Cato Corporation Posts Earnings Decline, Shares Surge 11.5%

Shares of The Cato Corporation (CATO) have risen by 11.5% after the retailer reported its earnings for the quarter ending May 3, 2025. This increase vastly outperformed the S&P 500’s 1.4% growth during the same period. Over the past month, CATO shares are up 12%, surpassing the S&P 500’s 6.5% rise, indicating renewed investor confidence despite a notable earnings drop.

For first-quarter 2025, Cato reported a net income of 17 cents per share, down from 54 cents in the same quarter last year, reflecting a decline of about 69%. Total revenues fell by 3.9% to $170.2 million compared to $177.1 million a year ago, with retail sales accounting for $168.4 million. Same-store sales remained flat, highlighting difficulties in stimulating organic growth amid cautious consumer spending.

Operating Metrics and Margins

Cato’s net income decreased sharply to $3.3 million, down from $11 million in the prior year. Gross margin slightly declined to 35.1% from 35.8% due to increased markdowns, partially offset by lower buying costs. SG&A expenses saw a 2.5% year-over-year decline to $55.3 million; however, as a percentage of sales, SG&A rose to 32.8% from 32.4%, due to revenue pressures affecting fixed costs.

Depreciation costs increased to $2.6 million from $2 million. Interest and other income dropped to $1.2 million from $5.8 million, as the previous year’s figures included a one-time gain from land sales that did not recur. Consequently, income before taxes fell 63.5% year-over-year to $4.2 million, while income tax expense rose to $0.9 million from $0.6 million due to changes in tax rates.

Management Insights and Market Context

Chairman and CEO John Cato noted the effects of a cautious consumer environment and economic uncertainty, including proposed tariffs, impacting business outlook. Although sales showed improvement later in the quarter, management remained cautious about projecting recovery for the year ahead.

Store Strategy and Footprint

During the quarter, Cato did not open new locations but permanently closed eight stores, reducing its store count to 1,109 across 31 states, down from 1,171 a year ago. This contraction reflects efforts to adapt to changing consumer behaviors and improve operational efficiency. Cato continues to focus on value-driven retail through its brands Cato, Versona, and It’s Fashion.

Financial Position and Capital Management

The company repurchased 294,036 shares during the quarter, demonstrating confidence in its valuation and commitment to returning capital to shareholders. Cato’s financial position remained stable, with cash and cash equivalents increasing to $31.3 million from $20.3 million as of February 1, 2025. However, short-term investments decreased to $48.6 million from $57.4 million, suggesting strategic redeployment of liquidity. Inventories stayed flat, indicating disciplined merchandise planning amid changing demand conditions.