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Cato Corp. Reports Operating Results (10-Q)

September 08, 2011 | About:
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10qk

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Cato Corp. (CATO) filed Quarterly Report for the period ended 2011-09-07.

Cato Corp. Cl A has a market cap of $675.8 million; its shares were traded at around $24.35 with a P/E ratio of 11.3 and P/S ratio of 0.7. The dividend yield of Cato Corp. Cl A stocks is 3.8%. Cato Corp. Cl A had an annual average earning growth of 4.2% over the past 10 years. GuruFocus rated Cato Corp. Cl A the business predictability rank of 3.5-star.

Highlight of Business Operations:

In addition, the Company has changed the classification of certain prior year income statement items to conform to the 2011 presentation. The change has no effect on net income; however, it does reduce retail sales by $26,000 and cost of goods sold by $98,000 and increases selling, general and administrative expense by $72,000 for the three months ended July 31, 2010. The change also reduces retail sales by $746,000, cost of goods sold by $339,000 and selling, general and administrative expense by $407,000 for the six months ended July 31, 2010.

Total retail sales for the second quarter were $234.1 million compared to last year s second quarter sales of $231.8 million, a 1.0% increase. Same-store sales decreased 1.0% in the second quarter of fiscal 2011 due to the difficult economic conditions and resulting uncertainty affecting our customers. For the six months ended July 30, 2011, total retail sales were $505.0 million compared to last year s comparable six month sales of $490.9 million, and same-store sales were flat for the comparable six month period. Total revenues, comprised of retail sales and other income (principally, finance charges and late fees on customer accounts receivable and layaway fees), were $236.8 million and $510.5 million for the second quarter and six months ended July 30, 2011, respectively, compared to $234.7 million and $496.7 million for the second quarter and six months ended July 31, 2010, respectively. The Company operated 1,285 stores at July 30, 2011 compared to 1,275 stores at the end of last year s second quarter. For the first six months of 2011, the Company opened 12 new stores, relocated one store and closed nine stores. The Company currently expects to open approximately 41 stores, relocate six stores and close approximately 23 stores in fiscal 2011.

Credit revenue of $1.9 million represented 0.8% of total revenues in the second quarter of fiscal 2011, compared to $2.1 million or 0.9% of total revenues in the second quarter of fiscal 2010. Credit revenue decreased for the most recent comparable period due to lower finance charge income resulting from decreased sales under the Company s proprietary credit card. Credit revenue is comprised of interest earned on the Company s private label credit card portfolio and related fee income. Related expenses include principally bad debt expense, payroll, postage and other administrative expenses and totaled $1.0 million in the second quarter of 2011, compared to last year s second quarter expenses of $1.3 million. The decrease was primarily due to lower bad debt expense slightly offset by increased administrative expenses compared to the second quarter of 2010.

Cost of goods sold was $145.2 million, or 62.0% of retail sales and $303.6 million or 60.1% of retail sales for the second quarter and first six months of fiscal 2011, compared to $141.4 million, or 61.0% of retail sales and $291.3 million or 59.3% of retail sales for the prior year s comparable three and six month periods, respectively. The overall increase in cost of goods sold as a percent of retail sales for the second quarter and first six months of 2011 resulted primarily from lower sell-throughs of regular priced merchandise. 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 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 exclusive of depreciation) decreased by 1.7% to $88.9 million for the second quarter of fiscal 2011 and increased by 0.9% to $201.4 million for the first six months of fiscal 2011 compared to $90.4 million and $199.6 million for the prior year s comparable three and six month periods, respectively. Gross margin as presented may not be comparable to those of other entities.

At July 30, 2011, the Company had working capital of $279.7 million compared to $242.3 million at July 31, 2010. Additionally, the Company had $2.4 million invested in privately managed investment funds and other miscellaneous equities and a single auction rate security of $3.5 million at July 30, 2011, which are included in Other assets on the Condensed Consolidated Balance Sheets.

As of April 30, 2011, the Company had 332,942 shares remaining in the share repurchase program. During the second quarter ended, the Company repurchased and retired 12,378 shares for approximately $315,000 or an average market price of $25.41. As of the second quarter ending July 30, 2011, the Company had 320,564 shares remaining in open authorizations. There is no specified expiration date for the Company s repurchase program. For the six months ended July 30, 2011, the Company repurchased 122,378 shares at an average cost of $23.68 per share. On August 25, 2011, the Board of Directors authorized an increase in the Company s share repurchase program of two million shares. In addition, subsequent to the end of the second quarter, 33,600 shares for approximately $786,000 were repurchased at an average market price of $23.38 per share.

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