CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME (LOSS) AND

COMPREHENSIVE INCOME (LOSS)

REVENUES

Retail sales

$

153,739

$

144,642

$

496,811

$

486,848

Other revenue (principally finance charges, late fees and

layaway charges)

1,663

1,528

5,342

5,049

Total revenues

155,402

146,170

502,153

491,897

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

104,517

102,955

325,302

324,582

Selling, general and administrative (exclusive of depreciation

shown below)

56,974

57,876

169,670

172,809

2,444

2,737

7,532

7,106

(2,181)

(2,646)

(4,775)

(10,209)

Costs and expenses, net

161,754

160,922

497,729

494,288

(Loss) income before income taxes

(6,352)

(14,752)

4,424

(2,391)

Income tax (benefit) expense

(1,163)

(528)

1,614

Net (loss) income

$

(5,189)

$

$

4,952

$

(4,005)

Basic (loss) earnings per share

$

(0.28)

$

(0.79)

$

0.25

$

(0.24)

Diluted (loss) earnings per share

$

(0.28)

$

(0.79)

$

0.25

$

(0.24)

Net (loss) income

$

(5,189)

$

$

4,952

$

(4,005)

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

for each of the three and nine months ended

November 1, 2025 and November 2, 2024, respectively

(151)

(223)

Comprehensive (loss) income

$

(5,170)

$

(15,225)

$

5,077

$

(4,228)

S

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(Dollars in thousands)

Current Assets:

Cash and cash equivalents

$

22,769

$

20,279

Short-term investments

56,204

57,423

Restricted cash

2,675

2,799

Accounts receivable, net of allowance for customer credit losses of

$

and $

at November 1, 2025 and February 1, 2025, respectively

26,093

24,540

Merchandise inventories

94,065

110,739

Prepaid expenses and other current assets

8,603

7,406

Total Current Assets

210,409

223,186

Property and equipment – net

55,912

60,326

Other assets

20,650

19,979

Right-of-Use assets – net

163,261

148,870

$

450,232

$

452,361

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

72,531

$

88,641

Accrued expenses

36,960

41,717

Accrued employee benefits and bonus

Accrued income taxes

Current lease liability

42,262

57,555

Total Current Liabilities

152,087

188,239

Other noncurrent liabilities

12,782

13,485

Lease liability

117,719

88,341

Commitments and contingencies (Note 10)

Stockholders' Equity:

Preferred stock, $

100,000

shares

authorized,

none

issued

Class A common stock, $

0.033

50,000,000

shares authorized;

17,984,954

shares and

18,313,929

shares

issued at November 1, 2025 and February 1, 2025, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares

issued at November 1, 2025 and February 1, 2025

Additional paid-in capital

130,812

129,530

Retained earnings

35,887

31,935

Accumulated other comprehensive income

Total Stockholders' Equity

167,644

162,296

Total Liabilities and Stockholders' Equity

$

450,232

$

452,361

S

OF CASH FLOWS

(Dollars in thousands)

Operating Activities:

Net income (loss)

$

4,952

$

(4,005)

Adjustments to reconcile net income (loss) to net cash provided

(used) in operating activities:

7,532

7,106

Provision for customer credit losses

Purchase premium and premium amortization of investments

(655)

(848)

Gain on sale of assets held for investment

(34)

(5,350)

Share-based compensation

1,137

1,581

(Gain) loss on disposal of property and equipment

(843)

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

(2,208)

1,283

Merchandise inventories

16,674

(8,556)

Prepaid and other assets

(1,868)

(1,315)

Operating lease right-of-use assets and liabilities

(306)

(1,151)

Accounts payable, accrued expenses and other liabilities

(21,791)

(2,619)

Net cash provided (used) in operating activities

3,245

(13,266)

Investing Activities:

Expenditures for property and equipment

(2,892)

(6,509)

Purchase of short-term investments

(19,761)

(38,659)

Sales of short-term investments

21,761

52,994

Sales of other assets

13,674

Net cash (used) provided by investing activities

(28)

21,500

Financing Activities:

Dividends paid

(10,516)

Repurchase of common stock

(995)

(2,398)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(851)

(12,576)

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

2,366

(4,342)

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

23,078

27,913

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

$

25,444

$

23,571

Accrued other assets and property and equipment expenditures

$

$

S

CONDENSED CONSOLIDATED

STATEMENTS

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

of

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

of

Other

(60)

(60)

Balance — August 2, 2025

$

$

130,180

$

41,076

$

$

172,181

Net loss

(5,189)

(5,189)

of

plan

Balance — November 1, 2025

$

$

130,812

$

35,887

$

$

167,644

S

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)

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

of

0.17

(3,527)

(3,527)

plan

Balance — August 3, 2024

$

$

127,951

$

66,094

$

$

195,062

Net loss

of

(151)

(151)

0.17

(3,466)

(3,466)

plan

(1)

(1)

(158)

(159)

Balance — November 2, 2024

$

$

128,827

$

47,407

$

$

177,099

S

NOTE 1 - GENERAL

:

The

condensed

consolidated

as

of

1,

and

for

the

three

and

nine

months ended November 1, 2025 and November 2,

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

financial statements

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,

included

in

the

Annual

Report

on

Form

10-K

for

the

fiscal

year

ended

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 which

is 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

third

quarter

of

fiscal

2024,

the

Company

received

$

8.6

million

from

the

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

reported

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

dilution

that

could

occur

from

common

shares

issuable

through

stock

options

and

the

Stock Purchase Plan, of which there were none

for the periods presented below.

Numerator

Net earnings (loss)

$

(5,189)

$

$

4,952

$

(4,005)

Less: Earnings allocated to non-vested equity awards

(200)

(250)

(548)

Net earnings (loss) available to common stockholders

$

(5,189)

$

(15,274)

$

4,702

$

(4,553)

Denominator

Basic weighted average common shares outstanding

18,814,510

19,302,107

18,769,570

19,318,794

Diluted weighted average common shares outstanding

18,814,510

19,302,107

18,769,570

19,318,794

Net income per common share

Basic earnings (loss) per share

$

(0.28)

$

(0.79)

$

0.25

$

(0.24)

Diluted earnings (loss) per share

$

(0.28)

$

(0.79)

$

0.25

$

(0.24)

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

table

sets

forth

the

changes

in

other

three months ended November 1, 2025:

Beginning Balance at August 2, 2025

$

other comprehensive income to net income

$

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

The

table

sets

forth

the

changes

in

other

nine months ended November 1, 2025:

$

other comprehensive income to net income (b)

(34)

$

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other

i

ncome 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 November 2, 2024:

Beginning Balance at August 3, 2024

$

(151)

other comprehensive income

(151)

Ending Balance at November 2, 2024

$

The

table

sets

forth

the

changes

in

other

nine months ended November 2, 2024:

$

other comprehensive income (b)

(786)

Net current-period other comprehensive loss

(223)

Ending Balance at November 2, 2024

$

(b) Includes

$1,022

impact of Accumulated other comprehensive income reclassifications into Interest and other

i

ncome 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

to

$

27.0

million

as of

1,

The

weighted average

interest rate

under the

credit

facility was

zero

at November 1, 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

(“ASC 280”), including Cato, It’s

Fashion, Versona and Credit.

The Company has

two

reportable

segments: Retail

and Credit.

has aggregated

its

three

retail operating

segments, including

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

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 November 1, 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,

e

xpenses, 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

expenses,

depreciation

and

interest

and

other

income.

Assessment

and

approval

of

all

capital

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

measure

of

segment assets is reported on the balance sheet as total consolidated

assets.

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

$

154,740

$

$

155,402

104,517

104,517

39,955

40,365

16,609

16,609

2,444

2,444

(88)

(286)

(374)

$

(8,697)

$

$

(8,159)

(1,807)

$

(6,352)

$

$

$

Retail

Credit

Total

$

500,173

$

1,980

$

502,153

325,302

325,302

119,244

1,211

120,455

49,215

49,215

7,532

7,532

(282)

(877)

(1,159)

$

(838)

$

1,646

$

(3,616)

Income before income taxes

$

4,424

$

2,892

$

$

2,892

(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

$

145,508

$

$

146,170

102,955

102,955

40,683

41,089

16,787

16,787

2,737

2,737

(105)

(319)

(424)

$

(17,549)

$

$

(16,974)

(2,222)

$

(14,752)

$

1,710

$

$

1,710

Retail

Credit

Total

$

489,892

$

2,005

$

491,897

324,582

324,582

122,597

1,230

123,827

48,982

48,982

7,105

7,106

(292)

(838)

(1,130)

$

(13,082)

$

1,612

$

(11,470)

(9,079)

$

(2,391)

$

6,509

$

$

6,509

(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

1,

2025,

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 1, 2025:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,861,706

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

1,

and

1,

2025,

there

was

$

4,813,000

and

$

7,276,000

,

of

total

unrecognized compensation expense

related to nonvested

restricted stock awards,

which had a

weighted-average vesting period of

1.6

years and

1.9

years, respectively. The

total compensation expense

during the

three and

ended November

1, 2025

was $

536,000

and $

1,114,000

, respectively,

to

a

total

expense

of

$

714,000

and

$

1,520,000

for

the

three

and

nine

months

ended

2,

2024,

This

activity

is

classified

as

a

of

Selling,

general

and

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

1, 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

(76,105)

8.29

R

estricted stock awards at November 1, 2025

913,152

$

8.06

NOTE 6 – STOCK 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

nine months ended

and November

2, 2024, the Company sold

51,845

and

73,593

shares to employees at an average discount of $

0.49

and $

0.81

per share, respectively,

under the Employee

Stock Purchase Plan.

The compensation expense

recognized for

the

%

discount

given

under

the

Stock

Purchase

Plan

was

$

25,000

and

$

60,000

for

the

nine

months

ended

1,

and

2,

2024,

These

are

classified

as

a

of

Selling,

general

and

in

the

Statements

of

Income (Loss).

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 1, 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:

Corporate Bonds

$

52,941

$

$

52,941

$

U.S. Treasury/Agencies Notes and Bonds

2,018

2,018

Cash Surrender Value of Life Insurance

9,842

9,842

Commercial Paper

1,245

1,245

$

66,046

$

$

56,204

$

9,842

Liabilities:

$

(8,677)

$

$

$

(8,677)

Total Liabilities

$

(8,677)

$

$

$

(8,677)

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

portfolio

was

invested

in

bonds

and

taxable

governmental

debt

held

in

managed

accounts

with

underlying

ratings

of

A

or

better

at

1,

and

1,

The

state,

municipal

and

bonds

and

asset-backed

have

contractual

maturities which

range from

1.1 months

to

2.9

years. The

U.S. Treasury/Agencies

notes and

bonds have

a

contractual maturity of up to

3.5 months

.

Additionally, at November

1, 2025, the

Company had deferred

compensation plan assets

of $

9.8

million. At

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

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

1, 2025 and the year ended

025 (in thousands):

NOTE 7

– FAIR VALUE MEASUREMENTS

Asset Inputs (Level 3)

Cash Surrender Value

$

9,301

Total gains or (losses):

$

9,842

Liability Inputs (Level 3)

$

(8,548)

Redemptions

Additions

(167)

Total (gains) or losses:

(634)

$

(8,677)

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)

E

nding 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

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.

The Company is currently

in the process of

evaluating the potential impact of

adoption

of

this new

guidance on

its income

tax related

disclosures. The

required disclosures

will be

included in

our 2025 Annual Report on Form 10-K.

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 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

tax

rate

for

the

first

nine

months

of

of

(

11.9

%)

to

an

effective tax rate

of (

67.5

%) for the first

nine months of fiscal 2024.

Income tax benefit for the

months

was

$

0.5

million in

fiscal

versus income

tax

expense of

$

1.6

million in

fiscal

The

income

tax

benefit

in

fiscal

is

due

to

a

reduction

in

foreign

income

taxes

and

a

larger

release

of

related

to

expired

statute

of

limitations

for

tax

positions

to

the

prior

year.

On July

4, 2025,

the

One Big

Beautiful Bill

Act (the

“OBBBA”) was

signed into

law.

The

Company considered the impact of the

OBBBA in the second quarter of

fiscal 2025.

The changes do not

have a material impact

on the Company’s

effective tax rate.

The Company continues to

monitor impacts

moving forward.

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

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

d

eemed 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

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

credit

losses

of

$

213,000

and

$

655,000

for

the

three

and

nine

months

ended

1,

2025,

to

$

154,000

and

$

492,000

for

the

three

and

nine

months

ended November 2, 2024, respectively.

Sales purchased on the Company’s

proprietary credit card for the

three

and

nine

months

ended

1,

were

$

5.3

million

and

$

16.4

million,

to

$

5.1

million

and

$

16.4

million

for

the

three

and

nine

months

ended

2,

2024,

The

table

provides

about

receivables

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,848

$

10,848

G

ift Card Liability

$

5,280

$

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

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

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

$

16,570

$

16,755

Variable lease cost (a)

$

$

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

Operating lease cost

$

49,654

$

50,565

Variable lease cost (a)

$

1,429

$

1,450

(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

$

14,839

$

15,584

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

$

44,795

$

1,207

Cash paid for amounts included in the measurement of lease liabilities

$

44,202

$

46,672

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

$

58,225

$

2,564

Weighted-average

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

2.5

years

1.7

years

Weighted-average discount rate

5.43%

4.84%

As

of

1,

2025,

the

maturities

of

lease

by

fiscal

year

for

the

leases are as follows (in thousands):

Fiscal Year

2025 (a)

$

14,907

62,470

44,319

30,028

18,154

Thereafter

10,135

Total lease payments

180,013

Less: Imputed interest

20,032

Present value of lease liabilities

$

159,981

(a) Excluding the nine months ended November 1, 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

and

store

openings,

relocations,

remodels

and

closures,

the

impact

of

public

health

threats

and

related

responses

and

mitigation

efforts, as well as the potential impact of supply chain disruptions, extreme weather conditions, tariffs and

other

trade

policies,

inflationary

pressures

and

other

conditions

on

our

results

of

operations

and

and

new

store

development

strategy;

and

(5)

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

statements. Forward-looking statements included in this report are based on information 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

statements.

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 availability of credit;

changes in laws, regulations

or government policies affecting

our

but

not

limited

to

tariffs

and

taxes;

uncertainties

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

profitability,

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

financial services industry or

broader financial 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,

2025 (“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

n

ew 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

statements.

The

most

accounting

inherent

in

the

preparation

of

the

Company’s financial

statements include

the calculation

of potential

asset impairment,

income tax

valuation

allowances,

relating

to

self-insured

health

insurance,

workers’

compensation,

general

and

auto

liabilities,

tax

positions,

the

allowance

for

credit

losses,

and

shrinkage.

T

he Company’s critical accounting policies and

estimates are discussed with the Audit Committee.