• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Consumer Discretionary

Fashion Retailer Cato Corp. Isn't Dressed for Success

Specialty retailer's holiday sales looked uglier than a bad Christmas sweater.
By JONATHAN HELLER
Jan 05, 2018 | 11:08 AM EST
Stocks quotes in this article: CATO, HIBB, VRA, ZOES, SHLD, JCP

Fashion retailer Cato Corp. (CATO) issued a holiday-sales report Thursday that was lost in the see of other news, but demonstrates the continuing plight that small specialty chains face. Cato reported same-store-sales numbers that would make your head spin -- a 9% drop for the five weeks ended Dec. 30, with sales for the 11-month period ending the same day down a whopping 13%.

The company, which operates more than 1,355 stores in 33 states under the names Cato, Versona and It's Fashion, also warned that full-year earnings per share will fall to 50 to 65 cents from $1.72 a year earlier. (Interestingly, the company's fourth-quarter projected loss of 30 to 45 cents a share includes 20 to 30 cents of red ink for adjustments due to the new U.S. tax law.)

All of this crushed Cato's stock on Thursday, with investors pushing shares down some 13% to near a 13-year low. CATO had already participated in the retail sector's Great Summer Armageddon this past August, when lots of chains got their clocks cleaned. Many recovered somewhat (including Cato), but Thursday's news provided further evidence of the sector's decline.

I was somewhat intrigued by CATO back in July because it was a "double-net" stock back then. The name traded at between 1x and 2x of net current asset value and yielded more than 8% at the time, but had enough liquidity to back up its dividend obligations. In fact, Cato had nearly $9 per share in cash and short-term investments and expected back then to earn $1.45 a share for 2018.

Cato's decline in business conditions and forward expectations have become much more pronounced since then, even though the company's cash and short-term investments only fell slightly to $8.84 per share as of last quarter. Still, you have to wonder whether a dividend cut is on the horizon. CATO's indicated dividend yield rose to 10% after Thursday's drubbing, but it's unclear when (or if) management can right the ship. When the company releases fourth-quarter results in March, it'll be interesting to see what the balance sheet looks like -- namely, how much cash Cato will have burned through this quarter.

It's true that I've had some success over the past year buying down-and-out retail/restaurant chains like Hibbett Sports (HIBB) , Vera Bradley (VRA) and Zoe's Kitchen (ZOES)  , but I'm glad that I passed on Cato. When investors "threw the baby out with the bathwater" of the retail segment in August, it appears that Cato was bathwater after all.

That said, there's no doubt that there are other retailers in worse shape -- larger names like Sears Holdings  (SHLD) and J.C. Penney (JCP) come to mind. In fact, Cato might have more time than other distressed retailers to try to figure things out given its cash hoard and lack of debt. It's a story that I'll continue to follow, but one that I'm not inclined to participate in any time soon.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Heller was long HIBB, VRA and ZOES, although positions may change at any time.

TAGS: Investing | U.S. Equity | Consumer Discretionary | Dividends | Stocks

More from Consumer Discretionary

There's No Clear Sailing Ahead for Carnival: Here's How to Play It

Stephen Guilfoyle
Jun 24, 2022 11:32 AM EDT

CCL did lose a lot of money, much more than anticipated, but there are positives.

Bearish Bets: 3 Well-Known Stocks You Should Consider Shorting This Week

Bob Lang
Jun 19, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

Beyond Meat Gives Investors Something to Chew On

Bruce Kamich
Jun 15, 2022 1:50 PM EDT

This veggie name is rallying sharply after a summer promotion announcement, but here's my beef with the charts.

Tapestry's 50% Correction Makes the Stock More Stylish

Bruce Kamich
Jun 15, 2022 10:16 AM EDT

Let's check the charts of TPR.

Will Apple Prove to Be Hardy Stock or Just Low-Hanging Fruit?

Bruce Kamich
Jun 13, 2022 12:29 PM EDT

A look at shares of the market and tech bellwether as the broader averages comes are under selling pressure.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • 10:44 AM EDT PAUL PRICE

    My Very Best Pick for the Next 12 Months

    American Woodmark . It rarely gets better than th...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login