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Summary of Significant Accounting Policies (Policies)
 12 Months Ended
Feb. 01, 2025
Summary of Significant Accounting Policies [Abstract]  
Principles of Consolidation
Principles of Consolidation:
The Consolidated Financial Statements include the accounts of The Cato
Corporation and
 
its
 
wholly-owned subsidiaries
 
(the “Company”).
 
All
 
significant intercompany
 
accounts
and transactions have been eliminated.
Description of Business and Fiscal Year
Description
 
of
 
Business
 
and
 
Fiscal
Year:
 
The
 
Company
 
has
two
 
reportable
 
segments
 
—
 
the
operation
 
of
 
a
 
fashion
 
specialty
 
stores
 
segment
 
(“Retail
 
Segment”)
 
and
 
a
 
credit
 
card
 
segment
 
(“Credit
Segment”). The
 
apparel specialty
 
stores operate
 
under the
 
names “Cato,”
 
“Cato Fashions,”
 
“Cato Plus,”
“It’s Fashion,” “It’s
 
Fashion Metro,” “Versona
 
”
 
and “Cache,” including e-commerce websites. The stores
are
 
located
 
primarily
 
in
 
strip
 
shopping
 
centers
 
principally
 
in
 
the
 
southeastern
 
United
 
States.
 
The
Company’s fiscal year ends on the Saturday nearest January 31 of the subsequent year. Fiscal year 2024 is
a
52
-week year, 2023 is a
53
-week year and 2022 is a
52
-week year.
Use of Estimates
Use
 
of
 
Estimates:
 
The
 
preparation
 
of
 
the
 
Company’s
 
financial
 
statements
 
in
 
conformity
 
with
accounting
 
principles
 
generally accepted
 
in
 
the
 
United
 
States
 
(“GAAP”)
 
requires
 
management to
 
make
estimates
 
and
 
assumptions
 
that
 
affect
 
the
 
reported
 
amounts
 
of
 
assets
 
and
 
liabilities
 
and
 
disclosure
 
of
contingent
 
assets
 
and
 
liabilities
 
at
 
the
 
date
 
of
 
the
 
financial
 
statements
 
and
 
the
 
reported
 
amounts
 
of
revenues
 
and
 
expenses
 
during
 
the
 
reporting
 
period.
 
Actual
 
results
 
could
 
differ
 
from
 
those
 
estimates.
Significant
 
accounting
 
estimates
 
reflected
 
in
 
the
 
Company’s
 
financial
 
statements
 
include
 
the
 
allowance
for
 
customer
 
credit
 
losses,
 
inventory
 
shrinkage,
 
the
 
calculation
 
of
 
potential
 
asset
 
impairment,
 
workers’
compensation,
 
general
 
and
 
auto
 
insurance
 
liabilities,
 
reserves
 
relating
 
to
 
self-insured
 
health
 
insurance,
uncertain tax positions and valuation allowances on deferred tax
 
assets.
Cash and Cash Equivalents
Cash
 
and
 
Cash
 
Equivalents:
 
Cash
 
and
 
cash
 
equivalents
 
consist
 
of
 
highly
 
liquid
 
investments
 
with
original maturities of three months or less.
Short-Term Investments
Short-Term
 
Investments:
 
Investments with
 
original maturities
 
beyond three
 
months are
 
classified
as short-term
 
investments. See
 
Note 3
 
for the
 
Company’s
 
estimated fair
 
value of,
 
and other
 
information
regarding,
 
its
 
short-term
 
investments.
The
 
Company’s
 
short-term
 
investments
 
are
 
all
 
classified
 
as
available-for-sale.
 
As
 
they
 
are
 
available
 
for
 
current
 
operations,
 
they
 
are
 
classified
 
on
 
the
 
Consolidated
Balance Sheets
 
as
 
Current Assets.
 
Available-for-sale
 
securities are
 
carried at
 
fair value,
 
with
 
unrealized
gains
 
and
 
temporary
 
losses,
 
net
 
of
 
income
 
taxes,
 
reported
 
as
 
a
 
component
 
of
 
Accumulated
 
other
comprehensive income.
 
Other than
 
temporary declines
 
in the
 
fair value
 
of investments
 
are recorded
 
as a
reduction
 
in
 
the
 
cost
 
of
 
the
 
investments
 
in
 
the
 
accompanying
 
Consolidated
 
Balance
 
Sheets
 
and
 
a
reduction
 
of
 
Interest
 
and
 
other
 
income
 
in
 
the
 
accompanying
 
Consolidated
 
Statements
 
of
 
Income
 
and
Comprehensive
 
Income.
 
The
 
cost
 
of
 
debt
 
securities
 
is
 
adjusted
 
for
 
amortization
 
of
 
premiums
 
and
accretion
 
of
 
discounts
 
to
 
maturity.
 
The
 
amortization
 
of
 
premiums,
 
accretion
 
of
 
discounts
 
and
 
realized
gains and losses are included in Interest and other income.
Restricted Cash
Restricted Cash:
The Company had $
2.8
 
million and $
4.0
 
million in escrow at February 1, 2025 and
February 3, 2024, respectively, as security and collateral for administration of the Company’s
 
self-insured
workers’
 
compensation
 
and
 
general
 
liability
 
coverage,
 
which
 
is
 
reported
 
as
 
Restricted
 
cash
 
on
 
the
Consolidated Balance Sheets.
Supplemental Cash Flow Information
Supplemental Cash Flow
 
Information:
Income tax
 
payments, net
 
of refunds
 
received, for
 
the fiscal
years ended
 
February 1,
 
2025, February
 
3, 2024
 
and January
 
28, 2023
 
were a
 
payment of
 
$
1,874,000
, a
payment of $
4,121,000
 
and a refund of $
29,206,000
, respectively.
Inventories
Inventories:
Merchandise
 
inventories
 
are
 
stated
 
at
 
the
 
net
 
realizable
 
value
 
as
 
determined
 
by
 
the
weighted-average cost method.
Property and Equipment
Property and Equipment:
Property and equipment are
 
recorded at cost, including
 
land. Maintenance
and repairs are expensed to operations as incurred; renewals and betterments are capitalized. Depreciation
is
 
determined on
 
the
 
straight-line method
 
over the
 
estimated useful
 
lives of
 
the
 
related assets
 
excluding
leasehold improvements.
 
Leasehold improvements are amortized over the
 
shorter of the estimated useful
life or lease term.
 
For leases with renewal periods at
 
the Company’s
 
option, the Company generally uses
the
 
original
 
lease
 
term
 
plus
 
reasonably
 
assured
 
renewal
 
option
 
periods
 
(generally
 
one
 
five-year
 
option
period) to determine estimated useful lives.
 
Typical estimated useful lives are as follows:
 
`
Estimated
Classification
Useful Lives
Land improvements
 
10
 
years
Buildings
 
30
-
40
 
years
Leasehold improvements
 
5
-
10
 
years
Fixtures and equipment
 
3
-
10
 
years
Information technology equipment and software
 
3
-
10
 
years
Aircraft
20
 
years
Impairment of Long-Lived Assets
Impairment
 
of
 
Long-Lived
 
Assets:
 
The
 
Company
 
invests
 
in
 
leaseholds,
 
right-of-use
 
assets
 
and
equipment primarily
 
in connection
 
with the
 
opening and
 
remodeling of
 
stores and
 
in computer
 
software
and hardware. The Company periodically reviews its store locations and estimates the recoverability of its
long-lived assets,
 
which primarily
 
relate to
 
Fixtures and
 
equipment, Leasehold
 
improvements, Right-of-
use
 
assets
 
net
 
of
 
Lease
 
liabilities
 
and
 
Information
 
technology
 
equipment
 
and
 
software.
 
An
 
impairment
charge is
 
recorded for the
 
amount by which
 
the carrying value
 
exceeds the estimated
 
fair value when
 
the
Company
 
determines
 
that
 
projected
 
cash
 
flows
 
associated
 
with
 
those
 
long-lived
 
assets
 
will
 
not
 
be
sufficient to recover the
 
carrying value. This determination is
 
based on a number of
 
factors, including the
store’s
 
historical
 
operating
 
results
 
and
 
future
 
projected
 
cash
 
flows,
 
which
 
include
 
contribution
 
margin
projections. The Company assesses the fair
 
value of each lease by
 
considering market rents and any lease
terms
 
that
 
may
 
adjust
 
market
 
rents
 
under
 
certain
 
conditions,
 
such
 
as
 
the
 
loss
 
of
 
an
 
anchor
 
tenant
 
or
 
a
leased
 
space
 
in
 
a
 
shopping
 
center
 
not
 
meeting
 
certain
 
criteria.
 
Further,
 
in
 
determining when
 
to
 
close
 
a
store, the
 
Company considers real
 
estate development
 
in the
 
area and
 
perceived local
 
market conditions,
which can
 
be difficult
 
to
 
predict and
 
may be
 
subject
 
to
 
change. Asset
 
impairment charges
 
of
 
$
786,000
,
$
1,811,000
 
and $
884,000
 
were incurred in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
Other Assets
Other Assets:
Other assets are comprised
 
of long-term assets, primarily
 
insurance contracts related to
deferred compensation assets and land held for investment purposes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Balance as of
February 1, 2025
February 3, 2024
(Dollars in thousands)
Other Assets
 
Deferred Compensation Investments
$
9,301
$
8,586
 
Land Held for Investment
8,679
9,334
 
Miscellaneous Investments
1,139
2,076
 
Asset Held for Sale
-
4,183
 
Other Deposits
596
604
 
Other
264
264
Total
 
Other Assets
$
19,979
$
25,047
Leases
Leases:
The
 
Company
 
leases
 
all
 
of
 
its
 
retail
 
stores.
 
Most
 
lease
 
agreements
 
contain
 
construction
allowances and rent escalations.
 
For purposes of recognizing incentives and minimum rental expenses on
a straight-line basis over the terms of the leases, including renewal periods considered reasonably
 
assured,
the Company begins amortization
 
as of the
 
initial possession date which
 
is when the Company
 
enters the
space and begins to make improvements in preparation for intended use.
Revenue Recognition
Revenue
 
Recognition:
The
 
Company
 
recognizes
 
sales
 
at
 
the
 
point
 
of
 
purchase
 
when
 
the
 
customer
takes possession
 
of the
 
merchandise and
 
pays for
 
the purchase,
 
generally with cash
 
or credit.
 
Sales from
purchases
 
made
 
with
 
Cato
 
credit,
 
gift
 
cards
 
and
 
layaway
 
sales
 
from
 
stores
 
are
 
also
 
recorded
 
when
 
the
customer
 
takes
 
possession
 
of
 
the
 
merchandise.
 
E-commerce sales
 
are
 
recorded when
 
the
 
risk
 
of
 
loss
 
is
transferred
 
to
 
the
 
customer.
 
Gift
 
cards
 
are
 
recorded
 
as
 
deferred
 
revenue
 
until
 
they
 
are
 
redeemed
 
or
forfeited. Gift
 
cards do
 
not have
 
expiration dates.
 
Layaway sales
 
are recorded
 
as deferred
 
revenue until
the customer takes possession or forfeits the merchandise. A provision is made for estimated merchandise
returns based
 
on sales
 
volumes and
 
the Company’s
 
experience; actual
 
returns have
 
not varied
 
materially
from historical amounts. A provision is made for estimated write-offs associated with sales
 
made with the
Company’s proprietary credit card.
 
In addition, a provision is made for estimated rewards cards issued to
customers based
 
on their
 
purchases with the
 
Company’s propriety
 
credit card.
 
The rewards
 
cards issued
by the Company have a
90
-day expiration.
 
Amounts related to shipping and handling billed to
 
customers
in
 
a
 
sales
 
transaction
 
are
 
classified
 
as
 
Other
 
revenue
 
and
 
the
 
costs
 
related
 
to
 
shipping
 
product
 
to
customers (billed and accrued) are classified as Cost of goods sold.
 
In accordance with ASU 2014-09,
Revenue from Contracts with Customers (Topic
 
606)
 
(“Topic 606”),
in
 
fiscal
 
2024,
 
2023
 
and
 
2022,
 
the
 
Company
 
recognized
 
$
1,447,934
,
 
$
1,116,000
 
and
 
$
256,000
,
respectively,
 
of
 
income
 
on
 
unredeemed
 
gift
 
cards
 
(“gift
 
card
 
breakage”)
 
as
 
a
 
component
 
of
 
Other
Revenue
 
on
 
the
 
Consolidated
 
Statements
 
of
 
Income (Loss)
 
and
 
Comprehensive Income
 
(Loss).
 
Under
Topic
 
606, the
 
Company recognizes
 
gift card
 
breakage using
 
an expected
 
breakage percentage
 
based on
redeemed gift cards. See Note 2 for further information on miscellaneous
 
income.
 
The Company
 
offers
 
its own
 
proprietary credit
 
card to
 
customers. All
 
credit activity
 
is performed
 
by
the
 
Company’s
 
wholly-owned
 
subsidiaries.
 
None
 
of
 
the
 
credit
 
card
 
receivables
 
are
 
secured.
 
The
Company
 
estimated
 
customer
 
credit
 
losses
 
of
 
$
654,000
 
and
 
$
578,000
 
for
 
the
 
twelve
 
months
 
ended
February 1,
 
2025 and
 
February 3,
 
2024, respectively,
 
on sales
 
purchased on
 
the Company’s
 
proprietary
credit
 
card
 
of
 
$
21.8
 
million
 
and
 
$
23.5
 
million
 
for
 
the
 
twelve
 
months
 
ended
 
February
 
1,
 
2025
 
and
February 3, 2024, respectively.
 
The following table provides information about receivables
 
and contract liabilities from contracts with
customers (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Balance as of
February 1, 2025
February 3, 2024
Proprietary Credit Card Receivables, net
$
10,848
$
10,909
Gift Card Liability
$
7,541
$
8,143
Cost of Goods Sold
Cost of Goods Sold:
Cost of goods sold
 
includes merchandise costs, net of
 
discounts and allowances,
buying costs, distribution costs, occupancy costs, freight,
 
and inventory shrinkage. Net merchandise costs
and
 
in-bound
 
freight
 
are
 
capitalized
 
as
 
inventory
 
costs.
 
Buying
 
and
 
distribution
 
costs
 
include
 
payroll,
payroll-related
 
costs
 
and
 
operating
 
expenses
 
for
 
the
 
Company’s
 
buying
 
departments
 
and
 
distribution
center.
 
Occupancy expenses include rent, real
 
estate taxes, insurance, common area
 
maintenance, utilities
and
 
maintenance
 
for
 
stores
 
and
 
distribution
 
facilities.
 
Buying,
 
distribution,
 
occupancy
 
and
 
internal
transfer
 
costs
 
are
 
treated
 
as
 
period
 
costs
 
and
 
are
 
not
 
capitalized
 
as
 
part
 
of
 
inventory.
 
The
 
direct
 
costs
associated with shipping goods to customers are recorded as a component
 
of Cost of goods sold.
Advertising
Advertising:
Advertising
 
costs
 
are
 
expensed
 
in
 
the
 
period
 
in
 
which
 
they
 
are
 
incurred.
 
Advertising
expense was approximately $
4,686,000
, $
6,277,000
 
and $
6,868,000
 
for the fiscal years ended February 1,
2025, February 3, 2024 and January 28, 2023, respectively.
Stock Repurchase Program
Stock Repurchase Program:
 
For the fiscal year ended
 
February 1, 2025, the Company had
 
997,455
shares
 
remaining
 
in
 
open
 
authorizations.
 
There
 
is
 
no
 
specified
 
expiration
 
date
 
for
 
the
 
Company’s
repurchase
 
program. Share
 
repurchases
 
are
 
recorded in
 
Retained
 
earnings, net
 
of par
 
value.
 
From year
end
 
through
 
March
 
31,
 
2025,
 
the
 
Company
 
repurchased
264,282
 
shares
 
for
 
$
828,181
.
 
The
 
Board
 
of
Directors
 
authorized
 
an
 
increase
 
of
1,000,000
 
shares
 
in
 
the
 
Company’s
 
share
 
repurchase
 
program
 
on
December 23, 2024.
Earnings Per Share
Earnings
 
Per
 
Share:
ASC
 
260
 
–
Earnings
 
Per
 
Share
 
requires
 
dual
 
presentation
 
of
 
basic
 
EPS
 
and
diluted
 
EPS
 
on
 
the
 
face
 
of
 
all
 
income
 
statements
 
for
 
all
 
entities
 
with
 
complex
 
capital
 
structures.
 
The
Company
 
has
 
presented
 
one
 
basic
 
EPS
 
and
 
one
 
diluted
 
EPS
 
amount
 
for
 
all
 
common
 
shares
 
in
 
the
accompanying Consolidated Statements of
 
Income (Loss) and
 
Comprehensive Income (Loss).
 
While the
Company’s certificate
 
of incorporation provides
 
the right for
 
the Board
 
of Directors to
 
declare dividends
on Class
 
A shares
 
without declaration
 
of commensurate
 
dividends on
 
Class B
 
shares, the
 
Company has
historically paid the same dividends
 
to both Class A and
 
Class B shareholders and the
 
Board of Directors
has resolved to
 
continue this practice.
 
Accordingly, the
 
Company’s allocation
 
of income for
 
purposes of
EPS
 
computation is
 
the
 
same for
 
Class
 
A and
 
Class B
 
shares and
 
the
 
EPS
 
amounts reported
 
herein are
applicable to both Class A and Class B shares.
 
Basic
 
EPS
 
is
 
computed
 
as
 
net
 
earnings
 
(loss)
 
less
 
earnings
 
allocated
 
to
 
non-vested
 
equity
 
awards
divided
 
by
 
the
 
weighted
 
average
 
number
 
of
 
common
 
shares
 
outstanding
 
for
 
the
 
period.
 
Diluted
 
EPS
reflects the potential dilution that could occur from common shares issuable through stock options and the
Employee Stock Purchase Plan.
 
The following table reflects
 
the basic and
 
diluted EPS calculations for
 
the fiscal years ended
 
February
1, 2025, February 3, 2024 and January 28, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
`
Fiscal Year Ended
February 1, 2025
February 3, 2024
January 28, 2023
Numerator
(Dollars in thousands)
Net earnings (loss)
$
(18,057)
$
(23,941)
$
29
(Earnings) loss allocated to non-vested equity awards
(548)
1,347
12
Net earnings (loss) available to common stockholders
$
(18,605)
$
(22,594)
$
41
Denominator
Basic weighted average common shares outstanding
19,249,081
19,389,907
19,930,960
Diluted weighted average common shares outstanding
19,249,081
19,389,907
19,930,960
Net income (loss) per common share
Basic earnings (loss) per share
$
(0.97)
$
(1.17)
$
-
Diluted earnings (loss) per share
$
(0.97)
$
(1.17)
$
-
Vendor Allowances
Vendor
 
Allowances:
The
 
Company
 
receives
 
certain
 
allowances
 
from
 
vendors
 
primarily
 
related
 
to
purchase discounts and markdown and
 
damage allowances. All allowances are
 
reflected in Cost of
 
goods
sold
 
as
 
earned
 
when
 
the
 
related
 
products
 
are
 
sold.
 
Cash
 
consideration
 
received
 
from
 
a
 
vendor
 
is
presumed
 
to
 
be
 
a
 
reduction
 
of
 
the
 
purchase
 
cost
 
of
 
merchandise
 
and
 
is
 
reflected
 
as
 
a
 
reduction
 
of
inventory.
 
The Company does not receive cooperative advertising allowances.
Income Taxes and Deferred Tax Valuation Allowance
Income
 
Taxes:
The
 
Company
 
files
 
a
 
consolidated
 
federal
 
income
 
tax
 
return.
 
Income
 
taxes
 
are
provided
 
based
 
on
 
the
 
asset
 
and
 
liability
 
method
 
of
 
accounting,
 
whereby
 
deferred
 
income
 
taxes
 
are
provided
 
for
 
temporary
 
differences
 
between
 
the
 
financial
 
reporting
 
basis
 
and
 
the
 
tax
 
basis
 
of
 
the
Company’s assets and liabilities.
 
Unrecognized tax
 
benefits for
 
uncertain tax
 
positions are
 
established in
 
accordance
 
with
 
ASC 740
 
–
Income Taxes
 
when, despite
 
the fact
 
that the
 
tax return
 
positions are
 
supportable, the
 
Company believes
these positions may be
 
challenged and the
 
results are uncertain.
 
The Company adjusts
 
these liabilities in
light
 
of
 
changing
 
facts
 
and
 
circumstances.
 
Potential
 
accrued
 
interest
 
and
 
penalties
 
related
 
to
unrecognized
 
tax
 
benefits
 
within
 
operations
 
are
 
recognized
 
as
 
a
 
component
 
of
 
Income
 
before
 
income
taxes.
 
 
The Company assesses the
 
likelihood that deferred tax
 
assets will be
 
able to be
 
realized, and based
 
on
that assessment, the Company will determine if a valuation allowance should
 
be recorded.
 
In addition,
 
the Tax
 
Cuts and
 
Jobs
 
Act implemented
 
a
 
new minimum
 
tax
 
on
 
global intangible
 
low-
taxed income
 
(“GILTI”).
 
The Company has
 
elected to
 
account for
 
GILTI
 
tax in
 
the period
 
in which
 
it is
incurred, which is included as a component of its current year provision
 
for income taxes.
 
Deferred
 
Tax
 
Valuation
 
Allowance:
The
 
Company assesses
 
the
 
likelihood
 
that
 
deferred
 
tax
 
assets
will
 
be
 
realized
 
in
 
light
 
of
 
the
 
Company’s
 
current
 
financial
 
performance
 
and
 
projected
 
future
 
financial
performance. Based on this
 
assessment, the Company then
 
determines if a valuation
 
allowance should be
recorded.
 
If the
 
Company concludes that
 
it is
 
more likely than
 
not that
 
the Company will
 
not be
 
able to
realize its tax deferred assets, a valuation allowance is recorded for
 
the proportion of the deferred tax asset
it determines may not be realized.
Store Opening Costs
Store
 
Opening
 
Costs:
Costs
 
relating
 
to
 
the
 
opening
 
of
 
new
 
stores
 
or
 
the
 
relocating
 
or
 
expanding
 
of
 
existing
 
stores
 
are
 
expensed
 
as
 
incurred.
 
A
 
portion
 
of
 
construction,
 
design,
 
and
 
site
selection costs are capitalized to new, relocated and remodeled stores.
Insurance
Insurance:
The Company is self-insured with respect to employee health care, workers’ compensation
and
 
general
 
liability.
 
The
 
Company’s
 
self-insurance
 
liabilities
 
are
 
based
 
on
 
the
 
total
 
estimated
 
cost
 
of
claims filed and estimates of
 
claims incurred but not reported, less
 
amounts paid against such claims,
 
and
are
 
not discounted.
 
Management reviews
 
current and
 
historical claims
 
data in
 
developing its
 
estimates.
The Company has stop-loss
 
insurance coverage for individual claims in
 
excess of $
375,000
 
for employee
healthcare, $
350,000
 
for workers’ compensation and $
250,000
 
for general liability.
Fair Value of Financial Instruments
Fair Value
 
of Financial Instruments:
 
The Company’s
 
carrying values of
 
financial instruments, such
as
 
cash
 
and
 
cash
 
equivalents,
 
short-term
 
investments,
 
and
 
restricted
 
cash,
 
approximate their
 
fair
 
values
due to their short terms to maturity and/or their variable interest rates.
Stock Based Compensation
Stock Based
 
Compensation:
 
The Company records
 
compensation expense associated
 
with restricted
stock
 
and
 
other
 
forms
 
of
 
equity
 
compensation
 
in
 
accordance
 
with
 
ASC
 
718
 
-
Compensation
 
–
 
Stock
Compensation.
 
Compensation
 
cost
 
associated
 
with
 
stock
 
awards
 
recognized
 
in
 
all
 
years
 
presented
includes: 1) amortization related to
 
the remaining unvested portion of
 
all stock awards based
 
on the grant
date fair value and 2) adjustments for the effects of actual forfeitures versus initial
 
estimated forfeitures.
Subsequent Events
Subsequent
 
Events:
 
On
 
March
 
13,
 
2025,
 
the
 
Company,
 
as
 
borrower,
 
and
 
certain
 
other
 
domestic
subsidiaries,
 
as
 
borrowers
 
and
 
guarantors,
 
entered
 
into
 
a
 
Credit
 
Agreement
 
(the
 
“ABL
 
Credit
Agreement”) and
 
related
 
loan
 
documents, by
 
and
 
among the
 
Company,
 
certain
 
other
 
of
 
the
 
Company’s
domestic
 
subsidiaries,
 
and
 
Wells
 
Fargo
 
Bank,
 
National
 
Association,
 
as
 
the
 
lender
 
(the
 
“Lender”),
 
to
establish an asset-based revolving credit facility (the “ABL Facility”) in an amount up to $
35
 
million. The
proceeds from the ABL
 
Facility may be used to
 
provide funding for ongoing working capital
 
and general
corporate purposes. The ABL Credit Agreement replaces
 
the credit agreement, dated as of
 
May 19, 2022,
as
 
amended from
 
time to
 
time, between
 
the Company,
 
as
 
borrower,
 
certain domestic
 
subsidiaries of
 
the
Company,
 
as
 
guarantors,
 
and
 
the
 
Lender,
 
as
 
lender
 
and
 
agent
 
(the
 
“Prior
 
Credit
 
Agreement”).
 
No
principal or accrued interest was outstanding under
 
the credit facility under the Prior
 
Credit Agreement at
the time of its termination on March 13, 2025.
 
The ABL Facility may be
 
used for revolving credit
 
loans and letters of
 
credit from time to
 
time up to
a maximum principal amount of $
35
 
million, less an amount equal to the greater of (a)
10.0
% of the lesser
of the borrowing base described below and $
35
 
million and (b) $
5
 
million, subject to the other limitations
described below. The ABL Facility includes a $
15
 
million uncommitted accordion feature that permits the
borrowers,
 
under
 
certain
 
conditions,
 
to
 
solicit
 
the
 
Lender
 
to
 
provide
 
additional
 
revolving
 
loan
commitments
 
to
 
increase
 
the
 
aggregate
 
amount
 
of
 
the
 
revolving
 
loan
 
commitments
 
up
 
to
 
a
 
maximum
principal amount
 
of
 
$
50
 
million.
 
The
 
ABL Facility
 
contains
 
a
 
sub-facility that
 
allows
 
the
 
Company to
issue
 
letters
 
of
 
credit
 
in
 
an
 
aggregate
 
amount
 
not
 
to
 
exceed
 
$
5
 
million.
 
Availability
 
under
 
the
 
ABL
Facility at closing of the ABL Credit Agreement was $
30
 
million.
The
 
amount
 
available
 
under
 
the
 
ABL
 
Facility
 
is
 
limited
 
by
 
a
 
borrowing
 
base
 
consisting
 
of
 
certain
eligible credit card receivables and inventory, reduced by specified reserves, as follows:
 
●
90
% of eligible credit card receivable, plus
 
●
90
% of net recovery percentage of eligible inventory multiplied by most recent appraised value of
such
 
inventory,
 
calculated at
 
the
 
lower
 
of
 
(a)
 
cost
 
computed on
 
a
 
first-in first-out
 
basis and
 
(b)
market value (net of intercompany profits and certain other adjustments), minus
●
applicable reserves (as defined in the ABL Credit Agreement).
 
 
The
 
ABL Facility
 
permits borrowings
 
based
 
upon (a)
 
base
 
rate (calculated
 
as
 
the
 
greatest of
 
(i) the
federal funds rate plus
1/2%
, (ii) the SOFR rate
 
described below for an interest period of
 
one month, plus
1
%, (iii) the
 
rate of interest
 
announced, from time to
 
time, as the
 
Lender’s “prime rate”
 
and (iv)
0
%) and
(b)
 
SOFR rate
 
of
 
one, three
 
or
 
six-month interest
 
periods (with
 
SOFR defined
 
as
 
the
 
secured overnight
financing
 
rate
 
administered
 
by
 
the
 
Federal
 
Reserve
 
Bank
 
of
 
New
 
York
 
(or
 
its
 
successor)).
 
Base
 
rate
borrowings
 
bear
 
interest
 
at
 
an
 
annual
 
rate
 
equal
 
to
50
 
basis
 
points
 
above
 
base
 
rate.
 
SOFR
 
borrowings
bear interest at an annual
 
rate equal to SOFR for
 
the interest period selected plus
10
 
basis points plus
150
basis points.
 
The ABL
 
Facility charges
 
a fee
 
on unutilized
 
commitments at
 
an annual
 
rate of
37.5
 
basis
points if
 
at least
 
half of
 
the ABL
 
commitments are
 
unutilized and
 
at an
 
annual rate
 
of
25
 
basis points
 
if
less than
 
half of
 
the ABL
 
commitments are
 
unutilized.
 
In addition,
 
the ABL
 
Facility charges
 
a monthly
collateral monitoring fee and customary fees for letters of credit.
 
 
The ABL Facility
 
matures on March
 
13, 2028.
 
The ABL Facility
 
may be prepaid
 
from time to
 
time,
in
 
whole
 
or
 
in
 
part,
 
without
 
a
 
prepayment
 
penalty
 
or
 
premium.
 
In
 
addition,
 
customary
 
mandatory
prepayments
 
of
 
the
 
loans
 
under
 
the
 
ABL
 
Facility
 
are
 
required
 
upon
 
the
 
occurrence
 
of
 
certain
 
events
including, without limitation, outstanding borrowing exposures
 
exceeding the borrowing base and
 
certain
dispositions of assets outside of the ordinary course of business.
 
Accrued interest is payable (a) at the end
of each interest period for borrowings based upon the SOFR
 
rate (but not to exceed three months) and
 
(b)
monthly for borrowings based upon the base rate.
 
 
The
 
Company’s
 
obligations under
 
the
 
ABL Facility
 
(and
 
certain related
 
obligations) are
 
guaranteed
by the
 
other borrowers
 
and the
 
guarantors.
 
Each of
 
the Company’s
 
future domestic
 
subsidiaries is
 
also
required
 
to
 
guarantee
 
the
 
ABL
 
Facility
 
on
 
a
 
senior
 
secured
 
basis
 
(such
 
future
 
guarantors
 
and
 
the
borrowers
 
and
 
guarantors
 
referred
 
to
 
in
 
the
 
first
 
sentence
 
of
 
this
 
paragraph,
 
the
 
“Loan
 
Parties”).
 
In
addition, the
 
borrowers’ obligations are
 
secured on
 
a first-priority
 
basis by
 
all assets
 
of the
 
Loan Parties,
subject to certain exceptions.
 
 
Cash Dominion.
 
Under the
 
terms of
 
the
 
ABL Facility,
 
if (i)
 
an event
 
of
 
default exists
 
or (ii)
 
excess
borrowing availability
 
under
 
the
 
ABL Facility
 
(the
 
“Excess
 
Availability”)
 
falls
 
below
 
the
 
greater of
 
(a)
15.0
%
 
of
 
the
 
lesser
 
of
 
the
 
borrowing
 
base
 
and
 
$
35
 
million
 
and
 
(b)
 
$
10
 
million,
 
the
 
Loan
 
Parties
 
will
become subject
 
to
 
cash dominion,
 
which will
 
require prepayment
 
of
 
loans
 
under the
 
ABL Facility
 
with
the cash deposited in
 
certain deposit accounts of
 
the Loan Parties, including
 
a concentration account, and
will
 
restrict
 
the
 
Loan
 
Parties’
 
ability
 
to
 
transfer
 
cash
 
from
 
their
 
concentration
 
account.
 
Such
 
cash
dominion period
 
will end,
 
in the
 
case of
 
an event
 
of default,
 
when the
 
event of
 
default no
 
longer exists,
and in the case of when Excess Availability falls below the threshold described in the first sentence of this
paragraph, when Excess Availability exceeds such threshold for a period of
30
 
consecutive days.
 
Affirmative
 
and
 
Restrictive
 
Covenants.
 
The
 
ABL
 
Credit
 
Agreement
 
governing
 
the
 
ABL
 
Facility
contains
 
customary representations
 
and
 
warranties, affirmative
 
and
 
negative covenants
 
(subject, in
 
each
case,
 
to
 
exceptions
 
and
 
qualifications),
 
and
 
events
 
of
 
defaults,
 
including
 
covenants
 
that
 
limit
 
the
Company’s ability to, among other things:
 
●
incur additional indebtedness;
●
create liens on its assets;
●
make investments, including loans and advances to foreign subsidiaries;
 
●
pay dividends and make other restricted payments;
 
●
sell certain assets outside of the ordinary course of business;
 
●
consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets;
 
●
make acquisitions; and
●
enter into transactions with affiliates.
 
 
Restrictions
 
relating
 
to
 
permitted
 
acquisitions,
 
permitted
 
investments,
 
prepayment
 
of
 
other
indebtedness,
 
and
 
restricted
 
payments
 
are
 
substantially
 
less,
 
or
 
not
 
applicable
 
in
 
the
 
case
 
of
 
restricted
payments, if the Company can satisfy the following payment conditions: (i) there is
 
no default or event of
default under
 
the ABL
 
Facility,
 
(ii) there
 
are
no
 
revolving credit loans
 
outstanding, (iii) the
 
Loan Parties
have unrestricted
 
cash of
 
greater than
 
$
20
 
million, (iv)
 
the Lender
 
receives at
 
least three
 
business days’
prior
 
written
 
notice
 
of
 
such
 
event,
 
including
 
information
 
about
 
the
 
estimated
 
date
 
and
 
amount
 
of
 
the
payment
 
and
 
a
 
reasonable
 
description
 
of
 
such
 
event,
 
and
 
(v)
 
Lender
 
receives
 
a
 
certificate
 
certifying
compliance with the foregoing clauses and demonstrating the calculations required
 
thereby.
Recently Issued and Adopted Accounting Pronouncements
Recently Adopted Accounting
 
Pronouncements:
 
In November 2023,
 
the FASB
 
issued ASU
 
2023-
07, “Segment Reporting (Topic
 
280): Improvements to Reportable Segment Disclosures,”
 
which requires
enhanced
 
disclosures
 
about
 
significant
 
segment
 
expenses.
 
This
 
guidance
 
was
 
adopted
 
by
 
the
 
Company
during the
 
fourth quarter
 
of 2024
 
and requires
 
retrospective application
 
to
 
all prior
 
periods presented
 
in
the
 
financial statements.
 
Refer to
 
Note 13
 
of
 
the
 
Company's financial
 
statements in
 
this
 
Form 10-K
 
for
additional information related to segment expenses.
 
Recently Issued Accounting Pronouncements:
 
In December 2023, the
 
FASB
 
issued ASU 2023-09,
“Income Taxes (Topic
 
740): Improvements to Income Tax Disclosures,” which modifies the requirements
on income tax disclosures to require disaggregated information about
 
a reporting entity’s effective tax rate
reconciliation
 
as
 
well
 
as
 
information
 
on
 
income
 
taxes
 
paid.
 
This
 
guidance
 
is
 
effective
 
for
 
fiscal
 
years
beginning after
 
December 15, 2024
 
for all
 
public business
 
entities, with early
 
adoption and retrospective
application
 
permitted.
 
The
 
Company
 
is
 
currently
 
in
 
the
 
process
 
of
 
evaluating
 
the
 
potential
 
impact
 
of
adoption of this new guidance on its consolidated financial statements and
 
related disclosures.
 
In November
 
2024, the
 
FASB
 
issued
 
ASU 2024-03,
 
“Income Statement—Reporting
 
Comprehensive
Income—Expense
 
Disaggregation
 
Disclosures
 
(Subtopic
 
220-40):
 
Disaggregation
 
of
 
Income
 
Statement
Expenses,”
 
which
 
requires
 
public
 
entities
 
to
 
disclose,
 
on
 
an
 
annual
 
and
 
interim
 
basis,
 
disaggregated
information
 
in
 
the
 
footnotes
 
about
 
specified
 
information
 
related
 
to
 
certain
 
costs
 
and
 
expenses.
 
This
guidance is effective for annual periods beginning after December 15, 2026 and for interim periods within
fiscal years beginning after December 15, 2027, with early adoption permitted.
 
The Company is currently
in
 
the
 
process
 
of
 
evaluating
 
the
 
potential
 
impact
 
of
 
adoption
 
of
 
this
 
new
 
guidance
 
on
 
its
 
consolidated
financial statements and related disclosures.