CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

REVENUES

Retail sales

$

174,653

$

166,934

$

343,072

$

342,206

Other revenue (principally finance charges, late fees and

layaway charges)

1,856

1,694

3,679

3,521

Total revenues

176,509

168,628

346,751

345,727

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

111,467

109,122

220,784

221,627

Selling, general and administrative (exclusive of

depreciation

shown below)

57,371

58,181

112,696

114,933

2,525

2,329

5,089

4,369

(1,393)

(1,742)

(2,594)

(7,563)

Costs and expenses, net

169,970

167,890

335,975

333,366

6,539

10,776

12,361

Income tax (benefit) expense

(293)

1,292

$

6,832

$

$

10,141

$

11,069

Basic earnings per share

$

0.35

$

0.01

$

0.51

$

0.54

Diluted earnings per share

$

0.35

$

0.01

$

0.51

$

0.54

$

6,832

$

$

10,141

$

11,069

Net unrealized gain (loss) on available-for-sale securities

for each of the three and

six months ended

August 2, 2025 and August 3, 2024, respectively

(72)

Comprehensive income

$

6,900

$

$

10,247

$

10,997

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(Dollars in thousands)

Current Assets:

Cash and cash equivalents

$

34,225

$

20,279

Short-term investments

56,550

57,423

Restricted cash

2,675

2,799

Accounts receivable, net of allowance for customer credit losses of

$

and $

at August 2, 2025 and February 1, 2025, respectively

26,152

24,540

Merchandise inventories

97,273

110,739

Prepaid expenses and other current assets

8,941

7,406

Total Current Assets

225,816

223,186

Property and equipment – net

57,641

60,326

Other assets

20,201

19,979

Right-of-Use assets – net

133,228

148,870

$

436,886

$

452,361

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

85,448

$

88,641

Accrued expenses

35,353

41,717

Accrued employee benefits and bonus

Accrued income taxes

Current lease liability

53,877

57,555

Total Current Liabilities

175,347

188,239

Other noncurrent liabilities

13,340

13,485

Lease liability

76,018

88,341

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

17,962,676

shares and

18,313,929

shares

issued at August 2, 2025 and February 1, 2025, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares

issued at August 2, 2025 and February 1, 2025

Additional paid-in capital

130,180

129,530

Retained earnings

41,076

31,935

Accumulated other comprehensive income

Total Stockholders' Equity

172,181

162,296

Total Liabilities and Stockholders' Equity

$

436,886

$

452,361

OF CASH FLOWS

(Dollars in thousands)

Operating Activities:

$

10,141

$

11,069

Adjustments to reconcile net income to net cash provided

by operating activities:

5,089

4,369

Provision for customer credit losses

Purchase premium and premium amortization of investments

(464)

(577)

(Gain) on sale of assets held for investment

(34)

(4,223)

Share-based compensation

(Gain) loss on disposal of property and equipment

(37)

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

(2,054)

1,041

Merchandise inventories

13,466

2,631

Prepaid and other assets

(1,756)

(1,891)

Operating lease right-of-use assets and liabilities

(357)

(775)

Accrued income taxes

Accounts payable, accrued expenses and other liabilities

(9,383)

(4,728)

Net cash provided by operating activities

15,640

8,836

Investing Activities:

Expenditures for property and equipment

(2,362)

(4,799)

Purchase of short-term investments

(12,906)

(31,396)

Sales of short-term investments

14,349

37,703

Sales of other assets

5,165

Net cash (used in) provided by investing activities

(885)

6,673

Financing Activities:

Dividends paid

(7,050)

Repurchase of common stock

(995)

(2,237)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(933)

(9,096)

Net increase in cash, cash equivalents, and restricted cash

13,822

6,413

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

23,078

27,913

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

$

36,900

$

34,326

Accrued other assets and property and equipment expenditures

$

$

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income

Equity

Balance — February 1, 2025

$

$

129,530

$

31,935

$

$

162,296

3,309

3,309

plan

Other

(73)

(73)

Share-based compensation issuances and exercises

(2)

(2)

(10)

(897)

(907)

Balance — May 3, 2025

$

$

129,786

$

34,274

$

$

164,917

6,832

6,832

Other

(60)

(60)

Balance — August 2, 2025

$

$

130,180

$

41,076

$

$

172,181

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 loss on available-for-sale securities, net of

(748)

(748)

Dividends paid ($

0.17

per share)

(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

Dividends paid ($

0.17

per share)

(3,527)

(3,527)

plan

Balance — August 3, 2024

$

$

127,951

$

66,094

$

$

195,062

NOTE 1 - GENERAL

:

The condensed

consolidated financial

statements as

of August

2, 2025

and for

the three

and six

months

2, 2025

and August

3, 2024

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 periods

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

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

in the first quarter of fiscal 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

Employee

Stock

Purchase Plan, of which there were

none for the periods presented

below.

Numerator

Net earnings

$

6,832

$

$

10,141

$

11,069

Less: Earnings allocated to non-vested equity awards

(319)

(531)

(583)

Net earnings available to common stockholders

$

6,513

$

$

9,610

$

10,486

Denominator

Basic weighted average common shares outstanding

18,809,364

19,297,484

18,747,100

19,327,137

Diluted weighted average common shares outstanding

18,809,364

19,297,484

18,747,100

19,327,137

Net income per common share

Basic earnings per share

$

0.35

$

0.01

$

0.51

$

0.54

Diluted earnings per share

$

0.35

$

0.01

$

0.51

$

0.54

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

table

sets

forth

the

changes

in

other

three months ended August 2, 2025:

Beginning Balance at May 3, 2025

$

other comprehensive income to net income

$

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

The

table

sets

forth

the

changes

in

other

six months ended August 2, 2025:

$

other comprehensive income to net income (b)

(34)

$

(b) Includes $

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

$0

.

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The

table

sets

forth

the

changes

in

other

three months ended August 3, 2024:

Beginning Balance at May 4, 2024

$

(353)

other comprehensive income (b)

Ending Balance at August 3, 2024

$

(b) Includes $

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

.

The

table

sets

forth

the

changes

in

other

six months ended August 3, 2024:

$

other comprehensive income (b)

Net current-period other comprehensive loss

(72)

Ending Balance at August 3, 2024

$

(b) Includes

$1,022

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

.

NOTE 4 – FINANCING ARRANGEMENTS:

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.

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

economic

characteristics, products, production processes, clients and

methods of distribution.

The

retail

have

similar

economic

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 August 2, 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.

does

not allocate certain corporate expenses to the Credit segment.

The Company’s

President and

Chief Executive Officer

is the

Company’s chief

operating decision

maker

(“CODM”).

The

structure described

above reflects

the

manner in

which

the

CODM regularly

assesses

for

decision-making

purposes,

the

allocation

of

resources.

The

Company

also

provides corporate

services, including

finance, information

technology,

and corporate

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’

performance

based

on

segment

sales,

expenses, and

profit or

loss from

operations 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

and

other

items

include

cost

of

goods

sold,

selling,

general

and

administrative

expenses,

depreciation

and

interest

and

other

income.

Assessment

and

approval

of

all

capital

expenditures

are

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 accounting

policies of

the segments

are the

same as

those described

in the

Summary of

Accounting Policies in Note 1 of the consolidated financial statements included in the Company’s Annual

Report

on

Form

10-K

for

the

fiscal

year

ended

1,

The

Company

evaluates

segment

performance based on segment income before income taxes.

The following schedule summarizes certain segment

information (in thousands):

Retail

Credit

Total

$

175,856

$

$

176,509

111,467

111,467

40,130

40,544

16,827

16,827

2,525

2,525

(89)

(288)

(377)

$

4,996

$

$

5,523

(1,016)

$

6,539

$

1,343

$

$

1,343

Retail

Credit

Total

$

345,433

$

1,318

$

346,751

220,784

220,784

79,289

80,090

32,606

32,606

5,089

5,089

(192)

(592)

(784)

$

7,857

$

1,109

$

8,966

(1,810)

$

10,776

$

2,362

$

$

2,362

(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 5 – REPORTABLE SEGMENT INFORMATION

Retail

Credit

Total

$

167,954

$

$

168,628

109,122

109,122

40,946

41,362

16,819

16,819

2,328

2,329

(97)

(284)

(381)

Segment income (loss) before income taxes

$

(1,164)

$

$

(623)

(1,361)

$

$

1,538

$

$

1,538

Retail

Credit

Total

$

344,384

$

1,343

$

345,727

221,627

221,627

81,915

82,738

32,195

32,195

4,368

4,369

(188)

(518)

(706)

$

4,467

$

1,037

$

5,504

(6,857)

$

12,361

$

4,799

$

$

4,799

(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 – STOCK-BASED COMPENSATION:

As of August

2, 2025, 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 2, 2025:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,853,875

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

August

2, 2025

and February

1, 2025,

there was

$

5,548,000

and $

7,276,000

, respectively,

of total

unrecognized

expense

related

to

nonvested

stock

awards,

which

had

a

weighted-

average vesting period of

1.9

years for both periods. The total compensation expense during the three and

six

months

ended

August

2,

was

$

394,000

and

$

578,000

,

to

a

total

expense

of

$

872,000

and

$

806,000

for

the

three

and

six

months

ended

August

3,

2024,

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

during

the six months ended

August

2, 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 August 2, 2025

920,983

$

8.07

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The

Employee

Stock

Purchase

Plan

allows

eligible

full-time

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 six

months ended August 2,

2025 and August 3,

2024,

the

Company

sold

21,736

and

38,910

shares

to

at

an

average

discount

of

$

0.50

and

$

0.87

per

share, respectively, under

the Employee Stock

Purchase Plan. The

compensation expense recognized

for the

% discount

given under

the Employee

Stock Purchase

Plan was

$

11,000

and $

34,000

for the

ended

August

2,

and

August

3,

2024,

These expenses

are

classified

as

a

component

of

Selling, general and administrative expenses in

the Condensed Consolidated Statements of Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets and

liabilities that

are

measured at fair value (in thousands)

as of August 2, 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

52,946

52,946

U.S. Treasury/Agencies Notes and Bonds

2,035

2,035

Cash Surrender Value of Life Insurance

9,485

9,485

Commercial Paper

1,232

1,232

$

66,035

$

$

56,550

$

9,485

Liabilities:

$

(8,358)

$

$

$

(8,358)

Total Liabilities

$

(8,358)

$

$

$

(8,358)

NOTE 7

– FAIR VALUE MEASUREMENTS

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

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

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

13 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

2,

2025,

the

Company

had

plan

assets

of

$

9.5

At

February 1,

Company had

deferred compensation

plan assets

of $

9.3

These assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level 2 investment

securities 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 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

insurance

policies

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 2, 2025 and the

year ended February 1, 2025

(in thousands):

NOTE 7

– FAIR VALUE MEASUREMENTS

Asset Inputs (Level 3)

Cash Surrender Value

$

9,301

Total gains or (losses):

$

9,485

Liability Inputs (Level 3)

$

(8,548)

Redemptions

Additions

(129)

Total (gains) or losses:

(247)

$

(8,358)

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)

Redemptions

1,175

Additions

(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

information about

a reporting

entity’s

effective

tax rate

reconciliation as

well as

information on

income

taxes paid.

This guidance

is effective

for fiscal

years beginning

after December

15, 2024

for all

public

business entities, with

early adoption and

retrospective application permitted.

The Company is

currently

in

the

process

of

the

impact

of

adoption

of

this

new

guidance

on

its

consolidated

financial statements and related disclosures. The required disclosures will be included in our 2025 Annual

Report on Form 10-K.

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

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 six months

of 2025 of

5.9

% compared to

an effective

tax

rate

of

10.5

%

for

the

first

six

months

of

fiscal

Income tax

expense

for

the

first

six

months

decreased to

$

0.6

million in fiscal

2025 from an

income tax expense

of $

1.3

million in fiscal

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 increase 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

quarter of fiscal

2025 and concluded

the changes

do

not have a material impact on the Company’s effective tax rate.

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,

the

that

it

sells,

intellectual

property,

litigation instituted

by persons

injured upon

premises under

its control,

litigation with

respect to

various

employment

matters,

alleged

discrimination and

wage

and

hour

litigation,

and

with

present or former employees.

Although such

litigation is

routine and

incidental to

the conduct

of the

Company’s business,

as with

any

business

of

its

size

with

a

number

of

and

sales,

such

litigation could

result in

large

monetary awards.

Based on

information currently

available, management

does

not

believe

that

any

reasonably

possible

losses

arising

from current

pending litigation

will

have

a

material adverse

effect

on 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

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

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.

offers its

own proprietary

credit card

to customers.

All credit

activity is

performed by

the

wholly-owned

subsidiaries.

None

of

the

credit

card

receivables

are

secured.

The

Company

estimated customer credit losses

of $

227,000

and $

442,000

for the three

and six months

ended August 2,

2025,

to

$

166,000

and

$

338,000

for

the

three

and

six

months

ended

August

3,

2024,

Sales

purchased

on

the

proprietary

credit

card

for

the

three

and

six

months

ended

August

2,

were

$

5.7

million

and

$

11.1

to

$

5.6

million and $

11.3

million for the three and six months ended August 3, 2024, respectively.

The

table

provides

about

receivables

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,816

$

10,848

Gift Card Liability

$

5,671

$

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

$

16,496

$

16,808

Variable

lease cost (a)

$

$

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

Operating lease cost

$

33,084

$

33,810

Variable

lease cost (a)

$

$

(a) Primarily related 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

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

$

14,829

$

15,481

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

$

12,224

$

Cash paid for amounts included in the measurement of lease liabilities

$

29,363

$

31,088

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

$

13,430

$

1,357

Weighted-average

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

2.1

years

1.8

years

Weighted-average discount rate

5.92%

4.74%

As of August 2,

2025, the maturities

of lease liabilities by

fiscal year for

the Company’s

operating leases

are as follows (in thousands):

Fiscal Year

2025 (a)

$

31,303

48,424

32,528

20,105

10,482

Thereafter

3,017

Total lease payments

145,859

Less: Imputed interest

15,964

Present value of lease liabilities

$

129,895

(a) Excluding the six months ended August 2, 2025

FORWARD-LOOKING INFORMATION:

The

should

be

read

along

with

the

unaudited

Statements,

the

accompanying

Notes

appearing

in

this

Form

10-Q.

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)

in

this

Form 10-Q

that

reflect projections

or expectations

of our

future financial

or

economic performance;

(2)

that

are

not

historical

information;

(3)

of

our

beliefs,

intentions,

plans

and

objectives for

future operations;

(4) statements

relating to

our operations

or activities

for our

fiscal year

ending January

31, 2026

(“fiscal 2025”)

and beyond,

including, but

not limited

to, statements

expected

amounts

of

capital

expenditures

and

store

openings,

relocations,

remodels

and

closures,

the

impact

of

public

health

threats

and

related

responses

and

mitigation

efforts,

as

well

as

the

impact

of

supply

chain

disruptions,

extreme

weather

conditions,

trade

policies, inflationary

pressures and

other economic

conditions on

our business,

results of

operations and

financial condition

and statements regarding

new store

development strategy; and

(5) statements

relating

to our future

contingencies. When possible, we

have attempted to

identify forward-looking statements by

using

words

such

as

“will,”

“expects,”

“anticipates,”

“approximates,”

“believes,”

“estimates,”

“hopes,”

“intends,” “may,”

“plans,” “could,” “would,”

“should” and any

variations or negative

formations of such

words

and

similar

expressions.

We

can

give

no

assurance

that

actual

results

or

events

will

not

differ

from

those

expressed

or

implied

in

any

such

forward-looking

Forward-looking

in

this

report

are

based

on

available

to

us

as

of

the

filing

date

of

this

report,

but

subject

to

known

and

unknown

risks,

uncertainties and

other

factors

that

could

cause

actual

results

to

differ

from

those

contemplated

by

the

forward-looking

Such

factors

include, but are

not limited to,

the following:

any actual or

perceived deterioration in the

conditions that

drive

consumer

confidence

and

spending,

including,

but

not

limited

to,

prevailing

social,

economic,

political and public health

threats and uncertainties, levels of

unemployment, fuel, energy and

food costs,

inflation, wage rates, tax rates, tariffs, interest rates, home values, consumer net worth and the

of

credit;

changes

in

laws,

regulations

or

government policies

affecting

our

business, including

but

not

limited to

tariffs

and taxes;

uncertainties regarding

the impact

of

any governmental

action regarding,

or

responses

to,

the

foregoing

conditions;

competitive

factors

and

pricing

pressures;

our

ability

to

predict

and

respond

to

rapidly

changing

fashion

trends

and

consumer

demands;

our

ability

to

successfully

implement our new store development strategy to increase new store openings and

our ability of any such

new

stores

to

grow

and

perform

as

expected;

underperformance

or

other

factors

that

may

lead

to

a

continuation or acceleration

of store

closures and negatively

affect the

Company’s profitability,

condition

and

prospects;

adverse

weather,

public

health

threats

(including

the

COVID-19

or

other

pandemics),

acts

of

war

or

aggression

or

similar

conditions

that

may

affect

our

sales

or

operations;

risks

due

to

shifts

in

market

demand,

the

ability

to

liquidate

excess

at

anticipated

margins;

adverse

developments

or

volatility

affecting

the

services

industry

or

broader

markets;

and

other

factors

discussed

under

“Risk

Factors”

in

Part

I,

Item

1A

of

our

annual

report

on

Form 10-K

for

the

fiscal

year

ended February

1,

(“fiscal

2024”),

as

amended or

supplemented,

and in

other reports

we

file

with

or

furnish

to

the

Securities and

Commission

(“SEC”)

from time

to

time.

We

do

not

undertake, and

expressly

decline,

any obligation

to

update

any

such forward-looking information contained

in this report,

whether as a

result of new

information, future

events, or otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The

critical

accounting

policies

and

are

more

fully

described

in

“Management’s

Discussion

and

Analysis

of

Condition

and

Results

of

Operations”

in

Part

II,

Item

in

the

Company’s Annual Report on

Form 10-K for the

fiscal year ended February

1, 2025. The preparation

of the

statements in

conformity

with

generally

accepted accounting

principles in

the

United

States (“GAAP”) requires management to make estimates and assumptions about future events that affect the

amounts reported in the

financial statements and accompanying

notes. Future events

and their effects cannot

be

with

absolute

certainty.

Therefore,

the

determination

of

requires

the

exercise

of

judgment. Actual results

inevitably will differ

from those estimates,

and such differences

may be material

to

the

The

most

accounting

inherent

in

the

preparation

of

the

Company’s financial

statements include

the calculation

of potential

asset impairment,

income tax

valuation

allowances,

reserves

relating

to

self-insured

health

workers’

compensation,

general

and

auto

insurance

liabilities,

uncertain

tax

positions,

the

allowance

for

credit

losses,

and

shrinkage.

The Company’s critical accounting policies and

estimates are discussed with the Audit Committee.