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Rising raw material may hurt Cato's Q2 performance
23
Aug '11
The Cato Corporation reported net income of $18.1 million or $.61 per diluted share for the second quarter ended July 30, 2011, compared to net income of $17.0 million or $.58 per diluted share, as restated, for the second quarter ended July 31, 2010. Both net income and earnings per diluted share increased 6% over last year. Sales for the second quarter were $234.1 million, a 1% increase over sales of $231.8 million last year. Second quarter same-store sales decreased 1%.

For the six months ended July 30, 2011, the Company earned net income of $48.6 million or $1.65 per diluted share, compared with net income of $42.0 million or $1.42 per diluted share, as restated, for the six months ended July 31, 2010, an increase of 16% in both net income and earnings per diluted share. Sales for the first half were $505.0 million, a 3% increase over the prior year's first half sales of $490.9 million. Same-store sales for the first half were flat to the prior year.

"Same-store sales for the second quarter were within our estimated range and we were able to control expenses well," stated John Cato, Chairman, President, and Chief Executive Officer. "As we noted in our July sales release, our same-store sales trend reflects the difficult economic conditions and uncertainty affecting our customers, especially the lower income customer. Also, we continue to expect rising raw material costs will have a negative effect on second half performance. As a result, we now expect earnings per diluted share for second half of the year will be at the low end of our original guidance range of $.50 to $.56."

Second quarter gross margin was 38.0% compared to 39.0% last year due primarily to higher markdowns. Second quarter SG&A costs as a percent of sales decreased to 25.2% from 26.9% last year primarily as a result of lower accrued incentive compensation and insurance costs. The effective tax rate for the quarter was 36.0% compared to 36.3% last year.

As noted above, based on year-to-date results and the Company's original guidance for the second half, earnings per diluted share are expected to be at the low end of the adjusted range of $2.15 to $2.21 versus $2.00 last year, as restated, an increase of 8% to 11%. By quarter, earnings per diluted share are estimated to be in the range of $.18 to $.21 versus $.20 last year, as restated, for the third quarter and $.32 to $.35 versus $.37 last year, as restated, for the fourth quarter. Comparable store sales for both the third and fourth quarters are estimated to be in the range of down 2% to flat.

During the first half, the Company opened 12 new stores, relocated one store and closed nine stores. Five of the closings were It's Fashion stores closed to open as It's Fashion Metro stores in the same market. The Company now expects to open approximately 41 stores during 2011. As of July 30, 2011, The Cato Corporation operated 1,285 stores in 31 states, compared to 1,275 stores in 31 states as of July 31, 2010.

The Cato Corporation is a leading specialty retailer of value-priced fashion apparel and accessories operating two divisions, "Cato" and "It's Fashion". The Company's Cato division offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day.

The Cato Corporation


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