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SMRT > SEC Filings for SMRT > Form 10-Q on 3-May-2013All Recent SEC Filings

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Form 10-Q for STEIN MART INC


3-May-2013

Quarterly Report


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. 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 no guarantees of performance.

Restatement of Financial Statements

The discussion and analysis set forth below in this Item 2 has been affected by the restatement of our financial statements as described in Note 2 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the notes thereto.

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, shoes and home fashions.

Financial Overview for the 13 and 39 weeks ended October 27, 2012

Sales were $273.7 million for the 13 weeks ended October 27, 2012, an increase from $263.2 million for the 13 weeks ended October 29, 2011, and $863.8 million for the 39 weeks ended October 27, 2012, an increase from $847.0 million for the 39 weeks ended October 29, 2011.

Comparable store sales increased 3.1 percent compared to the 13 weeks ended October 27, 2012, and increased 1.3 percent compared to the 39 weeks ended October 27, 2012.

Net loss was $1.7 million or $0.04 per diluted share for the 13 weeks ended October 27, 2012 and 13 weeks ended October 29, 2011.

Net income was $11.5 million or $0.26 per diluted share for the 39 weeks ended October 27, 2012 compared to net income of $14.0 million or $0.31 per diluted share for the 39 weeks ended October 29, 2011.

The effective tax rate was (56.6) percent for the 13 weeks ended October 27, 2012, compared to (45.7) percent for the 13 weeks ended October 29, 2011 and 39.2 percent for the 39 weeks ended October 27, 2012, compared to 38.8 percent for the 39 weeks ended October 29, 2011.

Cash and cash equivalents as of October 27, 2012 was $104.1 million compared to $94.1 million as of January 28, 2012, and $101.9 million as of October 29, 2011. We had no direct borrowings on our revolving credit agreement as of October 27, 2012, January 28, 2012, and October 29, 2011.


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Stores

There were 262 stores open as of October 27, 2012 and October 29, 2011.



                                     13 Weeks Ended           13 Weeks Ended          39 Weeks Ended           39 Weeks Ended
                                    October 27, 2012         October 29, 2011        October 27, 2012         October 29, 2011

Stores at beginning of period                     263                      260                     262                      264
Stores opened during the period                     3                        2                       5                        2
Stores closed during the period                    (4 )                     -                       (5 )                     (4 )

Stores at the end of period                       262                      262                     262                      262

Results of Operations

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



                                           13 Weeks Ended              13 Weeks Ended              39 Weeks Ended             39 Weeks Ended
                                          October 27, 2012            October 29, 2011            October 27, 2012           October 29, 2011
                                                                         (Restated)                                             (Restated)

Net sales                                             100.0 %                     100.0 %                     100.0 %                    100.0 %
Cost of merchandise sold                               74.2 %                      74.7 %                      72.6 %                     72.6 %

Gross profit                                           25.8 %                      25.3 %                      27.4 %                     27.4 %
Selling, general and administrative
expenses                                               27.2 %                      26.4 %                      25.2 %                     24.6 %

(Loss) income from operations                          (1.4 )%                     (1.1 )%                      2.2 %                      2.8 %
Interest expense, net                                   0.0 %                       0.0 %                       0.0 %                      0.0 %

(Loss) income before income taxes                      (1.4 )%                     (1.1 )%                      2.2 %                      2.8 %
Income tax (benefit) expense                           (0.8 )%                     (0.5 )%                      0.9 %                      1.1 %

Net (loss) income                                      (0.6 )%                     (0.6 )%                      1.3 %                      1.7 %

Net Sales. The following table compares net sales for the 13 and 39 weeks ended October 27, 2012 to the 13 and 39 weeks ended October 29, 2011 (dollar amounts in thousands):

                                    13 Weeks Ended         13 Weeks Ended                         39 Weeks Ended         39 Weeks Ended
                                   October 27, 2012       October 29, 2011       Increase        October 27, 2012       October 29, 2011       Increase
                                                             (Restated)                                                    (Restated)

Net sales                          $         273,729      $         263,232      $  10,497       $         863,809      $         846,999      $  16,810
Sales percent increase:
Total net sales                                                                        4.0 %                                                         2.0 %
Comparable store sales                                                                 3.1 %                                                         1.3 %

For the 13 weeks ended October 27, 2012, the comparable store sales increase was driven by higher units per transaction and higher number of transactions than the same period in the previous year. For the 39 weeks ended October 27, 2012, the comparable store sales increase was driven by higher average unit selling prices and higher number of transactions than the same period in the previous year.

Gross Profit. The following table compares gross profit for the 13 and 39 weeks ended October 27, 2012 to the 13 and 39 weeks ended October 29, 2011 (dollar amounts in thousands):

                                               13 Weeks Ended          13 Weeks Ended                         39 Weeks Ended         39 Weeks Ended
                                              October 27, 2012        October 29, 2011        Increase       October 27, 2012       October 29, 2011        Increase
                                                                         (Restated)                                                    (Restated)

Gross profit                                 $           70,690      $           66,653      $    4,037      $         236,373      $         232,124      $    4,249
Percentage of net sales                                    25.8 %                  25.3 %           0.5 %                 27.4 %                 27.4 %           0.0 %


Table of Contents

For the 13 weeks ended October 27, 2012, the increase in the gross profit rate was a result of lower markdowns, partially offset by lower initial markup and slightly higher occupancy and buying costs. Markdowns and initial markups were lower due to the company decreasing coupons and selectively lowering prices on certain merchandise in accordance with its new pricing strategy.

For the 39 weeks ended October 27, 2012, gross profit as a percent of sales was consistent with the prior year.

Selling, General and Administrative Expenses ("SG&A"). The following table compares SG&A expenses for the 13 and 39 weeks ended October 27, 2012 to the 13 and 39 weeks ended October 29, 2011, (dollar amounts in thousands):

                                                 13 Weeks Ended          13 Weeks Ended                         39 Weeks Ended         39 Weeks Ended
                                                October 27, 2012        October 29, 2011        Increase       October 27, 2012       October 29, 2011        Increase
                                                                           (Restated)                                                    (Restated)
Selling, general and administrative expenses   $           74,431      $           69,690      $    4,741      $         217,306      $         208,941      $    8,365
Percentage of net sales                                      27.2 %                  26.4 %           0.8 %                 25.2 %                 24.6 %           0.6 %

For the 13 weeks ended October 27, 2012, SG&A expenses increased primarily due to $2.1 million decrease in credit card program income, $2.2 million increase in store expenses, and $1.9 million increase in depreciation expense and partially offset by a $1.5 million decrease in advertising expenses. Credit card program income decreased primarily due to a performance-based incentive from GE Capital Retail Bank ("GE") related to the final program year of our prior co-brand agreement received in 2011 as well as the elimination of new account fees when we entered into the Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement with GE in October 2011. Store expenses increased primarily due to higher compensation costs. Advertising expenses decreased due to the reduction of certain media usage.

For the 39 weeks ended October 27, 2012, SG&A expenses increased primarily due to $4.6 million decrease in credit card program income, $3.5 million increase in depreciation expense, $2.2 million increase in corporate expenses and $2.8 million increase in store expenses, partially offset by $3.5 million decrease in advertising expenses and $2.1 million increase in breakage income on unused gift cards and merchandise return cards. Corporate expenses increased primarily due to higher compensation and benefit costs. Store expenses increased primarily due to higher compensation costs, partially offset by a decrease in credit card interchange fees. The increase in breakage income on unused gift cards and merchandise return cards is a result of an update in our breakage assumptions during the second quarter of 2012. The decrease in credit card program income and advertising expenses and are due to aforementioned reasons.

Income Taxes. The following table compares income tax (benefit) expense for the 13 and 39 weeks ended October 27, 2012 to the 13 and 39 weeks ended October 29, 2011 (dollar amounts in thousands):

                                             13 Weeks Ended            13 Weeks Ended                             39 Weeks Ended           39 Weeks Ended          Increase/
                                            October 27, 2012          October 29, 2011          Increase         October 27, 2012         October 29, 2011         (Decrease)
                                                                         (Restated)                                                          (Restated)
Income tax (benefit) expense               $           (2,163 )      $           (1,425 )      $      738       $            7,417       $            8,894       $     (1,477 )
Effective tax rate                                      (56.6 )%                  (45.7 )%           10.9 %                   39.2 %                   38.8 %              0.4 %

For the 13 weeks ended October 27, 2012 and October 29, 2011, the effective tax rate was a benefit rate due to the loss for each of the respective quarters. For the 39 weeks ended October 27, 2012 and October 29, 2011, the effective tax rate was higher than the statutory rate due primarily to the impact of non-deductible expenses related to post-retirement benefit costs.

Liquidity and Capital Resources

Our primary source of liquidity is the sale of merchandise inventories. Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors and a $100 million revolving credit facility with Wells Fargo Bank, N.A. Working capital is needed to support store inventories and capital investments for system improvements, new store openings and to maintain existing stores. Historically, our working capital needs are lowest in the first quarter and highest at the end of the third quarter and beginning of the fourth quarter as we build inventories for the holiday selling season. As of October 27, 2012, we had cash and cash equivalents of $104.1 million and no direct borrowings under our revolving credit facility.

Net cash provided by operating activities was $49.7 million for the 39 weeks ended October 27, 2012 compared to net cash provided by operating activities of $61.2 million for the 39 weeks ended October 29, 2011. Cash provided by operating activities results primarily from operating income and changes in working capital. Cash provided by operating activities for the 39 weeks ended October 27, 2012 includes an income tax refund of approximately $6.6 million. Cash provided by operating activities for the 39 weeks ended October 29, 2011 includes a positive working capital impact from lengthening vendor payment terms implemented in early 2011.


Table of Contents

Net cash used in investing activities was $32.7 million for the 39 weeks ended October 27, 2012 compared to $29.5 million for the 39 weeks ended October 29, 2011. Capital expenditures relate to information systems hardware and software as well as new and existing store improvements. The increase in capital expenditures relates primarily to an increase in new store improvements.

Net cash used in financing activities was $6.9 million for the 39 weeks ended October 27, 2012 compared to $9.5 million for the 39 weeks ended October 29, 2011. During the 39 weeks ended October 27, 2012, we repurchased shares of common stock for $3.4 million and had payments on capital leases of $4.0 million. During the 39 weeks ended October 29, 2011, we repurchased shares of common stock for $10.2 million, received proceeds from stock option exercises of $2.5 million and had payments on capital leases of $2.0 million.

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