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Cato Q2 Earnings Soar on Strong Sales and Share Repurchase

Zacks Equity Research

Driven by strong top-line performance along with low share count, The Cato Corporation (CATO) reported robust bottom-line results for second-quarter fiscal 2014. The women fashion retailer’s earnings of 56 cents per share not only came ahead of its own guidance range of 50 – 53 cents but also surpassed the Zacks Estimate of 52 cents.

Moreover, the company’s quarterly earnings were 9.8% higher than the year-ago comparable quarter’s earnings of 51 cents per share. Earnings per share for the quarter received a push of nearly 3 cents from the company’s share buyback program.

The Cato Corporation - Earnings Surprise | FindTheBest

Sales for the quarter improved 6.3% year over year to $243.8 million while comparable-store sales (comps) climbed 3%.

Gross profit for the reported quarter increased 12.2% to $94.7 million and gross margin expanded 210 basis points (bps) to 38.9%. The year-over-year rise is mainly attributable to improved merchandise margins.

Selling general and administrative (SG&A) expenses for the quarter rose 15.9% year over year to $68.3 million and increased 230 bps to 28% as a percentage of sales. The rise in SG&A expenses was mainly due to higher incentive compensation and equipment upgradation at point-of-sale.


Cato ended the quarter with cash and cash equivalents of $92.2 million compared with $88.6 million at the end of second-quarter fiscal 2013. The company’s total shareholders’ equity stood at $379.2 million at the end of the quarter.

Stores Update

Cato opened 11 stores, relocated 1 store and closed 3 stores during the second quarter. As of Aug 2, 2014, the company operated 1,328 stores across 32 states, compared with 1,306 outlets across 31 states in the year-ago period. However, the company reduced its fiscal 2014 store opening target to 46 from the earlier projection of 65.

Revised Fiscal 2014 Outlook

Going forward, Cato has initiated its earnings forecast for the second half of fiscal 2014. For the third quarter, the company anticipates earnings to come in the range of 8 cents to 13 cents per share as against 17 cents reported in the year-ago quarter. For the fourth quarter, earnings are projected to come between 13 cents and 17 cents per share compared with 13 cents reported in the fourth quarter of fiscal 2013.

Comps for both periods are anticipated to remain flat or decrease by a maximum of 2%. The Zacks Consensus Estimate for third and fourth quarters stands at 10 cents and 15 cents, respectively.

Buoyed by better-than-expected second-quarter performance along with the expectation of 21 cents to 30 cents benefit from share repurchases during the fiscal, Cato raised its fiscal 2014 earnings guidance range. The company now projects earnings to come in the range of $1.82 to $1.91 per share.

Other Stocks to Consider

Stocks worth considering in the retail sector include Citi Trends, Inc. (CTRN), The Men’s Wearhouse, Inc. (MW) and Foot Locker, Inc. (FL). While Citi Trends and Men’s Wearhouse hold a Zacks Rank #1 (Strong Buy), Foot Locker carries a Zacks Rank #2 (Buy).

Read the Full Research Report on FL
Read the Full Research Report on CTRN
Read the Full Research Report on CATO
Read the Full Research Report on MW

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