SMRT Stein Mart Inc

Highlights

Stein Mart, Inc. (NASDAQ:SMRT) today announced financial results for the fourth quarter and fiscal year ended January 30, 2016.

Overview of ResultsNet income for the fourth quarter was $6.3 million or $0.13 per diluted share compared to net income of $12.3 million or $0.27 per diluted share in 2014. Fourth quarter adjusted net income was $8.0 million or $0.17 per diluted share in 2015 compared to adjusted net income of $14.6 million or $0.32 per diluted share in 2014 (see Note 1). Fourth quarter 2015 results were significantly impacted by higher markdowns.

For the year, net income was $23.7 million or $0.51 per diluted share compared to $26.9 million or $0.59 per diluted share in 2014.  Adjusted net income was $27.2 million or $0.58 per diluted share for 2015 compared to adjusted net income of $33.0 million or $0.72 per diluted share for 2014 (see Note 1). The year 2015 includes $3.0 million, or $0.04 per diluted share, higher interest expense. Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the year was $80.1 million compared to $87.0 million in 2014 (see Note 2).

Comments on Results“Disappointing fourth quarter sales and a more promotional holiday selling season drove our results lower than the prior year. Our fourth quarter gross profit rate was lower as we made appropriate valuation decisions on inventories,” said Jay Stein, Chief Executive Officer. “On a positive note, we increased our comparable store sales for the year, had solid sales growth from ten new stores and controlled our expenses well. We also ended the year with acceptable inventory levels going into our strong spring selling season.”

SalesTotal sales for the fourth quarter of 2015 increased 1.8 percent to $394.1 million, while comparable store sales decreased 1.1 percent. For the year 2015, total sales increased 3.2 percent to $1.36 billion, while comparable store sales increased 1.0 percent. Sales from our ecommerce business increased by 70 percent in 2015 and were a 70 basis point lift to comparable store sales results in both the fourth quarter and the year.

Gross ProfitGross profit for the fourth quarter of 2015 was $105.8 million or 26.8 percent of sales compared to $113.6 million or 29.4 percent of sales in 2014. The decrease in the gross profit rate is due to higher markdowns from lower than planned sales and an elevated promotional environment during the holiday selling season. Additionally, fall inventories levels were higher after the holiday selling season and required additional markdowns.

Gross profit for the year 2015 was $385.3 million or 28.3 percent of sales compared to $386.7 million or 29.3 percent of sales in 2014. The decrease in the gross profit rate for the year was primarily due to the fourth quarter impact discussed above.

Selling, General and Administrative ExpensesSelling, general and administrative (SG&A) expenses for the fourth quarter of 2015 were $95.1 million or 24.1 percent of sales compared to $93.1 million or 24.0 percent of sales in 2014. The $2.0 million increase in SG&A expenses is primarily the result of higher operating expenses for new stores and higher asset impairment charges, offset by lower earnings-based incentive compensation and SEC investigation fees (see Note 1).

SG&A expenses were $343.7 million for the year compared to $342.0 million in 2014. SEC investigation costs, net of insurance recoveries were $51 thousand in 2015 compared to $4.1 million in 2014 (see Note 1). Excluding these costs, SG&A expenses would be $343.7 million or 25.3 percent of sales compared to $338.0 million or 25.6 percent of sales in 2014.

Interest Expense and DebtInterest expense for the fourth quarter of 2015 was $0.9 million compared to $0.1 million in 2014, decreasing earnings $0.01 per diluted share. For the year, interest expense was $3.3 million compared to $0.3 million in 2014, decreasing earnings $0.04 per diluted share. Interest expense is higher this year due to borrowings on our credit facilities which were used to partially fund a $226 million special dividend paid in February 2015.

Borrowings under our credit facilities were $190 million at the end of the year. Unused availability was $74 million at the end of the year.

InventoriesInventories were $294 million at the end of 2015 compared to $286 million at the end of 2014 reflecting additional stores. Average inventories for our comparable stores, not including ecommerce, were down 1.5 percent from last year.

Store ActivityWe had 278 stores at the end of 2015 compared to 270 at the end of 2014. Ten new stores were opened and two were closed in 2015.

2016 Outlook     We expect the following factors to influence our business in 2016:  

• We opened 5 new stores today and currently plan to open at least 7 new stores in October and November for a total plan of at least 12 stores.
  • We currently plan to close one and relocate two stores
  • New stores should increase sales an estimated 4 percent above our comparable store sales increases for the year   
• We expect our gross profit rate to be 50 basis points higher than 2015   
• SG&A expenses are expected to be approximately $370 million with the increase primarily due to new stores and planned payroll increases
• Interest expense is estimated to be about the same as in 2015
• The effective tax rate for the year is estimated to be 38.5 percent.
• Capital expenditures for 2016 are expected to be approximately $43 million, or $33 million net of tenant improvement allowances.

Filing of Form 10-KReported results are preliminary and not final until the filing of our Form 10-K for the fiscal year ended January 30, 2016 with the Securities and Exchange Commission (“SEC”), and therefore remain subject to adjustment.

Conference CallA conference call for investment analysts to discuss the Company’s fourth quarter and fiscal year 2015 results will be held at 10 a.m. EST on March 10, 2016. The call may be heard on the investor relations portion of the Company’s website at http://ir.steinmart.com. A replay of the conference call will be available on the website through April 30, 2016.

Investor PresentationStein Mart’s fiscal 2015 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 stores offer the fashion merchandise, service and presentation of a better department or specialty store, at prices competitive with off-price retail chains. With 278 locations from California to Massachusetts, as well as steinmart.com, Stein Mart’s focused assortment of merchandise features current season, moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions.  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: consumer sensitivity to economic conditions, competition in the retail industry, changes in consumer preferences and fashion trends, ability to implement our strategic plans to sustain profitable growth, effectiveness of advertising and marketing, capital availability and debt levels, 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 Securities and Exchange Commission.

SMRT-F

Additional information about Stein Mart, Inc. can be found at www.steinmart.com

Stein Mart, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except for share and per share data)
		January 30, 2016			January 31, 2015
ASSETS
Current assets:
Cash and cash equivalents		$	11,830		$	65,314
Inventories			293,608			285,623
Prepaid expenses and other current assets			18,586			19,340
Total current assets			324,024			370,277
Property and equipment, net			162,954			148,782
Other assets			29,247			30,768
Total assets		$	516,225		$	549,827
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	105,569		$	129,924
Current portion of debt			10,000			-
Accrued expenses and other current liabilities			71,571			69,213
Total current liabilities			187,140			199,137
Long-term debt			180,150			-
Deferred rent			41,146			31,284
Other liabilities			31,472			34,468
Total liabilities			439,908			264,889
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; 45,814,583 and 44,918,649
shares issued and outstanding, respectively			458			449
Additional paid-in capital			42,801			34,875
Retained earnings			33,337			250,046
Accumulated other comprehensive loss			(279	)		(432	)
Total shareholders’ equity			76,317			284,938
Total liabilities and shareholders’ equity		$	516,225		$	549,827

Stein Mart, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
	13 Weeks Ended			13 Weeks Ended			52 Weeks Ended			52 Weeks Ended
	January 30, 2016			January 31, 2015			January 30, 2016			January 31, 2015
	(Unaudited)						(Unaudited)
Net sales	$	394,132		$	386,999		$	1,359,901		$	1,317,677
Cost of merchandise sold		288,328			273,394			974,614			930,941
Gross profit		105,804			113,605			385,287			386,736
Selling, general and administrative expenses		95,093			93,070			343,724			342,027
Operating income		10,711			20,535			41,563			44,709
Interest expense, net		899			66			3,283			266
Income before income taxes		9,812			20,469			38,280			44,443
Income tax expense		3,562			8,164			14,569			17,537
Net income	$	6,250		$	12,305		$	23,711		$	26,906
Net income per share:
Basic	$	0.14		$	0.28		$	0.52		$	0.60
Diluted	$	0.13		$	0.27		$	0.51		$	0.59
Weighted-average shares outstanding:
Basic		44,905			43,898			44,754			43,850
Diluted		46,061			45,004			45,953			44,749

Stein Mart, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
	13 Weeks Ended			13 Weeks Ended			52 Weeks Ended			52 Weeks Ended
	January 30, 2016			January 31, 2015			January 30, 2016			January 31, 2015
	(Unaudited)						(Unaudited)
Net income	$	6,250		$	12,305		$	23,711		$	26,906
Other comprehensive income, net of tax:
Other comprehensive income (loss) before reclassifications		137			(181	)		137			(181	)
Amounts reclassified from accumulated other
comprehensive income		4			2			16			10
Comprehensive income	$	6,391		$	12,126		$	23,864		$	26,735

Stein Mart, Inc.
Consolidated Statements of Cash Flows
(In thousands)
		Year Ended			Year Ended
		January 30, 2016			January 31, 2015
Cash flows from operating activities:		(Unaudited)
Net income		$	23,711		$	26,906
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,873			29,116
Share-based compensation			6,516			7,596
Store closing charges			7			25
Impairment of property and other assets			2,008			1,480
Loss on disposal of property and equipment			167			319
Deferred income taxes			(5,121	)		1,201
Tax benefit from equity issuances			3,646			1,813
Excess tax benefits from share-based compensation			(3,932	)		(1,942	)
Changes in assets and liabilities:
Inventories			(7,985	)		(24,106	)
Prepaid expenses and other current assets			806			5,096
Other assets			2,045			(3,114	)
Accounts payable			(24,438	)		(1,237	)
Accrued expenses and other current liabilities			(316	)		4,307
Other liabilities			11,425			4,971
Net cash provided by operating activities			38,412			52,431
Cash flows from investing activities:
Net acquisition of property and equipment			(44,365	)		(40,231	)
Change in cash surrender value of life insurance			-			(111	)
Net cash used in investing activities			(44,365	)		(40,342	)
Cash flows from financing activities:
Proceeds from borrowings			673,312			-
Repayments of debt			(483,079	)		-
Debit issuance costs			(380	)		-
Cash dividends paid			(239,089	)		(12,295	)
Excess tax benefits from share-based compensation			3,932			1,942
Proceeds from exercise of stock options and other			1,339			868
Repurchase of common stock			(3,566	)		(4,144	)
Net cash used in financing activities			(47,531	)		(13,629	)
Net decrease in cash and cash equivalents			(53,484	)		(1,540	)
Cash and cash equivalents at beginning of year			65,314			66,854
Cash and cash equivalents at end of year		$	11,830		$	65,314

NOTES TO PRESS RELEASE

Note 1 - Adjusted ResultsWe 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, Net Income and Diluted EPS from GAAP Basis to Adjusted Non-GAAP Basis
Unaudited (in thousands, except for share data)
			13 Weeks Ended January 30, 2016													13 Weeks Ended January 31, 2015
			Operating Income			Tax Provision			Net Income			Diluted EPS				Operating Income			Tax Provision			Net Income			Diluted EPS
GAAP Basis			$	10,711		$	3,562		$	6,250		$	0.13			$	20,535		$	8,164		$	12,305		$	0.27
Adjustments:
		Ecommerce losses		1,013			385			628			0.01				588			223			365			0.01
		SEC investigation costs (1)		(166	)		(63	)		(103	)		-				1,136			52			1,084			0.02
		Store closing & impairment charges		2,008			763			1,245			0.03				1,443			548			895			0.02
		Total adjustments		2,855			1,085			1,770			0.04				3,167			823			2,344			0.05
Adjusted Non-GAAP Basis			$	13,566		$	4,647		$	8,020		$	0.17			$	23,702		$	8,987		$	14,649		$	0.32

			52 Weeks Ended January 30, 2016													52 Weeks Ended January 31, 2015
			Operating Income			Tax Provision			Net Income			Diluted EPS				Operating Income			Tax Provision			Net Income			Diluted EPS
GAAP Basis			$	41,563		$	14,569		$	23,711		$	0.51			$	44,709		$	17,537		$	26,906		$	0.59
Adjustments:
		Ecommerce losses		3,565			1,355			2,210			0.04				2,624			997			1,627			0.04
		SEC investigation costs (1)		51			19			32			-				4,058			1,162			2,896			0.06
		Store closing & impairment charges		2,035			773			1,262			0.03				2,481			943			1,538			0.03
		Total adjustments		5,651			2,147			3,504			0.07				9,163			3,102			6,061			0.13
Adjusted Non-GAAP Basis			$	47,214		$	16,716		$	27,215		$	0.58			$	53,872		$	20,639		$	32,967		$	0.72

(1) Professional fees and other expenses, net of insurance recoveries, related to the SEC investigation into our 2012 financial restatement which was settled in September 2015.

Note 2 - EBITDAAs used in this release, 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.

		Reconciliation of Net Income to EBITDA and Adjusted EBITDA
		Unaudited (in thousands)
							52 Weeks			52 Weeks
							Ended			Ended
							Jan. 30, 2016			Jan. 31, 2015
			Net income				$	23,711		$	26,906
			Add back amounts for computation of EBITDA:
					Interest expense, net			3,283			266
					Income tax expense			14,569			17,537
					Depreciation and amortization			29,873			29,116
	EBITDA							71,436			73,825
	Adjustments:
			Ecommerce losses					3,565			2,624
			SEC Investigation costs					51			4,058
			Store closing & impairment charges					2,035			2,481
			Pre-opening costs					3,036			4,049
				Total adjustments				8,687			13,212
	Adjusted EBITDA						$	80,123		$	87,037

 

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