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May 23, 2018 - 

Stein Mart, Inc. Reports First Quarter Fiscal 2018 Results

Raises First Half Outlook

  • Operating income of $9.9 million compared to $10.1 million in 2017
  • Diluted earnings per share of $0.16 compared to $0.08 in 2017
  • Gross profit rate increased 110 basis points

JACKSONVILLE, Fla., May 23, 2018 (GLOBE NEWSWIRE) -- Stein Mart, Inc. (NASDAQ:SMRT) today announced financial results for the first quarter ended May 5, 2018 and raised its first half 2018 outlook.

Net income for the first quarter was $7.3 million or $0.16 per diluted share compared to a net income of $3.7 million or $0.08 per diluted share in 2017. Operating income for the first quarter was $9.9 million compared to $10.1 million in 2017. First quarter 2018 results include less than $0.1 million in income tax expense (see Income Taxes below).

Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the first quarter was $18.4 million compared to $19.3 million in 2017 (see Note 1).

“Comparative sales trends showed considerable improvement for the quarter and operating income exceeded our expectations. Continuing strong inventory productivity drove a significantly higher gross profit rate. The higher gross profit and our below-plan expenses more than offset the impact of somewhat lower sales,” said Hunt Hawkins, Chief Executive Officer. “With better first quarter results, we now expect first-half operating income to be in excess of $10 million instead of the $8 million we previously discussed.  Also, while it is early in the second quarter, we are pleased with May’s positive comparable sales trend which reflects the return of seasonal temperatures.”

Net Sales
Total sales for the first quarter of 2018 were $326.7 million, a decrease of 3.2 percent compared with $337.3 million for the first quarter of 2017. The decrease in total sales includes the impact of six stores closed in 2017 and four stores closed during the first quarter of 2018. Comparable store sales for the first quarter of 2018 decreased 0.7 percent including sales from leased departments (see Note 2). Ecommerce sales were up 85 percent over last year’s first quarter.

Other Revenue
During the first quarter of 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). As a result of the new accounting standard, income relating to our credit card program and gift card breakage that previously offset selling, general and administrative (“SG&A”) expenses has been recorded in other revenue in the Condensed Consolidated Statements of Income for all periods presented. The increase in other revenue for the first quarter of 2018 is the result of higher penetration from our growing credit card program.

Gross Profit
Gross profit for the first quarter of 2018 was $96.1 million or 29.4 percent of sales compared to $95.6 million or 28.3 percent of sales in 2017. The 110 basis points expansion in the gross profit rate was driven primarily by higher gross margin from reduced markdowns and better inventory productivity. Occupancy costs were flat for the quarter, but higher as a percentage of sales.

Selling, General and Administrative Expenses
SG&A expenses for the first quarter of 2018 were $90.5 million compared to $89.2 million in 2017. The slight increase in SG&A expenses was primarily due to planned higher advertising and Ecommerce expenses in the first quarter of 2018 that were mostly offset by cost savings.

Interest Expense, Net
Interest expense for the first quarter of 2018 was $2.5 million compared to $1.1 million in 2017. The increase in interest expense reflects higher interest rates and borrowing levels in the first quarter of 2018.

Income Taxes   
Income tax expense decreased $5.2 million to less than $0.1 million in the first quarter of 2018 compared to the first quarter of 2017. The decrease reflects our net operating loss carry forward position along with the valuation allowance established against deferred tax assets during the fourth quarter of 2017. The first quarter of 2018 expense represents certain state income tax expense. We expect the effective tax rate to be close to zero percent for all of 2018.

Working Capital and Capital Expenditures
Inventories were $297 million at the end of the first quarter of 2018 compared to $322 million at the same time last year. Average inventories per store were down nearly 10 percent to last year.

Capital expenditures totaled $1.7 million for the first quarter of 2018 compared to $7.2 million in 2017. For fiscal 2018, we expect capital expenditures to be approximately $10 million compared to $21 million in fiscal 2017.

Accounts payable decreased more than $68 million compared to the end of the first quarter last year as a result of reduced credit terms from our vendors and their factors. Our availability under our expanded credit facility allowed us to fund this reduction and keep merchandise receipts timely. Borrowings increased to $209 million at the end of the first quarter compared to $157 million at the end of last year’s first quarter. Unused availability at the end of the first quarter of 2018 was $40 million. Credit terms began expanding late in the quarter after we announced positive fourth quarter 2017 results.

Store Activity
We had 289 stores at the end of the first quarter 2018 compared to 292 at the end of the first quarter last year. We closed four stores during the first quarter of 2018. We are now expecting to close a total of seven stores and open two new stores in 2018.

Updated First Half 2018 Outlook  
We now expect first half 2018 operating income to be in excess of $10 million compared to an operating loss of $11.5 million for the first half of 2017. Our outlook has improved due to first quarter results along with expected additional first-half gross profit expansion and lower SG&A expenses. Second quarter of 2018 operating income is expected to be positive based on the following factors:  

  • We anticipate flat to low single-digit increases in comparable sales for the second quarter driven by much higher regular-price selling
  • We expect gross profit expansion in excess of 400 basis points
  • SG&A expenses are expected to be at least $5 million lower, inclusive of higher Ecommerce expenses

Filing of Form 10-Q
Reported results are preliminary and not final until the filing of our Form 10-Q for the fiscal quarter ended May 5, 2018 with the Securities and Exchange Commission (“SEC”), and therefore remain subject to adjustment.

Conference Call
A conference call to discuss the Company’s first quarter results will be held at 4:30 p.m. ET on May 23, 2018. The call may be heard on the investor relations portion of the Company’s website at http://ir.steinmart.com  A replay of the conference call will be available on the website through June 30, 2018.

Investor Presentation
Stein Mart’s first quarter 2018 investor presentation has been posted to the investor relations portion of the Company’s website at http://ir.steinmart.com.

About Stein Mart
Stein Mart, Inc. is a national specialty off-price retailer offering designer and name-brand fashion apparel, home décor, accessories and shoes at everyday discount prices. Stein Mart provides real value that customers love every day both in stores and online. For more information, please visit www.steinmart.com.

Cautionary Statement Regarding Forward-Looking Statements
Except for historical information contained herein, the statements in this release may be forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company does not assume any obligation to update or revise any forward-looking statements even if experience or future changes make it clear that projected results expressed or implied will not be realized. Forward-looking statements involve known and unknown risks and uncertainties that may cause Stein Mart’s actual results in future periods to differ materially from forecasted or expected results. Those risks include, without limitation: dependence on our ability to purchase merchandise at competitive terms through relationships with our vendors and their factors, consumer sensitivity to economic conditions, competition in the retail industry, changes in fashion trends and consumer preferences, ability to implement our strategic plans to sustain profitable growth, effectiveness of advertising and marketing, capital availability and debt levels, dividend impact on stock price, ability to negotiate acceptable lease terms with current and potential landlords, ability to successfully implement strategies to exit under-performing stores, extreme and/or unseasonable weather conditions, adequate sources of merchandise at acceptable prices, dependence on certain key personnel and ability to attract and retain qualified employees, impacts of seasonality, increases in the cost of compensation and employee benefits, disruption of the Company’s distribution process, dependence on imported merchandise, information technology failures, data security breaches, single supplier for shoe department, single provider for ecommerce website, acts of terrorism, ability to adapt to new regulatory compliance and disclosure obligations, material weaknesses in internal control over financial reporting and other risks and uncertainties described in the Company’s filings with the SEC.

 
Stein Mart, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
 
    13 Weeks Ended 13 Weeks Ended
    May 5, 2018 April 29, 2017
       
Net sales   $ 326,685 $ 337,335
Other revenue     4,302   3,714
Total revenue     330,987   341,049
Cost of merchandise sold     230,621   241,779
Selling, general and administrative expenses     90,509   89,208
Operating income     9,857   10,062
Interest expense, net     2,463   1,139
Income before income taxes     7,394   8,923
Income tax expense     60   5,223
Net income   $ 7,334 $ 3,700
       
Net income per share:      
Basic   $ 0.16 $ 0.08
Diluted   $ 0.16 $ 0.08
       
Weighted-average shares outstanding:      
Basic     46,610   46,165
Diluted     46,659   46,171
       


Stein Mart, Inc. 
Condensed Consolidated Balance Sheets 
(Unaudited) 
(In thousands, except for share and per share data)
 
  May 5, 2018 February 3, 2018 April 29, 2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 16,165   $ 10,400   $ 15,554  
Inventories   296,964     270,237     322,030  
Prepaid expenses and other current assets   35,597     24,194     24,161  
Total current assets   348,726     304,831     361,745  
Property and equipment, net   144,109     151,128     164,012  
Other assets   24,838     24,973     28,692  
Total assets $ 517,673   $ 480,932   $ 554,449  
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 93,632   $ 119,388   $ 162,208  
Current portion of debt (1)   159,415     13,738     8,333  
Accrued expenses and other current liabilities   78,418     76,058     71,360  
Total current liabilities   331,465     209,184     241,901  
Long-term debt   49,266     142,387     149,119  
Deferred rent   41,535     40,860     42,509  
Other liabilities   38,785     40,214     49,128  
Total liabilities   461,051     432,645     482,657  
COMMITMENTS AND CONTINGENCIES      
Shareholders’ equity:      
Preferred stock - $.01 par value; 1,000,000 shares      
authorized; no shares issued or outstanding      
Common stock - $.01 par value; 100,000,000 shares      
authorized; 47,910,450, 47,978,275 and 47,181,498      
shares issued and outstanding, respectively   479     480     472  
Additional paid-in capital   56,961     56,002     51,557  
Retained (deficit) earnings   (576 )   (7,949 )   20,059  
Accumulated other comprehensive loss   (242 )   (246 )   (296 )
Total shareholders’ equity   56,622     48,287     71,792  
Total liabilities and shareholders’ equity $ 517,673   $ 480,932   $ 554,449  
       

(1) As part of a February 2018 amendment to our credit agreement that allowed us to have additional availability, we agreed to enter cash dominion whereby our cash is swept daily to pay down outstanding debt. As a result of being in cash dominion, the amount outstanding under the credit agreement is required to be classified as a short-term obligation. As long as we remain within the terms of the credit agreement, the bank is obligated to allow us to draw up to our borrowing availability through the maturity of our credit agreement in February 2020.

 
 
Stein Mart, Inc. 
Condensed Consolidated Statements of Cash Flows 
(Unaudited)

(In thousands)
 
    13 Weeks Ended 13 Weeks Ended
    May 5, 2018 April 29, 2017
Cash flows from operating activities:      
Net income   $ 7,334   $ 3,700  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:      
Depreciation and amortization     8,070     8,085  
Share-based compensation     995     1,523  
Store closing charges     116     286  
Impairment of property and other assets     299     31  
Loss on disposal of property and equipment     99     232  
Deferred income taxes     -     4,858  
Changes in assets and liabilities:      
Inventories     (26,727 )   (30,920 )
Prepaid expenses and other current assets     (11,403 )   6,088  
Other assets     (2,311 )   1,196  
Accounts payable     (25,735 )   47,924  
Accrued expenses and other current liabilities     2,643     (1,550 )
Other liabilities     (586 )   (1,355 )
Net cash (used in) provided by operating activities     (47,206 )   40,098  
Cash flows from investing activities:      
Net acquisition of property and equipment     (1,664 )   (7,182 )
Proceeds from cancelled corporate owned life insurance policies     2,514     83  
Net cash provided by (used in) investing activities     850     (7,099 )
Cash flows from financing activities:      
Proceeds from borrowings     428,877     108,911  
Repayments of debt     (375,587 )   (133,261 )
Debt issuance costs     (802 )   -  
Cash dividends paid     (147 )   (3,494 )
Capital lease payments     (183 )   -  
Repurchase of common stock     (37 )   (205 )
Net cash provided by (used in) financing activities     52,121     (28,049 )
Net increase in cash and cash equivalents     5,765     4,950  
Cash and cash equivalents at beginning of year     10,400     10,604  
Cash and cash equivalents at end of period   $ 16,165   $ 15,554  
       

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 
We report our consolidated financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures provide users of the company’s financial information with additional useful information in evaluating operating performance.

Note 1: Adjusted EBITDA
EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is not a measure of financial performance under GAAP.  However, we present EBITDA in this release because we consider it to be an important supplemental measure of our performance and because it is frequently used by analysts, investors and others to evaluate the performance of companies.  EBITDA is not calculated in the same manner by all companies. EBITDA should be used as a supplement to results of operations and cash flows as reported under GAAP and should not be considered to be a more meaningful measure than, or an alternative to, measures of operating performance as determined in accordance with GAAP.  

The following table shows the Company’s reconciliation of Net Income to EBITDA and Adjusted EBITDA which are considered Non-GAAP financial measures. Adjusted EBITDA excludes non-cash items (impairment charges), significant non-recurring unusual items and new stores investments (pre-opening costs).

        13 Weeks 13 Weeks
    Ended Ended
    May 5, 2018 Apr. 29, 2017
Net income $7,334 $3,700
Add back amounts for computation of EBITDA:    
Interest expense, net   2,463   1,139
Income tax expense   60   5,223
Depreciation and amortization   8,070   8,085
EBITDA   17,927   18,147
Adjustments:    
Non-cash impairment charges   299   31
Expense related to legal settlements   11   25
New store pre-opening costs   192   1,131
Total adjustments   502   1,187
Adjusted EBITDA $18,429 $19,334
         

Note 2: Changes in Comparable Store Sales       
Management believes that providing calculations of changes in comparable sales including and excluding sales from leased departments assists in evaluating the Company’s ability to generate sales growth, whether through owned businesses or departments leased to third parties. The following table shows the Company’s reconciliation of these calculations.

      13 Weeks 13 Weeks
    Ended Ended
    May 5, 2018 Apr. 29, 2017
Decrease in comparable sales excluding sales from leased departments (1)  (1.8%) (7.6%)
Impact of growth in comparable sales of leased departments (2)   1.1%    0.5%
Decrease in comparable store sales including sales from leased departments (0.7%) (7.1%)

(1) Represents the period-to-period percentage change in net sales from stores open throughout the period presented and the same period in the prior year and all online sales of steinmart.com, excluding commissions from departments leased to third parties.

(2) Represents the impact of including sales of departments leased to third parties throughout the period presented and the same period in the prior year and all online sales of steinmart.com in the calculation of comparable sales. The company leases its shoe and vintage handbag departments in its stores and online to third parties and receives a commission from these third parties based on a percentage of their sales.  In our financial statements prepared in conformity with GAAP, the company includes commissions (rather than sales of the departments licensed to third parties) in its net sales. The Company does not include the commission amounts from leased department sales in its comparable sales calculations.

For more information: 
Linda L. Tasseff 
Director, Investor Relations 
(904) 858-2639 
ltasseff@steinmart.com

 

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Source: Stein Mart, Inc.