SMRT Stein Mart Inc

Table of Contents

 

 

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 August 1, 2015

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 incorporation or organization)		(I.R.S. Employer 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the Registrant’s common stock as of August 21, 2015 was 45,684,264.

 

 

 

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Table of Contents

STEIN MART, INC.

TABLE OF CONTENTS

 

				PAGE
PART I		FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets			3
		Condensed Consolidated Statements of Income			4
		Condensed Consolidated Statements of Comprehensive Income			5
		Condensed Consolidated Statement of Shareholders’ Equity			6
		Condensed Consolidated Statements of Cash Flows			7
		Notes to Condensed Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			15
Item 4.		Controls and Procedures			15
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings			15
Item 1A.		Risk Factors			15
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			15
Item 3.		Defaults Upon Senior Securities			15
Item 4.		Mine Safety Disclosures			16
Item 5.		Other Information			16
Item 6.		Exhibits			16
SIGNATURES					17

 

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Stein Mart, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except for share and per share data)

 

		August 1, 2015				January 31, 2015				August 2, 2014
ASSETS
Current assets:
Cash and cash equivalents		$	11,620			$	65,314			$	53,097
Inventories			277,243				285,623				266,215
Prepaid expenses and other current assets			33,815				22,733				26,703
Total current assets			322,678				373,670				346,015
Property and equipment, net of accumulated depreciation and amortization of $178,654, $166,646 and $163,205, respectively			156,072				148,782				147,605
Other assets			30,027				30,639				28,887
Total assets		$	508,777			$	553,091			$	522,507
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	122,699			$	129,924			$	120,635
Current portion of debt			9,167				—				—
Accrued expenses and other current liabilities			64,661				69,213				57,349
Total current liabilities			196,527				199,137				177,984
Long-term debt			161,033				—				—
Deferred rent			37,532				31,284				30,804
Other liabilities			39,709				37,732				37,196
Total liabilities			434,801				268,153				245,984
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; 45,702,328, 44,918,649 and 44,936,387 shares issued and outstanding, respectively			457				449				449
Additional paid-in capital			40,025				34,875				30,650
Retained earnings			33,918				250,046				245,680
Accumulated other comprehensive loss			(424	)			(432	)			(256	)
Total shareholders’ equity			73,976				284,938				276,523
Total liabilities and shareholders’ equity		$	508,777			$	553,091			$	522,507

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 

		13 Weeks Ended August 1, 2015				13 Weeks Ended August 2, 2014				26 Weeks Ended August 1, 2015				26 Weeks Ended August 2, 2014
Net sales		$	311,583			$	298,157			$	665,104			$	627,011
Cost of merchandise sold			222,648				213,913				467,789				438,441
Gross profit			88,935				84,244				197,315				188,570
Selling, general and administrative expenses			81,545				81,451				167,167				162,680
Operating income			7,390				2,793				30,148				25,890
Interest expense, net			807				69				1,493				134
Income before income taxes			6,583				2,724				28,655				25,756
Income tax expense			2,489				987				10,997				9,944
Net income		$	4,094			$	1,737			$	17,658			$	15,812
Net income per share:
Basic		$	0.09			$	0.04			$	0.39			$	0.35
Diluted		$	0.09			$	0.04			$	0.38			$	0.35
Weighted-average shares outstanding:
Basic			44,710				43,814				44,661				43,822
Diluted			45,926				44,704				45,846				44,580
Dividends declared per common share		$	0.075			$	0.00			$	5.15			$	0.125

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

 

		13 Weeks Ended August 1, 2015				13 Weeks Ended August 2, 2014				26 Weeks Ended August 1, 2015				26 Weeks Ended August 2, 2014
Net income		$	4,094			$	1,737			$	17,658			$	15,812
Other comprehensive income, net of tax:
Amounts reclassified from accumulated other comprehensive income			4				2				8				5
Comprehensive income		$	4,098			$	1,739			$	17,666			$	15,817

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statement of Shareholders’ Equity

(Unaudited)

(In thousands, except per share amounts)

 

		Common Stock								Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Shareholders’ Equity
		Shares				Amount
Balance at January 31, 2015			44,919			$	449			$	34,875			$	250,046			$	(432	)		$	284,938
Net income															17,658								17,658
Other comprehensive income, net of tax																			8				8
Common shares issued under stock option plan			33				—				119												119
Common shares issued under employee stock purchase plan			40				—				358												358
Reacquired shares			(199	)			(1	)			(3,059	)											(3,060	)
Issuance of restricted stock, net			909				9				(9	)											—
Share-based compensation											4,012												4,012
Tax benefit from equity issuances											3,729												3,729
Cash dividends paid ($5.15 per share)															(232,267	)							(232,267	)
Cash dividends payable															(1,519	)							(1,519	)
Balance at August 1, 2015			45,702			$	457			$	40,025			$	33,918			$	(424	)		$	73,976

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

		26 Weeks Ended August 1, 2015				26 Weeks Ended August 2, 2014
Cash flows from operating activities:
Net income		$	17,658			$	15,812
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,534				14,322
Share-based compensation			4,012				3,545
Store closing charges (benefits)			50				(25	)
Impairment of property and other assets			—				96
Loss on disposal of property and equipment			43				75
Deferred income taxes			(1,781	)			891
Tax benefit from equity issuances			3,729				756
Excess tax benefits from share-based compensation			(3,754	)			(786	)
Changes in assets and liabilities:
Inventories			8,380				(4,698	)
Prepaid expenses and other current assets			(10,626	)			149
Other assets			976				(1,473	)
Accounts payable			(7,721	)			(10,759	)
Accrued expenses and other current liabilities			(6,183	)			(7,600	)
Other liabilities			8,051				5,418
Net cash provided by operating activities			27,368				15,723
Cash flows from investing activities:
Net acquisition of property and equipment			(19,786	)			(22,289	)
Net cash used in investing activities			(19,786	)			(22,289	)
Cash flows from financing activities:
Proceeds from borrowings			409,423				—
Repayments of debt			(239,223	)			—
Debt issuance costs			(380	)			—
Cash dividends paid			(232,267	)			(5,584	)
Excess tax benefits from share-based compensation			3,754				786
Proceeds from exercise of stock options and other			477				413
Repurchase of common stock			(3,060	)			(2,806	)
Net cash used in financing activities			(61,276	)			(7,191	)
Net decrease in cash and cash equivalents			(53,694	)			(13,757	)
Cash and cash equivalents at beginning of year			65,314				66,854
Cash and cash equivalents at end of period		$	11,620			$	53,097
Supplemental disclosures of cash flow information:
Income taxes paid		$	8,555			$	5,465
Interest paid			1,282				201
Purchases of property and equipment included in accounts payable, accrued expenses and other current liabilities at period end			4,374				2,636

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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STEIN MART, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in tables in thousands, except per share amounts)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal and recurring adjustments) considered necessary for fair presentation of the Condensed Consolidated Financial Statements have been included. Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our annual report on Form 10-K for the year ended January 31, 2015.

As used herein, the terms “we”, “our”, “us”, “Stein Mart” and the “Company” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Recent Accounting Pronouncements

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU No. 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. ASU No. 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual and interim reporting periods beginning after December 15, 2016. The Company has the option to apply the provisions of ASU No. 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of applying this ASU recognized at the date of initial application. The Company is currently evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements.

In 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern. ASU No. 2014-15 requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. ASU No. 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of ASU No. 2014-15 is not expected to have a material effect on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 states that entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, will be required to present those costs as a direct deduction from the carrying amount of that debt liability. This presentation will result in debt issuance cost being presented the same way debt discounts have historically been handled. ASU No. 2015-03 does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs. This guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company expects this new guidance will reduce total assets and total long-term debt on its consolidated balance sheets by amounts classified as deferred debt issuance costs, but does not expect this update to have any other effect on its consolidated financial statements.

 

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2. Accrued Expenses and Other Current Liabilities

The major components of accrued expenses and other current liabilities are as follows:

 

		August 1, 2015				January 31, 2015				August 2, 2014
Compensation and employee benefits		$	11,013			$	12,519			$	9,195
Unredeemed gift and merchandise return cards			7,996				10,614				7,154
Property taxes			12,149				12,805				11,077
Accrued vacation			7,241				7,241				6,976
Other			26,262				26,034				22,947
Accrued expenses and other current liabilities		$	64,661			$	69,213			$	57,349

3. Fair Value Measurements

We have historically had money market fund investments classified as cash equivalents, which are Level 1 assets because fair value is based on readily available market prices. The fair value of these assets was $53.7 million at January 31, 2015 and $41.2 million at August 2, 2014. We did not have money market fund investments at August 1, 2015.

As the Company’s primary debt obligations are variable rate, there are no significant differences between the estimated fair value (Level 2 measurements) and the carrying value of the Company’s debt obligations at August 1, 2015. The Company did not have outstanding debt at January 31, 2015 and August 2, 2014.

4. Debt

On February 3, 2015, we entered into a $250 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement with Wells Fargo Bank (the “Credit Agreement”) that will mature in February 2020 and a secured $25 million master loan agreement with Wells Fargo Equipment Finance, Inc. (the “Equipment Term Loan” and, together with the Credit Agreement, the “Credit Facilities”) that will mature in February 2018. The Credit Facilities replace the Company’s former $100 million senior secured revolving credit facility which was set to mature on February 28, 2017. Borrowings under the Credit Facilities were initially used for a special dividend, but subsequently may be used for working capital, capital expenditures and other general corporate purposes. During 2015, debt issuance costs associated with the Credit Facilities were capitalized in the amount of $0.4 million and will be amortized over their respective terms.

Long-term debt consisted of the following at August 1, 2015:

 

Revolving credit facility		$	145,200
Equipment term loan			25,000
Total debt			170,200
Current maturities			(9,167	)
Long-term debt		$	161,033

The aggregate maturities of long-term debt subsequent to August 1, 2015 for the following fiscal years:

 

2015		$	4,167
2016			10,000
2017			10,833
2018			—
2019			—
Thereafter			145,200
Total		$	170,200

The total amount available under the Credit Agreement is the lesser of the Aggregate Commitment or 100% of eligible credit card receivables and the Net Recovery Percentage of inventories less reserves. At August 1, 2015, the Company had $145.2 million of outstanding borrowings under the Credit Agreement and $6.4 million of outstanding letters of credit, which reduced the Company’s availability under the Credit Agreement to $98.4 million.

 

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The Credit Facilities contain customary representations and warranties, affirmative and negative covenants (including, in the Credit Agreement, the requirement of a 1 to 1 consolidated fixed charge coverage ratio upon the occurrence and during the continuance of any Covenant Compliance Event, as defined in the Credit Agreement), and events of default for facilities of this type, and are cross-collateralized and cross-defaulted. Collateral for the Credit Facilities consist of substantially all of our personal property. Wells Fargo Bank has a first lien on all collateral other than equipment, and Wells Fargo Equipment Finance has a first lien on equipment. At August 1, 2015, the Company was in compliance with all debt covenants.

Borrowings under the Credit Agreement shall be either Base Rate Loans or LIBO Rate Loans. LIBO Rate Loans bear interest equal to the Adjusted LIBO Rate plus the Applicable Margin (125 to 175 basis points) depending on the Quarterly Average Excess Availability. Base Rate Loans bear interest equal to the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the Adjusted LIBO Rate plus one percent (1.00%), or (c) the Wells Fargo “prime rate,” plus the Applicable Margin (25 to 75 basis points).

Borrowings under the Equipment Term Loan shall be LIBO Rate plus 2%.

The weighted average interest rate for amounts outstanding under the Credit Agreement and Equipment Term Loan were 1.74 percent and 2.19 percent, respectively, as of August 1, 2015.

5. Shareholders’ Equity

Dividends

During 2015, we paid a special cash dividend of $5.00 per common share on February 27, 2015 and two quarterly dividends of $0.075 per common share on April 17, 2015 and July 17, 2015. In 2014, we paid quarterly dividends of $0.05 per common share on April 18, 2014 and $0.075 per common share on July 18, 2014.

Stock Repurchase Plan

During the 26 weeks ended August 1, 2015, we repurchased 198,973 shares of our common stock at a total cost of $3.1 million. During the 26 weeks ended August 2, 2014, we repurchased 222,494 shares of our common stock at a total cost of $2.8 million. Stock repurchases were for tax withholding amounts due on the vesting of employee stock awards and during the first half of 2015 included no shares purchased on the open market under our previously authorized stock repurchase plan. As of August 1, 2015, there are 284,137 shares that can be repurchased pursuant to the Board of Director’s current authorization.

6. Earnings Per Share

We calculate earnings per common share (“EPS”) using the two-class method. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS. Our restricted stock awards in 2013 and prior are considered “participating securities” because they contain non-forfeitable rights to dividends.

 

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The following table presents the calculation of basic and diluted EPS (shares in thousands):

 

		13 Weeks Ended August 1, 2015				13 Weeks Ended August 2, 2014				26 Weeks Ended August 1, 2015				26 Weeks Ended August 2, 2014
Basic Earnings Per Common Share:
Net income		$	4,094			$	1,737			$	17,658			$	15,812
Income allocated to participating securities			34				24				113				309
Net income available to common shareholders		$	4,060			$	1,713			$	17,545			$	15,503
Basic weighted-average shares outstanding			44,710				43,814				44,661				43,822
Basic earnings per share		$	0.09			$	0.04			$	0.39			$	0.35
Diluted Earnings Per Common Share:
Net income		$	4,094			$	1,737			$	17,658			$	15,812
Income allocated to participating securities			34				24				163				306
Net income available to common shareholders		$	4,060			$	1,713			$	17,495			$	15,506
Basic weighted-average shares outstanding			44,710				43,814				44,661				43,822
Incremental shares from share-based compensation plans			1,216				890				1,185				758
Diluted weighted-average shares outstanding			45,926				44,704				45,846				44,580
Diluted earnings per share		$	0.09			$	0.04			$	0.38			$	0.35

Options to acquire shares totaling approximately 0.5 million and 0.3 million shares of common stock that were outstanding during the second quarters of 2015 and 2014, respectively, were not included in the computation of diluted earnings per common share. Options excluded were those that had exercise prices greater than the average market price of the common shares such that inclusion would have been anti-dilutive. For the first half of 2015 and 2014, options to acquire shares of approximately 0.2 million shares of common stock, each, were not included in the computation of diluted earnings per share for the aforementioned reasons.

7. Commitments and Contingencies

On July 24, 2013, the Securities and Exchange Commission (the “SEC”) informed us that it was conducting an investigation of the Company and made a request for voluntary production of documents and information. The request is focused on our restatement of 2012 and prior consolidated financial statements and our 2013 change in auditors. We are cooperating fully with the SEC in this matter. We have recognized $0.2 million and $1.3 million of expenses related to the SEC investigation during the first half of 2015 and 2014, net of expected insurance recoveries, respectively. A protracted investigation could impose substantial costs, regardless of its outcome. There can be no assurance that any final resolution of this investigation will not have a material and adverse effect on the Company’s financial condition and results of operations.

We are involved in various routine legal proceedings incidental to the conduct of our business. Management, based upon the advice of outside legal counsel, does not believe that any of these legal proceedings will have a material adverse effect on our financial condition, results of operations or cash flows.

 

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STEIN MART, INC.

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used herein, the terms “we,” “our,” “us,” “Stein Mart” and the “Company” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Forward-Looking Statements

This report contains forward-looking statements which are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including, but not limited to the matters discussed in “Item 1A. Risk Factors” of our Form 10-K for the fiscal year ended January 31, 2015. Wherever used, the words “plan,” “expect,” “anticipate,” “believe,” “estimate” and similar expressions identify forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise our forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.

Overview

We are a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices comparable to off-price retail chains. Our focused assortment of merchandise features current-season moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions.

Financial Overview for the 13 and 26 weeks ended August 1, 2015

 

•

Net sales were $311.6 million for the 13 weeks ended August 1, 2015, an increase from $298.2 million for the 13 weeks ended August 2, 2014, and $665.1 million for the 26 weeks ended August 1, 2015, an increase from $627.0 million for the 26 weeks ended August 2, 2014.

 

•

Comparable store sales for the 13 weeks ended August 1, 2015 increased 3.0 percent compared to the 13 weeks ended August 2, 2014, and for the 26 weeks ended August 1, 2015 increased 4.0 percent compared to the 26 weeks ended August 2, 2014.

 

•

Net income was $4.1 million or $0.09 per diluted share for the 13 weeks ended August 1, 2015, compared to net income of $1.7 million or $0.04 per diluted share for the 13 weeks ended August 2, 2014.

 

•

Net income was $17.7 million or $0.38 per diluted share for the 26 weeks ended August 1, 2015 compared to net income of $15.8 million or $0.35 per diluted share for the 26 weeks ended August 2, 2014.

 

•

On February 27, 2015, the Company paid a special cash dividend of $5.00 per common share. The payment made in connection with this dividend was approximately $226 million, and was funded by existing cash and initial borrowings of $185 million on our $275 million Credit Facilities.

 

•

We had $170.2 million of direct borrowings on our Credit Facilities as of August 1, 2015 and no direct borrowings as of January 31, 2015 and August 2, 2014.

Stores

The following table sets forth the stores activity for the 13 and 26 weeks ended August 1, 2015 and August 2, 2014.

 

		13 Weeks Ended				13 Weeks Ended				26 Weeks Ended				26 Weeks Ended
		August 1, 2015				August 2, 2014				August 1, 2015				August 2, 2014
Stores at beginning of period			270				263				270				264
Stores opened during the period			—				2				1				3
Stores closed during the period			(1	)			—				(2	)			(2	)
Stores at the end of period			269				265				269				265

 

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Results of Operations

The following table sets forth each line item of our Condensed Consolidated Statements of Income expressed as a percentage of net sales:

 

		13 Weeks Ended				13 Weeks Ended				26 Weeks Ended				26 Weeks Ended
		August 1, 2015				August 2, 2014				August 1, 2015				August 2, 2014
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of merchandise sold			71.5	%			71.7	%			70.3	%			69.9	%
Gross profit			28.5	%			28.3	%			29.7	%			30.1	%
Selling, general and administrative expenses			26.1	%			27.4	%			25.1	%			26.0	%
Income from operations			2.4	%			0.9	%			4.6	%			4.1	%
Interest expense, net			0.3	%			0.0	%			0.2	%			0.0	%
Income before income taxes			2.1	%			0.9	%			4.4	%			4.1	%
Income tax expense			0.8	%			0.3	%			1.7	%			1.6	%
Net income			1.3	%			0.6	%			2.7	%			2.5	%

Thirteen and Twenty-Six Weeks Ended August 1, 2015, Compared to the Thirteen and Twenty-Six Weeks Ended August 2, 2014 (dollar amounts in thousands):

Net Sales

 

		13 Weeks Ended				13 Weeks Ended								26 Weeks Ended				26 Weeks Ended
		August 1, 2015				August 2, 2014				Increase				August 1, 2015				August 2, 2014				Increase
Net sales		$	311,583			$	298,157			$	13,426			$	665,104			$	627,011			$	38,093
Sales percent increase:
Total net sales											4.5	%											6.1	%
Comparable store sales											3.0	%											4.0	%

The increase in comparable stores sales for the 13 and 26 weeks ended August 1, 2015 was driven by increases in the number of transactions, average unit retail prices, and average units per transaction. Comparable store sales reflect stores open throughout the period and prior fiscal year and include e-commerce sales. E-commerce sales contributed approximately 0.8 percent to the comparable store sales for the 13 and 26 weeks ended August 1, 2015. Comparable store sales do not include leased department commissions.

Gross Profit

 

		13 Weeks Ended				13 Weeks Ended								26 Weeks Ended				26 Weeks Ended				Increase/
		August 1, 2015				August 2, 2014				Increase				August 1, 2015				August 2, 2014				(Decrease)
Gross profit		$	88,935			$	84,244			$	4,691			$	197,315			$	188,570			$	8,745
Percentage of net sales			28.5	%			28.3	%			0.2	%			29.7	%			30.1	%			(0.4	)%

For the 13 weeks ended August 1, 2015, gross profit as a percent of sales increased as a result of higher markup and slightly lower markdowns, partially offset by higher occupancy costs.

For the 26 weeks ended August 1, 2015, gross profit as a percentage of sales decreased as a result of higher markdowns in the first quarter of 2015 to clear fall merchandise, the timing and amount of buying and distribution expenses allocated to cost of sales, higher fulfillment costs on our increasing e-commerce sales, and slightly higher occupancy costs, partially offset by higher markup.

Selling, General and Administrative Expenses (“SG&A”)

 

		13 Weeks Ended				13 Weeks Ended				Increase/				26 Weeks Ended				26 Weeks Ended				Increase/
		August 1, 2015				August 2, 2014				(Decrease)				August 1, 2015				August 2, 2014				(Decrease)
Selling, general and administrative expenses		$	81,545			$	81,451			$	94			$	167,167			$	162,680			$	4,487
Percentage of net sales			26.1	%			27.4	%			(1.3	)%			25.1	%			26.0	%			(0.9	)%

 

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For the 13 weeks ended August 1, 2015, SG&A expenses as a percentage of sales decreased primarily due to lower professional fees related to the SEC investigation, as well as improved leverage of store selling and advertising costs and slightly lower healthcare costs.

For the 26 weeks ended August 1, 2015, SG&A expenses as a percentage of sales decreased primarily due to the aforementioned items and are partially offset by higher earnings-based incentive compensation expense.

Interest Expense

 

		13 Weeks Ended				13 Weeks Ended								26 Weeks Ended				26 Weeks Ended
		August 1, 2015				August 2, 2014				Increase				August 1, 2015				August 2, 2014				Increase
Interest expense		$	807			$	69			$	738			$	1,493			$	134			$	1,359
Percentage of net sales			0.3	%			0.0	%			0.3	%			0.2	%			0.0	%			0.2	%

Interest expense increased for the 13 and 26 weeks ended August 1, 2015 due to borrowings in 2015 on our Credit Facilities.

Income Taxes

 

		13 Weeks Ended				13 Weeks Ended								26 Weeks Ended				26 Weeks Ended				Increase/
		August 1, 2015				August 2, 2014				Increase				August 1, 2015				August 2, 2014				(Decrease)
Income tax expense		$	2,489			$	987			$	1,502			$	10,997			$	9,944			$	1,053
Effective tax rate			37.8	%			36.2	%			1.6	%			38.4	%			38.6	%			(0.2	)%

Liquidity and Capital Resources

Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors, and our $250 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement with Wells Fargo Bank. See Note 4 of the Condensed Consolidated Financial Statements for further discussion. Working capital is used to support store inventories and capital investments for system improvements, new store openings and to maintain existing stores. Historically, our investments in working capital are lowest in August and September, after our heavy spring selling season and in February after the holiday selling season. Investments in working capital are highest in April, October and November as we begin procuring and paying for merchandise to support our heavy spring and holiday seasons. As of August 1, 2015, we had cash and cash equivalents of $11.6 million and $170.2 million in borrowings under our Credit Facilities.

Net cash provided by operating activities was $27.4 million for the 26 weeks ended August 1, 2015 compared to net cash provided by operating activities of $15.7 million for the 26 weeks ended August 2, 2014. The increase in cash provided by operating activities was primarily due to fewer investments in inventory and changes in accounts payables and higher net income, partially offset by other non-cash changes.

Net cash used in investing activities is for capital expenditures and was $19.8 million for the 26 weeks ended August 1, 2015 compared to $22.3 million for the 26 weeks ended August 2, 2014. Capital expenditures were lower for the 26 weeks ended August 1, 2015 primarily due to fewer information technology related projects in 2015 compared to 2014.

Net cash used in financing activities was $61.3 million for the 26 weeks ended August 1, 2015 compared to cash used in financing activities of $7.2 million for the 26 weeks ended August 2, 2014. During 2015, we had proceeds from borrowings of $409.4 million and repayments of debt for $239.2 million. Borrowings under the Credit Facilities were initially used to pay a $5 per share special dividend, but were subsequently used for working capital, capital expenditures and other general corporate purposes. We paid cash dividends of $232.3 million during the 26 weeks ended August 1, 2015. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for further discussion. In addition, we repurchased shares of common stock for $3.1 million. During 2014, we paid cash dividends of $5.6 million and repurchased shares of common stock for $2.8 million.

Critical Accounting Policies and Estimates

We discuss our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended January 31, 2015. We have made no significant change in our critical accounting policies since January 31, 2015.

Recent Accounting Pronouncement

Recently issued accounting pronouncements are discussed in Note 1 of the Notes to the Condensed Consolidated Financial Statements.

 

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Seasonality and Inflation

Our business is seasonal. Sales and profitability are historically higher in the first and fourth quarters of the fiscal year, which include the spring and holiday seasons. Therefore, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Although we expect that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by such factors in the future.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our annual report on Form 10-K for the year ended January 31, 2015. There were no material changes to our market risk during the quarter ended August 1, 2015.

 

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of August 1, 2015 to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

Legal proceedings are discussed in Note 7 of the Notes to the Condensed Consolidated Financial Statements.

 

ITEM 1A.

RISK FACTORS

There have been no significant changes in our risk factors from those described in our annual report on Form 10-K for the year ended January 31, 2015.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding repurchases of our common stock during the quarter ended August 1, 2015:

 

ISSUER PURCHASES OF EQUITY SECURITIES
Period		Total number of shares purchased				Average price paid per share				Total number of shares purchased as part of publicly announced plans or programs (1)				Maximum number of shares that may yet be purchased under the plans or programs (1)
May 3, 2015 – May 30, 2015			532			$	11.52				532				292,438
May 31, 2015 – July 4, 2015			6,764				10.87				6,764				285,674
July 5, 2015 – August 1, 2015			1,537				10.28				1,537				284,137
Total			8,833			$	10.80				8,833				284,137

 

(1)	Our Open Market Repurchase Program is conducted pursuant to authorizations made from time to time by our Board of Directors.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

 

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ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5.

OTHER INFORMATION

On June 19, 2015, the Company entered into an immaterial amendment of its credit card program agreement with Synchrony Bank. A copy of this amendment is attached hereto as Exhibit 10.1.

 

ITEM 6.

EXHIBITS

 

10.1		First Amendment to Amended and Restated Co-Brand and Private Label Credit Card Program Agreement dated June 19, 2015 by and between Synchrony Bank and Stein Mart, Inc.
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
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
101		Interactive data files from Stein Mart, Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

				STEIN MART, INC.
Date:  September 3, 2015				By:		/s/ Jay Stein
						Jay Stein
						Chairman of the Board and Chief Executive Officer
						/s/ Gregory W. Kleffner
						Gregory W. Kleffner
						Executive Vice President and Chief Financial Officer

 

17

Exhibit 10.1

FIRST AMENDMENT TO

AMENDED AND RESTATED CO-BRAND AND PRIVATE LABEL CREDIT CARD PROGRAM

AGREEMENT

This First Amendment to the Amended and Restated Co-Brand and Private Label Credit Card Program Agreement (this “First Amendment”), effective as of June 19, 2015 is entered into by and between Synchrony Bank (formerly “GE Capital Retail Bank”) (“Bank”) and Stein Mart, Inc. (“Retailer”) (the “Agreement”)

WHEREAS, Retailer and the Bank have entered into the Agreement, dated October 3, 2011, pursuant to which the Bank issues Co-Brand and Private Label Credit Cards to Retailer’s customers;

WHEREAS, Retailer and Bank now wish to amend the Agreement to include the terms set forth herein.

NOW THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged, the parties hereby agree as follows intending to be legally bound:

1. Unless otherwise expressly defined in this First Amendment, all capitalized terms herein will have the meanings ascribed to them in the Agreement.

2. Schedule 10.2(p) (Financial Covenants). The parties agree that Section A of Schedule 10.2(p) of the Agreement is hereby amended by deleting Section A in its entirety and replacing it with the following new Section:

“A. Financial Covenants:

Debt to Equity Ratio: Retailer shall maintain on a consolidated basis, as of the end of each fiscal quarter of Retailer, a Debt to Equity Ratio of not more than 3.5 to 1.0.

Minimum Tangible Net Worth: The Tangible Net Worth of Retailer on a consolidated basis, as of the end of each fiscal quarter of Retailer, shall not be less than $50,000,000.”

3. Except as expressly provided in this First Amendment, nothing in this First Amendment will be deemed to waive or modify any of the provisions of the Agreement, or any amendment or addendum to the Agreement. To the extent that any conflict or inconsistency exists between the terms of this First Amendment and the Agreement, the terms of this First Amendment will control.

4. This First Amendment will be governed by the laws of the State of Delaware, without regard to its or any other jurisdiction’s principles of conflict of law.

5. This First Amendment may be executed in counterparts, each of which, when so executed, will be deemed an original, provided that all such counterparts will be regarded as one and the same document.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the parties have executed this First Amendment as of the dates set forth below.

 

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)

I, Jay Stein, certify that:

 

1.	I have reviewed this report on Form 10-Q of Stein Mart, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  September 3, 2015						/s/ Jay Stein
						Jay Stein
						Chairman of the Board and Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)

I, Gregory W. Kleffner, certify that:

 

1.	I have reviewed this report on Form 10-Q of Stein Mart, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  September 3, 2015						/s/ Gregory W. Kleffner
						Gregory W. Kleffner
						Executive Vice President and Chief Financial Officer

 

Exhibit 32.1

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2015 of Stein Mart, Inc. (the “Form 10-Q”), I, Jay Stein, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.	The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:  September 3, 2015						/s/ Jay Stein
						Jay Stein
						Chairman of the Board and Chief Executive Officer

Exhibit 32.2

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2015 of Stein Mart, Inc. (the “Form 10-Q”), I, Gregory W. Kleffner, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.	The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:  September 3, 2015						/s/ Gregory W. Kleffner
						Gregory W. Kleffner
						Executive Vice President and Chief Financial Officer