Tough times continue for Cato customers

Playing in the value priced fashion space is a challenging proposition and one of the leaders in the segment doesn’t expect conditions to get easier this year.

The Cato Corporation, operator of 1,320 stores focused on value conscious shoppers, had a challenging fourth quarter like a lot of retailers and chairman, ceo and president John Cato expects the pain could linger this year.

"Results for 2013 were negatively impacted by the continuing difficult economic situation our customers have faced for some time now," Cato said when the company reported fourth quarter results. "Even with the very challenging environment, we have continued to grow our store base, manage our inventory, control costs and, most importantly, remain profitable.

That said, Cato indicated 2014 could be another tough year characterized by a challenging sales environment due to continuing slow job growth and higher costs which reduce customers' discretionary income. Same store sales are expected to be flat to down 2% this year, according to the company. Gross margins are also expected to contract resulting in 2014 profits below 2013 levels.

Sales at the company declined 7% to $215 million during the fourth quarter ended February 1, compared to sales of $232 million during the fourth quarter period the prior year which benefitted from an extra week. Same stores sales declined 3%.

Profits for the 13 week quarter fell 52% to $3.8 million, or 13 cents a share, compared to $7.9 million, or 27 cents a share during the 14 week quarter the prior year. Full year net income was $54.3 million, or $1.86 per share, compared to $61.7 million, or $2.11 per share for the 53 week prior fiscal year.

Despite the top line challenges, Cato has continued to invest in its store base, opening 32 units last year and closing 22 stores. This year it expects to open 64 stores and close as many as 17 locations.

“We have also continued to invest in our business by renovating and expanding facilities, upgrading systems and launching an e-commerce website in November. The e-commerce website launch went very smoothly and has been well received by customers,” Cato said. “However, we do not expect e-commerce to have significant impact on 2014 results. In regard to the fourth quarter, earnings were impacted by a very promotional holiday sales season as well as a number of winter storms in December and January. Also, the comparison of fourth quarter results to the prior year is negatively impacted by the fact this year had one less week than the prior year period."