Stein Mart, Inc. Reports 3Q and Year-To-Date 2008 Financial Results

Stein Mart, Inc. Reports 3Q and Year-To-Date 2008 Financial Results

JACKSONVILLE, Fla., Nov. 21 /PRNewswire-FirstCall/ -- Stein Mart, Inc. (NASDAQ:SMRT) today announced financial results for its third quarter and first nine months ended November 1, 2008.

Third Quarter of 2008

For the 13-week third quarter of 2008, the Company incurred a net loss of $(14.1) million or $(0.34) per share as compared to a net loss of $(2.7) million or $(0.06) per share in 2007. Net sales decreased 10.4 percent to $298.8 million for the 13 weeks ended November 1, 2008 from $333.3 million for the 13 weeks ended November 3, 2007. Comparable store sales for the 13 weeks ended November 1, 2008 decreased 12.6 percent from the 13 weeks ended November 3, 2007.

Gross profit decreased to $67.5 million or 22.6 percent of sales in the third quarter of 2008 compared to $86.2 million or 25.9 percent of sales in the same period last year. The gross profit rate decreased primarily due to higher markdowns, somewhat offset by increased mark-up. Gross profit also suffered from a lack of occupancy leverage on lower sales.

Selling, general and administrative (SG&A) expenses were $93.5 million or 31.3 percent of sales as compared to $97.2 million or 29.2 percent of sales during the same period last year. The $3.7 million decrease in SG&A expenses resulted from significant reductions in advertising, store operating expenses and share-based compensation, somewhat offset by increases in store closing expenses and professional fees related to ongoing expense reduction initiatives. The SG&A rate was higher due to a lack of leverage on lower sales.

First Nine Months of 2008

For the first nine months of 2008, the Company incurred a net loss of $(15.1) million or $(0.37) per share as compared to net income of $7.6 million or $0.18 per share in 2007. Net sales decreased 7.5 percent to $962.6 million for the 39 weeks ended November 1, 2008 from $1,040.2 million for the 39 weeks ended November 3, 2007. Comparable store sales for the 39 weeks ended November 1, 2008 decreased 10.5 percent from the 39 weeks ended November 3, 2007.

Gross profit decreased to $239.3 million or 24.9 percent of sales in the first nine months of 2008 compared to $277.3 million or 26.7 percent of sales in the same period last year. Merchandise margins decreased slightly as higher mark-up was more than offset by increased markdowns. The gross profit rate decreased primarily due to a lack of occupancy leverage on lower sales.

SG&A expenses were $277.6 million or 28.8 percent of sales as compared to $282.3 million or 27.1 percent of sales during the same period last year. The $4.8 million decrease in SG&A expenses resulted from significant reductions in advertising and share-based compensation, somewhat offset by increases in store closing expenses, and professional fees related to ongoing expense reduction initiatives. The SG&A rate was higher due to a lack of leverage on lower sales.

"Our third quarter was the most challenging in the Company's history as the economic developments severely curbed our customer's normal shopping habits," noted Linda M. Farthing, president and chief executive officer of Stein Mart. "Despite more aggressive promotion, reducing average store inventories 12.2 percent year over year, and acceleration of our efforts to control costs, the magnitude of the sales shortfall could not be overcome."

Farthing continued, "Although we planned conservatively for the holiday season, current sales trends and the amount and scale of competitive promotion already underway suggest that we will have to be especially aggressive to reduce seasonal inventory in a timely manner."

Key points

In light of the severity of the current economic environment, management has accelerated various initiatives begun earlier this year to increase sales; motivate existing customers and attract new ones; reduce expenses and maximize cash flow.

• In the merchandise area, efforts continue to expand the customer base by adding more desirable name brand merchandise throughout the store, and by extending our assortment to attract a somewhat younger customer to join our traditional base. At the same time, overall inventories are planned to reflect an expectation of continued consumer caution and extreme value-consciousness for the foreseeable future.
   
• Customers are understandably focused on superior value. Our updated marketing message positions Stein Mart as a "different kind of discount store" with better brands, service, ambiance and convenience vs. other discount stores. We continue to focus spending on those tactics that deliver a positive return on our marketing investment, including more targeted direct mail, email and efficient reach in newspaper. Like most other retailers, we added promotional events in the third quarter and offered deeper discounts compared to 2007. Going into the holiday season, we plan an even more aggressive promotional cadence, with deeper discounts and unique events designed to capture customers' interest.
   
• The Company has undergone a comprehensive strategic review of expenses throughout the organization. As previously announced, the review surfaced savings opportunities in non-merchandise procurement, and those are now in effect, with greater potential in 2009 and beyond. Additionally, we have reduced headcount at the managerial level by approximately ten percent, and we have reduced the number of associates' hours in the stores, also by approximately ten percent.
   
• A significant outcome of the strategic review involves the Company's existing supply chain/distribution process, where we currently have merchandise drop-shipped directly from vendors to individual stores. We anticipate transforming the current process over the next 18 months to one that utilizes outside parties to consolidate merchandise from vendors into third-party owned regional distribution centers for store cluster delivery. Once fully operational, the new third-party-based distribution system is expected to yield significant expense reductions.
   
• We are continuing to manage our business to preserve cash and enhance liquidity. Earlier this year, we suspended payment of a cash dividend and the repurchase of the Company's common stock. Management has reduced its capital expenditures in 2008 by approximately thirty percent from last year and capital expenditures for 2009 will be significantly less than those in 2008.

Store network update

One new store was opened, one was relocated and six stores closed in the third quarter, resulting in 279 stores in operation at November 1, 2008 as compared to 276 at the same time last year. Year-to-date, six stores have opened, one has been relocated and seven have closed. Three more closings are expected to occur, which will bring to ten the number of stores closed this year, and the total number of stores in operation to 276 at the end of fiscal 2008.

For 2009, we have not actively sought new real estate, although we will open one new store next year based on a previously signed lease. We now expect to close approximately the same number of stores in 2009 that we closed in 2008.

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About Stein Mart

Stein Mart stores offer the fashion merchandise, service and presentation of a better department or specialty store, at prices up to 60 percent off department and specialty store prices, every day. Currently with locations from California to Massachusetts, Stein Mart's focused assortment of merchandise features current season, moderate to better fashion apparel for women and men, as well as accessories, gifts, linens and shoes.