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 2, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
At August 30, 2003, the latest practicable date, there were 41,729,713 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 2, 2003, February 1, 2003 3
and August 3, 2002
Statements of Operations for the 13 Weeks and 26 Weeks 4
Ended August 2, 2003 and August 3, 2002
Statements of Cash Flows for the 26 Weeks 5
Ended August 2, 2003 and August 3, 2002
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
Stein Mart, Inc.
Balance Sheets
(In thousands)
August 2, February 1, August 3,
2003 2003 2002
-------------- -------------- --------------
ASSETS (Unaudited) (Unaudited)
Current assets:
Cash and cash equivalents $ 14,516 $ 9,859 $ 15,485
Trade and other receivables 3,441 4,919 5,779
Inventories 299,759 297,230 325,765
Prepaid taxes 2,728 - -
Prepaid expenses and other current assets 8,775 4,361 6,081
-------------- -------------- --------------
Total current assets 329,219 316,369 353,110
Property and equipment, net 84,601 86,351 89,904
Other assets 8,651 7,497 7,075
-------------- -------------- --------------
Total assets $422,471 $410,217 $450,089
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 71,779 $ 70,472 $ 71,856
Accrued liabilities 51,633 53,407 49,979
Income taxes payable - 5,353 1,187
Notes payable to banks - 41,350 -
-------------- -------------- --------------
Total current liabilities 123,412 170,582 123,022
Notes payable to banks 57,449 - 93,100
Other liabilities 19,314 16,328 16,505
-------------- -------------- --------------
Total liabilities 200,175 186,910 232,627
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; 41,729,713; 41,618,678 and 41,709,381
shares issued and outstanding, respectively 417 416 417
Paid-in capital 1,353 721 -
Unearned compensation (384) - -
Retained earnings 220,910 222,170 217,045
-------------- -------------- --------------
Total stockholders' equity 222,296 223,307 217,462
-------------- -------------- --------------
Total liabilities and stockholders' equity $422,471 $410,217 $450,089
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
3
Stein Mart, Inc.
Statements of Operations
(Unaudited)
(In thousands except per share amounts)
13 Weeks Ended 26 Weeks Ended
--------------------------------- ---------------------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Net sales $303,548 $311,427 $634,105 $667,406
Cost of merchandise sold 232,258 233,323 479,119 492,771
-------------- -------------- -------------- --------------
Gross profit 71,290 78,104 154,986 174,635
Selling, general and administrative expenses 78,355 76,318 162,858 157,599
Other income, net 3,079 3,359 6,732 7,059
-------------- -------------- -------------- --------------
Income (loss) from operations (3,986) 5,145 (1,140) 24,095
Interest expense 487 669 892 1,283
-------------- -------------- -------------- --------------
Income (loss) before income taxes (4,473) 4,476 (2,032) 22,812
Income tax benefit (provision) 1,700 (1,701) 772 (8,669)
-------------- -------------- -------------- --------------
Net income (loss) $ (2,773) $ 2,775 $ (1,260) $ 14,143
============== ============== ============== ==============
Earnings (loss) per share - Basic $(0.07) $0.07 $(0.03) $0.34
============== ============== ============== ==============
Earnings (loss) per share - Diluted $(0.07) $0.07 $(0.03) $0.34
============== ============== ============== ==============
Weighted-average shares outstanding - Basic 41,601 41,669 41,594 41,612
============== ============== ============== ==============
Weighted-average shares outstanding - Diluted 41,601 42,024 41,594 41,977
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
4
Stein Mart, Inc.
Statements of Cash Flows
(Unaudited)
(In thousands)
26 Weeks Ended
---------------------------------
August 2, August 3,
2003 2002
-------------- --------------
Cash flows from operating activities:
Net income (loss) $(1,260) $14,143
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 9,660 9,190
Impairment of property and other assets 765 -
Increase in store closing reserve 1,529 -
Deferred income taxes 700 1,819
Issuance of restricted stock 13 -
Tax benefit from exercise of stock options - 385
Changes in assets and liabilities:
Trade and other receivables 1,478 (578)
Inventories (2,529) (29,607)
Prepaid taxes (2,728) -
Prepaid expenses and other current assets (4,610) 4,401
Other assets (1,250) (963)
Accounts payable 1,307 (21,819)
Accrued liabilities (2,697) 3,978
Income taxes payable (5,353) (2,884)
Other liabilities 1,876 1,248
-------------- --------------
Net cash used in operating activities (3,099) (20,687)
Cash flows used in investing activities:
Capital expenditures (8,579) (10,493)
Cash flows from financing activities:
Net borrowings under notes payable to banks 16,099 35,350
Proceeds from exercise of stock options - 775
Proceeds from employee stock purchase plan 448 482
Purchase of common stock (212) (218)
-------------- --------------
Net cash provided by financing activities 16,335 36,389
-------------- --------------
Net increase in cash and cash equivalents 4,657 5,209
Cash and cash equivalents at beginning of year 9,859 10,276
-------------- --------------
Cash and cash equivalents at end of period $14,516 $15,485
============== ==============
Supplemental disclosures of cash flow information:
Interest paid $ 920 $ 1,231
Income taxes paid 6,596 2,242
The accompanying notes are an integral part of these financial statements.
5
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
August 2, 2003
(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 1, 2003.
2. Store Closings
In order to improve the quality of the Company's portfolio of stores, management
decided to close 16 under-performing stores in 2003. Two stores were closed in
the first quarter, incurring minimal lease exit costs, and two stores were
closed during the second quarter, incurring a $1.0 million pretax charge for the
present value of lease termination costs. Eight stores are planned to close in
the third quarter and the remaining four will close in the fourth quarter.
Severance costs of $0.5 million were also recorded during the second quarter. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," the charges
to recognize the present value of store closing costs for the remaining 12
stores to close during the second half of 2003 are estimated to be approximately
$7.0 million, net of estimated sublease income that could reasonably be obtained
for the properties, and will be recorded at the store closing dates. Total store
closing charges for 2003 are estimated to be approximately $10.0 million.
The following tables show the activity in the store closing reserve:
Feb. 1, Aug. 2,
2003 Charges Payments 2003
---------- ---------- ---------- ----------
Lease termination costs $4,982 $1,000 $(714) $5,268
Severance - 529 - 529
---------- ---------- ---------- ----------
$4,982 $1,529 $(714) $5,797
========== ========== ========== ==========
Feb. 2, Aug. 3,
2002 Charges Payments 2002
---------- ---------- ---------- ----------
Lease termination costs $5,680 - $(231) $5,449
Severance - - - -
---------- ---------- ---------- ----------
$5,680 - $(231) $5,449
========== ========== ========== ==========
The store closing reserve at August 2, 2003, February 1, 2003 and August 3, 2002
includes a current portion (in Accrued liabilities) of $1.9 million, $1.5
million and $1.4 million, respectively, and a long-term portion (in Other
liabilities) of $3.9 million, $3.5 million and $4.0 million, respectively.
During the fourth quarter of 2002, the Company recorded a pretax non-cash asset
impairment charge of $2.7 million to reduce the carrying value of property and
equipment of certain closing and/or under-performing stores to their respective
estimated fair value. During the first quarter of 2003, the Company recorded an
additional asset impairment charge of $0.8 million to further reduce the
carrying value of property and equipment of four of the stores closing in 2003.
The charge is included in selling, general and administrative expenses in the
Statement of Operations for the 26 weeks ended August 2, 2003.
6
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
August 2, 2003
(Unaudited)
3. Notes Payable to Banks
In July 2003, the Company completed a three-year $150 million senior revolving
credit agreement (the "Agreement") with a group of lenders to replace its
existing loan facility. Under the terms of the Agreement, the Company has the
option to increase the facility by an additional $25 million and to extend the
terms for an additional year.
Borrowings under the Agreement are based on and secured by eligible inventory.
The Company routinely issues standby and commercial letters of credit for
purposes of securing foreign sourced merchandise and certain insurance programs.
Outstanding letters of credit reduce availability under the credit agreement.
The Company had $3.4 million in outstanding letters of credit as of August 2,
2003.
The interest rates on borrowings under the Agreement range from Prime to Prime
plus .25% per annum for Prime Rate Loans and LIBOR plus 1.50% to LIBOR plus
2.25% per annum for Eurodollar Rate Loans and are established quarterly, based
on excess availability as defined in the Agreement. As of August 2, 2003, the
interest rates for Prime Rate and Eurodollar Rate Loans were 4.13% and 2.85%,
respectively. An unused line fee of .25% to .375% per annum (.375% as of August
2, 2003) is charged on the unused portion of the revolving credit facility,
based on excess availability. The Company was in full compliance with the terms
of the Agreement as of August 2, 2003.
Notes payable to banks was classified as current at February 1, 2003 because
management's projections indicated that the Company would not be in compliance
with certain of the financial covenants under the previous credit agreement as
of the end of the first quarter 2003.
4. Earnings Per Share and Stockholders' Equity
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 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 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Weighted-average number of common shares 41,601 41,669 41,594 41,612
Stock options - 355 - 365
---------- ---------- ---------- ----------
Weighted-average number of common shares
plus common stock equivalents 41,601 42,024 41,594 41,977
========== ========== ========== ==========
The Company repurchased 50,000 shares and 20,000 shares during the first half of
2003 and 2002, respectively, at a cost of $0.2 million in each period.
7
STEIN MART, INC.
NOTES TO FINANCIAL STATEMENTS
August 2, 2003
(Unaudited)
5. Accounting For Stock-Based Compensation
In late 2002, the Compensation Committee of the Board of Directors determined
that it was appropriate to undertake an overall review of the Company's
compensation strategies. As part of this overall review, it was decided that
starting in fiscal 2003 restricted stock awards, as provided for in the Stein
Mart, Inc. 2001 Omnibus Plan, in addition to stock options would be granted as
part of the Long-Term Compensation portion of the compensation program. A total
of 72,026 restricted shares were issued to key employees in May 2003 at $5.53
per share, the market value at date of grant. Shares awarded under the plan
entitle the shareholder to all rights of common stock ownership except that the
shares may not be sold, transferred, pledged, exchanged or otherwise disposed of
during the restriction period. Vesting occurs seven years following the date of
grant or at the end of the second fiscal year following date of grant, if
certain defined Company performance goals are achieved.
The Company has adopted the disclosure-only provisions of SFAS No. 123, as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation," and intends
to retain the intrinsic value method of accounting for stock-based compensation
which it currently uses. Accordingly, no compensation cost has been recognized
for the stock option plans. Restricted stock awards issued by the Company are
accounted for in accordance with APB 25. The employee compensation cost is
included in net income, as reported, throughout the vesting period. Had
compensation cost of the Company's stock-based plans been determined consistent
with the provisions of SFAS No. 123, the Company's net income (loss) and
earnings (loss) per share would have been changed to the following pro forma
amounts:
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss) - as reported $(2,773) $2,775 $(1,260) $14,143
Add: Restricted stock-based employee
compensation expense included in reported
net income (loss), net of related tax effects 9 - 9 -
Deduct: Total stock-based employee
compensation expense determined under the
fair value based method for all awards, net of
related tax effects (373) (440) (742) (896)
---------- ---------- ---------- ----------
Net income (loss) - pro forma $(3,137) $2,335 $(1,993) $13,247
========== ========== ========== ==========
Basic earnings (loss) per share - as reported $(0.07) $0.07 $(0.03) $0.34
Diluted earnings (loss) per share - as reported $(0.07) $0.07 $(0.03) $0.34
Basic earnings (loss) per share - pro forma $(0.08) $0.06 $(0.05) $0.32
Diluted earnings (loss) per share - pro forma $(0.08) $0.06 $(0.05) $0.32
8
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, changes in store closings, 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 2, August 3, August 2, August 3,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold 76.5 74.9 75.6 73.8
---------- ---------- ---------- ----------
Gross profit 23.5 25.1 24.4 26.2
Selling, general and
administrative expenses 25.8 24.5 25.7 23.6
Other income, net 1.0 1.1 1.1 1.0
---------- ---------- ---------- ----------
Income (loss) from operations (1.3) 1.7 (0.2) 3.6
Interest expense 0.2 0.2 0.1 0.2
---------- ---------- ---------- ----------
Income (loss) before income taxes (1.5) 1.5 (0.3) 3.4
Income tax benefit (provision) 0.6 0.6 0.1 1.3
---------- ---------- ---------- ----------
Net income (loss) (0.9)% 0.9% (0.2)% 2.1%
========== ========== ========== ==========
Store Closings
In Spring 2003, management decided to close 16 stores in 2003 (see Note 2 to the
Financial Statements). Four of these stores were closed in the first half of
2003. In accordance with SFAS No. 146 the charges to recognize the present value
of store closing costs for the 16 stores closed or closing during 2003 are
estimated to be approximately $10.0 million, net of estimated sublease income
that could reasonably be obtained for the properties.
9
Stein Mart, Inc.
For the 13 weeks ended August 2, 2003 compared with the 13 weeks ended August 3,
2002:
Two stores were opened and two were closed during the second quarter this year,
bringing to 270 the number of stores in operation this year compared to 261
stores in operation at the end of the second quarter of 2002.
Net sales for the 13 weeks ended August 2, 2003 were $303.5 million, a 2.5
percent decrease from net sales of $311.4 million for the same period of 2002.
Comparable store net sales decreased 5.8 percent from the second quarter of
2002.
Gross profit for the quarter ended August 2, 2003 was $71.3 million or 23.5
percent of net sales, a 1.6 percentage point decrease from gross profit of $78.1
million or 25.1 percent of net sales for the second quarter of 2002. Mark-up
improved over last year, but was offset by higher markdowns, including a 1.6
percentage point increase in markdowns from going-out-of-business stores and a
lack of occupancy leverage.
Selling, general and administrative expenses were $78.4 million or 25.8 percent
of net sales for the quarter ended August 2, 2003, as compared to $76.3 million
or 24.5 percent of net sales for the same 2002 quarter. More than half of the
1.3 percent increase in selling, general and administrative expenses as a
percent of sales is due to store closing expenses of $2.1 million, including a
$1.0 million charge for the present value of store closing costs for two stores
that closed in the second quarter, $0.5 million for severance costs (see Note 2
to the Financial Statements) and $0.6 million of other related store closing
expenses. The balance of the increase was due to a lack of leverage resulting
from the 5.8% decrease in comparable store net sales.
Other income, primarily from in-store leased shoe departments, was $3.1 million
and $3.4 million for the second quarter of 2003 and 2002, respectively. The
slight decrease as a percent of sales is due to the change in the fragrance
department from a leased operation to an owned department.
Interest expense was $0.5 million for the second quarter of 2003 and $0.7
million for the second quarter of 2002. The decrease resulted from lower average
borrowings and lower interest rates during the second quarter this year compared
to last year.
Net loss for the second quarter of 2003 was $2.8 million or $(0.07) diluted loss
per share compared to net income of $2.8 million or $0.07 diluted earnings per
share for the second quarter of 2002. The pretax loss from operations incurred
by the 16 stores that have closed or are being closed totaled $6.8 million or
$(0.10) after tax diluted loss per share in the second quarter of 2003.
Excluding the losses from these stores, the second quarter would have been
profitable.
For the 26 weeks ended August 2, 2003 compared with the 26 weeks ended August 3,
2002:
Nine stores were opened and four were closed during the first half of this year,
bringing to 270 the number of stores in operation this year compared to 261
stores in operation at the end of the second quarter of 2002.
Net sales for the 26 weeks ended August 2, 2003 were $634.1 million, a 5.0
percent decrease from net sales of $667.4 million for the same period of 2002.
Comparable store net sales decreased 7.6 percent from the first half of 2002.
Gross profit for the 26 weeks ended August 2, 2003 was $155.0 million or 24.4
percent of net sales, a 1.8 percentage point decrease from gross profit of
$174.6 million or 26.2 percent of net sales in the first half of 2002. Mark-up
improved over last year's first half, but was more than offset by higher
markdowns and a lack of occupancy leverage. Additional markdowns in the stores
that were in a going-out-of-business process accounted for more than half of the
decrease in gross profit as a percent of sales.
10
Stein Mart, Inc.
Selling, general and administrative expenses were $162.9 million or 25.7 percent
of net sales for the 26 weeks ended August 2, 2003, as compared to $157.6
million or 23.6 percent of net sales for the same 2002 period. The 2.1 percent
increase in selling, general and administrative expenses as a percent of sales
is due to store closing expenses of $2.9 million and a lack of leverage
resulting from the 7.6% decrease in comparable store net sales for the first
half of 2003. Store closing expenses include a pretax asset impairment charge of
$0.8 million related to 2003 store closings, a $1.0 million charge for the
present value of store closing costs for two stores that closed in the second
quarter, $0.5 million for severance costs (see Note 2 to the Financial
Statements) and $0.6 million of other related store closing expenses.
Other income, primarily from in-store leased shoe departments, was $6.7 million
and $7.1 million for the first half of 2003 and 2002, respectively.
Interest expense was $0.9 million for the first half of 2003 and $1.3 million
for the first half of 2002. The decrease resulted from lower average borrowings
and lower interest rates during the first half of this year compared to last
year. Borrowings were $36 million lower than at the end of the second quarter
last year due to ongoing inventory and expense control disciplines.
Net loss for the first half of 2003 was $1.3 million or $(0.03) diluted loss per
share compared to net income of $14.1 million or $0.34 diluted earnings per
share for the first half of 2002. The pretax loss from operations incurred by
the 16 stores that have closed or are being closed totaled $10.7 million or
$(0.16) after tax diluted loss per share in the first half of 2003. Excluding
the losses from these stores, the first half would have been profitable.
Liquidity and Capital Resources
Net cash used in operating activities was $3.1 million for the first half of
2003 and $20.7 million for the first half of 2002. The primary reasons for the
change in cash used in operating activities between 2003 and 2002 were decreased
inventory levels and decreased cash required for the procurement of merchandise
due to the Company's continued inventory control management.
During the first half of 2003 and 2002, cash flows used in investing activities
amounted to $8.6 million and $10.5 million, respectively, primarily for
acquisition of fixtures, equipment, and leasehold improvements for new and
existing stores.
Cash flows from financing activities were $16.3 million and $36.4 million for
the first half of 2003 and 2002, respectively, reflecting in both periods
primarily net borrowing under the Company's revolving credit agreement to meet
seasonal working capital requirements.
As discussed in Note 3 to the Financial Statements, in July 2003 the Company
completed a three-year $150 million senior revolving credit agreement to replace
its existing loan facility. 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.
New Marketing Initiative
The Company has used percentage-off coupons in both its newspaper inserts and
direct mail offerings for the past three years. What began as a strategy to
attract new customers in a difficult retail environment has now run its course
and is no longer supportive of the Company's unique selling proposition. As a
result, the Company has refrained from across-the-board coupons in its
advertising and sales promotions since the last weekend in July 2003. Minimizing
coupons may have a negative impact on sales in the short term.
At the same time, the Company is preparing a new advertising campaign to
showcase its unique blend of fashion merchandise, outstanding value and
convenient locations. The new campaign will be both image and event-focused, and
will use newspaper inserts, direct mail, radio and, starting with six test
markets in August, television advertising. After the television test results are
validated, the Company will roll out its first nationwide TV campaign in time
for the 2003 holiday season.
11
Stein Mart, Inc.
Fall 2003 Expectations
Given the current economic environment and the disengagement from coupons,
management expects a challenging third quarter, traditionally the Company's most
difficult period. This year, the third quarter will be disadvantaged as
customers adjust to the change in marketing strategy and, as a result,
management believes comparable store sales could decrease approximately 10-12
percent in the third quarter as compared to the 2.2 percent increase in the
third quarter of 2002 which produced a loss of $0.09 per share. In addition, the
closure of eight under-performing stores will substantially increase store
closing expenses as compared to the second quarter of 2003.
In the fourth quarter, assuming an improving economy, the successful launch of
the Company's new advertising campaign and the closure of the final four of the
16 stores in the store-closing program, the Company's performance should
improve. Management expects to be profitable for fiscal 2003, excluding the
impact of the 16 closed stores.
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.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
As of August 2, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange
Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in alerting them to material
information relating to the Company required to be included in the Company's
Exchange Act filings in a timely manner.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
12
Stein Mart, Inc.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Loan and Security Agreement dated July 18, 2003, among Stein
Mart, Inc., Wachovia Bank, National Association and Fleet
Retail Finance, Inc. as Co-Arrangers, Congress Financial
Corporation (Florida) as Administrative and Collateral
Agent, General Electric Capital Corporation as Documentation
Agent and the Lenders (as such terms are defined in the
Credit Agreement).
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
(b) Reports on Form 8-K:
A press release dated July 23, 2003 was filed in a Form 8-K on
July 24, 2003 regarding the completion of a three-year $150
million senior revolving credit agreement.
A press release dated August 21, 2003 was filed in a Form 8-K on
August 26, 2003 which included earnings guidance for the third
quarter and the year ending January 31, 2004.
13
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 15, 2003 /s/ Michael D. Fisher
-------------------------------------
Michael D. Fisher
President and Chief Executive Officer
/s/ James G. Delfs
-------------------------------------
James G. Delfs
Senior Vice President and Chief
Financial Officer
14