Shares of The Cato Corporation (CATO Quick QuoteCATO - Free Report) have climbed 11.5% since the retailer released its earnings results for the quarter ended May 3, 2025, significantly outpacing the S&P 500 index’s 1.4% growth over the same period. On a broader basis, CATO shares are up 12% over the past month, again outperforming the S&P 500’s 6.5% rise. This relative strength suggests renewed investor optimism despite the company posting a noticeable year-over-year earnings decline.

Cato reported first-quarter 2025 net income of 17 cents per share compared with 54 cents per share in the same period last year, a decline of approximately 69%. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

Total revenues dropped 3.9% to $170.2 million from $177.1 million a year ago, with retail sales comprising the majority at $168.4 million. Notably, same-store sales were flat, reflecting challenges in driving organic growth amid a cautious consumer environment.

Cato’s net income fell sharply to $3.3 million compared to $11 million in the same period last year.

The Cato Corporation Price, Consensus and EPS Surprise

The Cato Corporation price-consensus-eps-surprise-chart | The Cato Corporation Quote

Key Operating Metrics and Margins

Gross margin declined slightly to 35.1% of sales from 35.8% in the prior year quarter. This was attributed to a lower merchandise contribution driven by increased markdown activity, partially offset by reduced buying costs. Operating expenses were somewhat managed, as Selling, General and Administrative (SG&A) expenses declined 2.5% year over year to $55.3 million. However, as a percentage of sales, SG&A rose to 32.8% from 32.4%, reflecting the pressure of declining revenue on fixed costs.

Depreciation costs rose to $2.6 million from $2 million, while interest and other income fell significantly to $1.2 million from $5.8 million. The previous year’s figure included a $3.2 million gain from land sales and income from equity securities, which did not recur this year. The resulting income before taxes declined 63.5% year over year to $4.2 million. Income tax expense rose to $0.9 million from $0.6 million, largely due to changes in state and foreign tax rates.

Management Commentary and Business Context

Cato’s leadership emphasized the impact of a cautious consumer spending environment, with Chairman and CEO John Cato citing “general uncertainty regarding the economy and the potential impact of the proposed tariffs” as contributing factors to a restrained outlook. While sales trends improved later in the quarter, the executive tone remained measured, indicating hesitancy in projecting a recovery for the remainder of the year.

Strategic Actions and Store Footprint

During the quarter, Cato did not open any new locations and permanently closed eight stores, bringing its total store count to 1,109 across 31 states, down from 1,171 stores a year ago. This continued contraction reflects the company’s adaptation to shifting consumer behaviors and efforts to right-size its physical footprint in favor of more efficient operations. The company’s retail concepts — Cato, Versona, and It’s Fashion — continue to target value-conscious consumers with trend-driven merchandise offered at everyday low prices.

Capital Management and Financial Position

In terms of capital allocation, the company repurchased 294,036 shares during the quarter, signaling confidence in its valuation and a commitment to returning capital to shareholders. On the balance sheet, Cato’s financial position remained stable, with cash and cash equivalents rising to $31.3 million from $20.3 million as of Feb. 1, 2025. However, short-term investments fell to $48.6 million from $57.4 million, reflecting potential liquidity redeployment. Inventories remained essentially flat, suggesting disciplined merchandise planning amid fluctuating demand.