# EDGAR Filing Document

**Accession Number:** 0000018255
**File Stem:** 0001562762-23-000126
**Filing Date:** 2023-3
**Character Count:** 116601
**Document Hash:** 1211e5e0387a7833f0be7d507aa5fa9a
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001562762-23-000126.hdr.sgml**: 20230323

**ACCESSION NUMBER**: 0001562762-23-000126

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 91

**CONFORMED PERIOD OF REPORT**: 20230128

**FILED AS OF DATE**: 20230323

**DATE AS OF CHANGE**: 20230323

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** CATO CORP
- **CENTRAL INDEX KEY:** 0000018255
- **STANDARD INDUSTRIAL CLASSIFICATION:** RETAIL-WOMEN'S CLOTHING STORES [5621]
- **IRS NUMBER:** 560484485
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 0128

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-31340
- **FILM NUMBER:** 23755983

**BUSINESS ADDRESS:**
- **STREET 1:** 8100 DENMARK ROAD
- **CITY:** CHARLOTTE
- **STATE:** NC
- **ZIP:** 28273-5975
- **BUSINESS PHONE:** 7045517352

**MAIL ADDRESS:**
- **STREET 1:** 8100 DENMARK ROAD
- **CITY:** CHARLOTTE
- **STATE:** NC
- **ZIP:** 28273-5975

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** CATO STORES INC
- **DATE OF NAME CHANGE:** 19701002

# UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

# Form 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 28, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-31340

# The Cato Corporation

Registrant

Delaware
State of Incorporation

8100 Denmark Road
Charlotte, North Carolina 28273-5975
Address of Principal Executive Offices

56-0484485
I.R.S. Employer Identification Number

704/554-8510
Registrant's Telephone Number

# Securities registered pursuant to Section 12(b) of the Act:

| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| --- | --- | --- |
| Class A - Common Stock, par value $.033 per share | CATO | New York Stock Exchange |

# Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☑

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☑

Emerging Growth Company ☐

Non-accelerated filer ☐

Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☑

The aggregate market value of the Registrant's Class A Common Stock held by non-affiliates of the Registrant as of July 30, 2022, the last business day of the Company's most recent second quarter, was $226,038,963 based on the last reported sale price per share on the New York Stock Exchange on that date.

As of January 28, 2023, there were 18,723,225 shares of Class A common stock and 1,763,652 shares of Class B common stock outstanding.

# DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement relating to the 2023 annual meeting of shareholders are incorporated by reference into the following part of this annual report:

Part III - Items 10, 11, 12, 13 and 14

# THE CATO CORPORATION

# FORM 10-K

# TABLE OF CONTENTS

|  | Page |
| --- | --- |
| PART I |  |
| Item 1. Business | 5 - 10 |
| Item 1A. Risk Factors | 10 - 22 |
| Item 1B. Unresolved Staff Comments | 22 |
| Item 2. Properties | 22 |
| Item 3. Legal Proceedings | 23 |
| Item 3A. Executive Officers of the Registrant | 24 |
| Item 4. Mine Safety Disclosures | 24 |
| PART II |  |
| Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 25 - 27 |
| Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 28 - 34 |
| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 34 |
| Item 8. Financial Statements and Supplementary Data | 35 - 65 |
| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 66 |
| Item 9A. Controls and Procedures | 66 |
| Item 9B. Other Information | 66 |
| Item 9C. Disclosures Regarding Foreign Jurisdictions That Prevent Inspections | 66 |
| PART III |  |
| Item 10. Directors, Executive Officers and Corporate Governance | 67 |
| Item 11. Executive Compensation | 67 |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 67 |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | 68 |
| Item 14. Principal Accountant Fees and Services | 68 |
| PART IV |  |
| Item 15. Exhibits and Financial Statement Schedules | 69 |
| Item 16. Form 10-K Summary | 71 |

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## Forward-looking Information

The following information should be read along with the Consolidated Financial Statements, including the accompanying Notes appearing in this report. Any of the following are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended: (1) statements in this Form 10-K and any documents incorporated by reference that reflect projections or expectations of our future financial or economic performance; (2) statements that are not historical information; (3) statements of our beliefs, intentions, plans and objectives for future operations, including those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; (4) statements relating to our operations or activities for our fiscal year ending February 3, 2024 (“fiscal 2023”) and beyond, including, but not limited to, statements regarding expected amounts of capital expenditures and store openings, relocations, remodels and closures, statements regarding the potential impact of the COVID-19 pandemic and related responses and mitigation efforts, as well as the potential impact of supply chain disruptions, inflationary pressures and other economic conditions on our business, results of operations and financial condition and statements regarding new store development strategy; and (5) statements relating to our future contingencies. When possible, we have attempted to identify forward-looking statements by using words such as “will,” “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “hopes,” “intends,” “may,” “plans,” “could,” “would,” “should” and any variations or negative formations of such words and similar expressions. We can give no assurance that actual results or events will not differ materially from those expressed or implied in any such forward-looking statements. Forward-looking statements included in this report are based on information available to us as of the filing date of this report, but subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those contemplated by the forward-looking statements. Such factors include, but are not limited to, the following: any actual or perceived deterioration in the conditions that drive consumer confidence and spending, including, but not limited to, prevailing social, economic, political and public health conditions and uncertainties, levels of unemployment, fuel, energy and food costs, wage rates, tax rates, interest rates, home values, consumer net worth, the availability of credit and inflation; changes in laws, regulations or governmental policies affecting our business, including but not limited to tariffs; uncertainties regarding the impact of any governmental action regarding, or responses to, the foregoing conditions; competitive factors and pricing pressures; our ability to predict and respond to rapidly changing fashion trends and consumer demands; our ability to successfully implement our new store development strategy to increase new store openings and our ability of any such new stores to grow and perform as expected; adverse weather, public health threats (including the global COVID-19 pandemic) or similar conditions that may affect our sales or operations; inventory risks due to shifts in market demand, including the ability to liquidate excess inventory at anticipated margins; and other factors discussed under “Risk Factors” in Part I, Item 1A of this annual report on Form 10-K for the fiscal year ended January 28, 2023 (“fiscal 2022”), as amended or supplemented, and in other reports we file with or furnish to the Securities and Exchange Commission (“SEC”) from time to time. We do not undertake, and expressly decline, any obligation to update any such forward-looking information contained in this report, whether as a result of new information, future events, or otherwise.

As used herein, the terms “we,” “our,” “us,” the “Company” or “Cato” include The Cato Corporation and its subsidiaries, unless the context indicates another meaning and except that when used with reference to common stock or other securities described herein and in describing the positions held by management of the Company, such terms include only The Cato Corporation. Our website is located at www.catofashions.com where we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports (including amendments to these reports) filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act of 1934. These reports are available as soon as reasonably practicable after we electronically file these materials with the SEC. We also post on our website the charters of our Audit, Compensation and Corporate Governance and Nominating Committees; our Corporate Governance Guidelines; Code of Business Conduct and Ethics and Code of Ethics for the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer and any amendments or waivers thereto for any of our directors or executive officers; and any other publicly available corporate governance materials

3

contemplated by SEC or New York Stock Exchange regulations. The information contained on our website, www.catofashions.com, is not, and should in no way be construed as, a part of this or any other report that we filed with or furnished to the SEC.

4

# PART I

## Item 1. *Business:*

### Background

The Company, founded in 1946, operated 1,280 fashion specialty stores at January 28, 2023, in 32 states, principally in the southeastern United States, under the names 'Cato,' 'Cato Fashions,' 'Cato Plus,' 'It's Fashion,' 'It's Fashion Metro' and 'Versona.' The Cato concept seeks to offer quality fashion apparel and accessories at low prices every day, in junior/missy and plus sizes. The Cato concept's stores and e-commerce website feature a broad assortment of apparel and accessories, including dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry and handbags. A major portion of the Cato concept's merchandise is sold under its private label and is produced by various vendors in accordance with the concept's specifications. The It's Fashion and It's Fashion Metro concepts offer fashion with a focus on the latest trendy styles for the entire family at low prices every day. The Versona concept's stores and e-commerce website offer quality fashion apparel items, jewelry and accessories at exceptional values every day. The Company's stores range in size from 2,200 to 19,000 square feet and are located primarily in strip shopping centers anchored by national discounters or market-dominant grocery stores. The Company emphasizes friendly customer service and coordinated merchandise presentations in an appealing store environment. The Company offers its own credit card and layaway plan. Credit and layaway sales under the Company's plan represented 6% of retail sales in fiscal 2022. See Note 13 to the Consolidated Financial Statements, 'Reportable Segment Information,' for a discussion of information regarding the Company's two reportable segments: retail and credit.

The Company has operated Cato-branded retail stores for approximately 76 years. The Company originated as a family-owned business and made its first initial public offering of stock in 1968. In 1980, the Company went private and in 1987 again conducted an initial public offering.

### Business Strategy

The Company's primary objective is to be the leading fashion specialty retailer for fashion and value in its markets. Management believes the Company's success is dependent upon its ability to differentiate its stores from department stores, mass merchandise discount stores and competing specialty stores. The key elements of the Company's business strategy are:

*Merchandise Assortment.* The Company's stores offer a wide assortment of on-trend apparel and accessory items in primarily junior/missy, plus sizes, men and kids sizes, toddler to boys size 20 and girls size 16 with an emphasis on color, product coordination and selection. Colors and styles are coordinated and presented so that outfit selection is easily made.

*Value Pricing.* The Company offers quality merchandise that is generally priced below comparable merchandise offered by department stores and mall specialty apparel chains, but is generally more fashionable than merchandise offered by discount stores. Management believes that the Company has positioned itself as the every day low price leader in its market segment.

*Strip Shopping Center Locations.* The Company locates its stores principally in convenient strip centers anchored by national discounters or market-dominant grocery stores that attract large numbers of potential customers.

*Customer Service.* Store managers and sales associates are trained to provide prompt and courteous service and to assist customers in merchandise selection and wardrobe coordination.

*Credit and Layaway Programs.* The Company offers its own credit card and a layaway plan to make the purchase of its merchandise more convenient for its customers.

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## Merchandising

### Merchandising

The Company seeks to offer a broad selection of high quality and exceptional value apparel and accessories to suit the various lifestyles of fashion and value-conscious customers. In addition, the Company strives to offer on-trend fashion in exciting colors with consistent fit and quality.

The Company's merchandise lines include dressy, career, and casual sportswear, dresses, coats, shoes, lingerie, costume jewelry, handbags, men's wear and lines for kids and infants. The Company primarily offers exclusive merchandise with fashion and quality comparable to mall specialty stores at low prices, every day.

The Company believes that the collaboration of its merchandising and design teams with an expanded in-house product development and direct sourcing function has enhanced merchandise offerings and delivers quality, exclusive on-trend styles at lower prices. The product development and direct sourcing operations provide research on emerging fashion and color trends, technical services and direct sourcing options.

As a part of its merchandising strategy, members of the Company's merchandising and design staff visit selected stores to monitor the merchandise offerings of other retailers, regularly communicate with store operations associates and frequently confer with key vendors. The Company also takes aggressive markdowns on slow-selling merchandise and typically does not carry over merchandise to the next season.

### Purchasing, Allocation and Distribution

Although the Company purchases merchandise from approximately 580 suppliers, most of its merchandise is purchased from approximately 100 primary vendors. In fiscal 2022, purchases from the Company's largest vendor accounted for approximately 16% of the Company's total purchases. The Company is not dependent on its largest vendor or any other vendor for merchandise purchases, and the loss of any single vendor or group of vendors would not have a material adverse effect on the Company's operating results or financial condition. A substantial portion of the Company's merchandise is sold under its private labels and is produced by various vendors in accordance with the Company's strict specifications. The Company sources a majority of its merchandise directly from manufacturers overseas, primarily in Southeast Asia. These manufacturers are dependent on materials that are primarily sourced from China. The Company purchases its remaining merchandise from domestic importers and vendors, which typically minimizes the time necessary to purchase and obtain shipments; however, these vendors are dependent on materials primarily sourced from China. The Company opened its own overseas sourcing operations in the fall of 2014, replacing the Company's former sourcing agent in 2015. Although a significant portion of the Company's merchandise is manufactured overseas, primarily in Southeast Asia, the Company does not expect that any economic, political, public health or social unrest in any one country would have a material adverse effect on the Company's ability to obtain adequate supplies of merchandise. However, the Company can give no assurance that any changes or disruptions in its merchandise supply chain would not materially and adversely affect the Company. See 'Risk Factors - Risks Relating To Our Business - Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise; changes, disruptions, cost changes or other problems affecting the Company's merchandise supply chain have and could continue to materially and adversely affect the Company's business, results of operations and financial condition.'

An important component of the Company's strategy is the allocation of merchandise to individual stores based on an analysis of sales trends by merchandise category, customer profiles and climatic conditions. A merchandise control system provides current information on the sales activity of each

6

merchandise style in each of the Company's stores. Point-of-sale terminals in the stores collect and transmit sales and inventory information to the Company's central database, permitting timely response to sales trends on a store-by-store basis.

All merchandise is shipped directly to the Company's distribution center in Charlotte, North Carolina, where it is inspected and then allocated by the merchandise distribution staff for shipment to individual stores. The flow of merchandise from receipt at the distribution center to shipment to stores is controlled by an online system. Shipments are made by common carrier, and each store receives at least one shipment per week. The centralization of the Company's distribution process also subjects it to risks in the event of damage to or destruction of its distribution facility or other disruptions affecting the distribution center or the flow of goods into or out of Charlotte, North Carolina. See 'Risk Factors - Risks Relating To Our Information Technology and Related Systems - A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations.'

### *Advertising*

The Company uses television, in-store signage, graphics, a Company website, two e-commerce websites and social media as its primary advertising media. The Company's total advertising expenditures were approximately 1.0%, 0.9% and 0.8% of retail sales for fiscal years 2022, 2021 and 2020, respectively.

### **Store Operations**

The Company's store operations management team consists of four territorial managers, 11 regional managers and 109 district managers. Regional managers receive a salary plus a bonus based on achieving targeted goals for sales and payroll. District managers receive a salary plus a bonus based on achieving targeted objectives for district sales increases. Stores are typically staffed with a manager, two assistant managers and additional part-time sales associates depending on the size of the store and seasonal personnel needs. In general, store managers are paid a salary or on an hourly basis as are all other store personnel. Store managers, assistant managers and sales associates are eligible for monthly and semi-annual bonuses based on achieving targeted goals for their respective store's sales increases.

### **Store Locations**

Most of the Company's stores are located in the southeastern United States in a variety of markets ranging from small towns to large metropolitan areas with trade area populations of 20,000 or more. Stores average approximately 4,500 square feet in size.

All of the Company's stores are leased. Approximately 92% are located in strip shopping centers and 8% in enclosed shopping malls. The Company typically locates stores in strip shopping centers anchored by a national discounter, primarily Walmart Supercenters, or market-dominant grocery stores. The Company's strip center locations provide ample parking and shopping convenience for its customers.

The Company's store development activities consist of opening new stores in new and existing markets, relocating selected existing stores to more desirable locations in the same market area and closing underperforming stores. The following table sets forth information with respect to the Company's development activities since fiscal 2018:

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## Store Development

| Fiscal Year | Number of Stores Beginning of Year | Number Opened | Number Closed | Number of Stores End of Year |
| --- | --- | --- | --- | --- |
| 2018 | 1,351 | - | 40 | 1,311 |
| 2019 | 1,311 | 5 | 35 | 1,281 |
| 2020 | 1,281 | 76 | 27 | 1,330 |
| 2021 | 1,330 | 6 | 25 | 1,311 |
| 2022 | 1,311 | 19 | 50 | 1,280 |

The Company periodically reviews its store base to determine whether any particular store should be closed based on its sales trends and profitability. The Company intends to continue this review process to identify underperforming stores.

### Credit and Layaway

#### Credit Card Program

The Company offers its own credit card, which accounted for 3.1%, 2.5% and 2.7% of retail sales in fiscal 2022, 2021 and 2020, respectively. The Company's net bad debt expense was 2.0%, 3.0% and 3.6% of credit sales in fiscal 2022, 2021 and 2020, respectively.

Customers applying for the Company's credit card are approved for credit if they have a satisfactory credit record and the Company has considered the customer's ability to make the required minimum payment. Customers are required to make minimum monthly payments based on their account balances. If the balance is not paid in full each month, the Company assesses the customer a finance charge. If payments are not received on time, the customer is assessed a late fee subject to regulatory limits.

The Company introduced its loyalty program in October 2021. The loyalty program credits the customer points based on their purchases of merchandise using the Company's proprietary credit card. A point is earned for every dollar spent on merchandise purchases. A $5.00 rewards card is earned for every 250 points accumulated by the customer. The rewards card expires 90 days after the rewards card is issued. The fiscal 2022 loyalty program impact is immaterial to the fiscal 2022 financial statements. The loyalty program is accounted for in accordance with ASU 2014-09, *Revenue from Contracts with Customers (Topic 606)*.

#### Layaway Plan

Under the Company's layaway plan, merchandise is set aside for customers who agree to make periodic payments. The Company adds a nonrefundable administrative fee to each layaway sale. If no payment is made within four weeks, the customer is considered to have defaulted, and the merchandise is returned to the selling floor and again offered for sale, often at a reduced price. All payments made by customers who subsequently default on their layaway purchase are returned to the customer upon request, less the administrative fee and a restocking fee.

The Company defers recognition of layaway sales to the accounting period when the customer picks up and completely pays for layaway merchandise. Administrative fees are recognized in the period in which the layaway is initiated. Recognition of restocking fees occurs in the accounting period when the customer defaults on the layaway purchase. Layaway sales represented approximately 2.7%, 2.7% and 2.8% of retail sales in fiscal 2022, 2021 and 2020, respectively.

### Information Technology Systems

The Company's information technology systems provide daily financial and merchandising

8

information that is used by management to enhance the timeliness and effectiveness of purchasing and pricing decisions. Management uses a daily report comparing actual sales with planned sales and a weekly ranking report to monitor and control purchasing decisions. Weekly reports are also produced which reflect sales, weeks of supply of inventory and other critical data by product categories, by store and by various levels of responsibility reporting. Purchases are made based on projected sales, but can be modified to accommodate unexpected increases or decreases in demand for a particular item.

Sales information is projected by merchandise category and, in some cases, is further projected and actual performance measured by stock keeping unit (SKU). Merchandise allocation models are used to distribute merchandise to individual stores based upon historical sales trends, climatic differences, customer demographic differences and targeted inventory turnover rates.

## Competition

The women's retail apparel industry is highly competitive. The Company believes that the principal competitive factors in its industry include merchandise assortment and presentation, fashion, price, store location and customer service. The Company competes with retail chains that operate similar women's apparel specialty stores. In addition, the Company competes with mass merchandise chains, discount store chains, major department stores, off-price retailers and internet-based retailers. Although we believe we compete favorably with respect to the principal competitive factors described above, many of our direct and indirect competitors are well-established national, regional or local chains, and some have substantially greater financial, marketing and other resources. The Company expects its stores in larger cities and metropolitan areas to face more intense competition.

## Seasonality

Due to the seasonal nature of the retail business, the Company has historically experienced and expects to continue to experience seasonal fluctuations in its revenues, operating income and net income. Our stores typically generate a higher percentage of our annual net sales and profitability in the first and second quarters of our fiscal year compared to other quarters. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.

## Regulation

The Company's business and operations subject it to a wide range of local, state, national and international laws and regulations in a variety of areas, including but not limited to, trade, licensing and permit requirements, import and export matters, privacy and data protection, credit regulation, environmental matters, recordkeeping and information management, tariffs, taxes, intellectual property and anti-corruption. Though compliance with these laws and regulations has not had a material effect on the capital expenditures, results of operations or competitive position of the Company in fiscal 2022, the Company faces ongoing risks related to its efforts to comply with these laws and regulations and risks related to noncompliance, as discussed generally below throughout the 'Risk Factors' section and in particular under 'Risk Factors - Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management's attention or otherwise adversely affect our business, results of operations and financial condition.'

## Human Capital

As of January 28, 2023, the Company employed approximately 7,600 full-time and part-time associates. The Company also employs additional part-time associates during the peak retailing seasons. The Company's full-time team associates are engaged in various executive, operating, and administrative functions in the Home Office and distribution center and the remainder are engaged in store operations. The Company is not a party to any collective bargaining agreements and considers its associate relations

9

to be good. The Company offers a broad range of Company-paid benefits to its associates including medical and dental plans, paid vacation, a 401(k) plan, Employee Stock Purchase Plan, Employee Stock Ownership Plan, disability insurance, associate assistance programs, life insurance and an associate discount. The level of benefits and eligibility vary depending on the associate's full-time or part-time status, date of hire, length of service and level of pay. The Company endeavors to promote diversity, to provide opportunities for advancement, and to treat all of its associates with dignity and respect. The Company constantly strives to improve its training programs to develop associates. Over 80% of store and field management are promoted from within, allowing the Company to internally staff its store base. The Company has training programs at each level of store operations. The Company also performs ongoing reviews of its safety protocols, including measures to promote the health and safety of its associates.

#### **Item 1A. Risk Factors:**

An investment in our common stock involves numerous types of risks. You should carefully consider the following risk factors, in addition to the other information contained in this report, including the disclosures under 'Forward-looking Information' above in evaluating our Company and any potential investment in our common stock. If any of the following risks or uncertainties occur or persist, our business, financial condition and operating results could be materially and adversely affected, the trading price of our common stock could decline and you could lose all or a part of your investment in our common stock. The risks and uncertainties described in this section are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially and adversely affect our business, operating results, financial condition and value of our common stock.

#### **Risks Relating to Our Business:**

*Increasing interest rates and inflationary conditions have and may continue to adversely impact our customers' discretionary income or willingness to purchase discretionary items, which may adversely affect our business, margins, results of operations and financial condition.*

Increasing interest rates have adversely affected our customers' discretionary income, in part due to increased interest costs associated with credit accounts including revolving credit accounts, car loans, mortgage loans and other credit accounts. In addition, the increased payments due to higher interest rates deter our customers from purchasing discretionary items such as apparel, shoes and jewelry. Inflationary pressures limit our customers' willingness to purchase apparel, shoe or jewelry products, as prices associated with non-discretionary products including food and fuel are increasing, reducing our customers' discretionary income. Any reduction in our customers' discretionary spending on our products could erode our sales volume and adversely affect our results of operations and financial condition.

*Increased product costs, freight costs, wage increases and operating costs due to inflation and other factors, as well as limitations in our ability to offset these cost increases by increasing the retail prices of our products or otherwise, have and may continue to adversely affect our business, margins, results of operations and financial condition.*

Tight labor markets are causing wages to increase at the store, distribution center and home office levels, as well as making it more difficult to hire new associates and retain existing associates. The tight labor market and inflation also are driving up our operating costs. In addition, inflationary pressures on labor and raw materials used to make our products may continue to increase the cost we pay for our products. If we are unable to offset the effects of these increased costs to our business by increasing the retail prices of our products, reducing other expenses or otherwise, our business, margins, results of operations and financial condition may be adversely affected.

Our ability to raise retail prices in response to these cost increases is limited, in part due to our customers' unwillingness to pay higher prices for discretionary items in light of actual or perceived

10

effects of inflation in increasing our customers' cost of essential items and diminishing customers' disposable income or financial outlook. Moreover, the persistence or worsening of inflationary conditions could also lead our customers to reduce their amount of current discretionary spending on our products even in the absence of price increases, which could erode our sales volume and adversely affect our results of operations and financial condition.

*Because we source a significant portion of our merchandise directly and indirectly from overseas, we are subject to risks associated with international operations and risks that affect the prevailing social, economic, political, public health and other conditions in the areas from which we source merchandise; changes, disruptions, increased costs or other problems affecting the Company's merchandise supply chain have and could continue to materially and adversely affect the Company's business, results of operations and financial condition.*

A significant amount of our merchandise is manufactured overseas, principally in Southeast Asia. We directly import some of this merchandise and indirectly import the remaining merchandise from domestic vendors who acquire the merchandise from foreign sources. Further, our third-party vendors are dependent on materials primarily sourced from China. As a result, political unrest, labor disputes, terrorism, war, public health threats, including but not limited to communicable diseases (such as COVID-19), financial or other forms of instability or other events resulting in the disruption of trade from countries affecting our supply chain, increased security requirements for imported merchandise, or the imposition of, or changes in, laws, regulations or changes in duties, quotas, tariffs, taxes or governmental policies regarding or responses to these matters or other factors affecting the availability or cost of imports, can cause significant delays or interruptions in the supply of our merchandise or increase our costs. In addition, geopolitical tensions, sanctions, prohibitions, additional tariffs, compliance and reporting requirements have resulted in increased costs associated with merchandise produced in certain regions. Any new sanctions, tariffs and reporting requirements enacted in the future may further increase our costs associated with sourcing products from those regions or limit our ability to procure the products we source, and our ability to source these products from other regions may be limited or result in increased sourcing costs.

We are also subject to supply chain disruptions affecting ocean freight, including lack of overall ocean container shipping capacity versus the current demand for container shipping capacity, lack of our ability to access the ocean container capacity that we require, lack of equipment such as containers, port congestion, including increased dwell times for ocean container ships, and other conditions impacting ocean freight. We also are subject to domestic supply chain disruptions, including lack of domestic intermodal transportation (trucks and drivers), domestic port congestion, including increased dwell times for incoming container ships, lack of container yard capacity and lack of available drayage from the ports and other conditions that impact our domestic supply chain. These supply chain risks have and may continue to result in both higher costs to transport our merchandise and delayed merchandise arrivals to our stores, which adversely affect our ability to sell this merchandise and increase markdowns of it.

Our costs are also affected by currency fluctuations, and changes in the value of the dollar relative to foreign currencies have and may continue to impact our cost of goods sold. Any of these factors can materially and adversely affect our business and results of operations. In addition, increased energy and transportation costs have caused us significant cost increases from time to time, and future adverse changes in these costs or the disruption of the means by which merchandise is transported to us could cause additional cost increases or interruptions of our supply chain, which could be significant. Further, we are subject to increased costs or potential disruptions impacting any port or trade route through which our products move, or we may be subject to increased costs and delays if forced to route freight through different ports than the ones through which our products typically move. If we are forced to source merchandise from other countries or other domestic vendors with foreign sources in different countries, those goods may be more expensive or of a different or inferior quality from the ones we now sell.

*Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional*

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# ***counterparties, could adversely affect our business, financial condition or results of operations.***

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to sporadic or market-wide liquidity problems that could adversely affect us. For example, on March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as receiver. Similarly, on March 12, 2023, Signature Bank was swept into receivership. In addition on March 8, 2023, Silvergate Capital announced that it will liquidate its subsidiary, Silvergate Bank, and that the liquidation process is being supervised by the California Department of Financial Protection and Innovation. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder.

If any of our transactional counterparties, such as our merchandise vendors and their factors, our landlords, our payment processors including credit card, gift card and checks, our transportation vendors and other vendors that provide services and supplies to us, are unable to access funds or lending arrangements with such a financial institution, such parties' ability to pay their obligations could be adversely affected. If this occurred we could be adversely impacted by not receiving the product we ordered or the payments generated by our sales, by not being able to receive products to our distribution center or our stores in a timely manner or at all, or by not being able to retain services from third parties that we require. These impacts may adversely affect our financial condition, results of operations and our ability to execute our business strategy.

Furthermore, these adverse developments affecting the financial services or related perceptions may negatively impact our customers' discretionary income for or our customers' willingness to purchase apparel, shoes or jewelry products. Any reduction in our customers' discretionary spending on our products could erode our sales volume and adversely affect our results of operations and financial condition.

# ***Any actual or perceived deterioration in the conditions that drive consumer confidence and spending have and may continue to materially and adversely affect consumer demand for our apparel and accessories and our results of operations.***

Consumer spending habits, including spending for our apparel and accessories, are affected by, among other things, prevailing social, economic, political and public health conditions and uncertainties (such as matters under debate in the U.S. from time to time regarding budgetary, spending and tax policies), levels of employment, fuel, interest rates, energy and food costs, salaries and wage rates and other sources of income, tax rates, home values, consumer net worth, the availability of consumer credit, inflation, consumer confidence and consumer perceptions of adverse changes in or trends affecting any of these conditions. Any perception that these conditions may be worsening or continuing to trend negatively may significantly weaken many of these drivers of consumer spending habits. Adverse perceptions of these conditions or uncertainties regarding them also generally cause consumers to defer purchases of discretionary items, such as our merchandise, or to purchase cheaper alternatives to our merchandise, all of which may also adversely affect our net sales and results of operations. In addition, numerous events, whether or not related to actual economic conditions, such as downturns in the stock markets, acts of war or terrorism, political unrest or natural disasters, outbreaks of disease or similar events, may also dampen consumer confidence, and accordingly, lead to reduced consumer spending. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

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***Extreme weather, natural disasters, public health threats or similar events have and may continue to adversely affect our sales or operations from time to time.***

Extreme changes in weather, natural disasters, public health threats or similar events can influence customer trends and shopping habits. For example, heavy rainfall or other extreme weather conditions, including but not limited to winter weather over a prolonged period, might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season can render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions would adversely affect our business. The occurrence or threat of extreme weather, natural disasters, power outages, terrorist acts, outbreaks of flu or other communicable diseases (such as COVID-19) or other catastrophic events could reduce customer traffic in our stores and likewise disrupt our ability to conduct operations, which would materially and adversely affect us.

***Our ability to attract consumers and grow our revenues is dependent on the success of our store location strategy and our ability to successfully open new stores as planned.***

Our sales are dependent in part on the location of our stores in shopping centers and malls where we believe our consumers and potential consumers shop. In addition, our ability to grow our revenues has been substantially dependent on our ability to secure space for and open new stores in attractive locations. Shopping centers and malls where we currently operate existing stores or seek to open new stores have been and may continue to be adversely affected by, among other things, general economic downturns or those particularly affecting the commercial real estate industry, the closing of anchor stores, changes in tenant mix and changes in customer shopping preferences, including but not limited to an increase in preference for online versus in-person shopping. To take advantage of consumer traffic and the shopping preferences of our consumers, we need to maintain and acquire stores in desirable locations where competition for suitable store locations is intense. A decline in customer popularity of the strip shopping centers where we generally locate our stores or in availability of space in desirable centers and locations, or an increase in the cost of such desired space, has limited and could further limit our ability to open new stores, adversely affecting consumer traffic and reducing our sales and net earnings or increasing our operating costs.

Our ability to open and operate new stores depends on many factors, some of which are beyond our control. These factors include, but are not limited to, our ability to identify suitable store locations, negotiate acceptable lease terms, secure necessary governmental permits and approvals and hire and train appropriate store personnel. In addition, our continued expansion into new regions of the country where we have not done business before may present new challenges in competition, distribution and merchandising as we enter these new markets. Our failure to successfully and timely execute our plans for opening new stores or the failure of these stores to perform up to our expectations could adversely affect our business, results of operations and financial condition.

***If we are unable to anticipate, identify and respond to rapidly changing fashion trends and customer demands in a timely manner, our business and results of operations could materially suffer.***

Customer tastes and fashion trends, particularly for women's apparel, are volatile, tend to change rapidly and cannot be predicted with certainty. Our success depends in part upon our ability to consistently anticipate, design and respond to changing merchandise trends and consumer preferences in a timely manner. Accordingly, any failure by us to anticipate, identify, design and respond to changing fashion trends could adversely affect consumer acceptance of our merchandise, which in turn could adversely affect our business, results of operations and our image with our customers. If we miscalculate either the market for our merchandise or our customers' tastes or purchasing habits, we may be required

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to sell a significant amount of unsold inventory at below-average markups over cost, or below cost, which would adversely affect our margins and results of operations.

# ***The inability of third-party vendors to produce goods on time and to the Company's specification may adversely affect the Company's business, results of operations and financial condition.***

Our dependence on third-party vendors to manufacture and supply our merchandise subjects us to numerous risks that our vendors will fail to perform as we expect. For example, the deterioration in any of our key vendors' financial condition, their failure to ship merchandise in a timely manner that meets our specifications, or other failures to follow our vendor guidelines or comply with applicable laws and regulations, including compliant labor, environmental practices and product safety, could expose us to operational, quality, competitive, reputational and legal risks. If we are not able to timely or adequately replace the merchandise we currently source with merchandise produced elsewhere, or if our vendors fail to perform as we expect, our business, results of operations and financial condition could be adversely affected. Activities conducted by us or on our behalf outside the United States further subject us to numerous U.S. and international regulations and compliance risks, as discussed below under 'Risk Factors - Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management's attention or otherwise adversely affect our business, results of operations and financial condition.'

# ***Existing and increased competition in the women's retail apparel industry may negatively impact our business, results of operations, financial condition and market share.***

The women's retail apparel industry is highly competitive. We compete primarily with discount stores, mass merchandisers, department stores, off-price retailers, specialty stores and internet-based retailers, many of which have substantially greater financial, marketing and other resources than we have. Many of our competitors offer frequent promotions and reduce their selling prices. In some cases, our competitors are expanding into markets in which we have a significant market presence. In addition, our competitors also compete for the same retail store space. As a result of this competition, we may experience pricing pressures, increased marketing expenditures, increased costs to open new stores, as well as loss of market share, which could materially and adversely affect our business, results of operations and financial condition.

# ***Fluctuating comparable sales or our inability to effectively manage inventory have and may continue to negatively impact our gross margin and our overall results of operations.***

Comparable sales are expected to continue to fluctuate in the future. Factors affecting comparable sales include fashion trends, customer preferences, calendar and holiday shifts, competition, weather, supply chain issues, actual or potential public health threats and economic conditions, including but not limited to increasing interest rates and higher inflation. In addition, merchandise must be ordered well in advance of the applicable selling season and before trends are confirmed by sales. If we are not able to accurately predict customers' preferences for our fashion items, we may have too much inventory, which may cause excessive markdowns. If we are unable to accurately predict demand for our merchandise, we may end up with inventory shortages, resulting in missed sales. A decrease in comparable sales or our inability to effectively manage inventory may adversely affect our gross margin and results of operations.

# ***The operation of our sourcing offices in Asia present increased operational and legal risks.***

In October 2014, we established our own sourcing offices in Asia. If our sourcing offices are unable to successfully oversee merchandise production to ensure that product is produced on time and within the Company's specifications, our business, brand, reputation, costs, results of operations and financial condition could be materially and adversely affected.

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In addition, the current business environment, including geopolitical issues, make operating in certain Asian markets challenging. To the extent we explore other countries to source our product or explore increasing the amount of product sourced from current countries, we may be subject to additional increased legal and operational risks associated with doing business in new countries or increasing our business in other countries.

Further, the activities conducted by our sourcing offices outside the United States subject us to foreign operational risks, as well as U.S. and international regulations and compliance risks, as discussed elsewhere in this “Risk Factors” section, in particular below under “Risk Factors - Risks Relating to Accounting and Legal Matters - Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our management’s attention or otherwise adversely affect our business, results of operations and financial condition.”

# ***Failure to attract, train, and retain skilled personnel could adversely affect our business and our financial condition.***

Like most retailers, we experience significant associate turnover rates, particularly among store sales associates and managers. Moreover, attracting and retaining skilled personnel has become increasingly challenging in the tight labor market that has persisted since the onset of the COVID-19 pandemic. To offset this turnover as well as support new store growth, we must continually attract, hire and train new store associates to meet our staffing needs. A significant increase in the turnover rate among our store sales associates and managers would increase our recruiting and training costs, as well as possibly cause a decrease in our store operating efficiency and productivity. We compete for qualified store associates, as well as experienced management personnel, with other companies in our industry or other industries, many of whom have greater financial resources than we do.

In addition, we depend on key management personnel to oversee the operational divisions of the Company for the support of our existing business and future expansion. The success of executing our business strategy depends in large part on retaining key management. We compete for key management personnel with other retailers, and our inability to attract and retain qualified personnel could limit our ability to continue to grow.

If we are unable to retain our key management and store associates or attract, train, or retain other skilled personnel in the future, we may not be able to service our customers effectively or execute our business strategy, which could adversely affect our business, operating results and financial condition.

The currently competitive environment for hiring new associates and retaining existing associates is causing wages to increase, which has and could continue to adversely affect our business, margins, operating results and financial condition if we cannot offset these cost increases.

# ***Fluctuations in the price, availability and quality of inventory have and may continue to result in higher cost of goods, which the Company may not be able to pass on to its customers.***

The price and availability of raw materials may be impacted by demand, regulation, weather and crop yields, currency value fluctuations, inflation, as well as other factors. Additionally, manufacturers have and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit costs. These increases in production costs may result in higher merchandise costs to the Company. Due to the Company’s limited flexibility in price point, the Company may not be able to pass on those cost increases to the consumer, which could have a material adverse effect on our margins, results of operations and financial condition.

# ***If the Company is unable to successfully integrate new businesses into its existing business, the Company's financial condition and results of operations will be adversely affected.***

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The Company's long-term business strategy includes opportunistic growth through the development of new store concepts. This growth may require significant capital expenditures and management attention. The Company may not realize any of the anticipated benefits of a new business and integration costs may exceed anticipated amounts. We have incurred substantial financial commitments and fixed costs related to our retail stores that we will not be able to recover if our stores are not successful and that have resulted and could result in future impairment charges. If we cannot successfully execute our growth strategies, our financial condition and results of operations may be adversely impacted.

#### **Risks Relating to Our Information Technology and Related Systems:**

*A failure or disruption relating to our information technology systems could adversely affect our business.*

We rely on our existing information technology systems for merchandise operations, including merchandise planning, replenishment, pricing, ordering, markdowns and product life cycle management. In addition to merchandise operations, we utilize our information technology systems for our distribution processes, as well as our financial systems, including accounts payable, general ledger, accounts receivable, sales, banking, inventory and fixed assets. Despite the precautions we take, our information systems are or may be vulnerable to disruption or failure from numerous events, including but not limited to, natural disasters, severe weather conditions, power outages, technical malfunctions, cyber-attacks, acts of war or terrorism, similar catastrophic events or other causes beyond our control or that we fail to anticipate. Any disruption or failure in the operation of our information technology systems, our failure to continue to upgrade or improve such systems, or the cost associated with maintaining, repairing or improving these systems, could adversely affect our business, results of operations and financial condition. Modifications and/or upgrades to our current information technology systems may also disrupt our operations.

*A security breach that results in unauthorized access to or disclosure of employee, Company or customer information or a ransomware attack could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs.*

The protection of employee, Company and customer data is critical to the Company. Any security breach, mishandling, human or programming error or other event that results in the misappropriation, loss or other unauthorized disclosure of employee, Company or customer information, including but not limited to credit card data or other personally identifiable information, could severely damage the Company's reputation, expose it to remediation and other costs and the risks of legal proceedings, disrupt its operations and otherwise adversely affect the Company's business and financial condition. The security of certain of this information also depends on the ability of third-party service providers, such as those we use to process credit and debit card payments as described below under 'We are subject to payment-related risks,' to properly handle and protect such information. Our information systems and those of our third-party service providers are subject to ongoing and persistent cybersecurity threats from those seeking unauthorized access through means which are continually evolving and may be difficult to anticipate or detect for long periods of time. Despite measures the Company takes to protect confidential information against unauthorized access or disclosure, which measures are ongoing and may continue to increase our costs, there is no assurance that such measures will prevent the compromise of such information. If any such compromise or unauthorized access to or disclosure of this information were to occur, it could have a material adverse effect on the Company's reputation, business, operating results, financial condition and cash flows. In addition, the Company may be subject to ransomware attacks, which if successful could result in disruptions to the Company's operations and expose it to remediation and other costs, risks of legal proceedings, damage the Company's reputation and otherwise adversely affect the Company's business and financial condition.

*A disruption or shutdown of our centralized distribution center or transportation network could materially and adversely affect our business and results of operations.*

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The distribution of our products is centralized in one distribution center in Charlotte, North Carolina and distributed through our network of third-party freight carriers. The merchandise we purchase is shipped directly to our distribution center, where it is prepared for shipment to the appropriate stores and subsequently delivered to the stores by our third-party freight carriers. If the distribution center or our third-party freight carriers were to be shut down or lose significant capacity for any reason, including but not limited to, any of the causes described above under 'A failure or disruption relating to our information technology systems could adversely affect our business,' our operations would likely be seriously disrupted. Such problems could occur as the result of any loss, destruction or impairment of our ability to use our distribution center, as well as any broader problem generally affecting the ability to ship goods into our distribution center or deliver goods to our stores. As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to reopen or replace the distribution center and/or our transportation network. Any such occurrence could adversely affect our business, results of operations and financial condition.

# ***The Company's failure to successfully operate its e-commerce websites or fulfill customer expectations could adversely impact customer satisfaction, our reputation and our business.***

Although the Company's e-commerce platform provides another channel to drive incremental sales, provide existing customers the online shopping experience and introduce the Company to a new customer base, it also exposes us to numerous risks. We are subject to potential failures in the efficient and uninterrupted operation of our websites, customer contact center or our distribution center, including system failures caused by telecommunication system providers, order volumes that exceed our present system capabilities, electrical outages, mechanical problems and human error. Our e-commerce platform may also expose us to greater potential for security or data breaches involving the unauthorized access to or disclosure of customer information, as discussed above under 'A security breach that results in unauthorized access to or disclosure of employee, Company or customer information or a ransomware attack could adversely affect our costs, reputation and results of operations, and efforts to mitigate these risks may continue to increase our costs.' We are also subject to risk related to delays or failures in the performance of third parties, such as shipping companies, including delays associated with labor strikes or slowdowns or adverse weather conditions. If the Company does not successfully meet the challenges of operating e-commerce websites or fulfilling customer expectations, the Company's business and sales could be adversely affected.

# ***We are subject to payment-related risks.***

We accept payments using a variety of methods, including third-party credit cards, our own branded credit card, debit cards, gift cards and physical and electronic bank checks. For existing and future payment methods we offer to our customers, we are subject to fraud risk and to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in increased costs and reduce the ease of use of certain payment methods). For certain payment methods, including credit and debit cards, we pay interchange and other fees, which have increased from time to time and may continue to increase over time, raising our operating costs and lowering profitability. We rely on third-party service providers for payment processing services, including the processing of credit and debit cards. In each case, it could disrupt our business if these third-party service providers become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card-issuing banks' costs, subject to fines and higher transaction fees. In addition, we may lose our ability to accept credit and debit card payments from our customers and process electronic funds transfers or facilitate other types of payments, and our business and operating results could be adversely affected.

# **Risks Relating to Accounting and Legal Matters:**

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# ***Changes to accounting rules and regulations may adversely affect our reported results of operations and financial condition.***

In an effort to provide greater comparability of financial reporting in an increasing global environment, accounting regulatory authorities have been in discussions for many years regarding efforts to either converge U.S. Generally Accepted Accounting Principles with International Financial Reporting Standards (“IFRS”), have U.S. companies provide supplemental IFRS-based information or continue to work toward a single set of globally accepted accounting standards. If implemented, these potential changes in accounting rules or regulations could significantly impact our future reported results of operations and financial position. Changes in accounting rules or regulations and varying interpretations of existing accounting rules and regulations have significantly affected our reported financial statements and those of other participants in the retail industry in the past and may continue to do so in the future. Future changes to accounting rules or regulations may adversely affect our reported results of operations and financial position or perceptions of our performance and financial condition.

# ***Continued scrutiny and changing expectations surrounding environmental, social and governance (“ESG”) matters from investors, customers, government regulators and other stakeholders may impose additional reporting requirements, additional costs and compliance risks.***

Public companies from across all industries are facing increasing scrutiny from investors, customers, government regulators and other stakeholders concerning ESG matters. In the U.S., there are various proposals for new or enhanced disclosure requirements regarding climate emissions, sustainability, workforce diversity and other human capital resources metrics, among other topics. Complying with these complex reporting obligations or expectations may increase our costs associated with compliance, disclosure and reporting. Furthermore, evolving ESG laws, regulations and stakeholder expectations may result in uncertain and potentially burdensome reporting requirements as stakeholders, agencies and government authorities adjust their expectations or change laws and regulations, such as proposals currently under consideration regarding climate emissions reporting and auditing requirements. Failure to comply with all of the currently proposed regulatory requirements in a timely manner may adversely affect our reputation, business and financial performance.

# ***If we fail to protect our trademarks and other intellectual property rights or infringe the intellectual property rights of others, our business, brand image, growth strategy, results of operations and financial condition could be adversely affected.***

We believe that our “Cato”, “It’s Fashion”, “It’s Fashion Metro”, “Persona”, “Cache” and “Body Central” trademarks are integral to our store designs, brand recognition and our ability to successfully build consumer loyalty. Although we have registered these trademarks with the U.S. Patent and Trademark Office (“PTO”) and have also registered, or applied for registration of, additional trademarks with the PTO that we believe are important to our business, we cannot give assurance that these registrations will prevent imitation of our trademarks, merchandising concepts, store designs or private label merchandise or the infringement of our other intellectual property rights by others. Infringement of our names, concepts, store designs or merchandise generally, or particularly in a manner that projects lesser quality or carries a negative connotation of our image could adversely affect our business, financial condition and results of operations.

In addition, we cannot give assurance that others will not try to block the manufacture or sale of our private label merchandise by claiming that our merchandise violates their trademarks or other proprietary rights. In the event of such a conflict, we could be subject to lawsuits or other actions, the ultimate resolution of which we cannot predict; however, such a controversy could adversely affect our business, financial condition and results of operations.

# ***Our business operations subject us to legal compliance and litigation risks, as well as regulations and regulatory enforcement priorities, which could result in increased costs or liabilities, divert our***

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# ***management's attention or otherwise adversely affect our business, results of operations and financial condition.***

Our operations are subject to federal, state and local laws, rules and regulations, as well as U.S. and foreign laws and regulations relating to our activities in foreign countries from which we source our merchandise and operate our sourcing offices. Our business is also subject to regulatory and litigation risk in all of these jurisdictions, including foreign jurisdictions that may lack well-established or reliable legal systems for resolving legal disputes. Compliance risks and litigation claims have arisen and may continue to arise in the ordinary course of our business and include, among other issues, intellectual property issues, employment issues, commercial disputes, product-oriented matters, tax, customer relations and personal injury claims. International activities subject us to numerous U.S. and international regulations, including but not limited to, restrictions on trade, license and permit requirements, import and export license requirements, privacy and data protection laws, environmental laws, records and information management regulations, tariffs and taxes and anti-corruption laws, such as the Foreign Corrupt Practices Act, violations of which by employees or persons acting on the Company's behalf may result in significant investigation costs, severe criminal or civil sanctions and reputational harm. These and other liabilities to which we may be subject could negatively affect our business, operating results and financial condition. These matters frequently raise complex factual and legal issues, which are subject to risks and uncertainties and could divert significant management time. The Company may also be subject to regulatory review and audits, the results of which could materially and adversely affect our business, results of operations and financial condition. In addition, governing laws, rules and regulations, and interpretations of existing laws are subject to change from time to time. Compliance and litigation matters could result in unexpected expenses and liability, as well as have an adverse effect on our operations and our reputation.

New legislation or regulation and interpretation of existing laws and regulations, including those related to data privacy, climate change or ESG matters could increase our costs of compliance, technology and business operations. The interpretation of existing or new laws to existing technology and business practices can be uncertain and may lead to additional compliance risk and cost.

# ***Adverse litigation matters may adversely affect our business and our financial condition.***

From time to time the Company is involved in litigation and other claims against our business. Primarily these arise from our normal course of business but are subject to risks and uncertainties, and could require significant management time. The Company's periodic evaluation of litigation-related matters may change our assessment in light of the discovery of facts with respect to legal actions pending against us, not presently known to us or by determination of judges, juries or other finders of fact. We may also be subjected to legal matters not yet known to us. Adverse decisions or settlements of disputes may negatively impact our business, reputation and financial condition.

# ***Maintaining and improving our internal control over financial reporting and other requirements necessary to operate as a public company may strain our resources, and any material failure in these controls may negatively impact our business, the price of our common stock and market confidence in our reported financial information.***

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the rules of the SEC and New York Stock Exchange and certain aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act') and related rule-making that has been and may continue to be implemented over the next several years under the mandates of the Dodd-Frank Act. The requirements of these rules and regulations have increased, and may continue to increase, our compliance costs and place significant strain on our personnel, systems and resources. To satisfy the SEC's rules implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we must continue to document, test, monitor and enhance our internal control over financial reporting, which is a costly and time-consuming effort that must be re-evaluated frequently. We cannot give assurance that our disclosure controls and procedures and our internal control over financial

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reporting, as defined by applicable SEC rules, will be adequate in the future. Any failure to maintain the effectiveness of internal control over financial reporting or to comply with the other various laws and regulations to which we are and will continue to be subject, or to which we may become subject in the future, as a public company could have an adverse material impact on our business, our financial condition and the price of our common stock. In addition, our efforts to comply with these existing and new requirements could significantly increase our compliance costs.

#### **Risks Relating to Our Investments and Liquidity:**

*We may experience market conditions or other events that could adversely impact the valuation and liquidity of, and our ability to access, our short-term investments, cash and cash equivalents and our revolving line of credit.*

Our short-term investments and cash equivalents are primarily comprised of investments in federal, state, municipal and corporate debt securities. The value of those securities may be adversely impacted by factors relating to these securities, similar securities or the broader credit markets in general. Many of these factors are beyond our control, and include but are not limited to changes to credit ratings, rates of default, collateral value, discount rates, and strength and quality of market credit and liquidity, potential disruptions in the capital markets and changes in the underlying economic, financial and other conditions that drive these factors. As federal, state and municipal entities struggle with declining tax revenues and budget deficits, we cannot be assured of our ability to timely access these investments if the market for these issues declines. Similarly, the default by issuers of the debt securities we hold or similar securities could impair the liquidity of our investments. The development or persistence of any of these conditions could adversely affect our financial condition, results of operations and ability to execute our business strategy. In addition, we have significant amounts of cash and cash equivalents at financial institutions that are in excess of the federally insured limits. An economic downturn or development of adverse conditions affecting the financial sector and stability of financial institutions could cause us to experience losses on our deposits.

Our ability to access credit markets and our revolving line of credit, either generally or on favorable market terms, may be impacted by the factors discussed in the preceding paragraph, as well as continued compliance with covenants under our revolving credit agreement. The development or persistence of any of these adverse factors or failure to comply with covenants on which our borrowing is conditioned may adversely affect our financial condition, results of operations and our ability to execute our business strategy.

#### **Risks Relating to the Market Value of Our Common Stock:**

*The interests of our principal shareholder may limit the ability of other shareholders to influence the direction of the Company and otherwise affect our corporate governance and the market price of our common stock.*

As of March 23, 2023, John P. D. Cato, Chairman, President and Chief Executive Officer, beneficially owned approximately 51.0% of the combined voting power of our common stock. As a result, Mr. Cato has the ability to substantially influence or determine the outcome of all matters requiring approval by the shareholders, including the election of directors and the approval of mergers and other business combinations or other significant Company transactions. Mr. Cato may have interests that differ from those of other shareholders, and may vote in a way with which other shareholders disagree or perceive as adverse to their interests. The concentration of voting power held by Mr. Cato could discourage potential investors from acquiring our common stock and could also have the effect of preventing, discouraging or deferring a change in control of the Company or other fundamental transaction, all of which could depress the market price of our common stock. In addition, Mr. Cato has the ability to control the management of the Company as a result of his position as Chief Executive Officer. We qualify for exemption as a “controlled company” from compliance with certain New York Stock Exchange corporate governance rules, including the requirements that we have a majority of independent directors on our Board, an

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independent compensation committee and an independent corporate governance and nominating committee. If we elected to utilize these “controlled company” exceptions, our other shareholders could lose the benefit of these corporate governance requirements and the market value of our common stock could be adversely affected.

*Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of our common stock.*

Our business varies with general seasonal trends that are characteristic of the retail apparel industry. As a result, our stores typically generate a higher percentage of our annual net sales and profitability in the first and second quarters of our fiscal year compared to other quarters. Accordingly, our operating results for any one fiscal period are not necessarily indicative of results to be expected from any future period, and such seasonal and quarterly fluctuations could adversely affect the market price of our common stock.

*Conditions in the stock market generally, or particularly relating to our industry, Company or common stock, may materially and adversely affect the market price of our common stock and make its trading price more volatile.*

The trading price of our common stock at times has been, and is likely to continue to be, subject to significant volatility. A variety of factors may cause the price of our common stock to fluctuate, perhaps substantially, including, but not limited to, those discussed elsewhere in this report, as well as the following: low trading volume; general market fluctuations resulting from factors not directly related to our operations or the inherent value of our common stock; announcements of developments related to our business; fluctuations in our reported operating results; general conditions or trends affecting or perceived to affect the fashion and retail industry; conditions or trends affecting or perceived to affect the domestic or global economy or the domestic or global credit or capital markets; changes in financial estimates or the scope of coverage given to our Company by securities analysts; negative commentary regarding our Company and corresponding short-selling market behavior; adverse customer relations developments; significant changes in our senior management team; and legal proceedings. Over the past several years the stock market in general, and the market for shares of equity securities of many retailers in particular, have experienced extreme price fluctuations that have at times been unrelated to the operating performance of those companies. Such fluctuations and market volatility based on these or other factors may materially and adversely affect the market price of our common stock.

# **Item 1B. Unresolved Staff Comments:**

None.

# **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 e-commerce storage. The Company also owns approximately 185 acres of land in York County, South Carolina as a potential new site for our distribution center.

21

# **Item 3. *Legal Proceedings:***

From time to time, claims are asserted against the Company arising out of operations in the ordinary course of business. The Company currently is not a party to any pending litigation that it believes is likely to have a material adverse effect on the Company's financial position, results of operations or cash flows. See Note 15, 'Commitments and Contingencies,' for more information.

22

# **Item 3A. Executive Officers of the Registrant:**

The executive officers of the Company and their ages as of March 23, 2023 are as follows:

| Name | Age | Position |
| --- | --- | --- |
| John P. D. Cato | 72 | Chairman, President and Chief Executive Officer |
| Charles D. Knight | 58 | Executive Vice President, Chief Financial Officer |
| Gordon Smith | 67 | Executive Vice President, Chief Real Estate and Store Development Officer |

*John P. D. Cato* has been employed as an officer of the Company since 1981 and has been a director of the Company since 1986. Since January 2004, he has served as Chairman, President and Chief Executive Officer. From May 1999 to January 2004, he served as President, Vice Chairman of the Board and Chief Executive Officer. From June 1997 to May 1999, he served as President, Vice Chairman of the Board and Chief Operating Officer. From August 1996 to June 1997, he served as Vice Chairman of the Board and Chief Operating Officer. From 1989 to 1996, he managed the Company's off-price concept, serving as Executive Vice President and as President and General Manager of the It's Fashion concept from 1993 to August 1996. Mr. Cato is a former director of Harris Teeter Supermarkets, Inc., formerly Ruddick Corporation.

*Charles D. Knight* has been employed as Executive Vice President, Chief Financial Officer by the Company since January of 2022. From 2018 to 2020, he served in various roles with The Vitamin Shoppe, first as Senior Vice President, Chief Accounting Officer from 2018 to 2019, and then as Executive Vice President, Chief Financial Officer from 2019 to 2020. Prior to that, he served in various roles with Toys 'R' Us for 28 years, including as Senior Vice President, Corporate Controller from 2010 to 2018.

*Gordon Smith* has been employed by the Company since 1989. Since July 2011, he has served as Executive Vice President, Chief Real Estate and Store Development Officer. From February 2008 until July 2011, Mr. Smith served as Senior Vice President, Real Estate. From October 1989 to February 2008, Mr. Smith served as Assistant Vice President, Corporate Real Estate.

# **Item 4. Mine Safety Disclosures:**

No matters requiring disclosure.

23

## PART II

### **Item 5. *Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:***

#### **Market & Dividend Information**

The Company's Class A Common Stock trades on the New York Stock Exchange ('NYSE') under the symbol CATO.

As of March 23, 2023, the approximate number of record holders of the Company's Class A Common Stock was 5,000 and there were 2 record holders of the Company's Class B Common Stock.

24

## Stock Performance Graph

The following graph compares the yearly change in the Company's cumulative total shareholder return on the Company's Common Stock (which includes Class A Stock and Class B Stock) for each of the Company's last five fiscal years with (i) the Dow Jones U.S. Retailers, Apparel Index and (ii) the Russell 2000 Index.

![Cato logo]()cato2023012810Kp25i0

STOCK PERFORMANCE TABLE

| LAST TRADING DAY OF THE FISCAL YEAR | THE CATO CORPORATION | DOW JONES U.S. RETAILERS, APPL INDEX | RUSSELL 2000 INDEX |
| --- | --- | --- | --- |
| 2/2/2018 | 100 | 100 | 100 |
| 2/1/2019 | 135 | 109 | 96 |
| 1/31/2020 | 160 | 121 | 105 |
| 1/29/2021 | 116 | 130 | 137 |
| 1/28/2022 | 173 | 143 | 136 |
| 1/27/2023 | 111 | 157 | 131 |

The graph assumes an initial investment of $100 on February 2, 2018, the last trading day prior to the commencement of the Company's 2018 fiscal year, and that all dividends were reinvested.

25

## Issuer Purchases of Equity Securities

The following table summarizes the Company's purchases of its common stock for the three months ended January 28, 2023:

| Period | Total Number of Shares Purchased | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (2) |
| --- | --- | --- | --- | --- |
| November 2022 | - | $ - | - | - |
| December 2022 | 403,426 | 9.06 | 403,426 | - |
| January 2023 | - | - | - | - |
| Total | 403,426 | $9.06 | 403,426 | 197,769 |

(1) Prices include trading costs.

(2) During the fourth quarter ended January 28, 2023, the Company repurchased and retired 403,426 shares under this program for approximately $3,655,405 or an average market price of $9.06 per share. As of the fourth quarter ended January 28, 2023, the Company had 197,769 shares remaining in open authorizations. There is no specified expiration date for the Company's repurchase program. The Board of Directors authorized an increase in the Company's share repurchase program of 1,000,000 shares at the February 23, 2023 Board of Directors' meeting.

26

## **Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations:**

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist readers in better understanding and evaluating our financial condition and results of operations. The following information should be read in conjunction with the Consolidated Financial Statements, including the accompanying Notes appearing in Part II, Item 8 of this report on Form 10-K. This section of the Form 10-K generally discusses fiscal 2022 and fiscal 2021 and year-to-year comparisons between fiscal 2022 and fiscal 2021, as well, as certain fiscal 2020 items. Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

### Recent Developments

#### *Inflationary Cost Pressure and Rising Interest Rates*

The current high inflationary environment continues to impact the Company through higher operating costs, including costs to ship our products to stores and customers, operating supplies, wages, and fuel. In addition to the price increases, costs for fuel, food, and housing, including rent, as well as other consumables across the economy, are increasingly impacting our customers' disposable income, as well as our customers' willingness to purchase discretionary items such as apparel, jewelry or shoes.

In response to the inflationary pressures, the Federal Reserve began raising interest rates and is committed to continue raising interest rates until the inflationary pressures subside. These rising interest rates have adversely affected the availability and cost of credit for businesses and our customers. In addition, the rising interest rates are increasing the costs related to revolving credit, auto loans and mortgages, which increasingly is negatively impacting our customers' discretionary income. In addition, rising interest rates may negatively impact our customers' willingness to purchase our products.

We believe that these price increases and rising interest rates have had an impact during fiscal 2022, and will likely continue to have a negative impact on consumer behavior and, by extension, our results of operations and financial condition during fiscal 2023.

#### *Labor Challenges and Wage Inflation*

The COVID-19 pandemic and the resulting factors above have also created challenges related to the availability of sufficient labor from time to time, and have caused a significant increase in the competition for labor among consumer-facing companies. This competition for labor has driven significant increases in wages in order to compete for sufficient labor availability and/or to prevent the loss of existing workforce in our stores, distribution center and corporate office. We expect these pressures to continue throughout fiscal 2023.

27

## Results of Operations

The table below sets forth certain financial data of the Company expressed as a percentage of retail sales for the years indicated:

| Fiscal Year Ended | January 28, 2023 | January 29, 2022 |
| --- | --- | --- |
| Retail sales | 100.0% | 100.0% |
| Other revenue | 0.9 | 1.0 |
| Total revenues | 100.9 | 101.0 |
| Cost of goods sold | 67.7 | 59.5 |
| Selling, general and administrative | 32.3 | 35.1 |
| Depreciation | 1.5 | 1.6 |
| Interest and other income | 0.8 | 0.3 |
| Income before income taxes | 0.2 | 5.1 |
| Net income | - % | 4.8% |

### Fiscal 2022 Compared to Fiscal 2021

Retail sales decreased by 1.2% to $752.4 million in fiscal 2022 compared to $761.4 million in fiscal 2021. The decrease in retail sales in fiscal 2022 was primarily due to a 1% decrease in same-store sales and sales from closed stores in 2021, partially offset by stores opened in 2022. Same-store sales for the fiscal year 2022 decreased primarily due to lower average unit selling price resulting from late arriving merchandise due to supply chain disruptions in the first half of 2022. Same-store sales includes stores that have been open more than 15 months. Stores that have been relocated or expanded are also included in the same-store sales calculation after they have been open more than 15 months. In fiscal 2022 and fiscal 2021, e-commerce sales were less than 6% and 5% of total sales and same-store sales, respectively. The method of calculating same-store sales varies across the retail industry. As a result, our same-store sales calculation may not be comparable to similarly titled measures reported by other companies. Total revenues, comprised of retail sales and other revenue (principally finance charges and late fees on customer accounts receivable, gift card breakage, shipping charges for e-commerce purchases and layaway fees), decreased by 1.3% to $759.3 million in fiscal 2022 compared to $769.3 million in fiscal 2021. The Company operated 1,280 stores at January 28, 2023 compared to 1,311 stores operated at January 29, 2022.

In fiscal 2022, the Company opened 19 new stores and closed 50 stores.

Other revenue, a component of total revenues, decreased to $6.9 million in fiscal 2022 from $7.9 million in fiscal 2021. The decrease resulted primarily due to decreases in gift card breakage income and e-commerce shipping revenues, partially offset by an increase in finance and layaway charges.

Credit revenue of $2.2 million represented 0.3% of total revenue in fiscal 2022, a $0.1 million increase compared to fiscal 2021 credit revenue of $2.1 million or 0.3% of total revenue. The increase in credit revenue was primarily due to increases in finance charges and late fee income as a result of higher accounts receivable balances. Credit revenue is comprised of interest earned on the Company's private label credit card portfolio and related fee income. Related expenses include principally payroll, postage and other administrative expenses and totaled $1.7 million in fiscal 2022 compared to $1.4 million in fiscal 2021. See Note 13 of Notes to Consolidated Financial Statements for a schedule of credit-related expenses. Total credit segment income before taxes was $0.6 million in fiscal 2022 and $0.6 million in fiscal 2021.

Cost of goods sold was $509.7 million, or 67.7% of retail sales, in fiscal 2022 compared to $453.1 million, or 59.5% of retail sales, in fiscal 2021. The increase in cost of goods sold as a percentage of sales resulted primarily from higher sales of marked down goods and increases in freight and distribution costs. The Company expects markdown sales to decrease in 2023 and beyond, as the markdown sales increase is

28

primarily attributed to the supply chain disruption in the first half of 2022, causing goods to miss their optimum selling times. Cost of goods sold includes merchandise costs, net of discounts and allowances, buying costs, distribution costs, occupancy costs, and freight and inventory shrinkage. Net merchandise costs and in-bound freight are capitalized as inventory costs. Buying and distribution costs include payroll, payroll-related costs and operating expenses for the buying departments and distribution center. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities and maintenance for stores and distribution facilities. Total gross margin dollars (retail sales less cost of goods sold and excluding depreciation) decreased by 21.3% to $242.7 million in fiscal 2022 from $308.3 million in fiscal 2021. Gross margin as presented may not be comparable to that of other companies.

Selling, general and administrative expenses ('SG&A'), which primarily include corporate and store payroll, related payroll taxes and benefits, insurance, supplies, advertising, bank and credit card processing fees were $242.6 million in fiscal 2022 compared to $267.0 million in fiscal 2021, a decrease of 9.1%. As a percent of retail sales, SG&A was 32.3% compared to 35.1% in the prior year. The dollar decrease in SG&A expense was primarily attributable to lower employee benefit/bonus expense and lower insurance costs, partially offset by higher store wages resulting from higher hourly rates and increased store operating hours.

Depreciation expense was $11.1 million in fiscal 2022 compared to $12.4 million in fiscal 2021. Depreciation expense decreased from fiscal 2021 due to fully depreciated older stores and prior period impairments of leasehold improvements and fixtures, partially offset by store development and information technology expenditures.

Interest and other income increased to $5.9 million in fiscal 2022 compared to $2.1 million in fiscal 2021. The increase is primarily attributable to receiving a Business Recovery Grant from the State of North Carolina, proceeds from property insurance claims related to hurricanes in fiscal years 2021 and 2020 and an increase in interest income from short-term investments due to rising interest rates, partially offset by lower short-term investments.

Income tax expense was $1.7 million, or 0.2% of retail sales in fiscal 2022 compared to income tax expense of $2.1 million, or 0.3% of retail sales in fiscal 2021. The income tax expense decrease was primarily due to lower pre-tax income and lower federal, state and local tax benefits, partially offset by Global Intangible Low-taxed Income ('GILTI') and non-deductible officer's compensation. The effective tax rate was 98.4% (Expense) in fiscal 2022 compared to 5.4% (Expense) in fiscal 2021. See Note 12 to the Consolidated Financial Statements, 'Income Taxes,' for further details.

### Off-Balance Sheet Arrangements

None.

### Critical Accounting Policies and Estimates

The Company's accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. As disclosed in Note 1 of Notes to the Consolidated Financial Statements, the preparation of the Company's financial statements in conformity with generally accepted accounting principles in the United States ('GAAP') requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of the Company's financial statements include the allowance for customer credit losses, inventory shrinkage, the calculation of potential asset impairment, workers' compensation, general and auto insurance liabilities, reserves relating to self-insured health insurance, uncertain tax positions, and valuation of deferred tax assets.

29

The Company's critical accounting policies and estimates are discussed with the Audit Committee.

### ***Allowance for Customer Credit Losses***

The Company evaluates the collectability of customer accounts receivable and records an allowance for customer credit losses based on the accounts receivable aging and estimates of actual write-offs. The allowance is reviewed for adequacy and adjusted, as necessary, on a quarterly basis. The Company also provides for estimated uncollectible late fees charged based on historical write-offs. The Company's financial results can be impacted by changes in customer loss write-off experience and the aging of the accounts receivable portfolio.

### ***Merchandise Inventories***

The Company's inventory is valued using the weighted-average cost method and is stated at the net realizable value. Physical inventories are conducted throughout the year to calculate actual shrinkage and inventory on hand. Estimates based on actual shrinkage results are used to estimate inventory shrinkage, which is accrued for the period between the last physical inventory and the financial reporting date. The Company regularly reviews its inventory levels to identify slow moving merchandise and uses markdowns to clear slow moving inventory.

### ***Lease Accounting***

The Company determines whether an arrangement is a lease at inception. The Company has operating leases for stores, offices, warehouse space and equipment. Its leases have remaining lease terms of one year to 10 years, some of which include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year. The Company considers these options in determining the lease term used to establish its right-of-use assets and lease liabilities. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of lease payments. See Note 11 for further information.

### ***Impairment of Long-Lived Assets***

The Company invests in leaseholds, right-of-use assets and equipment primarily in connection with the opening and remodeling of stores and in computer software and hardware. The Company periodically reviews its store locations and estimates the recoverability of its long-lived assets, which primarily relate to Fixtures and equipment, Leasehold improvements, Right-of-use assets net of Lease liabilities and Information technology equipment and software. An impairment charge is recorded for the amount by which the carrying value exceeds the estimated fair value when the Company determines that projected cash flows associated with those long-lived assets will not be sufficient to recover the carrying value. This determination is based on a number of factors, including the store's historical operating results and future projected cash flows, which include contribution margin projections. The Company assesses the fair value of each lease by considering market rents and any lease terms that may adjust market rents under certain conditions, such as the loss of an anchor tenant or a leased space in a shopping center not meeting certain criteria. Further, in determining when to close a store, the Company considers real estate development in the area and perceived local market conditions, which can be difficult to predict and may be subject to change.

### ***Insurance Liabilities***

The Company is primarily self-insured for healthcare, workers' compensation and general liability costs. These costs are significant primarily due to the large number of the Company's retail locations and associates. The Company's self-insurance liabilities are based on the total estimated costs of claims filed

30

## Exhibit 21.1

#### EXHIBIT 21.1

#### SUBSIDIARIES OF THE REGISTRANT

#### State of

#### Name under which

#### Name of Subsidiary

#### Incorporation/Organization

#### Subsidiary does Business
CHW LLC

Delaware

CHW LLC

Providence Insurance Company,

Limited

North Carolina

Providence Insurance Company,

Limited

CatoSouth LLC

North Carolina

CatoSouth LLC

Cato of Texas L.P.

Texas

Cato of Texas L.P.

Cato Southwest, Inc.

Delaware

Cato Southwest, Inc.

CaDel LLC

Delaware

CaDel LLC

CatoWest LLC

Nevada

CatoWest LLC

Cedar Hill National Bank

A Nationally Chartered Bank

Cedar Hill National Bank

catocorp.com, LLC

Delaware

catocorp.com, LLC

Cato Land Development, LLC

South Carolina

Cato Land Development, LLC

Cato WO LLC

North Carolina

Cato WO LLC

Cato Overseas Limited

A Hong Kong Company

Cato Overseas Limited

Cato Overseas Services Limited

A

Hong Kong Company

Cato Overseas Services Limited

Shanghai Cato Overseas Business

Consultancy Company, Limited

Cato Employee Services

Management, LLC

Cato Employee Services L.P.

A

China Company

Texas

Texas

Cato Shanghai Company, Limited

Cato Employee Services

Management, LLC

Cato Employee Services L.P.

Fort Mill Land Development

North Carolina

Fort Mill Land Development

Cato of Florida, LLC

Florida

Cato of Florida, LLC

Cato of Georgia, LLC

Georgia

Cato of Georgia, LLC

Cato of Illinois, LLC

Illinois

Cato of Illinois, LLC

Cato of North Carolina, LLC

North Carolina

Cato of North Carolina, LLC

Ohio Cato Stores, LLC

Ohio

Ohio Cato Stores, LLC

Cato of South Carolina, LLC

South Carolina

Cato of South Carolina, LLC

Cato of Tennessee, LLC

Tennessee

Cato of Tennessee, LLC

Cato of Virginia, LLC

Virginia

Cato of Virginia, LLC

Cato Services Vietnam Company

Limited

Vietnam

Cato Services Vietnam Company

Limited

## Exhibit 23.1

#### EXHIBIT 23.1

#### CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos.

333-230843, 333-225350, 333-188993, 333-188990, 333-176511, and 333-256538) of The Cato

Corporation of our report dated March 23, 2023 relating to the financial statements, financial statement

schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-

K. /s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina

March 23, 2023

## Exhibit 31.1

#### EXHIBIT 31.1

#### PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO

#### SECURITIES EXCHANGE ACT OF 1934 RULE 13a-14(a)/15d-14(a), AS ADOPTED

#### PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John P. D. Cato, certify that:

1. I have reviewed this Annual Report on Form 10-K of The Cato Corporation (the "registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to

state a material fact necessary to make the statements made, in light of the circumstances under which

such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,

fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,

and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant

and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures

to be designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end

of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that

occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the

case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's

internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons

performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant's ability to record,

process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.

Date: March 23, 2023

/s/ John P. D. Cato

John P. D. Cato

Chairman, President and

Chief Executive Officer

## Exhibit 31.2

#### EXHIBIT 31.2

#### PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO

#### SECURITIES EXCHANGE ACT OF 1934 RULE 13a-14(a)/15d-14(a), AS ADOPTED

#### PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles D. Knight, certify that:

1. I have reviewed this Annual Report on Form 10-K of The Cato Corporation (the "registrant");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to

state a material fact necessary to make the statements made, in light of the circumstances under which

such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,

fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,

and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant

and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures

to be designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end

of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that

occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the

case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's

internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons

performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant's ability to record,

process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.

Date: March 23, 2023

/s/ Charles D. Knight

Charles D. Knight

Executive Vice President

Chief Financial Officer

## Exhibit 32.1

#### EXHIBIT 32.1

#### CERTIFICATION OF PERIODIC REPORT
I, John P. D. Cato, Chairman, President and Chief Executive Officer of The Cato Corporation (the

"Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,

that on the date of this Certification:

1. the Annual Report on Form 10-K of the Company for the year ended January 28, 2023 (the "Report")

fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;

and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company.

Dated: March 23, 2023

/s/ John P. D. Cato

John P. D. Cato

Chairman, President and

Chief Executive Officer

## Exhibit 32.2

#### EXHIBIT 32.2

#### CERTIFICATION OF PERIODIC REPORT
I, Charles D. Knight, Executive Vice President, Chief Financial Officer of The Cato Corporation (the

"Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,

that on the date of this Certification:

1. the Annual Report on Form 10-K of the Company for the year ended January 28, 2023 (the "Report")

fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;

and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company.

Dated: March 23, 2023

/s/ Charles D. Knight

Charles D. Knight

Executive Vice President

Chief Financial Officer