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Cato's June Comps Disappoint

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Headquartered in Charlotte, North Carolina, Cato Corporation recently reported disappointing same store (comps) as well as total sales results for the five-week period ended June 30, 2012.

The company stated that total sales of $83.7 million for the month of June 2012, declined 7% from $90.4 million in the five-week period ended July 2, 2011. Comps plunged 10% year over year for the month, which was below the company’s expectation.

For the 22-weeks period ended June 30, 2012, Cato’s sales were almost flat at $440.8 million compared with $442.0 million in the same period last year. However, year-to-date, the company’s comps dropped 3% over the prior-year period.

As per the company, comps data remains volatile throughout the 22-weeks period. The company’s year-to-date comps were primarily battered by unfavorable weather conditions along with the economic and political uncertainties.

Anticipating volatility to continue in the near future, Cato revised its earnings estimate for the second-quarter of fiscal 2012. The company now expects earnings to be in the lower end of its earlier guidance range of 53 cents to 57 cents per share. The current Zacks Consensus Estimate for the second-quarter stands at 55 cents per share.

The company’s competitors also faced weak comps for the month of June. One of its competitors, Buckle Inc. (BKE - Free Report) witnessed a 2.5% decline in comps while net sales of the company inched down 0.3% to $79.4 million.

During the month, the company opened two stores, one each at Houston and San Antonio, Texas while it relocated one store in Bastrop, Los Angeles and closed down one store. Cato ended the month with 1,295 retail stores in 31 states compared with 1,286 stores in 31 states as of July 2, 2011.

To attract more consumers Cato Corporation offers quality fashion apparel and accessories at everyday low prices in junior/missy and plus sizes. In addition, the company offers clothing and accessories for girls aged between 7 and 16 in selected locations. With the objective of offering head-to-toe dressing for its customers, the company's stores feature a broad assortment of apparel and accessories, including casual and dressy sportswear, dresses, careerwear, coats, hosiery, shoes, costume jewelry, handbags and millinery.

Cato is on its way of taking prudent steps for improving its top line while enhancing operational efficiency. The company is effectively utilizing its cash to expand its store network, develop e-commerce platform and build additional distribution center. We believe these initiatives will certainly facilitate Cato in improvising its top- and bottom-line.

Currently, we are maintaining a long-term Neutral recommendation on the stock.

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