Cato Earnings Preview

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After beating estimates last quarter by $0.03, Cato (NYS: CATO) has set the standard for itself. The company will unveil its latest earnings on Thursday, August 18. Cato operates women's fashion specialty stores in the southeastern United States under two reportable segments: the women's stores segment and a credit card segment.

What analysts say:

  • Buy, sell, or hold?: Half of analysts think investors should stand pat on Cato, while the remaining half rate the stock as a buy. Analysts don't like Cato as much as competitor bebe stores overall. Six out of eight analysts rate bebe stores a buy, compared to one of two for Cato. Analysts haven't adjusted their rating of Cato for the past three months.
  • Wall Street earnings expectations: The average analyst estimate is earnings of $0.59 per share.

What our community says:
CAPS All-Stars are solidly behind the stock with 87.1% giving it an "outperform" rating. The community at large agrees with the All-Stars, with 81.5% granting it a rating of "outperform." Fools have embraced Cato, though the message boards have been quiet lately with only 48 posts in the past 30 days. Cato has a bullish CAPS rating of four out of five stars that is about on par with the Fool community assessment.

Management:
Cato's profit has risen year over year by an average of 35.8% over the past five quarters. Revenue has now gone up for three straight quarters. The company's gross margin shrank by 2.6 percentage points in the last quarter. Revenue rose 3.1% while cost of sales rose 7.9% to $158.4 million from a year earlier.

Now let's look at how efficient management is at running the business. Traditionally, margins represent the efficiency with which companies capture portions of sales dollars. The following table shows gross, operating, and net margins over the past four quarters.

Quarter

Q1

Q4

Q3

Q2

Gross Margin

41.5%

34%

37.4%

39.1%

Operating Margin

17.5%

5.6%

5.0%

10.7%

Net Margin

11.3%

3.5%

3.4%

6.8%

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Motley Fool newsletter services have recommended buying shares of Cato.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

At the time this article was published

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