UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

FORM10-Q

FORM 10-Q

For the quarterly period ended OctoberJuly 29, 20162017

or

For the transition period from ________ to ________

Commission file number0-20052

STEIN MART, INC.

(Exact name of registrant as specified in its charter)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒[X] No ☐[  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐[  ] No ☒[X]

The number of shares outstanding of the Registrant’s common stock as of NovemberAugust 30, 20162017, was 46,897,234.

47,920,535.

Stein Mart, Inc.

Table of Contents

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Stein Mart, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except for share and per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Stein Mart, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Stein Mart, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(In thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Stein Mart, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting primarily of normal and recurring adjustments) considered necessary for a fair presentation have been included. Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statementsConsolidated Financial Statements included in our Annual Report on Form 10-K10-K/A for the year ended January 30, 2016,28, 2017, filed with the Securities and Exchange Commission (“SEC”) on April 11, 2016.18, 2017.

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Certain reclassifications have been made in the 2015 Condensed Consolidated StatementStatements of Cash Flows during the 26 weeks ended July 30, 2016, to conform to classifications usedthe 2017 presentation.

Correction of an Immaterial Error

During the fourth quarter of fiscal 2016, we identified an immaterial prior period error in 2016.ourlower-of-cost-or-market adjustment for aged inventory. The immaterial error was corrected with a charge during the fourth quarter of fiscal 2016 resulting in anout-of-period increase to Cost of merchandise sold. The effect of this immaterial error on the 13 and 26 weeks ended July 30, 2016 would have been an increase of $0.2 million to Cost of merchandise sold, a decrease of $0.1 million in net income and an increase of $0.5 million to Cost of merchandise sold and a decrease of $0.3 million in net income, respectively.

Accrued Expenses and Other Current Liabilities

The major components of accrued expenses and other current liabilities are as follows (in thousands):

Recent Accounting Pronouncements

In AugustMarch 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-152016-04,Statement Liabilities-Extinguishments of Cash Flows (Topic 230)Liabilities (Subtopic405-20): Classification Recognition of Breakage for Certain Cash Receipts and Cash PaymentsPrepaid Stored-Value Products. The amendments in thisthe ASU introduce clarificationsare designed to the presentationprovide guidance and eliminate diversity in practice of certain cash receipts and cash payments in the statementaccounting for derecognition of cash flows. The primary updates include additions and clarificationsprepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of the classificationrecognized breakage amount will not subsequently occur. This is when the likelihood of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees and cash flows related to securitized receivables.the product holder exercising its remaining rights becomes remote. This update isestimate shall be updated at the end of each period. The amendments are effective for annual periodsfiscal years beginning after December 15, 2017, includingand interim periods within those fiscal years. Early adoption ofEarlier application is permitted. We plan to adopt this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. Adoption of ASU No. 2016-15 was completed in the current periodfiscal year 2018 and diddo not affectexpect the adoption to have a material effect on our financial condition, results of operations or cash flows as we were alreadybelieve we are in compliance with thethis ASU.

In February 2016, the FASB issued ASUNo. 2016-02,Leases (Topic 842). This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and also disclose key information about leasing arrangements. The main provisions of the new standard include: clarifications to the definitions of a lease, components of leases, and criteria for determining lease classification; requiring virtually all leased assets, including operating leases and related liabilities, to be reflected on the lessee’s balance sheet; and expanding and adding to the required disclosures for lessees. This ASU is effective for annual reporting periods beginning on or after December 15, 2018, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual period. We are in the process of evaluating our lease portfolio and identifying what additional data will be needed to comply with the new standard. We have identified a software application suited to track and account for leases under the new standard. We plan to adoptASU 2016-02 in fiscal year 2019 and are currently evaluating the overall effect the adoption of this ASU will have on our financial condition, results of operations and cash flows, butand we currently believe the adoption of this ASU will have a significant effect on our Consolidated Balance Sheets.Sheets due to the addition of our applicable leased assets and related liabilities.

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

Revenue Recognition

In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606). This update provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and subsequent clarifications. ASU No. 2014-09 will replace almost all existingsupersedes most current revenue recognition guidance, including industry-specific guidance, upon its effective date. The standard’s core principle is for a companyguidance. ASUNo. 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in amountsan amount that reflectreflects the consideration to which the companyentity expects to be entitled. A company may also needentitled in exchange for those goods or services. This update creates a five-step model that requires entities to use moreexercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and make more estimates when(v) recognizing revenue when each performance obligation is satisfied.

We have completed an initial scoping analysis of the effect of the standards to identify the revenue streams that may be affected by this ASU. In our ongoing evaluation of this ASU, we have determined that the new standard will primarily apply to the following areas of our business: point of sale transactions, ecommerce, drop ship, shipping and handling, gift card breakage and loyalty programs. We expect the adoption will not change the timing or amount of revenue recognized as it relates to revenue from point of sale at the registers in our stores, which could result in additional disclosures. ASU 2014-09 also provides guidance for transactions that were not addressed comprehensively in previous guidance,constitutes approximately 97% of our Net sales revenue. We continue to evaluate other revenue streams, such as ecommerce sales and shipping revenue, and there may be a slight change in the recognitiontiming of breakage income fromwhen such revenue is recognized.

This guidance was deferred by ASUNo. 2015-14, issued by the sale of gift cards. The standard permits the use of either the retrospective or cumulative effect transition method. The guidanceFASB in August 2015, and is effective for fiscal years,annual and interim periods within those years, beginning after December 15, 2017 (our fiscal year 2018). Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including2017, with early adoption permitted for annual and interim reporting periods within that reporting period.beginning after December 15, 2016. We plan to adopt this ASU in the fiscal year 2018 and utilize a cumulative effect of applying this ASU recognized at the date of initial application. While we are still in the process ofcurrently evaluating the effect thatthe adoption of these ASU’sASUs may have on our financial statements, we do not currently expect a material effect on our financial condition, results of operations or cash flows.flows and will adopt these ASUs, including all related new disclosures, beginning in the first quarter of fiscal 2018.

2. Shareholders’ Equity

Dividends

During the 3926 weeks ended OctoberJuly 29, 2017, we paid a quarterly dividend of $0.075 per common share on April 14, 2017. During the 26 weeks ended July 30, 2016, we paid threetwo quarterly dividends of $0.075 per common share on April 15, 2016 and July 15, 2016 and October 14, 2016. During the 39 weeks ended October 31, 2015, we paid three quarterly dividends of $0.075 per common share on April 17, 2015, July 17, 2015 and October 16, 2015.

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On February 4, 2015, we announced that our Board of Directors declared a special cash dividend of $5.00 per common share, which was paid on February 27, 2015. As a result of the special cash dividend, all outstanding stock options and performance share awards were modified during 2015 so that they retained the same fair value. No incremental compensation expense resulted from these modifications.

Stock Repurchase Plan

During the 13 weeks ended OctoberJuly 29, 2017, we repurchased 6,733 shares of our common stock at a total cost of less than $0.1 million. During the 13 weeks ended July 30, 2016, we repurchased 15,9997,376 shares of our common stock at a total cost of approximately $0.1 million. During the 1326 weeks ended October 31, 2015,July 29, 2017, we repurchased 14,84263,486 shares of our common stock at a total cost of approximately $0.1$0.2 million. During the 3926 weeks ended October 29,July 30, 2016, we repurchased 166,657150,658 shares of our common stock at a total cost of approximately $1.1 million. During the 39 weeks ended October 31, 2015, we repurchased 213,815 shares of our common stock at a total cost of approximately $3.2$1.0 million. Stock repurchases were for tax withholding amounts due on employee stock awards and during the first 39 weekshalf of 20162017 and 20152016 included no shares purchased on the open market under our previously authorized stock repurchase plan. As of OctoberJuly 29, 2016,2017, there are 554,217433,044 shares that can be repurchased pursuant to the Board of Director’sDirectors’ current authorization.

3. Earnings per Share

Our restricted stock awards granted in 2013 and prior containnon-forfeitable rights to dividends and, as such, are considered participating securities. Participating securities are to be included in the calculation of earnings per share under thetwo-class method. In applying thetwo-class method, income is allocated to both common stock shares and participating securities based on their respective weighted-average shares outstanding for the period.

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

The following table sets forthpresents the calculation of basic and diluted earnings per share (in thousands, except per share amounts)data):

DueOptions to the Company’s net loss position for the third quarter of 2016 and 2015, 0.1acquire shares totaling approximately 4.4 million and 0.4 million weighted average unvested restricted shares (participating securities) and 1.1 million and 1.3 million weighted average common stock equivalents (non-participating securities), respectively, were not considered in the calculation of net loss available to common shareholders used for diluted EPS for the quarter.

Options totaling approximately 1.4 million and 2.12.5 million shares of common stock that were outstanding during the 13 and 39 weeks ended OctoberJuly 29, 2017 and July 30, 2016, respectively, were not included in the computation of diluted earnings per common share because theirshare. Options excluded were those that had exercise prices greater than the average market price of the common shares such that inclusion would have been anti-dilutive. Options to acquire shares totaling approximately 0.43.9 million and 0.21.9 million shares of common stock that were outstanding during the 13 and 3926 weeks ended October 31, 2015,July 29, 2017 and July 30, 2016, respectively, were not included in the computation of diluted earnings per common share because theirshare. Options excluded were those that had exercise prices greater than the average market price of the common shares such that inclusion would have been anti-dilutive.

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4. Commitments and Contingencies

We are involved in various routine legal proceedings incidental to the conduct of our business. During both the 13 weeks ended OctoberJuly 29, 2017 we did not accrue for any actual or anticipated legal settlements. During the 13 weeks ended July 30, 2016, and October 31, 2015, we accrued less than $0.1$0.4 million for actual and duringanticipated legal settlements. During the 3926 weeks ended OctoberJuly 29, 2017 we did not accrue for any actual or anticipated legal settlements. During the 26 weeks ended July 30, 2016, and October 31, 2015, we accrued $1.9$1.8 million and $0.1 million, respectively, for actual and anticipated legal settlements. While some of these matters could be material to our results of operations or cash flows for any particular period if an unfavorable outcome results, we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our overall financial condition.

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Stein Mart, Inc.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which are subject to certain risks, uncertainties or assumptions and may be affected by certain factors including, but not limited to, the matters discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K10-K/A for the fiscal year ended January 30, 2016.28, 2017, filed with the Securities and Exchange Commission (“SEC”) on April 18, 2017. Wherever used, the words “plan,” “expect,” “anticipate,” “believe,” “estimate” and similar expressions identify forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise our forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are not guarantees of performance.

The following discussion and analysis should be read in conjunction with the audited consolidated financial statementsConsolidated Financial Statements included in our Annual Report on Form 10-K10-K/A for the year ended January 30, 2016,28, 2017, filed with the Securities and Exchange Commission (“SEC”)SEC on April 11, 2016.18, 2017.

Overview

We are a national specialty andoff-priceretailer offering the fashion merchandise, servicedesigner and presentation of a better department or specialty store at prices comparable to off-price retail chains. Our focused assortment of merchandise features current-season moderate to bettername-brand fashion apparel, for womenhome décor, accessories and men, as well as accessories, shoes and home fashions.at everyday low prices. We are adding new modern brands to ourcurrently operate 292 stores to offer discriminating shoppers even more of the fashion and savings they want.across 31 states.

Financial Overview for the 13 and 3926 weeks ended OctoberJuly 29, 20162017

Stores

The following table sets forth the stores activity for the 13 and 3926 weeks ended OctoberJuly 29, 20162017 and October 31, 2015.July 30, 2016:

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Results of Operations

The following table sets forth each line item of our Condensed Consolidated Statements of OperationsIncome expressed as a percentage of net sales (1):

13 and 3926 Weeks Ended OctoberJuly 29, 2016,2017, Compared to the 13 and 3926 Weeks Ended October 31, 2015 (dollar amountsJuly 30, 2016 (tables presented in thousands):

Net Sales

The 4.65.0 percent and 3.16.4 percent decreases in comparable stores sales for the 13 and 3926 weeks ended OctoberJuly 29, 2016,2017, respectively, were both driven by decreases in the number of transactions, andwhich was driven by lower traffic. Also contributing to the decrease were slightly lower average unit retail prices, partially offsetdriven by an increase in unitshigher markdowns. Units per transaction. We continue to implement new strategies designed to acquire new customers, strengthen loyalty and deliver distinctive merchandise, however, our execution of these initiatives was done too quickly and in ways that negatively affected our core customer and sales in the third quarter. Additionally, comparable store sales decreased due to the effect that unseasonably warm weather had on cold weather-related sales as well as Hurricane Matthew negatively affecting sales in our southeast coastal stores during October.

transaction were flat. Comparable store sales reflect stores open throughout the period and prior fiscal year and include Ecommerceecommerce sales. Ecommerce sales positively affected comparable store sales by approximately 0.1were up 41.3 percent and less than 0.1contributed approximately 0.8 percent ofincrease to the comparable store sales for the 13 and 39 weeks ended OctoberJuly 29, 2016, respectively. Ecommerce sales2017 and were up 39.8 percent and contributed approximately 2.20.7 percent and 1.7 percent of netincrease to comparable store sales for the 1326 weeks ended OctoberJuly 29, 2016 and October 31, 2015, respectively, and approximately 2.0 percent and 1.6 percent of net sales for the 39 weeks ended October 29, 2016 and October 31, 2015, respectively.2017. Comparable store sales do not include leasedshoe department commissions.

Gross Profit

The declines in our grossGross profit rate as a percentage of net salesdecreases for the 13 and 3926 weeks ended OctoberJuly 29, 2016 compared2017 were both primarily due to the 13higher markdowns taken to manage our inventories and 39 weeks ended October 31, 2015 were drivenfurthered by higher markdowns in the 13 weeks ended October 29, 2016 as well as higheroccupancy cost that negatively leveraged on lower sales.

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occupancy costs that did not leverage on softer sales. The execution of new promotional initiatives negatively affected traffic creating higher markdowns to clear spring merchandise. Gross Profit was also negatively affected by increased coupon usage and the clearing of current season and non-performing categories, particularly in Men’s and Accessories.

Selling, General and Administrative Expenses (“SG&A”)

Increases inThe SG&A inincreases for the 13 and 26 weeks ended OctoberJuly 29, 2016 compared to2017 were both primarily the 13 weeks ended October 31, 2015result of higher operating expenses from new stores that were drivenmostly offset by operating expenses for eight additional stores, a $1.4 million charge related to our former CEO’s resignation in September and higher advertising expense. These increases were offset by higher credit card program income and operating savings. Advertising expenses increased due to a combination of our change in media mix, to include additional TV, and promoting our new stores. Our higher credit card program income was due to the improved economics from our new agreement with Synchrony Financial plus higher penetration.

Increases in SG&A in the 39 weeks ended October 29, 2016 compared to the 39 weeks ended October 31, 2015 were driven operating expenses for 13 additional stores, by a $1.4 million charge related to our former CEO’s resignation in September and accruals for actual and anticipated legal settlements. Advertising expenses increased due to a combination of our change in media mix and promoting our new stores. These increases were partially offset by higher credit card program incomesavings and lower store selling expenses. Credit card income was higher due to the improved economics from our new agreement with Synchrony Financial plus higher penetration.expense for legal settlements.

Interest Expense, net

Interest expense for the 13 weeks ended October 29, 2016 increased compared to the 13 weeks ended October 31, 2015 due primarily to slightly higher short-term interest rates. The increase in interest expense was due to increases in the 39 weeks ended October 29, 2016 compared to the 39 weeks ended October 31, 2015 is driven by the 2016 period including three full quarters ofLondon Interbank Offer Rate, which raised our overall interest expense on our credit facility. In 2015, we did not begin borrowing on our credit facility until the end of February.rates.

Income Taxes

Our effective tax rate represents the applicable combined federal and state statutory rates reduced by the federal benefit of state taxes deductible on federal returns, adjusted for the impact of permanent differences. For the 2017 periods, ourpre-tax losses caused our taxes to be a benefit. This causes our net favorable permanent items to decrease the Effective tax rate. Additionally, the decrease in the Effective tax rate for the 26 weeks ended July 29, 2017 was primarily driven by the adoption of ASU2016-09, which resulted in $1.2 million income tax expense which offset our current Income tax benefit. This amount was previously carried within equity on the Condensed Consolidated Balance Sheets. Excluding the effect of recent adoption of ASU2016-09, our effective tax rate for the 26 weeks ended July 29, 2017, would have been 41 percent. The increase in the effective tax rate for the 13 and 39 weeks ended OctoberJuly 29, 20162017 was primarily driven by the Net loss of $13 million for the 13 weeks ended July 29, 2017 compared to the Net Income of $3.7 million for the 13 and 39 weeks ended October 31, 2015 increased primarily due to the effect of permanent differences for certain non-deductible expenses, partially offset by the earlier extension of the Federal Work Opportunity Tax Credit.April 29, 2017.

Liquidity and Capital Resources

Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors and our $250 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement with Wells Fargo Bank.Bank (the “Credit Agreement”). We also have a secured $25 million master loan agreement with Wells Fargo Equipment Finance, Inc. (the “Equipment Term Loan” and, together with the Credit Agreement, the “Credit Facilities”). Working capital is used to support store inventories and capital investments for system improvements, fund new store openings, maintain existing stores, pay dividends, make debt service payments and repurchase shares of our common stock. Historically, our investments in working capital needs are lowest in August and September, after our heavy spring selling season, and in March and April andFebruary after the holiday selling season. Investments in late December and early January. Theyworking capital are highest in April, October and November as we begin procuring and paying for merchandise to support our heavy spring fall and holiday receipts in late February, October and at the end of November. As of October 29, 2016, we had cash and cash equivalents of $14.0 million and $179.7 million in borrowings under our credit facilities.seasons. We believe that our cash flows from operations and our available cash and cash equivalents are sufficient to cover our liquidity requirements over the next 12 months.

On May 17, 2017, we announced that we have suspended our quarterly cash dividend and significantly reduced our planned capital expenditures (see below under “Cash Flows”). Planned capital expenditures for fiscal 2017 are approximately $24.1 million, or $20.9 million net of tenant improvements. Capital expenditures were $42.4 million, or $36.1 million net of tenant improvements, in fiscal 2016.

As of July 29, 2017, we had cash and cash equivalents of $10.6 million and $170.6 million in borrowings under our Credit Facilities. The total amount available for borrowings and letters of credit under our Credit Agreement is the lesser of $250 million or 100% of eligible credit card receivables and the net recovery percentage value of inventories less reserves. At July 29, 2017, in addition to outstanding borrowings under the Credit Agreement, we had $8.8 million of outstanding letters of credit.

12Our Excess Availability (as defined in the Credit Agreement) was $49.5 million on July 29, 2017. If our Excess Availability is less than the greater of $20.0 million or 10% of our total availability for four consecutive business days, we are required to meet a minimum fixed charge coverage ratio. We would not have met that minimum ratio as of July 29, 2017. As a result, our ability to borrow the last $20.3 million of our availability at July 29, 2017 for more than three consecutive business days was restricted, with $29.2 million available for use without restriction as of July 29, 2017. Excess Availability was at a seasonal low in the third week of August but moved higher later in the month. In September, borrowing availability is projected to range from $50.0 to $150.0 million through the end of the year. These projections are dependent on assumptions and estimates. If actual results differ substantially then availability and liquidity could be materially different.

Cash Flows

Net cash provided by operating activities was $24.9 million for the 26 weeks ended July 29, 2017 compared to net cash provided by operating activities of $52.6 million for the 26 weeks ended July 30, 2016. The increasedecrease in net cash provided by operating activities was mainly due to a Net loss during the increase in Accounts Payable, (the third quarter is our expected seasonal high for company receipts), collections on tenant allowances and26 weeks ended July 29, 2017 compared to the 26 weeks ended July 30, 2016. Also contributing to the decrease was aone-time cash inflow during the 2016 period relating to the Synchrony Financial signing bonus related to ourwe received with the new agreement entered into in February of 2016 forco-branded and private label credit card program, partiallycards. This is offset by purchases of inventory.an $8.1 million inflow for Income taxes received, net.

Net cash used in investing activityactivities was entirelyprimarily for capital expenditures in both periods presented. Capital expenditures were greaterand was $10.3 million for the 3926 weeks ended OctoberJuly 29, 20162017 compared to $23.9 million for the 26 weeks ended July 30, 2016. The decrease in capital expenditures was primarily due to an additional thirteen newlower investment in technologies, fewer remodels to existing stores and certain relocated stores in the 39 weeks of 2016 compared to six new stores in 2015.fewer tenant improvements for fiscal 2017.

During the 39 weeks ended October 29, 2016, netNet cash used in financing activities consisted of debt repayments of $302.7was $14.7 million cash dividends paid of $10.4 million andduring the repurchase of 166,657 shares of our common stock for $1.1 million, offset by proceeds from borrowings of $292.2 million, proceeds from the exercise of stock options and ESPP purchases of $1.7 million and excess tax benefit from share-based compensation of less than $0.1 million.

During the 3926 weeks ended October 31, 2015, netJuly 29, 2017 compared to cash used in financing activities consistedof $28.8 million during the 26 weeks ended July 30, 2016. During the 26 weeks ended July 29, 2017, we had net repayments of debt repayments of $341.5 million,$11.2 million. We also paid cash dividends paid of $235.7 million, the repurchase of 213,815$3.6 million. In addition, we repurchased 63,486 shares of our common stock for $3.2 million and $0.4 million in$0.2 million. During the 26 weeks ended July 30, 2016, we had net repayments of debt issuance costs, offset by proceeds from borrowings of $533.3 million, excess tax benefit from share-based compensation$22.8 million. We also paid cash dividends of $3.9 million and proceeds from the exercise$6.9 million. In addition, we repurchased 150,658 shares of common stock options and ESPP purchases of $0.6for $1.0 million. Borrowings under our credit facilities were initially used for a special dividend paid during the first quarter of 2015, and have subsequently been used for working capital, capital expenditures and other general corporate purposes. See Note 2 “Shareholders’ Equity” of the Notes to the Condensed Consolidated Financial Statements for further discussion.

On May 17, 2017, we announced we have decided to suspend our quarterly cash dividend and significantly reduce our planned capital expenditures. Suspending the $0.075 quarterly dividend is expected to save approximately $14.0 million in cash annually, approximately $11.0 million in cash during fiscal 2017. We currently intend to use the related annual cash savings to repay indebtedness, maximize free cash flow and improve our financial position. Any future determination to declare and pay dividends will be made at the discretion of our Board of Directors, after taking into account our future earnings, cash flows, financial condition, capital requirements and other factors that the Board may deem relevant.

Critical Accounting Policies and Estimates

We discuss our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K10-K/A for the year ended January 30, 2016.28, 2017, and filed with the SEC on April 18, 2017. We have made no material changessignificant change in our critical accounting policies and estimates since January 30, 2016.28, 2017.

Recent Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 “Basis of Presentation” of the Notes to the Condensed Consolidated Financial Statements.

Seasonality and Inflation

Our business is seasonal. Sales and profitability are historically higher in the first and fourth quarters of the fiscal year, which include the spring and holiday seasons. Therefore, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Although we expect that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risk,risks, see “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K10-K/A for the year ended January 30, 2016.28, 2017. There were no material changes to our market risk during the quarter ended OctoberJuly 29, 2016.

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ITEM 4. CONTROLS

AND  PROCEDURES

Under the supervision and with the participation of our management, including the Interim Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Interim Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of October 29, 2016the end of the period covered by this report due to provide reasonable assurance that information required to bethe material weakness identified in our internal control over financial reporting described below.

As previously disclosed in our 2016 Annual Report on Form10-K/A, we identified a material weakness in the design and effectiveness in the operation of our controls that are intended to ensure that the data used in a report used by management to review thelower-of-cost-or-market adjustment for our aged inventory was complete and accurate. As a result of this material weakness, a reasonable possibility exists that a material misstatement in inventory in our annual or interim financial statements could occur and not be prevented or detected on a timely basis.

We have taken steps to remediate this material weakness, including implementing new policies and procedures to enhance our risk assessment process to effectively design and implement control activities that verify the completeness and accuracy of data in reports underthat support management review controls. We have alsore-performed procedures over our key reports, including retesting the completeness and accuracy of these key reports.

We believe that these remediation measures have strengthened our internal control over financial reporting. As we are still assessing the design and operating effectiveness of our internal controls and procedures, the identified material weakness has not been fully remediated as of July 29, 2017. We will continue to monitor the effectiveness of our internal control over financial reporting and confirm that the material weakness has been remediated though our annual assessment of internal control over financial reporting for the fiscal year ending February 3, 2018.

In September 2015, we settled an administrative proceeding instituted by the SEC in which the SEC ordered us to cease and desist from committing, or causing, any violations and any future violations of the periodic reporting, books and records, and internal control provisions of the Securities Exchange Act is recorded, processed, summarized and reported withinof 1934, as amended. The existence of the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officerabove-referenced material weakness, and the Chieffailure to discover and disclose such material weakness in periodic reports filed prior to the Annual Report on Form10-K/A for the year ended January 28, 2017, means that we have not been in compliance with the cease and desist order.

We assessed the effect of the material weakness on these Condensed Consolidated Financial Officer,Statements to ensure they were prepared in accordance with GAAP and present fairly the consolidated financial position, financial results of operation and cash flows as appropriateof and for the six months ended July 29, 2017. Based on these additional procedures and assessment, we concluded that the Condensed Consolidated Financial Statements included in this Quarterly Report on Form10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Except as described above in regards to allow timely decisions regarding required disclosure.

Therethe remediation process, there were no changes in our internal control over financial reporting (as that term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the discussion of legal proceedings in Note 4 “Commitments and Contingencies” of the Notes to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report, which is incorporated by reference into this Item 1 of Part II.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K10-K/A for the year ended January 30, 2016.28, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding repurchases of our common stock during the quarter ended OctoberJuly 29, 2016:2017:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.Not applicable.

ITEM 6. EXHIBITS

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Form10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

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