UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K
☑
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended
January 29, 202228, 2023
 
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number
1-31340
The Cato Corporation
Registrant
 
 
 
Delaware
 
56-0484485
State of Incorporation
 
I.R.S. Employer Identification Number
 
8100 Denmark Road
Charlotte
,
North Carolina
28273-5975
Address of Principal Executive Offices
 
704
/
554-8510
Registrant’s Telephone
 
Number
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
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
byYes
☐
 
check
No
☑
 
Indicate by check mark
if
the
Registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
not required to file reports pursuant to Section 13 or Section 15(d) of
the
Securities
Exchange Act.
 
Yes
☐
 
No
☑
 
Indicate by check mark if the
Registrant is not required
to file reports pursuant
to Section 13 or
Section 15(d) of the Exchange
Act.
Yes
☐
No
☑
Indicate by check
mark whether the
Registrant (1) has
 
filed all reports required to be filed
 
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
 
file such
reports), and
and (2) has been
subject to
such filing requirements for the past 90 days.
 
Yes
Ye
s
☑
 
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
has
submitted
electronically
every
Interactive
Data
File was
 
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
☑
 
No
☐
 
Indicate by check mark
 
mark whether the
registrant is
 
a large accelerated
 
filer, an accelerated
 
accelerated filer, a non
 
a non-accelerated
-accelerated filer, a
 
smaller reporting company,
reporting
company,
or
an
 
emerging
growth
 
company.
 
See
the
 
definitions
of
 
“large
accelerated
 
filer,”
 
“accelerated
filer,”
 
“smaller reporting
reporting company” and “emerging
“emerging
growth company” in Rule
12b-2 of the Exchange Act.
 
Large accelerated filer
☐
 
Accelerated filer
☑
 
Emerging Growth Company
☐
Non-accelerated filer
☐
 
Smaller reporting company
☐
 
If
 
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
 
has
 
filed
 
a
 
report
 
on
 
and
 
attestation
 
to
 
its
 
management’s
 
assessment
 
of
 
the
effectiveness
effectiveness
of
 
its
internal control
 
control over financial
 
financial reporting
 
under Section
 
404(b) of
 
the Sarbanes-Oxley
 
Act (15
 
U.S.C. 7262(b))
 
by the
the registered public
accounting
firm that prepared or issued its audit report.
☑
If securities are registered
pursuant to Section
12(b) of the
Act, indicate by check
mark whether the
financial statements of
the registrant included
in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check
mark whether any
of those error
corrections are restatements
that required a
recovery analysis of incentive-based
compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes
 
☐
 
No
☑
 
The aggregate market value
of the Registrant’s
Class A Common Stock held
by non-affiliates of the
Registrant as of July 31,
2021,
30, 2022, the last business
business day
of the
Company’s
most recent
second quarter,
was $
327,122,516226,038,963
 
based on
the last
reported sale
price per
share
on the New York
Stock Exchange
on that date.
 
 
As
of
January 29,
2022,
28, 2023, there were
19,824,09318,723,225
 
shares of
Class
A
co
mmon common stock
and
1,763,652
 
shares of
Class B common
stock
outstanding.
DOCUMENTS INCORPORATED
BY REFERENCE
 
Portions of the proxy statement relating to the 20222023 annual meeting of shareholders are incorporated
by reference into the
following part of this
annual report:
Part III — Items 10, 11, 12, 13 and 14
 
2
THE CATO CORPORATION
FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
PART
 
I
Item 1.
 
Business
 
..........................................................................................................................
 
 
 
5 – 10
 
Item 1A.
Risk Factors
 
....................................................................................................................
 
10 – 2122
Item 1B.
Unresolved Staff Comments
 
...........................................................................................
 
2122
Item 2.
 
Properties
 
........................................................................................................................
 
 
 
2122
 
Item 3.
 
Legal Proceedings
 
...........................................................................................................
 
 
 
2223
 
Item 3A.
 
Executive Officers of the Registrant
 
...............................................................................
 
 
 
2324
 
Item 4.
Mine Safety Disclosures
 
.................................................................................................
 
2324
 
PART
 
II
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 
........................................................................................
 
 
 
2425 – 2627
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................................................................
 
 
 
2728 – 3334
 
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
........................................
 
 
 
3334
 
Item 8.
 
Financial Statements and Supplementary Data ..............................................................
 
 
 
3435 – 6365
 
Item 9.
 
Changes in and Disagreements with Accountants on Accounting
 
and Financial
Disclosure
 
.......................................................................................................................
 
 
 
6466
 
Item 9A.
 
Controls and Procedures
 
.................................................................................................
 
 
 
6466
 
Item 9B.
Other Information
 
...........................................................................................................
 
6466
Item 9C.
Disclosures Regarding Foreign Jurisdictions That Prevent Inspections
 
.........................
 
6466
 
PART
 
III
Item 10.
 
Directors, Executive Officers and Corporate Governance .............................................
 
 
 
6467
 
Item 11.
 
Executive Compensation
 
................................................................................................
 
 
 
6667
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
 
........................................................................................................
 
 
 
6667
 
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
...............
 
 
 
6668
 
Item 14.
 
Principal Accountant Fees and Services
 
.........................................................................
 
 
 
6668
 
 
PART
 
IV
Item 15.
 
Exhibits and Financial Statement Schedules
 
..................................................................
 
 
 
6869
 
 
Item 16.
Form 10-K Summary ………………………………………………………………….
7071
 
3
Forward-looking Information
 
The
 
following
 
information
 
should
 
be
 
read
 
along
 
with
 
the
 
Consolidated
 
Financial
 
Statements,
including the
 
accompanying Notes
 
appearing in
 
this report.
 
Any of
 
the following
 
are “forward-looking”
statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
 
and Section 21E
of the Securities Exchange Act of 1934, as amended: (1) statements in this Form 10-K and any documents
incorporated
 
by
 
reference
 
that
 
reflect
 
projections
 
or
 
expectations
 
of
 
our
 
future
 
financial
 
or
 
economic
performance;
 
(2) statements
 
that
 
are
 
not
 
historical information;
 
(3) statements
 
of
 
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
 
JanuaryFebruary
 
28,3,
 
20232024
 
(“fiscal
 
2022”2023”)
 
and
 
beyond,
 
including,
 
but
 
not
limited to, statements regarding expected amounts of capital expenditures and store openings, relocations,
remodels and closures,
 
statements regarding the
 
potential impact of
 
the COVID-19 pandemic and
 
related
responses and
 
mitigation efforts,
 
as well
 
as the
 
potential impact
 
of supply
 
chain disruptions,
 
inflationary
pressures and other economic conditions on our business, results of operations and
 
and financial condition and
statements
 
regarding
 
new
 
store
 
development
 
strategy;
 
and
 
(5) statements
 
relating
 
to
 
our
 
future
contingencies. When possible,
 
we 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 or negative formations
 
of such words and
similar expressions. We
 
can give no 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
in
 
this
 
report are
 
based
 
on 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
 
or
 
perceived
 
deterioration
 
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
 
or
 
governmental
 
policies
 
affecting
 
our
 
business,
 
including
 
but
 
not
 
limited
 
to
 
tariffs;
uncertainties regarding
 
the impact
 
of
 
any governmental
 
action regarding,
 
or
 
responses to,
 
the
 
foregoing
conditions;
 
competitive
 
factors
 
and
 
pricing
 
pressures;
 
our
 
ability
 
to
 
predict
 
and
 
respond
 
to
 
rapidly
changing
 
fashion
 
trends
 
and
 
consumer
 
demands;
 
our
 
ability
 
to
 
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; adverse
 
weather,
 
public health
 
threats (including
 
the global
 
COVID-19 pandemic)
or
 
similar
 
conditions
 
that
 
may
 
affect
 
our
 
sales
 
or
 
operations;
 
inventory
 
risks
 
due
 
to
 
shifts
 
in
 
market
demand,
 
including
 
the
 
ability
 
to
 
liquidate
 
excess
 
inventory
 
at
 
anticipated
 
margins;
 
and
 
other
 
factors
discussed under
 
“Risk Factors”
 
in Part
 
I, Item
 
1A of
 
this annual
 
report on
 
Form 10-K
 
for the
 
fiscal year
ended January 29, 202228, 2023 (“fiscal 2021”2022”), as
 
amended or supplemented, and in other reports we file
 
with or
furnish
 
to
 
the
 
Securities and
 
Exchange Commission
 
(“SEC”) from
 
time
 
to
 
time.
 
We
 
do
 
not
 
undertake,
and
 
expressly decline,
 
any obligation
 
to
 
update any
 
such
 
forward-looking information
 
contained
 
in
 
this
report, whether as a result of new information, future events, or
 
otherwise.
 
As used herein,
 
the terms “we,”
 
“our,”
 
“us,” the “Company”
 
or “Cato”
 
include The Cato
 
Corporation
and
 
its
 
subsidiaries,
 
unless
 
the
 
context
 
indicates
 
another
 
meaning
 
and
 
except
 
that
 
when
 
used
 
with
reference
 
to
 
common
 
stock
 
or
 
other
 
securities
 
described
 
herein
 
and
 
in
 
describing
 
the
 
positions
 
held
 
by
management of
 
the Company,
 
such terms
 
include only
 
The Cato
 
Corporation.
 
Our website
 
is located
 
at
www.catofashions.com
 
where
 
we
 
make
 
available,
 
free
 
of
 
charge,
 
our
 
annual
 
reports
 
on
 
Form 10-K,
quarterly
 
reports
 
on
 
Form 10-Q,
 
current
 
reports
 
on
 
Form 8-K,
 
proxy
 
statements
 
and
 
other
 
reports
(including amendments
 
to
 
these
 
reports) filed
 
or
 
furnished
 
pursuant to
 
Section 13(a) or
 
15(d)
 
under
 
the
Securities Exchange
 
Act of
 
1934. These
 
reports are
 
available as
 
soon as
 
reasonably practicable
 
after we
electronically file
 
these
 
materials with
 
the
 
SEC. We
 
also post
 
on our
 
website the
 
charters of
 
our
 
Audit,
Compensation
 
and
 
Corporate
 
Governance
 
and
 
Nominating
 
Committees;
 
our
 
Corporate
 
Governance
Guidelines; Code of Business Conduct and Ethics and
 
Code of Ethics for the
 
Principal Executive Officer,
4
Principal Financial Officer
 
and Principal Accounting
 
Officer and
 
any amendments or
 
waivers thereto for
any of our directors or executive officers; and any other publicly available corporate governance materials
4
contemplated
 
by
 
SEC
 
or
 
New
 
York
 
Stock
 
Exchange
 
regulations.
 
The
 
information
 
contained
 
on
 
our
website,
www.catofashions.com
, is www.catof
 
ashions.com, is not, and
 
and should in no
 
no way be construed
 
construed as, a part
 
part of this or
 
or any other
report that we filed with or furnished to the SEC.
 
5
PART
 
I
Item 1.
 
Business:
Background
 
The
 
Company,
 
founded
 
in
 
1946,
 
operated
 
1,3111,280
 
fashion
 
specialty
 
stores
 
at
 
January
 
29,28,
 
2022,2023,
 
in
 
32
states,
 
principally
 
in
 
the
 
southeastern
 
United
 
States,
 
under
 
the
 
names
 
“Cato,”
 
“Cato
 
Fashions,”
 
“Cato
Plus,”
 
“It’s
 
Fashion,”
 
“It’s
 
Fashion
 
Metro”
 
and
 
“Versona.”
 
The
 
Cato
 
concept
 
seeks
 
to
 
offer
 
quality
fashion
 
apparel
 
and
 
accessories
 
at
 
low
 
prices
 
every
 
day,
 
in
 
junior/missy
 
and
 
plus
 
sizes.
 
The
 
Cato
concept’s stores and e-commerce website feature a broad assortment of apparel and accessories, including
dressy,
 
career,
 
and
 
casual
 
sportswear,
 
dresses,
 
coats,
 
shoes,
 
lingerie,
 
costume
 
jewelry
 
and
 
handbags.
 
A
major portion of the Cato concept’s
 
merchandise is sold under its private label and is produced by various
vendors
 
in
 
accordance
 
with
 
the
 
concept’s
 
specifications.
 
The
 
It’s
 
Fashion
 
and
 
It’s
 
Fashion
 
Metro
concepts offer fashion with a focus on the latest trendy styles for the entire family at low prices every day.
 
The
 
Versona
 
concept’s
 
stores
 
and
 
e-commerce website
 
offer
 
quality fashion
 
apparel items,
 
jewelry
 
and
accessories at
 
exceptional values
 
every day.
 
The
 
Company’s
 
stores
 
range in
 
size from
 
2,1002,200 to
 
19,000
square
 
feet
 
and
 
are
 
located
 
primarily
 
in
 
strip
 
shopping
 
centers
 
anchored
 
by
 
national
 
discounters
 
or
market-dominant
 
grocery
 
stores.
 
The
 
Company
 
emphasizes
 
friendly
 
customer
 
service
 
and
 
coordinated
merchandise
 
presentations
 
in
 
an
 
appealing
 
store
 
environment.
 
The
 
Company
 
offers
 
its
 
own
 
credit
 
card
and layaway
 
plan. Credit
 
and layaway
 
sales under
 
the Company’s
 
plan represented
 
5%6% of
 
retail sales
 
in
fiscal
 
2021.2022.
 
See
 
Note
 
13
 
to
 
the
 
Consolidated Financial
 
Statements, “Reportable
 
Segment
 
Information,”
for a discussion of information regarding the Company’s two reportable segments: retail and credit.
 
 
The
 
Company
 
has
 
operated
 
Cato-branded
 
retail
 
stores
 
for
 
approximately
 
7576
 
years.
 
The
 
Company
originated as a family-owned business and
 
made its first initial public offering
 
of stock in 1968.
 
In 1980,
the Company went private and in 1987 again conducted an initial public
 
offering.
Business Strategy
 
The Company’s
 
primary objective
 
is to
 
be the
 
leading fashion
 
specialty retailer
 
for fashion
 
and value
in its
 
markets. Management believes the
 
Company’s success
 
is dependent upon
 
its ability to
 
differentiate
its stores
 
from department
 
stores, mass
 
merchandise discount
 
stores and
 
competing specialty
 
stores. The
key elements of the Company’s business strategy are:
 
Merchandise
 
Assortment.
 
The
 
Company’s
 
stores
 
offer
 
a
 
wide
 
assortment
 
of
 
on-trend
 
apparel
 
and
accessory items in primarily junior/missy,
 
plus sizes, men and kids sizes, toddler to
 
boys size 20 and girls
size 16 with
 
an emphasis on color,
 
product coordination and selection.
 
Colors and styles are
 
coordinated
and presented so that outfit selection is easily made.
 
Value
 
Pricing.
 
The
 
Company offers
 
quality
 
merchandise that
 
is
 
generally priced
 
below comparable
merchandise
 
offered
 
by
 
department
 
stores
 
and
 
mall
 
specialty
 
apparel
 
chains,
 
but
 
is
 
generally
 
more
fashionable
 
than
 
merchandise
 
offered
 
by
 
discount
 
stores.
 
Management
 
believes
 
that
 
the
 
Company
 
has
positioned itself as the every day low price leader in its market
segment.
 
Strip
 
Shopping
 
Center
 
Locations.
The
 
Company
 
locates
 
its
 
stores
 
principally
 
in
 
convenient
 
strip
centers anchored by
 
national discounters or
 
market-dominant grocery stores
 
that attract large
 
numbers of
potential customers.
 
Customer Service.
 
Store managers
 
and sales
 
associates are
 
trained
 
to
 
provide prompt
 
and courteous
service and to assist customers in merchandise selection and wardrobe
 
coordination.
 
Credit and
 
Layaway Programs
.
 
The Company offers
 
its own credit
 
card and a
 
layaway plan to
 
make
the purchase of its merchandise more convenient for its customers.
6
Merchandising
 
Merchandising
 
The
 
Company
 
seeks
 
to
 
offer
 
a
 
broad
 
selection
 
of
 
high
 
quality
 
and
 
exceptional
 
value
 
apparel
 
and
accessories
 
to
 
suit
 
the
 
various
 
lifestyles
 
of
 
fashion
 
and
 
value-conscious
 
customers.
 
In
 
addition,
 
the
Company strives to offer on-trend fashion in exciting colors with consistent fit and
 
quality.
 
The Company’s merchandise lines
 
include dressy, career,
 
and casual sportswear, dresses,
 
coats, shoes,
lingerie, costume
 
jewelry,
 
handbags, men’s
 
wear and
 
lines for
 
kids and
 
infants. The
 
Company primarily
offers exclusive
 
merchandise with
 
fashion and
 
quality comparable
 
to mall
 
specialty stores
 
at low
 
prices,
every day.
 
The Company believes that the collaboration of its merchandising and design teams with an expanded
in-house
 
product
 
development
 
and
 
direct
 
sourcing
 
function
 
has
 
enhanced
 
merchandise
 
offerings
 
and
delivers quality,
 
exclusive on-trend
 
styles at
 
lower prices.
 
The product
 
development and
 
direct sourcing
operations provide
 
research on
 
emerging fashion
 
and color
 
trends, technical
 
services and
 
direct sourcing
options.
 
As a
 
part of
 
its merchandising
 
strategy,
 
members of
 
the Company’s
 
merchandising and
 
design staff
visit selected
 
stores to
 
monitor the
 
merchandise offerings
 
of other
 
retailers, regularly
 
communicate with
store operations
 
associates and frequently
 
confer with
 
key vendors.
 
The Company
 
also takes
 
aggressive
markdowns
 
on
 
slow-selling
 
merchandise
 
and
 
typically
 
does
 
not
 
carry
 
over
 
merchandise
 
to
 
the
 
next
season.
 
Purchasing, Allocation and Distribution
 
Although
 
the
 
Company
 
purchases
 
merchandise
 
from
 
approximately
 
560580
 
suppliers,
 
most
 
of
 
its
merchandise is
 
purchased from
 
approximately 100
 
primary vendors.
 
In
 
fiscal
 
2021,2022,
 
purchases from
 
the
Company’s
 
largest
 
vendor
 
accounted
 
for
 
approximately
 
12%16%
 
of
 
the
 
Company’s
 
total
 
purchases.
 
The
Company is
 
not dependent
 
on its
 
largest vendor
 
or any
 
other vendor
 
for merchandise
 
purchases, and
 
the
loss of any single vendor or group of
 
vendors would not have a material adverse effect on
 
the Company’s
operating results or financial condition. A substantial portion of the Company’s merchandise is sold under
its
 
private
 
labels
 
and
 
is
 
produced
 
by
 
various
 
vendors
 
in
 
accordance
 
with
 
the
 
Company’s
 
strict
specifications. The Company sources a majority of its
 
merchandise directly from manufacturers overseas,
primarily in
 
Southeast Asia.
 
These manufacturers
 
are dependent
 
on materials
 
that are
 
primarily sourced
from
 
China. The
 
Company purchases
 
its
 
remaining merchandise
 
from
 
domestic importers
 
and
 
vendors,
which typically
 
minimizes the
 
time necessary to
 
purchase and
 
obtain shipments; however,
 
these vendors
are
 
dependent
 
on
 
materials
 
primarily
 
sourced
 
from
 
China.
 
The
 
Company
 
opened
 
its
 
own
 
overseas
sourcing operations in the fall of 2014, replacing the Company’s former sourcing agent in 2015. Although
a
 
significant
 
portion
 
of
 
the
 
Company’s
 
merchandise
 
is
 
manufactured
 
overseas,
 
primarily
 
in
 
Southeast
Asia, the Company does
 
not expect that any
 
economic, political, public health or
 
or social unrest in any
 
any one
country
 
would
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Company’s
 
ability
 
to
 
obtain
 
adequate
 
supplies
 
of
merchandise.
 
However,
 
the
 
Company
 
can
 
give
 
no
 
assurance
 
that
 
any
 
changes
 
or
 
disruptions
 
in
 
its
merchandise supply
 
chain would
 
not materially
 
and adversely
 
affect the
 
Company.
 
See “Risk
 
Factors –
Risks
 
Relating To
 
Our
 
Business –
 
Because
 
we
 
source a
 
significant
 
portion of
 
our
 
merchandise directly
and indirectly from overseas, we are subject to risks associated with international operations and risks that
affect
 
the
 
prevailing
 
social,
 
economic,
 
political,
 
public
 
health
 
and
 
other
 
conditions
 
in
 
the
 
areas
 
from
which
 
we
 
source
 
merchandise;
 
changes,
 
disruptions,
 
cost
 
changes
 
or
 
other
 
problems
 
affecting
 
the
Company’s
 
merchandise
 
supply
 
chain
 
have
and
could
continue
to
 
materially
 
and
 
adversely
 
affect
 
the
Company’s
business,
Company’s business, results of operations and financial condition.”
 
 
An
 
important
 
component
 
of
 
the
 
Company’s
 
strategy
 
is
 
the
 
allocation
 
of
 
merchandise
 
to
 
individual
stores
 
based
 
on
 
an
 
analysis
 
of
 
sales
 
trends
 
by
 
merchandise
 
category,
 
customer
 
profiles
 
and
 
climatic
7
conditions.
 
A
 
merchandise
 
control
 
system
 
provides
 
current
 
information
 
on
 
the
 
sales
 
activity
 
of
 
each
7
merchandise
 
style
 
in
 
each
 
of
 
the
 
Company’s
 
stores.
 
Point-of-sale
 
terminals
 
in
 
the
 
stores
 
collect
 
and
transmit sales and inventory information to the Company’s central database, permitting timely response to
sales trends on a store-by-store basis.
 
All merchandise is shipped directly to the Company’s distribution
 
center in Charlotte, North Carolina,
where it
 
is inspected
 
and then
 
allocated by
 
the merchandise
 
distribution staff
 
for shipment
 
to individual
stores. The flow
 
of merchandise from
 
receipt at
 
the distribution center
 
to shipment to
 
stores is controlled
by
 
an
 
on-lineonline
 
system.
 
Shipments
 
are
 
made
 
by
 
common
 
carrier,
 
and
 
each
 
store
 
receives
 
at
 
least
 
one
shipment per
 
week.
 
The centralization
 
of the
 
Company’s
 
distribution process
 
also subjects
 
it to
 
risks in
the
 
event
 
of
 
damage
 
to
 
or
 
destruction
 
of
 
its
 
distribution
 
facility
 
or
 
other
 
disruptions
 
affecting
 
the
distribution
 
center
 
or
 
the
 
flow
 
of
 
goods
 
into
 
or
 
out
 
of
 
Charlotte,
 
North
 
Carolina.
 
See
 
“Risk
 
Factors
 
–
Risks Relating
 
To
 
Our Information
 
Technology
 
and Related
 
Systems –
 
A disruption
 
or shutdown
 
of our
centralized
 
distribution
 
center
 
or
 
transportation
 
network
 
could
 
materially
 
and
 
adversely
 
affect
 
our
business and results of operations.”
 
Advertising
 
The
 
Company
 
uses
 
television,
 
in-store
 
signage,
 
graphics,
 
a
 
Company
 
website,
 
two
 
e-commerce
websites
 
and
 
social
 
media
 
as
 
its
 
primary
 
advertising
 
media.
 
The
 
Company’s
 
total
 
advertising
expenditures
 
were
 
approximately
 
0.9%1.0%,
 
0.8%0.9%
 
and
 
0.7%0.8%
 
of
 
retail
 
sales
 
for
 
fiscal
 
years
 
2021,2022,
 
20202021
 
and
2019,2020, respectively.
Store Operations
 
The Company’s
 
store operations
management team
 
consists of
 
threefour territorial
managers, 1211
 
regional
managers and 109 district managers. Regional managers receive
 
a salary plus a bonus based
 
on achieving
targeted goals
 
for sales
 
and payroll.
 
District managers
 
receive a
 
salary plus
 
a bonus
 
based on
 
achieving
targeted
 
objectives for
 
district sales
 
increases. Stores
 
are typically
 
staffed
 
with a
 
manager,
 
two assistant
managers
 
and
 
additional
 
part-time
 
sales
 
associates
 
depending
 
on
 
the
 
size
 
of
 
the
 
store
 
and
 
seasonal
personnel needs.
 
In general,
 
store managers
 
are paid
 
a salary
 
or on
 
an hourly
 
basis as
 
are all
 
other store
personnel.
 
Store
 
managers,
 
assistant
 
managers
 
and
 
sales
 
associates
 
are
 
eligible
 
for
 
monthly
 
and
 
semi-
annual bonuses based on achieving targeted goals for their respective store’s sales increases.
Store Locations
 
Most
 
of
 
the
 
Company’s
 
stores
 
are
 
located
 
in
 
the
 
southeastern
 
United
 
States in
 
a
 
variety of
 
markets
ranging
 
from
 
small
 
towns
 
to
 
large
 
metropolitan
 
areas
 
with
 
trade
 
area
 
populations
 
of
 
20,000
 
or
 
more.
Stores average approximately 4,500 square feet in size.
 
All of the
 
Company’s stores
 
are leased. Approximately 93%92% are
 
located in strip shopping
 
centers and
7%8% in enclosed
 
shopping malls. The
 
Company typically locates stores
 
in strip shopping
 
centers anchored
by
 
a
 
national
 
discounter,
 
primarily
 
Walmart
 
Supercenters,
 
or
 
market-dominant
 
grocery
 
stores.
 
The
Company’s strip center locations provide ample parking and shopping convenience for its customers.
 
The
 
Company’s
 
store
 
development
 
activities
 
consist
 
of
 
opening
 
new
 
stores
 
in
 
new
 
and
 
existing
markets,
 
relocating
 
selected
 
existing
 
stores
 
to
 
more
 
desirable
 
locations
 
in
 
the
 
same
 
market
 
area
 
and
closing underperforming stores. The following table sets forth information
 
with respect to the Company’s
development activities since fiscal 2017:2018:
 
 
 
 
 
8
Store Development
Number of Stores
Beginning of
Number
Number
Number of Stores
Fiscal Year
Year
Opened
Closed
End of Year
2017………………….……...………….
1,371
6
26
1,351
2018………………….……...………….
1,351
 
-
 
40
1,311
2019……………………….……...………….
1,311
 
5
 
35
1,281
2020…………....…………….……...…….
1,281
 
76
 
27
1,330
2021………….....………...….……...…….
1,330
 
6
 
25
1,311
2022………….………...….……...…….
1,311
19
50
1,280
 
The Company periodically
 
reviews its store
 
base to determine
 
whether any particular
 
store should be
closed based on its sales
 
trends and profitability.
 
The Company intends to continue this
 
review process to
identify underperforming stores.
 
Credit and Layaway
 
Credit Card Program
The Company offers its own credit card, which accounted for 2.5%3.1%, 2.7%2.5% and 3.3%2.7% of retail
 
sales in
fiscal 2022, 2021 2020 and 2019,2020, respectively. The Company’s net bad debt expense was 3.0%2.0%, 3.6%3.0% and 3.2%3.6%
of credit sales in fiscal 2022, 2021 2020 and 2019,2020, respectively.
Customers applying for the Company’s credit card are approved for credit if
 
they have a satisfactory
credit
 
record
 
and
 
the
 
Company
 
has
 
considered
 
the
 
customer’s
 
ability
 
to
 
make
 
the
 
required
 
minimum
payment.
 
Customers are required
 
to make minimum
 
monthly payments based
 
on their account
 
balances.
If
 
the
 
balance
 
is
 
not
 
paid
 
in
 
full
 
each
 
month,
 
the
 
Company
 
assesses
 
the
 
customer
 
a
 
finance
 
charge.
 
If
payments are not received on time, the customer is assessed a late
 
fee subject to regulatory limits.
The
 
Company
 
introduced
 
its
 
loyalty
 
program
 
in
 
October
 
2021.
 
The
 
loyalty
 
program
 
credits
 
the
customer points based on their purchases of
 
merchandise using the Company’s proprietary
 
credit card.
 
A
point
is
earned
for
every
dollar
spent
on
merchandise
purchases.
 
A
$5.00 rewards card is earned for every
250
 
$5.00points
accumulated
by
the
customer.
The
rewards
card
expires
90
days
after
the
 
rewards
 
card
 
is
earned
for
every 250
points accumulated by
the customer.
The rewards card
expires 90 days
after the rewards
card
is issued.
 
The fiscal
2021 2022 loyalty
program impact
is immaterial
to
the fiscal
2021 2022 financial
statements.
 
The
The
loyalty
 
program
 
will
beis
 
accounted
 
for
 
in
 
accordance
 
with
 
ASU
 
2014-09,
Revenue
 
from
 
Contracts
with
with Customers (Topic 606)
.
 
Layaway Plan
Under
 
the
 
Company’s
 
layaway
 
plan,
 
merchandise
 
is
 
set
 
aside
 
for
 
customers
 
who
 
agree
 
to
 
make
periodic
 
payments.
 
The
 
Company adds
 
a
 
nonrefundable
 
administrative
 
fee
 
to
 
each
 
layaway
 
sale.
 
If
 
no
payment is made within four weeks,
 
the customer is considered to have
 
defaulted, and the merchandise is
returned
 
to
 
the
 
selling floor
 
and again
 
offered
 
for
 
sale, often
 
at
 
a reduced
 
price. All
 
payments made
 
by
customers who subsequently default on their layaway purchase are returned to the customer upon request,
less the administrative fee and a restocking fee.
 
The Company defers recognition of layaway sales to the accounting period when the customer picks
up
 
and
 
completely pays
 
for
 
layaway
 
merchandise.
 
Administrative fees
 
are
 
recognized
 
in
 
the
 
period
 
in
which the
 
layaway is
 
initiated.
 
Recognition of
 
restocking fees occurs
 
in the
 
accounting period
 
when the
customer
 
defaults
 
on
 
the
 
layaway
 
purchase.
 
Layaway
 
sales
 
represented
 
approximately
 
2.7%,
 
2.8%2.7%
 
and
4.1%2.8% of retail sales in fiscal 2022, 2021 and 2020, and 2019, respectively.
9
Information Technology Systems
 
The
 
Company’s
 
information
 
technology
 
systems
 
provide
 
daily
 
financial
 
and
 
merchandising
9
information
 
that
 
is
 
used
 
by
 
management to
 
enhance
 
the
 
timeliness
 
and
 
effectiveness
 
of
 
purchasing and
pricing
 
decisions.
 
Management
 
uses
 
a
 
daily
 
report
 
comparing
 
actual
 
sales
 
with
 
planned
 
sales
 
and
 
a
weekly
 
ranking
 
report
 
to
 
monitor
 
and
 
control
 
purchasing
 
decisions.
 
Weekly
 
reports
 
are
 
also
 
produced
which reflect
 
sales, weeks
 
of
 
supply of
 
inventory and
 
other critical
 
data by
 
product categories,
 
by store
and by various levels of
 
responsibility reporting. Purchases are made based
 
on projected sales, but can
 
be
modified to accommodate unexpected increases or decreases in demand
 
for a particular item.
 
Sales information
 
is projected
 
by merchandise
 
category and,
 
in
 
some cases,
 
is
 
further projected
 
and
actual
 
performance measured
 
by
 
stock
 
keeping
 
unit
 
(SKU).
 
Merchandise
 
allocation
 
models
 
are
 
used
 
to
distribute
 
merchandise
 
to
 
individual
 
stores
 
based
 
upon
 
historical
 
sales
 
trends,
 
climatic
 
differences,
customer demographic differences and targeted inventory turnover rates.
Competition
 
The women’s
 
retail apparel
 
industry is
 
highly competitive.
 
The Company
 
believes that
 
the principal
competitive factors
 
in its
 
industry include
 
merchandise assortment
 
and presentation,
 
fashion, price,
 
store
location
 
and
 
customer
 
service. The
 
Company competes
 
with
 
retail
 
chains that
 
operate similar
 
women’s
apparel specialty stores. In addition, the Company competes with
 
mass merchandise chains, discount store
chains, major
 
department stores, off
 
-price retailers
 
and internet-based
 
retailers.
 
Although we
 
believe we
compete favorably
 
with respect
 
to the
 
principal competitive
 
factors described
 
above, many
 
of our
 
direct
and
 
indirect
 
competitors
 
are
 
well-established
 
national,
 
regional
 
or
 
local
 
chains,
 
and
 
some
 
have
substantially greater
 
financial, marketing
 
and other
 
resources.
 
The Company
 
expects its
 
stores in
 
larger
cities and metropolitan areas to face more intense competition.
Seasonality
 
Due
 
to
 
the
 
seasonal
 
nature
 
of
 
the
 
retail
 
business,
 
the
 
Company
 
has
 
historically
 
experienced
 
and
expects to continue to
 
experience seasonal fluctuations in its
 
revenues, operating income and net
 
income.
 
ResultsOur stores
typically generate a
higher percentage of
 
a periodour annual
 
net sales
and profitability in
the first
and
second quarters of
our fiscal year compared to
other quarters.
Results of a
period shorter than a
 
a full year
year may
 
not
be
 
indicative
of
 
results
expected
 
for
the
 
entire
year.
 
Furthermore,
the
seasonal
nature
of
our
Furthermore, the seasonal nature of our business may affect comparisons between
periods.
 
Regulation
 
The
 
Company’s
 
business
 
and
 
operations
 
subject
 
it
 
to
 
a
 
wide
 
range
 
of
 
local,
 
state,
 
national
 
and
international laws
 
and regulations
 
in a
 
variety of
 
areas, including
 
but not
 
limited to,
 
trade, licensing
 
and
permit
 
requirements,
 
import
 
and
 
export
 
matters,
 
privacy
 
and
 
data
 
protection,
 
credit
 
regulation,
environmental
 
matters,
 
recordkeeping
 
and
 
information
 
management,
 
tariffs,
 
taxes,
 
intellectual
 
property
and anti-corruption.
 
Though compliance with these laws
 
laws and regulations has not
 
not had a material effect
 
material effect on
the capital
 
expenditures, results of
 
operations or competitive
 
position of the
 
Company in
 
fiscal 2021,2022, the
Company faces
 
ongoing
 
risks
 
related
 
to
 
its
 
efforts
 
to
 
comply with
 
these
 
laws
 
and
 
regulations
 
and
 
risks
related
 
to
 
noncompliance,
 
as
 
discussed
 
generally
 
below
 
throughout
 
the
 
“Risk
 
Factors”
 
section
 
and
 
in
particular
 
under
 
“Risk
 
Factors
 
–
 
Risks
 
Relating
 
to
 
Accounting
 
and
 
Legal
 
Matters
 
–
 
Our
 
business
operations
 
subject
 
us
 
to
 
legal
 
compliance
 
and
 
litigation
 
risks,
 
as
 
well
 
as
 
regulations
 
and
 
regulatory
enforcement
 
priorities,
 
which
 
could
 
result
 
in
 
increased
 
costs
 
or
 
liabilities,
 
divert
 
our
 
management’s
attention or otherwise adversely affect our business, results of operations and financial
condition.”
Human Capital
 
As
 
of
 
January
 
29,28,
 
2022,2023,
 
the
 
Company
 
employed
 
approximately
 
7,5007,600
 
full-time
 
and
 
part-time
associates. The
 
Company also
 
employs additional
 
part-time associates
 
during the
 
peak retailing
 
seasons.
The Company’s
 
full-time team associates are
 
engaged
in various executive, operating,
 
and administrative
10
functions in
 
the Home
 
Office
 
and distribution
 
center and
 
the remainder
 
are engaged
 
in store
 
operations.
The Company is
 
not a party
 
to any
 
collective bargaining agreements
 
and considers its
 
associate relations
10
to
 
be
 
good.
 
The
 
Company
 
offers
 
a
 
broad
 
range
 
of
 
Company
paidCompany-paid
 
benefits
 
to
 
its
 
associates
 
including
medical and
 
dental plans,
 
paid vacation,
 
a 401(k)
 
plan, Employee
 
Stock Purchase
 
Plan, Employee
 
Stock
Ownership
 
Plan,
 
disability
 
insurance,
 
associate
 
assistance
 
programs,
 
life
 
insurance
 
and
 
an
 
associate
discount.
 
The
 
level
 
of
 
benefits
 
and
 
eligibility
 
vary
 
depending
 
on
 
the
 
associate’s
 
full-time
 
or
 
part-time
status, date
 
of hire,
 
length of
 
service and
 
level of
 
pay.
 
The Company
 
endeavors to
 
promote diversity,
 
to
provide
 
opportunities
 
for
 
advancement,
 
and
 
to
 
treat
 
all
 
of
 
its
 
associates
 
with
 
dignity
 
and
 
respect.
 
The
Company constantly
 
strives
 
to
 
improve
 
its
 
training
 
programs
 
to
 
develop
 
associates.
 
Over
 
80%
 
of
 
store
and field
 
management are promoted from
 
within, allowing the
 
Company to internally
 
staff its
 
store base.
The
 
Company
 
has
 
training
 
programs
 
at
 
each
 
level
 
of
 
store
 
operations.
 
The
 
Company
 
also
 
performs
ongoing
 
reviews
 
of
 
its
 
safety
 
protocols,
 
including
 
extensive
efforts
undertaken
during
the
COVID-19
pandemicmeasures
 
to
 
ensurepromote
 
the
 
health
 
and
 
safety
 
of
 
its
associates
by
performing
frequent
cleanings,
ensuring
social distancing and providing masks for all of its stores.associates.
Item 1A.
 
Risk Factors:
 
An investment in our common stock involves numerous types of risks.
 
You
 
should carefully consider
the
 
following
 
risk
 
factors,
 
in
 
addition
 
to
 
the
 
other
 
information
 
contained
 
in
 
this
 
report,
 
including
 
the
disclosures
 
under
 
“Forward-looking
 
Information”
 
above
 
in
 
evaluating
 
our
 
Company
 
and
 
any
 
potential
investment
 
in
 
our
 
common
 
stock.
 
If
 
any
 
of
 
the
 
following
 
risks
 
or
 
uncertainties
 
occur
 
or
 
persist,
 
our
business, financial condition and
 
operating results could
 
be materially and
 
adversely affected, the
 
trading
price
 
of
 
our
 
common
 
stock
 
could
 
decline
 
and
 
you
 
could
 
lose
 
all
 
or
 
a
 
part
 
of
 
your
 
investment
 
in
 
our
common
 
stock.
 
The
 
risks
 
and
 
uncertainties
 
described
 
in
 
this
 
section
 
are
 
not
 
the
 
only
 
ones
 
facing
 
us.
 
Additional risks
 
and uncertainties
 
not presently
 
known to
 
us or
 
that we
 
currently deem
 
immaterial
 
may
also materially
 
and adversely
 
affect
 
our business,
 
operating results,
 
financial condition
 
and value
 
of our
common stock.
Risks Relating to the COVID-19 Pandemic:Our Business:
The outbreakIncreasing interest rates and persistence of the COVID-19 pandemic hasinflationary conditions have and may continue
 
to adversely impact
our customers’ discretionary income or willingness to purchase discretionary
items, which may
adversely affect our
business, financial condition andmargins, results of operations.operations and financial condition.
Increasing interest
 
The
COVID-19
pandemic
hasrates have
 
adversely affected
 
impactedour customers’
 
thediscretionary income,
 
Company'sin part
 
business,due to
increased
 
financial
condition
and
operating results through fiscal 2021 and will likely
continue to do so in fiscal 2022 and
possibly beyond.
Adverse financial impacts
associated with the
outbreak include, but
are not limited
to, (i)
lower net sales
in markets affected by actual or
potential adverse changes in conditions relating to the pandemic,
whether
due to
increases in
case counts,
state and
local orders,
reductions in
store traffic
and customer
demand,
labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and
fulfillment,
(iii)
and
incrementalinterest
 
costs
 
associated
 
with
 
effortscredit
accounts
including
revolving
credit
accounts,
car
loans,
mortgage loans and other credit accounts.
In addition, the increased payments due to
higher interest rates
deter our customers from
purchasing discretionary items such as
apparel, shoes and jewelry.
Inflationary
pressures
limit
our
customers’
willingness
 
to
 
mitigatepurchase
 
theapparel,
 
effects
of
the
outbreak,
including increased freight and logistics costs and other expenses.
Though
recent
developments
in
the
U.S.
have
led
to
the
relaxation
of
many
of
the
restrictions
and
mitigation measures
that adversely
affected
the Company’s
operations, store
traffic,
sales
and results
of
operations
since
March
2020,
there
continues
to
be
significant
uncertainty
regarding
the
course
of
COVID-19 and
its continuing
effects on
commercial behavior.
These uncertainties
include the
potential
emergence of additional variants, seasonal weather
changes or other factors that may
lead to a resurgence
of the virus
and a reinstitution
of mandated restrictions, public
health advisories or decreased
willingness
of customers,
suppliers, associates
and other
constituencies on
whom our
business depends
to engage
in
commercial activities.
Other uncertainties
include the
extent
to
which and
pace at
which
governments,
businesses and
individuals may adapt
to COVID-19 as
endemic and
no longer
a meaningful
impediment
or deterrent
to commercial activity.
The resurgence
of the
virus and its
related effects
on the
global and
U.S.
economy,shoe
 
or
 
thejewelry
 
lingeringproducts,
 
uncertaintiesas
prices
associated
with
non-discretionary
products
including
food
 
and
 
time
it
may
take
to
transition
to
wide
acceptance
of
11
COVID-19
as
endemic,
will
likely
continue
to
materially
and
adversely
affect
our
business,
operating
results and financial condition.
While
the
Company
currently
anticipates
that
our
results
for
fiscal
2022
and
possibly
beyond
will
likely be adversely impacted,
whether and the extent
to which COVID-19 impacts the
Company’s results
will
depend
on
the
course
of
future
developments,
whichfuel
 
are
 
highlyincreasing,
 
uncertain,reducing
 
including
potentialour
sporadiccustomers’ discretionary income. Any reduction in our customers’ discretionary spending on our products
surges
could erode our sales volume and adversely affect our results of
the
virus,
the
extent
operations and
 
pacefinancial condition.
 
of
public
acceptance
of
COVID-19
as
endemic,
the
continuing
evolution,
acceptance
and
success
of
baseline
mitigation
measures
such
as
vaccines,
and
possible new information, understanding or innovation
that could alter the course and
duration of current
measures to combat the spread of the virus.
It is also possible
COVID-19 and its continuing effects
may result in longer term
behavioral changes
by customers and others
that could adversely affect
our business, including but
not limited to a
consumer
shift to greater
reliance on online
versus in-person shopping, which
could reduce traffic
to our stores
and
more
broadly
to
the
strip
shopping
centers
and
malls
in
which
most
of
our
stores
are
located
and
disadvantage us relative to
competitors who are better
established in e-commerce sales,
and reductions in
face-to-face work, travel and socializing occasions, which may lead
customers to less frequently desire or
perceive the need to update their wardrobes.
The
far-reaching
impacts
of
COVID-19 may
also
intensify other
risks we
discuss
in
this
report and
other filings we make from time to time with the SEC.
Future
outbreaks of
disease
or
similar
public
health
threats,
or
the
fear
of
such
an
occurrence,
may
also have a material adverse effect on the Company’s business, financial condition and operating results.
Risks Relating to Our Business:
Increased product costs, freight costs, wage increases and operating
costs due to
inflation and
other factors,
as well as limitations in our ability to offset these cost increases by increasing
 
the
retail
prices of our
products or otherwise, have and may continue to adversely
 
may adversely affect our business,
margins, results of operations and
financial
condition.
The impact
of inflation
on the
labor and
raw materials
used to
make our
products, coupled
with the
higher
cost of
ocean freight
from Asia
resulting from
supply chain
disruption, is
continuing to
increase
the
cost
we
pay
for
our
products.
Tight
 
labor
 
markets
 
are
 
causing
 
wages
 
to
 
increase
 
at
 
the
 
store,
distribution
distribution
center
 
and home office
 
home
office
levels, as well
 
well as
making it
 
more difficult to
 
to hire
new associates
 
and
retain existing associates.
 
The tight
labor market
 
and inflation
also are
 
driving up
our operating
 
costs.
 
IfIn addition,
inflationary pressures
on
labor
and
raw
materials
used
to
make
our
products
may
continue
to
increase
the
cost
we
pay
for
our
products.
If we are
unable to offset
the effects
of these increased
costs to
our business by
increasing the retail prices of
retail
prices
of
our
 
products,
 
reducing
 
other
 
expenses
 
or
 
otherwise,
 
our
 
business,
 
margins,
 
results
 
of
operations
and
operations and financial condition may be adversely affected.
Our
ability
to
 
raise
retail
 
prices
in
response
 
to
these
 
cost increases may
 
be increases
is
limited,
 
in
part
 
due
to
 
our
customers’
 
unwillingness
 
to
 
pay
 
higher
 
prices
 
for
 
discretionary
 
items
 
in
 
light
 
of
 
actual
 
or
 
perceived
11
effects
 
of
 
inflation
 
in
 
increasing
 
our
 
customers’
 
cost
 
of
 
essential
 
items
 
and
 
diminishing
 
customers’
disposable
 
income
 
or
 
financial
 
outlook.
 
Moreover,
 
the
 
persistence
 
or
 
worsening
 
of
 
inflationary
conditions could also
 
lead our customers
 
to reduce their
 
amount of current
 
discretionary spending on our
products even in the
 
absence of price increases,
 
which could erode our
 
sales volume and adversely
 
affect
our results of operations and financial condition.
 
Unusual weather, natural disasters, public
health threats or similar events may adversely affect
our sales or
operations.
12
Extreme
changes
in
weather,
natural
disasters,
public
health
threats
or
similar
events
can
influence
customer trends
and shopping
habits.
For example,
heavy rainfall
or other
extreme weather
conditions,
including
but
not
limited
to
winter
weather
over
a
prolonged
period,
might
make
it
difficult
for
our
customers
to
travel
to
our
stores
and
thereby
reduce
our
sales
and
profitability.
Our
business
is
also
susceptible
to
unseasonable weather
conditions.
For example,
extended
periods
of
unseasonably warm
temperatures during
the winter
season or
cool weather
during the
summer season
could render
a portion
of
our
inventory
incompatible
with
those
unseasonable
conditions.
Reduced
sales
from
extreme
or
prolonged
unseasonable
weather
conditions
would
adversely
affect
our
business.
The
occurrence
or
threat
of
extreme
weather,
natural
disasters,
power
outages,
terrorist
acts,
outbreaks
of
flu
or
other
communicable diseases (such as COVID-19) or other catastrophic events could reduce customer
traffic in
our
stores
and
likewise
disrupt
our
ability
to
conduct
operations,
which
could
materially
and
adversely
affect us.
Because we source a significant portion of our merchandise directly
and indirectly from overseas,
overseas, we are
subject to risks associated with international operations and risks
that affect
the prevailing
social, economic,
political, public health and other conditions in
the areas from which we source merchandise;
changes,
merchandise; changes, disruptions, increased costs
 
or other problems affecting the Company’s
merchandise supply chain have and could
continue to materially and
adversely affect the
Company’s
business, results of operations and financial condition.
 
A significant amount of
our merchandise is manufactured
 
manufactured overseas, principally in Southeast
Asia. We
directly import some of this merchandise and
 
indirectly import the remaining merchandise from domestic
vendors
 
who
 
acquire
 
the
 
merchandise
 
from
 
foreign
 
sources.
 
Further,
 
our
 
third-party
 
vendors
 
are
dependent
 
on
 
materials
 
primarily
 
sourced
 
from
 
China.
 
As
 
a
 
result,
 
political
 
unrest,
 
labor
 
disputes,
terrorism,
 
war,
 
public
 
health
 
threats,
 
including
 
but
 
not
 
limited
 
to
 
communicable
 
diseases
 
(such
 
as
COVID-19), financial or other forms of instability or other events resulting in the disruption of trade from
countries
 
affecting
 
our
 
supply
 
chain,
 
increased
 
security
 
requirements
 
for
 
imported
 
merchandise,
 
or
 
the
imposition of, or changes
 
in, laws, regulations or
 
changes in duties, quotas, tariffs,
 
taxes or governmental
policies
regarding
 
or
responses
to
these
matters
 
or
other
 
factors
affecting
 
the
availability
 
or
cost
 
of
imports,
 
could cause
significantcan
 
cause
significant delays
 
or
 
interruptions
in
 
the
 
supply
of
 
our
 
merchandise or
increase our
costs.
In
addition,
geopolitical
tensions,
sanctions,
prohibitions,
additional
tariffs,
compliance
and
reporting requirements
have resulted
in increased
costs associated
with merchandise
produced in
certain
regions.
Any new sanctions, tariffs and
reporting requirements enacted in the future may further
increase
our costs associated with sourcing products from those regions
or limit our ability to procure the
products
we
source,
and
our
ability
to
source
these
products
from
other
regions
may
be
limited
 
or
 
increaseresult
 
ourin
increased sourcing costs.
costs.
We
 
are
 
also
subject
 
to
 
supply
 
chain
 
disruptions
 
affecting
 
ocean
 
freight,
 
including
 
lack
 
of
 
overall
ocean
container
shipping capacity versus
the current demand
forocean container shipping
 
capacity versus the
current demand for
container shipping capacity,
 
lack of our
ability to
 
ability to access the
ocean container capacity
that we
require, lack
of equipment
such as
containers, port
thecongestion,
including
increased
dwell
times
for
 
ocean
 
container
 
capacity
that
we
require,
lack
of
equipment
such
as
containers,
port
congestion,
including increased
dwell times
for ocean
container ships,
 
and
other
 
conditions impacting
 
impacting
ocean
freight.
 
We
 
also
 
are
 
subject
 
to
 
domestic
 
supply
 
chain
 
disruptions,
 
including
 
lack
 
of
 
domestic
intermodal
intermodal transportation
(trucks (trucks
 
and
drivers),
domestic
 
port
congestion,
including
 
increased
dwell
times
for
for incoming container ships, lack of container
yard capacity and lack of available drayage from
the ports and
and
other
conditions
that may
impact
 
our
domestic
supply
chain.
 
These
supply
chain
risks
have
and
may
continue to
 
result in
both
higher
 
costs to
transport our
merchandise and
delayed merchandise
arrivals to
our stores, which adversely affect our ability to sell this merchandise and increase
markdowns of it.
Our costs are
also affected by currency
fluctuations, and changes in
the value of the
dollar relative to
foreign
currencies
have
and
may
continue
 
to
 
transportimpact
 
our
 
merchandise
and
delayed
merchandise
arrivals
to
our
stores,
which
may
adversely
affect
our
ability
to
sell
this
merchandise
and
increase
markdownscost
 
of
 
it.
Our
costs
are
also
affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies may
increase our cost of goods
 
sold.
Any
of
these
factors
 
could have a material adverse effect
on our businesscan
materially and
 
resultsadversely affect
 
our business
and results of
 
operations.
 
In
addition,
 
increased
energy
 
and
transportation
 
costs
 
have
 
caused
 
us
significant cost increases from time to time,
 
and future adverse changes in thesesignificant
 
costs or the disruption ofcost
the means by which merchandise is transported to us could cause additional cost increases
 
or interruptions
offrom
 
our
supply
chain,
which
could
be
significant.
Further,
we
are
subjecttime
 
to
 
increasedtime,
and
future
adverse
changes
in
these
 
costs
 
or
 
potentialthe
disruption
of
the
means
by
which
merchandise
is
transported
to
us
could
cause additional
cost increases
or interruptions
of our
supply chain,
which could
be significant.
Further,
we are subject to
increased costs or potential disruptions
impacting any port or
 
port or trade
route through which
our products
 
our products move, or we
 
or we may be
 
be subject to
 
to
increased costs
 
and delays if
 
if forced
to route
 
freight through
different
 
different ports
 
than
the
 
ones
through
 
which
our
 
products
 
typically
 
move.
 
If
 
we
 
are
 
forced
 
to
 
source
merchandise
from
 
other
countries
 
or other
 
other
domestic vendors
with foreign
 
sources in
different
 
countries,
those goods
may be more expensive
or of a
different or inferior quality from the ones we
now sell.
Adverse
developments
affecting
the
financial
services
industry,
including
events
or
concerns
involving
liquidity,
defaults
or
non-performance
by
financial
institutions
or
transactional
12
counterparties, could adversely affect our business, financial condition or results
of operations.
Actual
events
involving limited
liquidity,
defaults,
non-performance or
other
adverse
developments
that affect
financial institutions,
transactional counterparties
or other
companies in
the financial
services
industry
or
the
financial
services
industry
generally,
or
concerns
or
rumors
about
any
events
of
these
kinds
or
other
similar
risks,
have
in
the
past
and
may
in
the
future
lead
to
sporadic
or
market-wide
liquidity problems that
could adversely affect
us. For example,
on March 10,
2023, Silicon Valley
Bank,
or
SVB,
was
closed
by
the
California
Department
of
Financial
Protection
and
Innovation,
which
appointed the
Federal Deposit
Insurance Corporation,
or the
FDIC, as
receiver.
Similarly,
on March
12,
2023,
Signature
Bank
was
swept
into
receivership.
In
addition
on
March
8,
2023,
Silvergate
Capital
announced that
it will
liquidate its
subsidiary,
Silvergate
Bank, and
that the
liquidation process
is being
supervised by the California Department of Financial Protection and
Innovation. Although a statement by
the
Department
of
the
Treasury,
the
Federal
Reserve
and
the
FDIC
stated
that
all
depositors
of
SVB
would have
access to
all of
their money
after
only one
business day
of
closure, including
funds
held in
uninsured deposit accounts, borrowers under credit agreements, letters of credit and
certain other financial
instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by
the FDIC may be unable to access undrawn amounts thereunder.
If
any
of
our
transactional
counterparties,
such
as
our
merchandise
vendors
and
their
factors,
our
landlords, our
payment processors including
credit card,
gift card
and checks, our
transportation vendors
and
other
vendors
that
provide
services
and
supplies
to
us,
are
unable
to
access
funds
or
lending
arrangements
with
such
a
financial
institution,
such
parties’
ability
to
pay
their
obligations
could
be
adversely
affected.
If
this
occurred
we
could
be
adversely
impacted
by
not
receiving
the
product
we
ordered or
the payments generated
by our
sales, by
not being able
to receive
products to
our distribution
center or
our stores in
a timely manner
or at
all, or by
not being able
to retain services
from third
parties
that we require.
These impacts may adversely affect our financial condition, results of operations and our
ability to execute our business strategy.
Furthermore, these
adverse developments
affecting the
financial services
or related
perceptions may
negatively
impact
our
customers’
discretionary
income
for
or
our
customers’
willingness
to
purchase
apparel,
shoes
or
jewelry
products.
Any
reduction
in
our
customers’
discretionary
spending
on
our
products
could
erode
our
sales
volume
and
adversely
affect
our
results
of
operations
and
financial
condition.
Any actual or perceived deterioration in the conditions that drive
consumer confidence and
spending have and may continue to materially and adversely affect consumer demand
for our
apparel and accessories and our results of operations.
Consumer spending habits, including spending for our apparel
and accessories, are affected by, among
other things, prevailing social, economic,
political and public health conditions
and uncertainties (such as
matters under debate in the U.S. from time to
time regarding budgetary, spending and
tax policies), levels
of
employment, fuel,
interest rates,
energy
and
food
costs,
salaries and
wage rates
and
other sources
of
income,
tax
rates,
home
values,
consumer
net
worth,
the
availability
of
consumer
credit,
inflation,
consumer
confidence
and
consumer
perceptions
of
adverse
changes
in
or
trends
affecting
any
of
these
conditions.
Any perception that these conditions may be worsening or continuing to trend negatively may
significantly
weaken
many
of
these
drivers
of
consumer spending
habits.
Adverse
perceptions
of
these
conditions
or
uncertainties
regarding
them
also
generally
cause
consumers
to
defer
purchases
of
discretionary items, such
as our
merchandise, or
to purchase
cheaper alternatives to
our merchandise,
all
of which may also
adversely affect our
net sales and
results of operations.
In addition, numerous events,
whether or not related to
actual economic conditions, such as downturns
in the stock markets, acts
of war
or terrorism, political unrest
or natural disasters, outbreaks of
disease or similar events,
may also dampen
consumer confidence,
and accordingly,
lead
to
reduced consumer
spending.
Any of
these
events could
have a material adverse effect on our business, results of operations and financial
condition.
13
Extreme weather, natural disasters, public health threats or similar events have and may continue
to adversely affect our sales or operations from time to time.
Extreme
changes
in
weather,
natural
disasters,
public
health
threats
or
similar
events
can
influence
customer trends
and shopping
habits.
For example,
heavy rainfall
or other
extreme weather
conditions,
including
but
not
limited
to
winter
weather
over
a
prolonged
period,
might
make
it
difficult
for
our
customers
to
travel
to
our
stores
and
thereby
reduce
our
sales
and
profitability.
Our
business
is
also
susceptible
to
unseasonable weather
conditions.
For example,
extended
periods
of
unseasonably warm
temperatures during the
winter season or
cool weather during
the summer season
can render
a portion of
our
inventory
incompatible
with
those
unseasonable
conditions.
Reduced
sales
from
extreme
or
prolonged
unseasonable
weather
conditions
would
adversely
affect
our
business.
The
occurrence
or
threat
of
extreme
weather,
natural
disasters,
power
outages,
terrorist
acts,
outbreaks
of
flu
or
other
communicable diseases (such as COVID-19) or other catastrophic events could reduce customer
traffic in
our stores
and likewise
disrupt our
ability to
conduct operations,
which would
materially and
adversely
affect us.
Our ability to attract consumers and grow our revenues is dependent
on the success of our store
location strategy and our ability to successfully open new stores as planned.
Our sales are
dependent in part
on the location
of our stores in
shopping centers and
malls where we
believe our
consumers and
potential consumers
shop.
In addition,
our ability
to grow
our
revenues has
been substantially dependent on our ability to secure space for and open new stores in attractive locations.
Shopping centers
and malls
where we
currently operate
existing stores
or seek
to
open new
stores have
been and
may continue
to be
adversely affected
by,
among other
things, general
economic downturns
or
those
particularly affecting
the
commercial real
estate industry,
the
closing of
anchor
stores, changes
in
tenant
mix
and
changes
in
customer
shopping
preferences,
including
but
not
limited
to
an
increase
in
preference for online versus in-person shopping.
To take
advantage of consumer traffic and the
shopping
preferences
of
our
consumers,
we
need
to
maintain
and
acquire
stores
in
desirable
locations
where
competition for suitable
store locations is
intense. A decline
in customer popularity
of the
strip shopping
centers where we
generally locate our
stores or in
availability of space
in desirable centers
and locations,
or an increase in the cost of such desired space, has limited and could further limit our ability to open new
stores,
adversely
affecting
consumer
traffic
and
reducing
our
sales
and
net
earnings
or
increasing
our
operating costs.
Our ability
to open
and operate
new stores
depends on
many factors,
some of
which are
beyond our
control.
These
factors
include,
but
are
not
limited
to,
our
ability
to
identify
suitable
store
locations,
negotiate acceptable lease terms, secure
necessary governmental permits and approvals and
hire and train
appropriate store personnel.
In addition, our
continued expansion into
new regions of
the country
where
we
have
not
done
business
before
may
present
new
challenges
in
competition,
distribution
and
merchandising as we enter these new markets. Our failure to successfully and timely
execute our plans for
opening new stores
or the failure
of these stores
to perform up
to our expectations
could adversely affect
our business, results of operations and financial condition.
If we are unable to anticipate, identify and respond to rapidly changing
fashion trends and
customer demands in a timely manner, our business and results of operations could materially
suffer.
Customer
tastes
and
fashion
trends,
particularly
for
women’s
apparel,
are
volatile,
tend
to
change
rapidly
and
cannot
be
predicted
with
certainty.
Our
success
depends
in
part
upon
our
ability
to
consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a
timely
manner.
Accordingly,
any
failure
by
us
to
anticipate,
identify,
design
and
respond
to
changing
fashion
trends
could
adversely
affect
consumer
acceptance
of
our
merchandise,
which
in
turn
could
adversely affect our business, results
of operations and our image with our
customers.
If we miscalculate
either the
market for
our merchandise
or our
customers’ tastes or
purchasing habits, we
may be required
14
to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which
would adversely affect our margins and results of operations.
The inability of third-party vendors to produce goods on time and to the Company’s
 
Company’s specification may
may adversely affect the Company’s
business, results of operations and financial condition.
13
 
Our
 
dependence
 
on
 
third-party
 
vendors
 
to
 
manufacture
 
and
 
supply
 
our
 
merchandise
 
subjects
 
us
 
to
numerous risks that
 
our vendors will
 
fail to perform
 
as we expect.
 
For example, the
 
deterioration in any
of
 
our key
 
vendors’ financial
 
condition, their
 
failure to
 
ship merchandise
 
in a
 
timely manner
 
that meets
our specifications,
 
or other
 
failures to
 
follow our
 
vendor guidelines
 
or comply
 
with applicable
 
laws and
regulations,
 
including
 
compliant
 
labor,
 
environmental
 
practices
 
and
 
product
 
safety,
 
could
 
expose
 
us
 
to
operational, quality,
 
competitive, reputational and
 
legal risks.
 
If we
 
are not
 
able to
 
timely or
 
adequately
replace the merchandise we currently
 
source with merchandise produced elsewhere,
 
or if our vendors fail
to
 
perform as
 
we
 
expect,
 
our
 
business, results
 
of
 
operations
 
and
 
financial
 
condition
 
could
 
be
 
adversely
affected.
 
Activities
 
conducted
 
by
 
us
 
or
 
on
 
our
 
behalf
 
outside
 
the
 
United
 
States
 
further
 
subject
 
us
 
to
numerous
 
U.S.
 
and
 
international
 
regulations
 
and
 
compliance
 
risks,
 
as
 
discussed
 
below
 
under
 
“Risk
Factors –
 
Risks Relating
 
to Accounting
 
and Legal
 
Matters -
 
Our business
 
operations subject
 
us to
 
legal
compliance and litigation
 
risks, as well
 
as regulations and
 
regulatory enforcement priorities, which
 
could
result in increased costs or liabilities,
 
divert our management’s attention
 
or otherwise adversely affect our
business, results of operations and financial condition.”
Our ability to attract consumers and grow our revenues is dependent on the success of our store location
strategy and our ability to successfully open new stores as planned.
Our sales are
dependent in part
on the location
of our stores
in shopping centers
and malls where
we
believe our
consumers and
potential consumers
shop.
In addition,
our ability
to grow
our
revenues has
been substantially dependent on our ability to secure space for and open new stores in attractive locations.
Shopping centers and malls where we currently
operate existing stores or seek to open
new stores may be
adversely affected by, among other
things, general economic downturns or those particularly affecting the
commercial
real
estate
industry,
the
closing
of
anchor
stores,
changes
in
tenant
mix
and
changes
in
customer shopping preferences, including but not limited to an increase in preference for online versus in-
person shopping.
To
take advantage of
consumer traffic and
the shopping preferences of
our consumers,
we
need
to
maintain
and
acquire
stores
in
desirable
locations
where
competition
for
suitable
store
locations
is
intense.
A
decline
in
customer
popularity of
the
strip
shopping
centers
where we
generally
locate our stores or
in availability of space
in desirable centers and locations,
or an increase in
the cost of
such
desired
space,
could
limit
our
ability
to
open
new
stores,
adversely
affect
consumer
traffic
and
reduce our sales and net earnings or increase our operating costs.
Our ability
to open
and operate
new stores
depends on
many factors,
some of
which are
beyond our
control.
These
factors
include,
but
are
not
limited
to,
our
ability
to
identify
suitable
store
locations,
negotiate acceptable lease terms, secure
necessary governmental permits and approvals and
hire and train
appropriate store personnel.
In addition, our
continued expansion into
new regions of
the country
where
we
have
not
done
business
before
may
present
new
challenges
in
competition,
distribution
and
merchandising as we enter these new markets. Our failure to successfully and timely
execute our plans for
opening new stores
or the failure
of these stores
to perform up
to our expectations
could adversely affect
our business, results of operations and financial condition.
If we are unable to anticipate, identify and respond to rapidly changing fashion trends and
customer
demands in a timely manner, our business
and results of operations could materially suffer.
Customer
tastes
and
fashion
trends,
particularly
for
women’s
apparel,
are
volatile,
tend
to
change
rapidly
and
cannot
be
predicted
with
certainty.
Our
success
depends
in
part
upon
our
ability
to
consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a
timely
manner.
Accordingly,
any
failure
by
us
to
anticipate,
identify,
design
and
respond
to
changing
fashion
trends
could
adversely
affect
consumer
acceptance
of
our
merchandise,
which
in
turn
could
adversely affect our business, results
of operations and our image with
our customers.
If we miscalculate
either the
market for
our merchandise
or our
customers’ tastes or
purchasing habits, we
may be required
to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which
would adversely affect our margins and results of operations.
14
Fluctuating comparable sales or our inability to effectively
manage inventory may negatively impact our
gross margin and our overall results of operations.
Comparable
sales
are
expected
to
continue
to
fluctuate
in
the
future.
Factors
affecting
comparable
sales
include
fashion
trends,
customer
preferences,
calendar
and
holiday
shifts,
competition,
weather,
supply
chain
issues,
actual
or
potential
public
health
threats
and
economic
conditions.
In
addition,
merchandise
must
be
ordered
well
in
advance
of
the
applicable
selling
season
and
before
trends
are
confirmed by sales.
If we are
not able to
accurately predict customers’
preferences for our
fashion items,
we may have too
much inventory, which
may cause excessive markdowns. If we
are unable to accurately
predict demand
for our
merchandise, we may
end up
with inventory shortages,
resulting in
missed sales.
A decrease in
comparable sales or
our inability to
effectively manage inventory may
adversely affect our
gross margin and results of operations.
Existing and increased competition in the women’s
retail apparel industry may negatively impact our
our business, results of operations, financial condition and
market share.
 
The
 
women’s
 
retail
 
apparel
 
industry
 
is
 
highly
 
competitive.
 
We
 
compete
 
primarily
 
with
 
discount
stores,
 
mass
 
merchandisers,
 
department
 
stores,
 
off-price
 
retailers,
 
specialty
 
stores
 
and
 
internet-based
retailers, many of which have substantially greater financial, marketing and other resources
 
other resources than we have.
 
Many
 
of
 
our
 
competitors offer
 
frequent
 
promotions and
 
reduce
 
their
 
selling prices.
 
In some
 
cases,
 
our
competitors are expanding into
 
markets in which we
 
have a significant market
 
presence.
 
In addition, our
competitors
 
also
 
compete
 
for
 
the
 
same
 
retail
 
store
 
space.
 
As
 
a
 
result
 
of
 
this
 
competition,
 
we
 
may
experience
 
pricing
 
pressures,
 
increased
 
marketing
 
expenditures,
 
increased
 
costs
 
to
 
open
 
new
 
stores,
 
as
well
 
as
 
loss
 
of
 
market
 
share,
 
which
 
could
 
materially
 
and
 
adversely
 
affect
 
our
 
business,
 
results
 
of
operations and financial condition.
Fluctuating comparable sales or our inability to effectively manage inventory have and
may
continue to negatively impact our gross margin and our overall results of
operations.
Comparable
sales
are
expected
to
continue
to
fluctuate
in
the
future.
Factors
affecting
comparable
sales
include
fashion
trends,
customer
preferences,
calendar
and
holiday
shifts,
competition,
weather,
supply chain
issues, actual
or potential
public health
threats and
economic conditions,
including but
not
limited to
increasing interest rates
and higher inflation.
In addition, merchandise
must be
ordered well in
advance of
the applicable
selling season
and before
trends are
confirmed by
sales. If
we are
not able
to
accurately predict customers’ preferences
for our fashion items,
we may have too
much inventory,
which
may cause excessive
markdowns. If we
are unable to accurately
predict demand for our
merchandise, we
may
end
up
with
inventory shortages,
resulting in
missed
sales.
A
decrease
in
comparable
sales
or
our
inability to effectively manage inventory may adversely affect our gross margin and results of operations.
The operation of our sourcing offices in Asia may present increased legaloperational and
 
and operationallegal risks.
 
In
October
 
2014, we
established our
own sourcing
offices in
Asia. If
our sourcing
offices are
unable
to successfully oversee merchandise production to ensure
that product is produced on time and
within the
Company’s
specifications,
our
business,
brand,
reputation,
costs,
results
of
operations
and
financial
condition could be materially and adversely affected.
15
In addition, the current business environment, including geopolitical issues, make operating in
certain
Asian
markets
challenging.
To
the
extent
 
we
 
establishedexplore
other
countries
to
source
 
our
 
ownproduct
 
sourcingor
 
officesexplore
increasing
 
inthe
 
Asia.amount
 
Ourof
 
experienceproduct
 
withsourced
from
current
countries,
we
may
be
subject
to
additional
increased
 
legal
 
and
regulatory practices and requirements in Asia
 
is limited. If our sourcing officesoperational risks
 
are unable to successfully
overseeassociated
 
merchandisewith
 
productiondoing
 
tobusiness
 
ensurein
 
thatnew
 
productcountries
 
isor
 
producedincreasing our
business in other countries.
 
on
time
and
within
the
Company’s
specifications, our business, brand, reputation, costs, results of operations
and financial condition could be
materially
and
adversely
affected.
Further,
 
the
 
activities
 
conducted
 
by
 
our
 
sourcing
 
offices
 
outside
 
the
United
 
States
 
subject
 
us
 
to
foreign
operational
risks,
 
as
well
as
 
U.S. and international regulations
and compliance risks, as
discussed
elsewhere
in
this
“Risk
Factors”
section,
in
particular
below
under
“Risk
Factors
–
Risks
Relating
to
Accounting
 
and
 
international
regulations
and
compliance risks,
as discussed
elsewhere in
this “Risk
Factors” section,
in particular
below under
“Risk
Factors –
Risks Relating
to Accounting
and Legal
 
Matters
-
 
Our
business
 
operations
subject
 
us
to
 
legal
compliance and litigation
 
compliance
and
litigation
risks, as well
as regulations and
regulatory enforcement priorities, which
could
result in increased costs or
liabilities,
 
divert our management’s attention
 
or otherwise adversely affect our
business, results of operations and financial condition.”
Any actual or perceived deterioration in the conditions that drive consumer confidence
 
and spending may
materially and adversely affect consumer demand for our apparelmanagement’s
 
and accessories and our results of
operations.
Consumer spending habits, including spending for our apparel and accessories, are affected by, among
other things, prevailing social, economic,
political and public health
conditions and uncertainties (such as
matters under debate in the U.S. from time to time
regarding budgetary, spending and tax policies and
the
impact
of
COVID-19), levels
of
employment, fuel,
energy
and
food
costs,
salaries
and
wage
rates
and
other sources of
income, tax rates,
home values, consumer net
worth, the availability
of consumer credit,
inflation, consumer confidence and consumer perceptions of adverse changes in or trends affecting any of
these
conditions.
Any
perception
that
these
conditions
may
be
worseningattention
 
or
 
continuing
to
trend
negatively
may
significantly
weaken
many
of
these
drivers
of
consumer
spending
habits.
Adverse
perceptions of
these conditions
or
uncertainties regarding
them also
generally cause
consumers to
defer
purchases
of
discretionary
items,
such
as
our
merchandise,
or
to
purchase
cheaper
alternatives
to
our
merchandise, all
of which
may alsootherwise
 
adversely affect
 
our net
sales and
results of
operations.
In addition,
15
numerous events,
whether or
not
related to
actual
economic conditions,
such
as downturns
in
the
stock
markets,
acts
of
war
or
terrorism,
political
unrest
or
natural
disasters,
outbreaks
of
disease
or
similar
events,
may
also
dampen
consumer
confidence,
and
accordingly,
lead
to
reduced
consumer
spending.
Any
of
these
events
could
have
a
material
adverse
effect
onaffect
 
our
 
business,
 
results
 
of
operations
and
financial condition.
Fluctuations in the price, availability and quality of inventory may result in higher
cost of goods, which the
Company may not be able to pass on to its customers.
Vendors
are
increasingly
passing
on
higher
production
costs,
including
the
costs
to
ship
product,
which may impact our ability to maintain or grow our margins. The price and availability of raw materials
may be
impacted by
demand, regulation,
weather and
crop yields,
currency value
fluctuations, inflation,
as
well as
other factors.
Additionally,
manufacturers have
and may
continue to
have increases
in
other
manufacturing costs,
such as
transportation, labor
and benefit
costs. These
increases in
production costs
result
in
higher
merchandise
costs
to
the
Company.
Due
to
the
Company’s
limited
flexibility
in
price
point, the Company
may not be
able to pass
on those cost
increases to the
consumer, which could
have a
material adverse effect on our margins, results of operations and financial condition.
If the Company is unable to successfully integrate new businesses into its existing business,
the Company’s
financial condition and results of operations will be adversely affected.
The Company’s
long-term business
strategy includes
opportunistic growth
through the
development
of
new
store
concepts.
This
growth
may
require
significant
capital
expenditures
and
management
attention. The Company may not
realize any of the
anticipated benefits of a
new business and integration
costs
may
exceed
anticipated
amounts.
We
have
incurred
substantial
financial
commitments
and
fixed
costs related to our retail stores that we
will not be able to recover if our stores
are not successful and that
could
potentially result
in
impairment charges.
If we
cannot
successfully execute
our
growth
strategies,
our financial condition and results of operations may be adversely
impacted.
”
Failure to attract, train, and retain skilled personnel could adversely affect our business
 
our business and our financial
financial condition.
 
Like most
 
retailers, we
 
experience significant
 
associate turnover rates,
 
particularly among store
 
sales
associates and
 
managers.
 
Moreover,
 
attracting and
 
retaining skilled
 
personnel has
 
become increasingly
challenging in
 
the tight
 
labor market
 
that has
 
persisted since
 
the onset
 
of the
 
COVID-19 pandemic.
 
To
offset this
 
turnover as
 
well as
 
support new
 
store growth,
 
we must
 
continually attract,
 
hire and
 
train new
store
 
associates
 
to
 
meet
 
our
 
staffing
 
needs.
 
A
 
significant
 
increase
 
in
 
the
 
turnover
 
rate
 
among
 
our
 
store
sales associates and managers would increase our recruiting and training costs, as well as possibly cause a
decrease in our store operating
 
operating efficiency and productivity.
 
We
 
compete for qualified store associates, as
well
 
as
 
experienced
 
management
 
personnel,
 
with
 
other
 
companies
 
in
 
our
 
industry
 
or
 
other
 
industries,
many of whom have greater financial resources than we do.
 
 
In
 
addition,
 
we
 
depend
 
on
 
key
 
management
 
personnel
 
to
 
oversee
 
the
 
operational
 
divisions
 
of
 
the
Company
 
for
 
the
 
support
 
of
 
our
 
existing
 
business
 
and
 
future
 
expansion.
 
The
 
success
 
of
 
executing
 
our
business strategy
 
depends in
 
large part
 
on retaining
 
key management.
 
We
 
compete for
 
key management
personnel
 
with
 
other
 
retailers, and
 
our
 
inability
 
to
 
attract
 
and
 
retain
 
qualified personnel
 
could
 
limit
 
our
ability to continue to grow.
 
If
 
we
 
are
 
unable
 
to
 
retain
 
our
 
key
 
management
 
and
 
store
 
associates
 
or
 
attract,
 
train,
 
or
 
retain
 
other
skilled
 
personnel in
 
the
 
future,
 
we
 
may not
 
be
 
able
 
to
 
service
 
our
 
customers
effectively
 
or
 
execute
 
our
business strategy, which could adversely affect our business, operating results and financial condition.
16
 
The currently
 
competitive environment
 
for
 
hiring new
 
associates and
 
retaining existing
 
associates is
causing
 
wages
 
to
 
increase,
 
which
 
has
and
could
continue
to
 
adversely
 
affect
 
our
 
business,
 
margins,
operating
results
and
operating results and financial condition if we cannot offset these cost increases.
Fluctuations in the price, availability and quality of inventory have and
may continue to result in
higher cost of goods, which the Company may not be able to pass on
to its customers.
The price and availability of raw
materials may be impacted by demand, regulation,
weather and crop
yields, currency
value fluctuations,
inflation, as
well as
other factors.
Additionally,
manufacturers have
and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit
costs. These increases in production costs may result in higher merchandise costs to the Company.
Due to
the
Company’s
limited
flexibility
in
price
point,
the
Company
may
not
be
able
to
pass
on
those
cost
increases
to
the
consumer,
which
could
have
a
material
adverse
effect
on
our
margins,
results
of
operations and financial condition.
If the Company is unable to successfully integrate new businesses into
its existing business, the
Company’s financial condition and results of operations will be adversely affected.
16
The Company’s
long-term business
strategy includes
opportunistic growth
through the
development
of
new
store
concepts.
This
growth
may
require
significant
capital
expenditures
and
management
attention. The Company may not
realize any of the
anticipated benefits of a
new business and integration
costs
may
exceed
anticipated
amounts.
We
have
incurred
substantial
financial
commitments
and
fixed
costs related to our retail stores that we
will not be able to recover if our stores
are not successful and that
have resulted and could result in future impairment charges. If we cannot successfully execute our growth
strategies, our financial condition and results of operations may
be adversely impacted.
Risks Relating to Our Information Technology and Related Systems:
A failure or disruption relating to our information technology systems could
 
adversely affect our
business.
 
We
 
rely
 
on
 
our
 
existing
 
information
 
technology
 
systems
 
for
 
merchandise
 
operations,
 
including
merchandise planning,
 
replenishment, pricing, ordering,
 
markdowns and
 
product life
 
cycle management.
 
In addition to
 
merchandise operations, we utilize
 
our information technology systems for
 
our distribution
processes,
 
as
 
well
 
as
 
our
 
financial
 
systems,
 
including
 
accounts
 
payable,
 
general
 
ledger,
 
accounts
receivable, sales,
 
banking, inventory
 
and fixed
 
assets.
 
Despite the
 
precautions we
 
take, our
 
information
systems are or may be vulnerable to disruption
 
or failure from numerous events, including but not limited
to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts
of
 
war
 
or
 
terrorism,
 
similar
 
catastrophic
 
events
 
or
 
other
 
causes
 
beyond
 
our
 
control
 
or
 
that
 
we
 
fail
 
to
anticipate. Any disruption or failure in the operation of our information technology systems, our failure to
continue
 
to
 
upgrade
 
or
 
improve
 
such
 
systems,
 
or
 
the
 
cost
 
associated
 
with
 
maintaining,
 
repairing
 
or
improving
 
these
 
systems,
 
could
 
adversely
 
affect
 
our
 
business,
 
results
 
of
 
operations
 
and
 
financial
condition. Modifications and/or upgrades to
 
our current information technology systems may also
 
disrupt
our operations.
 
A disruption or shutdown of our centralized distribution center or transportation network
could materially
and adversely affect our business and results of operations.
The distribution
of our
products is
centralized in
one distribution
center in
Charlotte, North
Carolina
and
distributed
through
our
network
of
third-party
freight
carriers.
The
merchandise
we
purchase
is
shipped directly to
our distribution center,
where it is
prepared for shipment
to the appropriate
stores and
subsequently delivered
to
the
stores
by our
third-party freight
carriers.
If the
distribution
center or
our
third-party freight carriers were
to be shut down
or lose significant capacity
for any reason, including but
not limited to, any of the causes described above under “A failure or disruption
relating to our information
technology
systems
could
adversely
affect
our
business,”
our
operations
would
likely
be
seriously
disrupted.
Such problems could occur as the result of any loss, destruction or impairment of our ability to
use
our
distribution center,
as
well
as
any broader
problem generally
affecting
the ability
to
ship
goods
into our distribution center or deliver goods
to our stores.
As a result, we could incur significantly higher
costs and longer lead
times associated with distributing our
products to our stores during
the time it takes
for us to reopen or
replace the distribution center and/or our transportation network. Any such
occurrence
could adversely affect our business, results of operations and financial condition.
A security breach that results in unauthorized access to or disclosure of employee,
 
employee, Company or customer
customer information or a ransomware attack could adversely affect our costs,
reputation and
results of operations, and efforts to mitigate
these risks may continue to increase
our costs.
 
 
The
 
protection
 
of
 
employee,
 
Company and
 
customer
 
data
 
is
 
critical
 
to
 
the
 
Company.
 
Any
 
security
breach, mishandling, human or programming error or other event that results in the misappropriation, loss
or
 
other
 
unauthorized
 
disclosure
 
of
 
employee,
 
Company
 
or
 
customer
 
information,
 
including
 
but
 
not
limited
 
to
 
credit
 
card
 
data
 
or
 
other
 
personally
 
identifiable
 
information,
 
could
 
severely
 
damage
 
the
Company's reputation, expose it to
 
remediation and other costs
 
and the risks of legal
 
proceedings, disrupt
its
 
operations
 
and
 
otherwise
 
adversely
 
affect
 
the
 
Company's
 
business
 
and
 
financial
 
condition.
 
The
security of certain of
 
this information also depends on
 
the ability of third-party
 
service providers, such as
those
 
we
 
use
 
to
 
process
 
credit
 
and
 
debit
 
card
 
payments
 
as
 
described
 
below
 
under
 
“We
 
are
 
subject
 
to
payment-related
 
risks,”
 
to
 
properly
 
handle
 
and
 
protect
 
such
 
information.
 
Our
 
information
 
systems
 
and
those of our
 
third-party service providers are
 
subject to ongoing and
 
persistent cybersecurity threats from
those seeking unauthorized
 
access through means
 
which are
 
continually evolving and
 
may be difficult
 
to
17
anticipate or detect for long periods
 
of time.
 
Despite measures the Company takes
 
to protect confidential
information against
 
unauthorized access
 
or
disclosure, which
 
measures are ongoing
 
ongoing and
 
may continue
 
to
increase
 
increaseour
our costs,
 
there
is
 
no
assurance
 
that
such
 
measures
will
 
prevent
the
 
compromise
of
 
such
information. If
 
If
any such
 
compromise or
 
unauthorized access
 
to or
 
disclosure of
 
this information
 
were to
occur,
 
it
could
have
 
a
 
material
 
adverse
 
effect
 
on
 
the
 
Company's
reputation,
 
business,
 
operating
 
results,
financial
 
financial
condition and cash flows.
We are subject to payment
-related risks.
We
accept payments
using a
variety of
methods, including
third-party credit
cards, our
own branded
credit
card,
debit
cards,
gift
cards
 
and
 
physicalcash
 
andflows.
 
electronicIn
 
bankaddition,
 
checks.the
 
For
existing
and
future
payment
methods
we
offer
to
our
customers,
weCompany
 
may
 
becomebe
 
subject
 
to
 
additionalransomware
 
regulationsattacks,
which if
successful could
result in
disruptions to the
Company’s operations
 
and
compliance expose it
 
requirementsto remediation
and
 
(includingother
 
obligationscosts,
risks
of
legal
proceedings,
damage
the
Company’s
reputation
and
otherwise
adversely
affect the Company's business and financial condition.
A disruption or shutdown of our centralized distribution center or
transportation network could
materially and adversely affect our business and results of operations.
17
The distribution
of our
products is
centralized in
one distribution
center in
Charlotte, North
Carolina
and
distributed
through
our
network
of
third-party
freight
carriers.
The
merchandise
we
purchase
is
shipped directly to
our distribution center,
where it is
prepared for shipment
to the appropriate
stores and
subsequently delivered
 
to
 
implement
enhanced
authentication
processes
that
could result
in increased
costs and
reduce the
 
ease ofstores
 
use ofby our
 
certain paymentthird-party freight
 
methods), ascarriers.
 
well asIf the
 
fraud
risk. Fordistribution
 
certain payment
methods, including
credit
and debit
cards, we
pay interchange
and other
fees,
which
may increase
over
time, raisingcenter or
 
our
operating costs
and
lowering profitability.
We
rely on
third-
party
service
providers
for
payment
processing
services,
including
the
processing
of
credit
and
debit
cards. In
each case,
it could
disrupt our
business if
these third-party
service providers
become unwilling
or unable to provide these services to
us. We
are also subject to payment card association operating rules,
including
data
security
rules,
certification
requirements
and
rules
governing
electronic
funds
transfers,
which could
change or
be reinterpreted freight carriers were
 
to make
it difficultbe shut down
 
or impossiblelose significant capacity
 
for usany reason, including
 
but
not limited to, comply.any of the causes described above under “A failure or disruption
 
If werelating to our information
technology
 
failsystems
 
to
comply with these rules or requirements, or if our data security systems are breached or compromised, we
may becould
 
liable foradversely
 
card-issuing banks’
costs, subject
to fines
and higher
transaction fees.
In addition,
we
may lose
our ability
to accept
credit and
debit card
payments from
our customers
and process
electronic
funds
transfers
or
facilitate
other
types
of
payments,
andaffect
 
our
 
business,”
 
andour
 
operatingoperations
 
resultswould
 
couldlikely
 
be
seriously
disrupted.
Such problems could occur as the result of any loss, destruction or impairment of our ability to
use
our
distribution center,
as
well
as
any broader
problem generally
affecting
the ability
to
ship
goods
into our distribution center or deliver goods
to our stores.
As a result, we could incur significantly higher
costs and longer lead
times associated with distributing our
products to our stores during
the time it takes
for us to reopen or
replace the distribution center and/or our transportation network. Any such
occurrence
could adversely affected.affect our business, results of operations and financial condition.
The Company’s
failure to successfully operate its e-commerce websites or fulfill customer expectations
could
expectations could adversely impact customer satisfaction, our reputation
and our business.
 
Although
 
the
 
Company's e-commerce
 
platform
provides
 
another
channel
 
to
 
drive
 
incremental
 
sales,
provide existing customers the online shopping experience and introduce the Company to a new customer
base,
 
existingit
 
customersalso
exposes
us
to
numerous
risks.
We
are
subject
to
potential
failures
in
 
the
 
on-line
shopping
experienceefficient
 
and
uninterrupted
 
introduce
the
Company
to
a
new
customer base,
it also
exposes us
to numerous
risks. We
are subject
to potential
failures in
the efficient
and uninterrupted operation
 
of
our
 
websites,
customer
contact
center
 
or
our
distribution
 
center,
including
system
 
failures
 
caused
 
by
 
telecommunication
 
system
 
providers,
 
order
 
volumes
 
that
 
exceed
 
our
 
present
system capabilities, electrical outages,
 
mechanical problems and human error.
 
Our e-commerce platform
may also expose us
 
to greater potential for
 
security or data
 
breaches involving the unauthorized access
 
to
or
 
disclosure
 
of
 
customer
 
information,
 
as
 
discussed
 
above
 
under
 
“A
 
security
 
breach
 
that
 
results
 
in
unauthorized
 
access
 
to
 
or
 
disclosure
 
of
 
employee,
 
Company
 
or
 
customer
 
information
 
or
a
ransomware
attack could
 
adversely
affect
 
our costs,
 
reputation and
 
results of
 
operations, and
 
efforts to
 
mitigate these
risks may
 
continue to
increase
 
increase our
 
costs.” We
 
are also
 
subject to
 
risk related
 
to delays
or failures
in the
performance of third parties, such as shipping companies, including
 
delays associated with labor strikes or
slowdowns or
 
failures in
the
performance of
third
parties,
such
as
shipping
companies,
including
delays
associated
with
labor
strikes
or
slowdowns
or
adverse
weather
 
conditions.
If
 
the
Company
 
does
not
 
successfully
meet
 
the
challenges
 
of
operating
 
e-
commercee-commerce
 
websites
 
or
 
fulfilling
 
customer
 
expectations,
 
the
 
Company's
 
business
 
and
 
sales
could be adversely affected.
We are subject to payment-related risks.
We
accept payments
using a
variety of
methods, including
third-party credit
cards, our
own branded
credit
card,
debit
cards,
gift
cards
and
physical
and
electronic
bank
checks.
For
existing
and
future
payment methods we offer to our customers, we are subject to fraud risk and
to additional regulations and
compliance
requirements
(including
obligations
to
implement
enhanced
authentication
processes
that
could
result
in
increased
costs
and
reduce
the
ease
of
use
of
certain
payment
methods).
For
certain
payment
methods,
including
credit
and
debit
cards,
we
pay
interchange
and
other
fees,
which
have
increased
from
time
to
time
and
may
continue
to
increase
over
time,
raising
our
operating
costs
and
lowering profitability. We
rely on third-party service providers for payment processing
services, including
the
processing
of
credit
and
debit
cards.
In
each
case,
it
 
could
 
bedisrupt
our
business if
these
third-party
service
providers
become
unwilling
or
unable
to
provide
these
services
to
us.
We
are
also
subject
to
payment
card
association
operating
rules,
including
data
security
rules,
certification
requirements
and
rules governing
electronic funds
transfers, which
could change
or be
reinterpreted to
make it
difficult or
impossible for us
to comply.
If we fail
to comply with
these rules or
requirements, or if
our data security
systems are breached or compromised, we may be liable for card-issuing
banks’ costs, subject to fines and
higher transaction fees. In addition, we may lose our ability to accept credit and debit card payments from
our
customers
and
process
electronic
funds
transfers
or
facilitate
other
types
of
payments,
and
our
business and operating results could be adversely affected.
Risks Relating to Accounting and Legal Matters:
18
Changes to accounting rules and regulations may adversely affect our reported
 
our reported results of
operations and
financial condition.
 
In
 
an
 
effort
 
to
 
provide
 
greater
 
comparability
 
of
 
financial
 
reporting
 
in
 
an
 
increasing
 
global
environment, accounting regulatory authorities
 
have been in
 
discussions for many years
 
regarding efforts
to either converge U.S.
 
Generally Accepted Accounting Principles with International Financial
 
Reporting
18
Standards (“IFRS”),
 
have U.S.
 
companies
 
provide supplemental
 
IFRS-based information
 
or
 
continue to
work
 
toward
 
a
 
single
 
set
 
of
 
globally
 
accepted
 
accounting
 
standards.
 
If
 
implemented,
 
these
 
potential
changes
 
in
 
accounting
 
rules
 
or
 
regulations
 
could
 
significantly
 
impact
 
our
 
future
 
reported
 
results
 
of
operations and financial
 
position.
 
Changes in accounting
 
rules or
 
regulations and varying interpretations
of existing
 
accounting rules
 
and regulations
 
have significantly
 
affected our
 
reported financial
 
statements
and those
 
of other
 
participants in
 
the retail
 
industry in
 
the past
 
and may
 
continue to
 
do so
 
in the
 
future.
Future changes to
 
accounting rules or
 
regulations may adversely
 
affect our
 
reported results of
 
operations
and financial position or perceptions of our performance and financial
 
condition.
Adverse litigation matters may adversely affect our businessContinued scrutiny and changing
 
our financial condition.expectations surrounding environmental, social and governance
(“ESG”)
 
Frommatters
 
timefrom
 
toinvestors,
 
timecustomers,
 
thegovernment
 
Company
is
involved
in
litigationregulators
 
and
 
other
 
claimsstakeholders
 
againstmay
impose additional reporting requirements, additional costs and compliance
risks.
Public companies from
across all
industries are facing
increasing scrutiny from
investors, customers,
government
regulators
and
other
stakeholders
concerning
ESG
matters.
In
the
U.S.,
there
are
various
proposals
for
new
or
enhanced
disclosure
requirements
regarding
climate
emissions,
sustainability,
workforce
diversity
and
other
human
capital
resources
metrics,
among
other
topics.
Complying
with
these complex
reporting obligations
or expectations
may increase
our costs
associated with
compliance,
disclosure and reporting.
Furthermore, evolving ESG laws, regulations and stakeholder expectations may
result
in
uncertain
and
potentially
burdensome
reporting
requirements
as
stakeholders,
agencies
and
government
authorities
adjust
their
expectations
or
change
laws
and
regulations,
such
as
proposals
currently under consideration regarding climate emissions reporting and auditing requirements.
Failure to
comply
with
all
of
the
currently
proposed
regulatory
requirements
in
a
timely
manner
may
adversely
affect our reputation, business and financial performance.
If
we
fail
to
protect
 
our
 
business.
Primarily thesetrademarks
 
arise fromand
other
intellectual
property
rights
or
infringe
the
intellectual
property
rights
of
others,
 
our
 
normalbusiness,
 
coursebrand
image,
growth
strategy,
results
of
operations and financial condition could be adversely affected.
We
believe
that
our
“Cato”,
“It’s
Fashion”,
“It’s
Fashion
Metro”,
“Versona”,
“Cache”
and
“Body
Central”
trademarks
are
integral
to
our
store
designs,
brand
recognition
and
our
ability
to
successfully
build
consumer
loyalty.
Although
we
have
registered
these
trademarks
with
the
U.S.
Patent
and
Trademark Office
(“PTO”) and
have also
registered, or
applied for
registration of,
additional trademarks
with
the
PTO
that
we
believe
are
important
to
our
business,
we
cannot
give
assurance
that
these
registrations
will
prevent
imitation
 
of
 
businessour
 
buttrademarks,
 
aremerchandising
 
subject toconcepts,
 
risks andstore
 
uncertainties, and
coulddesigns
 
requireor
 
significantprivate
label merchandise or
 
managementthe infringement of
 
time.our other intellectual
 
Theproperty rights by
 
Company’sothers. Infringement of
our
 
periodicnames,
 
evaluationconcepts,
store
designs
or
merchandise
generally,
or
particularly
in
a
manner
that
projects
lesser quality or carries a negative connotation of
our image could adversely affect our business, financial
condition and results of operations.
In addition,
we cannot
give assurance
that others will
not try
to block
the manufacture
or sale
of our
private label merchandise by claiming
that our merchandise violates
their trademarks or other
proprietary
rights.
In
the
event
 
of
 
litigation-related
matters may change our assessment in lightsuch
 
of the discovery of facts with respect toa
 
legal actions pending
againstconflict,
 
us, notwe
 
presently knowncould
be
subject
 
to
 
us
or
by determination
of
judges, jurieslawsuits
 
or
 
other finders
 
actions,
the
ultimate
resolution of
 
fact.which we
 
We
may alsocannot predict;
 
be subjectedhowever,
 
to legalsuch a
 
matters notcontroversy could
 
yet known toadversely affect
 
us. Adverse
decisions or settlements
of disputes
may negatively impact our business, reputation
financial condition and financial condition.results of operations.
Our business operations subject us to legal compliance and litigation risks,
as well as regulations
and
and regulatory enforcement priorities, which could result in increased
costs or liabilities,
divert our
19
management’s
attention or otherwise adversely affect our business, results of operations
and financial
financial condition.
 
Our operations
 
are subject
 
to federal,
 
state and
 
local laws,
 
rules and
 
regulations, as
 
well as
 
U.S. and
foreign
 
laws
 
and
 
regulations
 
relating
 
to
 
our
 
activities
 
in
 
foreign
 
countries
 
from
 
which
 
we
 
source
 
our
merchandise
 
and
 
operate our
 
sourcing
offices.
 
Our
 
business is
 
also
 
subject
 
to
 
regulatory and
 
litigation
risk in
 
all of
 
these jurisdictions, including
 
foreign jurisdictions
 
that may
 
lack well-established
 
or reliable
legal
 
systems
 
for
 
resolving
 
legal
 
disputes.
 
Compliance
 
risks
 
and
 
litigation
 
claims
 
have
 
arisen
 
and
 
may
continue
 
to
 
arise
 
in
 
the
 
ordinary
 
course
 
of
 
our
 
business
 
and
 
include,
 
among
 
other
 
issues,
 
intellectual
property
 
issues,
 
employment
 
issues,
 
commercial
 
disputes,
 
product-oriented
 
matters,
 
tax,
 
customer
relations and personal injury claims. International
 
activities subject us to numerous U.S.
 
and international
regulations, including but not limited to, restrictions on trade, license and permit requirements, import and
export
 
license
 
requirements,
 
privacy
 
and
 
data
 
protection
 
laws,
 
environmental
 
laws,
 
records
 
and
information
 
management
 
regulations,
 
tariffs
 
and
 
taxes
 
and
 
anti-corruption
 
laws,
 
such
 
as
 
the
 
Foreign
Corrupt Practices Act, violations
 
of which by employees
 
or persons acting on
 
the Company’s
 
behalf may
result in
 
significant investigation
 
costs, severe
 
criminal or
 
civil sanctions
 
and reputational
 
harm.
 
These
and
 
other
 
liabilities
 
to
 
which we
 
may
 
be
 
subject
 
could
 
negatively
 
affect
 
our
 
business, operating
 
results
and financial condition. These matters frequently raise complex factual and legal issues, which are subject
to
 
risks
 
and
 
uncertainties
 
and
 
could
 
divert
 
significant
 
management
 
time.
 
The
 
Company
 
may
 
also
 
be
subject
to
 
regulatory
review
and
 
audits, which results
 
may have the
 
potential to materially
and adversely
affect
our
business, results
 
of
 
operations which
could
materially
and
 
adversely
affect
our
business, results of
operations and financial condition.
 
In addition,
governing laws,
 
rules and regulations,
regulations, and interpretations
of existing
laws
are subject
to
 
change from
time to
time.
 
Compliance and
litigation
litigation matters
 
could
result
 
in
unexpected
 
expenses
and
 
liability,
 
as
well
 
as
have
 
an
adverse
 
effect
on
our
our operations and our reputation.
 
New
 
legislation
 
or
 
regulation
 
and
 
interpretation
 
of
 
existing
 
laws
 
and
 
regulations,
 
including
 
those
related
to
 
data
privacy,
 
climate
change
or
ESG
matters
could
increase
 
our
costs
 
of compliance,
 
compliance,
technology and
business operations.
The
interpretation of existing or
new laws to
 
existing technology and
business practices
can be uncertain and
may lead
to additional compliance
risk and cost.
If we fail Adverse litigation matters may adversely affect our business and our financial
condition.
From
time
to
 
protect our trademarks time
the
Company
is
involved
in
litigation
and
 
other intellectual property
 
rights or infringe theclaims
 
intellectual propertyagainst
our
business.
rightsPrimarily these
arise from
our
normal
course
 
of
 
others,
our
business
 
brandbut
 
image,are
 
growthsubject to
 
strategy,risks and
 
resultsuncertainties, and
could
require
significant
management
time.
The
Company’s
periodic
evaluation
 
of
 
operationslitigation-related
matters may change our assessment in light
 
andof the discovery of facts with respect to
 
financiallegal actions pending
against
 
condition
could be adversely affected.
19
us, not
 
We
believe
that
our
“Cato”,
“It’s
Fashion”,
“It’s
Fashion
Metro”
and
“Versona”
trademarks
are
integralpresently known
 
to
 
ourus
 
store
designs,
brand
recognition
and
our
ability
to
successfully
build
consumer
loyalty.
Although we
have registered
these trademarks
with the
U.S. Patent
and Trademark
Office
(“PTO”) and
have also registered, or applied for registration of, additional trademarks with the PTO that we believe are
important to
our business,
we cannot
give assurance that
these registrations will
prevent imitation
of our
trademarks, merchandising concepts, store designs or private label merchandise or
 
the infringement of our
other
intellectual
property
rights
by
others.
Infringement determination
 
of
 
our
names,
concepts,
store
designs
or
merchandise
generally,
or
particularly
in
a
manner
that
projects
lesser
quality
or
carries
a
negative
connotation
of
our
image
could
adversely
affect
our
business,
financial
condition
and
results
of
operations.
In addition,
we cannot
give assurance
that others will
not try
to block
the manufacture
or sale
of our
private label merchandise by claiming
that our merchandise violates
their trademarks or other
proprietary
rights.
In
the
event
of
such
a
conflict,
we
could
be
subject
to
lawsuitsjudges, juries
 
or
 
other finders
 
actions,
the
ultimate
resolution of
 
which wefact.
 
cannot predict;We
may also
 
however,be subjected
 
such ato legal
 
controversy couldmatters not
 
adversely affectyet known to
 
us. Adverse
decisions or settlements
of disputes
may negatively impact our business,
reputation and financial condition and results of operations.condition.
Maintaining and improving our internal control over financial reporting and
 
and other requirements necessary
necessary to operate as a public company may strain our resources, and
any material failure in
in these controls may
negatively impact our business, the price of our common
stock and market
confidence in our reported
financial information.
 
As a
 
public company,
 
we are
 
subject to
 
the reporting
 
requirements of
 
the Securities
 
Exchange Act
 
of
1934, the
 
Sarbanes-Oxley Act
 
of 2002,
 
the rules
 
of the
 
SEC and
 
New York
 
Stock Exchange
 
and certain
aspects of the Dodd-Frank Wall
 
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and
related rule-making that
 
has been and
 
may continue to
 
be implemented over
 
the next several
 
years under
the mandates of the Dodd-Frank Act. The
 
requirements of these rules and regulations have increased, and
may continue to increase, our compliance costs and
 
place significant strain on our personnel, systems and
resources.
 
To
 
satisfy
 
the
 
SEC’s
 
rules
 
implementing
 
the
 
requirements
 
of
 
Section
 
404
 
of
 
the
 
Sarbanes-
Oxley Act
 
of
 
2002, we
 
must continue
 
to
 
document, test,
 
monitor and
 
enhance our
 
internal control
 
over
financial reporting, which is
 
a costly and time-consuming effort
 
that must be re-evaluated
 
frequently. We
cannot give
 
assurance that
 
our disclosure
 
controls and
 
procedures and
 
our internal
 
control over
 
financial
20
reporting, as
 
defined by applicable
 
SEC rules,
 
will be adequate
 
in the future.
 
Any failure
 
to maintain the
effectiveness
 
of
 
internal
 
control
 
over
 
financial
 
reporting
 
or
 
to
 
comply
 
with
 
the
 
other
 
various
 
laws
 
and
regulations to
 
which we
 
are and
 
will continue
 
to be
 
subject, or
 
to
 
which we
 
may become
 
subject in
 
the
future,
 
as
 
a
 
public
 
company
 
could
 
have
 
an
 
adverse
 
material
 
impact
 
on
 
our
 
business,
 
our
 
financial
condition and
 
the price
 
of our
 
common stock.
 
In addition,
 
our efforts
 
to comply
 
with these
 
existing and
new requirements could significantly increase our compliance costs.
Risks Relating to Our Investments and Liquidity:
We may experience market
conditions or other events that could adversely impact the valuation
and liquidity
of, and our ability to access, our short-term investments,
cash and cash equivalents
and
our revolving line of
credit.
 
Our
 
short-term investments
 
and
 
cash
 
equivalents
are
 
primarily
 
comprised
of
 
investments
in
 
federal,
state, municipal
 
and corporate
 
debt securities.
 
The value
 
of those
 
securities may
 
be adversely
 
impacted
by factors relating to these securities,
 
similar securities or the broader credit
 
markets in general.
 
Many of
these factors
 
are beyond our
 
control, and include
 
but are
 
not limited to
 
changes to credit
 
credit ratings, rates
of
default, collateral
 
value, discount
 
rates, and
 
strength and
 
quality of
 
market credit
 
and liquidity,
 
potential
disruptions in the capital
 
markets and changes in the
 
underlying economic, financial and other
 
conditions
that drive these
 
factors.
 
As federal, state
 
and municipal entities
 
struggle with declining
 
tax revenues and
budget deficits,
 
we cannot
 
be assured
 
of our
 
ability to
 
timely access
 
these investments
 
if the
 
market for
20
these issues declines.
 
Similarly,
 
the default by
 
issuers of the
 
debt securities we
 
hold or similar
 
securities
could impair the liquidity
 
of our investments.
 
The development or persistence
 
of any of these
 
conditions
could
 
adversely
 
affect
 
our
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
ability
 
to
 
execute
 
our
 
business
strategy.
 
In
 
addition,
 
we
 
have significant
 
amounts
 
of
 
cash
 
and
 
cash
 
equivalents at
 
financial
 
institutions
that
 
are
 
in
 
excess
 
of
 
the
 
federally
 
insured
 
limits.
 
An
 
economic
 
downturn
 
or
 
development
 
of
 
adverse
conditions affecting the financial sector
 
and stability of financial institutions could cause
 
us to experience
losses on our deposits.
 
Our ability
 
to access
 
credit markets
 
and our
 
revolving line
 
of credit,
 
either generally
 
or on
 
favorable
market terms, may be
 
impacted by the
 
factors discussed in
 
the preceding paragraph, as
 
well as continued
compliance with covenants under
 
our revolving credit agreement. The
 
development or persistence of
 
any
of these
 
adverse factors or
 
failure to
 
comply with covenants
 
on which our
 
borrowing is conditioned
 
may
adversely
 
affect
 
our
 
financial
 
condition,
 
results
 
of
 
operations
 
and
 
our
 
ability
 
to
 
execute
 
our
 
business
strategy.
 
Risks Relating to the Market Value of Our Common Stock:
Our operating results are subject to seasonal and quarterly fluctuations, which could
adversely affect the
market price of our common stock.
Our business
varies with
general seasonal
trends that
are characteristic
of the
retail apparel
industry.
As a
result, our
stores typically
generate a
higher percentage
of our
annual net
sales and
profitability in
the
first
and second
quarters of
our
fiscal
year
compared to
other
quarters.
Accordingly,
our
operating
results for
any one
fiscal period
are not
necessarily indicative
of results
to
be expected
from any
future
period,
and
such
seasonal
and
quarterly
fluctuations
could
adversely
affect
the
market
price
of
our
common stock.
The interests of our principal shareholder may limit the ability of other
shareholders to
influence the
the direction of the Company and otherwise affect our corporate governance and
 
and the market price
of our
common stock.
 
As of March 23, 2022,2023, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially
owned approximately 49.8%51.0%
 
of the combined
 
voting power of
 
our common stock.
 
As a result,
 
Mr.
 
Cato
has the ability to substantially influence or determine the outcome of all matters requiring approval by the
shareholders,
 
including
 
the
 
election
 
of
 
directors
 
and
 
the
 
approval
 
of
 
mergers
 
and
 
other
 
business
combinations
 
or
 
other
 
significant
 
Company
 
transactions.
 
Mr.
 
Cato
 
may
 
have
 
interests
 
that
 
differ
 
from
those of other shareholders, and
 
may vote in a
 
way with which other shareholders disagree
 
or perceive as
adverse to their interests.
 
The concentration of voting power held by Mr.
 
Cato could discourage potential
investors from acquiring our
 
common stock and could
 
also have the effect
 
of preventing, discouraging or
deferring a change in control of the Company or other fundamental transaction, all
 
all of which could depress
the market price of our common stock.
 
In addition, Mr.
 
Cato has the ability to control the
 
management of
the
 
Company
 
as
 
a
 
result
 
of
 
his
 
position
 
as
 
Chief
 
Executive
 
Officer.
 
If
Mr.
Cato
acquires
beneficial
ownership of more than 50% of the combined voting power of our common stock (including as a result of
continued Company stock
repurchases from time
to time under
our stock repurchase
program that would
reduce
our
outstanding
shares),
we
wouldWe
 
qualify
 
for
 
exemption
 
as
 
a
“controlled
 
company”
 
from
compliance
 
with
 
certain
 
New
 
York
 
Stock
 
Exchange
 
corporate
 
governance
rules,
 
including
 
the
requirements
 
that
 
we
 
have
 
a
 
majority
 
of
 
independent
 
directors
 
on
 
our
 
Board,
 
an
21
independent
 
independent
compensation
 
committee
 
and
 
an
 
independent
 
corporate
 
governance
 
and
 
nominating
committee.
 
If we
 
we
becameelected to
 
eligibleutilize these
“controlled company” exceptions,
our other shareholders
could
lose the
benefit of
these corporate
governance requirements
and the
market value
of
our common
stock
could be adversely affected.
Our operating results are subject to seasonal and quarterly fluctuations,
which could adversely
affect the market price of our common stock.
Our business
varies with
general seasonal
trends that
are characteristic
of the
retail apparel
industry.
As a
result, our
stores typically
generate a
higher percentage
of our
annual net
sales and
profitability in
the
first
and second
quarters of
our
fiscal
year
compared to
other
quarters.
Accordingly,
our
operating
results for
any one
fiscal period
are not
necessarily indicative
of results
to
be expected
from any
future
period,
 
and
 
electedsuch
 
toseasonal
 
utilizeand
 
thesequarterly
 
“controlledfluctuations
 
company”could
 
exceptions,adversely
 
our
other
shareholders
could loseaffect
 
the benefit
 
of these
corporate governance
requirements and
the market
 
value price
of
 
our common
stock could be adversely affected.common stock.
Conditions in the stock market generally, or particularly
relating to our industry, Company or common
common stock, may materially and adversely affect the market
price of our
common stock and
make its trading price
21
more volatile.
 
The trading
 
price of
 
our common
 
stock at
 
times has
 
been, and
 
is likely
 
to continue
 
to be,
 
subject to
significant volatility.
 
A variety of
 
factors may cause
 
the price of
 
our common stock to
 
fluctuate, perhaps
substantially,
 
including,
 
but
 
not
 
limited
 
to,
 
those
 
discussed
 
elsewhere
 
in
 
this
 
report,
 
as
 
well
 
as
 
the
following: low
 
trading volume;
 
general market
 
fluctuations resulting
 
from factors
 
not directly
 
related to
our operations or the inherent value of
 
our common stock; announcements of developments related to our
business; fluctuations in our reported operating results; general conditions or trends affecting or perceived
to affect
 
the fashion and
 
retail industry; conditions or
 
trends affecting or
 
perceived to affect
 
the domestic
or global
 
economy or
 
the domestic
 
or global
 
credit or
 
capital markets;
 
changes in
 
financial estimates
 
or
the scope
 
of coverage
 
given to
 
our Company
 
by securities
 
analysts; negative
 
commentary regarding
 
our
Company
 
and
 
corresponding
 
short-selling
 
market
 
behavior;
 
adverse
 
customer
 
relations
 
developments;
significant changes
 
in our
 
senior management
 
team; and
 
legal proceedings.
 
Over the
 
past several
 
years
the stock
 
market in
 
general, and the
 
market for shares
 
of equity
 
securities of many
 
retailers in
 
particular,
have
 
experienced
 
extreme
 
price
 
fluctuations
 
that
 
have
 
at
 
times
 
been
 
unrelated
 
to
 
the
 
operating
performance of
 
those companies.
 
Such fluctuations
 
and market
 
volatility based
 
on these
 
or other
 
factors
may materially and adversely affect the market price of our common stock.
Item 1B.
 
Unresolved Staff Comments:
 
None.
Item 2.
 
Properties:
 
The Company’s
 
distribution center
 
and general
 
offices
 
are located
 
in a
 
Company-owned building
 
of
approximately
 
552,000
 
square
 
feet
 
located
 
on
 
a
 
15-acre
 
tract
 
in
 
Charlotte,
 
North
 
Carolina.
 
The
Company’s
 
automated
 
merchandise
 
handling
 
and
 
distribution
 
activities
 
occupy
 
approximately
 
418,000
square
 
feet
 
of
 
this
 
building
 
and
 
its
 
general
 
offices
 
and
 
corporate
 
training
 
center
 
are
 
located
 
in
 
the
remaining 134,000
 
square feet.
 
A building
 
of approximately
 
24,000 square
 
feet located
 
on a
 
2-acre tract
adjacent
 
to
 
the
 
Company’s
 
existing
 
location
is
 
used
 
for
 
receivinge-commerce
 
and
distribution
of
store
and
office
operating
supplies.storage.
 
The
 
Company also
 
owns
approximately
 
approximately 185
 
acres
 
of
 
land
 
in
 
York
 
County,
 
South
Carolina
as
a
potential
new
site
for
our
Carolina as a potential new site for our distribution center.
22
Item 3.
 
Legal Proceedings
:Proceedings:
 
From time
 
to time,
 
claims are
 
asserted against
 
the Company
 
arising out
 
of operations
 
in the
 
ordinary
 
course
 
of
 
business.
 
The
 
Company
 
currently
 
is
 
not
 
a
 
party
 
to
 
any
 
pending
 
litigation
 
that
 
it
 
believes
 
is
likely to have a
 
material adverse effect on
 
the Company’s
 
financial position, results of
 
operations or cash
flows. See Note 15, “Commitments and Contingencies,” for more
 
information.
 
 
 
23
Item 3A.
 
Executive Officers of the Registrant:
 
The executive officers of the Company and their ages as of March 23, 20222023
 
are as follows:
Name
Age
 
Position
John P.
 
D. Cato............................
 
 
 
7172
 
Chairman, President and Chief Executive Officer
Charles D. Knight........................
 
 
5758
Executive Vice President, Chief Financial Officer
John R. Howe
..............................
59
Executive Vice President
Gordon Smith
 
..............................
 
 
 
6667
 
Executive Vice President, Chief Real Estate and
Store Development Officer
John
 
John P.
 
D. Cato
has been employed
 
Catoas an officer
of the Company since
1981 and has
 
been a director
employed
as
an
officer
of
 
the
 
Company
 
since
 
19811986.
Since
January
2004,
he
has
served
as
Chairman,
President
 
and
 
has
been
a
director of the Company since 1986. Since January 2004,
he has served as Chairman, President and Chief
Executive Officer.
 
From May 1999 to
 
January 2004, he served
 
as President, Vice
 
Chairman of the
 
Board
and Chief Executive Officer.
 
From June 1997 to May 1999,
 
he served as President, Vice
 
Chairman of the
Board and
 
Chief Operating Officer.
 
From August 1996
 
to June
 
1997, he served
 
as Vice
 
Chairman of the
Board
 
and Chief
 
Operating Officer.
 
From 1989
 
to
 
1996, he
 
managed the
 
Company’s
 
off-price
 
concept,
serving
 
as
 
Executive Vice
 
President
 
and
 
as
 
President and
 
General Manager
 
of
 
the
 
It’s
 
Fashion
 
concept
from 1993
 
to
 
August 1996.
 
Mr. Cato
 
is
 
a former
 
director of
 
Harris Teeter
 
Supermarkets, Inc.,
 
formerly
Ruddick Corporation.
Charles
D.
Knight
 
has
been
employed
as
Executive
Vice
President,
Chief
Financial
Officer
by
the
Company
 
since
 
January
 
of
 
2022.
 
From
 
2018
 
to
 
2020,
 
he
 
served
 
in
 
various
 
roles
 
with
 
The
 
Vitamin
Shoppe,
 
first
 
as
 
Senior
 
Vice
 
President,
 
Chief
 
Accounting
 
Officer
 
from
 
2018
 
to
 
2019,
 
and
 
then
 
as
Executive Vice
 
President, Chief Financial
 
Officer from 2019
 
to 2020.
 
Prior to
 
that, he served
 
served in various
roles with Toys
 
“R” Us for 28
 
years, including as Senior Vice
 
President, Corporate Controller from 2010
to 2018.
John R. Howe
Gordon
Smith
 
has
been
employed
by
the
Company
since 1986.
1989.
 
Since January 2022 he has served
as
 
Executive ViceJuly
 
President.2011,
 
From
September
2008 to
January
2022, he
 
has
 
served
 
as
Executive Vice
President,
Chief
Financial
Officer.
From
June
2007
until
September
2008,
he
served
as
Senior
Vice
President, Controller.
From 1999 to 2007,
he served as Vice
President, Assistant Controller.
From 1997
to 1999,
he served
as Assistant Vice
President, Budgets and
Planning.
From 1995
to 1997,
he served
as
Director, Budgets and Planning.
From 1990 to 1995, he served as
Assistant Tax Manager.
From 1986 to
1990, Mr. Howe held various positions within the finance area.
Gordon Smith
has been employed by the
Company since 1989. Since July
2011, he has
served as
Executive Vice
 
President, Chief
 
Real
 
Estate and
 
Store Development
 
Officer.
 
From February
 
2008 until
July 2011,
 
Mr. Smith served as
 
as Senior Vice President, Real
 
President, Real Estate. From
October 1989 to
February 2008,
Mr. Smith served as Assistant Vice President, Corporate Real Estate.
Item 4.
 
Mine Safety Disclosures:
 
No matters requiring disclosure.
24
PART
 
II
 
 
 
Item 5.
 
Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases
of
Equity Securities:
Market & Dividend Information
 
The
 
Company’s
 
Class A Common
 
Stock
 
trades
 
on the
 
New York
 
Stock
 
Exchange (“NYSE”) under
the symbol CATO.
 
 
As of March 23, 2022,2023, the approximate number of record holders of the Company’s Class A Common
Stock was 5,000 and there were 2 record holders of the Company’s Class B Common Stock.
cato20210130p25i0.gifcato2023012810Kp25i0
 
 
 
 
 
 
 
 
 
 
 
 
 
25
Stock Performance Graph
 
The
 
following
 
graph
 
compares
 
the
 
yearly
 
change
 
in
 
the
 
Company’s
 
cumulative
 
total
 
shareholder
return on
 
the Company’s
 
Common Stock (which
 
includes Class
 
A Stock
 
and Class
 
B Stock)
 
for each
 
of
the
 
Company’s
 
last
 
five
 
fiscal
 
years
 
with
 
(i)
 
the
 
Dow
 
Jones
 
U.S.
 
Retailers,
 
Apparel
 
Index
 
and
 
(ii)
 
the
Russell 2000 Index.
THE CATO
 
CORPORATION
STOCK PERFOMANCE TABLE
(BASE 100 – IN DOLLARS)
LAST TRADING DAY
OF THE FISCAL YEAR
THE CATO
CORPORATION
DOW JONES U.S.
RETAILERS,
 
APPL
INDEX
RUSSELL 2000
 
INDEX
1/27/20172/2/2018
100
100
100
2/2/2018
50
114
117
2/1/2019
68135
124109
11396
1/31/2020
81160
138121
123105
1/29/2021
58116
147130
161137
1/28/2022
87173
163143
159136
1/27/2023
111
157
131
 
The graph assumes an initial investment of $100 on January 27, 2017,February 2, 2018,
 
the last trading day prior to the
commencement of the Company’s 20172018 fiscal year, and that all dividends were reinvested.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Issuer Purchases of Equity Securities
 
The following table summarizes the Company’s purchases of its common stock for the three months
ended January 29, 2022:28, 2023:
Total Number of
Maximum Number
 
Shares Purchased as
(or Approximate Dollar
Total Number
 
Part of Publicly
Value) of Shares that may
 
of Shares
Average Price
Announced Plans or
yet be Purchased Under
Period
Purchased
Paid per Share (1)
 
Programs (2)
the Plans or Programs (2)
November 20212022
111,582-
$
16.25-
111,582-
December 20212022
310,884403,426
16.309.06
310,884403,426
January 20222023
-
-
-
Total
422,466403,426
$
16.299.06
422,466403,426
450,047197,769
(1)
Prices
include
trading
costs.
(2)
During
the
fourth
quarter
ended
January
28,
2023,
the
Company
repurchased
and
retired
403,426
shares
under
this
program
for
approximately
$3,655,405
or
an
average
market
price
of
$9.06
per
share. As of the
 
fourth quarter ended January
 
29, 2022,28, 2023, the Company
 
the Company repurchased and
retired 422,466
had 197,769 shares under this program for
approximately
$6,881,294 or an average market price of
$16.29 per
share. As of the fourth
quarter ended
January 29, 2022,
the Company had
450,047 shares
remaining
in open authorizations.
There is no specified expiration date
 
expiration
date for the Company’s
repurchase
program.
 
The
 
Board
 
of
 
Directors
authorized
 
an
 
increase
 
in
 
the
 
Company’s
 
share
 
repurchase
program
 
of
1,000,000
shares
at the
February
24, 2022 23, 2023
 
Board
of Directors’
meeting.
27
Item 7.
 
Management's Discussion and Analysis of Financial Condition and Results of
 
of Operations:
 
Management’s
 
Discussion and
 
Analysis of
 
Financial Condition
 
and Results
 
of Operations
 
is intended
to provide information to assist readers in better
 
understanding and evaluating our financial condition and
results
 
of
 
operations.
 
The
 
following
 
information
 
should
 
be
 
read
 
in
 
conjunction
 
with
 
the
 
Consolidated
Financial
 
Statements,
 
including
 
the
 
accompanying
 
Notes
 
appearing
 
in
 
Part
 
II,
 
Item
 
8
 
of
 
this
 
report
 
on
Form 10-K.
 
This section
 
of the
 
Form 10-K
 
generally discusses
 
fiscal 20212022
 
and fiscal
 
20202021 and
 
year-to-
year comparisons between fiscal
 
20212022 and fiscal
 
2020,2021, as well,
 
as certain fiscal
 
20192020 items.
 
Discussions
of
 
fiscal
 
20192020
 
items
 
and
 
year-to-year
 
comparisons
 
between
 
fiscal
 
20202021
 
and
 
fiscal
 
20192020
 
that
 
are
 
not
included
 
in
 
this
 
Form
 
10-K
 
can
 
be
 
found
 
in
 
“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
Condition and
 
Results of
 
Operations” in
 
Part II,
 
Item 7
 
of the
 
Company’s
 
Annual Report
 
on Form
 
10-K
for the fiscal year ended January 30, 2021.29, 2022.
COVID-19 UpdateRecent Developments
Inflationary Cost Pressure and Rising Interest Rates
 
The current high
 
COVID-19inflationary environment continues to
 
pandemicimpact the Company
 
adverselythrough higher operating
costs, including costs to ship our products to stores and customers, operating supplies, wages, and
 
impactedfuel.
In
addition
to
 
the
 
Company'sprice
 
business,increases,
 
financialcosts
 
conditionfor
 
and
operatingfuel,
 
results
through
fiscal
2020food,
 
and
 
tohousing,
 
aincluding
 
lesser
extent
through
2021.
In
2021,
the
Company
saw
significant
improvements
in
sales
compared
to
2020.
This
improvement
was
primarily
attributable
to
government
stimulus,
increased
customer
traffic,
states
lifting
capacity
limits
as
more
people
were
vaccinated,
consumers’
increasing
comfort
level
with
venturing
out
to
social
events
and
customers’
preparing to return
to work. However,
the Company’s
2021 sales remain
below pre-pandemic 2019
sales
for the
comparable period,
and there
is still
significant uncertainty
regarding the
lingering effects
of the
pandemic,rent,
 
as
 
well
 
as
 
concernsother
consumables across
 
overthe economy,
are increasingly
impacting our
customers’ disposable
income, as
well
as our customers’ willingness to purchase discretionary items such as
apparel, jewelry or shoes.
In
response
to
 
the
 
impactinflationary
 
of
new
or
potential
variants
ofpressures,
 
the
 
virusFederal
 
thatReserve
 
arebegan
 
more
transmissible orraising
 
severe, stagnantinterest
 
vaccination rates
and related
factors that
may continue
to fuel
periodic
surges of the virus or otherwise impede progress toward the return to pre-pandemic
activities and levels of
consumer
confidence
 
and
 
commercialis
committed to continue
 
activity.raising interest rates
 
Theuntil the inflationary
 
Companypressures subside.
 
facesThese rising interest
rates
 
additionalhave
 
uncertaintyadversely
 
from
the
continued effects of disruption in the global supply chain, inflation and its
impact on our cost of products,
transportation, wage
rates and
other operating
costs, as
well as,
the impact
on our
customers’ disposable
incomes,
andaffected
 
the
 
availability
 
and
cost
of
 
workers.credit
 
Thefor
 
Company
expects
that
these
uncertaintiesbusinesses
 
and
 
perhapsour
customers.
In
others related toaddition,
 
the pandemic will continue
 
to impact therising
 
Company in fiscal 2022.interest
 
The adverse financial
impacts associated with
these continued effects
of, and
uncertainties related to,
the COVID-19 pandemic
include,
butrates
 
are
 
notincreasing
 
limitedthe
costs
related
 
to
 
(i)revolving
 
lowercredit,
 
netauto
 
salesloans
 
inand
mortgages, which increasingly is
 
marketsnegatively impacting our customers’
 
affecteddiscretionary income.
 
by
actual
or
potential
adverseIn addition,
changes in
conditions relatingrising interest rates may negatively impact our customers’ willingness
 
to purchase our products.
 
theWe
 
pandemic, whetherbelieve that
 
due tothese price
 
increases inand
 
caserising interest
 
counts, staterates have
had an
impact during
fiscal 2022,
and will likely continue to have
a negative impact on consumer behavior
 
and, localby extension, our results of
orders, reductions inoperations and financial condition during fiscal 2023.
Labor Challenges and Wage Inflation
 
store traffic and
customer demand, labor shortages,
or all of
these factors, (ii)
lower
net
sales
caused
by
the
delay
of
inventory
production
and
fulfillment,
(iii)
and
incremental
costs
associated
with
efforts
to
mitigate
the
effects
of
the
outbreak,
including
increased
freight
and
logistics
costs and other expenses.
 
While
the
Company
currently
anticipates
a
continuation
of
the
uncertainties
listed
above
and
the
potential
adverse
impacts
of
COVID-19
during
2022,
the
duration
and
severity
of
these
effects
will
depend
on
the
course
of
future
developments,
which
are
highly
uncertain.
The
extent
to
which
the
COVID-19
 
pandemic
 
ultimatelyand the
 
impactsresulting factors
above have
also
created challenges
related to
the
availability of sufficient labor from time to time, and have caused a significant increase in the competition
for labor
among consumer-facing companies.
This competition
for labor
has driven
significant increases
in
wages
in
order
to
compete
for
sufficient
labor
availability
and/or
to
prevent
 
the
 
Company’s
business,
financial
condition,
resultsloss
 
of
operations,
 
cashexisting
workforce in
 
flows,our
stores,
distribution center
 
and
 
liquiditycorporate office.
 
mayWe
 
differexpect these
 
from
management’s
current
estimates
due
pressures to
 
inherentcontinue
uncertainties regarding the duration
and further spread of
the outbreak or its
variants, its severity,
actions
taken to contain the
virus or treat its impact,
and how quickly and to
what extent pre-pandemic economic
and operating conditions can resume.throughout fiscal 2023.
 
 
 
28
Results of Operations
 
The table below sets forth certain financial data of the Company
expressed as a percentage of retail
retail sales for the years indicated:
Fiscal Year Ended
January 29,
202228, 2023
January 30,
202129, 2022
Retail sales …………………………………………………………..
100.0
%
100.0
%
Other revenue…………………………………………………………
1.00.9
1.31.0
Total revenues ……………………………………………………….
101.0100.9
101.3101.0
Cost of goods sold …………………………………………………..
59.567.7
76.359.5
Selling, general and administrative………………………………….
35.132.3
36.435.1
Depreciation …………………………………………………………
1.61.5
2.61.6
Interest and other income ……………………………………………
0.8
0.3
1.2
Income (loss) before income taxes …………………………………………
0.2
5.1
(12.8)
Net income (loss) …………………………………………………………..
-
%
4.8
%
(8.4)
%
Fiscal 20212022 Compared to Fiscal 20202021
 
Retail sales increased
decreased by 34.2%
1.2% to
$752.4 million
in fiscal
2022 compared
to $761.4
million in
fiscal 2021 compared to $567.5 million
2021. The
decrease in
retail sales
in fiscal 2020.
The increase in retail sales in fiscal 2021 was primarily
 
2022 was
primarily due
to a 34% increase
1% decrease
in same-store
sales
and sales
 
from closed
new stores in
2021,
partially offset by permanently closed stores in 2020.
 
stores opened
in
2022. Same-store sales
 
for the
 
the
fiscal year
 
2021 increased
primarily dueyear 2022
 
to increaseddecreased primarily
 
store operatingdue to
 
hours inlower
 
fiscal 2021average unit
 
as opposedselling price
 
to theresulting from
 
store closureslate
 
that persisted
fromarriving
March 19, 2020
intomerchandise due to supply chain disruptions in the second
quarterfirst half of 2020.
2022. Same-store sales includes 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. 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.
 
In fiscal 2022 and fiscal
2021, e-commerce
 
2021 and
fiscal 2020,
e-commerce sales were
 
less than
6% and
than
5% of total
 
total sales
and same-store sales. sales,
respectively.
The
method of
 
calculating same-store
sales varies
across the
retail
industry.
 
As
a
 
result,
our
 
same-store sales
sales
calculation
 
may
 
not
 
be
 
comparable
 
to
 
similarly
 
titled
 
measures
reported
reported
by
 
other
companies.
 
Total
revenues, comprised
 
revenues, comprised of retail sales and other
 
other revenue (principally
finance
charges and
 
late fees on customer
accounts receivable,
 
fees
on
customer accounts
receivable, gift
 
card
 
breakage, shipping
 
shipping charges
 
for
 
e-commerce
purchases and layaway
 
and
layaway fees),
increased decreased
by 33.8%
1.3%
 
to $769.3
$759.3
million
 
in
fiscal 2021
2022
 
compared
to $575.1
$769.3
 
million
in
in
fiscal
 
2020. The2021.
 
The
Company
operated
1,280
stores
at
January
28,
2023
compared
to
1,311
 
stores
operated
at
January
 
29, 2022
compared to
1,330 stores
operated at
January 30, 2021.2022.
 
In fiscal 2021,2022, the Company opened 619 new stores
and closed 2550 stores.
 
Other
 
revenue,
 
ina
component
of
 
total
 
increasedrevenues,
decreased
 
to
 
$7.96.9
 
million
 
in
 
fiscal
 
20212022
 
from
 
$7.67.9
million
in
fiscal
2020. 2021.
 
The
increase decrease resulted primarily due to
 
primarily duedecreases in gift card breakage income and
e-commerce shipping revenues,
 
to increases
in gift
card breakage
income, e-commerce shipping
revenues and
layaway charges, partially offset by a decreasean increase in finance and layaway charges.
 
Credit
revenue
 
of
 
$2.1 2.2
million
 
represented
 
0.3%
of
 
total
 
revenue
 
in
 
fiscal
 
2021,2022,
 
a
 
$0.60.1
 
million decrease
increase compared
to
fiscal
2020
2021 credit
 
revenue
of
$2.7
$2.1 million
or
0.5%
0.3% of
 
total
revenue.
 
The
decrease
increase in
credit
credit revenue
was
 
primarily
due
to
 
reductions
increases in
finance
 
charges and
late
 
charge
fee income
as
 
a
result
of
 
lowerhigher
accounts receivable
 
accounts
receivable balances.
 
Credit revenue
is comprised
of interest
earned on
the Company’s private label
 
credit cardprivate
label credit
card portfolio
 
and
related
 
fee
income.
 
Related
expenses
 
include
 
principally
payroll,
 
postage
and
other
administrative
expenses
 
and
 
other
administrative expenses andtotaled
 
totaled $1.4$1.7
 
million
in
 
fiscal 2021
2022
 
compared
to
 
$1.5 1.4
million
 
in
fiscal
2020. 2021.
 
See
Note 13
 
13 of Notes
 
Notes to
Consolidated Financial
 
Statements for
 
a schedule
 
of credit-related
expenses. Total
 
credit segment
segment income before
 
taxes decreasedwas
$0.6 million
in
fiscal 2022
and $0.6
 
million to $0.6
million in fiscal
2021 from $1.2
million in fiscal
2020.fiscal 2021.
 
 
Cost
 
of
 
goods sold
 
was $453.1$509.7
 
million, or
 
59.5%
67.7% of
 
retail
 
sales,
in
 
fiscal
 
20212022 compared
 
compared to
 
$433.2453.1
million, or 76.3%59.5% of retail sales, in fiscal 2020.2021. The decreaseincrease in cost of goods sold as a
percentage of sales
resulted primarily
 
from the leveraging of occupancy, buying and distribution costs
due to more normalized
sales and
 
higher sales
 
of
 
regular pricedmarked down
 
goods.goods
 
Costand
increases in
freight and
distribution
costs.
The Company
expects markdown
sales to
decrease in
2023 and
beyond, as
the markdown
sales increase
is
29
primarily
attributed
to
the
supply
chain
disruption
in
the
first
half
 
of
 
2022,
causing
goods
 
to
miss
their
optimum selling
times.
Cost of
goods sold
 
includes
merchandise
 
costs,
net
 
of
discounts
 
and allowances,
allowances,
buying
costs,
 
distribution
costs,
 
occupancy
costs,
 
and freight
 
and inventory
 
inventory
29
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 the buying departments
and
 
distribution
 
center.costs
 
include
payroll, payroll-related
costs and
operating expenses
for the
buying departments
and distribution
center.
Occupancy
 
expenses
 
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
 
of goods sold and(retail
 
excluding depreciation) increased by 129.5% tosales
 
$308.3 million in
fiscal 2021 fromless
 
$134.3 million in
fiscal 2020. Gross
margin as presented
may not be
comparable to thatcost
 
of
goods
sold and excluding depreciation)
decreased by 21.3% to $242.7
million in fiscal 2022
from $308.3
million in fiscal 2021. Gross margin as presented may not be comparable
to that of other companies.
 
 
Selling,
general
 
and
administrative
expenses
 
(“SG&A”),
which
 
primarily
include
corporate
 
and
store
payroll,
 
related
 
payroll
 
taxes
 
and
 
benefits,
 
insurance,
 
supplies,
 
advertising,
 
bank
 
and
 
credit
 
card
processing fees were
 
processing
fees were $267.0$242.6 million in
 
fiscal 20212022 compared to $206.7
 
to $267.0 million
in fiscal 2020, an
increase of 29.2%. As2021,
 
a decrease
of 9.1%.
As a
percent of
 
retail sales, SG&A
 
SG&A was 32.3%
compared to
 
35.1% compared
to 36.4%
in the
 
prior year.
 
The dollar
increasedecrease in
 
SG&A
expense
was
 
primarily
attributable to higher lower
employee benefit/bonus expense, store productivity initiatives
and
 
store operating expenses
as
store operating hours
have increased
substantially compared to
the
priorexpense and lower
year’s phased
store reopening following the
extended store closure
due to
COVID-19,insurance costs,
 
partially offset by
lower
 
impairmentby higher
 
charges.store wages
resulting from
higher hourly
rates and increased
store
operating hours.
 
Depreciation
 
expense
 
was
$11.1
million
in
fiscal
2022
compared
to
 
$12.4
 
million
 
in
 
fiscal
 
2021
compared
to
$14.7
million
in
fiscal
2020.2021.
Depreciation
 
expense
 
decreased
 
from
 
fiscal
 
20202021
 
due
 
to
 
fully
 
depreciated
 
older
 
stores
 
and
 
prior
 
period
impairments
of
 
leasehold
 
improvements
and
 
fixtures,
 
partially
 
offset
 
by
 
store
 
development
 
and
information
information technology expenditures.
 
Interest and
other income decreased
increased to
$5.9 million
in fiscal
2022 compared
to $2.1
 
million in
fiscal 2021 compared
2021.
The
increase
is
primarily
attributable
to
 
$6.6 million in fiscal 2020.receiving
a
Business
Recovery
Grant
from
the
State
of
The decrease is primarily due North
Carolina,
proceeds
from property
insurance
claims related
to
 
a gain on the sale
of land held for investmenthurricanes in
 
fiscal
years
2021
and
2020 and lower an
increase in interest
income from short-term investments
due to rising
interest rates, partially
on our short-term investments, partially
offset by an increase inlower short-term investments.
 
Income tax
 
expense
was $2.1
million, or
0.3%
of
retail sales
in
fiscal 2021
compared to
an
income tax
benefit of
 
$25.31.7 million,
 
or 4.5%0.2%
 
of retail
 
sales in
 
fiscal 2020.2022
compared to
income tax
expense
of
$2.1
million,
or
0.3%
of
retail
sales
in
fiscal
2021.
 
The income
 
tax expense
was primarily
due to
higher
pre-tax
earnings,
partially
offset
by
the
ability
to
realize
foreignincome
 
tax
 
credits,expense
 
releasedecrease
 
of
reserves
forwas
uncertain tax positionsprimarily due
 
to the expirationlower
 
of the statutepre-tax income
 
of limitations, aand lower
 
favorable adjustment tofederal, state
 
the federal
net operating loss carryback and a partial releaselocal
 
of valuation allowances against state nettax benefits,
 
operating losses.partially offset
by
Global Intangible Low-taxed Income (“GILTI”) and
non-deductible officer’s compensation. The effective
effective tax rate
 
was 98.4% (Expense)
in fiscal
2022 compared to
5.4% (Expense) in
 
fiscal 2021 compared to
34.8% (Benefit) in fiscal 2020.2021.
 
See Note 12
to
to the Consolidated Financial Statements,
“Income “Income Taxes,” for further details.
Off-Balance Sheet Arrangements
 
None.
Critical Accounting Policies and Estimates
 
The Company’s
 
accounting policies are
 
more fully described
 
in Note
 
1 to the
 
the Consolidated Financial
Statements. As disclosed
 
in Note 1
 
of Notes to
 
the Consolidated Financial
 
Statements, the preparation
 
of
the
 
Company’s
 
financial
 
statements
 
in
 
conformity with
 
generally
 
accepted
 
accounting
 
principles
 
in
 
the
United
 
States
 
(“GAAP”)
 
requires
 
management
 
to
 
make
 
estimates
 
and
 
assumptions
 
about
 
future
 
events
that
 
affect
 
the
 
amounts reported
 
in
 
the
 
financial statements
 
and
 
accompanying notes.
 
Future events
 
and
their
 
effects
 
cannot
 
be
 
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
 
be
 
material
 
to
 
the
 
financial
 
statements.
 
The
 
most
 
significant
 
accounting
 
estimates
inherent
 
in
 
the
 
preparation
 
of
 
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.positions, and valuation of deferred tax assets.
30
 
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
30
Allowance for Customer Credit Losses
 
The
Company evaluates
 
the collectability
 
collectability of customer
 
customer accounts receivable
 
receivable and records
 
records an
allowance
for customer
 
credit losses
 
based on
 
the accounts
 
receivable aging and
 
estimates of
 
actual write-offs.
 
The
allowance is
 
reviewed for
 
adequacy and
 
adjusted, as
 
necessary,
 
on a
 
quarterly basis.
 
The Company
 
also
provides
 
for
 
estimated
 
uncollectible
 
late
 
fees
 
charged
 
based
 
on
 
historical
 
write-offs.
 
The
 
Company’s
financial results
 
can be
 
impacted by
 
changes in
 
customer loss
 
write-off experience
 
and the
 
aging of
 
the
accounts receivable portfolio.
 
 
Merchandise Inventories
 
The Company’s
 
inventory is
 
valued using
 
the weighted-average
 
cost method
 
and is
 
stated at
 
the net
realizable value. Physical inventories
 
are conducted throughout the
 
year to calculate actual
 
shrinkage and
inventory on
 
hand. Estimates
 
based on
 
actual shrinkage results
 
are used
 
to estimate
 
inventory shrinkage,
which is
 
accrued for
 
the period
 
between the
 
last physical
 
inventory and
 
the financial
 
reporting date.
 
The
Company
 
regularly
 
reviews
 
its
 
inventory
 
levels
 
to
 
identify
 
slow
 
moving
 
merchandise
 
and
 
uses
markdowns to clear slow moving inventory.
 
 
Lease Accounting
The Company determines whether an arrangement is a lease at inception. The Company has operating
leases
for
 
stores,
 
offices,
 
andwarehouse space
 
and equipment.
 
Its
leases
 
have remaining
 
lease
terms
 
of
 
one
year to 10 years, some of which
 
yearinclude options to extend the lease term for
up to five years, and some of
which
include
options
 
to
 
10terminate
 
years,
some ofthe
 
which includelease
within
one
year.
The
Company considers
these
 
options to
 
extend in
determining
the
 
lease term
 
for upused
 
to five
years, and
some of
which include
options to
terminate the
lease within
one year.
The Company
considers these
options in
determining the
lease term
used to
 
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.
As
 
most
 
of
 
the
 
Company’s
 
leases
 
do
 
not
 
provide
 
an
 
implicit
 
rate,
 
the
 
Company
 
uses
 
its
 
estimated
incremental
 
borrowing
 
rate
 
based
 
on
 
the
 
information
 
available
 
at
 
commencement
 
date
 
of
 
the
 
lease
 
in
determining the present value of lease payments.
 
See Note 11 for further information.
 
Impairment of Long-Lived Assets
 
The
 
Company invests
 
in
leaseholds,
 
right-of use
 
assets
 
and equipment
 
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
 
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.
 
Insurance Liabilities
 
The
 
Company
 
is
 
primarily
 
self-insured
 
for
 
healthcare,
 
workers’
 
compensation
 
and
 
general
 
liability
31
costs. These costs are
 
significant primarily due to the
 
large number of the
 
Company’s retail locations
 
and
associates. The Company’s
 
self-insurance liabilities are
 
based on the
 
total estimated costs
 
of claims filed
31
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
 
also
 
uses
 
information
 
provided
 
by
 
outside
 
actuaries
 
with
 
respect
 
to
 
healthcare,
 
workers’
compensation and general liability claims.
 
If the underlying facts and
 
circumstances of the claims change
or
 
the
 
historical
 
experience
 
upon
 
which
 
insurance
 
provisions
 
are
 
recorded
 
is
 
not
 
indicative
 
of
 
future
trends, then
 
the Company
 
may be
 
required to
 
make adjustments
 
to the
 
provision for
 
insurance costs
 
that
could
 
be
 
material
 
to
 
the
 
Company’s
 
reported
 
financial condition
 
and
 
results
 
of
 
operations.
 
Historically,
actual results have not significantly deviated from estimates.
 
Uncertain Tax Positions
 
The Company records
 
records liabilities for
 
for uncertain tax
 
tax positions primarily
 
primarily related to
 
to state income
 
income taxes
as
of the balance sheet
 
date.
 
These liabilities reflect the
 
Company’s best
 
estimate of its ultimate
 
income tax
liability
 
based
 
on
 
the
 
tax
 
codes,
 
regulations,
 
and
 
pronouncements
 
of
 
the
 
jurisdictions
 
in
 
which
 
we
 
do
business.
 
Estimating our ultimate tax liability involves significant judgments regarding the
 
application of
complex tax
 
regulations across
 
many jurisdictions.
 
Despite the
 
Company’s
 
belief that
 
the estimates
 
and
judgments
 
are
 
reasonable,
 
differences
 
between
 
the
 
estimated
 
and
 
actual
 
tax
 
liabilities
 
can
 
and
 
do
 
exist
from time to time.
 
These differences may arise from settlements
 
of tax audits, expiration of the statute
of
limitations, or
and the evolution
and application
of the
 
various jurisdictional
tax codes
and regulations.
 
Any
differences will
 
be recorded
 
in the
 
period in
 
which they become
 
known and
 
could have
 
a material
 
effect
on the results of operations in the period the adjustment is recorded.
Deferred Tax Valuation
Allowance
The
Company
assesses
the
likelihood
that
deferred
tax
assets
will
be
realized
in
light
of
the
Company’s
current
financial
performance
and
projected
future
financial
performance.
Based
on
this
assessment, the
Company then
determines if
a valuation
allowance should
be recorded.
If the
Company
concludes
that
it
is
more
likely
than
not
that
the
Company
will
not
be
able
to
realize
its
tax
deferred
assets, a valuation allowance is recorded for the proportion of the deferred tax asset it determines may not
be realized.
Liquidity, Capital Resources and Market Risk
 
The Company
 
believes that
 
its cash,
 
cash equivalents
 
and short-term
 
investments, together
 
with cash
flows from operations, will be
 
will be adequate
to fund the Company’s
 
Company’s regular
operating requirements, including
$71.371.9 million
 
of lease
 
obligations and
 
planned investments
 
of
 
$23.022.1 million
 
of capital
 
expenditures,
for
fiscal 20222023 and for the foreseeable future.
 
 
Cash
 
provided
 
by
 
operating
 
activities
 
during
 
fiscal
 
20212022
 
was
 
$59.813.4
 
million
 
as
 
compared
 
to
$30.759.8 million usedprovided
 
in fiscal
 
20202021 and
 
$53.430.7 million
 
providedused in
 
fiscal 2019.2020.
 
Cash provided
 
by operating
activities
 
during
 
20212022
 
was
 
primarily
 
attributable
 
to
 
net
 
income
 
adjusted
 
for
 
depreciation,
 
share-based
compensation, impairment and
 
changes in working
 
working capital. The decrease
 
increaseof $46.4 million
for fiscal 2022
compared to
fiscal 2021
is primarily due
to lower net
operating income and
a decrease in
accounts payable
and accrued bonus and benefits, partially offset
by lower accounts receivable and merchandise
inventories.
At January
28, 2023,
the Company
had working
capital of
 
$90.574.7 million forcompared
 
fiscal 2021to $111.5
million
and
$108.6
million
at
January
29,
2022
and
January
30,
2021,
respectively.
The
decrease in
working
capital
compared
to fiscal 2020
the
prior
year
is
 
primarily
 
due to net operating
 
income versusto
 
a net operatinglower
 
loss and anshort-term
 
increase
in accountsinvestments
 
payable,and
 
partiallylower
 
inventory,
partially offset by
higher
merchandise
inventories lower accounts payable
 
and loweraccrued bonus and benefits.
 
store impairment
charges.
 
At January 29, 2022, the Company had28,
 
working capital of $111.5
million compared
to $108.6 million
and $163.5 million at January
30, 2021 and February 1,
2020, respectively.
The slight
increase
in working
capital compared
to the prior year is primarily
due to higher short-term
investments,
inventory
and cash and
cash equivalents,
partially
offset by
higher
accrued
liabilities
and accounts
payable.
At January 29,
2022,2023, the Company
 
had an
 
unsecured revolving credit
 
agreement, which provided
 
for
borrowings of
up to $35.0
$35.0 million less
 
the
balance of
any revocable
 
letters of
credit discussed below.related
to
purchase
commitments,
and
was
committed
through
May
2027.
 
The
revolving credit
 
agreement is
 
committed untilcontains
 
May 2022.various
 
The Company
is in
the process
of obtaining
afinancial
new revolving credit
agreement and expects this
to be completed
by May of
2022.
The credit agreement
contains various financial covenants and limitations, including the maintenance of specific financial ratios
with
 
ratios with which the Company
was in compliance as of January 28, 2023. There were no borrowings
 
the
Company
was
in
compliance
as
of
January
29,
2022.
There
were
no
borrowings
outstanding under this credit facility
32
facility
as of
the fiscal year ended January 28, 2023 or the fiscal year ended
 
January 29, 2022
or the fiscal
year ended
January 30, 2021.2022.
 
 
The
 
Company
 
had
 
no
 
outstanding
 
revocable
 
letters
 
of
 
credit
 
relating
 
to
 
purchase
 
commitments
 
at
32
January 28, 2023, January 29, 2022 and January 30, 2021 and February 1, 2020.2021.
 
 
Expenditures for property and equipment totaled $4.1 million, $14.0
 
million and $8.3 million in fiscal
2021,for
 
2020property
 
and
 
2019,equipment
 
totaled
$19.4
million,
$4.1
million
and
$14.0
million
in
fiscal 2022,
2021 and
2020, respectively.
 
The
 
expenditures for
fiscal 2022
were primarily
for additional
investments in 19 new stores, distribution
center and information technology.
Net
cash
provided
by
investing
activities
totaled
$16.0
million
 
for
 
fiscal
 
20212022
 
werecompared
to
$25.3
million used in
fiscal 2021 and
$64.5 million provided
for fiscal
2020.
In fiscal 2022,
the cash
provided
was
 
primarily
 
forattributable
 
additional
investments
in six
new stores,
distribution
center
and information
technology.
Net cash
used by
investing activities
totaled $25.3
million for
fiscal 2021
compared to
 
$64.5 million
providedthe
 
for
fiscal
2020
and
$22.6
million
usedincrease
 
in
 
fiscalnet
 
2019.sales
 
In
fiscal
2021,
the
cash
used
was
primarily
attributable to the
increase in
net purchases of
 
short-term
investments,
partially
offset
by lower
expenditures
for property
and equipment.
 
Net cash used by financing activities totaled $31.8$29.3 million in fiscal 20212022 compared to net cash used of
$31.8 million
for fiscal
2021 and
$27.2 million
for fiscal 2020 and $41.6 million for fiscal 2019. The
 
increase2020.
 
The decrease in cash
used was
 
primarily
due to lower share repurchase amounts,
 
due
topartially offset by higher
dividend
payments
and higher
share
repurchase
amounts. payments.
 
The Company does not use derivative financial instruments.
 
 
See
 
Note
 
4,
 
“Fair
 
Value
 
Measurements,”
 
for
 
information
 
regarding
 
the
 
Company’s
 
financial
 
assets
that are measured at fair value.
 
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
January 29,28,
 
2022.2023. The
 
state, municipal
 
and corporate bonds
 
bonds and
asset-backed securities have
 
have contractual
maturities which
range from three
six
 
days to 4.9 years. The
 
3.9 years.
The U.S.
Treasury
Notes have
 
contractual maturities
which
 
range
 
from
 
4.5three
 
monthsdays
 
to
 
1.11.6
 
years.
 
These securities
 
securities are
 
classified as
 
available-for-sale and
are
recorded as
Short-term investments,
 
Restricted cash, Restricted
 
Restricted short-term investments
 
investments and
Other assets
on
the accompanying
 
Consolidated Balance
 
Balance Sheets. These
 
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
 
in Accumulatedcomprised
 
other comprehensiveof
 
income.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
bonds comprised of
 
auto loansbacked
 
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 by
 
revolving
pools
of
 
credit
card
 
receivables
generated
by
account
holders
 
of
 
cards
from
 
American
Express,
Citibank,
JPMorgan
Chase,
Capital
One, and
Discover.
 
Additionally,
 
at
 
January
 
29,28,
 
2022,2023,
 
the
 
Company
 
had
 
$0.80.9
 
million
 
of
 
corporate
 
equities,
 
which
 
are
recorded within Other assets in the
 
Consolidated Balance Sheets.
 
At January 30, 2021,29, 2022, the Company had
$0.70.8
 
million
 
of
 
corporate
 
equities,
 
which
 
are
 
recorded
 
within
 
Other
 
assets
 
in
 
the
 
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 be available
on
active exchanges
for identical
instruments.
 
Their fair
value is principally
based on
market values
determined
by
management
with
assistance
of a
 
third-party
pricing
service.
 
Since quoted
prices
in
 
active
markets for
identical assets are
 
are not available, these
 
these prices are determined
 
by the pricing service
 
service using observable
 
market
information
 
such
 
as
 
quotes
 
from
 
less
 
active
 
markets
 
and/or
 
quoted
 
prices
 
of
 
securities
 
with
 
similar
characteristics,
among
other factors.
Deferred
 
compensation plan
 
assets
 
consist
 
primarily 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
 
3
 
liability
 
associated
 
with
 
the
 
life
insurance
 
policies
 
represents
 
a
 
deferred
 
compensation
 
obligation,
 
the
 
value
 
of
 
which
 
is
 
tracked
 
via
33
underlying
 
insurance
 
funds’
 
net
 
asset
 
values,
 
as
 
recorded
 
in
 
Other
 
noncurrent
 
liabilities
 
in
 
the
33
Consolidated Balance Sheets. These
 
These funds are designed
 
designed to mirror the
 
the return of existing
 
existing mutual funds
and
money market funds that are observable and actively traded.
 
Contractual Obligations
 
Contractual
 
obligations
 
for
 
future
 
payments
 
at
 
January
 
29,28,
 
20222023
 
relate
 
primarily
 
to
 
operating
 
lease
commitments for
 
store leases.
 
Operating leases
 
represent minimum
 
required lease
 
payments under
 
non-
cancellable
 
lease
 
terms.
 
Most
 
store
 
leases
 
also
 
require
 
payment
 
of
 
related
 
operating
 
expenses
 
such
 
as
taxes, utilities, insurance and maintenance, which are not included in our estimated lease obligations.
 
See
Note
 
11,
 
Leases
 
in
 
Notes
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
the
 
maturities
 
of
 
our
 
operating
lease obligations.
Recent Accounting Pronouncements
 
See Note
 
1, Summary of
 
Significant Accounting Policies,
 
Recently Adopted Accounting
 
Policies and
Recently Issued Accounting Pronouncements.
Item 7A.
 
 
Quantitative and Qualitative Disclosures About Market Risk:
 
The
 
Company
 
is
 
subject
 
to
 
market
 
rate
 
risk
 
from
 
exposure
 
to
 
changes
 
in
 
interest
 
rates
 
based
 
on
 
its
financing, investing and
 
cash management activities,
 
but the Company
 
does not
 
believe such exposure
 
is
material.
 
34
 
Item 8.
 
Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 
 
 
 
 
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm (PCAOB ID
238
) .....................................
 
 
 
3536
 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
 
for the fiscal
 
 
years ended January 28, 2023, January 29, 2022 and January 30, 2021 and February 1, 2020 ................................
 
...........
 
 
 
3839
 
Consolidated Balance Sheets at January 29, 202228, 2023 and January 30, 202129, 2022
 
.............................................
 
 
 
3940
 
Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2022,28, 2023,
 
January 30, 202129, 2022
 
and February 1, 2020................................January 30, 2021................................
 
................................................................
 
.........................
 
 
 
4041
 
Consolidated Statements of Stockholders’ Equity for the fiscal years ended January 29,28,
 
2022,2023,
 
 
January 29, 2022 and January 30, 2021 and February 1, 2020 ................................................................
 
............................
 
 
 
4142
 
Notes to Consolidated Financial Statements ..........................................................................................
 
 
 
4243
 
Schedule II — Valuation
 
and Qualifying Accounts for the fiscal years ended January 29, 2022,28, 2023,
 
 
January 29, 2022 and January 30, 2021 and February 1, 2020 ................................................................
 
............................
 
 
 
72
73
 
35
Report of Independent Registered Public Accounting Firm
 
To the
Board of Directors and Stockholders of The Cato Corporation
Opinions on the Financial Statements and Internal
Control over Financial
Reporting
We have audited the accompanying consolidated balance
sheets of The Cato Corporation and its
subsidiaries (the “Company”) as of January 29, 202228, 2023 and
 
January 30, 2021,29, 2022, and the related consolidated
statements of income (loss) and comprehensive income (loss), of stockholders’
 
of stockholders’ equity and of cash flows
for each of the three years in the period ended January 29, 2022,28, 2023, including
 
including the related notes and financial
statement schedule listed in the accompanying index (collectively referred
 
referred to as the “consolidated
financial statements”). We also have audited the Company's
internal control over financial reporting as of
January 29,2022,28, 2023, based on criteria established in
Internal Control - Integrated Framework
 
(2013) issued
by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
 
In our opinion, the consolidated financial statements referred to above
 
to above present fairly, in all material
respects, the financial position of the Company as of January 28, 2023
 
29, 2022 and January 30, 2021,29, 2022, and the
results of its operations and its cash flows for each of the three years
 
three years in the period ended January 29,28, 2023
2022 in conformity with accounting principles generally
accepted in the United
States of America. Also in our
our opinion, the Company maintained, in all material
respects, effective internal control
over financial
reporting as of January 29, 2022,28, 2023, based on criteria established
in
Internal Control - Integrated
Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial
 
financial statements, for maintaining
effective internal control over financial reporting, and for
its assessment of the effectiveness of internal
control over financial reporting, included in Management’s
Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility
is to express opinions
on the Company’s
consolidated financial statements and on the Company's
internal control over
financial reporting based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with
 
with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules
 
rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about
 
about whether the consolidated financial
statements are free of material misstatement, whether due
to error or fraud,
and whether effective internal
internal control over financial reporting was maintained
in all material respects.
 
Our audits of the consolidated financial statements included performing
 
performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether
 
whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures
 
included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial
 
consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant
 
estimates made by management, as
well as evaluating the overall presentation of the consolidated
 
financial statements. Our audit of internal
control over financial reporting included obtaining an understanding
 
understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing
 
and evaluating the design and
operating effectiveness of internal control based on the
assessed risk. Our audits
also included performing
such other procedures as we considered necessary in the circumstances.
We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control
over Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable
assurance regarding the reliability of financial reporting and
 
and the preparation of financial statements for
36
external purposes in accordance with generally accepted accounting
 
accounting principles. A company’s internal
control over financial reporting includes those policies and procedures
 
and procedures that (i) pertain to the maintenance
36
of records that, in reasonable detail, accurately and fairly
reflect the transactions
and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions
 
that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
 
generally accepted accounting principles,
and that receipts and expenditures of the company are being made
 
being made only in accordance with authorizations
of management and directors of the company; and (iii) provide
 
provide reasonable assurance regarding prevention
prevention or timely detection of unauthorized acquisition,
use, or disposition
of the company’s assets
that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
 
reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods
are subject to the risk
that controls may become inadequate because of changes in conditions, or
 
or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising
 
from the current period audit of the
consolidated financial statements that was communicated
or required to
be communicated to the audit
committee and that (i) relates to accounts or disclosures
that are material
to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or
 
or complex judgments. The
communication of critical audit matters does not alter in any
way our opinion on
the consolidated
financial
statements, taken as a whole, and we are not, by communicating the
 
the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or
 
or disclosures to which it relates.
Impairment of Long-Lived Assets - Store Location Asset Groupings
As described in Notes 1 and 6 to the consolidated financial statements,
 
statements, the Company’s consolidated
property and equipment, net balance was $63.1$70.4 million, of which the store
 
the store locations were a portion, and
consolidated operating lease right-of-use assets, net balance was $174.3
 
was $181.3 million as of January 29, 2022.28, 2023.
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.
 
and hardware. The Company periodically
reviews its store locations and estimates the recoverability of its
 
of its long-lived assets, which primarily relate
to fixtures and equipment, leasehold improvements, right-of-use assets net
 
assets net of lease liabilities, and
information technology equipment and software. An impairment charge
 
charge is recorded for the amount by
which the carrying value exceeds the estimated fair value when management
 
when management 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
 
The Company assesses the fair value
of each lease by considering market rents and any lease terms
 
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. An impairment charge for store assets of $0.9
million was recorded during
the year ended
January 29, 2022.28, 2023.
The principal considerations for our determination that performing
 
performing procedures relating to the impairment
impairment of long-lived assets – store location asset groupings
is a critical audit matter
are (i) the significant
significant judgment by management when determining the fair value measurement
 
value measurement of the store location asset
asset groupings, which led to (ii) a high degree of auditor
judgment, subjectivity, and effort in performing
procedures and evaluating management’s projected cash flow
assumptions related to contribution margin
projections.
Addressing the matter involved performing procedures and evaluating
 
and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements.
 
These procedures included testing
the effectiveness of controls relating to management’s long
-livedlong-lived assets – store location recoverability test
and determination of the fair value of the asset group. These procedures
 
These procedures also included, among others (i)
testing the completeness and accuracy of underlying data
used in the projected
cash flows and store
37
location asset groupings, (ii) evaluating the reasonableness
of management’s assumptions related to
contribution margin projections by considering current
and historical performance
of the store location
asset groupings and whether the assumptions were consistent with evidence
 
with evidence obtained in other areas of the
audit, (iii) evaluating the appropriateness of the projected
cash flow model,
and (iv) evaluating
37
management’s assessment of the fair value of the leased assets
included in the store location asset
groupings.
/s/
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 23, 20222023
We have served as the Company’s
auditor since 2003.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
Fiscal Year Ended
January 28, 2023
January 29, 2022
January 30, 2021
February 1, 2020
(Dollars in thousands, except per share data)
REVENUES
 
Retail sales
$
752,370
$
761,358
$
567,516
$
816,184
 
Other revenue (principally finance charges,
 
 
late fees and layaway charges)
6,890
7,913
7,595
9,151
 
Total revenues
759,260
769,271
575,111
825,335
COSTS AND EXPENSES, NET
 
Cost of goods sold (exclusive of
 
 
depreciation shown below)
509,664
453,065
433,187
508,906
 
Selling, general and administrative (exclusive
 
 
of depreciation shown below)
242,561
266,954
206,492
263,773
 
Depreciation
11,080
12,356
14,681
15,485
 
Interest expense
87
72
187
29
 
Interest and other income
(5,902)
(2,141)
(6,630)
(6,065)
 
CostCosts and expenses, net
757,490
730,306
647,917
782,128
Income (loss) before income taxes
1,770
38,965
(72,806)
43,207
Income tax expense (benefit)
1,741
2,121
(25,323)
7,310
Net income (loss)
$
29
$
36,844
$
(47,483)
$
35,897
Basic earnings (loss) per share
$
-
$
1.65
$
(2.01)
$
1.46
Diluted earnings (loss) per share
$
-
$
1.65
$
(2.01)
$
1.46
Dividends per share
$
0.68
$
0.45
$
0.33
$
1.32
Comprehensive income:
Net income (loss)
$
29
$
36,844
$
(47,483)
$
35,897
Unrealized gain (loss) on available-for-sale
 
securities, net of deferred income taxes of
 
($
433287
), ($
79433
), and $($
45379
) for fiscal 2022, 2021 2020
 
and 2019,2020, respectively
(958)
(1,435)
(268)
1,500Comprehensive (loss) income
Comprehensive income (loss)$
(929)
$
35,409
$
(47,751)
$
37,397
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
THE CATO CORPORATION
CONSOLIDATED BALANCE SHEETS
January 29, 202228, 2023
January 30, 202129, 2022
(Dollars in thousands)
ASSETS
Current Assets:
Cash and cash equivalents
 
$
19,75920,005
$
17,51019,759
Short-term investments
145,998108,652
126,416145,998
Restricted cash
3,9183,787
3,5123,918
Restricted short-term investments
1-
4061
Accounts receivable, net of allowance for customer credit losses of $
803761
 
at
 
January 29, 202228, 2023 and $
605803
 
at January 30, 202129, 2022
26,497
55,812
52,743
Merchandise inventories
 
124,907112,056
84,123124,907
Prepaid expenses and other current assets
5,2736,676
5,8405,273
 
Total Current Assets
 
355,668277,673
290,550355,668
Property and equipment – net
 
63,08370,382
72,55063,083
Deferred income taxes
9,3139,213
5,6859,313
Other assets
 
24,43721,596
22,85024,437
Right-of-Use assets - net
181,265174,276
199,817181,265
 
Total Assets
 
$
633,766553,140
$
591,452633,766
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
 
$
109,54691,956
$
73,769109,546
Accrued expenses
 
40,37341,338
40,79040,373
Accrued bonus and benefits
 
26,4881,690
1,91626,488
Accrued income taxes
 
920613
2,038920
Current lease liability
66,80867,360
63,42166,808
 
Total Current Liabilities
 
244,135202,957
181,934244,135
Other noncurrent liabilities
17,91416,183
19,70517,914
Lease liability
117,521107,407
143,315117,521
Commitments and contingencies
0-
0-
Stockholders' Equity:
Preferred stock, $
100
 
par value per share,
100,000
 
shares authorized,
 
none issued
 
0-
0-
Class A common stock, $
0.033
 
par value per share,
50,000,000
 
shares authorized;
19,824,09318,723,225
 
and
20,839,79519,824,093
 
shares issued at
 
January 28, 2023 and January 29, 2022, and January 30, 2021, respectively
669632
703669
Convertible Class B common stock, $
0.033
 
par value per share,
 
15,000,000
 
shares authorized;
1,763,652
 
and
1,763,652
 
shares issued at
 
January 29, 202228, 2023 and January 30, 2021,29, 2022, respectively
59
59
Additional paid-in capital
 
119,540122,431
115,278119,540
Retained earnings
 
134,208104,709
129,303134,208
Accumulated other comprehensive income
 
(280)(1,238)
1,155(280)
 
Total Stockholders' Equity
 
254,196226,593
246,498254,196
 
Total Liabilities and Stockholders’ Equity
 
$
633,766553,140
$
591,452633,766
See notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
Fiscal Year Ended
January 28, 2023
January 29, 2022
January 30, 2021
February 1, 2020
(Dollars in thousands)
Operating Activities:
Net income (loss)
$
29
$
36,844
$
(47,483)
$
35,897
Adjustments to reconcile net income (loss) to net cash provided
 
by (used in) operating activities:
 
Depreciation
11,080
12,356
14,681
15,485
 
Provision for customer credit losses
280
429
306
524
 
Purchase premium and premium amortization of investments
537
(332)
(691)
(694)
 
Gain on sale of assets held for investment
0-
-
(2,298)
0
 
Share based compensation
2,606
4,090
4,092
4,669
 
Deferred income taxes
386
(3,194)
3,030
2,120
 
Loss on disposal of property and equipment
199
629
461
837
 
Impairment of assets
884
901
13,702
470
 
Changes in operating assets and liabilities which provided
 
(used) cash:
 
Accounts receivable
29,034
(3,499)
(26,935)
1,525
 
Merchandise inventories
12,851
(40,784)
31,242
4,220
 
Prepaid and other assets
1,543
(505)
(1,596)
5,072
 
Operating lease right-of-use assets and liabilities
(2,573)
(3,855)
(2,611)
(9,803)
 
Accrued income taxes
(307)
(1,118)
335
1,703
 
Accounts payable, accrued expenses and other liabilities
(43,179)
57,826
(16,945)
(8,629)
Net cash provided by (used in) operating activities
13,370
59,788
(30,710)
53,396
Investing Activities:
Expenditures for property and equipment
 
(19,433)
(4,105)
(13,956)
(8,306)
Purchase of short-term investments
(54,734)
(141,937)
(74,041)
(218,345)
Sales of short-term investments
90,190
121,110
149,298
205,375
Purchase of other assets
-
(400)
0
(1,357)-
Sales of other assets
0-
-
3,205
0
Net cash provided by (used in) investing activities
16,023
(25,332)
64,506
(22,633)
Financing Activities:
Dividends paid
(14,369)
(9,972)
(7,912)
(32,592)
Repurchase of common stock
(15,216)
(22,033)
(19,654)
(9,605)
Proceeds from line of credit
0-
-
34,000
0
Payments to line of credit
0-
-
(34,000)
0
Proceeds from employee stock purchase plan
307
204
391
626
Net cash used in financing activities
(29,278)
(31,801)
(27,175)
(41,571)
Net increase (decrease) in cash, cash equivalents, and restricted cash
115
2,655
6,621
(10,808)
Cash, cash equivalents, and restricted cash at beginning of period
23,677
21,022
14,401
25,209
Cash, cash equivalents, and restricted cash at end of period
 
$
23,792
$
23,677
$
21,022
$
14,401
Non-cash activity:
Accrued plant and equipment
$
685
$
657
$
343
$
2,828
Accrued treasury stock
0
0
818
See notes to consolidated financial statements.
 
 
 
 
41
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS' EQUITY
Accumulated
Additional
 
Other
Total
Common
Paid-In
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — February 2, 2019
$
826
$
105,580
$
210,507
$
(77)
$
316,836
Comprehensive income:
Net income (loss)
0
0
35,897
0
35,897
Unrealized gains (loss) on available-for-sale securities, net of
deferred income tax liability of $
453
0
0
0
1,500
1,500
Dividends paid ($
1.32
per share)
0
0
(32,592)
0
(32,592)
Class A common stock sold through employee stock purchase
plan —
48,626
shares
1
735
0
0
736
Class A common stock issued through restricted stock grant plans
—
321,484
shares
14
4,498
48
0
4,560
Repurchase and retirement of treasury shares –
622,480
shares
(21)
0
(10,402)
0
(10,423)
Balance — February 1, 2020
$
820
$
110,813
$
203,458
$
1,423
$
316,514
Comprehensive income:
 
Net income (loss)
0-
0-
(47,483)
0-
(47,483)
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax benefit of ($$
79
)-
0-
0
0-
(268)
(268)
Dividends paid ($
0.33
 
per share)
0-
0-
(7,912)
0-
(7,912)
Class A common stock sold through employee stock purchase
 
plan —
48,191
shares
1
459
0-
0-
460
Class A common stock issued through restricted stock grant plans
—
231,194
sharesShare-based compensation expense
8
4,006
8
0-
4,022
Repurchase and retirement of treasury shares –
1,975,373
shares
(67)
0-
(18,768)
0-
(18,835)
Balance — January 30, 2021
$
762
$
115,278
$
129,303
$
1,155
$
246,498
Comprehensive income:
 
Net income (loss)
0-
0-
36,844
0-
36,844
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax benefit of ($$
433
)-
0-
0
0-
(1,435)
(1,435)
Dividends paid ($
0.45
 
per share)
0-
0-
(9,972)
0-
(9,972)
Class A common stock sold through employee stock purchase
 
plan
plan —
24,398
shares
0-
239
0-
0-
239
Class A common stock issued through restricted stock grant plans
—
381,002
sharesShare-based compensation expense
13
4,023
19
0-
4,055
Repurchase and retirement of treasury shares –
1,421,102
shares
(47)
0-
(21,986)
0-
(22,033)
Balance — January 29, 2022
$
728
$
119,540
$
134,208
$
(280)
$
254,196
Comprehensive income:
Net income (loss)
-
-
29
-
29
Unrealized gains (loss) on available-for-sale securities, net of
deferred income tax benefit of $
287
-
-
-
(958)
(958)
Dividends paid ($
0.68
per share)
-
-
(14,369)
-
(14,369)
Class A common stock sold through employee stock purchase
plan
-
360
-
-
360
Share-based compensation expense
4
2,531
17
-
2,552
Repurchase and retirement of treasury shares
(41)
-
(15,176)
-
(15,217)
Balance — January 28, 2023
$
691
$
122,431
$
104,709
$
(1,238)
$
226,593
See notes to consolidated financial statements.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSTATE
MENTS
42
1.
 
Summary of Significant Accounting Policies:
 
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
 
Business
 
and
 
Fiscal
Year:
 
The
 
Company
 
has
two
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,” “Versona
”
 
“It’sand “Cache,” including e-commerce websites. The stores
are
 
Fashionlocated
 
Metro”primarily
 
and
“Versona,”
including
e-commerce
websites.
The
stores
are
located primarily in
 
strip
shopping
 
centers
principally
in
 
the
southeastern
 
United
States.
 
The Company’s
Company’s fiscal year ends
on the Saturday nearest January 31 of the subsequent year.
Fiscal years 2022,
2021 and 2020 are
52
-week years.
 
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.positions and valuation allowances on deferred tax
assets.
 
Cash
 
and
 
Cash
 
Equivalents:
 
Cash
 
and
 
cash
 
equivalents
 
consist
 
of
 
highly
 
liquid
 
investments
 
with
original maturities of three months or less.
 
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 Restricted Short-term
 
Investments:
The Company had $
3.93.8
 
million and $
3.9
million in
 
escrow at
 
January 29,28,
 
20222023 and
 
January 30,29,
 
2021,2022, 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:
Income tax
 
payments, net
 
of refunds
 
received, for
 
the fiscal
years ended
January 28,
2023, January
 
29, 2022 January 30,
 
2021 and February 1,January
 
2020 30, 2021
were a
 
paymentrefund of
$
13,176,00029,206,000
, a
payment of $
6,825,00013,176,000
 
and a refundpayment of $
4,681,0006,825,000
, respectively.
 
 
Inventories:
Merchandise
 
inventories
 
are
 
stated
 
at
 
the
 
net
 
realizable
 
value
 
as
 
determined
 
by
 
the
weighted-average cost method.
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
43
 
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 30
-
40
years
Leasehold improvements
 
5-10 5
-
10
years
Fixtures and equipment
 
3-10 3
-
10
years
Information technology equipment and software
 
3-10 3
-
10
years
Aircraft
20
years
 
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
 
$
900,719884,079
,
 
$
13,702,022900,719
 
and
 
$
146,02613,702,022
were incurred in fiscal 2022, fiscal 2021 and fiscal 2020, and fiscal 2019, respectively.
 
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 YearBalance as of
EndedJanuary 28, 2023
January 29,
2022
January 30,
2021
(Dollars in thousands)
Other Assets
 
Deferred Compensation Investments
$
11,4729,274
$
11,26411,472
 
Miscellaneous Investments
1,8181,923
1,2641,818
 
Other Deposits
1,319571
5221,319
 
Land Held for Investment
9,334
9,334
 
Other
494
466494
Total
 
Other Assets
$
24,43721,596
$
22,85024,437
 
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
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
44
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
 
allowancesconstruction
allowances and rent escalations.
 
For purposes of recognizing
incentives and minimum rental expenses on
 
expenses on a
 
straight-
line
 
basis
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
44
a straight-line basis over
the
terms
of
the
leases,
including
renewal
periods
considered
reasonably
 
assured,
the
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:
The
 
Company
 
recognizes
 
sales
 
at
 
the
 
point
 
of
 
purchase
 
when
 
the
 
customer
takes possession
 
of the
 
merchandise and pays
 
pays for the
 
the purchase, generally with
 
generally with cash or
 
or credit. Sales
 
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.
 
In addition,
a provision
is
made for
estimated rewards
cards issued
based on
purchases with the
Company’s propriety
credit card.
Amounts related
to
 
shipping and handling
handling billed
to
customers
 
in
a
sales
 
transaction
are
classified
 
as
Other
revenue
 
and
the
costs
 
related
to
shipping product
to
customers
(billedproduct 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
 
2021,2022,
 
20202021
 
and
 
2019,2020,
 
the
 
Company
 
recognized
 
$
1,482,000256,000
,
 
$
891,0001,482,000
 
and
 
$
921,000891,000
,
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
 
rewards
 
THE CATO CORPORATIONcards
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issued by the Company have a 90-day expiration.
— (Continued)
45
 
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
 
$
485,000349,000
 
and
 
$
435,000485,000
 
for
 
the
 
twelve
 
months
 
ended
January 29,28,
 
20222023 and
 
January 30,29,
 
2021,2022, respectively,
 
on sales
 
purchased on
 
the Company’s
 
proprietary
credit card of $
18.723.3
 
million and $
15.218.7
 
million for the twelve months
 
ended January 29, 202228, 2023 and January
30, 2021,29, 2022, respectively.
 
The following table provides information about receivables
 
and contract liabilities from contracts with
customers (in thousands):
`
Balance as of
January 29, 202228, 2023
January 30, 202129, 2022
Proprietary Credit Card Receivables, net
$
8,99810,553
$
9,6068,998
Gift Card Liability
$
8,3088,523
$
8,1558,308
 
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
 
ourthe
Company’s
 
buying
 
departments
 
and
 
distribution
center.
 
center.
Occupancy
expenses
include
rent,
real
 
estate
taxes,
insurance,
common
area
 
maintenance, utilities
and
 
utilities
and
maintenance
 
for
 
stores
 
and
 
distribution
 
facilities.
 
Buying,
 
distribution,
 
occupancy
 
and
 
internal
transfer
 
transfercosts
costs are
 
treated
as
 
period
costs
 
and
are
 
not
capitalized
 
as
 
part
of
 
inventory.
 
The
direct
 
costs associated
associated with shipping goods to customers are recorded as a component
of Cost
of goods sold.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
45
 
Advertising:
Advertising
 
costs
 
are
 
expensed
 
in
 
the
 
period
 
in
 
which
 
they
 
are
 
incurred.
 
Advertising
expense was approximately $
6,037,0006,868,000
, $
4,385,0006,037,000
 
and $
5,600,0004,385,000
 
for the fiscal years ended January 29,28,
2023, January 29, 2022 and January 30, 2021, and February 1, 2020, respectively.
 
 
Stock Repurchase Program:
 
For the fiscal year ended January
 
29, 2022,28, 2023, the Company had
 
450,047197,769
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,
 
2022,2023,
 
the
 
Company repurchased
163,580
156,707
 
shares
 
for
 
$2,515,310.
1,481,433
.
 
The
 
Board
 
of
Directors
 
increased
 
the
 
Company’s
 
open
 
share
 
repurchase
 
authorization
 
by
 
one
 
million
 
shares
 
at
 
the
February 24, 202223, 2023 Board of Directors meeting.
 
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 CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
46
 
The following
 
table reflects
 
the basic
 
and diluted
 
EPS calculations
 
for the
 
fiscal years
 
ended January
28, 2023, January 29, 2022 and January 30, 2021 and February 1, 2020:2021:
`
Fiscal Year Ended
January 28, 2023
January 29, 2022
January 30, 2021
February 1, 2020
Numerator
(Dollars in thousands)
Net earnings (loss)
$
29
$
36,844
$
(47,483)
$
35,897
(Earnings) loss allocated to non-vested equity awards
12
(1,937)
2,096
(1,280)
Net earnings (loss) available to common stockholders
$
41
$
34,907
$
(45,387)
$
34,617
Denominator
Basic weighted average common shares outstanding
19,930,960
21,113,828
22,536,090
23,738,443
Diluted weighted average common shares outstanding
19,930,960
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
 
Vendor
 
Allowances:
The
 
Company
 
receives
 
certain
 
allowances
 
from
 
vendors
 
primarily
 
related
 
to
purchase discounts and markdown and
 
damage allowances. All allowances are
 
reflected in Cost of
 
goods
sold
 
as
 
earned
 
when
 
the
 
related
 
products
 
are
 
sold.
 
Cash
 
consideration
 
received
 
from
 
a
 
vendor
 
is
presumed
 
to
 
be
 
a
 
reduction
 
of
 
the
 
purchase
 
cost
 
of
 
merchandise
 
and
 
is
 
reflected
 
as
 
a
 
reduction
 
of
inventory.
 
The Company does not receive cooperative advertising allowances.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
46
 
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
 
for income taxes.
 
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:
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
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
47
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:
 
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:
 
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
 
estimated forfeitures.
 
Recently Adopted Accounting Policies:
 
In December 2019, the FASB
issued ASU 2019-12,
Income
Taxes
(Topic
740):
Simplifying
theAdopted
 
Accounting
 
forPolicies:
In
 
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
ofNovember
 
2021,
with
no
material
impact
on
its
Condensed
Consolidated
Financial
Statements.
In
March
2020,
 
the
 
Financial
 
Accounting
 
Standards
Board issued Accounting Standards Update 2021-10,
Government Assistance (Topic
 
Board832): Disclosures by
Business
 
(FASB)Entities
 
issuedabout
Government
Assistance
.
This
update
provides
for
increased
transparency
of
government assistance,
including the
disclosure of
the types
of
assistance an
entity receives,
an entity’s
method of
accounting for
government assistance
and the
effect of
the assistance
on an
entity’s
financial
statements.
This
standard
is
effective
for
annual
periods
beginning
after
December
15,
2021.
The
Company adopted this standard on a prospective basis on January 30, 2022.
Recently
Issued
 
Accounting
 
StandardsPronouncements:
Update
 
(ASU)The
 
2020-04,
ReferenceCompany
 
Ratehas
 
Reformreviewed
 
(Topic
848):
Facilitation
of
Effects
of
Reference
Rate
Reform on Financial Reporting
. The ASU, and subsequent
clarifications, provide practical expedients for
contract modificationrecent
 
accounting related
to the
transition away
from the
London Interbank
Offered Rate
(LIBOR)pronouncements and other interbank offering rates to alternative reference rates. The expedients are applicable to
contract modifications made and hedging relationships entered into
believe none will have a material impact on or before December 31, 2022. The
Company adopted
this
accounting
standard
 
the
Company’s financial statements.
first
day
of
the
fourth
quarter
of
2021
with
no
material
impact on its Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
4847
2.
 
Interest and Other Income:
The components of Interest and other income are shown below (in thousands):
Fiscal Year Ended
January 28, 2023
January 29, 2022
January 30, 2021
February 1, 2020
Dividend income
$
(47)
$
(76)
$
(5)
$
(42)
Interest income
(1,876)
(1,321)
(2,697)
(4,954)State recovery grant
(1,431)
-
-
Insurance proceeds
(1,683)
-
-
Miscellaneous income
(896)
(580)
(627)
(709)
Net loss (gain) on investment sales
31
(164)
(3,301)
(360)
Interest and other income
$
(5,902)
$
(2,141)
$
(6,630)
$
(6,065)
 
During 2020, the Company recorded a gain on
In
fiscal
2022,
 
the sale of land held for investment
Company
received
$
1.4
million
from
the
state
of
 
North
Carolina’s
Business
Recovery
Program,
which
provides
aid
to
eligible
North
Carolina
businesses
that
suffered
significant
economic
damage from
the
COVID-19 pandemic.
Additionally,
in
fiscal
2022,
the
Company received
$2.3
1.7
 
million withinin property insurance claims, including business interruption, from Hurricanes
 
Interest Ida and Laura
in
2021
and
 
other2020.
 
incomeDuring
fiscal
2020,
the
Company
recorded
a
gain
 
on
 
the
 
Consolidatedsale
 
Statements of
land
held
for
Income (Loss) and Comprehensive Income (Loss).investment of $
2.3
million.
3.
 
Short-Term Investments:
 
At
 
January
 
29,28,
 
2022,2023,
 
the
 
Company’s
 
investment
 
portfolio
 
was
 
primarily
 
invested
 
in
 
corporate
 
and
governmental debt
 
securities held
 
in managed
 
accounts.
 
These securities
 
are classified
 
as available-for-
sale as they are highly liquid and are recorded on the Consolidated Balance Sheets at estimated fair value,
with
 
unrealized
 
gains
 
and
 
temporary
 
losses
 
reported
 
net
 
of
 
taxes
 
in
 
Accumulated
 
other
 
comprehensive
income.
 
The
 
table
 
below
 
reflects
 
gross
 
accumulated
 
unrealized
 
gains
 
(losses)
 
in
 
short-term
 
investments
 
at
January 29, 202228, 2023 and January 30, 202129, 2022 (in thousands):
`
January 29, 202228, 2023
January 30, 202129, 2022
Debt securities
Debt securities
issued by the U.S
issued by the U.S
Government, its various
Government, its various
States, municipalities
Corporate
States, municipalities
Corporate
and agencies
debt
and agencies
debt
of each
securities
Total
of each
securities
Total
Cost basis
$
51,372
$
59,541
$
110,913
$
50,554
$
96,352
$
146,906
$
40,701
$
85,045
$
125,746
Unrealized gains
0-
0-
0-
422-
654-
1,076-
Unrealized (loss)
(1,020)
(1,241)
(2,261)
(388)
(520)
(908)
0
0
0
Estimated fair value
$
50,352
$
58,300
$
108,652
$
50,166
$
95,832
$
145,998
$
41,123
$
85,699
$
126,822
 
Accumulated
 
other
 
comprehensive
 
income
 
on
 
the
 
Consolidated
 
Balance
 
Sheets
 
reflects
 
the
accumulated
 
unrealized
 
gains
 
and
 
losses
 
in
 
short-term investments
 
in
 
addition
 
to
 
unrealized
 
gains
 
and
losses
 
from
 
equity
 
investments
 
and
 
restricted
 
cash
 
investments.
 
The
 
table
 
below
 
reflects
 
gross
accumulated
unrealized
 
gains and
 
losses in
 
these
investments
 
at January
 
28, 2023
and January
 
29, 2022
2022
and
January
30,
2021
(in
thousands):
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
48
`
January 29, 202228, 2023
January 30, 202129, 2022
Deferred
Unrealized
Deferred
Unrealized
Unrealized
Tax Benefit/
Net Gain/
Unrealized
Tax Benefit/
Net Gain/
Security Type
Gain/(Loss)
(Expense)
(Loss)
Gain/(Loss)
(Expense)
(Loss)
Short-Term Investments
$
(2,261)
$
521
$
(1,740)
$
(908)
$
211
$
(697)
$
1,076
$
(250)
$
826
Equity Investments
652
(150)
502
543
(126)
417
429Total
(100)$
329(1,609)
Total$
371
$
(1,238)
$
(365)
$
85
$
(280)
$
1,505
$
(350)
$
1,155
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
49
4.
 
Fair Value Measurements:
 
The following tables set forth information regarding the Company’s financial
 
financial assets that are measured
at fair value as of January 29, 202228, 2023 and January 30, 202129, 2022 (in thousands):
 
`
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 28, 2023
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
23,102
$
-
$
23,102
$
-
Corporate Bonds
47,901
-
47,901
-
U.S. Treasury/Agencies Notes and Bonds
27,250
-
27,250
-
Cash Surrender Value of Life Insurance
9,274
-
-
9,274
Asset-backed Securities (ABS)
9,373
-
9,373
-
Corporate Equities
923
923
-
-
Commercial Paper
1,026
-
1,026
-
Total Assets
$
118,849
$
923
$
108,652
$
9,274
Liabilities:
Deferred Compensation
(8,903)
-
-
(8,903)
Total Liabilities
$
(8,903)
$
-
$
-
$
(8,903)
Prices in
 
Active
Significant
 
Markets for
Other
Significant
 
Identical
Observable
Unobservable
 
January 29, 2022
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
 
State/Municipal Bonds
$
30,451
$
0-
$
30,451
$
0-
 
Corporate Bonds
76,909
0-
76,909
0-
 
U.S. Treasury/Agencies Notes and Bonds
19,715
0-
19,715
0-
 
Cash Surrender Value of Life Insurance
11,472
0-
0-
11,472
 
Asset-backed Securities (ABS)
18,556
0-
18,556
0-
 
Corporate Equities
818
818
0-
0-
 
Commercial Paper
367
0-
367
0-
Total Assets
$
158,288
$
818
$
145,998
$
11,472
Liabilities:
 
Deferred Compensation
(10,020)
0-
0-
(10,020)
Total Liabilities
$
(10,020)
$
0-
$
0-
$
(10,020)
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 30, 2021
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
State/Municipal Bonds
$
23,254
$
0
$
23,254
$
0
Corporate Bonds
67,566
0
67,566
0
U.S. Treasury/Agencies Notes and Bonds
17,869
0
17,869
0
Cash Surrender Value of Life Insurance
11,263
0
0
11,263
Asset-backed Securities (ABS)
16,064
0
16,064
0
Corporate Equities
703
703
0
0
Commercial Paper
2,069
0
2,069
0
Total Assets
$
138,788
$
703
$
126,822
$
11,263
Liabilities:
Deferred Compensation
(10,316)
0
0
(10,316)
Total Liabilities
$
(10,316)
$
0
$
0
$
(10,316)
 
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
January 29,28,
 
2022.2023. The
 
state, municipal
 
and corporate bonds
 
and asset-backed securities
 
have contractual
maturities which
range from three
six days
 
days to 4.9 years.
3.9 years
. The
 
The U.S. Treasury
 
Notes and
Certificates of
 
Deposit
have
 
contractual
 
maturities
 
which
 
range
 
from
three days
4.5
months
 
to
1.6 years
1.1
years..
 
These securities are
classified as
available-for-sale
 
and
 
are
 
recorded
 
as
 
Short-term
 
investments,
 
Restricted
 
cash,
 
Restricted
 
short-term
investments and Other
 
and Other assets on the accompanying
 
accompanying Consolidated Balance
 
Balance Sheets. These assets
 
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
originated
and
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
50
serviced
by
 
captive
auto
 
finance
units,
 
banks
 
or
 
finance
companies.
 
The
 
bank
 
credit
 
card
 
asset-backed
securities
are backed
by revolving
pools of
credit
 
card receivables
generated
by account
holders
of cards
 
from
American Express, Citibank, JPMorgan Chase, Capital One,
 
Express,
Citibank,
JPMorgan
Chase,
Capital
One, and
Discover.
 
Additionally,
 
at
 
January
 
29,28,
 
2022,2023,
 
the
 
Company
 
had
 
$0.8
0.9
 
million
 
of
 
corporate
 
equities,
 
which
 
are
recorded within Other assets in the
 
Consolidated Balance Sheets.
 
At January 30, 2021,29, 2022, the Company had
$0.7
0.8
 
million
 
of
 
corporate
 
equities,
 
which
 
are
 
recorded
 
within
 
Other
 
assets
 
in
 
the
 
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 be available
on
active exchanges
for identical
instruments.
 
Their fair
value is principally
based on
market values
determined
by
management
with
assistance
of a
 
third-party
pricing
service.
 
Since quoted
prices
in
 
active
markets for
identical assets are
 
are not available, these
 
these prices are determined
 
by the pricing service
 
service using observable
 
market
information
 
such
 
as
 
quotes
 
from
 
less
 
active
 
markets
 
and/or
 
quoted
 
prices
 
of
 
securities
 
with
 
similar
characteristics,
among
other factors.
 
Deferred
 
compensation
 
plan
 
assets
 
consist
 
primarily
 
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
 
3
 
liability
 
associated
 
with
 
the
 
life
insurance
 
policies
 
represents
 
a
 
deferred
 
compensation
 
obligation,
 
the
 
value
 
of
 
which
 
is
 
tracked
 
via
underlying
 
insurance
 
funds’
 
net
 
asset
 
values,
 
as
 
recorded
 
in
 
Other
 
noncurrent
 
liabilities
 
in
 
the
Consolidated Balance Sheets. These
 
funds are designed
 
to mirror the
 
return of existing
 
mutual funds and
money market funds that are observable and actively traded.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
51
 
The following
tables summarize
 
the change in fair
 
value of the Company’s
 
financial
assets and liabilities
measured using Level 3 inputs as of
 
using
Level
3 inputs
as of January
29, 2022
28, 2023 and
January 30, 202129, 2022
 
(in thousands):
`
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at January 29, 2022
$
11,472
Redemptions
(1,718)
Total gains or (losses)
Included in interest and other income (or
changes in net assets)
(480)
Ending Balance at January 28, 2023
$
9,274
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at January 29, 2022
$
(10,020)
Redemptions
1,142
Additions
(379)
Total (gains) or losses
Included in interest and other income (or
changes in net assets)
354
Ending Balance at January 28, 2023
$
(8,903)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at January 30, 2021
$
11,263
 
Total gains or (losses)
 
Included in interest and other income (or
 
changes in net assets)
209
Ending Balance at January 29, 2022
$
11,472
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at January 30, 2021
$
(10,316)
 
Redemptions
1,010
 
Additions
(304)
 
Total (gains) or losses
 
Included in interest and other income (or
 
changes in net assets)
(410)
Ending Balance at January 29, 2022
$
(10,020)
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash
Surrender Value
Beginning Balance at February 1, 2020
$
10,517
Total gains or (losses)
Included in interest and other income (or
changes in net assets)
746
Ending Balance at January 30, 2021
$
11,263
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred
Compensation
Beginning Balance at February 1, 2020
$
(10,391)
Redemptions
1,714
Additions
(652)
Total (gains) or losses
Included in interest and other income (or
changes in net assets)
(987)
Ending Balance at January 30, 2021
$
(10,316)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
52
5.
Accounts Receivable:
Accounts receivable consist of the following (in thousands):
January 29, 202228, 2023
January 30, 202129, 2022
Customer accounts — principally deferred payment accounts
 
$
9,80011,313
$
10,2109,800
Income tax receivable
38,3616,442
33,89838,361
Miscellaneous receivables
 
3,5403,991
4,5963,540
Bank card receivables
4,9145,512
4,6444,914
Total
 
56,61527,258
53,34856,615
Less allowance for customer credit losses
803761
605803
Accounts receivable — net
 
$
55,81226,497
$
52,74355,812
 
Finance charge
 
and late
 
charge
 
revenue on
 
customer deferred
 
payment accounts
 
totaled $
2,066,0002,243,000
,
$
2,658,0002,066,000
 
and $
3,605,0002,658,000
 
for the fiscal
years ended January 28, 2023, January 29, 2022 January 30, 2021
 
and February 1,January 30,
2020,2021,
 
respectively,
 
and
 
charges
 
against
 
the
 
allowance
 
for
 
customer
 
credit
 
losses
 
were
 
approximately
$
429,000280,000
,
 
$
306,000429,000
 
and
 
$
524,000306,000
 
for
 
the
 
fiscal
 
years
 
ended
 
January
 
28,
2023,
January
29,
 
2022
 
and
January
 
30,
 
2021,
and
February
1,
2020,
 
respectively.
 
Expenses
 
relating
 
to
 
the
 
allowance
 
for
 
customer
 
credit
 
losses
 
are
classified
 
as
 
a
 
component
 
of
 
Selling,
 
general
 
and
 
administrative
 
expense
 
in
 
the
 
accompanying
Consolidated Statements of Income (Loss) and Comprehensive Income
 
(Loss).
6.
Property and Equipment:
Property and equipment consist of the following (in thousands):
January 29, 202228, 2023
January 30, 202129, 2022
Land and improvements
 
$
13,595
$
13,595
Buildings
 
35,40335,537
35,33535,403
Leasehold improvements
 
79,32777,609
80,87479,327
Fixtures and equipment
 
178,027174,640
198,513178,027
Information technology equipment and software
34,75838,202
35,30334,758
Construction in progress
 
1,49812,989
01,498
Total
 
342,608352,572
363,620342,608
Less accumulated depreciation
 
279,525282,190
291,070279,525
Property and equipment — net
 
$
63,08370,382
$
72,55063,083
 
Construction in progress primarily represents costs related to new
 
store development,
distribution center improvements and
investments in new technology.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
53
7.
Accrued Expenses:
Accrued expenses consist of the following (in thousands):
January 29,
202228, 2023
January 30,
202129, 2022
Accrued employment and related items
 
$
6,9747,377
$
6,1226,388
Property and other taxes
 
15,21816,546
16,57416,930
Accrued self-insurance
 
8,4627,968
10,9948,463
Fixed assets
657685
343657
Other
 
9,0628,762
6,7577,935
Total
 
$
40,37341,338
$
40,79040,373
Prior period balances in the table above have been reclassified
to conform to current
period presentation.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
5354
8.
 
Financing Arrangements:
 
AsAt January
 
of28, 2023,
 
January 29,the Company
 
2022, the
Company had
an
 
unsecured revolving credit
 
credit agreement,
which provided
for
borrowings of
up to
 
borrow $
35.0
million
 
million less
 
the
 
balance
of
 
any
revocable
 
credits
discussed
below.
The
revolvingletters of
 
credit
agreement is
committed
until May
2022.
The Company is in the process of
obtaining a new revolving credit agreement
and
expects
this related
 
to
 
bepurchase
commitments,
 
completedand
 
bywas
 
Maycommitted
 
ofthrough
May 2027
2022.
.
 
The
 
credit agreement
 
agreement contains
various
 
financial
covenants
and
limitations,
including
the
maintenance
of
specific
financial
ratios
with
 
which
the
 
Company
was in compliance as of January 28, 2023.
 
There were
no
borrowings outstanding under this credit facility as
of January 28,
2023 or January
 
29, 2022.
 
There wereAt January 28,
 
no borrowings2023, the weighted
 
outstandingaverage interest rate
 
under this
credit
facility
asthe
of
January 29,
2022, January 30,
2021 or
February 1,
2020.
At January
29, 2022,
the
weighted averagecredit facility was
interestzero
rate under
the credit
facility
was zero
 
due to
no
 
no borrowings
outstanding
at the
end of
 
the year.
 
At January
 
29, 2022,28, 2023
and January
 
30, 2021 and February29, 2022,
 
1, 2020, the Company
 
had
no outstanding
 
outstanding revocable
letters
 
letters of credit
 
credit
relating
to purchase
commitments.
9.
 
Stockholders’ Equity:
 
The
 
holders
 
of
 
Class A
 
Common
 
Stock
 
are
 
entitled
 
to
one vote per share
one
vote
per
share,,
 
whereas
 
the
 
holders
 
of
Class B Common Stock are entitled
 
to
ten votes per share
share.. Each share of
 
Class B Common Stock may be
converted at any time into one share of Class A Common Stock.Stock
. Subject to the rights of
the holders of any
shares of
 
Preferred Stock
 
that may
 
be outstanding
 
at the
 
time, in
 
the event
 
of liquidation,
 
dissolution or
winding
 
up
 
of
 
the
 
Company,
 
holders
 
of
 
Class A
 
Common
 
Stock
 
are
 
entitled
 
to
 
receive
 
a
 
preferential
distribution of $1.00 $
1.00
per share of the
 
of the net assets
of the Company.
 
Cash dividends on the
 
Class B Common
Stock cannot be
 
paid unless cash
 
dividends of at
 
least an equal
 
amount are paid
 
on the Class A
 
Common
Stock.
 
The
 
Company’s
 
certificate of
 
incorporation
 
provides that
 
shares
 
of
 
Class B Common
 
Stock
 
may be
transferred
 
only
 
to
 
certain
 
“Permitted
 
Transferees”
 
consisting
 
generally
 
of
 
the
 
lineal
 
descendants
 
of
holders
 
of
 
Class B
 
Common
 
Stock,
 
trusts
 
for
 
their
 
benefit,
 
corporations
 
and
 
partnerships
controlled
 
by
them and the
 
Company’s employee benefit
 
plans. Any transfer
 
of Class B Common Stock
 
in violation of
these
 
restrictions,
 
including
 
a
 
transfer
 
to
 
the
 
Company,
 
results
 
in
 
the
 
automatic
 
conversion
 
of
 
the
transferred
 
shares
 
of
 
Class B
 
Common
 
Stock
 
held
 
by
 
the
 
transferee
 
into
 
an
 
equal
 
number
 
of
 
shares
 
of
Class A Common Stock.
10.
 
Employee Benefit Plans:
 
The
 
Company
 
has
 
a
 
defined
 
contribution
 
retirement
 
savings
 
plan
 
(“401(k)
 
plan”)
 
which
 
covers
 
all
associates
 
who
 
meet
 
minimum
 
age
 
and
 
service
 
requirements.
The
401(k)
plan
allows
participants
to
contribute up
to
75%
of their
annual compensation
up to
the
maximum elective
deferral, designated
by
the IRS
IRS..
 
The
 
Company
 
is
 
obligated
 
to
 
make
 
a
 
minimum
 
contribution
 
to
 
cover
 
plan
 
administrative
expenses. Further Company contributions
 
are at the discretion
 
of the Board of
 
Directors. The Company’s
contributions
 
for
 
the
 
years
 
ended
 
January
 
28,
2023,
January
29,
 
2022
and
 
January
 
30,
 
2021
 
and
February
1,
2020
were
approximately $
1,210,0001,184,000
, $
01,210,000
 
and $
1,499,0000
, respectively.
 
The
Company
has
a
trusteed,
non-contributory
Employee
Stock
Ownership
Plan
(“ESOP”),
which
covers substantially all
associates who meet
minimum age and
service requirements.requirements
.
 
The amount
 
of the
Company’s discretionary
 
contribution to the ESOP
 
is determined by the
 
Compensation Committee of the
Board
 
of
 
Directors
 
and
 
can
 
be
 
made
 
in
 
Company
 
Class
 
A
 
Common
 
stock
 
or
 
cash.
 
The
 
Committee
approved
 
a
 
contribution
to
 
the
 
ESOP
 
for
 
the
 
year
 
ended January
28,
2023
of
$
32,510
.
The
Company’s
contribution
was
$
29,430,000
and
$
0
for
the
years
ended
 
January
 
29,
 
2022
 
ofand
 
$29,430,000,January
 
of30,
 
which2021,
$15,000,000 was contributed in the third
quarter of fiscal 2021.
The Company’s contribution
was $
0
and
$
7,198,000
for the years ended January 30, 2021 and February 1, 2020,
respectively.
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
5455
 
The Company is primarily self-insured for healthcare.
 
These costs are significant primarily due to the
large
 
number of
 
the Company’s
 
retail locations
 
and associates.
 
The Company’s
 
self-insurance liabilities
are
 
based
 
on the
 
total
 
estimated costs
 
of
 
claims filed
 
and estimates
 
of
 
claims incurred
 
but not
 
reported,
less
 
amounts
 
paid
 
against
 
such
 
claims.
 
Management
 
reviews
 
current
 
and
 
historical
 
claims
 
data
 
in
developing its
 
estimates. If
 
the underlying
 
facts and
 
circumstances of
 
the claims
 
change or
 
the historical
trend is not indicative of future trends, then the Company may be required to record
 
record additional expense or
a reduction to expense which
 
could be material to the
 
Company’s reported
 
financial condition and results
of operations. The Company funds healthcare contributions to a third-party
 
provider.
 
11.
Leases:11
 
Leases:
The Company determines whether an
 
whether an arrangement is a lease
 
a lease at inception.
The Company has
operating
leases
for
 
stores,
 
offices,
 
andwarehouse space
 
and equipment.
 
Its
 
leases
 
have remaining
 
lease
terms
 
of
one
one
year
year
 
to
10
years
, some of
which include
options to
 
extend the lease term for
up to five years
, and some of
which
include
options
to
terminate
the
lease
within one year
.
The
Company considers
these
options
in
determining
the
 
lease term
 
for upused
 
to five
years, and
some of
which include
options to
terminate the
lease within
one year.
The Company
considers these
options in
determining the
lease term
used to
 
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.
 
As
 
most
 
of
 
the
 
Company’s
 
leases
 
do
 
not
 
provide
 
an
 
implicit
 
rate,
 
the
 
Company
 
uses
 
its
 
estimated
incremental
 
borrowing
 
rate
 
based
 
on
 
the
 
information
 
available
 
at
 
commencement
 
date
 
of
 
the
 
lease
 
in
determining the present value of lease payments.
 
The components of lease cost are shown below (in thousands):
`
Twelve MonthsFiscal Year Ended
January 28, 2023
January 29, 2022
January 30, 2021
Operating lease cost (a)
$
68,76371,513
$
69,60168,763
Variable
 
lease cost (b)
$
3,0413,127
$
1,5553,041
(a) Includes right-of-use asset amortization of ($
2.21.7
) million and ($
4.62.2
) million for the twelve months
ended January 29, 202228, 2023 and January 30, 2021,29, 2022, respectively.
(b) Primarily relatedrelates to monthly percentage rent for stores not presented on the balance sheet.
 
Supplemental cash flow
 
flow information and
 
and non-cash
activity related
 
to the
 
Company’s operating
 
operating leases
are as follows (in thousands):
Operating cash flow information:
Twelve MonthsFiscal Year Ended
January 28, 2023
January 29, 2022
January 30, 2021
Cash paid for amounts included in the measurement of lease liabilities
$
63,20167,194
$
62,55963,201
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
40,75657,628
$
58,97840,756
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
5556
 
Weighted-average
 
remaining lease
 
lease term
and
 
discount rate
 
for the
 
the
��
Company’s
 
operating leases
 
are
as
follows:
`
As of
January 29, 202228, 2023
January 30, 202129, 2022
Weighted-average remaining lease term
2.72.5
 
years
2.92.7
 
years
Weighted-average discount rate
3.55%3.13%
4.06%3.55%
 
Maturities
 
of
 
lease
 
liabilities
 
by
 
fiscal
 
year
 
for
 
the
 
Company’s
 
operating
 
leases
 
are
 
as
 
follows
 
(in
thousands):
Fiscal Year
20222023
$
71,250
2023
52,79171,850
2024
36,06650,732
2025
21,23033,236
2026
10,03518,534
2027
8,505
Thereafter
2,4561,513
Total lease payments
193,828184,370
Less: Imputed interest
9,4999,603
Present value of lease liabilities
$
184,329174,767
12.
 
Income Taxes:
 
Unrecognized
 
tax
 
benefits
 
for
 
uncertain
 
tax
 
positions,
 
primarily
 
recorded
 
in
 
Other
 
noncurrent
liabilities, are established in accordance
 
with ASC 740 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.
 
As
 
of
 
January
 
29,28,
2022,2023,
 
the
 
Company had
 
gross
 
unrecognized
 
tax
 
benefits
 
totaling
 
approximately
 
$5.3
4.9
 
million,
 
of
 
which
approximately
 
$
6.46.0
 
million (inclusive
 
of
 
interest)
 
would
 
affect
 
the
 
effective
 
tax
 
rate
 
if
 
recognized.
 
The
Company had approximately $
2.0
 
million, $
2.82.0
 
million and $
3.32.8
 
million of interest and
 
penalties accrued
related
 
to
 
uncertain
 
tax
 
positions
 
as
 
of
 
January
 
28,
2023,
January
29,
 
2022
and
 
January
 
30,
 
2021,
and
February
1,
2020,
respectively.
 
The
 
Company recognizes
 
interest
 
and
 
penalties
 
related
 
to
 
the
 
resolution
 
of
 
uncertain
 
tax
positions
 
as
 
a
 
component
 
of
 
income
 
tax
 
expense.
 
The
 
Company
 
recognized
 
$
452,000517,000
,
 
$
424,000452,000
 
and
$
574,000424,000
 
of interest
 
and penalties
 
in the
 
Consolidated Statements
 
of Income
 
(Loss) and
 
Comprehensive
Income (Loss) for the years ended January 28, 2023, January 29, 2022
and January 30, 2021,
and February 1, 2020, respectively.
 
The
 
Company is
 
no
 
longer
 
subject
 
to
 
U.S.
 
federal
 
income
 
tax
 
examinations
 
for
 
years
 
before
 
2018.2019.
 
In
state
 
and
 
local
 
tax
 
jurisdictions,
 
the
 
Company
 
has
 
limited
 
exposure
 
before
 
2011.2012.
 
During
 
the
 
next
 
12
months,
 
various
 
state
 
and
 
local
 
taxing
 
authorities’
 
statutes
 
of
 
limitations
 
will
 
expire
 
and
 
certain
 
state
examinations
 
may
 
close,
 
which
 
could
 
result
 
in
 
a
 
potential
 
reduction
 
of
 
unrecognized
 
tax
 
benefits
 
for
which a range cannot be determined.
 
A reconciliation
 
of the
 
beginning and
 
ending amount
 
of gross
 
unrecognized tax benefits
 
benefits is as
 
as follows
(in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
5657
`
January 29,28, 2023
January 29, 2022
January 30,
2021
February 1,
2020
Fiscal Year
 
Ended
Balances, beginning
$
5,286
$
5,946
$
7,942
$
8,485
 
Additions for tax positions of the current year
431
1,312
286
375
 
Additions for tax positions prior years
680137
-680
-
Reduction for tax positions of prior years for:
 
Settlements during the period
0-
-
614
2
 
Lapses of applicable statutes of limitations
(968)
(2,652)
(2,896)
(920)
Balances, ending
$
4,886
$
5,286
$
5,946
$
7,942
 
The provision for income taxes consists of
 
for income
taxes consists
of the
following
(in (in thousands):
`
January 29,28, 2023
January 29, 2022
January 30,
2021
February 1,
2020
Fiscal Year
 
Ended
Current income taxes:
 
Federal
$
(817)
$
2,532
$
(31,927)
$
3,321
 
State
(231)
802
1,842
96
 
Foreign
2,403
1,984
1,731
1,763
 
Total
1,355
5,318
(28,354)
5,180
Deferred income taxes:
 
Federal
200
(2,558)
1,905
574
 
State
186
(639)
1,129
1,556
 
Foreign
0-
-
(3)
0
 
Total
386
(3,197)
3,031
2,130
Total income tax expense (benefit)
$
1,741
$
2,121
$
(25,323)
$
7,310
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
5758
 
Significant components
 
components of
the
 
Company’s deferred
tax assets
and liabilities
as of
 
January
28,
2023
and
January 29, 2022 and
January
30, 2021
are as
follows
 
(in thousands):
`
January 29, 202228, 2023
January 30, 202129, 2022
Deferred tax assets:
Allowance for customer credit losses
$
171162
$
131171
Inventory valuation
1,1761,042
1,0041,176
Non-deductible accrued liabilities
1,3671,435
1,6131,367
Other taxes
1,135875
1,1841,135
Federal benefit of uncertain tax positions
972851
1,001972
Equity compensation expense
3,6662,892
4,0973,666
Net operating losses
4,2065,567
4,5314,206
Charitable contribution carryover
241216
394241
State tax credits
1,115340
1,115
Lease liabilities
40,090
42,268
47,428Property and equipment
3,400
2,257
Other
4,2932,822
2,2042,036
Total deferred
 
tax assets before valuation allowance
60,61059,692
64,70260,610
Valuation
 
allowance
(4,473)(5,058)
(5,256)(4,473)
Total deferred
 
tax assets after valuation allowance
56,13754,634
59,44656,137
Deferred tax liabilities:
Property and equipmentRight-of-Use assets
044,732
1,48046,320
Accrued self-insurance reserves
504689
466
Right-of-Use assets
46,320
51,350
Other
0
465504
Total deferred
 
tax liabilities
46,82445,421
53,76146,824
Net deferred tax assets
$
9,3139,213
$
5,6859,313
The changes in the valuation allowance are presented below:
January 29, 202228, 2023
January 30, 202129, 2022
Valuation
 
Allowance Beginning Balance
$
(5,256)(4,473)
$
(1,079)(5,256)
 
Net Valuation
 
Allowance (Additions) / Reductions
783(585)
(4,177)783
Valuation
 
Allowance Ending Balance
$
(4,473)(5,058)
$
(5,256)(4,473)
 
As of January
29, 2022,
28, 2023, the Company
had $1.1$
0.3
 
million
of state
tax credits
to offset
future state
income tax
expense,
which are
set to expire
 
by fiscal 2023.
 
Based on the available evidence, the
 
available
evidence,
the Company
has recorded
a valuation
allowance
of $1.1$
0.3
 
million.
 
As of
 
January 29, 2022,
28,
2023,
 
the Company had
 
Company
had $4.2
5.6
million
of
 
state net
 
operating
loss
carryforwards.
 
The
Company
assessed
the likelihood
that deferred
tax assets
related
to state net
operating
loss carryforwards
will
be
realized in
light
of
the
adverse impact
on
the
Company’s financial
statements and
operations due
to
COVID-19. realized.
 
Based on
this assessment, the
 
the Company concluded
 
that it is
more likely
than not the
Company
will not be
able to realize
$
4.8
million of the
net operating losses
and, accordingly, has
recorded a valuation
allowance for the same amount.
The net change
in the valuation
allowance
for the years
ended January 28, 2023 and January 29,
2022 is
due to state net operating losses and accordingly,
has recorded a valuation allowance
of $3.4
million
for the
portion
it expects
to not
be realized.
The net
change in the
valuation allowance for January 29,
2022
and
January
30,
2021
is for
 
state net
operating
losses.tax credits.
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
58
 
As
 
of
 
January
 
29,28,
 
2022,2023,
 
the
 
Company’s
 
position
 
is
 
that
 
its
 
overseas
 
subsidiaries
 
will
 
not
 
invest
undistributed
earnings
indefinitely.
 
Future
unremitted
earnings
when
distributed
are
expected
 
to
be
 
either
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
59
distributions
of
GILTI-previously
taxed income
or eligible for a
 
100% for
a
100
%
dividends received
deduction.
 
The
withholding
tax
 
rate
 
on
 
any
 
unremitted
 
earnings
 
is
zero
zero
 
and
 
state
 
income
 
taxes
 
on
 
such
 
earnings
 
are
considered
 
immaterial.
 
Therefore,
 
the
 
Company
 
has
 
not
 
provided
 
deferred
 
U.S.
 
income
 
taxes
 
on
approximately $
31.7
 
$26.9 million
of earnings
from non-U.S.
subsidiaries.
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
5960
 
The reconciliation
of the
Company’s effective
 
income
tax rate
with the
 
statutory
rate is
as follows:
`
January 29,28, 2023
January 29, 2022
January 30,
2021
February 1,
2020
Fiscal Year
 
Ended
Federal income tax rate
21.0
%
21.0
%
21.0
%
State income taxes
(36.4)
2.7
4.0
1.7
CARES ACT - Carryback differential
-
(5.8)
18.3
0
Global intangible low-taxed income
333.0
6.7
(5.3)
5.9
Foreign tax credit
(11.2)
(4.3)
0
(3.7)-
Foreign rate differential
(74.4)
(2.8)
1.2
(2.5)
Offshore claim
(141.2)
(5.5)
2.5
(5.2)
Limitation on officer compensation
27.2
1.9
(0.4)
1.4
Work opportunity credit
(63.7)
(1.8)
0.2
(3.2)
Addback on wage related credits
13.4
0.4
0
0.7-
Tax exempt interest
0(14.4)
0-
(0.2)-
Insurance
(8.1)
(1.0)
-
Charitable contribution of inventory
-
(1.1)
(0.2)
0
Uncertain tax positions
(18.7)
(3.5)
3.3
(1.0)
Deferred rate change
1.1
0.1
(0.1)
0
Valuation
 
allowance
70.9
(2.1)
(5.7)
2.6
Other
(0.5)(0.1)
0.5
(4.0)
(0.6)
Effective income tax rate
98.4
%
5.4
%
34.8
%
16.9
%
13.
 
Reportable Segment Information:
The
 
Company
 
has
 
determined
that
 
it
 
has
four
four
 
operating
 
segments,
 
as
 
defined
 
under
 
ASC
 
280-10,
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
or
more operating
segments
may be
aggregated
into a single
reportable
segment
if aggregation
is consistent
with
the
 
objective
 
and
 
basic
 
principles
of
 
ASC
 
280-10,
 
which
 
require
 
the
 
segments
 
have
 
similar
 
economic
characteristics, products, production processes, clients and
 
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.
 
They
 
are
 
similar
in
 
terms
of
 
product
offered,
 
as
 
they
 
all
 
offer
 
women’s
apparel,
 
shoes
 
and
 
accessories.
 
Merchandise
inventory
 
of
 
the
 
Company’s
 
retail
 
operating
 
segments
 
is
sourced
 
from
 
the
 
same
 
countries
 
and
 
some
 
of
 
the
 
same
 
vendors,
 
using
 
similar
 
production
 
processes.
 
Merchandise for
the Company’s
retail operating segments
 
segments is
distributed to
retail stores
in a
 
similar manner
through
 
the
 
Company’s
 
single
 
distribution
center
 
and
 
is
 
subsequently
distributed
to
 
clients
 
in
 
a
 
similar
manner.
 
The
 
Company
 
offers
 
its
 
own
 
credit
 
card
 
to
 
its
 
customers
 
and
 
all
 
credit
 
authorizations,
payment
processing, and collection efforts are performed by
 
and collection
efforts
are performed
by a separate
subsidiary
of the
Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
6061
The following
schedule
summarizes
certain
segment
 
information
(in (in thousands):
`
Fiscal 2022
Retail
Credit
Total
Revenues
$
757,017
$
2,243
$
759,260
Depreciation
11,078
2
11,080
Interest and other income
5,902
-
5,902
Income (loss) before taxes
1,179
591
1,770
Capital expenditures
19,433
-
19,433
Fiscal 2021
Retail
Credit
Total
Revenues
$
767,205
$
2,066
$
769,271
Depreciation
12,354
2
12,356
Interest and other income
2,141
0-
2,141
Income (loss) before taxes
38,340
625
38,965
Capital expenditures
4,101
4
4,105
Fiscal 2020
Retail
Credit
Total
Revenues
$
572,453
$
2,658
$
575,111
Depreciation
14,680
1
14,681
Interest and other income
6,630
0-
6,630
Income (loss) before taxes
(73,972)
1,166
(72,806)
Capital expenditures
13,955
1
13,956
Fiscal 2019
Retail
Credit
Total
Revenues
$
821,730
$
3,605
$
825,335
Depreciation
15,484
1
15,485
Interest and other income
6,065
0
6,065
Income (loss) before taxes
41,386
1,821
43,207
Capital expenditures
8,287
19
8,306
Retail
Credit
Total
Total assets as of January 29,28,
 
20222023
$
595,487514,609
$
38,27938,531
$
633,766553,140
Total assets as of January 30,29,
 
20212022
549,349595,487
42,10338,279
591,452633,766
The accounting policies
 
policies of
the segments are
the same
as those described
 
described in the
Summary of
Significant
Accounting Policies in
 
Policies
in Note 1. The Company
 
evaluates performance based on
 
performance
based on profit
or loss from
operations
before
income
taxes.
The Company
does not
 
allocate
certain
corporate
expenses
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 (in thousands):
Fiscal Year
Ended
`
January 28, 2023
January 29, 2022
January 30, 2021
February 1, 2020Payroll
Payroll$
527
$
501
$
541
$Postage
644
Postage406
342
360
488
Other expenses
717
595
590
651
Total expenses
$
1,650
$
1,438
$
1,491
$
1,783
14.
 
Stock Based Compensation:
 
As of
 
January 29,28,
 
2022,2023, the Company had two long-term
 
compensationhad
two
 
long-term compensation plans pursuant
 
pursuant to which
stock-
based
 
compensation
 
was
 
outstanding.
 
The
 
2018
 
Incentive
 
Compensation
 
Plan
 
and
 
2013
 
Incentive
Compensation Plan
 
Plan are for the
 
the granting
of various
forms of
equity-based awards,
 
including restricted
 
stock
and stock options for grant, to officers, directors and key employees. Effective May 24, 2018,
 
options
shares for grant
to officers,
directors
and key
employees.
Effective
May 24,
2018, shares
for grant
were no
longer
available
under
the 2013
Incentive
Compensation
Plan.
 
 
 
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
6162
were no longer available under
the 2013 Incentive Compensation Plan.
 
The following table presents the number of options and shares of restricted
 
stock initially authorized
and available for grant under each of the plans as of January 29, 2022:28, 2023:
 
`
2013
2018
Plan
Plan
Total
Options and/or restricted stock initially authorized
1,500,000
4,725,000
6,225,000
Options and/or restricted stock available for grant:
 
 
 
 
January 30, 202129, 2022
0-
3,961,4733,580,471
3,961,4733,580,471
 
January 29, 202228, 2023
0-
3,580,4713,461,061
3,580,4713,461,061
 
In accordance with
ASC 718, the
 
fair value of
current restricted stock
 
stock awards is estimated on
 
on the date
date of grant based on the market price of the Company’s stock and is amortized to compensation expense
on a straight-line
straight-line basis over a five-year
five year
 
vesting period. As of January
 
29, 2022,28, 2023, there was
 
was $
11,096,00010,543,000
 
of total
total unrecognized compensation
 
compensation expense related
 
related to unvested
 
unvested restricted stock
 
stock awards, which
 
which is expected
 
expected
to be
recognized over
a remaining weighted-average vesting period of
2.32.1
 
years.
 
The total grant date fair value
value
of
 
the
 
shares
 
recognized
 
as
 
compensation
 
expense
 
during
 
the
 
twelve
 
months
 
ended
 
January
 
29,28,
2023, January
 
29, 2022
January 30,
 
2021 and January
 
February 1,30, 2021
 
2020 was
$
4,055,0002,556,000
, $
4,023,0004,055,000
 
and $
4,559,0004,023,000
, respectively.
 
The
The decrease
in total
compensation expense
for fiscal
2022 is
due to
a true-up
resulting from
forfeitures
driven
by
the
retirement
of
several
senior
members
of
management.
The
expenses
 
are
 
classified
 
as
 
a
component
 
of
 
Selling,
 
general
 
and
 
administrative
 
expenses
 
in
 
the
Consolidated
Statements
of
Income
Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss).
The following summary shows
 
summarythe changes in the
 
shows the changes
in the shares of unvested
 
restricted
stock outstanding
 
during
the years
ended January 28, 2023,
 
January
29, 2022
and January
30, 2021
2021:
and February
1, 2020:
`
Weighted Average
Number of
Grant Date Fair
Shares
Value Per
 
Share
Restricted stock awards at February 2, 2019
771,851
$
24.22
Granted
361,170
14.89
Vested
(129,108)
34.44
Forfeited or expired
(61,351)
19.61
Restricted stock awards at February 1, 2020
942,562
$
19.55
 
Granted
335,317
11.11
Vested
(129,682)
34.01
 
Forfeited or expired
(124,241)
16.37
 
Restricted stock awards at January 30, 2021
1,023,956
$
15.33
 
Granted
407,910
13.49
Vested
(176,575)
22.22
 
Forfeited or expired
(59,003)
13.95
 
Restricted stock awards at January 29, 2022
1,196,288
$
13.76
Granted
319,441
13.70
Vested
(231,638)
16.99
Forfeited or expired
(224,658)
13.43
Restricted stock awards at January 28, 2023
1,059,433
$
13.10
 
 
The
 
Company’s
 
Employee
 
Stock
 
Purchase
 
Plan
 
allows
 
eligible
 
full-time
 
employees
 
to
 
purchase
 
a
limited
 
number
 
of
 
shares
 
of
 
the
 
Company’s
 
Class
 
A
 
Common
 
Stock
 
during
 
each
 
semi-annual
 
offering
period at
 
a 15%
15
% discount through
 
discount through payroll deductions. During
 
deductions. During the twelve
 
twelve month period ended
 
ended January 29,28,
2022,2023, the
 
Company sold
24,39831,994
 
shares to
 
employees at an
 
average discount of
 
$
1.471.70
 
per share
 
under the
Employee Stock Purchase Plan.
The compensation expense
recognized for the 15%
discount given under
the
Employee
Stock
Purchase
Plan
was
approximately
$
36,000
,
$
69,000
and
$
111,000
for
fiscal
years
2021, 2020 and 2019,
respectively.
These expenses are classified
as a component of
Selling, general and
administrative expenses.
 
 
 
 
 
 
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
6263
Employee Stock Purchase Plan.
The compensation expense
recognized for the
15
% discount given
under
the
Employee
Stock
Purchase
Plan
was
approximately
$
54,000
,
$
36,000
and
$
69,000
for
fiscal
years
2022, 2021 and 2020,
respectively.
These expenses are classified
as a component of
Selling, general and
administrative expenses.
15.
 
Commitments and Contingencies:
 
The
 
Company
 
is,
 
from
 
time
 
to
 
time,
 
involved
 
in
 
routine
 
litigation
 
incidental
 
to
 
the
 
conduct
 
of
 
our
business,
 
including
 
litigation
 
regarding
 
the
 
merchandise
 
that
 
we
 
sell,
 
litigation
 
regarding
 
intellectual
property,
 
litigation instituted
 
by persons
 
injured upon
 
premises under
 
our 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 our business,
 
as with any business
of
 
our
 
size
 
with
 
a
 
significant
 
number
 
of
 
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
 
our
 
Consolidated
 
Financial
 
Statements.
 
However,
 
given
 
the
 
inherent
 
uncertainties
involved in such matters, an adverse
 
outcome in one or more 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
 
is
 
deemed
 
probable
 
and
 
reasonably
estimable.
16.
 
Accumulated Other Comprehensive Income:
The
 
following
 
table
 
sets
 
forth
 
information
regarding
 
the
 
reclassification
out
 
of
 
Accumulated
other
comprehensive
income
(in (in thousands)
as of
 
January 28, 2023:
`
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 29, 2022
$
(280)
Other comprehensive income (loss) before
reclassification
(982)
Amounts reclassified from accumulated
other comprehensive income (b)
24
Net current-period other comprehensive income
(loss)
(958)
Ending Balance at January 28, 2023
$
(1,238)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to
other comprehensive
income (“OCI”).
(b) Includes $
31
impact of accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The
tax impact of this reclassification was $
7
. Amounts
in parentheses indicate a debit/reduction to OCI.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
64
The following table sets forth information regarding the reclassification
out of Accumulated other
comprehensive income (in thousands) as of January 29, 2022:
`
Changes in Accumulated Other
 
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 30, 2021
$
1,155
 
Other comprehensive income (loss) before
 
 
reclassification
(1,561)
 
Amounts reclassified from accumulated
 
other comprehensive income (b)
126
Net current-period other comprehensive income
(loss)
(1,435)
Ending Balance at January 29, 2022
$
(280)
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to
 
other comprehensive
income (“OCI”).OCI.
(b) Includes $
164
impact of accumulated other comprehensive income reclassifications into Interest and
other income for net gains on available-for-sale securities.
The tax impact of this reclassification was $
38
.
Amounts in parentheses indicate a debit/reduction to OCI.
THE CATO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
63
The following table sets forth information regarding the reclassification
out of Accumulated other
comprehensive income (in thousands) as of January 30, 2021:
Changes in Accumulated Other
Comprehensive Income (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 1, 2020
$
1,423
Other comprehensive income (loss) before
reclassification
(1,038)
Amounts reclassified from accumulated
other comprehensive income (b)
770
Net current-period other comprehensive income (loss)
(268)
Ending Balance at January 30, 2021
$
1,155
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to
OCI.
(b) Includes
$1,003
 
impact of accumulated other comprehensive income reclassifications into Interest and other
income for net gains on available-for-sale securities. The
 
tax impact of this reclassification was $
23338
. Amounts in
in parentheses indicate a debit/reduction to OCI.
64
65
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial
 
Financial Disclosure:
 
 
None.
Item 9A.
 
Controls and Procedures:
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
We
 
carried out
 
an evaluation,
 
with the
 
participation of
 
our Principal
 
Executive Officer
 
and Principal
Financial Officer,
 
of the
 
effectiveness of
 
our disclosure
 
controls and
 
procedures as
 
of January
 
29, 2022.28, 2023.
 
Based on this
 
evaluation, our Principal
 
Executive Officer and
 
and Principal Financial Officer
 
Officer concluded that,
as
 
of January
 
29, 2022,28, 2023,
 
our disclosure
 
controls and
 
procedures, as
 
defined in
 
Rule 13a-15(e),
 
13a-15(e), under
the
Securities Exchange Act
 
of 1934
 
(the “Exchange
 
Act”), were effective
 
to ensure that
 
information we are
required to
 
disclose in
 
the reports
 
that we
 
file or
 
submit under
 
the Exchange
 
Act is
 
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.
Management’s Report on Internal Control Over Financial Reporting
 
Management is
 
responsible
 
for
 
establishing
 
and
 
maintaining adequate
 
internal
 
control
 
over
 
financial
reporting, as defined in Exchange Act Rule 13a-15(f).
 
Under the supervision and with the participation of
our
 
management, including
 
our
 
Principal
 
Executive
 
Officer
 
and
 
Principal
 
Financial
 
Officer,
 
we
 
carried
out
 
an
 
evaluation
 
of
 
the
 
effectiveness
 
of
 
our
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
January
 
29,28,
20222023
 
based
 
on
 
the
 
Internal
 
Control
 
–
 
Integrated
 
Framework
(2013)
 
issued
 
by
 
the
 
Committee
 
of
Sponsoring
 
Organizations
 
of
 
the
 
Treadway
 
Commission
 
(“COSO”).
 
Based
 
on
 
this
 
evaluation,
management concluded
 
that our
 
internal control
 
over financial
 
reporting was
 
effective as
 
of January
 
29,28,
2022.2023.
 
PricewaterhouseCoopers
 
LLP,
 
an
 
independent
 
registered
 
public
 
accounting
 
firm,
 
has
 
audited
 
the
effectiveness of our internal
 
control over financial reporting as
 
of January 29, 2022,28, 2023, as
 
stated in its report
which is included herein.
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
 
January
 
29,28,
 
20222023
 
that
 
has
materially
 
affected,
 
or
 
is
 
reasonably
 
likely
 
to
 
materially
 
affect,
 
the
 
Company’s
 
internal
 
control
 
over
financial reporting.
Item 9B.
 
Other Information:
 
None
Item 9C.
 
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
:
 
None
66
PART
 
III
 
 
Item 10.
Directors, Executive Officers and Corporate Governance:
 
Information
 
contained
 
under
 
the
 
captions
 
“Election
 
of
 
Directors,”
 
“Meetings
 
and
 
Committees”
andCommittees,”
“Corporate
 
Governance
 
Matters”
and
“Delinquent
Section
16(a)
Reports”
 
in
 
the
 
Registrant’s
 
Proxy
Statement
 
for
 
its
 
20222023
 
annual
 
stockholders’
meeting
 
(the
 
“20222023
 
Proxy
 
Statement”)
 
is
 
incorporated
 
by
reference
 
in
 
response
 
to
 
this
 
Item 10.
 
The
65
information
 
in
 
response
 
to
 
this
 
Item 10
 
regarding
 
executive
officers
 
of
the
 
Company
is
 
contained in
 
in
Item 3A, Part I
hereof under
the caption “Executive
“Executive Officers
of
the Registrant.”
66
Item 11.
Executive Compensation:
 
Information contained under the captions “2021
“2022 Executive Compensation,” “Fiscal Year 2021 DirectorCompensation” (except for
the information
under
the
heading
“Pay
Versus
Performance”),
“Fiscal
Year
2022
Director
Compensation,”
 
and
“Corporate
 
Governance
 
Matters-Compensation
 
Committee
 
Interlocks
 
and
 
Insider
Participation”
 
in
 
the
Company’s
2022
2023 Proxy Statement
is
incorporated
by
reference
in
response
to
this
Item.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
 
Related Stockholder
 
Matters:
Equity Compensation Plan Information
 
The
 
following
 
table
 
provides
 
information
 
about
 
stock
 
options
 
outstanding
 
and
 
shares
 
available
 
for
future awards under all of the Company’s equity compensation plans. The information is as of January
 
29,28,
2022.2023.
(a)
Number of Securities to
be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(1)
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(1)
(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a)) (2)
Plan Category
 
 
 
Equity compensation plans approved
 
by security holders
 
-
-
3,825,321
3,673,917
Equity compensation plans not
 
approved by security holders
 
-
-
-
Total
 
-
-
3,825,321
3,673,917
 
(1)
 
There are no outstanding stockingstock options, warrants or stock appreciation
 
rights.
 
 
(2)
 
Includes the following:
 
 
 
Under
 
the
 
Company’s
 
stock
 
incentive
 
plan,
 
referred
 
to
 
as
 
the
 
2018
 
Incentive
 
Compensation
 
Plan,
 
3,580,4713,461,061
 
shares
 
are
 
available
 
for
 
grant.
 
Under
 
this
 
plan,
 
non-
qualified stock options may be granted to key associates.
 
 
Under
 
the
 
2021
 
Employee Stock
 
Purchase
 
Plan,
 
244,850212,856 shares
 
are
 
available. Eligible
 
associates
may
 
participate
 
in
 
the
 
purchase
 
of
 
designated
 
shares
 
of
 
the
 
Company’s
 
common
 
stock.
 
The
purchase price of this stock is equal to 85% of the lower of the
 
closing price at the beginning or the
end of each semi-annual stock purchase period.
 
Information contained under “Security Ownership of Certain Beneficial
 
Owners and Management”
in the 20222023 Proxy Statement is incorporated by reference in response
 
to this Item.
67
Item 13.
Certain Relationships and Related Transactions, and Director Independence:
 
Information
 
contained
 
under
 
the
 
caption
 
“Certain
 
Relationships
 
and
 
Related
 
Person
 
Transactions,”
“Corporate
 
Governance
 
Matters-Director
 
Independence”
 
and
 
“Meetings
 
and
 
Committees”
 
in
 
the
 
20222023
Proxy Statement is incorporated by reference in response to this Item.
 
Item 14.
Principal Accountant Fees and Services:
 
Information contained
 
under the
 
captions “Ratification
 
of
 
Independent Registered
 
Public Accounting
Firm-Audit Fees”
 
and
 
“-Policy on
 
Audit
 
Committee Pre-Approval
 
of
 
Audit
 
and Permissible
 
Non-Audit
67
Service
 
by
 
the
 
Independent
 
Registered
 
Public
 
Accounting
 
Firm”
 
in
 
the
 
20222023
 
Proxy
 
Statement
 
is
incorporated by reference in response to this Item.
 
 
68
PART
 
IV
Item 15.
Exhibits and Financial Statement Schedules:
 
(a) The following documents are filed as part of this report:
 
(1) Financial Statements:
 
 
 
 
 
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm
 
....................................................................
 
3536
Consolidated Statements of Income (Loss) and Comprehensive Income
 
(Loss) for the fiscal
 
 
years ended January 29, 2022, January 30, 2021 and February 1, 2020
................................................
38
Consolidated Balance Sheets at28, 2023, January 29, 2022 and January 30, 2021
 
................................................
39
Consolidated Balance Sheets at January 28, 2023 and January 29, 2022
.................................................
 
3940
Consolidated Statements of Cash Flows for the fiscal years ended
 
January 28, 2023, January 29, 2022 January 30, 2021
 
and February 1, 2020January 30, 2021 ................................................................................................................................
 
4041
Consolidated Statements of Stockholders’ Equity for the fiscal years ended
 
January 29, 2022,28, 2023,
 
January 29, 2022 and January 30, 2021 and February 1, 2020
 
....................................................................................................
 
4142
Notes to Consolidated Financial Statements
 
.............................................................................................
 
4243
 
(2) Financial Statement Schedule: The following report and
 
financial statement schedule is filed
 
 
herewith:
Schedule II — Valuation and Qualifying Accounts .................................................................................
 
7273
 
All
 
other
 
schedules
 
are
 
omitted
 
as
 
the
 
required
 
information
 
is
 
inapplicable
 
or
 
the
 
information
 
is
presented in the Consolidated Financial Statements or related Notes thereto.
 
(3) Index to Exhibits: The
 
following exhibits listed in
 
the Index below are
 
filed with this report
 
or, as
noted, incorporated by reference herein.
 
The Company will supply copies of the following exhibits to any
shareholder upon receipt of a written request addressed to the Corporate Secretary,
 
The Cato Corporation,
8100 Denmark
 
Road, Charlotte,
 
NC 28273
 
and the
 
payment of
 
$.50 per
 
page to
 
help defray
 
the costs
 
of
handling,
 
copying
 
and
 
postage.
 
In
 
most
 
cases,
 
documents
 
incorporated
 
by
 
reference
 
to
 
exhibits
 
to
 
our
registration
 
statements,
 
reports
 
or
 
proxy
 
statements
 
filed
 
by
 
the
 
Company
 
with
 
the
 
Securities
 
and
Exchange
 
Commission
 
are
 
available
 
to
 
the
 
public
 
over
 
the
 
Internet
 
from
 
the
 
SEC’s
 
web
 
site
 
at
http://www.sec.gov.
 
 
 
 
 
 
 
 
69
 
 
 
 
Exhibit
 
 
Number
 
Description of Exhibit
 
 
3.1
 
3.2
 
 
4.1
10.2*
10.3*
10.4*
 
 
10.5*
 
 
10.6*
 
 
10.7*
 
 
10.8*
 
10.9*
10.10*
10.11*
10.12
 
10.13
 
 
 
 
70
10.13
Ninth Amendment datedJune 2,2020, of CreditAgreement, dated asof August 22,2003,
amongtheRegistranttheguarantorspartythereto,thebankspartytheretoandBranch
Banking and Trust Company, as Agent, incorporated by reference to Exhibit 10.11 to Form
 
21.1**
 
 
 
23.1**
 
 
 
31.1**
 
 
 
31.2**
 
 
 
32.1**
 
 
 
32.2**
 
 
101.1**
The following materials from Registrant’s Annual Report on form 10-K for the fiscal year
ended January 29, 2022,28, 2023, formatted in Inline XBRL:
 
(i) Consolidated Statements of Income
(Loss) and Comprehensive Income (Loss) for the fiscal years ended
 
January 28, 2023, January
29, 2022 and January
30, 2021 and February 1, 2020;2021;
 
(ii) Consolidated Balance Sheets at January 29, 202228, 2023 and
January 30, 2021;29, 2022; (iii) Consolidated Statements of Cash Flows for
 
the fiscal years ended
January 28, 2023, January 29, 2022 and January 30, 2021 and February 1, 2020; 2021;
(iv) Consolidated
Statements of
Stockholders’ Equity for the fiscal years ended January 29, 2022,28, 2023,
 
January 30, 202129, 2022 and
February 1, 2020;January 30, 2021; and (v) Notes to Consolidated Financial Statements.
104.1
Cover Page Interactive Data File (Formatted in Inline XBRL and
 
contained in the Interactive
Data Files submitted as Exhibit 101.1**).
___________
* Management contract or compensatory plan required to be filed under Item 15 of this report and Item
 
601
of Regulation S-K.
** Filed or submitted electronically herewith.
Item 16.
Form 10-K Summary:
 
None.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71
SIGNATURES
 
Pursuant
 
to
 
the
 
requirements
 
of
 
Section 13
 
or
 
15(d)
 
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934,
 
Cato
 
has
 
duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Cato Corporation
By
/s/ JOHN P.
 
D. CATO
By
/s/ CHARLES D. KNIGHT
 
John P.
 
D. Cato
Chairman, President and
Chief Executive Officer
Charles D. Knight
Executive Vice President
Chief Financial Officer
By
/s/ JEFFREY R. SHOCK
Jeffrey R. Shock
Senior Vice President
Controller
Date: March 23, 20222023
 
Pursuant to the
 
requirements of the
 
Securities Exchange
 
Act of 1934,
 
this report has
 
been signed below
 
on March 23,
 
20222023
by the following persons on behalf of the Registrant and in the capacities indicated:
 
 
 
 
/s/ JOHN P.
 
D. CATO
John P.
 
D. Cato
(President and Chief Executive Officer
(Principal Executive Officer) and Director)
/s/ BAILEY W.
 
PATRICK
Bailey W.
 
Patrick
(Director)
 
 
/s/ CHARLES D. KNIGHT
Charles D. Knight
(Executive Vice President
Chief Financial Officer (Principal Financial Officer))
/s/ THOMAS B. HENSON
Thomas B. Henson
 
(Director)
/s/ JEFFREY R. SHOCK
Jeffrey R. Shock
(Senior Vice President
Controller (Principal Accounting Officer))
/s/ BRYAN
 
F. KENNEDY
 
III
Bryan F. Kennedy III
(Director)
/s/ THOMAS E. MECKLEY
Thomas E. Meckley
(Director)
/s/ D. HARDING STOWE
D. Harding Stowe
 
(Director)
/s/ THERESA J. DREW
Theresa J. Drew
(Director)
/s/ PAMELA
 
L. DAVIES
Pamela L. Davies
(Director)
 
 
 
 
 
 
 
 
 
 
 
 
72
Schedule II
VALUATION
 
AND QUALIFYING ACCOUNTS
(in thousands)
Allowance
for
Customer
Self Insurance
Credit Losses(a)
Reserves(b)
Balance at February 2, 2019
$
842
$
10,966
Additions charged to costs and expenses
700
16,687
Additions (reductions) charged to other accounts
188
(c)
(635)
Deductions
(1,004)
(d)
(16,483)
Balance at February 1, 2020
$
726
$
10,535
Additions charged to costs and expenses
 
435
15,500
Additions (reductions) charged to other accounts
 
171
(c)
(205)
Deductions
 
(727)
(d)
(14,855)
Balance at January 30, 2021
$
605
$
10,975
Additions charged to costs and expenses
 
485
13,464
Additions (reductions) charged to other accounts
 
98
(c)
(1,447)
Deductions
 
(385)
(d)
(14,721)
Balance at January 29, 2022
$
803
$
8,271
Additions charged to costs and expenses
349
13,287
Additions (reductions) charged to other accounts
84
(c)
638
Deductions
(475)
(d)
(14,523)
Balance at January 28, 2023
$
761
$
7,673
(a)
 
Deducted from trade accounts receivable.
(b)
 
Reserve for Workers' Compensation,
 
General Liability and Healthcare.
(c)
 
Recoveries of amounts previously written off.
(d)
 
Uncollectible accounts written off.