CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

REVENUES

Retail sales

$

168,419

$

175,272

Other revenue (principally finance charges, late fees and

layaway charges)

1,823

1,827

Total revenues

170,242

177,099

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

109,318

112,505

Selling, general and administrative (exclusive of depreciation

shown below)

55,325

56,752

2,564

2,040

(1,202)

(5,821)

Costs and expenses, net

166,005

165,476

Income before income taxes

4,237

11,623

Income tax expense

$

3,309

$

10,974

Basic earnings per share

$

0.17

$

0.54

Diluted earnings per share

$

0.17

$

0.54

$

3,309

$

10,974

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

of deferred income taxes of $

for each of the three months

(748)

ended May 3, 2025 and May 4, 2024

Comprehensive income

$

3,347

$

10,226

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

$

31,346

$

20,279

Short-term investments

48,609

57,423

Restricted cash

2,675

2,799

Accounts receivable, net of allowance for customer credit losses of

$

and $

at May 3, 2025 and February 1, 2025, respectively

26,830

24,540

Merchandise inventories

109,430

110,739

Prepaid expenses and other current assets

7,560

7,406

Total Current Assets

226,450

223,186

Property and equipment – net

58,767

60,326

Other assets

19,863

19,979

Right-of-Use assets – net

135,726

148,870

$

440,806

$

452,361

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

90,876

$

88,641

Accrued expenses

38,253

41,717

Accrued bonus and benefits

Accrued income taxes

Current lease liability

52,524

57,555

Total Current Liabilities

182,524

188,239

Other noncurrent liabilities

13,293

13,485

Lease liability

80,072

88,341

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

17,973,355

and

18,313,929

shares issued

at May 3, 2025 and February 1, 2025, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares issued at May 3, 2025 and February 1, 2025

Additional paid-in capital

129,786

129,530

Retained earnings

34,274

31,935

Accumulated other comprehensive income

Total Stockholders' Equity

164,917

162,296

Total Liabilities and Stockholders’ Equity

$

440,806

$

452,361

OF CASH FLOWS

(Dollars in thousands)

Operating Activities:

$

3,309

$

10,974

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

2,564

2,040

Provision for customer credit losses

Purchase premium and premium amortization of investments

(81)

(136)

Gain on sale of assets held for investment

(34)

(4,093)

Share-based compensation

(38)

(Gain) Loss on disposal of property and equipment

(30)

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

Accounts receivable

(2,505)

(1,836)

Merchandise inventories

1,309

(2,714)

Prepaid and other assets

(38)

Operating lease right-of-use assets and liabilities

(156)

(435)

Accrued income taxes

Accounts payable, accrued expenses and other liabilities

(878)

1,163

Net cash provided by operating activities

3,868

5,706

Investing Activities:

Expenditures for property and equipment

(1,019)

(3,261)

Purchase of short-term investments

(2,262)

(8,572)

Sales of short-term investments

11,195

21,413

Sales of other assets

5,034

Net cash provided by investing activities

7,948

14,614

Financing Activities:

Dividends paid

(3,523)

Repurchase of common stock

(935)

(2,237)

Proceeds from employee stock purchase plan

Net cash used by financing activities

(873)

(5,599)

Net increase in cash, cash equivalents, and restricted cash

10,943

14,721

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

23,078

27,913

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

$

34,021

$

42,634

Non-cash activity:

Accrued other assets and property and equipment expenditures

$

$

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — February 1, 2025

$

$

129,530

$

31,935

$

$

162,296

3,309

3,309

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

income tax benefit of $

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

(2)

(2)

Share-based compensation expense

(73)

Repurchase and retirement of treasury shares

(10)

(897)

(907)

Balance — May 3, 2025

$

$

129,786

$

34,274

$

$

164,917

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — February 3, 2024

$

$

126,953

$

64,279

$

$

192,321

10,974

10,974

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

income tax benefit of $

(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

NOTE 1 - GENERAL

:

The condensed consolidated

financial statements as

of May 3,

2025 and for

the three months

ended May

3, 2025 and May 4, 2024 have been prepared from the accounting

records of The Cato Corporation and its

wholly-owned

subsidiaries

(the

“Company”),

and

all

amounts

shown

are

unaudited.

In

the

opinion

of

management, all

adjustments

considered

necessary

for

a

fair

statement

of

the

have

been included.

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

The results

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

for the entire year.

The interim financial

statements should be read

in conjunction with

the consolidated financial statements

and

notes

thereto,

in

the

Annual

Report

on

Form

10-K

for

the

fiscal

year

ended

February 1,

Amounts as

of February 1,

2025 have been

derived from the

audited annual

statements, but

do not

include all

disclosures required by

accounting principles

generally accepted in

the

United States of America.

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

accompanying

Consolidated Statements of Income and Comprehensive Income

for the period ended May 4, 2024.

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 –

Earnings Per Share

requires dual presentation of basic and

diluted Earnings Per Share

(“EPS”) on the face of

all income statements for

all entities with complex

capital

structures.

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

the accompanying

Condensed Consolidated

Statements of

Income and

Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the

right for

the Board of

Directors to

declare dividends

on

Class

A

shares

without

declaration

of

commensurate

dividends

on

Class

B

shares,

the

Company

has

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

Board of Directors has

resolved to continue this practice.

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

computation is the same

for Class A and

Class B shares and

the EPS amounts reported

herein are applicable

to both Class A and Class B

shares.

Basic

EPS

is

computed

as

net

income

less

earnings

allocated

to

non-vested

equity

awards

divided

by

the

weighted average

number of

common shares

outstanding for

the period.

Diluted EPS

reflects the

dilution

that

could

occur

from

common

shares

issuable

through

stock

options

and

the

Stock

Purchase Plan.

Numerator

Net earnings

$

3,309

$

10,974

Earnings allocated to non-vested equity awards

(192)

(557)

Net earnings available to common stockholders

$

3,117

$

10,417

Denominator

Basic weighted average common shares outstanding

18,684,837

19,356,789

Diluted weighted average common shares outstanding

18,684,837

19,356,789

Net income per common share

Basic earnings per share

$

0.17

$

0.54

Diluted earnings per share

$

0.17

$

0.54

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 3,

2025:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

$

Other comprehensive income (loss) before

Amounts reclassified from accumulated

other comprehensive income (b)

(34)

Net current-period other comprehensive income (loss)

$

(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 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)

Ending Balance at May 4, 2024

$

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

.

NOTE 4 – FINANCING ARRANGEMENTS:

On March 13, 2025, the Company,

as borrower, and certain other

domestic subsidiaries, as borrowers and

guarantors, entered

into a

(the “ABL

Credit Agreement”)

and related

loan documents,

by

and

among

the

Company,

certain

other

of

the

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National

Association,

as

the

lender

(the

“Lender”),

to

establish

an

asset-based

revolving

credit

facility (the “ABL

Facility”) in an

amount up to

$

35.0

million. The proceeds from

the ABL Facility

may

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

purposes.

The ABL

is committed

through

May 2027

and is

secured primarily

by inventory

and

third-party credit

card receivables.

There

were

no

borrowings outstanding

and the

availability under

the

facility was

$

30.0

million before

giving effect

to a

$

3.0

million outstanding

letter of

credit that

reduced

borrowing availability to

$

27.0

million as

of May 3,

The weighted

average interest rate

credit facility was

zero

at May 3, 2025 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 3, 2025, principally in the southeastern United States.

The Company offers its own credit

card to its customers and all

credit authorizations, payment processing and

collection

efforts

are

performed

by

a

wholly-owned

subsidiary

of

the

Company.

The

Company

does

not

allocate certain corporate expenses to

the Credit segment.

The

President

and

Chief

Executive

Officer

is

the

chief

decision

maker

(“CODM”).

The

structure

above

reflects

the

manner

in

which

the

CODM

regularly

assesses

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

The Company also provides

corporate services,

including finance,

information technology,

administration, to

its segments

which are fully allocated to the retail

segment. Interest and other income from

assets held for investment and

sale are not included in assessing

the segments’ performance and therefore not

allocated to either segment.

The CODM manages

and evaluates the

segments’ operating performance

based on segment

sales, expenses,

and

profit

or

loss

from

before

income

taxes

as

presented

in

the

annual

budget

and

forecasting

process,

as

well

as

monthly

analyses

of

budget-to-actual

and

prior

year

variances.

Segment

expenses and

other items

primarily include

cost of

goods sold,

selling, general

and administrative expenses,

depreciation

and

and

other

income.

Assessment

and

approval

of

all

capital

expenditures

are

determined to

be in

support of

and based

on the

needs of

the retail

segment; however,

the CODM

does not

evaluate

performance

or

allocate

resources

based

on

segment

asset

balances

and,

therefore,

total

segment

assets are not presented in

the tables below.

The

of

the

are

the

same

as

those

in

the

Summary

of

Accounting

Policies

in

Note

of the

consolidated

financial statements

included in

the

Company’s Annual

Report on Form 10-K for the fiscal year ended February 1, 2025. The Company evaluates performance based

on profit or loss from

operations before income taxes.

NOTE 5 – REPORTABLE SEGMENT INFORMATION

The following schedule summarizes certain segment

information (in thousands):

Retail

Credit

Total

Revenues

$

169,577

$

$

170,242

Cost of goods sold

109,318

109,318

Selling, general, and administrative (a)

39,159

39,546

Corporate overhead

15,779

15,779

2,564

2,564

(105)

(303)

(408)

$

2,862

$

$

3,443

Corporate interest and other income

(794)

$

4,237

Capital expenditures

$

1,019

$

$

1,019

Retail

Credit

Total

Revenues

$

176,430

$

$

177,099

Cost of goods sold

112,505

112,505

Selling, general, and administrative (a)

40,968

41,376

Corporate overhead

15,376

15,376

2,040

2,040

(90)

(235)

(325)

$

5,630

$

$

6,127

Corporate interest and other income

(5,496)

$

11,623

Capital expenditures

$

3,261

$

$

3,261

(a) Selling, general, and administrative expense

include corporate and store payroll, related

payroll taxes and benefits, insurance, supplies, advertising,

bank and credit card

processing fees.

NOTE 6 – SHARE-BASED COMPENSATION:

As

of

May

3,

2025,

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 3, 2025:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,865,875

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 3,

and

1,

2025,

there

was

$

6,298,000

and

$

7,276,000

,

respectively,

of

total

unrecognized

expense

related

to

unvested

stock

awards,

which

had

a

weighted-

average vesting

period

of

2.1

years

and

1.9

years,

respectively.

The

total

expense during

the three months ended May 3, 2025 was $

109,000

compared to a benefit of $

66,000

for the three months

ended

May

4,

This

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

outstanding

during

the three months ended May

3, 2025:

Weighted Average

Number of

Grant Date Fair

Shares

Value

Per Share

Restricted stock awards at February 1, 2025

1,215,181

$

8.98

Granted

Vested

(225,924)

12.89

Forfeited or expired

(68,274)

8.33

Restricted stock awards at May 3, 2025

920,983

$

8.07

NOTE 6 – SHARE-BASED COMPENSATION (CONTINUED):

The

Stock

Purchase

Plan

allows

eligible

full-time

employees

to

purchase

a

limited

number of

shares

of the

Class

A

Common Stock

during each

semi-annual offering

period

at

a

% discount through payroll deductions. During the

three months ended May 3, 2025

and May 4, 2024, the

Company sold

21,736

and

33,317

shares to employees

at an

average discount of

$

0.50

and $

0.86

per share,

respectively, under

the Employee

Stock Purchase

Plan. The

compensation expense

recognized for

the

%

discount

given

under

the

Stock

Purchase

Plan

was

approximately

$

11,000

and

$

29,000

for

the

three

months

ended

May

3,

and

May

4,

2024,

respectively.

These

expenses

are

classified

as

a

component

of

Selling,

general

and

administrative

expenses

in

the

Statements

of

Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets

and

liabilities that

are

measured at fair value (in thousands)

as of May 3, 2025 and

February 1, 2025:

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

$

$

$

$

Corporate Bonds

45,601

45,601

U.S. Treasury/Agencies Notes and Bonds

2,267

2,267

Cash Surrender Value of Life Insurance

9,184

9,184

Asset-backed Securities (ABS)

$

57,793

$

$

48,609

$

9,184

Liabilities:

$

(8,236)

$

$

$

(8,236)

Total Liabilities

$

(8,236)

$

$

$

(8,236)

NOTE 7

– FAIR VALUE MEASUREMENTS

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

February 1,

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

$

1,244

$

$

1,244

$

Corporate Bonds

51,326

51,326

U.S. Treasury/Agencies Notes and Bonds

4,624

4,624

Cash Surrender Value of Life Insurance

9,301

9,301

Asset-backed Securities (ABS)

$

66,724

$

$

57,423

$

9,301

Liabilities:

$

(8,548)

$

$

$

(8,548)

Total Liabilities

$

(8,548)

$

$

$

(8,548)

The

portfolio

was

invested

in

bonds

and

taxable

debt securities held in managed accounts

with underlying ratings of A

or better at May 3, 2025

and February

1,

The

state,

bonds and

asset-backed securities

have

maturities

which

range

from

10 days

to

2.9

years.

The

U.S.

Treasury/Agencies

notes

and

bonds

have

maturities which range from

months to

1.0

year.

Additionally,

at

May

3,

2025,

the

Company

had

plan

assets

of

$

9.2

At

1,

2025,

the

Company

had

plan

assets

of

$

9.3

These

assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level

securities

include

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

by

the

pricing

service

using

observable market information such as quotes from less active markets and/or quoted prices of securities with

similar characteristics, among other factors.

Deferred compensation plan

assets consist of

life insurance policies.

These life insurance

policies are valued

based on the cash surrender value of the insurance contract, which is determined based

on such factors as the

fair value of the underlying assets and discounted cash flow and are therefore classified within

Level 3 of the

valuation

hierarchy.

The

Level

liability

with

the

life

represents

a

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

in

Other

noncurrent

in

the

Balance

Sheet.

These

funds

are

designed to mirror mutual funds and money

market funds that are observable and

actively traded.

The

tables

summarize

the

change

in

fair

value

of

the

assets

and

measured using Level 3 inputs for the

three months ended May 3, 2025

and the year ended February 1,

(dollars in thousands):

NOTE 7

– FAIR VALUE MEASUREMENTS

Asset Inputs (Level 3)

Cash Surrender Value

$

9,301

Total gains or (losses):

(117)

$

9,184

Liability Inputs (Level 3)

$

(8,548)

(38)

Total (gains) or losses:

$

(8,236)

Asset Inputs (Level 3)

Cash Surrender Value

$

8,586

Total gains or (losses):

Ending Balance at February 1, 2025

$

9,301

Liability Inputs (Level 3)

$

(8,654)

1,175

(220)

Total (gains) or losses:

(849)

Ending Balance at February 1, 2025

$

(8,548)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In

December

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

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.

In

November

2024,

the

FASB

issued

ASU

2024-03,

“Income

Statement—Reporting

Income—Expense

Disaggregation

Disclosures

(Subtopic

220-40):

Disaggregation

of

Income

Statement

Expenses,”

which

requires

public

entities

to

disclose,

on

an

annual

and

interim

basis,

disaggregated

in

the

footnotes

about

specified

related

to

certain

costs

and

expenses.

This

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

fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company is currently

in

the

process

of

evaluating

the

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

first quarter of 2025 of

21.9

% compared to an effective tax

rate of

5.6

% for the first

quarter of 2024.

Income tax expense for the

quarter increased to $

0.9

2025 from $

0.6

million in 2024. The increase in tax expense was primarily due to increases in foreign and

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

employees

and

sales,

such

litigation could

result in

large

monetary awards.

Based on

information currently

available, management

does

not

believe

that

any

reasonably

possible

losses

arising

from current

pending litigation

will

have a

material adverse

effect

on its

condensed consolidated

financial statements.

However,

given the

inherent

uncertainties

involved

in

such

matters,

an

adverse

outcome

in

one

or

more

of

such

matters

could

materially and adversely affect the Company’s

financial condition, results of operations and cash flows in

any

particular

period.

The

Company

accrues

for

these

matters

when

the

liability

is

deemed

probable and reasonably estimable.

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

at

the

point

of

purchase

when

the

takes

possession

of

the

and

pays

for

the

purchase,

generally

with

cash

or

credit.

Sales

from

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

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.

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 $

215,000

and $

171,000

for the periods ended May 3, 2025 and May 4,

2024, respectively,

on sales purchased

by the Company’s

proprietary credit card of

$

5.4

million and $

5.7

million for the periods ended May 3, 2025 and May 4, 2024, respectively.

The

table

provides

about

receivables

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,756

$

10,848

Gift Card Liability

$

6,191

$

7,541

NOTE 12 – LEASES:

The

Company determines

whether

an

arrangement

is

a

lease

at

inception.

The

Company

has

leases for

stores,

offices,

warehouse space

and equipment.

Its leases

have remaining

lease terms

of

one

year

to

10 years

, some of which include options to

extend the lease term for

up to five years

, and some of

which

include

options

to

terminate

the

lease

within one year

.

The

Company

considers

these

options

in

determining

the

lease term

used

to

establish its

right-of-use assets

and lease

liabilities. The

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

restrictive covenants.

As

most

of

the

leases

do

not

provide

an

implicit

rate,

the

Company

uses

its

estimated

incremental

borrowing

rate

based

on

the

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

$

16,588

$

17,002

Variable

lease cost (a)

$

$

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

NOTE 12 – LEASES (CONTINUED):

Supplemental cash flow

information and non-cash

activity related to

operating leases are

as follows (in thousands):

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$

14,534

$

15,607

Non-cash activity:

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

$

1,206

$

Weighted-average

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

2.1

Years

2.1

Years

Weighted-average discount rate

5.90%

4.65%

As of May 3, 2025, the maturities of lease liabilities by fiscal year for the Company’s

operating leases are

as follows (in thousands):

Fiscal Year

2025 (a)

$

49,952

43,045

27,948

16,845

8,066

Thereafter

Total lease payments

146,431

Less: Imputed interest

13,835

Present value of lease liabilities

$

132,596

(a) Excluding the 3 months ended May 3, 2025.

FORWARD-LOOKING INFORMATION:

The

should

be

read

along

with

the

unaudited

Statements,

the

accompanying

Notes

appearing

in

this

report.

Any

of

the

are

“forward-looking”

within

the

meaning

of

Section 27A

of

the

Act

of

1933,

as

amended,

and

Section 21E

of

the

Exchange

Act

of

1934,

as

amended:

(1) statements

in

this

Form 10-Q

that

reflect

projections

or

expectations

of

our

future

or

performance;

(2) statements

that

are

not

historical

information;

(3) statements

of

our

beliefs,

intentions,

plans

and

objectives for future operations,

including those contained in

“Management’s Discussion and

Analysis of

Financial Condition and