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 January 3, 1998 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 12 (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 Stock
Market) of the Common Stock of the registrant held by non-affiliates of the
registrant was $483,712,309 on February 27, 1998. 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 14,969,820 shares.
The number of shares of Common Stock, $0.01 par value per share, outstanding as
of February 27, 1998, was 22,968,956.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Portions of the registrant's 1997 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 1998 Annual Meeting
are incorporated in Part III.
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Stein Mart, Inc.
Form 10-K
January 3, 1998
Table of Contents
Page
----
Part I
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 14
2
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PART I
ITEM 1. BUSINESS
At January 3, 1998, Stein Mart, Inc., (the "Company" or "Stein Mart") was a
151-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 51 in 14
states at year-end 1992 to 151 in 26 states at January 3, 1998. 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
department 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 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
approximately 30 stores in 1998.
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 typical 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.
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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 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 30, December 28, January 3,
1995 1996 1998
------------ ------------ ----------
Ladies' and Boutique apparel 35% 36% 38%
Ladies' accessories 11 11 11
Men's and young men's 20 20 19
Gifts and linens 18 18 17
Shoes (leased department) 8 8 8
Children's 6 6 6
Other 2 1 1
---- ---- ----
100% 100% 100%
==== ==== ====
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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 employed on a part-time basis who are
civically and socially prominent 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 better sportswear.
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.
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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 typical store is approximately 38,000 gross
square feet with convenient check-out and customer service areas and attractive,
individual dressing rooms. The Company seeks to create excitement in 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 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 1997, 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)
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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 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 Executive Vice President,
Merchandising, who is supported by four Vice Presidents - General Merchandising
Managers, nine Divisional Merchandising Managers and 32 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.
The Company's merchandise planning and allocation system enables the merchandise
buyers 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.
A computerized time management system assists management in scheduling store
associates' hours based on individual store's own customer traffic patterns and
necessary tasks. This system helps to maximize customer service levels and
enhance efficiency.
8
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Store Operations
The Company has five Vice Presidents - Regional Directors of Stores who report
to the Executive Vice President, Stores. Each oversees between 4 and 15 stores.
Three of the Vice Presidents have District Directors of Stores reporting to
them, who are each responsible for overseeing 7 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
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.
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Employees
At January 3, 1998, the Company's work force consisted of approximately 9,100
employees (6,200 40-hour equivalent employees). The number of employees
fluctuates based on the particular selling season.
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 1997 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. Wherever used, the words "plan", "expect",
"anticipate", "believe", "estimate" and similar expressions identify
forward-looking statements.
Any such forward-looking statements contained herein are subject to risks and
uncertainties that could cause the Company's actual results of operations to
differ materially from historical results or current expectations. These risks
include, without limitation, ongoing 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 Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make clear that any projected
results expressed or implied therein will not be realized.
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ITEM 2. PROPERTIES
At January 3, 1998, the Company operated stores in the following states:
State Number of Stores
----- ----------------
Alabama 5
Arizona 6
Arkansas 3
California 1
Colorado 2
Florida 20
Georgia 11
Illinois 2
Indiana 5
Iowa 1
Kansas 2
Kentucky 3
Louisiana 8
Mississippi 4
Missouri 2
Nebraska 1
Nevada 2
North Carolina 10
Ohio 10
Oklahoma 2
Pennsylvania 1
South Carolina 3
Tennessee 9
Texas 30
Virginia 5
Wisconsin 3
---
151
===
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 January
3, 1998) 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
------------------ ------------------
1998 3 0
1999 9 0
2000 6 0
2001 9 0
2002 7 0
2003-2007 82 9
2008-2012 34 18
2013-2030 1 124
The Company has made consistent capital commitments to maintain and improve
existing store facilities. During 1997, approximately $3.5 million was spent to
upgrade computer equipment, fixtures, equipment and leasehold improvements in
stores opened prior to 1997.
The Company leases approximately 54,000 gross square feet of office space for
its corporate headquarters in Jacksonville, Florida. The Company also leases an
87,000 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 1997.
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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 20,
1998, 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 1998 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 1998 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 1998 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 1998 Annual Meeting of Stockholders and is
incorporated by reference.
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 January
3, 1998.
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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 September 27,
1997 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 1997 Annual Report incorporated by reference into 1997
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: April 2, 1998 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 2nd day of April, 1998.
/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/ James G. Delfs /s/ Mitchell W. Legler
- -------------------------------- --------------------------------
James G. Delfs Mitchell W. Legler
Senior Vice President, Director
Chief Financial Officer
/s/ Clayton E. Roberson, Jr. /s/ Michael D. Rose
- -------------------------------- --------------------------------
Clayton E. Roberson, Jr. Michael D. Rose
Vice President, Controller Director
/s/ Mason Allen /s/ James H. Winston
- -------------------------------- --------------------------------
Mason Allen James H. Winston
Director Director
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<CAPTION>
Stein Mart, Inc.
Selected Financial Data
(Dollars in Thousands Except Per Share Amounts and Operating Data)
1997 (1) 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Statement of Income Data:
<S> <C> <C> <C> <C> <C>
Net Sales $792,655 $616,150 $496,006 $419,220 $342,730
Cost of Merchandise Sold 579,747 451,232 366,781 305,672 247,334
----------- ----------- ----------- ----------- -----------
Gross Profit 212,908 164,918 129,225 113,548 95,396
Selling, General and Administrative Expenses 163,953 128,427 105,195 87,397 71,468
Other Income, Net 9,243 7,624 6,378 5,062 3,992
----------- ----------- ----------- ----------- -----------
Income From Operations 58,198 44,115 30,408 31,213 27,920
Interest Expense 1,203 1,567 1,289 744 464
----------- ----------- ----------- ------------ -----------
Income Before Income Taxes 56,995 42,548 29,119 30,469 27,456
Income Tax Provision 22,228 16,594 11,361 12,050 10,774
----------- ----------- ----------- ----------- -----------
Net Income $ 34,767 $ 25,954 $ 17,758 $ 18,419 $ 16,682
=========== =========== =========== =========== ===========
Earnings Per Share - Basic (2) $1.51 $1.16 $0.79 $0.82 $0.74
Earnings Per Share - Diluted (2) $1.47 $1.12 $0.77 $0.79 $0.71
Selected Operating Data:
Stores Open at End of Period 151 123 100 80 66
Average Sales Per Store (000's) (3) $ 6,261 $ 6,176 $ 6,129 $ 6,335 $ 6,429
Average Sales Per Square Foot of Selling Area (4) $ 194 $ 191 $ 189 $ 196 $ 205
Comparable Store Net Sales Increase (Decrease) (5) 7.2% 6.1% (0.7%) 2.4% 2.3%
Balance Sheet Data:
Working Capital $110,296 $ 86,588 $ 63,685 $ 53,668 $ 42,489
Total Assets 270,604 218,264 173,517 154,039 116,401
Long-term Debt, Less Current Portion - 1 1 1 1
Total Stockholders' Equity 165,803 132,143 101,436 85,277 66,858
<FN>
(1) 1997 is a 53-week year; all others are 52-week years.
(2) Basic and Diluted Earnings Per Share are presented for all periods in
accordance with Financial Accounting Standards No. 128, "Earnings Per
Share" which the Company adopted in 1997.
(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. All periods are calculated on a 52-week basis.
(4) Includes sales and selling space of the leased shoe and fragrance
departments. Selling area excludes administrative, receiving and storage
areas. All periods are calculated on a 52-week basis.
(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
similiar market strategy continues. All periods are calculated on a
52-week basis.
</FN>
</TABLE> 17
<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.
Wherever used, the words "plan", "expect", "anticipate", "believe", "estimate"
and similar expressions identify forward-looking statements.
Any such forward-looking statements contained herein are subject to risks and
uncertainties that could cause the Company's actual results of operations to
differ materially from historical results or current expectations. These risks
include, without limitation, ongoing 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 Company does not undertake to publicly update or revise its forward-looking
statements even if experience or future changes make clear that any projected
results expressed or implied therein will not be realized.
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
------------------------------
Jan 3, Dec 28, Dec 30,
1998 (1) 1996 1995
------- ------- ------
Net Sales 100.0% 100.0% 100.0%
Cost of Merchandise Sold 73.1 73.2 73.9
------- ------- ------
Gross Profit 26.9 26.8 26.1
Selling, General and Administrative Expenses 20.7 20.8 21.2
Other Income, Net 1.1 1.2 1.2
------- ------- ------
Income From Operations 7.3 7.2 6.1
Interest Expense .1 .3 .2
------- ------- ------
Income Before Income Taxes 7.2% 6.9% 5.9%
======= ======= ======
(1) Fifty-three week fiscal year.
18
<PAGE>
1997 Compared to 1996
In 1997 the Company opened 28 stores bringing to 151 the number of stores in
operation at year-end.
Net sales of $792.7 million were achieved for the fifty-three week fiscal year
1997, an increase of $176.5 million, or 28.6 percent over net sales of $616.2
million for the fifty-two week fiscal year 1996. The 28 new stores opened in
1997 contributed $72.7 million to net sales and the fifty-third week contributed
$11.7 million. Comparable store net sales on a fifty-two week basis increased
7.2 percent over 1996.
Gross profit for 1997 was $212.9 million, an increase of $48.0 million over the
gross profit of $164.9 million for the previous year. Gross profit as a
percentage of net sales increased 0.1 percent to 26.9 percent from 26.8 percent
in the previous year. This increase is the result of improved mark-up and
leveraging occupancy costs, partially offset by higher markdowns.
Selling, general and administrative expenses were $164.0 million, or 20.7
percent of net sales for 1997, as compared to $128.4 million, or 20.8 percent of
net sales for 1996. The increase in expense dollars is primarily due to the
additional stores in operation during 1997 as compared to the number of stores
in operation in 1996. The decrease of 0.1 percent of net sales was due to
leveraging stores and corporate office expenses. Included in selling, general
and administrative expenses were pre-opening expenses for the 28 stores opened
in 1997 in the amount of $4.2 million and for the 24 stores opened in 1996 in
the amount of $3.2 million.
Other income, primarily from in-store leased shoe departments, amounted to $9.2
million in 1997, an increase of $1.6 million over the $7.6 million for 1996. The
increase was due to the additional 28 stores opened in 1997.
Interest expense for 1997 was $1.2 million, compared to $1.6 million in 1996.
This decrease is primarily due to decreased average levels of borrowings.
The effective tax rate for 1997 and 1996 was 39.0 percent.
The factors discussed above resulted in net income for 1997 of $34.8 million, an
increase of 34.0 percent from net income of $26.0 million in 1996.
Basic and Diluted Earnings Per Share are presented in accordance with Financial
Accounting Standards No. 128, "Earnings Per Share" which the Company adopted in
1997. Diluted earnings per share resulting from the new standard are higher by
$.02, $.02 and $.01 for 1997, 1996 and 1995, respectively, than earnings per
share for those years calculated in accordance with the previous standard.
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.
19
<PAGE>
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 million 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.
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 borrowings 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.
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.
Net cash provided by operating activities for 1997 amounted to $25.2 million,
compared to $19.8 million for 1996. Net income for 1997 was $34.8 million, an
increase of $8.8 million over net income for 1996. Cash was also provided by a
$5.8 million increase in accounts payable and a $7.5 million increase in income
taxes payable. The $36.4 million increase in inventories is primarily related to
the new stores opened in 1997.
20
<PAGE>
Net cash provided by operating activities for 1996 amounted to $19.8 million,
compared to $9.2 million for 1995. Net income for 1996 was $26.0 million, an
increase of $8.2 million over net income for 1995. Cash was also provided by an
$11.6 million increase in accounts payable. The $26.2 million increase in
inventories is primarily related to the new stores opened during 1996.
For 1997 and 1996, cash flows used in investing activities amounted to $19.7
million and $16.1 million, respectively, primarily for the acquisition of
fixtures, equipment and leasehold improvements for the opening of new stores and
for information system enhancements.
Cash used in financing activities in 1997 was for the repurchase of 329,000
shares of common stock offset by proceeds and related income tax benefits
received from the exercise of stock options. As of February 20, 1998 a total of
933,500 shares had been repurchased pursuant to the Board of Directors'
authorizations to repurchase a total of 2,000,000 shares.
The cost of opening a typical new store generally ranges from $500,000 to
$700,000 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 1998
(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 January 3, 1998, there was no loan balance under the agreement. The Company
had cash and cash equivalents at January 3, 1998 of $28.0 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 percent 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>
Year 2000 Issue
The Company has studied the "Year 2000" issues affecting its operations and is
in the process of implementing required modifications to its systems. The
underlying issues are not expected to have a material adverse affect on the
Company's operations or financial position. The cost of addressing "Year 2000"
issues has not been material to the Company to date and is not expected to be in
future periods.
22
<PAGE>
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 22 of this
annual report present fairly, in all material aspects, the financial position of
Stein Mart, Inc. at January 3, 1998 and December 28, 1996, and the results of
its operations and its cash flows for each of the three fiscal years in the
period ended January 3, 1998, 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 20, 1998
23
<PAGE>
<TABLE>
<CAPTION>
Stein Mart, Inc.
Balance Sheet
(In thousands)
January 3, December 28,
1998 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,979 $ 23,551
Trade and other receivables 2,518 2,291
Inventories 175,620 139,180
Prepaid expenses and other current assets 2,170 1,874
---------- ------------
Total current assets 208,287 166,896
Property and equipment, net 61,087 50,151
Other assets 1,230 1,217
---------- ------------
Total assets $270,604 $218,264
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,013 $ 59,176
Accrued liabilities 21,527 17,187
Income taxes payable 11,451 3,945
---------- ------------
Total current liabilities 97,991 80,308
Notes payable to bank - 1
Deferred income taxes 6,810 5,812
---------- ------------
Total liabilities 104,801 86,121
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; 23,005,354 shares issued and outstanding
at January 3, 1998 and 22,811,444 shares issued and
outstanding at December 28, 1996 230 228
Paid-in capital 39,795 40,904
Retained earnings 125,778 91,011
---------- ------------
Total stockholders' equity 165,803 132,143
---------- ------------
Total liabilities and stockholders' equity $270,604 $218,264
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
Stein Mart, Inc.
Statement of Income
(In thousands except per share amounts)
For The Years Ended
------------------------------------------------------
January 3, December 28, December 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net sales $792,655 $616,150 $496,006
Cost of merchandise sold 579,747 451,232 366,781
---------- ------------ ------------
Gross profit 212,908 164,918 129,225
Selling, general and administrative expenses 163,953 128,427 105,195
Other income, net 9,243 7,624 6,378
---------- ------------ ------------
Income from operations 58,198 44,115 30,408
Interest expense 1,203 1,567 1,289
---------- ------------ ------------
Income before income taxes 56,995 42,548 29,119
Provision for income taxes 22,228 16,594 11,361
---------- ------------ ------------
Net income $ 34,767 $ 25,954 $ 17,758
========== ============ =============
Earnings per share - Basic $1.51 $1.16 $0.79
========== ============ =============
Earnings per share - Diluted $1.47 $1.12 $0.77
========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
Stein Mart, 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, 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
Net income 34,767 34,767
Common shares issued under stock
option plan and related income
tax benefits 5 7,829 7,834
Reacquired shares (3) (8,938) (8,941)
------- --------- ---------- --------------
Balance at January 3, 1998 $230 $39,795 $125,778 $165,803
======= ========= ========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
Stein Mart, Inc.
Statement of Cash Flows
(In thousands)
For the Years Ended
------------------------------------------------
January 3, December 28, December 30,
1998 1996 1995
---------- -------------- ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $34,767 $ 25,954 $ 17,758
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,766 6,659 5,176
(Increase) decrease in:
Trade and other receivables (227) (980) (311)
Inventories (36,440) (26,219) (18,017)
Prepaid expenses and other current assets (296) 81 (88)
Other assets (13) 241 1,403
Increase (decrease) in:
Accounts payable 5,837 11,560 596
Accrued liabilities 4,340 2,565 1,843
Income taxes payable 7,506 (1,500) (193)
Deferred income taxes 998 1,415 1,073
---------- -------------- ------------
Net cash provided by operating activities 25,238 19,776 9,240
Cash flows used in investing activities:
Net acquisition of property and equipment (19,703) (16,119) (13,794)
Cash flows from financing activities:
Proceeds from exercise of stock options and related
income tax benefits 7,834 9,319 254
Purchase of common stock (8,941) (4,566) (1,853)
---------- -------------- ------------
Net cash provided by (used in) financing activities (1,107) 4,753 (1,599)
---------- -------------- ------------
Net increase (decrease) in cash and cash equivalents 4,428 8,410 (6,153)
Cash and cash equivalents at beginning of year 23,551 15,141 21,294
---------- -------------- ------------
Cash and cash equivalents at end of year $27,979 $ 23,551 $ 15,141
========== ============== ============
Supplemental disclosures of cash flow information:
Interest paid $ 1,153 $ 1,372 $ 1,144
Income taxes paid 9,296 12,142 10,456
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
1. Summary of Significant Accounting Policies
At January 3, 1998 the Company operated a chain of 151 off-price retail stores
in 26 states. Each store offers women's, men's and children's apparel, as well
as accessories, gifts, linens and shoes.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31. Results
for 1997 are for the 53 weeks ended January 3, 1998. Results for 1996 and 1995
are for the 52 weeks ended December 28, 1996 and December 30, 1995,
respectively.
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 $27,632,000,
$21,089,000 and $18,114,000 are reflected in the Statement of Income for 1997,
1996 and 1995, 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.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" in the fourth quarter of 1997. Accordingly, the Company has
restated all periods presented in these financial statements to reflect "basic"
and "diluted" earnings per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding plus common stock
equivalents related to stock options for each period. Diluted earnings per share
resulting from the new standard are higher by $.02, $.02 and $.01 for 1997, 1996
and 1995, respectively, than earnings per share for those years calculated in
accordance with the previous standard.
28
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
A reconciliation of weighted average number of common shares to weighted average
number of common shares plus common stock equivalents is as follows:
1997 1996 1995
-------- -------- --------
Weighted average number
of common shares 23,079 22,436 22,452
Stock options 576 685 612
-------- -------- --------
Weighted average number of common
shares plus common stock equivalents 23,655 23,121 23,064
========= ======== ========
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:
1997 1996
---------- ----------
Furniture, fixtures and
equipment $75,146 $60,974
Building and leasehold
improvements 23,717 18,380
Land 128 128
---------- ----------
98,991 79,482
Less: accumulated depreciation
and amortization 37,904 29,331
---------- ----------
$61,087 $50,151
========== ==========
29
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
3. Accrued Liabilities
The major components of accrued liabilities are as follows:
1997 1996
---------- ----------
Taxes, other than income taxes $11,784 $ 8,973
Salary, wages, bonuses and benefits 2,887 2,218
Other 6,856 5,996
---------- ----------
$21,527 $17,187
========== ==========
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, 2000 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, 1998
and a $25 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 1.50% below the
prime rate or .35% over the London Inter-Bank Offering Rate (LIBOR), at the
option of the Company. 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
January 3, 1998.
5. Stockholders' Equity
During 1997, the Company repurchased 329,000 shares of its common stock in the
open market at a total cost of $8,941,000. During 1996 and 1995, 370,000 and
166,500 shares were repurchased for $4,566,000 and $1,853,000, respectively.
6. Stock Option and Purchase Plans
The Company has an Employee Stock Plan which provides that a maximum of
4,500,000 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.
30
<PAGE>
<TABLE>
<CAPTION>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
Information regarding these fixed-price option plans for 1997, 1996 and 1995 is as follows:
1997 1996 1995
------------------------ --------------------------- ---------------------------
Number Weighted- Number Weighted- Number Weighted-
of Average of Average of Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 1,706 $ 10 2,430 $ 8 2,261 $ 8
Options granted 1,562 28 144 18 258 12
Options exercised (523) 7 (816) 6 (32) 5
Options forfeited (235) 25 (52) 13 (57) 12
-------- -------- -----------
Options outstanding
at end of year 2,510 20 1,706 10 2,430 8
======== ======== ===========
Options exercisable
at end of year 686 487 625
</TABLE>
The weighted-average fair value of options granted during 1997, 1996 and 1995 is
$16, $10 and $7, respectively.
The following table summarizes information about fixed-price stock options
outstanding at January 3, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (000) Life (Years) Price (000) Price
- -------------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 5 to 9 611 4.2 $ 7 611 $ 7
10 to 14 262 7.5 12 10 14
15 to 19 170 7.3 17 33 17
20 to 24 149 7.6 22 32 20
25 to 30 1,318 9.3 28 - -
------------ --------------
$ 5 to 30 2,510 7.6 20 686 8
============ ==============
</TABLE>
31
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and
intends to retain the intrinsic value method of accounting for stock based
compensation which it currently uses. Accordingly, no compensation cost has been
recognized for the stock option plans. During the initial phase-in period, the
effects of applying this Statement for pro forma disclosures are not likely to
be representative of the effects on reported net income for future years, for
example, because options vest over several years and additional awards are made
each year. The compensation cost for 1997, 1996 and 1995 is $4.0 million, $0.5
million and $0.1 million, respectively. Had compensation cost of the Company's
two stock option plans been based on the fair value at the grant date for awards
made during 1997, 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
1997 1996 1995
--------- ---------- ----------
Net income - as reported $34,767 $25,954 $17,758
Net income - pro forma 32,340 25,676 17,676
Basic earnings per share - as reported $1.51 $1.16 $0.79
Diluted earnings per share - as reported 1.47 1.12 0.77
Basic earnings per share - pro forma $1.40 $1.14 $0.79
Diluted earnings per share - pro forma 1.37 1.11 0.77
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants made during 1997, 1996 and 1995: dividend yield of
0.0%, expected volatility of 44.7%, 47.2% and 47.2% respectively, risk-free
interest rate of 6.2%, 6.3% and 6.2% respectively and expected lives of 7.0
years.
In May 1997, the stockholders approved the Employee Stock Purchase Plan (the
"Stock Purchase Plan"). Under the Stock Purchase Plan, all employees who
complete six months employment with the Company and who work on a full-time
basis or are regularly scheduled to work more than 20 hours per week are
eligible to participate in the Stock Purchase Plan. Participants in the Stock
Purchase Plan are permitted to use their payroll deductions to acquire shares at
85% of the fair market value of the Company's stock determined at either the
beginning or end of each option period. Shares eligible under the Plan are
limited to 400,000 shares in the aggregate and the Plan will be effective for
the years 1997 through 2000, with no more than 100,000 shares being made
available in each calendar year. In January 1998, the participants acquired
19,751 shares of the Company's common stock at $22.74 per share.
7. Leased Facilities and Commitments
The Company leases substantially all of its retail and support facilities.
Annual store rent is generally comprised of 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.
32
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
Rent expense for 1997, 1996 and 1995 was as follows:
1997 1996 1995
---------- ---------- ----------
Minimum rentals $29,915 $23,315 $19,069
Contingent rentals 751 527 580
---------- ---------- ----------
$30,666 $23,842 $19,649
=========== ========== ==========
At January 3, 1998, 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:
1998 $ 33,177
1999 32,219
2000 30,315
2001 28,797
2002 27,014
Thereafter 122,845
----------
$274,367
==========
The Company subleases shoe department and fragrance department space in all of
its stores. Sales from leased departments are excluded from sales of the
Company. Sublease rental income of $8,798,000, $7,248,000 and $5,869,000 is
included in other income, net for 1997, 1996 and 1995, respectively. Total
future minimum rental income under these noncancellable subleases is $11,004,000
at January 3, 1998.
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
$1,360,000, $1,150,000 and $780,000 for 1997, 1996 and 1995, respectively.
33
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
9. Income Taxes
The provision for income taxes for 1997, 1996 and 1995 consisted of:
1997 1996 1995
------- ---------- ----------
Current:
Federal $18,622 $12,844 $ 8,751
State 2,608 2,335 1,537
------- ---------- ----------
Total current 21,230 15,179 10,288
Deferred:
Federal 898 1,269 962
State 100 146 111
------- ---------- ----------
Total deferred 998 1,415 1,073
------- ---------- ----------
Total income
tax expense $22,228 $16,594 $11,361
======= ======= =======
Income tax expense differed from the amounts computed by applying the Federal
statutory rate of 35 percent to income before taxes as follows:
1997 1996 1995
---------- ---------- ----------
Tax expense at the
statutory rate $19,948 $14,892 $10,192
State income taxes,
net of federal benefit 2,280 1,702 1,145
Other - - 24
---------- ---------- ----------
$22,228 $16,594 $11,361
========== ========== ==========
Effective tax rate 39.0% 39.0% 39.0%
========== ========== =========
Deferred income tax assets and liabilities resulted from the following temporary
differences:
1997 1996 1995
-------- -------- --------
Excess of tax over
book depreciation $ 7,102 $ 5,715 $ 4,401
Other (292) 97 (4)
-------- -------- --------
$ 6,810 $ 5,812 $ 4,397
======== ======== ========
34
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
The exercise of certain 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 Paid-in Capital.
In the years ended January 3, 1998 and 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.
10. Quarterly Results of Operations (Unaudited)
The following table shows unaudited quarterly results of operations for 1997 and
1996:
Quarter Ended
Mar 29, Jun 28, Sep 29, Jan 3,
---------------------------------------------------------------
1997 1997 1997 1998
---------------------------------------------------------------
Net sales $151,387 $183,604 $166,734 $290,930
Gross profit 35,554 52,794 40,002 84,558
Net income 1,395 9,683 3,040 20,649
EPS - Basic $ 0.06 $ 0.42 $ 0.14 $ 0.89
EPS - Diluted $ 0.06 $ 0.41 $ 0.13 $ 0.87
Quarter Ended
---------------------------------------------------------------
Mar 31, Jun 29, Sep 28, Dec 28,
1996 1996 1996 1996
---------------------------------------------------------------
Net sales $108,517 $149,400 $131,264 $226,969
Gross profit 24,880 42,803 31,183 66,052
Net income (loss) (564) 7,712 2,411 16,395
EPS - Basic $ (0.02) $ 0.35 $ 0.11 $ 0.72
EPS - Diluted $ (0.02) $ 0.34 $ 0.10 $ 0.70
<PAGE>
35
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
January 3, 1998
(Dollars in tables in thousands except per share amounts)
11. Subsequent Events
In February 1998, the Board of Directors authorized the repurchase of an
additional 1,000,000 shares of the Company's common stock in the open market,
bringing the total repurchases authorized to 2,000,000 shares.
In addition to the shares repurchased as described in Note 5, as of February 20,
1998 the Company had repurchased an additional 68,000 shares of its common stock
in the open market at a total cost of $1,768,000.
36
<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 18, 1998 at the Jacksonville Hilton and Towers, 1201 Riverplace
Boulevard, Jacksonville, Florida.
Transfer Agent and Registrar
Chase Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Shareholder services: 1-800-756-3353
Website: www.chasemellon.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 trades on the NASDAQ Stock Market [service mark] under
the trading symbol SMRT. On March 17, 1998, there were 992 stockholders of
record.
The following table reflects the high and low sales prices of the common stock
for each fiscal quarter in 1996 and 1997.
(Quarter ending dates) High Low
- -------------------------------------------------------------------------------
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
March 29, 1997 $30.00 $18.75
June 28, 1997 $32.00 $25.50
September 27, 1997 $33.75 $26.00
January 3, 1998 $31.50 $23.56
The Company intends to reinvest future earnings in the business and accordingly
does not anticipate paying dividends in the foreseeable future.
37
<PAGE>
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 from our Stockholder
Relations Department at the Company's corporate address, listed above.
We encourage you to take advantage of other, more immediate methods of receiving
Stein Mart investor information. To receive Stein Mart information
electronically, you may choose to:
o Access the Stein Mart website at www.steinmart.com
o E-mail your request to [email protected]
o Call 1-800-239-0927 for the latest news release/other information to
be faxed directly to you
o Call 904: 346-1535, x. 5888, to leave a recorded request for mailed
information and/or hear highlights of the latest news release.
If you are a member of the financial community or the news media and need to
address specific financial information, please call Susan Datz Edelman, Director
of Stockholder Relations, at (904) 346-1506.
38
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-27991, 33-88176, and 333-39323) of Stein Mart,
Inc. of our report dated February 20, 1998, which appears on page 13 of the 1997
Annual Report to Shareholders, which is incorporated by reference in this Annual
Report on Form 10-K.
Price Waterhouse LLP
Orlando, Florida
April 1, 1998
39
<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> JAN-3-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JAN-3-1998
<CASH> 27979
<SECURITIES> 0
<RECEIVABLES> 3543
<ALLOWANCES> 1025
<INVENTORY> 175620
<CURRENT-ASSETS> 208287
<PP&E> 98991
<DEPRECIATION> 37904
<TOTAL-ASSETS> 270604
<CURRENT-LIABILITIES> 97991
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> 165573
<TOTAL-LIABILITY-AND-EQUITY> 270604
<SALES> 762655
<TOTAL-REVENUES> 801898
<CGS> 579747
<TOTAL-COSTS> 743700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1203
<INCOME-PRETAX> 56995
<INCOME-TAX> 22228
<INCOME-CONTINUING> 34767
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 34767
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.47
</TABLE>
