SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996 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 (I.R.S. Employer
incorporation or organization) Identification Number)
1200 Riverplace Blvd., Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
(904) 346-1500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12of the(g) of the Act:
Title of each class
Common Stock $.01 par value
Indicate 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value (based on the closing price on the NASDAQ) of the
Common Stock of the registrant held by non-affiliates of the registrant was
$328,826,453 on February 20, 1997. For purposes of this response, executive
officers and directors are deemed to be the affiliates of the registrant and the
holdings by non-affiliates was computed as 14,453,910 shares.
The number of shares of Common Stock, $0.01 par value per share, outstanding as
of February 20, 1997, was 22,825,919.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's 1996 Annual Report to Shareholders shown in
Exhibit 13 are incorporated in Parts II and IV.
2. Portions of the registrant's Proxy Statement for its 1997 Annual Meeting
are incorporated in Part III.
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Stein Mart, Inc.
Form 10-K
December 28, 1996
Table of Contents
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Page
Part I
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Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 13
Part III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
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PART I
ITEM 1. BUSINESS
At December 28, 1996, Stein Mart, Inc., (the "Company" or "Stein Mart") was
a 123-store retail chain offering fashionable, current-season, primarily branded
merchandise comparable in quality and presentation to that of traditional
department and fine specialty stores at prices typically 25% to 60% below those
regularly charged by such stores. The Company's focused assortment of
merchandise features moderate to designer brand-name apparel for women, men and
children, as well as accessories, gifts, linens, shoes and fragrances. Stein
Mart operated a single store in Greenville, Mississippi from the early 1900's
until 1977, when it began its expansion program. During the last five years, the
Company has more than doubled the number of Stein Mart stores from 45 in 15
states at year-end 1991 to 123 in 21 states at December 28, 1996. The Company's
stores, which average approximately 38,000 gross square feet, are located
primarily in neighborhood shopping centers in metropolitan areas.
Business Strategy
The Company's business strategy is to (i) maintain the quality of
merchandise, store appearance, merchandise presentation and customer service
levels typical of traditional department and fine specialty stores and (ii)
offer value pricing to its customers through its vendor relationships, tight
control over corporate and store expenses and efficient management of inventory.
The principal elements of the Company's business strategy are as follows:
Timely, Consistent, Upscale Merchandise.
The Company purchases upscale, branded merchandise primarily through
preplanned buying programs similar to those used by traditional department
and fine specialty stores. These preplanned buying programs enable the
Company to offer fashionable, current-season assortments on a consistent
basis.
Appealing Store Appearance and Merchandise Presentation.
The Company creates an ambiance in its stores similar to that of upscale
retailers through attractive in-store layout and signage. Merchandise is
displayed in lifestyle groupings to encourage multiple purchases.
Emphasis on Customer Service.
Customer service is fundamental to Stein Mart's objective of building
customer loyalty. Management believes that the Company offers customer
service superior to off-price retailers and more comparable to traditional
and fine specialty stores.
Value Pricing through Vendor Relationships.
In negotiating with Stein Mart, vendors do not build into their pricing
structure anticipated returns or markdown and advertising allowances which
are typical in the department store
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industry. Stein Mart passes these savings on to its customers through prices
which are typically 25% to 60% below those regularly charged by traditional
department and fine specialty stores.
Efficient Inventory Handling.
Stein Mart does not rely on a large distribution center or warehousing
facility. Rather, it primarily utilizes drop shipments by common carriers
from its vendors directly to its stores. This system enables the Company to
receive merchandise at each store on a timely basis and to save the time and
expense of handling merchandise twice, which is typical of a traditional
distribution center structure.
Operating Efficiencies.
Management believes that there will be opportunities to create additional
operating efficiencies as the Company continues to add stores in new and
existing markets.
Expansion Strategy
The Company's expansion strategy is to add stores in new markets, including
those markets with the potential for multiple stores, and existing markets to
capture advertising and management efficiencies. The Company plans to open 26 to
28 stores in 1997.
The Company targets metropolitan statistical areas with populations of
125,000 or more for new store expansion. In determining where to locate new
stores, the Company evaluates detailed demographic information, including, among
other factors, data relating to income, education levels, age, occupation, the
availability of prime real estate locations, existing and potential competitors,
and the number of Stein Mart stores that a market can support. As a result of
processing only 10% of its merchandise through its distribution center, the
Company is not constrained geographically or by the capacity limits of a central
facility. This allows management to concentrate on the best real estate
opportunities in targeted markets.
The Company refurbishes existing retail locations or occupies newly
constructed stores, which typically are anchor stores in new or existing
shopping centers situated near upscale residential areas, ideally with
co-tenants that cater to a similar customer base. The Company's ability to
negotiate favorable leases and to construct attractive stores with a relatively
low investment provides a significant cost advantage over traditional department
and fine specialty stores. The cost of opening a prototypical new store includes
approximately $450,000 to $650,000 for fixtures, equipment, leasehold
improvements and pre-opening expenses (primarily advertising, stocking and
training). Pre- opening costs are expensed in the year of opening. Initial
inventory investment for a new store is approximately $1 million (a portion of
which is financed through vendor credit). New stores typically generate
operating profit in the first year of operation.
Merchandising
Stein Mart's focused assortment of merchandise features moderate to designer
brand-name apparel for women, men and children, as well as accessories, gifts,
linens, shoes and fragrances. Branded
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merchandise is complemented by a limited private label program that enhances the
Company's assortments of current fashion trends and provides key upper-end
classifications in complete size ranges.
Management believes that Stein Mart differentiates itself from typical
off-price retailers by offering: (i) a higher percentage of current-season
merchandise carried by traditional department and fine specialty stores at
moderate to better price levels, (ii) a stronger merchandising "statement,"
consistently offering more depth of color and size in individual stockkeeping
units, and (iii) a merchandise presentation more comparable to traditional
department and fine specialty stores.
The Company identifies and responds to the latest fashion trends. Within
each major merchandise category, the Company offers a focused assortment of the
best-selling department and fine specialty store items. Stein Mart's merchandise
selection is driven primarily by its own merchandising plans which are based on
management's assessment of fashion trends, color, and market conditions. This
strategy distinguishes Stein Mart from traditional off-price retailers who
achieve cost savings by responding to unplanned buying opportunities. The
Company's merchandise is typically priced at levels 25% to 60% below regular
prices at these stores, therefore offering distinct value to the Stein Mart
customer.
The following reflects the percentage of the Company's revenues by major
merchandise category for the periods indicated:
Fiscal Year Ended
------------------------------------------------
December 31, December 30, December 28,
1994 1995 1996
------------ ------------ ------------
Ladies' and Boutique apparel 33% 35% 36%
Ladies' accessories 10 11 11
Men's and young men's 21 20 20
Gifts and linens 19 18 18
Shoes (leased department) 9 8 8
Children's 6 6 6
Other 2 2 1
---- ---- ----
100% 100% 100%
==== ==== ====
Ladies' apparel, the Company's largest contributor of revenues, consists of
distinctive presentations of dresses, sportswear, petites, juniors and women's
sizes at moderate to upper- moderate prices. Stein Mart's distinctive Boutique
is a key element of the Company's merchandising strategy to attract the more
fashion-conscious customers. The Boutique, a store-within-a-store department,
carries better to designer ladies' apparel and offers the presentation and
service levels of a fine specialty boutique. Each Stein Mart store has its own
Boutique, staffed generally by women
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employed on a part-time basis who are civically and socially active in the
community. The Boutique highlights the Company's strategy of offering upscale
merchandise, presentation and service levels at value prices.
The Company's typical store layout emphasizes ladies' accessories as the
fashion focus at the front of each store. The key merchandise in this department
is fashion-oriented, brand-name, designer and private label jewelry, as well as
scarves, hosiery, leather goods, bath products and fragrances.
Men's and young men's areas together provide the second largest contribution
to revenues. Menswear consists of sportswear, suits, sportcoats, slacks, dress
furnishings and a Big and Tall assortment. The Company believes that its
merchandise presentation is particularly strong in men's dress furnishings,
including branded and private label neckwear and dress shirts.
The Exterior departments present a more contemporary fashion-forward
attitude designed to appeal to both ladies and men in the 18 to 40 year old age
range.
Stein Mart's gifts and linens departments consist primarily of a broad
assortment of fashion- oriented gifts (rather than basic items) for the home and
a wide range of table, bath and bed linens and, in some stores, decorative
fabrics. The presentation in this distinctive department emphasizes fashion,
lifestyle and seasonal themes and includes the full range of merchandise
available in a typical department store. The strength of this category has been
the consistent presentation with a higher percentage mix of better goods.
Stein Mart's children's department offers a range of apparel for infants and
children and features an infants gift boutique.
The Company's shoe department is a leased department operated in individual
stores by one of two shoe retailers. The merchandise in this department is
presented in a manner consistent with the Company's overall presentation in
other departments, stressing fashionable, current-season footwear at value
prices. This department offers a variety of men's and women's casual and dress
shoes, which complement the range of apparel available in other departments.
Shoe department leases provide for the Company to be paid the greater of an
annual base rent or a percentage of sales. Almost all of the leases currently
pay on the percentage of sales basis.
In 1995, the Company began leasing its fragrance department to a third-party
operator. The operating agreement requires the third-party operator to pay the
Company the greater of an annual base amount or a percentage of sales.
Store Appearance
Stein Mart's stores are designed to reflect the upscale ambiance and
appearance of traditional department and fine specialty stores through
attractive layout, displays and in-store signage. The prototypical store is
approximately 36,000 gross square feet with convenient check-out and customer
service areas and attractive, individual dressing rooms. The Company seeks to
create excitement in
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its stores through the continual flow of brand-name merchandise, sales
promotions, store layout, merchandise presentation, and the quality, value and
depth of its merchandise assortment.
The Company displays merchandise in lifestyle groupings of apparel and
accessories. Management believes that the lifestyle grouping concept strengthens
the fashion image of its merchandise and enables the customer to locate desired
merchandise in a manner that encourages multiple purchases.
Customer Service
Customer service is fundamental to Stein Mart's objective of building
customer loyalty. The Company's stores offer most of the same services typically
found in traditional department and fine specialty stores such as menswear
alterations and a liberal merchandise return policy. Each store is staffed to
provide a number of sales associates to properly attend to customer needs.
The Company's training programs for sales associates and cashiers emphasize
attentiveness, courtesy and the effective use of selling techniques. The Company
reinforces its training programs by employing independent shopping services to
monitor associates' success in implementing the principles taught in sales
training. Associates who are highly rated by the shopping service receive both
formal recognition and cash awards. Management believes this program emphasizes
the importance of customer service necessary to create customer loyalty.
Vendor Relationships and Buying
Stein Mart buys from over 3,500 vendors. Many of these are considered key
vendors, with whom the Company enjoys longstanding working relationships that
create a continuity of preplanned buying opportunities for upscale,
current-season merchandise. Most of the Company's vendors are based in the
United States, which generally reduces the time necessary to purchase and obtain
shipments and allows the Company to react to merchandise trends in a timely
fashion. The Company does not have long-term or exclusive contracts with any
particular vendor. In 1996, less than 2% of Stein Mart's purchases were from any
single vendor.
The Company employs several purchasing strategies to provide its customers
with a consistent selection of quality, fashionable merchandise at value prices:
(i) Stein Mart commits to its purchases from vendors well in advance of the
selling season, in the same manner as department stores, unlike typical
off-price retailers who rely heavily on buys of close-out merchandise or
overruns; (ii) the Company's information systems enable it to acquire
merchandise and track sales information on a store-by-store basis, allowing its
buying staff to respond quickly to customer buying trends; and (iii) an in-house
merchandise development department works with buyers and brand-name vendors to
ensure that the merchandise assortments offered are unique, fashionable,
color-forward and of high quality.
Stein Mart negotiates favorable prices from its vendors by not requiring
advertising and markdown allowances or return privileges that are typical in the
department store industry, resulting
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in savings that the Company passes along to its customers in the form of prices
that are typically 25% to 60% below those regularly charged by traditional
department and fine specialty stores.
The Company's buying staff is headed by the Chief Merchandising Officer,
who is supported by four Vice Presidents - General Merchandising Managers, seven
Divisional Merchandising Managers and 28 buyers. In addition to base salary, the
merchandising staff receives incentive compensation for achieving certain sales
goals within their areas of responsibility. Historically, the Company has had
very low turnover within its buying staff, enabling it to capitalize on an
experienced, respected group of buyers capable of maintaining and enhancing the
Company's vendor relationships.
Information Systems
The Company's information systems provide daily financial and
merchandising information that is used by management to make timely and
effective purchasing and pricing decisions and for inventory control.
The Company's inventory control system enables it to achieve economies of
scale from bulk purchases while at the same time ordering and tracking separate
drop shipments by store. Store inventory levels are regularly monitored and
adjusted as sales trends dictate. The inventory control system provides
information that enhances management's ability to make informed buying decisions
and accommodate unexpected increases or decreases in demand for a particular
item. The Company uses bar codes and bar code scanners as part of an integrated
inventory management and check-out system in its stores.
In 1996, the Company installed an upgraded merchandise planning and
allocation system which enables the Company to better utilize individual store
data. Merchandise buyers will use the system to customize their merchandise
assortments at the individual store and department level, based on selected
criteria, such as a store's selling patterns, geography and merchandise color
preferences. The ability to customize individual store assortments enables the
Company to more effectively manage inventory, capitalize on sales trends and
reduce markdowns.
The Company also implemented a computerized time management system in
1996 which assists management in scheduling store associates' hours based on
individual store's own customer traffic patterns and necessary tasks. This
system will help maximize customer service levels and enhance efficiency.
Store Operations
The Company has seven Vice Presidents - Regional Directors of Stores who
report to the Executive Vice President, Stores. Each oversees between 3 and 15
stores. Two of the Vice Presidents have District Directors of Stores reporting
to them, who are each responsible for overseeing 8 to 13 stores. Each Vice
President's and District Director's compensation includes an incentive component
based on overall performance. Each Stein Mart store is managed by a general
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manager who reports directly to a Vice President or a District Director. Store
general managers are responsible for individual store operations, including
hiring, motivating and supervising sales associates; receiving and effectively
presenting merchandise; and implementing price change determinations made by the
Company's buying staff. Store general managers receive incentive compensation
based upon operating results in several key areas, including increases in store
sales. In addition to the store general manager and two assistant store
managers, each Stein Mart store employs an average of 60 persons as department
managers, sales associates, cashiers and in other positions.
Stein Mart stores are generally open 11 hours per day, 6 days a week, and
on Sunday afternoons. The store hours are extended during the Christmas selling
season.
Advertising and Sales Promotion
The Company's advertising strategy stresses the offering of upscale,
branded merchandise at significant savings. The Company generally allocates the
majority of its advertising budget to newspaper advertising, employing a
combination of image, price-and-item and sales event approaches. While newspaper
will continue to be the dominant advertising media, some emphasis will shift to
national and regional magazines and local radio. Stein Mart's per-store
advertising expense is reduced by spreading its advertising over multiple stores
in a single market. Management believes the Company also enjoys substantial
word-of-mouth advertising benefits from its customer base.
Competition
Management believes that the Company occupies a market niche closer to
traditional department stores than typical off-price retail chains. The Company
faces competition for customers and for access to quality merchandise from
traditional department stores, fine specialty stores and, to a lesser degree,
from off-price retail chains. Many of these competitors are units of large
national or regional chains that have substantially greater resources than the
Company. The retail apparel industry is highly fragmented and competitive, and
the off-price retail business may become even more competitive in the future.
The principal competitive factors in the retail apparel industry are
assortment, presentation, quality of merchandise, price, customer service,
vendor relations and store location. Management believes that the Company is
well-positioned to compete on the basis of each of these factors.
Employees
At December 28, 1996, the Company's work force consisted of approximately
7,600 employees (5,100 40-hour equivalent employees). The number of employees
fluctuates based on the particular selling season.
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Trademarks
The Company owns the federally registered trademark Stein Mart(R),
together with a number of other marks used in conjunction with its private label
merchandise program. Stein Mart primarily sells branded merchandise. However, in
certain classifications of merchandise, the Company uses several private label
programs to provide additional availability of items. Management believes that
its trademarks are important but, with the exception of Stein Mart(R) , not
critical to the Company's merchandising strategy.
Forward-Looking Statements and Information
This report and the portions of this report which are incorporated by
reference from the 1996 Annual Report to Shareholders include a number of
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. In these reports the words
"may", "expect", "anticipate", "believe", "estimate" and similar expressions
identify forward-looking statements.
Any such forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause the Company's actual results of
operations to differ materially from historical results or current expectations.
These factors include, without limitation, intense competition from other
retailers many of whom are larger and have greater financial and marketing
resources, the availability of suitable new store sites at acceptable lease
terms, changes in the level of consumer spending or preferences in apparel,
adequate sources of designer and brand-name merchandise at acceptable prices,
and the Company's ability to attract and retain qualified employees to support
planned growth.
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ITEM 2. PROPERTIES
At December 28, 1996, the Company operated stores in the following
states:
State Number of Stores
----- ----------------
Alabama 5
Arizona 6
Arkansas 3
Colorado 2
Florida 18
Georgia 9
Indiana 4
Kansas 2
Kentucky 2
Louisiana 8
Mississippi 4
Missouri 1
Nebraska 1
North Carolina 10
Ohio 6
Oklahoma 2
Pennsylvania 1
South Carolina 3
Tennessee 7
Texas 24
Virginia 5
----
123
The Company leases all of its store locations and therefore has been able
to grow without incurring indebtedness to acquire real estate. Management
believes that the Company has earned a reputation as an "anchor tenant," which,
along with its established operating history, has enabled it to negotiate
favorable lease terms. Most of the leases provide for minimum rents, as well as
percentage rents that are based on sales in excess of predetermined levels.
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The table below reflects (i) the number of the Company's leases (as of
December 28, 1996) that will expire each year if the Company does not exercise
any of its renewal options, and (ii) the number of the Company's leases that
will expire each year if the Company exercises all of its renewal options
(assuming the lease is not otherwise terminated by either party pursuant to any
other provision).
Number of Leases Number of Leases
Expiring Each Year Expiring Each Year
if no Renewals if all Renewals
Exercised Exercised
-------------- ---------------
1997 2 0
1998 3 0
1999 9 0
2000 6 0
2001 7 0
2002-2006 64 8
2007-2011 31 17
2012-2029 1 98
The Company has made consistent capital commitments to maintain and
improve existing store facilities. During 1996 approximately $3.4 million was
spent to upgrade computer equipment, fixtures, equipment and leasehold
improvements in stores opened prior to 1996.
The Company leases approximately 50,000 gross square feet of office space
for its corporate headquarters in Jacksonville, Florida. The Company also leases
a 56,000 square foot distribution center in Jacksonville for the purpose of
processing a limited amount of merchandise (approximately 10%).
The Company continually evaluates underperforming stores and may choose
to close selected underperforming stores. In accordance with this policy, the
Company closed its Denver, Colorado store in May, 1992, but opened a new store
at a different location in Denver in March, 1996, and closed its Plantation,
Florida store in February, 1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incidental
to the conduct of its business. Management does not believe that any of these
legal proceedings will have a material adverse effect on the financial condition
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference and is
shown in Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference and is
shown in Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference and is
shown in Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements with Price Waterhouse LLP report dated February
14, 1997, are incorporated by reference in the Form 10-K Annual Report and are
shown in Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears under the caption "Election
of Directors" in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the caption
"Executive Compensation" in the Company's Proxy Statement for its 1997 Annual
Meeting of Stockholders and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item appears under the caption "Voting
Securities" in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Certain
Transactions; Compensation Committee Interlocks and Insider Participation" in
the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is
incorporated by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Financial Statements
The financial statements shown in Exhibit 13 are hereby incorporated by
reference.
Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is presented in the financial statements or notes thereto. .
Reports on Form 8-K
The Company did not file a report on Form 8-K during the quarter ended
December 28, 1996.
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Exhibits
* 3A - Articles of Incorporation of the registrant
* 3B - Bylaws of the registrant
4A - See Exhibits 3A and 3B for provisions of the Articles of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the registrant
* 4B - Form of stock certificate for Common Stock
*10A - Tax Indemnification Agreement between the registrant and Jay Stein
and Cynthia G. Stein
~*10E - Form of Director's and Officer's Indemnification Agreement
10F - Loan Agreement amendments and related promissory notes between the
registrant and Barnett Bank of Jacksonville, N.A. (previously filed
as Exhibit 10 to Registrant's 10-Q for the quarter ended
June 29, 1996 and incorporated herein by reference)
~*10G - Employee Stock Plan
~*10H - Form of Non-Qualified Stock Option Agreement
~*10I - Form of Incentive Stock Option Agreement
*10J - Profit Sharing Plan
~*10K - Executive Health Plan
~*10L - Director Stock Option Plan
13 - Portions of 1996 Annual Report incorporated by reference into 1996
Annual Report on Form 10K.
23 - Consent of Price Waterhouse LLP
27 - Financial Data Schedule
* Previously filed as Exhibit to Form S-1 Registration Statement 33-46322 and
incorporated herein by reference.
~ Management Contracts or Compensatory Plan or Arrangements filed pursuant to
S-K 601 (10) (iii)(A).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STEIN MART, INC.
Date: March 27, 1997 By: /s/ Jay Stein
--------------------------------
Jay Stein, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on the 27th day of March, 1997.
/s/ Jay Stein /s/ Alvin R. Carpenter
- ----------------------------- ------------------------------
Jay Stein Alvin R. Carpenter
Chairman of the Board and Director
Chief Executive Officer
/s/ John H. Williams, Jr. /s/ Albert Ernest, Jr.
- ----------------------------- ------------------------------
John H. Williams, Jr. Albert Ernest, Jr.
President, Chief Operating Director
Officer and Director
/s/ Mason Allen /s/ Mitchell W. Legler
- ----------------------------- ------------------------------
Mason Allen Mitchell W. Legler
Senior Executive Vice President, Director
Chief Merchandising Officer
and Director
/s/ James G. Delfs /s/ Michael D. Rose
- ----------------------------- ------------------------------
James G. Delfs Michael D. Rose
Senior Vice President, Director
Chief Financial Officer
/s/ Clayton E. Roberson, Jr. /s/ James H. Winston
- ----------------------------- ------------------------------
Clayton E. Roberson, Jr. James H. Winston
Vice President, Controller Director
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STEIN MART, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
STATEMENT OF INCOME DATA: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
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Net Sales $616,150 $496,006 $419,220 $342,730 $278,254
Cost of Merchandise Sold 451,232 366,781 305,672 247,334 201,129
-------- -------- -------- -------- --------
Gross Profit 164,918 129,225 113,548 95,396 77,125
Selling, General and Administrative Expenses 128,427 105,195 87,397 71,468 58,064
Other Income, Net 7,624 6,378 5,062 3,992 3,234
-------- -------- -------- -------- --------
Income From Operations 44,115 30,408 31,213 27,920 22,295
Interest Expense 1,567 1,289 744 464 852
-------- -------- -------- -------- --------
Income Before Income Taxes 42,548 29,119 30,469 27,456 21,443
Income Tax Provision 16,594 11,361 12,050 10,774 7,522
-------- -------- -------- -------- --------
Net Income $ 25,954 $ 17,758 $ 18,419 $ 16,682 $ 13,921
======== ======== ======== ======== ========
Net Income Per Share $1.10 $0.76 $0.78 $0.70
Pro Forms Net Income (1) $ 13,293
========
Pro Forma Net Income Per Share (1)(2) $0.61
Weighted Average Shares Outstanding (2) 23,594 23,454 23,721 23,895 21,785
SELECTED OPERATING DATA:
Stores Open at End of Period 123 100 80 66 51
Average Sales Per Store (000's)(3) $ 6,176 $ 6,129 $ 6,335 $ 6,429 $ 6,452
Average Sales Per Square Foot of Selling Area (4) $ 191 $ 189 $ 196 $ 205 $ 206
Comparable Store Net Sales Increase (Decrease)(5) 6.1% (0.7%) 2.4% 2.3% 10.9%
BALANCE SHEET DATA:
Working Capital $ 86,588 $ 63,685 $ 53,668 $ 42,489 $ 35,751
Total Assets 218,264 173,517 154,039 116,401 87,198
Long-term Debt, Less Current Portion 1 1 1 1 1
Total Stockholders' Equity (6) 132,143 101,436 85,277 66,858 50,176
<FN>
- ----------
(1) From February 1, 1987 until its initial public offering in April 1992, the
Company was treated for federal income tax purposes as an S Corporation and
elected S Corporation status in all but three states in which it operated
during the same period. The pro forma information has been computed as if
the Company were subject to federal and state income taxes for all periods
presented, based on the tax laws in effect during the respective periods.
(2) At its meeting on August 9, 1993, the Company's Board of Directors declared
a three-for-two stock split in the form of a 50% stock dividend. The
additional shares were distributed September 10,1993 to shareholders of
record on August 25, 1993. The weighted average shares outstanding and the
income per share for all periods presented reflect the effect of this stock
split.
(3) Average sales per store (including sales from leased shoe and fragrance
departments) for each period have been calculated by dividing (a) total sales
during such period by (b) the number of stores open at the end of such
period, in each case exclusive of stores open for less than 12 months.
4) Includes sales and selling space of the leased shoe and fragrance
departments. Selling area excludes administrative, receiving and storage
areas.
(5) Comparable store information for a period reflects stores open throughout
that period and for the full prior year. Stores remodeled or relocated
continue to be included if no more than 20% additional square footage is
added, the store continues to serve the same market, and a same or similar
market strategy continues.
(6) Net of historical stockholder distributions during the periods the Company
was an S Corporation.
</FN>
</TABLE>
18
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This report includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
In these reports the words "may", "expect", "anticipate", "believe", "estimate"
and similar expressions identify forward looking statements.
Any such forward-looking statements contained herein are subject to certain
risks and uncertainties that could cause the Company's actual results of
operations to differ materially from historical results or current expectations.
These factors include, without limitation, intense competition from other
retailers many of whom are larger and have greater financial and marketing
resources, the availability of suitable new store sites at acceptable lease
terms, changes in the level of consumer spending or preferences in apparel,
adequate sources of designer and brand-name merchandise at acceptable prices,
and the Company's ability to attract and retain qualified employees to support
planned growth.
The following should be read in conjunction with the "Selected Financial Data"
and the notes thereto and the Financial Statements and notes thereto of the
Company.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by each line item presented:
YEARS ENDED
---------------------------
DEC. 28, DEC. 30, DEC. 31,
1996 1995 1994
-------- ------- --------
Net Sales 100.0% 100.0% 100.0%
Cost of Merchandise Sold 73.2 73.9 72.9
----- ----- -----
Gross Profit 26.8 26.1 27.1
Selling, General and Administrative Expenses 20.8 21.2 20.8
Other Income, Net 1.2 1.2 1.2
----- ----- -----
Income From Operations 7.2 6.1 7.5
Interest Expense .3 .2 .2
----- ----- -----
Income Before Income Taxes 6.9% 5.9% 7.3%
===== ===== =====
1996 COMPARED TO 1995
In 1996 the Company opened 24 stores and closed 1 store bringing to 123 the
number of stores in operation at year-end. In accordance with the Company
policy of evaluating underperforming stores, the Company chose to close its
Plantation, Florida store in February 1996.
Net sales of $616.2 million were achieved in 1996, an increase of $120.2
million, or 24.2 percent over net sales of $496.0 in 1995. The 24 new stores
opened in 1996 contributed $57.4 million to net sales. Comparable store net
sales in 1996 increased by 6.1 percent from 1995.
Gross profit for 1996 was $164.9 million, an increase of $35.7 million over the
gross profit of $129.2 million for the previous year. Gross profit as a
percentage of net sales increased 0.7 percent to 26.8 percent from 26.1 percent
in the previous year. This increase is primarily the result of decreased
markdowns, notably in the fourth quarter.
Selling, general and administrative expenses were $128.4 million, or 20.8
percent of net sales for 1996, as compared to $105.2 million, or 21.2 percent of
net sales for 1995. The increase in expense dollars is primarily due to the
additional stores in operation during 1996 as compared to the number of stores
in operation in 1995. The decrease of 0.4 percent of net sales was due to
leveraging selling and advertising expenses. Included in selling, general and
administrative expenses were pre-opening expenses for the 24 stores opened in
1996 in the amount of $3.2 million and for the 20 stores opened in 1995 in the
amount of $2.3 million.
19
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Other income, primarily from in-store leased shoe departments, amounted to $7.6
million in 1996, an increase of $1.2 million over the $6.4 million for 1995.
The increase was due to the additional stores opened in 1996.
Interest expense for 1996 was $1.6 million, compared to $1.3 million in 1995.
This increase is due to increased average levels of borrowing partially
offset by lower interest rates.
The effective tax rate for 1996 and 1995 was 39.0 percent
The factors discussed above resulted in net income for 1996 of $26.0 million,
an increase of 46.2 percent from net income of $17.8 million in 1995.
1995 COMPARED TO 1994
In 1995 the Company opened 20 stores bringing to 100 the number of stores in
operation at year-end.
Net sales of $496.0 million were achieved in 1995, an increase of $76.8
million, or 18.3 percent over net sales of $419.2 million in 1994. The 20 new
stores opened in 1995 contributed $50.4 million to net sales. Comparable store
net sales in 1995 decreased by 0.7 percent from 1994.
Gross profit for 1995 was $129.2 million, an increase of $15.7 million over the
gross profit of $113.5 million for the previous year. Gross profit as a
percentage of net sales decreased 1.0 percent to 26.1 percent from 27.1 percent
in the previous year. This decrease is primarily the result of increased
markdowns reflecting a higher level of promotional activity, notably in the
fourth quarter, and a slight increase in occupancy costs as a percent of net
sales due to lower than expected sales.
Selling, general and administrative expenses were $105.2 million, or 21.2
percent of net sales for 1995, as compared to $87.4 million, or 20.8 percent of
net sales for 1994. The increase in expense dollars is primarily due to the
additional stores in operation during 1995 as compared to the number of stores
in operation in 1994. The increase of 0.4 percent of net sales was due to lower
sales productivity. Included in selling, general and administrative expenses
were pre-opening expenses for the 20 stores opened in 1995 in the amount of $2.3
million and for the 14 stores opened in 1994 in the amount of $1.7 million.
Other income, primarily from in-store leased shoe departments, amounted to $6.4
million in 1995, an increase of $1.3 million over the $5.1 million for 1994.
The increase was due to the additional 20 stores in 1995 and the change during
1995 to operating the fragrance department as a leased department instead of an
owned department.
Interest expense for 1995 was $1,289,000, compared to $744,000 in 1994. This
increase is due to a combination of higher interest rates and increased average
levels of borrowing.
The effective tax rate for 1995 was 39.0 percent as compared to 39.5 percent for
1994. The lower effective tax rate resulted from federal income tax audit
adjustments included in 1994.
The factors discussed above resulted in net income for 1995 of $17.8 million, a
decrease of 3.6 percent from net income of $18.4 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to support inventory and capital
investments for the opening of new stores, to maintain and improve existing
stores, and to meet seasonal working capital needs. The Company's capital
requirements and working capital needs are funded through a combination of
internally generated funds, a bank line of credit and credit terms from vendors.
During the course of the Company's seasonal business cycle, working capital is
needed to support inventory for existing stores, especially during peak selling
seasons. Historically, the Company's working capital needs are lowest in the
first quarter and peak in either the third or fourth quarter in anticipation of
the fourth quarter selling season.
20
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net cash provided by operating activities for 1996 amounted to $19.8 million,
compared to $9.2 million for 1995. The $26.2 million increase in inventory
levels is primarily related to the new stores opened during 1996.
Net cash provided by operating activities for 1995 amounted to $9.2 million,
compared to $22.9 million for 1994. Most of the $18.0 million increase in
inventories related to the 20 new stores opened during 1995 offset partially by
a decrease in average store inventories in 1995.
For 1996 and 1995, cash flows used in investing activities amounted to $16.1
million and $13.8 million, respectively, primarily for the acquisition of
fixtures, equipment and leasehold improvements for the opening of new stores and
for information system enhancements.
Cash provided by financing activities in 1996 was from proceeds and related
income tax benefits received from the exercise of stock options offset partially
by cash used to repurchase 370,000 shares of common stock. As of February 20,
1997 a total of 551,500 shares had been repurchased pursuant to the Board of
Directors' authorizations to repurchase a total of 1,000,000 shares. There was
no effect on cash flow from the line of credit during 1996 or 1995 as the
balance due under the credit agreement remained unchanged at $1,000 at year-end
for 1996, 1995 and 1994.
The cost of opening a prototypical new store generally ranges from $450,000 to
$650,000 for fixtures, equipment, leasehold improvements and pre-opening costs
(primarily advertising, stocking and training). Pre-opening costs are expensed
in the year of opening. Initial inventory investment for a new store is
approximately $1 million (a portion of which is normally financed through vendor
credit). New stores typically generate operating profit in the first year of
operation. The Company's total anticipated capital expenditures for 1997
(including amounts budgeted for new store expansion, improvements to existing
stores and information system enhancements), are approximately $22 million.
The Company may borrow up to $40 million throughout the year and an additional
$10 million seasonally under its existing credit agreement. Due to the seasonal
nature of the Company's business, the Company's bank borrowings fluctuate during
the year, typically reaching their highest levels during the third or fourth
quarters, as the Company builds its inventory for the Christmas selling season.
At December 28, 1996, the loan balance was reduced to $1,000, a minimum balance
to avoid termination of the loan agreement. The Company had cash and cash
equivalents at December 28, 1996 of $23.6 million.
The Company believes that expected net cash provided by operating activities,
bank borrowings and vendor credit will be sufficient to fund current and
long-term anticipated capital expenditures and working capital requirements.
SEASONALITY AND INFLATION
The Company's business is seasonal in nature with the fourth quarter, which
includes the Christmas selling season, historically accounting for the largest
percentage of the Company's net sales volume and operating profit. During the
past three years, the fourth quarter accounted for an average of 37% of the
Company's annual net sales and 63% of the Company's income from operations.
Accordingly, selling, general and administrative expenses are typically higher
as a percentage of net sales during the first three quarters of each year.
Inflation affects the costs incurred by the Company in the purchase of
merchandise, the leasing of its stores, and certain components of its selling,
general and administrative expenses. The Company has offset the effects of
inflation through the control of expenses during the past three years. However,
there can be no assurance that inflation will not have a material effect in the
future.
21
<PAGE>
STEIN MART, INC.
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
PRICE WATERHOUSE LLP [LOGO]
To the Board of Directors and Stockholders of Stein Mart, Inc.
In our opinion, the financial statements appearing on pages 9 through 21 of this
annual report present fairly, in all material respects, the financial position
of Stein Mart, Inc. at December 28, 1996 and December 30, 1995, and the results
of its operations and its cash flows for each of the three fiscal years in the
period ended December 28, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Orlando, Florida
February 14, 1997
22
<PAGE>
<TABLE>
<CAPTION>
STEIN MART, INC.
BALANCE SHEET
(IN THOUSANDS)
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 23,551 $ 15,141
Trade and other receivables ........................ 2,291 1,311
Inventories ........................................ 139,180 112,961
Prepaid expenses and other current assets........... 1,874 1,955
-------- --------
Total current assets .......................... 166,896 131,368
Property and equipment, net .......................... 50,151 40,691
Other assets ......................................... 1,217 1,458
-------- --------
Total assets .................................. $218,264 $173,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 59,176 $ 47,616
Accrued liabilities ................................ 17,187 14,622
Income taxes payable ............................... 3,945 5,445
-------- --------
Total current liabilities...................... 80,308 67,683
Notes payable to bank ................................ 1 1
Deferred income taxes ................................ 5,812 4,397
-------- --------
Total liabilities ............................. 86,121 72,081
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; no shares outstanding
Common stock, $.01 par value; 50,000,000 shares
authorized; 22,811,444 shares issued and
outstanding at December 28, 1996 and
22,365,584 shares issued and outstanding
at December 30, 1995 .......................... 228 224
Paid-in capital.................................... 40,904 36,155
Retained earnings ................................. 91,011 65,057
-------- --------
Total stockholders' equity .................... 132,143 101,436
-------- --------
Total liabilities and stockholder's equity .... $218,264 $173,517
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
23
<PAGE>
<TABLE>
<CAPTION>
STEINMART, INC.
STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .................................... $616,150 $496,006 $419,220
Costs of merchandise sold .................... 451,232 366,781 305,672
-------- -------- --------
Gross profit ............................... 164,918 129,225 113,548
Selling, general and administrative expenses . 128,427 105,195 87,397
Other income, net ............................ 7,624 6,378 5,062
-------- -------- --------
Income from operations...................... 44,115 30,408 31,213
Interest expense ............................. 1,567 1,289 744
-------- -------- --------
Income before income taxes ................... 42,548 29,119 30,469
Provision for income taxes ................... 16,594 11,361 12,050
-------- -------- --------
Net income ................................. $ 25,954 $ 17,758 $ 18,419
======== ======== ========
Weighted average shares outstanding .......... 23,594 23,454 23,721
======== ======== ========
Net income per share ......................... $1.10 $0.76 $0.78
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
<PAGE>
<TABLE>
<CAPTION>
STEINMART, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 ............... $225 $37,753 $28,880 $ 66,858
Net income .............................. 18,419 18,419
---- ------- ------- --------
Balance at December 31, 1994 ............... 225 37,753 47,299 85,277
Net income .............................. 17,758 17,758
Common shares issued under stock option
plan and related income tax benefits. 254 254
Reacquired shares ....................... (1) (1,852) (1,853)
---- ------- ------- --------
Balance at December 30, 1995 ............... 224 36,155 65,057 101,436
Net income .............................. 25,954 25,954
Common shares issued under stock option
plan and related income tax benefits . 8 9,311 9,319
Reacquired shares ....................... (4) (4,562) (4,566)
---- ------- ------- --------
Balance at December 28, 1996 ............... $228 $40,904 $91,011 $132,143
==== ======= ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE>
<TABLE>
<CAPTION>
STEINMART, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 25,954 $ 17,758 $ 18,419
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ..................... 6,659 5,176 4,121
Loss on disposition of property
and equipment ................................... 240
(Increase) decrease in:
Trade and other receivables ..................... (980) (311) 433
Inventories ..................................... (26,219) (18,017) (18,758)
Prepaid expenses and other current assets ....... 81 (88) (150)
Other assets .................................... 241 1,403 (668)
Increase (decrease) in:
Accounts payable ................................ 11,560 596 15,911
Accrued liabilities ............................. 2,565 1,843 2,255
Income taxes payable ............................ (1,500) (193) 492
Deferred income taxes ........................... 1,415 1,073 561
------- ------- -------
Net cash provided by operating activities ............. 19,776 9,240 22,856
Cash flows used in investing activities:
Net acquisition of property and equipment ............. (16,119) (13,794) (11,494)
Cash flows from financing activities:
Proceeds from exercise of stock options and related
income tax benefits ................................. 9,319 254
Purchase of common stock ................................ (4,566) (1,853)
------- ------- -------
Net cash provided by (used in) financing activities ... 4,753 (1,599) --
------- ------- -------
Net increase (decrease) in cash and cash
equivalents ........................................... 8,410 (6,153) 11,362
Cash and cash equivalents at beginning of year .......... 15,141 21,294 9,932
------- ------- -------
Cash and cash equivalents at end of year ................ $23,551 $15,141 $21,294
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid ......................................... $ 1,372 $ 1,144 $ 590
Income taxes paid ..................................... 12,142 10,456 10,899
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26
<PAGE>
STEINMART, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
At December 28, 1996 the Company operated a chain of 123 off-price retail stores
in 21 states. Each store offers women's, men's and children's apparel, as well
as accessories, gifts, linens and shoes.
FISCAL YEAR
In 1995 the Company changed its reporting period from a calendar year to a 52-53
week fiscal year ending on the Saturday closest to December 31. Results for 1996
and 1995 are for the 52 weeks ended December 28, 1996 and December 30, 1995,
respectively. The effect of the change was not material to the Company's 1995
financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and short-term
investments with original maturities of three months or less.
INVENTORIES
Merchandise inventories are valued at the lower of average cost or market, on a
first-in first-out basis, using the retail inventory method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided on a straight-line method using estimated
useful lives of 5-10 years. Leasehold improvements are amortized over the
shorter of the estimated useful lives of the improvements or the term of the
lease.
Routine maintenance and repairs are charged to expense when incurred. Major
replacements and improvements are capitalized. The cost of assets sold or
retired and the related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net income. The
Company reviews long-lived assets, and reserves for impairment whenever events
or changes in circumstances indicate the carrying amount of the assets may not
be fully recoverable.
PRE-OPENING EXPENSES
Non-capital expenditures incurred prior to the opening of new stores are
amortized ratably over the period from the date of the store opening to the end
of the fiscal year.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expenses of $21,089,000,
$18,114,000 and $15,560,000 are reflected in the Statement of Income for 1996,
1995 and 1994, respectively.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding plus the common stock equivalents
related to stock options for each period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT, NET
Property and equipment and the related accumulated depreciation and amortization
consist of:
1996 1995
------- ------
Furniture, fixtures and equipment $60,974 $48,493
Building and leasehold improvements 18,380 14,806
Land 128 128
------- -------
79,482 63,427
Less: accumulated depreciation and amortization 29,331 22,736
------- -------
$50,151 $40,691
======= =======
27
<PAGE>
STEINMART, INC.
NOTES TO FINANCIAL STATEMENTS, CONT'D
3. ACCRUED LIABILITIES
The major components of accrued liabilities are as follows:
1996 1995
------- -------
Taxes, other than income taxes $ 8,973 $ 7,104
Salaries, wages, bonuses and benefits 2,218 2,542
Other 5,996 4,976
------- -------
$17,187 $14,622
======= =======
4. NOTES PAYABLE TO BANK
The Company's revolving credit agreement with a banking institution provides a
line of credit of $40 million and an additional $10 million seasonal line of
credit. The agreement expires on June 29, 1999 at which time any outstanding
loan balance becomes due in 16 equal quarterly installments. The agreement
includes a $4 million letter of credit facility which expires on June 30, 1997
and a $10 million bankers acceptance facility. Borrowings under the agreement
are classified as long-term debt based on the maturity date of the agreement and
the Company's ability to convert the outstanding balance to a term note at
maturity.
Interest on the outstanding balance is payable quarterly, at the option of the
Company, at 1.50% below the prime rate or at .5% over the London Inter-Bank
Offering Rate (LIBOR). The Company is obligated to pay a quarterly commitment
fee of 1/8 percent per annum based on the daily average unused balance of the
commitment during the term of the agreement. The agreement also requires the
Company to maintain certain financial ratios and meet certain working capital,
net worth and indebtedness tests for which the Company is in compliance at
December 28, 1996.
5. STOCKHOLDERS' EQUITY
During 1996, the Company repurchased 370,000 shares of its common stock in the
open market at a total cost of $4,566,000. During 1995, 166,500 shares were
repurchased for $1,853,000.
6. STOCK OPTION PLANS
The Company has an Employee Stock Plan which provides that a maximum of
3,000,000 shares of common stock may be granted to certain key employees through
non-qualified stock options, incentive stock options, stock appreciation rights
and restricted stock. The Compensation Committee of the Board of Directors
determines the exercise price of options which cannot be less than the fair
market value on the date of grant for incentive stock options or 50% of the fair
market value for non-qualified options. One-third of the options granted become
exercisable on each of the third, fourth and fifth anniversary dates of grant
and expire ten years after the date of grant. No stock appreciation rights or
restricted stock awards have been granted under this plan.
The Company also has a Director Stock Option Plan which provides that a total of
42,000 shares of common stock may be issued to outside directors through stock
options which are exercisable at a price equal to the fair market value at the
date of grant and which become exercisable on the same basis as options issued
under the Employee Stock Plan.
Information regarding these fixed-price option plans for 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- ------
NUMBER WEIGHTED- NUMBER WEIGHTED- NUMBER
OF AVERAGE OF AVERAGE OF
SHARES EXERCISE SHARES EXERCISE SHARES
(000) PRICE (000) PRICE (000)
------- --------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 2,430 $ 8 2,261 $ 8 2,144
Options granted 144 18 258 12 150
Options exercised (816) 6 (32) 5 -
Options forfeited (52) 13 (57) 12 (33)
------- ------- ------
Option outstanding at end of year 1,706 10 2,430 8 2,261
======= ======= ======
Options exercisable at end of year 487 625 --
</TABLE>
28
<PAGE>
STEINMART, INC.
NOTES TO FINANCIAL STATEMENTS, CONT'D
The following table summarizes information about fixed-price stock options
outstanding at December 28, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (000) LIFE PRICE (000) PRICE
- --------- ----------- ----------- -------- ----------- ---------
$ 5 to 9 1,091 5.1 years $ 6 441 $ 7
10 to 14 292 8.5 12 4 10
15 to 19 211 8.2 17 18 16
20 to 24 112 7.4 21 24 20
----- ---
$ 5 to 24 1,706 6.2 10 487 8
===== ===
The Company has adopted the disclosure only option under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and
accordingly has retained the intrinsic value method of accounting for stock
based compensation. Accordingly, no compensation cost has been recognized for
the stock option plans. If the accounting provisions of the new Statement had
been adopted as of the beginning of 1995, the effect on 1996 and 1995 net
earnings would not have been significant.
7. LEASED FACILITIES AND COMMITMENTS
The Company leases substantially all of its retail and support facilities.
Annual store rent generally comprises a fixed minimum amount plus a contingent
amount based on a percentage of sales exceeding a stipulated amount. Most leases
also require additional payments covering real estate taxes, common area costs
and insurance.
Rent expense for 1996, 1995 and 1994 was as follows:
1996 1995 1994
------- ------- -------
Minimum rentals $23,315 $19,069 $15,531
Contingent rentals 527 580 404
------- ------- -------
$23,842 $19,649 $15,935
======= ======= =======
At December 28, 1996, the Company was committed under noncancellable leases with
remaining terms of up to 20 years for the majority of its retail and corporate
facilities. Future minimum payments under noncancellable leases are:
1997 $ 25,816
1998 25,557
1999 24,633
2000 22,944
2001 21,781
Thereafter 108,657
--------
$229,388
========
The Company subleases shoe department space and, beginning in 1995, fragrance
department space in all of its stores. Sales from leased departments are
excluded from sales of the Company. Sublease rental income of $7,248,000,
$5,869,000 and $4,636,000 is included in other income, net for 1996, 1995 and
1994, respectively. Total future minimum rental income under these
noncancellable subleases is $7,309,000 at December 28, 1996.
8. PROFIT SHARING PLAN
The Company has a defined contribution retirement plan covering employees who
are at least 21 years of age and have completed at least one year of service.
Under the profit sharing portion of the plan, the Company makes discretionary
contributions which vest at a rate of 20 percent per year after three years of
service. Under the 401(k) portion of the plan the Company contributes one
percent of the employee's compensation and matches 25 percent of the employee's
voluntary pre-tax contributions up to a maximum of four percent of the
employee's compensation. The Company's base 401(k) contribution vests
immediately while the matching portion vests in accordance with the plan's
vesting schedule. Total Company contributions under the retirement plan were
$1,150,000, $780,000 and $720,000 for 1996, 1995 and 1994, respectively.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONT'D.
9. INCOME TAXES
The provision for income taxes for 1996, 1995 and 1994 consisted of:
1996 1995 1994
------- ------- -------
Current:
Federal $12,844 $ 8,751 $ 9,796
State 2,335 1,537 1,693
------- ------- -------
Total current 15,179 20,288 11,489
Deferred:
Federal 1,197 848 476
State 218 225 85
------- ------- -------
Total deferred 1,415 1,073 561
------- ------- -------
Total income tax expense $16,594 $11,361 $12,050
======= ======= =======
Income tax expense differed from the amounts computed by applying the Federal
statutory rate of 35 percent to income before taxes as follows:
1996 1995 1994
------- ------- -------
Tax expense at the statutory rate $14,892 $10,192 $10,664
State income taxes, net of federal
benefit 1,702 1,145 1,229
Other -- 24 157
------- ------- -------
$16,594 $11,361 $12,050
======= ======= =======
Effective tax rate 39.0% 39.0% 39.5%
======= ======= =======
Deferred income tax assets and liabilities resulted from the following temporary
differences:
1996 1995 1994
------- ------- -------
Excess of tax over book depreciation $ 5,715 $ 4,401 $ 3,316
Other 97 (4) 8
------- ------- -------
$ 5,812 $ 4,397 $ 3,324
======= ======= =======
The exercise of stock options which have been granted under the Company's
various stock option plans gives rise to compensation which is includable in the
taxable income of the applicable employees and deductible by the Company for
federal and state income tax purposes. Such compensation results from increases
in the fair market value of the Company's common stock subsequent to the date of
grant of the applicable exercised stock options, and, in accordance with
Accounting Principles Board Opinion No. 25, such compensation is not recognized
as an expense for financial accounting purposes and the related tax benefits are
recorded directly in Additional Paid-in Capital.
In the year ended December 28, 1996, such deductions resulted in significant
federal and state tax deductions for the Company. In the year ended December 30,
1995, such deductions resulted in minor federal and state tax deductions for the
Company. In the year ended December 31, 1994, there were no stock options
exercised.
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table shows unaudited quarterly results of operations for 1996 and
1995:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
----------------------------------------------- ----------------------------------------------
MAR. 31, JUN. 29, SEPT. 28, DEC. 28, APR. 1, JUL. 1, SEPT. 30, DEC. 30,
1996 1996 1996 1996 1995 1995 1995 1995
----------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $108,517 $149,400 $131,264 $226,969 $87,709 $116,530 $108,221 $183,546
Gross profit 24,880 42,803 31,183 66,052 19,063 33,153 25,495 51,514
Net income (loss) (564) 7,712 2,411 16,395 (1,261) 5,229 1,565 12,225
EPS $ (0.02) $ 0.33 $ 0.10 $ 0.69 $ (0.05) $ 0.22 $ 0.07 $ 0.52
</TABLE>
11. SUBSEQUENT EVENTS
In addition to the shares repurchased as described in Note 5, as of February 20,
1997 the Company had repurchased an additional 15,000 shares of its common
stock in the open market at a total cost of $295,000.
30
<PAGE>
Stein Mart, Inc.
Stockholder Information
CORPORATE HEADQUARTERS
Stein Mart, Inc.
1200 Riverplace Boulevard
Jacksonville, FL 32207
(904) 346-1500
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS The annual meeting of stockholders will
be held at two o'clock in the afternoon, Monday, May 12, 1997 at the
Jacksonville Hilton and Towers, 1201 Riverplace Boulevard, Jacksonville,
Florida.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services (CMSS)
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
CMSS shareholder services: 1-800-756-3353
CMSS website: http://www.cmssonline.com
LEGAL COUNSEL
Mitchell W. Legler, P.A.
1 Independent Drive
Suite 3104
Jacksonville, Florida 32202
INDEPENDENT AUDITORS
Price Waterhouse LLP
Orlando, Florida
COMMON STOCK INFORMATION
Stein Mart's common stock is traded on the NASDAQ National Market under the
trading symbol SMRT. On March 11, 1997, there were 987 stockholders of record.
The following table reflects the high and low sales prices of the common stock
for each fiscal quarter in 1995 and 1996.
(Quarter ending dates) High Low
---------- ----------
April 1, 1995 $15.00 $ 9.25
July 1,1995 $13.88 $ 8.88
September 30, 1995 $14.75 $10.50
December 30, 1995 $13.13 $10.50
March 30, 1996 $15.25 $ 8.50
June 29, 1996 $20.75 $14.38
September 28, 1996 $24.75 $15.63
December 28, 1996 $23.50 $17.75
The Company intends to reinvest future earnings in the business and accordingly
does not anticipate paying dividends in the foreseeable future.
FINANCIAL INFORMATION
Investor inquiries are welcome. Individuals may contact the Company by letter to
request information, including a copy of Stein Mart's Annual Report to the
Securities and Exchange Commission on Form 10-K. Additional copies and other
financial reports are available without charge upon request to :
Susan Datz Edelman
Director, Stockholder Relations
Stein Mart, Inc.
1200 Riverplace Boulevard
10th Floor
Jacksonville, FL 32207
Requests for stockholder information may also be sent by electronic mail to
[email protected].
31
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-88176 and 33-90028) of Stein Mart, Inc. of our
report dated February 14, 1997, which appears on page 13 of the 1996 Annual
Report to Shareholders, which is incorporated by reference in this Annual Report
on Form 10-K.
Price Waterhouse LLP
Orlando, Florida
March 11, 1997
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the statements of income and balance sheets and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 23551
<SECURITIES> 0
<RECEIVABLES> 2863
<ALLOWANCES> 572
<INVENTORY> 139180
<CURRENT-ASSETS> 166896
<PP&E> 79482
<DEPRECIATION> 29331
<TOTAL-ASSETS> 218264
<CURRENT-LIABILITIES> 80308
<BONDS> 0
0
0
<COMMON> 228
<OTHER-SE> 131915
<TOTAL-LIABILITY-AND-EQUITY> 218264
<SALES> 616150
<TOTAL-REVENUES> 623774
<CGS> 451232
<TOTAL-COSTS> 579659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1567
<INCOME-PRETAX> 42548
<INCOME-TAX> 16594
<INCOME-CONTINUING> 25954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25954
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
