THE CATO CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
29
Depreciation expense was $2.2 million, or 1.4% of retail sales and $4.5 million, or 1.3% of
retail sales for the
second quarter
and first
six months
of fiscal
2026, respectively,
compared to
$2.5 million,
or 1.4%
of retail
sales and $5.1 million,
or 1.5% of retail
sales for the comparable three
and six month periods
of fiscal 2025,
Interest and other income was $2.3 million, or 1.4% of retail sales and $3.5 million, or 1.1% of retail sales for
the three and six months ended August
1, 2026, respectively, compared to $1.4 million,
or 0.8% of retail sales
and
$2.6
million,
or
0.8%
of
retail
sales
for
the
comparable
three
and
six
month
periods
of
fiscal
2025,
respectively. The increase for
the three and
six months ended
August 1, 2026
compared to the
three and six
months ended August 2, 2025 was primarily
due to interest income received as
part of the Company’s IEEPA
tariff refund and interest on
an IRS refund.
Income
tax
expense
was
$0.1
million
and
an
expense
of
$0.7
million
for
the
second
quarter
and
first
six
months
of
fiscal
2026,
respectively,
compared
to
an
income
tax
benefit
of
$0.3
million
and
income
tax
expense of $0.6 million
for the comparable three
months and six
months of fiscal
2025.
The increase in tax
expense is due to the non-recurring prior year favorable adjustment to the federal net operating loss
carryback
claim as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), partially
offset by
lower foreign and state income taxes.
During the
second quarter of
fiscal 2026,
the Company
received a $5.6
million payment for
the outstanding
balance of its income tax
refund receivable due from the IRS.
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 availability
under its
asset-backed revolving
line of
credit, will
be adequate to
fund the
Company’s regular operating requirements and expected capital
expenditures for the next 12 months
from the
issuance of this quarterly report
on Form 10-Q.
Cash
provided
by
operating
activities
during
the
first
six
months
of
fiscal
2026
was
$22.5
million
as
compared to $15.6
million provided in
the first six
months of
fiscal 2025. The
increase in
cash provided
by
operating activities of $6.9
million for the first
six months of fiscal
2026 as compared to
the first six months
of fiscal 2025 was primarily attributable
to a decrease in accounts receivable
in 2026 and the relative
change
of accounts payable from year-end to the second quarter for both years, partially offset by the relative change
in inventories from year-end to the second quarter for both years.
The decrease in accounts receivable is due
in large part to receiving the
remaining IRS refund pertaining to the 2020
tax year.
On August 1, 2026, the Company had working capital of $55.0 million compared
to $37.4 million at January
31,
2026.
The
increase
in
working
capital
was
primarily
attributable
to
an
increase
in
cash
and
cash
equivalents
and
decreases
in
accrued
expenses
and
current
lease
liability,
partially
offset
by
a
decrease
in
inventories and an increase in accounts
payables.
The ABL Credit Agreement (“ABL Facility”) of up to
$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 be used
to provide funding
for ongoing working
capital and general
corporate purposes. There
were no
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
August 1, 2026
and January 31, 2026.
The weighted average interest rate under the credit facility was zero at August 1, 2026
and January 31, 2026 due
to no outstanding borrowings.