Cato Corporation (CATO) recently beat the Zacks Consensus for the 4th quarter in a row as sales rose 3% from the year ago period.
Cato Corporation is a specialty retailer. Female shoppers are familiar with the Cato brands: Cato and It’s Fashion.
The company sells value-oriented women’s fashions and accessories in 1275 stores predominantly in strip malls in 31 states. The brands cover junior, missy, plus sizes as well as girls’ sizes 7-16.
Same Store Sales Rise 2% in the Second Quarter
On Aug 19, Cato reported its second quarter results which saw earnings per share of 54 cents, beating the Zacks Consensus by 2 cents. The company made 56 cents in the year ago quarter.
Sales rose 3% to $231.9 million as same store sales jumped 2%. Gross margin also rose to 38.3% from 36.3% in the second quarter of 2009 due to lower markdowns. The company continues to closely watch inventories.
Outlook for the Second Half of the Year
The retailers are struggling with visibility heading into the second half of the year. Consumers are clearly signaling a slowdown but how bad will it be?
Cato doesn’t seem to have any idea about what to expect.
“Even with better than expected sales year-to-date, we continue to believe much uncertainty exists as we look forward,” John Cato, Chairman, President, and Chief Executive Officer.
“We are maintaining our original guidance for the second half of the year and we continue to manage our business tightly,” he added.
The current guidance for the year is an EPS range of $1.83 to $1.89. Last year the company made $1.55 per share.
It expects same store sales to be in the range of down 3% to flat for both the third and fourth quarter.
The current Zacks Consensus Estimate for 2010 calls for $1.86 per share. I wouldn’t expect a lot of upward revisions on that number given the company’s guidance.
Value Fundamentals
Cato is cheaper than when I last reviewed it in April. It is now trading at 12.5x forward estimates compared to 13.7x in April.
The company also still has an attractive price-to-book ratio of 2.1, which is within the value parameters as it’s under 3.0.
Cato is now a Zacks #2 Rank (buy) stock.
Read the Apr 15, 2010 article.
Update to Previous Value Zacks Rank Buy Stocks
Fossil, Inc. (FOSL) continues to post outstanding numbers as the consumer has returned to spruce up their wardrobes with watches and other accessories. FOSL is still inexpensive, trading at just 13.5x forward earnings. Read the full article.
Insight Enterprises Inc. (NSIT) is seeing strong IT demand worldwide as the global recovery progresses. NSIT is cheap, trading at just 9.6x forward earnings when its industry trades at 14x. Read the full article.
Energizer Holdings Inc. (ENR) saw sales rise in the fiscal third quarter due to the launch of the Schick Hydro. The company has a forward P/E of just 11.3, under the industry average of 13.1. Read the full article.
The Timken Company (TKR) is seeing strong global demand as 2010 sales are expected to rise as much as 25% over 2009. TKR has attractive valuations, with a forward P/E of just 13.2. Read the full article.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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