Why Cato's Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of value-fashion retailer Cato Corp. (NYS: CATO) were having a wardrobe malfunction today, as shares unraveled as much as 12% in intraday trading.

So what: It's pretty clear why many investors are giving Cato shares the heave-ho. Earlier today, the company announced disappointing results for the month of June, and cautioned investors that second-quarter results will be on the soft side.

For the five weeks ending June 30, sales slid 7% from last year, to $83.7 million. Over the same stretch, same-store sales fell 10%. Cato CEO John Cato noted that June's results were "below expectations," and told investors that earnings per share for the second quarter will likely be at the low end of the previously-announced range of $0.53 to $0.57. That range was already a drop from last year's $0.61.

Now what: After a strong post-recession recovery, Cato's recent growth has been spotty, at best. Investors with a long-term view may not want to abandon the company based on just this quarter's disappointment. However, looking ahead, Cato will either have to find a way to reinvigorate its growth, or investors will have to adjust their expectations to reflect a slower-growth future for the retailer.

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At the time thisarticle was published 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.Fool contributorMatt Koppenhefferdoes not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter@KoppTheFoolorFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

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