UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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)
Registrant's telephone number, including area code: (904) 346-1500
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 June 2, 2002, the latest practicable date, there were 41,646,301 shares
outstanding of Common Stock, $.01 par value.
STEIN MART, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at May 4, 2002, February 2, 2002 3
and May 5, 2001
Statement of Income for the Thirteen Weeks Ended 4
May 4, 2002 and May 5, 2001
Statement of Cash Flows for the Thirteen Weeks Ended 5
May 4, 2002 and May 5, 2001
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION 11
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 12
2
Stein Mart, Inc.
Balance Sheet
(In thousands)
May 4, February 2, May 5,
2002 2002 2001
------------ ------------- ------------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 18,653 $ 10,276 $ 16,004
Trade and other receivables 3,390 5,201 3,469
Inventories 345,532 296,158 341,560
Prepaid expenses and other current assets 5,940 11,324 6,196
------------ ------------- ------------
Total current assets 373,515 322,959 367,229
Property and equipment, net 91,321 88,601 84,697
Other assets 5,761 6,112 5,247
------------ ------------- ------------
Total assets $470,597 $417,672 $457,173
============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $126,964 $ 93,675 $128,419
Accrued liabilities 48,864 46,001 41,849
Income taxes payable 1,741 4,071 324
------------ ------------- ------------
Total current liabilities 177,569 143,747 170,592
Notes payable to banks 63,700 57,750 79,053
Other liabilities 15,074 14,280 12,934
------------ ------------- ------------
Total liabilities 256,343 215,777 262,579
COMMITMENTS AND CONTINGENCIES
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; 41,646,151; 41,495,876 and 41,231,604
shares issued and outstanding, respectively 416 415 412
Retained earnings 213,838 201,480 194,182
------------ ------------- ------------
Total stockholders' equity 214,254 201,895 194,594
------------ ------------- ------------
Total liabilities and stockholders' equity $470,597 $417,672 $457,173
============ ============= ============
The accompanying notes are an integral part of these financial statements.
3
Stein Mart, Inc.
Statement of Income
(Unaudited)
(In thousands except per share amounts)
Thirteen Weeks Ended
-----------------------------
May 4, May 5,
2002 2001
------------ ------------
Net sales $355,979 $317,069
Cost of merchandise sold 259,448 233,992
------------ ------------
Gross profit 96,531 83,077
Selling, general and administrative expenses 81,281 71,373
Other income, net 3,700 3,956
------------ ------------
Income from operations 18,950 15,660
Interest expense 614 931
------------ ------------
Income before income taxes 18,336 14,729
Provision for income taxes 6,968 5,597
------------ ------------
Net income $ 11,368 $ 9,132
============ ============
Earnings per share - Basic $0.27 $0.22
============ ============
Earnings per share - Diluted $0.27 $0.22
============ ============
Weighted-average shares outstanding - Basic 41,554 41,258
============ ============
Weighted-average shares outstanding - Diluted 41,930 41,800
============ ============
The accompanying notes are an integral part of these financial statements.
4
Stein Mart, Inc.
Statement of Cash Flows
(Unaudited)
(In thousands)
Thirteen Weeks Ended
-----------------------------
May 4, May 5,
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $11,368 $ 9,132
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,536 3,975
Deferred income taxes 7,100 800
Tax benefit from exercise of stock options 377 58
Changes in assets and liabilities:
Trade and other receivables 1,811 (20)
Inventories (49,374) (58,662)
Prepaid expenses and other current assets (863) (1,210)
Other assets 351 246
Accounts payable 33,289 47,924
Accrued liabilities 2,863 (1,351)
Income taxes payable (2,330) (4,475)
Other liabilities (59) (92)
------------ ------------
Net cash provided by (used in) operating activities 9,069 (3,675)
Cash flows used in investing activities:
Capital expenditures (7,256) (7,117)
Cash flows from financing activities:
Net borrowings under notes payable to banks 5,950 18,817
Proceeds from exercise of stock options 726 315
Purchase of common stock (112) (3,402)
------------ ------------
Net cash provided by financing activities 6,564 15,730
------------ ------------
Net increase in cash and cash equivalents 8,377 4,938
Cash and cash equivalents at beginning of year 10,276 11,066
------------ ------------
Cash and cash equivalents at end of period $18,653 $16,044
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 629 $ 792
Income taxes paid 1,783 8,928
The accompanying notes are an integral part of these financial statements.
5
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 thirteen week
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 February 2, 2002.
In November 2001, the Company changed its fiscal year end from the Saturday
closest to December 31 to the Saturday closest to January 31. The Company's Form
10-K for the year ended February 2, 2002 included unaudited, condensed quarterly
results of operations for fiscal 2001 reflecting the change in year end. This
Form 10-Q includes the complete unaudited results for the thirteen weeks ended
May 4, 2002 and May 5, 2001.
2. Earnings Per Share
Basic earnings per share are 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):
Thirteen Weeks Ended
--------------------------
May 4, May 5,
2002 2001
------------ ------------
Weighted-average number of common shares 41,554 41,258
Stock options 376 542
------------ ------------
Weighted-average number of common shares
plus common stock equivalents 41,930 41,800
============ ============
3. Notes payable to banks
The Company has a revolving credit agreement with a group of banks which extends
through June 2004. The agreement, which was amended in April 2002, provides a
$135 million senior revolving credit facility, including a $10 million letter of
credit sub-facility. Borrowings are secured by trade and other receivables and
inventories. Interest is payable at rates based on spreads over the London
Interbank Offering Rate (LIBOR) or the Prime Rate. A quarterly commitment fee
ranging from 0.375% to 0.50% per annum is paid on the unused portion of the
commitment. The agreement requires the Company to maintain certain financial
ratios and indebtedness tests. At May 4, 2002, the Company was in compliance
with all requirements of the amended agreement.
4. Stock Option and Purchase Plans
During the first quarter of 2002 and 2001, the Company repurchased 10,000 shares
and 347,000 shares for $112,000 and $3,402,000, respectively.
6
Stein Mart, Inc.
Notes to Financial Statements
(Unaudited)
5. Store Closing Reserve
The store closing reserve includes the remaining lease obligation for one store
closed in December 1999 ($3.4 million) and the estimated cost of lease
terminations for four stores closing in the second and fourth quarters of 2002
($2.2 million). Payments during the first quarter of 2002 include ongoing lease
costs for previously closed stores. Activity in the store closing reserve is as
follows:
Balance at February 2, 2002 $5,680
Payments (110)
------------
Balance at May 4, 2002 $5,570
============
The store closing reserve includes a current portion of $.9 million and a
long-term portion of $4.7 million which are included in Accrued liabilities and
Other liabilities, respectively.
7
Stein Mart, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This document 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 in this document 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, changing preferences in apparel, changes in the level
of consumer spending due to current events and/or general economic conditions,
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 following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by each line item presented:
Thirteen Weeks Ended
--------------------------
May 4, May 5,
2002 2001
------------ ------------
Net sales 100.0% 100.0%
Cost of merchandise sold 72.9 73.8
------------ ------------
Gross profit 27.1 26.2
Selling, general and administrative expenses 22.8 22.5
Other income, net 1.0 1.2
------------ ------------
Income from operations 5.3 4.9
Interest expense .2 .3
------------ ------------
Income before income taxes 5.1 4.6
Provision for income taxes 1.9 1.7
------------ ------------
Net income 3.2% 2.9%
============ ============
For the thirteen weeks ended May 4, 2002 compared with the thirteen weeks ended
May 5, 2001:
Eight stores were opened during the first quarter this year, bringing to 261 the
number of stores in operation this year compared to 231 stores in operation at
the end of the first quarter of 2001.
Net sales for the quarter ended May 4, 2002 were $356.0 million, a 12.3 percent
increase over net sales of $317.1 million for the first quarter of 2001.
Comparable store net sales increased 0.9 percent from the first quarter of 2001.
8
Stein Mart, Inc.
Gross profit for the quarter ended May 4, 2002 was $96.5 million or 27.1 percent
of net sales compared to $83.1 million or 26.2 percent of net sales for the
first quarter of 2001. The 0.9 percent increase in the gross profit percentage
resulted primarily from lower markdowns, somewhat offset by slightly higher
occupancy costs as a percent of sales.
Selling, general and administrative expenses were $81.3 million or 22.8 percent
of net sales for the quarter ended May 4, 2002, as compared to $71.4 million or
22.5 percent of net sales for the same 2001 quarter. The increase of 0.3 percent
of net sales is primarily due to decreased leverage of selling expenses.
Other income, primarily from in-store leased shoe departments, was $3.7 million
and $4.0 million for the first quarters of 2002 and 2001, respectively. This
decrease is primarily due to a decrease in rent income received from the
Company's leased shoe departments.
Interest expense was $0.6 million for the first quarter of 2002 and $0.9 million
for the first quarter of 2001. The decrease resulted from lower average
borrowings and lower interest rates during the first quarter this year compared
to last year.
Net income for the first quarter of 2002 was $11.4 million or $0.27 diluted
earnings per share compared to net income of $9.1 million or $0.22 diluted
earnings per share for the first quarter of 2001.
Liquidity and Capital Resources
Net cash provided by operating activities was $9.1 million for the first quarter
of 2002, compared to net cash used of $3.7 million for the comparable period in
2001. Net cash provided by operating activities during the first quarter of 2002
increased from the first quarter of 2001 due to increased net income, less cash
required for the procurement of merchandise and related payment of accounts
payable and lower income tax payments. During the first quarter of 2002, $1.8
million of income taxes were paid compared to $8.9 million in the first quarter
of 2001 due to use of net operating loss carryforwards in 2002.
During the first quarter of 2002 and 2001, cash flows used in investing
activities amounted to $7.3 million and $7.1 million, respectively, primarily
for acquisition of fixtures, equipment, and leasehold improvements for new and
existing stores.
Cash flows from financing activities were $6.6 million and $15.7 million for the
first quarter of 2002 and 2001, respectively, which reflected in both periods
net borrowing under the Company's revolving credit agreement to meet seasonal
working capital requirements. During the first quarter of 2002, cash was used to
repurchase 10,000 shares of the Company's common stock for $112,000 compared
with 347,000 shares repurchased for $3,402,000 in the first quarter of 2001.
Borrowings were lower during the first quarter of 2002 due to increased cash
provided by operating activities.
The Company has a revolving credit agreement with a group of banks which
requires the Company to maintain certain financial ratios and meet required net
worth and indebtedness tests. The Company was in compliance with all
requirements of the agreement at May 4, 2002. 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.
9
Stein Mart, Inc.
Seasonality
The Company's business is seasonal in nature with a higher percentage of the
Company's merchandise sales and earnings generated in the fall and holiday
selling seasons. Accordingly, selling, general and administrative expenses are
typically higher as a percent of net sales during the first three quarters of
each year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks in the normal course of business due to
changes in interest rates on borrowings under its revolving credit agreement.
Management believes that its exposure to market risk associated with its
borrowings is not material.
10
Stein Mart, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The Company held its 2002 annual meeting of stockholders on June 3,
2002. 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. Carpenter 40,522,454 233,419
Linda McFarland Farthing 40,523,654 232,219
Mitchell W. Legler 39,867,662 888,211
Michael D. Rose 40,523,560 232,313
Jay Stein 38,847,378 1,908,495
Martin E. Stein, Jr. 40,272,079 483,794
J. Wayne Weaver 40,522,504 233,369
John H. Williams, Jr. 38,651,129 2,104,744
James H. Winston 40,523,140 232,733
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10a. Second Amendment to Revolving Credit Agreement dated as of
April 30, 2002 among Stein Mart, Inc. and SunTrust Bank,
as Administrative Agent, is filed herewith.
(b) No reports on Form 8-K were filed during the quarter ended
May 4, 2002.
11
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: June 17, 2002 /s/ John H. Williams, Jr.
-------------------------------
John H. Williams, Jr.
Vice Chairman and Chief
Executive Officer
/s/ James G. Delfs
-------------------------------
James G. Delfs
Senior Vice President and Chief
Financial Officer
12