Did June Weather Warm Up Comps For Cato's Stores?
Cato Corp (NYSE: CATO) is performing better than many apparel retailers, backed by its “compelling value proposition” and the more defensive nature of its business model, MKM Partners’ Patrick McKeever said in a report. He maintained a Neutral rating on the company, with a fair value estimate of $37, saying that warmer weather is likely to have driven some sequential improvement.
SSS Getting Better
Analyst Patrick McKeever mentioned that comps are expected to have improved in June to 0-2 percent, from the 2 percent decline in May. Cato benefited from more favorable weather in June, which was warm and relatively dry, following a cool and wet May. This is likely to have driven an uptick in store traffic and better conversion.
Certain apparel retailers and manufacturers have suggested a sequential improvement in trends in June, following a disappointing April-May, McKeever pointed out.
Inventories seem to be “in good shape,” with management continuing to take a conservative approach. The analyst projected flat same-store sales through 2Q16, and an EPS of $0.53, versus $0.56 last year.
Cato’s value proposition is compelling, with attractive fashions, high quality construction and sharp prices. Moreover, the company has a more conservative business model than peers. “The company is also pushing forward with important sourcing and design initiatives,” the analyst commented. He added, however, that comps had decelerated for the past three quarters and “are likely to be flat at best in FY16.”
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