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Stein Mart, Inc. Reports Fourth Quarter and Fiscal 2018 Results

Provides 2019 Outlook

  • FY2018 gross profit increased 180 basis points
  • FY2018 SG&A expenses decreased $28.1 million
  • Operating income improved $36.1 million to $4.9 million in 2018

/EIN News/ -- JACKSONVILLE, Fla., March 13, 2019 (GLOBE NEWSWIRE) -- Stein Mart, Inc. (NASDAQ: SMRT) today announced financial results for the fourth quarter and fiscal year ended February 2, 2019.

Operating income for the fourth quarter was $6.6 million in 2018 compared to $4.1 million in 2017. Adjusted operating income for the fourth quarter was $5.6 million in 2018 and $6.9 million in 2017 (see Note 1). Operating income for the year was $4.9 million in 2018 compared to an operating loss of $31.2 million in 2017. Adjusted operating income for the year was $6.3 million compared to an operating loss of $26.9 million in 2017 (see Note 1).

Net income for the fourth quarter of 2018 was $4.4 million or $0.09 per diluted share compared to a net loss of $0.4 million or $0.01 per diluted share in 2017. Adjusted net income for the fourth quarter was $3.4 million or $0.07 per diluted share compared to $3.5 million or $0.08 per diluted share in 2017 (see Note 1). For the year, net loss was $6.0 million or $0.13 per diluted share in 2018 compared to $24.3 million or $0.52 per diluted share in 2017. Adjusted net loss for the year was $4.5 million or $0.10 in 2018 and $19.9 million or $0.43 in 2017 (see Note 1). Net loss for 2017 includes an income tax benefit of $11.7 million compared to less than $0.1 million in 2018 (see Income Taxes below).

Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the fourth quarter of 2018 was $13.6 million compared to $15.0 million for the fourth quarter of 2017. For the year, adjusted EBITDA increased $31.9 million to $39.5 million for 2018 from $7.6 million for 2017. (See Note 2.)

“Fourth quarter results reflect holiday sales that were below our expectations, with traffic impacted by changes we made to our holiday marketing strategy,” said Hunt Hawkins, Chief Executive Officer. “Despite our lower sales, operating results for fiscal 2018 were significantly better than last year due to our continued focus on inventory productivity, which drove our higher gross profit rate, and strong expense control.”

“As we begin 2019, we will continue to build upon the foundation we have laid. Although early first quarter sales have been slow to start, our new initiatives focused on sales growth give us the opportunity to improve annual results.”

Net Sales
Net sales for the 13-week fourth quarter ended February 2, 2019 were $340.8 million compared to $384.9 million for the 14-week fourth quarter ended February 3, 2018. Net sales for the 52-week fiscal year ended February 2, 2019 were $1.26 billion compared to $1.32 billion for 53-week fiscal year ended February 3, 2018. Net sales were impacted by comparable sales results, the closing of eight underperforming stores in fiscal 2018, as well as the benefit of a 53rd week in fiscal 2017.

Comparable sales for the 13-week period ended February 2, 2019 decreased 3.5 percent on a shifted basis, which compares to the same period ended February 3, 2018. Comparable sales for the 52-week period ended February 2, 2019 decreased 1.0 percent on a shifted basis. Comparable sales results for 2018 reflect lower store traffic partially offset by higher average unit retail and digital sales growth of 15 percent in the 13-week period and 62 percent in the 52-week period.

Gross Profit
Gross profit for the fourth quarter of 2018 was $92.5 million or 27.1 percent of sales compared to $102.4 million or 26.6 percent of sales in 2017. Gross profit for the year 2018 was $337.8 million or 26.9 percent of sales compared to $330.9 million or 25.1 percent of sales in 2017. The increase in the gross profit rate reflects higher gross margin from reduced markdowns and improved inventory productivity. For the fourth quarter, increases in the rate were offset by the deleverage of occupancy costs on lower sales.

Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the fourth quarter of 2018 were $89.5 million compared to $101.5 million in 2017. For the year, SG&A expenses were $348.1 million in 2018 and $376.1 million in 2017. The decrease in SG&A expenses was primarily from cost savings initiatives in the stores and corporate office, lower advertising expenses and the impact of closed stores. In addition, SG&A expenses in the 2018 fourth quarter and year benefitted from a $3.3 million decrease in accrued compensated absences as a result of a change in vacation policy.

Interest Expense, Net
Interest expense for the fourth quarter of 2018 was $2.5 million compared to $1.4 million in 2017. Interest expense for the year 2018 was $10.9 million compared to $4.8 million in 2017. The increase in interest expense is due to a higher blended interest rate, as well as overall higher rates.

Income Taxes
Income tax benefit was $0.3 million for fourth quarter of 2018 compared to income tax expense of $3.2 million for the fourth quarter of 2017. For the year, income tax benefit was less than $0.1 million in 2018 and $11.7 million 2017. The 2017 fourth quarter and year include additional expense related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”) including a valuation allowance established against deferred tax assets (see Note 1). The small amount of income taxes in the 2018 fourth quarter and year reflects our net operating loss position along with the valuation allowance.

Cash Flows
Inventories were $255.9 million at the end of 2018 compared to $270.2 million last year. Average inventories per store were down 4.3 percent to last year.

Capital expenditures totaled $9.0 million in 2018 compared to $21.2 million in 2017. The decrease is due to fewer new stores and lower information system technology investments. For fiscal 2019, capital expenditures are planned flat to 2018 as we continue to focus on being efficient with our investments.

Credit terms from our vendors and factors, which were reduced earlier in the year, increased in the second half of the year. Accounts payable was $29.8 million lower at the end of 2018 compared to the end of 2017. Despite the trade credit tightening, debt decreased to $154.1 million at the end of 2018 compared to $156.1 million at the end of 2017. Unused availability under our credit facility was $58.2 million at the end of 2018. In addition, we had $14.5 million available to borrow which would be collateralized by life insurance policies at the end of the year.

Store Activity
We had 287 stores at the end of 2018 compared to 293 at the end of 2017. We opened two new stores and closed eight stores during 2018. For 2019, we are not planning to open any new stores and plan to close four stores during the first half; three of which were closed in February at natural lease expirations.

2019 Outlook
We expect the following factors to influence our business in 2019:

  • We anticipate flat to low single-digit increases in comparable sales
  • We expect to maintain our improved 2018 gross profit rate with leverage of occupancy costs, offset by higher Ecommerce fulfillment costs
  • SG&A expenses are expected to be about the same as in 2018
  • Interest expense is estimated to be approximately $1.5 million lower

Filing of Form 10-K
Reported results are preliminary and not final until the filing of our Form 10-K for the fiscal year ended February 2, 2019 with the Securities and Exchange Commission (“SEC”), and therefore remain subject to adjustment.

Conference Call
A conference call to discuss the Company’s fourth quarter and fiscal 2018 results will be held at 4:30 p.m. ET on March 13, 2019. The call may be heard on the Company’s investor relations website at http://ir.steinmart.com. A replay of the conference call will be available on the website through April 30, 2019.

Investor Presentation
Stein Mart’s fourth quarter and fiscal 2018 investor presentation has been posted to the investor relations portion of the Company’s website at http://ir.steinmart.com.

About Stein Mart
Stein Mart, Inc. is a national specialty off-price retailer offering designer and name-brand fashion apparel, home décor, accessories and shoes at everyday discount prices. Stein Mart provides real value that customers love every day both in stores and online. For more information, please visit www.steinmart.com.

Cautionary Statement Regarding Forward-Looking Statements
Except for historical information contained herein, the statements in this release may be forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company does not assume any obligation to update or revise any forward-looking statements even if experience or future changes make it clear that projected results expressed or implied will not be realized. Forward-looking statements involve known and unknown risks and uncertainties that may cause Stein Mart’s actual results in future periods to differ materially from forecasted or expected results. Those risks include, without limitation: dependence on our ability to purchase merchandise at competitive terms through relationships with our vendors and their factors, consumer sensitivity to economic conditions, competition in the retail industry, changes in fashion trends and consumer preferences, ability to implement our strategic plans to sustain profitable growth, effectiveness of advertising and marketing, capital availability and debt levels, dividend impact on stock price, ability to negotiate acceptable lease terms with current and potential landlords, ability to successfully implement strategies to exit under-performing stores, extreme and/or unseasonable weather conditions, adequate sources of merchandise at acceptable prices, dependence on certain key personnel and ability to attract and retain qualified employees, impacts of seasonality, increases in the cost of compensation and employee benefits, disruption of the Company’s distribution process, dependence on imported merchandise, information technology failures, data security breaches, single supplier for shoe department, single provider for ecommerce website, acts of terrorism, ability to adapt to new regulatory compliance and disclosure obligations, material weaknesses in internal control over financial reporting and other risks and uncertainties described in the Company’s filings with the SEC.

 
Stein Mart, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
           
    13 Weeks Ended 14 Weeks Ended 52 Weeks Ended 53 Weeks Ended
    February 2, 2019 February 3, 2018 February 2, 2019 February 3, 2018
           
Net sales   $ 340,847   $ 384,867   $ 1,257,598   $ 1,318,633  
Other revenue     3,609     3,208     15,134     13,936  
Total revenue     344,456     388,075     1,272,732     1,332,569  
Cost of merchandise sold     248,385     282,419     919,812     987,692  
Selling, general and administrative expenses     89,477     101,530     348,061     376,111  
Operating income (loss)     6,594     4,126     4,859     (31,234 )
Interest expense, net     2,476     1,351     10,882     4,788  
Income (loss) before income taxes     4,118     2,775     (6,023 )   (36,022 )
Income tax (benefit) expense     (316 )   3,190     (25 )   (11,698 )
Net income (loss)   $ 4,434   $ (415 ) $ (5,998 ) $ (24,324 )
           
Net income (loss) per share:          
Basic   $ 0.09   $ (0.01 ) $ (0.13 ) $ (0.52 )
Diluted   $ 0.09   $ (0.01 ) $ (0.13 ) $ (0.52 )
           
Weighted-average shares outstanding:          
Basic     46,803     46,482     46,706     46,342  
Diluted     47,443     46,482     46,706     46,342  
           


 
Stein Mart, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except for share and per share data)
     
  February 2, 2019 February 3, 2018
ASSETS    
Current assets:    
Cash and cash equivalents $ 9,049   $ 10,400  
Inventories   255,884     270,237  
Prepaid expenses and other current assets   28,326     26,620  
Total current assets   293,259     307,257  
Property and equipment, net   123,838     151,128  
Other assets   24,108     24,973  
Total assets $ 441,205   $ 483,358  
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 89,646   $ 119,388  
Current portion of debt   -     13,738  
Accrued expenses and other current liabilities   77,650     78,453  
Total current liabilities   167,296     211,579  
Long-term debt   153,253     142,387  
Deferred rent   39,708     40,860  
Other liabilities   33,897     40,214  
Total liabilities   394,154     435,040  
COMMITMENTS AND CONTINGENCIES    
Shareholders’ equity:    
Preferred stock - $.01 par value; 1,000,000 shares    
authorized; no shares issued or outstanding    
Common stock - $.01 par value; 100,000,000 shares    
authorized; 47,874,286 and 47,978,275    
shares issued and outstanding, respectively   479     480  
Additional paid-in capital   60,172     56,002  
Retained deficit   (13,853 )   (7,918 )
Accumulated other comprehensive income (loss)   253     (246 )
Total shareholders’ equity   47,051     48,318  
Total liabilities and shareholders’ equity $ 441,205   $ 483,358  
     


 
Stein Mart, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
       
    52 Weeks Ended 53 Weeks Ended
    February 2, 2019 February 3, 2018
Cash flows from operating activities:      
Net loss   $ (5,998 ) $ (24,324 )
Adjustments to reconcile loss to net cash provided by operating activities:      
Depreciation and amortization     32,447     32,333  
Share-based compensation     4,109     5,691  
Store closing charges     215     168  
Impairment of property and other assets     2,803     3,792  
Loss on disposal of property and equipment     681     329  
Deferred income taxes     -     (3,222 )
Changes in assets and liabilities:      
Inventories     14,353     20,873  
Prepaid expenses and other current assets     (1,706 )   6,438  
Other assets     (1,350 )   2,254  
Accounts payable     (29,823 )   5,096  
Accrued expenses and other current liabilities     (635 )   3,021  
Other liabilities     (6,194 )   (4,737 )
Net cash provided by operating activities     8,902     47,712  
Cash flows from investing activities:      
Net acquisition of property and equipment     (8,993 )   (21,244 )
Proceeds from cancelled corporate owned life insurance policies     2,514     2,716  
Proceeds from insurance claims     296     44  
Net cash used in investing activities     (6,183 )   (18,484 )
Cash flows from financing activities:      
Proceeds from borrowings     1,107,183     474,529  
Repayments of debt     (1,109,208 )   (500,238 )
Debit issuance costs     (1,146 )   -  
Cash dividends paid     (223 )   (3,639 )
Capital lease payments     (736 )   (164 )
Proceeds from exercise of stock options and other     202     328  
Repurchase of common stock     (142 )   (248 )
Net cash used in financing activities     (4,070 )   (29,432 )
Net decrease in cash and cash equivalents     (1,351 )   (204 )
Cash and cash equivalents at beginning of year     10,400     10,604  
Cash and cash equivalents at end of year   $ 9,049   $ 10,400  
       

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Note 1 - Adjusted Results
We report our consolidated financial results in accordance with generally accepted accounting principles (“GAAP”). However, to supplement these consolidated financial results, management believes that certain non-GAAP operating results, which exclude those items detailed below, may provide a more meaningful measure to compare our results of operations between periods. We believe these non-GAAP results provide useful information to both management and investors by excluding certain items that impact comparability of the results.

 
Reconciliation of Operating Income (Loss), Tax (Benefit) Expense, Net Income (Loss), and Diluted EPS from GAAP Basis to Adjusted Non-GAAP Basis
Unaudited (in thousands, except for share data)
  13 Weeks Ended February 2, 2019   14 Weeks Ended February 3, 2018
    Operating
Income
(Loss)
    Tax
Benefit
    Net
Income
(Loss)
    Diluted
EPS
      Operating
Income
(Loss)
    Tax
Provision
(Benefit)
    Net (Loss)
Income
    Diluted
EPS
 
GAAP Basis $6,594   $(316 ) $4,434   $0.09     $4,126   $3,190   $(415 ) $(0.01 )
Adjustments:                  
Change in vacation policy (1)   (3,267 )   -     (3,267 )   (0.07 )          
Asset impairment charges   2,312     -     2,312     0.05       3,152     1,162     1,990     0.05  
Hurricane related (recoveries)/ expenses, net of insurance proceeds (3)   (955 )   -     (955 )   (0.02 )     (363 )   (134 )   (229 )   (0.1 )
Expenses related to legal settlements   918     -     918     0.02            
Impact of Tax Act (4)             -     2,167     2,167     0.05  
Total adjustments   (992 )   -     (992 )   (0.02 )     2,789     3,195     3,927     0.09  
Adjusted Non-GAAP Basis $5,602   $(316 ) $3,442   $0.07     $6,915   $6,385   $3,512   $0.08  
                                                   


       
  52 Weeks Ended February 2, 2019
  53 Weeks Ended February 3, 2018
    Operating
Income
(Loss)
    Tax
Benefit
    Net (Loss)
Income
    Diluted
EPS
      Operating
Income
(Loss)
    Tax
(Benefit)
Provision
    Net (Loss)
Income
    Diluted
EPS
 
GAAP Basis $4,859   $(25 ) $(5,998 ) $(0.13 )   $(31,234 ) $(11,698 ) $(24,324 ) $(0.52 )
Adjustments:                  
Change in vacation policy (1)   (3,267 )     (3,267 )   (0.07 )          
Asset impairment charges   2,803       2,803     0.06       3,792     1,398     2,394     0.05  
Credit agreements extension fees (2)   1,100       1,100     0.02            
Hurricane related (recoveries)/ expenses, net of insurance proceeds (3)   (237 )     (237 )   (0.01 )     492     181     311     0.01  
Expenses related to legal settlements   1,057       1,057     0.02       67     25     42     -  
Impact of Tax Act (4)             -     1,724     1,724     0.03  
Total adjustments   1,456     -     1,456     0.03       4,351     3,328     4,471     0.09  
Adjusted Non-GAAP Basis $6,315   $(25 ) $(4,542 ) $(0.10 )   $(26,883 ) $(8,370 ) $(19,853 ) $(0.43 )
                                                 

(1)  Decrease in accrued compensated absences during the fourth quarter of 2018 due to a change in vacation policy.
(2)  Advisory fees related to the extension and amendment of credit agreements completed in September 2018.
(3)  Property losses incurred earlier in the year from hurricanes were recovered in the fourth quarter.
(4)  Represents impacts of the Tax Cuts and Jobs Act of 2017.

Note 2: Adjusted EBITDA
EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is not a measure of financial performance under GAAP.  However, we present EBITDA in this release because we consider it to be an important supplemental measure of our performance and because it is frequently used by analysts, investors and others to evaluate the performance of companies.  EBITDA is not calculated in the same manner by all companies. EBITDA should be used as a supplement to results of operations and cash flows as reported under GAAP and should not be considered to be a more meaningful measure than, or an alternative to, measures of operating performance as determined in accordance with GAAP.  

The following table shows the Company’s reconciliation of net income (loss) to EBITDA and Adjusted EBITDA which are considered Non-GAAP financial measures. Adjusted EBITDA excludes non-cash items (impairment charges), significant non-recurring unusual items and investment in new stores (pre-opening costs).

         
    13 Weeks Ended     14 Weeks Ended     52 Weeks Ended     53 Weeks Ended  
    February 2, 2019     February 3, 2018     February 2, 2019     February 3, 2018  
Net income (loss) $4,434   $(415 ) $(5,998 ) $(24,324 )
Add back amounts for computation of EBITDA:        
Interest expense, net   2,476     1,351     10,882     4,788  
Income tax (benefit) expense    (316 )   3,190     (25 )   (11,698 )
Depreciation and amortization   7,934     8,079     32,447     32,333  
EBITDA   14,528     12,205     37,306     1,099  
Adjustments:        
Change in vacation policy (1)   (3,267 )   -     (3,267 )   -  
Non-cash impairment charges   2,312     3,152     2,803     3,792  
Credit agreements extension fees (2)   -     -     1,100     -  
Hurricane related (recoveries)/expenses, net of insurance proceeds (3)   (955 )   (363 )   (237 )   492  
Expense related to legal settlements   918     -     1,057     67  
New store pre-opening costs   61     4     725     2,167  
Total adjustments   (931 )   2,793     2,181     6,518  
Adjusted EBITDA $13,597   $14,998   $39,487   $7,617  
                         

(1)  Decrease in accrued compensated absences during the fourth quarter of 2018 due to a change in vacation policy.
(2)  Advisory fees related to the extension and amendment of credit agreements completed in September 2018.
(3)  Property losses incurred earlier in the year from hurricanes were recovered in the fourth quarter.

Note 3: Changes in Comparable Sales   
Management believes that providing calculations of changes in comparable sales including and excluding sales from licensed departments assists in evaluating the Company’s ability to generate sales growth, whether through owned businesses or departments licensed to third parties. The following table shows the Company’s reconciliation of these calculations. Due to the 53rd week in fiscal 2017, comparable sales for the fourth quarter and fiscal year are presented on a shifted basis which compares to the respective periods ended February 3, 2018.

       
  13 Weeks Ended    
  February 2, 2019    
Decrease in comparable sales excluding sales from licensed departments (1) (4.8%)    
Impact of growth in comparable sales of licensed departments (2) 1.3%    
Decrease in comparable sales including sales from licensed departments (3.5%)    
       


       
  52 Weeks Ended    
  February 2, 2019    
Decrease in comparable sales excluding sales from licensed departments (1) (2.2%)    
Impact of growth in comparable sales of licensed departments (2) 1.2%    
Decrease in comparable sales including sales from licensed departments (1.0%)    
       

(1)  Represents the period-to-period percentage change in net sales from stores open throughout the period presented and the same period in the prior year and all online sales of steinmart.com, excluding commissions from departments licensed to third parties.
(2)  Represents the impact of including sales of departments licensed to third parties throughout the period presented and the same period in the prior year and all online sales of steinmart.com in the calculation of comparable sales. The company licenses its shoe and vintage handbag departments in its stores and online to third parties and receives a commission from these third parties based on a percentage of their sales.  In our financial statements prepared in conformity with GAAP, the company includes commissions (rather than sales of the departments licensed to third parties) in its net sales. The Company does not include the commission amounts from licensed department sales in its comparable sales calculations.

For more information:
Linda L. Tasseff
Director, Investor Relations
(904) 858-2639
ltasseff@steinmart.com

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