Cato reports 29 percent drop in FY16 net income

The Cato Corporation reported a net loss of 12.8 million dollars or a loss of 0.48 dollar per diluted share, compared to net income of 11.8 million dollars or 0.42 dollar per diluted share for the fourth quarter ended January 30, 2016. Full year net income was 47.2 million dollars or 1.72 dollars per diluted share compared to 66.8 million dollars or 2.39 dollars for 2015. For the year, net income decreased 29 percent and earnings per diluted share decreased 28 percent from the prior year.

"2016 was a very disappointing year for Cato. The overall apparel retail environment continued to be difficult and was compounded by several mistakes of our own. We also are being impacted by the disruption caused by the growth of online sales at other retailers, resulting in lower store traffic," commented John Cato, Chairman, President and Chief Executive Officer in a statement.

Q4 sales down 12 percent while sales dropped 5 percent in FY16

Sales for the fourth quarter were 218.2 million dollars, a decrease of 12 percent from sales of 247.3 million dollars for the fourth quarter ended January 30, 2016. For the quarter, same-store sales decreased 12 percent from last year. Sales for the year decreased 5 percent to 947.4 million dollars from 2015 sales of 1,001.4 million dollars. Same-store sales decreased 6 percent to last year.

Fourth quarter gross margin decreased to 28.8 percent of sales from 36.1 percent of sales in 2015, which the company said was primarily due to reduced merchandise margins and higher occupancy costs. For 2016, gross margin decreased to 36.5 percent of sales from 38.4 percent of sales in 2015 due to reduced merchandise margins and higher occupancy costs.

During 2016, the company returned 78 million dollars to shareholders through dividends of 35.4 million dollars and share repurchases of 42.6 million dollars. The company maintained its quarterly dividend of 0.33 per share, or 1.32 dollars per year. For the fiscal year, the company opened eight stores, relocated six and closed nine stores. As of January 28, 2017, the company operated 1,371 stores in 33 states.

Cato expects 2017 to be another challenging year

"Due to the continued volatility and overall difficulty in the retail environment, we believe 2017 will be another challenging year for Cato," said Cato, adding "In February, we initially believed there was a large negative sales impact due to delayed tax refunds, and anticipated a sales rebound in March. However, we have found the rebound to be much less than anticipated. Also, we continue to work through our merchandise assortment missteps. Due to these issues, we expect our negative sales trends to continue through the quarter and expect our first quarter earnings to be significantly below last year.”

For the year, the company expects same-store sales in the negative low single digits resulting in pre-tax net income above last year; however, net income will be below last year due to favourable tax adjustments in 2016. The company's estimates for 2017 also include 13 new store openings during the year and closure of 19 stores by year-end.

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