Cato Corporation (CATO), the women’s fashion specialty retailer, reported third quarter results on Nov 19 that surprised on the Zacks Consensus Estimate by 11.11%, or 1 cent a share. It was the company’s fourth consecutive earnings beat.

Earnings per share for the third quarter rose 233% to 10 cents from 3 cents in the year ago period. The Zacks Consensus called for 9 cents.

The company bucked the negative retail trend by increasing sales by 6% to $191 million from $179.8 million in the year ago period. Same store sales also rose 4%, surprising even the company.

The gross margin rate also rose to 34.8% from 29.3% in the year ago quarter mainly due to better merchandise margins and lower freight costs.

The company is being cautious about the fourth quarter given the economic uncertainties even though it outperformed in the third quarter. It is still forecasting same store sales down 3% to flat and maintained its original guidance of between 8 to 13 cents. Guidance for the full year is expected to be up 21% to 25% from 2008 to $1.38 to $1.43 per share.

Analysts have not yet adjusted their earnings estimates to reflect the third quarter results. The Zacks Consensus Estimate for 2009, however, has risen a penny to $1.42 per share in the last 7 days which is at the high end of the company’s guidance range.

Value Fundamentals

Cato is now a Zacks #2 Rank (buy) stock. It still has attractive value fundamentals. The company is trading with a forward P/E of 14.5 and a price-to-book of 1.97. Cato has a 1-year return on equity (ROE) of 14.74%.

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