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Cato delivers record earnings in 2010
Mar '11
The Cato Corporation reported net income for the fourth quarter and year ended January 29, 2011. For the fourth quarter, the Company reported net income of $7.9 million or $0.27 per diluted share, compared to net income of $7.3 million or $0.25 per diluted share for the fourth quarter ended January 30, 2010.

For the quarter, both net income and earnings per diluted share increased 8% over the prior year. Full year 2010 net income was a record $57.7 million or $1.96 per diluted share compared to $45.8 million or $1.55 per diluted share for 2009. For the year, both net income and earnings per diluted share increased 26% over the prior year.

Sales for fiscal fourth quarter ended January 29, 2011 were $224.3 million, a 3% increase over sales of $217.7 million for the fourth quarter ended January 30, 2010. For the quarter, same-store sales increased 1%. The Company's sales for 2010 were $913.9 million, an increase of 5% over 2009 sales of $872.1 million. For the year, same-store sales increased 3%.

"Cato delivered record earnings in 2010, the Company's third straight year of strong growth, by continuing to offer our customers great fashion and customer service at a great value," said John Cato, Chairman, President and Chief Executive Officer. "Weaker than expected sales over the last half of the fourth quarter created higher than expected markdowns and negatively impacted the quarter's results."

2010 Review

For 2010, gross margin increased 140 basis points to 38.1%of sales due to higher merchandise margin as a result of lower markdowns. Selling, general and administrative expenses decreased to 27.5%of sales primarily due to a reduction in store closing costs and leveraging other costs against higher sales, which offset higher workers' compensation insurance costs. The Company's effective income tax rate increased to 36.4% from 33.6% last year primarily due to higher state taxes. Net income was 6.3% of sales vs. 5.2% last year.

"Cato's balance sheet remains strong with approximately $235 million in cash and short-term investments and no debt," commented Mr. Cato. During 2010, the Company returned $21.2 million in dividends to shareholders. The Company's annualized dividend of $0.74 per share, after a 12% increase in 2010, represents a yield of approximately 3% based on the March 16 closing price of $23.59.

For the fiscal year ended January 29, 2011, the Company opened 37 stores (including opening 14 It's Fashion Metro stores in markets where existing It's Fashion stores were simultaneously closed), relocated four stores and closed 26 stores including the 14 It's Fashion stores mentioned above.

2011 Outlook

The Company believes that 2011 will continue to be impacted by the uncertainty surrounding the country's economic environment including slow job growth and the negative impact of inflation in food and gasoline prices on consumers. Also, the Company expectsrising raw material and freight costs to have a negative effect on the Company's performance in 2011, primarily in the second half of the year.

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