Market Overview

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

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  • 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

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 ) $
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