Cato Corp (CATO)

A. Company Overview

Cato Corp is a fashion specialty retailer founded in 1946. It operates 1,280 stores across 32 states in the southeastern United States. The company operates under various names, including "Cato," "Cato Fashions," "Cato Plus," "It's Fashion," "It's Fashion Metro," and "Versona."

B. Business Description

Cato Corp aims to offer quality fashion apparel and accessories at affordable prices every day. It caters to customers in the junior/missy and plus sizes segments. The company's stores and e-commerce website offer a broad range of products, including dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry, and handbags. A significant portion of the merchandise is sold under its private label and is produced by various vendors according to the company's specifications.

C. Strategy

Cato Corp's primary objective is to be the leading fashion specialty retailer for fashion and value in its markets. The company differentiates itself from department stores, mass merchandise discount stores, and competing specialty stores. It focuses on key elements such as merchandise assortment, value pricing, strip shopping center locations, customer service, and credit and layaway programs.

D. Marketing

Cato Corp utilizes various advertising media, including television, in-store signage, graphics, a company website, two e-commerce websites, and social media. The company's advertising expenditures are approximately 1.0% of retail sales.

E. Target Group

Cato Corp's target group consists of fashion and value-conscious customers. The company offers a wide assortment of on-trend apparel and accessory items primarily in junior/missy and plus sizes. It aims to provide fashion at affordable prices, making it an attractive option for customers looking for quality merchandise.

F. Store Operations

The company's store operations management team includes territorial managers, regional managers, and district managers. Store managers and sales associates are trained to provide prompt and courteous service, assist customers in merchandise selection and wardrobe coordination.

G. Store Locations

Cato Corp's stores range in size from 2,200 to 19,000 square feet and are primarily located in strip shopping centers anchored by national discounters or market-dominant grocery stores. The company selects locations that attract large numbers of potential customers and provide ample parking and shopping convenience.

H. Credit and Layaway Programs

Cato Corp offers its own credit card and layaway plan to make the purchase of merchandise more convenient for customers. Credit and layaway sales represented 6% of retail sales in fiscal 2022.

I. Merchandising

Cato Corp offers a broad selection of high-quality and exceptional value apparel and accessories. The company's merchandise lines include dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry, handbags, men's wear, and lines for kids and infants. The company primarily offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day.

J. Purchasing, Allocation, and Distribution

The company purchases merchandise from approximately 580 suppliers, with most of it purchased from approximately 100 primary vendors. The merchandise is sourced from manufacturers overseas, primarily in Southeast Asia, as well as domestic importers and vendors. Merchandise is shipped to the company's distribution center in Charlotte, North Carolina, for inspection and allocation to individual stores based on sales trends and other factors. Shipments are made by common carriers on a weekly basis.

K. Competition

Cato Corp operates in a highly competitive women's retail apparel industry. The company competes with retail chains, mass merchandise chains, major department stores, off-price retailers, and internet-based retailers. While Cato Corp believes it competes favorably in terms of merchandise assortment, fashion, price, store location, and customer service, it acknowledges that some competitors have substantially greater resources.

L. Seasonality

The company's business experiences seasonal fluctuations in revenues, operating income, and net income due to the seasonal nature of the retail industry. Cato Corp generates a higher percentage of its net sales and profitability in the first and second quarters of its fiscal year.

M. Regulation

Cato Corp operates in compliance with a range of local, state, national, and international laws and regulations. These laws and regulations cover areas such as trade, licensing, import/export, privacy, data protection, credit regulation, environmental matters, tariffs, taxes, intellectual property, and anti-corruption. Compliance with these laws and regulations has not had a material effect on the company's capital expenditures, results of operations, or competitive position. However, the company recognizes ongoing risks related to legal compliance and noncompliance with these regulations.

N. Human Capital

As of January 28, 2023, Cato Corp employed approximately 7,600 full-time and part-time associates. The company offers a range of Company-paid benefits to its associates, including medical and dental plans, paid vacation, a 401(k) plan, and associate assistance programs. The company maintains good associate relations and is not a party to any collective bargaining agreements.