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
October 2, 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 October 22, 1999, the latest practicable date, there were 44,495,440 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 October 2, 1999, January 2, 1999
and October 3, 1998 3
Statement of Income for the three months and nine
months ended October 2, 1999 and October 3, 1998 4
Statement of Cash Flows for the nine months ended
October 2, 1999 and October 3, 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>
October 2, January 2, October 3,
1999 1999 1998
--------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,781 $ 22,257 $ 9,958
Trade and other receivables 4,586 4,580 5,263
Inventories 266,512 210,781 249,586
Prepaid taxes 3,178 - 5,094
Prepaid expenses and other current assets 3,087 4,392 4,184
-------------- ------------- -----------------
Total current assets 290,144 242,010 274,085
Property and equipment, net 79,050 72,022 70,045
Other assets 4,099 3,980 3,454
-------------- ------------- -----------------
Total assets $373,293 $318,012 $347,584
============== ============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 99,100 $102,474 $ 96,308
Accrued liabilities 27,879 26,453 22,641
Income taxes payable - 2,098 -
-------------- ------------- -----------------
Total current liabilities 126,979 131,025 118,949
Notes payable to banks 58,013 - 58,611
Deferred income taxes 9,008 9,008 6,810
-------------- ------------- -----------------
Total liabilities 194,000 140,033 184,370
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; 44,595,440 shares issued and outstanding
at October 2, 1999; 45,371,476 shares issued and
outstanding at January 2, 1999 and 45,543,386 shares
issued and outstanding at October 3, 1998 446 454 455
Paid-in capital 25,674 31,238 32,456
Retained earnings 153,173 146,287 130,303
-------------- ------------- -----------------
Total stockholders' equity 179,293 177,979 163,214
-------------- ------------- -----------------
Total liabilities and stockholders' equity $373,293 $318,012 $347,584
============== ============= =================
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 Nine Months Ended
-------------------------------- -----------------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $227,625 $192,138 $684,632 $575,587
Cost of merchandise sold 179,259 154,532 519,665 438,814
------------ --------------- ---------------- ----------------
Gross profit 48,366 37,606 164,967 136,773
Selling, general and administrative expenses 54,963 47,075 160,789 135,496
Other income, net 2,789 2,539 8,507 7,544
------------ --------------- ---------------- ----------------
Income (loss) from operations (3,808) (6,930) 12,685 8,821
Interest expense 629 690 1,579 1,523
------------ --------------- ---------------- ----------------
Income (loss) before income taxes (4,437) (7,620) 11,106 7,298
Income tax (provision) benefit 1,686 2,896 (4,220) (2,773)
------------ --------------- ---------------- ----------------
Net income (loss) $ (2,751) $(4,724) $ 6,886 $ 4,525
============ =============== ================ ================
Earnings (loss) per share - Basic $ (0.06) $ (0.10) $ 0.15 $ 0.10
============ =============== ================ ================
Earnings (loss) per share - Diluted $ (0.06) $ (0.10) $ 0.15 $ 0.10
============ =============== ================ ================
Weighted-average shares outstanding - Basic 44,871 45,655 45,194 45,909
============ =============== ================ ================
Weighted-average shares outstanding - Diluted 45,213 46,137 45,595 46,739
============ =============== ================ ================
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
Nine Months Ended
----------------------------------------
October 2, October 3,
1999 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,886 $ 4,525
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 9,160 7,677
(Increase) decrease in:
Trade and other receivables (6) (2,745)
Inventories (55,731) (73,966)
Prepaid taxes (3,178) (5,094)
Prepaid expenses and other current assets 1,305 (2,014)
Other assets (119) (2,224)
Increase (decrease) in:
Accounts payable (3,374) 31,295
Accrued liabilities 1,426 1,114
Income taxes payable (2,098) (11,451)
------------------ -----------------
Net cash used in operating activities (45,729) (52,883)
Cash flows used in investing activities:
Net acquisition of property and equipment (16,188) (16,635)
Cash flows from financing activities:
Net borrowings under notes payable to banks 58,013 58,611
Proceeds from exercise of stock options and related
income tax benefits 332 3,472
Proceeds from employee stock purchase plan 1,022 991
Purchase of common stock (6,926) (11,577)
------------------ -----------------
Net cash provided by financing activities 52,441 51,497
------------------ -----------------
Net decrease in cash and cash equivalents (9,476) (18,021)
Cash and cash equivalents at beginning of year 22,257 27,979
------------------ -----------------
Cash and cash equivalents at end of period $12,781 $ 9,958
================== =================
Supplemental disclosures of cash flow information:
Interest paid $ 1,781 $ 1,298
Income taxes paid 6,389 17,804
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
nine 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 Nine Months Ended
---------------------- ------------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1999 1998 1999 1998
---------- ----------- ----------- -----------
Weighted-average number
of common shares 44,871 45,655 45,194 45,909
Stock options 342 482 401 830
---------- ----------- ----------- -----------
Weighted-average number of
common shares plus common
stock equivalents 45,213 46,137 45,595 46,739
========== =========== =========== ===========
3. Common Stock Repurchase
During the nine months ended October 2, 1999, the Company repurchased 1,002,800
shares for $6.9 million and during the nine months ended October 3, 1998, the
Company repurchased 1,008,500 shares for $11.6 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 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:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------- --------------------------
10/2/99 10/3/98 10/2/99 10/3/98
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 78.8 80.4 75.9 76.2
------------- ------------ ------------ ------------
Gross profit 21.2 19.6 24.1 23.8
Selling, general and
administrative expenses 24.1 24.5 23.5 23.6
Other income, net 1.2 1.3 1.3 1.3
------------- ------------ ------------ ------------
Income (loss) from operations (1.7) (3.6) 1.9 1.5
Interest expense 0.2 0.4 0.3 0.2
------------- ------------ ------------ ------------
Income (loss) before income taxes (1.9) (4.0) 1.6 1.3
Income tax (provision) benefit .7 1.5 (0.6) (0.5)
============= ============ ============ ============
Net income (loss) (1.2%) (2.5%) 1.0% 0.8%
============= ============ ============ ============
</TABLE>
7
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the three months ended October 2, 1999 compared with the three months ended
October 3, 1998:
Seven stores were opened during the third quarter this year, bringing to 203 the
number of stores in operation this year compared to 172 stores in operation at
the end of the third quarter of 1998.
Net sales for the quarter ended October 2, 1999 were $227.6 million, an 18.5
percent increase over the $192.1 million for the third quarter of 1998.
Comparable store net sales increased 4.2 percent from the third quarter of 1998.
Gross profit for the quarter ended October 2, 1999 was $48.4 million compared to
$37.6 million for the third quarter of 1998. Gross profit was 21.2 percent of
net sales for the third quarter of 1999 and 19.6 percent of net sales for the
third quarter of 1998. The 1.6 percent increase in the gross profit percentage
resulted primarily from lower markdowns.
Selling, general and administrative expenses were $55.0 million or 24.1 percent
of net sales for the quarter ended October 2, 1999 compared to $47.1 million or
24.5 percent of net sales for the same 1998 quarter. The $7.9 million increase
in selling, general and administrative expenses is primarily due to the
additional stores in operation during the third quarter of 1999 as compared to
the number of stores in operation during the third quarter of 1998. The decrease
of 0.4 percent of net sales is primarily due to leveraging expenses.
Other income, primarily from in-store leased shoe departments, increased to $2.8
million for the third quarter of 1999 compared to $2.5 million for the third
quarter of 1998. The increase resulted from the additional stores operated
during the quarter this year.
Interest expense was $629,000 for the third quarter of 1999 and $690,000 for the
third quarter of 1998. The decrease in interest expense resulted from slightly
higher average borrowings offset by lower interest rates during the third
quarter this year compared to last year. The increased borrowings were primarily
used to fund operating activities.
Net loss for the third quarter of 1999 was $2.8 million or $0.06 diluted loss
per share compared to a net loss of $4.7 million or $0.10 diluted loss per share
for the third quarter of 1998.
8
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the nine months ended October 2, 1999 compared with the nine months ended
October 3, 1998:
Twenty-two stores were opened and one store was closed during the first nine
months of 1999 and twenty-one stores were opened during the first nine months of
1998.
Net sales for the first nine months of 1999 were $684.6 million, an 18.9 percent
increase over sales of $575.6 million for the first nine months of 1998.
Comparable store net sales for the first nine months of 1999 increased by 4.1
percent from the first nine months of 1998.
Gross profit for the first nine months of 1999 was $165.0 million or 24.1
percent of net sales compared to $136.8 million or 23.8 percent of net sales for
the same nine month period of 1998. The 0.3 percent increase in the gross profit
percent resulted primarily from lower markdowns offset by 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 $160.8 million or 23.5 percent
of net sales for the first nine months of 1999 and $135.5 million or 23.6
percent for the first nine months of 1998. The $25.3 million increase in
selling, general and administrative expenses is primarily due to the additional
stores in operation during the first nine months of 1999 as compared to the
number of stores in operation during the first nine months of 1998.
Other income, primarily from in-store leased shoe departments, increased to $8.5
million for the first nine months of 1999 compared to $7.5 million for the first
nine months of 1998. The increase resulted primarily from the additional stores
operated during the first nine months this year.
Interest expense was $1.6 million and $1.5 million for the first nine months of
1999 and 1998, respectively. The slight increase in interest expense resulted
from higher average borrowings offset by slightly lower interest rates during
the first nine months of 1999 compared to last year. The increased borrowings
were primarily used to fund operating activities.
Net income for the first nine months of 1999 was $6.9 million or $0.15 diluted
earnings per share compared to net income of $4.5 million or $0.10 diluted
earnings per share for the first nine months of 1998.
9
<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 was $45.7 million and $52.9 million for
the first nine months of 1999 and 1998, respectively. During the first nine
months of 1999 and 1998, cash was used to increase inventories by $55.7 and
$74.0 million, respectively, primarily related to new store openings. Cash was
also used to reduce liabilities by $4.0 million during the first nine months of
1999. During the same period of 1998, cash was provided by a $21.0 million
increase in liabilities. 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 nine months of 1999 and 1998, cash flow used in investing
activities was $16.2 million and $16.6 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 $52.4 million for the first nine months
of 1999 and $51.5 million for the first nine months of 1998, which reflected in
both periods net borrowings under the Company's revolving credit agreement to
meet seasonal working capital requirements. This year's first nine months
includes $0.3 million of proceeds from the exercise of stock options and related
income tax benefits compared to $3.5 million in last year's first nine months.
During both 1999 and 1998, the first nine months includes $1.0 million of
proceeds from the employee stock purchase plan. During the first nine months of
1999, cash was used to repurchase 1,002,800 shares of the Company's common stock
for $6.9 million and in last year's first nine months 1,008,500 shares were
repurchased for $11.6 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 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 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 have been completed through all phases
of the program.
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 and such
costs have not been material to the Company's financial position, results of
operations or cash flows.
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.
Store Closings and Related Costs
The Company is developing a plan to close certain under-performing stores. The
Company anticipates closing four stores by the end of 1999 and an additional
five to six stores during the year 2000. In the fourth quarter of 1999, the
Company expects to record one-time, pre-tax charges of no more than $22 million,
resulting from store closings, related inventory writedowns and other closing
costs.
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 - 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 October 2, 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: October 29, 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 nine months ended
October 2, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-3-1999
<PERIOD-END> OCT-2-1999
<CASH> 12781
<SECURITIES> 0
<RECEIVABLES> 4586
<ALLOWANCES> 0
<INVENTORY> 266512
<CURRENT-ASSETS> 290144
<PP&E> 136660
<DEPRECIATION> 57610
<TOTAL-ASSETS> 373293
<CURRENT-LIABILITIES> 126979
<BONDS> 0
0
0
<COMMON> 446
<OTHER-SE> 178847
<TOTAL-LIABILITY-AND-EQUITY> 373293
<SALES> 684632
<TOTAL-REVENUES> 693139
<CGS> 519665
<TOTAL-COSTS> 680454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1579
<INCOME-PRETAX> 11106
<INCOME-TAX> 4220
<INCOME-CONTINUING> 6886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6886
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
