Notes to Condensed Consolidated Financial Statements
(Unaudited)
adoption permitted for annual and interim reporting periods beginning after December 15, 2016. We have 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. While we are still in the process of evaluating the effect, and the method of adoption, that these
ASUs may have on our financial statements, we do not currently expect a material effect on our financial condition, results of operations or cash flows.
2. Shareholders Equity
Dividends
During the 26 weeks ended July 30, 2016, we paid two quarterly dividends of $0.075 per common share on April 15, 2016 and July 15, 2016. During
the 26 weeks ended August 1, 2015, we paid two quarterly dividends of $0.075 per common share on April 17, 2015 and July 17, 2015.
On
February 4, 2015, we announced that our Board of Directors declared a special cash dividend of $5.00 per common share which was paid on February 27, 2015. As a result of the special cash dividend, all outstanding stock options and performance share
awards were modified during 2015 so that they retained the same fair value. No incremental compensation expense resulted from these modifications.
Stock Repurchase Plan
During the 13
weeks ended July 30, 2016, we repurchased 7,376 shares of our common stock at a total cost of approximately $0.1 million. During the 13 weeks ended August 1, 2015, we repurchased 8,833 shares of our common stock at a total cost of approximately $0.1
million. During the 26 weeks ended July 30, 2016, we repurchased 150,658 shares of our common stock at a total cost of approximately $1.0 million. During the 26 weeks ended August 1, 2015, we repurchased 198,973 shares of our common stock at a total
cost of approximately $3.1 million. Stock repurchases were for tax withholding amounts due on employee stock awards and during the first half of 2016 and 2015 included no shares purchased on the open market under our previously authorized stock
repurchase plan. As of July 30, 2016, there are 570,216 shares that can be repurchased pursuant to the Board of Directors current authorization.
3. Earnings per Share
Our restricted
stock awards granted in 2013 and prior contain non-forfeitable rights to dividends and, as such, are considered participating securities. Participating securities are to be included in the calculation of earnings per share under the two-class
method. In applying the two-class method, income is allocated to both common stock shares and participating securities based on their respective weighted-average shares outstanding for the period.
8
The following table presents the calculation of basic and diluted earnings per share (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
Basic Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,007
|
|
|
$
|
4,094
|
|
|
$
|
16,318
|
|
|
$
|
17,658
|
|
Income allocated to participating securities
|
|
|
5
|
|
|
|
34
|
|
|
|
36
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
3,002
|
|
|
$
|
4,060
|
|
|
$
|
16,282
|
|
|
$
|
17,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
45,719
|
|
|
|
44,710
|
|
|
|
45,657
|
|
|
|
44,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
|
$
|
0.36
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,007
|
|
|
$
|
4,094
|
|
|
$
|
16,318
|
|
|
$
|
17,658
|
|
Income allocated to participating securities
|
|
|
5
|
|
|
|
34
|
|
|
|
35
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
3,002
|
|
|
$
|
4,060
|
|
|
$
|
16,283
|
|
|
$
|
17,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
45,719
|
|
|
|
44,710
|
|
|
|
45,657
|
|
|
|
44,661
|
|
Incremental shares from share-based compensation plans
|
|
|
836
|
|
|
|
1,216
|
|
|
|
758
|
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
46,555
|
|
|
|
45,926
|
|
|
|
46,415
|
|
|
|
45,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.06
|
|
|
$
|
0.09
|
|
|
$
|
0.35
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options totaling approximately 2.5 million and 1.9 million shares of common stock that were outstanding during
the 13 and 26 weeks ended July 30, 2016, respectively, were not included in the computation of diluted earnings per common share because their inclusion would have been anti-dilutive. Options totaling approximately 0.5 million and 0.2 million shares
of common stock that were outstanding during the 13 and 26 weeks ended August 1, 2015, respectively, were not included in the computation of diluted earnings per common share because their inclusion would have been anti-dilutive.
4. Commitments and Contingencies
We are
involved in various routine legal proceedings incidental to the conduct of our business. During the 13 weeks ended July 30, 2016 and August 1, 2015, we accrued $0.4 million and less than $0.1 million, respectively, and during the 26 weeks ended July
30, 2016 and August 1, 2015, we accrued $1.8 million and $0.1 million, respectively, for actual and anticipated legal settlements. While some of these matters could be material to our results of operations or cash flows for any particular period if
an unfavorable outcome results, we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our overall financial condition.
9
Stein Mart, Inc.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein, the terms we, our, us and Stein Mart refer to Stein Mart, Inc. and its
wholly-owned subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995, 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 Annual Report on Form 10-K for the fiscal
year ended January 30, 2016. 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.
The following discussion and analysis should be read in conjunction with
the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 30, 2016, filed with the Securities and Exchange Commission (SEC) on April 11, 2016.
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
July 30, 2016
|
|
Net sales were $319.8 million for the 13 weeks ended July 30, 2016 compared to $311.6 million for the 13 weeks
ended August 1, 2015, and $675.5 million for the 26 weeks ended July 30, 2016 compared to $665.1 million for the 26 weeks ended August 1, 2015.
|
|
|
Comparable store sales for the 13 weeks ended July 30, 2016 decreased 1.4 percent compared to the 13 weeks
ended August 1, 2015, and for the 26 weeks ended July 30, 2016 decreased 2.5 percent compared to the 26 weeks ended August 1, 2015.
|
|
|
Net income for the 13 weeks ended July 30, 2016 was $3.0 million, or $0.06 per diluted share, compared to net
income of $4.1 million, or $0.09 per diluted share, for the 13 weeks ended August 1, 2015.
|
|
|
Net income for the 26 weeks ended July 30, 2016 was $16.3 million, or $0.35 per diluted share, compared to net
income of $17.7 million, or $0.38 per diluted share, for the 26 weeks ended August 1, 2015.
|
|
|
We had $167.4 million, $190.2 million and $170.2 million of direct borrowings on our credit facilities as of
July 30, 2016, January 30, 2016 and August 1, 2015, respectively.
|
Stores
The following table sets forth the stores activity for the 13 and 26 weeks ended July 30, 2016 and August 1, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
Stores at beginning of period
|
|
|
283
|
|
|
|
270
|
|
|
|
278
|
|
|
|
270
|
|
Stores opened during the period
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
Stores closed during the period
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores at the end of period
|
|
|
283
|
|
|
|
269
|
|
|
|
283
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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 (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of merchandise sold
|
|
|
72.0
|
%
|
|
|
71.5
|
%
|
|
|
70.6
|
%
|
|
|
70.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
28.0
|
%
|
|
|
28.5
|
%
|
|
|
29.4
|
%
|
|
|
29.7
|
%
|
Selling, general and administrative expenses
|
|
|
26.2
|
%
|
|
|
26.2
|
%
|
|
|
25.2
|
%
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1.8
|
%
|
|
|
2.4
|
%
|
|
|
4.2
|
%
|
|
|
4.5
|
%
|
Interest expense, net
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1.5
|
%
|
|
|
2.1
|
%
|
|
|
3.9
|
%
|
|
|
4.3
|
%
|
Income tax expense
|
|
|
0.5
|
%
|
|
|
0.8
|
%
|
|
|
1.5
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
0.9
|
%
|
|
|
1.3
|
%
|
|
|
2.4
|
%
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Table may not foot, due to rounding.
|
13 and 26 Weeks Ended July 30, 2016, Compared to the 13 and 26 Weeks
Ended August 1, 2015 (dollar amounts in thousands):
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
Increase/
(Decrease)
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
|
Increase/
(Decrease)
|
|
Net sales
|
|
$
|
319,761
|
|
|
$
|
311,583
|
|
|
$
|
8,178
|
|
|
$
|
675,473
|
|
|
$
|
665,104
|
|
|
$
|
10,369
|
|
Sales percent increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
|
|
|
|
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
1.6
|
%
|
Comparable store sales
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
(2.5
|
)%
|
The 1.4 percent and 2.5 percent decreases in comparable stores sales for the 13 and 26 weeks ended July 30,
2016, respectively, were both driven by decreases in the number of transactions and average unit retail prices, partially offset by Ecommerce sales. Comparable store sales reflect stores open throughout the period and prior fiscal year and include
Ecommerce sales. Ecommerce sales contributed approximately 30 basis points and 40 basis points to the comparable store sales for the 13 and 26 weeks ended July 30, 2016. Ecommerce sales contributed approximately 180 basis points and 160 basis points
of net sales for the 13 weeks ended July 30, 2016 and August 1, 2015, respectively and approximately 180 basis points and 150 basis points of net sales for the 26 weeks ended July 30, 2016 and August 1, 2015, respectively. Comparable store sales do
not include leased department commissions.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
Increase/
(Decrease)
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
|
Increase/
(Decrease)
|
|
Gross profit
|
|
$
|
89,439
|
|
|
$
|
88,935
|
|
|
$
|
504
|
|
|
$
|
198,331
|
|
|
$
|
197,315
|
|
|
$
|
1,016
|
|
Percentage of net sales
|
|
|
28.0
|
%
|
|
|
28.5
|
%
|
|
|
(0.5
|
)%
|
|
|
29.4
|
%
|
|
|
29.7
|
%
|
|
|
(0.3
|
)%
|
The declines in our gross profit rate as a percentage of net sales for the 13 and 26 weeks ended July 30, 2016
compared to the 13 and 26 weeks ended August 1, 2015 were driven by higher markdowns in the 13 weeks ended July 30, 2016 as well as higher occupancy costs that did not leverage on softer sales.
11
Selling, General and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
Increase
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
|
Increase
|
|
Selling, general and administrative expenses
|
|
$
|
83,840
|
|
|
$
|
81,545
|
|
|
$
|
2,295
|
|
|
$
|
170,314
|
|
|
$
|
167,167
|
|
|
$
|
3,147
|
|
Percentage of net sales
|
|
|
26.2
|
%
|
|
|
26.2
|
%
|
|
|
0.0
|
%
|
|
|
25.2
|
%
|
|
|
25.1
|
%
|
|
|
0.1
|
%
|
Increases in SG&A in the 13 weeks ended July 30, 2016 compared to the 13 weeks ended August 1, 2015 were
driven by additional operating expenses for our new stores. These increases were offset by higher credit card program income, lower incentive compensation and operating savings.
Increases in SG&A in the 26 weeks ended July 30, 2016 compared to the 26 weeks ended August 1, 2015 were driven by additional operating
expenses for our new stores as well as higher accruals for actual and anticipated legal settlements. These increases were offset by higher credit card program income, lower incentive compensation and store selling expenses. Credit card income was
higher due to the improved economics from our new agreement with Synchrony Financial.
Interest Expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
Increase
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
|
Increase
|
|
Interest expense
|
|
$
|
883
|
|
|
$
|
807
|
|
|
$
|
76
|
|
|
$
|
1,849
|
|
|
$
|
1,493
|
|
|
$
|
356
|
|
Percentage of net sales
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
|
|
0.0
|
%
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
Interest expense for the 13 weeks ended July 30, 2016 increased compared to the 13 weeks ended August 1, 2015
due primarily to slightly higher short-term interest rates. The increase in interest expense in the 26 weeks ended July 30, 2016 compared to the 26 weeks ended August 1, 2015 is driven by the 2016 period including two full quarters of interest
expense on our credit facility. In 2015, we did not begin borrowing on our credit facility until the end of February.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
July 30, 2016
|
|
|
13 Weeks Ended
August 1, 2015
|
|
|
(Decrease)
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
|
(Decrease)
|
|
Income tax expense
|
|
$
|
1,709
|
|
|
$
|
2,489
|
|
|
$
|
(780
|
)
|
|
$
|
9,850
|
|
|
$
|
10,997
|
|
|
$
|
(1,147
|
)
|
Effective tax rate
|
|
|
36.2
|
%
|
|
|
37.8
|
%
|
|
|
(1.6
|
)%
|
|
|
37.6
|
%
|
|
|
38.4
|
%
|
|
|
(0.8
|
)%
|
The effective tax rate for the 13 and 26 weeks ended July 30, 2016 compared to the 13 and 26 weeks ended
August 1, 2015 decreased primarily due to the effect of permanent differences for certain non-deductible expenses and the earlier extension of the Federal Work Opportunity Tax Credit.
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. Working capital is used to support store inventories and capital investments for system improvements, fund new store openings, maintain existing stores, pay dividends, make debt service payments and repurchase
shares of our common stock. Historically, our working capital needs are lowest after our heavy spring selling in March and April and holiday selling in late December and early January. They are highest as we begin paying for our heavy spring, fall,
and holiday receipts in late February, October and at the end of November. As of July 30, 2016, we had cash and cash equivalents of $11.8 million and $167.4 million in borrowings under our credit facilities. We believe that our cash flows from
operations and our available cash and cash equivalents are sufficient to cover our liquidity requirements over the next 12 months.
12
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 Weeks Ended
July 30, 2016
|
|
|
26 Weeks Ended
August 1, 2015
|
|
|
Increase/
(Decrease)
|
|
Net cash provided by operating activities
|
|
$
|
52,647
|
|
|
$
|
27,368
|
|
|
$
|
25,279
|
|
Net cash used in investing activity
|
|
|
(23,939
|
)
|
|
|
(19,786
|
)
|
|
|
4,153
|
|
Net cash used in financing activities
|
|
|
(28,773
|
)
|
|
|
(61,276
|
)
|
|
|
(32,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(65
|
)
|
|
$
|
(53,694
|
)
|
|
$
|
(53,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net cash provided by operating activities was mainly due to collections on tenant allowances
and a signing bonus related to our new credit card program, partially offset by purchases of inventory.
Net cash used in investing
activity was entirely for capital expenditures in both periods presented. Capital expenditures were greater for the 26 weeks ended July 30, 2016 primarily due to an additional five new stores and certain relocated stores in the 26 weeks of 2016
compared to one new store in 2015.
During the 26 weeks ended July 30, 2016, net cash used in financing activities consisted of debt
repayments of $187.7 million, cash dividends paid of $6.9 million and the repurchase of 150,658 shares of our common stock for $1.0 million, offset by proceeds from borrowings of $164.9 million, proceeds from the exercise of stock options and ESPP
purchases of $1.4 million and excess tax benefit from share-based compensation of $0.5 million. During the 26 weeks ended August 1, 2015, net cash used in financing activities consisted of debt repayments of $239.2 million, cash dividends paid of
$232.3 million, the repurchase of 198,973 shares of our common stock for $3.1 million and paid $0.4 million in debt issuance cost, offset by proceeds from borrowings of $409.4 million, excess tax benefit from share-based compensation of $3.8 million
and proceeds from the exercise of stock options and ESPP purchases of $0.5 million. Borrowings under our credit facilities were initially used for a special dividend paid during the first quarter of 2015, and have subsequently been used for working
capital, capital expenditures and other general corporate purposes. See Note 2 Shareholders Equity of the Notes to the Condensed Consolidated Financial Statements for further discussion.
Critical Accounting Policies and Estimates
We discuss our critical accounting policies and estimates in Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations, in our Annual Report on Form 10-K for the year ended January 30, 2016. We have made no material changes in our critical accounting policies and estimates since January 30, 2016.
Recent Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 Basis of Presentation of the Notes to the Condensed Consolidated
Financial Statements.
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 inflation in the future.