The Cato Corp (NYSE:CATO)

CAPS Rating: 4 out of 5

The Company is a women's fashion specialty stores. The Company offers quality fashion apparel and accessories at low prices, every day in junior/ missy and plus sizes.


Player Avatar NetscribeRetail (91.77) Submitted: 1/18/2007 12:36:54 AM : Outperform Start Price: $16.87 CATO Score: +89.07

The Cato Corporation operates women’s fashion specialty retail stores, in the southeastern United States. It offers an assortment of apparel and accessories, including dressy, career, and casual sportswear, winter wear, shoes, lingerie, costume jewelry, and handbags. As of December 2006, the company operated 1,273 women’s fashion specialty retail stores under the names Cato, Cato Fashions, Cato Plus, and It’s Fashion! across 31 states.

The women’s retail apparel industry is highly competitive. The principal competitive factors in its industry include merchandise assortment and presentation, fashion, price, store location and customer service. Macro factors, which affect the industry, are demography, earnings and climatic changes. The company competes with retail chains that operate similar women’s apparel specialty stores, mass merchandise chains, discount store chains and major department stores.

Cato has successfully managed an average of 5.5% growth in sales for the last ten consecutive quarters, thanks to its efficient merchandising, updated fashion and excellent knowledge of market segmentation. For the nine months ended October 2006, Cato witnessed a 5% surge in total revenues. Due to a prolonged warm weather in the third quarter, the cumulative comparable store sales increased by less than a percent, for the nine months. However, 38 new stores and 15 store relocations led to the growth in total revenues.

The company expects to open more than 40 new stores during 2007, while adjusting the merchandise mix to climatic changes, which would further boost the sales by approximately 6%. Cato’s strong cash reserve position would make such capital expenditure possible. Finally, a reasonably strong past growth performance coupled with an optimistic future makes Cato a good investment proposition.

Member Avatar NetscribeRetail (91.77) Submitted: 5/30/2007 6:55:02 AM
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Cato Corporation is a well-differentiated, value-oriented women's fashion apparel retailer with nearly 1,300 stores in 31 states operating under the Cato and It's Fashion! banners. The company's intense focus on fashion differentiates it nicely from the mass merchandise discount stores, including Wal-Mart, Target and Kmart. Cato's everyday-low-price strategy and compelling value proposition provide effective differentiation from the department stores and other specialty retailers, which have higher prices. The company follows a modest expansion strategy, but there's plenty of room for continued store growth as its model has produced solid financial results over time.

The company management in recent years has temporarily shifted its expansion plans away from the Midwest and Northeast regions towards the South Central and southwestern US, where new stores have done quite well. These areas, along with Florida, have having the most significant growth potential over the next several years. Growth of the company's It's Fashion! concept, which targets juniors, could extend Cato's growth trajectory for many more years.

Additionally, Cato has made substantial investments in the key area of product development over the past several years, adding a large number of talented individuals to its product development team. Cato's product development team began using a highly sophisticated ‘lifecycle management’ program in February 2007, engineered by Parametric Technology Corporation and used by some of the leading apparel manufacturers and retailers. This new application is designed to dramatically enhance productivity across Cato's entire supply chain. Considering the above facts, CTR is poised for an interesting year in 2007.

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