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What changed in CATO CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CATO CORP's 2022 and 2023 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 2023 report.

+175 added−167 removedSource: 10-K (2023-03-23) vs 10-K (2022-03-23)

Top changes in CATO CORP's 2023 10-K

175 paragraphs added · 167 removed · 139 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeMerchandise 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. The Company believes that the principal competitive factors in its industry include merchandise assortment and presentation, fashion, price, store location and customer service.
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.
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.
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.
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 10 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 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.
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 could 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 7 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 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.
The Company’s stores range in size from 2,100 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 2,200 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 net bad debt expense was 3.0%, 3.6% and 3.2% of credit sales in fiscal 2021, 2020 and 2019, 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 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 is not a party to any collective bargaining agreements and considers its associate relations to be good.
The Company is not a party to any collective bargaining agreements and considers its associate relations 10 to be good.
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 560 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 580 suppliers, most of its merchandise is purchased from approximately 100 primary vendors.
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 2021, 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 29, 2022, the Company employed approximately 7,500 full-time and part-time associates.
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.
All merchandise is shipped directly to the Company’s distribution center in Charlotte, North Carolina, where it is inspected and then allocated by the merchandise distribution staff for shipment to individual stores. The flow of merchandise from receipt at the distribution center to shipment to stores is controlled by an on-line system.
All merchandise is shipped directly to the Company’s distribution center in Charlotte, North Carolina, where it is inspected and then allocated by the merchandise distribution staff for shipment to individual stores. The flow of merchandise from receipt at the distribution center to shipment to stores is controlled by an online system.
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 2.5%, 2.7% and 3.3% of retail sales in fiscal 2021, 2020 and 2019, 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 3.1%, 2.5% and 2.7% of retail sales in fiscal 2022, 2021 and 2020, respectively.
In fiscal 2021, purchases from the Company’s largest vendor accounted for approximately 12% 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 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.
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.
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.
The fiscal 2021 loyalty program impact is immaterial to the fiscal 2021 financial statements. The loyalty program will be 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 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 following table sets forth information with respect to the Company’s development activities since fiscal 2017: 8 Store Development Number of Stores Beginning of Number Number Number of Stores Fiscal Year Year Opened Closed End of Year 2017………………….……...…………. 1,371 6 26 1,351 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 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 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.
Business: Background The Company, founded in 1946, operated 1,311 fashion specialty stores at January 29, 2022, 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 1,280 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.
Credit and layaway sales under the Company’s plan represented 5% of retail sales in fiscal 2021. 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 75 years.
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.
The Company’s total advertising expenditures were approximately 0.9%, 0.8% and 0.7% of retail sales for fiscal years 2021, 2020 and 2019, respectively. Store Operations The Company’s store operations management team consists of three territorial managers, 12 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%, 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.
Over 80% of store and field management are promoted from within, allowing the Company to internally staff its store base. The Company has training programs at each level of store operations.
Over 80% of store and field management are promoted from within, allowing the Company to internally staff its store base. The Company has training programs at each level of store operations. The Company also performs ongoing reviews of its safety protocols, including measures to promote the health and safety of its associates.
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 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.
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.
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.
Seasonality Due to the seasonal nature of the retail business, the Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. Results of a period shorter than a full year may not be indicative of results expected for the entire year.
Seasonality Due to the seasonal nature of the retail business, the Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. 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.
Layaway sales represented approximately 2.7%, 2.8% and 4.1% of retail sales in fiscal 2021, 2020 and 2019, 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.
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.
Furthermore, the seasonal nature of our business may affect comparisons between periods.
Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.
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.
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.
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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).
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The Company also performs ongoing reviews of its safety protocols, including extensive efforts undertaken during the COVID-19 pandemic to ensure the health and safety of its associates by performing frequent cleanings, ensuring social distancing and providing masks for all of its stores.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+25 added−14 removed71 unchanged
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” and “Versona” trademarks are integral to our store designs, brand recognition and our ability to successfully build consumer loyalty.
Biggest changeFailure 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.
Additionally, manufacturers have and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit costs. These increases in production costs result in higher merchandise costs to the Company.
Additionally, manufacturers have and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit costs. These increases in production costs may result in higher merchandise costs to the Company.
Despite measures the Company takes to protect confidential information against unauthorized access or disclosure, which are ongoing and may continue to increase our costs, there is no assurance that such measures will prevent the compromise of such information.
Despite measures the Company takes to protect confidential information against unauthorized access or disclosure, which measures are ongoing and may continue to increase our costs, there is no assurance that such measures will prevent the compromise of such information.
Generally Accepted Accounting Principles with International Financial Reporting 18 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.
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.
The occurrence or threat of extreme weather, natural disasters, power outages, terrorist acts, outbreaks of flu or other communicable diseases (such as COVID-19) or other catastrophic events could reduce customer traffic in our stores and likewise disrupt our ability to conduct operations, which could materially and adversely affect us.
The occurrence or threat of extreme weather, natural disasters, power outages, terrorist acts, outbreaks of flu or other communicable diseases (such as COVID-19) or other catastrophic events could reduce customer traffic in our stores and likewise disrupt our ability to conduct operations, which would materially and adversely affect us.
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.
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.
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 20 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 liquidity of our investments.
In addition, 15 numerous events, whether or not related to actual economic conditions, such as downturns in the stock markets, acts of war or terrorism, political unrest or natural disasters, outbreaks of disease or similar events, may also dampen consumer confidence, and accordingly, lead to reduced consumer spending.
In addition, numerous events, whether or not related to actual economic conditions, such as downturns in the stock markets, acts of war or terrorism, political unrest or natural disasters, outbreaks of disease or similar events, may also dampen consumer confidence, and accordingly, lead to reduced consumer spending.
We also are subject to domestic supply chain disruptions, including lack of domestic intermodal transportation (trucks and drivers), domestic port congestion, including increased dwell times for incoming container ships, lack of container yard capacity and lack of available drayage from the ports and other conditions that may impact our domestic supply chain.
We also are subject to domestic supply chain disruptions, including lack of domestic intermodal transportation (trucks and drivers), domestic port congestion, including increased dwell times for incoming container ships, lack of container yard capacity and lack of available drayage from the ports and other conditions that impact our domestic supply chain.
The inability of third-party vendors to produce goods on time and to the Company’s specification may adversely affect the Company’s business, results of operations and financial condition. 13 Our dependence on third-party vendors to manufacture and supply our merchandise subjects us to numerous risks that our vendors will fail to perform as we expect.
The inability of third-party vendors to produce goods on time and to the Company’s specification may adversely affect the Company’s business, results of operations and financial condition. Our dependence on third-party vendors to manufacture and supply our merchandise subjects us to numerous risks that our vendors will fail to perform as we expect.
Conditions in the stock market generally, or particularly relating to our industry, Company or common stock, may materially and adversely affect the market price of our common stock and make its trading price 21 more volatile. The trading price of our common stock at times has been, and is likely to continue to be, subject to significant volatility.
Conditions in the stock market generally, or particularly relating to our industry, Company or common stock, may materially and adversely affect the market price of our common stock and make its trading price more volatile. The trading price of our common stock at times has been, and is likely to continue to be, subject to significant volatility.
Our information systems and those of our third-party service providers are subject to ongoing and persistent cybersecurity threats from those seeking unauthorized access through means which are continually evolving and may be difficult to 17 anticipate or detect for long periods of time.
Our information systems and those of our third-party service providers are subject to ongoing and persistent cybersecurity threats from those seeking unauthorized access through means which are continually evolving and may be difficult to anticipate or detect for long periods of time.
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.
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.
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.
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.
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 could 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 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.
Our e-commerce platform may also expose us to greater potential for security or data breaches involving the unauthorized access to or disclosure of customer information, as discussed above under “A security breach that results in unauthorized access to or disclosure of employee, Company or customer information could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs.” We are also subject to risk related to delays or failures in the performance of third parties, such as shipping companies, including delays associated with labor strikes or slowdowns or adverse weather conditions.
Our e-commerce platform may also expose us to greater potential for security or data breaches involving the unauthorized access to or disclosure of customer information, as discussed above under “A security breach that results in unauthorized access to or disclosure of employee, Company or customer information or a ransomware attack could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs.” We are also subject to risk related to delays or failures in the performance of third parties, such as shipping companies, including delays associated with labor strikes or slowdowns or adverse weather conditions.
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 these matters or other factors affecting the availability or cost of imports, could cause significant delays or interruptions in the supply of our merchandise or increase our costs.
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.
Shopping centers and malls where we currently operate existing stores or seek to open new stores may be adversely affected by, among other things, general economic downturns or those particularly affecting the commercial real estate industry, the closing of anchor stores, changes in tenant mix and changes in customer shopping preferences, including but not limited to an increase in preference for online versus in- person shopping.
Shopping centers and malls where we currently operate existing stores or seek to open new stores have been and may continue to be adversely affected by, among other things, general economic downturns or those particularly affecting the commercial real estate industry, the closing of anchor stores, changes in tenant mix and changes in customer shopping preferences, including but not limited to an increase in preference for online versus in-person shopping.
A security breach that results in unauthorized access to or disclosure of employee, Company or customer information could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs. The protection of employee, Company and customer data is critical to the Company.
A security breach that results in unauthorized access to or disclosure of employee, Company or customer information or a ransomware attack could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs. The protection of employee, Company and customer data is critical to the Company.
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 and the impact of COVID-19), levels of employment, fuel, 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, 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.
The Company’s failure to successfully operate its e-commerce websites or fulfill customer expectations could adversely impact customer satisfaction, our reputation and our business. Although the Company's e-commerce platform provides another channel to drive incremental sales, provide existing customers the on-line shopping experience and introduce the Company to a new customer base, it also exposes us to numerous risks.
The Company’s failure to successfully operate its e-commerce websites or fulfill customer expectations could adversely impact customer satisfaction, our reputation and our business. Although the Company's e-commerce platform provides another channel to drive incremental sales, provide existing customers the online shopping experience and introduce the Company to a new customer base, it also exposes us to numerous risks.
These supply chain risks may result in both higher costs to transport our merchandise and delayed merchandise arrivals to our stores, which may adversely affect our ability to sell this merchandise and increase markdowns of it.
These supply chain risks have and may continue to result in both higher costs to transport our merchandise and delayed merchandise arrivals to our stores, which adversely affect our ability to sell this merchandise and increase markdowns of it.
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 could potentially result in impairment charges.
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.
Compliance and litigation matters could result in unexpected expenses and liability, as well as have an adverse effect on our operations and our reputation. New legislation or regulation and interpretation of existing laws and regulations, including those related to data privacy, could increase our costs of compliance, technology and business operations.
Compliance and litigation matters could result in unexpected expenses and liability, as well as have an adverse effect on our operations and our reputation. New legislation or regulation and interpretation of existing laws and regulations, including those related to data privacy, climate change or ESG matters could increase our costs of compliance, technology and business operations.
The Company may also be subject to regulatory review and audits, which results may have the potential to materially and adversely affect our business, results of operations and financial condition. In addition, governing laws, rules and regulations, and interpretations of existing laws are subject to change from time to time.
The Company may also be subject to regulatory review and audits, the results of which could materially and adversely affect our business, results of operations and financial condition. In addition, governing laws, rules and regulations, and interpretations of existing laws are subject to change from time to time.
Risks Relating to Our Business: Increased product costs, freight costs, wage increases and operating costs due to inflation and other factors, as well as limitations in our ability to offset these cost increases by increasing the retail prices of our products or otherwise, may adversely affect our business, margins, results of operations and financial condition.
Increased product costs, freight costs, wage increases and operating costs due to inflation and other factors, as well as limitations in our ability to offset these cost increases by increasing the retail prices of our products or otherwise, have and may continue to adversely affect our business, margins, results of operations and financial condition.
Our ability to raise retail prices in response to these cost increases may be 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 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 11 effects of inflation in increasing our customers’ cost of essential items and diminishing customers’ disposable income or financial outlook.
Cato has the ability to control the management of the Company as a result of his position as Chief Executive Officer. If Mr.
Cato has the ability to control the management of the Company as a result of his position as Chief Executive Officer.
For existing and future payment methods we offer to our customers, we may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in increased costs and reduce the ease of use of certain payment methods), as well as fraud risk.
For existing and future payment methods we offer to our customers, we are subject to fraud risk and to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in increased costs and reduce the ease of use of certain payment methods).
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time, raising our operating costs and lowering profitability. We rely on third- party service providers for payment processing services, including the processing of credit and debit cards.
For certain payment methods, including credit and debit cards, we pay interchange and other fees, which have increased from time to time and may continue to increase over time, raising our operating costs and lowering profitability. We rely on third-party service providers for payment processing services, including the processing of credit and debit cards.
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, 2022, 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 23, 2023, John P. D.
For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could 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.
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.
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. We are subject to payment -related risks.
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.
Cato, Chairman, President and Chief Executive Officer, beneficially owned approximately 49.8% of the combined voting power of our common stock. As a result, Mr.
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.
A decline in customer popularity of the strip shopping centers where we generally locate our stores or in availability of space in desirable centers and locations, or an increase in the cost of such desired space, could limit our ability to open new stores, adversely affect consumer traffic and reduce our sales and net earnings or increase our operating costs.
A decline in customer popularity of the strip shopping centers where we generally locate our stores or in availability of space in desirable centers and locations, or an increase in the cost of such desired space, has limited and could further limit our ability to open new stores, adversely affecting consumer traffic and reducing our sales and net earnings or increasing our operating costs.
Adverse decisions or settlements of disputes may negatively impact our business, reputation 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.
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.
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 unsold inventory at below-average markups over cost, or below cost, which would adversely affect our margins and results of operations. 14 Fluctuating comparable sales or our inability to effectively manage inventory may negatively impact our gross margin and our overall results of operations.
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.
Comparable sales are expected to continue to fluctuate in the future. 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. In addition, merchandise must be ordered well in advance of the applicable selling season and before trends are confirmed by sales.
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.
In addition, our competitors also compete for the same retail store space. As a result of this competition, we may experience pricing pressures, increased marketing expenditures, increased costs to open new stores, as well as loss of market share, which could materially and adversely affect our business, results of operations and financial condition.
As a result of this competition, we may experience pricing pressures, increased marketing expenditures, increased costs to open new stores, as well as loss of market share, which could materially and adversely affect our business, results of operations and 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 may materially and adversely affect consumer demand for our apparel and accessories and our results of operations.
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.
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.
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 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.
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.
If we became eligible and 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.
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.
Our costs are also affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies may increase our cost of goods sold. Any of these factors could have a material adverse effect on 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 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.
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.” 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.
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.
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.
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.
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 could adversely affect our business, margins, operating results and financial condition if we cannot offset these cost increases.
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.
We compete primarily with discount stores, mass merchandisers, department stores, off-price retailers, specialty stores and internet-based retailers, many of which have substantially greater financial, marketing and other resources than we have. Many of our competitors offer frequent promotions and reduce their selling prices. In some cases, our competitors are expanding into markets in which we have a significant market presence.
The women’s retail apparel industry is highly competitive. We compete primarily with discount stores, mass merchandisers, department stores, off-price retailers, specialty stores and internet-based retailers, many of which have substantially greater financial, marketing and other resources than we have. Many of our competitors offer frequent promotions and reduce their selling prices.
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.
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.
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.
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.
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. In addition, our ability to grow our revenues has been substantially dependent on our ability to secure space for and open new stores in attractive locations.
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.
Cato acquires beneficial ownership of more than 50% of the combined voting power of our common stock (including as a result of continued Company stock repurchases from time to time under our stock repurchase program that would reduce our outstanding shares), we would 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.
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.
The interpretation of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost.
The interpretation of existing or new laws to existing technology and business practices can be uncertain and may lead to additional compliance risk and cost. Adverse litigation matters may adversely affect our business and our financial condition. From time to time the Company is involved in litigation and other claims against our business.
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.
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.
Vendors are increasingly passing on higher production costs, including the costs to ship product, which may impact our ability to maintain or grow our margins. The price and availability of raw materials may be impacted by demand, regulation, weather and crop yields, currency value fluctuations, inflation, as well as other factors.
Fluctuations in the price, availability and quality of inventory have and may continue to result in higher cost of goods, which the Company may not be able to pass on to its customers. The price and availability of raw materials may be impacted by demand, regulation, weather and crop yields, currency value fluctuations, inflation, as well as other factors.
The operation of our sourcing offices in Asia may present increased legal and operational risks. In October 2014, we established our own sourcing offices in Asia. Our experience with legal and regulatory practices and requirements in Asia is limited.
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.
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. 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 we cannot successfully execute our growth strategies, our financial condition and results of operations may be adversely impacted. 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.
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.
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. Adverse litigation matters may adversely affect our business and our financial condition. From time to time the Company is involved in litigation and other claims against our business.
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.
A decrease in comparable sales or our inability to effectively manage inventory may adversely affect our gross margin and results of operations. Existing and increased competition in the women’s retail apparel industry may negatively impact our business, results of operations, financial condition and market share. The women’s retail apparel industry is highly competitive.
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.
The impact of inflation on the labor and raw materials used to make our products, coupled with the higher cost of ocean freight from Asia resulting from supply chain disruption, is continuing to increase the cost we pay for our products.
In addition, inflationary pressures on labor and raw materials used to make our products may continue to increase the cost we pay for our products.
Unusual weather, natural disasters, public health threats or similar events may adversely affect our sales or operations. 12 Extreme changes in weather, natural disasters, public health threats or similar events can influence customer trends and shopping habits.
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.
Removed
Risks Relating to the COVID-19 Pandemic: The outbreak and persistence of the COVID-19 pandemic has and may continue to adversely affect our business, financial condition and results of operations. The COVID-19 pandemic has adversely impacted the Company's business, financial condition and operating results through fiscal 2021 and will likely continue to do so in fiscal 2022 and possibly beyond.
Added
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.
Removed
Adverse financial impacts associated with the outbreak include, but are not limited to, (i) lower net sales in markets affected by actual or potential adverse changes in conditions relating to the pandemic, whether due to increases in case counts, state and local orders, reductions in store traffic and customer demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of the outbreak, including increased freight and logistics costs and other expenses.
Added
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.
Removed
Though recent developments in the U.S. have led to the relaxation of many of the restrictions and mitigation measures that adversely affected the Company’s operations, store traffic, sales and results of operations since March 2020, there continues to be significant uncertainty regarding the course of COVID-19 and its continuing effects on commercial behavior.
Added
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.
Removed
These uncertainties include the potential emergence of additional variants, seasonal weather changes or other factors that may lead to a resurgence of the virus and a reinstitution of mandated restrictions, public health advisories or decreased willingness of customers, suppliers, associates and other constituencies on whom our business depends to engage in commercial activities.
Added
In addition, geopolitical tensions, sanctions, prohibitions, additional tariffs, compliance and reporting requirements have resulted in increased costs associated with merchandise produced in certain regions.
Removed
Other uncertainties include the extent to which and pace at which governments, businesses and individuals may adapt to COVID-19 as endemic and no longer a meaningful impediment or deterrent to commercial activity.
Added
Any new sanctions, tariffs and reporting requirements enacted in the future may further increase our costs associated with sourcing products from those regions or limit our ability to procure the products we source, and our ability to source these products from other regions may be limited or result in increased sourcing costs.
Removed
The resurgence of the virus and its related effects on the global and U.S. economy, or the lingering uncertainties and time it may take to transition to wide acceptance of 11 COVID-19 as endemic, will likely continue to materially and adversely affect our business, operating results and financial condition.
Added
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.
Removed
While the Company currently anticipates that our results for fiscal 2022 and possibly beyond will likely be adversely impacted, whether and the extent to which COVID-19 impacts the Company’s results will depend on the course of future developments, which are highly uncertain, including potential sporadic surges of the virus, the extent and pace of public acceptance of COVID-19 as endemic, the continuing evolution, acceptance and success of baseline mitigation measures such as vaccines, and possible new information, understanding or innovation that could alter the course and duration of current measures to combat the spread of the virus.
Added
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to sporadic or market-wide liquidity problems that could adversely affect us.
Removed
It is also possible COVID-19 and its continuing effects may result in longer term behavioral changes by customers and others that could adversely affect our business, including but not limited to a consumer shift to greater reliance on online versus in-person shopping, which could reduce traffic to our stores and more broadly to the strip shopping centers and malls in which most of our stores are located and disadvantage us relative to competitors who are better established in e-commerce sales, and reductions in face-to-face work, travel and socializing occasions, which may lead customers to less frequently desire or perceive the need to update their wardrobes.
Added
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.
Removed
The far-reaching impacts of COVID-19 may also intensify other risks we discuss in this report and other filings we make from time to time with the SEC. Future outbreaks of disease or similar public health threats, or the fear of such an occurrence, may also have a material adverse effect on the Company’s business, financial condition and operating results.
Added
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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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeA building of approximately 24,000 square feet located on a 2-acre tract adjacent to the Company’s existing location is used for receiving and distribution of store and office operating supplies. The 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. 22
The Company’s automated merchandise handling and distribution activities occupy approximately 418,000 square feet of this building and its general offices and corporate training center are located in the remaining 134,000 square feet.
The Company’s automated merchandise handling and distribution activities occupy approximately 418,000 square feet of this building and its general offices and corporate training center are located in the remaining 134,000 square feet. A building of approximately 24,000 square feet located on a 2-acre tract adjacent to the Company’s existing location is used for e-commerce storage.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed2 unchanged
Biggest changeRETAILERS, APPL INDEX RUSSELL 2000 INDEX 1/27/2017 100 100 100 2/2/2018 50 114 117 2/1/2019 68 124 113 1/31/2020 81 138 123 1/29/2021 58 147 161 1/28/2022 87 163 159 The graph assumes an initial investment of $100 on January 27, 2017, the last trading day prior to the commencement of the Company’s 2017 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 29, 2022: 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 2021 111,582 $ 16.25 111,582 December 2021 310,884 16.30 310,884 January 2022 - - - Total 422,466 $ 16.29 422,466 450,047 (1) Prices include trading costs.
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.
As of March 23, 2022, 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 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.
The Board of Directors authorized an increase in the Company’s share repurchase program of 1,000,000 shares at the February 24, 2022 Board of Directors’ meeting. 27
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
(2) During the fourth quarter ended January 29, 2022, the Company repurchased and retired 422,466 shares under this program for approximately $6,881,294 or an average market price of $16.29 per share. As of the fourth quarter ended January 29, 2022, the Company had 450,047 shares remaining in open authorizations. There is no specified expiration date for the Company’s repurchase program.
(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.

Item 7. Management's Discussion & Analysis

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

46 edited+11 added−12 removed20 unchanged
Biggest changeThe extent to which the COVID-19 pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current estimates due to inherent uncertainties regarding the duration and further spread of the outbreak or its variants, its severity, actions taken to contain the virus or treat its impact, and how quickly and to what extent pre-pandemic economic and operating conditions can resume. 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 29, 2022 January 30, 2021 Retail sales ………………………………………………………….. 100.0 % 100.0 % Other revenue………………………………………………………… 1.0 1.3 Total revenues ………………………………………………………. 101.0 101.3 Cost of goods sold ………………………………………………….. 59.5 76.3 Selling, general and administrative…………………………………. 35.1 36.4 Depreciation ………………………………………………………… 1.6 2.6 Interest and other income …………………………………………… 0.3 1.2 Income (loss) before income taxes …………………………… 5.1 (12.8) Net income (loss) …………………………………………………… 4.8 % (8.4) % Fiscal 2021 Compared to Fiscal 2020 Retail sales increased by 34.2% to $761.4 million in fiscal 2021 compared to $567.5 million in fiscal 2020.
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.
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 33 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 33 underlying insurance funds’ net asset values, as recorded in Other noncurrent liabilities in the Consolidated Balance Sheets.
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 31 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. Insurance Liabilities The Company is primarily self-insured for healthcare, workers’ compensation and general liability costs.
Despite the Company’s belief that the estimates and judgments are reasonable, differences between the estimated and actual tax liabilities can and do exist from time to time. These differences may arise from settlements of tax audits, expiration of the statute of limitations, or the evolution and application of the various jurisdictional tax codes and regulations.
Despite the Company’s belief that the estimates and judgments are reasonable, differences between the estimated and actual tax liabilities can and do exist from time to time. These differences may arise from settlements of tax audits, expiration of the statute of limitations, and the evolution and application of the various jurisdictional tax codes and regulations.
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 2021 and fiscal 2020 and year-to- year comparisons between fiscal 2021 and fiscal 2020, as well, as certain fiscal 2019 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 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.
Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and fiscal 2019 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 30, 2021.
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.
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 2021 and fiscal 2020, e-commerce sales were less than 5% of total sales and same-store sales. 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 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.
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 29, 2022 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 January 28, 2023 relate primarily to operating lease commitments for store leases. Operating leases represent minimum required lease payments under non- cancellable lease terms.
Cash provided by operating activities during fiscal 2021 was $59.8 million as compared to $30.7 million used in fiscal 2020 and $53.4 million provided in fiscal 2019. Cash provided by operating activities during 2021 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 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.
At January 30, 2021, the Company had $0.7 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.
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.
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 29, 2022, the Company had $0.8 million of corporate equities, which are recorded within Other assets in the Consolidated Balance Sheets.
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.
Depreciation expense was $12.4 million in fiscal 2021 compared to $14.7 million in fiscal 2020. Depreciation expense decreased from fiscal 2020 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 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.
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 $71.3 million of lease obligations and planned investments of $23.0 million of capital expenditures for fiscal 2022 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 $71.9 million of lease obligations and planned investments of $22.1 million of capital expenditures, for fiscal 2023 and for the foreseeable future.
The increase resulted primarily due to increases in gift card breakage income, e-commerce shipping revenues and layaway charges, partially offset by a decrease in finance charges. Credit revenue of $2.1 million represented 0.3% of total revenue in fiscal 2021, a $0.6 million decrease compared to fiscal 2020 credit revenue of $2.7 million or 0.5% of total revenue.
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.
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), increased by 33.8% to $769.3 million in fiscal 2021 compared to $575.1 million in fiscal 2020.
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.
Related expenses include principally payroll, postage and other administrative expenses and totaled $1.4 million in fiscal 2021 compared to $1.5 million in fiscal 2020. See Note 13 of Notes to Consolidated Financial Statements for a schedule of credit-related expenses. Total credit segment income before taxes decreased $0.6 million to $0.6 million in fiscal 2021 from $1.2 million in fiscal 2020.
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.
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.
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.
The decrease in credit revenue was primarily due to reductions in finance and late charge income as a result of lower accounts receivable balances. Credit revenue is comprised of interest earned on the Company’s private label credit card portfolio and related fee income.
The increase in credit revenue was primarily due to increases in finance charges and late fee income as a result of higher accounts receivable balances. Credit revenue is comprised of interest earned on the Company’s private label credit card portfolio and related fee income.
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, and uncertain tax positions.
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.
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.
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.
Income tax expense was $2.1 million, or 0.3% of retail sales in fiscal 2021 compared to an income tax benefit of $25.3 million, or 4.5% of retail sales in fiscal 2020.
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.
The increase in retail sales in fiscal 2021 was primarily due to a 34% increase in same-store sales and sales from new stores, partially offset by permanently closed stores in 2020.
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 effective tax rate was 5.4% (Expense) in fiscal 2021 compared to 34.8% (Benefit) in fiscal 2020. See Note 12 to the Consolidated Financial Statements, “Income Taxes,” for further details. Off-Balance Sheet Arrangements None. Critical Accounting Policies and Estimates The Company’s accounting policies are more fully described in Note 1 to the Consolidated Financial Statements.
See Note 12 to the Consolidated Financial Statements, “Income Taxes,” for further details. Off-Balance Sheet Arrangements None. Critical Accounting Policies and Estimates The Company’s accounting policies are more fully described in Note 1 to the Consolidated Financial Statements.
The Company also uses information provided by outside actuaries with respect to healthcare, workers’ compensation and general liability claims.
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.
Net cash used by investing activities totaled $25.3 million for fiscal 2021 compared to $64.5 million provided for fiscal 2020 and $22.6 million used in fiscal 2019. In fiscal 2021, the cash used was primarily attributable to the increase in net purchases of short-term investments, partially offset by lower expenditures for property and equipment.
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.
The Company operated 1,311 stores at January 29, 2022 compared to 1,330 stores operated at January 30, 2021. In fiscal 2021, the Company opened 6 new stores and closed 25 stores. Other revenue in total increased to $7.9 million in fiscal 2021 from $7.6 million in fiscal 2020.
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.
At January 29, 2022, 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 discussed below. The revolving credit agreement is committed until May 2022.
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.
The allowance is reviewed for adequacy and adjusted, as necessary, on a quarterly basis. The Company also provides for estimated uncollectible late fees charged based on historical write-offs. The Company’s financial results can be impacted by changes in customer loss write-off experience and the aging of the accounts receivable portfolio.
The Company also provides for estimated uncollectible late fees charged based on historical write-offs. The Company’s financial results can be impacted by changes in customer loss write-off experience and the aging of the accounts receivable portfolio. Merchandise Inventories The Company’s inventory is valued using the weighted-average cost method and is stated at the net realizable value.
Any differences will be recorded in the period in which they become known and could have a material effect on the results of operations in the period the adjustment is recorded.
Any differences will be recorded in the period in which they become known and could have a material effect on the results of operations in the period the adjustment is recorded. Deferred Tax Valuation Allowance The Company assesses the likelihood that deferred tax assets will be realized in light of the Company’s current financial performance and projected future financial performance.
Estimates based on actual shrinkage results are used to estimate inventory shrinkage, which is accrued for the period between the last physical inventory and the financial reporting date. The Company regularly reviews its inventory levels to identify slow moving merchandise and uses markdowns to clear slow moving inventory.
Physical inventories are conducted throughout the year to calculate actual shrinkage and inventory on hand. Estimates based on actual shrinkage results are used to estimate inventory shrinkage, which is accrued for the period between the last physical inventory and the financial reporting date.
Lease Accounting The Company determines whether an arrangement is a lease at inception. The Company has operating leases for stores, offices and equipment.
The Company regularly reviews its inventory levels to identify slow moving merchandise and uses markdowns to clear slow moving inventory. Lease Accounting The Company determines whether an arrangement is a lease at inception. The Company has operating leases for stores, offices, warehouse space and equipment.
The increase of $90.5 million for fiscal 2021 compared to fiscal 2020 is primarily due to net operating income versus a net operating loss and an increase in accounts payable, partially offset by higher merchandise inventories and lower store impairment charges.
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.
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.
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.
The Company’s critical accounting policies and estimates are discussed with the Audit Committee. 30 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.
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.
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 $267.0 million in fiscal 2021 compared to $206.7 million in fiscal 2020, an increase of 29.2%. As a percent of retail sales, SG&A was 35.1% compared to 36.4% in the prior year.
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%.
The Company is in the process of obtaining a new revolving credit agreement and expects this to be completed by May of 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 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 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.
Expenditures for property and equipment totaled $4.1 million, $14.0 million and $8.3 million in fiscal 2021, 2020 and 2019, respectively. The expenditures for fiscal 2021 were primarily for additional investments in six new stores, distribution center and information technology.
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.
There were no borrowings outstanding under this credit facility as of the fiscal year ended January 29, 2022 or the fiscal year ended January 30, 2021. The Company had no outstanding revocable letters of credit relating to purchase commitments at 32 January 29, 2022, January 30, 2021 and February 1, 2020.
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.
Same-store sales for the fiscal year 2021 increased primarily due to increased store operating hours in fiscal 2021 as opposed to the store closures that persisted from March 19, 2020 into the second quarter of 2020. Same-store sales includes stores that have been open more than 15 months.
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.
The dollar increase in SG&A expense was primarily attributable to higher employee benefit/bonus expense, store productivity initiatives and store operating expenses as store operating hours have increased substantially compared to the prior year’s phased store reopening following the extended store closure due to COVID-19, partially offset by lower impairment charges.
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.
See Note 4, “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 tax-exempt and taxable governmental debt securities held in managed accounts with underlying ratings of A or better at January 29, 2022.
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.
The slight increase in working capital compared to the prior year is primarily due to higher short-term investments, inventory and cash and cash equivalents, partially offset by higher accrued liabilities and accounts payable.
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.
Interest and other income decreased to $2.1 million in fiscal 2021 compared to $6.6 million in fiscal 2020. The decrease is primarily due to a gain on the sale of land held for investment in 2020 and lower interest rates on our short-term investments, partially offset by an increase in short-term investments.
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.
Cost of goods sold was $453.1 million, or 59.5% of retail sales, in fiscal 2021 compared to $433.2 million, or 76.3% of retail sales, in fiscal 2020.
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.
Total gross margin dollars (retail sales less cost of goods sold and excluding depreciation) increased by 129.5% to $308.3 million in fiscal 2021 from $134.3 million in fiscal 2020. Gross margin as presented may not be comparable to that of other companies.
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.
Net cash used by financing activities totaled $31.8 million in fiscal 2021 compared to net cash used of $27.2 million for fiscal 2020 and $41.6 million for fiscal 2019. The increase in cash used was primarily due to higher dividend payments and higher share repurchase amounts. The Company does not use derivative financial instruments.
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.
Removed
COVID-19 Update The COVID-19 pandemic adversely impacted the Company's business, financial condition and operating results through fiscal 2020 and to a lesser extent through 2021. In 2021, the Company saw significant improvements in sales compared to 2020.
Added
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.
Removed
This improvement was primarily attributable to government stimulus, increased customer traffic, states lifting capacity limits as more people were vaccinated, consumers’ increasing comfort level with venturing out to social events and customers’ preparing to return to work.
Added
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.
Removed
However, the Company’s 2021 sales remain below pre-pandemic 2019 sales for the comparable period, and there is still significant uncertainty regarding the lingering effects of the pandemic, as well as concerns over the impact of new or potential variants of the virus that are more transmissible or severe, stagnant vaccination rates and related factors that may continue to fuel periodic surges of the virus or otherwise impede progress toward the return to pre-pandemic activities and levels of consumer confidence and commercial activity.
Added
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.
Removed
The Company faces additional uncertainty from the continued effects of disruption in the global supply chain, inflation and its impact on our cost of products, transportation, wage rates and other operating costs, as well as, the impact on our customers’ disposable incomes, and the availability of workers.
Added
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.
Removed
The Company expects that these uncertainties and perhaps others related to the pandemic will continue to impact the Company in fiscal 2022.
Added
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.
Removed
The adverse financial impacts associated with these continued effects of, and uncertainties related to, the COVID-19 pandemic include, but are not limited to, (i) lower net sales in markets affected by actual or potential adverse changes in conditions relating to the pandemic, whether due to increases in case counts, state and local orders, reductions in store traffic and customer demand, labor shortages, or all of these factors, (ii) lower net sales caused by the delay of inventory production and fulfillment, (iii) and incremental costs associated with efforts to mitigate the effects of the outbreak, including increased freight and logistics costs and other expenses.
Added
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.
Removed
While the Company currently anticipates a continuation of the uncertainties listed above and the potential adverse impacts of COVID-19 during 2022, the duration and severity of these effects will depend on the course of future developments, which are highly uncertain.
Added
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.
Removed
The decrease in cost of goods sold as a percentage of sales resulted primarily from the leveraging of occupancy, buying and distribution costs due to more normalized sales and higher sales of regular priced goods. Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, freight and inventory 29 shrinkage.
Added
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.
Removed
The income tax expense was primarily due to higher pre-tax earnings, partially offset by the ability to realize foreign tax credits, release of reserves for uncertain tax positions due to the expiration of the statute of limitations, a favorable adjustment to the federal net operating loss carryback and a partial release of valuation allowances against state net operating losses.
Added
Interest and other income increased to $5.9 million in fiscal 2022 compared to $2.1 million in fiscal 2021.
Removed
Merchandise Inventories The Company’s inventory is valued using the weighted-average cost method and is stated at the net realizable value. Physical inventories are conducted throughout the year to calculate actual shrinkage and inventory on hand.
Added
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.
Removed
At January 29, 2022, the Company had working capital of $111.5 million compared to $108.6 million and $163.5 million at January 30, 2021 and February 1, 2020, respectively.
Added
Based on this assessment, the Company then determines if a valuation allowance should be recorded. If the Company concludes that it is more likely than not that the Company will not be able to realize its tax deferred assets, a valuation allowance is recorded for the proportion of the deferred tax asset it determines may not be realized.
Removed
The state, municipal and corporate bonds and asset-backed securities have contractual maturities which range from three days to 4.9 years. The U.S. Treasury Notes have contractual maturities which range from 4.5 months to 1.1 years.

Other CATO 10-K year-over-year comparisons