Stein Mart, Inc. (NASDAQ: SMRT) today announced financial results
for the fourth quarter and fiscal year ended February 1, 2020.
Net loss for the fourth
quarter was $0.3 million or $0.01 per diluted share for 2019
compared to net income of $3.7 million or $0.08 per diluted share
for 2018. Net loss for the year was $10.5 million or $0.22 per
diluted share for 2019 compared to net loss of $6.2 million or
$0.13 per diluted share for 2018.
Pending
MergerAs announced on January 31, 2020, Stein Mart has
entered into a definitive merger agreement (the “Merger Agreement”)
under which an affiliate of Kingswood Capital Management, L.P. will
acquire all of the outstanding common stock of Stein Mart not
already beneficially owned by affiliates of Jay Stein, Stein Mart’s
former CEO and current Chairman of the Board of Directors, and
related investors for $0.90 per share in cash (the transaction
hereafter referred to as the “Merger”). As part of the Merger, an
entity managed by Jay Stein will contribute its equity and,
following the closing of the Merger, will indirectly own one-third
of Stein Mart after closing. The Merger, which is expected to be
completed in the first half of calendar year 2020, is subject to
approval by Stein Mart’s shareholders and the satisfaction of other
customary closing conditions. In light of the pending Merger, the
Company will not be hosting an investor conference call to discuss
its financial results.
Fourth Quarter 2019 ResultsNet sales for the
fourth quarter of 2019 were $336.6 million compared to $340.8
million for the fourth quarter of 2018. Net sales were impacted by
fewer stores operating during the quarter. Comparable sales for the
fourth quarter of 2019 increased 0.1 percent (see Note 2). Omni
sales, defined as all online sales regardless of fulfillment
channel, increased 7 percent over last year’s fourth quarter.
Gross profit for the fourth quarter of 2019 was $86.7 million or
25.8 percent of sales compared to $92.4 million or 27.1 percent of
sales in 2018. The lower gross profit rate primarily reflects
higher markdowns, as well as occupancy costs that negatively
leverage on lower sales and slightly higher buying expenses
allocated to cost of merchandise sold.
Selling, general and
administrative (“SG&A”) expenses for the fourth quarter were
$88.2 million in 2019 compared to $90.2 in 2018. The decrease in
SG&A expenses includes lower impairment charges, lower
incentive-based compensation expense and the impact of closed
stores. These decreases were partially offset by the fourth quarter
2018 benefitting from a decrease in accrued compensated absences as
a result of a change in vacation policy, and $1.1 million of
merger-related expenses in 2019 (see Note 1).
Fiscal Year 2019 ResultsFor the year, net sales
decreased 3.0 percent to $1.22 billion while comparable sales
decreased 1.4 percent to last year (see Note 2). Net sales were
impacted by fewer stores operating during the year and comparable
sales results. Omni sales increased 11 percent over 2018.
For the year, gross profit was $318.2 million or 26.1 percent of
sales in 2019 compared to $337.5 million or 26.8 percent of sales
in 2018. The lower gross profit rate primarily reflects higher
markdowns as a percent of sales.
For the year, SG&A
expenses were $336.1 million in 2019 and $348.2 million in 2018.
The decrease in SG&A expenses includes lower store related
expenses including the impact of closed stores, lower incentive
based compensation expense, lower impairment charges and the
benefit from a Visa/MasterCard claim settlement. These decreases
were slightly offset by higher advertising expenses for planned
additional branded television, the impact of last year’s change in
vacation policy, and $1.6 million of merger-related expenses in
2019 (see Note 1).
Balance SheetInventories were $248.6 million at
the end of 2019 compared to $255.9 million at the end of 2018.
Inventories at the end of 2019 included amounts to support our new
Kids department. Excluding the impact of Kids, average inventories
per store were down 4.5 percent to last year.
Debt decreased $12.0 million to $142.1 million at the end of
2019 compared to $154.1 million at the end of 2018. Unused
availability under our credit facility was $54.2 million at the end
of 2019 compared to $58.2 million at the end of 2018. The decrease
in availability was primarily due to the lower inventory advance
rate on the term loan that was reduced per the loan agreement in
the second half of 2019. At the end of 2019 and 2018, we had an
additional $13.1 million and $14.5 million, respectively, available
to borrow that would be collateralized by life insurance
policies.
Store ActivityWe had 283 stores at the end of
2019 compared to 287 at the end of 2018, reflecting four stores
that were closed during 2019. Two more stores were closed in
February 2020.
Lease AccountingWe adopted the new lease
accounting standard during the first quarter of 2019. The new
standard required us to recognize right-of-use assets and lease
liabilities for operating leases on the Consolidated Balance
Sheet.
Prior Year Financial StatementsPrior year
amounts in the attached financial statements have been revised to
reflect a correction to the impairment of fixed assets, as
described in Note 2 to the financial statements included in our
Form 10-Q for first quarter of 2019.
Filing of Form 10-KReported results are
preliminary and not final until the filing of our Form 10-K for the
fiscal year ended February 1, 2020 with the Securities and Exchange
Commission (“SEC”), and therefore remain subject to adjustment.
About Stein MartStein Mart, Inc. is a
national specialty omni off-price retailer offering designer and
name-brand fashion apparel for him, for her and now for Kids!, home
décor, accessories and shoes at everyday discount
prices. Stein Mart provides real value that customers
love every day. The company operates 281 stores across 30 states.
For more information, please visit www.SteinMart.com.
Cautionary Statement Regarding Forward-Looking
StatementsExcept for historical information contained
herein, the statements in this release may be forward-looking and
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company does not
assume any obligation to update or revise any forward-looking
statements even if experience or future changes make it clear that
projected results expressed or implied will not be realized.
Forward-looking statements involve known and unknown risks and
uncertainties that may cause Stein Mart’s actual results in future
periods to differ materially from forecasted or expected results.
Those risks include, without limitation: the occurrence of any
event, change or other circumstances that could give rise to the
termination of the merger agreement, the inability to obtain the
requisite shareholder approval for the proposed merger or the
failure to satisfy other conditions to completion of the proposed
merger, risks that the proposed merger disrupts current plans and
operations and the costs, fees, expenses and charges associated
with the merger, dependence on our ability to purchase merchandise
at competitive terms through relationships with our vendors and
their factors, consumer sensitivity to economic conditions and
world events, competition in the retail industry, changes in
fashion trends and consumer preferences, ability to implement our
strategic plans to sustain profitable growth, effectiveness of
advertising and marketing, capital availability and debt levels,
ability to negotiate acceptable lease terms with current and
potential landlords, ability to successfully implement strategies
to exit under-performing stores, extreme and/or unseasonable
weather conditions, adequate sources of merchandise at acceptable
prices, dependence on certain key personnel and ability to attract
and retain qualified employees, increases in the cost of
compensation and employee benefits, impacts of seasonality,
disruption of the Company’s distribution process, dependence on
imported merchandise, information technology failures, data
security breaches, single supplier for shoe department, single
provider for Ecommerce website, acts of terrorism, loss of business
or supply chain disruptions caused by the coronavirus (COVID-19),
ability to adapt to new regulatory compliance and disclosure
obligations, material weaknesses in internal control over financial
reporting and other risks and uncertainties described in the
Company’s filings with the SEC.
Additional Information and Certain Information Regarding
ParticipantsIn connection with the proposed merger
transaction, the Company will file with the SEC a definitive proxy
statement on Schedule 14A and may file other documents with the SEC
regarding the proposed transaction. This press release is not a
substitute for the proxy statement or any other document that the
Company may file with the SEC. INVESTORS IN, AND SECURITY HOLDERS
OF, THE COMPANY ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS
WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY
AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND RELATED
MATTERS. Investors and security holders may obtain free copies of
the proxy statement (when available) and other documents filed with
the SEC by the Company through the web site maintained by the SEC
at www.sec.gov or by contacting Kingsdale Advisors by
telephone at 1.866.581.1479 toll-free in North America
(+1.416.867.2272 for collect calls outside of North America) or by
e-mail at contactus@kingsdaleadvisors.com.
Certain Participant InformationThe Company and
its directors and executive officers may be deemed to be
participants in the solicitation of proxies in connection with the
proposed merger transaction. Information regarding the Company’s
directors and executive officers, including a description of their
direct interests, by security holdings or otherwise, in the Company
is contained in the Company’s Definitive Annual Meeting Proxy
Statement filed with the SEC on May 7, 2019. You may obtain a free
copy of this document as described in the preceding paragraph.
Investors may obtain additional information regarding the direct
and indirect interests of the Company and its directors and
executive officers in the proposed transaction by reading the
definitive proxy statement and other public filings referred to
above.
Stein Mart,
Inc.Consolidated Statements of
Operations(Unaudited)(In thousands,
except for per share amounts)
|
|
13 Weeks Ended |
13 Weeks Ended |
52 Weeks Ended |
52 Weeks Ended |
|
|
February 1, 2020 |
February 2, 2019 |
February 1, 2020 |
February 2, 2019 |
|
|
|
|
|
|
Net sales |
|
$ |
336,600 |
|
$ |
340,767 |
|
$ |
1,219,258 |
|
$ |
1,257,278 |
|
Other revenue |
|
|
3,736 |
|
|
3,689 |
|
|
17,215 |
|
|
15,454 |
|
Total revenue |
|
|
340,336 |
|
|
344,456 |
|
|
1,236,473 |
|
|
1,272,732 |
|
Cost of merchandise sold |
|
|
249,921 |
|
|
248,384 |
|
|
901,043 |
|
|
919,810 |
|
Selling, general and administrative expenses |
|
|
88,243 |
|
|
90,165 |
|
|
336,134 |
|
|
348,236 |
|
Operating income (loss) |
|
|
2,172 |
|
|
5,907 |
|
|
(704 |
) |
|
4,686 |
|
Interest expense, net |
|
|
2,087 |
|
|
2,476 |
|
|
9,111 |
|
|
10,882 |
|
Income (loss) before income taxes |
|
|
85 |
|
|
3,431 |
|
|
(9,815 |
) |
|
(6,196 |
) |
Income tax expense (benefit) |
|
|
340 |
|
|
(316 |
) |
|
648 |
|
|
(25 |
) |
Net (loss) income |
|
$ |
(255 |
) |
$ |
3,747 |
|
$ |
(10,463 |
) |
$ |
(6,171 |
) |
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
Basic |
|
$ |
(0.01 |
) |
$ |
0.08 |
|
$ |
(0.22 |
) |
$ |
(0.13 |
) |
Diluted |
|
$ |
(0.01 |
) |
$ |
0.08 |
|
$ |
(0.22 |
) |
$ |
(0.13 |
) |
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
Basic |
|
|
47,606 |
|
|
46,803 |
|
|
47,417 |
|
|
46,706 |
|
Diluted |
|
|
47,606 |
|
|
47,443 |
|
|
47,417 |
|
|
46,706 |
|
Stein Mart,
Inc.Consolidated Balance
Sheets(Unaudited)(In thousands,
except for share and per share data)
|
|
February 1, 2020 |
February 2, 2019 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
|
$ |
9,499 |
|
$ |
9,049 |
|
Inventories |
|
|
248,588 |
|
|
255,884 |
|
Prepaid expenses and other current assets |
|
|
23,032 |
|
|
28,326 |
|
Total current assets |
|
|
281,119 |
|
|
293,259 |
|
Property and equipment, net |
|
|
101,893 |
|
|
119,740 |
|
Operating lease assets |
|
|
356,347 |
|
|
- |
|
Other assets |
|
|
26,155 |
|
|
24,108 |
|
Total assets |
|
$ |
765,514 |
|
$ |
437,107 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
|
$ |
87,312 |
|
$ |
89,646 |
|
Current portion of operating lease liabilities |
|
|
82,126 |
|
|
- |
|
Accrued expenses and other current liabilities |
|
|
80,231 |
|
|
77,650 |
|
Total current liabilities |
|
|
249,669 |
|
|
167,296 |
|
Long-term debt |
|
|
141,438 |
|
|
153,253 |
|
Deferred rent |
|
|
- |
|
|
39,708 |
|
Non-current operating lease liabilities |
|
|
310,290 |
|
|
- |
|
Other liabilities |
|
|
32,179 |
|
|
33,897 |
|
Total liabilities |
|
|
733,576 |
|
|
394,154 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
Shareholders’ equity: |
|
|
|
Preferred stock - $.01 par value; 1,000,000 shares authorized; no
shares issued or outstanding |
|
|
|
Common stock - $.01 par value;
100,000,000 shares authorized; 48,354,642 and 47,874,286 shares
issued and outstanding, respectively |
|
|
484 |
|
|
479 |
|
Additional paid-in capital |
|
|
61,744 |
|
|
60,172 |
|
Retained deficit |
|
|
(30,534 |
) |
|
(17,951 |
) |
Accumulated other comprehensive income |
|
|
244 |
|
|
253 |
|
Total shareholders’ equity |
|
|
31,938 |
|
|
42,953 |
|
Total liabilities and shareholders’ equity |
|
$ |
765,514 |
|
$ |
437,107 |
|
Stein Mart,
Inc.Consolidated Statements of Cash
Flows(Unaudited)(In
thousands)
|
|
52 Weeks Ended |
52 Weeks Ended |
|
February 1, 2020 |
February 2, 2019 |
Cash flows from operating activities: |
|
|
|
Net loss |
|
$ |
(10,463 |
) |
$ |
(6,171 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
|
|
28,162 |
|
|
31,480 |
|
Share-based compensation |
|
|
1,528 |
|
|
4,109 |
|
Store closing (benefits) expenses |
|
|
(31 |
) |
|
215 |
|
Impairment of property and other assets |
|
|
791 |
|
|
3,944 |
|
Loss on disposal of property and equipment |
|
|
191 |
|
|
680 |
|
Changes in assets and liabilities: |
|
|
|
Inventories |
|
|
7,296 |
|
|
14,353 |
|
Prepaid expenses and other current assets |
|
|
4,495 |
|
|
(1,706 |
) |
Other assets |
|
|
(5,508 |
) |
|
(1,350 |
) |
Accounts payable |
|
|
(2,715 |
) |
|
(29,823 |
) |
Accrued expenses and other current liabilities |
|
|
1,396 |
|
|
(635 |
) |
Operating lease assets and liabilities, net |
|
|
(4,276 |
) |
|
- |
|
Other liabilities |
|
|
(4,169 |
) |
|
(6,194 |
) |
Net cash provided by operating activities |
|
|
16,697 |
|
|
8,902 |
|
Cash flows from investing activities: |
|
|
|
Net acquisition of property and equipment |
|
|
(5,832 |
) |
|
(8,993 |
) |
Proceeds from canceled corporate owned life insurance policies |
|
|
2,900 |
|
|
2,514 |
|
Proceeds from insurance claims |
|
|
82 |
|
|
296 |
|
Net cash used in investing activities |
|
|
(2,850 |
) |
|
(6,183 |
) |
Cash flows from financing activities: |
|
|
|
Proceeds from borrowings |
|
|
409,348 |
|
|
1,107,183 |
|
Repayments of debt |
|
|
(421,348 |
) |
|
(1,109,208 |
) |
Debit issuance costs |
|
|
- |
|
|
(1,146 |
) |
Cash dividends paid |
|
|
(97 |
) |
|
(223 |
) |
Capital lease payments |
|
|
(1,349 |
) |
|
(736 |
) |
Proceeds from exercise of stock options |
|
|
181 |
|
|
202 |
|
Repurchase of common stock |
|
|
(132 |
) |
|
(142 |
) |
Net cash used in financing activities |
|
|
(13,397 |
) |
|
(4,070 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
450 |
|
|
(1,351 |
) |
Cash and cash equivalents at beginning of year |
|
|
9,049 |
|
|
10,400 |
|
Cash and cash equivalents at end of year |
|
$ |
9,499 |
|
$ |
9,049 |
|
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURESWe report our consolidated financial
results in accordance with U.S. generally accepted accounting
principles (“GAAP”). However, management believes that certain
non-GAAP financial measures provide users of the Company’s
financial information with additional useful information in
evaluating operating performance.
Note 1: Adjusted EBITDAEBITDA is defined as
earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance
under GAAP. However, we present EBITDA in this release because we
consider it to be an important supplemental measure of our
performance and because it is frequently used by analysts,
investors and others to evaluate the performance of companies.
EBITDA is not calculated in the same manner by all companies.
EBITDA should be used as a supplement to results of operations and
cash flows as reported under GAAP and should not be considered to
be a more meaningful measure than, or an alternative to, measures
of operating performance as determined in accordance with GAAP.
The following table shows the Company’s reconciliation of net
(loss) income to EBITDA and Adjusted EBITDA, which are considered
Non-GAAP financial measures (in thousands). Adjusted EBITDA
excludes certain non-cash items (impairment charges) and amounts
incurred with significant transactions or events that we believe
are not indicative of our core operating performance.
|
|
13 Weeks Ended |
52 Weeks Ended |
|
|
Feb. 1, 2020 |
Feb. 2, 2019 |
Feb. 1, 2020 |
Feb. 2, 2019 |
Net (loss) income |
|
$ |
(255 |
) |
$ |
3,747 |
|
$ |
(10,463 |
) |
$ |
(6,171 |
) |
Add back amounts for
computation of EBITDA: |
|
|
|
|
|
Interest expense, net |
|
|
2,087 |
|
|
2,476 |
|
|
9,111 |
|
|
10,882 |
|
Income tax expense (benefit) |
|
|
340 |
|
|
(316 |
) |
|
648 |
|
|
(25 |
) |
Depreciation and amortization |
|
|
6,942 |
|
|
7,681 |
|
|
28,162 |
|
|
31,480 |
|
EBITDA |
|
|
9,114 |
|
|
13,588 |
|
|
27,458 |
|
|
36,166 |
|
Adjustments: |
|
|
|
|
|
Non-cash impairment charges |
|
|
780 |
|
|
3,251 |
|
|
791 |
|
|
3,944 |
|
Change in vacation policy (1) |
|
|
- |
|
|
(3,267 |
) |
|
- |
|
|
(3,267 |
) |
Visa/MasterCard claim settlement |
|
|
- |
|
|
- |
|
|
(1,946 |
) |
|
- |
|
Merger-related expenses (2) |
|
|
1,108 |
|
|
- |
|
|
1,558 |
|
|
- |
|
Credit agreements extension fees (3) |
|
|
- |
|
|
- |
|
|
- |
|
|
1,100 |
|
Expense related to legal settlements |
|
|
164 |
|
|
918 |
|
|
179 |
|
|
1,057 |
|
Hurricane related expenses, net of insurance recoveries (4) |
|
|
- |
|
|
(955 |
) |
|
- |
|
|
(237 |
) |
New store pre-opening costs |
|
|
- |
|
|
61 |
|
|
- |
|
|
725 |
|
Total adjustments |
|
|
2,052 |
|
|
8 |
|
|
582 |
|
|
3,322 |
|
Adjusted EBITDA |
|
$ |
11,166 |
|
$ |
13,596 |
|
$ |
28,040 |
|
$ |
39,488 |
|
(1) Decrease in accrued compensated absences during the fourth
quarter of 2018 due to a change in vacation policy.(2) Advisory,
legal and Board of Director Special Committee fees related to the
pending merger.(3) Advisory fees related to the extension and
amendment of credit agreements completed in September 2018.(4)
Property losses incurred from hurricanes earlier in fiscal 2018
were recovered in the fourth quarter of 2018.
Note 2: Changes in Comparable SalesManagement
believes that providing calculations of changes in comparable sales
including and excluding sales from licensed departments assists in
evaluating the Company’s ability to generate sales growth, whether
through owned businesses or departments licensed to third parties.
The following table shows the Company’s reconciliation of these
calculations.
|
|
13 Weeks Ended |
52 Weeks Ended |
|
|
February 1, 2020 |
February 1, 2020 |
Increase/(decrease) in comparable sales excluding sales from
licensed departments (1) |
|
0.2 |
% |
(1.6 |
%) |
Impact of comparable sales
of licensed departments (2) |
|
(0.1 |
%) |
0.2 |
% |
Increase/(decrease) in
comparable sales including sales from licensed departments |
|
0.1 |
% |
(1.4 |
%) |
(1) Represents the period-to-period percentage change in net
sales from stores open throughout the period presented and the same
period in the prior year and all online sales of steinmart.com,
excluding commissions from departments licensed to third
parties.(2) Represents the impact of including sales of departments
licensed to third parties throughout the period presented and the
same period in the prior year and all online sales of steinmart.com
in the calculation of comparable sales. The Company licenses its
shoe and vintage handbag departments in its stores and online to
third parties and receives a commission from these third parties
based on a percentage of their sales. In these financial statements
prepared in conformity with GAAP, the Company includes commissions
(rather than sales of the departments licensed to third parties) in
its net sales. The Company does not include the commission amounts
from licensed department sales in its comparable sales
calculations.
For more information:Linda L. TasseffDirector, Investor
Relations(904) 858-2639ltasseff@steinmart.com
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