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. 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 Ended14 Weeks Ended52 Weeks Ended53 Weeks Ended
  February 2, 2019February 3, 2018February 2, 2019February 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 
      


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Stein Mart, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except for share and per share data)
   
 February 2, 2019February 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 Ended53 Weeks Ended
  February 2, 2019February 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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