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Higher merchandise costs upset specialty apparel firm Cato

16 Mar '12

5 min read

For the fiscal year ended January 28, 2012, the Company opened 38 stores (including opening 13 It's Fashion Metro stores in markets where existing It's Fashion stores were simultaneously closed), relocated four stores and closed 32 stores including the 13 It's Fashion stores mentioned above.

Similar to the second half of 2011, the Company believes that in 2012 its customers will continue to be negatively impacted by slow job growth and higher food and gasoline prices.

For the year 2012, the Company estimates same-store sales will be in a range of down 2% to flat and its gross margin rate will decrease to 37.1% from 37.6% in 2011, resulting in net income in a range of $61.3 million to $65.9 million, a 5% decrease to a 2% increase compared to $64.8 million in 2011. The Company estimates earnings per diluted share will be in a range of $2.10 to $2.25, a 5% decrease to a 2% increase compared to $2.21 in 2011.

The Company estimates first quarter 2012 net income to be in a range of $30.2 million to $31.9 million, or $1.04 to $1.09 per diluted share, flat to a 5% increase compared to $1.04 in first quarter 2011. This estimate is based on same-store sales of down 3% to flat.
The Company's net income estimates for 2012 also reflect the following assumptions:

• The Company expects to open 45 new stores during 2012. The expected new store openings include 15 new Cato stores, 20 Versona Accessories stores and 10 new It's Fashion Metro stores (including opening approximately three Metro stores while simultaneously closing an existing It's Fashion store in the same market).
• The Company anticipates closing up to 13 stores by year-end, including the three its Fashion store closings mentioned above. At this time, only two specific stores have been identified for closure.
• Capital expenditures are projected to be approximately $59 million, including $27 million for store development and $29 million for home office and distribution center expansion.
• Depreciation is expected to be approximately $23 million for the year.
• The effective tax rate is expected to be approximately 36.6%.

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

The Cato Corporation

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