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xbrli:shares iso4217:USD xbrli:shares
 
 
 
 
 
 
 
 
 
 
 
 
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
 
or
 
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
 
No
 
 
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
 
No
 
 
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
 
No
 
 
Indicate by
 
check mark
 
whether the
 
registrant has
 
submitted electronically
 
every Interactive
 
Data File
 
required to
 
be submitted
 
pursuant to Rule 405 of Regulation
 
S-T (§ 232.405 of this chapter)
 
during the preceding 12 months
 
(or for such shorter period
 
that the
registrant was required to submit such files). Yes
 
No
 
 
Indicate by check mark
 
whether the registrant is
 
a large accelerated
 
filer, an accelerated
 
filer, a non-accelerated
 
filer, a smaller
reporting company,
 
or an
 
emerging growth
 
company.
 
See the
 
definitions of
 
“large accelerated
 
filer,” “accelerated
 
filer,” “smaller
reporting company” and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
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))
 
by
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
 
 
No
 
 
The aggregate
 
market value
 
of the
 
Registrant’s Class
 
A Common
 
Stock held
 
by non-affiliates
 
of the
 
Registrant as
 
of August
 
1,
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
 
 
2
 
THE CATO CORPORATION
 
FORM 10-K
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
PART
 
I
Item 1.
 
Business ..........................................................................................................................
 
 
 
5 – 10
 
Item 1A.
Risk Factors ....................................................................................................................
 
10 – 20
Item 1B.
Unresolved Staff Comments ...........................................................................................
 
20
Item 2.
 
Properties ........................................................................................................................
 
 
 
20
 
Item 3.
 
Legal Proceedings ...........................................................................................................
 
 
 
21
 
Item 3A.
 
Executive Officers of the Registrant ...............................................................................
 
 
 
22
 
Item 4.
Mine Safety Disclosures .................................................................................................
 
22
 
PART
 
II
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ........................................................................................
 
 
 
23 – 25
 
 
Item 6.
 
Selected Financial Data ..................................................................................................
 
 
 
26
 
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 ........................................
 
 
 
33
 
Item 8.
 
Financial Statements and Supplementary Data ..............................................................
 
 
 
34 – 62
 
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure .......................................................................................................................
 
 
 
63
 
Item 9A.
 
Controls and Procedures .................................................................................................
 
 
 
63
 
Item 9B.
Other Information ...........................................................................................................
 
63
 
PART
 
III
Item 10.
 
Directors, Executive Officers and Corporate Governance .............................................
 
 
 
64
 
 
Item 11.
 
Executive Compensation ................................................................................................
 
 
 
65
 
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ........................................................................................................
 
 
 
65
 
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence ...............
 
 
 
65
 
Item 14.
 
Principal Accountant Fees and Services .........................................................................
 
 
 
65
 
 
PART
 
IV
Item 15.
 
Exhibits and Financial Statement Schedules ..................................................................
 
 
 
66 – 70
 
Item 16.
Form 10-K
 
Summary ………………………………………………………………….
68
 
 
 
 
3
 
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
 
related
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
 
by
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
 
we
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
 
 
 
4
 
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.
 
 
 
5
 
PART
 
I
 
Item 1.
 
Business:
 
Background
 
 
The Company,
 
founded in
 
1946, operated
 
1,330 fashion specialty
 
stores at
 
January 30,
 
2021, in
 
33
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.
 
A
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
 
or
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.
 
 
 
6
 
Merchandising
 
 
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
 
 
7
 
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
 
a
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:
 
 
 
 
 
 
 
 
8
 
Store Development
Number of Stores
Beginning of
Number
Number
Number of Stores
Fiscal Year
Year
Opened
Closed
End of Year
2016………………….……...………….
1,372
 
8
 
9
1,371
2017………………….……...………….
1,371
 
6
 
26
1,351
2018……………………….……...…….
1,351
 
-
 
40
1,311
2019…………....………….……...…….
1,311
 
5
 
35
1,281
2020………….………...….……...…….
1,281
 
76
 
27
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
 
to
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.
 
If
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
 
no
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
 
in
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
 
a
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.
 
 
 
9
 
 
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
 
we
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
 
 
10
 
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.
 
If
 
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
 
to
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
 
 
11
 
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.
 
 
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
 
or
prolonged unseasonable
 
weather conditions
 
would adversely
 
affect our
 
business.
 
The occurrence
 
or
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
 
 
12
 
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
 
of
domestic intermodal
 
transportation (trucks
 
and drivers),
 
domestic port
 
congestion and
 
other conditions
that ma
 
y
 
impact domestic
 
supply chain.
 
These supply
 
chain risks
 
may result
 
in both
 
higher costs
 
to
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
 
to
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
 
to
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.
 
 
 
13
 
 
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
 
in
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,
 
as
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
 
 
14
 
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.
 
 
 
15
 
 
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
 
to
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
 
or
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
 
is
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.
 
 
 
16
 
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
 
t
 
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
 
to
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,
 
 
17
 
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-
 
related
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.
 
We
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
 
 
18
 
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
 
be
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
 
 
19
 
financial reporting, which is a
 
costly and time-consuming effort that
 
must be re-evaluated frequently.
 
We
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
 
of
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
 
s
 
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
 
t
 
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
 
 
20
 
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
 
to
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
 
in
 
York
 
County, South
Carolina as a potential new site for our distribution center.
 
 
21
 
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
 
is
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.
 
 
 
 
 
22
 
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............................
 
 
 
70
 
 
Chairman, President and Chief Executive Officer
John R. Howe ..............................
 
 
58
 
Executive Vice President, Chief Financial Officer
Gordon Smith ..............................
 
 
 
65
 
 
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
 
a
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,
 
he
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.
 
 
23
 
PART
 
II
 
 
 
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.
 
 
cato20210130p24i0.gif
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
 
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
100
100
1/27/2017
65
99
134
2/2/2018
33
112
156
2/1/2019
45
122
151
1/31/2020
53
136
165
1/29/2021
38
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
 
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
 
share
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.
 
 
 
 
 
 
 
 
26
 
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
29
96
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
1.32
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
 
89
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.
 
 
 
27
 
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.
 
 
 
 
 
 
 
 
28
 
 
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
%
100.0
%
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
 
 
29
 
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
 
of
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
 
previous
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
 
s
 
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
 
c
 
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
 
 
30
 
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
 
f
 
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
 
by
 
 
31
 
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
 
be
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
 
 
32
 
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
 
f
 
$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
related
 
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
 
at
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
 
as
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
 
at
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
 
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
 
on
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.
 
 
 
34
 
 
Item 8.
 
Financial Statements and Supplementary Data:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 
 
 
 
 
 
 
Page
 
 
Report of Independent Registered Public Accounting Firm
 
................................................................
 
..
 
 
 
35
 
Consolidated Statements of Income (Loss) and Comprehensive
 
Income (Loss) for the fiscal
 
 
years ended January 30, 2021, February 1, 2020 and February 2,
 
2019 ...........................................
 
 
 
37
 
Consolidated Balance Sheets at January 30, 2021 and
 
February 1, 2020
 
.............................................
 
 
 
38
 
Consolidated Statements of Cash Flows for the fiscal years ended
 
January 30, 2021, February 1, 2020
 
and February 2, 2019................................
 
................................................................
 
.........................
 
 
 
39
 
Consolidated Statements of Stockholders’ Equity for the fiscal years
 
ended January 30, 2021,
 
 
February 1, 2020 and February 2, 2019 ................................
 
............................................................
 
 
 
40
 
Notes to Consolidated Financial Statements ................................................................
 
..........................
 
 
 
41
 
Schedule II — Valuation
 
and Qualifying Accounts for the fiscal years ended January 30,
 
2021,
 
 
February 1, 2020 and February 2, 2019 ................................
 
............................................................
 
 
 
70
 
 
 
 
35
 
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
 
in
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
 
 
36
 
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
 
on
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
 
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
29
96
 
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
$
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
 
($
79
), $
453
, and $
77
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
 
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
 
at
 
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
59
59
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
 
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)
7
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.
 
 
 
 
 
 
40
 
THE CATO CORPORATION
CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS' EQUITY
Convertible
Accumulated
Class A
Class B
Additional
Other
Total
Common
Common
Paid-in
Retained
Comprehensive
Stockholders'
Stock
Stock
Capital
Earnings
Income
Equity
(Dollars in thousands)
Balance — February 3, 2018
$
774
$
58
$
99,948
$
225,894
$
(321)
$
326,353
Comprehensive income:
 
Net income (loss)
-
-
-
30,461
-
30,461
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax liability of $
77
-
-
-
-
244
244
Dividends paid ($
1.32
 
per share)
-
-
-
(32,577)
-
(32,577)
Class A common stock sold through employee stock purchase
 
 
plan —
44,770
 
shares
2
-
669
-
-
671
Class B common stock sold through stock option plans —
 
 
8,051
 
shares
-
1
194
-
-
195
Class A common stock issued through restricted stock grant plans —
 
341,744
 
shares
11
-
4,769
54
-
4,834
Repurchase and retirement of treasury shares –
593,404
 
shares
 
(20)
-
-
(13,325)
-
(13,345)
Balance — February 2, 2019
$
767
$
59
$
105,580
$
210,507
$
(77)
$
316,836
Comprehensive income:
 
Net income (loss)
-
-
-
35,897
-
35,897
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax liability of $
453
-
-
-
-
1,500
1,500
Dividends paid ($
1.32
 
per share)
-
-
-
(32,592)
-
(32,592)
Class A common stock sold through employee stock purchase
 
 
plan —
48,626
 
shares
1
-
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
 
shares
14
-
4,498
48
-
4,560
Repurchase and retirement of treasury shares –
622,480
 
shares
 
(21)
-
-
(10,402)
-
(10,423)
Balance — February 1, 2020
$
761
$
59
$
110,813
$
203,458
$
1,423
$
316,514
Comprehensive income:
 
Net income (loss)
-
-
-
(47,483)
-
(47,483)
 
Unrealized gains (loss) on available-for-sale securities, net of
 
deferred income tax benefit of ($
79
)
-
-
-
-
(268)
(268)
Dividends paid ($
0.33
 
per share)
-
-
-
(7,912)
-
(7,912)
Class A common stock sold through employee stock purchase
 
 
plan —
48,191
 
shares
1
-
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
 
shares
8
-
4,006
8
-
4,022
Repurchase and retirement of treasury shares –
1,975,373
 
shares
 
(67)
-
-
(18,768)
-
(18,835)
Balance — January 30, 2021
$
703
$
59
$
115,278
$
129,303
$
1,155
$
246,498
 
See notes to consolidated financial statements.
THE CATO CORPORATION
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
41
 
1.
 
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
 
of
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)
 
 
42
 
 
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
 
is
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
 
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
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
 
to
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
466
Total
 
Other Assets
$
22,850
$
24,073
 
THE CATO CORPORATION
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
— (Continued)
 
 
43