Stein Mart, Inc.
STEIN MART INC (Form: 10-Q, Received: 12/01/2016 17:13:04)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2016

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 0-20052

 

 

STEIN MART, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   64-0466198

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

1200 Riverplace Blvd., Jacksonville, Florida   32207
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (904) 346-1500

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

The number of shares outstanding of the Registrant’s common stock as of November 30, 2016 was 46,897,234.

 

 

 


Stein Mart, Inc.

Table of Contents

 

          PAGE  
PART I    FINANCIAL INFORMATION   
Item 1.    Condensed Consolidated Financial Statements (Unaudited):   
   Condensed Consolidated Balance Sheets at October 29, 2016, January 30, 2016 and October 31, 2015      3   
   Condensed Consolidated Statements of Operations for the 13 and 39 weeks ended October 29, 2016 and October 31, 2015      4   
   Condensed Consolidated Statements of Comprehensive (Loss) Income for the 13 and 39 weeks ended October 29, 2016 and October 31, 2015      5   
   Condensed Consolidated Statements of Cash Flows for the 39 weeks ended October 29, 2016 and October 31, 2015      6   
   Notes to Condensed Consolidated Financial Statements      7   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      10   
Item 3.    Quantitative and Qualitative Disclosures about Market Risk      13   
Item 4.    Controls and Procedures      14   

PART II

   OTHER INFORMATION   
Item 1.    Legal Proceedings      14   
Item 1A.    Risk Factors      14   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      14   
Item 3.    Defaults upon Senior Securities      14   
Item 4.    Mine Safety Disclosures      14   
Item 5.    Other Information      14   
Item 6.    Exhibits      14   
SIGNATURES      16   

 

2


Stein Mart, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

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

 

     October 29, 2016     January 30, 2016     October 31, 2015  

ASSETS

      

Current assets:

      

Cash and cash equivalents

   $ 13,968      $ 11,830      $ 14,126   

Inventories

     383,932        293,608        372,912   

Prepaid expenses and other current assets

     29,980        18,586        31,614   
  

 

 

   

 

 

   

 

 

 

Total current assets

     427,880        324,024        418,652   

Property and equipment, net of accumulated depreciation and amortization of $212,689, $190,952 and $185,520, respectively

     172,771        162,954        162,907   

Other assets

     29,831        29,247        30,505   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 630,482      $ 516,225      $ 612,064   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

   $ 208,161      $ 105,569      $ 202,176   

Current portion of long-term debt

     10,000        10,000        10,000   

Accrued expenses and other current liabilities

     77,076        71,571        68,162   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     295,237        187,140        280,338   

Long-term debt, net of current portion

     169,681        180,150        181,833   

Deferred rent

     42,266        41,146        41,163   

Other liabilities

     45,401        31,472        36,470   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     552,585        439,908        539,804   
  

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

      

Shareholders’ equity:

      

Preferred stock - $0.01 par value, 1,000,000 shares authorized; no shares issued or outstanding

     —          —          —     

Common stock - $0.01 par value; 100,000,000 shares authorized; 46,919,426, 45,814,583 and 45,675,579 shares issued and outstanding, respectively

     469        458        457   

Additional paid-in capital

     49,497        42,801        41,826   

Retained earnings

     28,196        33,337        30,397   

Accumulated other comprehensive loss

     (265     (279     (420
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     77,897        76,317        72,260   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 630,482      $ 516,225      $ 612,064   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


Stein Mart, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

     13 Weeks Ended     13 Weeks Ended     39 Weeks Ended      39 Weeks Ended  
     October 29, 2016     October 31, 2015     October 29, 2016      October 31, 2015  

Net sales

   $ 299,527      $ 300,665      $ 975,000       $ 965,769   

Cost of merchandise sold

     226,816        218,497        703,958         686,286   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     72,711        82,168        271,042         279,483   

Selling, general and administrative expenses

     89,034        81,464        259,348         248,631   
  

 

 

   

 

 

   

 

 

    

 

 

 

Operating (loss) income

     (16,323     704        11,694         30,852   

Interest expense, net

     949        891        2,798         2,384   
  

 

 

   

 

 

   

 

 

    

 

 

 

(Loss) income before income taxes

     (17,272     (187     8,896         28,468   

Income tax (benefit) expense

     (6,262     10        3,588         11,007   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net (loss) income

   $ (11,010   $ (197   $ 5,308       $ 17,461   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net (loss) income per share:

         

Basic

   $ (0.24   $ (0.01   $ 0.12       $ 0.39   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted

   $ (0.24   $ (0.01   $ 0.11       $ 0.37   
  

 

 

   

 

 

   

 

 

    

 

 

 

Weighted-average shares outstanding:

         

Basic

     45,845        44,791        45,720         44,704   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted

     45,845        44,791        46,599         45,916   
  

 

 

   

 

 

   

 

 

    

 

 

 

Dividends declared per common share

   $ 0.075      $ 0.075      $ 0.225       $ 5.225   
  

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


Stein Mart, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(In thousands)

 

     13 Weeks Ended     13 Weeks Ended     39 Weeks Ended      39 Weeks Ended  
     October 29, 2016     October 31, 2015     October 29, 2016      October 31, 2015  

Net (loss) income

   $ (11,010   $ (197   $ 5,308       $ 17,461   

Other comprehensive income, net of tax:

         

Amounts reclassified from accumulated other comprehensive income

     4        4        14         12   
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive (loss) income

   $ (11,006   $ (193   $ 5,322       $ 17,473   
  

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


Stein Mart, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     39 Weeks Ended     39 Weeks Ended  
   October 29, 2016     October 31, 2015  

Cash flows from operating activities:

    

Net income

   $ 5,308      $ 17,461   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     23,636        22,050   

Share-based compensation

     6,306        5,773   

Store closing charges

     25        7   

Impairment of property and other assets

     277        —     

Loss on disposal of property and equipment

     14        53   

Deferred income taxes

     520        (769

Tax (expense) benefit from equity issuances

     (187     3,836   

Excess tax benefits from share-based compensation

     (31     (3,875

Changes in assets and liabilities:

    

Inventories

     (90,324     (87,289

Prepaid expenses and other current assets

     (11,581     (12,221

Other assets

     (585     603   

Accounts payable

     102,469        71,617   

Accrued expenses and other current liabilities

     6,812        (2,177

Other liabilities

     14,764        11,226   
  

 

 

   

 

 

 

Net cash provided by operating activities

     57,423        26,295   
  

 

 

   

 

 

 

Cash flow from investing activity:

    

Net acquisition of property and equipment

     (35,026     (34,470
  

 

 

   

 

 

 

Net cash used in investing activity

     (35,026     (34,470
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from borrowings

     292,183        533,334   

Repayments of debt

     (302,683     (341,501

Debt issuance costs

     —          (380

Cash dividends paid

     (10,378     (235,691

Excess tax benefits from share-based compensation

     31        3,875   

Proceeds from exercise of stock options and other

     1,715        562   

Repurchase of common stock

     (1,127     (3,212
  

 

 

   

 

 

 

Net cash used in financing activities

     (20,259     (43,013
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     2,138        (51,188

Cash and cash equivalents at beginning of year

     11,830        65,314   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 13,968      $ 14,126   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Income taxes paid

   $ 11,818      $ 12,304   

Interest paid

     2,715        2,130   

Purchases of property and equipment included in accounts payable, accrued expenses and other current liabilities at the end of the period

     2,866        4,051   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting primarily of normal and recurring adjustments) considered necessary for a fair presentation have been included. Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 30, 2016, filed with the Securities and Exchange Commission (“SEC”) on April 11, 2016.

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Certain reclassifications have been made in the 2015 Condensed Consolidated Statement of Cash Flows to conform to classifications used in 2016.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . The amendments in this ASU introduce clarifications to the presentation of certain cash receipts and cash payments in the statement of cash flows. The primary updates include additions and clarifications of the classification of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees and cash flows related to securitized receivables. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. Adoption of ASU No. 2016-15 was completed in the current period and did not affect our cash flows as we were already in compliance with the ASU.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. This ASU is effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual period. We are currently evaluating the overall effect the adoption of this ASU will have on our financial condition, results of operations and cash flows, but we currently believe the adoption of this ASU will have a significant effect on our Consolidated Balance Sheets.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and subsequent clarifications. ASU No. 2014-09 will replace almost all existing revenue recognition guidance, including industry-specific guidance, upon its effective date. The standard’s core principle is for a company to recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled. A company may also need to use more judgment and make more estimates when recognizing revenue, which could result in additional disclosures. ASU 2014-09 also provides guidance for transactions that were not addressed comprehensively in previous guidance, such as the recognition of breakage income from the sale of gift cards. The standard permits the use of either the retrospective or cumulative effect transition method. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 (our fiscal year 2018). Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We plan to adopt this ASU in the fiscal year 2018 and utilize a cumulative effect of applying this ASU recognized at the date of initial application. While we are still in the process of evaluating the effect that these ASU’s may have on our financial statements, we do not currently expect a material effect on our financial condition, results of operations or cash flows.

2. Shareholders’ Equity

Dividends

During the 39 weeks ended October 29, 2016, we paid three quarterly dividends of $0.075 per common share on April 15, 2016, July 15, 2016 and October 14, 2016. During the 39 weeks ended October 31, 2015, we paid three quarterly dividends of $0.075 per common share on April 17, 2015, July 17, 2015 and October 16, 2015.

 

7


On February 4, 2015, we announced that our Board of Directors declared a special cash dividend of $5.00 per common share, which was paid on February 27, 2015. As a result of the special cash dividend, all outstanding stock options and performance share awards were modified during 2015 so that they retained the same fair value. No incremental compensation expense resulted from these modifications.

Stock Repurchase Plan

During the 13 weeks ended October 29, 2016, we repurchased 15,999 shares of our common stock at a total cost of approximately $0.1 million. During the 13 weeks ended October 31, 2015, we repurchased 14,842 shares of our common stock at a total cost of approximately $0.1 million. During the 39 weeks ended October 29, 2016, we repurchased 166,657 shares of our common stock at a total cost of approximately $1.1 million. During the 39 weeks ended October 31, 2015, we repurchased 213,815 shares of our common stock at a total cost of approximately $3.2 million. Stock repurchases were for tax withholding amounts due on employee stock awards and during the first 39 weeks of 2016 and 2015 included no shares purchased on the open market under our previously authorized stock repurchase plan. As of October 29, 2016, there are 554,217 shares that can be repurchased pursuant to the Board of Director’s current authorization.

3. Earnings per Share

Our restricted stock awards granted in 2013 and prior contain non-forfeitable rights to dividends and, as such, are considered participating securities. Participating securities are to be included in the calculation of earnings per share under the two-class method. In applying the two-class method, income is allocated to both common stock shares and participating securities based on their respective weighted-average shares outstanding for the period.

The following table sets forth the calculation of basic and diluted earnings per share (in thousands, except per share amounts):

 

     13 Weeks Ended      13 Weeks Ended      39 Weeks Ended      39 Weeks Ended  
     October 29, 2016      October 31, 2015      October 29, 2016      October 31, 2015  

Basic (Loss) Earnings Per Common Share:

           

Net (loss) income

   $ (11,010    $ (197    $ 5,308       $ 17,461   

Income allocated to participating securities

     18         26         22         205   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income available to common shareholders

   $ (11,028    $ (223    $ 5,286       $ 17,256   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     45,845         44,791         45,720         44,704   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic (loss) earnings per share

   $ (0.24    $ (0.01    $ 0.12       $ 0.39   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted (Loss) Earnings Per Common Share:

           

Net (loss) income

   $ (11,010    $ (197    $ 5,308       $ 17,461   

Income allocated to participating securities

     18         26         22         255   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (loss) income available to common shareholders

   $ (11,028    $ (223    $ 5,286       $ 17,206   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     45,845         44,791         45,720         44,704   

Incremental shares from share-based compensation plans

     —           —           879         1,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted-average shares outstanding

     45,845         44,791         46,599         45,916   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted (loss) earnings per share

   $ (0.24    $ (0.01    $ 0.11       $ 0.37   
  

 

 

    

 

 

    

 

 

    

 

 

 

Due to the Company’s net loss position for the third quarter of 2016 and 2015, 0.1 million and 0.4 million weighted average unvested restricted shares (participating securities) and 1.1 million and 1.3 million weighted average common stock equivalents (non-participating securities), respectively, were not considered in the calculation of net loss available to common shareholders used for diluted EPS for the quarter.

Options totaling approximately 1.4 million and 2.1 million shares of common stock that were outstanding during the 13 and 39 weeks ended October 29, 2016, respectively, were not included in the computation of diluted earnings per common share because their inclusion would have been anti-dilutive. Options totaling approximately 0.4 million and 0.2 million shares of common stock that were outstanding during the 13 and 39 weeks ended October 31, 2015, respectively, were not included in the computation of diluted earnings per common share because their inclusion would have been anti-dilutive.

 

8


4. Commitments and Contingencies

We are involved in various routine legal proceedings incidental to the conduct of our business. During both the 13 weeks ended October 29, 2016 and October 31, 2015, we accrued less than $0.1 million and during the 39 weeks ended October 29, 2016 and October 31, 2015, we accrued $1.9 million and $0.1 million, respectively, for actual and anticipated legal settlements. While some of these matters could be material to our results of operations or cash flows for any particular period if an unfavorable outcome results, we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our overall financial condition.

 

9


Stein Mart, Inc.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which are subject to certain risks, uncertainties or assumptions and may be affected by certain factors including, but not limited to, the matters discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 30, 2016. Wherever used, the words “plan,” “expect,” “anticipate,” “believe,” “estimate” and similar expressions identify forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise our forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.

The following discussion and analysis should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 30, 2016, filed with the Securities and Exchange Commission (“SEC”) on April 11, 2016.

Overview

We are a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices comparable to off-price retail chains. Our focused assortment of merchandise features current-season moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions. We are adding new modern brands to our stores to offer discriminating shoppers even more of the fashion and savings they want.

Financial Overview for the 13 and 39 weeks ended October 29, 2016

 

  Net sales were $299.5 million for the 13 weeks ended October 29, 2016 compared to $300.7 million for the 13 weeks ended October 31, 2015, and $975.0 million for the 39 weeks ended October 29, 2016 compared to $965.8 million for the 39 weeks ended October 31, 2015.

 

  Comparable store sales for the 13 weeks ended October 29, 2016 decreased 4.6 percent compared to the 13 weeks ended October 31, 2015, and for the 39 weeks ended October 29, 2016 decreased 3.1 percent compared to the 39 weeks ended October 31, 2015.

 

  Net loss for the 13 weeks ended October 29, 2016 was $11.0 million, or $0.24 per diluted share, compared to net loss of $0.2 million, or $0.01 per diluted share, for the 13 weeks ended October 31, 2015.

 

  Net income for the 39 weeks ended October 29, 2016 was $5.3 million, or $0.11 per diluted share, compared to net income of $17.5 million, or $0.37 per diluted share, for the 39 weeks ended October 31, 2015.

 

  We had $179.7 million, $190.2 million and $191.8 million of direct borrowings under our credit facilities as of October 29, 2016, January 30, 2016 and October 31, 2015, respectively.

Stores

The following table sets forth the stores activity for the 13 and 39 weeks ended October 29, 2016 and October 31, 2015.

 

     13 Weeks Ended      13 Weeks Ended      39 Weeks Ended      39 Weeks Ended  
     October 29, 2016      October 31, 2015      October 29, 2016      October 31, 2015  

Stores at beginning of period

     283         269         278         270   

Stores opened during the period

     8         5         13         6   

Stores closed during the period

     (1      —           (1      (2
  

 

 

    

 

 

    

 

 

    

 

 

 

Stores at the end of period

     290         274         290         274   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Results of Operations

The following table sets forth each line item of our Condensed Consolidated Statements of Operations expressed as a percentage of net sales (1):

 

     13 Weeks Ended     13 Weeks Ended     39 Weeks Ended     39 Weeks Ended  
     October 29, 2016     October 31, 2015     October 29, 2016     October 31, 2015  

Net sales

     100.0     100.0     100.0     100.0

Cost of merchandise sold

     75.7     72.7     72.2     71.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     24.3     27.3     27.8     28.9

Selling, general and administrative expenses

     29.7     27.1     26.6     25.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (5.5 )%      0.2     1.2     3.2

Interest expense, net

     0.3     0.3     0.3     0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (5.8 )%      (0.1 )%      0.9     3.0

Income tax (benefit) expense

     (2.1 )%      0.0     0.4     1.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (3.7 )%      (0.1 )%      0.5     1.8
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Table may not foot, due to rounding.

13 and 39 Weeks Ended October 29, 2016, Compared to the 13 and 39 Weeks Ended October 31, 2015 (dollar amounts in thousands):

Net Sales

 

     13 Weeks Ended      13 Weeks Ended            39 Weeks Ended      39 Weeks Ended      Increase/  
     October 29, 2016      October 31, 2015      (Decrease)     October 29, 2016      October 31, 2015      (Decrease)  

Net sales

   $ 299,527       $ 300,665       $ (1,138   $ 975,000       $ 965,769       $ 9,231   

Sales percent increase:

                

Total net sales

           (0.4 )%            1.0

Comparable store sales

           (4.6 )%            (3.1

The 4.6 percent and 3.1 percent decreases in comparable stores sales for the 13 and 39 weeks ended October 29, 2016, respectively, were both driven by decreases in the number of transactions and average unit retail prices, partially offset by an increase in units per transaction. We continue to implement new strategies designed to acquire new customers, strengthen loyalty and deliver distinctive merchandise, however, our execution of these initiatives was done too quickly and in ways that negatively affected our core customer and sales in the third quarter. Additionally, comparable store sales decreased due to the effect that unseasonably warm weather had on cold weather-related sales as well as Hurricane Matthew negatively affecting sales in our southeast coastal stores during October.

Comparable store sales reflect stores open throughout the period and prior fiscal year and include Ecommerce sales. Ecommerce sales positively affected comparable store sales by approximately 0.1 percent and less than 0.1 percent of the comparable store sales for the 13 and 39 weeks ended October 29, 2016, respectively. Ecommerce sales contributed approximately 2.2 percent and 1.7 percent of net sales for the 13 weeks ended October 29, 2016 and October 31, 2015, respectively, and approximately 2.0 percent and 1.6 percent of net sales for the 39 weeks ended October 29, 2016 and October 31, 2015, respectively. Comparable store sales do not include leased department commissions.

Gross Profit

 

     13 Weeks Ended     13 Weeks Ended           39 Weeks Ended     39 Weeks Ended        
     October 29, 2016     October 31, 2015     (Decrease)     October 29, 2016     October 31, 2015     (Decrease)  

Gross profit

   $ 72,711      $ 82,168      $ (9,457   $ 271,042      $ 279,483      $ (8,441

Percentage of net sales

     24.3     27.3     (3.0 )%      27.8     28.9     (1.1 )% 

The declines in our gross profit rate as a percentage of net sales for the 13 and 39 weeks ended October 29, 2016 compared to the 13 and 39 weeks ended October 31, 2015 were driven by higher markdowns in the 13 weeks ended October 29, 2016 as well as higher

 

11


occupancy costs that did not leverage on softer sales. The execution of new promotional initiatives negatively affected traffic creating higher markdowns to clear spring merchandise. Gross Profit was also negatively affected by increased coupon usage and the clearing of current season and non-performing categories, particularly in Men’s and Accessories.

Selling, General and Administrative Expenses (“SG&A”)

 

     13 Weeks Ended     13 Weeks Ended           39 Weeks Ended     39 Weeks Ended        
     October 29, 2016     October 31, 2015     Increase     October 29, 2016     October 31, 2015     Increase  

Selling, general and administrative expenses

   $ 89,034      $ 81,464      $ 7,570      $ 259,348      $ 248,631      $ 10,717   

Percentage of net sales

     29.7     27.1     2.6     26.6     25.7     0.9

Increases in SG&A in the 13 weeks ended October 29, 2016 compared to the 13 weeks ended October 31, 2015 were driven by operating expenses for eight additional stores, a $1.4 million charge related to our former CEO’s resignation in September and higher advertising expense. These increases were offset by higher credit card program income and operating savings. Advertising expenses increased due to a combination of our change in media mix, to include additional TV, and promoting our new stores. Our higher credit card program income was due to the improved economics from our new agreement with Synchrony Financial plus higher penetration.

Increases in SG&A in the 39 weeks ended October 29, 2016 compared to the 39 weeks ended October 31, 2015 were driven operating expenses for 13 additional stores, by a $1.4 million charge related to our former CEO’s resignation in September and accruals for actual and anticipated legal settlements. Advertising expenses increased due to a combination of our change in media mix and promoting our new stores. These increases were partially offset by higher credit card program income and lower store selling expenses. Credit card income was higher due to the improved economics from our new agreement with Synchrony Financial plus higher penetration.

Interest Expense, net

 

     13 Weeks Ended     13 Weeks Ended           39 Weeks Ended     39 Weeks Ended        
     October 29, 2016     October 31, 2015     Increase     October 29, 2016     October 31, 2015     Increase  

Interest expense

   $ 949      $ 891      $ 58      $ 2,798      $ 2,384      $ 414   

Percentage of net sales

     0.3     0.3     0.0     0.3     0.2     0.1

Interest expense for the 13 weeks ended October 29, 2016 increased compared to the 13 weeks ended October 31, 2015 due primarily to slightly higher short-term interest rates. The increase in interest expense in the 39 weeks ended October 29, 2016 compared to the 39 weeks ended October 31, 2015 is driven by the 2016 period including three full quarters of interest expense on our credit facility. In 2015, we did not begin borrowing on our credit facility until the end of February.

Income Taxes

 

     13 Weeks Ended     13 Weeks Ended     (Decrease)/     39 Weeks Ended     39 Weeks Ended     (Decrease)/  
     October 29, 2016     October 31, 2015     Increase     October 29, 2016     October 31, 2015     Increase  

Income tax (benefit) expense

     (6,262   $ 10      $ (6,272   $ 3,588      $ 11,007      $ (7,419

Effective tax rate

     36.3     (5.3 )%      41.6     40.3     38.7     1.6

The effective tax rate for the 13 and 39 weeks ended October 29, 2016 compared to the 13 and 39 weeks ended October 31, 2015 increased primarily due to the effect of permanent differences for certain non-deductible expenses, partially offset by the earlier extension of the Federal Work Opportunity Tax Credit.

Liquidity and Capital Resources

Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors and our $250 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement with Wells Fargo Bank. Working capital is used to support store inventories and capital investments for system improvements, fund new store openings, maintain existing stores, pay dividends, make debt service payments and repurchase shares of our common stock. Historically, our working capital needs are lowest after our heavy spring selling in March and April and holiday selling in late December and early January. They are highest as we begin paying for our heavy spring, fall and holiday receipts in late February, October and at the end of November. As of October 29, 2016, we had cash and cash equivalents of $14.0 million and $179.7 million in borrowings under our credit facilities. We believe that our cash flows from operations and our available cash and cash equivalents are sufficient to cover our liquidity requirements over the next 12 months.

 

12


Cash Flows

 

     39 Weeks Ended      39 Weeks Ended      Increase/  
     October 29, 2016      October 31, 2015      (Decrease)  

Net cash provided by operating activities

   $ 57,423       $ 26,295       $ 31,128   

Net cash used in investing activity

     (35,026      (34,470      556   

Net cash used in financing activities

     (20,259      (43,013      (22,754
  

 

 

    

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 2,138       $ (51,188    $ (53,326
  

 

 

    

 

 

    

 

 

 

The increase in net cash provided by operating activities was mainly due to the increase in Accounts Payable, (the third quarter is our expected seasonal high for company receipts), collections on tenant allowances and a signing bonus related to our new credit card program, partially offset by purchases of inventory.

Net cash used in investing activity was entirely for capital expenditures in both periods presented. Capital expenditures were greater for the 39 weeks ended October 29, 2016 primarily due to an additional thirteen new stores and certain relocated stores in the 39 weeks of 2016 compared to six new stores in 2015.

During the 39 weeks ended October 29, 2016, net cash used in financing activities consisted of debt repayments of $302.7 million, cash dividends paid of $10.4 million and the repurchase of 166,657 shares of our common stock for $1.1 million, offset by proceeds from borrowings of $292.2 million, proceeds from the exercise of stock options and ESPP purchases of $1.7 million and excess tax benefit from share-based compensation of less than $0.1 million.

During the 39 weeks ended October 31, 2015, net cash used in financing activities consisted of debt repayments of $341.5 million, cash dividends paid of $235.7 million, the repurchase of 213,815 shares of our common stock for $3.2 million and $0.4 million in debt issuance costs, offset by proceeds from borrowings of $533.3 million, excess tax benefit from share-based compensation of $3.9 million and proceeds from the exercise of stock options and ESPP purchases of $0.6 million. Borrowings under our credit facilities were initially used for a special dividend paid during the first quarter of 2015, and have subsequently been used for working capital, capital expenditures and other general corporate purposes. See Note 2 “Shareholders’ Equity” of the Notes to the Condensed Consolidated Financial Statements for further discussion.

Critical Accounting Policies and Estimates

We discuss our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended January 30, 2016. We have made no material changes in our critical accounting policies and estimates since January 30, 2016.

Recent Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 “Basis of Presentation” of the Notes to the Condensed Consolidated Financial Statements.

Seasonality and Inflation

Our business is seasonal. Sales and profitability are historically higher in the first and fourth quarters of the fiscal year, which include the spring and holiday seasons. Therefore, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Although we expect that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risk, see “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended January 30, 2016. There were no material changes to our market risk during the quarter ended October 29, 2016.

 

13


ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Interim Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Interim Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of October 29, 2016 to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the discussion of legal proceedings in Note 4 “Commitments and Contingencies” of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report, which is incorporated by reference into this Item 1 of Part II.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended January 30, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding repurchases of our common stock during the quarter ended October 29, 2016:

 

ISSUER PURCHASES OF EQUITY SECURITIES

 
                   Total number of      Maximum number  
     Total      Average      shares purchased      of shares that may  
     number      price      as part of publicly      yet be purchased  
     of shares      paid per      announced plans      under the plans or  

Period

   purchased      share      or programs (1)      programs (1)  

July 31, 2016 - August 27, 2016

     2,133       $ 8.66         2,133         568,083   

August 28, 2016 - October 1, 2016

     1,034         7.43         1,034         567,049   

October 2, 2016 - October 29, 2016

     12,832         7.54         12,832         554,217   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     15,999       $ 7.69         15,999         554,217   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) All stock repurchases were for tax withholding amounts due on employee stock awards. No shares were purchased on the open market pursuant to our open market repurchase program. Our open market repurchase program is conducted pursuant to authorizations made from time to time by our Board of Directors, including the most recent authorization of an additional 500,000 shares by the Board of Directors on November 30, 2015.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

 

10.1    Agreement and General Release between Dawn H. Robertson and Stein Mart, Inc. dated September 27, 2016, incorporated by reference to the Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 29, 2016
31.1    Certification of Interim Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
32.1    Certification of the Interim Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2    Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

 

14


101    Interactive data files from Stein Mart, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements

 

15


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

   STEIN MART, INC.
Date: December 1, 2016    By:  

/s/ D. Hunt Hawkins

     D. Hunt Hawkins
     Interim Chief Executive Officer
    

/s/ Gregory W. Kleffner

     Gregory W. Kleffner
     Executive Vice President and Chief Financial Officer

 

16

Exhibit 31.1

Certification of Interim Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)

I, D. Hunt Hawkins, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Stein Mart, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: December 1, 2016  

/s/ D. Hunt Hawkins

  D. Hunt Hawkins
  Interim Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)

I, Gregory W. Kleffner, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Stein Mart, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: December 1, 2016  

/s/ Gregory W. Kleffner

  Gregory W. Kleffner
  Executive Vice President and Chief Financial Officer

Exhibit 32.1

Certification of the Interim Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2016 of Stein Mart, Inc. (the “Form 10-Q”), I, D. Hunt Hawkins, Interim Chief Executive Officer of Stein Mart, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Stein Mart, Inc.

 

Date: December 1, 2016  

/s/ D. Hunt Hawkins

  D. Hunt Hawkins
  Interim Chief Executive Officer

Exhibit 32.2

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2016 of Stein Mart, Inc. (the “Form 10-Q”), I, Gregory W. Kleffner, Executive Vice President and Chief Financial Officer of Stein Mart, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Stein Mart, Inc.

 

Date: December 1, 2016  

/s/ Gregory W. Kleffner

  Gregory W. Kleffner
  Executive Vice President and Chief Financial Officer