Cato is closing 120 stores, a number that amounts to nearly one fifth of its total locations, and the company is not hiding its reasons. The discount chain says its customers simply do not have as much money to spend anymore.
The company posted a second-quarter net loss of $1.1 million, a decline from $6.8 million in the year-ago quarter. Revenue slipped to $163.9 million, a drop of 6%, while comparable-store sales declined 3.7% from 2025. John Cato, the chief executive, said the slump stemmed from economic strain rather than issues with the stores themselves.
In the earnings release, he said “Our results in the quarter are in large part due to the continued pressure on our customers’ discretionary income, which is being negatively impacted in part by persistent inflation, higher fuel prices and continued elevated interest rates,” which is the figure that explains the bottom line.
Cato’s outlook for the remainder of the year shows continued strain. The firm expects the back half of 2026 to be demanding.
“We expect the negative pressure on our customers’ discretionary income to continue for the foreseeable future. We will continue to tightly manage our expenses and inventory as we anticipate the back half of 2026 to be challenging.”
The battle for off-price traffic
While Cato is the discount fashion chain with the most serious troubles, it is not the only one facing them. Its rivals have been winning the battle for shoppers’ attention for years.
Placer.ai data shows Ross Dress for Less drew in 16.4% more visitors year over year in Q2 2026. dd’s DISCOUNTS grew 8.4%. TJX’s TJ Maxx and Marshalls posted visit numbers roughly matching last year’s, handily beating traditional apparel, which dipped 3.5% YoY.
The statistics show a distinct pattern: Ross occupies the lead position among the segment’s stores, and its locations are attracting customers at a rate that Cato’s stores cannot match.
What Ross has that Cato lacks
Analysts at Morningstar think Ross’ roughly 2,200 stores give it a leg up over smaller competitors such as Cato, which operated more than 800 stores before the planned closures.
“As the second-largest off-price retailer in the U.S. with about 30% market share, we think Ross Stores’ unique inventory procurement method and scale positions the firm to comfortably expand its top line at a mid-single-digit pace while fending off competition from online channels in the future,” the analysts shared in a research note.
The analysts also pointed to Ross’ relationship with suppliers. “We suggest that Ross’ standing as a reliable sales outlet for product manufacturers and traditional (or full-price) retailers looking to discreetly liquidate excess inventory should provide the firm with a plethora of buying opportunities,” they added.
Cato is selling affordable women’s fashion that follows current trends. Ross and the TJX brands are doing the same thing, offering value, but they operate on a much larger scale, with far more purchasing power and access to goods from manufacturers and full-price retailers who need to get rid of extra inventory. Ross’ advantages include:
- A procurement method that sets it apart from smaller competitors
- A standing as a reliable outlet for excess inventory from manufacturers and full-price retailers
- A scale of roughly 2,200 stores against Cato’s roughly 800 before the closures
Cato’s decision to close
The company’s plan to shut down underperforming stores has grown, with Cato adding a further 70 store closings to the list of locations set to close before the end of the company’s fourth quarter, bringing the total number of planned shutdowns to 120.
Each year, the chain examines approximately one-third of its stores to determine whether to go ahead with the available lease options or to seek an extension for each location, guided by that store’s performance, including sales trends and current and projected store profitability. In the past, marginal stores were renewed for one more year to afford the store additional time to enhance its sales trend and profitability. That approach has now ended.
“In light of the current economic environment, especially with the negative pressure on our customers’ discretionary income, we do not expect these marginal stores to improve appreciably,” John Cato said.
Each of the stores being shut down has a lease that will end, and the expense tied to renting those locations will fall off the retailer’s balance sheet by the end of 2026.
The bigger picture
For years, the off-price category has been growing. Talking about TJX, Ross, and Burlington — which GlobalData Managing Director Neil Saunders named the three biggest players in the space — he pointed to the category’s expanding market share.
“Since 2019, the three main chains all delivered US sales growth in excess of 30%. By contrast, the total market for the things they sell — mostly fashion and home — grew by just 21.7% over the 2019 to 2024 period. In other words, they’ve all expanded their market share,” he wrote.
Saunders praised the skill of the off-price teams, and “Yes, things like value for money and bargain hunting are very much in their favor. But consistently delivering on these consumer requirements is far from easy. The effort, knowledge, and judgment involved are immense,” he added, pointed to their success.
Not every chain is faring the same way. Some are winning, and Cato is not one of them.
What this means for shoppers
Eight decades of selling stylish, affordable fashion for every occasion is what Cato has built its reputation on, and the company is now trimming its retail footprint. The closure of 120 stores marks a notable adjustment for a firm that has been in business for 80 years.
The contrast between Cato’s struggles and its rivals’ gains is stark. Ross is leading the segment in visits and sales growth. TJ Maxx and Marshalls are holding steady. Cato is shrinking.
This isn’t a tale about a flawed business model. Instead, it’s a tale about a company whose customers have less money to spend, and whose efforts to keep up with larger, more efficient rivals have fallen short.
Source material: “80-year-old discount fashion chain closing 120 stores,” Yahoo Finance.
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