Yahoo Finance Cato Slips on Q2 Earnings Miss, Provides Bleak Q3 Outlook
After ending the first quarter of fiscal 2015 on a high note, The Cato Corporation CATO posted lower-than-expected earnings result for second-quarter fiscal 2015 and provided a bleak outlook for the third-quarter of fiscal 2015.
This women’s fashion retailer reported second-quarter earnings per share of 56 cents, missing the Zacks Consensus Estimate by a penny.
Soft sales resulting from a challenging retail environment is the cause behind the earnings lag. However, bottom-line results remained flat year over year. Higher taxes and weak gross margin also hurt earnings.
The Cato Corporation - Earnings Surprise | FindTheBest
The dismal bottom-line performance and the sluggish third-quarter guidance were enough to alarm investors. As a result, the company’s shares nosedived 8.7% following the news.
The Quarter in Detail
Cato’s sales for the quarter improved only 2% year over year to $249.2 million owing to a tough retail environment, while comparable-store sales (comps) remained flat year over year.
Gross profit for the reported quarter fell marginally to $94.7 million, while gross margin contracted 100 basis points (bps) year over year to 38.0% mainly because of reduced merchandise margins.
Selling general and administrative (SG&A) expenses for the quarter fell 1.8% year over year to $67.1 million and declined 110 bps to 26.9% as a percentage of sales. The fall in SG&A expenses as a percentage of sales was mainly on account of lower incentive compensation.
Financials
Cato ended the quarter with cash and cash equivalents of $70.1 million compared with $92.2 million at the end of second-quarter of fiscal 2014. The company’s total shareholders’ equity stood at $411.7 million as of Aug 1, 2015.
Store Update
During the first half of fiscal 2015, Cato opened 14 stores, relocated 5 stores and closed 2 stores. At the end of the reported quarter, the company operated 1,358 stores across 32 states.
The company now plans to open 40 stores during fiscal 2015, down from the earlier projection of 45 stores.
Fiscal 2015 Outlook
Management continues to anticipate earnings in the second half of fiscal 2015 to be in the range of 46–55 cents per share.
Cato expects third-quarter fiscal 2015 earnings to be in the range of 12–16 cents per share, compared with 20 cents per share earned in the prior-year quarter. For fourth-quarter fiscal 2015, the company estimates earnings per share in the range of 35–39 cents, compared with the year-ago quarter figure of 33 cents. Further, the company anticipates comps to be in the range of flat to down 2% for both the third quarter and fourth quarter of fiscal 2015.
For fiscal 2015, the company continues to project earnings per share in the range of $2.10–$2.23, representing a 2% decline to 4% rise from $2.15 earned in fiscal 2014, based on the year-to-date results and the outlook for second half of fiscal 2015.
Cato does not have a Zacks Rank at the moment.
Stocks to Consider
Some stocks in the same industry that are worth considering include Boot Barn Holdings Inc. BOOT, American Eagle Outfitters, Inc. AEO and Aeropostale, Inc. ARO. While Boot Barn Holdings and American Eagle Outfitters carry a Zacks Rank #1 (Strong Buy), Aeropostale holds a Zacks Rank #2 (Buy).
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