cato-20260502

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the quarterly period ended

May 2, 2026

☐

TRANSITION

REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the transition period from ________________to__________________

Commission file number

1-31340

THE CATO CORPORATION

(Exact name of registrant as specified in its

charter)

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

8100 Denmark Road

Charlotte

North Carolina

28273-5975

(Address of principal executive offices)

(Zip Code)

(

704

)

554-8510

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if

changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

Indicate

by check

mark

whether

the

registrant

(1)

has

filed

all

reports

required

filed

by Section

15(d)

the

Securities

Exchange Act of 1934

during the preceding 12

months (or for such shorter

period that the registrant

was required to file such

reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate

check

mark

whether

the

registrant

has

submitted

electronically

every

Interactive

Data

File

required

submitted

pursuant to Rule

405 of Regulation

S-T (§232.405

of this chapter)

during the preceding

12 months (or

for such shorter

period that the

registrant was required to submit such files).

Yes

Indicate by

check mark

whether the

registrant is

a large

accelerated filer,

an accelerated

filer, a

non-accelerated filer,

a smaller

reporting

company,

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller

reporting

company,” and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☑

Smaller reporting company

☑

Emerging growth company

☐

emerging

growth

company,

indicate

check

mark

the

registrant

has

elected

not

use

the

extended

transition

period

for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b

-2 of the Exchange Act).

☐

Yes

☑

As of

May 2,

2026, there

were

18,195,206

shares of Class A

common stock

and

1,763,652

shares of

Class B common stock

outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended May 2, 2026

Table

of Contents

Page No.

PART

I – FINANCIAL INFORMATION

(UNAUDITED)

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income and Comprehensive Income

For the Three Months Ended

May 2, 2026 and May 3, 2025

Condensed Consolidated Balance Sheets

At May 2, 2026 and

January 31, 2026

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended May 2, 2026 and

May 3, 2025

Condensed Consolidated Statements of Stockholders’ Equity

For the Three Months Ended May 2, 2026 and

May 3, 2025

Notes to Condensed Consolidated Financial Statements

6 - 20

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results

of Operations

21 - 27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART

II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART

I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended

May 2, 2026

May 3, 2025

(Dollars in thousands, except per share data)

REVENUES

Retail sales

169,410

168,419

Other revenue (principally finance charges, late fees and

layaway charges)

1,694

1,823

Total revenues

171,104

170,242

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown below)

106,340

109,318

Selling, general and administrative (exclusive of depreciation

shown below)

53,930

55,325

Depreciation

2,236

2,564

Interest and other income, net

(1,233)

(1,202)

Costs and expenses, net

161,273

166,005

Income before income taxes

9,831

4,237

Income tax expense

522

928

Net income

9,309

3,309

Basic earnings per share

0.47

0.17

Diluted earnings per share

0.47

0.17

Comprehensive income:

Net income

9,309

3,309

Net unrealized gain (loss) on available-for-sale securities, net

of deferred income taxes of $

for each of the three months

(260)

ended May 2, 2026 and May 3, 2025

Comprehensive income

9,049

3,347

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

May 2, 2026

January 31, 2026

(Dollars in thousands, except per share data)

ASSETS

Current Assets:

Cash and cash equivalents

25,412

16,788

Short-term investments

55,558

56,859

Restricted cash

2,675

Accounts receivable, net of allowance for customer credit losses of

676

and $

682

at May 2, 2026 and January 31, 2026, respectively

33,159

25,462

Merchandise inventories

92,490

83,696

Prepaid expenses and other current assets

7,928

7,787

Total Current Assets

217,222

193,267

Property and equipment – net

52,504

53,748

Other assets

20,720

20,471

Right-of-Use assets – net

148,734

153,933

Total Assets

439,180

421,419

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

79,702

64,958

Accrued expenses

34,590

37,101

Accrued bonus and benefits

1,838

326

Current lease liability

52,088

53,507

Total Current Liabilities

168,218

155,892

Other noncurrent liabilities

11,318

11,272

Lease liability

92,939

96,941

Commitments and contingencies (Note 10)

Stockholders' Equity:

Preferred stock, $

100

par value per share,

100,000

authorized,

none

issued

Class A common stock, $

0.033

par value per share,

50,000,000

shares authorized;

18,195,206

and

17,976,854

shares issued

at May 2, 2026 and January 31, 2026, respectively

615

608

Convertible Class B common stock, $

0.033

par value per share,

15,000,000

shares authorized;

1,763,652

shares issued at May 2, 2026 and January 31, 2026

Additional paid-in capital

131,989

131,347

Retained earnings

34,028

25,026

Accumulated other comprehensive income

274

Total Stockholders' Equity

166,705

157,314

Total Liabilities and Stockholders’ Equity

439,180

421,419

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(UNAUDITED)

Three Months Ended

May 2, 2026

May 3, 2025

(Dollars in thousands)

Operating Activities:

Net income

9,309

3,309

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

2,236

2,564

Provision for customer credit losses

207

215

Purchase premium and premium amortization of investments

(98)

(81)

Gain on sale of assets held for investment

(34)

Share-based compensation

578

193

Gain on disposal of property and equipment

(2)

(30)

Changes in operating assets and liabilities which provided (used) cash:

Accounts receivable

(8,642)

(2,505)

Merchandise inventories

(8,794)

1,309

Prepaid and other assets

(390)

(38)

Operating lease right-of-use assets and liabilities

(221)

(156)

Accounts payable, accrued expenses and other liabilities

13,866

(878)

Net cash provided by operating activities

8,049

3,868

Investing Activities:

Expenditures for property and equipment

(1,067)

(1,019)

Purchase of short-term investments

(6,836)

(2,262)

Sales of short-term investments

7,974

11,195

Sales of other assets

Proceeds from cash value of life insurance policy

738

Net cash provided by investing activities

809

7,948

Financing Activities:

Repurchase of common stock

(311)

(935)

Proceeds from employee stock purchase plan

Net cash used in financing activities

(234)

(873)

Net increase in cash, cash equivalents, and restricted cash

8,624

10,943

Cash, cash equivalents, and restricted cash at beginning of period

19,463

23,078

Cash, cash equivalents, and restricted cash at end of period

28,087

34,021

Non-cash activity:

Accrued other assets and property and equipment expenditures

260

284

Accrued treasury stock

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

(Dollars in thousands)

Balance — January 31, 2026

667

131,347

25,026

274

157,314

Comprehensive income:

Net income

9,309

Unrealized net loss on available-for-sale securities, net of deferred

income tax benefit of $

(260)

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

(10)

Share-based compensation expense

564

Repurchase and retirement of treasury shares

(4)

(307)

(311)

Balance — May 2, 2026

674

131,989

34,028

166,705

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income (Loss)

Equity

(Dollars in thousands)

Balance — February 1, 2025

678

129,530

31,935

153

162,296

Comprehensive income:

Net income

3,309

Unrealized net gain on available-for-sale securities, net of deferred

income tax benefit of $

Class A common stock sold through employee stock purchase

plan

Share-based compensation issuances and exercises

(2)

Share-based compensation expense

184

Repurchase and retirement of treasury shares

(10)

(897)

(907)

Other

(73)

Balance — May 3, 2025

666

129,786

34,274

191

164,917

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL

The condensed consolidated

financial statements as

of May 2,

2026 and for

the three months

ended May

2, 2026 and May 3, 2025 have been prepared from the accounting records of

The Cato Corporation and its

wholly-owned

subsidiaries

(the

“Company”),

and

all

amounts

shown

are

unaudited.

the

opinion

management, all

adjustments

considered

necessary

for

fair

statement

the

financial

statements

have

been included.

All such adjustments are of a normal, recurring nature unless otherwise noted.

The results

of the interim period may not be indicative of the results expected

for the entire year.

The interim financial

statements should be read

in conjunction with

the consolidated financial statements

and

notes

thereto,

included

the

Company’s

Annual

Report

Form

10-K

for

the

fiscal

year

ended

January 31,

2026.

Amounts as

of January 31,

2026 have been

derived from the

audited annual

financial

statements, but

do not

include all

disclosures required by

accounting principles

generally accepted in

the

United States of America.

February

2026,

the

U.S.

Supreme

Court

issued

ruling

that

tariffs

imposed

under

the

International

Emergency

Economic

Powers

Act

(“IEEPA”)

goods

imported

into

the

United

States

were

unauthorized,

effectively

invalidating

IEEPA

tariffs.

April

2026,

following

the

Supreme

Court’s

invalidation

the

IEEPA

tariffs

and

the

establishment

procedures

for

processing

tariff

refunds,

the

Company submitted a refund claim and recorded a $

5.7

million reduction in cost of goods sold in the first

quarter of fiscal 2026.

Subsequent Events:

Subsequent to May 2, 2026, the Company repurchased

4,471

shares for $

12,824

On May

15, 2026,

the Company

received a

2.6

million partial

payment for

its tariff

refund claim.

The

Company anticipates receiving payment for the

balance of its tariff

refund claim by the end of

the second

quarter of fiscal 2026.

The

Company

received

5.6

million

payment

for

the

outstanding

balance

the

income

tax

refund

receivable due from the IRS.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 –

Earnings Per Share

requires dual presentation of basic and

diluted Earnings Per Share

(“EPS”) on the face of

all income statements for

all entities with complex

capital

structures.

The Company has presented one basic EPS and one diluted EPS amount for all common shares in

the accompanying

Condensed Consolidated

Statements of

Income and

Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the

right for

the Board of

Directors to

declare dividends

Class

without

declaration

commensurate

dividends

Class

shares,

the

Company

has

historically paid the same dividends to both Class A and Class B shareholders and the

Board of Directors has

resolved to continue this practice.

Accordingly, the Company’s allocation of income for purposes of the EPS

computation is the same

for Class A and

Class B shares and

the EPS amounts reported

herein are applicable

to both Class A and Class B

shares.

Basic

EPS

computed

net

income

less

earnings

allocated

non-vested

equity

awards

divided

the

weighted average

number of

common shares

outstanding for

the period.

Diluted EPS

reflects the

potential

dilution

that

could

occur

from

common

issuable

through

stock

options

and

the

Employee

Stock

Purchase Plan.

Three Months Ended

May 2, 2026

May 3, 2025

(Dollars in thousands, except per share data)

Numerator

Net earnings

9,309

3,309

Earnings allocated to non-vested equity awards

(427)

(192)

Net earnings available to common stockholders

8,882

3,117

Denominator

Basic weighted average common shares outstanding

18,818,492

18,684,837

Diluted weighted average common shares outstanding

18,818,492

18,684,837

Net income per common share

Basic earnings per share

0.47

0.17

Diluted earnings per share

0.47

0.17

Unvested restricted stock excluded from the calculation

of diluted EPS for the

periods ended May 2, 2026

and May 3, 2025 were

904,000

and

1,151,000

, respectively, because the effect of

including them in the

calculation of diluted EPS would have been

antidilutive.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

following

table

sets

forth

information

regarding

the

changes

Accumulated

other

comprehensive

income (in thousands) for the

three months ended May 2, 2026:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at January 31, 2026

274

Other comprehensive income (loss) before

reclassification

(260)

Amounts reclassified from accumulated

other comprehensive income

Net current-period other comprehensive income (loss)

(260)

Ending Balance at May 2, 2026

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

The

following

table

sets

forth

information

regarding

the

changes

Accumulated

other

comprehensive

income (in thousands) for the

three months ended May 3, 2025:

Changes in Accumulated Other

Comprehensive Income (Loss) (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 1, 2025

153

Other comprehensive income (loss) before

reclassification

Amounts reclassified from accumulated

other comprehensive income (b)

(34)

Net current-period other comprehensive income (loss)

Ending Balance at May 3, 2025

191

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other income for net gains on

available-for-sale securities. The tax impact of this reclassification was $

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 – FINANCING ARRANGEMENTS:

On March 13, 2025, the Company,

as borrower, and certain other

domestic subsidiaries, as borrowers and

guarantors, entered

into a

Credit Agreement

(the “ABL

Credit Agreement”)

and related

loan documents,

and

among

the

Company,

certain

other

the

Company’s

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National

Association,

the

lender

(the

“Lender”),

establish

asset-based

revolving

credit

facility (the “ABL

Facility”) in an

amount up to

35.0

million. The proceeds from

the ABL Facility

may

be used to provide funding for ongoing working capital and general corporate

purposes.

The ABL Credit Agreement is

committed through March 2028 and

is secured primarily by inventory

and

third-party credit

card receivables.

There

were

borrowings outstanding

and the

availability under

the

facility was

30.0

million before

giving effect

to a

3.0

million outstanding

letter of

credit that

reduced

borrowing availability

to $

27.0

million as

of May

2, 2026

and January

31, 2026.

The weighted

average

interest rate under the credit facility

was

zero

at May 2, 2026 and

January 31, 2026 due to

outstanding

borrowings.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

determined

that

has

four

operating

segments,

defined

under

ASC

280

–

Segment

Reporting

(“ASC 280”), including Cato, It’s

Fashion, Versona and Credit.

The Company has

two

reportable

segments: Retail

and Credit.

The Company

has aggregated

its

three

retail operating

segments, including

commerce, based on the aggregation criteria outlined in ASC 280-10, which states

that two or more operating

segments may

be aggregated

into a

single reportable

segment if

aggregation is

consistent with

the objective

and

basic

principles

ASC

280-10,

which

require

the

segments

have

similar

economic

characteristics,

products, production processes, clients and methods of distribution.

The

Company’s

retail

operating

segments

have

similar

economic

characteristics

and

similar

operating,

financial and

competitive risks.

The products

sold in each

retail operating

segment are

similar in

nature, as

they

all

offer

women’s

apparel,

shoes

and

accessories.

Merchandise

inventory

the

Company’s

retail

operating

segments

sourced

from

the

same

countries

and

some

the

same

vendors,

using

similar

production processes.

Merchandise for the Company’s retail operating segments is distributed to retail stores

similar

manner

through

the

Company’s

single

distribution

center

and

subsequently

distributed

customers in a

similar manner. The

Company operates

its

women’s

fashion

specialty

retail

stores

states as of May 2, 2026, principally in the southeastern United States.

The Company offers its own credit

card to its customers and all

credit authorizations, payment processing and

collection

efforts

are

performed

wholly-owned

subsidiary

the

Company.

The

Company

does

not

allocate certain corporate expenses to

the Credit segment.

The

Company’s

President

and

Chief

Executive

Officer

the

Company’s

chief

operating

decision

maker

(“CODM”).

The

structure

described

above

reflects

the

manner

which

the

CODM

regularly

assesses

information for decision-making purposes, including the allocation of resources.

The Company also provides

corporate services,

including finance,

information technology,

and corporate

administration, to

its segments

which are fully allocated to the retail

segment. Interest and other income from

assets held for investment and

sale are not included in assessing

the segments’ performance and therefore not

allocated to either segment.

The CODM manages

and evaluates the

segments’ operating performance

based on segment

sales, expenses,

and

segment

income

before

income

taxes

presented

the

Company’s

annual

budget

and

forecasting

process,

well

monthly

analyses

budget-to-actual

and

prior

year

variances.

Segment

expenses

and

other items

primarily include

cost of

goods sold,

selling, general

and administrative

expenses, depreciation

and interest and

other income.

Assessment and

approval of

all capital

expenditures are

determined to

be in

support of and based on the

needs of the retail segment; however, the

CODM does not evaluate performance

or allocate resources based on segment asset balances and, therefore, total segment assets are not presented in

the tables below. The measure of

segment assets is reported on the

balance sheet as total consolidated assets.

The

accounting

policies

the

segments

are

the

same

those

described

the

Summary

Significant

Accounting

Policies

Note

of the

consolidated

financial statements

included in

the

Company’s Annual

Report on Form 10-K for

the fiscal year ended January 31,

2026.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 – REPORTABLE SEGMENT INFORMATION

(CONTINUED):

The following schedule summarizes certain segment

information (in thousands):

Three Months Ended

May 2, 2026

Retail

Credit

Total

Revenues

170,439

665

171,104

Cost of goods sold (a)

106,340

Selling, general, and administrative (b)

38,717

397

39,114

Corporate overhead

14,816

Depreciation

2,236

Interest and other income, net

(87)

(270)

(357)

Segment income before income taxes

8,417

538

8,955

Corporate interest and other income

(876)

Income before income taxes

9,831

Capital expenditures

1,067

Three Months Ended

May 3, 2025

Retail

Credit

Total

Revenues

169,577

665

170,242

Cost of goods sold (a)

109,318

Selling, general, and administrative (b)

39,159

387

39,546

Corporate overhead

15,779

Depreciation

2,564

Interest and other income, net

(105)

(303)

(408)

Segment income before income taxes

2,862

581

3,443

Corporate interest and other income

(794)

Income before income taxes

4,237

Capital expenditures

1,019

(a) Cost of goods sold includes merchandise costs, net of

discounts and allowances, buying costs, distribution

costs, occupancy costs, 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. Occupancy costs include

rent, real estate taxes, insurance, common area maintenance,

utilities and maintenance for stores and

distribution facilities.

(b) Selling, general, and administrative expense

include corporate and store payroll, related payroll

taxes

and benefits, insurance, supplies, advertising, bank and

credit card processing fees.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE-BASED COMPENSATION:

May

2026,

the

Company’s

2018

Incentive

Compensation

Plan

allows

for

the

granting

various

forms of equity-based awards,

including restricted stock

and stock options for

grant to officers, directors

and

key employees.

The

following

table

presents

the

number

options

and

restricted

stock

initially

authorized

and

available for grant under this plan as

of May 2, 2026:

2018

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,575,134

accordance

with

ASC

718

–

Compensation–Stock

Compensation

the

fair

value

current

restricted

stock awards

is estimated

on the

date of

grant based

on the

market price

of the

Company’s

stock and

amortized to compensation expense on a

straight-line basis over the related vesting periods.

As of May 2,

2026

and

January

31,

2026,

there

was

4,162,000

and

4,064,000

respectively,

total

unrecognized

compensation

expense

unvested

restricted

stock

awards,

which

had

remaining

weighted-

average vesting

period

2.0

years

and

1.4

years,

respectively.

The

total

compensation expense

during

the

three

months

ended

May

2026

and

May

2025

was

564,000

and

109,000

respectively.

This

compensation activity is

classified as a

component of Selling,

general and administrative

expenses in the

Condensed Consolidated Statements of Income.

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

outstanding

during

the three months ended May

2, 2026:

Weighted Average

Number of

Grant Date Fair

Value

Per Share

Restricted stock awards at January 31, 2026

905,052

8.06

Granted

298,494

2.88

Vested

(268,303)

11.50

Forfeited or expired

(3,822)

7.54

Restricted stock awards at May 2, 2026

931,421

5.41

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 – SHARE-BASED COMPENSATION (CONTINUED):

The

Company’s

Employee

Stock

Purchase

Plan

allows

eligible

full-time

employees

purchase

limited

number of

of the

Company’s

Class

Common Stock

during each

semi-annual offering

period

% discount through payroll deductions. During the

three months ended May 2, 2026

and May 3, 2025, the

Company sold

31,503

and

21,736

shares to employees

at an

average discount of

0.43

and $

0.50

per share,

respectively, under

the Employee

Stock Purchase

Plan. The

compensation expense

recognized for

the

discount

given

under

the

Employee

Stock

Purchase

Plan

was

approximately

13,000

and

11,000

for

the

three

months

ended

May

2026

and

May

2025,

respectively.

These

expenses

are

classified

component

Selling,

general

and

administrative

expenses

the

Condensed

Consolidated

Statements

Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets

and

liabilities that

are

measured at fair value (in thousands)

as of May 2, 2026 and

January 31, 2026:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

May 2, 2026

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

Corporate Bonds

55,558

Cash Surrender Value of Life Insurance

9,827

Total Assets

65,385

55,558

9,827

Liabilities:

Deferred Compensation

(8,343)

Total Liabilities

(8,343)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7

– FAIR VALUE MEASUREMENTS

(CONTINUED):

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

January 31,

2026

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

Corporate Bonds

54,822

U.S. Treasury/Agencies Notes and Bonds

2,037

Cash Surrender Value of Life Insurance

9,693

Total Assets

66,552

56,859

9,693

Liabilities:

Deferred Compensation

(8,383)

Total Liabilities

(8,383)

The

Company’s investment

portfolio

was

primarily invested

in corporate

bonds

held in

managed accounts

with

underlying

ratings

better

May

2026.

The

corporate

bonds

have

contractual

maturities

which range from

13 days

2.9

years.

Additionally,

May

2026,

the

Company

had

deferred

compensation

plan

assets

9.8

million.

January

31,

2026,

the

Company

had

deferred

compensation

plan

assets

9.7

million.

These

assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level 2 investment securities include corporate bonds for which quoted prices may not be available on

active

exchanges

for

identical

instruments.

Their

fair

value

principally

based

market

values

determined

management with

the assistance

of a

third-party pricing

service.

Since quoted

prices in

active markets

for

identical assets are

not available, these

prices are determined

by the pricing

service using observable

market

information

such

quotes

from

less

active

markets

and/or

quoted

prices

securities

with

similar

characteristics, among other factors.

Deferred compensation plan

assets consist of

life insurance policies.

These life insurance

policies are valued

based on the cash surrender value of the insurance contract, which is determined based on

such factors as the

fair value of the underlying assets and discounted cash flow and are therefore classified within

Level 3 of the

valuation

hierarchy.

The

Level

liability

associated

with

the

life

insurance

policies

represents

deferred

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

recorded

Other

noncurrent

liabilities

the

Condensed

Consolidated

Balance

Sheet.

These

funds

are

designed to mirror mutual funds and money

market funds that are observable and

actively traded.

The

following

tables

summarize

the

change

fair

value

the

Company’s

financial

assets

and

liabilities

measured using Level 3 inputs for the

three months ended May 2, 2026

and the year ended January 31,

2026

(dollars in thousands):

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7

– FAIR VALUE MEASUREMENTS

(CONTINUED):

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at January 31, 2026

9,693

Redemptions

Additions

Total gains or (losses):

Included in interest and other income, net (or changes in net assets)

134

Ending Balance at May 2, 2026

9,827

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at January 31, 2026

(8,383)

Redemptions

231

Additions

(30)

Total (gains) or losses:

Included in interest and other income, net (or changes in net assets)

(161)

Ending Balance at May 2, 2026

(8,343)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 1, 2025

9,301

Redemptions

(365)

Additions

Total gains or (losses):

Included in interest and other income, net (or changes in net assets)

757

Ending Balance at January 31, 2026

9,693

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 1, 2025

(8,548)

Redemptions

1,246

Additions

(206)

Total (gains) or losses:

Included in interest and other income, net (or changes in net assets)

(875)

Ending Balance at January 31, 2026

(8,383)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

September

2025,

the

FASB

issued

ASU

2025-06,

“Intangibles

–

Goodwill

and

Other

–

Internal-Use

Software

(Subtopic

350-40)

–

Targeted

Improvements

the

Accounting

for

Internal-Use

Software”

(ASU

2025-06).

The

FASB

issued

ASU

2025-06

modernize

the

accounting

for

costs

internal-use

software

better

align

with

how

software

developed

and

clarify

the

threshold

applied

begin

capitalizing

costs.

ASU

2025-06

effective

for

our

annual

and

quarterly

reporting

periods beginning January 30, 2028.

Early adoption is permitted. The

Company is currently assessing the

impact that the adoption of ASU 2025-06 will have on our consolidated financial

statements.

November

2024,

the

FASB

issued

ASU

2024-03,

“Income

Statement

–

Reporting

Comprehensive

Income –

Expense

Disaggregation

Disclosures (Subtopic

220-40):

Disaggregation of

Income Statement

Expenses,”

which

requires

public

entities

disclose,

annual

and

interim

basis,

disaggregated

information

the

footnotes

about

specified

information

certain

costs

and

expenses.

This

guidance

effective

for

annual

periods

beginning

after

December

15,

2026,

and

interim

periods

beginning

after

December

15,

2027,

with

early

adoption

permitted.

The

Company

currently

the

process of

evaluating the

potential impact

of adoption

of this

new guidance

on its

consolidated financial

statements and related disclosures.

NOTE 9 – INCOME TAXES:

The

Company

had

effective

tax

rate

for

the

first

quarter

fiscal

2026

5.3

compared

effective

tax

rate

21.9

for

the

first

quarter

fiscal

2025.

Income

tax

expense

for

the

quarter

decreased to

0.5

million in

2026 from

0.9

million in

2025. The

decrease in

tax expense

was primarily

due to lower foreign income taxes.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,

including

litigation

regarding

the

merchandise

that

sells,

litigation

regarding

intellectual

property,

litigation instituted

by persons

injured upon

premises under

its control,

litigation with

respect to

various

employment

matters,

including

alleged

discrimination and

wage

and

hour

litigation,

and

litigation

with

present or former employees.

Although such

litigation is

routine and

incidental to

the conduct

of the

Company’s business,

as with

any

business

its

size

with

significant

number

employees

and

significant

merchandise

sales,

such

litigation could

result in

large

monetary awards.

Based on

information currently

available, management

does

not

believe

that

any

reasonably

possible

losses

arising

from current

pending litigation

will

have a

material adverse

effect

on its

condensed consolidated

financial statements.

However,

given the

inherent

uncertainties

involved

such

matters,

adverse

outcome

one

such

matters

could

materially and adversely affect the Company’s

financial condition, results of operations and cash flows in

any

particular

reporting

period.

The

Company

accrues

for

these

matters

when

the

liability

deemed

probable and reasonably estimable.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

the

point

purchase

when

the

customer

takes

possession

the

merchandise

and

pays

for

the

purchase,

generally

with

cash

credit.

Sales

from

purchases

made

with

Cato

credit,

gift

cards

and

layaway

sales

from

stores

are

also

recorded

when

the

customer

takes

possession of

the merchandise. E-commerce

sales are

recorded when the

risk of

loss is

transferred to the

customer.

Gift cards

are recorded

as deferred

revenue until they

are redeemed

or forfeited.

Gift cards

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

sales

volumes

and

the

Company’s

experience;

actual

returns

have

not

varied

materially

from

historical

amounts.

provision

made

for

estimated

write-offs

associated

with

sales

made

with

the

Company’s

proprietary credit

card. In

addition, a

provision is

made for

estimated rewards

cards issued

to customers

based

their

purchases

with

the

Company’s

propriety

credit

card.

The

rewards

cards

issued

the

Company have

a 90-day

expiration.

Amounts related

to shipping

and handling

billed to

customers in

sales

transaction

are

classified

Other

revenue

and

the

costs

shipping product

customers

(billed and accrued) are classified as Cost of goods sold.

The Company

offers its

own proprietary

credit card

to customers.

All credit

activity is

performed by

the

Company’s

wholly-owned subsidiaries.

of the

credit card

receivables are

secured.

The

Company

estimated customer credit losses of $

207,000

and $

215,000

for the periods ended May 2, 2026 and May 3,

2025,

respectively,

sales purchased

using the

Company’s

proprietary credit

card

5.2

million and

5.4

million for the periods ended May 2, 2026 and May 3, 2025, respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

customers (in thousands):

Balance as of

May 2, 2026

January 31, 2026

Proprietary Credit Card Receivables, net

10,444

10,711

Gift Card Liability

6,919

7,475

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – LEASES:

The

Company determines

whether

arrangement

lease

inception.

The

Company

has

operating

leases for

stores,

offices,

warehouse space

and equipment.

Its leases

have remaining

lease terms

one

year

10 years

, some of which include options to

extend the lease term for

up to five years

, and some of

which

include

options

terminate

the

lease

within one year

The

Company

considers

these

options

determining

the

lease term

used

establish its

right-of-use assets

and lease

liabilities. The

Company’s

lease agreements do not contain any material residual value guarantees or material

restrictive covenants.

most

the

Company’s

leases

not

provide

implicit

rate,

the

Company

uses

its

estimated

incremental borrowing rate

based on

the information available

at the

commencement date

of the lease

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Three Months Ended

May 2, 2026

May 3, 2025

Operating lease cost

16,319

16,588

Variable

lease cost (a)

519

438

(a) Primarily relates to monthly percentage rent for stores not presented on the balance sheet.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 12 – LEASES (CONTINUED):

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases are

as follows (in thousands):

Operating cash flow information:

Three Months Ended

May 2, 2026

May 3, 2025

Cash paid for amounts included in the measurement of lease liabilities

13,939

14,534

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

8,836

1,206

Weighted-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

follows:

As of

May 2, 2026

May 3, 2025

Weighted-average remaining lease term

2.3

Years

2.1

Years

Weighted-average discount rate

6.29%

5.90%

As of May 2, 2026, the maturities of lease liabilities by fiscal year for the Company’s

operating leases are

as follows (in thousands):

Fiscal Year

2026 (a)

47,815

2027

47,369

2028

32,929

2029

20,990

2030

11,566

Thereafter

2,313

Total lease payments

162,982

Less: Imputed interest

17,955

Present value of lease liabilities

145,027

(a) Excluding the 3 months ended May 2, 2026.

THE CATO CORPORATION

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION:

The

following

information

should

read

along

with

the

unaudited

Condensed

Consolidated

Financial

Statements,

including

the

accompanying

Notes

appearing

this

report.

Any

the

following

are

“forward-looking”

statements

within

the

meaning

Section 27A

the

Securities

Act

1933,

amended,

and

Section 21E

the

Securities

Exchange

Act

1934,

amended:

(1) statements

this

Form 10-Q

that

reflect

projections

expectations

our

future

financial

economic

performance;

(2) statements

that

are

not

historical

information;

(3) statements

our

beliefs,

intentions,

plans

and

objectives for future operations,

including those contained in

“Management’s Discussion and

Analysis of

Financial Condition and

Results of Operations”;

(4) statements relating to

our operations or

activities for

our

fiscal

year

ending

January

30,

2027

(“fiscal

2026”)

and

beyond,

including,

but

not

limited

to,

statements regarding expected

amounts of

capital expenditures and

store openings, relocations,

remodels

and closures, statements

regarding the potential

impact of public

health threats and

related responses and

mitigation efforts, as well as the potential impact of supply chain disruptions, extreme weather conditions,

tariffs

and

other

trade

policies,

inflationary

pressures

and

other

economic

conditions

our

business,

results

operations

and

financial

condition

and

statements

regarding

new

store

development

strategy;

and

(5)

statements

relating

our

future

risks

contingencies.

When

possible,

have

attempted

identify

forward-looking

statements

using

words

such

“will,”

“expects,”

“anticipates,”

“approximates,” “believes,” “estimates,” “hopes,” “intends,”

“may,” “plans,”

“could,” “would,” “should”

and

any

variations

negative

formations

such

words

and

similar

expressions.

can

give

assurance

that actual

results or

events

will not

differ

materially from

those

expressed or

implied in

any

such

forward-looking

statements.

Forward-looking

statements

included

this

report

are

based

information available

to us

as of

the filing

date of

this report,

but subject

to known

and unknown

risks,

uncertainties and other factors that could cause actual results

to differ materially from those contemplated

by the forward-looking statements.

Such factors include, but are not limited to, the following:

any actual

or perceived

deterioration in

the conditions

that drive

consumer confidence

and spending,

including, but

not

limited

to,

prevailing

social,

economic,

political

and

public

health

threats

and

uncertainties,

war

similar

hostilities

and

their

collateral

effects,

levels

unemployment,

fuel,

energy

and

food

costs,

inflation,

wage

rates,

tax

rates,

interest

rates,

home

values,

consumer

net

worth

and

the

availability

credit;

changes

laws,

regulations

government

policies

affecting

our

business,

including

but

not

limited to

tariffs

and taxes;

uncertainties regarding

the impact

any governmental

action regarding,

responses

to,

the

foregoing

conditions;

competitive

factors

and

pricing

pressures;

our

ability

predict

and respond

to rapidly

changing fashion

trends and

consumer demands;

our ability

to successfully

open

new stores in attractive locations and

the ability of any such new

stores to grow and perform as

expected;

underperformance or

other

factors

that

may lead

continuation

acceleration

store

closures

and

negatively

affect

the

Company’s

profitability,

financial

condition

prospects;

adverse

weather,

public

health

threats, acts

war or

aggression

similar

conditions and

related consequences

that

may affect

our sales

or operations;

inventory risks

due to

shifts in

market demand,

including the

ability to

liquidate

excess

inventory

anticipated

margins;

adverse

developments

volatility

affecting

the

financial

services industry or broader

financial markets; and other

factors discussed under “Risk Factors”

in Part I,

Item

the

Company’s

Annual

Report

Form

10-K

for

the

fiscal

year

ended

January

31,

2026

(“fiscal 2025”), as amended or supplemented, and in other reports

we file with or furnish to the

Securities

and Exchange Commission (“SEC”) from

time to time.

do not undertake, and expressly

decline, any

obligation to update any such

forward-looking information contained in this report,

whether as a result of

new information, future events, or otherwise.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The

Company’s

critical

accounting

policies

and

estimates

are

fully

described

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations”

Part

II,

Item

the

Company’s Annual Report on

Form 10-K for the

fiscal year ended January

31, 2026. The preparation

of the

Company’s

financial

statements in

conformity

with

generally

accepted accounting

principles in

the

United

States (“GAAP”) requires management to make estimates and assumptions about future events that affect the

amounts reported in the

financial statements and accompanying

notes. Future events

and their effects cannot

determined

with

absolute

certainty.

Therefore,

the

determination

estimates

requires

the

exercise

judgment. Actual results

inevitably will differ

from those estimates,

and such differences

may be material

the

financial

statements.

The

most

significant

accounting

estimates

inherent

the

preparation

the

Company’s financial

statements include

the calculation

of potential

asset impairment,

income tax

valuation

allowances,

reserves

relating

self-insured

health

insurance,

workers’

compensation,

general

and

auto

insurance

liabilities,

uncertain

tax

positions,

the

allowance

for

customer

credit

losses,

and

inventory

shrinkage.

The Company’s critical accounting policies and

estimates are discussed with the Audit Committee.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS:

The following table sets forth, for the periods indicated, certain items in

the Company's unaudited Condensed

Consolidated Statements of Income as a

percentage of total retail sales:

Three Months Ended

May 2, 2026

May 3, 2025

Total retail sales

100.0

Other revenue

1.0

1.1

Total revenues

101.0

101.1

Cost of goods sold (exclusive of depreciation)

62.8

64.9

Selling, general and administrative (exclusive of depreciation)

31.8

32.8

Depreciation

1.3

1.5

Interest and other income

(0.7)

Income before income taxes

5.8

2.5

Net income

5.5

2.0

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS

(CONTINUED):

Management’s

Discussion and

Analysis of

Financial Condition

and Results

of Operations

(“MD&A”) is

intended

provide

information

assist

readers

better

understanding

and

evaluating

our

financial

condition

and

results

operations.

recommend

reading

this

MD&A

conjunction

with

our

Condensed

Consolidated

Financial

Statements

and

the

Notes

those

statements

included

the

“Financial Statements”

section of

this Quarterly

Report on

Form 10-Q,

as well

as our

Annual Report

Form 10-K for fiscal 2025.

Recent Developments

Tariff Issues

There remains a

significant degree of

uncertainty regarding the

status of U.S.

trade policy and

the types and

amount of tariffs to

which the Company will

be subject.

On February 20, 2026,

the Supreme Court issued

ruling

that

struck

down

the

series

tariffs

that

had

been

imposed

under

the

International

Economic

Emergency Powers Act (“IEEPA”) beginning in February

2025.

In response, the administration transitioned

under

Section

122

the

Trade

Act

1974

(the

“Trade

Act”)

new

10%

baseline

global

tariff

that

scheduled to expire in July 2026 unless otherwise extended by Congress.

On May 7, 2026, the U.S. Court of

International

Trade

issued

ruling

finding

that

these

Section

122

tariffs

are

unlawful,

but

limited

its

permanent injunction to

the specific plaintiffs

in that case,

and these tariffs

continue to be

collected from all

other

importers,

including

the

Company.

The

administration

has

appealed

this

decision,

and

remains

uncertain whether these duties will remain

in effect or possibly be replaced

by other tariffs.

On March 11, 2026, the U.S. Trade

Representative announced investigations under Section 301

of the Trade

Act

into

various

countries,

including

countries

where

much

our

products

are

manufactured,

that

could

result

the

imposition

increased

tariffs.

Beginning

May

2026,

the

U.S.

Trade

Representative

held

Section 301

hearings for

certain countries,

including countries

where we

source most

of our

product.

The

extent to which

these hearings will

result in increased

tariffs is currently

unknown.

Our acquisition costs

future periods will

be negatively impacted

to the extent

that any tariffs

imposed due to

Section 301 findings

are greater than the current

Section 122 tariffs.

April

2026,

following

the

Supreme

Court’s

invalidation

the

IEEPA

tariffs

and

the

establishment

procedures for processing

tariff refunds, the

Company submitted a

refund claim and

recorded a $5.7

million

reduction in cost of goods sold in the first quarter of fiscal 2026.

On May 15, 2026, the Company received a

$2.6 million

partial payment

for its

tariff refund

claim. The

Company anticipates

receiving payment

for the

balance of its tariff refund claim

by the end of the second

quarter of fiscal 2026.

Pricing

Pressures

The pressure

on our

customers’ discretionary

income continued

in the

first quarter

of 2026

with increasing

fuel

prices.

Additionally,

the

Core

Price

Index

(CPI)

rose

April,

further

pressuring

our

customers’

discretionary income both now and into the foreseeable future.

We believe these additional pricing pressures

will cause

our

customers to

cautious

with their

discretionary

spending.

In addition,

our ability

pass through costs

caused by rising

fuel prices and

potential increased tariff

costs will be

limited due in

part

to the pressure on our customers’ discretionary spending.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Comparison of First Quarter of 2026

with 2025

Total retail sales for the first quarter

were $169.4 million compared to

last year’s first quarter sales of

$168.4

million.

Sales increased due

to a same-store

sales increase of

3%, partially offset

by stores that

were closed

in the past 12 months.

Same store sales include stores

that have been open more than

15 months.

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.

The method of calculating same store sales varies across the retail industry.

As a

result, our same

store sales calculation

may not be

comparable to similarly

titled measures reported

by other

companies. E-commerce sales were less than 4.0%

of sales for the first quarter of

fiscal 2026 and are included

in the

same-store sales

calculation.

Total revenues,

comprised of

retail sales

and other

revenue (principally

finance

charges

and

late

fees

customer

accounts

receivable,

shipping

charged

customers

for

commerce

purchases

and

layaway

fees),

were

$171.1

million

for

the

first

quarter

ended

May

2026,

compared to $170.2

million for

the first

quarter ended May

3, 2025. The

Company operated

1,065 stores

May 2, 2026 compared

to 1,109 stores at

the end of last fiscal

year’s first quarter.

For the first three

months

fiscal

2026,

the

Company

opened

two

stores

and

closed

six

stores.

The

Company

currently

expects

open up to 15 new stores

and close approximately 35 stores in

fiscal 2026.

Other revenue, a component of

total revenues, was $1.7 million for the first

quarter of fiscal 2026, compared

to $1.8

million for

the prior

year’s comparable

first quarter.

Included in

Other revenue

is credit

revenue of

$0.7 million

which represented

0.4% of

total revenues

in the

first quarter

of fiscal

2026, flat

both in

dollars

and percentage compared

to 2025.

Credit revenue is comprised

of interest earned on

the Company’s private

label credit card

portfolio and related

fee income.

Related expenses include

principally payroll, postage

and

other administrative expenses,

and totaled $0.4

million in the

first quarter of

2026, flat to

the first quarter

2025.

Cost of goods

sold was $106.3

million, or 62.8%

of retail sales for

the first quarter of

fiscal 2026, compared

to $109.3

million, or

64.9% of

retail sales

in the

first quarter

of fiscal

2025.

The decrease

in cost

of goods

sold as

a percent

of sales

was due

in part

to a

pre-tax tariff

refund claim

of $5.7

million and

lower freight

costs,

partially

offset

increased

sales

marked

down

goods.

Cost

goods

sold

includes

merchandise

costs

(net

discounts

and

allowances),

buying

costs,

distribution

costs,

occupancy

costs,

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.

Occupancy costs 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 exclusive of depreciation) increased by 6.8% to $63.1 million for the first quarter

of fiscal

2026 compared

to $59.1

million in the

first quarter

of fiscal

2025.

Gross margin

as presented

may

not be comparable to those of

other entities.

Selling, general and administrative expenses (“SG&A”) primarily include corporate and store payroll, related

payroll taxes and benefits, insurance, supplies, advertising,

and bank and credit card processing fees.

SG&A

expenses were

$53.9 million,

or 31.8%

of retail

sales for

the first

quarter of

fiscal 2026,

compared to

$55.3

million,

32.8%

retail

sales

the

first

quarter

fiscal

2025.

SG&A

expense

was

lower

the

first

quarter of

fiscal 2026

compared to

the first

quarter of

fiscal 2025

primarily due

to lower

corporate payroll

expense, insurance costs and

equipment maintenance, partially offset

by increases in incentive compensation

expense.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Depreciation expense was $2.2 million, or 1.3% of retail sales for the first quarter of fiscal 2026, compared to

$2.6 million, or

1.5% of retail

sales for the

first quarter of

fiscal 2025. The

decrease in depreciation

expense

was due to fully depreciated older

stores.

Interest

and

other

income

was

$1.2

million,

0.7%

retail

sales

for

the

first

quarter

fiscal

2026,

compared to $1.2 million, or 0.7% of

retail sales for the first

quarter of fiscal 2025.

Income tax expense

was $0.5 million or

0.3% of retail sales

for the first quarter

of fiscal 2026, compared

income

tax

expense

$0.9

million,

0.6%

retail

sales

for

the

first

quarter

fiscal

2025.

The

effective

income

tax

rate

for

the

first

quarter

fiscal

2026

was

5.3%

compared

21.9%

for

the

first

quarter of fiscal 2025. The decrease in tax expense was primarily due to lower

foreign income taxes.

LIQUIDITY, CAPITAL

RESOURCES

AND MARKET

RISK:

The Company

believes that

its cash,

cash equivalents

and short-term

investments, together

with cash

flows

from operations and its asset-backed revolving line of credit, will be adequate to fund the Company’s

regular

operating

requirements

and expected

capital expenditures

for the

months

from the

issuance of

this

quarterly report on Form 10-Q.

Cash

provided

operating

activities

for

the

first

three

months

fiscal

2026

was

primarily

generated

earnings

adjusted

for

depreciation

and

changes

working

capital.

The

increase

cash

provided

$4.2

million

for

the

first

three

months

fiscal

2026

compared

the

first

three

months

fiscal

2025

was

primarily attributable to

higher net income

and the relative

change in accounts

payable from year-end

to the

first quarter

for both

years, partially

offset by

an increase

in accounts

receivable and

the relative

change in

inventory from year-end to the first

quarter for both years.

At May 2, 2026, the Company had working capital of $49.0 million compared to $37.4 million at January 31,

2026.

The

increase

was

primarily

attributable

increase

cash,

inventory

and

accounts

receivable,

partially offset by higher accounts payable.

The ABL

Credit Agreement

(“ABL Facility”)

of up

$35.0 million

is committed

through March

2028

and is secured primarily by inventory and

third-party credit card receivables. The proceeds from the

ABL

Facility

may

used

provide

funding

for

ongoing

working

capital

and

general

corporate

purposes.

There

were

borrowings

outstanding

and

the

availability

under

the

facility

was

$30.0

million

before

giving

effect

$3.0

million

outstanding

letter

credit

that

reduced

borrowing

availability

$27.0

million

May

2026

and

January

31,

2026.

The

weighted

average

interest

rate

under

the

credit

facility was zero at May 2, 2026 and January 31, 2026 due to no outstanding

borrowings.

Expenditures

for

property

and

equipment

totaled

$1.1

million

the

first

three

months

fiscal

2026,

compared to $1.0

million in last

fiscal year’s first

three months.

For the full

fiscal 2026 year,

the Company

expects to invest approximately $7.4 million in

capital expenditures.

Net

cash

provided

investing

activities

totaled

$0.8

million

the

first

three

months

fiscal

2026

compared to $7.9

million provided in

the comparable period

of fiscal 2025.

The decrease was

primarily due

to an increase in purchases of short-term

investments, partially offset by a

decrease in the sales of

short-term

investments.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

Net cash used in

financing activities totaled $0.2

million in the first

three months of fiscal

2026 compared to

$0.9

illion used in the comparable period of fiscal 2025. The decrease

was primarily

due to

lower stock

repurchases.

The Company purchased

107,823 shares in

the first quarter

of 2026.

As of May

2, 2026, the

Company had

572,917 shares remaining in open

authorizations under its share repurchase program.

The Company does not use

derivative financial instruments.

The

Company’s investment

portfolio

was

primarily invested

in corporate

bonds

held in

managed accounts

with

underlying

ratings

better

May

2026

and

January

31,

2026.

The

corporate

bonds

have

contractual maturities which range from 13 days

to 2.9 years.

Additionally,

May

2026,

the

Company

had

deferred

compensation

plan

assets

$9.8

million.

January

31,

2026,

the

Company

had

deferred

compensation

plan

assets

$9.7

million.

These

assets

are

recorded

within

Other

assets

the

Condensed

Consolidated

Balance

Sheets.

See

Note

Fair

Value

Measurements.

RECENT ACCOUNTING PRONOUNCEMENTS:

See Note 8, Recent Accounting Pronouncements.

THE CATO CORPORATION

QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE

AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK:

The

Company

subject

market

rate

risk

from

exposure

changes

interest

rates

its

financing, investing and

cash management activities,

but the Company

does not

believe such exposure

material.

ITEM 4. CONTROLS AND PROCEDURES:

We carried out an evaluation, with the

participation of our Principal Executive Officer and

Principal Financial

Officer,

the

effectiveness

our

disclosure

controls

and

procedures

May

2026.

Based

this

evaluation, our Principal Executive Officer and Principal

Financial Officer concluded that, as of May

2, 2026,

our disclosure

controls and

procedures, as

defined in

Rule 13a-15(e),

under the

Securities Exchange

Act of

1934

(the

“Exchange

Act”),

were

effective

ensure

that

information

are

required

disclose

the

reports

that

file

submit

under

the

Exchange

Act

recorded,

processed,

summarized

and

reported

within the time periods

specified in the SEC’s

rules and forms and

that such information is

accumulated and

communicated to our management, including our Principal Executive Officer and Principal Financial Officer,

as appropriate to allow timely decisions

regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:

No change in the Company’s internal control

over financial reporting (as defined in

Exchange Act Rule 13a-

15(f)) has occurred during the Company’s fiscal quarter ended May 2, 2026 that has

materially affected, or is

reasonably

likely

materially

affect,

the

Company’s

internal

control

over

financial

reporting.

THE CATO CORPORATION

PART

II OTHER

INFORMATION

ITEM 1.

LEGAL PROCEEDINGS:

Not Applicable

ITEM 1A.

RISK FACTORS:

In addition to the other information

in this report, you should carefully

consider the factors discussed in

Part I,

“Item

1A.

Risk

Factors”

our

Annual

Report

Form

10-K

for

our

fiscal

year

ended

January

31,

2026.

These risks

could materially

affect our

business, financial

condition or

future results;

however, they

are not

the only risks we face.

Additional risks and uncertainties not currently known to

us or that we currently deem

immaterial

may

also

materially

adversely

affect

our

business,

financial

condition

results

operations.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES

AND USE OF PROCEEDS:

The following table summarizes the Company’s purchases of its common stock for the three months

ended May 2, 2026:

ISSUER PURCHASES OF EQUITY SECURITIES

Total Number of

Maximum Number

Shares Purchased as

(or Approximate Dollar

Total Number

Average

Part of Publicly

Value)

of Shares that may

of Shares

Price Paid

Announced Plans or

Yet be Purchased

Under

Period

Purchased

per Share (1)

Programs (2)

The Plans or Programs (2)

February 2026

March 2026

62,599

2.85

62,599

April 2026

45,224

2.86

45,224

Total

107,823

2.85

107,823

572,917

(1)

Prices include trading costs.

(2)

As of January

31, 2026, the

Company’s share

repurchase program had

680,740 shares remaining

open authorizations.

During

the

first

quarter

ended

May

2026,

the

Company repurchased

and retired

107,823 shares under

this program

for approximately

$307,697 or

an average

market

price of $2.85 per share.

As of May 2, 2026, the Company had 572,917 shares remaining in open

authorizations.

There is no specified expiration date for the Company’s repurchase program.

ITEM 3.

DEFAULTS

UPON SENIOR SECURITIES:

Not Applicable

THE CATO CORPORATION

PART

II OTHER

INFORMATION

ITEM 4.

MINE SAFETY DISCLOSURES:

No matters requiring disclosure.

ITEM 5.

OTHER INFORMATION:

During the

three months

ended May

2, 2026,

none of

the Company’s

directors or

officers (as

defined in

Rule 16a-1(f) of the

Securities Exchange Act of 1934,

as amended)

adopted

terminated

a “Rule10b5-1

trading arrangement” or

a “

non-Rule

10b5-1

trading arrangement” (as

such terms are

defined in Item

408

of Regulation S-K).

ITEM 6.

EXHIBITS:

Exhibit No.

Item

3.1

Registrant’s Amended and Restated Certificate of Incorporation,

incorporated by reference to Exhibit 3.1 to Form 10-Q of the Registrant

for the quarter ended May 2, 2020.

3.2

Registrant’s Amended and Restated By-Laws, incorporated by

reference to Exhibit 3.2 to Form 10-Q of the Registrant for the quarter

ended May 2, 2020.

31.1*

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2*

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1*

Section 1350 Certification of Principal Executive Officer.

32.2*

Section 1350 Certification of Principal Financial Officer.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

Document

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase

Document

101.LAB

Inline XBRL Taxonomy Extension Label

Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

Document

104.1

Cover

Page

Interactive

Data

File

(Formatted

Inline

XBRL

and

contained in the Interactive Data Files submitted as Exhibit 101.1*)

* Submitted electronically herewith.

THE CATO CORPORATION

PART

II OTHER

INFORMATION

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Registrant has duly caused this

report to be signed on its behalf by the undersigned thereunto duly

authorized.

THE CATO

CORPORATION

May 28, 2026

/s/ John P.

D. Cato

Date

John P.

D. Cato

Chairman, President and

Chief Executive Officer

May 28, 2026

/s/ Charles D. Knight

Date

Charles D. Knight

Executive Vice President

Chief Financial Officer