CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

REVENUES

Retail sales

$

166,934

$

181,181

$

342,206

$

371,492

Other revenue (principally finance charges, late fees and

layaway charges)

1,694

1,690

3,521

3,429

Total revenues

168,628

182,871

345,727

374,921

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

109,122

117,617

221,627

239,704

Selling, general and administrative (exclusive of

depreciation

shown below)

58,181

61,618

114,933

123,552

2,329

2,510

4,369

4,867

(1,742)

(1,334)

(7,563)

(2,231)

Costs and expenses, net

167,890

180,411

333,366

365,892

Income before income taxes

2,460

12,361

9,029

Income tax expense

1,333

1,292

3,475

$

$

1,127

$

11,069

$

5,554

Basic earnings per share

$

0.01

$

0.06

$

0.54

$

0.27

Diluted earnings per share

$

0.01

$

0.06

$

0.54

$

0.27

$

$

1,127

$

11,069

$

5,554

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

deferred income taxes of $

and $

for

the three and six months ended July 29, 2023, respectively

(72)

Comprehensive income

$

$

1,294

$

10,997

$

6,076

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

Current Assets:

Cash and cash equivalents

$

30,764

$

23,940

73,902

79,012

Restricted cash

3,562

3,973

Accounts receivable, net of allowance for customer credit losses of

$

and $

at August 3, 2024 and February 3, 2024, respectively

29,772

29,751

Merchandise inventories

95,972

98,603

Prepaid expenses and other current assets

9,506

7,783

Total Current Assets

243,478

243,062

Property and equipment – net

63,975

64,022

Other assets

22,340

25,047

Right-of-Use assets – net

125,779

154,686

$

455,572

$

486,817

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

84,623

$

87,821

Accrued expenses

36,207

37,404

Accrued employee benefits and bonus

1,022

1,675

Accrued income taxes

Current lease liability

51,091

61,108

Total Current Liabilities

173,589

188,008

Other noncurrent liabilities

14,573

14,475

Lease liability

72,348

92,013

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

18,804,629

shares and

18,802,742

shares

issued at August 3, 2024 and February 3, 2024, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares

shares issued at August 3, 2024 and February 3, 2024

Additional paid-in capital

127,951

126,953

Retained earnings

66,094

64,279

Accumulated other comprehensive income

Total Stockholders' Equity

195,062

192,321

Total Liabilities and Stockholders' Equity

$

455,572

$

486,817

OF CASH FLOWS

Operating Activities:

$

11,069

$

5,554

Adjustments to reconcile net income to net cash provided

by operating activities:

4,369

4,867

Provision for customer credit losses

Purchase premium and discount accretion of investments

(577)

(97)

Gain on sale of assets held for investment

(4,223)

Share-based compensation

2,192

Deferred income taxes

(832)

Loss on disposal of property and equipment

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

1,041

(666)

Merchandise inventories

2,631

19,338

Prepaid and other assets

(1,891)

(667)

Operating lease right-of-use assets and liabilities

(775)

(1,001)

Accrued income taxes

2,948

Accounts payable, accrued expenses and other liabilities

(4,728)

(10,306)

Net cash provided by operating activities

8,836

21,579

Investing Activities:

Expenditures for property and equipment

(4,799)

(8,470)

Purchase of short-term investments

(31,396)

(14,497)

Sales of short-term investments

37,703

46,777

Sales of other assets

5,165

Net cash provided by investing activities

6,673

23,810

Financing Activities:

Dividends paid

(7,050)

(6,962)

Repurchase of common stock

(2,237)

(2,563)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(9,096)

(9,327)

Net increase in cash, cash equivalents, and restricted cash

6,413

36,062

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

27,913

23,792

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

$

34,326

$

59,854

Accrued other assets and property and equipment expenditures

$

$

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income

Equity

Balance — February 3, 2024

$

$

126,953

$

64,279

$

$

192,321

10,974

10,974

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

deferred income tax expense of $0

(748)

(748)

0.17

(3,523)

(3,523)

plan

(84)

(84)

(14)

(2,223)

(2,237)

Balance — May 4, 2024

$

$

127,058

$

69,512

$

(353)

$

196,911

deferred income tax expense of $0

0.17

(3,527)

(3,527)

plan

Balance — August 3, 2024

$

$

127,951

$

66,094

$

$

195,062

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income

Equity

Balance — January 28, 2023

$

$

122,431

$

104,709

$

(1,238)

$

226,593

4,428

4,428

deferred income tax expense of $

0.17

(3,455)

(3,455)

plan

(8)

(2,259)

(2,267)

Balance — April 29, 2023

$

$

123,555

$

103,426

$

(883)

$

226,781

1,127

1,127

deferred income tax expense of $

0.17

(3,507)

(3,507)

plan

1,212

1,227

(1)

(293)

(294)

Balance — July 29, 2023

$

$

124,798

$

100,756

$

(716)

$

225,533

NOTE 1 - GENERAL

:

The

condensed

consolidated

as

of

August

3,

and

for

the

twenty-six-week

periods ended August

3, 2024 and

July 29,

2023 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

financial statements

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 August 3, 2024.

Subsequent to

the second

quarter of

the current

fiscal year,

the Company

received $

8.6

million from

the

insurance claim settlement and sale of its corporate jet.

On August 29, 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

Employee

Stock

Purchase Plan.

Numerator

Net earnings

$

$

1,127

$

11,069

$

5,554

Earnings (loss) allocated to non-vested equity awards

(54)

(583)

(292)

Net earnings available to common stockholders

$

$

1,073

$

10,486

$

5,262

Denominator

Basic weighted average common shares outstanding

19,297,484

19,395,484

19,327,137

19,349,266

Diluted weighted average common shares outstanding

19,297,484

19,395,484

19,327,137

19,349,266

Net income per common share

Basic earnings per share

$

0.01

$

0.06

$

0.54

$

0.27

Diluted earnings per share

$

0.01

$

0.06

$

0.54

$

0.27

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

table

sets

forth

the

out

of

other

three months ended August 3, 2024:

Beginning Balance at May 4, 2024

$

(353)

$

.

The

table

sets

forth

the

out

of

other

six months ended August 3, 2024:

$

Net current-period other comprehensive loss

(72)

$

(b) Includes

$1,022

.

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The

table

sets

forth

the

out

of

other

three months ended July 29, 2023:

Beginning Balance at April 29, 2023

$

(883)

reclassifications

Ending Balance at July 29, 2023

$

(716)

.

The

table

sets

forth

the

out

of

other

six months ended July 29, 2023:

$

(1,238)

reclassifications

Ending Balance at July 29, 2023

$

(716)

.

NOTE 4 – FINANCING ARRANGEMENTS:

At

August

3,

2024,

the

Company

had

an

unsecured

credit

agreement,

which

for

borrowings

of

up

to

$

35.0

less

the

balance

of

any

revocable

letters

of

credit

related

to

commitments,

and

is

committed

through

May

The

credit

agreement

contains

various

covenants

and

limitations,

the

maintenance

of

specific

ratios.

On

April

25,

2024,

the

Company amended the

revolving credit agreement to

modify a definition used

in calculating the

minimum EBITDAR coverage ratio to add back certain income tax receivables included in the calculation of

the ratio.

For the

quarter ended

2024, after

giving effect

to the

amendment, the

Company was

in

compliance with the

credit agreement. There

were

no

borrowings outstanding,

no

r any outstanding

letters of

credit that reduced borrowing availability, as of August 3, 2024.

The weighted average interest rate under the

credit facility was

zero

at August 3, 2024 due to

no

outstanding borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

determined

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

inventory

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 Company’s single distribution center and is

subsequently sold to customers in

a similar

manner.

The

Company

operates

its

women’s

fashion

specialty

retail

stores

in

states

as

of

August

3,

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

The following schedule summarizes certain segment

information (in thousands):

Retail

Credit

Total

Retail

Credit

Total

$167,954

$674

$168,628

$344,384

$1,343

$345,727

2,328

2,329

4,368

4,369

(1,742)

(1,742)

(7,563)

(7,563)

11,859

12,361

1,536

1,536

4,799

4,799

Retail

Credit

Total

Retail

Credit

Total

$182,213

$658

$182,871

$373,648

$1,273

$374,921

2,509

2,510

4,866

4,867

(1,334)

(1,334)

(2,231)

(2,231)

2,207

2,460

8,590

9,029

2,300

2,300

8,470

8,470

Retail

Credit

Total

Total assets as of August 3, 2024

$417,112

$38,460

$455,572

Total assets as of February 3, 2024

448,488

38,329

486,817

The Company evaluates segment performance based on

income before income 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 – STOCK-BASED COMPENSATION:

As of August

3, 2024, the

Company’s 2018 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 August 3, 2024:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,753,001

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

August

3, 2024

and February

3, 2024,

there was

$

9,148,000

and $

9,334,000

of total

unrecognized

expense

related

to

nonvested

stock

awards,

which

had

a

weighted-

average vesting

period

of

2.4

years

and

2.1

years,

The

total

compensation expense

during

the three and

six months ended

was $

872,000

and $

806,000

compared to a

total

expense

of

$

1,230,000

and

$

2,158,000

for

the

three

and

six

months

ended July

29,

2023,

This

expense

is

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

outstanding

during

the six months ended

August

3, 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

386,900

4.80

Vested

(232,696)

13.22

Forfeited or expired

(18,296)

9.17

Restricted stock awards at August 3, 2024

1,259,781

$

8.98

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The

Employee

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 six

months ended

July 29,

2023,

the

Company

sold

38,910

and

26,127

shares

to

at

an

average

discount

of

$

0.87

and

$

1.31

per

share, respectively, under

the Employee Stock

Purchase Plan. The

compensation expense recognized

for the

% discount given under the Employee Stock

Purchase Plan was approximately $

34,000

for each of the six

months ended August 3, 2024 and

July 29, 2023. This compensation expense is

classified as a component of

Selling, general and administrative expenses.

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 August 3, 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

$

3,943

$

$

3,943

$

Corporate Bonds

50,558

50,558

U.S. Treasury/Agencies Notes and Bonds

18,430

18,430

Cash Surrender Value of Life Insurance

8,886

8,886

Asset-backed Securities (ABS)

$

82,788

$

$

73,902

$

8,886

Liabilities:

$

(8,604)

$

$

$

(8,604)

Total Liabilities

$

(8,604)

$

$

$

(8,604)

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

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

invested in

corporate bonds and

tax-exempt and taxable

governmental debt

securities held

in managed

accounts with

underlying ratings

of A

or better

3,

and

3,

The

state,

and

corporate

bonds

and

have

contractual maturities which range from

six days

to

2.9

years. The U.S. Treasury/Agencies Notes and

Bonds

have

contractual

maturities

which

range

from

14 days

to

3.0

years.

These

are

as

available-for-sale and are

recorded as

and Other

assets on

the respective

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

are

backed

by

pools

of

credit

card

generated

by

account

holders

of

cards

from

American

Express,

Citibank,

JPMorgan

Chase,

Capital One, and Discover.

At February

3,

Company

had $

1.1

million

of corporate

equities and

deferred compensation

plan

assets

of

$

8.6

At

August

3,

2024,

the

Company

had

plan

assets

of

$

8.9

During the six months ended August

3, 2024, the Company sold its

corporate equities.

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,

state

and

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 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

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 six months ended August 3, 2024 and the year ended February 3,

(in thousands):

Asset Inputs (Level 3)

Cash Surrender Value

$

8,586

Total gains or (losses):

$

8,886

Liability Inputs (Level 3)

$

(8,654)

(121)

Total (gains) or losses:

(372)

$

(8,604)

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

decision

maker

(“CODM”) and

how

the

CODM

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

is

effective

for

fiscal

years

beginning

after

15,

and

interim

periods

within

fiscal

years

beginning

after

15,

Early

adoption

is

permitted,

and

the

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

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

on its consolidated financial statements and related disclosures.

NOTE 9 – INCOME TAXES:

The Company had

an effective

tax rate for

the first six

months of 2024

of

10.5

% compared to

38.5

% for

the

first

six

Income tax

expense

for

the

first

six

months

decreased

to

$

1.3

million

in

fiscal 2024 from $

3.5

million in fiscal 2023.

The decrease in tax expense is primarily due to the valuation

allowance 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,

litigation

the

that

it

sells,

litigation

intellectual

property,

litigation instituted by persons injured upon premises under the Company’s control, litigation with respect

to

various

employment

matters,

alleged

discrimination

and

wage

and

hour

litigation,

and

litigation with present or former employees.

Although such

litigation is

routine and

incidental to

the conduct

of 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 the

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

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

materially

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

Company’s wholly-owned

subsidiaries.

None

of the credit

card receivables are

secured. During the

three

and

six

months

ended

August

3,

2024,

the

Company estimated

credit

losses

of

$

166,000

and

$

338,000

$

151,000

and $

272,000

for the

three and

ended July 29,

2023,

Sales

purchased

on

the

proprietary

credit

card

for

the

three

and

six

months

ended

August

3,

were

$

5.6

million

and

$

11.3

respectively,

to

$

5.9

million and $

11.7

million for the three and six months ended July 29, 2023, respectively.

The

table

about

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,788

$

10,909

Gift Card Liability

$

6,534

$

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

years based on

the estimated likelihood

of renewal. Some

include options to

extend the lease

term for

up to

five years

, and some 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

residual

value

guarantees

or

restrictive covenants.

As

most

of

the

leases

do

not

provide

an

implicit

rate,

the

Company

uses

its

estimated

incremental

borrowing

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)

$

16,808

$

17,597

Variable

lease cost (b)

$

$

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

0.2

) million and ($

0.3

) million for the three months ended August 3, 2024 and July

29, 2023, respectively.

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

Operating lease cost (a)

$

33,810

$

35,675

Variable

lease cost (b)

$

$

1,098

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

0.4

) million and ($

0.6

) million for the six months ended August 3, 2024 and July 29,

2023, respectively.

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

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

$

15,481

$

16,679

Right-of-use assets obtained in exchange for lease obligations

$

$

Cash paid for amounts included in the measurement of lease liabilities

$

31,088

$

34,024

Right-of-use assets obtained in exchange for lease obligations

$

1,357

$

2,903

Weighted-average

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

1.8

years

2.0

years

Weighted-average discount rate

4.74%

3.26%

Maturities

of

lease

by

fiscal

year

for

the

leases

are

as

follows

(in

thousands):

Fiscal Year

2024 (a)

$

32,232

45,606

29,710

16,962

8,034

Thereafter

Total lease payments

133,436

Less: Imputed interest

9,997

Present value of lease liabilities

$

123,439

(a) Excluding the six months ended August 3, 2024

FORWARD-LOOKING INFORMATION:

The

contained

in

“Management’s

Discussion

and

Analysis

of

Condition

and

Results

of

Operations”

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