It was back to Disney World (DIS) last week for the first time in 11 years and it did not disappoint. I was not sure what we'd find in terms of crowds, etc., but suffice it to say that it seemed like there were tons of people, despite capacity limitations. Folks were in a spending mood too. Can't tell you how many I saw carrying light saber's (at $200 a pop) sold at Hollywood Studios. I have not owned DIS for years, but seeing the parks again, and the never-ending expansion (Star Wars attractions are quite amazing) necessitated a quick look at the stock. The quick story is that it trades at 34x next year's earnings estimates, and 27x 2023 estimates, and thus appears a bit rich at this point for me anyway. But this column is really not about DIS, but rather a small fashion retailer, that has very quietly made a strong recovery.
Literally, while waiting in line for the Rock 'n' Roller Coaster last Thursday in Hollywood Studios, I saw that CATO Corp (CATO) released impressive first quarter results. Revenue rose 114% to $211.2 million, but that comparison is against a "COVID" quarter. Gross margin was 41.5%, and it translated to net income of $20.7 million, or 92 cents share, for a very impressive 9.8% net profit margin.
CATO ended the quarter with $183 million or nearly $8.50/share in cash and short-term investments, and no debt. That's up from $6.75/share in cash and investments at the end of Q4. Given all of the liquidity, and improving operations, the big question was if/when the company would reinstate the dividend (which had been a whopping 33 cents/share pre-pandemic). That question was also answered last Thursday when CATO declared an 11-cent dividend, which equates to a 2.9% indicated yield. That should allow CATO to step up its repurchase of stock. Over the past five years, the company has reduced shares outstanding by nearly 22%.
Shares rose 11% after the earnings announcement, then gave back 4% on Friday. CATO is up 77% since late December. This is still an interesting story; a retailer trading at $15, with about $8.50 in net cash, no analyst coverage, and some real estate sweeteners. The downside is that it operates in the incredibly competitive fashion retail business, where competition is fierce, and tastes are ever-changing.