Cato Corp (CATO): A Stock for the Stoic Investor

Page 1 of 2

Mr. Market favors the stoic investor, though he dares not admit it. In fact, he tries to mask this preference, allowing the emotional investor to triumph in the short term. But should the latter be so foolish (not to be confused with Foolish) as to overestimate the duration of his or her lucky streak, there goes all the gains.

The real strength of a dispassionate approach lies in the ability to tune out the noise and listen to the fundamentals. Many a bargain lurks in the world’s unloved stocks, just as many a talent goes undiscovered in Hollywood or Broadway.

That said, perhaps it is more than mere happenstance that one of today’s more appealing retail stocks bears the name of a famous Stoic and Roman statesman: Cato Corp (NYSE:CATO).

Cato Corp (NYSE:CATO)The company is Cato Corp (CATO), a specialty retailer selling value-priced clothing and accessories. Its stores operate under the Cato, It’s Fashion, and Versona Accessories brands.

The majority of the company’s base, the 1,000+ Cato stores average 4,000 square feet and are mainly located in small-town strip malls, many anchored by Walmarts or chain supermarkets. The approximately 210 It’s Fashion stores are about the same size, except for the subset of It’s Fashion Metro stores that are at least twice the size. Like Cato stores, they too are geared towards a more rural consumer, although they are present in Southeastern metropolitan areas such as Dallas, Orlando, and Charlotte.

Versona, the newest concept, is 10 stores strong, ranging from 6,000 to 10,000 square feet of costume jewelry and fashionable clothing. Offering a more upscale ambiance than Cato or It’s Fashion, it is modeled along the lines of privately held Charming Charlie and the Francesca’s Collections chain run by publicly tradedFrancesca’s Holdings Corp (NASDAQ:FRAN). Its merchandise is more affordable than that of Francesca’s Collections and comparably priced to that of Charming Charlie, but similar in style. In making Versona the focus of the company’s expansion, management hopes to reach women with higher incomes than the typical Cato customer.

Just like Charming Charlie and Francesca’s Holdings Corp (NASDAQ:FRAN) Collections boutiques, Versona stores are found in enclosed malls as well as strip malls and primarily in metropolitan areas. As Versona expands both within and beyond its current boundaries in the Southeast, it may have to base its real estate strategy on leasing space in new strip malls. Francesca’s Collections and Charming Charlie are young companies themselves, but they have rapidly taken over space in many established malls and shopping centers and they already have a greater geographic reach than Versona.

Cato’s Situation

The company as a whole had a challenging Christmas season, characterized by a 2% drop in November same-store sales and a 7% drop in December. Accordingly, it has shed 10% of its market cap since the start of December while the stock has hovered around $27/share this year.

During this challenging period, management also gave signs that it felt shareholders could allocate capital more effectively than it could, declaring a $1.00/share special dividend in December. This payout was in addition to the usual $1.00/share dividend.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!