It may be déjà vu all over again for fashion retailer Cato Corp. (CATO) , which plunged in 2017 as same-store sales fell off a cliff and many in the specialty retail sector suffered. The damage done to CATO, a $40 stock in 2016 that became a $10 stock in early 2018, seemed overdone at the time, especially if the asset-rich company could show some signs of life. I took the plunge, not crazy about the sector but with the belief that markets had overly punished Cato and many others in retail.
Cato recovered nicely as same-store sales stabilized somewhat, at least enough to show that the company would not burn through its cash and that it was nowhere close to going belly up. Between February and May, shares rose 150% to the $26.50 range and Cato continued paying its sizable 33-cent quarterly dividend.
But it has been downhill for Cato ever since, eclipsed by last week's report that same-store sales fell 12% for the four-week period ended March 2 and were below company expectations. Shares closed Friday at $13.20, about half the 52-week high. Keep in mind that Cato currently garners no analyst coverage, which makes the situation more interesting.
I closed my initial position last July as shares moved much higher more quickly than expected, and I was happy to cash out and not look back. However, seeing CATO again in the low teens makes me at least want to take a look at where the company stands.
Indeed, the balance sheet remains solid; Cato ended its latest reported quarter with $210 million, or about $8.82 per share, in cash and short-term investments. That's up slightly on a per-share basis from the same quarter last year; the company also has reduced shares outstanding by about 3% over the last year through share buybacks.
Cato has no debt per se and also owns land in Charlotte, North Carolina, (15 acres and a 552,000-square- foot building) and South Carolina (185 acres in York County). Shares currently trade at about 1.77x net current asset value (NCAV), putting Cato back into "double-net" land -- stocks trading between one and two times NCAV.
The 33-cent quarterly dividend equates to a whopping 10% yield, which may mean that the markets are once again pricing in a dividend cut. For all its faults, including that it's a brick-and-mortar retailer in a very competitive and unforgiving segment of retail, Cato somehow has managed to slog through, pay a huge dividend, buy back shares and maintain its cash.
I'm not sure lightning can strike twice here with Cato. My appetite for dumpster-diving has waned a bit, and at this point I cautiously am watching how this plays out. I still am not crazy about retail overall and it will require a large margin of safety before again taking the plunge.