Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

May 23, 2018

(Date of Report; Date of Earliest Event Reported)

 

 

STEIN MART, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Florida   0-20052   64-0466198

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

1200 Riverplace Blvd., Jacksonville, Florida 32207

(Address of Principal Executive Offices Including Zip Code)

(904) 346-1500

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On May 23, 2018, Stein Mart, Inc. (“Stein Mart”) issued a press release announcing its financial results for the first quarter ended May 5, 2018. The information in this Current Report is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

The Stein Mart press release is attached as exhibit 99.1.

 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(d) Exhibits

 

99.1   Press Release dated May 23, 2018.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    STEIN MART, INC.
    (Registrant)
Date: May 23, 2018     By:  

/s/ Gregory W. Kleffner

      Gregory W. Kleffner
      Executive Vice President and Chief Financial Officer
EX-99.1

Exhibit 99.1

 

LOGO

 

May 23, 2018

 

FOR IMMEDIATE RELEASE

  

For more information:

Linda L. Tasseff

Director, Investor Relations

(904) 858-2639

ltasseff@steinmart.com

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. – 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
May 5, 2018
    13 Weeks Ended
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
Ended
May 5, 2018
     13 Weeks
Ended
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
Ended
May 5, 2018
    13 Weeks
Ended
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.