(CATO) Cato Corporation – Value-Conscious Shoppers Driving Growth

February 24th, 2010

The Cato Corp. (CATO) should continue to benefit from frugal consumers.

Company Description

The Cato Corporation is a specialty retailer that caters to fashion and value conscious shoppers in the southeastern US. Cato operates nearly 1,300 stores in 31 states under the Cato and It’s Fashions nameplates. The Cato stores offer exclusive merchandise with fashion and quality comparable to mall specialty stores, and the It’s Fashion stores offer the latest trendy styles and nationally recognized urban brands for the entire family. All of its merchandise is offered at low prices every day.

Value-Conscious Shoppers Driving Growth

For some time, Cato’s every day low prices have brought in moderate-income shoppers looking for fashionable merchandise at appealing prices. Cato will continue to benefit from those shoppers trading down to merchandise with lower price points.

However, if economic conditions improve and moderate-income shoppers move up to higher-priced stores, Cato could experience lower sales from that group. Even so, those shortfalls should be offset by an increase in visits from low-income consumers, who would have more discrery income in a stronger economy.

Healthy Financials

Cato ended the third quarter on stable financial footing. It has debt-free balance sheet with over $6.00 per in cash. Moreover, the company generates solid cash flow from its operations.

Its solid balance sheet and cash flow enable the company to pay out an attractive dividend, which has a current yield of 3.4%.

Recent Results

Cato reported fourth-quarter and full-year sales on February 4. Fourth-quarter sales increased 4% to $217.7 million with same-store sales increase of 2%. The company’s sales for 2009 increased 3% to $872.1 million with a same-store sales increase of 1%.

In mid-November, Cato reported third-quarter results. The company reported better-than-expected earnings of $0.10 per share, up 233% year-over-year, on sales growth of 6%.

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Read more on Cato at Wikinvest

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