cato20210130

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-K

☑

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

January 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

1-31340

The Cato Corporation

Registrant

Delaware

56-0484485

State of Incorporation

I.R.S. Employer Identification Number

8100 Denmark Road

Charlotte

North Carolina

28273-5975

Address of Principal Executive Offices

704

554-8510

Registrant’s Telephone

Number

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the

Registrant is a well-known seasoned

issuer, as defined

in Rule 405 of the Securities

Act.

Yes

☐

☑

Indicate by check mark if the

Registrant is not required to

file reports pursuant to Section

13 or Section 15(d) of

the Exchange Act.

Yes

☐

☑

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.

Yes

☑

☐

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). Yes

☑

☐

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

☑

Emerging Growth Company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

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

has filed a report on and attestation

to its management’s assessment

of the

effectiveness of

its internal control

over financial reporting

under Section 404(b)

of the Sarbanes

-Oxley Act (15

U.S.C. 7262(b))

the registered public accounting firm that prepared or issued

its audit report.

☑

Indicate by check mark whether the registrant is a shell company (as

defined in Exchange Act Rule 12b-2). Yes

☐

☑

The aggregate

market value

of the

Registrant’s Class

A Common

Stock held

by non-affiliates

of the

Registrant as

of August

2020, the last

business day of

the Company’s

most recent second

quarter, was $

234,143,784

based on the

last reported sale

price per

share on the New York

Stock Exchange on that date.

As of January

30, 2021, there

were

20,839,795

shares of Class

A common stock

and

1,763,652

shares of Class

B common stock

outstanding.

DOCUMENTS INCORPORATED

BY REFERENCE

Portions of the proxy statement relating to the 2021 annual meeting of

shareholders are incorporated by reference into the

following part of this annual report:

Part III — Items 10, 11, 12, 13 and 14

THE CATO CORPORATION

FORM 10-K

TABLE OF CONTENTS

Page

PART

Item 1.

Business ..........................................................................................................................

5 – 10

Item 1A.

Risk Factors ....................................................................................................................

10 – 20

Item 1B.

Unresolved Staff Comments ...........................................................................................

Item 2.

Properties ........................................................................................................................

Item 3.

Legal Proceedings ...........................................................................................................

Item 3A.

Executive Officers of the Registrant ...............................................................................

Item 4.

Mine Safety Disclosures .................................................................................................

PART

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities ........................................................................................

23 – 25

Item 6.

Selected Financial Data ..................................................................................................

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results

of Operations ..................................................................................................................

27 – 33

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk ........................................

Item 8.

Financial Statements and Supplementary Data ..............................................................

34 – 62

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure .......................................................................................................................

Item 9A.

Controls and Procedures .................................................................................................

Item 9B.

Other Information ...........................................................................................................

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance .............................................

Item 11.

Executive Compensation ................................................................................................

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters ........................................................................................................

Item 13.

Certain Relationships and Related Transactions, and Director Independence ...............

Item 14.

Principal Accountant Fees and Services .........................................................................

PART

Item 15.

Exhibits and Financial Statement Schedules ..................................................................

66 – 70

Item 16.

Form 10-K

Summary ………………………………………………………………….

Forward-looking Information

The following information

should be

read along with

the 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-K

and any documents

incorporated by

reference 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 “Managemen

t’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 29,

2022 (“fiscal

2021”) 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

the COVID-19 pandemic and

responses and mitigation efforts on our business, results of operations

and financial condition and

statements regarding

new store

development strategy

;

and (5)

statements relating

to our

future

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 conditions and uncertainties,

levels of unemployment, fuel,

energy and food

costs, wage rates, tax

rates, interest

rates, home

values, consumer

net worth

and the

availability of

credit; changes

in laws,

regulations or

governmental policies affecting

our business,

including but

not limited

to tariffs;

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

implement our

new store

development strategy to increase

new store openings and

our ability of

any such new stores

to grow and

perform as expected;

adverse weather,

public health threats

(including the

global coronavirus (COVID-

19) pandemic) or similar conditions 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;

and other

factors discussed under “Risk Factors” in Part I, Item 1A of this annual report on Form 10-K

for the fiscal

year ended January

30, 2021 (“fiscal

2020”), 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.

As used herein, the

terms “we,” “our,”

“us”, the “Company” or

“Cato” include The Cato

Corporation

and its subsidiaries, unless the context indicates another meaning and except that when used with

reference to

common stock or

other securities

described herein

and in

describing the

positions held

management of the

Company, such

terms include only The

Cato Corporation.

Our website is

located at

www.catofashions.com where

we make

available, free

of charge,

our annual

reports on

Form 10-K,

quarterly reports on

Form 10-Q, current reports

on Form 8-K, proxy statements

and other reports

(including amendments to

these reports)

filed or

furnished pursuant to

Section 13(a) or 15(d)

under the

Securities Exchange Act

of 1934. These

reports are available

as soon as

reasonably practicable after

electronically file these

materials with the

SEC. We

also post on

our website the

charters of our

Audit,

Compensation and Corporate Governance

and Nominating Committees; our

Corporate Governance

Guidelines; Code of Business Conduct and Ethics and

Code of Ethics for the Principal Executive Officer,

Principal Financial Officer and

Principal Accounting Officer and

any amendments or waivers

thereto for

any of our directors or executive officers; and any other publicly available corporate governance materials

contemplated by

SEC or

New York

Stock Exchange

regulations.

The information

contained on

our

website,

www.catofashions.com

, is not,

and should in no

way be construed as,

a part of this

or any other

report that we filed with or furnished to the SEC.

PART

Item 1.

Business:

Background

The Company,

founded in

1946, operated

1,330 fashion specialty

stores at

January 30,

2021, in

states, principally

in the

southeastern United

States, under

the names

“Cato,” “Cato

Fashions,” “Cato

Plus,” “It’s

Fashion,” “It’s

Fashion Metro”

and “Versona.”

The Cato

concept seeks

to offer

quality

fashion apparel and accessories at low prices every day, in junior/missy and plus sizes.

The Cato

concept’s stores and e-commerce website feature a broad assortment of apparel and accessories, including

dressy, career,

and casual

sportswear, dresses,

coats, shoes,

lingerie, costume jewelry

and handbags.

major portion of the Cato concept’s merchandise is sold under

its private label and is produced by various

vendors in accordance with the concept’s specifications.

The It’s Fashion and

It’s Fashion Metro

concepts offer fashion with a focus on the latest trendy styles for the entire family at low prices every day.

The Versona

concept’s stores

and e-commerce website

offer quality

fashion apparel

items, jewelry and

accessories at exceptional

values every day.

The Company’s

stores range in

size from 2,100

to 19,000

square feet

and are

located primarily

in strip

shopping centers

anchored by

national discounters

market-dominant grocery

stores.

The Company

emphasizes friendly

customer service

and coordinated

merchandise presentations

in an

appealing store

environment. The

Company offers

its own

credit card

and layaway plan.

Credit and layaway

sales under the

Company’s plan

represented 5% of

retail sales in

fiscal 2020.

See Note 14

to the

Consolidated Financial Statements,

“Reportable Segment Information,”

for a discussion of information regarding the Company’s two reportable segments: retail and credit.

The Company

has operated

Cato-branded retail

stores for

approximately 75

years.

The Company

originated as a family-owned business and made its

first initial public offering of stock

in 1968.

In 1980,

the Company went private and in 1987 again conducted an initial public offering.

Business Strategy

The Company’s

primary objective is

to be the

leading fashion specialty

retailer for fashion

and value

in its markets. Management

believes the Company’s

success is dependent upon

its ability to differentiate

its stores from

department stores, mass

merchandise discount stores

and competing specialty

stores. The

key

elements of the Company’s business strategy are:

Merchandise Assortment.

The Company’s

stores offer

a wide

assortment of

on-trend apparel

and

accessory items in

primarily junior/missy,

plus sizes,

men’s and

kids sizes,

toddler to boys

size 20

and

girls size

16 with

an emphasis

on color,

product coordination

and selection.

Colors and

styles are

coordinated and presented so that outfit selection is easily made.

Value

Pricing.

The Company offers

quality merchandise that

is generally priced

below comparable

merchandise offered by department stores and mall specialty apparel chains,

but is generally more

fashionable than

merchandise offered

by discount

stores. Management

believes that

the Company

has

positioned itself as the every day low price leader in its market

segment.

Strip Shopping

Center Locations.

The Company

locates its

stores principally

in convenient

strip

centers anchored by national

discounters or market-dominant grocery stores

that attract large

numbers of

potential customers.

Customer Service.

Store managers and

sales associates are

trained to provide

prompt and courteous

service and to assist customers in merchandise selection and wardrobe

coordination.

Credit

and Layaway Programs

The Company offers

its own credit card

and a layaway plan

to make

the purchase of its merchandise more convenient for its customers.

Merchandising

The Company

seeks to

offer a

broad selection

of high

quality and

exceptional value

apparel and

accessories to suit the

various lifestyles of fashion and value-conscious customers.

In addition, the

Company strives to offer on-trend fashion in exciting colors with consistent fit and

quality.

The Company’s merchandise lines

include dressy, career,

and casual sportswear, dresses, coats,

shoes,

lingerie, costume jewelry,

handbags, men’s

wear and lines

for kids and

infants. The Company

primarily

offers exclusive merchandise

with fashion and

quality comparable to

mall specialty stores

at low prices,

every day.

The Company believes that the collaboration of its merchandising and design teams with an expanded

in-house product

development and

direct sourcing

function has

enhanced merchandise

offerings and

delivers quality,

exclusive on-trend styles

at lower prices.

The product development

and direct sourcing

operations provide research on

emerging fashion and

color trends, technical

services and direct

sourcing

options.

As a part

of its merchandising

strategy, members

of the Company’s

merchandising and design

staff

frequently attend trade shows to stay abreast of latest trends and styles, visit selected stores to monitor the

merchandise offerings

of other

retailers, regularly

communicate with

store operations

associates and

frequently confer

with key

vendors.

The Company

also takes

aggressive markdowns

on slow-

selling

merchandise and typically does not carry over merchandise to the next season.

Purchasing, Allocation and Distribution

Although the Company purchases

merchandise from approximately 540 suppliers,

most of its

merchandise is purchased

from approximately 100

primary vendors. In

fiscal 2020,

purchases from the

Company’s largest

vendor accounted

for approximately

10% of

the Company’s

total purchases.

The

Company is not

dependent on its

largest vendor or

any other vendor

for merchandise purchases,

and the

loss of any single vendor or group of

vendors would not have a material adverse effect on the

Company’s

operating results or financial condition. A substantial portion of the Company’s merchandise is sold under

its private

labels and

is produced

by various

vendors in

accordance with the

Company’s strict

specifications. The Company sources a majority of its merchandise

directly from manufacturers overseas,

primarily in

Southeast Asia

These manufacturers

have a

dependence on

materials that

are primarily

sourced from

China. The

Company purchases

its remaining

merchandise from

domestic importers

and

vendors, which typically minimizes the

time necessary to purchase

and obtain shipments; however,

these

vendors are dependent on materials primarily sourced from

China.

The Company opened its

own

overseas sourcing operations in the fall

of 2014, replacing the Company’s

former sourcing agent in 2015.

Although a

significant portion

of the

Company’s merchandise

is manufactu

red overseas,

primarily in

Southeast Asia, the Company

does not expect

that any economic, political,

public health or

social unrest

in any

one country

would have

a material

adverse effect

on the

Company’s ability

to obtain

adequate

supplies of merchandise.

However, the

Company can give no

assurance that any changes

or disruptions

in its

merchandise supply

chain would

not materially

and adversely

affect the

Company.

See “Risk

Factors – Risks

Relating To

Our Business –

Because we source a

significant portion of our

merchandise

directly and indirectly from

overseas, we are subject

to risks associated with

international operations and

risks that affect

the prevailing social,

economic, political, public health

and other conditions in

the areas

from which

we source

merchandise; changes, disru

ptions, cost

changes or

other problems affecting

the

Company’s merchandise

supply chain

could materially

and adversely

affect the

Company’s business,

results of operations and financial condition.”

An important

component of

the Company’s

strategy is

the allocation

of merchandise

to individual

stores based

on an

analysis of

sales trends

by merchandise

category, customer

profiles and

climatic

conditions. A

merchandise control

system provides

current information

on the

sales activity

of each

merchandise style

in each

of the

Company’s stores.

Point-of-sale terminals

in the

stores collect

and

transmit sales and inventory information to the Company’s central database, permitting timely response to

sales trends on a store-by-store basis.

All merchandise is shipped directly to the Company’s distribution center

in Charlotte, North Carolina,

where it is

inspected and then

allocated by the

merchandise distribution staff

for shipment to

individual

stores. The flow of

merchandise from receipt at

the distribution center to

shipment to stores is

controlled

by an

on-line system.

Shipments are

made by

common carrier,

and each

store receives

at least

one

shipment per week.

The centralization of

the Company’s

distribution process also

subjects it to

risks in

the event of damage to or destruction of

its distribution facility or other disruptions affecting the

distribution center

or the

flow of

goods into

or out

of Charlotte,

North Carolina.

See “Risk

Factors –

Risks Relating To

Our Information Te

chnology and Related

Systems – A

disruption or shutdown

of our

centralized distribution center

or transportation network could

materially and adversely

affect our

business and results of operations.”

Advertising

The Company

uses television,

in-store signage,

graphics, a

Company website,

two e-

commerce

websites and

social media

as its

primary advertising

media.

The Company’s

total advertising

expenditures were

approximately 0.8%,

0.7% and

0.7% of

retail sales

for fiscal

years 2020,

2019 and

2018, respectively.

Store Operations

The Company’s store

operations management team consists of

three territorial managers, 12

regional

managers and 110 district managers. Regional

managers receive a salary plus a bonus based

on achieving

targeted goals

for sales,

payroll and

shrinkage control. District

managers receive a

salary plus

a bonus

based on

achieving targeted

objectives for

district sales

increases and

shrinkage control.

Stores are

typically staffed with

a manager, two

assistant managers and additional

part-time sales associates

depending on

the size

of the

store and

seasonal personnel

needs. In general,

store managers

are paid

salary or on an hourly

basis as are all other

store personnel. Store managers, assistant managers and

sales

associates are eligible

for monthly and

semi-annual bonuses based

on achieving targeted

goals for their

respective store’s sales increases and shrinkage control.

Store Locations

Most of the

Company’s stores

are located in

the southeastern United

States in a

variety of markets

ranging from

small towns

to large

metropolitan areas

with trade

area popula

tions of

20,000 or

more.

Stores average approximately 4,500 square feet in size.

All of the Company’s

stores are leased. Approximately 93%

are located in strip shopping

centers and

7% in enclosed shopping

malls. The Company typically locates

stores in strip shopping centers

anchored

by a national discounter,

primarily Walmart

Supercenters, or market-dominant grocery stores. The

Company’s strip center locations provide ample parking and shopping convenience for its customers.

The Company’s

store development

activities consist

of opening

new stores

in new

and existing

markets, relocating

selected existing

stores to

more desirable

locations in

the same

market area

and

closing underperforming stores. The following table sets forth information with respect

to the Company’s

development activities since fiscal 2016:

Store Development

Number of Stores

Beginning of

Number

Number of Stores

Fiscal Year

Year

Opened

Closed

End of Year

2016………………….……...………….

1,372

1,371

2017………………….……...………….

1,371

1,351

2018……………………….……...…….

1,351

1,311

2019…………....………….……...…….

1,311

1,281

2020………….………...….……...…….

1,281

1,330

The Company periodically reviews

its store base to

determine whether any particular

store should be

closed based on its sales trends

and profitability. The

Company intends to continue this review process

identify underperforming stores.

Credit and Layaway

Credit Card Program

The Company offers its own credit card, which accounted for 2.7%, 3.3% and 3.3% of

retail sales in

fiscal 2020, 2019 and 2018, respectively. The Company’s net bad debt expense was 3.6%, 3.2% and 3.8%

of credit sales in fiscal 2020, 2019 and 2018, respectively.

Customers applying for the Company’s credit card are approved for credit if

they have a satisfactory

credit record

and the

Company has

considered the

customer’s ability

to make

the required

minimum

payment.

Customers are required to

make minimum monthly payments based

on their account balances.

If the

balance is

not paid

in full

each month,

the Company

assesses the

customer a

finance charge.

payments are not received on time, the customer is assessed a late

fee subject to regulatory limits.

Layaway Plan

Under the

Company’s layaway

plan, merchandise

is set

aside for

customers who

agree to

make

periodic payments.

The Company

adds a

nonrefundable administrative

fee to

each layaway

sale. If

payment is made within four weeks, the

customer is considered to have defaulted, and the

merchandise is

returned to the

selling floor and

again offered

for sale, often

at a

reduced price. All

payments made by

customers who subsequently default on their layaway purchase are returned to the customer upon request,

less the administrative fee and a restocking fee.

The Company defers recognition of layaway sales to the accounting period when the customer picks

up and

completely pays for

layaway merchandise.

Administrative fees are

recognized in

the period

which the layaway is

initiated.

Recognition of restocking fees

occurs in the

accounting period when the

customer defaults

on the

layaway purchase.

Layaway sales

represented approximately 2.8%,

4.1% and

4.0% of retail sales in fiscal 2020, 2019 and 2018, respectively.

Information Technology Systems

The Company’s

information technology

systems provide

daily financial

and merchandising

information that

is used

by management to

enhance the

timeliness and effectiveness

of purchasing and

pricing decisions.

Management uses

a daily

report comparing

actual sales

with planned

sales and

weekly ranking

report to

monitor and

control purchasing

decisions. Weekly

reports are

also produced

which reflect sales,

weeks of supply

of inventory and

other critical data

by product categories,

by store

and by various levels of responsibility reporting.

Purchases are made based on projected sales,

but can be

modified to accommodate unexpected increases or decreases in demand

for a particular item.

Sales information is

projected by merchandise

category and, in

some cases, is

further projected and

actual performance

measured by stock

keeping unit

(SKU). Merchandise allocation

models are

used to

distribute merchandise to individual

stores based upon historical

sales trends, climatic differences,

customer demographic differences and targeted inventory turnover rates.

Competition

The women’s

retail apparel industry

is highly competitive.

The Company believes

that the principal

competitive factors in

its industry include

merchandise assortment and

presentation, fashion, price,

store

location and

customer service. The

Company competes with

retail chains

that operate

similar women’s

apparel specialty stores. In addition, the Company competes with mass

merchandise chains, discount store

chains, major department

stores, off-price retailers

and internet-based retailers.

Although we believe

compete favorably with

respect to the

principal competitive factors

described above, many

of our direct

and indirect

competitors are

well-established national,

regional or

local chains,

and some

have

substantially greater financial,

marketing and other

resources.

The Company expects

its stores in

larger

cities and metropolitan areas to face more intense competition.

Seasonality

Due to

the seasonal

nature of

the retail

business, the

Company has

historically experienced

and

expects to continue to experience

seasonal fluctuations in its revenues,

operating income and net income.

Results of a

period shorter than

a full year

may not be

indicative of results

expected for the

entire year.

Furthermore, the seasonal nature

of our business

may affect comparisons

between periods.

See Note 13

of Notes

to the

Consolidated Financial

Statements for

information regarding

our quarterly

results of

operations for the last two fiscal years.

Regulation

The Company’s

business and

operations subject

it to

a wide

range of

local, state,

national and

international laws and

regulations in a

variety of areas,

including but not

limited to, trade,

licensing and

permit requirements,

import and

export matters,

privacy and

data protection,

credit regulation,

environmental matters,

recordkeeping and

information management,

tariffs, taxes,

intellectual property

and anti-corruption.

Though compliance with these laws and

regulations has not had a

material effect on

the capital expenditures, results

of operations or competitive

position of the Company

in fiscal 2020,

the

Company faces ongoing

risks related

to its

efforts to

comply with

these laws and

regulations and

risks

related to

noncompliance, as

discussed generally

below throughout

the “Risk

Factors” section

and in

particular under

“Risk Factors – Risks Relating to Accounting and

Legal Matters

– Our business

operations subject

us to

legal compliance

and litigation

risks, as

well as

regulations and

regulatory

enforcement priorities,

which could result

in increased costs

or liabilities, divert our management’s

attention or otherwise adversely affect our business, results of operations and financial condition.”

Human Capital

As of January 30,

2021, the Company employed approximately

7,400 full-time and part-time

associates. The Company also

employs additional part

-time associates during

the peak retailing

seasons.

The Company’s full-time team

associates are engaged in various

executive, operating, and administrative

functions in the

Home Office and

distribution center and

the remainder are

engaged in store

operations.

The Company is not

a party to any

collective bargaining agreements and

considers its associate relations

to be

good. The

Company offers

a broad

range of

Company paid

benefits to

its associates

including

medical and dental

plans, paid vacation,

a 401(k) plan,

Employee Stock Purchase

Plan, Employee Stock

Ownership Plan, disability insurance, associate assistance programs, life insurance

and an associate

discount. The

level of

benefits and

eligibility vary

depending on

the associate’s

full-time or

part-time

status, da

te of

hire, length

of service

and level

of pay.

The Company

promotes diversity,

provides

opportunities for

advancement, and

treats all

of its

associates with

dignity and

respect. The

Company

constantly strives

to improve

its training

programs to

develop associates.

Over 80%

of store

and field

management are

promoted from

within, allowing

the Company

to internally

staff its

store base.

The

Company has training

programs at each

level of store

operations. The Company

also performs ongoing

reviews of its safety protocols,

including extensive efforts undertaken during the

COVID-19 pandemic to

ensure the health and safety of

its associates by performing frequent cleanings, ensuring

social distancing

and providing masks for all of its stores.

Item 1A.

Risk Factors:

An investment in our common stock involves numerous types of risks.

You

should carefully consider

the following

risk factors,

in addition

to the

other information

contained in

this report,

including the

disclosures under

“Forward-looking Information”

above in

evaluating our

Company and

any potential

investment in

our common

stock.

any of

the following

risks or

uncertainties occur

or persist,

our

business, financial condition and ope

rating results could be

materially and adversely affected,

the trading

price of

our common

stock could

decline and

you could

lose all

or a

part of

your investment

in our

common stock.

The risks

and uncertainties

described in

this section

are not

the only

ones facing

us.

Additional risks and

uncertainties not presently

known to us

or that we

currently deem immaterial

may

also materially and adversely affect our business operating results and financial condition.

Risks Relating to the COVID-19 Pandemic:

The outbreak and persistence of the COVID-19 pandemic

has and will adversely affect our business,

financial condition and results of operations.

The COVID

-19 pandemic

has adversely

impacted the

Company's business,

financial condition

and

operating results

through fiscal

2020, and

we expect

that it

will continue

to do

so in

fiscal 2021

and

possibly beyond. Adverse

financial impacts associated

with the outbreak

include, but are

not limited to,

(i) lower net

sales in markets

affected by the

actual or potential

outbreak, whether due to

state and local

orders to

close stores,

reductions in

store traffic

and customer

demand,

labor shortages,

or all

of these

factors, (ii) lower net sales caused

by the delay of inventory production and fulfillment,

(iii) and

incremental costs

associated with

efforts to

mitigate the

effects of

the outbreak,

including increased

freight and logistics costs and other expenses.

The COVID

-19 pandemic

has caused

state and

local governments

to issue

orders mandating

store

closures and other

measures to mitigate

the spread of

the virus. In

addition, public health

officials have

issued precautions and

guidance intended to

reduce the spread

of the virus,

including particular cautions

about congregating in

large groups

or heavily populated

areas, such as

malls and shopping

centers. We

temporarily closed

all Cato,

It’s Fashion,

It’s Fashion

Metro and

Versona

stores on

March 19,

2020.

Beginning on May 1, 2020, we began to re-open stores based on the pertinent state and local orders. As of

June 15, 2020,

all stores

were re-opened,

but our stores

have been and continue

to operate at reduced

hours.

Periodic

increases

in infection

rates in

communities

where our

stores are

located

may prompt

further

governmental

measures

or public

health guidance

to reduce

public activity

and gatherings

in order

to mitigate

the spread of the virus,

and may also continue

to adversely

affect consumer

confidence.

There continues to

be significant uncertainty

regarding the breadth

severity and duration

of business disruptions

related to

COVID-19, as well as its impact on the global and U.S. economy, consumer willingness to visit malls and

shopping centers,

and its

impact on

appropriate associate

staffing levels

for our

stores. The

status and

effects of

national, state

or local

action, initiatives,

legislation, guidelines

or programs

that attempt

mitigate the

spread of

COVID-19 or

address its

economic effects

on our

customers, suppliers

or the

Company also remain fluid.

While the Company currently

anticipates that our

results for fiscal

2021 and possibly beyond

will be

adversely impacted,

the extent

to which

COVID-19 impacts the

Company’s results

will depend

on the

course of future developments, which are highly uncertain,

including the relative speed and success of, as

well as

public confidence

in, mitigation

measures such

as the

current effort

to vaccinate

substantial

portions of the

U.S. and global

population, emerging information

regarding variants of

the virus or

new

viruses and their

potential impact on

current mitigation efforts,

public attitudes toward

continued

compliance with containment

and mitigation measures, and

possible new information and

understanding

that could alter the course and duration of current measures to combat the spread

the virus.

It is also possible

the COVID-19 pandemic may

result in longer term

behavioral changes by

customers and

others that

could adversely

affect our

business, including

but not

limited to

a consumer

shift to greater reliance

on online versus in-person shopping,

which could reduce traffic

to our stores and

more broadly

to the

strip shopping

centers and

malls in

which most

of our

stores are

located and

disadvantage us relative to competitors

who are better established in

e-commerce sales, and reductions in

face-to-face work, travel and socializing occasions, which may lead customers to less

frequently desire or

perceive the need to update their wardrobes.

The far-reaching impacts of the COVID-19 pandemic may also intensify other risks we discuss in

this

report and other filings we make from time to time with the SEC.

Future outbreaks of

disease or

similar public

health threats,

or the

fear of

such an

occurrence, may

also have a material adverse effect on the Company’s business, financial condition and operating results.

Risks Relating to Our Business:

Unusual weather, natural disasters,

public health threats or similar events may adversely affect

our sales or

operations.

Extreme changes

in weather,

natural disasters,

public health

threats or

similar events

can influence

customer trends and

shopping habits.

For example, heavy

rainfall or other

extreme weather conditions

including but

not limited

to winter

weather over

a prolonged

period, might

make it

difficult for

our

customers to

travel to

our stores

and thereby

reduce our

sales and

profitability.

Our business

is also

susceptible to

unseasonable weather conditions.

For example, extended

periods of

unseasonably warm

temperatures during the

winter season or

cool weather during

the summer season

could render a

portion

of our

inventory incompatible

with those

unseasonable conditions.

Reduced sales

from extreme

prolonged unseasonable

weather conditions

would adversely

affect our

business.

The occurrence

threat of

extreme weather,

natural disasters,

power outages,

terrorist acts,

outbreaks of

flu or

other

communicable diseases

(such as

the global

COVID-19 pandemic)

or other

catastrophic events

could

reduce customer traffic

in our stores

and likewise disrupt

our ability to

conduct operations, which

could

materially and adversely affect us.

Because we source a significant portion of our merchandise directly

and indirectly from overseas, we are

subject to risks associated with international operations and

risks that affect the prevailing social, economic,

political, public health and other conditions in the areas from

which we source merchandise; changes,

disruptions, cost changes or other problems affecting

the Company’s merchandise

supply chain could

materially and adversely affect the Company’s

business, results of operations and financial condition.

A significant amount of our

merchandise is manufactured overseas, principally in Southeast

Asia. We

directly import some of this merchandise and indirectly import

the remaining merchandise from domestic

vendors who acquire

the merchandise from

foreign sources. Further,

our third-party vendors

are

dependent on

materials primarily

sourced from

China.

As a

result, political

unrest, labor

disputes,

terrorism, public health

threats, including but

not limited

to communicable diseases

(such as

the global

COVID-19 pandemic), financial or other forms of

instability or other events resulting in

the disruption of

trade from

countries affecting

our supply

chain, increased

security requirements

for imported

merchandise, or

the imposition of,

or changes in,

laws, regulations or

changes in duties,

quotas, tariffs,

taxes or governmental policies regarding these matters or other

factors affecting the availability or cost of

imports, could cause

significant delays or

interruptions in the

supply of our

merchandise or increase

our

costs. We

are also

subject to

supply chain

disruptions affecting

ocean freight,

including lack

of ocean

container ship

capacity, lack

of equipment

such as

containers, port

congestion and

other conditions

impacting ocean

freight.

We also

are subject

to domestic

supply chain

disruptions,

including lack

domestic intermodal

transportation (trucks

and drivers),

domestic port

congestion and

other conditions

that ma

impact domestic

supply chain.

These supply

chain risks

may result

in both

higher costs

transport our merchandise and delayed merchandise arrivals to our stores, which may adversely affect our

ability to

sell this

merchandise and

increase markdowns

of it.

Our costs

are also

affected by

currency

fluctuations, and changes in the

value of the dollar relative

to foreign currencies may increase our

cost of

goods sold.

Any of

these factors

could have

a material

adverse effect

on our

business and

results of

operations.

In addition, increased energy and transportation

costs have caused us significant

cost

increases from time

to time, and

future adverse changes in

these costs or

the disruption of

the means by

which merchandise

is transported

to us

could cause

additional cost

increases or

interruptions of

our

supply chain which could be significant. Further, we are subject to increased costs or potential disruptions

impacting any port

or trade

route through which

our products

move or we

may be

subject to

increased

costs and

delays if

forced to

route freight

through different

ports than

the ones

through which

our

products typically move.

If we are

forced to source

merchandise from other

countries or other

domestic

vendors with foreign sources

in different countries, those

goods may be more

expensive or of a

different

or inferior quality from the ones we now sell.

The inability of third-party vendors to produce goods on

time and to the Company’s

specification may

adversely affect the Company’s

business, results of operations and financial condition.

Our dependence

on third-

party vendors

to manufacture

and supply

our merchandise

subjects us

numerous risks that our

vendors will fail to

perform as we expect.

For example, the deterioration

in any

of our key

vendors’ financial condition,

their failure to

ship merchandise in

a timely manner

that meets

our specifications, or

other failures to

follow our vendor

guidelines or comply

with applicable laws

and

regulations, including

compliant labor,

environmental practices

and product

safety, could

expose us

operational, quality,

competitive, reputational and

legal risks.

If we are

not able to

timely or adequately

replace the merchandise we currently source

with merchandise produced elsewhere, or if our

vendors fail

to perform as

we expect,

our business,

results of

operations and financial

condition could

be adversely

affected.

Activities conducted

by us

or on

our behalf

outside the

United States

further subject

us to

numerous U.S. and international regulations and compliance risks, as discussed

below under “Risk

Factors – Risks

Relating to Accounting

and Legal Matters

- Our business

operations subject us

to legal

compliance and litigation risks,

as well as regulations

and regulatory enforcement priorities,

which could

result in increased costs or liabilities, divert our

management’s attention or otherwise adversely affect

our

business, results of operations and financial condition.”

Our ability to attract consumers and grow our revenues is dependent

on the success of our store location

strategy and our ability to successfully open new stores as planned.

Our sales are dependent

in part on

the location of our

stores in shopping centers

and malls where we

believe our consumers

and potential consumers

shop.

In addition, our

ability to grow

our revenues has

been substantially dependent on our ability to secure space for and open new stores in attractive locations.

Shopping centers and malls where we currently operate existing stores

or seek to open new stores may be

adversely affected by, among other

things, general economic downturns or those particularly affecting the

commercial real

estate industry,

the closing

of anchor

stores, changes

in tenant

mix and

changes in

customer shopping preferences, including but not limited to an increase in preference for online versus in-

person shopping.

To take

advantage of consumer traffic

and the shopping preferences of

our consumers,

we need to maintain and acquire stores in desirable locations where competition

for suitable store

locations is

intense. A

decline in customer

popularity of the

strip shopping centers

where we generally

locate our stores or in

availability of space in desirable centers

and locations, or an increase in

the cost of

such desired

space, could

limit our

ability to

open new

stores, adversely

affect consumer

traffic and

reduce our sales and net earnings or increase our operating costs.

Our ability to

open and operate

new stores depends

on many factors,

some of which

are beyond our

control.

These factors

include, but

are not

limited to,

our ability

to identify

suitable store

locations,

negotiate acceptable lease terms, secure necessary governmental

permits and approvals and hire and

train

appropriate store personnel.

In addition, our continued

expansion into new regions

of the country where

we have

not done

business before

may present

new challenges

in competition, distribution

and

merchandising as we enter these new markets. Our failure to successfully and timely

execute our plans for

opening new stores or

the failure of these

stores to perform up

to our expectations could

adversely affect

our business, results of operations and financial condition.

If we are unable to anticipate, identify and respond to

rapidly changing fashion trends and customer

demands in a timely manner,

our business and results of operations could materially

suffer.

Customer tastes

and fashion

trends, particularly

for women’s

apparel, are

volatile, tend

to change

rapidly and cannot be predicted

with certainty.

Our success depends in part

upon our ability to

consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a

timely manner.

Accordingly, any

failure by

us to

anticipate, identify,

design and

respond to

changing

fashion trends

could adversely

affect c

onsumer acceptance

of our

merchandise, which

in turn

could

adversely affect our business, results of

operations and our image with our customers.

If we miscalculate

either the market

for our merchandise

or our customers’ tastes

or purchasing habits, we

may

be required

to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which

would adversely affect our margins and results of operations.

Fluctuating comparable sales or our inability to effectively

manage inventory may negatively impact our

gross margin and our overall results of operations.

Comparable sales

are expected

to continue

to fluctuate

in the

future. Factors

affecting comparable

sales include

fashion trends,

customer preferences,

calendar and

holiday shifts,

competition, weather,

actual or

potential public

health threats

and economic

conditions. In

addition, merchandise

must be

ordered well in

advance of the

applicable selling season

and before trends

are confirmed by

sales. If we

are not

able to accurately

predict customers’ preferences

for our

fashion items, we

may have too

much

inventory, which may

cause excessive markdowns. If we

are unable to accurately predict

demand for our

merchandise, we may

end up with

inventory shortages,

resulting in missed

sales. A decrease

comparable sales or

our inability to

effectively manage inventory

may adversely affect

our gross margin

and results of operations.

Existing and increased competition in the women’s

retail apparel industry may negatively impact our

business, results of operations, financial condition and market

share.

The women’s

retail apparel

industry is

highly competitive.

We compete

primarily with

discount

stores, mass

merchandisers, department

stores, off

-price retailers,

specialty stores

and internet-

based

retailers, many of which have substantially greater financial, marketing and other resources than

we have.

Many of

our competitors offer

frequent promotions and

reduce their

selling prices.

In some cases,

our

competitors are expanding into markets

in which we have a

significant market presence.

In addition, our

competitors also compete

for the

same retail store space. As a result of this

competition, we may

experience pricing

pressures, increased

marketing expenditures,

increased costs

to open

new stores,

well as loss of market share, which could materially and adversely affect

our business, results of

operations and financial condition.

The operation of our sourcing offices in Asia may

present increased legal and operational risks.

In October

2014, we

established our

own sourcing

offices in

Asia. Our

experience with

legal and

regulatory practices and requirements in Asia is

limited. If our sourcing offices are

unable to successfully

oversee merchandise

production to

ensure that

product is

produced on

time and

within the

Company’s

specifications, our business, brand, reputation, costs, results of operations

and

financial condition could be

materially and

adversely affected.

Further, the

activities conducted

by our

sourcing offices

outside the

United States

subject us

to foreign

operational risks,

as well

as U.S.

and international

regulations and

compliance risks, as

discussed elsewhere in

this “Risk Factors”

section, in particular

below under “Risk

Factors – Risks

Relating to Accounting

and Legal Matters

- Our business

operations subject us

to legal

compliance and litigation risks,

as well as regulations

and regulatory enforcement priorities,

which could

result in increased costs or liabilities, divert our

management’s attention or otherwise adversely affect

our

business, results of operations and financial condition.”

Any actual or perceived deterioration in the conditions that drive

consumer confidence and spending may

materially and adversely affect consumer demand

for our apparel and accessories and our results of

operations.

Consumer spending habits, including spending for our apparel and accessories, are affected by, among

other things, prevailing social, economic, political and

public health conditions and uncertainties (such as

matters under debate in the U.S. from time to time regarding budgetary,

spending and tax policies and the

impact of the

global COVID-19 pandemic),

levels of employment,

fuel, energy and

food costs, salaries

and wage rates

and other sources of

income, tax rates, home

values, consumer net worth,

the availability

of consumer

credit, consumer

confidence and

consumer perceptions

of adverse

changes in

or trends

affecting any of

these conditions.

Any perception that these

conditions may be worsening

or continuing

to trend negatively may significantly weaken many of these drivers of consumer spending habits. Adverse

perceptions of these

conditions or uncertainties

regarding them also

generally cause consumers

to defer

purchases of

discretionary items,

such as

our merchandise,

or to

purchase cheaper

alternatives to

our

merchandise, all of

which may also

adversely affect our

net sales and

results of operations.

In addition,

numerous events, whether

or not

related to actual

economic conditions, such

as downturns in

the stock

markets, acts

of war

or terrorism,

political unrest

or natural

disasters, outbreaks

of disease

or similar

events, may

also dampen

consumer confidence,

and accordingly,

lead to

reduced consumer

spending.

Any of

these events

could have

a material

adverse effect

on our

business, results

of operations

and

financial condition.

Fluctuations in the price, availability and quality of

inventory may result in higher cost of goods, which the

Company may not be able to pass on to its customers.

Vendors

are increasingly passing on higher

production costs, which may impact

our ability to

maintain or grow

our margins. The

price and availability

of raw materials

may be impacted

by demand,

regulation, weather and

crop yields, currency

value fluctuations, as

well as other

factors.

Additionally,

manufacturers have

and may

continue to

have increases

in other

manufacturing costs,

such as

transportation, labor and

benefit costs. These

increases in production

costs result in

higher merchandise

costs to the

Company. Due to

the Company’s

limited flexibility in price

point, the Company may

not be

able to pass

on those cost

increases to the

consumer, which

could have a

material adverse effect

on our

results of operations and financial condition.

If the Company is unable to successfully integrate new businesses into

its existing business, the Company’s

financial condition and results of operations will be adversely

affected.

The Company’s

long-term business strategy

includes opportunistic growth

through the development

of new store

concepts. This growth may

require significant capital expenditures

and management

attention. The Company may not

realize any of the anticipated

benefits of a new business

and integration

costs may

exceed anticipated

amounts. We

have incurred

substantial financial

commitments and

fixed

costs related to our retail stores that we will not be

able to recover if our stores are not successful and that

could potentially result

in impairment charges.

If we cannot

successfully execute our

growth strategies,

our financial condition and results of operations may be adversely impacted.

Failure to attract, train, and retain skilled personnel could adversely

affect our business and our financial

condition.

Like most retailers, we

experience significant associate turnover

rates, particularly among store

sales

associates and managers.

Because our continued store growth

will require the hiring and

training of new

associates, we must

continually attract, hire

and train new

store associates to

meet our staffing

needs. A

significant increase in the turnover rate among our store sales associates and managers would increase our

recruiting and

training costs, as

well as

possibly cause a

decrease in

our store

operating efficiency

and

productivity.

We compete

for qualified store

associates,

as well as

experienced management personnel,

with other companies in

our industry or other

industries, many of whom

have greater financial resources

than we do.

In addition,

we depend

on key

management personnel

to oversee

the operational

divisions of

the

Company for

the support

of our

existing business

and future

expansion. The

success of

executing our

business strategy depends

in large part

on retaining key

management. We

compete for key

management

personnel with

other retailers, and

our inability to

attract and

retain qualified personnel

could limit

our

ability to continue to grow.

If we

are unable

to retain

our key management

and store

associates or

attract, train,

or retain

other

skilled personnel

in the

future, we

may not be

able to service

our customers effectively

or execute

our

business strategy, which could adversely affect our business, operating results and financial condition.

Risks Relating to Our Information Technology and Related Systems:

A failure or disruption relating to our information technology

systems could adversely affect our business.

We rely

on our existing information technology systems for merchandise operations,

including

merchandise planning, replenishment, pricing,

ordering, markdowns and

product life cycle

management.

In addition to merchandise operations,

we utilize our information technology systems

for our distribution

processes, as well

as our financial

systems, including accounts

payable, general ledger,

accounts

receivable, sales, banking,

inventory and fixed

assets.

Despite the precautions

we take, our

information

systems are or may be vulnerable to disruption or failure

from numerous events, including but not limited

to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts

of war

or terrorism,

similar catastrophic

events or

other causes

beyond our

control

or that

we fail

anticipate. Any disruption or failure in the operation of our information technology systems, our failure to

continue to

upgrade or

improve such

systems, or

the cost

associated with

maintaining, repairing

improving these systems,

could adversely affect

our business, results

of operations and

financial

condition. Modifications and/or upgrades to our current

information technology systems may also disrupt

our operations.

A disruption or shutdown of our centralized distribution center or

transportation network could materially

and adversely affect our business and results of

operations.

The distribution of

our products is

centralized in one

distribution center in

Charlotte, North Carolina

and distributed

through our

network of

third-party freight

carriers.

The merchandise

we purchase

shipped directly to our

distribution center, where it

is prepared for shipment to

the appropriate stores and

subsequently delivered to

the stores

by our

third-party freight carriers.

If the distribution

center or

our

third-party freight carriers were to be

shut down or lose significant capacity

for any reason, including but

not limited to, any of the causes described above under “A failure or disruption relating

to our information

technology systems could adversely affect

our business,” our operations would likely

be seriously

disrupted.

Such problems could occur as the result of any loss, destruction or impairment of our ability to

use our

distribution center,

as well

as any broader

problem generally affecting

the ability to

ship goods

into our distribution center or deliver goods to

our stores.

As a result, we could incur significantly higher

costs and longer lead times associated

with distributing our products to our

stores during the time it

takes

for us to reopen or replace the

distribution center and/or our transportation network. Any such occurrence

could adversely affect our business, results of operations and financial condition.

A security breach that results in unauthorized access to or disclosure

of employee, Company or customer

information could adversely affect our costs, reputation

and results of operations, and efforts to mitigate

these risks may continue to increase our costs.

The protection

of employee,

Company and

customer data

is critical

to the

Company. Any

security

breach, mishandling, human or programming error or other event that results in the misappropriation, loss

or other

unauthorized disclosure

of employee,

Company or

customer information,

including but

not

limited to credit card data or

other personally identifiable information, could severely damage the

Company's reputation, expose it to remediation

and other costs and the

risks

of legal proceedings, disrupt

its operations and otherwise adversely affect

the Company's business and financial

condition. The

security of certain of this

information also depends on the

ability of third-party service providers,

such as

those we

use to

process credit

and debit

card payments

as described

below under

“We are

subject to

payment-related risks,”

to properly

handle and

protect such

information. Our

information systems

and

those of our third-party service

providers are subject to ongoing

and persistent cybersecurity threats from

those seeking unauthorized access

through means which are

continually evolving and may be

difficult to

anticipate or detect for long periods

of time.

Despite measures the Company takes to

protect confidential

information against unauthorized

access or disclosure,

which are ongoing

and may continue

to increase

our costs, there

is no assurance

that such measures

will prevent the

compromise of such

information. If

any such compromise

or unauthorized access

to or disclosure

of this information

were to occur,

it could

have a material

adverse effect on

the Company's reputation,

business, operating results,

financial

condition and cash flows.

We are subject to payment

-related risks.

We accept

payments using a

variety of methods,

including third-party credit

cards, our own

branded

credit cards,

debit cards,

gift cards

and physical

and electronic

bank checks.

For existing

and future

payment methods

we offer

to our

customers, we

may become

subject to

additional regulations

and

compliance requirements

(including obligations

to implement

enhanced authentication

processes that

could result in

increased costs and

reduce the ease

of use of

certain payment methods),

as well as

fraud.

For certain payment methods,

including credit and debi

cards, we pay interchange and

other fees, which

may increase

over time,

raising our

operating costs

and lowering

profitability. We

rely on

third-party

service providers for

payment processing services,

including the processing

of credit and

debit cards. In

each case, it could

disrupt our business if

these third-party service providers

become unwilling or unable

to provide these services to us. We

are also subject to payment card association operating rules, including

data security rules, certification

requirements and rules governing electronic

funds transfers, which could

change or be

reinterpreted to make

it difficult or

impossible for us

to comply.

If we fail

to comply with

these rules

or requirements,

or if

our data

security systems

are breached

or com

promised, we

may be

liable for card-issuing banks’

costs, subject to fines

and higher transaction fees.

In addition, we may

lose

our ability

to accept

credit and

debit card

payments from

our customers

and process

electronic funds

transfers or facilitate

other types of

payments, and our

business and operating

results could be

adversely

affected.

The Company’s

failure to successfully operate its e-commerce websites or fulfill customer

expectations could

adversely impact customer satisfaction, our reputation and

our business.

Although the

Company's e-commerce platform

provides another

channel to

drive incremental

sales,

provide existing customers the on-

line shopping experience and

introduce the Company to a

new

customer base, it

also exposes us

to numerous risks.

We are

subject to potential

failures in the

efficient

and uninterrupted operation of

our websites, customer contact

center or our distribution

center, including

system failures

caused by

telecommunication system

providers, order

volumes that

exceed our

present

system capabilities, electrical outages, mechanical problems

and human error.

Our e-commerce platform

may also expose us to

greater potential for security or

data breaches involving the unauthorized access

or disclosure of customer information, as discussed

above under “A

security breach that

results in

unauthorized disclosure of employee, Company or customer information could

adversely affect our costs,

reputation and

results of

operations, and

efforts to

mitigate these

risks may

continue to

increase our

costs.” We

are also subject to risk related

to delays or failures in the

performance of third parties, such as

shipping companies,

including delays

associated with

labor strikes

or slowdowns

or adverse

weather

conditions. If the

Company does not successfully

meet the challenges of

operating e-commerce websites

or fulfilling customer expectations, the Company's business and sales could be

adversely affected.

Risks Relating to Accounting and Legal Matters:

Changes to accounting rules and regulations may

adversely affect our reported results of operations

and

financial condition.

In an

effort to

provide greater

comparability of

financial reporting

in an

increasing global

environment, accounting regulatory authorities have

been in discussions for many

years regarding efforts

to either converge U.S. Generally

Accepted Accounting Principles with International Financial Reporting

Standards (“IFRS”), have

U.S. companies provide

supplemental IFRS-based information

or continue to

work toward

a single

set of

globally accepted

accounting standards.

If implemented,

these potential

changes in accounting rules or regulations could

significantly impact our future reported

results of

operations and financial position.

Changes in accounting rules

or regulations and varying interpretations

of existing accounting

rules and regulations

have significantly affected

our reported financial

statements

and those of other participants in the retail industry in the past and may

continue to do so in the future.

For example,

changes to

lease accounting

standards effective

for the

Company beginning

in fiscal

2019 required

the Company

to capitalize

operating leases

in its

financial statements.

These changes

required us

to record

a significant

amount of

lease-related assets

and liabilities

on our

balance sheet,

resulting in an

increase of 40%

to each of

our total assets

and total liabilities

on our balance

sheet, and

required us

to make

other changes

to the

recording and

classification of

lease-related expenses

on our

statements of income and cash flows. These changes

could lead to the perception by investors

that we are

highly leveraged

and also

change the

calculation of

numerous financial

metrics and

measures of

our

performance and

financial condition.

These and

future changes

to accounting

rules or

regulations may

adversely affect

our reported

results of

operations and

financial position

or perceptions

of our

performance and financial condition.

Adverse litigation matters may adversely affect

our business and our financial condition.

From time

to time

the Company

is involved

in litigation

and other

claims against

our business.

Primarily these

arise from our

normal course of

business but

are subject

to risks

and uncertainties,

and

could require

significant management time. The Company’s periodic evaluation of litigation-

matters may change our assessment in light of

the discovery of facts with respect to legal

actions pending

against us,

not presently known

to us

or by determination

of judges, juries

or other finders

of fact.

may also be

subjected to legal matters

not yet known to

us. Adverse decisions or

settlements of disputes

may negatively impact our business, reputation and financial condition.

Our business operations subject us to legal compliance

and litigation risks, as well as regulations and

regulatory enforcement priorities, which could result in increased

costs or liabilities, divert our

management’s

attention or otherwise adversely affect our business, results

of operations and financial

condition.

Our operations are

subject to federal,

state and local

laws, rules and

regulations, as well

as U.S. and

foreign laws

and regulations

relating to

our activities

in foreign

countries from

which we

source our

merchandise and operate

our sourcing offices.

Our business

is also

subject to regulatory

and litigation

risk in all

of these jurisdictions, including

foreign jurisdictions that

may lack well-established or

reliable

legal systems

for resolving

legal disputes.

Compliance risks

and litigation

claims have

arisen and

may

continue to

arise in

the ordinary

course of

our business

and include,

among other

issues, intellectual

property issues,

employment issues,

commercial disputes,

product-oriented matters, tax,

customer

relations and personal injury claims. International activities

subject us to numerous U.S. and international

regulations, including but not limited to, restrictions on trade, license and permit requirements, import and

export license

requirements, privacy

and data

protection laws,

environmental laws,

records and

information management

regulations, tariffs

and taxes

and anti-

corruption laws,

such as

the Foreign

Corrupt Practices Act, violations of

which by employees or persons acting

on the Company’s behalf

may

result in significant

investigation costs, severe

criminal or civil

sanctions and reputational

harm.

These

and other

liabilities to

which we may

be subject

could negatively affect

our business,

operating results

and financial condition. These matters frequently raise complex factual and legal issues, which are subject

to risks

and uncertainties

and could

divert significant

management time.

The Company

may also

subject to regulatory review

and audits, which results

may have the

potential to materially and

adversely

affect our

business, results of

operations and financial

condition. In addition,

governing laws, rules

and

regulations, and interpretations of existing laws are subject to change

from time to time.

Compliance and

litigation matters could

result in unexpected

expenses and liability,

as well as

have an adverse

effect on

our operations and our reputation.

New legislation or regulation and interpretation of existing laws and regulations related to data privacy

could increase our costs of compliance, technology and business operations. The interpretation of existing

or new laws to

existing technology and practices can be

uncertain and may lead to

additional compliance

risk and cost.

If we fail to protect

our trademarks and other

intellectual property rights or infringe

the intellectual property

rights of

others, our

business, brand

image, growth

strategy, results

of operations

and financial

condition

could be adversely affected.

We believe

that our

“Cato”, “It’s

Fashion”, “It’s

Fashion Metro”

and “Versona”

trademarks are

integral to

our store

designs, brand

recognition and

our ability

to successfully

build consumer

loyalty.

Although we have

registered these trademarks

with the U.S.

Patent and Trademark

Office (“PTO”)

and

have also registered, or applied for registration

of, additional trademarks with the PTO that we believe are

important to our

business, we cannot

give assurance that these

registrations will prevent

imitation of our

trademarks, merchandising concepts, store designs or private label merchandise or the infringement

of our

other intellectual property rights by

others. Infringement of our names,

concepts, store designs or

merchandise generally,

or particularly

in a

manner that

projects lesser

quality or

carries a

negative

connotation of our

image could adversely

affect our

business, financial condition

and results of

operations.

In addition, we

cannot give assurance that

others will not

try to block

the manufacture or

sale of our

private label merchandise by

claiming that our merchandise violates

their trademarks or other proprietary

rights. In

the event

of such

a conflict,

we could

be subject

to lawsuits

or other

actions, the

ultimate

resolution of which

we cannot predict;

however, such a

controversy could adversely affect

our business,

financial condition and results of operations.

Maintaining and improving our internal control over financial

reporting and other requirements necessary

to operate as a public company may strain our resources, and

any material failure in these controls may

negatively impact our business, the price of our common

stock and market confidence in our reported

financial information.

As a public

company, we

are subject to

the reporting requirements

of the Securities

Exchange Act of

1934, the Sarbanes

-Oxley Act of

2002, the rules

of the SEC

and New York

Stock Exchange and

certain

aspects of the Dodd-Frank Wall

Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and

related rule-making that has

been and may continue

to be implemented over

the next several years

under

the mandates of the Dodd-Frank Act. The requirements of

these rules and regulations have increased, and

may continue to increase,

our compliance costs and place significant strain on our pe

rsonnel, systems and

resources. To

satisfy the

SEC’s rules

implementing the

requirements of

Section 404

of the

Sarbanes-

Oxley Act of

2002, we must

continue to document,

test, monitor and

enhance our internal

control over

financial reporting, which is a

costly and time-consuming effort that

must be re-evaluated frequently.

cannot give assurance

that our disclosure

controls and procedures

and our internal

control over financial

reporting, as defined by

applicable SEC rules, will

be adequate in the

future. Any failure

to maintain the

effectiveness of

internal control

over financial

reporting or

to comply

with the

other various

laws and

regulations to which

we are and

will continue to

be subject, or

to which we

may become subject

in the

future, as a public company

could have an adverse material impact

on our business, our financial

condition and the

price of our

common stock. In

addition, our efforts

to comply with

these existing and

new requirements could significantly increase our compliance costs.

Risks Relating to Our Investments and Liquidity:

We may experience

market conditions or other events that could adversely

impact the valuation and liquidity

of, and our ability to access, our short-term investments, cash and

cash equivalents and our revolving line of

credit.

Our short

-term investments

and cash

equivalents are

primarily comprised of

investments in

federal,

state, municipal and

corporate debt securities.

The value of

those securities may

be adversely impacted

by factors relating to these securities, similar

securities or the broader credit markets in general.

Many of

these factors are beyond

our control, and include

but are not

limited to changes

to credit ratings, rates

default, collateral value,

discount rates, and

strength and quality

of market credit

and liquidity,

potential

disruptions in the capital markets

and changes in the underlying economic,

financial and other conditions

that drive these factors.

As federal, state and

municipal entities struggle with declining

tax revenues and

budget deficits, we

cannot be assured

of our ability

to timely access

these investments if

the market for

these issues declines.

Similarly, the

default by issuers of

the debt securities we

hold or similar securities

could impair the liquidity of

our investments.

The development or persistence of

any of these conditions

could adversely

affect our

financial condition,

results of

operations and

ability to

execute our

business

strategy. In

addition, we

have significant amounts

of cash

and cash

equivalents at

financial institutions

that are

in excess

of the

federally insured

limits.

An economic

downturn or

development of

adverse

conditions affecting the financial sector and stability

of financial institutions could cause us to

experience

losses on our deposits.

Our ability to

access credit markets

and our revolving

line of credit,

either generally or

on favorable

market terms, may be impacted

by the factors discussed in

the preceding paragraph, as

well as continued

compliance with covenants under our

revolving credit agreement.

The development or persistence of

any

of these adverse

factors or failure to

comply with covenants on

which our borrowing is

conditioned may

adversely affect

our financial

condition, results

of operation

and our

ability to

execute our

business

strategy.

Risks Relating to the Market Value of Our Common Stock:

Our operating results are subject to seasonal and quarterly

fluctuations, which could adversely affect the

market price of our common stock.

Our business varies

with general seasonal

trends that are

characteristic of the

retail apparel industry.

As a result,

our stores typically

generate a higher

percentage of our

annual net sales

and profitability in

the first

and second quarters

of our

fiscal year

compared to other

quarters.

Accordingly, our

operating

results for any

one fiscal period

are not necessarily

indicative of

results to be

expected from any

future

period, and

such seasonal

and quarterly

fluctuations could

adversely affect

the marke

price of

our

common stock.

The interests of a principal shareholder may limit the ability of

other shareholders to influence the direction

of the Company and otherwise affect our corporate

governance.

As of March 29, 2021, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially

controlled approximately 48.1% of the voting power of

our common stock.

As a result, Mr.

Cato may be

able to control

or significantly influence

substantially

all matters requiring

approval by the

shareholders,

including the election

of directors and

the approval of

mergers and other

business combinations or other

significant Company

transactions. Mr.

Cato may

have interests

that differ

from those

of other

shareholders, and

may vote

in a

way with

which other

shareholders disagree

or perceive

as adverse

their interests.

In addition, the

concentration of voting power

held by Mr.

Cato could have

the effect of

preventing, discouraging

or deferring

a change

in c

ontrol of

the Company,

which could

depress the

market price of our common stock. In the future, if Mr. Cato acquires beneficial control of more than 50%

of the voting power of

our common stock (including as

a result of continued Company stock

repurchases

from time

to time

under our

stock repurchase

program that

would reduce

our outstanding

shares), we

would qualify for

exemption as a

“controlled company” from

compliance with certain

New York

Stock

Exchange corporate governance rules, including the

requirements that we have a

majority of independent

directors on

our Board,

an independent

compensation committee

and an

independent corporate

governance and

nominating committee.

If we

became eligible

and elected

to utilize

these “controlled

company” exceptions, our other shareholders could lose

the benefit of these corporate governance

requirements and the market value of our common stock could be adversely

affected.

Conditions in the stock market generally,

or particularly relating to our industry, Company

or common

stock, may materially and adversely affect the market

price of our common stock and make its trading price

more volatile.

The trading price

of our common

stock at times

has been, and

is likely to

continue to be,

subject to

significant volatility.

A variety of factors

may cause the price of

our common stock to

fluctuate, perhaps

substantially, including,

but not

limited to,

those discussed

elsewhere in

this report,

as well

as the

following: low trading

volume; general market

fluctuations resulting from

factors not directly

related to

our operations or the inherent value of our

common stock; announcements of developments related to our

business; fluctuations in our reported operating results; general conditions or trends affecting or perceived

to affect the

fashion and retail industry;

conditions or trends affecting

or perceived to affect

the domestic

or global economy

or the domestic

or global credit

or capital markets;

changes in financial

estimates or

the scope of

coverage given to

our Company by

securities analysts; n

egative commentary regarding

our

Company and

corresponding short

-selling market

behavior; adverse

customer relations

developments;

significant changes in

our senior management

team; and legal

proceedings.

Over the past

several years

the stock market in

general, and the market

for shares of equity

securities of many retailers

in particular,

have experienced

extreme price

fluctuations that

have at

times been

unrelated to

the operating

performance of those companies.

Such fluctuations and market

volatility based on these

or other factors

may materially and adversely affect the market price of our common stock.

Item 1B.

Unresolved Staff Comments:

None.

Item 2.

Properties:

The Company’s

distribution center and

general offices are

located in a

Company-owned building of

approximately 552,000

square feet located

on a

15-acre tract

in Charlotte, North

Carolina. The

Company’s automated

merchandise handling

and distribution

activities occupy

approximately 418,000

square feet

of this

building and

its general

offices and

corporate training

center are

located in

the

remaining 134,000 square

feet. A building

of approximately 24,000

square feet located

on a 2-

acre tract

adjacent to

the Company’s

existing location

is used

for receiving

and distribution

of store

and office

operating supplies.

The Company

also owns

approximately 185 acres

of land

York

County, South

Carolina as a potential new site for our distribution center.

Item 3.

Legal Proceedings

From time to

time, claims are

asserted against the

Company arising out

of operations in

the ordinary

course of

business.

The Company

currently is

not a

party to

any pending

litigation that

it believes

likely to have a

material adverse effect on the

Company’s financial position, results

of operations or cash

flows. See Note 16, “Commitments and Contingencies,” for more information.

Item 3A.

Executive Officers of the Registrant:

The executive officers of the Company and their ages as of March 29, 2021 are

as follows:

Name

Age

Position

John P.

D. Cato............................

Chairman, President and Chief Executive Officer

John R. Howe ..............................

Executive Vice President, Chief Financial Officer

Gordon Smith ..............................

Executive Vice President, Chief Real Estate and

Store Development Officer

John P.

D. Cato

has been

employed as

an officer

of the

Company since

1981 and

has been

director of the Company since 1986. Since January 2004, he

has served as Chairman, President and Chief

Executive Officer. From

May 1999 to January 2004,

he served as President, Vice

Chairman of the Board

and Chief Executive Officer.

From June 1997 to May 1999, he

served as President, Vice Chairman of

the

Board and Chief Operating

Officer. From

August 1996 to June

1997, he served as

Vice Chairman

of the

Board and Chief

Operating Officer.

From 1989 to

1996, he managed

the Company’s

off-price concept,

serving as

Executive Vice

President and

as President

and General

Manager of

the It’s

Fashion concept

from 1993 to

August 1996. Mr.

Cato is a

former director of

Harris Teeter

Supermarkets, Inc., formerly

Ruddick Corporation.

John R.

Howe

has been employed

by the

Company since 1986.

Since September 2008,

he has

served as Executive

Vice President,

Chief Financial Officer.

From June 2007

until September 2008,

served as Senior

Vice President,

Controller.

From 1999 to

2007, he served

as Vice

President, Assistant

Controller.

From 1997 to 1999, he served as Assistant Vice President, Budgets and Planning.

From 1995

to 1997,

he served as

Director, Budgets

and Planning.

From 1990 to

1995, he served

as Assistant Tax

Manager.

From 1986 to 1990, Mr. Howe held various positions within the finance area.

Gordon Smith

has been employed by the Company since

1989. Since July 2011, he

has served as

Executive Vice

President, Chief Real

Estate and Store

Development Officer.

From February 2008

until

July 2011 Mr.

Smith served as Senior Vice

President, Real Estate. From October

1989 to February 2008,

Mr. Smith served as Assistant Vice President, Corporate Real Estate.

Item 4.

Mine Safety Disclosures:

No matters requiring disclosure.

PART

Item 5.

Market for Registrant’s

Common Equity, Related Stockholder Matters

and Issuer Purchases of

Equity Securities:

Market & Dividend Information

The Company’s

Class A Common Stock

trades on the

New York

Stock Exchange (“NYSE”)

under

the symbol CATO.

As of March 29, 2021, the approximate number of record holders of the Company’s Class A Common

Stock was 5,000 and there were 2 record holders of the Company’s Class B Common Stock.

Stock Performance Graph

The following

graph compares

the yearly

change in

the Company’s

cumulative total

shareholder

return on the

Company’s Common Stock

(which includes Class

A Stock and

Class B Stock)

for each of

the Company’s

last five

fiscal years

with (i)

the Dow

Jones U.S.

Retailers, Apparel

Index and

(ii) the

Russell 2000 Index.

THE CATO

CORPORATION

STOCK PERFOMANCE TABLE

(BASE 100 – IN DOLLARS)

LAST TRADING DAY

OF THE FISCAL YEAR

THE CATO

CORPORATION

DOW JONES U.S.

RETAILERS,

APPL

INDEX

RUSSELL 2000

INDEX

1/29/2016

100

1/27/2017

134

2/2/2018

112

156

2/1/2019

122

151

1/31/2020

136

165

1/29/2021

145

215

The graph assumes an initial investment of $100 on January 29, 2016,

the last trading day prior to the

commencement of the Company’s 2016 fiscal year, and that all dividends were reinvested.

Issuer Purchases of Equity Securities

The following table summarizes the Company’s purchases of its common stock for the three months

ended January 30, 2021:

Total Number of

Maximum Number

Shares Purchased as

(or Approximate Dollar

Total Number

Part of Publicly

Value) of Shares that may

of Shares

Average Price

Announced Plans or

yet be Purchased Under

Period

Purchased

Paid per Share (1)

Programs (2)

the Plans or Programs (2)

November 2020

320,707

7.09

320,707

December 2020

January 2021

Total

320,707

7.09

320,707

1,871,149

(1)

Prices include

trading

costs.

(2)

During the fourth quarter ended January 30,

2021, the Company repurchased and retired 320,707

shares under this program for

approximately

$2,274,611

or an average market

price of $7.09 per

share. On

November

19, 2020,

the Board

of Directors

authorized

an increase

in the Company’s

repurchase

program

of 1.5

million

shares.

As of

the fourth quarter

ended January 30,

2021, the

Company

had 1,871,149 shares remaining

in open authorizations.

There is no specified expiration

date for

the Company’s

repurchase

program.

Item 6.

Selected Financial Data

Certain selected

financial data

for the

five fiscal

years ended

January 30,

2021 have

been derived

from the Company’s

audited financial statements.

The financial statements

and Independent Registered

Public Accounting Firm’s integrated audit reports for the

most recent fiscal years are contained elsewhere

in this

report. All

data set

forth below

are qualified by

reference to,

and should

be read

in conjunction

with, the

Company’s Consolidated

Financial Statements

(including the

Notes thereto)

and

“Management’s Discussion

and Analysis

of Financial

Condition and

Results of

Operations” appearing

elsewhere in this annual report.

Fiscal Year (1)

2020

2019

2018

2017

2016

(Dollars in thousands, except per share data and selected operating data)

STATEMENT

OF OPERATIONS DATA:

Retail sales

$567,516

$816,184

$821,113

$841,997

$947,370

Other revenue

7,595

9,151

8,551

7,984

9,199

Total revenues

575,111

825,335

829,664

849,981

956,569

Cost of goods sold (exclusive of depreciation

shown below)

433,187

508,906

522,535

553,058

601,985

Selling, general and administrative (exclusive

of depreciation shown below)

206,492

263,773

262,510

266,304

289,619

Selling, general and administrative percent of

retail sales

36.4%

32.3%

32.0%

31.6%

30.6%

Depreciation

$14,681

$15,485

$16,463

$19,643

$22,716

Interest expense

187

114

176

Interest and other income

6,630

6,065

4,991

5,111

7,041

Income (loss) before income taxes

(72,806)

43,207

33,051

15,973

49,114

Income

tax expense (benefit)

(25,323)

7,310

2,590

7,433

1,902

Net income (loss)

(47,483)

35,897

30,461

8,540

47,212

Basic earnings (loss) per share

(2.01)

1.46

1.23

0.34

1.72

Diluted earnings (loss) per share

(2.01)

1.46

1.23

0.34

1.72

Cash dividends paid per share

0.33

1.32

1.29

SELECTED OPERATING DATA:

Stores open at end of year

1,330

1,281

1,311

1,351

1,371

Average sales per store (2)

$370,420

$575,000

$596,000

$604,880

$681,000

Average sales per square foot of selling space

136

133

135

151

BALANCE SHEET DATA (at

period end):

Cash, cash equivalents, short-term

investments and restricted cash

$147,438

$214,788

$207,920

$200,100

$252,158

Working capital (3)(4)

108,616

163,495

229,502

233,399

271,896

Total assets (4)

591,452

684,976

497,906

516,076

606,324

Total stockholders’ equity

246,498

316,514

316,836

326,353

383,903

___________

(1) The fiscal year 2017 contained 53 weeks versus 52 weeks for all other years shown.

(2) Calculated using actual sales volume for stores open for the full year and an estimated annual sales volume for new

stores opened

during the year.

(3) Calculated using Total Current Assets offset by Total Current Liabilities.

(4) In 2019, we adopted ASC 842, which required us to recognize lease assets and lease liabilities for most leases. Years before 2019

have not been adjusted for this new accounting standard.

Item 7.

Management's Discussion and Analysis of Financial Condition

and Results of Operations:

The following information should

be read in

conjunction with the Consolidated

Financial Statements,

including the accompanying Notes appearing in Part

II, Item 8 of this

report on Form 10-K.

This section

of the Form

10-K

generally discusses fiscal 2020

and fiscal 2019

and year-to-year comparisons between

fiscal 2020

and fiscal

2019.

Discussions of

fiscal 2018

items and

year-to-year comparisons

between

fiscal 2019

and fiscal

2018 that

are not

included in

this Form

10-K

can be

found in

“Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations”

in Part

II, Item

7 of

the

Company’s Annual Report on Form 10-K

for the fiscal year ended February 1, 2020.

COVID-19 Update

The COVID

-19 pandemic

has adversely

impacted the

Company's business,

financial condition

and

operating results

through fiscal

2020, and

we expect

that it

will continue

to do

so in

fiscal 2021

and

possibly beyond. Adverse

financial impacts associated

with the outbreak

include, but are

not limited to,

(i) lower net

sales in markets

affected by the

actual or potential

outbreak, whether due to

state and local

orders to

close stores,

reductions in

store traffic

and customer

demand, labor

shortages, or

all of

these

factors, (ii) lower net sales caused

by the delay of inventory production and fulfillment,

(iii) and

incremental costs

associated with

efforts to

mitigate the

effects of

the outbreak,

including increased

freight and logistics costs and other expenses.

Responses to

the pandemic

by customers,

government and

the private

sector have

and will

likely

continue to

adversely impact

our business

operations.

In the

first quarter

of fiscal

2020, the

pandemic

resulted in state and local orders mandating store closures and other measures to mitigate

the spread of the

virus.

Though the Company’s stores

were reopened in the second quarter of fiscal 2020,

they continue to

operate at

reduced hours.

Periodic increases

in infection

rates in

communities where

our stores

are

located may prompt

further governmental

measures or

public health

guidance to

reduce public

activity

and gatherings

in order

to mitigate

the spread

of the

virus, and

may also

continue to

adversely affect

consumer confidence.

There continues to

be significant uncertainty

regarding the breadth,

severity and

duration of

business disruptions

related to

COVID-19, as

well as

its impact

on the

global and

U.S.

economy, consumer willingness to visit malls and shopping centers, and its impact

on appropriate

associate staffing levels for our stores.

The Company’s

pre-pandemic liquidity

position has

enabled it

to offset

the downturn

in operating

cash flows

since the

onset of

the pandemic

by liquidating

short-term investments

and drawing

and

repaying under

its revolving

credit facility.

The Company

has also

implemented various

cost-cutting

measures to

conserve cash,

such as

suspending dividend

payments, reducing

non-committed capital

expenditures (only half of planned new stores were opened during 2020)

and reducing corporate field and

store overhead.

The Company is grateful for

the efforts

of its

associates in helping to address the

considerable

challenges created by

the pandemic.

In recognition of

these efforts and

to aid with

retention, on March

24, 2021 the

Compensation Committee approved a

discretionary bonus of

$1.6 million ($1.3

million net

of taxes) to key associates as discussed in more detail in “Other Information”

in Part II, Item 9B.

The extent

to which

the COVID

-19 pandemic

ultimately impacts the

Company’s business,

financial

condition, results of operations, cash flows, and liquidity may differ from management’s current estimates

due to inherent uncertainties regarding the duration and further spread of the outbreak,

its severity, actions

taken to contain

the virus or

treat its impact,

and how quickly

and to what

extent normal economic

and

operating conditions can resume.

While the Company

currently anticipates a

continuation of the

adverse impacts of

COVID-19 during

2021 and possibly

beyond, the duration

and severity of

these effects will

depend on the

course of future

developments, which are

highly uncertain, including

the relative speed

and success of,

as well as

public

confidence in, mitigation measures

such as the current

effort to vaccinate substantial

portions of the U.S.

and global

population, emerging

information regarding

variants of

the virus

or new

viruses and

their

potential impact on

current mitigation efforts,

public attitudes toward

continued compliance with

containment and

mitigation measures, and

possible new information

and understanding that

could alter

the course and duration of current measures to combat the spread of the virus.

Results of Operations

The table below sets forth certain financial data of the Company expressed

as a percentage of retail sales for the

years indicated:

Fiscal Year Ended

January 30,

2021

February 1,

2020

February 2,

2019

Retail sales …………………………………………………………..

100.0

Other revenue…………………………………………………………

1.3

1.1

1.0

Total revenues ……………………………………………………….

101.3

101.1

101.0

Cost of goods sold …………………………………………………..

76.3

62.4

63.6

Selling, general and administrative………………………………….

36.4

32.3

32.0

Depreciation …………………………………………………………

2.6

1.9

2.0

Interest and other income ……………………………………………

1.2

0.7

0.6

Income (loss) before income taxes ……………………………

(12.8)

5.3

4.0

Net income (loss) ……………………………………………………

(8.4)

4.4

3.7

Fiscal 2020 Compared to Fiscal 2019

Retail sales decreased by 30.5% to $567.5 million

in fiscal 2020 compared to $816.2 million in fiscal 2019.

The decrease in

retail sales in

fiscal 2020 was

primarily due to

a 32% decrease

in same-store sales,

partially

offset by sales

from new store

openings. Same-store sales

includes 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.

In fiscal 2020

and fiscal 2019,

e-commerce sales were

less than

5% of

total sales

and same

-store sales.

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.

Total revenues, comprised of retail sales and

other revenue (principally

finance

charges and late

fees on customer

accounts receivable, gift card

breakage,

shipping charges for

e-commerce

purchases

and layaway fees),

decreased by 30.3% to

$575.1 million in fiscal 2020

compared to $825.3 million

in fiscal 2019.

The Company operated 1,330

stores at January 30,

2021 compared to 1,281

stores operated at

February 1, 2020.

In fiscal 2020, the Company opened 76 new stores

and closed 27 stores.

Other revenue

in total

decreased to

$7.6 million

in fiscal

2020 from

$9.2 million

in fiscal

2019.

The

decrease resulted primarily due to

decreases in finance and

layaway charges, partially offset

by an increase in

e-commerce shipping revenues.

Credit revenue of

$2.7 million represented

0.5% of total

revenue in fiscal

2020,

a $0.9 million

decrease

compared to

fiscal 2019

credit revenue

of $3.6

million or

0.4% of

total revenue.

The decrease

in credit

revenue was

primarily due

to reductions

in finance

and late

charge income

as a

result of

lower accounts

receivable balances.

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

$1.5 million in

fiscal 2020 compared

to $1.8 million

in fiscal 2019.

See

Note 14

of Notes to

Consolidated Financial Statements for

a schedule of

credit-related expenses. Total

credit

segment income before taxes

decreased $0.6 million to

$1.2 million in fiscal

2020 from $1.8 million

in fiscal

2019.

Cost of goods sold was $433.2 million, or 76.3% of retail sales, in fiscal 2020

compared to $508.9 million,

or 62.4%

of retail sales

in fiscal 2019.

The increase in

cost of

goods sold

as a

percentage of sales

resulted

primarily

from an increase

in markdown sales due

to liquidating spring and

summer

merchandise,

goods

marked out

of stock,

and deleveraging

occupancy,

distribution

and buying

costs

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 and excluding

depreciation) decreased by 56.3% to

$134.3 million in fiscal 2020

from $307.3

million in

fiscal 2019.

Gross margin

as presented

may not

be comparable

to that

of other

companies.

Selling,

general and

administrative expenses

(“SG&A”), which

primarily include

corporate and

store

payroll, related payroll

taxes and

benefits, insurance,

supplies, advertising, bank

and credit

card processing

fees were $206.7 million

in fiscal 2020 compared

to $263.8 million in

fiscal 2019, a decrease

of 21.7%.

As a

percent of retail sales,

SG&A was 36.4% compared

to 32.3% in the

prior year. The

dollar decrease in SG&A

expense was primarily

attributable

to lower

store expenses

due to stores

being closed,

phased store

re-opening

in the

second

quarter, reduced store

operating

hours,

lower corporate expenses

and the

elimination

incentive

compensation,

resulting

from the failure

to meet targets

under the Company’s

annual incentive

compensation

plan, partially

offset by

higher store

impairment

charges.

Depreciation expense was $14.7

million in fiscal 2020

compared to $15.5 million

in fiscal 2019.

Depreciation expense decreased

from fiscal 2019

due to

fully depreciated older

stores and

impairments of leasehold

improvements and fixtures,

partially offset

by store

development and

information

technology expenditures.

Interest and other income increased to

$6.6 million in fiscal 2020

compared to $6.1 million in fiscal

2019.

The increase is primarily due to a gain

on the sale of land held

for investment, partially offset by a decrease in

short-term investments.

Income tax

benefit was

$25.3 million,

or 4.5%

of retail

sales in

fiscal 2020

compared to

income tax

expense of $7.3 million, or 0.9% of retail sales in

fiscal 2019. The income tax benefit was primarily due to the

federal net

operating loss

carryback provisions

of the

Coronavirus Aid,

Relief and

Economic Security Act

(“CARES Act”) and

release of reserve

for uncertain tax

positions due to

expiration of statute

of limitations,

partially offset by

valuation allowances against

state net operating

tax losses, less

income tax credits

and an

upward adjustment in the reserves

for uncertain tax positions specifi

to state income taxes

in the first quarter

of 2020.

The effective

tax rate

was 34.8%

(Benefit) in

fiscal 2020

compared to

16.9% (Expense)

in fiscal

2019. See Note 12 to the Consolidated Financial

Statements, “Income Taxes,” for further details.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

The Compa

ny’s accounting

policies are

more fully

described in

Note 1

to Consolidated

Financial

Statements. As disclosed in

Note 1 of

Notes to Consolidated Financial Statements,

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 allowance

for customer

credit losses, inventory

shrinkage, the calculation

of potential asset

impairment, workers’ compensation,

general and auto insurance

liabilities, reserves relating to

self-insured health insurance, and

uncertain tax

positions.

The Company’s critical accounting policies and estimates are discussed with the Audit Committee.

Allowance for Customer Credit Losses

The Company evaluates

the collectability of

customer accounts receivable

and records an

allowance

for customer credit

losses based on

the accounts receivable aging

and estimates of

actual write-offs. The

allowance is reviewed

for adequacy and

adjusted, as necessary,

on a quarterly

basis. The Company

also

provides for

estimated uncollectible

late fees

charged based

on historical

write-offs. The

Company’s

financial results can

be impacted by

changes in customer

loss write-off

experience and the

aging of the

accounts receivable portfolio.

Merchandise Inventories

The Company’s

inventory is valued

using the weighted

-average cost method

and is stated

at the net

realizable value. Physical inventories are

conducted throughout the year to calculate

actual shrinkage and

inventory on hand.

Estimates based on actual

shrinkage results are

used to estimate

inventory shrinkage,

which is accrued

for the period

between the last

physical inventory and the

financial reporting date.

The

Company regularly

reviews its

inventory levels

to identify

slow moving

merchandise and

uses

markdowns to clear slow moving inventory.

Lease Accounting

In 2016,

the Financial

Accounting Standards

Board (“FASB”)

issued Accounting

Standard

Codification (“ASC”) 842

Leases

, with

amendments issued in

2018. The guidance

requires lessees to

recognize most

leases on

the balance

sheet but

does not

change the

manner in

which expenses

are

recorded in

the income

statement. For

lessors, the

guidance modifies

the classification

criteria and

the

accounting for sales-type and direct financing leases.

As of February 3, 2019, the Company adopted ASC 842 utilizing the modified retrospective

approach.

The modified

retrospective approach

the Company

selected provides

a method

of transition

allowing

recognition of existing

leases as o

the beginning of

the period of

adoption (i.e., February

3, 2019), and

which does not require the adjustment of comparative periods. See Note

11 for further information.

The Company elected the transition

package of practical expedients that

is permitted by the

standard.

The package of practical expedients allows the

Company to not reassess previous accounting conclusions

regarding whether existing arrangements are or contain leases, the classification

of existing leases, and the

treatment of

initial direct

costs. The

Company did

not elect

the hindsight

transition practical

expedient

allowed for by the

new standard, which allows entities

to use hindsight when determining

lease term and

impairment of right-of-use assets.

Impairment of Long-Lived Assets

The Company invests

in leaseholds, right-

of use

assets and

equipment primarily in

connection with

the opening and remodeling of stores

and in computer software and hardware. The Company periodically

reviews its store locations

and estimates the recoverability

of its long-lived assets,

which primarily relate

to Fixtures

and equipment,

Leasehold improvements,

Right-of-use assets

net of

Lease liabilities

and

Information technology equipment

and software.

An impairment

charge is

recorded for

the amount

which the carrying

value exceeds the

estimated fair value

when the Company

determines that projected

cash flows associated with those long-lived assets will not be sufficient to recover the carrying value. This

determination is

based on

a number

of factors,

including the

store’s historical

operating results

and

projected cash flows, which

include future sales growth

rates, margin rates

and expense projections. The

Company assesses the fair

value of each

lease by considering market

rents and any

lease terms that

may

adjust market rents

under certain conditions,

such as the

loss of

an anchor tenant

or a leased

space in a

shopping center not

meeting certain criteria. Further,

in determining when to

close a store,

the Company

considers real

estate development

in the

area and

perceived local

market conditions,

which can

difficult to predict and may be subject to change.

Insurance Liabilities

The Company

is primarily

self-insured for

healthcare, workers’

compensation and

general liability

costs. These costs are significant primarily

due to the large number

of the Company’s retail

locations and

associates. The Company’s

self-insurance liabilities are based

on the total estimated

costs of claims filed

and estimates

of claims

incurred but

not reported,

less amounts

paid against

such claims,

and are

not

discounted. Management

reviews current

and historical

claims data

in developing

its estimates.

The

Company also uses information provided by outside actuaries

with respect to healthcare, workers’

compensation and general liability claims. If the

underlying facts and circumstances of the claims

change

or the

historical experience

upon which

insurance provisions

are recorded

is not

indicative of

future

trends, then the

Company may be required

to make adjustments

to the provision

for insurance costs

that

could be

material to the

Company’s reported

financial condition and

results of operations.

Historically,

actual results have not significantly deviated from estimates.

Uncertain Tax Positions

The Company records

liabilities for uncertain

tax positions primarily

related to state

income taxes as

of the balance sheet date.

These liabilities reflect the Company’s

best estimate of its ultimate

income tax

liability based

on the

tax codes,

regulations, and

pronouncements of

the jurisdictions

in which

we do

business.

Estimating our ultimate tax liability involves significant judgments regarding the application of

complex tax reg

ulations across many

jurisdictions.

Despite the Company’s

belief that the

estimates and

judgments are

reasonable, differences

between the

estimated and

actual tax

liabilities can

and do

exist

from time to time.

These differences may arise from settlements of

tax audits, expiration of the statute of

limitations, or the

evolution and application of

the various jurisdictional

tax codes and

regulations.

Any

differences will be

recorded in the

period in which

they become known and

could have a

material effect

on the results of operations in the period the adjustment is recorded.

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 borrowings

available under its revolving credit

agreement, will be adequate to

fund the Company’s

regular operating requirements

and capital expenditures

for fiscal 2021

and for the

foreseeable future.

In order to preserve liquidity during

the COVID-19 pandemic and in

light of the uncertainties as

to its

duration and

economic impact,

the Company

suspended its

quarterly dividend,

significantly reduced

planned capital

expenditures and

decreased its

store hours,

reduced non

-payroll e

xpenses, as

well as,

furloughed associates and in

certain instances eliminated positions

primarily at the corporate

office.

The

Company’s pre

-pandemic liquidity position has

enabled it to offset

the downturn in operating

cash flows

since the onset of the pandemic by liquidating short-term investments and

drawing and repaying under its

revolving credit facility.

The Company will

continue to focus

on preserving liquidity

while minimizing

capital expenditures

in 2021.

Additionally, the

Company’s $35.0

million revolving

facility allows

the

Company flexibility in

managing its short-

term investments, as

was the case

in the first

quarter of 2020

when the credit markets seized during the early phases of the COVID-19

pandemic.

Cash used by

operating activities during

fiscal 2020 was

$30.7 million as

compared to $53.4

million

provided in fiscal 2019

and $60.2 provided in

fiscal 2018. Cash used

by operating activities during

2020

was primarily attributable

to a net

loss adjusted for

depreciation, share-based compensation, impairment

and changes in working

capital. The decrease o

$84.1 million for fiscal

2020 compared to fiscal

2019 is

primarily

due to a

net operating

loss versus

net operating

income,

an increase

in accounts

receivable

primarily

to income

taxes and

an increase

in prepaid

expenses,

partially

offset by

lower merchandise

inventories

and store

impairment

charges.

At January 30, 2021, the Company had working capital

of $108.6 million compared to $163.5 million

and $229.5

million at

February 1,

2020 and

February 2,

2019, respectively.

The decrease in

working

capital

is primarily due

to reduction in

short-term

investments

and lower inventories, partially

offset by

higher accounts

receivables

and lower

accrued

liabilities.

At January 30, 2021,

the Company had an

unsecured revolving credit agreement, which

provided for

borrowings of up to $35.0 million less the

balance of any revocable letters of credit

discussed below. The

revolving credit agreement is committed until

May 2023. The credit agreement contains

various financial

covenants and limitations, including the maintenance of specific financial ratios

with which the Company

was in compliance as of January 30, 2021. There were no borrowings outstanding

under this credit facility

as of the fiscal year ended January 30, 2021 or the fiscal year ended February

1, 2020.

The Company

had no

outstanding revocable

letters of

credit relating

to purchase

commitments at

January 30, 2021, February 1, 2020 and February 2, 2019.

Expenditures for property and equipment totaled $14.0 million, $8.3 million and $4.4

million in fiscal

2020, 2019 and 2018, respectively.

The expenditures for fiscal 2020 were

primarily for additional

investments

in 76 new stores,

distribution

center

and information

technology.

In fiscal 2021, the

Company

is planning to invest approximately $3.0 million in capital expenditures.

Net cash

provided by

investing activities

totaled $64.5

million for

fiscal 2020

compared to

$22.6

million used for fiscal

2019 and $71.1 million used

in fiscal 2018.

In fiscal 2020, the

cash provided was

primarily attributable

to the increase in net sales of short-term investments,

partially

offset by expenditures

for property

and equipment.

Net cash used by financing activities totaled $27.2 million in fiscal 2020 compared to net cash used of

$41.6 million for

fiscal 2019 and

$45.2 million for

fiscal 2018. The

decrease

was primarily

due to lower

dividend

payments,

partially

offset by

higher share

repurchase

amounts.

The Company does not use derivative financial instruments.

See Note

4, “Fair

Value

Measurements,” for

information regarding the

Company’s financial

assets

that are measured at fair value.

The Company’s

investment portfolio

was primarily invested

in corporate

bonds and tax-

exempt and

taxable governmental debt

securities held in

managed accounts with

underlying ratings of

A or better

January 30, 2021.

The state, municipal

and corporate bonds and

asset-backed securities have contractual

maturities which range

from two days

to 7.5 years.

The U.S. Treasury

Notes and Certificates

of Deposit

have contractual maturities

which range from

three months to

2.5 years. These securities are classified

available-for-sale

and are recorded as Short

-term investments,

Restricted

cash, Restricted

short-term

investments

and Other assets

on the accompanying

Consolidated

Balance

Sheets.

These assets

are carried

fair value with

unrealized

gains and

losses

reported

net of

taxes in

Accumulated

other comprehensive

income.

The asset-backed

securities

are bonds

comprised

of auto loans

and bank

credit cards

that carry

AAA

ratings.

The auto

loan asset-backed

securities

are backed

by static

pools of

auto loans

that were

originated

and

serviced

by captive auto

finance

units, banks or

finance

companies.

The bank credit

card asset-backed

securities

are backed

by revolving

pools of

credit

card receivables

generated

by account

holders

of cards

from

American

Express,

Citibank,

JPMorgan Chase,

Capital

One, and

Discover.

Additionally, at

January 30,

2021, the

Company had

$0.7 million

of corporate

equities, which

are

recorded within Other assets in the Consolidated Balance

Sheets.

At February 1, 2020, the Company had

$0.7 million

of corporate

equities, which are

recorded within

Other assets

in the

Consolidated Balance

Sheets.

Level 1

category

securities

are measured at

fair value using

quoted

active

market prices.

Level 2

investment

securities

include

corporate

and municipal

bonds for

which quoted

prices

may not

be available

active exchanges

for identical

instruments.

Their fair

value is

principally

based on

market values

determined

by management with 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

primarily 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 compensat

ion obligation,

the value

of which

is tracked

via

underlying insurance

funds’

net asset

values, as

recorded in

Other noncurrent

liabilities in

the

Consolidated Balance Sheets.

These funds are designed

to mirror the return

of existing mutual funds

and

money market funds that are observable and actively traded.

The following table shows the Company's obligations and commitments

as of January 30, 2021,

to make future payments under noncancellable contractual obligations

(in thousands):

Payments Due During One Year Fiscal Period Ending

Contractual Obligations

(1)

Total

2021

2022

2023

2024

2025

Thereafter

Operating leases

227,525

70,007

48,639

35,717

22,542

13,815

36,805

Total Contractual Obligations

227,525

70,007

48,639

35,717

22,542

13,815

36,805

____________

(1) In addition to the amounts shown in the table above, $5.9 million of unrecognized tax benefits have been recorded

as liabilities in accordance

with ASC 740 and we are uncertain if or when such amounts may

be settled.

See Note 12, Income Taxes, of the Consolidated Financial

Statements for additional information.

Recent Accounting Pronouncements

See Note 1, Summary of Significant

Accounting Policies, Recently Adopted Accounting Policies and

Recently Issued Accounting Pronouncements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk:

The Company

is subject

to market

rate risk

from exposure

to changes

in interest

rates based

on its

financing, investing and cash

management activities, but the

Company does not believe

such exposure is

material.

Item 8.

Financial Statements and Supplementary Data:

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Page

Report of Independent Registered Public Accounting Firm

................................................................

Consolidated Statements of Income (Loss) and Comprehensive

Income (Loss) for the fiscal

years ended January 30, 2021, February 1, 2020 and February 2,

2019 ...........................................

Consolidated Balance Sheets at January 30, 2021 and

February 1, 2020

.............................................

Consolidated Statements of Cash Flows for the fiscal years ended

January 30, 2021, February 1, 2020

and February 2, 2019................................

................................................................

.........................

Consolidated Statements of Stockholders’ Equity for the fiscal years

ended January 30, 2021,

February 1, 2020 and February 2, 2019 ................................

............................................................

Notes to Consolidated Financial Statements ................................................................

..........................

Schedule II — Valuation

and Qualifying Accounts for the fiscal years ended January 30,

2021,

February 1, 2020 and February 2, 2019 ................................

............................................................

Report of Independent Registered Public Accounting

Firm

To the Board

of Directors and Stockholders of The Cato Corporation

Opinions on the Financial Statements and Internal Control over

Financial Reporting

We have audited

the accompanying consolidated balance sheets of

The Cato Corporation and its subsidiaries (the

“Company”) as

of January 30,

2021 and

February 1, 2020

and the related

consolidated statements of

income (loss) and

comprehensive income

(loss), of

stockholders’ equity and

of cash

flows for

each of

the three years

in the

period ended

January 30, 2021,

including the related

notes and financial

statement schedule listed

in the accompanying index

(collectively referred to

as the “consolidated

financial statements”). We

also have audited

the Company’s internal

control

over financial reporting

as of January

30, 2021, based

on criteria established

in Internal Control

– Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway

Commission (COSO).

In our opinion, the

consolidated financial statements

referred to above present

fairly, in all

material respects, the financial

position of the

Company as of January

30, 2021 and

February 1, 2020,

and the results of

its operations and its

cash flows

for each

of the

three years

in the

period ended

January 30,

2021 in

conformity with

accounting principles

generally

accepted in the United

States of America. Also in

our opinion, the Company maintained,

in all material respects,

effective

internal control

over financial

reporting as

of January

30, 2021,

based on

criteria established

in Internal

Control -

Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed

in Note

1 to

the consolidated

financial statements,

the Company

changed the

manner in

which it

accounts for leases as of February 3, 2019.

Basis for Opinions

The Company's management

is responsible for

these consolidated financial

statements, for maintaining

effective internal

control over

financial reporting,

and for

its assessment

of the

effectiveness of

internal control

over financial

reporting,

included in

Management’s Report

on Internal Control

Over Financial Reporting

appearing under

Item 9A. Our

responsibility is to

express opinions

on the

Company’s consolidated

financial statements

and on the

Company's internal

control over financial reporting

based on our audits.

We are

a public accounting

firm registered with the

Public Company

Accounting Oversight Board (United States)

(PCAOB) and are required to be

independent with respect to the Company

accordance with the

U.S. federal securities

laws and the

applicable rules and

regulations of

the Securities and

Exchange

Commission and the PCAOB.

We conducted

our audits

in accordance

with the

standards of

the PCAOB.

Those standards

require that

we plan

and

perform the audits

to obtain reasonable

assurance about whether the

consolidated financial statements

are free of material

misstatement, whether due to error or fraud,

and whether effective internal control over financial

reporting was maintained

in all material respects.

Our audits of the consolidated financial

statements included performing procedures to assess

the risks of material

misstatement of

the consolidated

financial statements,

whether due

to error

or fraud,

and performing

procedures that

respond to those risks. Such procedures

included examining, on a test basis,

evidence regarding the amounts and

disclosures in the consolidated financial statements. Our audits also included

evaluating the accounting principles used and

significant estimates

made by

management, as

well as

evaluating the

overall presentation

of the

consolidated financial

statements. Our audit

of internal control

over financial reporting

included obtaining an

understanding of internal

control

over financial

reporting, assessing

the risk

that a

material weakness

exists, and

testing and

evaluating the

design and

operating effectiveness

of internal

control based

on the

assessed risk.

Our audits

also included

performing such

other

procedures as we considered

necessary in the circumstances. We

believe that our audits

provide a reasonable basis

for our

opinions.

Definition and Limitations of Internal Control over Financial

Reporting

A company’s internal

control over financial reporting

is a process designed

to provide reasonable assurance

regarding the

reliability of

financial reporting

and the

preparation of

financial statements

for external

purposes in

accordance with

generally accepted accounting principles. A company’s

internal control over financial reporting includes those policies and

procedures that

(i) pertain

to the

maintenance of

records that,

in reasonable

detail, accurately

and fairly

reflect the

transactions and dispositions of

the assets of the

company; (ii) provide reasonable

assurance that transactions are

recorded

as necessary to permit preparation of financial statements in accordance with generally accepted accounting

principles, and

that receipts and expenditures

of the company are

being made only in

accordance with authorizations of

management and

directors of the

company;

and (iii) provide reasonable

assurance regarding prevention

or timely detection of

unauthorized

acquisition, use, or disposition of the company’s assets that

could have a material effect on the financial statements.

Because of its inherent limitations, internal

control over financial reporting may not

prevent or detect misstatements. Also,

projections of any evaluation of effectiveness

to future periods are subject to

the risk that controls may become inadequate

because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated

financial

statements that was

communicated or required

to be communicated to

the audit committee and

that (i) relates

to accounts

or disclosures

that are

material to

the consolidated

financial statements

and (ii)

involved our

especially challenging,

subjective, or complex

judgments. The communication

of critical audit

matters does not

alter in any

way our opinion

the consolidated financial statements,

taken as a whole,

and we are not,

by communicating the critical

audit matter below,

providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of Long-Lived Assets - Store

Location Asset Groupings

As described in Notes 1 and 6 to the consolidated financial

statements, the Company’s consolidated

property and

equipment, net

balance was $72.6

million, of which

the store locations

were a portion,

and consolidated operating

lease

right-of-use assets, net

balance was $199.8

million as of

January 30, 2021.

The Company invests

in leaseholds, right-of-

use assets

and equipment, primarily

in connection

with the opening

and remodeling of

stores, and in

computer software

and hardware.

The Company

periodically reviews

its store

locations and

estimates the

recoverability of

its long-lived

assets, which primarily relate

to fixtures and

equipment, leasehold improvements,

right-of-use assets net

of lease

liabilities, and

information technology

equipment and

software. An

impairment charge

is recorded

for the

amount by

which the carrying value exceeds the estimated fair

value when

management determines that projected cash flows

associated with those long-lived assets will not be sufficient

to recover the carrying value. This determination is based on a

number of

factors, including the

store’s historical

operating results

and projected cash

flows, which include

future sales

growth rates,

margin rates,

and expense

projections. The

Company assesses

the fair

value of

each lease

by considering

market rents and any lease terms that

may adjust market rents under certain conditions

such as the loss of an anchor

tenant

or a leased space

in a shopping center

not meeting certain criteria.

An impairment charge for

store assets of $11.4

million

was recorded during the year ended January 30, 2021.

The principal

considerations for

our determination

that performing

procedures relating

to the

impairment of

long-lived

assets –

store location

asset groupings

is a

critical audit

matter are

(i) the

significant judgment

by management

when

determining the

fair value

measurement of

the store location

asset groupings,

which led

to (ii) a

high degree

of auditor

judgment, subjectivity, and effort

in performing procedures and evaluating management’s

projected cash flow assumptions

related to future sales growth rates, margin rates, and expense projections.

Addressing the

matter involved

performing procedures

and evaluating

audit evidence

in connection

with forming

our

overall opinion

on the consolidated

financial statements.

These procedures included

testing the effectiveness

of controls

relating to

management’s long-

lived assets

– store location

recoverability test and

determination of

the fair value

of the

asset group.

These procedures also

included, among

others (i) testing

the completeness

and accuracy of

underlying data

used in

the projected

cash flows and

store location

asset groupings,

(ii) evaluating the

reasonableness of

management’s

assumptions related to future sales

growth rates, margin rates, and expense projections

by considering current and

historical performance

of the

store location

asset groupings

and whether

the assumptions were

consistent with

evidence

obtained in

other areas

of the

audit, (iii)

evaluating the

appropriateness of

the projected

cash flow

model, and

(iv)

evaluating management’s assessment of

the fair value of the leased assets included in the store location asset groupings.

/s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina

March 29, 2021

We have served as the

Company’s auditor since

2003.

THE CATO CORPORATION

CONSOLIDATED STATEMENTS

OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

Fiscal Year Ended

January 30, 2021

February 1, 2020

February 2, 2019

(Dollars in thousands, except per share data)

REVENUES

Retail sales

567,516

816,184

821,113

Other revenue (principally finance charges,

late fees and layaway charges)

7,595

9,151

8,551

Total revenues

575,111

825,335

829,664

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of

depreciation shown below)

433,187

508,906

522,535

Selling, general and administrative (exclusive

of depreciation shown below)

206,492

263,773

262,510

Depreciation

14,681

15,485

16,463

Interest expense

187

Interest and other income

(6,630)

(6,065)

(4,991)

Cost and expenses, net

647,917

782,128

796,613

Income (loss) before income taxes

(72,806)

43,207

33,051

Income tax expense (benefit)

(25,323)

7,310

2,590

Net income (loss)

(47,483)

35,897

30,461

Basic earnings (loss) per share

(2.01)

1.46

1.23

Diluted earnings (loss) per share

(2.01)

1.46

1.23

Dividends per share

0.33

1.32

Comprehensive income:

Net income (loss)

(47,483)

35,897

30,461

Unrealized gain (loss) on available-for-sale

securities, net of deferred income taxes of

), $

453

, and $

for fiscal 2020, 2019

and 2018, respectively

(268)

1,500

244

Comprehensive income (loss)

(47,751)

37,397

30,705

See notes to consolidated financial statements.

THE CATO CORPORATION

CONSOLIDATED BALANCE SHEETS

January 30, 2021

February 1, 2020

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

17,510

11,824

Short-term investments

126,416

200,387

Restricted cash

3,512

2,577

Restricted short-term investments

406

1,319

Accounts receivable, net of allowance for customer credit losses of $

605

January 30, 2021 and $

726

at February 1, 2020

52,743

26,088

Merchandise inventories

84,123

115,365

Prepaid expenses and other current assets

5,840

5,237

Total Current Assets

290,550

362,797

Property and equipment – net

72,550

88,667

Deferred income taxes

5,685

8,636

Other assets

22,850

24,073

Right-of-Use assets - net

199,817

200,803

Total Assets

591,452

684,976

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

73,769

68,438

Accrued expenses

40,790

47,099

Accrued bonus and benefits

1,916

18,913

Accrued income taxes

2,038

1,703

Current lease liability

63,421

63,149

Total Current Liabilities

181,934

199,302

Other noncurrent liabilities

19,705

21,976

Lease liability

143,315

147,184

Commitments and contingencies

Stockholders' Equity:

Preferred stock, $

100

par value per share,

100,000

shares authorized,

none issued

Class A common stock, $

0.033

par value per share,

50,000,000

shares authorized;

20,839,795

and

22,535,779

shares issued at

January 30, 2021 and February 1, 2020, respectively

703

761

Convertible Class B common stock, $

0.033

par value per share,

15,000,000

shares authorized;

1,763,652

and

1,763,652

shares issued at

January 30, 2021 and February 1, 2020, respectively

Additional paid-in capital

115,278

110,813

Retained earnings

129,303

203,458

Accumulated other comprehensive income

1,155

1,423

Total Stockholders' Equity

246,498

316,514

Total Liabilities and Stockholders’ Equity

591,452

684,976

See notes to consolidated financial statements.

THE CATO CORPORATION

CONSOLIDATED STATEMENTS

OF CASH FLOWS

Fiscal Year Ended

January 30, 2021

February 1, 2020

February 2, 2019

(Dollars in thousands)

Operating Activities:

Net income (loss)

(47,483)

35,897

30,461

Adjustments to reconcile net income to net cash provided

by (used in) operating activities:

Depreciation

14,681

15,485

16,463

Provision for customer credit losses

306

524

470

Purchase premium and premium amortization of investments

(691)

(694)

576

Gain on sale of assets held for investment

(2,298)

Share based compensation

4,092

4,669

4,939

Deferred income taxes

3,030

2,120

1,285

Loss on disposal of property and equipment

461

837

1,089

Impairment of assets

13,702

470

1,548

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

(26,935)

1,525

(579)

Merchandise inventories

31,242

4,220

1,950

Prepaid and other assets

(1,596)

5,072

10,384

Operating lease right-of-use assets and liabilities

(2,611)

(9,803)

Accrued income taxes

335

1,703

(680)

Accounts payable, accrued expenses and other liabilities

(16,945)

(8,629)

(7,662)

Net cash provided by (used in) operating activities

(30,710)

53,396

60,244

Investing Activities:

Expenditures for property and equipment

(13,956)

(8,306)

(4,354)

Purchase of short-term investments

(74,041)

(218,345)

(157,515)

Sales of short-term investments

149,298

205,375

91,023

Purchase of other assets

(1,353)

(298)

Sales of other assets

3,205

(4)

Net cash provided by (used in) investing activities

64,506

(22,633)

(71,137)

Financing Activities:

Dividends paid

(7,912)

(32,592)

(32,577)

Repurchase of common stock

(19,654)

(9,605)

(13,344)

Proceeds from line of credit

34,000

Payments to line of credit

(34,000)

Proceeds from employee stock purchase plan

391

626

570

Proceeds from stock options exercised

189

Net cash used in financing activities

(27,175)

(41,571)

(45,162)

Net increase (decrease) in cash, cash equivalents, and restricted cash

6,621

(10,808)

(56,055)

Cash, cash equivalents, and restricted cash at beginning of period

14,401

25,209

81,264

Cash, cash equivalents, and restricted cash at end of period

21,022

14,401

25,209

Non-cash activity:

Accrued plant and equipment

343

2,828

326

Accrued treasury stock

818

See notes to consolidated financial statements.

THE CATO CORPORATION

CONSOLIDATED STATEMENTS

OF STOCKHOLDERS' EQUITY

Convertible

Accumulated

Class A

Class B

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income

Equity

(Dollars in thousands)

Balance — February 3, 2018

774

99,948

225,894

(321)

326,353

Comprehensive income:

Net income (loss)

30,461

Unrealized gains (loss) on available-for-sale securities, net of

deferred income tax liability of $

244

Dividends paid ($

1.32

per share)

(32,577)

Class A common stock sold through employee stock purchase

plan —

44,770

669

671

Class B common stock sold through stock option plans —

8,051

194

195

Class A common stock issued through restricted stock grant plans —

341,744

4,769

4,834

Repurchase and retirement of treasury shares –

593,404

(20)

(13,325)

(13,345)

Balance — February 2, 2019

767

105,580

210,507

(77)

316,836

Comprehensive income:

Net income (loss)

35,897

Unrealized gains (loss) on available-for-sale securities, net of

deferred income tax liability of $

453

1,500

Dividends paid ($

1.32

per share)

(32,592)

Class A common stock sold through employee stock purchase

plan —

48,626

735

736

Class B common stock sold through stock option plans —

0 shares

Class A common stock issued through restricted stock grant plans —

321,484

4,498

4,560

Repurchase and retirement of treasury shares –

622,480

(21)

(10,402)

(10,423)

Balance — February 1, 2020

761

110,813

203,458

1,423

316,514

Comprehensive income:

Net income (loss)

(47,483)

Unrealized gains (loss) on available-for-sale securities, net of

deferred income tax benefit of ($

)

(268)

Dividends paid ($

0.33

per share)

(7,912)

Class A common stock sold through employee stock purchase

plan —

48,191

459

460

Class B common stock sold through stock option plans —

0 shares

Class A common stock issued through restricted stock grant plans —

231,194

4,006

4,022

Repurchase and retirement of treasury shares –

1,975,373

(67)

(18,768)

(18,835)

Balance — January 30, 2021

703

115,278

129,303

1,155

246,498

See notes to consolidated financial statements.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies:

Principles of Consolidation:

The Consolidated Financial Statements include the accounts of The Cato

Corporation and its

wholly-owned subsidiaries (the

“Company”). All significant

intercompany accounts

and transactions have been eliminated.

Description of Business and Fiscal

Year:

The Company has two

reportable segments — the

operation of

a fashion

specialty stores

segment (“Retail

Segment”) and

a credit

card segment

(“Credit

Segment”). The apparel

specialty stores operate

under the names

“Cato,” “Cato Fashions,”

“Cato Plus,”

“It’s Fashion,”

“It’s Fashion

Metro” and

“Versona,” including

e-commerce websites.

The stores

are

located primarily in

strip shopping centers

principally in the

southeastern United States. The

Company’s

fiscal year ends on the Saturday nearest January 31 of the subsequent year.

Use of Estimates:

The preparation of

the Company’s

financial statements in

conformity with

accounting principles

generally accepted in

the United States

(“GAAP”) requires management

to make

estimates and

assumptions that

affect the

reported amounts

of assets

and liabilities

and disclosure

contingent assets

and liabilities

at the

date of

the financial

statements and

the reported

amounts of

revenues and

expenses during

the reporting

period. Actual

results could

differ from

those estimates.

Significant accounting estimates

reflected in

the Company’s

financial statements

include the

allowance

for customer

credit losses,

inventory shrinkage,

the calculation

of potential

asset impairment,

workers’

compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance,

and

uncertain tax positions.

Cash and

Cash Equivalents:

Cash and

cash equivalents

consist of

highly liquid investments

with

original maturities of three months or less.

Short-Term Investments:

Investments with original

maturities beyond three

months are classified

as short-term investments.

See Note 3

for the Company’s

estimated fair value

of, and other

information

regarding, its short-

term investments.

The Company’s

short-term investments are

all classified as

available-for-sale. As

they are

available for

current operations,

they are

classified on

the Consolidated

Balance Sheets as

Current Assets. Available

-for-sale securities are

carried at fair

value, with

unrealized

gains and temporary losses,

net of income taxes,

reported as a component

of Accumulated other

comprehensive income. Other

than temporary declines in

the fair value

of investments are

recorded as a

reduction in the cost

of the investments in the

accompanying Consolidated Balance Sheets and a

reduction of

Interest and

other income

in the

accompanying Consolidated

Statements of

Income and

Comprehensive Income. The cost of

debt securities is adjusted for

amortization of premiums and

accretion of

discounts to

maturity. The

amortization of

premiums, accretion

of discounts

and realized

gains and losses are included in Interest and other income.

Restricted Cash and Restricted Short-term Investments:

The Company had $

3.9

million and $

3.9

million in escrow

at January 30,

2021 and February

1, 2020, respectively,

as security and

collateral for

administration of

the Company’s

self-insured workers’

compensation and

general liability

coverage,

which is reported

as Restricted cash

and Restricted short-

term investments on

the Consolidated Balance

Sheets.

Supplemental Cash Flow

Information:

Income tax payments, net

of refunds received, for

the fiscal

years ended January

30, 2021, February

1, 2020 and

February 2, 2019

were a payment

of $

6,825,000

, a

payment of $

4,681,000

and a refund of $

407,000

, respectively.

Inventories:

Merchandise inventories

are stated

at the

net realizable

value as

determined by

the

weighted-average cost method.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Property and Equipment:

Property and equipment are recorded at

cost, including land.

Maintenance

and repairs are expensed to operations as incurred; renewals and betterments

are capitalized. Depreciation

is determined on

the straight-line method

over the estimated

useful lives of

the related

assets excluding

leasehold improvements.

Leasehold improvements are amortized over the shorter

of the estimated useful

life or lease term.

For leases with renewal periods at the

Company’s option, the Company generally

uses

the original

lease term

plus reasonably

assured renewal

option periods

(generally one

five-year option

period) to determine estimated useful lives.

Typical estimated useful lives are as follows:

Estimated

Classification

Useful Lives

Land improvements

10 years

Buildings

30-40 years

Leasehold improvements

5-10 years

Fixtures and equipment

3-10 years

Information technology equipment and software

3-10 years

Aircraft

20 years

Impairment of

Long-Lived Assets:

The Company

invests in

leaseholds, right-

of-use assets

and

equipment primarily in

connection with the

opening and remodeling

of stores and

in computer software

and

hardware. The Company

periodically reviews its

store locations and

estimates the recoverability

of its long-

lived assets, which

primarily relate to

Fixtures and equipment,

Leasehold improvements, Right-of

-use assets

net of Lease liabilities and Information

technology equipment and software. An impairment charge

recorded for

the amount

by which

the carrying

value exceeds

the estimated

fair value

when the

Company

determines that projected

cash flows associated

with those long-

lived assets will

not be sufficient

to recover

the carrying

value. This

determination is

based on

a number

of factors,

including the

store’s historical

operating results and

future projected cash

flows, which include

future sales growth

rates, margin

rates and

expense projections. The Company

assesses the fair

value of each lease

by considering market rents

and any

lease terms that

may adjust market

rents under certain

conditions, such as

the loss

of an anchor

tenant or

leased space in

a shopping center

not meeting certain

criteria. Further,

in determining when

to close a

store,

the Company considers real

estate development in the area

and perceived local market conditions,

which can

be difficult to predict

and may be subject to

change. Asset impairment charges of

13,702,000

, $

146,000

and

1,548,000

were incurred in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

The 2020 asset impairment

charges included $11.4

million of store asset impairments and

$2.3 million worth of fixtures planned

for new

stores.

Other Assets:

Other assets are comprised of

long-term assets, primarily insurance contracts related

deferred compensation assets and land held for investment purposes.

Fiscal Year

Ended

January 30,

2021

February 1,

2020

(Dollars in thousands)

Other Assets

Deferred Compensation Investments

11,264

10,517

Miscellaneous Investments

1,264

1,301

Other Deposits

522

1,555

Land Held for Investment

9,334

10,234

Other

466

Total

Other Assets

22,850

24,073

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Leases:

In 2016,

the Financial

Accounting Standards

Board (“FASB”)

issued Accounting

Standard

Codification (“ASC”) 842

Leases

, with

amendments issued in

2018. The guidance

requires lessees to

recognize most

leases on

the balance

sheet but

does not

change the

manner in

which expenses

are

recorded in

the income

statement. For

lessors, the

guidance modifies

the classification

criteria an

the

accounting for sales-type and direct financing leases.

The Company utilized a comprehensive approach to

assess the impact of this guidance

on its financial

statements and related

disclosures, including the increase

in the assets

and liabilities on

its balance sheet

and the

impact on

its current

lease portfolio

from a

lessee perspective.

The Company

completed its

comprehensive review

of its

lease portfolio,

which includes

mostly store

leases impacted

by the

new

guidance. The Company reviewed its internal controls over leases and, as a result, the Company enhanced

these controls;

however, these

changes are

not considered

material. In

addition, the

Company

implemented a new software

platform, and corresponding controls, for

administering its leases and

facilitating compliance with the new guidance.

The Company elected the

transition package of

practical expedients that is

permitted by the

standard.

The package of practical expedients allows the

Company to not reassess previous accounting conclusions

regarding whether existing arrangements are or contain leases, the classification

of existing leases, and the

treatment of

initial direct

costs. The

Company did

not elect

the hindsight

transition practical

expedient

allowed for by the

new standard, which allows entities

to use hindsight when determini

ng lease term and

impairment of right-of-use assets.

The Company adopted ASC 842 utilizing

the modified retrospective approach as of

February 3, 2019.

The modified

retrospective approach

the Company

selected provides

a method

of transition

allowing

recognition of existing

leases as of

the beginning of

the period of

adoption (i.e., February

3, 2019), and

which does not require the adjustment of comparative periods. See Note

11 for further information.

The Company determined the classification of leases consistent

with ASC 840 –

Leases

for fiscal year

2018.

The Company leases all of its retail stores.

Most lease agreements contain construction allowances

and rent escalations.

For purposes of recognizing incentives

and minimum rental expenses on

a straight-

line basis

over the

terms of

the leases,

including renewal

periods considered

reasonably assured,

the

Company begins

amortization as

of the

initial possession

date which

is when

the Company

enters the

space and begins to make improvements in preparation for intended use.

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. Layaway sales

are recorded as

deferred revenue until

the customer takes

possession or forfeits

the merchandise. Gift cards

do not have expiration

dates. 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.

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.

In accordance with ASU 2014-09,

Revenue from Contracts with Customers (Topic

606)

(“Topic 606”),

in fiscal 2020, 2019

and 2018, the Company

recognized $

891,000

, $

921,000

and $

591,000

, respectively,

of income

on unredeemed

gift cards

(“gift card

breakage”) as

a component

of Other

Revenue on

the

Consolidated Statements

of Income

(Loss) and

Comprehensive Income

(Loss).

Under Topic

606, the

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Company recognizes gift

card breakage using

an expected

breakage percentage based

on redeemed gift

cards. See Note 2 for further information on miscellaneous income.

The Company offers

its own proprietary

credit card to

customers. All credit

activity is performed

the Company’s

wholly-owned subsidiaries. None of

the credit card receivables

are secured.

The

Company estimated

customer credit

losses of

435,000

and $

700,000

for the

twelve months

ended

January 30, 2021

and February 1,

2020, respectively,

on sales purchased

on the Company’s

proprietary

credit card

of $

15.2

million and

26.6

million for

the twelve

months ended

January 30,

2021 and

February 1, 2020, respectively.

The following table provides information about receivables and

contract liabilities from contracts with

customers (in thousands):

Balance as of

January 30, 2021

February 1, 2020

Proprietary Credit Card Receivables, net

9,606

15,241

Gift Card Liability

8,155

7,658

Cost of Goods Sold:

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

our buying

departments and

distribution center.

Occupancy expenses

include rent,

real estate

taxes, insurance,

common area

maintenance, utilities

and

maintenance for

stores and

distribution facilities.

Buying, distribution,

occupancy and

internal transfer

costs are treated

as period costs

and are not

capitalized as part

of inventory.

The direct costs

associated

with shipping goods to customers are recorded as a component of Cost of

goods sold.

Advertising:

Advertising costs

are expensed

in the

period in

which they

are incurred.

Advertising

expense was approximately $

4,385,000

, $

5,600,000

and $

5,546,000

for the fiscal years ended January 30,

2021, February 1, 2020 and February 2, 2019, respectively.

Stock Repurchase Program:

For the fiscal year

ended January 30, 2021, the

Company had

1,871,149

shares remaining in

open authorizations. There

is no specified

expiration date for

the

Company’s repurchase

program. Share repurchases

are recorded in

Retained earnings, net

of par

value.

Through March 29,

2021, the Company

repurchased 83,256 shares

for $971,866, to

offset dilution from

its equity compensation plan.

Earnings Per

ASC 260

Earnings Per

requires dual

presentation of

basic EPS

and

diluted 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 Consolidated Statements of Income (Loss)

and Comprehensive Income (Loss).

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

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

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

potential dilution that could occur

from common shares issuable through stock options

and the Employee

Stock Purchase Plan.

The following table

reflects the basic

and diluted EPS

calculations for the

fiscal years ended

January

30, 2021, February 1, 2020 and February 2, 2019:

Fiscal Year Ended

January 30, 2021

February 1, 2020

February 2, 2019

Numerator

(Dollars in thousands)

Net earnings (loss)

(47,483)

35,897

30,461

(Earnings) loss allocated to non-vested equity awards

2,096

(1,280)

(862)

Net earnings (loss) available to common stockholders

(45,387)

34,617

29,599

Denominator

Basic weighted average common shares outstanding

22,536,090

23,738,443

23,995,170

Diluted weighted average common shares outstanding

22,536,090

23,738,443

23,995,170

Net income (loss) per common share

Basic earnings (loss) per share

(2.01)

1.46

1.23

Diluted earnings (loss) per share

(2.01)

1.46

1.23

Vendor Allowances:

The Company

receives certain

allowances from

vendors primarily

related to

purchase discounts and markdown and

damage allowances. All allowances are reflected

in Cost of goods

sold as earned when the related products are sold.

Cash consideration received from a vendor is

presumed to

be a

reduction of

the purchase

cost of

merchandise and

is reflected

as a

reduction of

inventory.

The Company does not receive cooperative advertising allowances.

Income Taxes:

The Company

files a

consolidated federal

income tax

return.

Income taxes

are

provided based

on the

asset and

liability method

of accounting,

whereby deferred

income taxes

are

provided for temporary differences

between the financial reporting basis

and the tax basis

of the

Company’s assets and liabilities.

Unrecognized tax benefits

for uncertain

tax positions are

established in

accordance with ASC

740 –

Income Taxes

when, despite the

fact that the

tax return positions

are supportable, the

Company believes

these positions may be

challenged and the results

are uncertain.

The Company adjusts these

liabilities in

light of

changing facts

and circumstances.

Potential accrued

interest and

penalties related

unrecognized tax

benefits within

operations are

recognized as

a component

of Income

before income

taxes.

The Company assesses the likelihood

that deferred tax assets will

be able to be

realized, and based on

that assessment, the Company will determine if a valuation allowance should

be recorded.

In addition, the

Tax Cuts

and Jobs

Act implemented a

new minimum tax

on global intangible

low-

taxed income (“GILTI”).

The Company has elected

to account for

GILTI tax

in the period

in which it

incurred, which is included as a component of its current year provision for

income taxes.

Store Opening

Costs:

Costs relating to

the opening of new stores

or the relocating or

expanding of

existing stores

are expensed

as incurred.

A portion

of construction,

design, and

site

selection costs are capitalized to new, relocated and remodeled stores.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Insurance:

The Company is self-insured with respect to employee health care, workers’ compensation

and general

liability. The

Company’s self

-insurance liabilities

are based

on the

total estimated

cost of

claims filed and estimates of claims

incurred but not reported, less amounts paid

against such claims, and

are not discounted.

Management reviews current

and historical claims

data in developing

its estimates.

The Company has stop-loss insurance coverage

for individual claims in excess of

325,000

for employee

healthcare, $

350,000

for workers’ compensation and $

250,000

for general liability.

Fair Value

of Financial Instruments:

The Company’s carrying

values of financial instruments, such

as cash

and cash equivalents,

short-term investments, restricted

cash and

short-term investments,

approximate their fair values due to their short terms to maturity and/or their

variable interest rates.

Stock Based Compensation:

The Company records

compensation expense associated with

restricted

stock and

other forms

of equity

compensation in

accordance with

ASC 718

Compensation –

Stock

Compensation.

Compensation cost associated with stock awards recognized in all years presented

includes: 1) amortization related to the

remaining unvested portion of all

stock awards based on the

grant

date fair value and 2) adjustments for the effects of actual forfeitures versus initial estimated forfeitures.

Recently Adopted Accounting Policies

In June

2016, the

FASB issued

ASU 2016-

13,

Financial Instruments

- Credit

Losses (Topic

326):

Measurement of

Credit Losses

on Financial

Instruments

, which

requires companies

to measure

and

recognize expected

credit losses

for financial

assets held

at amortized

costs based

on expected

losses

rather than incurred losses.

The new accounting rules

were effective for

the Company in the

first quarter

of 2020 and had a minimal impact on the financial statements.

Recently Issued Accounting Pronouncements

In December

2019, the

FASB issued

ASU 2019

-12,

Income Taxes

(Topic 740):

Simplifying the

Accounting for Income Taxes

. The new accounting

rules reduce complexity by

removing specific

exceptions to

general principles

related to

intraperiod tax

allocations, ownership

changes in

foreign

investments, and

interim period

income tax

accounting for

year-to-date losses

that exceed

anticipated

losses. The new

accounting rules also

simplify accounting for

franchise taxes that

are partially based

income, transactions

with a

government that

result in

a step-

up in

the tax

basis of

goodwill, separate

financial statements of legal entities that are not subject

to tax, and enacted changes in tax laws

in interim

periods. The

new accounting

rules will

be effective

for the

Company in

the first

quarter of

2021. The

Company is currently in

the process of evaluating

the impact of adop

tion of the new

accounting rules on

the Company’s financial position, results of operations, cash flows and disclosures.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Interest and Other Income:

The components of Interest and other income are shown below (in thousands):

January 30, 2021

February 1, 2020

February 2, 2019

Dividend income

(5)

(42)

(34)

Interest income

(2,697)

(4,954)

(3,893)

Miscellaneous income

(627)

(709)

(1,109)

Net loss (gain) on investment sales

(3,301)

(360)

Interest and other income

(6,630)

(6,065)

(4,991)

During 2020, the Company recorded a gain on the sale of land held

for investment of $2.3 million

within Interest and other income on the Consolidated Statements of Income

(Loss) and Comprehensive

Income (Loss).

Short-Term Investments:

At January

30, 2021,

the Company’s

investment portfolio

was primarily

invested in

corporate and

governmental debt securities

held in managed

accounts.

These securities are

classified as available-

for-

sale as they are highly liquid and are recorded on the Consolidated Balance Sheets at estimated fair value,

with unrealized

gains and

temporary losses

reported net

of taxes

in Accumulated

other comprehensive

income.

The table

below reflects

gross accumulated

unrealized gains

(losses) in

short-term investments

January 30, 2021 and February 1, 2020 (in thousands):

January 30, 2021

February 1, 2020

Debt securities

issued by the U.S

Government, its various

States, municipalities

Corporate

States, municipalities

Corporate

and agencies

debt

and agencies

debt

of each

securities

Total

of each

securities

Total

Cost basis

40,701

85,045

125,746

73,116

127,096

200,212

Unrealized gains

422

654

1,076

308

1,086

1,394

Unrealized (loss)

Estimated fair value

41,123

85,699

126,822

73,424

128,182

201,606

Accumulated other

comprehensive income

on the

Consolidated Balance

Sheets reflects

the

accumulated unrealized net

gains in

short-term investments in

addition to

unrealized gains

from equity

investments and restricted cash investments.

The table below reflects gross accumulated unrealized gains

in these investments at January 30, 2021 and February 1, 2020 (in thousands):

January 30, 2021

February 1, 2020

Deferred

Unrealized

Deferred

Unrealized

Tax Benefit/

Net Gain/

Unrealized

Tax Benefit/

Net Gain/

Security Type

Gain/(Loss)

(Expense)

(Loss)

Gain/(Loss)

(Expense)

(Loss)

Short-Term Investments

1,076

(250)

826

1,394

(323)

1,071

Equity Investments

429

(100)

329

458

(106)

352

Total

1,505

(350)

1,155

1,852

(429)

1,423

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Fair Value Measurements:

The following tables set forth information regarding the Company’s financial

assets that are measured

at fair value as of January 30, 2021 and February 1, 2020 (in thousands):

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

January 30, 2021

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

23,254

Corporate Bonds

67,566

U.S. Treasury/Agencies Notes and Bonds

17,869

Cash Surrender Value of Life Insurance

11,263

Asset-backed Securities (ABS)

16,064

Corporate Equities

703

Commercial Paper

2,069

Total Assets

138,788

703

126,822

11,263

Liabilities:

Deferred Compensation

(10,316)

Total Liabilities

(10,316)

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

February 1, 2020

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

36,014

Corporate Bonds

90,798

U.S. Treasury/Agencies Notes and Bonds

37,410

Cash Surrender Value of Life Insurance

10,517

Asset-backed Securities (ABS)

37,384

Corporate Equities

732

Certificates of Deposit

100

Total Assets

212,955

832

201,606

10,517

Liabilities:

Deferred Compensation

(10,391)

Total Liabilities

(10,391)

The Company’s

investment portfolio

was primarily invested

in corporate

bonds and tax-

exempt and

taxable governmental debt

securities held in

managed accounts with

underlying ratings of

A or better

January 30, 2021.

The state, municipal

and corporate bonds and

asset-backed securities have contractual

maturities which range

from

two days to

7.5 years. The

U.S. Treasury Notes

and Certificates of

Deposit

have contractual maturities

which range from

three months to

2.5 years. These securities are classified

available-for-sale

and are recorded as Short

-term investments,

Restricted

cash, Restricted

short-term

investments

and Other assets

on the accompanying

Consolidated

Balance

Sheets.

These assets

are carried

fair value with

unrealized

gains and

losses

reported

net of

taxes in

Accumulated

other comprehensive

income.

The asset-backed

securities

are bonds

comprised

of auto loans

and bank

credit cards

that carry

AAA

ratings.

The auto

loan asset-backed

securities

are backed

by static

pools of

auto loans

that were

originated

and

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

serviced

by captive auto

finance

units, banks or

finance

companies.

The bank credit

card asset-backed

securities

are backed

by revolving

pools of

credit

card receivables

generated

by account

holders

of cards

from

American

Express,

Citibank,

JPMorgan Chase,

Capital

One, and

Discover.

Additionally, at

January 30,

2021, the

Company had

$0.7 million

of corporate

equities, which

are

recorded within Other assets in the Consolidated Balance

Sheets.

At February 1, 2020, the Company had

$0.7 million

of corporate

equities, which are

recorded within

Other assets

in the

Consolidated Balance

Sheets.

Level 1

category

securities

are measured at

fair value using

quoted

active

market prices.

Level 2

investment

securities

include

corporate

and municipal

bonds for

which quoted

prices

may not

be available

active exchanges

for identical

instruments.

Their fair

value is

principally

based on

market values

determined

by management with 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 primarily

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

Consolidated Balance Sheets. These

funds are designed to

mirror the return of

existing mutual funds and

money market funds that are observable and actively traded.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following

tables

summarize

the change

in fair value

of the Company’s

financial

assets

and liabilities

measured

using Level

3 inputs

as of January

30, 2021

and

February 1, 2020

(in thousands):

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash

Surrender Value

Beginning Balance at February 1, 2020

10,517

Total gains or (losses)

Included in interest and other income (or

changes in net assets)

746

Ending Balance at January 30, 2021

11,263

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred

Compensation

Beginning Balance at February 1, 2020

(10,391)

Additions

1,062

Total (gains) or losses

Included in interest and other income (or

changes in net assets)

(987)

Ending Balance at January 30, 2021

(10,316)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash

Surrender Value

Beginning Balance at February 2, 2019

9,093

Additions

748

Total gains or (losses)

Included in interest and other income (or

changes in net assets)

676

Ending Balance at February 1, 2020

10,517

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred

Compensation

Beginning Balance at February 2, 2019

(8,908)

Additions

(554)

Total (gains) or losses

Included in interest and other income (or

changes in net assets)

(929)

Ending Balance at February 1, 2020

(10,391)

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Accounts Receivable:

Accounts receivable consist of the following (in thousands):

January 30, 2021

February 1, 2020

Customer accounts — principally deferred payment accounts

10,210

15,966

Income tax receivable

33,898

580

Miscellaneous receivables

4,596

4,338

Bank card receivables

4,644

5,930

Total

53,348

26,814

Less allowance for customer credit losses

605

726

Accounts receivable — net

52,743

26,088

Finance charge and

late charge revenue

on customer deferred

payment accounts totaled

2,658,000

3,605,000

and $

3,814,000

for the fiscal

years ended January 30, 2021, February 1, 2020

and February 2,

2019, respectively,

and charges

against the

allowance for

customer credit

losses were

approximately

306,000

, $

524,000

and $

470,000

for the

fiscal years

ended January

30, 2021,

February 1,

2020 and

February 2, 2019,

respectively. Expenses

relating to the

allowance for customer credit

losses are

classified as

a component

of Selling,

general and

administrative expense

in the

accompanying

Consolidated Statements of Income (Loss) and Comprehensive Income

(Loss).

Property and Equipment:

Property and equipment consist of the following (in thousands):

January 30, 2021

February 1, 2020

Land and improvements

13,595

13,548

Buildings

35,335

35,814

Leasehold improvements

80,874

89,349

Fixtures and equipment

198,513

205,789

Information technology equipment and software

35,303

59,202

Construction in progress

2,334

Total

363,620

406,036

Less accumulated depreciation

291,070

317,369

Property and equipment — net

72,550

88,667

Construction in progress primarily represents costs related to new store

development and

investments in new technology.

Accrued Expenses:

Accrued expenses consist of the following (in thousands):

January 30,

2021

February 1,

2020

Accrued employment and related items

6,122

7,756

Property and other taxes

16,574

18,515

Accrued self-insurance

10,994

10,551

Fixed assets

343

2,828

Other

6,757

7,449

Total

40,790

47,099

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Financing Arrangements:

As of January

30, 2021, the

Company

had an unsecured revolving credit

agreement

to borrow $

35.0

million

less the

balance

of any

revocable

credits

discussed

below.

The revolving credit

agreement

committed

until May 2023.

The credit agreement

contains

various

financial

covenants

and limitations,

including

the maintenance of specific

financial

ratios with which

the Company was

in compliance as

January

30, 2021.

There were no borrowings outstanding

under this credit facility

as of January 30, 2021,

February

1, 2020 or February 2,

2019.

At January 30, 2021, the

weighted

average

interest

rate under the

credit facility

was zero

due to

no borrowings

outstanding

at the end

of the year.

At January

30, 2021,

February

1, 2020

and February

2, 2019,

the Company

had no outstanding

revocable

letters

of credit

relating

to purchase

commitments.

Stockholders’ Equity:

The holders

of Class

A Common

Stock are

entitled to

one vote

per share,

whereas the

holders of

Class B Common Stock are entitled to

ten votes per share. Each

share of Class B Common Stock may

converted at any time into one share of Class A Common Stock. Subject to the rights of the holders

of any

shares of Preferred

Stock that may

be outstanding at

the time, in

the event of

liquidation, dissolution or

winding up

of the

Company, holders

of Class

A Common

Stock are

entitled to

receive a

preferential

distribution of $1.00 per share of

the net assets of the

Company. Cash dividends

on the Class B Common

Stock cannot be paid

unless cash dividends of

at least an equal

amount are paid on

the Class A Common

Stock.

The Company’s

certificate of

incorporation provides that

shares of

Class B Common Stock

may be

transferred only

to certain

“Permitted Transferees”

consisting generally

of the

lineal descendants

holders of

Class B Common

Stock, trusts

for their

benefit, corporations

and partnerships

controlled by

them and the Company’s

employee benefit plans. Any transfer

of Class B Common Stock in

violation of

these restrictions, including a transfer to

the Company, results

in the automatic conversion of the

transferred shares

of Class

B Common

Stock held

by the

transferee into

an equal

number of

shares of

Class A Common Stock.

10.

Employee Benefit Plans:

The Company

has a

defined contribution

retirement savings

plan (“401(k)

plan”) which

covers all

associates who

meet minimum

age and

service requirements.

The 401(k)

plan allows

participants to

contribute up to

% of

their annual

compensation up to

the maximum elective

deferral, designated by

the IRS. The Company is obligated to

make a minimum contribution to cover plan administrative

expenses. Further Company contributions are

at the discretion of the

Board of Directors. The Company’s

contributions for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 were

approximately $

, $

1,499,000

and $

1,442,000

, respectively.

The Company

has a

trusteed, non

-contributory Employee

Stock Ownership

Plan (“ESOP”),

which

covers substantially all associates

who meet minimum age

and service requirements.

The amount of

the

Company’s discretionary

contribution to

the ESOP

is determined

annually by the

Compensation

Committee of

the Board

of Directors

and can

be made

in Company

Class A

Common stock

or cash.

During fiscal 2020,

the Company contributed

cash and the

plan purchased stock

on the open

market for

the ESOP award earned for fiscal 2019. Due to a net

operating loss in fiscal 2020,

the Committee did not

approve a

contribution to

the ESOP

for the

year ended January

30, 2021.

The Company’s

contribution

was $

7,198,000

and $

1,229,000

for the years ended February 1, 2020 and February 2, 2019, respectively.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The Company is primarily self-insured for healthcare.

These costs are significant primarily due to the

large number of

the Company’s

retail locations and

associates. The Company’s

self-insurance liabilities

are based on

the total estimated

costs of

claims filed and

estimates of claims

incurred but not

reported,

less amounts

paid against such claims.

Management reviews current and historical claims data in

developing its estimates.

If the underlying

facts and circumstances

of the claims

change or the

historical

trend is not indicative of future trends, then the Company may be required to record additional

expense or

a reduction to expense which could

be material to the Company’s

reported financial condition and results

of operations. The Company funds healthcare contributions to a third-party

provider.

11.

Leases:

The Company determines whether an arrangement is

a lease at inception. The

Company has operating

leases for

stores, offices

and equipment. Its

leases have remaining

lease terms of

one year

to 10

years,

some of which

include options to

extend the lease

term for up

to five years,

and some of

which

include

options to terminate

the lease within

one year.

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 commencement

date of

the lease

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Twelve Months Ended

January 30, 2021

February 1, 2020

Operating lease cost (a)

69,601

59,987

Variable

lease cost (b)

1,555

2,088

ASC 840 prepaid rent expense (c)

6,093

(a) Includes right-of-use asset amortization of ($

4.6

) million and ($

4.9

) million for the twelve months

ended January 30, 2021 and February 1, 2020, respectively.

(b) Primarily related to monthly percentage rent for stores not presented on the balance sheet.

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases

are as follows (in thousands):

Operating cash flow information:

Twelve Months Ended

January 30, 2021

February 1, 2020

Cash paid for amounts included in the measurement of lease liabilities

62,559

55,544

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

58,978

63,847

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Weighted-average remaining

lease term and

discount rate for

the Company’s

operating leases are

follows:

As of

January 30, 2021

February 1, 2020

Weighted-average remaining lease term

2.9

years

3.2

years

Weighted-average discount rate

4.06%

4.47%

Maturities of

lease liabilities

by fiscal

year for

the Company’s

operating leases

are as

follows (in

thousands):

Fiscal Year

2021

70,007

2022

48,639

2023

35,717

2024

22,542

2025

13,815

Thereafter

36,805

Total lease payments

227,525

Less: Imputed interest

20,789

Present value of lease liabilities

206,736

12.

Income Taxes:

Unrecognized tax

benefits for

uncertain tax

positions, primarily recorded

in Other

noncurrent

liabilities, are established in accordance with

ASC 740 when, despite the fact

that the tax return positions

are supportable,

the Company believes

these positions may

be challenged

and the results

are uncertain.

The Company adjusts

these liabilities

in light

of changing facts

and circumstances.

As of

January 30,

2021, the

Company had

gross unrecognized

tax benefits

totaling approximately $5.9

million, of

which

approximately $

7.7

million (inclusive of

interest) would

affect the

effective tax

rate if

recognized. The

Company had approximately $

2.8

million, $

3.3

million and $

3.2

million of interest and penalties accrued

related to

uncertain tax

positions as

of January

30, 2021,

February 1,

2020 and

February 2,

2019,

respectively.

The Company

recognizes interest

and penalties

related to

the resolution

of uncertain

tax

positions as

a component

of income

tax expense.

The Company

recognized $

424,000

, $

574,000

and

1,023,000

of interest and penalties in the Consolidated Statements of Income (Loss)

and Comprehensive

Income (Loss) for the years ended January 30, 2021, February 1, 2020 and

February 2, 2019, respectively.

The Company

is no

longer subject

to U.S.

federal income tax

examinations for y

ears before

2017.

state and

local tax

jurisdictions, the

Company has

limited exposure

before 2010.

During the

next 12

months, various

state and

local taxing

authorities’ statutes

of limitations

will expire

and certain

state

examinations may

close, which

could result

in a

potential reduction

of unrecognized

tax benefits

for

which a range cannot be determined.

A reconciliation of

the beginning and

ending amount of

gross unrecognized tax benefits

is as follows

(in thousands):

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

January 30,

2021

February 1,

2020

February 2,

2019

Fiscal Year

Ended

Balances, beginning

7,942

8,485

9,531

Additions for tax positions of the current year

286

375

420

Reduction for tax positions of prior years for:

Settlements during the period

614

(419)

Lapses of applicable statutes of limitations

(2,896)

(920)

(1,047)

Balances, ending

5,946

7,942

8,485

The provision

for income

taxes consists

of the following

(in thousands):

January 30,

2021

February 1,

2020

February 2,

2019

Fiscal Year

Ended

Current income taxes:

Federal

(31,927)

3,321

281

State

1,842

(359)

Foreign

1,731

1,763

1,371

Total

(28,354)

5,180

1,293

Deferred income taxes:

Federal

1,905

574

2,064

State

1,129

1,556

(767)

Foreign

(3)

Total

3,031

2,130

1,297

Total income tax expense

(benefit)

(25,323)

7,310

2,590

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

Significant

components

of the Company’s deferred tax assets and

liabilities

as of January 30, 2021

and

February

1, 2020

are as follows

(in thousands):

January 30,

2021

February 1,

2020

Deferred tax assets:

Allowance for customer credit losses

131

156

Inventory valuation

1,004

1,105

Non-deductible accrued liabilities

1,613

1,286

Other taxes

1,184

1,126

Federal benefit of uncertain tax positions

1,001

1,065

Equity compensation expense

4,097

4,322

Net operating losses

4,531

1,574

Charitable contribution carryover

394

774

State tax credits

1,115

1,160

Lease liabilities

47,428

44,170

Other

2,204

1,324

Total deferred

tax assets before valuation allowance

64,702

58,062

Valuation

allowance

(5,256)

(1,124)

Total deferred

tax assets after valuation allowance

59,446

56,938

Deferred tax liabilities:

Property and equipment

1,480

545

Accrued self-insurance reserves

466

492

Right-of-Use assets

51,350

46,724

Other

465

541

Total deferred

tax liabilities

53,761

48,302

Net deferred tax assets

5,685

8,636

As of January

30, 2021,

the Company

had $1.1

million

of state

tax credits

to offset

future

state income

tax

expense,

which are

set to expire

by fiscal

2023.

Based on

the available

evidence,

the Company

has recorded

a valuation

allowance

of $1.1

million.

As of January 30,

2021, the Company had $4.5

million

of state net operating loss

carryforwards.

The

Company

assessed

the likelihood

that deferred

tax assets

to state net

operating

loss carryforwards

will

be realized in

light of the

adverse

impact on the

Company’s financial statements and

operations

due to

COVID-19.

Based on this assessment,

the Company

concluded

that it is more likely

than not the Company

will not be able to realize net operating

losses and,

accordingly,

has recorded

a valuation allowance

of $4.2

million

for the

portion

it expects

to not be

realized.

As of February 1, 2020, the Company’s position

is that its overseas subsidiaries

will not invest

undistributed

earnings

indefinitely.

Future unremitted

earnings

when distributed

are expected to be

either

distributions

of GILTI-previously

taxed income or eligible for a

100% dividends

received

deduction.

The

withholding

tax rate

on any

unremitted

earnings

is zero

and state

income taxes on

such earnings are

considered

immaterial.

Therefore,

the Company has not

provided

deferred

U.S. income taxes on

approximately

$22.5 million

of earnings

from non-U.S.

subsidiaries.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The reconciliation

of the

Company’s effective

income tax

rate with

the statutory

rate is

as follows:

January 30,

2021

February 1,

2020

February 2,

2019

Fiscal Year

Ended

Federal income tax rate

21.0

State income taxes

4.0

1.7

1.1

CARES ACT - Carryback differential

18.3

Global intangible low-taxed income

(5.3)

5.9

6.2

Foreign tax credit

(3.7)

(4.0)

Foreign rate differential

1.2

(2.5)

(2.6)

Offshore claim

2.5

(5.2)

(5.7)

Work opportunity credit

0.2

(3.2)

(3.4)

Addback on wage related credits

0.7

Tax exempt interest

(0.2)

(2.4)

Charitable contribution of inventory

(0.2)

Uncertain tax positions

3.3

(1.0)

(1.5)

Deferred rate change

(0.1)

(2.0)

Valuation

allowance

(5.7)

2.6

Other

(4.4)

0.8

0.4

Effective income tax rate (1)

34.8

16.9

7.8

(1) The income tax rate for year ended January 30, 2021

represents an income tax benefit, while the

rate for the years ended February 1, 2020 and February 2, 2019

represent income tax expenses.

The annual effective

tax rate for

the current fiscal year

is impacted by the

ability to carryback federal

net operating losses due to the

Coronavirus Aid, Relief and Economic Security

Act (“CARES Act”)

, partially

offset by changes in management’s

judgment regarding the ability to realize deferred tax assets, primarily

state income

net operating

losses generated

in the

current fiscal

year. The

Company has

factored the

realizability of

these deferred

tax assets

generated as

a result

of projected

current year

losses into

its

estimated annual effective

rate for the

current year.

To the

extent that actual

results and/or events

differ

from the predicted results, the Company may continue

to see effects on the estimated

annual effective tax

rate in future periods.

Further, the CARES Act allows the Company to

carryback losses to 2015; therefore, the Company has

recorded $32.6

million of

estimated refunds

calculated through the

fourth quarter

of 2020

in Accounts

receivable in the Consolidated Balance Sheets.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

13.

Quarterly Financial Data (Unaudited):

Summarized quarterly financial results are as follows (in thousands, except

per share data):

Fiscal 2020

First

Second

Third

Fourth

Total revenues

100,732

168,170

150,791

155,418

Gross profit (exclusive of depreciation)

17,135

35,434

41,387

47,968

Net income (loss)

(28,417)

(7,170)

(3,622)

(8,274)

Basic earnings (loss) per share

(1.19)

(0.30)

(0.15)

(0.37)

Diluted earnings (loss) per share

(1.19)

(0.30)

(0.15)

(0.37)

Fiscal 2019

First

Second

Third

Fourth

Total revenues

230,351

212,581

191,523

190,880

Gross profit (exclusive of depreciation)

94,268

82,209

72,899

67,053

Net income (loss)

21,255

11,866

5,985

(3,209)

Basic earnings (loss) per share

0.87

0.48

0.24

(0.13)

Diluted earnings (loss) per share

0.87

0.48

0.24

(0.13)

14.

Reportable Segment Information:

The Company has

determined

that it

has four

operating

segments,

as defined

under ASC

280-10,

including

Cato, It’s

Fashion,

Versona and

Credit.

As outlined in

ASC 280

-10, the

Company

has two

reportable

segments:

Retail

and Credit.

The Company has aggregated its

three retail operating segments,

including

e-commerce,

based on the aggregation criteria outlined

in ASC 280-10, which states that two

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 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.

They are similar

in terms of

product

offered,

as they all

offer women’s

apparel,

shoes and

accessories.

Merchandise

inventory

of the

Company’s retail operating segments

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

clients

in a

similar

manner.

The Company

offers its own credit

card to its customers

and all credit authorizations,

payment

processing,

and collection

efforts are

performed

by a separate

subsidiary

of the Company.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following

schedule

summarizes

certain

segment

information

(in thousands):

Fiscal 2020

Retail

Credit

Total

Revenues

572,453

2,658

575,111

Depreciation

14,680

14,681

Interest and other income

6,630

Income (loss) before taxes

(73,972)

1,166

(72,806)

Capital expenditures

13,955

13,956

Fiscal 2019

Retail

Credit

Total

Revenues

821,730

3,605

825,335

Depreciation

15,484

15,485

Interest and other income

6,065

Income (loss) before taxes

41,386

1,821

43,207

Capital expenditures

8,287

8,306

Fiscal 2018

Retail

Credit

Total

Revenues

825,850

3,814

829,664

Depreciation

16,441

16,463

Interest and other income

4,991

Income (loss) before taxes

31,149

1,902

33,051

Capital expenditures

4,315

4,354

Retail

Credit

Total

Total assets as of January

30, 2021

549,349

42,103

591,452

Total assets as of February 1,

2020

636,503

48,473

684,976

The accounting

policies

of the segments are the same as those described

in the Summary of Significant

Accounting

Policies

in Note 1. The Company

evaluates

performance

based on profit

or loss from

operations

before income

taxes. The

Company

does not

allocate

certain

corporate

expenses

to the credit

segment.

The following schedule summarizes the

direct

expenses

of the credit

segment

which are reflected in

Selling,

general

and administrative

expenses

(in thousands):

January 30, 2021

February 1, 2020

February 2, 2019

Payroll

541

644

749

Postage

360

488

506

Other expenses

590

651

635

Total expenses

1,491

1,783

1,890

15.

Stock Based Compensation:

As of January 30,

2021, the Company had two long-term

compensation

plans pursuant

to which stock-

based compensation was outstanding. The

2018 Incentive Compensation Plan and

2013 Incentive

Compensation

Plan are for the granting of various forms of equity-based awards,

including

restricted

stock

and stock

options

for grant,

to officers,

directors

and key

employees.

Effective

May 24,

2018, shares

for grant

were no

longer available

under the

2013 Incentive

Compensation

Plan.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following table presents the number of options and shares of restricted stock

initially authorized

and available for grant under each of the plans as of January 30, 2021:

2013

2018

Plan

Total

Options and/or restricted stock initially authorized

1,500,000

4,725,000

6,225,000

Options and/or restricted stock available for grant:

February 1, 2020

4,192,667

4192667

January 30, 2021

3,961,473

In accordance with ASC 718, 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 a five-year vesting period.

As of January 30, 2021, there

was $

10,550,000

of total

unrecognized compensation expense related

to unvested restricted stock

awards, which is

expected to be

recognized over a remaining weighted-average vesting period of

2.1

years.

The total grant date fair value

of the

shares recognized

as compensation

expense during

the twelve

months ended

January 30,

2021,

February 1, 2020

and February 2,

2019 was $

4,023,000

, $

4,559,000

and $

4,833,000

, respectively.

The

expenses are

classified as

a component

of Selling,

general and

administrative expenses

in the

Consolidated Statements of Income (Loss) and Comprehensive Income

(Loss).

The following

summary

shows the changes

in the shares

of unvested

restricted

stock outstanding

during

the years

ended January

30, 2021,

February

1, 2020

and February

2, 2019:

Weighted Average

Number of

Grant Date Fair

Value Per

Restricted stock awards at February 3, 2018

595,179

30.33

Granted

354,385

16.20

Vested

(139,669)

29.87

Forfeited or expired

(38,044)

24.34

Restricted stock awards at February 2, 2019

771,851

24.22

Granted

361,170

14.89

Vested

(129,108)

34.44

Forfeited or expired

(61,351)

19.61

Restricted stock awards at February 1, 2020

942,562

19.55

Granted

335,317

11.11

Vested

(129,682)

34.01

Forfeited or expired

(124,241)

16.37

Restricted stock awards at January 30, 2021

1,023,956

15.33

The Company’s

Employee Stock

Purchase Plan

allows eligible

full-time employees

to purchase

limited number

of shares

of the

Company’s Class

A Common

Stock during

each semi-

annual offering

period at a

15% discount through payroll

deductions. During the twelve

month period ended January

30,

2021, the Company sold

48,191

shares to employees at

an average discount of

1.43

per share under the

Employee Stock Purchase Plan. The

compensation expense recognized for the

15% discount given under

the Employee Stock

Purchase Plan was

approximately $

69,000

, $

111,000

and $

101,000

for fiscal years

2020, 2019 and 2018, respectively.

These expenses are classified as a

component of Selling, general and

administrative expenses.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

16.

Commitments and Contingencies:

The Company

is, from

time to

time, involved

in routine

litigation incidental to

the conduct

of our

business, including

litigation regarding

the merchandise

that we

sell, litigation

regarding intellectual

property, litigation

instituted by persons

injured upon premises

under our 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

our business, as with any

business

of our

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 our Consolidated Financial Statements. However, given the inherent uncertainties

involved in such matters, an adverse outcome in

one or more 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.

17.

Accumulated Other Comprehensive Income:

The following table

sets

forth information regarding

the reclassification out of

Accumulated

other

comprehensive

income

(in thousands)

as of January

30, 2021:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for

-Sale

Securities

Beginning Balance at February 1, 2020

1,423

Other comprehensive income (loss) before

reclassification

(1,038)

Amounts reclassified from accumulated

other comprehensive income (b)

770

Net current-period other comprehensive income

(loss)

(268)

Ending Balance at January 30, 2021

1,155

(a) All amounts are net-of-tax. Amounts in parentheses indicate

a debit/reduction to other comprehensive

income (“OCI”).

(b) Includes

$1,003

impact of accumulated other comprehensive income reclassifications into Interest

and

other income for net gains on available-for-sale securities.

The tax impact of this reclassification was $

233

Amounts in parentheses indicate a debit/reduction to OCI.

THE CATO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— (Continued)

The following table sets forth information regarding the reclassification out

of Accumulated other

comprehensive income (in thousands) as of February 1, 2020:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for

-Sale

Securities

Beginning Balance at February 2, 2019

(77)

Other comprehensive income (loss) before

reclassification

1,224

Amounts reclassified from accumulated

other comprehensive income (b)

276

Net current-period other comprehensive income (loss)

1,500

Ending Balance at February 1, 2020

1,423

(a) All amounts are net-of-tax. Amounts in parentheses indicate

a debit/reduction to OCI.

(b) Includes $

359

impact of accumulated other comprehensive income reclassifications into

Interest and other

income for net gains on available-for-sale securities.

The tax impact of this reclassification was $

. Amounts in

parentheses indicate a debit/reduction to OCI.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure:

None.

Item 9A.

Controls and Procedures:

Conclusion Regarding the Effectiveness of Disclosure 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 January

30, 2021.

Based on this evaluation,

our Principal Executive Officer

and Principal Financial Officer

concluded that,

as of

January 30, 2021,

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.

Management’s Report on Internal Control Over Financial Reporting

Management is

responsible for

establishing and

maintaining adequate internal

control over

financial

reporting, as defined in Exchange Act Rule 13a-15(f).

Under the supervision and with the participation of

our management, including

our Principal

Executive Officer

and Principal

Financial Officer,

we carried

out an

evaluation of the

effectiveness of

our internal

control over

financial reporting as

of January 30,

2021 based on the

Internal Control –

Integrated Framework

(2013)

issued by the Committee

Sponsoring Organizations

of the

Treadway Commission

(“COSO”).

Based on

this evaluation,

management concluded that

our internal control

over financial reporting

was effective as

of January 30,

2021.

PricewaterhouseCoopers LLP, an

independent registered public accounting firm, has audited the

effectiveness of our internal control

over financial reporting as of January 30,

2021, as stated in its

report

which is included herein.

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 January

30, 2021

that has

materially affected,

or is

reasonably likely

to materially

affect, the

Company’s internal

control over

financial reporting.

Item 9B.

Other Information:

On March 24, 2021,

the Compensation Committee of the

Company approved a discretionary bonus to

all associates eligible under the Company’s

2018 Incentive Compensation Plan, including the Company’s

named executive officers.

The Committee granted

the discretionary bonus

to help retain

key associates

and in recognition

of their hard

work throughout the

unprecedented events of fiscal

2020.

The

discretionary bonus will

equal 20% of

the bonus target

previously established unde

the 2018 Incentive

Compensation Plan for eligible associates and the named executive officers.

The amount of the bonus for

the named executive officers is shown below:

Name

Title

Discretionary Bonus

John P.

D. Cato

Chairman, President and Chief Executive Officer

$391,839

John R Howe

Executive Vice President, Chief

Financial Officer

$69,783

Gordon D. Smith

Executive Vice President, Chief

Real Estate and Store

Development Officer

$54,921

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance:

Information contained

under the

captions “Election

of Directors,”

“Meetings and

Committees” and

“Corporate Governance Matters”

in the

Registrant’s Proxy

Statement for

its 2021

annual stockholders’

meeting (the

“2021 Proxy

Statement”) is

incorporated by

reference in

response to

this Item

10. The

information in

response to

this Item

10 regarding

executive officers

of the

Company is

contained in

Item 3A, Part I hereof under the caption “Executive Officers of the Registrant.”

Item 11.

Executive Compensation:

Information contained under the captions “2020 Executive Compensation,” “Fiscal Year 2020 Director

Compensation,”

“Corporate Governance

Matters-Compensation Committee

Interlocks and

Insider

Participation” in

the Comp

any’s 2021

Proxy Statement is

incorporated by reference

in response

to this

Item.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder

Matters:

Equity Compensation Plan Information

The following

table provides

information about

stock options

outstanding and

shares available

for

future awards under all of the Company’s equity compensation plans. The information is as of January

30,

2021.

(a)

Number of Securities to

be Issued upon

Exercise of

Outstanding Options,

Warrants and Rights

(1)

(b)

Weighted-Average

Exercise Price of

Outstanding Options,

Warrants and Rights

(1)

(c)

Number of Securities

Remaining Available

for Future Issuance

Under Equity

Compensation Plans

(Excluding Securities

Reflected in Column

(a)) (2)

Plan Category

Equity compensation plans approved

by security holders

3,979,491

Equity compensation plans not

approved by security holders

Total

3,979,491

(1)

There are no outstanding stocking options, warrants or stock appreciation

rights.

(2)

Includes the following:

Under the Company’s

stock incentive plan,

referred to as

the 2018

Incentive Compensation

Plan, 3,961,473

shares are

available for

grant. Under

this plan,

non-

qualified stock options may be granted to key associates.

Under the

2013 Employee

Stock Purchase

Plan, 18,018

shares are

available. Eligible

associates

may participate in the purchase of designated shares of the Company’s

common stock. The

purchase price of this stock is equal to 85% of the lower of the

closing price at the beginning or the

end of each semi-annual stock purchase period.

Information contained under “Security Ownership of Certain Beneficial

Owners and Management”

in the 2021 Proxy Statement is incorporated by reference in response to

this Item.

Item 13.

Certain Relationships and Related Transactions, and Director Independence:

Information contained

under the

caption “Certain

Relationships and

Related Person

Transactions,”

“Corporate Governance

Matters-Director Independence”

and “Meetings

and Committees”

in the

2021

Proxy Statement is incorporated by reference in response to this Item.

Item 14.

Principal Accountant Fees and Services:

Information contained under

the captions “Ratification

of Independent Registered

Public Accounting

Firm-Audit Fees” and

“-Policy on Audit

Committee Pre-Approval of

Audit and Permissible

Non-Audit

Service by the

Independent Registered Public

Accounting Firm”

in the 2021

Proxy Statement is

incorporated by reference in response to this Item.

PART

Item 15.

Exhibits and Financial Statement Schedules:

(a) The following documents are filed as part of this report:

(1) Financial Statements:

Page

Report of Independent Registered Public Accounting Firm

....................................................................

Consolidated Statements of Income (Loss) and Comprehensive Income

(Loss) for the fiscal

years ended January 30, 2021, February 1, 2020 and February 2, 2019

................................................

Consolidated Balance Sheets at January 30, 2021 and February 1, 2020

.................................................

Consolidated Statements of Cash Flows for the fiscal years ended January

30, 2021, February 1, 2020

and February 2, 2019 ................................................................................................................................

Consolidated Statements of Stockholders’ Equity for the fiscal years ended

January 30, 2021,

February 1, 2020 and February 2, 2019 ....................................................................................................

Notes to Consolidated Financial Statements .............................................................................................

(2) Financial Statement Schedule: The following report and financial

statement schedule is filed

herewith:

Schedule II — Valuation and Qualifying Accounts .................................................................................

All other

schedules are

omitted as

the required

information is

inapplicable or

the information

presented in the Consolidated Financial Statements or related Notes thereto.

(3) Index to Exhibits: The following exhibits

listed in the Index below

are filed with this report

or, as

noted, incorporated by reference herein.

The Company will supply copies of the following exhibits to any

shareholder upon receipt of a written request addressed to the Corporate Secretary, The

Cato Corporation,

8100 Denmark Road,

Charlotte, NC 28273

and the payment

of $.50 per

page to help

defray the costs

handling, copying

and postage.

In most

cases, documents

incorporated by

reference to

exhibits to

our

registration statements, reports or proxy

statements filed by the Company

with the Securities and

Exchange Commission are

available to the

public over the

Internet from the

SEC’s web

site at

http://www.sec.gov.

Exhibit

Number

Description of Exhibit

3.1

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.

3.2

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.

4.1

Description of the Registrant's Securities Registered Pursuant to Section 12 of the

Securities Exchange Act of 1934, incorporated by reference to Exhibit 4.1 to Form 10-K of

the Registrant for the year ended February 1, 2020.

10.2*

2013 Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 to Form S-8

of the Registrant filed May 31, 2013 (SEC file No. 333-188990).

10.3*

2013 Incentive Compensation Plan, incorporated by reference to Exhibit 4.1 to Form S-8

of the Registrant filed May 31, 2013 (SEC file No. 333-188993).

10.4*

2018 Incentive Compensation Plan, incorporated by reference to Exhibit 99.1 to Form S -8

of the Registrant filed June 1, 2018 (SEC file No. 333-225350).

10.5*

Form of

Agreement

, dated as of August 29, 2003, between the Registrant and Wayland H.

Cato, Jr., incorporated by reference

Exhibit 99(c) to

Form

8-K of the Registrant filed on

July 22, 2003.

10.6*

Form of Agreement, dated as of August 29, 2003, between the Registrant and Edgar T.

Cato, incorporated by reference to Exhibit 99(d) to Form 8 -K of the Registrant filed on

July 22, 2003.

10.7*

Retirement Agreement between Registrant and Wayland H. Cato, Jr. dated August 29,

2003 incorporated by reference to Exhibit 10.1 to Form 10-Q of the Registrant for quarter

ended August 2, 2003.

10.8*

Retirement Agreement between Registrant and Edgar T. Cato dated August 29, 2003,

incorporated by reference to Exhibit 10.2 to Form 10-Q of the Registrant for the quarter

ended August 2, 2003.

10.9*

Letter Agreement between the Registrant and John R. Howe dated as of August 28, 2008,

incorporated by Reference to Exhibit 99.1 to Form 8-K of the Registrant filed September 3,

2008.

10.10*

Deferred Compensation Plan effective July 28, 2011, incorporated by reference to Exhibit

10.1 to Form 8-K of the Registrant filed on July 19, 2011.

10.11

Credit Agreement, dated as of August 22, 2003, among the Registrant, the guarantors party

thereto, the banks party thereto and Branch Banking and Trust Company, as Agent, as

amended through and including the Eighth Amendment dated May 24, 2019, incorporated

by reference to Exhibit 10.11 to Form 10-K of the Registrant for the ye ar ended February

1, 2020.

10.12

Ninth Amendment dated June 2, 2020, of Credit Agreement, dated as of August 22, 2003,

among the Registrant the guarantors party thereto, the banks party thereto and Branch

Banking and Trust Company, as Agent, incorporated by reference to Exhibit 10.11 to Form

10-Q of the Registrant for the quarter ended May 2, 2020.

21.1**

Subsidiaries

of Registrant

23.1**

Consent of Independent Registered Public Accounting Firm.

31.1**

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2**

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1**

Section 1350 Certification of Chief Executive Officer.

32.2**

Section 1350 Certification of Chief Financial Officer.

101.1**

The following materials from Registrant’s Annual Report on

form 10-K

for the fiscal year

ended January 30, 2021, formatted in Inline XBRL:

(i) Consolidated Statements of Income

(Loss) and Comprehensive Income (Loss) for the fiscal years ended January

30, 2021,

February 1, 2020 and February 2, 2019;

(ii) Consolidated Balance Sheets at January 30, 2021

and February 1, 2020; (iii) Consolidated Statements of Cash Flows for the

fiscal years ended

January 30, 2021, February 1, 2020 and February 2, 2019;

(iv) Consolidated Statements of

Stockholders’ Equity for the fiscal years ended January 30, 2021, February

1, 2020 and

February 2, 2019; and (v) Notes to Consolidated Financial Statements.

104.1

Cover Page Interactive Data File (Formatted in Inline XBRL and contained

in the Interactive

Data Files submitted as Exhibit 101.1**).

* Management contract or compensatory plan required to be filed under Item 15 of this report and Item 601

of Regulation S-K.

** Filed or submitted electronically herewith.

Item 16.

Form 10-K Summary:

None.

SIGNATURES

Pursuant to

the requirements

of Section

13 or

15(d) of

the Securities

Exchange Act

of 1934,

Cato has

duly

caused this report to be signed on its behalf by the undersigned,

thereunto duly authorized.

The Cato Corporation

/s/ JOHN P.

D. CATO

/s/ JOHN R. HOWE

John P.

D. Cato

Chairman, President and

Chief Executive Officer

John R. Howe

Executive Vice President

Chief Financial Officer

/s/ JEFFREY R. SHOCK

Jeffrey R. Shock

Senior Vice President

Controller

Date: March 29, 2021

Pursuant to the requirements

of the Securities Exchange

Act of 1934, this

report has been signed

below on March 29,

2021

by the following persons on behalf of the Registrant and in the

capacities indicated:

/s/ JOHN P.

D. CATO

John P.

D. Cato

(President and Chief Executive Officer

(Principal Executive Officer) and Director)

/s/ BAILEY W.

PATRICK

Bailey W.

Patrick

(Director)

/s/ JOHN R. HOWE

John R. Howe

(Executive Vice President

Chief Financial Officer (Principal Financial Officer))

/s/ THOMAS B. HENSON

Thomas B. Henson

(Director)

/s/ JEFFREY R. SHOCK

Jeffrey R. Shock

(Senior Vice President

Controller (Principal Accounting Officer))

/s/ BRYAN

F. KENNEDY

III

Bryan F. Kennedy III

(Director)

/s/ THOMAS E. MECKLEY

Thomas E. Meckley

(Director)

/s/ D. HARDING STOWE

D. Harding Stowe

(Director)

/s/ THERESA J. DREW

Theresa J. Drew

(Director)

/s/ PAMELA L.

DAVIES

Pamela L. Davies

(Director)

Schedule II

VALUATION

AND QUALIFYING ACCOUNTS

(in thousands)

Allowance

for

Customer

Self Insurance

Credit Losses(a)

Reserves(b)

Balance at February 3, 2018

1,148

11,623

Additions charged to costs and expenses

897

17,932

Additions (reductions) charged to other accounts

210

(c)

214

Deductions

(1,413)

(d)

(18,803)

Balance at February 2, 2019

842

10,966

Additions charged to costs and expenses

700

16,687

Additions (reductions) charged to other accounts

188

(c)

(635)

Deductions

(1,004)

(d)

(16,483)

Balance at February 1, 2020

726

10,535

Additions charged to costs and expenses

435

15,500

Additions (reductions) charged to other accounts

171

(c)

(205)

Deductions

(727)

(d)

(14,855)

Balance at January 30, 2021

605

10,975

(a)

Deducted from trade accounts receivable.

(b)

Reserve for Workers' Compensation,

General Liability and Healthcare.

(c)

Recoveries of amounts previously written off.

(d)

Uncollectible accounts written off.