Cato Corporation

Cato Corporation (CTR) is finding consumers like its value-priced women's apparel as same-store sales for the first half of the year rose 1% compared to 2008. The company has surprised on estimates 3 out of the last 4 quarters by an average of 54.76%. CTR is trading at 14.9x forward earnings.

Company Description

Cato Corporation is a specialty retailer that sells women's fashion apparel and accessories through two brands: Cato and It's Fashion. The company emphasizes the value pricing of its product and sells across a range of customers including junior, missy, plus sizes, as well as girls sizes 7-16.

Cato operates 1,285 stores in 31 states which are found predominantly in strip malls anchored by a national discount retailer.

Reaffirmed Second Quarter Guidance

On July 9, Cato reported same-store sales declined 3% for the 5 weeks through Jul 4, 2009 to $86.8 million from $88.3 million for the 5 weeks ending Jul 5, 2008.

The prior year's number included the effect of stimulus checks. Continuing economic pressure effected 2009 sales.

Same-store sales year to date rose 1%.

The company reaffirmed second quarter earnings per share guidance in the range of 48 cents to 54 cents, a 17% to 32% increase over the 41 cents reported in the same quarter of 2008.

Cato Surprised in the First Quarter by 3.23%

On May 20, Cato reported results for the first quarter ended May 2, 2009 that beat Wall Street estimates by 2 cents. Earnings per share jumped 12% to 64 cents per share compared to 57 cents in the year ago period. Analysts expected 62 cents.

Sales rose 5% to $238.1 million from $225.8 million in the first quarter of 2008. Same-store sales climbed 3% year-over-year.

Sales and markdowns were better than expected and as a result, the company saw higher merchandise margin. However, its customer was still under stress due to the recession and therefore it forecast sales to be down 3% to flat for the second quarter and the rest of the year.

At the end of the first quarter, Cato had boosted its cash and short-term investments by $21.9 million to $166.7 million.

Zacks Consensus Estimates Climb Higher

After the first quarter results and guidance in May, the Zacks Consensus Estimates for the second quarter and full year moved higher.

Second-quarter Zacks Consensus Estimates jumped 19 cents to 51 cents, in the middle of the company's guidance range.

The 1 covering analyst also raised estimates on the full year by 28 cents to $1.27 over the last 3 months.

Cato is scheduled to report second quarter results on Aug 20.

Value Fundamentals

Cato Corporation is a Zacks #1 Rank (strong buy) stock. It has a price-to-book of 1.9. The company also has a strong 5-year return on equity (ROE) of 16.01%.

Additionally, the company pays a dividend with a current yield of 3.40%.

Read the full analyst report on CATO