Cato delivers record earnings in 2010

21 Mar '11

5 min read

Accounting Method Change

In anticipation of the adoption of International Financial Reporting Standards ("IFRS"), the Company has elected to change its inventory valuation method from the retail method to the weighted-average cost method. This change will be implemented in the first quarter of 2011. The 2011 full year and first quarter estimates of net income and earnings per diluted share below reflect this change in accounting method for inventory valuation.

For comparative purposes, all 2010 quarterly and annual net income and diluted earnings per share ("EPS") results will be restated to reflect the accounting change. The restatement will be reflected in monthly and quarterly press releases and as well as Forms 10-Q and 10-K during 2011. The change will result in a $12 million increase to inventories on the restated balance sheet at the end of 2010.

New Store Concept

As a complement to its Cato and It's Fashion divisions, the Company expects to open an additional store concept during the year called Versona Accessories. Versona will offer quality fashion jewelry and accessories accented by key apparel items at exceptional values, every day. The concept will provide an upscale shopping environment comparable to better specialty and department stores. The Company expects to open the first Versona store in the fall of 2011 and also expects the concept to have no significant impact on 2011 results.

Earnings Estimates

For the year 2011, the Company estimates same-store sales will be in a range of down 2% to flat and its gross margin rate will decrease slightly to 38.1% from 38.4% in 2010 as restated, resulting in net income in a range of $59.2 million to $62.3 million, flat to a 5% increase over $59.2 million in 2010 as restated. The Company estimates earnings per diluted share will be in a range of $2.00 to $2.11, flat to a 5% increase over $2.01 in 2010 as restated.

The Company estimates first quarter 2011 net income to be in a range of $27.4 million to $28.4 million, or $0.93 to $0.96 per diluted share, an increase of 9% to 13% over $0.85 in first quarter 2010 as restated. This estimate is based on same-store sales of down 2% to flat.

The Company's net income estimates for 2011 also reflect the following assumptions:

• The Company expects to open 54 new stores during 2011. The expected new store openings include 10 new Cato stores, 34 new It's Fashion Metro stores (including opening approximately 17 Metro stores while simultaneously closing an existing It's Fashion store in the same market) and 10 new Versona Accessories stores.
• The Company anticipates closing up to 27 stores by year-end, including the 17 It's Fashion store closings mentioned above. At this time, two specific stores have been identified for closure.
• Capital expenditures are projected to be approximately $32 million, including $17 million for store development.
• Depreciation is expected to be approximately $22 million for the year.
• The effective tax rate is expected to be approximately 36.4%.

The Cato Corporation is a leading specialty retailer of value-priced fashion apparel and accessories operating two divisions, "Cato" and "It's Fashion".

Cato Corporation

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