CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

REVENUES

Retail sales

$

169,410

$

168,419

Other revenue (principally finance charges, late fees and

layaway charges)

1,694

1,823

Total revenues

171,104

170,242

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

106,340

109,318

Selling, general and administrative (exclusive of depreciation

shown below)

53,930

55,325

2,236

2,564

(1,233)

(1,202)

Costs and expenses, net

161,273

166,005

9,831

4,237

Income tax expense

$

9,309

$

3,309

Basic earnings per share

$

0.47

$

0.17

Diluted earnings per share

$

0.47

$

0.17

$

9,309

$

3,309

Net unrealized gain (loss) on available-for-sale securities, net

of deferred income taxes of $

for each of the three months

(260)

ended May 2, 2026 and May 3, 2025

Comprehensive income

$

9,049

$

3,347

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

Current Assets:

Cash and cash equivalents

$

25,412

$

16,788

Short-term investments

55,558

56,859

Restricted cash

2,675

2,675

Accounts receivable, net of allowance for customer credit losses of

$

and $

at May 2, 2026 and January 31, 2026, respectively

33,159

25,462

Merchandise inventories

92,490

83,696

Prepaid expenses and other current assets

7,928

7,787

Total Current Assets

217,222

193,267

Property and equipment – net

52,504

53,748

Other assets

20,720

20,471

Right-of-Use assets – net

148,734

153,933

$

439,180

$

421,419

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

79,702

$

64,958

Accrued expenses

34,590

37,101

Accrued bonus and benefits

1,838

Current lease liability

52,088

53,507

Total Current Liabilities

168,218

155,892

Other noncurrent liabilities

11,318

11,272

Lease liability

92,939

96,941

Commitments and contingencies (Note 10)

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

18,195,206

and

17,976,854

shares issued

at May 2, 2026 and January 31, 2026, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares issued at May 2, 2026 and January 31, 2026

Additional paid-in capital

131,989

131,347

Retained earnings

34,028

25,026

Accumulated other comprehensive income

Total Stockholders' Equity

166,705

157,314

Total Liabilities and Stockholders’ Equity

$

439,180

$

421,419

OF CASH FLOWS

Operating Activities:

$

9,309

$

3,309

Adjustments to reconcile net income to net cash provided by operating activities:

2,236

2,564

Provision for customer credit losses

Purchase premium and premium amortization of investments

(98)

(81)

Gain on sale of assets held for investment

(34)

Share-based compensation

Gain on disposal of property and equipment

(2)

(30)

Changes in operating assets and liabilities which provided (used) cash:

Accounts receivable

(8,642)

(2,505)

Merchandise inventories

(8,794)

1,309

Prepaid and other assets

(390)

(38)

Operating lease right-of-use assets and liabilities

(221)

(156)

Accounts payable, accrued expenses and other liabilities

13,866

(878)

Net cash provided by operating activities

8,049

3,868

Investing Activities:

Expenditures for property and equipment

(1,067)

(1,019)

Purchase of short-term investments

(6,836)

(2,262)

Sales of short-term investments

7,974

11,195

Sales of other assets

Proceeds from cash value of life insurance policy

Net cash provided by investing activities

7,948

Financing Activities:

Repurchase of common stock

(311)

(935)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(234)

(873)

Net increase in cash, cash equivalents, and restricted cash

8,624

10,943

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

19,463

23,078

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

$

28,087

$

34,021

Non-cash activity:

Accrued other assets and property and equipment expenditures

$

$

Accrued treasury stock

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — January 31, 2026

$

$

131,347

$

25,026

$

$

157,314

9,309

9,309

Unrealized net loss on available-for-sale securities, net of deferred

income tax benefit of $

(260)

(260)

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

(10)

Share-based compensation expense

Repurchase and retirement of treasury shares

(4)

(307)

(311)

Balance — May 2, 2026

$

$

131,989

$

34,028

$

$

166,705

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — February 1, 2025

$

$

129,530

$

31,935

$

$

162,296

3,309

3,309

Unrealized net gain on available-for-sale securities, net of deferred

income tax benefit of $

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

(2)

(2)

Share-based compensation expense

Repurchase and retirement of treasury shares

(10)

(897)

(907)

Other

(73)

(73)

Balance — May 3, 2025

$

$

129,786

$

34,274

$

$

164,917

NOTE 1 - GENERAL

:

The condensed consolidated

financial statements as

of May 2,

2026 and for

the three months

ended May

2, 2026 and May 3, 2025 have been prepared from the accounting records of

The Cato Corporation and its

wholly-owned

subsidiaries

(the

“Company”),

and

all

amounts

shown

are

unaudited.

In

the

opinion

of

management, all

adjustments

considered

necessary

for

a

fair

statement

of

the

have

been included.

All such adjustments are of a normal, recurring nature unless otherwise noted.

The results

of the interim period may not be indicative of the results expected

for the entire year.

The interim financial

statements should be read

in conjunction with

the consolidated financial statements

and

notes

thereto,

in

the

Annual

Report

on

Form

10-K

for

the

fiscal

year

ended

January 31,

Amounts as

of January 31,

2026 have been

derived from the

audited annual

statements, but

do not

include all

disclosures required by

accounting principles

generally accepted in

the

United States of America.

In

February

2026,

the

U.S.

Supreme

Court

issued

a

ruling

that

tariffs

imposed

under

the

Emergency

Economic

Powers

Act

(“IEEPA”)

on

goods

imported

into

the

United

States

were

unauthorized,

effectively

invalidating

IEEPA

tariffs.

In

April

2026,

the

Supreme

Court’s

invalidation

of

the

IEEPA

tariffs

and

the

establishment

of

procedures

for

processing

tariff

refunds,

the

Company submitted a refund claim and recorded a $

5.7

million reduction in cost of goods sold in the first

Subsequent Events:

Subsequent to May 2, 2026, the Company repurchased

4,471

shares for $

12,824

.

On May

15, 2026,

the Company

received a

$

2.6

million partial

payment for

its tariff

refund claim.

The

Company anticipates receiving payment for the

balance of its tariff

refund claim by the end of

the second

The

Company

received

a

$

5.6

million

payment

for

the

balance

of

the

income

tax

refund

receivable due from the IRS.

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 –

Earnings Per Share

requires dual presentation of basic and

diluted Earnings Per Share

(“EPS”) on the face of

all income statements for

all entities with complex

capital

structures.

The Company has presented one basic EPS and one diluted EPS amount for all common shares in

the accompanying

Condensed Consolidated

Statements of

Income and

Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the

right for

the Board of

Directors to

declare dividends

on

Class

A

shares

without

declaration

of

commensurate

dividends

on

Class

B

shares,

the

Company

has

historically paid the same dividends to both Class A and Class B shareholders and the

Board of Directors has

resolved to continue this practice.

Accordingly, the Company’s allocation of income for purposes of the EPS

computation is the same

for Class A and

Class B shares and

the EPS amounts reported

herein are applicable

to both Class A and Class B

shares.

Basic

EPS

is

computed

as

net

income

less

earnings

allocated

to

non-vested

equity

awards

divided

by

the

weighted average

number of

common shares

outstanding for

the period.

Diluted EPS

reflects the

potential

dilution

that

could

occur

from

common

shares

issuable

through

stock

options

and

the

Stock

Purchase Plan.

Numerator

Net earnings

$

9,309

$

3,309

Earnings allocated to non-vested equity awards

(427)

(192)

Net earnings available to common stockholders

$

8,882

$

3,117

Denominator

Basic weighted average common shares outstanding

18,818,492

18,684,837

Diluted weighted average common shares outstanding

18,818,492

18,684,837

Net income per common share

Basic earnings per share

$

0.47

$

0.17

Diluted earnings per share

$

0.47

$

0.17

Unvested restricted stock excluded from the calculation

of diluted EPS for the

periods ended May 2, 2026

and May 3, 2025 were

904,000

and

1,151,000

, respectively, because the effect of

including them in the

calculation of diluted EPS would have been

antidilutive.

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

table

sets

forth

the

changes

in

other

comprehensive

income (in thousands) for the

three months ended May 2, 2026:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

$

Other comprehensive income (loss) before

reclassification

(260)

Amounts reclassified from accumulated

other comprehensive income

Net current-period other comprehensive income (loss)

(260)

$

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

The

table

sets

forth

the

changes

in

other

comprehensive

income (in thousands) for the

three months ended May 3, 2025:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

$

Other comprehensive income (loss) before

reclassification

Amounts reclassified from accumulated

other comprehensive income (b)

(34)

Net current-period other comprehensive income (loss)

Ending Balance at May 3, 2025

$

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on

available-for-sale securities. The tax impact of this reclassification was $

.

NOTE 4 – FINANCING ARRANGEMENTS:

On March 13, 2025, the Company,

as borrower, and certain other

domestic subsidiaries, as borrowers and

guarantors, entered

into a

Credit Agreement

(the “ABL

Credit Agreement”)

and related

loan documents,

by

and

among

the

Company,

certain

other

of

the

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National

Association,

as

the

lender

(the

“Lender”),

to

establish

an

asset-based

revolving

credit

facility (the “ABL

Facility”) in an

amount up to

$

35.0

million. The proceeds from

the ABL Facility

may

be used to provide funding for ongoing working capital and general corporate

purposes.

The ABL Credit Agreement is

committed through March 2028 and

is secured primarily by inventory

and

third-party credit

card receivables.

There

were

no

borrowings outstanding

and the

availability under

the

facility was

$

30.0

million before

giving effect

to a

$

3.0

million outstanding

letter of

credit that

reduced

borrowing availability

to $

27.0

million as

of May

2, 2026

and January

31, 2026.

The weighted

average

interest rate under the credit facility

was

zero

at May 2, 2026 and

January 31, 2026 due to

no

borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

that

it

has

four

segments,

as

defined

under

ASC

–

Segment

Reporting

(“ASC 280”), including Cato, It’s

Fashion, Versona and Credit.

The Company has

two

reportable

segments: Retail

and Credit.

has aggregated

its

three

retail operating

segments, including

e-

commerce, based on the aggregation criteria outlined in ASC 280-10, which states

that two or more operating

segments may

be aggregated

into a

single reportable

segment if

aggregation is

consistent with

the objective

and

basic

principles

of

ASC

280-10,

which

require

the

to

have

similar

characteristics,

products, production processes, clients and methods of distribution.

The

retail

have

similar

characteristics

and

similar

operating,

financial and

competitive risks.

The products

sold in each

retail operating

segment are

similar in

nature, as

they

all

offer

women’s

apparel,

shoes

and

accessories.

Merchandise

of

the

retail

is

sourced

from

the

same

countries

and

some

of

the

same

vendors,

using

similar

production processes.

Merchandise for the Company’s retail operating segments is distributed to retail stores

in

a

similar

manner

through

the

single

center

and

is

subsequently

distributed

to

customers in a

similar manner. The

Company operates

its

women’s

fashion

specialty

retail

stores

in

states as of May 2, 2026, principally in the southeastern United States.

The Company offers its own credit

card to its customers and all

credit authorizations, payment processing and

collection

efforts

are

performed

by

a

wholly-owned

subsidiary

of

the

Company.

The

Company

does

not

allocate certain corporate expenses to

the Credit segment.

The

President

and

Chief

Executive

Officer

is

the

chief

decision

maker

(“CODM”).

The

structure

above

reflects

the

manner

in

which

the

CODM

regularly

assesses

information for decision-making purposes, including the allocation of resources.

The Company also provides

corporate services,

including finance,

information technology,

and corporate

administration, to

its segments

which are fully allocated to the retail

segment. Interest and other income from

assets held for investment and

sale are not included in assessing

the segments’ performance and therefore not

allocated to either segment.

The CODM manages

and evaluates the

segments’ operating performance

based on segment

sales, expenses,

and

segment

income

before

income

taxes

as

presented

in

the

annual

budget

and

forecasting

process,

as

well

as

monthly

analyses

of

budget-to-actual

and

prior

year

variances.

Segment

and

other items

primarily include

cost of

goods sold,

selling, general

and administrative

expenses, depreciation

and interest and

other income.

Assessment and

approval of

all capital

expenditures are

determined to

be in

support of and based on the

needs of the retail segment; however, the

CODM does not evaluate performance

or allocate resources based on segment asset balances and, therefore, total segment assets are not presented in

the tables below. The measure of

segment assets is reported on the

balance sheet as total consolidated assets.

The

of

the

are

the

same

as

those

in

the

Summary

of

Accounting

Policies

in

Note

of the

consolidated

financial statements

included in

the

Company’s Annual

Report on Form 10-K for

the fiscal year ended January 31,

NOTE 5 – REPORTABLE SEGMENT INFORMATION

The following schedule summarizes certain segment

information (in thousands):

Retail

Credit

Total

Revenues

$

170,439

$

$

171,104

Cost of goods sold (a)

106,340

106,340

Selling, general, and administrative (b)

38,717

39,114

Corporate overhead

14,816

14,816

2,236

2,236

(87)

(270)

(357)

Segment income before income taxes

$

8,417

$

$

8,955

Corporate interest and other income

(876)

$

9,831

Capital expenditures

$

1,067

$

$

1,067

Retail

Credit

Total

Revenues

$

169,577

$

$

170,242

Cost of goods sold (a)

109,318

109,318

Selling, general, and administrative (b)

39,159

39,546

Corporate overhead

15,779

15,779

2,564

2,564

(105)

(303)

(408)

Segment income before income taxes

$

2,862

$

$

3,443

Corporate interest and other income

(794)

$

4,237

Capital expenditures

$

1,019

$

$

1,019

(a) 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.

(b) Selling, general, and administrative expense

include corporate and store payroll, related payroll

taxes

and benefits, insurance, supplies, advertising, bank and

credit card processing fees.

NOTE 6 – SHARE-BASED COMPENSATION:

As

of

May

2,

2026,

the

Incentive

Compensation

Plan

allows

for

the

granting

of

various

forms of equity-based awards,

including restricted stock

and stock options for

grant to officers, directors

and

key employees.

The

table

presents

the

number

of

options

and

shares

of

stock

initially

authorized

and

available for grant under this plan as

of May 2, 2026:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,575,134

In

accordance

with

ASC

–

Compensation–Stock

Compensation

,

the

fair

value

of

current

stock awards

is estimated

on the

date of

grant based

on the

market price

of the

stock and

is

amortized to compensation expense on a

straight-line basis over the related vesting periods.

As of May 2,

and

January

31,

2026,

there

was

$

4,162,000

and

$

4,064,000

,

respectively,

of

total

unrecognized

expense

related

to

unvested

stock

awards,

which

had

a

remaining

weighted-

average vesting

period

of

2.0

years

and

1.4

years,

The

total

compensation expense

during

the

three

months

ended

May

2,

and

May

3,

was

$

564,000

and

$

109,000

,

This

compensation activity is

classified as a

component of Selling,

general and administrative

expenses in the

Condensed Consolidated Statements of Income.

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

during

the three months ended May

2, 2026:

Weighted Average

Number of

Grant Date Fair

Shares

Value

Per Share

Restricted stock awards at January 31, 2026

905,052

$

8.06

Granted

298,494

2.88

Vested

(268,303)

11.50

Forfeited or expired

(3,822)

7.54

Restricted stock awards at May 2, 2026

931,421

$

5.41

NOTE 6 – SHARE-BASED COMPENSATION (CONTINUED):

The

Stock

Purchase

Plan

allows

eligible

full-time

employees

to

purchase

a

limited

number of

shares

of the

Class

A

Common Stock

during each

semi-annual offering

period

at

a

% discount through payroll deductions. During the

three months ended May 2, 2026

and May 3, 2025, the

Company sold

31,503

and

21,736

shares to employees

at an

average discount of

$

0.43

and $

0.50

per share,

respectively, under

the Employee

Stock Purchase

Plan. The

compensation expense

recognized for

the

%

discount

given

under

the

Stock

Purchase

Plan

was

approximately

$

13,000

and

$

11,000

for

the

three

months

ended

May

2,

and

May

3,

2025,

These

are

classified

as

a

component

of

Selling,

general

and

administrative

in

the

Statements

of

Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets

and

liabilities that

are

measured at fair value (in thousands)

as of May 2, 2026 and

January 31, 2026:

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

Corporate Bonds

$

55,558

$

$

55,558

$

Cash Surrender Value of Life Insurance

9,827

9,827

$

65,385

$

$

55,558

$

9,827

Liabilities:

$

(8,343)

$

$

$

(8,343)

Total Liabilities

$

(8,343)

$

$

$

(8,343)

NOTE 7

– FAIR VALUE MEASUREMENTS

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

January 31,

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

Corporate Bonds

$

54,822

$

$

54,822

$

U.S. Treasury/Agencies Notes and Bonds

2,037

2,037

Cash Surrender Value of Life Insurance

9,693

9,693

$

66,552

$

$

56,859

$

9,693

Liabilities:

$

(8,383)

$

$

$

(8,383)

Total Liabilities

$

(8,383)

$

$

$

(8,383)

The

Company’s investment

portfolio

was

primarily invested

in corporate

bonds

held in

managed accounts

with

underlying

ratings

of

A

or

better

at

May

2,

The

bonds

have

contractual

maturities

which range from

13 days

to

2.9

years.

at

May

2,

2026,

the

Company

had

plan

assets

of

$

9.8

At

January

31,

2026,

the

Company

had

plan

assets

of

$

9.7

These

assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level 2 investment securities include corporate bonds for which quoted prices may not be available on

active

exchanges

for

identical

instruments.

Their

fair

value

is

principally

based

on

market

values

by

management with

the 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

such

as

quotes

from

less

active

markets

and/or

quoted

prices

of

securities

with

similar

characteristics, among other factors.

Deferred compensation plan

assets consist 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

liability

associated

with

the

life

insurance

represents

a

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

in

Other

noncurrent

in

the

Balance

Sheet.

These

funds

are

designed to mirror mutual funds and money

market funds that are observable and

actively traded.

The

tables

summarize

the

change

in

fair

value

of

the

assets

and

measured using Level 3 inputs for the

three months ended May 2, 2026

and the year ended January 31,

(dollars in thousands):

NOTE 7

– FAIR VALUE MEASUREMENTS

Asset Inputs (Level 3)

Cash Surrender Value

$

9,693

Total gains or (losses):

$

9,827

Liability Inputs (Level 3)

$

(8,383)

(30)

Total (gains) or losses:

(161)

$

(8,343)

Asset Inputs (Level 3)

Cash Surrender Value

$

9,301

(365)

Total gains or (losses):

Ending Balance at January 31, 2026

$

9,693

Liability Inputs (Level 3)

$

(8,548)

1,246

(206)

Total (gains) or losses:

(875)

Ending Balance at January 31, 2026

$

(8,383)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In

September

2025,

the

FASB

issued

ASU

2025-06,

“Intangibles

–

Goodwill

and

Other

–

Internal-Use

Software

(Subtopic

350-40)

–

Targeted

Improvements

to

the

Accounting

for

Internal-Use

Software”

(ASU

2025-06).

The

FASB

issued

ASU

2025-06

to

modernize

the

for

costs

related

to

internal-use

software

to

better

align

with

how

software

is

developed

and

to

clarify

the

threshold

to

be

applied

to

begin

capitalizing

costs.

ASU

2025-06

is

for

our

annual

and

quarterly

periods beginning January 30, 2028.

Early adoption is permitted. The

Company is currently assessing the

impact that the adoption of ASU 2025-06 will have on our consolidated financial

In

November

2024,

the

FASB

issued

ASU

2024-03,

“Income

Statement

–

Reporting

Income –

Expense

Disaggregation

Disclosures (Subtopic

220-40):

Disaggregation of

Income Statement

Expenses,”

which

requires

public

entities

to

disclose,

on

an

annual

and

interim

basis,

disaggregated

in

the

footnotes

about

specified

related

to

certain

costs

and

expenses.

This

guidance

is

for

annual

periods

beginning

after

December

15,

2026,

and

interim

periods

beginning

after

December

15,

2027,

with

early

adoption

permitted.

The

Company

is

currently

in

the

process of

evaluating the

potential impact

of adoption

of this

new guidance

on its

consolidated financial

statements and related disclosures.

NOTE 9 – INCOME TAXES:

The

Company

had

an

tax

rate

for

the

first

quarter

of

fiscal

of

5.3

%

to

an

tax

rate

of

21.9

%

for

the

first

quarter

of

fiscal

Income

tax

expense

for

the

quarter

decreased to

$

0.5

million in

2026 from

$

0.9

million in

2025. The

decrease in

tax expense

was primarily

due to lower foreign income taxes.

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,

the

that

it

sells,

intellectual

property,

litigation instituted

by persons

injured upon

premises under

its control,

litigation with

respect to

various

employment

matters,

alleged

discrimination and

wage

and

hour

litigation,

and

with

present or former employees.

Although such

litigation is

routine and

incidental to

the conduct

of the

Company’s business,

as with

any

business

of

its

size

with

a

number

of

employees

and

sales,

such

litigation could

result in

large

monetary awards.

Based on

information currently

available, management

does

not

believe

that

any

reasonably

possible

losses

arising

from current

pending litigation

will

have a

material adverse

effect

on its

condensed consolidated

financial statements.

However,

given the

inherent

uncertainties

involved

in

such

matters,

an

adverse

outcome

in

one

or

more

of

such

matters

could

materially and adversely affect the Company’s

financial condition, results of operations and cash flows in

any

particular

period.

The

Company

accrues

for

these

matters

when

the

liability

is

deemed

probable and reasonably estimable.

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

at

the

point

of

purchase

when

the

takes

possession

of

the

and

pays

for

the

purchase,

generally

with

cash

or

credit.

Sales

from

made

with

Cato

credit,

gift

cards

and

layaway

sales

from

stores

are

also

when

the

takes

possession of

the merchandise. E-commerce

sales are

recorded when the

risk of

loss is

transferred to the

customer.

Gift cards

are recorded

as deferred

revenue until they

are redeemed

or forfeited.

Gift cards

do

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

on

sales

volumes

and

the

experience;

actual

returns

have

not

varied

from

historical

amounts.

A

provision

is

made

for

estimated

write-offs

associated

with

sales

made

with

the

proprietary credit

card. In

addition, a

provision is

made for

estimated rewards

cards issued

to customers

based

on

their

with

the

propriety

credit

card.

The

rewards

cards

issued

by

the

Company have

a 90-day

expiration.

Amounts related

to shipping

and handling

billed to

customers in

a

sales

transaction

are

classified

as

Other

revenue

and

the

costs

related

to

shipping product

to

customers

(billed and accrued) are classified as Cost of goods sold.

offers its

own proprietary

credit card

to customers.

All credit

activity is

performed by

the

wholly-owned subsidiaries.

No

ne

of the

credit card

receivables are

secured.

The

Company

estimated customer credit losses of $

207,000

and $

215,000

for the periods ended May 2, 2026 and May 3,

2025,

respectively,

on

sales purchased

using the

proprietary credit

card

of

$

5.2

million and

$

5.4

million for the periods ended May 2, 2026 and May 3, 2025, respectively.

The

table

provides

about

receivables

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,444

$

10,711

Gift Card Liability

$

6,919

$

7,475

NOTE 12 – LEASES:

The

Company determines

whether

an

arrangement

is

a

lease

at

inception.

The

Company

has

leases for

stores,

offices,

warehouse space

and equipment.

Its leases

have remaining

lease terms

of

one

year

to

10 years

, some of which include options to

extend the lease term for

up to five years

, and some of

which

include

options

to

terminate

the

lease

within one year

.

The

Company

considers

these

options

in

determining

the

lease term

used

to

establish its

right-of-use assets

and lease

liabilities. The

lease agreements do not contain any material residual value guarantees or material

restrictive covenants.

As

most

of

the

leases

do

not

provide

an

implicit

rate,

the

Company

uses

its

estimated

incremental borrowing rate

based on

the information available

at the

commencement date

of the lease

in

determining the present value of lease payments.

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

`

Operating lease cost

$

16,319

$

16,588

Variable

lease cost (a)

$

$

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

NOTE 12 – LEASES (CONTINUED):

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases are

as follows (in thousands):

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$

13,939

$

14,534

Non-cash activity:

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

$

8,836

$

1,206

Weighted-average

remaining

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

2.3

Years

2.1

Years

Weighted-average discount rate

6.29%

5.90%

As of May 2, 2026, the maturities of lease liabilities by fiscal year for the Company’s

operating leases are

as follows (in thousands):

Fiscal Year

2026 (a)

$

47,815

47,369

32,929

20,990

11,566

Thereafter

2,313

Total lease payments

162,982

Less: Imputed interest

17,955

Present value of lease liabilities

$

145,027

(a) Excluding the 3 months ended May 2, 2026.

FORWARD-LOOKING INFORMATION:

The

should

be

read

along

with

the

unaudited

Statements,

the

accompanying

Notes

appearing

in

this

report.

Any

of

the

are

“forward-looking”

within

the

meaning

of

Section 27A

of

the

Act

of

1933,

as

amended,

and

Section 21E

of

the

Exchange

Act

of

1934,

as

amended:

(1) statements

in

this

Form 10-Q

that

reflect

projections

or

expectations

of

our

future

or

performance;

(2) statements

that

are

not

historical

information;

(3) statements

of

our

beliefs,

intentions,

plans

and

objectives for future operations,

including those contained in

“Management’s Discussion and

Analysis of

Financial Condition and