Fourth quarter 2008 net loss of $(1.35) per diluted share, which includes primarily non-cash charges of $(0.78) for asset impairments and store closings, and a valuation allowance for deferred tax assets
JACKSONVILLE, FL - Stein Mart, Inc. (Nasdaq: SMRT) today announced financial results for its fourth quarter and fiscal year ended January 31, 2009.
For the fourth quarter of 2008, the Company incurred a net loss of $(56.2) million or $(1.35) per diluted share as compared to a net loss of $(12.1) million or $(0.30) per diluted share for the fourth quarter of 2007. The fourth quarter 2008 results include charges totaling $(0.78) per share, including primarily non-cash pre-tax charges of $21.1 million for asset impairment and store closing charges compared to $4.7 million in the fourth quarter last year and a non-cash valuation allowance for deferred tax assets of $19.0 million. Excluding these items, the Company had an adjusted net loss of $(0.57) per diluted share for the fourth quarter of 2008 compared to an adjusted net loss of $(0.23) per diluted share for the fourth quarter of 2007.
For the year ended January 31, 2009, the Company incurred a net loss of $(71.3) million or $(1.72) per share as compared to a net loss of $(4.5) million or $(0.11) per diluted share in 2007. Full year 2008 results include charges totaling $(0.85) per share, including primarily non-cash pre-tax charges of $25.4 million for asset impairment and store closing charges compared to $5.2 million in the prior year, and the fourth quarter non-cash valuation allowance for deferred tax assets of $19.0 million. Excluding these items, the Company had an adjusted net loss for 2008 of $(0.87) per diluted share compared to an adjusted net loss of $(0.04) per diluted share for 2007.
A reconciliation of net loss per diluted share (GAAP basis) to adjusted net loss per diluted share (Non-GAAP basis) is provided in the financial schedules accompanying this release.
"The consequences of the economic downturn on our target customer are obvious: she remains extremely cautious regarding discretionary purchases and has changed her shopping habits," said David H. Stovall, Jr., president and chief executive officer of Stein Mart, Inc. "We are focused on two missions-to entice customers into the store with great name-brand fashion at compelling values, while at the same time continuing to manage the business to be cash flow positive."
"To that end, we have highlighted strong brands with value appeal on our sales floors, reduced average store inventories by nearly 20 percent, and implemented expense reductions across the organization," Stovall continued. "These actions allowed us to end the year with our net debt position approximately in line with the prior year, and will strengthen our position when customer demand accelerates."
As previously reported, net sales decreased 12.8 percent to $363.9 million for the fourth quarter of 2008 from $417.4 million for the same period in the previous year. Comparable store sales decreased 12.0 percent from the fourth quarter of 2007 to the fourth quarter of 2008.
For the 52 weeks ended January 31, 2009, net sales decreased 9.0 percent to $1,326.5 million from $1,457.6 million for the same 52 weeks ended last year. Comparable store sales declined 10.9 percent from 2007 to 2008.
For the fourth quarter of 2008, gross profit decreased to $54.9 million or 15.1 percent of net sales compared to $84.1 million or 20.1 percent of net sales in the same period last year. For 2008, gross profit decreased to $294.2 million or 22.2 percent of net sales compared to $361.4 million or 24.8 percent of net sales in 2007. For both periods, the gross profit rate decreased due primarily to higher markdowns and deleverage of buying and occupancy costs, slightly offset by increased mark-up.
Selling, General and Administrative (SG&A) Expenses
For the fourth quarter of 2008, SG&A expenses were $117.2 million or 32.2 percent of net sales as compared to $106.2 million or 25.4 percent of net sales during the same period last year. Excluding asset impairment and store closing charges, SG&A expenses in the fourth quarter of 2008 were $96.0 million or 26.4 percent of sales compared to $101.6 million or 24.3 percent of sales in the same period last year. This $5.6 million decrease in SG&A resulted from significant reductions in advertising and store operating expenses somewhat offset by professional fees related to expense reduction initiatives.
For 2008, SG&A expenses were $394.8 million or 29.8 percent of net sales as compared to $388.6 million or 26.7 percent of net sales during the same period last year. Excluding asset impairment and store closing charges, SG&A expenses were $369.3 million or 27.8 percent of sales in 2008 compared to $383.4 million or 26.3 percent of sales last year. This $14.1 million decrease in SG&A resulted from significant reductions in advertising and store operating expenses somewhat offset by professional fees related to expense reduction initiatives.
For the fourth quarter and the year 2008, the SG&A rate was higher due to a lack of leverage on lower sales.
The income tax benefit in the fourth quarter of 2008 and for the year was reduced by the aforementioned deferred tax asset valuation allowance of $19.0 million.
The Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a "more likely than not" standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified. A company's current or previous losses are given more weight than its future outlook, and although the Company was profitable in 2006 and posted a small loss in 2007, the results in 2008 produced a cumulative three-year loss, which is considered a significant factor that is difficult to overcome. Accordingly, the Company established a deferred tax asset valuation allowance of $19.0 million through a charge to tax expense.
The establishment of a valuation allowance does not have an impact on our cash position, nor does it preclude us from using our loss carryforwards, tax credits or other deferred tax assets in the future. Further, establishment of this valuation allowance is not the result of a significant change in our view of the Company's long-term financial outlook.
Repayment of Notes Payable to Banks
Subsequent to year-end, we liquidated $69 million of cash equivalents and repaid that portion of the outstanding notes payable to banks. As of March 18, 2009 we had $108 million available under our $150 million revolving credit agreement.
The following are some of the actions taken over the past year to aggressively manage the Company's business:
We continue to expect a highly challenging sales environment for 2009. Our efforts will be focused on increasing revenues and maintaining appropriate inventories, while managing the cost structure to be aligned with sales. We expect to realize $40-50 million in 2009 savings as a result of the cost reduction measures we have put in place, and we plan to cut year-over-year capital expenditures by fifty percent for 2009. Our goal continues to be to preserve cash to maintain our flexibility and ensure that we can take advantage of opportunistic buys, and we have established an incentive plan for all salaried management that is tied to that goal.
Store Network Update
Consistent with prior commitments, one new store in Texas was opened last week and one additional opening is planned for later this year. We continue to monitor underperforming stores and will close stores when terms for doing so are advantageous. At this point, we expect to close 10-13 stores in 2009.
A conference call for investment analysts to discuss these results will be held at 10 a.m. ET today, Thursday, March 19, 2009. 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 March 27, 2009.
About Stein Mart
Stein Mart stores offer the fashion merchandise, service and presentation of a better department or specialty store, at prices up to 60 percent off department and specialty store prices, every day. Currently with locations from California to Massachusetts, Stein Mart's focused assortment of merchandise features current season, moderate to better fashion apparel for women and men, as well as accessories, gifts, linens and shoes.
SAFE HARBOR STATEMENT>>>>>>>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:
changes in consumer spending due to general economic conditions including continued uncertainty in the financial and credit markets
and the other risks and uncertainties described in the Company's filings with the Securities and Exchange Commission.
Additional information about Stein Mart, Inc. can be found at www.steinmart.com