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 changes in consumer spending due to current events and/or economic conditions, the effectiveness of advertising, marketing and promotional strategies, ongoing competition from other retailers, changes in fashion trends and changing consumer preferences, access to additional capital at favorable terms, ability to successfully negotiate advantageous lease terms with current landlords, unseasonable weather conditions, adequate sources of merchandise at acceptable prices, the Company's ability to attract and retain qualified employees and disruption of the Company's distribution system. Readers are urged to review and consider the matters discussed in "Item 1A. Risk Factors" of our Form 10-K for 2008.

Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the Company 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 the Company's management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to publicly update or revise its 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 no guarantees of performance.

Overview

Stein Mart is a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices competitive with 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, gifts, linens and shoes, all offered at prices competitive with off-price retail chains. Management believes that Stein Mart differentiates itself from typical off-price retail chains by offering: (i) primarily current-season merchandise carried by better department or specialty stores,
(ii) at moderate to better price levels, (iii) a stronger merchandising "statement," consistently offering more depth of color and size in individual stock-keeping units, and (iv) merchandise presentation and customer service more comparable to other upscale retailers. As of May 2, 2009, we operated 275 stores.

For the first quarter of 2009, net income was $16.1 million or $0.38 per diluted share as compared to net income of $7.0 million or $0.17 per diluted share for the same 2008 period. Net sales decreased $32.6 million or 9.2 percent from the first quarter of 2008, while gross margin decreased only $0.9 million. Selling, general and administrative ("SG&A") expenses were $11.7 million lower during the first quarter of 2009 compared to the first quarter of 2008 primarily from significant reductions in payroll expense in the stores and corporate office and lower depreciation expense. This decrease in SG&A expenses, offset by slight decreases in gross margin and other income, contributed to the overall increase in earnings.

The progress that we made in the first quarter was built on three primary business strategies: that inventories must remain proportionate to a realistic sales trend, that expenses would have to decrease to reflect revenue expectations, and that we continually let the customer know that we offer a compelling value in this economic climate. In January 2009, we took heavy markdowns as we exited the fourth quarter and we reduced both headcount and store hours in response to lowered sales volume. While comparable store sales were down 8.0 percent for the quarter, average store inventories were down more than 22 percent, and SG&A expenses were down 12.8 percent year over year.

While these business strategies were successful during the first quarter, our comparable store sales trend continues to be negative. Consequently, we are focused on the continued enhancement of our fashion assortment, reformatting our stores to highlight our brand initiatives and building a marketing program designed to alert customers to our value message.

Our marketing strategy has been significantly ramped up this spring as we introduced a new advertising campaign based on brand name fashion at discounted prices everyday-delivered by real Stein Mart shoppers who love to share. Television commercials began in mid-March leading up to Easter and we also employed this media for our 12 hour sales. We have also intensified our email strategy, more than doubling our outreach and significantly increasing the number of entries into her inbox. We are branching into social media and currently have both a Facebook and a Twitter presence, and will soon have a new, enhanced website. Also this spring, we introduced our Elite Preferred Customer Card, designed to reward our best customers with even more benefits.

Our transition to a third party logistics network to deliver merchandise to the stores has begun. Our Dallas store distribution center and our New Jersey consolidation center are now operational and facilities in Atlanta and the Los Angeles consolidation center are expected to be fully operational in advance of the Fall Season.

As we look forward to the remainder of 2009, we remain keenly focused on a conservative operational formula to effectively manage inventories, capitalize on lower expenses, and preserve cash for optimal flexibility in an uncertain market.

Stores

There were 275 stores open as of May 2, 2009 and 284 stores open as of May 3,
2008. We plan to open a total of two new stores and close 10-13 stores in 2009.



                                          13 Weeks Ended     13 Weeks Ended
                                           May 2, 2009        May 3, 2008
        Stores at beginning of period                276                280
        Stores opened during the period                1                  5
        Stores closed during the period               (2 )               (1 )

        Stores at the end of period                  275                284

Results of Operations

The following table sets forth each line item of the Consolidated Statements of
Income expressed as a percentage of the Company's net sales (numbers may not add
due to rounding):



                                                 13 Weeks Ended     13 Weeks Ended
                                                  May 2, 2009        May 3, 2008
  Net sales                                               100.0 %            100.0 %
  Cost of merchandise sold                                 69.7               72.2

  Gross profit                                             30.3               27.8
  Selling, general and administrative expenses             25.0               26.0
  Other income, net                                         1.6                1.7

  Income from operations                                    6.9                3.4
  Interest expense, net                                     0.1                0.1

  Income before income taxes                                6.8                3.3
  Provision for income taxes                                1.8                1.4

  Net income                                                5.0 %              2.0 %

For the 13 weeks ended May 2, 2009 compared to the 13 weeks ended May 3, 2008

Net sales for the 13 weeks ended May 2, 2009 were $319.6 million, down 9.2 percent from $352.1 million for 2008. The $32.6 million sales decrease reflects a $26.6 million decrease in the comparable store group and a $9.4 million decrease in the closed store group, offset by a $3.4 million increase in the non-comparable store group due to the inclusion of sales for one store opened in 2009 and six stores opened in 2008. The closed store group includes two stores closed in 2009 and ten stores closed in 2008. Comparable stores sales for the first quarter of 2009 decreased 8.0 percent compared to the same 2008 period.

Gross profit for the 13 weeks ended May 2, 2009 was $96.8 million or 30.3 percent of net sales compared to $97.7 million or 27.8 percent of net sales for the 13 weeks ended May 3, 2008. The $0.9 million decrease in gross profit reflects a $2.0 million decrease in the closed store group, offset by a $0.6 million increase in the comparable store group and a $0.5 million increase in the non-comparable store group due to the inclusion of operating results for one store opened in 2009 and six stores opened in 2008. Gross profit as a percent of sales increased 2.5 percentage points during the first quarter of 2009 due to a 2.6 percentage point decrease in markdowns and a 1.0 percentage point increase in markup, offset by a 1.1 percentage point increase in occupancy costs due to a lack of leverage on lower sales.

SG&A expenses were $79.9 million or 25.0 percent of net sales for the 13 weeks ended May 2, 2009 as compared to $91.5 million or 26.0 percent of net sales for the same 2008 period. The $11.7 million decrease in SG&A expenses reflects a $9.6 million reduction in store operating expenses, a $1.3 million decrease in depreciation expense and a $1.1 million decrease in non-buying expenses in the corporate office, offset by a $0.3 million increase in advertising expenses. Store operating expenses decreased $7.9 million for the comparable store group due to headcount reductions and other cost saving initiatives and decreased $2.0 million for the closed store group, but were offset by a $0.3 million increase for the non-comparable store group. Depreciation expense decreased as a result of asset impairment charges taken during the fourth quarter of 2008. Corporate office expenses decreased primarily due to compensation and benefit reductions.

Other income, net decreased $0.9 million for the 13 weeks ended May 2, 2009 compared the same 2008 period due to a decrease in the number of credit cards issued through our co-brand credit card program.

The effective tax rate of 25.8 percent for the first quarter of 2009 is lower than the statutory rate, and is lower than the effective tax rate of 40.5 percent for the first quarter of 2008, primarily due to the 2009 first quarter including the benefit from net favorable temporary differences and utilization of federal tax credits that decreased the valuation allowance for deferred tax assets.

Liquidity and Capital Resources

The Company's primary source of liquidity is the sale of its merchandise inventories. Capital requirements and working capital needs are funded through a combination of internally generated funds, a revolving credit facility and credit terms from vendors. Working capital is needed to support store inventories and capital investments for new store openings and to maintain existing stores. Historically, the Company's working capital needs are lowest in the first quarter and highest in either the third or fourth quarter in anticipation of the fourth quarter peak selling season. As of May 2, 2009, the Company had $19.4 million in cash and cash equivalents.

Net cash provided by operating activities was $32.1 million for the first quarter of 2009 compared to cash used in operating activities of $0.1 million for the first quarter of 2008. More cash was provided by operating activities during the first quarter of 2009 compared to the first quarter of 2008 due to $19.8 million less cash used for inventories and to reduce accounts payable, $7.2 million more cash provided by net income plus non-cash charges, a $3.5 million increase in cash provided by income taxes receivable and $1.6 million more cash provided by other operating activities. Inventories decreased in the first quarter of 2009 compared to the first quarter of 2008 due to less inventory being purchased in response to lower sales.

Net cash used in investing activities was $1.6 million for the first quarter of 2009 compared to $5.4 million for the first quarter of 2008 due to less capital expenditures for fewer new stores openings. The Company expects to invest approximately $8-9 million in capital expenditures in 2009 to open two new stores and continue updating systems and existing stores.

Net cash used in financing activities was $100.0 million for the first quarter of 2009 compared to cash provided by financing activities of $12.9 million for the first quarter of 2008. More cash was used in financing activities during the first quarter of 2009 due to the repayment of all direct borrowings under our revolving credit agreement.

The Company has a $150 million senior revolving secured credit agreement (the "Agreement") with a group of lenders which extends through January 2011. As of May 2, 2009, the Company had no direct borrowings, but outstanding standby letters of credit and other reserves as defined in the Agreement totaling $16 million reduced availability to approximately $134 million. The Company is in compliance with the terms of the Agreement.

We believe that we will continue to generate positive cash flow from operations, which, along with our available cash and borrowing capacity under the revolving credit agreement, will provide the means needed to fund our operations for the foreseeable future. While we have available borrowing capacity under our revolving credit agreement, tightening of the credit markets could make it more difficult for us to enter into agreements for new indebtedness or obtain funding through public or private equity or debt financing. The effects of these changes could also require us to make additional changes to our current plans and strategies.

Recent Accounting Pronouncements

Effective February 1, 2009, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements, for nonfinancial assets and liabilities in accordance with Financial Accounting Standards Board Staff Position ("FSP") No. FAS 157-2, Effective Date of FASB Statement No. 157, that deferred the effective date of SFAS No. 157 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis, to fiscal years beginning after November 15, 2008. The adoption of FAS No. 157 for nonfinancial assets and liabilities had no impact on our consolidated financial statements.