THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
25
Comparison of First Quarter of 2026
with 2025
Total retail sales for the first quarter
were $169.4 million compared to
last year’s first quarter sales of
$168.4
million.
Sales increased due
to a same-store
sales increase of
3%, partially offset
by stores that
were closed
in the past 12 months.
Same store sales include stores
that have been open more than
15 months.
Stores that
have been
relocated or
expanded are
also included
in the
same store
sales calculation
after they
have been
open more than 15 months.
The method of calculating same store sales varies across the retail industry.
As a
result, our same
store sales calculation
may not be
comparable to similarly
titled measures reported
by other
companies. E-commerce sales were less than 4.0%
of sales for the first quarter of
fiscal 2026 and are included
in the
same-store sales
calculation.
Total revenues,
comprised of
retail sales
and other
revenue (principally
finance
charges
and
late
fees
on
customer
accounts
receivable,
shipping
charged
to
customers
for
e-
commerce
purchases
and
layaway
fees),
were
$171.1
million
for
the
first
quarter
ended
May
2,
2026,
compared to $170.2
million for
the first
quarter ended May
3, 2025. The
Company operated
1,065 stores
at
May 2, 2026 compared
to 1,109 stores at
the end of last fiscal
year’s first quarter.
For the first three
months
of
fiscal
2026,
the
Company
opened
two
stores
and
closed
six
stores.
The
Company
currently
expects
to
open up to 15 new stores
and close approximately 35 stores in
fiscal 2026.
Other revenue, a component of
total revenues, was $1.7 million for the first
quarter of fiscal 2026, compared
to $1.8
million for
the prior
year’s comparable
first quarter.
Included in
Other revenue
is credit
revenue of
$0.7 million
which represented
0.4% of
total revenues
in the
first quarter
of fiscal
2026, flat
both in
dollars
and percentage compared
to 2025.
Credit revenue is comprised
of interest earned on
the Company’s private
label credit card
portfolio and related
fee income.
Related expenses include
principally payroll, postage
and
other administrative expenses,
and totaled $0.4
million in the
first quarter of
2026, flat to
the first quarter
of
2025.
Cost of goods
sold was $106.3
million, or 62.8%
of retail sales for
the first quarter of
fiscal 2026, compared
to $109.3
million, or
64.9% of
retail sales
in the
first quarter
of fiscal
2025.
The decrease
in cost
of goods
sold as
a percent
of sales
was due
in part
to a
pre-tax tariff
refund claim
of $5.7
million and
lower freight
costs,
partially
offset
by
increased
sales
of
marked
down
goods.
Cost
of
goods
sold
includes
merchandise
costs
(net
of
discounts
and
allowances),
buying
costs,
distribution
costs,
occupancy
costs,
freight
and
inventory shrinkage.
Net merchandise costs and
in-bound freight are capitalized
as inventory costs.
Buying
and
distribution
costs
include
payroll,
payroll-related
costs
and
operating
expenses
for
the
buying
departments and distribution center.
Occupancy costs include rent, real estate taxes, insurance, common area
maintenance, utilities and maintenance for stores
and distribution facilities.
Total gross margin dollars (retail
sales less cost of goods sold exclusive of depreciation) increased by 6.8% to $63.1 million for the first quarter
of fiscal
2026 compared
to $59.1
million in the
first quarter
of fiscal
2025.
Gross margin
as presented
may
not be comparable to those of
other entities.
Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related
payroll taxes and benefits, insurance, supplies, advertising,
and bank and credit card processing fees.
SG&A
expenses were
$53.9 million,
or 31.8%
of retail
sales for
the first
quarter of
fiscal 2026,
compared to
$55.3
million,
or
32.8%
of
retail
sales
in
the
first
quarter
of
fiscal
2025.
SG&A
expense
was
lower
in
the
first
quarter of
fiscal 2026
compared to
the first
quarter of
fiscal 2025
primarily due
to lower
corporate payroll
expense, insurance costs and equipment maintenance, partially offset by increases in incentive compensation Depreciation expense was $2.2 million, or 1.3% of retail sales for the first quarter of fiscal 2026, compared to
expense.
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