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Why Cato Corporation Stock Jumped Today

By Jeremy Bowman - May 20, 2021 at 4:48PM

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Two factors drove shares of the apparel retailer up.

What happened

Shares of Cato Corporation (CATO 2.96%) finished higher Thursday after the apparel retailer reported strong first-quarter results and reinstated its dividend.

The stock closed up 10.9% on the news.

A woman shopping for clothes in a boutique.

Image source: Getty Images.

So what

The North Carolina-based fashion retailer recouped most of its lost sales from the year-ago period when its stores were forced to close due to coronavirus lockdowns. Revenue came in at $211.2 million, which was more than double the year-ago total but was down 7% from the corresponding result in 2019. Comparable sales were down 8% from 2019 levels.

Thanks to prior cost-cutting and the rebound in demand, profitability was strong in the quarter as gross margin came in at 41.5% and operating margin reached 11.3%. On the bottom line, the company posted earnings per share (EPS) of $0.92, ahead of Q1 2019 EPS of $0.87.

CEO John Cato said, "We remain cautiously optimistic about the remainder of the year as we see customer traffic improve, states continue to lift capacity limits as more people are vaccinated, the comfort level with venturing out to social events increases and people prepare to return to work."

Separately, the company also reinstated its dividend after suspending it a year ago during the height of the crisis. The company will pay an $0.11 quarterly dividend on June 21, representing a yield of 2.8% at its current stock price.

Now what

Management did not give guidance in the report; however, Cato warned of headwinds, saying he expected stimulus to taper off and saw a negative impact from global supply chain challenges.

Still, apparel sales have been booming broadly in recent months, and the sector should continue to get tailwinds as more Americans start to return to the office and to social activities, which should benefit Cato as well.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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