Apparel company Cato looks to get back on track

 In July 2017

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Retailers wake up every morning wondering if any customers will show up that day, famed department-store magnate John Belk often said — and that was before Amazon spurred massive online ordering. Cato, a women’s apparel chain owned by another Charlotte family, is experiencing that truth. CEO John Cato blames “merchandise assortment missteps” — jargon for carrying clothing that many shoppers don’t want to buy — for causing a 17% sales decline in the first quarter of 2017 and a 5% decline last year. Shares of the company have slid more than 50% since peaking at $40 in February 2015.

To be sure, Cato is no Sears, whose massive debt load is forcing a restructuring. Operating 1,373 stores in 33 states, Cato has $230 million in cash and no debt, has bought back 10% of its shares in the last three years, and pays a dividend topping more than 7%. “The good news is we have identified these issues related to our merchandise assortment and design and are taking corrective actions that will put us back on track,” the CEO said at the company’s annual meeting in May. He listed other factors hurting Cato, including online competition, reduced shopping-center development and consumers’ shifting desires to spend money on “experiences” instead of apparel.

Ups and downs are old hat at Cato. John Cato’s grandfather, Wayland Cato Sr., started the chain in 1946, and much of its growth occurred after his father, Wayland Jr., became president in 1960. The company went public in 1968, but the family took it private in 1980. With profits improving, the company again sold shares to the public in 1987 and grew rapidly by opening stores, many near Walmart locations. Earnings peaked at $68 million in 2015 but fell 30% last year.

Cato faces other nonfinancial pressures. The Thirty Percent Coalition, an activist shareholder group, earlier this year criticized the lack of diversity on Cato’s board: All seven directors are white men with no new members added since 2011. Veteran board members “provide stability and insight into our specific niche,” according to a company statement. The makeup probably won’t change without John Cato’s approval: He owns 43% voting control of the company.

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