Cut-price retailer The Cato Corporation is forecasting continued gloom after reporting a 37% slump in full-year profits for fiscal 2007.

The company described its current inventory position as "fresh and in line with current sales expectations", but forecast no gross margin improvement for 2008.

It expects full-year comparable store sales to be flat to 3% down, with net income at US$21-27m.

The gloomy predictions come after Cato reported a fourth quarter loss of $1.8m in the three months to 2 February. Last year it posted a $12.7m profit.

Sales were down 9% to $209.4m. Full-year sales dipped 3% to $834.3m, while net income plunged 37% to $32.3m.

"Our 2007 results reflect the difficult retail environment," said John Cato, chairman, president and CEO.

"Our comparable store sales decrease and the resulting markdowns were the primary contributors to the lower earnings."

Cato also announced plans to expand the company's It's Fashion concept with the addition of 30 new stores operating under the It's Fashion Metro banner.

Capital expenditure is put at $19m, with $14m to be spent on store development, including the opening of 75 new stores overall.