Tariff refund lifts Cato (NYSE: CATO) Q1 earnings and margins despite flat sales
Filing Impact
Filing Sentiment
Form Type
10-Q
The Cato Corporation reported sharply higher profitability for the quarter ended May 2, 2026. Net income rose to $9.3 million from $3.3 million a year earlier, with basic and diluted EPS increasing to $0.47 from $0.17.
Total revenues were broadly flat at $171.1 million versus $170.2 million, as retail sales edged up to $169.4 million on a 3% same-store sales gain, partly offset by store closures. The company operated 1,065 stores compared with 1,109 a year earlier.
Profitability benefited from lower cost of goods sold, which fell to 62.8% of retail sales from 64.9%, helped by a $5.7 million tariff refund recorded as a reduction in cost of goods sold and lower freight costs. SG&A declined to 31.8% of retail sales from 32.8% due to lower corporate payroll, insurance and maintenance expenses.
Cato ended the quarter with $25.4 million in cash and cash equivalents, $55.6 million in short-term investments and working capital of about $49.0 million, with no borrowings under its $35.0 million asset-based revolving credit facility. Management highlighted ongoing tariff uncertainty and rising fuel and inflation pressures that could weigh on customers’ discretionary spending.
Positive
- Profit surge driven by margin expansion: Net income rose to $9.3 million from $3.3 million year over year, as cost of goods sold and SG&A declined as a percentage of sales, boosted by a $5.7 million tariff-related reduction in cost of goods sold.
- Strong liquidity and no debt draw: The company held $25.4 million in cash, $55.6 million in short-term investments, working capital of about $49.0 million, and had no borrowings under its $35.0 million ABL facility, leaving $27.0 million available.
Negative
- Tariff and trade-policy uncertainty: Management notes ongoing investigations and appeals under Section 122 and Section 301 of the Trade Act. Future tariffs could increase product acquisition costs beyond current levels.
- Pressure on consumer spending and store base: Rising fuel prices and higher CPI are expected to constrain customer discretionary income, while the plan to close about 35 stores in fiscal 2026 against up to 15 openings implies a shrinking physical footprint.
Insights
Quarter shows strong margin rebound aided by one-time tariff benefit.
Cato delivered much stronger earnings as net income increased to $9.3 million from $3.3 million, despite essentially flat revenue. A key driver was better merchandise margins, with cost of goods sold dropping to 62.8% of retail sales from 64.9%.
Management recorded a $5.7 million reduction in cost of goods sold tied to a tariff refund claim after the Supreme Court invalidated certain IEEPA tariffs. This non-recurring benefit, plus lower freight costs and leaner SG&A, lifted gross margin dollars by 6.8% to $63.1 million.
Future results will depend on evolving U.S. trade policy and potential new tariffs under Section 122 and Section 301, which the company notes could raise acquisition costs. Management also flags fuel and inflation pressures that may curb discretionary spending, even as Cato plans a net reduction in store count during fiscal 2026.
Balance sheet remains conservative with ample liquidity and no revolver use.
Cato ended the quarter with total current assets of $217.2 million, including $25.4 million in cash and $55.6 million in short-term investments. Working capital improved to roughly $49.0 million, supported by higher cash, inventories and receivables.
The company’s $35.0 million asset-based revolving credit facility, committed through March 2028, had no borrowings outstanding and $27.0 million of availability after a $3.0 million letter of credit. The weighted-average interest rate was zero given no usage.
Capital expenditures were modest at $1.1 million, while net cash from operating activities rose to $8.0 million. This low leverage, combined with conservative investment in high-grade corporate bonds and stable deferred compensation assets, provides flexibility to manage tariff-related cost swings and store portfolio adjustments.
Key Figures
Total revenues: $171.1 million
Net income: $9.3 million
Tariff refund benefit: $5.7 million
+5 more
8 metrics
Total revenues
$171.1 million
Quarter ended May 2, 2026
Net income
$9.3 million
vs. $3.3 million in prior-year quarter
Tariff refund benefit
$5.7 million
Reduction in cost of goods sold in Q1 2026
Same-store sales growth
3%
First quarter of fiscal 2026
Cost of goods sold ratio
62.8% of retail sales
Down from 64.9% in Q1 2025
Cash and cash equivalents
$25.4 million
As of May 2, 2026
Short-term investments
$55.6 million
As of May 2, 2026
ABL facility availability
$27.0 million
After $3.0 million letter of credit, no borrowings
Key Terms
asset-based revolving credit facility, same-store sales, International Emergency Economic Powers Act, Section 122 of the Trade Act of 1974, +2 more
6 terms
asset-based revolving credit facility financial
"to establish an asset-based revolving credit facility (the “ABL Facility”) in an amount up to $ 35.0 million."
A loan arrangement where a lender agrees to make funds available up to a set limit that a borrower can draw, repay, and draw again, with the amount available tied to the value of specific assets (like inventory, receivables, or equipment) pledged as collateral. It matters to investors because it provides flexible working capital while limiting risk exposure: the company can fund growth or cover shortfalls quickly, but borrowing capacity can shrink if asset values fall.
same-store sales financial
"Sales increased due to a same-store sales increase of 3%, partially offset by stores that were closed"
Same-store sales measure the revenue generated by stores that have been open for a certain period, typically a year, comparing their sales over different time frames. It helps assess whether a business is growing due to increased customer activity at existing locations rather than new stores. For investors, this figure indicates the health and performance of a company's core operations, independent of expansion efforts.
International Emergency Economic Powers Act regulatory
"tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) on goods imported into the United States were unauthorized"
A U.S. law that gives the president broad authority to control trade, financial transactions, and assets during a declared national emergency, such as by imposing sanctions, freezing property, or restricting exports and imports. For investors it matters because those powers can suddenly block deals, cut off access to markets or funds, and change the value of companies or securities much like an emergency brake that can stop or reroute economic activity overnight.
Section 122 of the Trade Act of 1974 regulatory
"transitioned under Section 122 of the Trade Act of 1974 (the “Trade Act”) to a new 10% baseline global tariff"
Section 301 hearings regulatory
"the U.S. Trade Representative held Section 301 hearings for certain countries, including countries where we source most of our product."
Accumulated other comprehensive income financial
"The following table sets forth information regarding the changes in Accumulated other comprehensive income"
Accumulated other comprehensive income is a running total on a company’s balance sheet that records certain gains and losses not included in reported profit, such as unrealized gains or losses on some investments, currency translation differences, and pension plan adjustments. Think of it like items in a shopping cart you haven’t paid for yet: it doesn’t affect current profit but changes the company’s overall equity and signals potential future swings in value that investors should watch.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ________________to__________________
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
,
,
(Address of principal executive offices)
(Zip Code)
(
)
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports 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 such reports),
and (2) has been subject to such filing requirements for the past 90 days.
X
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 was required to submit such files).
X
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
☑
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 is a shell company (as defined in Rule 12b -2 of the Exchange Act).
Yes
☑
No
As of May 2, 2026, there were
1
THE CATO CORPORATION
FORM 10-Q
Quarter Ended May 2, 2026
Table of Contents
Page No.
PART I – FINANCIAL INFORMATION (UNAUDITED)
Item 1.
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income and Comprehensive Income
2
For the Three Months Ended May 2, 2026 and May 3, 2025
Condensed Consolidated Balance Sheets
3
At May 2, 2026 and January 31, 2026
Condensed Consolidated Statements of Cash Flows
4
For the Three Months Ended May 2, 2026 and May 3, 2025
Condensed Consolidated Statements of Stockholders’ Equity
5
For the Three Months Ended May 2, 2026 and May 3, 2025
Notes to Condensed Consolidated Financial Statements
6 - 20
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
21 - 27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
28
PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
29
Item 1A.
Risk Factors
29
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
29
Item 3.
Defaults Upon Senior Securities
29
Item 4.
Mine Safety Disclosures
30
Item 5.
Other Information
30
Item 6.
Exhibits
30
Signatures
31
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
May 2, 2026
May 3, 2025
(Dollars in thousands, except per share data)
REVENUES
$
$
COSTS AND EXPENSES, NET
(1,233 )
(1,202 )
Income before income taxes
Income tax expense
Net income
$
$
Basic earnings per share
$
$
Diluted earnings per share
$
$
Comprehensive income:
Net income
$
$
Net unrealized gain (loss) on available-for-sale securities, net
(260 )
Comprehensive income
$
$
See notes to condensed consolidated financial statements (unaudited).
3
THE CATO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
May 2, 2026
January 31, 2026
(Dollars in thousands, except per share data)
ASSETS
Current Assets:
Cash and cash equivalents
$
$
Short-term investments
Restricted cash
Accounts receivable, net of allowance for customer credit losses of
Merchandise inventories
Prepaid expenses and other current assets
Property and equipment – net
Other assets
Right-of-Use assets – net
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
$
Accrued expenses
Accrued bonus and benefits
Current lease liability
Other noncurrent liabilities
Lease liability
Commitments and contingencies (Note 10)
-
-
Stockholders' Equity:
Preferred stock, $
Class A common stock, $
Convertible Class B common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
$
$
See notes to condensed consolidated financial statements (unaudited).
4
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
May 2, 2026
May 3, 2025
(Dollars in thousands)
Operating Activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Provision for customer credit losses
Purchase premium and premium amortization of investments
(98 )
(81 )
Gain on sale of assets held for investment
(34 )
Share-based compensation
Gain on disposal of property and equipment
(2 )
(30 )
Changes in operating assets and liabilities which provided (used) cash:
(8,642 )
(2,505 )
(8,794 )
(390 )
(38 )
(221 )
(156 )
(878 )
Net cash provided by operating activities
Investing Activities:
Expenditures for property and equipment
(1,067 )
(1,019 )
Purchase of short-term investments
(6,836 )
(2,262 )
Sales of short-term investments
Sales of other assets
Proceeds from cash value of life insurance policy
Net cash provided by investing activities
Financing Activities:
Repurchase of common stock
(311 )
(935 )
Proceeds from employee stock purchase plan
Net cash used in financing activities
(234 )
(873 )
Net increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
$
$
Non-cash activity:
Accrued other assets and property and equipment expenditures
$
$
Accrued treasury stock
See notes to condensed consolidated financial statements (unaudited).
5
THE CATO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income (Loss)
Equity
(Dollars in thousands)
Balance — January 31, 2026
$
$
$
$
$
Comprehensive income:
(260 )
(260 )
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
(10 )
Share-based compensation expense
Repurchase and retirement of treasury shares
(4 )
(307 )
(311 )
Balance — May 2, 2026
$
$
$
$
$
Accumulated
Additional
Other
Total
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Capital
Earnings
Income (Loss)
Equity
(Dollars in thousands)
Balance — February 1, 2025
$
$
$
$
$
Comprehensive income:
Class A common stock sold through employee stock purchase plan
Share-based compensation issuances and exercises
(2 )
-
(2 )
Share-based compensation expense
Repurchase and retirement of treasury shares
(10 )
(897 )
(907 )
Other
(73 )
(73 )
Balance — May 3, 2025
$
$
$
$
$
See notes to condensed consolidated financial statements (unaudited).
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6
NOTE 1 - GENERAL
:
The condensed consolidated financial statements as of May 2, 2026 and for the three months ended May
2, 2026 and May 3, 2025 have been prepared from the accounting records of The Cato Corporation and its
wholly-owned subsidiaries (the “Company”), and all amounts shown are unaudited. In the opinion of
management, all adjustments considered necessary for a fair statement of the financial statements have
been included. All such adjustments are of a normal, recurring nature unless otherwise noted. The results
of the interim period may not be indicative of the results expected for the entire year.
The interim financial statements should be read in conjunction with the consolidated financial statements
and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended
January 31, 2026. Amounts as of January 31, 2026 have been derived from the audited annual financial
statements, but do not include all disclosures required by accounting principles generally accepted in the
United States of America.
In February 2026, the U.S. Supreme Court issued a ruling that tariffs imposed under the International
Emergency Economic Powers Act (“IEEPA”) on goods imported into the United States were
unauthorized, effectively invalidating IEEPA tariffs. In April 2026, following the Supreme Court’s
invalidation of the IEEPA tariffs and the establishment of procedures for processing tariff refunds, the
Company submitted a refund claim and recorded a $
quarter of fiscal 2026.
Subsequent Events:
Subsequent to May 2, 2026, the Company repurchased
.
On May 15, 2026, the Company received a $
Company anticipates receiving payment for the balance of its tariff refund claim by the end of the second
quarter of fiscal 2026.
The Company received a $
receivable due from the IRS.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7
NOTE 2 - EARNINGS PER SHARE:
Accounting Standard Codification (“ASC”) 260 –
Earnings Per Share
diluted Earnings Per Share (“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 Condensed Consolidated Statements of Income and Comprehensive Income. 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 the 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.
Three Months Ended
May 2, 2026
May 3, 2025
(Dollars in thousands, except per share data)
Numerator
Net earnings
$
$
Earnings allocated to non-vested equity awards
(427 )
(192 )
Net earnings available to common stockholders
$
$
Denominator
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
Net income per common share
Basic earnings per share
$
$
Diluted earnings per share
$
$
Unvested restricted stock excluded from the calculation of diluted EPS for the periods ended May 2, 2026
and May 3, 2025 were
, respectively, because the effect of including them in the
calculation of diluted EPS would have been antidilutive.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8
NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:
The following table sets forth information regarding the changes in Accumulated other comprehensive
income (in thousands) for the three months ended May 2, 2026:
Changes in Accumulated Other
Comprehensive Income (Loss) (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at January 31, 2026
$
(260 )
Net current-period other comprehensive income (loss)
(260 )
Ending Balance at May 2, 2026
$
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
The following table sets forth information regarding the changes in Accumulated other comprehensive
income (in thousands) for the three months ended May 3, 2025:
Changes in Accumulated Other
Comprehensive Income (Loss) (a)
Unrealized Gains
and (Losses) on
Available-for-Sale
Securities
Beginning Balance at February 1, 2025
$
(34 )
Net current-period other comprehensive income (loss)
Ending Balance at May 3, 2025
$
(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.
+
(b) Includes $
available-for-sale securities. The tax impact of this reclassification was $
.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
9
NOTE 4 – FINANCING ARRANGEMENTS:
On March 13, 2025, the Company, as borrower, and certain other domestic subsidiaries, as borrowers and
guarantors, entered into a Credit Agreement (the “ABL Credit Agreement”) and related loan documents,
by and among the Company, certain other of the Company’s domestic subsidiaries, and Wells Fargo
Bank, National Association, as the lender (the “Lender”), to establish an asset-based revolving credit
facility (the “ABL Facility”) in an amount up to $
be used to provide funding for ongoing working capital and general corporate purposes.
The ABL Credit Agreement is committed through March 2028 and is secured primarily by inventory and
third-party credit card receivables. There were
facility was $
borrowing availability to $
interest rate under the credit facility was
borrowings.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10
NOTE 5 – REPORTABLE SEGMENT INFORMATION:
The Company has determined that it has
Segment
Reporting
(“ASC 280”), including Cato, It’s Fashion, Versona and Credit. The Company has
segments: Retail and Credit. The Company has aggregated its
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 to have similar economic characteristics,
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. The products sold in each retail operating segment are similar in nature, 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 is distributed to retail stores
in a similar manner through the Company’s single distribution center and is subsequently distributed to
customers in a similar manner. The Company operates its women’s fashion specialty retail stores in
states as of May 2, 2026, principally in the southeastern United States.
The Company offers its own credit card to its customers and all credit authorizations, payment processing and
collection efforts are performed by a wholly-owned subsidiary of the Company. The Company does not
allocate certain corporate expenses to the Credit segment.
The Company’s President and Chief Executive Officer is the Company’s chief operating decision maker
(“CODM”). The structure described above reflects the manner in which the CODM regularly assesses
information for decision-making purposes, including the allocation of resources. The Company also provides
corporate services, including finance, information technology, and corporate administration, to its segments
which are fully allocated to the retail segment. Interest and other income from assets held for investment and
sale are not included in assessing the segments’ performance and therefore not allocated to either segment.
The CODM manages and evaluates the segments’ operating performance based on segment sales, expenses,
and segment income before income taxes as presented in the Company’s annual budget and forecasting
process, as well as monthly analyses of budget-to-actual and prior year variances. Segment expenses and
other items primarily include cost of goods sold, selling, general and administrative expenses, depreciation
and interest and other income. Assessment and approval of all capital expenditures are determined to be in
support of and based on the needs of the retail segment; however, the CODM does not evaluate performance
or allocate resources based on segment asset balances and, therefore, total segment assets are not presented in
the tables below. The measure of segment assets is reported on the balance sheet as total consolidated assets.
The accounting policies of the segments are the same as those described in the Summary of Significant
Accounting Policies in Note 1 of the consolidated financial statements included in the Company’s Annual
Report on Form 10-K for the fiscal year ended January 31, 2026.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11
NOTE 5 – REPORTABLE SEGMENT INFORMATION (CONTINUED):
The following schedule summarizes certain segment information (in thousands):
Three Months Ended
May 2, 2026
Retail
Credit
Total
Revenues
$
$
$
Cost of goods sold (a)
Selling, general, and administrative (b)
Corporate overhead
Depreciation
Interest and other income, net
(87 )
(270 )
(357 )
Segment income before income taxes
$
$
$
Corporate interest and other income
(876 )
Income before income taxes
$
Capital expenditures
$
$
$
Three Months Ended
May 3, 2025
Retail
Credit
Total
Revenues
$
$
$
Cost of goods sold (a)
Selling, general, and administrative (b)
Corporate overhead
Depreciation
Interest and other income, net
(105 )
(303 )
(408 )
Segment income before income taxes
$
$
$
Corporate interest and other income
(794 )
Income before income taxes
$
Capital expenditures
$
$
$
(a) Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution
(b) Selling, general, and administrative expense include corporate and store payroll, related payroll taxes
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12
NOTE 6 – SHARE-BASED COMPENSATION:
As of May 2, 2026, the Company’s 2018 Incentive Compensation Plan allows for the granting of various
forms of equity-based awards, including restricted stock and stock options for grant to officers, directors and
key employees.
The following table presents the number of options and shares of restricted stock initially authorized and
available for grant under this plan as of May 2, 2026:
2018
Plan
Options and/or restricted stock initially authorized
Options and/or restricted stock available for grant
In accordance with ASC 718 –
Compensation–Stock Compensation
, the fair value of current restricted
stock awards is estimated on the date of grant based on the market price of the Company’s stock and is
amortized to compensation expense on a straight-line basis over the related vesting periods. As of May 2,
2026 and January 31, 2026, there was $
, respectively, of total unrecognized
compensation expense related to unvested restricted stock awards, which had a remaining weighted-
average vesting period of
the three months ended May 2, 2026 and May 3, 2025 was $
, respectively. This
compensation activity is classified as a component of Selling, general and administrative expenses in the
Condensed Consolidated Statements of Income.
The following summary shows the changes in the number of shares of unvested restricted stock outstanding
during the three months ended May 2, 2026:
Weighted Average
Number of
Grant Date Fair
Shares
Value Per Share
Restricted stock awards at January 31, 2026
$
Granted
Vested
(268,303 )
Forfeited or expired
(3,822 )
Restricted stock awards at May 2, 2026
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
13
NOTE 6 – SHARE-BASED COMPENSATION (CONTINUED):
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
% discount through payroll deductions. During the three months ended May 2, 2026 and May 3, 2025, the
Company sold
respectively, under the Employee Stock Purchase Plan. The compensation expense recognized for the
%
discount given under the Employee Stock Purchase Plan was approximately $
three months ended May 2, 2026 and May 3, 2025, respectively. These expenses are classified as a
component of Selling, general and administrative expenses in the Condensed Consolidated Statements of
Income.
NOTE 7 – FAIR VALUE MEASUREMENTS:
The following tables set forth information regarding the Company’s financial assets and liabilities that are
measured at fair value (in thousands) as of May 2, 2026 and January 31, 2026:
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
May 2, 2026
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(8,343 )
$
$
$
(8,343 )
Total Liabilities
$
(8,343 )
$
$
$
(8,343 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
14
NOTE 7 – FAIR VALUE MEASUREMENTS (CONTINUED):
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
January 31,
2026
Assets
Inputs
Inputs
Description
Level 1
Level 2
Level 3
Assets:
$
$
$
$
Total Assets
$
$
$
$
Liabilities:
$
(8,383 )
$
$
$
(8,383 )
Total Liabilities
$
(8,383 )
$
$
$
(8,383 )
The Company’s investment portfolio was primarily invested in corporate bonds held in managed accounts
with underlying ratings of A or better at May 2, 2026. The corporate bonds have contractual maturities
which range from
Additionally, at May 2, 2026, the Company had deferred compensation plan assets of $
January 31, 2026, the Company had deferred compensation plan assets of $
recorded within Other assets in the Condensed Consolidated Balance Sheets.
Level 2 investment securities include corporate 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 the assistance of a third-party pricing service. Since quoted prices in active markets for
identical assets are not available, these prices are determined by the pricing 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 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 Condensed Consolidated Balance Sheet. These funds are
designed to mirror mutual funds and money market funds that are observable and actively traded.
The following tables summarize the change in fair value of the Company’s financial assets and liabilities
measured using Level 3 inputs for the three months ended May 2, 2026 and the year ended January 31, 2026
(dollars in thousands):
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
15
NOTE 7 – FAIR VALUE MEASUREMENTS (CONTINUED):
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at January 31, 2026
$
Redemptions
Additions
Ending Balance at May 2, 2026
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at January 31, 2026
$
(8,383 )
Redemptions
Additions
(30 )
(161 )
Ending Balance at May 2, 2026
$
(8,343 )
Fair Value
Measurements Using
Significant Unobservable
Asset Inputs (Level 3)
Cash Surrender Value
Beginning Balance at February 1, 2025
$
Redemptions
(365 )
Additions
Ending Balance at January 31, 2026
$
Fair Value
Measurements Using
Significant Unobservable
Liability Inputs (Level 3)
Deferred Compensation
Beginning Balance at February 1, 2025
$
(8,548 )
Redemptions
Additions
(206 )
(875 )
Ending Balance at January 31, 2026
$
(8,383 )
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
16
NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:
In September 2025, the FASB issued ASU 2025-06, “Intangibles – Goodwill and Other – Internal-Use
Software (Subtopic 350-40) – Targeted Improvements to the Accounting for Internal-Use Software”
(ASU 2025-06). The FASB issued ASU 2025-06 to modernize the accounting for costs related to
internal-use software to better align with how software is developed and to clarify the threshold to be
applied to begin capitalizing costs. ASU 2025-06 is effective for our annual and quarterly reporting
periods beginning January 30, 2028. Early adoption is permitted. The Company is currently assessing the
impact that the adoption of ASU 2025-06 will have on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive
Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement
Expenses,” which requires public entities to disclose, on an annual and interim basis, disaggregated
information in the footnotes about specified information related to certain costs and expenses. This
guidance is effective for annual periods beginning after December 15, 2026, and interim periods
beginning after December 15, 2027, with early adoption permitted. The Company is currently in the
process of evaluating the potential impact of adoption of this new guidance on its consolidated financial
statements and related disclosures.
NOTE 9 – INCOME TAXES:
The Company had an effective tax rate for the first quarter of fiscal 2026 of
% compared to an
effective tax rate of
% for the first quarter of fiscal 2025. Income tax expense for the quarter
decreased to $
due to lower foreign income taxes.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
17
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,
including litigation regarding the merchandise that it sells, litigation regarding intellectual property,
litigation instituted by persons injured upon premises under its 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 the Company’s business, as with any
business of its 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 its condensed consolidated financial statements. However, given the inherent
uncertainties involved in such matters, an adverse outcome in one or more of 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.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
18
NOTE 11 – REVENUE RECOGNITION:
The Company recognizes sales at the point of purchase when the customer takes possession of the
merchandise and pays for the purchase, generally with cash or credit. 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. Gift cards do
not have expiration dates. Layaway transactions are recorded as deferred revenue until the customer takes
possession or forfeits the merchandise. 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 to customers
based on their purchases with the Company’s propriety credit card. The rewards cards issued by the
Company have a 90-day expiration. Amounts related to shipping and handling billed to customers in a
sales transaction are classified as Other revenue and the costs related to shipping product to customers
(billed and accrued) are classified as Cost of goods sold.
The Company offers its own proprietary credit card to customers. All credit activity is performed by the
Company’s wholly-owned subsidiaries.
ne of the credit card receivables are secured. The Company
estimated customer credit losses of $
2025, respectively, on sales purchased using the Company’s proprietary credit card of $
$
The following table provides information about receivables and contract liabilities from contracts with
customers (in thousands):
Balance as of
May 2, 2026
January 31, 2026
Proprietary Credit Card Receivables, net
$
$
Gift Card Liability
$
$
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
19
NOTE 12 – LEASES:
The Company determines whether an arrangement is a lease at inception. The Company has operating
leases for stores, offices, warehouse space and equipment. Its leases have remaining lease terms of
, some of which include options to extend the lease term for
, and some of
which include options to terminate the lease
. 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 the commencement date of the lease in
determining the present value of lease payments.
The components of lease cost are shown below (in thousands):
`
Three Months Ended
May 2, 2026
May 3, 2025
Operating lease cost
$
$
Variable lease cost (a)
$
$
(a) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.
THE CATO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
20
NOTE 12 – LEASES (CONTINUED):
Supplemental cash flow information and non-cash activity related to the Company’s operating leases are
as follows (in thousands):
Operating cash flow information:
Three Months Ended
May 2, 2026
May 3, 2025
Cash paid for amounts included in the measurement of lease liabilities
$
$
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations, net of rent violations
$
$
Weighted-average remaining lease term and discount rate for the Company’s operating leases are as
follows:
As of
May 2, 2026
May 3, 2025
Weighted-average remaining lease term
Weighted-average discount rate
As of May 2, 2026, the maturities of lease liabilities by fiscal year for the Company’s operating leases are
as follows (in thousands):
Fiscal Year
2026 (a)
$
2027
2028
2029
2030
Thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
$
(a) Excluding the 3 months ended May 2, 2026.
21
THE CATO CORPORATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION:
The following information should be read along with the unaudited Condensed 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-Q 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 January 30, 2027 (“fiscal 2026”) 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 public health threats and related responses and
mitigation efforts, as well as the potential impact of supply chain disruptions, extreme weather conditions,
tariffs and other trade policies, inflationary pressures and other economic conditions on our business,
results of operations and financial condition and statements regarding new store development strategy;
and (5) statements relating to our future risks or 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 threats and uncertainties, war or
similar hostilities and their collateral effects, levels of unemployment, fuel, energy and food costs,
inflation, wage rates, tax rates, interest rates, home values, consumer net worth and the availability of
credit; changes in laws, regulations or government policies affecting our business, including but not
limited to tariffs and taxes; 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 open
new stores in attractive locations and the ability of any such new stores to grow and perform as expected;
underperformance or other factors that may lead to a continuation or acceleration of store closures and
negatively affect the Company’s profitability, financial condition or prospects; adverse weather, public
health threats, acts of war or aggression or similar conditions and related consequences 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; adverse developments or volatility affecting the financial
services industry or broader financial markets; and other factors discussed under “Risk Factors” in Part I,
Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026
(“fiscal 2025”), 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.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
22
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The Company’s critical accounting policies and estimates are more fully described in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in the
Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026. 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 calculation of potential asset impairment, income tax valuation
allowances, reserves relating to self-insured health insurance, workers’ compensation, general and auto
insurance liabilities, uncertain tax positions, the allowance for customer credit losses, and inventory
shrinkage.
The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
23
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, certain items in the Company's unaudited Condensed
Consolidated Statements of Income as a percentage of total retail sales:
Three Months Ended
May 2, 2026
May 3, 2025
Total retail sales
100.0
%
100.0
%
Other revenue
1.0
1.1
Total revenues
101.0
101.1
Cost of goods sold (exclusive of depreciation)
62.8
64.9
Selling, general and administrative (exclusive of depreciation)
31.8
32.8
Depreciation
1.3
1.5
Interest and other income
(0.7)
(0.7)
Income before income taxes
5.8
2.5
Net income
5.5
2.0
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
24
RESULTS OF OPERATIONS (CONTINUED):
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is
intended to provide information to assist readers in better understanding and evaluating our financial
condition and results of operations. We recommend reading this MD&A in conjunction with our
Condensed Consolidated Financial Statements and the Notes to those statements included in the
“Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our Annual Report on
Form 10-K for fiscal 2025.
Recent Developments
Tariff Issues
There remains a significant degree of uncertainty regarding the status of U.S. trade policy and the types and
amount of tariffs to which the Company will be subject. On February 20, 2026, the Supreme Court issued a
ruling that struck down the series of tariffs that had been imposed under the International Economic
Emergency Powers Act (“IEEPA”) beginning in February 2025. In response, the administration transitioned
under Section 122 of the Trade Act of 1974 (the “Trade Act”) to a new 10% baseline global tariff that is
scheduled to expire in July 2026 unless otherwise extended by Congress. On May 7, 2026, the U.S. Court of
International Trade issued a ruling finding that these Section 122 tariffs are unlawful, but limited its
permanent injunction to the specific plaintiffs in that case, and these tariffs continue to be collected from all
other importers, including the Company. The administration has appealed this decision, and it remains
uncertain whether these duties will remain in effect or possibly be replaced by other tariffs.
On March 11, 2026, the U.S. Trade Representative announced investigations under Section 301 of the Trade
Act into various countries, including countries where much of our products are manufactured, that could
result in the imposition of increased tariffs. Beginning in May 2026, the U.S. Trade Representative held
Section 301 hearings for certain countries, including countries where we source most of our product. The
extent to which these hearings will result in increased tariffs is currently unknown. Our acquisition costs in
future periods will be negatively impacted to the extent that any tariffs imposed due to Section 301 findings
are greater than the current Section 122 tariffs.
In April 2026, following the Supreme Court’s invalidation of the IEEPA tariffs and the establishment of
procedures for processing tariff refunds, the Company submitted a refund claim and recorded a $5.7 million
reduction in cost of goods sold in the first quarter of fiscal 2026. On May 15, 2026, the Company received a
$2.6 million partial payment for its tariff refund claim. The Company anticipates receiving payment for the
balance of its tariff refund claim by the end of the second quarter of fiscal 2026.
Pricing Pressures
The pressure on our customers’ discretionary income continued in the first quarter of 2026 with increasing
fuel prices. Additionally, the Core Price Index (CPI) rose in April, further pressuring our customers’
discretionary income both now and into the foreseeable future. We believe these additional pricing pressures
will cause our customers to be more cautious with their discretionary spending. In addition, our ability to
pass through costs caused by rising fuel prices and potential increased tariff costs will be limited due in part
to the pressure on our customers’ discretionary spending.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
25
Comparison of First Quarter of 2026 with 2025
Total retail sales for the first quarter were $169.4 million compared to last year’s first quarter sales of $168.4
million. Sales increased due to a same-store sales increase of 3%, partially offset by stores that were closed
in the past 12 months. Same store sales include 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. The method of calculating same store sales varies across the retail industry. As a
result, our same store sales calculation may not be comparable to similarly titled measures reported by other
companies. E-commerce sales were less than 4.0% of sales for the first quarter of fiscal 2026 and are included
in the same-store sales calculation. Total revenues, comprised of retail sales and other revenue (principally
finance charges and late fees on customer accounts receivable, shipping charged to customers for e-
commerce purchases and layaway fees), were $171.1 million for the first quarter ended May 2, 2026,
compared to $170.2 million for the first quarter ended May 3, 2025. The Company operated 1,065 stores at
May 2, 2026 compared to 1,109 stores at the end of last fiscal year’s first quarter. For the first three months
of fiscal 2026, the Company opened two stores and closed six stores. The Company currently expects to
open up to 15 new stores and close approximately 35 stores in fiscal 2026.
Other revenue, a component of total revenues, was $1.7 million for the first quarter of fiscal 2026, compared
to $1.8 million for the prior year’s comparable first quarter. Included in Other revenue is credit revenue of
$0.7 million which represented 0.4% of total revenues in the first quarter of fiscal 2026, flat both in dollars
and percentage compared to 2025. Credit revenue is comprised of interest earned on the Company’s private
label credit card portfolio and related fee income. Related expenses include principally payroll, postage and
other administrative expenses, and totaled $0.4 million in the first quarter of 2026, flat to the first quarter of
2025.
Cost of goods sold was $106.3 million, or 62.8% of retail sales for the first quarter of fiscal 2026, compared
to $109.3 million, or 64.9% of retail sales in the first quarter of fiscal 2025. The decrease in cost of goods
sold as a percent of sales was due in part to a pre-tax tariff refund claim of $5.7 million and lower freight
costs, partially offset by increased sales of marked down goods. 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 costs 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) increased by 6.8% to $63.1 million for the first quarter
of fiscal 2026 compared to $59.1 million in the first quarter of fiscal 2025. 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, and bank and credit card processing fees. SG&A
expenses were $53.9 million, or 31.8% of retail sales for the first quarter of fiscal 2026, compared to $55.3
million, or 32.8% of retail sales in the first quarter of fiscal 2025. SG&A expense was lower in the first
quarter of fiscal 2026 compared to the first quarter of fiscal 2025 primarily due to lower corporate payroll
expense, insurance costs and equipment maintenance, partially offset by increases in incentive compensation
expense.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
26
Depreciation expense was $2.2 million, or 1.3% of retail sales for the first quarter of fiscal 2026, compared to
$2.6 million, or 1.5% of retail sales for the first quarter of fiscal 2025. The decrease in depreciation expense
was due to fully depreciated older stores.
Interest and other income was $1.2 million, or 0.7% of retail sales for the first quarter of fiscal 2026,
compared to $1.2 million, or 0.7% of retail sales for the first quarter of fiscal 2025.
Income tax expense was $0.5 million or 0.3% of retail sales for the first quarter of fiscal 2026, compared
to income tax expense of $0.9 million, or 0.6% of retail sales for the first quarter of fiscal 2025. The
effective income tax rate for the first quarter of fiscal 2026 was 5.3% compared to 21.9% for the first
quarter of fiscal 2025. The decrease in tax expense was primarily due to lower foreign income taxes.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK:
The Company believes that its cash, cash equivalents and short-term investments, together with cash flows
from operations and its asset-backed revolving line of credit, will be adequate to fund the Company’s regular
operating requirements and expected capital expenditures for the next 12 months from the issuance of this
quarterly report on Form 10-Q.
Cash provided by operating activities for the first three months of fiscal 2026 was primarily generated by
earnings adjusted for depreciation and changes in working capital. The increase in cash provided of $4.2
million for the first three months of fiscal 2026 as compared to the first three months of fiscal 2025 was
primarily attributable to higher net income and the relative change in accounts payable from year-end to the
first quarter for both years, partially offset by an increase in accounts receivable and the relative change in
inventory from year-end to the first quarter for both years.
At May 2, 2026, the Company had working capital of $49.0 million compared to $37.4 million at January 31,
2026. The increase was primarily attributable to an increase in cash, inventory and accounts receivable,
partially offset by higher accounts payable.
The ABL Credit Agreement (“ABL Facility”) of up to $35.0 million is committed through March 2028
and is secured primarily by inventory and third-party credit card receivables. The proceeds from the ABL
Facility may be used to provide funding for ongoing working capital and general corporate purposes.
There were no borrowings outstanding and the availability under the facility was $30.0 million before
giving effect to a $3.0 million outstanding letter of credit that reduced borrowing availability to $27.0
million as of May 2, 2026 and January 31, 2026. The weighted average interest rate under the credit
facility was zero at May 2, 2026 and January 31, 2026 due to no outstanding borrowings.
Expenditures for property and equipment totaled $1.1 million in the first three months of fiscal 2026,
compared to $1.0 million in last fiscal year’s first three months. For the full fiscal 2026 year, the Company
expects to invest approximately $7.4 million in capital expenditures.
Net cash provided by investing activities totaled $0.8 million in the first three months of fiscal 2026
compared to $7.9 million provided in the comparable period of fiscal 2025. The decrease was primarily due
to an increase in purchases of short-term investments, partially offset by a decrease in the sales of short-term
investments.
THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
27
Net cash used in financing activities totaled $0.2 million in the first three months of fiscal 2026 compared to
$0.9
illion used in the comparable period of fiscal 2025. The decrease was primarily due to lower stock
repurchases.
The Company purchased 107,823 shares in the first quarter of 2026. As of May 2, 2026, the Company had
572,917 shares remaining in open authorizations under its share repurchase program.
The Company does not use derivative financial instruments.
The Company’s investment portfolio was primarily invested in corporate bonds held in managed accounts
with underlying ratings of A or better at May 2, 2026 and January 31, 2026. The corporate bonds have
contractual maturities which range from 13 days to 2.9 years.
Additionally, at May 2, 2026, the Company had deferred compensation plan assets of $9.8 million. At
January 31, 2026, the Company had deferred compensation plan assets of $9.7 million. These assets are
recorded within Other assets in the Condensed Consolidated Balance Sheets. See Note 7, Fair Value
Measurements.
RECENT ACCOUNTING PRONOUNCEMENTS:
See Note 8, Recent Accounting Pronouncements.
THE CATO CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company is subject to market rate risk from exposure to changes in interest rates related to its
financing, investing and cash management activities, but the Company does not believe such exposure is
material.
ITEM 4. 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 May 2, 2026. Based on this
evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of May 2, 2026,
our disclosure controls and procedures, as defined in Rule 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.
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 May 2, 2026 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
THE CATO CORPORATION
PART II OTHER INFORMATION
29
ITEM 1. LEGAL PROCEEDINGS:
Not Applicable
ITEM 1A. RISK FACTORS:
In addition to the other information in this report, you should carefully consider the factors discussed in Part I,
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended January 31, 2026.
These risks could materially affect our business, financial condition or future results; however, they are not
the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial may also materially adversely affect our business, financial condition or results of
operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:
The following table summarizes the Company’s purchases of its common stock for the three months
ended May 2, 2026:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Maximum Number
Shares Purchased as
(or Approximate Dollar
Total Number
Average
Part of Publicly
Value) of Shares that may
of Shares
Price Paid
Announced Plans or
Yet be Purchased Under
Period
Purchased
per Share (1)
Programs (2)
The Plans or Programs (2)
February 2026
-
$
-
-
March 2026
62,599
2.85
62,599
April 2026
45,224
2.86
45,224
Total
107,823
$
2.85
107,823
572,917
(1)
Prices include trading costs.
(2)
As of January 31, 2026, the Company’s share repurchase program had 680,740 shares remaining
in open authorizations. During the first quarter ended May 2, 2026, the Company repurchased
and retired 107,823 shares under this program for approximately $307,697 or an average market
price of $2.85 per share. As of May 2, 2026, the Company had 572,917 shares remaining in open
authorizations. There is no specified expiration date for the Company’s repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable
THE CATO CORPORATION
PART II OTHER INFORMATION
30
ITEM 4. MINE SAFETY DISCLOSURES:
No matters requiring disclosure.
ITEM 5. OTHER INFORMATION:
During the three months ended May 2, 2026, none of the Company’s directors or officers (as defined in
Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)
trading arrangement” or a “
of Regulation S-K).
ITEM 6. EXHIBITS:
Exhibit No.
Item
Registrant’s Amended and Restated Certificate of Incorporation,
incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant
for the quarter ended May 2, 2020.
Registrant’s Amended and Restated By-Laws, incorporated by
reference to Exhibit 3.2 to Form 10-Q of the Registrant for the quarter
ended May 2, 2020.
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
Section 1350 Certification of Principal Executive Officer.
Section 1350 Certification of Principal Financial Officer.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.1
Cover Page Interactive Data File (Formatted in Inline XBRL and
contained in the Interactive Data Files submitted as Exhibit 101.1*)
THE CATO CORPORATION
PART II OTHER INFORMATION
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
May 28, 2026
/s/ John P. D. Cato
Date
John P. D. Cato
Chairman, President and
Chief Executive Officer
May 28, 2026
/s/ Charles D. Knight
Date
Charles D. Knight
Executive Vice President
Chief Financial Officer
FAQ
How did Cato (CATO) perform financially in the first quarter of 2026?
Cato generated net income of $9.3 million in the first quarter of 2026, up from $3.3 million a year earlier. Total revenues were $171.1 million versus $170.2 million, with a 3% same-store sales increase supporting flat overall sales.
What drove the improvement in Cato (CATO) gross margins this quarter?
Gross margin improved mainly because cost of goods sold fell to 62.8% of retail sales from 64.9%. This reflected a $5.7 million tariff refund recorded as reduced cost of goods sold and lower freight costs, partially offset by higher sales of marked-down merchandise.
What is the status of Cato’s (CATO) tariffs and refund claim?
After a Supreme Court ruling invalidated certain IEEPA tariffs, Cato recorded a $5.7 million tariff refund benefit in cost of goods sold and submitted a refund claim. It received a $2.6 million partial payment and expects the remaining amount by the end of the second quarter of fiscal 2026.
How strong is Cato’s (CATO) balance sheet and liquidity position?
Cato reported $25.4 million in cash and $55.6 million in short-term investments, with working capital of about $49.0 million. It had no borrowings under its $35.0 million asset-based revolving credit facility, leaving $27.0 million available after a letter of credit.
What store count changes is Cato (CATO) planning for fiscal 2026?
Cato operated 1,065 stores at May 2, 2026, down from 1,109 a year earlier. For fiscal 2026, the company currently expects to open up to 15 new stores and close approximately 35 stores, resulting in a net reduction in store locations.
How are macroeconomic conditions affecting Cato’s (CATO) outlook?
Management highlights rising fuel prices and an increase in the CPI as pressures on customers’ discretionary income. These factors may make shoppers more cautious, and could limit Cato’s ability to pass through higher costs from freight or potential new tariffs.