Driven by strong top-line performance, The Cato Corporation CATO reported robust bottom-line results for fourth-quarter fiscal 2014. This women’s fashion retailer’s earnings of 33 cents per share not only came substantially ahead of its own guidance range of 13–17 cents but also surpassed the Zacks Consensus Estimate of 25 cents.
Moreover, earnings were 154% higher than the year-ago comparable quarter’s earnings of 13 cents per share.
Sales for the quarter improved 11% year over year to $237.8 million driven by favorable weather, while comparable-store sales (comps) climbed 8%.
Gross profit for the reported quarter increased 16.5% to $86.8 million and gross margin expanded 180 basis points (bps) to 36.5%. The year-over-year rise can be mainly attributed to improved merchandise margins.
Selling general and administrative (SG&A) expenses for the quarter rose 9.5% year over year to $72.9 million but declined 30 bps to 30.6% as a percentage of sales. The fall in SG&A expenses as a percentage of sales was mainly on account of lower store payroll, occupancy and store impairment costs, offset by higher accrued incentive compensation expense.
Financials
Cato ended fiscal 2014 with cash and cash equivalents of $93.9 million compared with $79.4 million at the end of fiscal 2013. The company’s total shareholders’ equity stood at $380.2 million as of Jan 31, 2015.
During fiscal 2014, the company distributed over $75 million to shareholders, including $33.8 million in the form of dividends and $42.1 million by repurchasing about 1.5 million shares. The company retained its quarterly dividend of $0.30 per share, representing an annualized dividend of $1.20.
Stores Update
In fiscal 2014, Cato opened 33 stores, relocated 4 stores and closed 7 stores. As of Jan 31, 2015, the company operated 1,346 stores across 32 states.
During fiscal 2015, the company plans to open 45 stores and close about 13 stores.
Fiscal 2015 Outlook
Cato started fiscal 2015 on a soft note with February comps declining 10% due to unfavorable weather conditions, hence, the company expects more challenges ahead in the fiscal.
Cato expects first-quarter fiscal 2015 earnings to be in the range of $1.00–$1.03 per share, representing a decline of 1% to 4% from $1.04 per share earned in the prior-year quarter. Further, the company anticipates comps to fall 3%–4% in the quarter based on the decline in February comps and the continuation of adverse weather into March.
For fiscal 2015, the company projects earnings per share in the range of $2.03–$2.19, representing a 6% decline to 2% rise from $2.15 per share earned in fiscal 2014. Comps for the year are expected to be in the range of flat to 2% decline.
Other Stocks to Consider
Stocks worth considering in the retail sector include Citi Trends Inc. CTRN, with a Zacks Rank #1 (Strong Buy), along with DSW Inc. DSW and American Eagle Outfitters Inc. AEO, both carrying a Zacks Rank #2 (Buy).
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