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 1, 2000 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 7, 2000, the latest practicable date, there were 43,000,051 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 1, 2000, January 1, 2000
and July 3, 1999 3
Statement of Income for the three months and six
months ended July 1, 2000 and July 3, 1999 4
Statement of Cash Flows for the six months ended
July 1, 2000 and July 3, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
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>
July 1, January 1, July 3,
2000 2000 1999
---------------- -------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,026 $ 17,055 $ 10,814
Trade and other receivables 2,513 4,472 3,303
Inventories 262,869 245,186 230,806
Prepaid expenses and other current assets 2,611 4,089 2,845
---------------- -------------- ----------------
Total current assets 278,019 270,802 247,768
Property and equipment, net 78,178 76,503 77,171
Other assets 4,614 4,895 4,202
---------------- -------------- -----------------
Total assets $360,811 $352,200 $329,141
================ ============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,481 $120,640 $ 55,024
Accrued liabilities 35,720 30,086 26,409
Income taxes payable 9,183 4,686 4,864
---------------- -------------- -----------------
Total current liabilities 104,384 155,412 86,297
Store closing reserve 11,507 12,589 -
Notes payable to banks 51,730 - 46,852
Deferred income taxes 4,287 4,287 9,008
---------------- -------------- -----------------
Total liabilities 171,908 172,288 142,157
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; 42,902,885 shares issued and outstanding
at July 1, 2000; 43,904,450 shares issued and
outstanding at January 1, 2000 and 45,307,823 shares
issued and outstanding at July 3, 1999 429 439 453
Paid-in capital 15,536 21,364 30,607
Retained earnings 172,938 158,109 155,924
---------------- -------------- -----------------
Total stockholders' equity 188,903 179,912 186,984
---------------- -------------- -----------------
Total liabilities and stockholders' equity $360,811 $352,200 $329,141
================ ============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 1, July 3, July 1, July 3,
2000 1999 2000 1999
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net sales $291,188 $244,920 $536,639 $457,007
Cost of merchandise sold 208,909 176,962 397,205 340,406
------------- -------------- ------------- ---------------
Gross profit 82,279 67,958 139,434 116,601
Selling, general and administrative expenses 62,932 55,315 120,806 105,826
Other income, net 3,741 3,026 6,696 5,718
------------- -------------- ------------- ---------------
Income from operations 23,088 15,669 25,324 16,493
Interest expense 781 518 1,406 950
------------- -------------- ------------- ---------------
Income before income taxes 22,307 15,151 23,918 15,543
Provision for income taxes 8,477 5,757 9,089 5,906
------------- -------------- ------------- ---------------
Net income $ 13,830 $ 9,394 $ 14,829 $ 9,637
============= ============== ============= ===============
Earnings per share - Basic $0.32 $0.21 $0.34 $0.21
============= ============== ============= ===============
Earnings per share - Diluted $0.32 $0.21 $0.34 $0.21
============= ============== ============= ===============
Weighted-average shares outstanding - Basic 43,008 45,341 43,251 45,356
============= ============== ============= ===============
Weighted-average shares outstanding - Diluted 43,459 45,811 43,562 45,786
============= ============== ============= ===============
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 1, July 3,
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,829 $ 9,637
Adjustments to reconcile net income to net cash used in
Operating activities:
Depreciation and amortization 6,995 6,213
(Increase) decrease in:
Trade and other receivables 1,959 1,277
Inventories (17,683) (20,025)
Prepaid expenses and other current assets 1,478 1,547
Other assets 281 (222)
Increase (decrease) in:
Accounts payable (61,159) (47,450)
Accrued liabilities 5,634 (44)
Income taxes payable 4,497 2,766
Store closing reserve (1,082) -
--------------- ---------------
Net cash used in operating activities (44,251) (46,301)
Cash flows used in investing activities:
Net acquisition of property and equipment (8,670) (11,362)
Cash flows from financing activities:
Net borrowings under notes payable to banks 51,730 46,852
Proceeds from exercise of stock options and related
income tax benefits 307 209
Proceeds from employee stock purchase plan 528 522
Purchase of common stock (6,673) (1,363)
--------------- ---------------
Net cash provided by financing activities 45,892 46,220
--------------- ---------------
Net decrease in cash and cash equivalents (7,029) (11,443)
Cash and cash equivalents at beginning of year 17,055 22,257
--------------- ---------------
Cash and cash equivalents at end of period $ 10,026 $ 10,814
=============== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 1,278 $ 1,279
Income taxes paid 4,515 92
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 1, 2000.
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):
<TABLE>
<CAPTION>
For The For The
Three Months Ended Six Months Ended
------------------------- ------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted-average number of common shares 43,008 45,341 43,251 45,356
Stock options 451 470 311 430
----------- ----------- ----------- -----------
Weighted-average number of common shares
plus common stock equivalents 43,459 45,811 43,562 45,786
=========== =========== =========== ===========
</TABLE>
3. Store Closing Reserve
The store closing reserve includes primarily the estimated cost of lease
terminations of ten under-performing stores recorded in 1999. Four stores were
closed on December 31, 1999 and six more will be closed during 2000. Activity in
the store closing reserve for the six months ended July 1, 2000 included only
severance payments and ongoing lease payments on two stores that were closed on
December 31, 1999 and is as follows:
Balance, beginning of year $12,589
Payments (334)
-------------
12,255
Less current portion (included in Accrued Liabilities) (748)
-------------
Balance, July 1, 2000 $11,507
=============
4. Common Stock Repurchase
During the six months ended July 1, 2000, the Company repurchased 1,161,500
shares for $6.7 million and during the six months ended July 3, 1999, the
Company repurchased 181,000 shares for $1.4 million.
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, ability to
successfully implement strategies to exit or improve under-performing stores,
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
In 1999, the Company recorded a charge to close ten under-performing stores.
Four stores were closed on December 31, 1999 and six more will be closed during
2000. The Company continues to follow its plan to close these stores and
believes the charge recorded in 1999 is sufficient to carry out this plan.
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
------------------------- ----------------------------
7/1/00 7/3/99 7/1/00 7/3/99
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 71.7 72.3 74.0 74.5
----------- ----------- ----------- -----------
Gross profit 28.3 27.7 26.0 25.5
Selling, general and
administrative expenses 21.6 22.5 22.5 23.2
Other income, net 1.3 1.2 1.2 1.3
----------- ----------- ----------- -----------
Income from operations 8.0 6.4 4.7 3.6
Interest expense 0.3 0.2 0.2 0.2
----------- ----------- ----------- -----------
Income before income taxes 7.7 6.2 4.5 3.4
Provision for income taxes 2.9 2.4 1.7 1.3
----------- ----------- ----------- -----------
Net income 4.8% 3.8% 2.8% 2.1%
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
For the three months ended July 1, 2000 compared with the three months ended
July 3, 1999:
Four stores were opened during the second quarter this year, bringing to 211 the
number of stores in operation this year compared to 196 stores in operation at
the end of the second quarter of 1999.
Net sales for the quarter ended July 1, 2000 were $291.2 million, an 18.9
percent increase over net sales of $244.9 million for the second quarter of
1999. Comparable store net sales increased 12.8 percent over the second quarter
of 1999.
Gross profit for the quarter ended July 1, 2000 was $82.3 million or 28.3
percent of net sales compared to $68.0 million or 27.7% of net sales for the
second quarter of 1999. The 0.6 increase in the gross profit percentage resulted
primarily from improved occupancy expense leverage.
Selling, general and administrative expenses were $62.9 million or 21.6 percent
of net sales for the quarter ended July 1, 2000 and $55.3 million or 22.5
percent of net sales for the same 1999 quarter. The $7.6 million increase in
selling, general and administrative expenses is primarily due to the additional
stores in operation during the second quarter of 2000 as compared to the number
of stores in operation during the second quarter of 1999. The decrease of 0.9
percent of net sales is primarily due to improved leverage of selling and
administrative expenses.
Other income, primarily from in-store leased shoe departments, increased to $3.7
million for the second quarter of 2000 compared to $3.0 million for the second
quarter of 1999. The increase resulted from the additional stores operated
during the quarter this year.
Interest expense was $781,000 for the second quarter of 2000 and $518,000 for
the second quarter of 1999. The increase resulted from higher average borrowings
and higher interest rates during the second quarter this year compared to last
year. The increased borrowings were primarily used to fund operating activities
and to repurchase common stock.
Net income for the second quarter of 2000 was $13.8 million or $0.32 diluted
earnings per share compared to net income of $9.4 million or $0.21 diluted
earnings per share for the second quarter of 1999.
8
<PAGE>
Stein Mart, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
For the six months ended July 1, 2000 compared with the six months ended July 3,
1999:
Six stores were opened during the first six months of 2000 and fifteen stores
were opened and one store was closed during the first six months of 1999.
Net sales for the first six months of 2000 were $536.6 million, a 17.4 percent
increase over sales of $457.0 million for the first six months of 1999.
Comparable store net sales for the first six months of 2000 increased by 10.4
percent over the first six months of 1999.
Gross profit for the first six months of 2000 was $139.4 million or 26.0 percent
of net sales compared to $116.6 million or 25.5 percent of net sales for the
same six month period of 1999. The 0.5 percent increase in the gross profit
percent resulted primarily from improved occupancy expense leverage.
Selling, general and administrative expenses were $120.8 million or 22.5 percent
of net sales for the first six months of 2000 and $105.8 million or 23.2 percent
for the first six months of 1999. The $15.0 million increase in selling, general
and administrative expenses is primarily due to the additional stores in
operation during the first six months of 2000 as compared to the number of
stores in operation during the first six months of 1999. The decrease of 0.7
percent of net sales is primarily due to improved leverage of selling and
administrative expenses and decreased pre-opening expenses related to fewer new
stores being opened in the first six months this year.
Other income, primarily from in-store leased shoe departments, increased to $6.7
million for the first half of 2000 compared to $5.7 million for the first half
of 1999. The increase resulted primarily from the additional stores operated
during the first six months this year.
Interest expense was $1.4 million and $1.0 million for the first half of 2000
and 1999, respectively. The increase resulted from higher average borrowings and
higher interest rates during the first half of 2000 compared to last year. The
increased borrowings were primarily used to fund operating activities and
repurchase common stock.
Net income for the first six months of 2000 was $14.8 million or $0.34 diluted
earnings per share compared to net income of $9.6 million or $0.21 diluted
earnings per share for the first six months of 1999.
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 $44.3 million and $46.3 million for
the first six months of 2000 and 1999, respectively. Cash was used in the first
six months of 2000 and 1999 to increase inventories by $17.7 and $20.0 million,
respectively, primarily related to new store openings, and to pay accounts
payable of $61.2 million and $47.5 million, respectively. These decreases were
offset by a $5.2 million increase in net income before depreciation and
amortization and a $5.6 million increase in accrued liabilities. Based on
historical cash flow results, operating activities are expected to produce
positive cash flow for the year ending December 30, 2000.
During the first six months of 2000 and 1999, cash flow used in investing
activities was $8.7 million and $11.4 million, respectively, primarily for
acquisition of fixtures, equipment, and leasehold improvements for new stores
and information system enhancements. Total capital expenditures for 2000 are
anticipated to be $18-20 million.
Cash flow from financing activities was $45.9 million for the first six months
of 2000 and $46.2 million for the first six months of 1999 which reflected in
both periods net borrowing under the Company's revolving credit agreement to
meet seasonal working capital requirements. During both 2000 and 1999, the first
half includes $0.5 million of proceeds from the employee stock purchase plan.
During the first half of 2000, cash was used to repurchase 1,161,500 shares of
the Company's common stock for $6.7 million and in last year's first half
181,000 shares were repurchased for $1.4 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.
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 2000 annual meeting of stockholders
on May 1, 2000. 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 41,075,988 319,796
Linda McFarland Farthing 41,076,482 319,302
Mitchell W. Legler 40,489,225 906,559
Michael D. Rose 41,075,988 319,796
Jay Stein 41,069,070 326,714
John H. Williams, Jr. 41,075,898 319,886
James H. Winston 41,079,188 316,596
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 1, 2000.
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: August 14, 2000 /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
