Cato Fashions reports sharp decline in second quarter net income

US retailer The Cato Corporation (Cato) has reported net income of 1.1 million dollars, or 0.06 dollars per diluted share, for the second quarter ended August 1, 2026 compared to net income of 6.8 million dollars, or 0.35 dollars per diluted share, for the second quarter ended August 2, 2025.

Sales for the second quarter were 163.9 million dollars, representing a decrease of 6 percent compared to 174.7 million dollars in the prior-year period. The decline was primarily driven by a 3.7 percent same-store sales decrease for the quarter compared to 2025.

For the six months ended August 1, 2026, the company reported net income of 10.5 million dollars, or 0.53 dollars per diluted share, compared to 10.1 million dollars, or 0.51 dollars per diluted share, for the six months ended August 2, 2025. Sales for the first half of the year reached 333.3 million dollars, a decrease of 2.9% from 343.1 million dollars in the previous year, reflecting flat same-store sales and the impact of store closures.

Inflation and consumer discretionary spending pressures

“Our results in the quarter are in large part due to the continued pressure on our customers' discretionary income, which is being negatively impacted in part by persistent inflation, higher fuel prices and continued elevated interest rates,” stated John Cato, chairman, president, and chief executive officer (CEO).

“We expect the negative pressure on our customers' discretionary income to continue for the foreseeable future. We will continue to tightly manage our expenses and inventory as we anticipate the back half of 2026 to be challenging.”

Margin pressures and operational adjustments

Gross margin decreased from 36.2 percent to 32.8 percent of sales during the second quarter.

Year-over-year (YoY) gross margin for the six-month period fell from 35.6 percent to 35 percent of sales, caused by lower merchandise margins and occupancy cost deleveraging.

During the second quarter, Cato closed eight brick and mortar stores. As of August 1, 2026, the retailer operated 1,057 stores across 31 states, down from 1,101 stores as of August 2, 2025.