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Cato: $10 A Share In Cash And Investments, Debt-Free, With Recovery EPS Potential Of $2.00-2.50

Mar. 06, 2018 5:00 AM ETThe Cato Corporation (CATO)268 Comments
Timothy Stabosz profile picture
Timothy Stabosz


  • Cato has a 27 year record of continuous profitability, with remarkable 6%+ net profit margins, and 50%+ adjusted ROE the norm, including its best year ever in 2015.
  • A risky and overly ambitious rejiggering of merchandising has resulted in dramatic comp sales and profit declines for 20 months now, causing the stock to swoon from $45 to $11.
  • The company has been wrongly cast aside as "troubled retail," even though management is fixing the problem, and returning to its tried-and-true ways, with the new assortments currently flowing in.
  • The company has $10 a share in cash and real estate held for investment and no debt, a huge margin-of-safety, making the stock way underpriced in any turnaround scenario.
  • The CEO is seasoned, brilliant, has an exemplary record as a merchant, has been in charge for 20 years, and is fully aligned with shareholders.

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Source: Company website


The Cato Corporation (NYSE:CATO) was founded in Charlotte, North Carolina in 1946 by Wayland Cato, Sr., his son Wayland, Jr., and brother Edgar. The company's current business model has been in place for a few decades now, with third generation scion John Cato, 67 (son of Wayland Cato, Jr.) having been CEO for roughly 20 years now. (Company cofounder Wayland Cato, Jr., while no longer involved with the business, is a rather vigorous 95 years old, which may imply no immediate need for a succession plan at the company.) John Cato has a 9% economic interest in the company, but also controls super-voting shares, which give him 43% voting control. The company originally went public in 1968, then private in 1980, then public again in 1987.

Cato operates roughly 1350 stores (all leased) in 33 states, primarily in the Southeast, and primarily under the Cato, Cato Fashions, and Cato Plus names, but also under the It's Fashion, It’s Fashion Metro, and Versona names. The key to the business model is that the company offers on-trend ladies apparel and accessories at every day low prices ($29.95 dresses, $27.95 jeans, etc.) in a full service environment, where colors and styles are coordinated and presented for ease of selection. Cato locates its stores mainly in small town and secondary markets in strip centers that also include a Wal-Mart Supercenter and/or market dominant grocery store, which provides a steady stream of traffic, making the company highly resistant to the secular decline in shopping mall traffic. Unique to the company's business model, while it does have stores in medium cities, it purposefully avoids locating in the urban core, to avoid high rental costs, instead locating on the city outskirts.

This article was written by

Timothy Stabosz profile picture
I am an "extreme value" investor, focusing mostly on micro and nanocap companies selling for a steep discount of price/book, price/sales, price/earnings, price/FCF, EV/EBITDA and/or other traditional measures of value. (Price-to-book is my favorite, by far.) To control risk, I also prefer a low net debt/equity, ideally 30% or less. My emphasis is on low priced stocks (especially under $5) because the marketplace is very inefficient in valuing them, as both institutional investors and brokerages increasingly shun them. I am a dyed-in-the-wool contrarian, and like to invest in the most unloved and out of favor sectors of the market, currently (at 12/31/22), micro-cap oil and gas servicers/transporters, property and casualty (i.e. hurricane) insurance, and radio broadcasters.  I numerically screen for the best relative values in those sectors. (For example, currently, again as of December 31, 2022, some of my favorite stocks, and generally largest holdings are ALR, AUD, BBGI, GEOS, GFGSF, GIFI, GLT, HRTG, ICD, NGL, NNBR, RDI, and UIHC.  Secondary picks are ADES, ADVM, CATO, EMKR, EXPR, FET, GASS, METC, NCSM, PFIN, RRGB, TESS, TISI, WLMS, and XELB.)     A key to my success is to seek the margin of safety that a low price/book and (preferably) strong balance sheet afford, but also by emphasizing companies where the insiders are buying in the open market, to confirm the underlying value proposition (since substantive and "eyebrow-raising" insider open-market buying is so rare). I like to buy stocks that have collapsed in price, and are trading near a multi-year low, and average down aggressively if the stock moves against me (assuming my research can provide assurance that the circumstances for my purchase haven't changed). I like to look for stocks that are being "dumped" from indices (Russell 2000 or S&P 600 Small Cap, most commonly), or subject to tax-loss selling (especially in bull-market environments), creating arbitrary selling pressure in a tight time window. I have achieved dramatic market-beating annualized returns, over the last 30 years, with these strategies.     I have also taken 5%+ positions in companies, and engaged in shareholder activism, to hold accountable the insular, dysfunctional, and/or corrupt boards that are sadly all too common, especially in smaller, family-run, controlled public companies. (I HATE, and decry, index investing, as I believe stocks that are "over-demanded" are going to be over-priced, which offsets the minuscule savings of avoiding the "extra cost" of an active manager.)     A native of Chicago, I have a B.S. in accounting (1990) from DePaul University, and worked for a couple years, fresh out of college, as a federal financial institution examiner.  Since then, I have worked for myself, in various entrepreneurial activities and (primarily) investing for my own account.  I live in my beloved adopted home town of La Porte, Indiana, where I have lived for the last 30 years. A former 2 term City Councilman and major party primary candidate for La Porte Mayor in 2019, I was elected as La Porte County Auditor in the November 2020 election, and went back to full time work at January 1, 2021, now serving a 4 year term as the "Chief Financial Officer" of La Porte County (population 115,000).     I love old houses, live in one designed by architect Franklin Burnham (whose most prominent commission is the Georgia State Capitol), and currently sit as Chairman of the Board of the Parents Television & Media Council (www.parentstv.org), a nationwide non-profit, and arguably the most consequential and compelling charitable organization known to man. [If you make money off of my picks, I ask for your gracious consideration in making a contribution to this fine organization...and let me know you're making it!]

Analyst’s Disclosure: I am/we are long CATO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (268)

tenbaggerZ!! profile picture
Item 2. Properties:

The Company’s distribution center and general offices are located in a Company-owned building of

approximately 552,000 square feet located on a 15-acre tract in Charlotte, North Carolina. The Company’s

automated merchandise handling and distribution activities occupy approximately 418,000 square feet of this

building and its general offices and corporate training center are located in the remaining 134,000 square feet. A

building of approximately 24,000 square feet located on a 2-acre tract adjacent to the Company’s existing location is

used for receiving and distribution of store and office operating supplies. The Company also owns approximately

185 acres of land in York County, South Carolina as a potential new site for our distribution center.


This is from 2016 annual report. The same holds for 2017, 2018, 2019. Not sure where you get the 350 acres of speculative development land in Charlotte. Apparently one should not attribute that ~$2/share to the company if that is not the case. Plus based on their filings, they have absolutely no intention whatsoever to develop those 185 acres in York County.
rjm22 profile picture
If you click on the link above regarding the 350 acres, it mentions a joint venture. Not sure how its listed on their balance sheet.
tenbaggerZ!! profile picture
Interesting. they did not mention anything related with this JV in their 2019 10K at all. probably lumped into "other assets" of 20 mil, but no way to verify really. Thanks for pointing this out, I did not see the link initially.

Anyhow I think this thesis was previously quite nicely laid out, and sort of confirmed by the reality (2018 comp store growth 0%, while 2019 comp store growth 2%, as the management team reverts back to the old merchandising model while shuttering unprofitable stores)

Nevertheless, at the moment this thesis in its original form is completely busted. Cash depleted from 212 mil in 4Q2020 to 137 mil. Yes they have cash and they have revolver undrawn of ~30 mil so they'll be fine. I'm glad the management is as prudent as they have been rather than like what the author said in terms of being overly conservative and so on. But when we got through Covid they'll probably be holding only 50 mil cash so you basically get a 6x PE retailer out there that does not own any land like BBBY or Macy's (operating lease expense 66 mil and total obligation >200 mil).

Plus read some comments by the author recently and he's just as confident and optimistic when he said Phi. Inc was a generational buy (whereas I shorted the stock from 15 to 1.9...). Would probably adopt a "wait and see" approach regarding this name. Plenty of better investment theses out there in the market.
Montrealer profile picture
What's up with CATO? Is the recent price action just retail sector related or CATO specific?
Opportunistic Fox profile picture
Cato was a phenomenal call. Kicking myself for staying on the sidelines based on my judgments over the business quality and integrity of management.

At what point do you guys get short? I may nibble around 25 and increase exposure near 30.

Shoe Carnival is another interesting short candidate. Half a billion business selling discounted sneakers, primarily from Nike, in rural midwest markets. Doubled from 2017 lows at all-time highs.
Michigan Value Investor profile picture
Short? I almost wrote "You are out of your mind to be short at $25", but then I thought better of it and decided to ask what your reasons are instead.

Cato will probably be earning $2 and they have $10 a share in cash and other assets. Unless you have some visibility into earnings heading down from here, why be short?
Opportunistic Fox profile picture
Maybe I am insane. I'm not optimistic on $2 per share earnings long term. I also think management will destroy a considerable amount of value - especially if sales begin to deteriorate. I think its telling that nobody attempted to acquire CATO at 11, even when the company was 80%+ cash.

Cato is an ugly business. You'd be crazy to set up shop selling cheap clothing near Walmarts in strip malls across the country. There are far worse retailers out there relative to Cato, but I'm definitely not going long after this thing doubled. I'll probably short small (<1% of capital) as a contrarian anti-retail play.

If you still own shares, you are essentially making a conscious decision to purchase Cato today as opposed to owning something else. I understand not shorting on the basis of value, but I'd strongly recommend exiting a long position.
Michigan Value Investor profile picture
I don't own any shares. It was a 10% position for me at $11 and as the price rose I sold shares, the last of them at $21, you can read my comments going all the way back to Vince's write up where I outline my thinking from $11 through $21.

My usual plan is to buy cheap, sell on the way up, and be all the way out before fair value. I'd say $25 might be decent guess at fair value, which explains why I was out at $21. But why would you want to be short a volatile stock at fair value? I'm short sometimes, but this doesn't make sense to me. As far as it being an ugly business, maybe, but a 7 PE after backing out the cash makes it not necessarily expensive.

And as far as being crazy setting up shop next to a Walmart, I think you are missing something. The model has worked pretty well, and is working today. Not crazy, successful.

If you do not mind me asking on ODP thesis. I mean outside of the fact that their nearest competitor was purchased @2 times on any given measure.:)

Do you believe in the concept of switching from retail to service entity in general? It seems to be a highly competitive market where Compucom does not look as a preferred solution. I kind of doubt their ability to become the major driver of earnings growth going forward. And their core market seems the most obvious target of Amazon.
Timothy Stabosz profile picture
I have no long term conviction either way in ODP. The stock is simply oversold, based upon the FCF yield, revision of guidance higher for 2018, and expression of anticipation of improved results in 2019 as well, in the most recent slide deck the company just released. The stock is going to $4, and I will start selling at $3.50, and sell out completely by $4, in the near term, or if the rally is slow and steady, sell out by the mid to high $4s.
ssstasss & Play Your Best Game,

Seeking Alpha allows you to view each contributors comments by ticker. By reading the contributors comments in this manner, the majority of these questions can be answered. Just to save everyone some time.
Shangrila Value profile picture
Thanks :)
Timothy Stabosz profile picture
I am a buyer at $2.55 and down on TUES. (I sold half my position at $2.95, this week....bought at $2.55 a week or two ago. I will sell the rest at $3.35-3.50.)

See my posts on the CBK earnings release here on SA for commentary on that one. Short answer: I got mostly out after the earnings release at 80
Cents. While there has been some inside buying the last few days, i still remain cautious, and am more inclined to buy back in on a drop to 60-65 cents. (I believe CBK is probably going to die in a couple years.)
Play Your Best Game profile picture
Thanks again. I owe you a beer or two.
Shangrila Value profile picture
Thanks. About TUES, besides the stock price itself, to you believe IN THE BUSINESS?
Timothy Stabosz profile picture
The TUES biz model is highly suspect....but the balance sheet is strong enough that I view the stock as a fantastic stock to swing trade, at the right price, and I will continue to do that, ongoingly and regularly.
Play Your Best Game profile picture
Timothy, thanks for giving your top picks, and views on CATO and the others.
You mentioned TUES and CBK before. TUES ran up some, CBK reported and plunged. Any thoughts?
rjm22 profile picture
I have not sold a share of CATO.

When i was young, I used to shit like an elephant. I have cured myself of that habit and as a result, I have let my winners run much better than in the past.

My theory is the folks buying now are not paying attention to the yield or the 52 week low.

They are paying attention to the blue sky above and the strong relative strength.

As a result, I anticipate new 52 weeks highs.

I am not looking at any stock that must be bought right now and my money market is paying less than 2%.

Because of that, I am going to let it ride for now. Maybe with a 2-3 point mental stop.

We are 8 cents below the 52 week high as I type.
Timothy Stabosz profile picture
Your strategy of remaining “wed” to stocks continues to make no sense to me. Why should you own TWICE as much of Cato, in dollar terms, as you did when the stock was $12? Do you like the stock TWICE AS MUCH? Do you not view the risk as HIGHER with the stock at $24, compared to $12??

You are an extraordinary value investor, and I have always respected your abilities to hunt for the best bargains (and your TEACHING me, 20 years ago, the importance of insider buying). But your lack of an appreciation for opportunity cost, and staying in a stock out of fear of “missing out on more gains” befuddles me, and means that you are NOT generally in your own “best ideas,” at all times. Consequently, your long term returns are much lower than they could be.

Anyone that has not sold at least half of a Cato position, in this doubling of the stock in 3 months, who cannot find somewhere better to put half that money, deserves what comes to him (which is more likely than not, some kind of retracement, or at least period of consolidation, in the near term).
Montrealer profile picture
Sold the rest of my CATO yesterday. Dipped my toes in some ODP.
rjm22 profile picture
You can't ever have a multi-bagger if you sell after every move.

This was a small position for me and I did not buy more when I got to read the entire bull case.

That said, I did sell half today at $24.97 as I was uneasy with the trading this morning after initially hoping they would take it up several points.

Looking back at some of my long term positions, I own XXXX as low as $2.78. Now its $28.30. I own XXXX as low as $3.73. Now its $30.81.

You remember when TUES was 50 cents. I sold as high as $18- $21.80.

These kind of "baggers" can't happen if you switch into something else after a 30-70% move.
Timothy Stabosz profile picture
For the record, I am now completely out of Cato, as of today. There are just too many better bargains, at this point, and it seems to me that people are piling into the stock a bit too fervently now, in the short term anyway. That having been said, I fully expect them to get back to a run rate of well over $2 in eps, over the next year or so, and so would not be surprised to see the stock back at $30+. But I’m convinced I have significantly more immediate and near term profit potential in the likes of ODP, TA, PHIIK, CNTE, ACET, SMRT, and SUMR, among others. In the meantime, if Cato has an aggressive pullback, I’ll possibly be adding as high as just above $20, and certainly in any retracement to the low $18s.
Montrealer profile picture
Is your list in order of conviction? In your view, which one has the least downside? I am long PHIIK (and CATO).
Timothy Stabosz profile picture
It is not. It is random. I can’t really say which one has the least downside. In the near term, or long term?? I really think they’re all pretty much washed out, and have bottomed, although SMRT went too far too fast (like Cato), and could possible retrace to $2.50. I would say every single stock i list above has little more than 10% downside....unless the market sells off big time, of course.
mashkiaberech profile picture
Tim, what about CTHR? 1.6$ BV though they had a non protiable quarter, and yet, they have lots of cash and optomistic mng which have bought at ~1.3$...
Michigan Value Investor profile picture
FWIW I am now completely out of Cato. I believe the story has worked as advertised, and at $21 it might have some room to run, but there's quite a bit more downside and less upside than there used to be. Thanks to everyone who posted, very helpful, and especially to Tim Stabosz!
Timothy Stabosz profile picture
I have also reduced my position very significantly, but that is not because I don’t think
It is going higher, over time. It is more so because i think 1) near term, it has gotten much closer to fair valuation, even if I fully expect it to be $24-32 in 6-18 months, and 2) I always look at opportunity cost, and see retail stocks like TA, CBK, ODP, and TUES as considerably more attractive than Cato. (I have been adding all 4 of those this week, especially TA and TUES, as I have been selling Cato.)
Michigan Value Investor profile picture
Well, this one worked. Congrats Tim!
Shangrila Value profile picture
Will this honey jar will keep on giving?
Michigan Value Investor profile picture
Far from a sure thing either way. Best guess is there's more to come, but it's not as good at $20 as it was at $11.
Michigan Value Investor profile picture
SSS are out and it's good news. The two month period is up 1% from the two month period a year ago, and the commentary "We are starting to see more favorable sales trends and remain cautiously optimistic about our ability to build upon this improvement in the second quarter" from John Cato makes it pretty clear that a turnaround is underway. Whether that turnaround is deep and sustained or weak and temporary is not yet clear.
Agreed. Hard to see results as anything but good news given the context. The fact that first quarter same-store sales were down just 1 percent is a big tell in my opinion. Congrats to Tim, you and others who went long here.
rjm22 profile picture
No early morning trades yet. 15.45-18.99 with yesterdays close of $16.28.

CATO was mis-priced at $11 but is it at $16.28?
Charlotte article on the 7th...

This Charlotte retailer had 'a very disappointing year.' Can it turn things around?

May 07--One of Charlotte's oldest retailers, Cato Fashions, turns 72 this year. But the past year has not been one to remember.

Cato's recently filed annual report showed that the company's profits plummeted nearly 82 percent last year. The retailer is closing stores faster than it's opening them. And a major real estate project on the site of the old Charlotte Knights stadium that Cato announced three years ago continues to lie dormant.

Cato has cited a host of reasons for its sales declines, including "merchandise assortment missteps" last year, weather and the economy, according to recent earnings reports. But unlike other retailers grappling with competition from online shopping, Cato has not laid out a significant turnaround strategy.

Through a spokeswoman, Cato declined to make any executive, including CEO John Cato, available for interviews.

As more customers shop online these days, retailers have to do something creative that sets them apart from one another or they risk failing, said Steven Cox, a marketing professor with Queens University of Charlotte.

He cited Kohl's(KSS) as an example of a retailer innovating to lure in customers. The department store chain this year announced a program with Amazon.com(AMZN) that will allow it to sell Amazon(AMZN) products and accept returns from the e-commerce giant. The partnership is already helping to drive customer traffic, Cox said.

In another example, Charlotte-based Belk, acquired in late 2015 by private equity firm Sycamore Partners, uses its "Modern. Southern. Style" mantra as an identifier to set itself apart from other department stores. It has expanded its private label brand Crown & Ivy, which features bold colors and patterns, to include menswear and women's shoes.

"(Discounting is) not going to get you anywhere anymore. You've got to have something that hooks you, and now companies are starting to make that change," Cox said.

Strip-mall focus

Nearly all of Cato's 1,351 locations are found in strip malls that are anchored by national discount chains such as Walmart. Most of their stores, which average about 4,500 square feet each, are in the Southeast.

The strip-mall focus stems from a lesson in real estate that Cato learned decades ago.

Cato was founded in 1946, when Wayland Cato Jr. and his brother, Edgar, were discharged from the Navy and helped their father, Wayland Sr., open five women's clothing stores in Charlotte.

By the late 1970s, the company started to flounder, as management diversified away from the women's apparel business and kept its stores in downtown locations at a time when suburban shopping malls thrived.

The company closed dozens of its downtown stores, and settled into a formula that a former executive said in a 1987 Observer profile involves "selling the customer the clothes she wants at what Cato Corp.(CATO) calls a 'popular' price -- lower than department stores but higher than discounters." Cato first went public in 1968, then back private in 1980 then public again in 1987.

These days, retailers are focusing more often on stores in center-city and close-in neighborhoods as young urban dwellers look to work, live and play all within walking distance. That's why popular retailers like Anthropologie, Free People and Warby Parker are popping up in fast-growing neighborhoods such as South End.

A recent visit to a Cato store showed what a typical weekday looks like for the retailer.

The Cato store off Eastway Drive looks a bit like the women's section of a typical department store. The strip mall it's nestled in includes other low-cost retailers such as Family Dollar, Payless ShoeSource and MetroPCS.

On a recent Monday morning, Cato workers neatly arranged racks of pastel-colored slim-fit pants, bedazzled jeans, long patterned cardigans and bright cotton camisole tops. Prices were lower than a typical department store but not as cheap as a discounter such as Walmart: plus-sized orange pants for $24.99, a lavender striped short-sleeved shirt for $11.99, aviator sunglasses on clearance for $4.99.

Besides the rock music that played softly from a radio station overhead and the soft chatter of a customer in the check-out line, the store was quiet.

Sales slumps

Last year was a particularly difficult year for most brick-and-mortar retailers as customers opted to shop more online and as physical store traffic fell. Store closing announcements more than tripled last year to about 7,000, a record, according to retail think tank Fung Global Retail and Technology.

Big national chains that announced major store closures in the Charlotte area and beyond included Toys R Us, Bebe(BEBE), Macy's(M) and Hhgregg(HGGGQ).

Last year, Cato opened six stores and closed 26. For the year ahead, the company said it plans to close 34 stores, and that it won't open any new ones, a sign the retailer is scaling back its physical store presence like other struggling retailers are.

"With the challenges facing retail nationally and the high cost of leasing space in the current market, we are focused this year on our core business and driving sales growth through our existing store base and e-commerce. If rents decline, we are always open to strategically expanding where it makes sense," the company said in a statement to the Observer.

Other numbers are also trending downward.

Cato's same-store sales -- a key measure of any retailer's well-being that refers to sales at stores open at least one year, -- slumped 12 percent, according to the company's annual report.

Net income plunged to $8.5 million, down from $47.2 million in 2016, resulting in what the company called "a very disappointing year" because of "several mistakes in our merchandise assortment, fit and timing." Cato had to slash prices and liquidate a large portion of its slow-selling inventory, putting "severe pressure" on earnings. The company also cited a $12.3 million one-time charge in 2017 for the new tax law as a reason for its profit decline.

And over the last year, Cato's share price has fallen 28 percent. In midday trading Monday, the company's shares were down over 2 percent at $15.96.

"While Cato remains profitable, the retail environment continues to be challenging, particularly in women's apparel," John Cato, the company's president and CEO said in its annual report. A spokeswoman added the company continues to match associates' 401(k) savings and provide dividends to shareholders.

Cato's management has said to be successful, the company -- which also operates the Versona and It's Fashion brands -- has to differentiate itself from department stores, mass merchandise discount stores and competing specialty stores. Key to that goal are: its merchandise assortment, low prices, strip center locations, customer service and credit and layaway programs, the chain's leaders say.

In recent years, Cato has worked to cut costs at its corporate office. Last year, for instance, the company laid off a few employees when it reorganized its real estate department. Cato employs approximately 720 full and part-time workers in the Charlotte area.

"With fewer new store openings, Cato adjusted the size of its real estate department and other areas to align with our needs, and reduced hours and spending at some of our stores," a spokeswoman said.

Real estate woes

In addition to its retailing business, Cato made a high-profile foray into real estate development in 2014, but so far has little to show for it.

That year Cato bought (and later tore down) the old Knights Stadium in Fort Mill from York County for $844,000. The stadium, next to a baseball-shaped water tower visible from Interstate 77, was built in 1990 and was where the Knights played until 2014. Cato's original plan was to build a distribution center on the site.

A few months later, Cato switched gears and partnered with Lincoln Harris in announcing plans to redevelop the property. The massive project, which includes 350 acres of Cato-owned land, was to include 1 million square feet of office space, plus retail, residential, commercial and industrial space. Cato also owns 180 acres south of Rock Hill, which it bought in August 2015, that it says will house the new distribution center.

Three years later, Cato has not broken ground on any of it. On a recent afternoon, the site was quiet and overgrown with weeds. Trash collected in the cracked, abandoned parking lot.

Cato would not say whether its construction delays are tied to its financial performance. The company, a spokeswoman said, is "currently exploring options including a possible mix of offices, retail, residential and hospitality."

Katherine Peralta: 704-358-5079, @katieperalta
Timothy Stabosz profile picture
The tone of the article suggests she was pissed, because management wouldn’t talk to her, so she falsely paints the company as in disarray, because she doesn’t understand what is going on with the turnaround, in the first place. Which basically just makes the article a narrative mish-mash of stuff she could assemble together. An embarrassment, really. She quotes a professor from a school who really has no understanding of the Cato business model, but instead paints in broad asinine strokes about what “smart retailers are doing in the world of Amazon,” and implies that Cato isn’t doing that...but doesn’t come outright and say it.

I certainly appreciate your posting the article, but as far as I am concerned, it contributes little or nothing to understanding Cato (other than a few interesting historical tidbits I didn’t know).
Montrealer, I too am not an economist. I do believe in economic cycles and this expansion is long in the tooth. That's not a prediction a recession is imminent, simply that it isn't five years away either. Your posture on this stock is eminently reasonable.
Montrealer, I agree, EPS is a snapshot from one angle, SSS and gross margin from other angles. If they are seen as delivering $2+ EPS next year with little risk then the stock could be at $25+. It's doable, but I expect bumps along the way and accompanying stock price moves, if it happens I could move back in. Fears of a recession is one development that could possess the stock market and it would likely tank the stock. I'm not saying these fears will come to the fore in twelve months, just that it's a risk.
Montrealer profile picture
Thanks for the reply. I know nothing about predicting recessions or other sources of systemic or macro risk. Also ‘profit taking’ does not factor into my decision making. I am comfortable with scaling in and out of positions as price approaches value, considering available information. If Tim’s thesis is correct, I see money still being left on the table.
Timothy Stabosz profile picture
I support your viewpoint here. I like the way Cato is establishing a very nice base in the mid $16’s, and believe we will see a move over $20 over the next 6 months. It is still very undervalued...just not stupendously so, like it was. Management has cautioned for a decline in April comp sales, so I would think that would be already factored into the stock...but if we retrace into the $14’s, I’ll certainly be adding again. In the meantime, I’m content waiting with my remaining position. (I have sold off over 1/2 of my position, by share count.)
MVI, I followed you and have sold my entire position in CATO. I have read and am re-reading your interview, it is one of the best explanations of what value investing is that I have read, I am certain it will affect my investing, though I doubt I'll completely shed my shoot-from-the-hip decision making style.

My CATO profits offset some of my losses on SHOS.

Okay, on to the next one, though I'll be watching both intensively.
Michigan Value Investor profile picture
DV - thanks for saying so! I do still own some Cato, but at this price it's nowhere near as attractive as it was at $11. I think CATO and SHOS both bear watching carefully, so we are in full agreement on that point.

In case anyone is interested here is a link to the interview:
If you have even a passing interest in CBL read Michael Boyd's article published today. He totally obliterated the long case. The stock has 30% short interest.
Michigan Value Investor profile picture
The preliminary verdict is in. SSS were up 6%, but we need to account for Easter, which juiced the quarter meaningfully. They guided to down low single digit comps in March and April combined. So is that good or bad?

The answer is that it's pretty good. Let's say they are down 2% from Q1 last year - never mind February, let's just get a run rate here using March and April. In Q1 of 2017 the company earned 85 cents, so the Q1 2018 result is down from Q1 2017, but it's way up from e.g. Q4 2017. One point of qualification we need to make is that Q1 is a seasonally good quarter, so don't blindly take 85 cents and multiply by 4 for the year. But it seems pretty clear that the recovery is well underway, and we don't actually expect to see the full impact until May, so it's quite likely that Q2 will be meaningfully better (seasonally adjusted) than Q1.
I agree, the results seem consistent with the expected 3-6 month turnaround period, they are certainly no longer in a free fall.
Timothy Stabosz profile picture
I also agree. I am pleased that the sales results validate the basic trajectory of the turnaround I have been looking for here. These numbers clearly signify we are STABILIZING. I would now expect a return to positive comp sales, month after month, by early to mid summer. I am very heartened. Even more exciting, my guess is it should start to get really nice on the comp sales numbers by August, when they start lapping 2 year stacked "nasties" on the comps.
Michigan Value Investor profile picture
For the record I am more out than in at this point. I still own some and it might do great from here, but at $16.70 it is not as good as it was when I bought it at $11.
Montrealer profile picture
MVI, unless their is a large difference between outcome and expectation, I still see an operating business trading at low single digit multiples. Is that what you think its worth or do you see things differently?
Michigan Value Investor profile picture
I think it's still good from here, just not as good as it was at $11. If it made sense to be 10% of my portfolio at $11, surely it should be less than that at $16.70. But I do still think it's underpriced, just nowhere near AS underpriced.
Montrealer profile picture
Thanks, my average entry is $12.50 and it was about 4% of my portfolio. I think it's way better than cash and have no alternatives to put the money in right now.
rjm22 profile picture
I bought at $11 and turned on the DRIP at my broker.

And forgot about it when the price went up.

So my dividend went for more shares at $14.58. Hope it has a few more dollars of upside anyway.

But, Im going to remind myself to check the price in 2 months and probably turn it off before the next dividend.
Here is the old baseball stadium property:

That link did not work. Here is another attempt:
Clive Fernandes profile picture
No mention of the 350 acres in the 10-K. Are we missing something?

Item 2. Properties:
The Company’s distribution center and general offices are located in a Company-owned building of approximately 552,000 square feet located on a 15-acre tract in Charlotte, North Carolina.
The Company’s automated merchandise handling and distribution activities occupy approximately 418,000 square feet of this building and its general offices and corporate training center are located in the remaining 134,000 square feet. A building of approximately 24,000 square feet located on a 2-acre tract adjacent to the Company’s existing location is used for receiving and distribution of store and office operating supplies. The Company also owns approximately 185 acres of land in York County, South Carolina as a potential new site for our distribution center.
Montrealer profile picture
I could be wrong but I presume it is because the land is ‘owned’ by Cato via the joint venture between them and Lincoln Harris. If I recall, they stop mentioning the land in their ‘properties’ section of the 10-k in 2015 (i.e it is mentioned in 2014) after they established the JV. But, again, I could be completely off.
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