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What changed in CATO CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CATO CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+156 added−150 removedSource: 10-K (2024-03-27) vs 10-K (2023-03-23)

Top changes in CATO CORP's 2024 10-K

156 paragraphs added · 150 removed · 123 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

22 edited+1 added−1 removed31 unchanged
Biggest changeSales information is projected by merchandise category and, in some cases, is further projected and actual performance measured by stock keeping unit (SKU). Merchandise allocation models are used to distribute merchandise to individual stores based upon historical sales trends, climatic differences, customer demographic differences and targeted inventory turnover rates. Competition The women’s retail apparel industry is highly competitive.
Biggest changeMerchandise allocation models are used to distribute merchandise to individual stores based upon historical sales trends, climatic conditions, customer demographics and targeted inventory turnover rates. Competition The women’s retail apparel industry is highly competitive. The Company believes that the principal competitive factors in its industry include merchandise assortment and presentation, fashion, price, store location and customer service.
The Company offers its own credit card and a layaway plan to make the purchase of its merchandise more convenient for its customers. 6 Merchandising Merchandising The Company seeks to offer a broad selection of high quality and exceptional value apparel and accessories to suit the various lifestyles of fashion and value-conscious customers.
The Company offers its own credit card and a layaway plan to make 6 the purchase of its merchandise more convenient for its customers. Merchandising Merchandising The Company seeks to offer a broad selection of high quality and exceptional value apparel and accessories to suit the various lifestyles of fashion and value-conscious customers.
See “Risk Factors – Risks Relating To Our Information Technology and Related Systems – A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations.” Advertising The Company uses television, in-store signage, graphics, a Company website, two e-commerce websites and social media as its primary advertising media.
See “Risk Factors – Risks Relating to Our Information Technology, Related Systems and Cybersecurity – A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations.” Advertising The Company uses television, in-store signage, graphics, a Company website, two e-commerce websites and social media as its primary advertising media.
A merchandise control system provides current information on the sales activity of each 7 merchandise style in each of the Company’s stores. Point-of-sale terminals in the stores collect and transmit sales and inventory information to the Company’s central database, permitting timely response to sales trends on a store-by-store basis.
A merchandise control system provides current information on the sales activity of each merchandise style in each of the Company’s stores. Point-of-sale terminals in the stores collect and transmit sales and inventory information to the Company’s central database, permitting timely response to sales trends on a store-by-store basis.
The Company’s stores range in size from 2,200 to 19,000 square feet and are located primarily in strip shopping centers anchored by national discounters or market-dominant grocery stores. The Company emphasizes friendly customer service and coordinated merchandise presentations in an appealing store environment. The Company offers its own credit card and layaway plan.
The Company’s stores range in size from 2,400 to 19,000 square feet and are located primarily in strip shopping centers anchored by national discounters or market-dominant grocery stores. The Company emphasizes friendly customer service and coordinated merchandise presentations in an appealing store environment. The Company offers its own credit card and layaway plan.
The Company’s net bad debt expense was 2.0%, 3.0% and 3.6% of credit sales in fiscal 2022, 2021 and 2020, respectively. Customers applying for the Company’s credit card are approved for credit if they have a satisfactory credit record and the Company has considered the customer’s ability to make the required minimum payment.
The Company’s net bad debt expense was 3.6%, 2.0% and 3.0% of credit sales in fiscal 2023, 2022 and 2021, respectively. Customers applying for the Company’s credit card are approved for credit if they have a satisfactory credit record and the Company has considered the customer’s ability to make the required minimum payment.
The fiscal 2022 loyalty program impact is immaterial to the fiscal 2022 financial statements. The loyalty program is accounted for in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . Layaway Plan Under the Company’s layaway plan, merchandise is set aside for customers who agree to make periodic payments.
The fiscal 2023 loyalty program impact is immaterial to the fiscal 2023 financial statements. The loyalty program is accounted for in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . Layaway Plan Under the Company’s layaway plan, merchandise is set aside for customers who agree to make periodic payments.
The Company also takes aggressive markdowns on slow-selling merchandise and typically does not carry over merchandise to the next season. Purchasing, Allocation and Distribution Although the Company purchases merchandise from approximately 580 suppliers, most of its merchandise is purchased from approximately 100 primary vendors.
The Company also takes aggressive markdowns on slow-selling merchandise and typically does not carry over merchandise to the next season. Purchasing, Allocation and Distribution Although the Company purchases merchandise from approximately 600 suppliers, most of its merchandise is purchased from approximately 100 primary vendors.
See “Risk Factors – Risks Relating To Our Business – Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise; changes, disruptions, cost changes or other problems affecting the Company’s merchandise supply chain have and could continue to materially and adversely affect the Company’s business, results of operations and financial condition.” An important component of the Company’s strategy is the allocation of merchandise to individual stores based on an analysis of sales trends by merchandise category, customer profiles and climatic conditions.
See “Risk Factors – Risks Relating to Our Business – Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with changes, disruptions, increased costs or other problems affecting the Company’s merchandise supply chain; the risks of conducting international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise have and could continue to materially and adversely affect the Company’s business, results of operations and financial condition.” 7 An important component of the Company’s strategy is the allocation of merchandise to individual stores based on an analysis of sales trends by merchandise category, customer profiles and climatic conditions.
Credit and layaway sales under the Company’s plan represented 6% of retail sales in fiscal 2022. See Note 13 to the Consolidated Financial Statements, “Reportable Segment Information,” for a discussion of information regarding the Company’s two reportable segments: retail and credit. The Company has operated Cato-branded retail stores for approximately 76 years.
Credit and layaway sales under the Company’s plan represented 6% of retail sales in fiscal 2023. See Note 13 to the Consolidated Financial Statements, “Reportable Segment Information,” for a discussion of information regarding the Company’s two reportable segments: Retail and Credit. The Company has operated Cato-branded retail stores for approximately 77 years.
In fiscal 2022, purchases from the Company’s largest vendor accounted for approximately 16% of the Company’s total purchases. The Company is not dependent on its largest vendor or any other vendor for merchandise purchases, and the loss of any single vendor or group of vendors would not have a material adverse effect on the Company’s operating results or financial condition.
In fiscal 2023, purchases from the Company’s largest vendor accounted for approximately 13% of the Company’s total purchases. The Company is not dependent on its largest vendor or any other vendor for merchandise purchases, and the loss of any single vendor or group of vendors would not have a material adverse effect on the Company’s operating results or financial condition.
Approximately 92% are located in strip shopping centers and 8% in enclosed shopping malls. The Company typically locates stores in strip shopping centers anchored by a national discounter, primarily Walmart Supercenters, or market-dominant grocery stores. The Company’s strip center locations provide ample parking and shopping convenience for its customers.
Approximately 93% are located in strip shopping centers and 7% in enclosed shopping malls. The Company typically locates stores in strip shopping centers anchored by a national discounter, primarily Walmart Supercenters, or market-dominant grocery stores. The Company’s strip center locations provide ample parking and shopping convenience for its customers.
Though compliance with these laws and regulations has not had a material effect on the capital expenditures, results of operations or competitive position of the Company in fiscal 2022, the Company faces ongoing risks related to its efforts to comply with these laws and regulations and risks related to noncompliance, as discussed generally below throughout the “Risk Factors” section and in particular under “Risk Factors – Risks Relating to Accounting and Legal Matters – Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” Human Capital As of January 28, 2023, the Company employed approximately 7,600 full-time and part-time associates.
Though compliance with these laws and regulations has not had a material effect on our capital expenditures, results of operations or competitive position in fiscal 2023, the Company faces ongoing risks related to its efforts to comply with these laws and regulations and risks related to noncompliance, as discussed generally below throughout the “Risk Factors” section and in particular under “Risk Factors – Risks Relating to Accounting and Legal Matters – Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” Human Capital 10 As of February 3, 2024, the Company employed approximately 7,300 full-time and part-time associates.
The Company intends to continue this review process to identify underperforming stores. Credit and Layaway Credit Card Program The Company offers its own credit card, which accounted for 3.1%, 2.5% and 2.7% of retail sales in fiscal 2022, 2021 and 2020, respectively.
The Company intends to continue this review process to identify underperforming stores. Credit and Layaway Credit Card Program The Company offers its own credit card, which accounted for 3.4%, 3.1% and 2.5% of retail sales in fiscal 2023, 2022 and 2021, respectively.
The Company’s total advertising expenditures were approximately 1.0%, 0.9% and 0.8% of retail sales for fiscal years 2022, 2021 and 2020, respectively. Store Operations The Company’s store operations management team consists of four territorial managers, 11 regional managers and 109 district managers. Regional managers receive a salary plus a bonus based on achieving targeted goals for sales and payroll.
The Company’s total advertising expenditures were approximately 1.0%, 1.0% and 0.9% of retail sales for fiscal years 2023, 2022 and 2021, respectively. Store Operations The Company’s store operations management team consists of four territorial managers, 11 regional managers and 104 district managers. Regional managers receive a salary plus a bonus based on achieving targeted goals for sales and payroll.
The following table sets forth information with respect to the Company’s development activities since fiscal 2018: 8 Store Development Number of Stores Beginning of Number Number Number of Stores Fiscal Year Year Opened Closed End of Year 2018………………….……...…………. 1,351 - 40 1,311 2019………………….……...…………. 1,311 5 35 1,281 2020……………………….……...……. 1,281 76 27 1,330 2021…………....………….……...……. 1,330 6 25 1,311 2022………….………...….……...……. 1,311 19 50 1,280 The Company periodically reviews its store base to determine whether any particular store should be closed based on its sales trends and profitability.
The following table sets forth information with respect to the Company’s development activities since fiscal 2019: 8 Store Development Number of Stores Beginning of Number Number Number of Stores Fiscal Year Year Opened Closed End of Year 2019………………….……...…………. 1,311 5 35 1,281 2020………………….……...…………. 1,281 76 27 1,330 2021……………………….……...……. 1,330 6 25 1,311 2022…………....………….……...……. 1,311 19 50 1,280 2023………….………...….……...……. 1,280 9 111 1,178 The Company periodically reviews its store base to determine whether any particular store should be closed based on its sales trends and profitability.
Business: Background The Company, founded in 1946, operated 1,280 fashion specialty stores at January 28, 2023, in 32 states, principally in the southeastern United States, under the names “Cato,” “Cato Fashions,” “Cato Plus,” “It’s Fashion,” “It’s Fashion Metro” and “Versona.” The Cato concept seeks to offer quality fashion apparel and accessories at low prices every day, in junior/missy and plus sizes.
Business: Background The Company, founded in 1946, operated 1,178 fashion specialty stores at February 3, 2024, in 31 states, principally in the southeastern United States, under the names “Cato,” “Cato Fashions,” “Cato Plus,” “It’s Fashion,” “It’s Fashion Metro” and “Versona.” The Cato concept seeks to offer quality fashion apparel and accessories at low prices every day, in junior/missy and plus sizes.
The Company believes that the principal competitive factors in its industry include merchandise assortment and presentation, fashion, price, store location and customer service. The Company competes with retail chains that operate similar women’s apparel specialty stores. In addition, the Company competes with mass merchandise chains, discount store chains, major department stores, off -price retailers and internet-based retailers.
The Company competes with retail chains that operate similar women’s apparel specialty stores. In addition, the Company competes with mass merchandise chains, discount store chains, major department stores, off -price retailers and internet-based retailers.
The Company also employs additional part-time associates during the peak retailing seasons. The Company’s full-time team associates are engaged in various executive, operating, and administrative functions in the Home Office and distribution center and the remainder are engaged in store operations.
The Company also employs additional part-time associates during the peak retailing seasons. The Company’s full-time associates are engaged in various executive, operating, and administrative functions in the Home Office and distribution center and the remainder are engaged in store operations. The Company is not a party to any collective bargaining agreements and considers its associate relations to be good.
Administrative fees are recognized in the period in which the layaway is initiated. Recognition of restocking fees occurs in the accounting period when the customer defaults on the layaway purchase. Layaway sales represented approximately 2.7%, 2.7% and 2.8% of retail sales in fiscal 2022, 2021 and 2020, respectively.
Administrative fees are recognized in the period in which the layaway is initiated. Recognition of restocking fees occurs in the accounting period when the customer defaults on the layaway purchase.
Information Technology Systems The Company’s information technology systems provide daily financial and merchandising 9 information that is used by management to enhance the timeliness and effectiveness of purchasing and pricing decisions. Management uses a daily report comparing actual sales with planned sales and a weekly ranking report to monitor and control purchasing decisions.
Layaway sales represented approximately 3.0%, 2.7% and 2.7% of retail sales in fiscal 2023, 2022 and 2021, respectively. 9 Information Technology Systems The Company’s information technology systems provide daily financial and merchandising information that is used by management to enhance the timeliness and effectiveness of purchasing and pricing decisions.
Weekly reports are also produced which reflect sales, weeks of supply of inventory and other critical data by product categories, by store and by various levels of responsibility reporting. Purchases are made based on projected sales, but can be modified to accommodate unexpected increases or decreases in demand for a particular item.
Management uses a daily report comparing actual sales with planned sales and a weekly ranking report to monitor and control purchasing decisions. Weekly reports are also produced which reflect sales, weeks of supply of inventory and other critical data by product categories, by store and by various levels of responsibility reporting.
Removed
The Company is not a party to any collective bargaining agreements and considers its associate relations 10 to be good.
Added
Purchases are made based on projected sales, but can be modified to accommodate unexpected increases or decreases in demand for a particular item. Sales information is projected by merchandise category and, in some cases, is further projected and actual performance measured by stock keeping unit (SKU).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+18 added−12 removed94 unchanged
Biggest changeWe believe that our “Cato”, “It’s Fashion”, “It’s Fashion Metro”, “Versona”, “Cache” and “Body Central” trademarks are integral to our store designs, brand recognition and our ability to successfully build consumer loyalty. Although we have registered these trademarks with the U.S.
Biggest changeIf we fail to protect our trademarks and other intellectual property rights or infringe the intellectual property rights of others, our business, brand image, growth strategy, results of operations and financial condition could be adversely affected. 19 We believe that our “Cato”, “It’s Fashion”, “It’s Fashion Metro”, “Versona”, “Cache” and “Body Central” trademarks are integral to our store designs, brand recognition and our ability to successfully build consumer loyalty.
Consumer spending habits, including spending for our apparel and accessories, are affected by, among other things, prevailing social, economic, political and public health conditions and uncertainties (such as matters under debate in the U.S. from time to time regarding budgetary, spending and tax policies), levels of employment, fuel, interest rates, energy and food costs, salaries and wage rates and other sources of income, tax rates, home values, consumer net worth, the availability of consumer credit, inflation, consumer confidence and consumer perceptions of adverse changes in or trends affecting any of these conditions.
Consumer spending habits, including spending for our apparel and accessories, are affected by, among other things, prevailing social, economic, political and public health conditions and uncertainties (such as matters under debate in the U.S. from time to time regarding budgetary, spending and tax policies), levels of employment, fuel, inflation, interest rates, energy and food costs, salaries and wage rates and other sources of income, tax rates, home values, consumer net worth, the availability of consumer credit, - consumer confidence and consumer perceptions of adverse changes in or trends affecting any of these conditions.
A variety of factors may cause the price of our common stock to fluctuate, perhaps substantially, including, but not limited to, those discussed elsewhere in this report, as well as the following: low trading volume; general market fluctuations resulting from factors not directly related to our operations or the inherent value of our common stock; announcements of developments related to our business; fluctuations in our reported operating results; general conditions or trends affecting or perceived to affect the fashion and retail industry; conditions or trends affecting or perceived to affect the domestic or global economy or the domestic or global credit or capital markets; changes in financial estimates or the scope of coverage given to our Company by securities analysts; negative commentary regarding our Company and corresponding short-selling market behavior; adverse customer relations developments; significant changes in our senior management team; and legal proceedings.
A variety of factors may cause the price of our common stock to fluctuate, perhaps 22 substantially, including, but not limited to, those discussed elsewhere in this report, as well as the following: low trading volume; general market fluctuations resulting from factors not directly related to our operations or the inherent value of our common stock; announcements of developments related to our business; fluctuations in our reported operating results; general conditions or trends affecting or perceived to affect the fashion and retail industry; conditions or trends affecting or perceived to affect the domestic or global economy or the domestic or global credit or capital markets; changes in financial estimates or the scope of coverage given to our Company by securities analysts; negative commentary regarding our Company and corresponding short-selling market behavior; adverse customer relations developments; significant changes in our senior management team; and legal proceedings.
Activities conducted by us or on our behalf outside the United States further subject us to numerous U.S. and international regulations and compliance risks, as discussed below under “Risk Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” Existing and increased competition in the women’s retail apparel industry may negatively impact our business, results of operations, financial condition and market share.
Activities conducted by us or on our behalf outside the United States further subject us to numerous U.S. and international regulations and compliance risks, as discussed below under “Risk Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could 15 result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” Existing and increased competition in the women’s retail apparel industry may negatively impact our business, results of operations, financial condition and market share.
Any security breach, mishandling, human or programming error or other event that results in the misappropriation, loss or other unauthorized disclosure of employee, Company or customer information, including but not limited to credit card data or other personally identifiable information, could severely damage the Company's reputation, expose it to remediation and other costs and the risks of legal proceedings, disrupt its operations and otherwise adversely affect the Company's business and financial condition.
Any security breach, mishandling, human or programming error or other event that results in the misappropriation, loss or other unauthorized disclosure of employee, Company or customer information, including but not limited to credit card data or other personally identifiable information, could severely damage the 17 Company's reputation, expose it to remediation and other costs and the risks of legal proceedings, disrupt its operations and otherwise adversely affect the Company's business and financial condition.
If the Company does not successfully meet the challenges of operating e-commerce websites or fulfilling customer expectations, the Company's business and sales could be adversely affected. We are subject to payment-related risks. We accept payments using a variety of methods, including third-party credit cards, our own branded credit card, debit cards, gift cards and physical and electronic bank checks.
If the Company does not successfully meet the challenges of operating e-commerce websites or fulfilling customer expectations, the Company's business and sales could be adversely affected. 18 We are subject to payment-related risks. We accept payments using a variety of methods, including third-party credit cards, our own branded credit card, debit cards, gift cards and physical and electronic bank checks.
If the Company is unable to successfully integrate new businesses into its existing business, the Company’s financial condition and results of operations will be adversely affected. 16 The Company’s long-term business strategy includes opportunistic growth through the development of new store concepts. This growth may require significant capital expenditures and management attention.
If the Company is unable to successfully integrate new businesses into its existing business, the Company’s financial condition and results of operations will be adversely affected. The Company’s long-term business strategy includes opportunistic growth through the development of new store concepts. This growth may require significant capital expenditures and management attention.
As federal, state and municipal entities struggle with declining tax revenues and budget deficits, we cannot be assured of our ability to timely access these investments if the market for these issues declines. Similarly, the default by issuers of the debt securities we hold or similar securities could impair the liquidity of our investments.
As federal, state and municipal entities struggle with declining tax revenues and budget deficits, we cannot be assured of our ability to timely access these investments if the market for these issues declines. Similarly, the default by issuers of the debt securities we hold or similar securities could impair the value or liquidity of our investments.
These impacts may adversely affect our financial condition, results of operations and our ability to execute our business strategy. Furthermore, these adverse developments affecting the financial services or related perceptions may negatively impact our customers’ discretionary income for or our customers’ willingness to purchase apparel, shoes or jewelry products.
These impacts may adversely affect our financial condition, results of operations and our ability to execute our business strategy. Furthermore, these adverse developments affecting the financial services or related perceptions may negatively impact our customers’ discretionary income or our customers’ willingness to purchase apparel, shoes or jewelry products.
Our costs are also affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies have and may continue to impact our cost of goods sold. Any of these factors can materially and adversely affect our business and results of operations.
Our costs are also affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies have impacted and may continue to impact our cost of goods sold. Any of these factors can materially and adversely affect our business and results of operations.
We qualify for exemption as a “controlled company” from compliance with certain New York Stock Exchange corporate governance rules, including the requirements that we have a majority of independent directors on our Board, an 21 independent compensation committee and an independent corporate governance and nominating committee.
We qualify for exemption as a “controlled company” from compliance with certain New York Stock Exchange corporate governance rules, including the requirements that we have a majority of independent directors on our Board, an independent compensation committee and an independent corporate governance and nominating committee.
Our ability to attract consumers and grow our revenues is dependent on the success of our store location strategy and our ability to successfully open new stores as planned. Our sales are dependent in part on the location of our stores in shopping centers and malls where we believe our consumers and potential consumers shop.
Our ability to attract consumers and grow our revenues is dependent on the success of our store location strategy and our ability to successfully open new stores as planned. 14 Our sales are dependent in part on the location of our stores in shopping centers and malls where we believe our consumers and potential consumers shop.
Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our 19 management’s attention or otherwise adversely affect our business, results of operations and financial condition.
Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.
A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations. 17 The distribution of our products is centralized in one distribution center in Charlotte, North Carolina and distributed through our network of third-party freight carriers.
A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations. The distribution of our products is centralized in one distribution center in Charlotte, North Carolina and distributed through our network of third-party freight carriers.
To the extent we explore other countries to source our product or explore increasing the amount of product sourced from current countries, we may be subject to additional increased legal and operational risks associated with doing business in new countries or increasing our business in other countries.
To the extent we explore other countries to source our product or explore 12 increasing the amount of product sourced from current countries, we may be subject to additional increased legal and operational risks associated with doing business in new countries or increasing our business in other countries.
Changes in accounting rules or regulations and varying interpretations of existing accounting rules and regulations have significantly affected our reported financial statements and those of other participants in the retail industry in the past and may continue to do so in the future.
Changes in accounting rules, disclosures or regulations and varying interpretations of existing accounting rules, disclosures and regulations have significantly affected our reported financial statements and those of other participants in the retail industry in the past and may continue to do so in the future.
We cannot give assurance that our disclosure controls and procedures and our internal control over financial 20 reporting, as defined by applicable SEC rules, will be adequate in the future.
We cannot give assurance that our disclosure controls and procedures and our internal control over financial reporting, as defined by applicable SEC rules, will be adequate in the future.
If we miscalculate either the market for our merchandise or our customers’ tastes or purchasing habits, we may be required 14 to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which would adversely affect our margins and results of operations.
If we miscalculate either the market for our merchandise or our customers’ tastes or purchasing habits, we may be required to sell a significant amount of inventory at below-average markups over cost, or below cost, which would adversely affect our margins and results of operations.
Our ability to raise retail prices in response to these cost increases is limited, in part due to our customers’ unwillingness to pay higher prices for discretionary items in light of actual or perceived 11 effects of inflation in increasing our customers’ cost of essential items and diminishing customers’ disposable income or financial outlook.
Our ability to raise retail prices in response to these cost increases is limited, in part due to our customers’ unwillingness to pay higher prices for discretionary items in light of actual or perceived effects of inflation in increasing our customers’ cost of essential items and diminishing customers’ disposable income, sentiment or financial outlook.
Despite the precautions we take, our information systems are or may be vulnerable to disruption or failure from numerous events, including but not limited to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts of war or terrorism, similar catastrophic events or other causes beyond our control or that we fail to anticipate.
Despite the precautions we take, our information systems are or may be vulnerable to disruption or failure from numerous events, including but not limited to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyberattacks, acts of war or terrorism, similar catastrophic events or other causes beyond our control or that we fail to anticipate.
Increasing interest rates have adversely affected our customers’ discretionary income, in part due to increased interest costs associated with credit accounts including revolving credit accounts, car loans, mortgage loans and other credit accounts. In addition, the increased payments due to higher interest rates deter our customers from purchasing discretionary items such as apparel, shoes and jewelry.
Continued high interest rates have adversely affected our customers’ discretionary income, in part due to increased interest costs associated with credit accounts including revolving credit accounts, car loans, mortgage loans and other credit accounts. In addition, the increased payments due to higher interest rates deter our customers from purchasing discretionary items such as apparel, shoes and jewelry.
Cato, Chairman, President and Chief Executive Officer, beneficially owned approximately 51.0% of the combined voting power of our common stock. As a result, Mr.
Cato, Chairman, President and Chief Executive Officer, beneficially owned approximately 51.9% of the combined voting power of our common stock. As a result, Mr.
Risks Relating to Our Business: Increasing interest rates and inflationary conditions have and may continue to adversely impact our customers’ discretionary income or willingness to purchase discretionary items, which may adversely affect our business, margins, results of operations and financial condition.
Risks Relating to Our Business: Continued high interest rates and inflationary conditions have and may continue to adversely impact our customers’ discretionary income or willingness to purchase discretionary items, which may adversely affect our business, margins, results of operations and financial condition.
Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season can render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions would adversely affect our business.
For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season can render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions would adversely affect our business.
Tight labor markets are causing wages to increase at the store, distribution center and home office levels, as well as making it more difficult to hire new associates and retain existing associates. The tight labor market and inflation also are driving up our operating costs.
Tight labor markets have caused wages to increase at the store, distribution center and home office levels, as well as making it more difficult to hire new associates and retain existing associates. The tight labor market and continued inflation also are driving up our operating costs.
Factors affecting comparable sales include fashion trends, customer preferences, calendar and holiday shifts, competition, weather, supply chain issues, actual or potential public health threats and economic conditions, including but not limited to increasing interest rates and higher inflation. In addition, merchandise must be ordered well in advance of the applicable selling season and before trends are confirmed by sales.
Factors affecting sales include fashion trends, customer preferences, calendar and holiday shifts, competition, weather, supply chain issues, actual or potential public health threats and economic conditions, including but not limited to continued high interest rates and persistent inflation. In addition, merchandise must be ordered well in advance of the applicable selling season and before trends are confirmed by sales.
Risks Relating to the Market Value of Our Common Stock: The interests of our principal shareholder may limit the ability of other shareholders to influence the direction of the Company and otherwise affect our corporate governance and the market price of our common stock. As of March 23, 2023, John P. D.
Risks Relating to the Market Value of Our Common Stock: The interests of our principal shareholder may limit the ability of other shareholders to influence the direction of the Company and otherwise affect our corporate governance and the market price of our common stock. As of March 27, 2024, John P. D.
Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise; changes, disruptions, increased costs or other problems affecting the Company’s merchandise supply chain have and could continue to materially and adversely affect the Company’s business, results of operations and financial condition.
Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with changes, disruptions, increased costs or other problems affecting the Company’s merchandise supply chain; the risks of conducting international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise have and could continue to materially and adversely affect the Company’s business, results of operations and financial condition. 11 A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia.
The development or persistence of any of these adverse factors or failure to comply with covenants on which our borrowing is conditioned may adversely affect our financial condition, results of operations and our ability to execute our business strategy.
The development or persistence of any 21 of these adverse factors or failure to comply with covenants on which our borrowing is conditioned may adversely affect our financial condition, results of operations and our ability to access our revolving line of credit and to execute our business strategy.
As a result, political unrest, labor disputes, terrorism, war, public health threats, including but not limited to communicable diseases (such as COVID-19), financial or other forms of instability or other events resulting in the disruption of trade from countries affecting our supply chain, increased security requirements for imported merchandise, or the imposition of, or changes in, laws, regulations or changes in duties, quotas, tariffs, taxes or governmental policies regarding or responses to these matters or other factors affecting the availability or cost of imports, can cause significant delays or interruptions in the supply of our merchandise or increase our costs.
These risks include political unrest, labor disputes, terrorism, war, public health threats, including but not limited to communicable diseases (such as COVID-19), financial or other forms of instability or other events resulting in the disruption of trade from countries affecting our supply chain, increased security requirements for imported merchandise, or the imposition of, or changes in, laws, regulations or changes in duties, quotas, tariffs, taxes or governmental policies regarding or responses to these matters or other factors affecting the availability or cost of imports.
Inflationary pressures limit our customers’ willingness to purchase apparel, shoe or jewelry products, as prices associated with non-discretionary products including food and fuel are increasing, reducing our customers’ discretionary income. Any reduction in our customers’ discretionary spending on our products could erode our sales volume and adversely affect our results of operations and financial condition.
Continued inflationary pressures limit our customers’ willingness to purchase apparel, shoe or jewelry products, as prices associated with non-discretionary items, including food, fuel and shelter costs increase or remain high, reducing our customers’ discretionary income. Any reduction in our customers’ discretionary spending on our products could erode our sales volume and adversely affect our results of operations and financial condition.
Furthermore, evolving ESG laws, regulations and stakeholder expectations may result in uncertain and potentially burdensome reporting requirements as stakeholders, agencies and government authorities adjust their expectations or change laws and regulations, such as proposals currently under consideration regarding climate emissions reporting and auditing requirements.
Furthermore, evolving ESG laws, regulations and stakeholder expectations may result in uncertain and potentially burdensome reporting requirements as stakeholders, agencies and government authorities adjust their expectations or change laws and regulations, such as the new rules regarding climate emissions reporting and auditing requirements.
Primarily these arise from our normal course of business but are subject to risks and uncertainties, and could require significant management time.
Primarily these arise in the normal course of business but are subject to risks and uncertainties, and could 20 require significant management time.
If we are forced to source merchandise from other countries or other domestic vendors with foreign sources in different countries, those goods may be more expensive or of a different or inferior quality from the ones we now sell.
If we are forced to source merchandise from other countries or other domestic vendors with foreign sources in different countries, those goods may be more expensive or of a different or inferior quality from the ones we now sell. The operation of our sourcing offices in Asia presents increased operational and legal risks.
A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia. We directly import some of this merchandise and indirectly import the remaining merchandise from domestic vendors who acquire the merchandise from foreign sources. Further, our third-party vendors are dependent on materials primarily sourced from China.
We directly import some of this merchandise and indirectly import the remaining merchandise from domestic vendors who acquire the merchandise from foreign sources. Further, our third-party vendors are dependent on materials primarily sourced from China.
Further, the activities conducted by our sourcing offices outside the United States subject us to foreign operational risks, as well as U.S. and international regulations and compliance risks, as discussed elsewhere in this “Risk Factors” section, in particular below under “Risk Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” Failure to attract, train, and retain skilled personnel could adversely affect our business and our financial condition.
Further, the activities conducted by our sourcing offices outside the United States subject us to foreign operational risks, as well as U.S. and international regulations and compliance risks, as discussed elsewhere in this “Risk Factors” section, in particular below under “Risk Factors – Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.” Any actual or perceived deterioration in the conditions that drive consumer confidence and spending have and may continue to materially and adversely affect consumer demand for our apparel and accessories and our results of operations.
We rely on our existing information technology systems for merchandise operations, including merchandise planning, replenishment, pricing, ordering, markdowns and product life cycle management. In addition to merchandise operations, we utilize our information technology systems for our distribution processes, as well as our financial systems, including accounts payable, general ledger, accounts receivable, sales, banking, inventory and fixed assets.
In addition to merchandise operations, we utilize our information technology systems for our distribution processes, as well as our financial systems, including accounts payable, general ledger, accounts receivable, sales, banking, inventory and fixed assets.
Our business varies with general seasonal trends that are characteristic of the retail apparel industry. As a result, our stores typically generate a higher percentage of our annual net sales and profitability in the first and second quarters of our fiscal year compared to other quarters.
As a result, our stores typically generate a higher percentage of our annual net sales and profitability in the first and second quarters of our fiscal year compared to other quarters.
If our sourcing offices are unable to successfully oversee merchandise production to ensure that product is produced on time and within the Company’s specifications, our business, brand, reputation, costs, results of operations and financial condition could be materially and adversely affected. 15 In addition, the current business environment, including geopolitical issues, make operating in certain Asian markets challenging.
In October 2014, we established our own sourcing offices in Asia. If our sourcing offices are unable to successfully oversee merchandise production to ensure that product is produced on time and within the Company’s specifications, our business, brand, reputation, costs, results of operations and financial condition could be materially and adversely affected.
Moreover, the persistence or worsening of inflationary conditions could also lead our customers to reduce their amount of current discretionary spending on our products even in the absence of price increases, which could erode our sales volume and adversely affect our results of operations and financial condition.
Moreover, the persistence or worsening of inflationary conditions and high interest rates could also lead our customers to reduce their amount of current discretionary spending on our products even in the absence of price increases, which could erode our sales volume and adversely affect our results of operations and financial condition. 13 Adverse developments affecting the financial services industry or events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties could adversely affect our business, financial condition or results of operations.
If we are unable to retain our key management and store associates or attract, train, or retain other skilled personnel in the future, we may not be able to service our customers effectively or execute our business strategy, which could adversely affect our business, operating results and financial condition.
If we are unable to retain our key management and store associates or attract, train, or retain other skilled personnel in the future, we may not be able to service our customers effectively or execute our business strategy, which could adversely affect our business, operating results and financial condition. 16 The currently competitive environment for hiring new associates and retaining existing associates is causing wages to increase, which has affected and could continue to adversely affect our business, margins, operating results and financial condition if we cannot offset these cost increases.
Any of these events could have a material adverse effect on our business, results of operations and financial condition. 13 Extreme weather, natural disasters, public health threats or similar events have and may continue to adversely affect our sales or operations from time to time.
Any reduction in our customers’ discretionary spending on our products could erode our sales volume and adversely affect our results of operations and financial condition. Extreme weather, natural disasters, impacts of climate change, public health threats or similar events have and may continue to adversely affect our sales or operations from time to time.
Extreme changes in weather, natural disasters, public health threats or similar events can influence customer trends and shopping habits. For example, heavy rainfall or other extreme weather conditions, including but not limited to winter weather over a prolonged period, might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability.
For example, heavy rainfall or other extreme weather conditions, including but not limited to winter weather over a prolonged period, might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions.
The Company may not realize any of the anticipated benefits of a new business and integration costs may exceed anticipated amounts. We have incurred substantial financial commitments and fixed costs related to our retail stores that we will not be able to recover if our stores are not successful and that have resulted and could result in future impairment charges.
We have incurred substantial financial commitments and fixed costs related to our retail stores that we will not be able to recover if our stores are not successful and that have resulted in and could result in future impairment charges. If we cannot successfully execute our growth strategies, our financial condition and results of operations may be adversely impacted.
Fluctuating comparable sales or our inability to effectively manage inventory have and may continue to negatively impact our gross margin and our overall results of operations. Comparable sales are expected to continue to fluctuate in the future.
Our inability to effectively manage inventory has impacted and may continue to negatively impact our gross margin and our overall results of operations.
If any such compromise or unauthorized access to or disclosure of this information were to occur, it could have a material adverse effect on the Company's reputation, business, operating results, financial condition and cash flows.
If our measures are unsuccessful due to cyberattacks or otherwise, it could have a material adverse effect on the Company's reputation, business, operating results, financial condition and cash flows.
If we elected to utilize these “controlled company” exceptions, our other shareholders could lose the benefit of these corporate governance requirements and the market value of our common stock could be adversely affected. Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of our common stock.
If we elected to utilize these “controlled company” exceptions, our other shareholders could lose the benefit of these corporate governance requirements and the market value of our common stock could be adversely affected. There can be no assurance that we will choose to declare or be able to declare cash dividends in the future.
To offset this turnover as well as support new store growth, we must continually attract, hire and train new store associates to meet our staffing needs.
Moreover, attracting and retaining skilled personnel has become increasingly challenging in the tight labor market that has persisted since the onset of the COVID-19 pandemic. To offset this turnover as well as support new store growth, we must continually attract, hire and train new store associates to meet our staffing needs.
Future changes to accounting rules or regulations may adversely affect our reported results of operations and financial position or perceptions of our performance and financial condition. Continued scrutiny and changing expectations surrounding environmental, social and governance (“ESG”) matters from investors, customers, government regulators and other stakeholders may impose additional reporting requirements, additional costs and compliance risks.
Risks Relating to Accounting and Legal Matters: Continued scrutiny and changing expectations surrounding environmental, social and governance (“ESG”) matters from investors, customers, government regulators and other stakeholders may impose additional reporting requirements, additional costs and compliance risks. Public companies from across all industries are facing increasing scrutiny from investors, customers, government regulators and other stakeholders concerning ESG matters.
Failure to comply with all of the currently proposed regulatory requirements in a timely manner may adversely affect our reputation, business and financial performance. If we fail to protect our trademarks and other intellectual property rights or infringe the intellectual property rights of others, our business, brand image, growth strategy, results of operations and financial condition could be adversely affected.
Failure to comply with all of the new rules and regulations and proposed regulatory requirements in a timely manner may adversely affect our reputation, business and financial performance. Changes to accounting rules and regulations may adversely affect our reported results of operations and financial condition. U.S.
Public companies from across all industries are facing increasing scrutiny from investors, customers, government regulators and other stakeholders concerning ESG matters. In the U.S., there are various proposals for new or enhanced disclosure requirements regarding climate emissions, sustainability, workforce diversity and other human capital resources metrics, among other topics.
In the U.S., there are various new rules or proposals for new or enhanced disclosure requirements regarding climate emissions, sustainability, workforce diversity and other human capital resources metrics, among other topics. Complying with these complex reporting obligations or expectations may increase our costs associated with compliance, disclosure and reporting.
If we cannot successfully execute our growth strategies, our financial condition and results of operations may be adversely impacted. Risks Relating to Our Information Technology and Related Systems: A failure or disruption relating to our information technology systems could adversely affect our business.
Risks Relating to Our Information Technology, Related Systems and Cybersecurity: A failure or disruption relating to our information technology systems could adversely affect our business. We rely on our existing information technology systems for merchandise operations, including merchandise planning, replenishment, pricing, ordering, markdowns and product life cycle management.
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We are also subject to supply chain disruptions affecting ocean freight, including lack of overall ocean container shipping capacity versus the current demand for container shipping capacity, lack of our ability to access the ocean container capacity that we require, lack of equipment such as containers, port congestion, including increased dwell times for ocean container ships, and other conditions impacting ocean freight.
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We are subject to supply chain disruptions affecting transit times and costs, including issues related to a sustained drought in Panama that is causing longer transit times through the Panama Canal and limiting the number of containers on a vessel due to vessel draft restrictions.
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Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional 12 counterparties, could adversely affect our business, financial condition or results of operations.
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We also face disruptions from issues related to vessels transiting the Suez Canal and Red Sea, which are being forced to travel a much longer distance around the Cape of Good Hope due to the hostilities in the Middle East.
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For example, on March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as receiver. Similarly, on March 12, 2023, Signature Bank was swept into receivership.
Added
These continued issues have and may continue to drive up our ocean freight costs, delay merchandise deliveries, and impact our ability to access the already limited supply of ocean container shipping capacity that we require.
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In addition on March 8, 2023, Silvergate Capital announced that it will liquidate its subsidiary, Silvergate Bank, and that the liquidation process is being supervised by the California Department of Financial Protection and Innovation.
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As a result, we are subject to numerous risks that can cause significant delays or interruptions in the supply of our merchandise or increase our costs.
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Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder.
Added
In addition, the current business environment, including geopolitical issues, make operating in certain Asian markets challenging.
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Any reduction in our customers’ discretionary spending on our products could erode our sales volume and adversely affect our results of operations and financial condition. Any actual or perceived deterioration in the conditions that drive consumer confidence and spending have and may continue to materially and adversely affect consumer demand for our apparel and accessories and our results of operations.
Added
Any of these events could have a material adverse effect on our business, results of operations and financial condition.
Removed
A decrease in comparable sales or our inability to effectively manage inventory may adversely affect our gross margin and results of operations. The operation of our sourcing offices in Asia present increased operational and legal risks. In October 2014, we established our own sourcing offices in Asia.
Added
Extreme changes in weather, natural disasters, physical impacts of climate change, public health threats or similar events can influence customer trends and shopping habits.
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Like most retailers, we experience significant associate turnover rates, particularly among store sales associates and managers. Moreover, attracting and retaining skilled personnel has become increasingly challenging in the tight labor market that has persisted since the onset of the COVID-19 pandemic.
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The long-term impacts of global climate change are expected to be unpredictable and widespread. The potential impacts of climate change present a variety of potential risks. The physical effects of climate change such as extreme weather and drought could adversely affect our results of operations, including disrupting our supply chain, the costs of our products and negatively impacting our workforce.
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The currently competitive environment for hiring new associates and retaining existing associates is causing wages to increase, which has and could continue to adversely affect our business, margins, operating results and financial condition if we cannot offset these cost increases.
Added
In addition, the potential impacts of climate change present transition risks including regulatory and reputational risks. The potential cost of compliance with any future regulations may substantially increase our costs.
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Risks Relating to Accounting and Legal Matters: 18 Changes to accounting rules and regulations may adversely affect our reported results of operations and financial condition. In an effort to provide greater comparability of financial reporting in an increasing global environment, accounting regulatory authorities have been in discussions for many years regarding efforts to either converge U.S.
Added
For example, the use of certain commodities in the manufacture of our products and energy we use in our operations may face increased regulation due to climate change or other environmental concerns, which could increase our costs.
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Generally Accepted Accounting Principles with International Financial Reporting Standards (“IFRS”), have U.S. companies provide supplemental IFRS-based information or continue to work toward a single set of globally accepted accounting standards. If implemented, these potential changes in accounting rules or regulations could significantly impact our future reported results of operations and financial position.
Added
Furthermore, any failure of or perceived failure by us to comply with any potential future climate change regulatory requirements including stakeholder expectations regarding the environment, could adversely affect our reputation and results of operations.
Removed
Complying with these complex reporting obligations or expectations may increase our costs associated with compliance, disclosure and reporting.
Added
Our inability to effectively manage inventory may adversely affect our gross margin and results of operations. Failure to attract, train, and retain skilled personnel could adversely affect our business and our financial condition. Like most retailers, we experience significant associate turnover rates, particularly among store sales associates and managers.
Added
The Company may not realize any of the anticipated benefits of a new business and integration costs may exceed anticipated amounts.
Added
Generally Accepted Accounting Principles and SEC accounting, disclosures and reporting changes are common and have become more frequent and significant in the past several years.
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Future changes to accounting rules, disclosures or regulations may adversely affect our reported results of operations and financial position or perceptions of our performance and financial condition.
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Although we have registered these trademarks with the U.S.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company also owns approximately 185 acres of land in York County, South Carolina as a potential new site for our distribution center. 22
Biggest changeThe Company also owns approximately 185 acres of land in York County, South Carolina as a potential new site for our distribution center. 24

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 15, “Commitments and Contingencies,” for more information. 23
Biggest changeSee Note 15, “Commitments and Contingencies,” for more information. 25

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRETAILERS, APPL INDEX RUSSELL 2000 INDEX 2/2/2018 100 100 100 2/1/2019 135 109 96 1/31/2020 160 121 105 1/29/2021 116 130 137 1/28/2022 173 143 136 1/27/2023 111 157 131 The graph assumes an initial investment of $100 on February 2, 2018, the last trading day prior to the commencement of the Company’s 2018 fiscal year, and that all dividends were reinvested. 26 Issuer Purchases of Equity Securities The following table summarizes the Company’s purchases of its common stock for the three months ended January 28, 2023: Total Number of Maximum Number Shares Purchased as (or Approximate Dollar Total Number Part of Publicly Value) of Shares that may of Shares Average Price Announced Plans or yet be Purchased Under Period Purchased Paid per Share (1) Programs (2) the Plans or Programs (2) November 2022 - $ - - December 2022 403,426 9.06 403,426 January 2023 - - - Total 403,426 $ 9.06 403,426 197,769 (1) Prices include trading costs.
Biggest changeRETAILERS, APPL INDEX RUSSELL 2000 INDEX 2/1/2019 100 100 100 1/31/2020 118 111 109 1/29/2021 86 119 142 1/28/2022 128 132 140 1/27/2023 82 144 136 2/2/2024 61 161 139 The graph assumes an initial investment of $100 on February 1, 2019, the last trading day prior to the commencement of the Company’s 2019 fiscal year, and that all dividends were reinvested. 28 Issuer Purchases of Equity Securities The following table summarizes the Company’s purchases of its common stock for the three months ended February 3, 2024: Total Number of Maximum Number Shares Purchased as (or Approximate Dollar Total Number Part of Publicly Value) of Shares that may of Shares Average Price Announced Plans or yet be Purchased Under Period Purchased Paid per Share (1) Programs (2) the Plans or Programs (2) November 2023 - $ - - December 2023 - - - January 2024 - - - Total - $ - - 909,653 (1) Prices include trading costs.
As of March 23, 2023, the approximate number of record holders of the Company’s Class A Common Stock was 5,000 and there were 2 record holders of the Company’s Class B Common Stock. 25 Stock Performance Graph The following graph compares the yearly change in the Company’s cumulative total shareholder return on the Company’s Common Stock (which includes Class A Stock and Class B Stock) for each of the Company’s last five fiscal years with (i) the Dow Jones U.S.
As of March 25, 2024, the approximate number of record holders of the Company’s Class A Common Stock was 5,000 and there were 2 record holders of the Company’s Class B Common Stock. 27 Stock Performance Graph The following graph compares the yearly change in the Company’s cumulative total shareholder return on the Company’s Common Stock (which includes Class A Stock and Class B Stock) for each of the Company’s last five fiscal years with (i) the Dow Jones U.S.
(2) During the fourth quarter ended January 28, 2023, the Company repurchased and retired 403,426 shares under this program for approximately $3,655,405 or an average market price of $9.06 per share. As of the fourth quarter ended January 28, 2023, the Company had 197,769 shares remaining in open authorizations. There is no specified expiration date for the Company’s repurchase program.
(2) During the fourth quarter ended February 3, 2024, the Company did not repurchase or retire any shares under this program. As of February 3, 2024, the Company had 909,653 shares remaining in open authorizations. There is no specified expiration date for the Company’s repurchase program. 29
Removed
The Board of Directors authorized an increase in the Company’s share repurchase program of 1,000,000 shares at the February 23, 2023 Board of Directors’ meeting. 27

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

43 edited+14 added−13 removed21 unchanged
Biggest changeWe expect these pressures to continue throughout fiscal 2023. 28 Results of Operations The table below sets forth certain financial data of the Company expressed as a percentage of retail sales for the years indicated: Fiscal Year Ended January 28, 2023 January 29, 2022 Retail sales ………………………………………………………….. 100.0 % 100.0 % Other revenue………………………………………………………… 0.9 1.0 Total revenues ………………………………………………………. 100.9 101.0 Cost of goods sold ………………………………………………….. 67.7 59.5 Selling, general and administrative…………………………………. 32.3 35.1 Depreciation ………………………………………………………… 1.5 1.6 Interest and other income …………………………………………… 0.8 0.3 Income before income taxes ………………………………………… 0.2 5.1 Net income ………………………………………………………….. - % 4.8 % Fiscal 2022 Compared to Fiscal 2021 Retail sales decreased by 1.2% to $752.4 million in fiscal 2022 compared to $761.4 million in fiscal 2021.
Biggest changeBoth of these situations have negatively impacted 2023 and will likely continue to have a negative impact on our results of operations and financial condition during fiscal 2024. 30 Results of Operations The table below sets forth certain financial data of the Company expressed as a percentage of retail sales for the years indicated: Fiscal Year Ended February 3, 2024 January 28, 2023 Retail sales ………………………………………………………….. 100.0 % 100.0 % Other revenue………………………………………………………… 1.1 0.9 Total revenues ………………………………………………………. 101.1 100.9 Cost of goods sold ………………………………………………….. 66.3 67.7 Selling, general and administrative…………………………………. 36.1 32.3 Depreciation ………………………………………………………… 1.4 1.5 Interest and other income …………………………………………… 0.7 0.8 Income (loss) before income taxes ………………………………………… (2.0) 0.2 Net income (loss)…………………………………………………………..
As disclosed in Note 1 of Notes to the Consolidated Financial Statements, the preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
As disclosed in Note 1 to the Consolidated Financial Statements, the preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
Since quoted prices in active markets for identical assets are not available, these prices are determined by the pricing service using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other factors. Deferred compensation plan assets consist primarily of life insurance policies.
Since quoted prices in active markets for 35 identical assets are not available, these prices are determined by the pricing service using observable market information such as quotes from less active markets and/or quoted prices of securities with similar characteristics, among other factors. Deferred compensation plan assets consist primarily of life insurance policies.
Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change. Insurance Liabilities The Company is primarily self-insured for healthcare, workers’ compensation and general liability costs.
Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change. 33 Insurance Liabilities The Company is primarily self-insured for healthcare, workers’ compensation and general liability costs.
The Level 3 liability associated with the life insurance policies represents a deferred compensation obligation, the value of which is tracked via 33 underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the Consolidated Balance Sheets.
The Level 3 liability associated with the life insurance policies represents a deferred compensation obligation, the value of which is tracked via underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the Consolidated Balance Sheets.
Stores that have been relocated or expanded are also included in the same-store sales calculation after they have been open more than 15 months. In fiscal 2022 and fiscal 2021, e-commerce sales were less than 6% and 5% of total sales and same-store sales, respectively. The method of calculating same-store sales varies across the retail industry.
Stores that have been relocated or expanded are also included in the same-store sales calculation after they have been open more than 15 months. In fiscal 2023 and fiscal 2022, e-commerce sales were less than 5% and 6% of total sales and same-store sales, respectively. The method of calculating same-store sales varies across the retail industry.
Most store leases also require payment of related operating expenses such as taxes, utilities, insurance and maintenance, which are not included in our estimated lease obligations. See Note 11, Leases in Notes to the Consolidated Financial Statements for the maturities of our operating lease obligations.
Most store leases also require payment of related operating expenses such as taxes, utilities, insurance and maintenance, which are not included in our estimated lease obligations. See Note 11 to the Consolidated Financial Statements, “Leases” for the maturities of our operating lease obligations.
Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022.
Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s annual report on Form 10-K for the fiscal year ended January 28, 2023.
Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts receivable, gift card breakage, shipping charges for e-commerce purchases and layaway fees), decreased by 1.3% to $759.3 million in fiscal 2022 compared to $769.3 million in fiscal 2021.
Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts receivable, gift card breakage, shipping charges for e-commerce purchases and layaway fees), decreased by 6.7% to $708.1 million in fiscal 2023 compared to $759.3 million in fiscal 2022.
These funds are designed to mirror the return of existing mutual funds and money market funds that are observable and actively traded. Contractual Obligations Contractual obligations for future payments at January 28, 2023 relate primarily to operating lease commitments for store leases. Operating leases represent minimum required lease payments under non- cancellable lease terms.
These funds are designed to mirror the return of existing mutual funds and money market funds that are observable and actively traded. Contractual Obligations Contractual obligations for future payments at February 3, 2024 relate primarily to operating lease commitments for store leases. Operating leases represent minimum required lease payments under non- cancellable lease terms.
See Note 11 for further information. Impairment of Long-Lived Assets The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware.
See Note 11 to the Consolidated Financial Statements, “Leases” for further information. Impairment of Long-Lived Assets The Company invests in leaseholds, right-of use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware.
At January 28, 2023, the Company had an unsecured revolving credit agreement, which provided for borrowings of up to $35.0 million less the balance of any revocable letters of credit related to purchase commitments, and was committed through May 2027.
At February 3, 2024, the Company had an unsecured revolving credit agreement, which provided for borrowings of up to $35.0 million less the balance of any revocable letters of credit related to purchase commitments, and was committed through May 2027.
Liquidity, Capital Resources and Market Risk The Company believes that its cash, cash equivalents and short-term investments, together with cash flows from operations, will be adequate to fund the Company’s regular operating requirements, including $71.9 million of lease obligations and planned investments of $22.1 million of capital expenditures, for fiscal 2023 and for the foreseeable future.
Liquidity, Capital Resources and Market Risk The Company believes that its cash, cash equivalents and short-term investments, together with cash flows from operations, will be adequate to fund the Company’s regular operating requirements, including $66.9 million of lease obligations and planned investments of $8.7 million of capital expenditures, for fiscal 2024 and for the foreseeable future.
Cash provided by operating activities during fiscal 2022 was $13.4 million as compared to $59.8 million provided in fiscal 2021 and $30.7 million used in fiscal 2020. Cash provided by operating activities during 2022 was primarily attributable to net income adjusted for depreciation, share-based compensation, impairment and changes in working capital.
Cash provided by operating activities during fiscal 2023 was $0.5 million as compared to $13.4 million in fiscal 2022 and $59.8 in fiscal 2021. Cash provided by operating activities during 2023 was primarily attributable to net income adjusted for depreciation, share-based compensation, impairment and changes in working capital.
These costs are significant primarily due to the large number of the Company’s retail locations and associates. The Company’s self-insurance liabilities are based on the total estimated costs of claims filed 31 and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted.
These costs are significant primarily due to the large number of the Company’s retail locations and associates. The Company’s self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted. Management reviews current and historical claims data in developing its estimates.
Income tax expense was $1.7 million, or 0.2% of retail sales in fiscal 2022 compared to income tax expense of $2.1 million, or 0.3% of retail sales in fiscal 2021.
Income tax expense was $10.1 million, or 1.4% of retail sales in fiscal 2023 compared to income tax expense of $1.7 million, or 0.2% of retail sales in fiscal 2022.
Allowance for Customer Credit Losses The Company evaluates the collectability of customer accounts receivable and records an allowance for customer credit losses based on the accounts receivable aging and estimates of actual write-offs. The allowance is reviewed for adequacy and adjusted, as necessary, on a quarterly basis.
The Company’s critical accounting policies and estimates are discussed with the Audit Committee. Allowance for Customer Credit Losses The Company evaluates the collectability of customer accounts receivable and records an allowance for customer credit losses based on the accounts receivable aging and estimates of actual write-offs. The allowance is reviewed for adequacy and adjusted, as necessary, on a quarterly basis.
The most significant accounting estimates inherent in the preparation of the Company’s financial statements include the allowance for customer credit losses, inventory shrinkage, the calculation of potential asset impairment, workers’ compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, uncertain tax positions, and valuation of deferred tax assets. 30 The Company’s critical accounting policies and estimates are discussed with the Audit Committee.
The most significant accounting estimates inherent in the preparation of the Company’s financial statements include the calculation of potential asset impairment, income tax valuation allowances, reserves relating to self-insured health insurance, workers’ 32 compensation, general and auto insurance liabilities, uncertain tax positions, the allowance for customer credit losses, and inventory shrinkage.
Depreciation expense was $11.1 million in fiscal 2022 compared to $12.4 million in fiscal 2021. Depreciation expense decreased from fiscal 2021 due to fully depreciated older stores and prior period impairments of leasehold improvements and fixtures, partially offset by store development and information technology expenditures.
Depreciation expense decreased from fiscal 2022 due to fully depreciated older stores and prior period impairments of leasehold improvements and fixtures, partially offset by store development and information technology expenditures. Interest and other income decreased to $5.1 million in fiscal 2023 compared to $5.9 million in fiscal 2022.
In fiscal 2022, the cash provided was primarily attributable to the increase in net sales of short-term investments, partially offset by expenditures for property and equipment. Net cash used by financing activities totaled $29.3 million in fiscal 2022 compared to net cash used of $31.8 million for fiscal 2021 and $27.2 million for fiscal 2020.
Net cash provided by investing activities totaled $19.8 million for fiscal 2023 compared to $16.0 million provided in fiscal 2022 and $25.3 million used in fiscal 2021. In fiscal 2023, the cash provided was primarily attributable to the net sales of short-term investments, partially offset by expenditures for property and equipment.
The Company operated 1,280 stores at January 28, 2023 compared to 1,311 stores operated at January 29, 2022. In fiscal 2022, the Company opened 19 new stores and closed 50 stores. Other revenue, a component of total revenues, decreased to $6.9 million in fiscal 2022 from $7.9 million in fiscal 2021.
The Company operated 1,178 stores at February 3, 2024 compared to 1,280 stores operated at January 28, 2023. In fiscal 2023, the Company opened nine new stores and closed 111 stores. Other revenue, a component of total revenues, increased to $7.7 million in fiscal 2023 from $6.9 million in fiscal 2022.
Related expenses include principally payroll, postage and other administrative expenses and totaled $1.7 million in fiscal 2022 compared to $1.4 million in fiscal 2021. See Note 13 of Notes to Consolidated Financial Statements for a schedule of credit-related expenses. Total credit segment income before taxes was $0.6 million in fiscal 2022 and $0.6 million in fiscal 2021.
Related expenses include principally payroll, postage and other administrative expenses and totaled $1.7 million in fiscal 2023 compared to $1.7 million in fiscal 2022. See Note 13 to the Consolidated Financial Statements, “Reportable Segment Information” for a schedule of credit-related expenses.
Management reviews current and historical claims data in developing its estimates. The Company also uses information provided by outside actuaries with respect to healthcare, workers’ compensation and general liability claims.
The Company also uses information provided by outside actuaries with respect to healthcare, workers’ compensation and general liability claims.
We believe that these price increases and rising interest rates have had an impact during fiscal 2022, and will likely continue to have a negative impact on consumer behavior and, by extension, our results of operations and financial condition during fiscal 2023.
We believe continued inflation and high interest rates negatively impacted fiscal 2023 and will likely continue to have a negative impact on consumer behavior and, by extension, our results of operations and financial condition during fiscal 2024.
The decrease resulted primarily due to decreases in gift card breakage income and e-commerce shipping revenues, partially offset by an increase in finance and layaway charges. Credit revenue of $2.2 million represented 0.3% of total revenue in fiscal 2022, a $0.1 million increase compared to fiscal 2021 credit revenue of $2.1 million or 0.3% of total revenue.
The increase was due to increases in gift card breakage and finance charges associated with the Company’s proprietary credit card, partially offset by decreases in e-commerce shipping revenue. Credit revenue of $2.6 million represented 0.4% of total revenue in fiscal 2023, a $0.4 million increase compared to fiscal 2022 credit revenue of $2.2 million or 0.3% of total revenue.
The decrease in retail sales in fiscal 2022 was primarily due to a 1% decrease in same-store sales and sales from closed stores in 2021, partially offset by stores opened in 2022.
The decrease in retail sales in fiscal 2023 was primarily due to a 5.9% decrease in same-store sales and sales from closed stores in 2022 and stores closed in the first half of 2023, partially offset by an additional week of sales in 2023 and a small increase in sales from stores opened in 2023.
The following information should be read in conjunction with the Consolidated Financial Statements, including the accompanying Notes appearing in Part II, Item 8 of this report on Form 10-K. This section of the Form 10-K generally discusses fiscal 2022 and fiscal 2021 and year-to- year comparisons between fiscal 2022 and fiscal 2021, as well, as certain fiscal 2020 items.
The following information should be read in conjunction with the Consolidated Financial Statements, including the accompanying Notes appearing in Part II, Item 8 of this annual report on Form 10-K.
The asset-backed securities are bonds comprised of auto loans and bank credit cards that carry AAA ratings. The auto loan asset-backed securities are backed by static pools of auto loans that were originated and serviced by captive auto finance units, banks or finance companies.
The auto loan asset-backed securities are backed by static pools of auto loans that were originated and serviced by captive auto finance units, banks or finance companies. The bank credit card asset-backed securities are backed by revolving pools of credit card receivables generated by account holders of cards from American Express, Citibank, JPMorgan Chase, Capital One, and Discover.
At January 29, 2022, the Company had $0.8 million of corporate equities, which are recorded within Other assets in the Consolidated Balance Sheets. Level 1 category securities are measured at fair value using quoted active market prices. Level 2 investment securities include corporate and municipal bonds for which quoted prices may not be available on active exchanges for identical instruments.
Additionally, at February 3, 2024 and January 28, 2023, the Company had $1.1 and $0.9 million, respectively, of corporate equities, which are recorded within Other assets in the accompanying Consolidated Balance Sheets. Level 1 category securities are measured at fair value using quoted active market prices.
Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, and freight and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses for the buying departments and distribution center.
Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses for the buying departments and distribution center. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities.
Treasury Notes have contractual maturities which range from three days to 1.6 years. These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash, Restricted short-term investments and Other assets on the accompanying Consolidated Balance Sheets. These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive income.
The state, municipal and corporate bonds and asset-backed securities have contractual maturities which range from seven days to 3.1 years. The U.S. Treasury Notes have contractual maturities which range from four days to 2.0 years. These securities are classified as available-for-sale and are recorded as Short-term investments, Restricted cash, and Other assets on the accompanying Consolidated Balance Sheets.
Gross margin as presented may not be comparable to that of other companies. Selling, general and administrative expenses (“SG&A”), which primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees were $242.6 million in fiscal 2022 compared to $267.0 million in fiscal 2021, a decrease of 9.1%.
Selling, general and administrative expenses (“SG&A”), which primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees were $252.8 million in fiscal 2023 compared to $242.6 million in fiscal 2022, an increase of 4.2%. As a percent of retail sales, SG&A was 36.1% compared to 32.3% in the prior year.
Recent Accounting Pronouncements See Note 1, Summary of Significant Accounting Policies, Recently Adopted Accounting Policies and Recently Issued Accounting Pronouncements.
Recent Accounting Pronouncements See Note 1 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies, Recently Issued Accounting Pronouncements.”
The increase is primarily attributable to receiving a Business Recovery Grant from the State of North Carolina, proceeds from property insurance claims related to hurricanes in fiscal years 2021 and 2020 and an increase in interest income from short-term investments due to rising interest rates, partially offset by lower short-term investments.
The decrease is primarily attributable to receiving a Business Recovery Grant from the State of North Carolina in fiscal 2022, partially offset by higher amounts earned on investments due to higher interest rates.
The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of January 28, 2023. There were no borrowings outstanding under this credit facility 32 as of the fiscal year ended January 28, 2023 or the fiscal year ended January 29, 2022.
The credit agreement contains various financial covenants and limitations, including the maintenance of specific financial ratios with which the Company was in compliance as of February 3, 2024.
At January 28, 2023, the Company had working capital of $74.7 million compared to $111.5 million and $108.6 million at January 29, 2022 and January 30, 2021, respectively. The decrease in working capital compared to the prior year is primarily due to lower short-term investments and lower inventory, partially offset by lower accounts payable and accrued bonus and benefits.
The decrease of $12.9 million for fiscal 2023 compared to fiscal 2022 is primarily due to lower net operating income partially offset by a decrease in merchandise inventories and deferred taxes. At February 3, 2024, the Company had working capital of $55.1 million compared to $74.7 million and $111.5 million at January 28, 2023 and January 29, 2022, respectively.
The expenditures for fiscal 2022 were primarily for additional investments in 19 new stores, distribution center and information technology. Net cash provided by investing activities totaled $16.0 million for fiscal 2022 compared to $25.3 million used in fiscal 2021 and $64.5 million provided for fiscal 2020.
Expenditures for property and equipment totaled $12.5 million, $19.4 million and $4.1 million in fiscal 2023, 2022 and 2021, respectively. The expenditures for fiscal 2023 were primarily for additional investments in nine new stores, our distribution center and information technology.
Their fair value is principally based on market values determined by management with assistance of a third-party pricing service.
Level 2 investment securities include corporate and municipal bonds for which quoted prices may not be available on active exchanges for identical instruments. Their fair value is principally based on market values determined by management with the assistance of a third-party pricing service.
In addition, the rising interest rates are increasing the costs related to revolving credit, auto loans and mortgages, which increasingly is negatively impacting our customers’ discretionary income. In addition, rising interest rates may negatively impact our customers’ willingness to purchase our products.
These high interest rates have adversely affected the availability and cost of credit for both businesses and our customers. Increasing costs related to revolving credit, auto loans and mortgages continue to negatively impact our customers’ discretionary income. Our customers’ willingness to purchase our products may continue to be negatively impacted by these inflationary pressures and high interest rates.
The income tax expense decrease was primarily due to lower pre-tax income and lower federal, state and local tax benefits, partially offset by Global Intangible Low-taxed Income (“GILTI”) and non-deductible officer’s compensation. The effective tax rate was 98.4% (Expense) in fiscal 2022 compared to 5.4% (Expense) in fiscal 2021.
The income tax expense increase was primarily due to a valuation allowance recorded against U.S. federal and state deferred tax assets due to a pre-tax loss, partially offset by foreign rate differential. The effective tax rate was (73.5%) (Expense) in fiscal 2023 compared to 98.4% (Expense) in fiscal 2022.
Same-store sales for the fiscal year 2022 decreased primarily due to lower average unit selling price resulting from late arriving merchandise due to supply chain disruptions in the first half of 2022. Same-store sales includes stores that have been open more than 15 months.
Fiscal 2023 had 53 weeks versus 52 weeks in fiscal 2022. Same-store sales for the fiscal year 2023 decreased primarily due to lower transactions, partially offset by fewer returns and slightly higher average sales per transaction. Same-store sales includes stores that have been open more than 15 months.
Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities. Total gross margin dollars (retail sales less cost of goods sold and excluding depreciation) decreased by 21.3% to $242.7 million in fiscal 2022 from $308.3 million in fiscal 2021.
Total gross margin dollars (retail sales less cost of goods sold and excluding depreciation) decreased by 2.8% to $236.0 million in fiscal 2023 from $242.7 million in fiscal 2022. Gross margin as presented may not be comparable to that of other companies.
The Company’s investment portfolio was primarily invested in corporate bonds and tax-exempt and taxable governmental debt securities held in managed accounts with underlying ratings of A or better at January 28, 2023. The state, municipal and corporate bonds and asset-backed securities have contractual maturities which range from six days to 3.9 years. The U.S.
See Note 4 to the Consolidated Financial Statements, “Fair Value Measurements,” for information regarding the Company’s financial assets that are measured at fair value. The Company’s investment portfolio was primarily invested in corporate bonds and taxable governmental debt securities held in managed accounts with underlying ratings of A or better at February 3, 2024.
Removed
Recent Developments Inflationary Cost Pressure and Rising Interest Rates The current high inflationary environment continues to impact the Company through higher operating costs, including costs to ship our products to stores and customers, operating supplies, wages, and fuel.
Added
This section of the annual report on Form 10-K generally discusses fiscal 2023 and fiscal 2022 and year-to-year comparisons between fiscal 2023 and fiscal 2022, as well as certain fiscal 2021 items.
Removed
In addition to the price increases, costs for fuel, food, and housing, including rent, as well as other consumables across the economy, are increasingly impacting our customers’ disposable income, as well as our customers’ willingness to purchase discretionary items such as apparel, jewelry or shoes.
Added
Recent Developments Inflationary Cost Pressure and High Interest Rates Our customers’ disposable income was negatively impacted by high interest rates and continued inflation related to fuel, food, housing, including rent, and other consumable products and a flattening of wage rates in 2023.
Removed
In response to the inflationary pressures, the Federal Reserve began raising interest rates and is committed to continue raising interest rates until the inflationary pressures subside. These rising interest rates have adversely affected the availability and cost of credit for businesses and our customers.
Added
The persistence of high interest rates and inflation negatively affected our customers’ willingness to purchase discretionary items such as apparel, jewelry and shoes. Though the Federal Reserve paused raising rates in the fall of 2023, it has indicated it is committed to maintaining interest rates at or near these elevated levels until inflation subsides to its targeted levels.
Removed
Labor Challenges and Wage Inflation The COVID-19 pandemic and the resulting factors above have also created challenges related to the availability of sufficient labor from time to time, and have caused a significant increase in the competition for labor among consumer-facing companies.
Added
Merchandise Supply Chain A significant amount of our merchandise is manufactured overseas, principally Southeast Asia, and traverses through the Panama Canal or the Suez Canal.
Removed
This competition for labor has driven significant increases in wages in order to compete for sufficient labor availability and/or to prevent the loss of existing workforce in our stores, distribution center and corporate office.
Added
Due to a sustained regional drought, the Panama Canal has reduced the number of transits by approximately 37% and has also reduced the permissible draft of vessels transiting the Panama Canal, which reduces the volume and number of containers carried by container ships and increases our costs.
Removed
Cost of goods sold was $509.7 million, or 67.7% of retail sales, in fiscal 2022 compared to $453.1 million, or 59.5% of retail sales, in fiscal 2021. The increase in cost of goods sold as a percentage of sales resulted primarily from higher sales of marked down goods and increases in freight and distribution costs.
Added
The recent hostilities affecting the Red Sea and Suez Canal are causing container ships to travel a much longer distance around the Cape of Good Hope, which is increasing both lead times for merchandise during our key selling times and our costs to ship these goods.
Removed
The Company expects markdown sales to decrease in 2023 and beyond, as the markdown sales increase is 29 primarily attributed to the supply chain disruption in the first half of 2022, causing goods to miss their optimum selling times.
Added
(3.4) % - % Fiscal 2023 Compared to Fiscal 2022 Retail sales decreased by 6.9% to $700.3 million in fiscal 2023 compared to $752.4 million in fiscal 2022.
Removed
As a percent of retail sales, SG&A was 32.3% compared to 35.1% in the prior year. The dollar decrease in SG&A expense was primarily attributable to lower employee benefit/bonus expense and lower insurance costs, partially offset by higher store wages resulting from higher hourly rates and increased store operating hours.
Added
Total credit segment income before taxes was $0.9 million in fiscal 2023 and $0.6 million in fiscal 2022. 31 Cost of goods sold was $464.3 million, or 66.3% of retail sales, in fiscal 2023 compared to $509.7 million, or 67.7% of retail sales, in fiscal 2022.
Removed
Interest and other income increased to $5.9 million in fiscal 2022 compared to $2.1 million in fiscal 2021.
Added
The decrease in cost of goods sold as a percentage of sales resulted primarily from lower ocean freight costs and increased sales of regular priced goods, partially offset by deleveraging of occupancy and buying costs. Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, and freight and inventory shrinkage.
Removed
The decrease of $46.4 million for fiscal 2022 compared to fiscal 2021 is primarily due to lower net operating income and a decrease in accounts payable and accrued bonus and benefits, partially offset by lower accounts receivable and merchandise inventories.
Added
The increase in SG&A expense in fiscal 2023 was primarily attributable to higher payroll, insurance and closed store expenses. Depreciation expense was $9.9 million in fiscal 2023 compared to $11.1 million in fiscal 2022.
Removed
The Company had no outstanding revocable letters of credit relating to purchase commitments at January 28, 2023, January 29, 2022 and January 30, 2021. Expenditures for property and equipment totaled $19.4 million, $4.1 million and $14.0 million in fiscal 2022, 2021 and 2020, respectively.
Added
The decrease in working 34 capital compared to the prior year is primarily due to lower short-term investments and lower inventory, partially offset by lower accounts payable and current lease liability.
Removed
The decrease in cash used was primarily due to lower share repurchase amounts, partially offset by higher dividend payments. The Company does not use derivative financial instruments. See Note 4, “Fair Value Measurements,” for information regarding the Company’s financial assets that are measured at fair value.
Added
There were no borrowings outstanding, nor any outstanding letters of credit that reduced borrowing availability, under this credit facility as of the fiscal year ended February 3, 2024 or the fiscal year ended January 28, 2023. The Company had no outstanding revocable letters of credit relating to purchase commitments at February 3, 2024 or at January 28, 2023.
Removed
The bank credit card asset-backed securities are backed by revolving pools of credit card receivables generated by account holders of cards from American Express, Citibank, JPMorgan Chase, Capital One, and Discover. Additionally, at January 28, 2023, the Company had $0.9 million of corporate equities, which are recorded within Other assets in the Consolidated Balance Sheets.
Added
Net cash used in financing activities totaled $16.1 million in fiscal 2023 compared to net cash used of $29.3 million for fiscal 2022 and $31.8 million for fiscal 2021. The decrease in cash used during fiscal 2023 was primarily due to lower share repurchase amounts. The Company does not use derivative financial instruments.
Added
These assets are carried at fair value with unrealized gains and losses reported net of taxes in Accumulated other comprehensive income. The asset-backed securities are bonds comprised of auto loans and bank credit cards that carry AAA ratings.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk: The Company is subject to market rate risk from exposure to changes in interest rates based on its financing, investing and cash management activities, but the Company does not believe such exposure is material. 34
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk: The Company is subject to market rate risk from exposure to changes in interest rates based on its financing, investing and cash management activities, but the Company does not believe such exposure is material. 36

Other CATO 10-K year-over-year comparisons