cato-20250503

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the quarterly period ended

May 3, 2025

☐

TRANSITION

REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the transition period from ________________to__________________

Commission file number

1-31340

THE CATO CORPORATION

(Exact name of registrant as specified in its

charter)

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

8100 Denmark Road

Charlotte

North Carolina

28273-5975

(Address of principal executive offices)

(Zip Code)

(

704

)

554-8510

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if

changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

Indicate

by check

mark

whether

the

registrant

(1)

has

filed

all

reports

required

filed

by Section

15(d)

the

Securities

Exchange Act of 1934

during the preceding 12

months (or for such shorter

period that the registrant

was required to file such

reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate

check

mark

whether

the

registrant

has

submitted

electronically

every

Interactive

Data

File

required

submitted

pursuant to Rule

405 of Regulation

S-T (§232.405

of this chapter)

during the preceding

12 months (or

for such shorter

period that the

registrant was required to submit such files).

Yes

Indicate by

check mark

whether the

registrant is

a large

accelerated filer,

an accelerated

filer, a

non-accelerated filer,

a smaller

reporting

company,

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller

reporting

company,” and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

emerging

growth

company,

indicate

check

mark

the

registrant

has

elected

not

use

the

extended

transition

period

for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b

-2 of the Exchange Act).

☐

Yes

☑

As of

May 3,

2025, there

were

17,973,355

shares of Class A

common stock

and

1,763,652

shares of

Class B common stock

outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended May 3, 2025

Table

of Contents

Page No.

PART

I – FINANCIAL INFORMATION

(UNAUDITED)

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income and Comprehensive Income

For the Three Months Ended

May 3, 2025 and May 4, 2024

Condensed Consolidated Balance Sheets

At May 3, 2025 and

February 1, 2025

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended May 3, 2025 and

May 4, 2024

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended May 3, 2025 and

May 4, 2024

Notes to Condensed Consolidated Financial Statements

6 - 19

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results

of Operations

20 - 26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART

II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART

I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended

May 3, 2025

May 4, 2024

(Dollars in thousands, except per share data)

REVENUES

Retail sales

168,419

175,272

Other revenue (principally finance charges, late fees and

layaway charges)

1,823

1,827

Total revenues

170,242

177,099

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

109,318

112,505

Selling, general and administrative (exclusive of depreciation

shown below)

55,325

56,752

Depreciation

2,564

2,040

Interest and other income

(1,202)

(5,821)

Costs and expenses, net

166,005

165,476

Income before income taxes

4,237

11,623

Income tax expense

928

649

Net income

3,309

10,974

Basic earnings per share

0.17

0.54

Diluted earnings per share

0.17

0.54

Comprehensive income:

Net income

3,309

10,974

Unrealized gain (loss) on available-for-sale securities, net

of deferred income taxes of $

for each of the three months

(748)

ended May 3, 2025 and May 4, 2024

Comprehensive income

3,347

10,226

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

May 3, 2025

February 1, 2025

(Dollars in thousands)

ASSETS

Current Assets:

Cash and cash equivalents

31,346

20,279

Short-term investments

48,609

57,423

Restricted cash

2,675

2,799

Accounts receivable, net of allowance for customer credit losses of

584

and $

581

at May 3, 2025 and February 1, 2025, respectively

26,830

24,540

Merchandise inventories

109,430

110,739

Prepaid expenses and other current assets

7,560

7,406

Total Current Assets

226,450

223,186

Property and equipment – net

58,767

60,326

Other assets

19,863

19,979

Right-of-Use assets – net

135,726

148,870

Total Assets

440,806

452,361

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

90,876

88,641

Accrued expenses

38,253

41,717

Accrued bonus and benefits

326

Accrued income taxes

545

Current lease liability

52,524

57,555

Total Current Liabilities

182,524

188,239

Other noncurrent liabilities

13,293

13,485

Lease liability

80,072

88,341

Stockholders' Equity:

Preferred stock, $

100

par value per share,

100,000

authorized,

none

issued

Class A common stock, $

0.033

par value per share,

50,000,000

shares authorized;

17,973,355

and

18,313,929

shares issued

at May 3, 2025 and February 1, 2025, respectively

607

619

Convertible Class B common stock, $

0.033

par value per share,

15,000,000

shares authorized;

1,763,652

shares issued at May 3, 2025 and February 1, 2025

Additional paid-in capital

129,786

129,530

Retained earnings

34,274

31,935

Accumulated other comprehensive income

191

153

Total Stockholders' Equity

164,917

162,296

Total Liabilities and Stockholders’ Equity

440,806

452,361

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(UNAUDITED)

Three Months Ended

May 3, 2025

May 4, 2024

(Dollars in thousands)

Operating Activities:

Net income

3,309

10,974

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

2,564

2,040

Provision for customer credit losses

215

171

Purchase premium and premium amortization of investments

(81)

(136)

Gain on sale of assets held for investment

(34)

(4,093)

Share-based compensation

193

(38)

(Gain) Loss on disposal of property and equipment

(30)

Changes in operating assets and liabilities which provided (used) cash:

Accounts receivable

(2,505)

(1,836)

Merchandise inventories

1,309

(2,714)

Prepaid and other assets

(38)

Operating lease right-of-use assets and liabilities

(156)

(435)

Accrued income taxes

518

Accounts payable, accrued expenses and other liabilities

(878)

1,163

Net cash provided by operating activities

3,868

5,706

Investing Activities:

Expenditures for property and equipment

(1,019)

(3,261)

Purchase of short-term investments

(2,262)

(8,572)

Sales of short-term investments

11,195

21,413

Sales of other assets

5,034

Net cash provided by investing activities

7,948

14,614

Financing Activities:

Dividends paid

(3,523)

Repurchase of common stock

(935)

(2,237)

Proceeds from employee stock purchase plan

161

Net cash used by financing activities

(873)

(5,599)

Net increase in cash, cash equivalents, and restricted cash

10,943

14,721

Cash, cash equivalents, and restricted cash at beginning of period

23,078

27,913

Cash, cash equivalents, and restricted cash at end of period

34,021

42,634

Non-cash activity:

Accrued other assets and property and equipment expenditures

284

491

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

(Dollars in thousands, except per share data)

Balance — February 1, 2025

678

129,530

31,935

153

162,296

Comprehensive income:

Net income

3,309

Unrealized net gain on available-for-sale securities, net of deferred

income tax benefit of $

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

(2)

Share-based compensation expense

184

(73)

111

Repurchase and retirement of treasury shares

(10)

(897)

(907)

Balance — May 3, 2025

666

129,786

34,274

191

164,917

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

(Dollars in thousands, except per share data)

Balance — February 3, 2024

694

126,953

64,279

395

192,321

Comprehensive income:

Net income

10,974

Unrealized net loss on available-for-sale securities, net of deferred

income tax benefit of $

(748)

Dividends paid ($

0.17

per share)

(3,523)

Class A common stock sold through employee stock purchase

plan

189

190

Share-based compensation issuances and exercises

Share-based compensation expense

(84)

Repurchase and retirement of treasury shares

(14)

(2,223)

(2,237)

Balance — May 4, 2024

694

127,058

69,512

(353)

196,911

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL

The condensed consolidated

financial statements as

of May 3,

2025 and for

the three months

ended May

3, 2025 and May 4, 2024 have been prepared from the accounting

records of The Cato Corporation and its

wholly-owned

subsidiaries

(the

“Company”),

and

all

amounts

shown

are

unaudited.

the

opinion

management, all

adjustments

considered

necessary

for

fair

statement

the

financial

statements

have

been included.

All such adjustments are of a normal, recurring nature unless otherwise noted.

The results

of the interim period may not be indicative of the results expected

for the entire year.

The interim financial

statements should be read

in conjunction with

the consolidated financial statements

and

notes

thereto,

included

the

Company’s

Annual

Report

Form

10-K

for

the

fiscal

year

ended

February 1,

2025.

Amounts as

of February 1,

2025 have been

derived from the

audited annual

financial

statements, but

do not

include all

disclosures required by

accounting principles

generally accepted in

the

United States of America.

On February 16, 2024, the Company closed

on the sale of land held

for investment. The sale resulted in a

net

gain

3.2

million

and

included

Interest

and

other

income

the

accompanying

Condensed

Consolidated Statements of Income and Comprehensive Income

for the period ended May 4, 2024.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 –

Earnings Per Share

requires dual presentation of basic and

diluted Earnings Per Share

(“EPS”) on the face of

all income statements for

all entities with complex

capital

structures.

The Company has presented one basic EPS and one diluted EPS amount for all common shares in

the accompanying

Condensed Consolidated

Statements of

Income and

Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the

right for

the Board of

Directors to

declare dividends

Class

without

declaration

commensurate

dividends

Class

shares,

the

Company

has

historically paid the same dividends to both Class A and Class B shareholders and the

Board of Directors has

resolved to continue this practice.

Accordingly, the Company’s allocation of income for purposes of the EPS

computation is the same

for Class A and

Class B shares and

the EPS amounts reported

herein are applicable

to both Class A and Class B

shares.

Basic

EPS

computed

net

income

less

earnings

allocated

non-vested

equity

awards

divided

the

weighted average

number of

common shares

outstanding for

the period.

Diluted EPS

reflects the

potential

dilution

that

could

occur

from

common

issuable

through

stock

options

and

the

Employee

Stock

Purchase Plan.

Three Months Ended

May 3, 2025

May 4, 2024

(Dollars in thousands, except per share data)

Numerator

Net earnings

3,309

10,974

Earnings allocated to non-vested equity awards

(192)

(557)

Net earnings available to common stockholders

3,117

10,417

Denominator

Basic weighted average common shares outstanding

18,684,837

19,356,789

Diluted weighted average common shares outstanding

18,684,837

19,356,789

Net income per common share

Basic earnings per share

0.17

0.54

Diluted earnings per share

0.17

0.54

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

other

comprehensive income (loss) (in thousands) for

the three months ended May 3,

2025:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 1, 2025

153

Other comprehensive income (loss) before

reclassification

Amounts reclassified from accumulated

other comprehensive income (b)

(34)

Net current-period other comprehensive income (loss)

Ending Balance at May 3, 2025

191

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

The

following

table

sets

forth

information

regarding

the

reclassification

out

Accumulated

other

comprehensive income (loss) (in thousands) for

the three months ended May 4,

2024:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 3, 2024

395

Other comprehensive income (loss) before

reclassification

(1,434)

Amounts reclassified from accumulated

other comprehensive income (b)

686

Net current-period other comprehensive income (loss)

(748)

Ending Balance at May 4, 2024

(353)

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

892

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net gains on available-for-sale securities. The tax impact of this reclassification was $

206

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – FINANCING ARRANGEMENTS:

On March 13, 2025, the Company,

as borrower, and certain other

domestic subsidiaries, as borrowers and

guarantors, entered

into a

Credit Agreement

(the “ABL

Credit Agreement”)

and related

loan documents,

and

among

the

Company,

certain

other

the

Company’s

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National

Association,

the

lender

(the

“Lender”),

establish

asset-based

revolving

credit

facility (the “ABL

Facility”) in an

amount up to

35.0

million. The proceeds from

the ABL Facility

may

be used to provide funding for ongoing working capital and general corporate

purposes.

The ABL

Credit Agreement

is committed

through

May 2027

and is

secured primarily

by inventory

and

third-party credit

card receivables.

There

were

borrowings outstanding

and the

availability under

the

facility was

30.0

million before

giving effect

to a

3.0

million outstanding

letter of

credit that

reduced

borrowing availability to

27.0

million as

of May 3,

2025.

The weighted

average interest rate

under the

credit facility was

zero

at May 3, 2025 due to

outstanding borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

determined

that

has

four

operating

segments,

defined

under

ASC

280

–

Segment

Reporting

, including Cato,

It’s Fashion, Versona

and Credit.

As outlined in

ASC 280-10, the Company

has

two

reportable segments: Retail and Credit.

The Company has aggregated its

three

retail operating segments,

including

e-commerce,

based

on the

aggregation

criteria

outlined in

ASC

280-10, which

states that

two

more operating segments may be aggregated into a single reportable segment if aggregation is consistent with

the

objective

and

basic

principles

ASC

280-10,

which

require

the

segments

have

similar

economic

characteristics, products, production processes, clients and

methods of distribution.

The

Company’s

retail

operating

segments

have

similar

economic

characteristics

and

similar

operating,

financial and

competitive risks.

The products

sold in each

retail operating

segment are

similar in

nature, as

they

all

offer

women’s

apparel,

shoes

and

accessories.

Merchandise

inventory

the

Company’s

retail

operating

segments

sourced

from

the

same

countries

and

some

the

same

vendors,

using

similar

production processes.

Merchandise for the Company’s retail operating segments is distributed to retail stores

similar

manner

through

the

Company’s

single

distribution

center

and

subsequently

distributed

customers in a

similar manner. The

Company operates

its

women’s

fashion

specialty

retail

stores

states as of May 3, 2025, principally in the southeastern United States.

The Company offers its own credit

card to its customers and all

credit authorizations, payment processing and

collection

efforts

are

performed

wholly-owned

subsidiary

the

Company.

The

Company

does

not

allocate certain corporate expenses to

the Credit segment.

The

Company’s

President

and

Chief

Executive

Officer

the

Company’s

chief

operating

decision

maker

(“CODM”).

The

structure

described

above

reflects

the

manner

which

the

CODM

regularly

assesses

information for decision-making purposes, including the allocation of resources.

The Company also provides

corporate services,

including finance,

information technology,

and corporate

administration, to

its segments

which are fully allocated to the retail

segment. Interest and other income from

assets held for investment and

sale are not included in assessing

the segments’ performance and therefore not

allocated to either segment.

The CODM manages

and evaluates the

segments’ operating performance

based on segment

sales, expenses,

and

profit

loss

from

operations

before

income

taxes

presented

the

Company’s

annual

budget

and

forecasting

process,

well

monthly

analyses

budget-to-actual

and

prior

year

variances.

Segment

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

expenses and

other items

primarily include

cost of

goods sold,

selling, general

and administrative expenses,

depreciation

and

interest

and

other

income.

Assessment

and

approval

all

capital

expenditures

are

determined to

be in

support of

and based

on the

needs of

the retail

segment; however,

the CODM

does not

evaluate

performance

allocate

resources

based

segment

asset

balances

and,

therefore,

total

segment

assets are not presented in

the tables below.

The

accounting

policies

the

segments

are

the

same

those

described

the

Summary

Significant

Accounting

Policies

Note

of the

consolidated

financial statements

included in

the

Company’s Annual

Report on Form 10-K for the fiscal year ended February 1, 2025. The Company evaluates performance based

on profit or loss from

operations before income taxes.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 – REPORTABLE SEGMENT INFORMATION

(CONTINUED):

The following schedule summarizes certain segment

information (in thousands):

Three Months Ended

May 3, 2025

Retail

Credit

Total

Revenues

169,577

665

170,242

Cost of goods sold

109,318

Selling, general, and administrative (a)

39,159

387

39,546

Corporate overhead

15,779

Depreciation

2,564

Interest and other income

(105)

(303)

(408)

Income (loss) before income taxes

2,862

581

3,443

Corporate interest and other income

(794)

Income (loss) before income taxes

4,237

Capital expenditures

1,019

Three Months Ended

May 4, 2024

Retail

Credit

Total

Revenues

176,430

669

177,099

Cost of goods sold

112,505

Selling, general, and administrative (a)

40,968

408

41,376

Corporate overhead

15,376

Depreciation

2,040

Interest and other income

(90)

(235)

(325)

Income (loss) before income taxes

5,630

497

6,127

Corporate interest and other income

(5,496)

Income (loss) before income taxes

11,623

Capital expenditures

3,261

(a) Selling, general, and administrative expense

include corporate and store payroll, related

payroll taxes and benefits, insurance, supplies, advertising,

bank and credit card

processing fees.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE-BASED COMPENSATION:

May

2025,

the

Company

had

the

2018

Incentive

Compensation

Plan

for

the

granting

various

forms of equity-based awards,

including restricted stock

and stock options for

grant to officers, directors

and

key employees.

The

following

table

presents

the

number

options

and

restricted

stock

initially

authorized

and

available for grant under this plan as

of May 3, 2025:

2018

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,865,875

accordance

with

ASC

718

–

Compensation–Stock Compensation

the

fair

value

current

restricted

stock awards

is estimated

on the

date of

grant based

on the

market price

of the

Company’s

stock and

amortized to compensation expense on a

straight-line basis over the related vesting periods.

As of May 3,

2025

and

February

2025,

there

was

6,298,000

and

7,276,000

respectively,

total

unrecognized

compensation

expense

unvested

restricted

stock

awards,

which

had

remaining

weighted-

average vesting

period

2.1

years

and

1.9

years,

respectively.

The

total

compensation

expense during

the three months ended May 3, 2025 was $

109,000

compared to a benefit of $

66,000

for the three months

ended

May

2024.

This

compensation

activity

classified

component

Selling,

general

and

administrative expenses in the Condensed Consolidated Statements of Income.

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

outstanding

during

the three months ended May

3, 2025:

Weighted Average

Number of

Grant Date Fair

Value

Per Share

Restricted stock awards at February 1, 2025

1,215,181

8.98

Granted

Vested

(225,924)

12.89

Forfeited or expired

(68,274)

8.33

Restricted stock awards at May 3, 2025

920,983

8.07

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE-BASED COMPENSATION (CONTINUED):

The

Company’s

Employee

Stock

Purchase

Plan

allows

eligible

full-time

employees

purchase

limited

number of

of the

Company’s

Class

Common Stock

during each

semi-annual offering

period

% discount through payroll deductions. During the

three months ended May 3, 2025

and May 4, 2024, the

Company sold

21,736

and

33,317

shares to employees

at an

average discount of

0.50

and $

0.86

per share,

respectively, under

the Employee

Stock Purchase

Plan. The

compensation expense

recognized for

the

discount

given

under

the

Employee

Stock

Purchase

Plan

was

approximately

11,000

and

29,000

for

the

three

months

ended

May

2025

and

May

2024,

respectively.

These

expenses

are

classified

component

Selling,

general

and

administrative

expenses

the

Condensed

Consolidated

Statements

Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets

and

liabilities that

are

measured at fair value (in thousands)

as of May 3, 2025 and

February 1, 2025:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

May 3, 2025

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

697

Corporate Bonds

45,601

U.S. Treasury/Agencies Notes and Bonds

2,267

Cash Surrender Value of Life Insurance

9,184

Asset-backed Securities (ABS)

Total Assets

57,793

48,609

9,184

Liabilities:

Deferred Compensation

(8,236)

Total Liabilities

(8,236)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7

– FAIR VALUE MEASUREMENTS

(CONTINUED):

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

February 1,

2025

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

1,244

Corporate Bonds

51,326

U.S. Treasury/Agencies Notes and Bonds

4,624

Cash Surrender Value of Life Insurance

9,301

Asset-backed Securities (ABS)

229

Total Assets

66,724

57,423

9,301

Liabilities:

Deferred Compensation

(8,548)

Total Liabilities

(8,548)

The

Company’s

investment

portfolio

was

primarily

invested

corporate

bonds

and

taxable

governmental

debt securities held in managed accounts

with underlying ratings of A

or better at May 3, 2025

and February

2025.

The

state,

municipal

and corporate

bonds and

asset-backed securities

have

contractual

maturities

which

range

from

10 days

2.9

years.

The

U.S.

Treasury/Agencies

notes

and

bonds

have

contractual

maturities which range from

months to

1.0

year.

Additionally,

May

2025,

the

Company

had

deferred

compensation

plan

assets

9.2

million.

February

2025,

the

Company

had

deferred

compensation

plan

assets

9.3

million.

These

assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level

investment

securities

include

corporate

and

municipal

bonds

for

which

quoted

prices

may

not

available on active exchanges for identical

instruments.

Their fair value is principally based on market

values

determined by management with the assistance

of a third-party pricing service.

Since quoted prices in active

markets

for

identical

assets

are

not

available,

these

prices

are

determined

the

pricing

service

using

observable market information such as quotes from less active markets and/or quoted prices of securities with

similar characteristics, among other factors.

Deferred compensation plan

assets consist of

life insurance policies.

These life insurance

policies are valued

based on the cash surrender value of the insurance contract, which is determined based

on such factors as the

fair value of the underlying assets and discounted cash flow and are therefore classified within

Level 3 of the

valuation

hierarchy.

The

Level

liability

associated

with

the

life

insurance

policies

represents

deferred

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

recorded

Other

noncurrent

liabilities

the

Condensed

Consolidated

Balance

Sheet.

These

funds

are

designed to mirror mutual funds and money

market funds that are observable and

actively traded.

The

following

tables

summarize

the

change

fair

value

the

Company’s

financial

assets

and

liabilities

measured using Level 3 inputs for the

three months ended May 3, 2025

and the year ended February 1,

2025

(dollars in thousands):

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7

– FAIR VALUE MEASUREMENTS

(CONTINUED):

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 1, 2025

9,301

Redemptions

Additions

Total gains or (losses):

Included in interest and other income (or changes in net assets)

(117)

Ending Balance at May 3, 2025

9,184

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 1, 2025

(8,548)

Redemptions

266

Additions

(38)

Total (gains) or losses:

Included in interest and other income (or changes in net assets)

Ending Balance at May 3, 2025

(8,236)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 3, 2024

8,586

Redemptions

Additions

Total gains or (losses):

Included in interest and other income (or changes in net assets)

715

Ending Balance at February 1, 2025

9,301

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 3, 2024

(8,654)

Redemptions

1,175

Additions

(220)

Total (gains) or losses:

Included in interest and other income (or changes in net assets)

(849)

Ending Balance at February 1, 2025

(8,548)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

December

2023,

the

FASB

issued

ASU

2023-09,

“Income

Taxes

(Topic

740):

Improvements

Income

Tax

Disclosures,”

which

modifies

the

requirements

income

tax

disclosures

require

disaggregated

information

about

reporting

entity’s

effective

tax

rate

reconciliation

well

information on

income taxes

paid.

This guidance

is effective

for fiscal

years beginning

after December

15, 2024 for all public

business entities, with early adoption and

retrospective application permitted.

The

Company is

currently in

the process

of evaluating

the potential

impact of

adoption of

this new

guidance

on its consolidated financial statements and related disclosures.

November

2024,

the

FASB

issued

ASU

2024-03,

“Income

Statement—Reporting

Comprehensive

Income—Expense

Disaggregation

Disclosures

(Subtopic

220-40):

Disaggregation

Income

Statement

Expenses,”

which

requires

public

entities

disclose,

annual

and

interim

basis,

disaggregated

information

the

footnotes

about

specified

information

certain

costs

and

expenses.

This

guidance is effective for annual periods beginning after December 15, 2026 and for interim periods within

fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company is currently

the

process

evaluating

the

potential

impact

adoption

this

new

guidance

its

consolidated

financial statements and related disclosures.

NOTE 9 – INCOME TAXES:

The Company had an effective tax rate for the

first quarter of 2025 of

21.9

% compared to an effective tax

rate of

5.6

% for the first

quarter of 2024.

Income tax expense for the

quarter increased to $

0.9

million in

2025 from $

0.6

million in 2024. The increase in tax expense was primarily due to increases in foreign and

state income taxes.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,

including

litigation

regarding

the

merchandise

that

sells,

litigation

regarding

intellectual

property,

litigation instituted

by persons

injured upon

premises under

its control,

litigation with

respect to

various

employment

matters,

including

alleged

discrimination and

wage

and

hour

litigation,

and

litigation

with

present or former employees.

Although such

litigation is

routine and

incidental to

the conduct

of the

Company’s business,

as with

any

business

its

size

with

significant

number

employees

and

significant

merchandise

sales,

such

litigation could

result in

large

monetary awards.

Based on

information currently

available, management

does

not

believe

that

any

reasonably

possible

losses

arising

from current

pending litigation

will

have a

material adverse

effect

on its

condensed consolidated

financial statements.

However,

given the

inherent

uncertainties

involved

such

matters,

adverse

outcome

one

such

matters

could

materially and adversely affect the Company’s

financial condition, results of operations and cash flows in

any

particular

reporting

period.

The

Company

accrues

for

these

matters

when

the

liability

deemed

probable and reasonably estimable.

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

the

point

purchase

when

the

customer

takes

possession

the

merchandise

and

pays

for

the

purchase,

generally

with

cash

credit.

Sales

from

purchases

made

with

Cato

credit,

gift

cards

and

layaway

sales

from

stores

are

also

recorded

when

the

customer

takes

possession of

the merchandise. E-commerce

sales are

recorded when the

risk of

loss is

transferred to the

customer.

Gift cards

are recorded

as deferred

revenue until they

are redeemed

or forfeited.

Gift cards

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

sales

volumes

and

the

Company’s

experience;

actual

returns

have

not

varied

materially

from

historical

amounts.

provision

made

for

estimated

write-offs

associated

with

sales

made

with

the

Company’s

proprietary

credit

card.

Amounts

shipping

and

handling

billed

customers

sales

transaction are

classified as

Other revenue

and the

costs related

to shipping

product to

customers (billed

and accrued) are classified as Cost of goods sold.

The Company

offers its

own proprietary

credit card

to customers.

All credit

activity is

performed by

the

Company’s

wholly-owned subsidiaries.

of the

credit card

receivables are

secured.

The

Company

estimated customer credit losses of $

215,000

and $

171,000

for the periods ended May 3, 2025 and May 4,

2024, respectively,

on sales purchased

by the Company’s

proprietary credit card of

5.4

million and $

5.7

million for the periods ended May 3, 2025 and May 4, 2024, respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

customers (in thousands):

Balance as of

May 3, 2025

February 1, 2025

Proprietary Credit Card Receivables, net

10,756

10,848

Gift Card Liability

6,191

7,541

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – LEASES:

The

Company determines

whether

arrangement

lease

inception.

The

Company

has

operating

leases for

stores,

offices,

warehouse space

and equipment.

Its leases

have remaining

lease terms

one

year

10 years

, some of which include options to

extend the lease term for

up to five years

, and some of

which

include

options

terminate

the

lease

within one year

The

Company

considers

these

options

determining

the

lease term

used

establish its

right-of-use assets

and lease

liabilities. The

Company’s

lease agreements do not contain any material residual value guarantees or material

restrictive covenants.

most

the

Company’s

leases

not

provide

implicit

rate,

the

Company

uses

its

estimated

incremental

borrowing

rate

based

the

information

available

commencement

date

the

lease

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Three Months Ended

May 3, 2025

May 4, 2024

Operating lease cost

16,588

17,002

Variable

lease cost (a)

438

497

(a) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – LEASES (CONTINUED):

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases are

as follows (in thousands):

Operating cash flow information:

Three Months Ended

May 3, 2025

May 4, 2024

Cash paid for amounts included in the measurement of lease liabilities

14,534

15,607

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

1,206

444

Weighted-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

follows:

As of

May 3, 2025

May 4, 2024

Weighted-average remaining lease term

2.1

Years

2.1

Years

Weighted-average discount rate

5.90%

4.65%

As of May 3, 2025, the maturities of lease liabilities by fiscal year for the Company’s

operating leases are

as follows (in thousands):

Fiscal Year

2025 (a)

49,952

2026

43,045

2027

27,948

2028

16,845

2029

8,066

Thereafter

575

Total lease payments

146,431

Less: Imputed interest

13,835

Present value of lease liabilities

132,596

(a) Excluding the 3 months ended May 3, 2025.

THE CATO CORPORATION

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION:

The

following

information

should

read

along

with

the

unaudited

Condensed

Consolidated

Financial

Statements,

including

the

accompanying

Notes

appearing

this

report.

Any

the

following

are

“forward-looking”

statements

within

the

meaning

Section 27A

the

Securities

Act

1933,

amended,

and

Section 21E

the

Securities

Exchange

Act

1934,

amended:

(1) statements

this

Form 10-Q

that

reflect

projections

expectations

our

future

financial

economic

performance;

(2) statements

that

are

not

historical

information;

(3) statements

our

beliefs,

intentions,

plans

and

objectives for future operations,

including those contained in

“Management’s Discussion and

Analysis of

Financial Condition and

Results of Operations”;

(4) statements relating to

our operations or

activities for

our

fiscal

year

ending

January

31,

2026

(“fiscal

2025”)

and

beyond,

including,

but

not

limited

to,

statements regarding expected

amounts of

capital expenditures and

store openings, relocations,

remodels

and closures, statements

regarding the potential

impact of the

COVID-19 or other

pandemics and related

responses

and

mitigation

efforts,

well

the

potential

impact

supply

chain

disruptions,

extreme

weather conditions,

trade policies,

inflationary pressures and

other economic

conditions on

our business,

results

operations

and

financial

condition

and

statements

regarding

new

store

development

strategy;

and

(5)

statements

relating

our

future

contingencies.

When

possible,

have

attempted

identify

forward-looking

statements

using

words

such

“will,”

“expects,”

“anticipates,”

“approximates,”

“believes,”

“estimates,”

“hopes,”

“intends,”

“may,”

“plans,”

“could,”

“would,”

“should”

and

any

variations or

negative formations

of such

words and

similar expressions.

can give

no assurance

that

actual

results or

events will

not

differ

materially from

those

expressed

implied in

any such

forward-

looking statements. Forward-looking statements included in this report are based on information available

to us

as of the

filing date

of this

report, but subject

to known and

unknown risks, uncertainties

and other

factors that could cause actual results to differ materially from those contemplated by the forward-looking

statements.

Such

factors

include,

but

are

not

limited

to,

the

following:

any

actual

perceived

deterioration in the conditions that drive consumer confidence and spending, including, but not limited to,

prevailing

social,

economic,

political

and

public

health

conditions

and

uncertainties,

levels

unemployment, fuel,

energy

and

food

costs,

inflation,

wage

rates,

tax

rates,

tariffs,

interest

rates,

home

values,

consumer

net

worth

and

the

availability

credit;

changes

laws,

regulations

government

policies affecting

our business,

including but

not limited

to tariffs

and taxes;

uncertainties regarding

the

impact

any

governmental

action

regarding,

responses

to,

the

foregoing

conditions;

competitive

factors

and

pricing

pressures;

our

ability to

predict

and

respond

rapidly

changing fashion

trends

and

consumer demands; our ability to

successfully implement our new store

development strategy to increase

new

store

openings

and

our

ability

any

such

new

stores

grow

and

perform

expected;

underperformance or

other

factors

that

may lead

continuation or

acceleration

store

closures

and

negatively affect

the Company’s

profitability,

financial condition

and prospects;

adverse weather,

public

health

threats

(including

the

COVID-19

other

pandemics),

acts

war

aggression

similar

conditions

that

may

affect

our

sales

operations;

inventory

risks

due

shifts

market

demand,

including

the

ability

liquidate

excess

inventory

anticipated

margins;

adverse

developments

volatility affecting the financial services industry or broader financial markets; and other factors discussed

under

“Risk

Factors”

Part

Item

our

annual

report

Form

10-K

for

the

fiscal

year

ended

February

2025

(“fiscal

2024”),

amended

supplemented,

and

other

reports

file

with

furnish

the

Securities and

Exchange Commission

(“SEC”) from

time

time.

do not

undertake,

and

expressly decline,

any obligation

update any

such

forward-looking information

contained

this

report, whether as a result of new information, future events, or

otherwise.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The

Company’s

critical

accounting

policies

and

estimates

are

fully

described

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations”

Part

II,

Item

the

Company’s Annual Report on

Form 10-K for the

fiscal year ended February

1, 2025. The preparation

of the

Company’s

financial

statements in

conformity

with

generally

accepted accounting

principles in

the

United

States (“GAAP”) requires management to make estimates and assumptions about future events that affect the

amounts reported in the

financial statements and accompanying

notes. Future events

and their effects cannot

determined

with

absolute

certainty.

Therefore,

the

determination

estimates

requires

the

exercise

judgment. Actual results

inevitably will differ

from those estimates,

and such differences

may be material

the

financial

statements.

The

most

significant

accounting

estimates

inherent

the

preparation

the

Company’s financial

statements include

the calculation

of potential

asset impairment,

income tax

valuation

allowances,

reserves

relating

self-insured

health

insurance,

workers’

compensation,

general

and

auto

insurance

liabilities,

uncertain

tax

positions,

the

allowance

for

customer

credit

losses,

and

inventory

shrinkage.

The Company’s critical accounting policies and

estimates are discussed with the Audit Committee.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS:

The following table sets forth, for the periods indicated, certain items in

the Company's unaudited Condensed

Consolidated Statements of Income as a

percentage of total retail sales:

Three Months Ended

May 3, 2025

May 4, 2024

Total retail sales

100.0

Other revenue

1.1

1.0

Total revenues

101.1

101.0

Cost of goods sold (exclusive of depreciation)

64.9

64.2

Selling, general and administrative (exclusive of depreciation)

32.8

32.4

Depreciation

1.5

1.2

Interest and other income

(0.7)

(3.3)

Income before income taxes

2.5

6.6

Net income

2.0

6.3

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS

(CONTINUED):

Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations

(“MD&A”) is

intended

provide

information

assist

readers

better

understanding

and

evaluating

our

financial

condition

and

results

operations.

recommend

reading

this

MD&A

conjunction

with

our

Condensed

Consolidated

Financial

Statements

and

the

Notes

those

statements

included

the

“Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our 2024

Annual Report

on Form 10-K.

Recent Developments

Tariff Pressures

significant

quantity

our

products

are

made

China

and

Southeast

Asia.

The

products

from

these

countries

are

subject

the

newly

implemented

reciprocal

tariffs,

well

additional

Section

301

valorem tariff on Chinese products.

In the quarter, only products from China were subject to the

Section 301

valorem

tariffs.

These

tariffs

increased

our

costs

associated

with

receipted

products

made

these

countries in the latter half of

the first quarter and will continue

to do so in the

second quarter.

These

cost increases

will

negatively impact

our results

of operations

and financial

condition

unless

are

able to successfully mitigate their effects by increasing retail pricing without losing sales and/or sharing these

costs with

our vendors.

Certain product

categories such as

shoes and

handbags will

be difficult

to source

countries with lower tariffs.

Additionally, our supply

chain may be impacted

in the second quarter

as the flow of

Chinese products to the

United States

was reduced

due to

the high

reciprocal tariffs

that were

only recently

decreased in

mid-May.

Potential supply chain

issues such as

products delivered late

due to port

congestion, longer transit

times and

dwell times at port, and container availability may impact the costs we pay for

ocean freight or the timeliness

our

product

deliveries,

any

which

may

negatively

impact

our

results

operations

and

financial

condition.

Pricing

Pressures

The pressure on our customers’ discretionary income continued into fiscal 2025.

As the cost of tariffs begins

impact

retail

pricing,

our

customers

may

become

cautious

with

their

discretionary

spending.

The

customers’

caution

regard

their

discretionary

spending

will

put

additional

pressure

our

ability

mitigate the cost increases caused by

tariffs.

Comparison of First Quarter of 2025

with 2024

Total retail sales for the first quarter

were $168.4 million compared to

last year’s first quarter sales of

$175.3

million.

Sales

decreased

primarily

due

stores

that

were

closed

the

past

months.

Same-store

sales

were flat

for the

quarter. Same

store sales

include stores

that have

been open

more than

15 months.

Stores

that have been relocated or expanded

are also included in the same

store sales calculation after they have been

open more than 15 months.

The method of calculating same store sales varies across the retail industry.

As a

result, our same

store sales calculation

may not be

comparable to similarly

titled measures reported

by other

companies. E-commerce sales were less than 5.0%

of sales for the first quarter of

fiscal 2025 and are included

in the

same-store sales

calculation.

Total revenues,

comprised of

retail sales

and other

revenue (principally

finance

charges

and

late

fees

customer

accounts

receivable,

shipping

charged

customers

for

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

commerce

purchases

and

layaway

fees),

were

$170.2

million

for

the

first

quarter

ended

May

2025,

compared to $177.1

million for

the first

quarter ended May

4, 2024. The

Company operated

1,109 stores

May 3, 2025 compared

to 1,171 stores at

the end of last fiscal

year’s first quarter.

For the first three

months

fiscal

2025,

the

Company

permanently

closed

eight

stores.

The

Company

currently

expects

approximately 50 stores in fiscal 2025.

Other revenue, a component of

total revenues, was $1.8 million for the first

quarter of fiscal 2025, compared

to $1.8

million for

the prior

year’s comparable

first quarter.

Included in

Other revenue

is credit

revenue of

$0.7 million

which represented

0.4% of

total revenues

in the

first quarter

of fiscal

2025, flat

both in

dollars

and percentage compared

to 2024.

Credit revenue is comprised

of interest earned on

the Company’s private

label credit card

portfolio and related

fee income.

Related expenses include

principally payroll, postage

and

other administrative

expenses, and

totaled $0.4

million in

the first

quarter of

2025, compared

to last

year’s

first quarter expenses of $0.4 million.

Cost of goods

sold was $109.3

million, or 64.9%

of retail sales for

the first quarter of

fiscal 2025, compared

to $112.5

million, or

64.2% of

retail sales

in the

first quarter

of fiscal

2024.

The increase

in cost

of goods

sold as a

percent of sales

was due to increased

sales of marked down

goods, partially offset by

lower buying

and freight

costs. Cost

of goods

sold includes

merchandise costs

(net of

discounts and

allowances), buying

costs,

distribution

costs,

occupancy

costs,

freight

and

inventory

shrinkage.

Net

merchandise

costs

and

in-

bound freight are capitalized as inventory

costs.

Buying and distribution costs include payroll, payroll-related

costs and

operating expenses

for the

buying departments

and distribution

center.

Occupancy costs

include

rent,

real

estate

taxes,

insurance,

common

area

maintenance,

utilities

and

maintenance

for

stores

and

distribution

facilities.

Total

gross

margin

dollars

(retail

sales

less

cost

goods

sold

exclusive

depreciation)

decreased

5.8%

$59.1

million

for

the

first

quarter

fiscal

2025

compared

$62.8

million in the first quarter of fiscal 2024.

Gross margin as presented may not be comparable to those of other

entities.

Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related

payroll taxes and benefits, insurance, supplies, advertising,

and bank and credit card processing fees.

SG&A

expenses were

$55.3 million,

or 32.8%

of retail

sales for

the first

quarter of

fiscal 2025,

compared to

$56.8

million,

32.4%

retail

sales

the

first

quarter

fiscal

2024.

SG&A

expense

was

lower

the

first

quarter of fiscal

2025 compared to

the first quarter

of fiscal 2024

primarily due to

lower corporate and

field

payroll

expense,

well

lower

insurance

costs

and

store

expenses,

partially

offset

increases

equipment maintenance.

Depreciation expense was $2.6 million, or 1.5% of retail sales for the first quarter of fiscal 2025, compared to

$2.0 million,

or 1.2% of

retail sales

for the first

quarter of

fiscal 2024.

The increase in

depreciation expense

was due to the distribution center

automation implementation at the end

of the second quarter of 2024.

Interest

and

other

income

was

$1.2

million,

0.7%

retail

sales

for

the

first

quarter

fiscal

2025,

compared

$5.8

million,

3.3%

retail

sales

for

the

first

quarter

fiscal

2024.

The

decrease

was

primarily

due

$3.2

million

net

gain

the

sale

land

held

for

investment

and

the

sale

equity

securities recorded in the first quarter

of 2024.

Income tax expense

was $0.9 million or

0.6% of retail sales

for the first quarter

of fiscal 2025, compared

income

tax

expense

$0.6

million,

0.4%

retail

sales

for

the

first

quarter

fiscal

2024.

The

effective

income

tax

rate

for

the

first

quarter

fiscal

2025

was

21.9%

compared

5.6%

for

the

first

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

quarter of

2024. The

increase in

tax expense

was primarily

due to

increases in

foreign and

state income

taxes.

LIQUIDITY, CAPITAL

RESOURCES

AND MARKET

RISK:

The Company

believes that

its cash,

cash equivalents

and short-term

investments, together

with cash

flows

from operations

and its

new asset-backed

revolving line

of credit,

will be

adequate to

fund the

Company’s

regular operating requirements and expected

capital expenditures for the next 12

months.

Cash

provided

operating

activities

for

the

first

three

months

fiscal

2025

was

primarily generated

earnings

adjusted

for

depreciation

and

changes

working

capital.

The

decrease

cash

provided

$1.8

million

for

the

first

three

months

fiscal

2025

compared

the

first

three

months

fiscal

2024

was

primarily attributable to

lower net income,

partially offset by

the relative change

in inventory from

year-end

to the first

quarter for both

years and non-operating

gain on the

sale of assets

held for investment

in the first

quarter of fiscal 2024.

At May 3, 2025, the Company had working capital of $43.9 million compared to $34.9 million at February 1,

2025.

The increase was primarily attributable to an increase in cash and lower current lease

liability, partially

offset by lower short-term investments and higher

accounts payable.

On March 13, 2025, the Company,

as borrower, and certain other

domestic subsidiaries, as borrowers and

guarantors, entered

into a

Credit Agreement

(the “ABL

Credit Agreement”)

and related

loan documents,

and

among

the

Company,

certain

other

the

Company’s

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National

Association,

the

lender

(the

“Lender”),

establish

asset-based

revolving

credit

facility (the “ABL

Facility”) in an

amount up to

$35.0 million. The proceeds

from the ABL

Facility may

be used to provide funding for ongoing working capital and general corporate

purposes.

The ABL

Credit Agreement

is committed

through May

2027 and

is secured

primarily by

inventory and

third-party credit

card receivables.

There

were no

borrowings outstanding

and the

availability under

the

facility was

$30.0 million

before giving

effect

to a

$3.0 million

outstanding letter

of credit

that reduced

borrowing availability to

$27.0 million

as of

May 3,

2025.

The weighted

average interest rate

under the

credit facility was zero at May 3, 2025 due to no outstanding borrowings.

Expenditures

for

property

and

equipment

totaled

$1.0

million

the

first

three

months

fiscal

2025,

compared

$3.3

million

last

year’s

first

three

months.

The

decrease

expenditures

for

property

and

equipment

was

primarily

due

lower

capital

investments

information

technology

and

the

distribution

center, as well

as no new

store openings in

the first quarter

of fiscal 2025.

For the full

fiscal 2025 year,

the

Company expects

to invest

approximately $7.3

million in

capital expenditures,

including distribution

center

automation projects.

Net

cash

provided

investing

activities

totaled

$7.9

million

the

first

three

months

fiscal

2025

compared to $14.6 million provided in the comparable period of fiscal 2024. The decrease

was primarily due

decrease

the

sales

short-term

investments

and

other

assets,

partially

offset

lower

capital

expenditures.

Net cash used in

financing activities totaled $0.9

million in the first

three months of fiscal

2025 compared to

$5.6

illion used in the comparable

period of fiscal

2024. The decrease was

primarily due to

no dividends

paid and reduced stock repurchases.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

May

2025,

the

Company

had

703,419

remaining

open

authorizations

under

its

repurchase program.

The Company does not use

derivative financial instruments.

The

Company’s

investment

portfolio

was

primarily

invested

corporate

bonds

and

taxable

governmental

debt securities held in managed accounts

with underlying ratings of A

or better at May 3, 2025

and February

2025.

The

state,

municipal

and corporate

bonds and

asset-backed securities

have

contractual

maturities

which

range

from

days

2.9

years.

The

U.S.

Treasury/Agencies

notes

and

bonds

have

contractual

maturities which range from 3 months to

1.0 year.

Additionally,

May

2025,

the

Company

had

deferred

compensation

plan

assets

$9.2

million.

February

2025,

the

Company

had

deferred

compensation

plan

assets

$9.3

million.

These

assets

are

recorded

within

Other

assets

the

Condensed

Consolidated

Balance

Sheets.

See

Note

Fair

Value

Measurements.

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

THE CATO CORPORATION

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

The

Company

subject

market

rate

risk

from

exposure

changes

interest

rates

its

financing, investing and

cash management activities,

but the Company

does not

believe such exposure

material.

ITEM 4. CONTROLS AND PROCEDURES:

We carried out an evaluation, with the

participation of our Principal Executive Officer and

Principal Financial

Officer,

the

effectiveness

our

disclosure

controls

and

procedures

May

2025.

Based

this

evaluation, our Principal Executive Officer and Principal

Financial Officer concluded that, as of May

3, 2025,

our disclosure

controls and

procedures, as

defined in

Rule 13a-15(e),

under the

Securities Exchange

Act of

1934

(the

“Exchange

Act”),

were

effective

ensure

that

information

are

required

disclose

the

reports

that

file

submit

under

the

Exchange

Act

recorded,

processed,

summarized

and

reported

within the time periods

specified in the SEC’s

rules and forms and

that such information is

accumulated and

communicated to our management, including our Principal Executive Officer and Principal Financial Officer,

as appropriate to allow timely decisions

regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:

No change in the Company’s internal control

over financial reporting (as defined in

Exchange Act Rule 13a-

15(f)) has occurred during the Company’s fiscal quarter ended May 3, 2025 that has

materially affected, or is

reasonably

likely

materially

affect,

the

Company’s

internal

control

over

financial

reporting.

THE CATO CORPORATION

PART

II OTHER

INFORMATION

ITEM 1.

LEGAL PROCEEDINGS:

Not Applicable

ITEM 1A.

RISK FACTORS:

In addition to the other information

in this report, you should carefully

consider the factors discussed in

Part I,

“Item

1A.

Risk

Factors”

our

Annual

Report

Form

10-K

for

our

fiscal

year

ended

February

2025.

These risks

could materially

affect our

business, financial

condition or

future results;

however, they

are not

the only risks we face.

Additional risks and uncertainties not currently known to

us or that we currently deem

immaterial

may

also

materially

adversely

affect

our

business,

financial

condition

results

operations.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES

AND USE OF PROCEEDS:

The following table summarizes the Company’s purchases of its common stock for the three months

ended May 3, 2025:

ISSUER PURCHASES OF EQUITY SECURITIES

Total Number of

Maximum Number

Shares Purchased as

(or Approximate Dollar

Total Number

Average

Part of Publicly

Value)

of Shares that may

of Shares

Price Paid

Announced Plans or

Yet be Purchased

Under

Period

Purchased

per Share (1)

Programs (2)

The Plans or Programs (2)

February 2025

135,279

3.35

135,279

March 2025

129,603

2.91

129,603

April 2025

29,154

2.37

29,154

Total

294,036

3.06

294,036

703,419

(1)

Prices include trading costs.

(2)

As of February

1, 2025, the

Company’s share

repurchase program had

997,455 shares remaining

open authorizations.

During

the

first

quarter

ended

May

2025,

the

Company repurchased

and retired

294,036 shares under

this program

for approximately

$899,087 or

an average

market

price of $3.06 per share.

As of May 3, 2025, the Company had 703,419 shares remaining in open

authorizations.

There is no specified expiration date for the Company’s repurchase program.

ITEM 3.

DEFAULTS

UPON SENIOR SECURITIES:

Not Applicable

THE CATO CORPORATION

PART

II OTHER

INFORMATION

ITEM 4.

MINE SAFETY DISCLOSURES:

No matters requiring disclosure.

ITEM 5.

OTHER INFORMATION:

During the

three months

ended May

3, 2025,

none of

the Company’s

directors or

officers (as

defined in

Rule 16a-1(f) of the

Securities Exchange Act of 1934,

as amended)

adopted

terminated

a “Rule10b5-1

trading arrangement” or

a “

non-Rule

10b5-1

trading arrangement” (as

such terms are

defined in Item

408

of Regulation S-K).

ITEM 6.

EXHIBITS:

Exhibit No.

Item

3.1

Registrant’s Amended and Restated Certificate of Incorporation,

incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant

for the quarter ended May 2, 2020.

3.2

Registrant’s Amended and Restated By-Laws, incorporated by

reference to Exhibit 3.2 to Form 10-Q of the Registrant for the quarter

ended May 2, 2020.

10.1

Credit Agreement, dated as of March 13, 2025, by and among Wells

Fargo Bank, National Association, as Lender, and The Cato

Corporation and certain of its subsidiaries as Borrowers and certain

of its other subsidiaries as Guarantors, incorporated by reference to

Exhibit 10.1 to Form 8-K of the Registrant filed March 19, 2025.

31.1*

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2*

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1*

Section 1350 Certification of Principal Executive Officer.

32.2*

Section 1350 Certification of Principal Financial Officer.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase

Document

101.LAB

Inline XBRL Taxonomy Extension Label

Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Document

104.1

Cover

Page

Interactive

Data

File

(Formatted

Inline

XBRL

and

contained in the Interactive Data Files submitted as Exhibit 101.1*)

* Submitted electronically herewith.

THE CATO CORPORATION

PART

II OTHER

INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Registrant has duly caused this

report to be signed on its behalf by the undersigned thereunto duly

authorized.

THE CATO

CORPORATION

May 29, 2025

/s/ John P.

D. Cato

Date

John P.

D. Cato

Chairman, President and

Chief Executive Officer

May 29, 2025

/s/ Charles D. Knight

Date

Charles D. Knight

Executive Vice President

Chief Financial Officer