CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

REVENUES

Retail sales

$

144,642

$

156,682

$

486,848

$

528,174

Other revenue (principally finance charges, late fees and

layaway charges)

1,528

1,574

5,049

5,003

Total revenues

146,170

158,256

491,897

533,177

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

102,955

105,832

324,582

345,536

Selling, general and administrative (exclusive of

depreciation

shown below)

57,876

61,792

172,809

185,344

2,737

2,504

7,106

7,371

(2,646)

(1,523)

(3,754)

Costs and expenses, net

160,922

168,605

494,288

534,497

Loss before income taxes

(14,752)

(10,349)

(2,391)

(1,320)

Income tax (benefit) expense

(4,272)

1,614

(797)

$

$

(6,077)

$

(4,005)

$

(523)

Basic loss per share

$

(0.79)

$

(0.30)

$

(0.24)

$

(0.02)

Diluted loss per share

$

(0.79)

$

(0.30)

$

(0.24)

$

(0.02)

$

$

(6,077)

$

(4,005)

$

(523)

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

deferred income taxes of $

and $

for

the three and nine months ended October 28, 2023,

respectively

(151)

(223)

Comprehensive income (loss)

$

(15,225)

$

(5,876)

$

(4,228)

$

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(Dollars in thousands)

Current Assets:

Cash and cash equivalents

$

20,216

$

23,940

Short-term investments

65,994

79,012

Restricted cash

3,355

3,973

Accounts receivable, net of allowance for customer credit losses of

$

and $

at November 2, 2024 and February 3, 2024, respectively

24,776

29,751

Merchandise inventories

107,159

98,603

Prepaid expenses and other current assets

8,705

7,783

Total Current Assets

230,205

243,062

Property and equipment – net

62,648

64,022

Other assets

19,783

25,047

Right-of-Use assets – net

111,769

154,686

$

424,405

$

486,817

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

84,169

$

87,821

Accrued expenses

38,158

37,404

Accrued employee benefits and bonus

1,370

1,675

Current lease liability

45,836

61,108

Total Current Liabilities

169,533

188,008

Other noncurrent liabilities

14,555

14,475

Lease liability

63,218

92,013

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

18,774,124

shares and

18,802,742

shares

issued at November 2, 2024 and February 3, 2024, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares

issued at November 2, 2024 and February 3, 2024

Additional paid-in capital

128,827

126,953

Retained earnings

47,407

64,279

Accumulated other comprehensive income

Total Stockholders' Equity

177,099

192,321

Total Liabilities and Stockholders' Equity

$

424,405

$

486,817

OF CASH FLOWS

(Dollars in thousands)

Operating Activities:

$

(4,005)

$

(523)

Adjustments to reconcile net loss to net cash (used in) provided

by operating activities:

7,106

7,371

Provision for customer credit losses

Purchase premium and discount accretion of investments

(848)

(226)

Gain on sale of assets held for investment

(5,350)

Share-based compensation

1,581

3,189

Deferred income taxes

(1,981)

Loss on disposal of property and equipment

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

1,283

(1,815)

Merchandise inventories

(8,556)

13,184

Prepaid and other assets

(1,315)

(1,716)

Operating lease right-of-use assets and liabilities

(1,151)

(1,499)

Accrued income taxes

1,375

Accounts payable, accrued expenses and other liabilities

(2,619)

(6,099)

Net cash (used in) provided by operating activities

(13,266)

11,670

Investing Activities:

Expenditures for property and equipment

(6,509)

(10,271)

Purchase of short-term investments

(38,659)

(44,595)

Sales of short-term investments

52,994

60,999

Sales of other assets

13,674

Net cash provided by investing activities

21,500

6,133

Financing Activities:

Dividends paid

(10,516)

(10,457)

Repurchase of common stock

(2,398)

(2,563)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(12,576)

(12,663)

Net (decrease) increase in cash, cash equivalents, and restricted cash

(4,342)

5,140

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

27,913

23,792

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

$

23,571

$

28,932

Accrued other assets and property and equipment expenditures

$

$

1,100

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

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

(748)

(748)

0.17

(3,523)

(3,523)

plan

Share-based compensation issuances and exercises

(84)

(84)

(14)

(2,223)

(2,237)

Balance — May 4, 2024

$

$

127,058

$

69,512

$

(353)

$

196,911

0.17

(3,527)

(3,527)

plan

Balance — August 3, 2024

$

$

127,951

$

66,094

$

$

195,062

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

(151)

(151)

0.17

(3,466)

(3,466)

plan

(1)

(1)

(158)

(159)

Balance — November 2, 2024

$

$

128,827

$

47,407

$

$

177,099

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income

Equity

Balance — January 28, 2023

$

$

122,431

$

104,709

$

(1,238)

$

226,593

4,428

4,428

0.17

(3,455)

(3,455)

plan

Share-based compensation issuances and exercises

(8)

(2,259)

(2,267)

Balance — April 29, 2023

$

$

123,555

$

103,426

$

(883)

$

226,781

1,127

1,127

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

(6,077)

(6,077)

0.17

(3,495)

(3,495)

plan

(1)

Balance — October 28, 2023

$

$

125,949

$

91,189

$

(515)

$

217,318

NOTE 1 - GENERAL

:

The

condensed

consolidated

as

of

2,

and

for

the

three

and

nine

months ended

and October 28,

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

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

was included

in Interest

and other

income in

the accompanying

Consolidated Statements of Income

(Loss) and Comprehensive

Income (Loss) for

the nine months

ended

November 2, 2024.

During the current quarter of the fiscal year,

the Company received $

8.6

million from the insurance claim

settlement and sale of its corporate jet.

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 (Loss) and Comprehensive Income (Loss).

While

the

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

herein

are

applicable to both Class A and Class

B shares.

Basic EPS

is computed

as net

income (loss)

less earnings

allocated to

non-vested equity

awards divided

by

the

weighted

average

number

of

common

shares

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

$

$

(6,077)

$

(4,005)

$

(523)

Earnings (loss) allocated to non-vested equity awards

(200)

(548)

Net loss available to common stockholders

$

(15,274)

$

(5,731)

$

(4,553)

$

(474)

Denominator

Basic weighted average common shares outstanding

19,302,107

19,421,701

19,318,794

19,373,411

Diluted weighted average common shares outstanding

19,302,107

19,421,701

19,318,794

19,373,411

Net loss per common share

Basic loss per share

$

(0.79)

$

(0.30)

$

(0.24)

$

(0.02)

Diluted loss per share

$

(0.79)

$

(0.30)

$

(0.24)

$

(0.02)

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

table

sets

forth

the

out

of

other

three months ended November 2, 2024:

Beginning Balance at August 3, 2024

$

(151)

other comprehensive income to net income

(151)

$

The

table

sets

forth

the

out

of

other

nine months ended November 2, 2024:

$

(786)

(223)

$

(b) Includes

$1,022

.

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The

table

sets

forth

the

out

of

other

three months ended October 28, 2023:

Beginning Balance at July 29, 2023

$

(716)

Ending Balance at October 28, 2023

$

(515)

(b) Includes $

.

The

table

sets

forth

the

out

of

other

nine months ended October 28, 2023:

$

(1,238)

Ending Balance at October 28, 2023

$

(515)

(b) Includes $

.

NOTE 4 – FINANCING ARRANGEMENTS:

2024, the Company had

a revolving credit agreement,

which provides for borrowings of

up

to $

35.0

million, less

the balance

of any

revocable letters

related to

purchase 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

minimum EBITDAR

ratio

to

add

back

certain

income

tax

in

the

of

the

ratio.

On

November 1, 2024, the Company

amended the revolving credit agreement

to lower the minimum EBITDAR

ratio

and

the

corresponding

minimum

cash

and

used

to

determine

the

EBITDAR

coverage ratio in exchange

for a secured position

in any future borrowings.

For the quarter ended

after giving

effect to

the amendments,

was in

compliance with

the credit

agreement.

There

were

no

borrowings

outstanding,

no

r

any

letters

of

credit

that

reduced

availability, as of November 2, 2024.

The weighted average interest rate under

the credit facility was

zero

at

November 2, 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

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.

operates

its women’s

fashion specialty

retail stores

in

states as

of

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

$145,508

$662

$146,170

$489,893

$2,004

$491,897

2,737

2,737

7,105

7,106

(2,646)

(2,646)

(14,992)

(14,752)

(3,132)

(2,391)

1,710

1,710

6,509

6,509

Retail

Credit

Total

Retail

Credit

Total

$157,595

$661

$158,256

$531,243

$1,934

$533,177

2,504

2,504

7,370

7,371

(1,523)

(1,523)

(3,754)

(3,754)

(10,604)

(10,349)

(2,014)

(1,320)

1,801

1,801

10,271

10,271

Retail

Credit

Total

Total assets as of November 2, 2024

$386,664

$37,741

$424,405

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

$

$

$

1,262

$

1,239

NOTE 6 – STOCK-BASED COMPENSATION:

As

of

2,

2024,

the

Incentive

Compensation

Plan

allows

for

the

granting

of

various

forms

of

equity-based

awards,

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 November 2, 2024:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,782,782

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

expense

on

a

straight-line

basis

over

the

related

vesting

periods.

As

of

2,

and

3,

2024,

there

was

$

8,212,000

and

$

9,334,000

,

respectively,

of

total

unrecognized compensation expense

related to nonvested

restricted stock awards,

which had a

remaining

weighted-average vesting period of

2.2

years and

2.1

years, respectively. The

total compensation expense

during the

ended November

2, 2024

was $

714,000

and $

1,520,000

, respectively,

to

a

total

expense

of

$

967,000

and

$

3,126,000

for

the

three

and

nine

months

ended

October

28,

2023,

These

are

as

a

component

of

Selling,

general

and

administrative

in

the

Statements

of

Income

(Loss).

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

during the nine months ended November 2, 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

(48,077)

9.51

Restricted stock awards at November 2, 2024

1,230,000

$

8.97

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The

Stock

Purchase

Plan

allows

eligible

full-time

employees

to

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 nine

months ended November 2, 2024

and October 28,

2023, the

Company sold

73,593

and

50,540

shares to

employees at

an average

discount of

$

0.81

and $

1.23

per share, respectively,

under the Employee

Stock Purchase Plan.

The compensation expense

recognized for

the

%

discount

given

under

the

Stock

Purchase

Plan

was

$

60,000

and

$

62,000

for

the

nine

months

ended

2,

and

October

28,

2023,

These

are

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 November 2, 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

$

2,253

$

$

2,253

$

Corporate Bonds

52,649

52,649

U.S. Treasury/Agencies Notes and Bonds

10,578

10,578

Cash Surrender Value of Life Insurance

9,109

9,109

Asset-backed Securities (ABS)

$

75,103

$

$

65,994

$

9,109

Liabilities:

$

(8,886)

$

$

$

(8,886)

Total Liabilities

$

(8,886)

$

$

$

(8,886)

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

was primarily invested in

corporate bonds and

U.S. Treasury/Agencies

notes and

bonds held

in managed

accounts with

underlying ratings

of A

or better

at November

2, 2024

and

The state, municipal and corporate bonds have contractual maturities which range from

days

to

2.9

years. The U.S. Treasury/Agencies notes and bonds have contractual maturities which range from

3 days

to

2.7

years.

These

are

as

available-for-sale

and

are

as

Short-term

and

Other

assets

on

the

respective

Balance

Sheets.

These

assets

are

carried

at

fair

value

with

unrealized

gains

and

losses

net

of

taxes

in

other

comprehensive income.

At February

3,

Company

had $

1.1

million

of corporate

equities and

deferred compensation

plan

$

8.6

2024, the Company

had deferred compensation

plan assets of

$

9.1

During the nine

months ended November

2, 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

municipal

bonds

for

which

quoted

prices

may

not

be

available

on

active exchanges for identical instruments.

Their fair value is principally based on market values determined

by management with 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

with

the

life

insurance

policies

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

for the nine months ended November

2, 2024 and the year ended

February 3,

(in thousands):

Asset Inputs (Level 3)

Cash Surrender Value

$

8,586

Total gains or (losses):

$

9,109

Liability Inputs (Level 3)

$

(8,654)

(175)

Total (gains) or losses:

(630)

$

(8,886)

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

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

measures

to

make

decisions.

The

update

also

requires

all

annual

disclosures

about

a

reportable

segment’s

profit

or

loss

and

assets

in

interim

periods.

This

is

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

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.

In

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 effective for annual periods beginning after December 15, 2026 and interim periods beginning

after

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

nine

months

of

of

(

67.5

%)

to

an

effective tax

rate of

60.4

% for the

first nine months

of fiscal 2023.

Income tax expense

for the first

nine

months increased to $

1.6

million in fiscal 2024 from an

income tax benefit of $

0.8

million in fiscal 2023.

in tax

expense in

2024 is

primarily due

to the

valuation allowance

against net

deferred tax

assets attributable

to U.S.

federal net operating

loss carryforwards recorded

in the fourth

quarter of 2023

and a smaller release of reserves for uncertain tax positions.

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

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 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

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

with

sales

made

with

the

proprietary

credit

card.

Amounts

related

to

shipping

and

handling

billed

to

customers

in

a

sales

transaction are

classified as

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

Company’s wholly-owned

subsidiaries.

None

of the credit

card receivables are

secured. During the

three

and

nine

months ended

Company estimated

credit

losses

of

$

154,000

and

$

492,000

,

respectively,

to

$

149,000

and

$

421,000

for

the

three

and

nine

months

ended

Sales purchased

on the

proprietary credit

card for

the three

and nine months ended November 2, 2024 were $

5.1

million and $

16.4

million, respectively, compared to

$

5.7

million and $

17.4

million for the three and nine months ended October 28, 2023,

The

table

provides

about

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,716

$

10,909

Gift Card Liability

$

6,266

$

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

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)

$

16,755

$

17,498

Variable

lease cost (b)

$

$

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

0.2

) million and ($

0.3

) million for the three months ended November 2, 2024 and

October 28, 2023, respectively.

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

Operating lease cost (a)

$

50,565

$

53,174

Variable

lease cost (b)

$

1,450

$

1,642

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

0.6

) million and ($

0.9

) million for the nine months ended November 2, 2024 and

October 28, 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

operating leases are

as follows (in thousands):

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$

15,584

$

16,671

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

$

1,207

$

(1,468)

Cash paid for amounts included in the measurement of lease liabilities

$

46,672

$

50,696

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

$

2,564

$

1,435

Weighted-average

remaining

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

1.7

years

1.8

years

Weighted-average discount rate

4.84%

3.30%

Maturities

of

lease

by

fiscal

year

for

the

leases

are

as

follows

(in

thousands):

Fiscal Year

2024 (a)

$

15,226

45,680

29,745

17,027

8,843

Thereafter

1,171

Total lease payments

117,692

Less: Imputed interest

8,638

Present value of lease liabilities

$

109,054

(a) Excluding the nine months ended November 2, 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

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

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