Driven by strong top-line performance along with low share count, The Cato Corporation (CATO) reported robust bottom-line results for third-quarter fiscal 2014. The women’s fashion retailer’s earnings of 20 cents per share not only came ahead of its own guidance range of 8–13 cents but also surpassed the Zacks Consensus Estimate of 16 cents.
Moreover, quarterly earnings were 18% higher than the year-ago comparable quarter’s earnings of 17 cents per share.
Sales for the quarter improved 8% year over year to $213.8 million while comparable-store sales (comps) climbed 4%.
Gross profit for the reported quarter increased 10.4% to $77.3 million and gross margin expanded 100 basis points (bps) to 36.2%. The year-over-year rise is mainly attributable to improved merchandise margins.
Selling general and administrative (SG&A) expenses for the quarter rose 10.8% year over year to $67.6 million and increased 90 bps to 31.6% as a percentage of sales. The rise in SG&A expenses was mainly due to higher insurance and accrued incentive compensation expense offset by a decline in store fixture write-offs.
Financials
Cato ended the quarter with cash and cash equivalents of $83.7 million compared with $74.1 million at the end of third-quarter fiscal 2013. The company’s total shareholders’ equity stood at $377.7 million at the end of the quarter.
Stores Update
Cato has opened 27 stores, relocated 2 stores and closed 4 stores so far in fiscal 2014. As of Nov 1, 2014, the company operated 1,343 stores across 32 states, compared with 1,318 outlets in the year-ago period.
However, the company has now reduced its fiscal 2014 store opening target to 33 from the earlier projection of 46 due to lack of new shopping center projects as well as increased competition for available space.
Fiscal 2014 Outlook
Cato reiterated its fourth-quarter fiscal 2014 earnings forecast in the range of 13–17 cents per share, anticipating flat to 31% growth compared with 13 cents reported in the fourth quarter of fiscal 2013.
The company raised its fiscal 2014 earnings per share guidance range to $1.95–$1.99 from $1.82—$1.91 forecasted earlier. This represents a 5% to 7% rise compared with $1.86 per share earned in fiscal 2013.
Other Stocks to Consider
Stocks worth considering in the retail sector include L Brands Inc. (LB), Zumiez Inc. (ZUMZ) and American Eagle Outfitters Inc. (AEO), all carrying a Zacks Rank #2 (Buy).
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