CATO CORP

The following table sets forth, for the periods indicated, certain items in

the Company's unaudited Condensed

Consolidated Statements of Income as a

percentage of total retail sales:

Total retail sales

100.0

%

100.0

%

100.0

%

100.0

%

Other revenue

1.1

1.0

1.1

1.0

Total revenues

101.1

101.0

101.1

101.0

Cost of goods sold (exclusive of

depreciation)

63.8

65.4

64.4

64.8

Selling, general and administrative

(exclusive of depreciation)

32.8

34.9

32.8

33.6

1.4

1.4

1.5

1.3

(0.8)

(1.0)

(0.8)

(2.2)

3.7

0.4

3.1

3.6

3.9

0.1

3.0

3.2

RESULTS OF OPERATIONS

Management’s

Discussion

and

Analysis

of

Condition

and

Results

of

Operations

(“MD&A”)

is

intended

to

provide

to

assist

readers

in

better

understanding

and

our

condition and results of

operations. We recommend reading

this MD&A in conjunction

with our Condensed

Consolidated Financial

Statements and

the Notes

to those

statements included in

the “Financial

Statements”

section of this Quarterly Report on

Form 10-Q, as well as our 2024

Annual Report on Form 10-K.

Recent Developments

Tariff

Pressures

A

quantity

of

our

are

made

in

China and

Southeast

Asia. The

from these

countries are subject

to the newly

implemented reciprocal tariffs,

as well as

an additional Section

301 ad

valorem

tariff

on

Chinese

products.

In

the

second

quarter,

from

China

were

subject

to

the

Section

301 ad

valorem tariffs

and

products sourced

from all

other countries

were

subject to

reciprocal

tariffs.

During

the

second

quarter,

these

tariffs

increased

our

costs

with

receipted

made

in

China and

Southeast Asia.

Excluding China,

reciprocal tariffs

will

be

increasing

up

to

100%,

resulting in

rates of

19% to

20%, depending

on the

country.

We

anticipate that

our product

acquisition

costs in

the back

half of

the third

quarter and

the remainder

of the

fiscal year

will be

impacted by

these

additional costs.

These cost increases will negatively impact our results of operations and financial condition unless we are

able to

successfully mitigate

their effects

by increasing

retail pricing

without losing

sales and/or

sharing

these

costs

with

our

vendors.

Certain

product

categories

such

as

shoes

and

handbags,

which

are

predominately made in China, will be difficult to source in countries with lower tariffs.

Pricing Pressures

As the cost

of tariffs begins

to impact retail

pricing, our customers may

become more cautious

with their

discretionary

spending.

The

customers’

caution

in

regard

to

their

discretionary

spending

will

put

additional pressure on our ability to mitigate the cost increases caused by

tariffs.

Comparison of the Three and Six

Months ended August 2, 2025

with August 3, 2024

Total retail sales

for the second

quarter were

$174.7 million

compared to last

year’s second

quarter sales

of

$166.9 million, a 5% increase. The

Company’s sales increased in the second

quarter of fiscal 2025 primarily

due to a 9% increase in same-store sales, partially offset by stores that were closed in

the past 12 months. For

the

six

months

ended

August

2,

2025,

total

retail

sales

were

$343.1

million

to

last

year’s

comparable six month sales of $342.2 million,

a 0.3% increase. The increase in sales

in the first six months of

fiscal

was

due

to

a

4%

in

same-store

sales,

mainly

offset

by

the

impact

of

store

closures. Same-store

sales include

stores that

open more

than 15

months.

Stores that

relocated or

expanded are

also included

in the

same-store sales

calculation after

they have

been open

more

than 15 months.

The method of calculating same-store sales varies across the retail industry.

As a result, our

same-store sales calculation may not be comparable to similarly titled measures reported by other companies.

E-commerce sales were less than 5% of total sales for the six months ended August 2,

2025 and are included

in the

same-store sales

calculation.

Total revenues,

comprised of

retail sales

and other

revenue (principally

finance charges

and late

fees on

customer accounts

receivable and

layaway fees),

were $176.5

million and

$346.8 million

for the

three and

$168.6 million

and $345.7

million for the three and six months ended August 3, 2024, respectively. The Company operated 1,101 stores

at August

2, 2025

1,166 stores

at the

end of

last fiscal

year’s second

quarter.

For the

first six

months of fiscal 2025,

the Company permanently closed

16 stores.

The Company currently expects

to close

approximately 50 stores in fiscal 2025.

Other revenue, a component of total revenues, was $1.9 million and $3.7 million for the

three and six months

ended

August

2,

2025,

to

$1.7

million

and

$3.5

million

for

the

prior

year’s

comparable three

and six

month periods.

Included in

Other revenue is

credit revenue of

$0.7 million,

which

represented 0.4%

of total

revenues in

flat both

in dollars

and percentage

compared to fiscal 2024.

Credit revenue is comprised of interest earned on the Company’s private label credit

card

and

related

fee

income.

Related

principally

include

payroll,

postage

and

other

administrative expenses and totaled $0.4 million

in the second quarter of fiscal 2025,

compared to last year’s

second quarter expense of $0.4 million.

Cost of

goods sold

was $111.5

63.8% of

retail sales

and $220.8

64.4% of retail

sales

for the

three and

respectively, compared

to $109.1

65.4% of

retail

sales and

$221.6

or 64.8%

of retail

sales

for the

comparable three

and six

month

periods of

fiscal 2024.

The overall decrease in

cost of goods sold

as a percent of

retail sales for the

second quarter and

first

six

months

of

fiscal

versus

the

three

and

six

month

periods

of

fiscal

resulted

primarily from lower buying and distribution costs, partially offset by increased sales of marked down goods.

Cost of

goods sold

includes merchandise

costs (net

of discounts

and allowances),

buying costs,

costs,

occupancy

costs,

freight

and

shrinkage.

Net

costs

and

in-bound

freight

are

capitalized

as

costs.

Buying

and

costs

include

payroll,

payroll-related

costs

and

expenses for

the buying

departments

and distribution

center.

Occupancy

costs

include

rent,

real

estate

taxes,

common

area

maintenance,

utilities

and

maintenance

for

stores

and

facilities. Total gross

margin dollars (retail

sales less cost

of goods sold

exclusive of depreciation)

increased

by 9.3% to $63.2 million for

the second quarter of fiscal 2025 and

by 1.4% to $122.3 million for

the first six

$57.8 million

and $120.6

million for

the prior

year’s comparable

three

and six

fiscal 2024,

Gross margin

as presented

may not

be comparable

to those

of

other entities.

Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related

payroll taxes and

benefits, insurance, supplies,

advertising, and bank

and credit card

processing fees. SG&A

were

$57.4

or

32.8%

of

retail

sales

and

$112.7

or

32.8%

of

retail

sales

for

the

second quarter and first six months of fiscal 2025, respectively, compared to $58.2 million, or

34.9% of retail

sales and $114.9 million, or 33.6% of retail sales for the prior year’s comparable three and

six month periods,

The decrease in SG&A expenses for the

second quarter and first six months of fiscal

2025 was

due

to

lower

and

field

payroll

expense,

as

well

as

lower

partially

offset

by

increases in advertising and general corporate

costs.

Depreciation expense was $2.5 million, or 1.4% of retail sales and $5.1 million, or 1.5% of

retail sales for the

second quarter

and first

2025, respectively,

$2.3 million,

or 1.4%

of retail

sales and $4.4

million or 1.3%

of retail sales

for the comparable

three and six

month periods of

fiscal 2024,

Interest and other income was $1.4 million, or 0.8% of retail sales and $2.6 million, or 0.8% of retail sales for

the three and six months ended August

2, 2025, respectively, compared to $1.7 million,

or 1.0% of retail sales

and

$7.6

or

2.2%

of

retail

sales

for

the

three

and

six

month

periods

of

fiscal

2024,

respectively. The decrease

for the first

six months of

fiscal 2025 compared

to fiscal 2024

was primarily due

to a $3.2 million

net gain on the

sale of land

held for investment and

the sale of equity securities

recorded in

the first quarter of 2024.

Income tax

benefit

was $0.3

million and

an expense

of

$0.6 million

for the

second quarter

and first

six

a tax

expense of

$0.6 million

and $1.3

million for

the

comparable three and six month periods of fiscal 2024, respectively.

The effective income tax rate

for the

first six

was 5.9%

10.5% for

2024. The

in

tax

expense in

is

to

reductions in

foreign income

taxes

and

a

favorable

adjustment to the federal net operating loss carryback claim as

a result of the Coronavirus Aid, Relief and

Economic

Security

Act

(CARES Act),

partially

offset

by

an

in

state

income

taxes.

On

July

4,

2025, the One Big

Beautiful Bill Act (the

“OBBBA”) was signed into

law. The

Company has considered

the impact

of the

OBBBA in

and concluded the

changes do

not have

a

material impact on the Company’s effective tax rate.

LIQUIDITY, CAPITAL

RESOURCES

AND MARKET

RISK:

believes that

its cash,

cash equivalents

and short-term

investments, together

with cash

flows

from operations and its asset-backed revolving line of credit, will be adequate to fund the Company’s

regular

operating requirements and expected capital expenditures

for the next 12 months.

Cash

provided

by

activities

during

the

first

six

months

of

fiscal

was

$15.6

million

as

$8.8 million

provided in

2024. The

increase in

cash provided

by

operating activities of $6.8

million for the first

six months of fiscal

2025 as compared to

the first six months

of

fiscal

was

attributable

to

the

relative

change

in

from

year-end

to

the

second

quarter for

both years

and a

non-operating gain

on sale

of assets

held for

investment in

fiscal 2024, partially offset by the relative change

of accounts payable from year-end to the second quarter

for

both years.

At August 2, 2025, the Company had working capital of $50.5 million compared to

$34.9 million at February

1,

The

in

working

capital

was

attributable

to

an

in

cash

and

cash

equivalents and decreases in accrued expenses, current lease liability and accounts payable, partially offset by

a decrease in inventories.

On March

13,

Company, as

borrower, and

certain

other domestic

subsidiaries, as

borrowers

and

guarantors, entered

into a

Credit Agreement

(the “ABL

Credit Agreement”)

and related

loan documents,

by

and

among

the

Company,

certain

other

of

the

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National Association,

as the

lender (the

“Lender”), to

establish an

asset-based revolving

credit facility

(the

“ABL

Facility”)

in

an

amount

up

to

$35.0

The

proceeds

from

the

ABL

Facility

may

be

used

to

provide funding for ongoing working capital

and general corporate purposes.

The ABL Credit Agreement is committed through May 2027 and is secured primarily by inventory and third-

party

credit

card

receivables.

There

were

no

borrowings

and

the

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 August 2, 2025.

The weighted average interest rate under the credit facility

was zero at August 2, 2025 due

to no outstanding borrowings.

Expenditures for property and equipment totaled $2.4 million in the first six months of fiscal 2025, compared

to $4.8 million in last fiscal

year’s first six months. The decrease in

expenditures for property and equipment

was

due

to

finishing

projects

related

to

investments

in

the

center

and

technology, as

well as

no new

store openings

in the

first

of the

current fiscal

year. For

the full

fiscal 2025 year, the Company expects

to invest approximately $5.9 million for capital

expenditures.

Net cash

used in

investing activities

totaled $0.9

million in

2025 compared

to

$6.7 million net cash

provided in the comparable

period of 2024.

The increase in net

cash used in investing

activities

in

was

due

to

a

in

the

sales

of

short-term

investments

and

other

assets,

partially offset by lower capital

expenditures.

Net cash

used in

financing activities

totaled $0.9

million in

2025 compared

to

$9.1

million

used

in

the

period

of

fiscal

The

in

net

cash

used

in

financing

activities in fiscal

2025 was

to the elimination

of dividend

payments in

and lower

stock repurchases.

As

of

August

2,

2025,

the

Company

had

680,740

shares

in

open

authorizations

under

its

share

repurchase program.

The Company does not use

derivative financial instruments.

The

investment

was

invested

in

bonds

and

taxable

governmental

debt

held

in

managed

accounts

with

underlying

ratings

of

A

or

better

at

August

2,

and

1,

The

state,

municipal

and

bonds

and

asset-backed

have

contractual

maturities

which

range

from

days

to

2.9

years.

The

U.S.

Treasury/Agencies

notes

and

bonds

have

a

contractual maturity of up to 7 months.

Additionally,

at

August

the

Company

had

compensation plan

assets

of

$9.5

At

1,

2025,

the

Company

had

plan

assets

of

$9.3

These

assets

are

within

Other

assets

in

the

Balance

Sheets.

See

Note

7,

Fair

Value

Measurements, included in Part 1, Item 1 Financial Statements (Unaudited) in this Quarterly Report on Form

10-Q.

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements, included in Part 1, Item

1 Financial Statements

(Unaudited) in this Quarterly Report on Form 10-Q.

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

The

Company

is

subject

to

market

rate

risk

from

exposure

to

changes

in

interest

rates

based

on

its

financing, investing and

cash management activities,

but the Company

does not

believe such exposure

is

material.

We carried out an evaluation, with the

participation of our Principal Executive Officer and

Principal Financial

Officer, of

the effectiveness

of our

disclosure controls

and procedures

as of

Based on

this

evaluation, our

Principal Executive

Officer and

Principal Financial

Officer concluded

that, as

of

2025, our

disclosure controls

and

procedures,

as defined

in

Rule

13a-15(e), under

the

Act of 1934 (the “Exchange

Act”), were effective to ensure that

information we are required to disclose

in the

reports

that

we

file

or

submit

under

the

Act

is

recorded,

processed,

summarized

and

reported

within the time periods

specified in the SEC’s

rules and forms and

that such information is

accumulated and

communicated to our management, including our Principal Executive Officer and Principal Financial Officer,

as appropriate to allow timely decisions

regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:

No change in the Company’s internal control

over financial reporting (as defined in

Exchange Act Rule 13a-

15(f)) has occurred during the Company’s fiscal quarter ended August 2, 2025 that has materially affected, or

is

reasonably

likely

to

affect,

the

internal

control

over

reporting.

LEGAL PROCEEDINGS:

Not Applicable.

RISK FACTORS:

In addition to the other information

in this report, you should carefully

consider the factors discussed in

Part I,

“Item

1A.

Risk

Factors”

in

our

Annual

Report

on

Form

10-K

for

our

fiscal

year

ended

1,

These risks

could materially

affect our

business, financial

condition or

future results;

however, they

are not

the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem

to

be

immaterial

may

also

adversely

affect

our

business,

condition

or

results

of

operations.

UNREGISTERED SALES OF EQUITY SECURITIES

AND USE OF PROCEEDS:

The following table summarizes the Company’s purchases of its common stock for the three months

ended August 2, 2025:

ISSUER PURCHASES OF EQUITY SECURITIES

Total Number of

Maximum Number

Shares Purchased as

(or Approximate Dollar

Total Number

Average

Part of Publicly

Value)

of Shares that may

Fiscal

of Shares

Price Paid

Announced Plans or

Yet be Purchased

Under

Period

Purchased

per Share (1)

Programs (2)

The Plans or Programs (2)

May 2025

$

June 2025

22,679

2.64

22,679

July 2025

Total

22,679

$

2.64

22,679

680,740

(1)

Prices include trading costs.

(2)

As

of

May 3,

share repurchase

program had

703,419

shares remaining

in

open authorizations. During the

second quarter ended

August 2, 2025,

the Company repurchased

and

retired

22,679

shares

under

this

program

for

approximately

$59,911

or

an

average

market

price of

$2.64 per

share.

As of

Company had

680,740 shares

remaining in

open authorizations. There is no specified expiration date for the Company’s repurchase program.

DEFAULTS

UPON SENIOR SECURITIES:

Not Applicable.

MINE SAFETY DISCLOSURES:

No matters requiring disclosure.

OTHER INFORMATION:

During the three months ended August 2, 2025, none of the Company’s directors or officers (as defined in

Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended)

adopted

or

terminated

a “Rule 10b5-1

trading arrangement” or a “

non-Rule

10b5-1

trading arrangement” (as such terms are

defined in Item 408

of Regulation S-K).

EXHIBITS:

Exhibit No.

Item

3.1

Registrant’s Amended and Restated Certificate of Incorporation, incorporated by

reference to Exhibit 3.1 to Form 10-Q of the Registrant for the quarter ended May

2, 2020.

3.2

Registrant’s Amended and Restated By-Laws, incorporated by reference to Exhibit

3.2 to Form 10-Q of the Registrant for the quarter ended May 2, 2020.

31.1*

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2*

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1*

Section 1350 Certification of Principal Executive Officer.

32.2*

Section 1350 Certification of Principal Financial Officer.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label

Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

104.1

Cover

Page

Interactive

Data

File (Formatted

in

Inline

XBRL

and

contained in

the Interactive Data Files submitted as Exhibit 101.1*)

• Submitted electronically herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Registrant has duly caused this

report to be signed on its behalf by the undersigned thereunto duly

authorized.

THE CATO

CORPORATION

August 28, 2025

/s/ John P.

D. Cato

Date

John P.

D. Cato

Chairman, President and

Chief Executive Officer

August 28, 2025

/s/ Charles D. Knight

Date

Charles D. Knight

Executive Vice President

Chief Financial Officer