Cato Corp has a market cap of $671 million; its shares were traded at around $24.17 with a P/E ratio of 12.3 and P/S ratio of 0.7. The dividend yield of Cato Corp stocks is 3%. Cato Corp had an annual average earning growth of 3.4% over the past 10 years. GuruFocus rated Cato Corp the business predictability rank of 2.5-star.
Highlight of Business Operations: Although the Company purchases merchandise from approximately 1,500 suppliers, most of its merchandise is purchased from approximately 100 primary vendors. In fiscal 2010, purchases from the Company s largest vendor accounted for approximately 3% of the Company s total purchases. No other vendor accounted for more than 3% of 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 purchases most of its merchandise from domestic importers and vendors, which typically minimizes the time necessary to purchase and obtain shipments. This enables the Company to react to merchandise trends in a more timely fashion. Although a significant portion of the Company s merchandise is manufactured overseas, principally in the Far East, the Company does not expect that any economic, political or social unrest in 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 – We source a significant portion of our merchandise directly and indirectly from overseas, and changes, disruptions or other problems affecting the Company s merchandise supply chain could materially and adversely affect the Company s business, results of operations and financial condition.”
The Company uses television, in-store signage, graphics and a Company website as its primary advertising media. The Company s total advertising expenditures were approximately 0.7%, 0.7% and 0.8% of retail sales for fiscal years 2010, 2009 and 2008, respectively.
All of the Company s stores are leased. Approximately 96% are located in strip shopping centers and 4% in enclosed shopping malls. The Company locates stores in strip shopping centers anchored by a national discounter, primarily Wal-Mart Supercenters or market-dominant grocery stores. The Company s strip center locations provide ample parking and shopping convenience for its customers.
The Company offers its own credit card, which accounted for 5.2%, 6.4%, and 7.1% of retail sales in fiscal 2010, 2009 and 2008, respectively. The Company s net bad debt expense was 6.6%, 7.4% and 5.6% of credit sales in fiscal 2010, 2009 and 2008, respectively.
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 for 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 and its related fees to the accounting period when the customer picks up and pays for layaway merchandise. Layaway sales represented approximately 4.7%, 4.7% and 4.0% of retail sales in fiscal 2010, 2009 and 2008, respectively.
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