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Cato Corporation2012 AnnuAl RepoRt A Message to Our Shareholders A year ago we stated that 2012 would be a challenging year similar to 2011, and it was. While the first quarter appeared to start off okay, the year, and particularly the fourth quarter, continued to be difficult due to slow job growth, higher food and gas prices, and later, higher payroll taxes going into the new year. All of these continue to affect our customers’ discretionary budgets. In these uncertain times, we remain committed to providing our customers value through great fashion, great quality, and low prices every day. We continue to focus on executing our growth strategies and to work hard on refining our merchandise mix and assortments. Net sales for the year increased to $933.8 million, up 1% over 2011 while 2012 same store sales were down 4%. Our net income We opened our first Versona store in 2011 and have grown to 25 stores as of the end of 2012. The Versona target customer is a higher income customer which allows us to diversify our overall customer base. We are refining our store model to better align it with sales trends by reducing inventory and occupancy costs. We continue to receive positive feedback from customers and are well positioned to expand this concept profitably. We have pulled back on store development of our It’s Fashion Metro concept as this customer group has been hit the hardest during these tough financial times. We continue to put more emphasis on our core fashion apparel and accessories which has offset our reduction of urban brands. We are testing a larger format Its Fashion store focused on the core junior and plus fashion apparel and accessories. We are currently pursuing the start-up of our e-commerce program which we anticipate to be fully operational by the end of 2013. We have been working towards this goal with improvements to our website, expanding our customer e-mail list, and increasing our presence in social media. We anticipate incorporating the fulfillment process into our existing DC. This is very positive as it will give us time to evaluate our future decreased to $61.7 million from $ 64.8 million. Earnings per share DC needs. was $2.11, a decrease of 5%. Although 2012 was below last year, it was the fifth straight year of strong earnings performance and the second best year in our history. We continue to maintain a strong balance sheet with over $190 million in cash. We utilize our cash to internally fund new concepts and store development, meet infrastructure needs, and provide additional value to long-term shareholders through dividends and share repurchases. Our cash position provides us flexibility in this competitive and volatile fashion segment. We continued to demonstrate our commitment to providing shareholders value through increasing dividends. We increased our annual dividend by 9% in March 2012 and paid dividends of $1.00 per share on an annualized basis. As a result of the political uncertainty and the tax treatment of dividends, we accelerated the payment of the 2013 full-year dividend of $1.00 per share into the fourth quarter of 2012. In addition, we declared a special dividend of another $1.00 per share. In all, we returned over $87 million, or $2.98 per share to shareholders in 2012. In February 2013, we raised the quarterly dividend by $0.05, or 20% on an annualized basis. The Company still has approximately 2 million shares authorized for repurchase. The real estate market continues to have limited growth with the lack of shopping center development. We anticipate new store growth of 65 stores including 40 new Cato stores, 15 new Versona stores, 5 new It’s Fashion stores, and 5 new It’s Fashion Metro stores. We anticipate closing up to 15 stores during 2013. We are continuing to work hard to accelerate growth in our core Cato concept through testing of alternative real estate strategies. We also completed a major expansion of our home office headquarters by adding over 60,000 square feet. This will provide the needed space to accommodate our strategic initiatives. The existing building space will be renovated to improve efficiencies in our operations and the working environment for our associates. We will continue to invest in our infrastructure and anticipate capital expenditures of approximately $44 million. This will include new store development, the home office renovation, and investment into our e-commerce strategy. The Company will also continue to enhance and upgrade our systems. We recently purchased approximately 300 acres of land located over the state line in South Carolina, about 10 minutes away from our current facility. This long-term investment will provide the flexibility for expanding our facilities to continue to support our growing Company. The economic environment continues to be challenging in 2013 for all the reasons we have mentioned above. The investments we are making will help us grow our business. We continue to manage our costs and bring our customer the fashion, quality, and value she desires. By continuing to focus on the customer and getting better at all aspects of our business, we will be well positioned for continued growth. John p. D. Cato Chairman, President & Chief Executive Officer The Cato Corporation is a leading specialty retailer of value- priced women’s fashion apparel operating three concepts, Cato, It’s Fashion and Versona Accessories. The Company currently operates over 1,310 specialty stores throughout the United States. Cato stores offer exclusive merchandise with updated fashion and quality comparable to mall specialty stores at low prices every day. Cato stores average approximately 4,500 square feet and are located primarily in strip shopping centers anchored by national discounters or market dominant grocery stores. The It’s Fashion concept includes both It’s Fashion and It’s Fashion Metro stores. It’s Fashion stores provide junior-inspired fashion apparel and accessories at low prices every day with stores averaging approximately 3,400 square feet. It’s Fashion Metro stores are an expanded version of the It’s Fashion store with the latest styles for the entire family including urban-inspired brands at low prices every day. It’s Fashion Metro stores average approximately 9,700 square feet. The Versona Accessories concept offers quality fashion jewelry and accessories accented by key apparel items at exceptional values every day. The Versona stores average approximately 7,300 square feet. The Company is headquartered in Charlotte, North Carolina. Financial Highlights fiscal year 2012 2011 2010 2009 2008 for the year ended Retail sales Total revenue $ 933,782 $ 920,622 $ 913,079 $ 872,138 $ 845,676 944,048 931,458 924,685 884,001 857,718 Comparable store sales increase (decrease) (4)% (1)% 3% 1% (1)% Income before income taxes Income tax expense Net income Net income as a percentage of retail sales Cash dividends paid per share Basic earnings per share Diluted earnings per share 98,971 37,303 100,271 35,437 92,772 33,921 66,920 21,935 52,610 18,976 $ 61,668 $ 64,834 $ 58,851 $ 44,985 $ 33,634 6.6% 2.980 2.11 2.11 $ $ $ $ $ $ 7.0% .875 2.21 2.21 $ $ $ 6.4% .720 2.00 2.00 $ $ $ 5.2% .660 1.53 1.53 $ $ $ 4.0% .660 1.14 1.14 Stores open at end of year Number of stores opened Number of stores closed Net increase (decrease) in number of stores 1,310 1,288 1,282 34 12 22 38 32 6 37 26 11 1,271 35 45 (10) 1,281 65 102 (37) at year end C ash, cash equivalents, short-term investments and restricted cash $ 194,646 $ 245,989 $ 234,851 $ 200,915 $ 144,803 Working capital Current ratio Total assets Total Stockholders’ equity 230,612 272,139 251,523 214,024 164,639 2.4 532,646 345,234 2.7 551,089 366,679 2.5 532,759 334,014 2.3 492,063 298,649 2.1 435,353 261,813 Dollars in thousands, except per share data and selected operating data The fiscal year ended February 2, 2013 contained 53 weeks versus 52 weeks in the prior fiscal years 2008-2011. Delivering Fashion & Value to Customers. 3 6 11 1 5 11 43 179 9 34 58 82 11 21 23 30 3 2 48 71 12 60 134 89 1 5 6 84 90 115 total number of stores per state at year end 63 Cato currently operates three difference concepts with 1,072 Cato stores, 213 It’s Fashion and It’s Fashion Metro stores and 25 Versona Accessories stores as of the end of 2012. Each concept targets a different customer base, occupies a unique niche and provides growth opportunities. Across all concepts, the Company focuses on providing fashion and accessories at exceptional values. The Cato concept provides fashion with great styling, quality and fit at low prices every day. The concept offers a broad assortment of exclusive merchandise under its Cato label. Cato stores average approximately 4,500 square feet. It’s Fashion serves a younger customer with great fashions at low prices every day. It’s Fashion Metro is an expanded version of It’s Fashion. The larger easy-to-shop stores offer trendy fashions for the entire family at low prices every day. It’s Fashion stores average approximately 3,400 square feet while It’s Fashion Metro stores are generally 8,000 to 10,000 square feet. Versona carries apparel, fashion jewelry, shoes, handbags, scarves, belts and gifts in stores that are generally 6,000 to 10,000 square feet. Most are our private label products developed both in-house and with outside designers. We have leveraged our product development and sourcing teams to manufacture the merchandise around the world. Versona provides all women a place where they can create their own style, a place for guilt free indulgence. Management Executive Group John P. D. Cato Chairman, President and Chief Executive Officer John R. Howe Executive Vice President, Chief Financial Officer Sally J. Almason Executive Vice President, Merchandising – Cato and Versona Concepts Michael T. Greer Executive Vice President, Director of Stores Gordon D. Smith Executive Vice President, Chief Real Estate and Store Development Officer Board of Directors John P. D. Cato Chairman, President and Chief Executive Officer Thomas B. Henson 1, 3 Chief Executive Officer American Spirit Media, LLC Bryan F. Kennedy, III 1 , 3 President Park Sterling Bank Thomas E. Meckley 3 Consultant Agility Recovery Solutions Retired Partner Ernst & Young LLP Bailey W. Patrick 1, 2 General Manager Merrifield Patrick Vermillion LLC D. Harding Stowe 1, 2 Chairman and Chief Executive Officer New South Pizza Edward I. Weisiger, Jr. 1, 2 President and Chief Executive Officer Carolina Tractor & Equipment Company 1 Member of the Corporate Governance and Nominating Committee 2 Member of the Compensation Committee 3 Member of the Audit Committee Corporate Information A copy of the Company’s Annual Report to the Securities and Exchange Commission (Form 10-K) for the fiscal year ended February 2, 2013 is available to shareholders without charge upon written request to: Mr. John R. Howe Executive Vice President, Chief Financial Officer The Cato Corporation P.O. Box 34216 Charlotte, North Carolina 28234 corporate headquarters market & dividend notice The Cato Corporation 8100 Denmark Road Charlotte, North Carolina 28273-5975 (704) 554-8510 mailing address P.O. Box 34216 Charlotte, North Carolina 28234 independent auditor PricewaterhouseCoopers LLP Charlotte, North Carolina 28202 corporate counsel Robinson, Bradshaw & Hinson, P.A. Charlotte, North Carolina 28246 transfer agent and registrar American Stock Transfer Securities Transfer Department, CMG-5 Charlotte, North Carolina 28288 annual meeting notice The Annual Meeting of Shareholders Thursday, May 23, 2013 – 11:00 a.m. Corporate Office 8100 Denmark Road Charlotte, NC 28273-5975 The Company’s Class A Common Stock trades on the New York Stock Exchange (“NYSE”) under the symbol CATO. Below is the market range and dividend information for the four quarters of fiscal 2012 and 2011. price 2012 high low dividend First quarter $ 29.19 $ 25.93 $ .230 Second quarter Third quarter Fourth quarter 31.71 31.75 29.99 27.50 27.50 26.08 .250 .250 2.250 price 2011 high low dividend First quarter $ 25.64 $ 23.03 $ .185 Second quarter Third quarter Fourth quarter 30.74 28.19 26.95 25.11 21.98 22.83 .230 .230 .230 As of April 2, 2013 the approximate number of record holders of the Company’s Class A Common Stock was 5,000, and there were 2 record holders of the Company’s Class B Common Stock. 8100 DenmARk RoAD ChARlotte, nC 28273-5975 CAtoCoRp.Com
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