Cato reconfirms Q4 & updates full year guidance
The Cato Corporation reported net income of $0.8 million for the third quarter ended November 1, 2008, compared to net income of $2.9 million for the third quarter ended November 3, 2007, a decrease of 72%.
Earnings per diluted share for the third quarter were $0.03, compared to $0.09 last year, a decrease of 67%. Sales for the third quarter were $179.8 million, a decrease of 1% from sales of $181.9 million last year. Comparable store sales for the quarter decreased 2%.
The Company earned net income of $29.8 million for the nine months ended November 1, 2008, compared to net income of $34.1 million for the nine months ended November 3, 2007, a decrease of 13%. Earnings per diluted share were $1.02 compared to $1.07 last year, a 5% decrease. Sales were $636.6 million for the first nine months of 2008, a 2% increase over sales of $625.0 million last year. Year-to-date comparable store sales decreased 1%.
For the quarter, the gross margin rate decreased to 29.3% versus 30.7% last year, primarily due to increased markdowns. The SG&A rate for the quarter increased slightly to 28.3% from 28.2% last year. Increases in operating costs from new stores, higher bad debt expense and costs associated with store closings were offset by the reversal of incentive compensation accrued in the first half of the year. The Company's effective tax rate was 35.4% as the net effect of quarterly adjustments was lower than previously expected.
Year-to-date, the gross margin rate increased to 34.5% versus 33.3% last year due to better merchandise margins in the first half of the year which were somewhat offset by the increased markdowns in the third quarter mentioned above. The year-to-date SG&A rate increased to 26.8% from 24.8% last year primarily as a result of increased operating costs from new stores, higher medical and worker's compensation costs, accrued incentive compensation, increased bad debt expense and the costs associated with store closings.
"Third quarter results reflect that our business remains very difficult," commented John Cato, Chairman, President, and Chief Executive Officer. "Our results were slightly above our expectations due to non-operational items and better than expected October sales due to a favorable weather comparison. We continue to expect fourth quarter earnings per diluted share will be in the range of ($0.01) to $0.04 per diluted share versus ($0.06) last year. This estimate is based on comparable store sales in the range of down 3% to flat for the quarter. For the year, earnings per diluted share are estimated to be in the range of $1.01 to $1.06 versus $1.03 last year."
Year-to-date, the Company has opened 57 new stores, relocated four stores, and closed 70 stores. As of November 1, 2008, the Company operated 1,305 stores in 31 states, compared to 1,321 stores in 31 states as of November 3, 2007.
The Cato Corporation is a leading specialty retailer of value-priced women's fashion apparel operating two divisions, "Cato" and "It's Fashion." The Cato division offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices every day. The It's Fashion division offers fashion with a focus on the latest trendy styles and nationally recognized urban brands for the entire family at low prices every day.