SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
April 3, 1999 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)
Indicate by check mark 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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At May 10, 1999, the latest practicable date, there were 45,349,223 shares
outstanding of Common Stock, $.01 par value.
<PAGE>
STEIN MART, INC.
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements:
Balance Sheets at April 3, 1999, January 2, 1999
and April 4, 1998 3
Statement of Income for the three months ended
April 3, 1999 and April 4, 1998 4
Statement of Cash Flows for the three months ended
April 3, 1999 and April 4, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION 11
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 12
2
<PAGE>
<TABLE>
STEIN MART, INC.
BALANCE SHEET
(In Thousands)
<CAPTION>
April 3, January 2, April 4,
1999 1999 1998
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,263 $ 22,257 $ 7,849
Trade and other receivables 3,744 4,580 2,537
Inventories 238,166 210,781 207,799
Prepaid taxes 862 - -
Prepaid expenses and other current assets 3,595 4,392 2,821
--------- --------- ---------
Total current assets 264,630 242,010 221,006
Property and equipment, net 76,110 72,022 62,464
Other assets 3,901 3,980 2,962
--------- --------- ---------
Total assets $344,641 $318,012 $286,432
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 88,806 $102,474 $ 64,505
Accrued liabilities 25,181 26,453 19,146
Income taxes payable - 2,098 79
--------- --------- ---------
Total current liabilities 113,987 131,025 83,730
Notes payable to banks 43,651 - 29,292
Deferred income taxes 9,008 9,008 6,810
--------- --------- ---------
Total liabilities 166,646 140,033 119,832
Stockholders' equity:
Preferred stock - $.01 par value; 1,000,000 shares
authorized; no shares outstanding
Common stock - $.01 par value; 100,000,000 shares
authorized; 45,348,623 shares issued and outstanding
at April 3, 1999; 45,371,476 shares issued and
outstanding at January 2, 1999 and 46,161,756
shares issued and outstanding at April 4, 1998 453 454 462
Paid-in capital 31,012 31,238 40,177
Retained earnings 146,530 146,287 125,961
--------- --------- ---------
Total stockholders' equity 177,995 177,979 166,600
--------- --------- ---------
Total liabilities and stockholders' equity $344,641 $318,012 $286,432
========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
STEIN MART, INC.
STATEMENT OF INCOME
(Unaudited)
(In thousands except per share amounts)
<CAPTION>
For The
Three Months Ended
------------------------
April 3, April 4,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $212,087 $169,482
Cost of merchandise sold 163,444 129,584
--------- ---------
Gross profit 48,643 39,898
Selling, general and administrative expenses 50,511 41,496
Other income, net 2,692 2,202
--------- ---------
Income from operations 824 604
Interest expense 432 308
--------- ---------
Income before income taxes 392 296
Provision for income taxes 149 113
--------- ---------
Net income $ 243 $ 183
========= =========
Earnings per share - Basic $ 0.01 $ 0.01
========= =========
Earnings per share - Diluted $ 0.01 $ 0.01
========= =========
Weighted-average shares outstanding - Basic 45,372 45,969
========= =========
Weighted-average shares outstanding - Diluted 45,761 47,021
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
<TABLE>
STEIN MART, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
For The
Three Months Ended
--------------------------
April 3, April 4,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 243 $ 183
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,998 2,440
(Increase) decrease in:
Trade and other receivables 836 (19)
Inventories (27,385) (32,179)
Prepaid taxes (862) -
Prepaid expenses and other current assets 797 (651)
Other assets 79 (1,732)
Decrease in:
Accounts payable (13,668) (508)
Accrued liabilities (1,272) (2,381)
Income taxes payable (2,098) (11,372)
---------- ----------
Net cash used in operating activities (40,332) (46,219)
Cash flows used in investing activities:
Net acquisition of property and equipment (7,086) (3,817)
Cash flows from financing activities:
Net borrowings under notes payable to banks 43,651 29,292
Proceeds from exercise of stock options and
related income tax benefits 145 1,873
Proceeds from employee stock purchase plan 522 512
Purchase of common stock (894) (1,771)
---------- ----------
Net cash provided by financing activities 43,424 29,906
---------- ----------
Net decrease in cash and cash equivalents (3,994) (20,130)
Cash and cash equivalents at beginning of year 22,257 27,979
---------- ----------
Cash and cash equivalents at end of period $18,263 $ 7,849
========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 862 $ 480
Income taxes paid 2,815 10,648
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
periods are not necessarily indicative of the results that may be expected for
the entire year. For further information, refer to the financial statements and
footnotes thereto included in the Stein Mart, Inc. annual report on Form 10-K
for the year ended January 2, 1999.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding for each 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.
A reconciliation of weighted-average number of common shares to weighted-average
number of common shares plus common stock equivalents is as follows (000's):
Apr. 3, Apr. 4,
1999 1998
--------- ---------
Weighted-average number
of common shares 45,372 45,969
Stock options 389 1,052
--------- ---------
Weighted-average number of common
shares plus common stock equivalents 45,761 47,021
========= =========
3. COMMON STOCK REPURCHASE
During the three months ended April 3, 1999, the Company repurchased 131,000
shares for $0.9 million and during the three months ended April 4, 1998,
repurchased 136,000 shares for $1.8 million.
6
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
RESULTS OF OPERATIONS
The information in the following table is presented as a percentage of net sales
for the periods indicated:
Quarter Ended
-----------------------------
Apr. 3, Apr. 4,
1999 1998
--------- ---------
Net sales 100.0% 100.0%
Cost of merchandise sold 77.1 76.5
--------- ---------
Gross profit 22.9 23.5
Selling, general and administrative expenses 23.8 24.4
Other income, net 1.3 1.3
--------- ---------
Income from operations 0.4 0.4
Interest expense 0.2 0.2
--------- ---------
Income before income taxes 0.2 0.2
Income tax provision 0.1 0.1
--------- ---------
Net income 0.1% 0.1%
========= =========
7
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three months ended April 3, 1999 compared with the three months ended
April 4, 1998:
Nine stores were opened during the first quarter this year, bringing to 191 the
number of stores in operation at the end of the first quarter of 1999 compared
to 155 stores in operation at the end of the first quarter of 1998.
Net sales for the quarter ended April 3, 1999 were $212.1 million, an increase
of $42.6 million, or 25.1 percent increase over net sales of $169.5 million for
the first quarter of 1998. Comparable store net sales increased 7.9 percent over
the first quarter of 1998.
Gross profit for the quarter ended April 3, 1999 was $48.6 million or 22.9
percent of net sales compared to $39.9 million or 23.5 percent of net sales for
the first quarter of 1998. The 0.6 percent decrease resulted primarily from
slight increases in markdowns and the effect of recording physical inventory
results.
Selling, general and administrative expenses were $50.5 million or 23.8 percent
of net sales for the quarter ended April 3, 1999 compared to $41.5 million or
24.4 percent of net sales for the same 1998 quarter. The $9.0 million increase
in selling, general and administrative expenses is primarily due to the
additional stores in operation during the first quarter of 1999 as compared to
the number of stores in operation during the first quarter of 1998. The decrease
of 0.6 percent of net sales is primarily due to decreased selling,
administrative and advertising expenses as a percent of net sales resulting from
higher per store sales productivity.
Other income, primarily from in-store leased shoe departments, increased to $2.7
million for the first quarter of 1999, an increase of $0.5 million over the $2.2
million for the first quarter of 1998. The increase resulted from the additional
stores operated during the quarter this year.
Interest expense was $432,000 for the first quarter of 1999 and $308,000 for the
first quarter of 1998. The increase resulted from higher average borrowings
offset by slightly lower interest rates during the first quarter this year
compared to last year.
Net income for each of the first quarters of 1999 and 1998 was $0.2 million or
$0.01 per diluted share.
8
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the first quarter of 1999 was $40.3
million compared to $46.2 million for the first quarter of 1998. Cash was used
in the first quarter of 1999 to reduce liabilities, primarily accounts payable,
by $17.0 million. Cash was used in the first quarter of 1998 to reduce
liabilities, primarily income taxes payable, by $14.3 million. During the first
quarters of 1999 and 1998 cash was also used to increase inventories by $27.4
million and $32.2 million, respectively, primarily related to new stores
openings. Based on historical cash flow results, operating activities are
expected to produce positive cash flow for the year ending January 1, 2000.
During the first three months of 1999 and 1998, cash flows used in investing
activities amounted to $7.1 million and $3.8 million, respectively, primarily
for acquisition of fixtures, equipment, and leasehold improvements for new
stores and information system enhancements. Total capital expenditures for 1999
are projected to be approximately $24.0 million.
Cash flow from financing activities was $43.4 million for the first three months
of 1999 and $29.9 million for the first three months of 1998 which reflected in
both periods net borrowing under the Company's revolving credit agreement to
meet seasonal working capital requirements. This year's first quarter includes
$0.1 million of proceeds from the exercise of stock options and related income
tax benefits compared to $1.9 million in last year's first quarter. In each of
the first quarters of 1999 and 1998, $0.5 million of cash was provided by
proceeds from the employee stock purchase plan. During the first quarter of
1999, cash was used to repurchase 131,000 shares of the Company's common stock
for $0.9 million and in last year's first quarter, 136,000 shares were
repurchased for $1.8 million.
The Company believes that cash flow generated from operating activities, bank
borrowings and vendor credit will be sufficient to fund current and long-term
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 and operating income. 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 in certain components of its
selling, general and administrative expenses. The Company has been successful in
offsetting 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.
9
<PAGE>
STEIN MART, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE
Beginning in 1997, the Company conducted a comprehensive review of its
information technology systems and other equipment and services to determine
those which will be impacted by the Year 2000 Issue (i.e., the inability of some
technology and equipment to accurately read and process certain dates including
all dates in the Year 2000 and thereafter). As a result of this review, the
Company developed and commenced a five-phase program to resolve its Year 2000
issues. The program phases include: (i) analysis and inventorying of existing
systems, applications, software and hardware to determine if Year 2000
modifications are required; (ii) development of those systems requiring
modification; (iii) testing for and validation of Year 2000 compliance,
including integration testing; (iv) installation of modified applications and
software in a production environment; and (v) final confirmation at an offsite
disaster recovery facility where the Year 2000 date can be simulated.
The Company has categorized as "mission critical" those systems whose failure
could cause cessation of store operations, or could otherwise have a sustained
and significant detrimental financial impact on the Company. These systems
enable the Company to maintain sales, order and receive merchandise and pay
employees and vendors. All mission critical systems are currently in phase (iii)
or have been completed through phase (iv). The Company expects to resolve all
Year 2000 issues by mid-1999.
The Company performs system upgrades and purchases new systems, applications,
software and hardware in the ordinary course of business. Since 1996, the
Company has only purchased software and systems that are Year 2000 compliant or
require little modification to remedy Year 2000 issues. As a result, the Company
has been able to minimize the financial impact of its Year 2000 costs incurred
to date. In addition, the Company does not expect that remaining costs of
changes necessary to resolve the Year 2000 issues will be material to its
financial position, results of operations or cash flows in future periods.
Management believes that it has taken a reasonable approach to resolve the Year
2000 issues. However, there can be no assurance that all of the Company's Year
2000 issues or those of key third parties upon whom the Company relies for goods
and services will be resolved or satisfactorily addressed before the Year 2000
commences. If the Company or its key vendors fail to address the Year 2000
issues in a timely manner, and there are no alternatives available to the
company, then the Company could experience a material adverse impact on its
results of operations or financial position.
10
<PAGE>
STEIN MART, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
April 3, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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: May 17, 1999 /s/ John H. Williams, Jr.
-----------------------------------
John H. Williams, Jr.
President, Chief Operating Officer
and Director
/s/ James G. Delfs
-----------------------------------
James G. Delfs
Senior Vice President,
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet and condensed consolidated statement
of income found on the Company's Form 10-Q for the three months ended
April 3, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-3-1999
<PERIOD-END> APR-3-1999
<CASH> 18263
<SECURITIES> 0
<RECEIVABLES> 3744
<ALLOWANCES> 0
<INVENTORY> 238166
<CURRENT-ASSETS> 264630
<PP&E> 127558
<DEPRECIATION> 51448
<TOTAL-ASSETS> 344641
<CURRENT-LIABILITIES> 113987
<BONDS> 0
0
0
<COMMON> 453
<OTHER-SE> 177542
<TOTAL-LIABILITY-AND-EQUITY> 344641
<SALES> 212087
<TOTAL-REVENUES> 214779
<CGS> 163444
<TOTAL-COSTS> 213955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 392
<INCOME-TAX> 149
<INCOME-CONTINUING> 243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 243
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
