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

August 22, 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 August 22, 2018, Stein Mart, Inc. (“Stein Mart”) issued a press release announcing its financial results for the second quarter ended August 4, 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 August 22, 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: August 22, 2018   By:   /s/ Gregory W. Kleffner
  Gregory W. Kleffner
  Executive Vice President and Chief Financial Officer
EX-99.1

Exhibit 99.1

 

LOGO

 

August 22, 2018          For more information:
         Linda L. Tasseff
FOR IMMEDIATE RELEASE          Director, Investor Relations
         (904) 858-2639
         ltasseff@steinmart.com

Stein Mart, Inc. Reports Second Quarter 2018 Results

Gross Profit Rate Increase of 470 BPS Drives Turnaround

 

   

Operating income of $1.8 million compared to operating loss of $21.5 million for 2017

   

Diluted loss per share of ($0.02) for 2018 compared to ($0.28) for 2017

   

Projecting EBITDA in excess of $45 million for full year 2018

JACKSONVILLE, Fla. – Stein Mart, Inc. (NASDAQ: SMRT) today announced financial results for the second quarter ended August 4, 2018.

For the second quarter, operating income was $1.8 million for 2018 compared to an operating loss of $21.5 million for 2017. Net loss for the second quarter was $1.1 million or $0.02 per diluted share for 2018 compared to a net loss of $13.0 million or $0.28 per diluted share for 2017.

Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the first half of 2018 increased to $28.7 million from $6.7 million for last year’s first half (see Note 1).

“Continued gross profit expansion and lower expenses resulted in a meaningful improvement in second quarter operating income which grew by more than $23 million from last year. We are confident in our strategies to grow comparable store sales and maintain strong inventory management that are positively impacting our business,” said Hunt Hawkins, Chief Executive Officer.

“Looking to the second half of the year, we expect an operating profit compared to last year’s operating loss of $19.8 million. Contributing to this turnaround are expenses planned even lower than the first half and gross profit and comparable sales trends improving as they have over the past three quarters. With our second half earnings, we expect EBITDA to be in excess of $45 million this year, a dramatic improvement from last year.”

Net Sales

Net sales for the second quarter of 2018 were $310.9 million compared with $311.0 million for the second quarter of 2017. Comparable sales for the second quarter of 2018 increased 0.7 percent including sales from leased departments (see Note 2). Ecommerce sales were up 128 percent over last year’s second quarter.

For the first six months of 2018, net sales decreased 1.7 percent to $637.6 million while comparable sales were flat to last year. The decrease in total sales includes the impact of closing six underperforming stores in 2017 and four in the first half of 2018.


Gross Profit

Gross profit for the second quarter of 2018 was $79.4 million or 25.5 percent of sales compared to $64.7 million or 20.8 percent of sales in 2017. The 470 basis points expansion in the gross profit rate was driven primarily by much higher gross margin from reduced markdowns and better inventory productivity. Markdowns were high in last year’s second quarter to clear excess inventories.

Selling, General and Administrative Expenses

SG&A expenses for the second quarter of 2018 decreased $8.6 million to $81.1 million compared to $89.7 million in 2017. The nearly 10 percent drop in SG&A expenses was primarily due to cost savings initiatives in the stores and corporate office and the impact of closed stores.

Interest Expense, Net

Interest expense for the second quarter of 2018 was $2.9 million compared to $1.1 million in 2017. The increase in interest expense reflects higher interest rates and borrowing levels in 2018.

Income Taxes

Income tax expense was less than $0.1 million in the second quarter of 2018 compared to an income tax benefit of $9.7 million for the second quarter of 2017. The expense for second quarter of 2018 represents certain state income tax expense and reflects our net operating loss carry forward position along with the valuation allowance established against deferred tax assets during the fourth quarter of 2017.

Working Capital and Capital Expenditures

Inventories were $241 million at the end of the second quarter of 2018 compared to $246 million at the same time last year. Average inventories per store were down 5 percent to last year.

Capital expenditures totaled $4.1 million for the first six months of 2018 compared to $11.8 million in 2017. For fiscal 2018, we continue to expect capital expenditures to be approximately $10 million compared to $21 million in fiscal 2017.

Accounts payable was $21.3 million lower at the end of the second quarter of 2018 compared to last year’s second quarter as a result of reduced credit terms from our vendors and their factors. These reductions occurred mostly in the first quarter. As our earnings results have improved, so have our credit terms and borrowing levels.

Total borrowings were $175 million at the end of the second quarter compared to $171 million at the end of last year’s second quarter. Unused availability at the end of the second quarter of 2018 was $43 million.

Store Activity

We had 289 stores at the end of the second quarter 2018 compared to 292 at the end of the second quarter last year. We closed four stores during the first half 2018. We plan to close three additional stores and open two new stores during the second half of 2018.

2018 Outlook

We are projecting EBITDA in excess of $45 million for fiscal 2018 compared to $7 million for fiscal 2017. For the second half, we expect operating income compared to an operating loss of $19.8 million last year. Historically, our third quarter has been a seasonally challenged period with high clearance selling. We anticipate an operating loss of approximately $10 million in the third quarter that will be more than offset by fourth quarter earnings.

We expect the following factors to influence our second half results:

 

   

We anticipate low single-digit increases in comparable sales for the second half driven by higher regular-price selling, offset by lower clearance sales


   

We expect our second half gross profit rate to be slightly higher than last year’s second half

  -

The rate in third quarter is planned higher than last year due to lower clearance sales in this year’s third quarter

  -

The fourth quarter rate is planned similar to last year, when clearance selling normalized

   

SG&A expenses are expected to be $15 to $20 million lower in the second half

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 August 4, 2018 with the Securities and Exchange Commission (“SEC”), and therefore remain subject to adjustment.

Conference Call

A conference call to discuss the Company’s second quarter results will be held at 4:30 p.m. ET on August 22, 2018. The call may be heard on the Company’s investor relations website at http://ir.steinmart.com. A replay of the conference call will be available on the website through September 30, 2018.

Investor Presentation

Stein Mart’s second 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 Operations

(Unaudited)

(In thousands, except per share amounts)

 

    

13 Weeks Ended

August 4, 2018

          

13 Weeks Ended

July 29, 2017

   

26 Weeks Ended

August 4, 2018

    

26 Weeks Ended

July 29, 2017

 
  

 

 

 

Net sales

   $ 310,939        $ 311,036     $ 637,624      $ 648,371  

Other revenue

     3,489          3,498       7,791        7,212  
  

 

 

 

Total revenue

     314,428          314,534       645,415        655,583  

Cost of merchandise sold

     231,520          246,368       462,141        488,147  

Selling, general and administrative expenses

     81,127          89,699       171,636        178,907  
  

 

 

 

Operating income (loss)

     1,781          (21,533     11,638        (11,471

Interest expense, net

     2,865          1,142       5,328        2,281  
  

 

 

 

(Loss) income before income taxes

     (1,084        (22,675     6,310        (13,752

Income tax expense (benefit)

     60          (9,682     120        (4,459
  

 

 

 

Net (loss) income

   $ (1,144      $ (12,993   $ 6,190      $ (9,293
  

 

 

 

Net (loss) income per share:

            

Basic

   $ (0.02      $ (0.28   $ 0.13      $ (0.20
  

 

 

 

Diluted

   $ (0.02      $ (0.28   $ 0.13      $ (0.20
  

 

 

 

Weighted-average shares outstanding:

            

Basic

     46,669          46,264       46,639        46,214  
  

 

 

 

Diluted

     46,669          46,264       47,139        46,214  
  

 

 

 


Stein Mart, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except for share and per share data)

 

     August 4, 2018     February 3, 2018     July 29, 2017  
        

ASSETS

      

Current assets:

      

Cash and cash equivalents

   $         10,030     $         10,400     $         10,577  

Inventories

     240,813       270,237       246,243  

Prepaid expenses and other current assets

     34,215       26,620       35,715  
        

Total current assets

     285,058       307,257       292,535  

Property and equipment, net

     138,663       151,128       160,282  

Other assets

     24,970       24,973       29,806  
        

Total assets

   $ 448,691     $ 483,358     $ 482,623  
        

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

   $ 66,272     $ 119,388     $ 87,561  

Current portion of debt

     125,253       13,738       5,833  

Accrued expenses and other current liabilities

     73,741       78,453       72,902  
        

Total current liabilities

     265,266       211,579       166,296  

Long-term debt

     49,286       142,387       164,779  

Deferred rent

     40,814       40,860       42,293  

Other liabilities

     36,881       40,214       48,271  
        

Total liabilities

     392,247       435,040       421,639  
        

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; 47,937,786, 47,978,275 and 47,904,091 shares issued and outstanding, respectively

     479       480       479  

Additional paid-in capital

     57,888       56,002       53,721  

Retained (deficit) earnings

     (1,686     (7,918     7,071  

Accumulated other comprehensive loss

     (237     (246     (287
        

Total shareholders’ equity

     56,444       48,318       60,984  
        

Total liabilities and shareholders’ equity

   $ 448,691     $ 483,358     $ 482,623  
        


Stein Mart, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     26 Weeks Ended
August 4, 2018
    26 Weeks Ended
July 29, 2017
 
  

 

 

 

Cash flows from operating activities:

    

Net income (loss)

   $ 6,190     $ (9,293)  

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     16,215       16,226   

Share-based compensation

     1,842       3,379   

Store closing (benefits) charges

     (92     172   

Impairment of property and other assets

     488       640   

Loss on disposal of property and equipment

     104       236   

Deferred income taxes

     -       4,199   

Changes in assets and liabilities:

    

Inventories

     29,424       44,867   

Prepaid expenses and other current assets

     (7,595     (2,657)  

Other assets

     (2,329     (566)  

Accounts payable

     (53,528     (26,800)  

Accrued expenses and other current liabilities

     (4,619     (3,051)  

Other liabilities

     (2,984     (2,409)  
  

 

 

 

Net cash (used in) provided by operating activities

     (16,884     24,943   
  

 

 

 

Cash flows from investing activities:

    

Net acquisition of property and equipment

     (4,082     (11,761)  

Proceeds from cancelled corporate owned life insurance policies

     2,514       1,445   

Proceeds from insurance claims

     90        

Gain on insurance proceeds

     206        
  

 

 

 

Net cash used in investing activities

     (1,272     (10,316)  
  

 

 

 

Cash flows from financing activities:

    

Proceeds from borrowings

     781,051       230,094   

Repayments of debt

     (761,923     (241,295)  

Debit issuance costs

     (896      

Cash dividends paid

     (122     (3,563)  

Capital lease payments

     (367      

Proceeds from exercise of stock options and other

     90       328   

Repurchase of common stock

     (47     (218)  
  

 

 

 

Net cash provided by (used in) financing activities

     17,786       (14,654)  
  

 

 

 

Net decrease in cash and cash equivalents

     (370     (27)  

Cash and cash equivalents at beginning of year

     10,400       10,604   
  

 

 

 

Cash and cash equivalents at end of period

   $ 10,030     $ 10,577   
  

 

 

 


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 (loss) 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 investment in new stores (pre-opening costs).

 

     26 Weeks Ended
Aug. 4, 2018
     26 Weeks Ended    
July 29, 2017    
 
  

 

 

 

        Net income (loss)

     $6,190        ($9,293)  

        Add back amounts for computation of EBITDA:

     

            Interest expense, net

     5,328        2,281  

            Income tax expense (benefit)

     120        (4,459)  

            Depreciation and amortization

     16,215        16,226  
  

 

 

 

        EBITDA

     27,853        4,755  
  

 

 

 

        Adjustments:

     

    Non-cash impairment charges

     488        640  

    Expense related to legal settlements

     43        44  

    New store pre-opening costs

     291        1,231  
  

 

 

 

Total adjustments

     822        1,915  
  

 

 

 

        Adjusted EBITDA

     $28,675        $6,670  
  

 

 

 

Note 2: Changes in Comparable 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    
Aug. 4, 2018    
 

Decrease in comparable sales excluding sales from leased departments (1)

     (0.4%)      

Impact of growth in comparable sales of leased departments (2)

     1.1%      
  

 

 

 

Increase (decrease) in comparable sales including sales from leased departments

     0.7%      
  

 

 

 
     26 Weeks Ended    
Aug. 4, 2018    
 

Decrease in comparable sales excluding sales from leased departments (1)

     (1.1%)      

Impact of growth in comparable sales of leased departments (2)

     1.1%      
  

 

 

 

Increase (decrease) in comparable sales including sales from leased departments

     0.0%      
  

 

 

 


(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.