NYSE: CATO

anchored by national

discounters or market-dominant grocery

stores.

The Company emphasizes friendly

customer

service

and

coordinated

merchandise

presentations

in

an

appealing

store

environment.

The

Company

offers

its

own

credit

card

and

layaway

plan.

Credit

and

layaway

sales

under

the

Company’s

plan represented

6% of retail

sales in

fiscal 2025. See

Note 13 to

the Consolidated Financial

Statements,

“Reportable

Segment

Information,”

for

a

discussion

of

information

regarding

the

Company’s

two

reportable segments: Retail and Credit.

The

Company

has

operated

Cato-branded

retail

stores

for

79

years.

The

Company originated

as

a

family-owned business and

made its

first initial

public offering

of stock

in 1968.

In 1980,

the Company

went private and in 1987 again conducted an initial public offering.

Business Strategy

The Company’s

primary objective

is to

be the

leading fashion

specialty retailer

for fashion

and value

in its

markets. Management believes the

Company’s success

is dependent upon

its ability to

differentiate

its stores

from department

stores, mass

merchandise discount

stores and

competing specialty

stores. The

key elements of the Company’s business strategy are:

Merchandise

Assortment.

The

Company’s

stores

offer

a

wide

assortment

of

on-trend

apparel

and

accessory items in primarily junior/missy,

plus sizes, men and kids sizes, toddler to

boys size 20 and girls

size 16 with

an emphasis on color,

product coordination and selection.

Colors and styles are

coordinated

and presented so that outfit selection is easily made.

Value

Pricing.

The

Company offers

quality

merchandise that

is

generally priced

below comparable

merchandise

offered

by

department

stores

and

mall

specialty

apparel

chains,

but

is

generally

more

fashionable

than

merchandise

offered

by

discount

stores.

Management

believes

that

the

Company

has

positioned itself as the every day low price leader in its market

segment.

Strip

Shopping

Center

Locations.

The

Company

locates

its

stores

principally

in

convenient

strip

centers anchored by

national discounters or

market-dominant grocery stores

that attract large

numbers of

potential customers.

Customer Service.

Store managers

and sales

associates are

trained

to

provide prompt

and courteous

service and to assist customers in merchandise selection and wardrobe

coordination.

6

Credit and

Layaway Programs

.

The Company offers

its own credit

card and a

layaway plan to

make

the purchase of its merchandise more convenient for its customers.

Merchandising

Merchandising

The

Company

seeks

to

offer

a

broad

selection

of

high

quality

and

exceptional

value

apparel

and

accessories

to

suit

the

various

lifestyles

of

fashion

and

value-conscious

customers.

In

addition,

the

Company strives to offer on-trend fashion in exciting colors with consistent fit and

quality.

The Company’s merchandise lines

include dressy, career,

and casual sportswear, dresses,

coats, shoes,

lingerie, costume

jewelry,

handbags, men’s

wear and

lines for

kids and

infants. The

Company primarily

offers exclusive

merchandise with

fashion and

quality comparable

to mall

specialty stores

at low

prices,

every day.

The Company believes that the collaboration of its merchandising and design teams with an expanded

in-house

product

development

and

direct

sourcing

function

has

enhanced

merchandise

offerings

and

delivers quality,

exclusive on-trend

styles at

lower prices.

The product

development and

direct sourcing

operations provide

research on

emerging fashion

and color

trends, technical

services and

direct sourcing

options.

As a

part of

its merchandising

strategy,

members of

the Company’s

merchandising and

design staff

visit selected

stores to

monitor the

merchandise offerings

of other

retailers, regularly

communicate with

store operations

associates and frequently

confer with

key vendors.

The Company

also takes

aggressive

markdowns

on

slow-selling

merchandise

and

typically

does

not

carry

over

merchandise

to

the

next

season.

Purchasing, Allocation and Distribution

Although

the

Company

purchases

merchandise

from

approximately

560

suppliers,

most

of

its

merchandise is

purchased from

approximately 100

primary vendors.

In

fiscal

2025,

purchases from

the

Company’s

largest

vendor

accounted

for

approximately

14%

of

the

Company’s

total

purchases.

The

Company is

not dependent

on its

largest vendor

or any

other vendor

for merchandise

purchases, and

the

loss of any single vendor or group of

vendors would not have a material adverse effect on

the Company’s

operating results or financial condition. A substantial portion of the Company’s merchandise is sold under

its

private

labels

and

is

produced

by

various

vendors

in

accordance

with

the

Company’s

strict

specifications. The Company sources a majority of its

merchandise directly from manufacturers overseas,

primarily in Southeast Asia and Egypt.

These manufacturers are dependent on materials that are primarily

sourced

from

China.

The

Company

purchases

its

remaining

merchandise

from

domestic

importers

and

vendors, which typically minimizes

the time necessary

to purchase and

obtain shipments; however,

these

vendors

are

dependent

on

materials

primarily

sourced

from

China.

The

Company

opened

its

own

overseas

sourcing

operations

in

2014.

Although

a

significant

portion

of

the

Company’s

merchandise is

manufactured

overseas,

primarily

in

Southeast

Asia,

the

Company

does

not

expect

that

any

economic,

political,

public

health

or

social

unrest in

any

one

country

would

have

a

material

adverse effect

on

the

Company’s

ability

to

obtain

adequate

supplies

of

merchandise.

However,

the

Company

can

give

no

assurance

that

any

changes

or

disruptions

in

its

merchandise

supply

chain

would

not

materially

and

adversely affect the

Company.

See “Risk Factors –

Risks Relating to Our

Business – Because we

source

a

significant

portion

of

our

merchandise

directly

and

indirectly

from

overseas,

we

are

subject

to

risks

associated

with

increased

costs,

changes,

disruptions

or

other

problems

affecting

the

Company’s

merchandise

supply

chain,

risks

associated

with

trade

policies,

including

costs

and

uncertainties

as

the

result of

actual or

threatened tariffs,

the risks

of conducting

international operations

and risks

that affect

7

the prevailing

economic, social,

geopolitical, public

health and

other conditions

in the

areas from

which

we

source

merchandise.

These

risks

have

and

could

continue

to

materially

and

adversely

affect

the

Company’s business, results of operations and financial condition.”

An

important

component

of

the

Company’s

strategy

is

the

allocation

of

merchandise

to

individual

stores

based

on

an

analysis

of

sales

trends

by

merchandise

category,

customer

profiles

and

climatic

conditions.

A

merchandise

control

system

provides

current

information

on

the

sales

activity

of

each

merchandise

style

in

each

of

the

Company’s

stores.

Point-of-sale

terminals

in

the

stores

collect

and

transmit sales and inventory information to the Company’s central database, permitting timely response to

sales trends on a store-by-store basis.

All merchandise is shipped directly to the Company’s distribution

center in Charlotte, North Carolina,

where it

is inspected

and then

allocated by

the merchandise

distribution staff

for shipment

to individual

stores. The flow

of merchandise from

receipt at

the distribution center

to shipment to

stores is controlled

by

an

online

system.

Shipments

are

made

by

common

carrier,

and

each

store

receives

at

least

one

shipment per

week.

The centralization

of the

Company’s

distribution process

also subjects

it to

risks in

the

event

of

damage

to

or

destruction

of

its

distribution

facility

or

other

disruptions

affecting

the

distribution

center

or

the

flow

of

goods

into

or

out

of

Charlotte,

North

Carolina.

See

“Risk

Factors

–

Risks

Relating

to

Our

Information

Technology,

Related

Systems

and

Cybersecurity

–

A

disruption

or

shutdown of

our centralized

distribution center

or transportation

network could

materially and

adversely

affect our business and results of operations.”

Advertising

The

Company

uses

television,

in-store

signage,

graphics,

a

Company

website,

two

e-commerce

websites

and

social

media

as

its

primary

advertising

media.

The

Company’s

total

advertising

expenditures

were

approximately

0.8%,

0.8%

and

1.0%

of

retail

sales

for

fiscal

years

2025,

2024

and

2023, respectively.

Store Operations

The

Company’s

store

operations

management

team

consists

of

four

territorial

managers,

eight

regional

managers and

68 district

managers. Regional

managers receive

a salary

plus

a

bonus based

on

achieving targeted

goals for

sales and

payroll.

District managers

receive a

salary plus

a bonus

based on

achieving targeted

objectives for district

sales increases. Stores

are typically staffed

with a

manager, two

assistant

managers

and

additional

part-time

sales

associates

depending

on

the

size

of

the

store

and

seasonal

personnel

needs.

In

general,

store

managers

are

paid

a

salary

or

on

an

hourly

basis

as

are

all

other

store

personnel.

Store

managers,

assistant

managers

and

sales

associates

are

eligible

for

monthly

and semi-annual bonuses based on achieving targeted goals for their respective

store’s sales increases.

Store Locations

Most

of

the

Company’s

stores

are

located

in

the

southeastern

United

States in

a

variety of

markets

ranging

from

small

towns

to

large

metropolitan

areas

with

trade

area

populations

of

20,000

or

more.

Stores average approximately 4,500 square feet in size.

All of the

Company’s stores

are leased. Approximately 94% are

located in strip shopping

centers and

6% in enclosed

shopping malls. The

Company typically locates stores

in strip shopping

centers anchored

by

a

national

discounter,

primarily

Walmart

Supercenters,

or

market-dominant

grocery

stores.

The

Company’s strip center locations provide ample parking and shopping convenience for its customers.

The

Company’s

store

development

activities

consist

of

opening

new

stores

in

new

and

existing

markets,

relocating

selected

existing

stores

to

more

desirable

locations

in

the

same

market

area

and

8

closing underperforming stores. The following table sets forth information

with respect to the Company’s

development activities since fiscal 2021:

Store Development

Number of Stores

Beginning of

Number

Number

Number of Stores

Fiscal Year

Year

Opened

Closed

End of Year

2021………………….……...………….

1,330

6

25

1,311

2022………………….……...………….

1,311

19

50

1,280

2023……………………….……...…….

1,280

9

111

1,178

2024…………....………….……...…….

1,178

5

66

1,117

2025………….………...….……...…….

1,117

-

48

1,069

The Company periodically reviews its store base to determine whether any particular store should be

closed based on its sales

trends and profitability.

The Company intends to continue this

review process to

identify underperforming stores.

Credit and Layaway

Credit Card Program

The Company offers its own credit card, which accounted for 3.3%, 3.4% and 3.4% of

retail sales in

fiscal 2025,

2024 and

2023, respectively.

The Company’s

bad debt

expense,

net of

recovery,

was 4.9%,

3.9% and 3.6% of credit sales in fiscal 2025, 2024 and 2023, respectively.

Customers applying for the Company’s credit card are approved for credit if

they have a satisfactory

credit

record

and

the

Company

has

positively

assessed

the

customer’s

ability

to

make

the

required

minimum payment.

Customers are required to make

minimum monthly payments based on

their account

balances.

If

the

balance

is

not

paid

in

full

each

month,

the

Company

assesses

the

customer

a

finance

charge.

If

payments

are

not

received

on

time,

the

customer

is

assessed

a

late

fee

subject

to

regulatory

limits.

The

Company

introduced

its

loyalty

program

in

October

2021.

The

loyalty

program

credits

the

customer points based on their purchases of

merchandise using the Company’s proprietary

credit card.

A

point is earned for every dollar spent on merchandise purchases.

A

$5.00 rewards card is earned for every

250

points

accumulated

by

the

customer.

The

rewards

card

expires

90

days

after

the

rewards

card

is

issued.

The

impact

of

the

loyalty

program

is

immaterial

to

the

fiscal

2025

financial

statements.

The

loyalty

program

is

accounted

for

in

accordance

with

ASU

2014-09,

Revenue

from

Contracts

with

Customers (Topic 606)

.

Layaway Plan

Under

the

Company’s

layaway

plan,

merchandise

is

set

aside

for

customers

who

agree

to

make

periodic

payments.

The

Company adds

a

nonrefundable

administrative

fee

to

each

layaway

sale.

If

no

payment is made within four weeks,

the customer is considered to have

defaulted, and the merchandise is

returned

to

the

selling floor

and again

offered

for

sale, often

at

a reduced

price. All

payments made

by

customers who subsequently default on their layaway purchase are returned to the customer upon request,

less the administrative fee and a restocking fee.

The Company defers recognition of layaway sales to the accounting period when the customer picks

up

and

completely pays

for

layaway

merchandise.

Administrative fees

are

recognized

in

the

period

in

which the

layaway is

initiated.

Recognition of

restocking fees occurs

in the

accounting period

when the

customer

defaults

on

the

layaway

purchase.

Layaway

sales

represented

approximately

2.6%,

2.8%

and

3.0% of retail sales in fiscal 2025, 2024 and 2023, respectively.

9

Information Technology Systems

The

Company’s

information

technology

systems

provide

daily

financial

and

merchandising

information

that

is

used

by

management to

enhance

the

timeliness

and

effectiveness

of

purchasing and

pricing

decisions.

Management

uses

a

daily

report

comparing

actual

sales

with

planned

sales

and

a

weekly

ranking

report

to

monitor

and

control

purchasing

decisions.

Weekly

reports

are

also

produced

which reflect

sales, weeks

of

supply of

inventory and

other critical

data by

product categories,

by store

and by various levels of

responsibility reporting. Purchases are made based

on projected sales, but can

be

modified to accommodate unexpected increases or decreases in demand

for a particular item.

Sales information is

projected by merchandise

category and, in

some cases, is

further projected and

actual

performance measured

by

stock

keeping

unit

(SKU).

Merchandise

allocation

models

are

used

to

distribute

merchandise

to

individual

stores

based

upon

historical

sales

trends,

climatic

conditions,

customer demographics and targeted inventory turnover rates.

Competition

The women’s

retail apparel industry is

highly competitive. The Company believes

that the principal

competitive factors

in its

industry include

merchandise assortment

and presentation,

fashion, price,

store

location

and

customer

service. The

Company competes

with

retail

chains that

operate similar

women’s

apparel specialty stores. In addition, the Company competes with

mass merchandise chains, discount store

chains, major

department stores, off

-price retailers

and internet-based

retailers.

Although we

believe we

compete favorably

with respect

to the

principal competitive

factors described

above, many

of our

direct

and

indirect

competitors

are

well-established

national,

regional

or

local

chains,

and

some

have

substantially greater

financial, marketing

and other

resources.

The Company

expects its

stores in

larger

cities and metropolitan areas to face more intense competition.

Seasonality

Due

to

the

seasonal

nature

of

the

retail

business,

the

Company

has

historically

experienced

and

expects to continue to

experience seasonal fluctuations in its

revenues, operating income and

net income.

Our stores

typically generate a

higher percentage of

our annual net

sales and

profitability in the

first and

second quarters of

our fiscal year compared

to other quarters.

Results of a

period shorter than a

full year

may

not

be

indicative

of

results

expected

for

the

entire

year.

Furthermore,

the

seasonal

nature

of

our

business may affect comparisons between periods.

Regulation

The

Company’s

business

and

operations

subject

it

to

a

wide

range

of

local,

state,

national

and

international laws

and regulations

in a

variety of

areas, including

but not

limited to,

trade, licensing

and

permit

requirements,

import

and

export

matters,

privacy

and

data

protection,

credit

regulation,

environmental

matters,

recordkeeping

and

information

management,

tariffs,

taxes,

intellectual

property

and anti-corruption.

Though compliance with these

laws and regulations has

not had a

material effect on

our capital

expenditures, results

of operations

or competitive

position in

fiscal 2025,

the Company

faces

ongoing

risks

related

to

its

efforts

to

comply

with

these

laws

and

regulations

and

risks

related

to

noncompliance,

as

discussed

generally

below

throughout

the

“Risk

Factors”

section

and

in

particular

under

“Risk Factors – Risks Relating to Accounting and Legal Matters –

Our business operations subject

us

to

legal

compliance and

litigation

risks, as

well as

regulations and

regulatory enforcement

priorities,

which

could

result

in

increased

costs

or

liabilities,

divert

our

management’s

attention

or

otherwise

adversely affect our business, results of operations and financial condition.”

10

Human Capital

As

of

January

31,

2026,

the

Company

employed

approximately

6,700

full-time

and

part-time

associates. The

Company also

employs additional

part-time associates

during the

peak retailing

seasons.

The

Company’s

full-time

associates

are

engaged

in

various

executive,

operating,

and

administrative

functions

in

the

home

office

and

distribution

center and

the

remainder

are

engaged in

store

operations.

The Company is

not a party

to any

collective bargaining agreements

and considers its

associate relations

to

be

good.

The

Company

offers

a

broad

range

of

Company-paid

benefits

to

its

associates

including

medical and

dental plans,

paid vacation,

a 401(k)

plan, Employee

Stock Purchase

Plan, Employee

Stock

Ownership

Plan,

disability

insurance,

associate

assistance

programs,

life

insurance

and

an

associate

discount.

The

level

of

benefits

and

eligibility

vary

depending

on

the

associate’s

full-time

or

part-time

status,

date

of

hire,

length

of

service

and

level

of

pay.

The

Company

endeavors

to

promote

an

environment where all associates can develop and flourish, to provide opportunities for advancement, and

to

treat

all

of

its

associates

with

dignity

and

respect.

The

Company

constantly

strives

to

improve

its

training

programs

to

develop

associates.

Over

80%

of

store

and

field

management

are

promoted

from

within,

allowing the

Company to

internally

staff

its

store

base.

The

Company has

training

programs

at

each

level

of

store

operations.

The

Company

also

performs

ongoing

reviews

of

its

safety

protocols,

including measures to promote the health and safety of its associates.