Cato Reports 2Q EPS of $.61, Up 6%

Provides Second Half Guidance

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Aug 18, 2011, 07:00 ET

CHARLOTTE, N.C., Aug. 18, 2011 /PRNewswire/ -- The Cato Corporation (NYSE: CATO) today reported net income of $18.1 million or $.61 per diluted share for the second quarter ended July 30, 2011, compared to net income of $17.0 million or $.58 per diluted share, as restated, for the second quarter ended July 31, 2010. Both net income and earnings per diluted share increased 6% over last year. Sales for the second quarter were $234.1 million, a 1% increase over sales of $231.8 million last year. Second quarter same-store sales decreased 1%.

For the six months ended July 30, 2011, the Company earned net income of $48.6 million or $1.65 per diluted share, compared with net income of $42.0 million or $1.42 per diluted share, as restated, for the six months ended July 31, 2010, an increase of 16% in both net income and earnings per diluted share. Sales for the first half were $505.0 million, a 3% increase over the prior year's first half sales of $490.9 million. Same-store sales for the first half were flat to the prior year.

"Same-store sales for the second quarter were within our estimated range and we were able to control expenses well," stated John Cato, Chairman, President, and Chief Executive Officer. "As we noted in our July sales release, our same-store sales trend reflects the difficult economic conditions and uncertainty affecting our customers, especially the lower income customer. Also, we continue to expect rising raw material costs will have a negative effect on second half performance. As a result, we now expect earnings per diluted share for second half of the year will be at the low end of our original guidance range of $.50 to $.56."

Second quarter gross margin was 38.0% compared to 39.0% last year due primarily to higher markdowns. Second quarter SG&A costs as a percent of sales decreased to 25.2% from 26.9% last year primarily as a result of lower accrued incentive compensation and insurance costs. The effective tax rate for the quarter was 36.0% compared to 36.3% last year.

As noted above, based on year-to-date results and the Company's original guidance for the second half, earnings per diluted share are expected to be at the low end of the adjusted range of $2.15 to $2.21 versus $2.00 last year, as restated, an increase of 8% to 11%. By quarter, earnings per diluted share are estimated to be in the range of $.18 to $.21 versus $.20 last year, as restated, for the third quarter and $.32 to $.35 versus $.37 last year, as restated, for the fourth quarter. Comparable store sales for both the third and fourth quarters are estimated to be in the range of down 2% to flat.

During the first half, the Company opened 12 new stores, relocated one store and closed nine stores. Five of the closings were It's Fashion stores closed to open as It's Fashion Metro stores in the same market. The Company now expects to open approximately 41 stores during 2011. As of July 30, 2011, The Cato Corporation operated 1,285 stores in 31 states, compared to 1,275 stores in 31 states as of July 31, 2010.

The Cato Corporation is a leading specialty retailer of value-priced fashion apparel and accessories operating two divisions, "Cato" and "It's Fashion". The Company's Cato division offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day. The It's Fashion division offers fashion with a focus on the latest trendy styles and nationally recognized urban brands for the entire family at low prices every day. Additional information on The Cato Corporation is available at www.catocorp.com.

Statements in this press release not historical in nature including, without limitation, statements regarding the Company's expected or estimated financial results for the third quarter, fourth quarter and full year and any related assumptions, as well as the Company's expected plans for full year store openings are considered "forward-looking" within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations that are 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: general economic conditions; competitive factors and pricing pressures; the Company's ability to predict fashion trends; consumer apparel buying patterns; adverse weather conditions and inventory risks due to shifts in market demand and other factors discussed under "Risk Factors" in Part I, Item 1A of the Company's most recently filed annual report on Form 10-K, as amended or supplemented, and in other reports the Company files with or furnishes to the SEC from time to time. The Company does not undertake to publicly update or revise the forward-looking statements even if experience or future changes make it clear that the projected results expressed or implied therein will not be realized. The Company is not responsible for any changes made to this press release by wire or Internet services.

THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE PERIODS ENDED JULY 30, 2011 AND JULY 31, 2010
(Dollars in thousands, except per share data)

	Quarter Ended						Six Months Ended
				As Restated						As Restated
	July 30,		%	July 31,		%	July 30,		%	July 31,		%
	2011		Sales	2010 (A)		Sales	2011		Sales	2010 (A)		Sales

REVENUES
Retail sales	$	234,077	100.0%	$	231,839	100.0%	$	505,010	100.0%	$	490,879	100.0%
Other income (principally finance,
late fees and layaway charges)		2,729	1.2%		2,862	1.2%		5,456	1.1%		5,785	1.2%

Total revenues		236,806	101.2%		234,701	101.2%		510,466	101.1%		496,664	101.2%

GROSS MARGIN (Memo)		88,921	38.0%		90,435	39.0%		201,449	39.9%		199,615	40.7%

COSTS AND EXPENSES, NET
Cost of goods sold		145,156	62.0%		141,404	61.0%		303,561	60.1%		291,264	59.3%
Selling, general and administrative		58,955	25.2%		62,340	26.9%		122,271	24.2%		130,421	26.6%
Depreciation		5,371	2.3%		5,277	2.3%		10,775	2.2%		10,547	2.2%
Interest and other income		(949)	-0.4%		(957)	-0.4%		(1,906)	-0.4%		(1,849)	-0.4%

Cost and expenses, net		208,533	89.1%		208,064	89.7%		434,701	86.1%		430,383	87.7%


Income Before Income Taxes		28,273	12.1%		26,637	11.5%		75,765	15.0%		66,281	13.5%

Income Tax Expense		10,170	4.4%		9,659	4.2%		27,141	5.4%		24,269	4.9%

Net Income	$	18,103	7.7%	$	16,978	7.3%	$	48,624	9.6%	$	42,012	8.6%


Basic Earnings Per Share	$	0.61		$	0.58		$	1.65		$	1.42


Diluted Earnings Per Share	$	0.61		$	0.58		$	1.65		$	1.42

THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
			As Restated		As Restated
	July 30,		July 31,		January 29
	2011		2010		2011
	(Unaudited)		(Unaudited)		(Unaudited)

ASSETS
Current Assets
Cash and cash equivalents	$	77,376	$	68,336	$	48,630
Short-term investments		190,533		165,755		181,395
Restricted Cash		4,801		2,547		4,826
Accounts receivable - net		37,621		39,747		39,703
Merchandise inventories		117,225		105,157		144,028
Other current assets		7,077		13,154		6,859

Total Current Assets		434,633		394,696		425,441

Property and Equipment - net		104,333		100,869		99,773

Other Assets		9,434		7,499		7,545

TOTAL	$	548,400	$	503,064	$	532,759

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities	$	154,912	$	152,418	$	173,918

Noncurrent Liabilities		23,730		24,195		24,827

Stockholders' Equity		369,758		326,451		334,014

TOTAL	$	548,400	$	503,064	$	532,759


(A) The Company has reclassified certain 2010 income statement items to conform with 2011 presentation.