventories

(2,714)

5,243

Prepaid and other assets

(618)

Operating lease right-of-use assets and liabilities

(435)

(532)

Accrued income taxes

518

2,066

Accounts payable, accrued expenses and other liabilities

1,163

(1,429)

Net cash provided by operating activities

5,706

9,895

Investing Activities:

Expenditures for property and equipment

(3,261)

(6,170)

Purchase of short-term investments

(8,572)

(5,914)

Sales of short-term investments

21,413

27,421

Sales of other assets

5,034

Net cash provided by investing activities

14,614

15,337

Financing Activities:

Dividends paid

(3,523)

(3,455)

Repurchase of common stock

(2,237)

(2,267)

Proceeds from employee stock purchase plan

161

166

Net cash used by financing activities

(5,599)

(5,556)

Net increase in cash, cash equivalents, and restricted cash

14,721

19,676

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

27,913

23,792

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

42,634

43,468

Non-cash activity:

Accrued other assets and property and equipment expenditures

491

644

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 (Loss)

Equity

(Dollars in thousands)

Balance — February 3, 2024

694

126,953

64,279

395

192,321

Comprehensive income:

Net income

10,974

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

income tax benefit of $0

(748)

Dividends paid ($

0.17

per share)

(3,523)

Class A common stock sold through employee stock purchase

plan

189

190

Share-based compensation issuances and exercises

Share-based compensation expense

(84)

Repurchase and retirement of treasury shares

(14)

(2,223)

(2,237)

Balance — May 4, 2024

694

127,058

69,512

(353)

196,911

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

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 losses 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

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

May

2024

and

for

the

thirteen-week

periods

ended

May

2024

and

April

29,

2023

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

February 3, 2024.

Amounts as of February 3, 2024 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 February 16, 2024, the Company closed on the sale of land held for investment.

The sale resulted in a

net

gain

3.2

million

and

included

Interest

and

other

income

the

accompanying

Condensed

Consolidated Statements of Income and Comprehensive Income

for the period ended May 4, 2024.

On May 23, 2024, 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

May 4, 2024

April 29, 2023

(Dollars in thousands)

Numerator

Net earnings

10,974

4,428

Earnings allocated to non-vested equity awards

(557)

(227)

Net earnings available to common stockholders

10,417

4,201

Denominator

Basic weighted average common shares outstanding

19,356,789

19,303,048

Diluted weighted average common shares outstanding

19,356,789

19,303,048

Net income per common share

Basic earnings per share

0.54

0.22

Diluted earnings per share

0.54

0.22

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 (loss) (in thousands) for

the three months ended May 4,

2024:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 3, 2024

395

Other comprehensive income (loss) before

reclassification

(1,434)

Amounts reclassified from accumulated

other comprehensive income (b)

686

Net current-period other comprehensive income (loss)

(748)

Ending Balance at May 4, 2024

(353)

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

income.

(b) Includes $

892

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

206

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

other

comprehensive income (loss) (in thousands) for

the three months ended April 29,

2023:

Changes in Accumulated Other

Comprehensive Income (Loss) (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

Net current-period other comprehensive income (loss)

355

Ending Balance at April 29, 2023

(883)

(a) All amounts are net-of-tax.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – FINANCING ARRANGEMENTS:

May

2024,

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.

On April

25, 2024,

the

Company

amended

the

revolving

credit

agreement

modify

definition

used

calculating

the

Company’s

minimum EBITDAR

coverage ratio

add back

certain

income tax

receivables included

the calculation of

the ratio. For

the quarter ended

May 4, 2024,

after giving effect

to the

amendment, the

Company was

in compliance

with the

credit agreement.

There were

borrowings outstanding,

r any

outstanding

letters

credit

that

reduced

borrowing

availability,

May

2024.

The

weighted

average interest rate under the credit facility was

zero

at May 4, 2024 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

customers in a similar manner.

The

Company

operates

its

women’s

fashion

specialty

retail

stores

states

May

2024,

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 separate

wholly-owned

subsidiaries 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

May 4, 2024

Retail

Credit

Total

Revenues

$176,430

$669

$177,099

Depreciation

2,040

Interest and other income

(5,821)

Income before taxes

11,374

249

11,623

Capital expenditures

3,261

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

Retail

Credit

Total

Total assets as of May 4, 2024

$438,371

$38,778

$477,149

Total assets as of February 3, 2024

448,488

38,329

486,817

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

May 4, 2024

April 29, 2023

Payroll

153

134

Postage

102

101

Other expenses

165

194

Total expenses

420

429

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE BASED COMPENSATION:

May

2024,

the

Company

had

the

2018

Incentive

Compensation

Plan

for

the

granting

various

forms of equity-based awards,

including restricted stock

and stock options for

grant to officers, directors

and

key employees.

The

following

table

presents

the

number

options

and

restricted

stock

initially

authorized

and

available for grant under this plan as

of May 4, 2024:

2018

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,760,305

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 May 4,

2024

and

February 3,

2024,

there

was

11,103,000

and

9,334,000

respectively,

total

unrecognized

compensation

expense

unvested

restricted

stock

awards,

which

had

remaining

weighted-

average vesting period of

3.0

years and

2.1

years, respectively.

The total compensation benefit during the

three months ended

May 4, 2024

was $

66,000

compared to an

expense of $

932,000

for the three

months

ended

April

29,

2023.

This

compensation activity

classified

component of

Selling,

general

and

administrative expenses in the Condensed Consolidated Statements of Income.

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

outstanding

during

the three months ended May

4, 2024:

Weighted

Average

Number of

Grant Date Fair

Value

Per Share

Restricted stock awards at February 3, 2024

1,123,873

11.32

Granted

389,900

4.76

Vested

(232,696)

13.22

Forfeited or expired

(2,812)

11.81

Restricted stock awards at May 4, 2024

1,278,265

8.97

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE BASED COMPENSATION (CONTINUED):

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

May 4,

2024 and

April 29,

2023,

the

Company

sold

33,317

and

22,194

employees

average

discount

0.86

and

1.32

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

for

each

the

three

months

ended

May

2024

and

April

29,

2023.

These

expenses

are

classified

component

Selling, general and administrative expenses in

the Condensed Consolidated Statements of 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 May 4, 2024 and

February 3, 2024:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

May 4, 2024

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

11,477

Corporate Bonds

43,290

U.S. Treasury/Agencies Notes and Bonds

9,873

Cash Surrender Value of Life Insurance

8,749

Asset-backed Securities (ABS)

1,610

Corporate Equities

139

Total Assets

75,138

139

66,250

8,749

Liabilities:

Deferred Compensation

(8,662)

Total Liabilities

(8,662)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

February 3,

2024

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

12,540

Corporate Bonds

45,400

U.S. Treasury/Agencies Notes and Bonds

18,114

Cash Surrender Value of Life Insurance

8,586

Asset-backed Securities (ABS)

2,958

Corporate Equities

1,084

Total Assets

88,682

1,084

79,012

8,586

Liabilities:

Deferred Compensation

(8,654)

Total Liabilities

(8,654)

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 of A or better at May 4, 2024

and February 3, 2024.

The state, municipal and corporate bonds and asset-backed securities have contractual

maturities

which

range

from

seven days

3.0

years.

The

U.S.

Treasury/Agencies

Notes

and

Bonds

have

contractual maturities which range from

months to

1.8

years. These securities are classified as

available-for-

sale

and

are

recorded

Short-term

investments

and

Other

assets

the

accompanying

Condensed

Consolidated Balance Sheets. These

assets are carried

at fair value

with unrealized gains and

losses reported

net of

taxes in

Accumulated other

comprehensive income.

The asset-backed

securities are

bonds comprised

of 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, at May 4, 2024, the Company had $

0.1

million of corporate equities and deferred compensation

plan assets

of $

8.7

million.

At February

3, 2024,

the Company

had $

1.1

million of

corporate equities

and

deferred compensation plan assets

of $

8.6

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

the assistance

of a

third-party pricing

service.

Since quoted

prices in

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

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

May 4, 2024 and February 3,

2024 (dollars in thousands):

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 3, 2024

8,586

Redemptions

Additions

Total gains or (losses)

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

163

Ending Balance at May 4, 2024

8,749

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 3, 2024

(8,654)

Redemptions

253

Additions

(63)

Total (gains) or losses

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

(198)

Ending Balance at May 4, 2024

(8,662)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at January 28, 2023

9,274

Redemptions

(1,168)

Additions

Total gains or (losses)

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

480

Ending Balance at February 3, 2024

8,586

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at January 28, 2023

(8,903)

Redemptions

1,119

Additions

(292)

Total (gains) or losses

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

(578)

Ending Balance at February 3, 2024

(8,654)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

November

2023,

the

Financial

Accounting

Standards

Board

(“FASB”)

issued

Accounting

Standards

Update

(“ASU”)

2023-07,

“Segment

Reporting

(Topic

280):

Improvements

Reportable

Segment

Disclosures”,

which

modifies

disclosure

requirements

for

all

public

entities

that

are

required

report

segment

information.

The update

will change

the

reporting of

segments by

adding

significant

segment

expenses, other segment items, title

and position of the chief

operating decision maker (“COD”) and how

the

COD uses

the

reported measures

make decisions.

The

update also

requires all

annual disclosure

about

a reportable

segment’s

profit or

loss and

assets in

interim periods.

This

guidance is

effective for

fiscal

years

beginning

after

December

15,

2023

and

interim

periods

within

fiscal

years

beginning

after

December

15,

2024.

Early

adoption

permitted,

and

the

guidance

applicable

retrospectively

all

prior periods presented in the financial statements.

The Company is currently in the process of evaluating

the potential impact

of adoption of this

new guidance on its

consolidated financial statements and

disclosures.

December

2023,

the

FASB

issued

ASU

2023-09,

“Income

Taxes

(Topic

740):

Improvements

Income

Tax

Disclosures”,

which

modifies

the

requirements

income

tax

disclosures

require

disaggregated

information

about

reporting

entity’s

effective

tax

rate

reconciliation

well

information on

income taxes

paid.

This guidance

is effective

for fiscal

years beginning

after December

15, 2024 for all public

business entities, with early adoption and retrospective application

permitted.

The

Company is

currently in

the process

of evaluating

the potential

impact of

adoption of

this new

guidance

on its consolidated financial statements and related disclosures.

NOTE 9 – INCOME TAXES:

The Company had

an effective tax

rate for the

first quarter of

2024 of

5.6

% compared to

an effective tax

rate of

32.6

% for the

first quarter of

2023.

Income tax expense

for the quarter

decreased to $

0.6

million

in 2024

from $

2.1

million in

2023. The

decrease in tax

expense is

primarily due to

valuation allowances

against net deferred tax assets

attributable to U.S. federal net

operating loss carryforwards and the impact

of the foreign rate differential and lower state income taxes.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

Gift cards

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

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 $

171,000

and $

121,000

for the periods

ended May 4,

2024 and

April

29, 2023,

respectively,

on sales

purchased by

the Company’s

proprietary credit

card of

5.7

million and

5.8

million for the periods ended May 4, 2024 and April 29, 2023, respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

customers (in thousands):

Balance as of

May 4, 2024

February 3, 2024

Proprietary Credit Card Receivables, net

10,972

10,909

Gift Card Liability

6,849

8,143

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

of up

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

May 4, 2024

April 29, 2023

Operating lease cost (a)

17,002

18,078

Variable

lease cost (b)

497

594

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

0.2

) million and ($

0.3

) million for the three months ended

May 4, 2024 and April 29, 2023, respectively.

(b) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – LEASES (CONTINUED):

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases are

as follows (in thousands):

Operating cash flow information:

Three Months Ended

May 4, 2024

April 29, 2023

Cash paid for amounts included in the measurement of lease liabilities

15,607

17,345

Non-cash activity:

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

444

1,904

Weighted-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

follows:

As of

May 4, 2024

April 29, 2023

Weighted-average remaining lease term

2.1

Years

2.2

Years

Weighted-average discount rate

4.65%

3.20%

As of May 4, 2024, the maturities of lease liabilities by fiscal year for the Company’s

operating leases are

as follows (in thousands):

Fiscal Year

2024 (a)

49,240

2025

45,261

2026

29,329

2027

16,591

2028

7,784

Thereafter

690

Total lease payments

148,895

Less: Imputed interest

11,261

Present value of lease liabilities

137,634

(a) Excluding the 3 months ended May 4, 2024.

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

2025

(“fiscal

2024”)

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 of

supply chain disruptions,

extreme weather

conditions,

inflationary

pressures

and

other

economic

market

conditions

our

business,

results

operations and financial condition and

statements of plans or

intentions regarding new store development

store

closures;

and

(5) statements

relating

our

future

contingencies.

When

possible,

have

attempted to identify forward-looking statements

by using words such

as “will,” “expects,” “anticipates,”

“approximates,” “believes,” “estimates,” “hopes,” “intends,”

“may,” “plans,”

“could,” “would,” “should”

and

any

variations

negative

formations

such

words

and

similar

expressions.

can

give

assurance

that actual

results or

events

will not

differ

materially

from those

expressed or

implied in

any

such

forward-looking

statements.

Forward-looking

statements

included

this

report

are

based

information available

to us

as of

the filing

date of

this report,

but subject

to known

and unknown

risks,

uncertainties and other factors that could cause actual results

to differ materially from those contemplated

by the forward-looking statements.

Such factors include, but

are not limited to,

the following: any actual

perceived

deterioration

in,

continuation

negative

trends

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 of

unemployment, fuel, energy

and food

costs, wage rates,

tax

rates, interest

rates, home

values, consumer

net worth,

the availability

of credit

and inflation;

changes in

laws,

regulations

government

policies

affecting

our

business,

including

but

not

limited

tariffs;

uncertainties regarding

the impact

any governmental

action regarding,

responses to,

the

foregoing

conditions;

competitive

factors

and

pricing

pressures;

our

ability

predict

and

respond

rapidly

changing

fashion

trends

and

consumer

demands;

our

ability

successfully

implement

our

new

store

development strategy to

increase new

store openings and

our ability of

any such

new stores

to grow

and

perform as

expected; underperformance

other factors

that may

lead

to,

affect

the volume

of,

store

closures; adverse

weather,

public health

threats (including

the global

COVID-19 pandemic),

acts of

war

aggression

similar

conditions

that

may

affect

our

merchandise

supply

chain,

sales

operations;

inventory

risks

due

shifts

market

demand,

including

the

ability

liquidate

excess

inventory

anticipated

margins;

adverse

developments

volatility

affecting

the

financial

services

industry

broader

financial

markets;

and

other

factors

discussed

under

“Risk

Factors”

Part

Item

our

annual

report

Form 10-K

for

the

fiscal

year

ended February

2024

(“fiscal

2023”),

amended or

supplemented,

and in

other reports

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

February

2024.

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 calculation

of potential

asset impairment,

income tax

valuation allowances,

reserves

relating

self-insured

health

insurance,

workers’

compensation,

general

and

auto

insurance

liabilities,

uncertain tax positions, the allowance for

customer credit losses, and inventory shrinkage.

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

May 4, 2024

April 29, 2023

Total retail sales

100.0

Other revenue

1.0

0.9

Total revenues

101.0

100.9

Cost of goods sold (exclusive of depreciation)

64.2

Selling, general and administrative (exclusive of depreciation)

32.4

32.5

Depreciation

1.2

Interest and other income

(3.3)

(0.5)

Income before income taxes

6.6

3.5

Net income

6.3

2.3

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 2023

Annual Report

on Form 10-K.

Recent Developments

Inflationary Cost Pressure and High Interest Rates

The

pressure

our

customers’

disposable

income

continued

the

first

quarter

fiscal

2024,

due

prolonged and persistently high

inflation rates, especially related

to housing and

fuel, as well as

high interest

rates.

These high

interest rates

have adversely

affected the

availability and cost

of credit for

our customers,

including

revolving

credit

and

auto

loans,

and

continue

negatively

impact

our

customers’

disposable

income.

Our

customers’

willingness to

purchase

our

products

may

continue

negatively impacted

these inflationary pressures and high interest

rates.

We believe

continued inflation and

high interest

rates negatively

impacted the first

quarter of

2024 and

will

likely continue

to have

a negative

impact on

consumer behavior and,

by extension, our

results of operations

and financial condition during the remainder of

fiscal 2024.

Merchandise Supply Chain

A significant amount of our merchandise is

manufactured overseas, principally Southeast Asia,

and traverses

through the

Panama

Canal or

the

Suez

Canal.

The regional

drought conditions

experienced

in the

region

surrounding the

Panama Canal

reduced the

number of

transits by

approximately 37%

and has

also reduced

the

permissible

draft

vessels

transiting

the

Panama

Canal,

which

reduced

the

volume

and

number

containers carried by container

ships and increased our

costs in the first quarter.

During the second quarter,

the Panama

Canal authority

plans to increase

the daily

transits by

33% and

increase the

permissible draft

vessels depending on weather

conditions. The hostilities affecting

the region surrounding

the Suez Canal are

causing container

ships to

travel longer

distances around

the Cape

of Good

Hope, which

is increasing

lead

times for merchandise and our costs

to ship these goods as well as

decreasing the pool of containers available.

Both

these

situations

have

negatively

impacted

2024.

Though

conditions

the

Panama

Canal

could

incrementally improve

if weather

conditions allow

the easing

of existing

restrictions, we

believe the

totality

of these

conditions will

likely continue

to have

a negative

impact on

our results

of operations

and financial

condition for the foreseeable future.

Comparison of First Quarter of 2024

with 2023

Total retail sales for the first quarter

were $175.3 million compared to

last year’s first quarter sales of

$190.3

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, as well

as lower 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

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

same store

sales

varies

across the

retail industry.

As a

result, our

same

store sales

calculation

may

not

comparable to similarly titled measures reported by

other companies. E-commerce sales were

less than 5.0%

sales

for

the

first

quarter

fiscal

2024

and

are

included

the

same-store

sales

calculation.

Total

revenues, comprised

of retail sales

and other revenue

(principally finance

charges and late

fees on

customer

accounts

receivable,

shipping

charged

customers

for

e-commerce

purchases

and

layaway

fees),

were

$177.1 million for the first quarter ended May 4, 2024, compared to $192.1 million for the first

quarter ended

April 29,

2023. The Company

operated 1,171

stores at May

4, 2024

compared to 1,264

stores at the

end of

last

fiscal

year’s

first

quarter.

For

the

first

three

months

fiscal

2024,

the

Company

permanently

closed

seven stores.

The Company currently anticipates closing approximately 75

stores in fiscal 2024.

Credit revenue of $0.7 million represented 0.4% of total revenues in the first quarter of fiscal 2024,

compared

2023

credit

revenue

$0.6

million

0.3%

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

2024, compared to last year’s

first quarter expenses of $0.4 million.

Other revenue, a component of

total revenues, was $1.8 million for the first

quarter of fiscal 2024, compared

to $1.7

million for the

prior year’s

comparable first

quarter.

The slight increase

was due

to higher

gift card

breakage income and late charges, partially

offset by lower e-commerce shipping revenue

and layaway fees.

Cost of goods

sold was $112.5

million, or 64.2%

of retail sales for

the first quarter of

fiscal 2024, compared

$122.1

million,

64.2%

retail

sales

the

first

quarter

fiscal

2023.

Cost

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

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

goods

sold

exclusive

depreciation)

decreased

8.0%

$62.8

million

for

the

first

quarter of fiscal 2024 compared to $68.2 million in the first quarter of fiscal 2023.

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

32.4% of

retail sales for

the first

quarter of

fiscal 2024,

compared to

32.5% of

retail sales

the first quarter of fiscal 2023. SG&A expense is lower in the first quarter of fiscal 2024 compared

to the first

quarter of fiscal

2023 primarily due

to lower equity

compensation, advertising and

store expenses, including

payroll, partially offset by an increase

in insurance expense.

Depreciation expense was $2.0 million, or 1.2% of retail sales for the first quarter of fiscal 2024, compared to

$2.4 million, or

1.2% of retail

sales for the

first quarter of

fiscal 2023. The

decrease in depreciation

expense

was attributable to older stores being

fully depreciated.

Interest

and

other

income

was

$5.8

million,

3.3%

retail

sales

for

the

first

quarter

fiscal

2024,

compared

$0.9

million,

0.5%

retail

sales

for

the

first

quarter

fiscal

2023.

The

increase

was

primarily due to a $3.2 million net

gain on sale of land held for

investment.

Income tax expense was 0.6 million or 0.4% of retail sales for the first quarter of fiscal 2024, compared to

income tax expense of 2.1 million, or 1.1% of retail sales

for the first quarter of fiscal 2023. The effective

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

income tax

rate for

the first

quarter of

fiscal 2024

was 5.6%

compared to

32.6%

for

the first

quarter of

2023.

The

decrease

tax

expense

primarily

due

the

valuation

allowance against

net

deferred

tax

assets

attributable

U.S.

federal

net

operating

loss

carryforwards

and

the

impact

the

foreign

rate

differential and lower state income taxes.

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 the next

12 months.

Cash

provided

operating

activities

for

the

first

three

months

fiscal

2024

was

primarily

generated

earnings

adjusted

for

depreciation

and

changes

working

capital.

The

decrease

cash

provided

$4.2

million

for

the

first

three

months

fiscal

2024

compared

the

first

three

months

fiscal

2023

was

primarily attributable to the relative change

in inventory from year-end to the

first quarter for both years and

decrease to first quarter 2024 net

income for non-operating gain on sale of

assets held for investment.

At May 4, 2024, the Company had working capital of $65.8 million compared to $55.1 million at February 3,

2024.

The increase is

primarily attributable to

an increase in

cash and cash

equivalents, inventory, accounts

receivable and lower current lease liability,

partially offset by lower short-term

investments.

May

2024,

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.

On April

25, 2024,

the

Company

amended

the

revolving

credit

agreement

modify

definition

used

calculating

the

Company’s

minimum EBITDAR

coverage ratio

add back

certain

income tax

receivables included

the calculation of

the ratio. For

the quarter ended

May 4, 2024,

after giving effect

to the

amendment, the

Company was

in compliance

with the

credit agreement.

There were

no borrowings

outstanding, nor

any

outstanding

letters

credit

that

reduced

borrowing

availability,

May

2024.

The

weighted

average interest rate under the credit facility was zero at May 4, 2024

due to no outstanding borrowings.

Expenditures

for

property

and

equipment

totaled

$3.3

million

the

first

three

months

fiscal

2024,

compared

$6.2

million

last

year’s

first

three

months.

The

decrease

expenditures

for

property

and

equipment

was

primarily

due

lower

capital

investments

information

technology

and

the

distribution

center, as well

as no new

store openings in

the first quarter

of fiscal 2024.

For the full

fiscal 2024 year,

the

Company expects

to invest

approximately $9.0

million in

capital expenditures,

including distribution

center

automation projects.

Net

cash

provided

investing

activities

totaled

$14.6

million

the

first

three

months

fiscal

2024

compared to $15.3 million provided in the comparable period of fiscal 2023. The decrease is primarily due

an increase in purchases of short-term investments and a decrease in sales of short-term investments, partially

offset by the sale of other

assets and a decrease in capital expenditures.

Net cash

used in

financing activities

totaled $5.6

million in

the first

three months

of fiscal

2024 and

fiscal

2023.

On May 23, 2024, the Board of

Directors maintained the quarterly dividend at

0.17 per share.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

May

2024,

the

Company

had

478,238

remaining

open

authorizations

under

its

repurchase program.

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 of A or better at May 4, 2024

and February 3, 2024.

The state, municipal and corporate bonds and asset-backed securities have contractual

maturities

which

range

from

seven

days

3.0

years.

The

U.S.

Treasury/Agencies

Notes

and

Bonds

have

contractual maturities which range from 2 months

to 1.8 years. These securities

are classified as available-for-

sale

and

are

recorded

Short-term

investments

and

Other

assets

the

accompanying

Condensed

Consolidated Balance Sheets. These

assets are carried

at fair value

with unrealized gains and

losses reported

net of

taxes in

Accumulated other

comprehensive income.

The asset-backed

securities are

bonds comprised

of 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, at May 4, 2024, the Company had $0.1 million of

corporate equities and deferred compensation

plan assets

of $8.7

million.

At February

3, 2024,

the Company

had $1.1

million of

corporate equities

and

deferred compensation plan assets

of $8.6 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,

the

effectiveness

our

disclosure

controls

and

procedures

May

2024.

Based

this

evaluation, our Principal Executive Officer and Principal

Financial Officer concluded that, as of May

4, 2024,

our disclosure

controls and

procedures, as

defined in

Rule 13a-15(e),

under the

Securities Exchange

Act of

1934

(the

“Exchange

Act”),

were

effective

ensure

that

information

are

required

disclose

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 May 4, 2024 that has

materially affected, or is

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

February

2024.

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 May 4, 2024:

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 2024

March 2024

134,209

5.41

134,209

April 2024

297,206

5.05

297,206

Total

431,415

5.16

431,415

478,238

(1)

Prices include trading costs.

(2)

As of February

3, 2024, the

Company’s share

repurchase program had

909,653 shares remaining

open authorizations.

During

the

first

quarter

ended

May

2024,

the

Company repurchased

and retired 431,415 shares under this program for approximately $2,227,608

or an average market

price of $5.16 per share.

As of May 4, 2024, the Company had 478,238 shares remaining in open

authorizations.

There is no 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:

No matters requiring disclosure.

ITEM 5.

OTHER INFORMATION:

During the

three months

ended May

4, 2024,

none of

the Company’s

directors or

officers (as

defined in

Rule 16a-1(f) of the

Securities Exchange Act of 1934,

as amended)

adopted

terminated

a “Rule10b5-1

trading arrangement” or

a “

non-Rule

10b5-1

trading arrangement” (as

such terms are

defined in Item

408

of Regulation S-K).

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.

10.1*

Fourth Amendment, dated as of April 25, 2024, to Credit

Agreement, dated as of May 19 2022, among the Registrant, the

banks party thereto and Wells Fargo Bank, National Association.

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.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase

Document

101.LAB

Inline XBRL Taxonomy Extension Label

Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Document

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 30, 2024

/s/ John P.

D. Cato

Date

John P.

D. Cato

Chairman, President and

Chief Executive Officer

May 30, 2024

/s/ Charles D. Knight

Date

Charles D. Knight

Executive Vice President

Chief Financial Officer

Cato Fashion - 10-Q quarterly report FY2024 Q1

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