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
July 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 August 9, 1999, the latest practicable date, there were 44,782,334 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 July 3, 1999, January 2, 1999
and July 4, 1998 3
Statement of Income for the three months and six
months ended July 3, 1999 and July 4, 1998 4
Statement of Cash Flows for the six months ended
July 3, 1999 and July 4, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II - OTHER INFORMATION 12
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 13
2
<PAGE>
<TABLE>
Stein Mart, Inc.
Balance Sheet
(In thousands)
<CAPTION>
July 3, January 2, July 4,
1999 1999 1998
---------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,814 $22,257 $ 6,675
Trade and other receivables 3,303 4,580 3,551
Inventories 230,806 210,781 202,323
Prepaid expenses and other current assets 2,845 4,392 2,614
----------- -------------- -------------
Total current assets 247,768 242,010 215,163
Property and equipment, net 77,171 72,022 65,685
Other assets 4,202 3,980 4,010
----------- -------------- -------------
Total assets $329,141 $318,012 $284,858
=========== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $55,024 $102,474 $44,949
Accrued liabilities 26,409 26,453 18,664
Income taxes payable 4,864 2,098 4,198
----------- -------------- -------------
Total current liabilities 86,297 131,025 67,811
Notes payable to banks 46,852 - 40,870
Deferred income taxes 9,008 9,008 6,810
----------- -------------- -------------
Total liabilities 142,157 140,033 115,491
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; 45,307,823 shares issued and outstanding at
July 3, 1999; 45,371,476 shares issued and outstanding at
January 2, 1999 and 45,694,238 shares
issued and outstanding at July 4, 1998 453 454 457
Paid-in capital 30,607 31,238 33,883
Retained earnings 155,924 146,287 135,027
----------- -------------- -------------
Total stockholders' equity 186,984 177,979 169,367
----------- -------------- -------------
Total liabilities and stockholders' equity $329,141 $318,012 $284,858
=========== ============== =============
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 For The
Three Months Ended Six Months Ended
------------------------------- --------------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net sales $244,920 $213,967 $457,007 $383,449
Cost of merchandise sold 176,962 154,698 340,406 284,282
------------- -------------- ------------- ---------------
Gross profit 67,958 59,269 116,601 99,167
Selling, general and administrative expenses 55,315 46,925 105,826 88,421
Other income, net 3,026 2,803 5,718 5,005
------------- -------------- ------------- ---------------
Income from operations 15,669 15,147 16,493 15,751
Interest expense 518 525 950 833
------------- -------------- ------------- ---------------
Income before income taxes 15,151 14,622 15,543 14,918
Provision for income taxes 5,757 5,556 5,906 5,669
------------- -------------- ------------- ---------------
Net income $ 9,394 $ 9,066 $ 9,637 $ 9,249
============= ============== ============= ===============
Earnings per share - Basic $0.21 $0.20 $0.21 $0.20
============= ============== ============= ===============
Earnings per share - Diluted $0.21 $0.19 $0.21 $0.20
============= ============== ============= ===============
Weighted-average shares outstanding - Basic 45,341 46,105 45,356 46,037
============= ============== ============= ===============
Weighted-average shares outstanding - Diluted 45,811 47,059 45,786 47,040
============= ============== ============= ===============
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
Six Months Ended
------------------------------------
July 3, July 4,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $9,637 $9,249
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 6,213 5,005
(Increase) decrease in:
Trade and other receivables 1,277 (1,033)
Inventories (20,025) (26,703)
Prepaid expenses and other current assets 1,547 (444)
Other assets (222) (2,780)
Increase (decrease) in:
Accounts payable (47,450) (20,064)
Accrued liabilities (44) (2,863)
Income taxes payable 2,766 (7,253)
--------------- ---------------
Net cash used in operating activities (46,301) (46,886)
Cash flows used in investing activities:
Net acquisition of property and equipment (11,362) (9,603)
Cash flows from financing activities:
Net borrowings under notes payable to banks 46,852 40,870
Proceeds from exercise of stock options and related
income tax benefits 209 3,306
Proceeds from employee stock purchase plan 522 512
Purchase of common stock (1,363) (9,503)
--------------- ---------------
Net cash provided by financing activities 46,220 35,185
--------------- ---------------
Net decrease in cash and cash equivalents (11,443) (21,304)
Cash and cash equivalents at beginning of year 22,257 27,979
--------------- ---------------
Cash and cash equivalents at end of period $ 10,814 $ 6,675
=============== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 1,279 $ 1,298
Income taxes paid 92 11,465
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 and
six 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 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.
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):
For The For The
Three Months Ended Six Months Ended
------------------------- -----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Weighted-average number
of common shares 45,341 46,105 45,356 46,037
Stock options 470 954 430 1,003
---------- ----------- ---------- ----------
Weighted-average number of
common shares plus common
stock equivalents 45,811 47,059 45,786 47,040
========== =========== ========== ==========
3. Common Stock Repurchase
During the six months ended July 3, 1999, the Company repurchased 181,000 shares
for $1.4 million and during the six months ended July 4, 1998, the Company
repurchased 786,000 shares for $9.5 million. In addition, as of August 13, 1999
the Company had repurchased an additional 781,800 shares of its common stock in
the open market at a total cost of $5.3 million.
In August 1999, the Board of Directors authorized the repurchase of an
additional 1,500,000 shares of the Company's common stock in the open market.
6
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
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:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
----------------------------- ------------------------------
7/3/99 7/4/98 7/3/99 7/4/98
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 72.3 72.3 74.5 74.1
------------- ------------ ------------ --------------
Gross profit 27.7 27.7 25.5 25.9
Selling, general and
administrative expenses 22.5 21.9 23.2 23.1
Other income, net 1.2 1.3 1.3 1.3
------------- ------------ ------------ --------------
Income from operations 6.4 7.1 3.6 4.1
Interest expense 0.2 0.3 0.2 0.2
------------- ------------ ------------ --------------
Income before income taxes 6.2 6.8 3.4 3.9
Provision for income taxes 2.4 2.6 1.3 1.5
------------- ------------ ------------ --------------
Net income 3.8% 4.2% 2.1% 2.4%
============= ============ ============ ==============
</TABLE>
7
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
For the three months ended July 3, 1999 compared with the three months ended
July 4, 1998:
Six stores were opened and one store was closed during the second quarter this
year, bringing to 196 the number of stores in operation this year compared to
165 stores in operation at the end of the second quarter of 1998.
Net sales for the quarter ended July 3, 1999 were $244.9 million, a 14.5 percent
increase over the $214.0 million for the second quarter of 1998. Comparable
store net sales increased 0.7 percent from the second quarter of 1998.
Gross profit for the quarter ended July 3, 1999 was $68.0 million compared to
$59.3 million for the second quarter of 1998. Gross profit was 27.7% of net
sales during both quarters. During the second quarter of 1999, lower markdowns
were offset by higher occupancy costs as a percent of net sales, compared to the
second quarter of 1998.
Selling, general and administrative expenses were $55.3 million or 22.5 percent
of net sales for the quarter ended July 3, 1999 compared to $46.9 million or
21.9 percent of net sales for the same 1998 quarter. The $8.4 million increase
in selling, general and administrative expenses is primarily due to the
additional stores in operation during the second quarter of 1999 as compared to
the number of stores in operation during the second quarter of 1998. The
increase of 0.6 percent of net sales is primarily due to increased selling
expenses as a percent of net sales resulting from lower per store sales
productivity.
Other income, primarily from in-store leased shoe departments, increased to $3.0
million for the second quarter of 1999 compared to $2.8 million for the second
quarter of 1998. The increase resulted from the additional stores operated
during the quarter this year.
Interest expense was $518,000 for the second quarter of 1999 and $525,000 for
the second quarter of 1998. The $7,000 decrease in interest expense resulted
from slightly higher average borrowings offset by lower interest rates during
the second quarter this year compared to last year. The increased borrowings
were primarily used to fund operating activities.
Net income for the second quarter of 1999 was $9.4 million or $0.21 diluted
earnings per share compared to net income of $9.1 million or $0.19 diluted
earnings per share for the second quarter of 1998.
8
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
For the six months ended July 3, 1999 compared with the six months ended July 4,
1998:
Fifteen stores were opened and one store was closed during the first six months
of 1999 and fourteen stores were opened during the first six months of 1998.
Net sales for the first six months of 1999 were $457.0 million, a 19.2 percent
increase over sales of $383.4 million for the first six months of 1998.
Comparable store net sales for the first six months of 1999 increased by 4.0
percent from the first six months of 1998.
Gross profit for the first six months of 1999 was $116.6 million or 25.5 percent
of net sales compared to $99.2 million or 25.9 percent of net sales for the same
six month period of 1998. The 0.4 percent decrease in the gross profit percent
resulted primarily from slight increases in occupancy costs and the effect of
recording physical inventory results during the first quarter of 1999.
Selling, general and administrative expenses were $105.8 million or 23.2 percent
of net sales for the first six months of 1999 and $88.4 million or 23.1 percent
for the first six months of 1998. The $17.4 million increase in selling, general
and administrative expenses is primarily due to the additional stores in
operation during the first six months of 1999 as compared to the number of
stores in operation during the first six months of 1998.
Other income, primarily from in-store leased shoe departments, increased to $5.7
million for the first half of 1999 compared to $5.0 million for the first half
of 1998. The increase resulted primarily from the additional stores operated
during the first six months this year.
Interest expense was $950,000 and $833,000 for the first half of 1999 and 1998,
respectively. The $117,000 increase in interest expense resulted from higher
average borrowings offset by slightly lower interest rates during the first half
of 1999 compared to last year. The increased borrowings were primarily used to
fund operating activities.
Net income for the first six months of 1999 was $9.6 million or $0.21 diluted
earnings per share compared to net income of $9.2 million or $0.20 diluted
earnings per share for the first six months of 1998.
9
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Liquidity and Capital Resources
Net cash used in operating activities was $46.3 million and $46.9 million for
the first six months of 1999 and 1998, respectively. Cash was used in the first
six months of 1999 and 1998 to reduce liabilities by $44.7 million and $30.2
million, respectively. During the first six months of 1999 and 1998, cash was
also used to increase inventories by $20.0 and $26.7 million, respectively,
primarily related to new store 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 six months of 1999 and 1998, cash flow used in investing
activities was $11.4 million and $9.6 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 $46.2 million for the first six months
of 1999 and $35.2 million for the first six 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 half includes $0.2
million of proceeds from the exercise of stock options and related income tax
benefits compared to $3.3 million in last year's first half. During both 1999
and 1998, the first half includes $0.5 million of proceeds from the employee
stock purchase plan. During the first half of 1999, cash was used to repurchase
181,000 shares of the Company's common stock for $1.4 million and in last year's
first half 786,000 shares were repurchased for $9.5 million. In addition to
these repurchases, as of August 13, 1999 the Company had repurchased an
additional 781,800 shares of its common stock in the open market at a total cost
of $5.3 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.
10
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
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
remaining Year 2000 issues during the third quarter of 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.
11
<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
The company held its 1999 annual meeting of stockholders
on May 17, 1999. At the meeting all of the Company's
directors were elected to serve for one-year terms. The
vote for each nominee for director was as follows:
Votes
Name of Director Votes For Withheld
---------------- ----------- --------
Alvin R. "Pete" Carpenter 42,943,093 109,678
Albert Ernest, Jr. 42,949,909 102,862
Linda McFarland Farthing 42,838,407 214,364
Mitchell W. Legler 41,799,723 1,253,048
Michael D. Rose 42,946,759 106,012
Jay Stein 42,952,609 100,162
John H. Williams, Jr. 42,948,815 103,956
James H. Winston 42,947,409 105,362
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 July 3, 1999.
12
<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: August 16, 1999 /s/John H. Williams, Jr.
----------------------------------
John H. Williams, Jr.
President, Chief Operating Officer
/s/James G. Delfs
----------------------------------
James G. Delfs
Senior Vice President,
Chief Financial Officer
13
<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 six months ended
July 3, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-3-1999
<PERIOD-END> JUL-3-1999
<CASH> 10814
<SECURITIES> 0
<RECEIVABLES> 3303
<ALLOWANCES> 0
<INVENTORY> 230806
<CURRENT-ASSETS> 247768
<PP&E> 131834
<DEPRECIATION> 54663
<TOTAL-ASSETS> 329141
<CURRENT-LIABILITIES> 86297
<BONDS> 0
0
0
<COMMON> 453
<OTHER-SE> 186531
<TOTAL-LIABILITY-AND-EQUITY> 329141
<SALES> 457007
<TOTAL-REVENUES> 462725
<CGS> 340406
<TOTAL-COSTS> 446232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 950
<INCOME-PRETAX> 15543
<INCOME-TAX> 5906
<INCOME-CONTINUING> 9637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9637
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
