Monday, March 22, 2010

USA:Cato again delivers strong results in difficult environment


The Cato Corporation reported net income for the fourth quarter and year ended January 30, 2010. For the fourth quarter, the Company reported net income of $7.3 million or $0.25 per diluted share, compared to net income of $3.9 million or $0.13 per diluted share for the fourth quarter ended January 31, 2009. For the quarter, net income increased 87% over the prior year and earnings per diluted share increased 92%. Full year 2009 net income was $45.8 million or $1.55 per diluted share compared to $33.6 million or $1.14 per diluted share for 2008. For the year, both net income and earnings per diluted share increased 36% over the prior year.

Sales for fiscal fourth quarter ended January 30, 2010 were $217.7 million, a 4% increase over sales of $209.1 million for the fourth quarter ended January 31, 2009. For the quarter, same-store sales increased 2%. The Company's sales for 2009 increase 3% to $872.1 million from 2008 sales of $845.7 million. For the year, same-store sales increased 1%.

"Cato again delivered strong results in a difficult economic environment," said John Cato, Chairman, President and Chief Executive Officer. "We continue to manage our inventory and tightly control expenses while offering great fashion and value to our customers."

2009 Review

For 2009, gross margin increased 320 basis points to 36.7%of sales due to higher merchandise margin as a result of lower markdowns. Selling, general and administrative expenses increased 130 basis points to 28.2%of sales primarily due to incentive compensation partially offset by a reduction in store closing costs. The Company's effective income tax rate decreased to 33.6% from 36.1% last year primarily due to lower state taxes. Net income was 5.2% of sales vs. 4.0 % last year.

"Cato's balance sheet remains strong with approximately $200 million in cash and short-term investments and no debt," stated Mr. Cato. During 2009, the Company returned $19.5 million in dividends to shareholders. The Company's annualized dividend of $.66 per share represents a yield of approximately 3% based on the March 17 closing price of $21.66.

For the fiscal year ended January 30, 2010, the Company opened 35 stores (including the conversion of 14 existing It's Fashion stores to It's Fashion Metro), relocated one store and closed 45 stores including the 14 conversions.

2010 Outlook

The Company believes that 2010 will continue to be impacted by the uncertainty surrounding the country's difficult economy. The Company estimates same-store sales will be in a range of down 3% to flat and its gross margin rate will decrease slightly to 36.0% resulting in net income in a range of $44.8 million to $48.8 million. The Company estimates earnings per diluted share will be in a range of $1.51 to $1.64, a 3% decrease to a 6% increase over 2009.

The Company estimates first quarter net income to be in a range of $20.9 million to $22.1 million, or $.71 to $.75 per diluted share, an increase of 11% to 17%. This estimate is based on same-store sales of down 3% to flat.

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