Market Overview

Stein Mart, Inc. Reports Third Quarter 2018 Results

Share:
  • Comparable sales increased 1.4 percent
  • Operating loss improved by more than $10 million from 2017
  • Expecting higher fourth quarter operating income driven by gross profit expansion and lower expenses
  • Year-to-date adjusted EBITDA increased $33 million

JACKSONVILLE, Fla., Nov. 27, 2018 (GLOBE NEWSWIRE) -- Stein Mart, Inc. (NASDAQ:SMRT) today announced financial results for the third quarter ended November 3, 2018.

Operating loss for the third quarter was $13.4 million for 2018 compared to an operating loss of $23.9 million for 2017. Third quarter 2018 results include advisory fees related to the extension of our credit agreements, as well as expenses and lower gross profit due to the impact of Hurricanes Florence and Michael. These unanticipated items approximated $3 million.

Net loss for the third quarter of 2018 was $16.6 million or $0.36 per share compared to net loss of $14.6 million or $0.31 per share in 2017. As explained below (see Income Taxes), net loss for 2017 includes an income tax benefit of $10.4 million or $0.22 per share compared to no income tax benefit in 2018.

Adjusted earnings before interest, income taxes, depreciation and amortization ("EBITDA") for the third quarter of 2018 improved by $11.3 million to negative $2.8 million compared to negative $14.1 million for last year's third quarter. Adjusted EBITDA for the first nine months of 2018 increased more than $33 million to $25.9 million from negative $7.4 million for last year's first nine months. (See Note 1.)

"We are pleased with our second consecutive quarter of comparable sales increases and continued gross profit expansion driven by higher regular priced selling. Our core apparel businesses all performed very well during the quarter," said Hunt Hawkins, Chief Executive Officer. "While better than last year, our third quarter pre-tax operating results were lower than we expected due to disruption caused by the hurricanes and fees associated with the successful renegotiation of our credit agreements which expanded our credit limit and extended the term."  

"We are looking forward to better comparisons against clearance selling that normalized in the fourth quarter last year. This, along with our higher gross profit rate and lower expenses have us well-prepared for a profitable fourth quarter."

Net Sales
Net sales for the third quarter of 2018 were $279.1 million compared with $285.4 million for the third quarter of 2017. Comparable sales for the third quarter of 2018 increased 1.4 percent including sales from licensed departments (see Note 2). Ecommerce sales were up 76 percent over last year's third quarter. The decrease in total net sales for the quarter reflects the closing of seven underperforming stores this year.

For the first nine months of 2018, net sales decreased 1.8 percent to $916.8 million while comparable sales increased 0.4 percent. Ecommerce sales were up 96 percent over the first nine months of last year. The decrease in total net sales reflects the closing of 13 underperforming stores in 2017 and 2018.

Gross Profit
Gross profit for the third quarter of 2018 was $69.8 million or 25.0 percent of sales compared to $68.3 million or 23.9 percent of sales in 2017. The 110 basis point increase in the gross profit rate was driven primarily by higher gross margin from reduced markdowns and continuing improvement in inventory productivity. Markdowns were high in last year's third quarter to clear excess inventories.

Selling, General and Administrative Expenses
SG&A expenses for the third quarter of 2018 decreased $8.7 million to $87.0 million compared to $95.7 million in 2017. The decrease in SG&A expenses was primarily due to cost savings initiatives in the stores and corporate office, lower advertising expense and the impact of closed stores. Decreases were somewhat offset by $1.1 million in advisory fees for the extension of our credit agreements and $0.7 million in hurricane-related expenses which will be recovered from insurance in future quarters.                              

Interest Expense, Net
Interest expense for the third quarter of 2018 was $3.1 million compared to $1.2 million in 2017. The increase in interest expense reflects higher interest rates and borrowing levels in 2018, plus $0.3 million from the early termination of a portion of the term loan done in connection with the extension and amendment of our credit agreements in September.

Income Taxes   
Income tax expense was less than $0.2 million in the third quarter of 2018 compared to an income tax benefit of $10.4 million for the third quarter of 2017. The lack of an income tax benefit for the third quarter of 2018 reflects our net operating loss position along with the valuation allowance established against deferred tax assets during the fourth quarter of 2017 and our inability to carry back losses due to 2017 Tax Act changes.

Working Capital and Capital Expenditures
Inventories were $305 million at the end of the third quarter of 2018 compared to $311 million at the same time last year. Average inventories per store were down 3 percent to last year.

Capital expenditures totaled $7.4 million for the first nine months of 2018 compared to $17.2 million in 2017. For fiscal 2018, we continue to expect capital expenditures to be approximately $10 million compared to $21 million in fiscal 2017.

Accounts payable was $57.6 million lower at the end of the third quarter of 2018 compared to last year's third quarter as a result of reduced credit terms from our vendors and their factors compared to 2017. As our results have improved in 2018, we continue to see improved trade credit.

Total borrowings were $190.7 million at the end of the third quarter compared to $150.8 million at the end of last year's third quarter reflecting lower accounts payable. Unused availability under our credit facility was $74.9 million at the end of the third quarter of 2018. In addition, at the end of the third quarter of 2018 we had $12.8 million available to borrow which would be collateralized by life insurance policies.

Store Activity
We had 288 stores at the end of the third quarter 2018 compared to 293 at the end of the third quarter last year. We opened two new stores and closed seven stores during the first nine months of 2018.

2018 Outlook 
Based on our results through the third quarter, we are continuing to project fourth quarter operating income will be higher than last year's fourth quarter, which was favorably impacted by the 53rd week, driven by the following factors:  

  • With regular priced selling continuing to increase and lower markdowns, we expect our fourth quarter gross profit rate to be higher than in 2017
  • SG&A expenses for the fourth quarter of 2018 will be lower than in 2017

Filing of Form 10-Q
Reported results are preliminary and not final until the filing of our Form 10-Q for the fiscal quarter ended November 3, 2018 with the Securities and Exchange Commission ("SEC"), and therefore remain subject to adjustment.

Conference Call
A conference call to discuss the Company's third quarter results will be held at 4:30 p.m. ET on November 27, 2018. The call may be heard on the Company's investor relations website at http://ir.steinmart.com. A replay of the conference call will be available on the website through December 31, 2018.

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

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

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

Stein Mart, Inc.
Condensed Consolidated Statements of Loss
(Unaudited)
(In thousands, except per share amounts)

    13 Weeks Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks Ended
    November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
           
Net sales   $ 279,127   $ 285,395   $ 916,751   $ 933,766  
Other revenue     3,734     3,516     11,525     10,728  
Total revenue     282,861     288,911     928,276     944,494  
Cost of merchandise sold     209,286     217,126     671,427     705,273  
Selling, general and administrative expenses     86,948     95,674     258,584     274,581  
Operating loss     (13,373 )   (23,889 )   (1,735 )   (35,360 )
Interest expense, net     3,078     1,156     8,406     3,437  
Loss before income taxes     (16,451 )   (25,045 )   (10,141 )   (38,797 )
Income tax expense (benefit)     171     (10,429 )   291     (14,888 )
Net loss   $ (16,622 ) $ (14,616 ) $ (10,432 ) $ (23,909 )
           
Net loss per share:          
Basic   $ (0.36 ) $ (0.31 ) $ (0.22 ) $ (0.52 )
Diluted   $ (0.36 ) $ (0.31 ) $ (0.22 ) $ (0.52 )
           
Weighted-average shares outstanding:          
Basic    
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com