CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

REVENUES

Retail sales

$

175,272

$

190,311

Other revenue (principally finance charges, late fees and

layaway charges)

1,827

1,739

Total revenues

177,099

192,050

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

112,505

122,087

Selling, general and administrative (exclusive of depreciation

shown below)

56,752

61,934

2,040

2,357

(5,821)

(897)

Costs and expenses, net

165,476

185,481

Income before income taxes

11,623

6,569

Income tax expense

2,141

$

10,974

$

4,428

Basic earnings per share

$

0.54

$

0.22

Diluted earnings per share

$

0.54

$

0.22

$

10,974

$

4,428

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

of deferred income taxes of $0 and $

(748)

for the three months ended May 4, 2024 and April 29, 2023,

respectively

Comprehensive income

$

10,226

$

4,783

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

Current Assets:

Cash and cash equivalents

$

39,101

$

23,940

Short-term investments

66,250

79,012

Restricted cash

3,533

3,973

Accounts receivable, net of allowance for customer credit losses of

$

and $

at May 4, 2024 and February 3, 2024, respectively

31,716

29,751

Merchandise inventories

101,317

98,603

Prepaid expenses and other current assets

7,724

7,783

Total Current Assets

249,641

243,062

Property and equipment – net

64,568

64,022

Other assets

23,305

25,047

Right-of-Use assets – net

139,635

154,686

$

477,149

$

486,817

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

86,966

$

87,821

Accrued expenses

38,490

37,404

Accrued bonus and benefits

2,023

1,675

Accrued income taxes

Current lease liability

55,800

61,108

Total Current Liabilities

183,797

188,008

Other noncurrent liabilities

14,607

14,475

Lease liability

81,834

92,013

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

18,791,732

and

18,802,742

shares issued

at May 4, 2024 and February 3, 2024, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares issued at May 4, 2024 and February 3, 2024

Additional paid-in capital

127,058

126,953

Retained earnings

69,512

64,279

Accumulated other comprehensive income (loss)

(353)

Total Stockholders' Equity

196,911

192,321

Total Liabilities and Stockholders’ Equity

$

477,149

$

486,817

OF CASH FLOWS

Operating Activities:

$

10,974

$

4,428

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

2,040

2,357

Provision for customer credit losses

Purchase premium and premium amortization of investments

(136)

(18)

Gain on sale of assets held for investment

(4,093)

Share-based compensation

(38)

Deferred income taxes

(832)

Loss (Gain) on disposal of property and equipment

(33)

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

Accounts receivable

(1,836)

(1,793)

Merchandise inventories

(2,714)

5,243

Prepaid and other assets

(618)

Operating lease right-of-use assets and liabilities

(435)

(532)

Accrued income taxes

2,066

Accounts payable, accrued expenses and other liabilities

1,163

(1,429)

Net cash provided by operating activities

5,706

9,895

Investing Activities:

Expenditures for property and equipment

(3,261)

(6,170)

Purchase of short-term investments

(8,572)

(5,914)

Sales of short-term investments

21,413

27,421

Sales of other assets

5,034

Net cash provided by investing activities

14,614

15,337

Financing Activities:

Dividends paid

(3,523)

(3,455)

Repurchase of common stock

(2,237)

(2,267)

Proceeds from employee stock purchase plan

Net cash used by financing activities

(5,599)

(5,556)

Net increase in cash, cash equivalents, and restricted cash

14,721

19,676

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

27,913

23,792

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

$

42,634

$

43,468

Non-cash activity:

Accrued other assets and property and equipment expenditures

$

$

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — February 3, 2024

$

$

126,953

$

64,279

$

$

192,321

10,974

10,974

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

income tax benefit of $0

(748)

(748)

Dividends paid ($

0.17

per share)

(3,523)

(3,523)

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

Share-based compensation expense

(84)

(84)

Repurchase and retirement of treasury shares

(14)

(2,223)

(2,237)

Balance — May 4, 2024

$

$

127,058

$

69,512

$

(353)

$

196,911

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — January 28, 2023

$

$

122,431

$

104,709

$

(1,238)

$

226,593

4,428

4,428

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

income tax expense of $

Dividends paid ($

0.17

per share)

(3,455)

(3,455)

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

Share-based compensation expense

Repurchase and retirement of treasury shares

(8)

(2,259)

(2,267)

Balance — April 29, 2023

$

$

123,555

$

103,426

$

(883)

$

226,781

NOTE 1 - GENERAL

:

The

condensed

consolidated

as

of

May

4,

and

for

the

thirteen-week

periods

ended

May

4,

and

April

29,

have

been

prepared

from

the

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 presentation of the financial

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

February 3, 2024.

Amounts as of February 3, 2024 have been derived from the audited balance sheet, but

do not include all disclosures required by

accounting principles generally accepted in the United States of

America.

On February 16, 2024, the Company closed on the sale of land held for investment.

The sale resulted in a

net

gain

of

$

3.2

million

and

is

in

Interest

and

other

income

in

the

Consolidated Statements of Income and Comprehensive Income

for the period ended May 4, 2024.

On May 23, 2024, the Board of Directors maintained the quarterly dividend at

$

0.17

per share.

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

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

$

10,974

$

4,428

Earnings allocated to non-vested equity awards

(557)

(227)

Net earnings available to common stockholders

$

10,417

$

4,201

Denominator

Basic weighted average common shares outstanding

19,356,789

19,303,048

Diluted weighted average common shares outstanding

19,356,789

19,303,048

Net income per common share

Basic earnings per share

$

0.54

$

0.22

Diluted earnings per share

$

0.54

$

0.22

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

table

sets

forth

the

out

of

other

comprehensive income (loss) (in thousands) for

the three months ended May 4,

2024:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

$

Other comprehensive income (loss) before

(1,434)

Amounts reclassified from accumulated

other comprehensive income (b)

Net current-period other comprehensive income (loss)

(748)

$

(353)

(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 realized gains on available-for-sale securities. The tax impact of this reclassification was $

.

The

table

sets

forth

the

out

of

other

comprehensive income (loss) (in thousands) for

the three months ended April 29,

2023:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

$

(1,238)

Other comprehensive income (loss) before

Net current-period other comprehensive income (loss)

Ending Balance at April 29, 2023

$

(883)

(a) All amounts are net-of-tax.

NOTE 4 – FINANCING ARRANGEMENTS:

At

May

4,

2024,

the

Company

had

an

unsecured

credit

agreement,

which

for

borrowings of

up to

$

35.0

million less

the balance

of any

revocable letters

of credit

related to

commitments,

and

is

committed

through

May

The

credit

contains

various

covenants and

limitations, including

the maintenance

of specific

financial ratios.

On April

25, 2024,

the

Company

amended

the

credit

to

modify

a

definition

used

in

the

minimum EBITDAR

coverage ratio

to

add back

certain

receivables included

in

the calculation of

the ratio. For

the quarter ended

May 4, 2024,

after giving effect

to the

amendment, the

Company was

in compliance

with the

credit agreement.

There were

no

borrowings outstanding,

no

r any

letters

of

credit

that

reduced

availability,

as

of

May

4,

The

weighted

average interest rate under the credit facility was

zero

at May 4, 2024 due to

no

outstanding borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

that

it

has

four

segments,

as

defined

under

ASC

–

Segment

Reporting

, including Cato,

It’s Fashion, Versona

and Credit.

As outlined in

ASC 280-10, the Company

has

two

reportable segments: Retail and Credit.

The Company has aggregated its

three

retail operating segments,

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

4,

2024,

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 separate

wholly-owned

subsidiaries of the Company.

NOTE 5 – REPORTABLE SEGMENT INFORMATION

(CONTINUED):

The following schedule summarizes certain segment

information (in thousands):

Retail

Credit

Total

Revenues

$176,430

$669

$177,099

2,040

2,040

(5,821)

(5,821)

Income before taxes

11,374

11,623

Capital expenditures

3,261

3,261

Retail

Credit

Total

Revenues

$191,434

$616

$192,050

2,357

2,357

(897)

(897)

Income before taxes

6,382

6,569

Capital expenditures

6,170

6,170

Retail

Credit

Total

Total assets as of May 4, 2024

$438,371

$38,778

$477,149

Total assets as of February 3, 2024

448,488

38,329

486,817

The

Company

evaluates

segment

performance

based

on

income

before

taxes.

The

Company

does

not

allocate certain corporate expenses or

income taxes to the credit segment.

The following schedule

summarizes the direct

expenses of the

credit segment which

are reflected in

Selling,

general and administrative expenses (in

thousands):

Payroll

$

$

Postage

Other expenses

Total expenses

$

$

NOTE 6 – SHARE BASED COMPENSATION:

As

of

May

4,

2024,

the

Company

had

the

Incentive

Compensation

Plan

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 4, 2024:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,760,305

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 4,

and

February 3,

2024,

there

was

$

11,103,000

and

$

9,334,000

,

respectively,

of

total

unrecognized

compensation

expense

related

to

unvested

stock

awards,

which

had

a

weighted-

average vesting period of

3.0

years and

2.1

years, respectively.

The total compensation benefit during the

three months ended

was $

66,000

compared to an

expense of $

932,000

for the three

months

ended

April

29,

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

4, 2024:

Weighted

Average

Number of

Grant Date Fair

Shares

Value

Per Share

Restricted stock awards at February 3, 2024

1,123,873

$

11.32

Granted

389,900

4.76

Vested

(232,696)

13.22

Forfeited or expired

(2,812)

11.81

Restricted stock awards at May 4, 2024

1,278,265

$

8.97

NOTE 6 – SHARE BASED COMPENSATION (CONTINUED):

The

Stock

Purchase

Plan

allows

eligible

full-time

to

a

limited

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 4,

April 29,

2023,

the

Company

sold

33,317

and

22,194

shares

to

at

an

average

of

$

0.86

and

$

1.32

per

share, respectively, under

the Employee Stock

Purchase Plan. The

compensation expense recognized

for the

%

given

under

the

Stock

Purchase

Plan

was

approximately

$

29,000

for

each

of

the

three

months

ended

May

4,

and

April

29,

These

expenses

are

classified

as

a

component

of

Selling, general and administrative expenses in

the Condensed Consolidated 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 4, 2024 and

February 3, 2024:

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

$

11,477

$

$

11,477

$

Corporate Bonds

43,290

43,290

U.S. Treasury/Agencies Notes and Bonds

9,873

9,873

Cash Surrender Value of Life Insurance

8,749

8,749

Asset-backed Securities (ABS)

1,610

1,610

Corporate Equities

$

75,138

$

$

66,250

$

8,749

Liabilities:

$

(8,662)

$

$

$

(8,662)

Total Liabilities

$

(8,662)

$

$

$

(8,662)

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

February 3,

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

$

12,540

$

$

12,540

$

Corporate Bonds

45,400

45,400

U.S. Treasury/Agencies Notes and Bonds

18,114

18,114

Cash Surrender Value of Life Insurance

8,586

8,586

Asset-backed Securities (ABS)

2,958

2,958

Corporate Equities

1,084

1,084

$

88,682

$

1,084

$

79,012

$

8,586

Liabilities:

$

(8,654)

$

$

$

(8,654)

Total Liabilities

$

(8,654)

$

$

$

(8,654)

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 May 4, 2024

and February 3, 2024.

The state, municipal and corporate bonds and asset-backed securities have contractual

maturities

which

range

from

seven days

to

3.0

years.

The

U.S.

Treasury/Agencies

Notes

and

Bonds

have

contractual maturities which range from

months to

1.8

years. These securities are classified as

available-for-

sale

and

are

as

Short-term

and

Other

assets

on

the

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 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

are

backed

by

pools

of

credit

card

by

account

holders

of

cards

from

American

Express,

Citibank,

JPMorgan

Chase,

Capital One, and Discover.

Additionally, at May 4, 2024, the Company had $

0.1

million of corporate equities and deferred compensation

plan assets

of $

8.7

At February

3, 2024,

the Company

had $

1.1

million of

corporate equities

and

deferred compensation plan assets

of $

8.6

million. All of these

assets are recorded within Other

assets in the

Condensed Consolidated Balance Sheets.

Level 1 category securities are measured

at fair value using quoted active

market prices.

Level 2 investment

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

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

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

deferred

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 as of

May 4, 2024 and February 3,

2024 (dollars in thousands):

Asset Inputs (Level 3)

Cash Surrender Value

$

8,586

Total gains or (losses)

$

8,749

Liability Inputs (Level 3)

$

(8,654)

(63)

Total (gains) or losses

(198)

$

(8,662)

Asset Inputs (Level 3)

Cash Surrender Value

$

9,274

(1,168)

Total gains or (losses)

Ending Balance at February 3, 2024

$

8,586

Liability Inputs (Level 3)

$

(8,903)

1,119

(292)

Total (gains) or losses

(578)

Ending Balance at February 3, 2024

$

(8,654)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In

November

2023,

the

Accounting

Standards

Board

(“FASB”)

issued

Accounting

Standards

Update

(“ASU”)

2023-07,

“Segment

Reporting

(Topic

280):

Improvements

to

Reportable

Segment

Disclosures”,

which

modifies

disclosure

requirements

for

all

public

entities

that

are

to

report

segment

information.

The update

will change

the

reporting of

segments by

adding

segment

expenses, other segment items, title

and position of the chief

operating decision maker (“COD”) and how

the

COD uses

the

reported measures

to

make decisions.

The

update also

requires all

annual disclosure

about

a reportable

segment’s

profit or

loss and

assets in

interim periods.

This

guidance is

effective for

fiscal

years

beginning

after

15,

and

interim

periods

within

fiscal

years

beginning

after

15,

Early

adoption

is

permitted,

and

the

guidance

is

applicable

retrospectively

to

all

prior periods presented in the financial statements.

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.

In

2023,

the

FASB

issued

ASU

2023-09,

“Income

Taxes

(Topic

740):

Improvements

to

Income

Tax

Disclosures”,

which

modifies

the

requirements

on

income

tax

disclosures

to

require

disaggregated

about

a

entity’s

effective

tax

rate

reconciliation

as

well

as

information on

income taxes

paid.

This guidance

is effective

for fiscal

years beginning

after December

15, 2024 for all public

business entities, with early adoption and retrospective application

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 effective tax

rate for the

2024 of

5.6

% compared to

an effective tax

rate of

32.6

% for the

Income tax expense

for the quarter

decreased to $

0.6

million

in 2024

from $

2.1

2023. The

decrease in tax

expense is

primarily due to

valuation allowances

against net deferred tax assets

attributable to U.S. federal net

operating loss carryforwards and the impact

of the foreign rate differential and lower state 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

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

when

the

takes

possession

of

the

and

pays

for

the

purchase,

generally

with

cash

or

credit.

Sales

from

purchases

made

with

Cato

credit,

gift

cards

and

layaway

sales

from

stores

are

also

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.

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.

The Company

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 $

171,000

and $

121,000

for the periods

ended May 4,

April

29, 2023,

respectively,

on sales

purchased by

proprietary credit

card of

$

5.7

million and

$

5.8

million for the periods ended May 4, 2024 and April 29, 2023, respectively.

The

table

about

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,972

$

10,909

Gift Card Liability

$

6,849

$

8,143

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 up

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

rate

based

on

the

available

at

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 (a)

$

17,002

$

18,078

Variable

lease cost (b)

$

$

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

0.2

) million and ($

0.3

) million for the three months ended

May 4, 2024 and April 29, 2023, respectively.

(b) 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

operating leases are

as follows (in thousands):

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$

15,607

$

17,345

Non-cash activity:

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

$

$

1,904

Weighted-average

lease

term

and

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

2.1

Years

2.2

Years

Weighted-average discount rate

4.65%

3.20%

As of May 4, 2024, the maturities of lease liabilities by fiscal year for the Company’s

operating leases are

as follows (in thousands):

Fiscal Year

2024 (a)

$

49,240

45,261

29,329

16,591

7,784

Thereafter

Total lease payments

148,895

Less: Imputed interest

11,261

Present value of lease liabilities

$

137,634

(a) Excluding the 3 months ended May 4, 2024.

FORWARD-LOOKING INFORMATION:

The

should

be

read

along

with

the

unaudited

Statements,

the

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

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