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Cato Corp. Reports Operating Results (10-Q)

December 05, 2012 | About:
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10qk

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Cato Corp. (CATO) filed Quarterly Report for the period ended 2012-10-27.

Cato Corporation has a market cap of $850.8 million; its shares were traded at around $29.04 with a P/E ratio of 13.3 and P/S ratio of 0.9. The dividend yield of Cato Corporation stocks is 3.4%. Cato Corporation had an annual average earning growth of 5.4% over the past 10 years. GuruFocus rated Cato Corporation the business predictability rank of 3-star.

Highlight of Business Operations:

Total retail sales for the third quarter were $197.6 million compared to last year s third quarter sales of $194.1 million, a 1.8% increase. Same-store sales decreased 2.0% in the third quarter of fiscal 2012. For the nine months ended October 27, 2012, total retail sales were $701.8 million compared to last year s comparable nine month sales of $699.1 million, and same store sales decreased 2.0% for the comparable nine month period. The Company believes the third quarter and first nine month period of fiscal 2012 were both adversely impacted by continuing customer uncertainty regarding the economy and political situation. Total revenues, comprised of retail sales and other income (principally, finance charges and late fees on customer accounts receivable and layaway fees), were $200.0 million and $709.4 million for the third quarter and nine months ended October 27, 2012, compared to $196.7 million and $707.2 million for the third quarter and nine months ended October 29, 2011, respectively. The Company operated 1,306 stores at October 27, 2012 compared to 1,292 stores at the end of last year s third quarter. For the first nine months of fiscal 2012, the Company opened 25 new stores, relocated seven stores and closed seven stores. The Company currently expects to open approximately 37 stores, relocate 9 stores and close approximately 14 stores in fiscal 2012.

Cost of goods sold was $130.4 million, or 66.0% of retail sales and $430.7 million or 61.4% of retail sales for the third quarter and first nine months of fiscal 2012, compared to $125.8 million, or 64.8% of retail sales and $429.4 million or 61.4% of retail sales for the prior year s comparable three and nine month periods of fiscal 2011. The overall increase in cost of goods sold as a percent of retail sales for the third quarter of fiscal 2012 resulted primarily from an increase in occupancy costs related to store development and lower merchandise margins. For the first nine months of fiscal 2012, cost of goods sold was flat with fiscal 2011 with an increase in store occupancy costs due to store development offset by an increase in merchandise margins. 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 1.6% to $67.2 million for the third quarter of fiscal 2012 and increased by 0.5% to $271.1 for the first nine months of fiscal 2012 compared to $68.3 million and $269.7 million for the prior year s comparable three and nine months of fiscal 2011. Gross margin as presented may not be comparable to those of other entities.

Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees and bad debts. SG&A expenses were $58.3 million, or 29.5% of retail sales and $178.8 million, or 25.5% of retail sales for the third quarter and first nine months of fiscal 2012, respectively, compared to $57.5 million, or 29.6% of retail sales and $179.8 million, or 25.7% of retail sales for the prior year s comparable three and nine month periods, respectively. SG&A expenses as a percentage of retail sales decreased 10 basis points for the third quarter of fiscal 2012 as compared to the prior year. The third quarter SG&A decrease was primarily attributable to lower incentive-based compensation expense partially offset by higher payroll costs. For the first nine months of fiscal 2012, SG&A expenses decreased 20 basis points as compared to the prior year. The overall dollar decrease for the first nine months of fiscal 2012 was primarily attributable to decreased incentive-based compensation expense, partially offset by higher group health insurance costs, and payroll expenses.

Interest and other income was $0.8 million, or 0.4% of retail sales and $2.7 million, or 0.4% of retail sales for the third quarter and first nine months of fiscal 2012, respectively, compared to $0.9 million, or 0.4% of retail sales and $2.8 million, or 0.4% of retail sales for the prior year s comparable three and nine month periods of fiscal 2011. The slight quarterly dollar decrease was due to lower sales tax vendor income, as well as, label income in the third fiscal quarter of 2012.

Income tax expense was $2.2 million or 1.1% of retail sales and $32.0 million, or 4.6% of retail sales for the third quarter and first nine months of fiscal 2012, respectively, compared to $2.8 million, or 1.4% of retail sales and $29.9 million, or 4.3% of retail sales for the prior year s comparable three and nine month periods of fiscal 2011, respectively. The third quarter decrease resulted from lower pre-tax income partially offset by a higher effective tax rate. The effective income tax rate for the third quarter of fiscal 2012 was 31.6% compared to 31.4% for the third quarter of 2011. The nine month increase resulted from higher pre-tax income in addition to a higher effective tax rate. The effective tax rate for the first nine months of fiscal 2012 was 37.3% compared to 35.4% for the first nine months of fiscal 2011. The current year quarter and the first nine months of fiscal 2012 were also impacted by the elimination of the benefit of the Work Opportunity Tax Credit which, as of October 27, 2012, has not been renewed for 2012 by Congress.

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