Cato earnings plummet in 2017 as strategy rethink trails behind schedule

By

Robin Driver

Published
Mar 22, 2018

Charlotte, North Carolina-based womenswear retailer Cato Corporation announced its fourth quarter and full year 2017 results on Thursday, reporting an 82% fall in earnings over the last twelve months but showing cautious optimism for the year to come.

The company’s full year 2017 net income decreased to $8.5 million, compared to the $47.2 million reported in fiscal 2016.
 
The 14-week fourth quarter ended February 3, 2018 contributed to this disappointing result with a deepening net loss of $15.5 million, compared to a loss of $12.8 million in 2016’s 13-week fourth quarter ended January 28, 2017.

A one-time tax expense of $12.3 million related to the Tax Cuts and Jobs Act of 2017 was partly responsible for these increased losses. However, sales for Q4 2017 also dipped to $211.1 million, a decrease of 3% from the sales of $218.2 million reported in the prior year period. Same-store sales discounting the effects of fiscal 2017’s extra 53rd week decreased 8%.
 
Full year sales decreased 11% to $842.0 million from 2016 sales of $947.4 million, while same-store sales for the period fell 12%.
 
“While Cato remains profitable, the retail environment continues to be challenging, particularly in women's apparel,” commented Cato Chairman, President and CEO John Cato, in a release. “This was compounded by the longer than anticipated time it has taken to adjust our merchandising strategy.  Both merchandise margins and profitability were under pressure during the year as we worked through these issues by refining our merchandise mix and liquidating underperforming inventory. To help offset the sales decline, we initiated cost reduction initiatives to better align our cost structure.  These actions should also benefit us in the coming year.”
 
Cato has been struggling in the challenging retail landscape – increasingly dominated by e-commerce giants such as Amazon – for some time, consistently reporting decreasing same-store sales since February 2016. The company plans to close 34 stores in 2018 but is yet to report projected earnings.
 
“For the year, the Company is cautiously optimistic about improved sales and net income.  Our focus will be on improving our merchandise and increasing sales through our existing stores and ecommerce,” stated Mr Cato.