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 August 3, 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 August 31, 2002, the latest practicable date, there were 41,509,381 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 August 3, 2002, February 2, 2002 3
and August 4, 2001
Statement of Income for the 13 Weeks and 26 Weeks Ended 4
August 3, 2002 and August 4, 2001
Statement of Cash Flows for the 26 Weeks Ended 5
August 3, 2002 and August 4, 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 6. Exhibits and Reports on Form 8-K
SIGNATURES 12
CERTIFICATIONS 13
2
Stein Mart, Inc.
Balance Sheet
(In thousands)
August 3, February 2, August 4,
2002 2002 2001
------------- ------------- -------------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 15,485 $ 10,276 $ 15,882
Trade and other receivables 5,779 5,201 2,799
Inventories 325,765 296,158 316,135
Prepaid expenses and other current assets 6,081 11,324 7,908
------------- ------------- -------------
Total current assets 353,110 322,959 342,724
Property and equipment, net 89,904 88,601 84,602
Other assets 7,075 6,112 5,070
------------- ------------- -------------
Total assets $450,089 $417,672 $432,396
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 71,856 $ 93,675 $ 79,899
Accrued liabilities 49,979 46,001 40,889
Income taxes payable 1,187 4,071 1,900
------------- ------------- -------------
Total current liabilities 123,022 143,747 122,688
Notes payable to banks 93,100 57,750 100,900
Other liabilities 16,505 14,280 13,029
------------- ------------- -------------
Total liabilities 232,627 215,777 236,617
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; 41,709,381; 41,495,876 and 40,955,610
shares issued and outstanding, respectively 417 415 410
Retained earnings 217,045 201,480 195,369
------------- ------------- -------------
Total stockholders' equity 217,462 201,895 195,779
------------- ------------- -------------
Total liabilities and stockholders' equity $450,089 $417,672 $432,396
============= ============= =============
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)
13 Weeks Ended 26 Weeks Ended
------------------------------- -------------------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $311,427 $291,473 $667,406 $608,542
Cost of merchandise sold 233,323 219,663 492,771 453,655
------------- ------------- ------------- -------------
Gross profit 78,104 71,810 174,635 154,887
Selling, general and administrative expenses 76,318 69,218 157,599 140,591
Other income, net 3,359 3,369 7,059 7,325
------------- ------------- ------------- -------------
Income from operations 5,145 5,961 24,095 21,621
Interest expense 669 1,044 1,283 1,975
------------- ------------- ------------- -------------
Income before income taxes 4,476 4,917 22,812 19,646
Provision for income taxes 1,701 1,869 8,669 7,466
------------- ------------- ------------- -------------
Net income $ 2,775 $ 3,048 $ 14,143 $ 12,180
============= ============= ============= =============
Earnings per share - Basic $0.07 $0.07 $0.34 $0.30
============= ============= ============= =============
Earnings per share - Diluted $0.07 $0.07 $0.34 $0.29
============= ============= ============= =============
Weighted-average shares outstanding - Basic 41,669 41,142 41,612 41,200
============= ============= ============= =============
Weighted-average shares outstanding - Diluted 42,024 41,612 41,977 41,706
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
Stein Mart, Inc.
Statement of Cash Flows
(Unaudited)
(In thousands)
26 Weeks Ended
-------------------------------
August 3, August 4,
2002 2001
------------- -------------
Cash flows from operating activities:
Net income $14,143 $12,180
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 9,190 8,108
Deferred income taxes 1,819 353
Tax benefit from exercise of stock options 385 80
Changes in assets and liabilities:
Trade and other receivables (578) 650
Inventories (29,607) (33,237)
Prepaid expenses and other current assets 4,401 (2,285)
Other assets (963) 423
Accounts payable (21,819) (596)
Accrued liabilities 3,978 (2,311)
Income taxes payable (2,884) (2,899)
Other liabilities 1,248 (187)
------------- -------------
Net cash used in operating activities (20,687) (19,721)
Cash flows used in investing activities:
Capital expenditures (10,493) (11,155)
Cash flows from financing activities:
Net borrowings under notes payable to banks 35,350 40,664
Proceeds from exercise of stock options 775 391
Proceeds from employee stock purchase plan 482 488
Purchase of common stock (218) (5,851)
------------- -------------
Net cash provided by financing activities 36,389 35,692
------------- -------------
Net increase in cash and cash equivalents 5,209 4,816
Cash and cash equivalents at beginning of year 10,276 11,066
------------- -------------
Cash and cash equivalents at end of period $15,485 $15,882
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 1,231 $ 2,012
Income taxes paid 2,242 9,572
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 26 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 26 weeks ended August
3, 2002 and August 4, 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):
13 Weeks Ended 26 Weeks Ended
------------------------------- -------------------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Weighted-average number of common shares 41,669 41,142 41,612 41,200
Stock options 355 470 365 506
------------- ------------- ------------- -------------
Weighted-average number of common shares
plus common stock equivalents 42,024 41,612 41,977 41,706
============= ============= ============= =============
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 August 3, 2002, the Company was in compliance
with all requirements of the amended agreement.
4. Stock Repurchases
During the first half of 2002 and 2001, the Company repurchased 20,000 shares
and 637,500 shares for $0.2 million and $5.9 million, respectively. During the
period August 4, 2002 through September 6, 2002, the Company repurchased 200,000
shares for $1.3 million.
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 ($3.2 million), the estimated cost of lease terminations
for three stores closed during the second quarter of 2002 ($2.0 million) and one
store closing during the fourth quarter of 2002 ($0.2 million). Payments during
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 (231)
-------------
Balance at August 3, 2002 $5,449
=============
The store closing reserve includes a current portion of $1.4 million and a
long-term portion of $4.0 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:
13 Weeks Ended 26 Weeks Ended
------------------------------- -------------------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 74.9 75.4 73.8 74.5
------------- ------------- ------------- -------------
Gross profit 25.1 24.6 26.2 25.5
Selling, general and administrative expenses 24.5 23.7 23.6 23.1
Other income, net 1.1 1.1 1.0 1.2
------------- ------------- ------------- -------------
Income from operations 1.7 2.0 3.6 3.6
Interest expense 0.2 0.3 0.2 0.4
------------- ------------- ------------- -------------
Income before income taxes 1.5 1.7 3.4 3.2
Provision for income taxes 0.6 0.7 1.3 1.2
------------- ------------- ------------- -------------
Net income 0.9% 1.0% 2.1% 2.0%
============= ============= ============= =============
For the 13 weeks ended August 3, 2002 compared with the 13 weeks ended August 4,
2001:
Three stores were opened and three were closed during the second quarter this
year, bringing to 261 the number of stores in operation this year compared to
235 stores in operation at the end of the second quarter of 2001.
Net sales for the 13 weeks ended August 3, 2002 were $311.4 million, a 6.8
percent increase over net sales of $291.5 million for the same period of 2001.
Comparable store net sales decreased 2.3 percent from the second quarter of
2001.
8
Stein Mart, Inc.
Gross profit for the quarter ended August 3, 2002 was $78.1 million or 25.1
percent of net sales compared to $71.8 million or 24.6 percent of net sales for
the second quarter of 2001. The 0.5 percent increase in the gross profit
percentage resulted primarily from lower markdowns, somewhat offset by higher
occupancy costs as a percent of sales.
Selling, general and administrative expenses were $76.3 million or 24.5 percent
of net sales for the quarter ended August 3, 2002, as compared to $69.2 million
or 23.7 percent of net sales for the same 2001 quarter. The increase of 0.8
percent of net sales is primarily due to decreased leverage of selling, general
and administrative expenses.
Other income, primarily from in-store leased shoe departments, was $3.4 million
for both the second quarter of 2002 and 2001.
Interest expense was $0.7 million for the second quarter of 2002 and $1.0
million for the second quarter of 2001. The decrease resulted from lower average
borrowings and lower interest rates during the second quarter this year compared
to last year.
Net income for the second quarter of 2002 was $2.8 million or $0.07 diluted
earnings per share compared to net income of $3.0 million or $0.07 diluted
earnings per share for the second quarter of 2001.
For the 26 weeks ended August 3, 2002 compared with the 26 weeks ended August 4,
2001:
Eleven stores were opened and three were closed during the first half of this
year, bringing to 261 the number of stores in operation this year compared to
235 stores in operation at the end of the second quarter of 2001.
Net sales for the 26 weeks ended August 3, 2002 were $667.4 million, a 9.7
percent increase over net sales of $608.5 million for the same period of 2001.
Comparable store net sales decreased 0.6 percent from the first half of 2001.
Gross profit for the 26 weeks ended August 3, 2002 was $174.6 million or 26.2
percent of net sales compared to $154.9 million or 25.5 percent of net sales for
the first half of 2001. The 0.7 percent increase in the gross profit percentage
resulted primarily from lower markdowns, somewhat offset by higher occupancy
costs as a percent of sales.
Selling, general and administrative expenses were $157.6 million or 23.6 percent
of net sales for the 26 weeks ended August 3, 2002, as compared to $140.6
million or 23.1 percent of net sales for the same 2001 period. The increase of
0.5 percent of net sales is primarily due to decreased leverage of selling,
general and administrative expenses.
Other income, primarily from in-store leased shoe departments, was $7.1 million
and $7.3 million for the first half of 2002 and 2001, respectively.
Interest expense was $1.3 million for the first half of 2002 and $2.0 million
for the first half of 2001. The decrease resulted from lower average borrowings
and lower interest rates during the first half of this year compared to last
year.
Net income for the first half of 2002 was $14.1 million or $0.34 diluted
earnings per share compared to net income of $12.2 million or $0.29 diluted
earnings per share for the first half of 2001.
9
Stein Mart, Inc.
Liquidity and Capital Resources
Net cash used in operating activities was $20.7 million for the first half of
2002 and $19.7 million for the comparable period in 2001. Slightly more cash was
used in operating activities during the first half of 2002 as a result of more
cash required for the payment of merchandise accounts payable, offset by lower
income tax payments and increased net income. During the first half of 2002,
$2.2 million of income taxes were paid compared to $9.6 million in the first
half of 2001 primarily due to use of net operating loss carryforwards in 2002.
During the first half of 2002 and 2001, cash flows used in investing activities
amounted to $10.5 million and $11.2 million, respectively, primarily for
acquisition of fixtures, equipment, and leasehold improvements for new and
existing stores.
Cash flows from financing activities were $36.4 million and $35.7 million for
the first half 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 half of 2002, cash was used to
repurchase 20,000 shares of the Company's common stock for $0.2 million compared
with 637,500 shares repurchased for $5.9 million in the first half of 2001.
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 August 3, 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.
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
Interest on the Company's borrowings under its revolving credit agreement is
based on variable interest rates and is, therefore, affected by changes in
market interest rates. The Company does not use derivative financial instruments
to hedge the interest rate exposure and does not engage in financial
transactions for trading or speculative purposes.
10
Stein Mart, Inc.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
(b) Reports on Form 8-K:
Statements under Oath pursuant to Section 21 (a) (1) of the
Securities Exchange Act of 1934 were filed in a Form 8-K on
August 6, 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: September 16, 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
CERTIFICATIONS
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
I, John H. Williams, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Stein Mart, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Stein Mart, Inc. as of, and for, the periods presented in
this quarterly report.
Date: September 16, 2002 /s/ John H. Williams, Jr.
-----------------------------------------
John H. Williams, Jr.
Vice Chairman and Chief Executive Officer
13
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act
I, James G. Delfs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Stein Mart, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of Stein Mart, Inc. as of, and for, the periods presented in
this quarterly report.
Date: September 16, 2002 /s/ James G. Delfs
-----------------------------------------
James G. Delfs
Chief Financial Officer
14