The retail resurgence has been putting money back in investor's pockets, and frankly, it has been fun to watch, more so for this value investor within the smaller, under-followed names (big surprise).
My focus now is on fashion retailer Cato Corp. (CATO) , which I named as a year-end bargain in late December. Now, don't get me wrong, fashion retailers are ripe with issues, it's an incredibly competitive industry, tastes are always changing, and inventory can be problematic.
I have to chuckle about a column I wrote back in late 2018 on fashion name Chico's FAS (CHS) , and the reaction I later got from a company rep. I wanted to check out a CHS store, and asked my wife to walk through the store and tell me what she thought about the inventory. She found the offerings unappealing, at least for her. It was not long after that column ran that CHS' public relations department e-mailed me to offer my wife a "personal-style appointment", so that she could learn more about the brand. We did not follow up. I never ended up taking a position in CHS.
I found CATO appealing due to a very solid balance sheet, and my conclusion was that the market had overly punished the name. CATO ended its latest quarter with $151 million, or about $6.70 per share in cash, and no debt. It navigated the pandemic fairly well, and paid back the $34 million it took from a credit line.
The company did eliminate its rather healthy 33 cent quarterly dividend last year in order to conserve cash, and hasn't resumed payouts yet. I expect that we may hear more about that when the company reports fourth quarter results which should be very soon.
CATO has also been very active in buying back shares over the years, and has reduced shares outstanding by about 4.5% between February and December of 2020, and 21% over the past seven years. I find the continued buybacks during the pandemic, and the confidence it suggests, refreshing. It will be interesting to see if they bought back any additional shares in Q4.
CATO is up 37% year-to-date, and currently trades at 1.16x tangible book value. The company has a sweetener on the books, in the form of 185 acres of land located in York County, South Carolina. In addition, the company has an interest in the 350-acre Southbridge mixed-use development in York County. Cash per share of about $6.70 is considerable considering Tuesday's $13.14 close.
CATO currently garners no analyst coverage, so there are no consensus earnings estimates.
