QUOTE AND NEWS
Benzinga  Nov 20  Comment 
Cato Corp (NYSE: CATO) beat Wall Street consensus for its third-quarter earnings, although its sales for the recent period were lower than expected. The women's apparel retailer gained 2.6 percent early Thursday, trading recently at $37.90 per...
Forbes  Nov 18  Comment 
In the month leading up to the Cato's third quarter earnings announcement slated for Friday, November 21, 2014, expectations have risen for the upcoming results. The consensus analyst estimate has gone from 13 cents per share to the current...
StreetInsider.com  Oct 20  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Hemispherx+Biopharma+%28HEB%29+Reports+Dismissal+of+Claims+in+Cato+Capital+Suit/9922683.html for the full story.
Channel News Asia  Oct 8  Comment 
Precious stones and metals dealers will have to file a cash transaction report (CTR) with the Commercial Affairs Department within 15 business days when they conduct cash transactions exceeding S$20,000 or its equivalent involving precious...
SeekingAlpha  Sep 23  Comment 
By Anthony Ruben: I introduced the "Conservative Total Return" or CTR portfolio last month. The general philosophy of this method has allowed me to cumulatively beat, since 1999, the S&P 500 by a wide margin. Following the introduction of the...
SeekingAlpha  Sep 9  Comment 
By Nick Manley: The Cato Corporation (NYSE:CATO) released its Q2 2014 10-Q on August 29. Earnings comfortably exceeded both guidance and estimates, helped along by a 3% increase in same store sales. In my July article "Cato: Time For a...
SeekingAlpha  Aug 20  Comment 
By Anthony Ruben: As other authors have articulated investment suggestions, I thought it would be interesting to introduce the "Conservative Total Return" or CTR portfolio. The general philosophy of this method has allowed me to cumulatively beat,...
Forbes  Aug 20  Comment 
In the month leading up to the Cato's second quarter earnings announcement slated for Friday, August 22, 2014, expectations have risen for the upcoming results. The consensus analyst estimate has gone from 43 cents per share to the current...
OilVoice  Aug 15  Comment 
Atzam 5 Well Testing Operations Continue Citation Resources Ltd ASX CTR Company or Citation advises that testing operations recommenced on the Atzam 5 well in mid July with the perforating o
SeekingAlpha  Jul 24  Comment 
By Nicolas Manley: The Company The Cato Corporation (NYSE:CATO) is a low-end fashion retailer with a primary focus on women's apparel and accessories and its strongest presence being in the southeast United States. It has a market cap of...




 

Cato (NYSE: CTR) is a women's clothing company operating in the southeastern United States - a perfect place, thanks to its high and rising obesity rates, for the company to market its extensive, low-cost, plus-size line of clothing.[1] 2007 and 2008 have been rough years for retail clothing companies. Recessionary fears have forced middle-to-low income consumers to cut back on non-necessary spending, and Cato, a company that produces lower-end clothing, has seen net earnings decrease by $28,472,000 in Fiscal 2008 as a result. The company has attempted to alleviate the market's pressures by producing fewer clothes, in order to keep tight control of its inventory, thereby reducing costs. The credit crunch, which has resulted in growing credit card debt and delinquency rates, has also harmed Cato, which extends lines of credit to its customers - bad debt expenses for the company have increased from 4.1% to 4.9% in the past year[2], meaning more customers have been defaulting on their credit balances. On the plus side, by extending credit to its customers, Cato reduces some of the effects of the market recession by allowing customers to purchase now and pay later - great for the company as long as defaults don't continue to increase.

Company Overview

Cato Corporation is divided into two segments: retail and credit.

Business and Financial Metrics

Image:Cato_Income.jpg‎[3]

Cato, as a low-income retailer, saw revenues and net income fall in 2007, as its customers curbed their spending because of recessionary fears. In 2008, though, Cato's sales have better than expected. Sales for May 2008 were $80.5 million, compared to $75.9 million in May 2007; in June, store sales increased by 4%. [4]

Cato defines itself as the "low price leader" of its market segment, which tries to provide trendier clothing at a lower price than its competitors. As customers curb their spending they won't have as much money to spend on clothes, so they will search for the best items they can find at the lowest price.

Fiscal Year Stores at Beginning Stores Opened Stores Closed Stores at End of Year
200310228771102
200411028051177
2005117782151244
2006124458261276
2007127662201318
[5]

Cato stores are located mainly in the southeastern United States. In fiscal year 2008 Cato plans to open 75 new stores, 30 of which will be expanded versions of its "It's Fashion" chain. This new version, called "It's Fashion Metro" will sell brand-name clothing not produced by Cato for men, women and children.[6]

Business Segments

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Credit (1.2% of Total Revenue)[7]

Cato offers customers its own credit card in order to make shopping more convenient - and entice customers without disposable income in the present to shop more on credit.[8] Sales that are made with Cato's credit card are grouped under the credit segment.

Trends and Forces

Cato Reacts to Soften the Blow of U.S. Economic Downturn

Since the middle of 2007, the U.S. economy has been slipping, because of the effects of a housing market collapse, a credit crunch, and rising energy prices. Clothing retailers have been hit pretty hard by the threat of a recession, as consumers, especially those within Cato's low-income demographic, have been spending less money on non-essential goods; the company saw a $28,472,000 drop in revenue between fiscal year 2007 and fiscal year 2008. Cato has attempted to soften the blow by reducing production in order to tighten control of its inventory.[9] By decreasing the amount of inventory buildup as much as it can, Cato cuts unnecessary costs. In addition, Cato make it easier for its customers to shop without having money in the bank: the company provides its own credit cards and offers a layaway plan, so consumers can buy on credit. In fiscal year 2007 credit and layaway represented 11% of total retail sales.[10] The layaway plan lets customers pay for their goods in installments--therefore those who cannot afford full price can still purchase the goods they want.

Credit Crisis Leads to More Defaults

Cato Corporation extends a line of credit to its customers. Since the middle of 2007, the amount of credit card debt has increased because a looming recession has made it difficult for consumers to secure funds. Furthermore, with housing prices on the decline, fewer people can use home equity or borrow against their homes in order to secure money. Consumers have begun to use their credit cards for an increasing number of purchases, leading to an overall rise in credit card debt. As of the third quarter of 2007, average credit card balance had increased by 7% compared to an average increase of 2% during the previous six years.[11] The larger the debt, the higher the chance of default: In the third quarter of 2007, delinquency rates rose from 4.24% to 4.47%.[12] Higher delinquency rates have also impacted Cato: the company's bad debt expense increased from 4.1% of credit sales in 2006 to 4.9% in 2007.[13] Bad debt expenses are marked down as a loss for the company, meaning that a higher bad debt expense leads to lower profits.

Growing Plus-size Market Good News for Cato

Image:Obesity_Picture.gif‎[14]

The above picture shows obesity rates in the United States by region. The southeast United States, where Cato stores are primarily located, has some of the highest obesity rates in the country. In addition, obesity rates are highest among low-income communities[15], putting Cato in a better position to take advantage of the obesity trend than plus-size competitors like Charming Shoppes that operate in other regions and appeal to higher-income consumers.

Competition

Competitor 2007 Sales ($millions) Number of Stores (2007) Sales per Store ($thousands)
Charming Shoppes3,010[16]2.409[17]1,249
Deb Shops324.7[18]336[19]966
Dress Barn1426.6[20]1428[21]999


Charming Shoppes owns brands that cater to plus-size women, namely Lane Bryant and Catherines Plus Sizes. Its stores are located throughout the entire United States.

Deb Shops sells men's and women's clothing and accessories under the names "DEB" and "Tops 'N Bottoms." Deb's stores are located in the East and Midwest regions of the United States.

Dress Barn sells women's clothing and has expanded into plus sizes. Like Charming Shoppes, it is located throughout the entire United States.




References

  1. Obesity in America-Obesity Trends
  2. CTR 2008 10-K. Item 1, Page 6.
  3. CTR 2008 10-K. Item 6, Page 14.
  4. “Cato ups outlook on strong June same-store sales.” Associated Press. June 10, 2008.
  5. CTR 2008 10-K. Item 1, Page 5.
  6. CTR 2008 10-K. Item 1, Page 5.
  7. CTR 2008 10-K. Item 14, Page 43.
  8. CTR 2008 10-K. Item 1, Page 3.
  9. "Cato Reports May Comp Stores Sales Up 2%.
  10. CTR 2008 10-K. Item 1, Page 3.
  11. "The Coming Credit-Card Crunch." January 4, 2008. Money Watch.
  12. "The Coming Credit-Card Crunch." January 4, 2008. Money Watch.
  13. CTR 2008 10-K. Item 1, Page 6.
  14. Obesity in America-Obesity Trends
  15. "Obesity disproportionately burdens low-income, ethnic minority populations." December 2, 2004. News-Medical.Net
  16. CHRS 2008 10-K. Item 6, Page 27.
  17. CHRS 2008 10-K. Item 1, Page 3.
  18. DEBS 2007 10-K. Item 6, Page 13.
  19. DEBS 2007 10-K. Item 1, Page 3.
  20. DBRN 2007 10-K. Item 6, Page 14.
  21. DBRN 2007 10-K. Item 1, Page 4.
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