The Cato Corp (CTR)

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.