US' Cato Corporation lifts Q2 profit, warns of tariff headwinds ahead

Sales for the quarter climbed 5 per cent to $174.7 million, supported by a 9 per cent increase in same-store sales. The gross margin improved to 36.2 per cent of sales, driven by lower distribution and buying costs. Selling, general, and administrative (SG&A) expenses as a percentage of sales fell to 32.8 per cent, aided by reduced payroll and insurance costs, Cato said in a press release.

Cato also recorded an income tax benefit of $0.3 million in Q2, compared with an income tax expense of $0.6 million in the prior year. During the quarter, the company closed eight stores.

For the first six months (H1) of FY25, Cato Corporation posted net income of $10.1 million, or $0.51 per diluted share, down from $11.1 million. Sales edged up 0.3 per cent to $343.1 million in this period.

A 4 per cent increase in same-store sales was largely offset by the impact of store closures. The gross margin in this half improved slightly to 35.6 per cent of sales, reflecting lower distribution and buying costs. SG&A expenses as a percentage of sales fell to 32.8 per cent, mainly due to lower payroll and insurance costs.

The income tax expense for the first half decreased to $0.6 million from $1.3 million in the prior year. As of August 2, 2025, the company operated 1,101 stores, down from 1,166 a year earlier, as it continued to adjust its retail footprint.

“Our sales trend continued to improve during the second quarter.  We attribute this improvement in part due to 2024 sales being impacted by supply chain disruptions,” said John Cato, chairman, president, and chief executive officer (CEO) at Cato. “We will continue to tightly manage our expenses as we anticipate the back half of 2025 to be challenging due to the continued uncertainty regarding tariffs and the potential negative impact on our product acquisition costs.”

While Cato delivered strong profit growth and improved margins in Q2, management remains focused on expense control as it prepares for potential headwinds in the second half of the year, the release added.

ALCHEMPro News Desk (SG)