UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 2004
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 (I.R.S. Employer
incorporation or organization) 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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
At November 27, 2004, the latest practicable date, the Registrant had issued and
outstanding an aggregate of 42,535,546 shares of its common stock.
STEIN MART, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at October 30, 2004, January 31, 2004
and November 1, 2003 3
Statements of Operations for the 13 Weeks and 39 Weeks
Ended October 30, 2004 and November 1, 2003 4
Statements of Cash Flows for the 39 Weeks Ended
October 30, 2004 and November 1, 2003 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
Stein Mart, Inc.
Balance Sheets
(In thousands)
October 30, January 31, November 1,
2004 2004 2003
-------------- -------------- --------------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 35,146 $ 11,965 $ 13,555
Trade and other receivables 3,934 4,227 9,359
Inventories 322,664 283,379 365,494
Prepaid expenses and other current assets 14,962 6,227 10,115
-------------- -------------- --------------
Total current assets 376,706 305,798 398,523
Property and equipment, net 79,655 76,934 81,541
Other assets 10,724 10,297 10,091
-------------- -------------- --------------
Total assets $467,085 $393,029 $490,155
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $129,191 $ 59,046 $123,206
Accrued liabilities 69,437 60,715 58,898
-------------- -------------- --------------
Total current liabilities 198,628 119,761 182,104
Notes payable to banks - 24,962 74,968
Other liabilities 20,114 20,628 21,151
-------------- -------------- --------------
Total liabilities 218,742 165,351 278,223
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock - $.01 par value; 100,000,000 shares
authorized; 42,494,654, 41,993,529 and 41,729,713
shares issued and outstanding, respectively 425 420 417
Paid-in capital 8,865 3,196 1,374
Unearned compensation (454) (309) (370)
Retained earnings 239,507 224,371 210,511
-------------- -------------- --------------
Total stockholders' equity 248,343 227,678 211,932
-------------- -------------- --------------
Total liabilities and stockholders' equity $467,085 $393,029 $490,155
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
3
Stein Mart, Inc.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
October 30, November 1, October 30, November 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Net sales $330,432 $313,559 $1,014,664 $942,713
Cost of merchandise sold 253,920 240,139 754,880 715,327
-------------- -------------- -------------- --------------
Gross profit 76,512 73,420 259,784 227,386
Selling, general and administrative expenses 83,192 92,520 245,740 253,800
Other income, net 3,293 3,275 10,460 9,959
-------------- -------------- -------------- --------------
Income (loss) from operations (3,387) (15,825) 24,504 (16,455)
Interest income 108 - 181 -
Interest expense - (421) (39) (1,313)
-------------- -------------- -------------- --------------
Income (loss) from continuing operations before
income taxes (3,279) (16,246) 24,646 (17,768)
Income tax benefit (provision) 1,246 6,174 (9,365) 6,752
-------------- -------------- -------------- --------------
Income (loss) from continuing operations (2,033) (10,072) 15,281 (11,016)
Loss from discontinued operations, net of tax
benefit - (327) (145) (643)
-------------- -------------- -------------- --------------
Net income (loss) $ (2,033) $(10,399) $ 15,136 $(11,659)
============== ============== ============== ==============
Basic income (loss) per share:
Continuing operations $(0.05) $(0.24) $0.36 $(0.26)
Discontinued operations - (0.01) - (0.02)
-------------- -------------- -------------- --------------
Total $(0.05) $(0.25) $0.36 $(0.28)
============== ============== ============== ==============
Diluted income (loss) per share:
Continuing operations $(0.05) $(0.24) $0.36 $(0.26)
Discontinued operations - (0.01) - (0.02)
-------------- -------------- -------------- --------------
Total $(0.05) $(0.25) $0.36 $(0.28)
============== ============== ============== ==============
Weighted-average shares outstanding - Basic 42,394 41,658 42,181 41,615
============== ============== ============== ==============
Weighted-average shares outstanding -Diluted 42,394 41,658 42,578 41,615
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
4
Stein Mart, Inc.
Statements of Cash Flows
(Unaudited)
(In thousands)
39 Weeks Ended
---------------------------------
October 30, November 1,
2004 2003
-------------- --------------
Cash flows from operating activities:
Net income (loss) $15,136 $(11,659)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 13,401 14,399
Impairment (recovery) of property and other assets (245) 2,290
Store closing charges 1,340 6,325
Deferred income taxes 966 (1,412)
Restricted stock compensation 80 28
Tax benefit from exercise of stock options 1,009 -
Changes in assets and liabilities:
Trade and other receivables 293 (4,440)
Inventories (39,285) (68,264)
Prepaid expenses and other current assets (8,735) (5,454)
Other assets (427) (2,690)
Accounts payable 70,145 52,734
Accrued liabilities 8,410 3,036
Income taxes payable - (5,353)
Other liabilities (2,508) 2,065
-------------- --------------
Net cash provided by (used in) operating activities 59,580 (18,395)
Cash flows used in investing activities:
Capital expenditures (15,877) (11,783)
Cash flows from financing activities:
Net (payments) borrowings under notes payable to banks (24,962) 33,618
Proceeds from exercise of stock options 4,034 -
Proceeds from employee stock purchase plan 406 468
Purchase of common stock - (212)
-------------- --------------
Net cash (used in) provided by financing activities (20,522) 33,874
-------------- --------------
Net increase in cash and cash equivalents 23,181 3,696
Cash and cash equivalents at beginning of year 11,965 9,859
-------------- --------------
Cash and cash equivalents at end of period $35,146 $ 13,555
============== ==============
Supplemental disclosures of cash flow information:
Interest paid $ 64 $ 1,240
Income taxes paid 15,709 7,811
The accompanying notes are an integral part of these financial statements.
5
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
October 30, 2004
(Unaudited)
(Dollars in tables in thousands, except per share amounts)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the 39-week periods
are not necessarily indicative of the results that may be expected for the
entire year. For further information, refer to the financial statements and
footnotes thereto included in the Stein Mart, Inc. annual report on Form 10-K
for the year ended January 31, 2004.
Certain reclassifications have been made to the 2003 financial statements to
conform to the 2004 presentation.
2. Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, as amended by SFAS No. 148, "Accounting
for Stock-Based Compensation". Accordingly, no compensation cost has been
recognized for the Company's stock option plans. Restricted stock awards issued
by the Company are accounted for in accordance with APB 25. The employee
compensation cost is included in net income, as reported, throughout the vesting
period. Had compensation cost of the Company's stock-based plans been determined
consistent with the provisions of SFAS No. 123, the Company's net income and
earnings per share would have been changed to the following pro forma amounts:
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Net income (loss) - as reported $(2,033) $(10,399) $15,136 $(11,659)
Add: Restricted stock-based employee
compensation expense included in reported
net income (loss), net of related tax effects 20 9 50 18
Deduct: Total stock-based employee
compensation expense determined under the
fair value based method for all awards, net of
related tax effects (259) (363) (828) (1,105)
-------------- -------------- -------------- --------------
Net income (loss) - pro forma $(2,272) $(10,753) $14,358 $(12,746)
============== ============== ============== ==============
Basic earnings (loss) per share - as reported $(0.05) $(0.25) $0.36 $(0.28)
Diluted earnings (loss) per share - as reported $(0.05) $(0.25) $0.36 $(0.28)
Basic earnings (loss) per share - pro forma $(0.05) $(0.26) $0.34 $(0.31)
Diluted earnings (loss) per share - pro forma $(0.05) $(0.26) $0.34 $(0.31)
3. Discontinued Operations
Two of the stores closed during 2003 and one store closed during 2004 (see Note
5) are reported as discontinued operations. SFAS No. 144 requires closed stores
to be classified as discontinued operations when the operations and cash flows
of the stores have been eliminated from ongoing operations. To determine if cash
flows have been eliminated from ongoing operations, management evaluated a
number of factors, including: proximity to a
6
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
remaining store, physical location within a metropolitan or non-metropolitan
area and transferability of sales between open and closed locations. Based on
these criteria, management determined that these three closed stores should be
accounted for as discontinued operations. The prior year's operating activities
for these stores have also been reclassified to "Loss from discontinued
operations, net of tax benefit" in the accompanying Statements of Operations.
Discontinued operations generated no sales during the third quarter of 2004,
sales of $2.4 million during the third quarter of 2003 and sales of $0.9 million
and $7.3 million during the first 39 weeks of 2004 and 2003, respectively. Loss
from discontinued operations, net of tax benefit includes the following
components:
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Loss from operations $ - $(527) $(234) $(1,037)
Income tax benefit - 200 89 394
-------------- -------------- -------------- --------------
Loss from discontinued operations,
net of tax benefit $ - $(327) $(145) $ (643)
============== ============== ============== ==============
See Notes 4 and 5 for a description of asset impairment and store closing
charges included in loss from discontinued operations for the first 39 weeks of
2004 and 2003.
4. Impairment of Long-lived Assets
The Company follows SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets," which requires impairment losses to be recorded on
long-lived assets used in operations whenever events or changes in circumstances
indicate that the net carrying amounts may not be recoverable. For long-lived
assets held for use, an impairment loss is recognized if the sum of future
undiscounted cash flows from the use of the assets is less than the carrying
value of the assets. The amount of the impairment charge is the excess of the
carrying value of the asset over its fair value. Fair value is based on
estimated market values for similar assets.
During the first 39 weeks of 2004, the Company recovered $0.2 million of asset
impairment charges recorded during 2003, as the actual loss incurred to dispose
of certain assets was lower then previously estimated. During the third quarter
of 2003, the Company recorded a pre-tax asset impairment charge of $1.5 million
to reduce the carrying value of furniture, fixtures, equipment and leasehold
improvements in certain under-performing stores to their respective estimated
fair value. These assets were held for use. This charge is included in selling,
general and administrative expenses in the Statement of Operations for the 13
and 39 weeks ended November 1, 2003.
During the first quarter of 2003, the Company recorded a pre-tax asset
impairment charge of $0.8 million to reduce the carrying value of furniture,
fixtures, equipment and leasehold improvements held for use in four stores
closed in 2003. This charge is included in selling, general and administrative
expenses in the Statements of Operations for the 39 weeks ended November 1,
2003, except for $42,000 which is included in loss from discontinued operations,
net of tax benefit.
5. Store Closing Charges
The Company closed seven stores during the first 39 weeks of 2004, incurring
minimal lease termination and severance costs.
The Company closed 16 stores during 2003, 12 of which were closed during the
first 39 weeks of 2003, incurring pre-tax charges of $6.6 million for the
present value of lease termination costs. During the third quarter of 2004, the
Company recorded a $0.9 million pre-tax charge to adjust estimated sublease
income for four locations closed in 2003 and an early lease termination for one
other location. The four stores were closed during the third quarter of 2003 and
lease termination costs, net of estimated sublease income, were recorded in that
period. Store closing charges are included in selling, general and
administrative expenses in the Statements of Operations, except for
7
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
$154,000 in 2004 and $135,000 in 2003 which are included in loss from
discontinued operations, net of tax benefit for the 39-week periods.
The following tables show the activity in the store closing reserve for the
first 39 weeks of 2004 and 2003:
Jan. 31, Oct. 30,
2004 Charges Payments 2004
-------------- -------------- -------------- --------------
Continuing operations:
Lease termination costs $8,780 $1,028 $2,314 $7,494
Severance 131 579 580 130
Other 105 - 105 -
-------------- -------------- -------------- --------------
9,016 1,607 2,999 7,624
-------------- -------------- -------------- --------------
Discontinued operations:
Lease termination costs 159 77 236 -
Severance 19 77 96 -
-------------- -------------- -------------- --------------
178 154 332 -
-------------- -------------- -------------- --------------
Total store closing reserve $9,194 $1,761 $3,337 $7,624
============== ============== ============== ==============
Feb. 1, Nov. 1,
2003 Charges Payments 2003
-------------- -------------- -------------- --------------
Continuing operations:
Lease termination costs $4,982 $6,587 $1,816 $9,753
Severance - 552 320 232
-------------- -------------- -------------- --------------
4,982 7,139 2,136 9,985
Discontinued operations:
Severance - 135 135 -
-------------- -------------- -------------- --------------
Total store closing reserve $4,982 $7,274 $2,271 $9,985
============== ============== ============== ==============
The store closing reserve at October 30, 2004, January 31, 2004 and November 1,
2003 includes a current portion (in accrued liabilities) of $3.1 million, $2.8
million and $3.6 million, respectively, and a long-term portion (in other
liabilities) of $4.5 million, $6.4 million and $6.4 million, respectively.
The tables below set forth the components of loss from operations for all stores
closed during 2004 and 2003. The 2004 tables present the losses from the seven
stores that closed during the first 39 weeks of 2004. The 2003 tables present
the sum of the losses from the seven stores that closed during the first 39
weeks of 2004 and the 16 stores closed during fiscal year 2003.
Operating Results Of Closed Stores Included In:
----------------------------------------------------
Continuing Discontinued Total Closed
13 weeks ended October 30, 2004: Operations Operations Stores
- ------------------------------- -------------- -------------- --------------
Sales $ 650 $ - $ 650
Cost of sales 651 - 651
-------------- -------------- --------------
Gross profit (1) - (1)
Selling, general and administrative expenses 1,269 - 1,269
Other income, net (2) - (2)
-------------- -------------- --------------
Loss from operations $(1,272) $ - $(1,272)
============== ============== ==============
# of stores closed in 2004 6 1 7
============== ============== ==============
8
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
Continuing Discontinued Total Closed
13 weeks ended November 1, 2003: Operations Operations Stores
- ------------------------------- -------------- -------------- --------------
Sales $10,205 $2,383 $ 12,588
Cost of sales 10,817 2,246 13,063
-------------- -------------- --------------
Gross profit (612) 137 (475)
Selling, general and administrative expenses 9,118 673 9,791
Other income, net 70 9 79
-------------- -------------- --------------
Loss from operations $(9,660) $ (527) $(10,187)
============== ============== ==============
# of stores closed in 2004 and 2003 20 3 23
============== ============== ==============
Operating Results Of Closed Stores Included In:
----------------------------------------------------
Continuing Discontinued Total Closed
39 weeks ended October 30, 2004: Operations Operations Stores
- ------------------------------- -------------- -------------- --------------
Sales $ 7,142 $ 942 $ 8,084
Cost of sales 6,909 752 7,661
-------------- -------------- --------------
Gross profit 233 190 423
Selling, general and administrative expenses 3,504 424 3,928
Other income, net 45 - 45
-------------- -------------- --------------
Loss from operations $(3,226) $(234) $(3,460)
============== ============== ==============
# of stores closed in 2004 6 1 7
============== ============== ==============
Continuing Discontinued Total Closed
39 weeks ended November 1, 2003: Operations Operations Stores
- ------------------------------- -------------- -------------- --------------
Sales $ 41,465 $ 7,333 $ 48,798
Cost of sales 42,163 6,176 48,339
-------------- -------------- --------------
Gross profit (698) 1,157 459
Selling, general and administrative expenses 20,270 2,251 22,521
Other income, net 382 57 439
-------------- -------------- --------------
Loss from operations $(20,586) $(1,037) $(21,623)
============== ============== ==============
# of stores closed in 2004 and 2003 20 3 23
============== ============== ==============
6. Notes Payable to Banks
The Company has a three-year $150 million senior revolving credit agreement (the
"Agreement") with a group of lenders, with an initial term ending July 2006.
Under the terms of the Agreement, the Company has the option to increase the
facility by an additional $25 million and to extend the terms for an additional
year. The Company had outstanding commercial and stand-by letters of credit of
$0.6 million and $5.4 million, respectively, at October 30, 2004. There were no
direct borrowings under the Agreement at October 30, 2004.
7. Stockholders' Equity and Earnings Per Share
During the first 39 weeks of 2003, the Company repurchased 50,000 shares of its
common stock at a cost of $212,000. No shares have been repurchased in 2004.
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding plus common stock equivalents related to
stock options and restricted stock for each period. Common stock equivalents are
not included in the diluted loss per share calculations for the 13 weeks ended
October 30, 2004 and the 13 weeks and 39 weeks ended November 1, 2003 because
they are anti-dilutive.
9
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
A reconciliation of weighted-average number of common shares to weighted-average
number of common shares plus common stock equivalents is as follows (000's):
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Weighted-average number of common shares 42,394 41,658 42,181 41,615
Common stock equivalents - - 397 -
-------------- -------------- -------------- --------------
Weighted-average number of common shares
plus common stock equivalents 42,394 41,658 42,578 41,615
============== ============== ============== ==============
8. Sales by Major Merchandise Category
The Company is a single business segment as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS No.
131 requires that companies report revenues for each product or group of similar
products. The following table summaries the Company's sales by major merchandise
category:
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Ladies' apparel and accessories $198,036 $180,042 $ 611,599 $536,371
Men's apparel and accessories 56,894 51,950 179,781 162,636
Gifts and linens 59,688 63,780 170,490 184,557
Other 15,814 17,787 52,794 59,149
-------------- -------------- -------------- --------------
Net sales $330,432 $313,559 $1,014,664 $942,713
============== ============== ============== ==============
10
Stein Mart, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This document includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
Wherever used, the words "plan", "expect", "anticipate", "believe", "estimate"
and similar expressions identify forward looking statements.
Any such forward-looking statements contained in this document are subject to
risks and uncertainties that could cause the Company's actual results of
operations to differ materially from historical results or current expectations.
These risks include, without limitation, ongoing competition from other
retailers many of whom are larger and have greater financial and marketing
resources, the availability of suitable new store sites at acceptable lease
terms, ability to successfully implement strategies to exit or improve
under-performing stores, changing preferences in apparel, changes in consumer
spending due to current events and/or general economic conditions, the
effectiveness of new advertising, marketing and promotional strategies, adequate
sources of merchandise at acceptable prices, and the Company's ability to
attract and retain qualified employees to support planned growth.
The Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make clear that any projected
results expressed or implied therein will not be realized.
Overview
Stein Mart's 260 stores offer the fashion merchandise, service and presentation
of a better department or specialty store, at prices competitive with off-price
retail chains. Currently with locations from California to New York, Stein
Mart's focused assortment of merchandise features moderate to designer
brand-name apparel for women, men and young children, as well as accessories,
gifts, linens and shoes. Management believes that Stein Mart differentiates
itself from typical off-price retailers by offering: (i) current-season
merchandise carried by better department and specialty stores at value prices,
(ii) a stronger merchandising "statement," with more depth of color and size,
and (iii) merchandise presentation more comparable to other upscale retailers.
The Company faces competition for customers and for access to quality
merchandise from better department stores, fine specialty stores and, to a
lesser degree, from off-price retail chains. Many of these competitors are units
of large national or regional chains that have substantially greater resources
than the Company. The retail apparel industry is highly fragmented and
competitive, and the off-price retail business may become even more competitive
in the future.
During the current quarter, the Company experienced positive customer response
to the new fall merchandise and colorful assortments which have attracted
customers all year. The improvement in year-over-year performance is
attributable to:
o A 6.6% increase in comparable store sales, leveraging of selling,
general and administrative and occupancy expenses as a result of
higher sales volume, and reduced store closing and impairment charges
o An increase in gross profit dollars; however, gross profit as a
percent of sales was negatively affected by increased markdowns
necessary to reach targeted levels of inventory freshness
o The closure of 16 stores during 2003 and seven stores in the first 39
weeks of 2004. Those stores had operating losses of $(1.3) million or
$(0.02) per share in the third quarter of 2004 and $(10.2) million or
$(0.15) per share in the third quarter of 2003. For the first 39
weeks, those stores had operating losses of $(3.5) million or $(0.05)
per share this year compared to $(21.6) million or $(0.32) per share
last year.
11
Stein Mart, Inc.
Outlook
During the fourth quarter, management will continue to focus advertising dollars
on television and color fashion inserts. Because there is significantly less
clearance merchandise in the stores, the level of shopping pass activity
(percent discounts given on sale and clearance goods) is expected to be
substantially less than it was in the pre-holiday months last year.
Stores
The number of stores open as of October 30, 2004 and November 1, 2003 were 260
and 264, respectively.
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Stores at beginning of period 257 270 261 265
Stores opened during the period 4 2 6 11
Stores closed during the period (1) (8) (7) (12)
-------------- -------------- -------------- --------------
Stores at the end of period 260 264 260 264
============== ============== ============== ==============
Results of Operations
The following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by each line item presented (numbers may not add
due to rounding):
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 76.8 76.6 74.4 75.9
-------------- -------------- -------------- --------------
Gross profit 23.2 23.4 25.6 24.1
Selling, general and administrative
expenses 25.2 29.5 24.2 26.9
Other income, net 1.0 1.0 1.0 1.1
-------------- -------------- -------------- --------------
Income (loss) from operations (1.0) (5.0) 2.4 (1.7)
Interest income - - - -
Interest expense - 0.1 - 0.1
-------------- -------------- -------------- --------------
Income (loss) from continuing
operations before income taxes (1.0) (5.2) 2.4 (1.9)
Income tax benefit (provision) 0.4 2.0 (0.9) 0.7
-------------- -------------- -------------- --------------
Income (loss) from continuing
operations (0.6) (3.2) 1.5 (1.2)
Loss from discontinued operations, net
of tax benefit - (0.1) - (0.1)
-------------- -------------- -------------- --------------
Net income (loss) (0.6)% (3.3)% 1.5% (1.2)%
============== ============== ============== ==============
Store Closings
The Company closed seven stores and relocated one store during the first 39
weeks of 2004. Sixteen stores were closed during 2003, 12 of which were closed
during the first 39 weeks of 2003.
12
Stein Mart, Inc.
Two of the 16 stores closed during 2003 and one of the seven stores closed
during the first 39 weeks of 2004 are classified as discontinued operations in
accordance with SFAS No. 144, as cash flows of these stores have been eliminated
from ongoing operations. Sales and operating losses for the seven stores closed
in 2004 and the 16 stores closed during fiscal year 2003 are shown below for the
13 weeks and 39 weeks ended October 30, 2004 and November 1, 2003. Included in
the 2003 column are operating results of the 16 stores closed in 2003, in
addition to seven stores closed in 2004.
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Sales from closed stores:
Included in continuing operations $ 650 $ 10,205 $ 7,142 $ 41,465
Included in discontinued operations - 2,383 942 7,333
-------------- -------------- -------------- --------------
$ 650 $ 12,588 $ 8,084 $ 48,798
============== ============== ============== ==============
Operating losses from closed stores:
Included in continuing operations $(1,272) $ (9,660) $(3,226) $(20,586)
Included in discontinued operations - (527) (234) (1,037)
-------------- -------------- -------------- --------------
$(1,272) $(10,187) $(3,460) $(21,623)
============== ============== ============== ==============
Operating losses from closed stores include the following store closing and
asset impairment expenses:
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
Oct. 30, Nov. 1, Oct. 30, Nov. 1,
Continuing operations: 2004 2003 2004 2003
-------------- -------------- -------------- --------------
Lease termination costs $ 927 $5,587 $1,028 $6,587
Asset impairment (recovery) charges - 18 (245) 759
Severance 106 158 579 552
Other 30 474 171 1,013
-------------- -------------- -------------- --------------
1,063 6,237 1,533 8,911
-------------- -------------- -------------- --------------
Discontinued operations:
Lease termination costs - - 77 -
Asset impairment charges - - - 42
Severance - - 77 135
-------------- -------------- -------------- --------------
- - 154 177
-------------- -------------- -------------- --------------
Total $1,063 $6,237 $1,687 $9,088
============== ============== ============== ==============
Continuing Operations
For the 13 weeks ended October 30, 2004 compared to the 13 weeks ended Nov. 1,
2003
The 5.4% total sales increase for the 13 weeks ended October 30, 2004 from the
same 2003 period reflects a 6.6% increase in sales from comparable stores and a
net decrease in the total number of stores from 264 at the end of the third
quarter 2003 to 260 at the end of the third quarter 2004.
Gross profit for the 13 weeks ended October 30, 2004 was $76.5 million or 23.2
percent of net sales, a 0.2 percentage point decrease over gross profit of $73.4
million or 23.4 percent of net sales for the third quarter of 2003. Mark-up
improved 1.1 percentage point, shrinkage expense decreased 0.2 percentage point
and occupancy decreased 0.4 percentage point as a result of higher per store
sales productivity in the third quarter this year compared to last year. These
improvements were offset by a 1.9 percentage point increase in markdowns to
achieve targeted levels of inventory freshness.
13
Stein Mart, Inc.
Selling, general and administrative expenses ("SG&A") were $83.2 million or 25.2
percent of net sales for the 13 weeks ended October 30, 2004, as compared to
$92.4 million or 29.5 percent of net sales for the same 2003 quarter. The 4.3
percentage point decrease in SG&A expenses as a percent of sales is due to the
leveraging of expenses as a result of the 6.6 percent increase in comparable
store sales and a $6.6 million decrease in store closing and asset impairment
charges. Included in SG&A expenses for the third quarter of 2004 and 2003 are
store closing and asset impairment charges of $1.1 million and $7.7 million,
respectively. Charges were higher in 2003 because ongoing lease obligations were
recorded for the eight stores closed during the third quarter of 2003. In
addition, the Company recorded a $1.5 million asset impairment charge for
underperforming stores during the third quarter of 2003.
Loss from operations for the 13 weeks ended October 30, 2004 was $(3.4) million,
as compared to a loss from operations of $(15.8) million for the same 2003
quarter. Approximately $8.4 million of this improvement is the result of
eliminating the effect of operating losses of stores closed during 2003 and 2004
and the remainder is due to improved operating results of ongoing stores.
As a result of increased sales, decreased inventories and ongoing expense
control, there were no borrowings, and therefore no interest expense, during the
third quarter of 2004. The Company earned interest income of $108,000 on its
cash and short-term investments during the third quarter of 2004. The Company
had interest expense of $421,000 during the third quarter of 2003.
For the 39 weeks ended October 30, 2004 compared to the 39 weeks ended November
1, 2003
The 7.6% total sales increase for the 39 weeks ended October 30, 2004 from the
same 2003 period reflects an 9.6% increase in sales from comparable stores and a
net decrease in the total number of stores from 264 at November 1, 2003 to 260
at October 30, 2004.
Gross profit for the 39 weeks ended October 30, 2004 was $259.8 million or 25.6
percent of net sales a 1.5 percentage point increase over gross profit of $227.4
million or 24.1 percent of net sales for the same 2003 period. The increase was
due to a 1.4 percentage point increase in mark-up, a 0.6 percentage point
decrease in occupancy as a result of higher per store sales productivity in the
first 39 weeks of this year compared to last year, partially offset by a 0.5
percentage point increase in markdowns.
Selling, general and administrative expenses ("SG&A") were $245.7 million or
24.2 percent of net sales for the 39 weeks ended October 30, 2004, as compared
to $253.8 million or 26.9 percent of net sales for the same 2003 period. The 2.7
percentage point decrease in SG&A expenses as a percent of sales is primarily
due to the leveraging of expenses as a result of the 9.6 percent increase in
comparable store sales and an $8.9 million decrease in store closing and asset
impairment charges. Included in SG&A expenses for the first 39 weeks of 2004 and
2003 are store closing and asset impairment charges of $1.5 million and $10.4
million, respectively. Charges were higher in 2003 primarily because ongoing
lease obligations were recorded for several of the 11 stores closed during 2003
while the seven stores closed in 2004 had minimal lease termination and
severance costs.
Income from operations for the 39 weeks ended October 30, 2004 was $24.5 million
compared to a loss from operations of $(16.5) million for the same 2003 period.
Approximately $17.4 million of this earnings improvement is the result of
eliminating the effect of operating losses of stores closed during 2003 and 2004
and the remainder is due to improved operating results of ongoing stores.
Interest expense was $39,000 and $1.3 million for the first 39 weeks of 2004 and
2003, respectively. As a result of increased sales, decreased inventories and
ongoing expense control, the Company had borrowings on its revolving credit
agreement only during the first quarter of 2004. The Company earned interest
income of $181,000 on its cash and short-term investments during the first 39
weeks of 2004.
14
Stein Mart, Inc.
Liquidity and Capital Resources
The Company's primary source of liquidity is the sale of its merchandise
inventories. Capital requirements and working capital needs are funded through a
combination of internally generated funds, a revolving credit facility and
credit terms from vendors. As of October 30, 2004, the Company had $35.1 million
in cash and cash equivalents, including highly liquid short-term investments
with original maturities of three months or less.
Working capital is needed to support store inventories and capital investments
for new store openings and to maintain existing stores. Historically, the
Company's working capital needs are lowest in the first quarter and highest in
either the third or fourth quarter in anticipation of the fourth quarter peak
selling season.
Net cash provided by operating activities was $59.6 million for the first 39
weeks of 2004 compared to net cash used in operating activities of $18.4 million
for the same 2003 period. The increase in cash for 2004 is primarily
attributable to an increase in net income including non-cash items and an
increase in accounts payable from the end of the year, offset by an increase in
inventories and income taxes paid. On an average store basis, inventories were
reduced 10.4% from the prior year due to increased sales resulting from the
Company's continued focus on marketing, sales promotion and clearance
strategies.
Capital expenditures were higher for the first 39 weeks of 2004 compared to the
first 39 weeks of 2003 primarily due to enhancements of the point of sale and
merchandising systems. New store capital expenditures are lower this year
compared to last year due to fewer store openings. Total capital expenditures
for 2004 are anticipated to be approximately $17-18 million.
Cash used in financing activities was $20.5 million during the first 39 weeks of
2004 compared to $33.9 million of cash provided by financing activities during
the same 2003 period. The additional cash provided by operating activities
enabled the Company to eliminate borrowings under the revolving credit agreement
at the end of the first quarter.
The Company has a $150 million senior revolving credit agreement with a group of
lenders, with an initial term ending July 2006. Borrowings are based on and
secured by eligible inventory and certain other assets. At October 30, 2004
there were no direct borrowings under the credit facility and no Event of
Default existed under the terms of the Agreement.
The Company believes that expected net cash provided by operating activities and
unused borrowing capacity under the revolving credit agreement will be
sufficient to fund anticipated current and long-term capital expenditures and
working capital requirements. Should current operating conditions deteriorate,
management can adjust operating plans, including new store rollout.
Contractual Obligations
To facilitate an understanding of the Company's contractual obligations, the
following data is provided:
Payments Due By Period
------------------------------------------------------------------------------------------
Less than 1 - 2 3 - 5 After 5
Total 1 Year Years Years Years
-------------- -------------- -------------- -------------- --------------
Notes payable to banks $ - $ - $ - $ - $ -
Operating leases 398,076 64,197 60,316 147,375 126,188
-------------- -------------- -------------- -------------- --------------
Total $398,076 $64,197 $60,316 $147,375 $126,188
============== ============== ============== ============== ==============
Other long-term liabilities on the balance sheet include deferred income taxes,
deferred compensation and other long-term liabilities that do not have specific
due dates, so are excluded from the preceding table. Other long-term liabilities
also include long-term store closing reserves, a component of which is future
minimum payments under non-cancelable leases for closed stores. These future
minimum lease payments total $19.2 million and are included in the operating
leases line of the above table.
15
Stein Mart, Inc.
Off-Balance Sheet Arrangements
The Company has outstanding standby letters of credit totaling $5.4 million
securing certain insurance programs at October 30, 2004. If certain conditions
occurred under these arrangements, the Company would be required to satisfy the
obligations in cash. Due to the nature of these arrangements and based on
historical experience, the Company does not expect to make any payments;
therefore, the letters of credit are excluded from the preceding table. There
are no other off-balance sheet arrangements that could affect the financial
condition of the Company.
Seasonality
The Company's business is seasonal in nature with a higher percentage of the
Company's merchandise sales and earnings generated in the fall and holiday
selling seasons. Accordingly, selling, general and administrative expenses are
typically higher as a percent of net sales during the first three quarters of
each year.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate risk primarily through borrowings under
its revolving credit facility. At October 30, 2004, the Company had no
outstanding borrowings. The facility permits debt commitments up to $150 million
and bears interest at spreads over the prime rate and LIBOR. Management believes
that its exposure to market risk associated with its borrowings is not material.
Item 4. Controls and Procedures
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have evaluated the effectiveness of the Company's disclosure
controls and procedures, as defined in Exchange Act Rules 13a-15(e) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Based upon
this evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures were effective in alerting them to
material information relating to the Company required to be included in the
Company's Exchange Act filings in a timely manner. There have been no changes in
the Company's internal controls over financial reporting identified in
connection with this evaluation that occurred during the period covered by this
report that have affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of the 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
(b) Reports on Form 8-K:
A press release dated November 4, 2004 was filed in a Form 8-K on November
9, 2004 that included earnings guidance for the quarterly period ended
October 30, 2004.
A press release dated November 18, 2004 was filed in a Form 8-K on November
23, 2004 to report third quarter and first 39 weeks of 2004 financial
results.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stein Mart, Inc.
Date: December 8, 2004 By: /s/ Michael D. Fisher
-------------------------------------
Michael D. Fisher
President and Chief Executive Officer
/s/ James G. Delfs
-------------------------------------
James G. Delfs
Senior Vice President and Chief
Financial Officer
17