CATO CORP

Signatures

PART

I FINANCIAL INFORMATION

FINANCIAL STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

Six

Months Ended

REVENUES

Retail sales

$

163,902

$

174,653

$

333,312

$

343,072

Other revenue (principally finance charges, late fees and

layaway charges)

1,599

1,856

3,293

3,679

Total revenues

165,501

176,509

336,605

346,751

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

110,180

111,467

216,520

220,784

Selling, general and administrative (exclusive of

depreciation

shown below)

54,047

57,371

107,977

112,696

2,246

2,525

4,482

5,089

(2,268)

(1,393)

(3,501)

(2,594)

Costs and expenses, net

164,205

169,970

325,478

335,975

1,296

6,539

11,127

10,776

Income tax expense (benefit)

(293)

$

1,149

$

6,832

$

10,458

$

10,141

Basic earnings per share

$

0.06

$

0.35

$

0.53

$

0.51

Diluted earnings per share

$

0.06

$

0.35

$

0.53

$

0.51

$

1,149

$

6,832

$

10,458

$

10,141

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

deferred income taxes of $

for each of the three and six months

ended August 1, 2026 and August 2, 2025, respectively

(231)

(491)

Comprehensive income

$

$

6,900

$

9,967

$

10,247

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

Current Assets:

Cash and cash equivalents

$

35,115

$

16,788

Short-term investments

58,650

56,859

Restricted cash

2,675

2,675

Accounts receivable, net of allowance for customer credit losses of

$

and $

at August 1, 2026 and January 31, 2026, respectively

20,459

25,462

Merchandise inventories

82,487

83,696

Prepaid expenses and other current assets

9,077

7,787

Total Current Assets

208,463

193,267

Property and equipment – net

51,730

53,748

Other assets

20,942

20,471

Right-of-Use assets – net

142,303

153,933

$

423,438

$

421,419

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

73,758

$

64,958

Accrued expenses

31,830

37,101

Accrued bonus and benefits

Accrued income taxes

Current lease liability

47,835

53,507

Total Current Liabilities

153,475

155,892

Other noncurrent liabilities

11,264

11,272

Lease liability

90,794

96,941

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;

18,148,297

shares and

17,976,854

shares

issued at August 1, 2026 and January 31, 2026, respectively

Convertible Class B common stock, $

0.033

15,000,000

shares authorized;

1,763,652

shares

issued at August 1, 2026 and January 31, 2026

Additional paid-in capital

132,384

131,347

Retained earnings

35,066

25,026

Accumulated other comprehensive income (loss)

(217)

Total Stockholders' Equity

167,905

157,314

Total Liabilities and Stockholders' Equity

$

423,438

$

421,419

OF CASH FLOWS

(Dollars in thousands)

Operating Activities:

$

10,458

$

10,141

Adjustments to reconcile net income to net cash provided by

operating activities:

4,482

5,089

Provision for customer credit losses

Premium amortization and discount accretion on investments

(94)

(464)

Gain on sale of assets held for investment

(34)

Share-based compensation

Gain on disposal of property and equipment

(13)

(37)

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

3,853

(2,054)

Merchandise inventories

1,209

13,466

Prepaid and other assets

(1,761)

(1,756)

Operating lease right-of-use assets and liabilities

(189)

(357)

Accounts payable, accrued expenses and other liabilities

3,206

(9,383)

Net cash provided by operating activities

22,537

15,640

Investing Activities:

Expenditures for property and equipment

(2,410)

(2,362)

Purchase of short-term investments

(15,963)

(12,906)

Sales of short-term investments

13,774

14,349

Sales of other assets

Proceeds from life insurance policy

Net cash used in investing activities

(3,861)

(885)

Financing Activities:

Repurchase of common stock

(422)

(995)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(349)

(933)

Net increase in cash, cash equivalents, and restricted cash

18,327

13,822

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

19,463

23,078

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

$

37,790

$

36,900

Accrued other assets and property and equipment expenditures

$

$

OF STOCKHOLDERS’ EQUITY

Additional

Other

Total

Common

Paid-in

Retained

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

Balance — January 31, 2026

$

$

131,347

$

25,026

$

$

157,314

9,309

9,309

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

(260)

(260)

Class A common stock sold through employee stock purchase

plan

(10)

(4)

(307)

(311)

Balance — May 2, 2026

$

$

131,989

$

34,028

$

$

166,705

1,149

1,149

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

(231)

(231)

(1)

(1)

(1)

(111)

(112)

Balance — August 1, 2026

$

$

132,384

$

35,066

$

(217)

$

167,905

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

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

Class A common stock sold through employee stock purchase

plan

Other

(73)

(73)

(2)

(2)

(10)

(897)

(907)

Balance — May 3, 2025

$

$

129,786

$

34,274

$

$

164,917

6,832

6,832

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

Other

(60)

(60)

Balance — August 2, 2025

$

$

130,180

$

41,076

$

$

172,181

NOTE 1 - GENERAL

:

The condensed

consolidated financial

statements as

of August

1, 2026

and for

the three

and six

months

1, 2026

and August

2, 2025

have been

prepared from

the accounting

records of

The Cato

Corporation and

its wholly-owned

subsidiaries (the

“Company”), and

all amounts

shown are

unaudited.

In the

opinion of

management, all

adjustments considered

necessary for

a fair

statement of

the financial

statements have

been included.

All such

adjustments are

of a

normal, recurring

nature unless

otherwise

noted.

The results of the interim 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

January 31,

Amounts as

of January 31,

2026 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.

In

February

2026,

the

U.S.

Supreme

Court

issued

a

ruling

that

tariffs

imposed

under

the

International

Emergency

Economic

Powers

Act

(“IEEPA”)

on

goods

imported

into

the

United

States

were

unauthorized,

effectively

invalidating

IEEPA

tariffs.

In

April

2026,

the

Supreme

Court’s

invalidation

of

the

IEEPA

tariffs

and

the

establishment

of

procedures

for

processing

tariff

refunds,

the

Company submitted a refund claim and recorded a $

5.7

million reduction in cost of goods sold in the first

quarter of fiscal 2026. During the second quarter of fiscal 2026, the Company received full payment of its

tariff refund claim.

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

potential

dilution

that

could

occur

from

common

shares

issuable

through

stock

options

and

the

Employee

Stock

Purchase Plan.

Numerator

Net earnings

$

1,149

$

6,832

$

10,458

$

10,141

Earnings allocated to non-vested equity awards

(53)

(319)

(483)

(531)

Net earnings available to common stockholders

$

1,096

$

6,513

$

9,975

$

9,610

Denominator

Basic weighted average common shares outstanding

19,000,182

18,809,364

18,909,337

18,747,100

Diluted weighted average common shares outstanding

19,000,182

18,809,364

18,909,337

18,747,100

Net income per common share

Basic earnings per share

$

0.06

$

0.35

$

0.53

$

0.51

Diluted earnings per share

$

0.06

$

0.35

$

0.53

$

0.51

Unvested restricted stock

excluded from

the calculation of

diluted EPS

was

926,511

and

915,221

shares for

the three and six month periods

ended August 1, 2026, respectively, and

922,075

and

1,036,914

shares for the

three and six

month periods ended

August 2, 2025,

respectively, because

the effect of

including them in

the

calculation of diluted EPS would have been

antidilutive.

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

(LOSS):

The

table

sets

forth

the

changes

in

other

income (loss) (in thousands) for the

three months ended August 1, 2026:

Comprehensive Income (Loss) (a)

Beginning Balance at May 2, 2026

$

Other comprehensive loss before

(231)

Net current-period other comprehensive loss

(231)

$

(217)

The

table

sets

forth

the

changes

in

other

income (loss) (in thousands) for the

six months ended August 1, 2026:

Comprehensive Income (Loss) (a)

$

Other comprehensive loss before

(491)

Net current-period other comprehensive loss

(491)

$

(217)

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

(LOSS) (CONTINUED):

The

table

sets

forth

the

changes

in

other

income (in thousands) for the

three months ended August 2, 2025:

Comprehensive Income (a)

Beginning Balance at May 3, 2025

$

Other comprehensive income before

Net current-period other comprehensive income

Ending Balance at August 2, 2025

$

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

The

table

sets

forth

the

changes

in

other

income (in thousands) for the

six months ended August 2, 2025:

Comprehensive Income (a)

$

Other comprehensive income before

other comprehensive income (b)

(34)

Net current-period other comprehensive income

Ending Balance at August 2, 2025

$

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on

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

.

NOTE 4 – FINANCING ARRANGEMENTS:

On March

13,

2025, the

Company, as

borrower, and

certain

other domestic

subsidiaries, as

borrowers

and

guarantors, entered

into a

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

March 2028

and

is

secured

by

and

third-party

credit

card

receivables.

There

were

no

borrowings

and

the

availability

under

the

facility

was

$

30.0

million

before

giving

effect

to

a

$

3.0

million

letter

of

credit

that

reduced

borrowing availability

to $

27.0

million as

of August

1, 2026

and January

31, 2026.

The weighted

average

interest rate under the

credit facility was

zero

at August 1, 2026

and January 31, 2026

due to

no

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, inclusive

of

the e-commerce activities of each retail operating segment, based on the aggregation criteria outlined in

ASC

280-10,

which states that two or more

operating segments may be aggregated into a

single reportable segment

if

aggregation

is

consistent

with

the

objective

and

basic

principles

of

ASC

280-10,

which

require

the

to

have

similar

characteristics,

products,

production

processes,

clients

and

methods

of

distribution.

The

retail

have

similar

characteristics

and

similar

operating,

financial and

competitive risks.

The products

sold in each

retail operating

segment are

similar in

nature, as

they

all

offer

women’s

apparel,

shoes

and

accessories.

Merchandise

of

the

retail

is

sourced

from

the

same

countries

and

some

of

the

same

vendors,

using

similar

production processes.

Merchandise for the Company’s retail operating segments is distributed to retail stores

in

a

similar

manner

through

the

single

center

and

is

subsequently

distributed

to

customers in a

similar manner. The

Company operates

its

women’s

fashion

specialty

retail

stores

in

states as of August 1, 2026, 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

segment

income

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

and

other

income.

Assessment

and

approval

of

all

capital

expenditures are determined to be in support of and based on the needs of the retail segment; however, the

CODM

does

not

evaluate

performance

or

allocate

resources

based

on

segment

asset

balances

and,

therefore,

total

segment

assets

are

not

presented

in

the

tables

below.

The

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 January 31, 2026.

NOTE 5 – REPORTABLE SEGMENT INFORMATION

The following schedule summarizes certain segment information (in

thousands):

Retail

Credit

Total

$

164,850

$

$

165,501

110,180

110,180

39,099

39,522

14,525

14,525

2,246

2,246

(88)

(266)

(354)

Segment income (loss) before income taxes

$

(1,112)

$

$

(618)

(1,914)

$

1,296

$

1,343

$

$

1,343

Retail

Credit

Total

$

335,289

$

1,316

$

336,605

216,520

216,520

77,816

78,636

29,341

29,341

4,482

4,482

(173)

(538)

(711)

$

7,303

$

1,034

$

8,337

(2,790)

$

11,127

$

2,410

$

$

2,410

(a) Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution

costs, occupancy costs, freight, and inventory shrinkage. Net merchandise costs and in-bound freight are

capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and

operating expenses for the buying departments and distribution center. Occupancy costs include rent, real

estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution

facilities.

(b) 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

$

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) Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution

costs, occupancy costs, freight, and inventory shrinkage. Net merchandise costs and in-bound freight are

capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and

operating expenses for the buying departments and distribution center. Occupancy costs include rent, real

estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution

facilities.

(b) 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

1, 2026, 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 1, 2026:

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,574,134

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

1, 2026

and January

31, 2026,

there was

$

3,644,000

and $

4,064,000

, respectively,

of total

unrecognized

expense

related

to

unvested

stock

awards,

which

had

a

weighted-

average vesting

period

of

1.8

years

and

1.4

years,

The

total

compensation expense

during

the three and

six months ended

was $

395,000

and $

959,000

, respectively,

compared to a

total

expense

of

$

394,000

and

$

578,000

for

the

three

and

six

months

ended

August

2,

2025,

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

1, 2026:

Weighted Average

Number of

Grant Date Fair

Shares

Value

Per Share

Restricted stock awards at January 31, 2026

905,052

$

8.06

Granted

298,494

2.88

Vested

(269,829)

11.45

Forfeited or expired

(11,584)

6.03

Restricted stock awards at August 1, 2026

922,133

$

5.42

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

1, 2026 and August

2, 2025,

the

Company

sold

31,503

and

21,736

shares

to

at

an

average

discount

of

$

0.43

and

$

0.50

per

share, respectively, under

the Employee Stock

Purchase Plan. The

compensation expense recognized

for the

% discount

given under

the Employee

Stock Purchase

Plan was

approximately $

13,000

and $

11,000

for

the six

2026 and

August 2,

2025, respectively.

These expenses

are classified

as a

component

of

Selling,

general

and

administrative

in

the

Statements

of

Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets and

liabilities that

are

measured at fair value (in thousands)

as of August 1, 2026 and

January 31, 2026:

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

Corporate Bonds

$

58,650

$

$

58,650

$

Cash Surrender Value of Life Insurance

9,982

9,982

$

68,632

$

$

58,650

$

9,982

Liabilities:

$

(8,289)

$

$

$

(8,289)

Total Liabilities

$

(8,289)

$

$

$

(8,289)

NOTE 7

Quoted

Prices in

Active

Markets for

Other

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Description

Level 1

Level 2

Level 3

Assets:

Corporate Bonds

54,822

54,822

U.S. Treasury/Agencies Notes and Bonds

2,037

2,037

Cash Surrender Value of Life Insurance

9,693

9,693

$

66,552

$

$

56,859

$

9,693

Liabilities:

$

(8,383)

$

$

$

(8,383)

Total Liabilities

$

(8,383)

$

$

$

(8,383)

The

Company’s investment

portfolio

was

primarily invested

in

corporate bonds

held in

managed accounts

with underlying

ratings of

A or

better at

The corporate

bonds have

contractual maturities

which range from

two days

to

2.7

years.

Additionally,

at

compensation plan

assets of

$

10.0

At

January

31,

2026,

the

Company

had

plan

assets

of

$

9.7

These

assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level 2 investment securities at

August 1, 2026 include

corporate bonds for which

quoted prices may not

be

available on active exchanges for identical

instruments.

Their fair value is principally based on market

values

determined by management with the assistance

of a third-party pricing service.

Since quoted prices in active

markets

for

identical

assets

are

not

available,

these

prices

are

by

the

pricing

service

using

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

similar characteristics, among other factors.

Deferred compensation plan

assets consist of

life insurance policies.

These life insurance

policies are valued

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

such factors as the

fair value of the underlying assets and discounted cash flow and are therefore classified within Level 3

of the

valuation

hierarchy.

The

Level

liability

associated

with

the

life

insurance

represents

a

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

in

Other

noncurrent

in

the

Balance

Sheets.

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 1, 2026 and the year ended January

31, 2026

(in thousands):

NOTE 7

Asset Inputs (Level 3)

Cash Surrender Value

$

9,693

Total gains or (losses):

$

9,982

Liability Inputs (Level 3)

$

(8,383)

(111)

Total (gains) or losses:

(343)

$

(8,289)

NOTE 7

Asset Inputs (Level 3)

Cash Surrender Value

$

9,301

(365)

Total gains or (losses):

Ending Balance at January 31, 2026

$

9,693

Liability Inputs (Level 3)

$

(8,548)

1,246

(206)

Total (gains) or losses:

(875)

Ending Balance at January 31, 2026

$

(8,383)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In

September

2025,

the

FASB

issued

ASU

2025-06,

Intangibles

–

Goodwill

and

Other

–

Internal-Use

Software (Subtopic

350-40) – Targeted

Improvements to

the Accounting for

Internal-Use Software

(ASU

2025-06). The

FASB

issued ASU

2025-06 to

modernize the

accounting for

costs related

to internal-use

software to better align with how software

is developed and to clarify the threshold

to be applied to begin

capitalizing

costs.

ASU

2025-06

is

for

our

annual

and

quarterly

periods

January

30,

Early

adoption

is

permitted.

The

Company is

assessing

the

impact

that

the

adoption of ASU 2025-06 will have on our consolidated financial statements.

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

for

annual

periods

after

December

15,

2026,

and

interim

periods

after

December

15,

2027,

with

early

adoption

permitted.

The

Company

is

in

the

process of

evaluating the

potential impact

of adoption

of this

new guidance

on its

consolidated financial

statements and related disclosures.

NOTE 9 – INCOME TAXES:

The

an

tax

rate

for

the

first

six

months of

fiscal

2026 of

6.0

%

an

tax

rate

of

5.9

%

for

the

first

six

months

of

fiscal

Income

tax

expense

for

the

first

six

months

increased

to

$

0.7

million

in

fiscal

from

$

0.6

million

in

fiscal

The

in

tax

expense

is

due

to

the

non-recurring

prior

year

favorable

adjustment

to

the

federal

net

loss

carryback

claim

as

a

result

of

the

Coronavirus

Aid,

Relief

and

Economic

Security

Act

(CARES

Act),

partially offset by lower foreign and state income taxes.

During

the

second

quarter

of

fiscal

2026,

the

Company

received

a

$

5.6

million

payment

for

the

outstanding balance of its income tax refund receivable due from

the IRS.

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 its

condensed consolidated

financial statements.

However,

given the

inherent

uncertainties

involved

in

such

matters,

an

adverse

outcome

in

one

or

more

of

such

matters

could

materially and adversely affect the Company’s

financial condition, results of operations and cash flows in

any

particular

period.

The

Company

accrues

for

these

matters

when

the

liability

is

deemed

probable and reasonably estimable.

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

at

the

point

of

purchase

when

the

takes

possession

of

the

and

pays

for

the

purchase,

generally

with

cash

or

credit.

Sales

from

purchases

made

with

Cato

credit,

gift

cards

and

layaway

sales

from

stores

are

also

when

the

takes

possession of

the merchandise. E-commerce

sales are

recorded when the

risk of

loss is

transferred to the

customer.

Gift cards

are recorded

as deferred

revenue until they

are redeemed

or forfeited.

Gift cards

do

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

on

sales

volumes

and

the

experience;

actual

returns

have

not

varied

materially

from

historical

amounts.

A

provision

is

made

for

write-offs

associated

with

sales

made

with

the

proprietary

credit

card.

In

addition,

a

provision

is

made

for

rewards

cards

issued

to

customers based on their purchases with the Company’s propriety credit

card.

The rewards cards

issued by the Company have a 90-day expiration.

Amounts related to shipping and handling billed to

customers in

a sales

transaction are

classified as

and the

costs related

to shipping

product

to customers (billed and accrued) are classified as Cost of goods sold.

offers its

own proprietary

credit card

to customers.

All credit

activity is

performed by

the

wholly-owned

subsidiaries.

None

of

the

credit

card

receivables

are

secured.

The

Company

estimated customer credit losses

of $

206,000

and $

414,000

for the three

and six months

ended August 1,

2026,

to

$

227,000

and

$

442,000

for

the

three

and

six

months

ended

August

2,

2025,

Sales

purchased

on

the

proprietary

credit

card

for

the

three

and

six

months

ended

August

1,

were

$

5.1

million

and

$

10.3

to

$

5.7

million and $

11.1

million for the three and six months ended August 2, 2025, respectively.

The

table

provides

about

receivables

and

contract

from

contracts

with

customers (in thousands):

Balance as of

Proprietary Credit Card Receivables, net

$

10,310

$

10,711

Gift Card Liability

$

5,623

$

7,475

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

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

Company’s 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

$

16,477

$

16,496

Variable

lease cost (a)

$

$

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

Operating lease cost

$

32,796

$

33,084

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

$

14,443

$

14,829

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

$

7,837

$

12,224

Cash paid for amounts included in the measurement of lease liabilities

$

28,382

$

29,363

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

$

16,673

$

13,430

Weighted-average

lease

term

and

discount

rate

for

the

leases

are

as

follows:

As of

Weighted-average remaining lease term

2.1

years

2.1

years

Weighted-average discount rate

6.21%

5.92%

As of August 1,

2026, the maturities

of lease liabilities by

fiscal year for

the Company’s

operating leases

are as follows (in thousands):

Fiscal Year

2026 (a)

$

31,232

50,042

35,059

22,799

13,042

Thereafter

4,835

Total lease payments

157,009

Less: Imputed interest

18,380

Present value of lease liabilities

$

138,629

(a) Excluding the six months ended August 1, 2026

FORWARD-LOOKING INFORMATION:

The

should

be

read

along

with

the

unaudited

Statements,

the

accompanying

Notes

appearing

in

this

report.

Any

of

the

are

“forward-looking”

within

the

meaning

of

Section

27A

of

the

Act

of

1933,

as

amended,

and

Section

21E

of

the

Exchange Act

of

1934,

as

amended:

(1)

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,

including those contained in

“Management’s Discussion and

Analysis of

Financial Condition and