Recent Accounting Pronouncements

In March 2016,each owned by separate single suppliers under supply agreements. Our commission from the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Updated (“ASU”) No.2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to ASC Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. This ASU also clarifies the statement of cash flows presentation for certain components of share-based awards. The adoption of this ASU was completed during the first quarter of fiscal 2017. For the quarter ended April 29, 2017, we recorded a $1.1 million income tax expense related to the tax effects associated with the exercise of stock options and vesting of restricted stock within Income tax expense onsales in these areas is included in net sales in the Condensed Consolidated Statements of Income. For the quarter ended April 30, 2016, we recorded $0.1 million net shortfalls for share-based payments settled during that quarter,Income (Unaudited).

We offer gift and this net tax benefit was recorded directlymerchandise return cards to our Consolidated Statement of Shareholders’ Equitycustomers. Some cards are electronic and has not been reclassifiednone have expiration dates. At the time gift cards are sold the issuance is recorded as a liability to our Consolidated Statement of Income,customers and no revenue is recognized. At the time merchandise return cards are issued for returned merchandise, the sale is reversed and a liability to customers is recorded. These card liabilities are reduced and sales revenue recognized when they are redeemed for merchandise. Card liabilities are included in accordance with adoptionaccrued expenses and transition provisions ofASU 2016-09. This ASU requires that all incometax-related cash flows resulting from share-based payments, such as excess income tax benefits, are to be reported as operating activities onother current liabilities in the statement of cash flows, a change from the prior requirement to present windfall/shortfall income tax benefits (deficiencies) as an inflow from financing activities and an offsetting outflow from operating activities. As permitted, we elected to apply these provisions prospectively to our Condensed Consolidated StatementBalance Sheets (Unaudited).

Our gift and merchandise return cards may not ultimately be redeemed either in full or partially. We account for this “breakage” of Cash Flows, and accordingly, periods priorunused amounts as revenue in proportion to fiscal 2017 have not been adjusted. Additionally, this ASU clarifies that all cash payments made to taxing authorities on the employees’ behalf for shares withheld at settlement are to be presented as financing activities onpattern of rights exercised by the statement of cash flows. This change must be applied retrospectively. The presentation requirements did not result in a reclassification for any prior periods since such cash flows have historically been presented as a financing activity on our Condensed Consolidated Statement of Cash Flows. We elected to continue to estimate forfeitures expected to occur to determine the amount of share-based compensation cost to recognize in each period, as permitted by ASU2016-09. Accordingly, no cumulative effect was recorded in retained earnings on our Consolidated Statement of Shareholders’ Equity at the beginning of fiscal 2017 uponcustomer. With the adoption of ASU2016-09,No. 2014-09, asRevenue from Contracts with Customers(Topic 606), breakage revenue is recorded within other revenue in the Condensed Consolidated Statements of Income (Unaudited). During the 13 weeks ended May 5, 2018 and April 29, 2017.2017, we recognized $0.6 million and $0.3 million, respectively, of breakage revenue on unused gift and merchandise return cards.

Credit Card

We offerco-branded and private label credit cards under the Stein Mart brand. These cards are issued by Synchrony Bank (“Synchrony”). Synchrony extends credit directly to card holders, provides all servicing for the credit card accounts and bears all risk of credit and fraud losses.

We receive royalty revenue from Synchrony based on card usage in our stores and at other retailers for the Stein Mart Mastercard. We also receive revenues from them for new accounts and gainsharing based on the profitability of the overall program. With the adoption of ASUNo. 2014-09, Revenue from Contracts with Customers (Topic 606), this credit card revenue is recorded within other revenue in the Condensed Consolidated Statements of Income (Unaudited). Prior to the adoption of ASUNo. 2014-09, these amounts were recorded as an offset to selling, general and administrative expenses. These revenues are recorded as they are earned based on the occurrence of the various program activities and represent the majority of other revenue.

Once a card is activated, the card holders are eligible to participate in the credit card rewards program, which provides for an incentive to card holders in the form of reward points for which certificates are issued in $10 increments, which is equivalent to 1,000 points. Points are valued at the stand alone selling price of the certificates issued. We defer a portion of our revenue for loyalty points earned by customers using theco-branded and private label cards and recognize the revenue as the certificates earned are used to purchase merchandise by our customers. Stein Mart card holders also receive special promotional offers and advance notice ofin-store sales events.

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

Adjustments to Previously Reported Financial Statements

The following tables set forth the adjustments made to our financial statements for the adoption of ASUNo. 2014-09 (in thousands):

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Cash Flows

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

Revenue

The following table sets forth our revenue by type of contract (in thousands):

The following table sets forth the gross up of the sales return reserve (in thousands):

Contract liabilities include consideration received for gift card and loyalty related performance obligations which have not been satisfied as of the dates presented above.

The following table sets forth a rollforward of the amounts included in contract liabilities for the periods presented (in thousands):

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

Accrued Expenses and Other Current Liabilities

The following table sets forth the major components of accrued expenses and other current liabilities (in thousands):

Recent Accounting Pronouncements

In March 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No.2016-04, Liabilities-Extinguishments of Liabilities (Subtopic405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in practice of accounting for derecognition of prepaid 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 recognized breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimate shall be updated at the end of each period. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlier application is permitted. We plan to adoptadopted this ASU in the fiscal yearon February 4, 2018, and do not expect the adoption todid not have a material effect on our financial condition, results of operations or cash flows as we believe we are in compliance with this ASU.flows.

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, and weflows. We currently believe the adoption of this ASU will have a significant effect on our Consolidated Balance Sheets due to the addition of our applicable leased assets and related liabilities.

In August 2014, the FASB issued ASUNo. 2014-15,Presentation of Financial Statements- Going Concern (Subtopic205-40). ASUNo. 2014-15 requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures if required. ASUNo. 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this ASU was completed in the fourth quarter of fiscal 2016. This adoption did not have a material effect on our financial condition, results of operations or cash flows.

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 supersedes most current revenue recognition guidance, including industry-specific guidance. ASUNo. 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise 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 (v) recognizing revenue when each performance obligation is satisfied. This guidance was deferred by ASUNo. 2015-14, issued by the FASB in August 2015, and is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for annual and interim reporting periods beginning after December 15, 2016. We have the option to apply the provisions of ASUNo. 2014-09 either retrospectively to each prior reporting period presented or prospectively with the cumulative effect of applying this ASU recognized at the date of initial application. 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. While we are still in the process of evaluating the effect that this ASU may have on our financial statements, we do not currently expect a material effect on our Consolidated Financial Statements. We expect the adoption to result in a change in the timing of recognizing revenue for sales when we ship merchandise to the customer from a distribution center or store. Under the new guidance, we expect to recognize revenue for sales that we drop ship from vendors to customers, or that we ship to the customer from a distribution center or store on the basis of control of the merchandise, rather than at the time the risk of loss is transferred. We are currently evaluating which transition approach to use and assessing the effectbelieve the adoption of this ASU maywill have a significant effect on our financial condition, results of operations oras the depreciation and interest under the new standard will approximate our rent expense as it is currently being recorded.

2. Shareholders’ Equity

Dividends

During the 13 weeks ended May 5, 2018, there were no cash flows and will adopt these ASUs beginningdividends declared. We paid $0.1 million in accrued dividends on restricted shares that vested during the first quarterperiod. During the 13 weeks ended April 29, 2017, we paid a quarterly cash dividend of fiscal 2018.$0.075 per common share on April 14, 2017.

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

2. Shareholders’ Equity

Dividends

During the first quarter of 2017, we paid a quarterly dividend of $0.075 per common share on April 14, 2017.

Stock Repurchase Plan

During the 13 weeks ended May 5, 2018, we repurchased 45,103 shares of our common stock at a total cost of less than $0.1 million. During the 13 weeks ended April 29, 2017, we repurchased 56,753 shares of our common stock at a total cost of approximately $0.2 million. During the 13 weeks ended April 30, 2016, we repurchased 143,282 shares of our common stock at a total cost of approximately $0.9 million. Stock repurchases were for tax withholding amounts due on employee stock awards and during the first quarter of2018 and 2017, and 2016 included no shares purchased on the open market under our previously authorized stock repurchase plan. As of April 29, 2017,May 5, 2018, there are 439,777370,195 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 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 shares and participating securities based on their respective weighted-average shares outstanding for the period.

The following table presentssets forth the calculation of basic and diluted earnings per common share (in thousands, except per share data):

Options to acquireDiluted weighted-average shares totalingoutstanding exclude approximately 3.7 million and 3.9 million and 1.3 million shares of common stock that were outstanding during the 13 weeks ended May 5, 2018 and April 29, 2017, respectively, which are anti-dilutive for the periods presented. These shares are comprised of a mix of stock options, performance awards and April 30, 2016, respectively, were not included in the computation of diluted earnings per common share. Optionsrestricted stock. Stock 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. Restricted stock and performance shares excluded were shares that were anti-dilutive as calculated using the treasury stock method.

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

4. Debt

The following table sets forth our debt (in thousands):

Revolving Credit Facility and Equipment Term Loan

On February 3, 2015, we entered into a $250.0 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement (the “Credit Agreement”) with Wells Fargo Bank (“Wells Fargo”) that will mature in February 2020 (the “Revolving Credit Facility”) and a secured $25.0 million master loan agreement with Wells Fargo Equipment Finance, Inc. (the “Equipment Term Loan”) with an original maturity in February 2018. Borrowings under the Revolving Credit Facility were initially used for a special dividend but are subsequently being used for working capital, capital expenditures and other general corporate purposes. During 2015, debt issuance costs associated with the Revolving Credit Facility and the Equipment Term Loan were capitalized in the amount of $0.4 million and have been fully amortized. We repaid the Equipment Term Loan in full on January 22, 2018.

On February 19, 2018, we entered into Amendment No. 1 (the “Credit Agreement Amendment”) to the Credit Agreement with Wells Fargo. The Credit Agreement Amendment provides for, among other things, an Accommodation Period (as defined in the Credit Agreement Amendment) during which we were not required to meet the Fixed Charge Coverage Ratio (as defined in the Credit Agreement). This change permitted us to borrow the full amount of the then applicable borrowing base until we delivered our financial statements for the Measurement Period (as defined in the Credit Agreement) ended February 28, 2018. Pursuant to the Credit Agreement Amendment, a Cash Dominion Event (as defined in the Credit Agreement Amendment) has occurred as of the effective date of the Credit Agreement Amendment and at all times thereafter.

As a result of the Cash Dominion Event, all of our cash receipts are swept daily to repay outstanding borrowings under the Credit Agreement. We manage our cash on a daily basis and borrow against the Credit Agreement based on our daily cash disbursement needs. As long as we remain within the terms of the Credit Agreement, the bank is obligated to allow us to draw up to our borrowing availability. The Credit Agreement matures in February 2020; however, as a result of the Cash Dominion Event the amount outstanding under the Credit Agreement has been classified as a short-term obligation.

On March 14, 2018, we entered into Amendment No. 2 (the “Second Credit Agreement Amendment”) to the Credit Agreement with Wells Fargo. The Second Credit Agreement Amendment provides for, among other things, the following: (1) the $25.0 million TrancheA-1 Revolving Loans (as defined in the Second Credit Agreement Amendment) shall have been repaid in full with the proceeds of the Term Loan (as defined below); (2) the entry into the Intercreditor Agreement (as defined below); and (3) certain other modifications and updates to coordinate the Revolving Credit Facility with the Term Loan.

The total amount available for borrowings under the Credit Agreement is the lesser of $225.0 million or 100 percent of eligible credit card receivables and the net recovery percentage of inventories less reserves. On May 5, 2018, in addition to outstanding borrowings under the Credit Agreement, we had $7.9 million of outstanding letters of credit and our unused availability under the Credit Agreement was $40.0 million.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants (including the requirement of a 1.0 to 1.0 consolidated Fixed Charge Coverage Ratio upon the occurrence and during the continuance of any Covenant Compliance Event, as defined in the Credit Agreement), and events of default for facilities of this type and is cross-collateralized and cross-defaulted. Collateral for the Revolving Credit Facility and the Equipment Term Loan consists of substantially all of our personal property. Wells Fargo

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

has a first lien on all collateral other than equipment. Wells Fargo Equipment Finance had a first lien on equipment through January 22, 2018, when we repaid the Equipment Term Loan in full.

Borrowings under the Credit Agreement are either Base Rate Loans or London Interbank Offered Rate (“LIBOR”) loans. LIBOR Loans bear interest equal to the adjusted LIBOR plus the applicable margin (125 to 175 basis points) depending on the quarterly average excess availability. Base Rate Loans bear interest equal to the highest of (a) the Federal Funds Rate plus 0.50 percent, (b) the adjusted LIBOR plus 1.00 percent, or (c) the Wells Fargo “prime rate,” plus the Applicable Margin (25 to 75 basis points).

The weighted average interest rate for the amount outstanding under the Credit Agreement was 3.47 percent as of May 5, 2018.

Promissory Note

On February 2, 2018, we executed a promissory note under which we borrowed approximately $13.7 million (the “Promissory Note”) from SunTrust Bank (the “Trustee”) in its capacity as the trustee under a trust agreement (the “Trust Agreement”) dated September 1, 1999. The trust established by the Trust Agreement (the “Trust”) holds certain whole life insurance policies related to our executive deferred compensation plans. The Trustee obtained loans from the insurance policies held in the Trust in an amount not less than the amount of the Promissory Note. The Promissory Note is a short-term obligation and the proceeds were used to pay down borrowings under the existing Credit Agreement which provided additional availability under that agreement.

The Promissory Note has a fixed interest rate of 3.58 percent per annum and an original maturity date of April 1, 2018. On March 7, 2018, we executed an amendment to the Promissory Note under which the Trustee extended the maturity date of the note from April 1, 2018, to July 1, 2018 (the “Maturity Date”). The amendment did not alter the short-term nature of the Promissory Note. The Promissory Note may be prepaid in whole or in part at any time. All unpaid principal and accrued interest on the Promissory Note will become due and payable on the Maturity Date. The Trustee may offset payments due under the Promissory Note against amounts we are otherwise entitled to withdraw from the Trust under the terms of the Trust Agreement.

Term Loan

On March 14, 2018, we entered into a Term Loan Credit Agreement with Gordon Brothers Finance Company, as administrative agent (in such capacity, the “Term Loan Agent”), and Gordon Brothers Finance Company, LLC, as lender (the “Term Loan Agreement”). The Term Loan Agreement provided for a term loan in the amount of $50.0 million (the “Term Loan”) and paid in full the existing $25.0 million TrancheA-1 Revolving Loan (as defined in the Credit Agreement) under the Credit Agreement. Debt issuance costs associated with the Term Loan were capitalized in the amount of $0.8 million and will be amortized over the term of the loan. The net proceeds of $49.2 million from the Term Loan were used to permanently pay off the TrancheA-1 Revolving Loan (as defined in the Credit Agreement) and to pay down the Credit Agreement. After utilizing proceeds from the Term Loan Agreement for repayment of amounts outstanding under the existing TrancheA-1 Revolving Loans, the Term Loan resulted in an increase in our Excess Availability of approximately $25.0 million under the Credit Agreement.

The Term Loan will mature on the earlier of (1) the termination date specified in our Credit Agreement, as such date may be extended with the consent of the Term Loan Agent or in accordance with the Intercreditor Agreement (defined below), and (2) March 14, 2020.

The Term Loan Agreement contains customary representations and warranties, affirmative and negative covenants including the retention of the existing minimum 1.0 to 1.0 consolidated fixed charge coverage ratio under the Credit Agreement, which limits borrowing availability if not met during periods where Revolving Excess Availability (as defined in the Term Loan Agreement) is less than the greater of $20.0 million or 10.0 percent of Combined Loan Cap (as defined in the Term Loan Agreement) for four consecutive business days, and events of default for a facility of this type. The Term Loan is secured by a second lien security interest (subordinate only to the liens securing the Credit Agreement) on all assets securing the Credit Agreement (which consist of substantially all of our personal property), except furniture, fixtures and equipment and intellectual property, upon which the Term Loan lenders will have a first lien security interest. If at any time prior to the first anniversary date of the Term Loan, the Revolving Excess Availability is less than $20.0 million, if requested by the Term Loan Agent, the Term Loan will also be secured by a first lien on leasehold interests in real property with an aggregate value of not less than $10.0 million, and the Credit Agreement will be secured by a second lien on such leasehold interests.

The Term Loan is subject to certain mandatory prepayments if an Event of Default (as defined in the Term Loan Agreement) exists. If no such Event of Default exists, proceeds of the Term Loan priority collateral are to be applied to amounts outstanding under the Credit Agreement.

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

The Term Loan Agent and Wells Fargo have entered into an Intercreditor Agreement dated as of March 14, 2018 (the “Intercreditor Agreement”), acknowledged by us under the Term Loan and the Credit Agreement.

Thenon-default interest rate applicable to the Term Loan under the Term Loan Agreement is a fluctuating rate of interest equal to three-month LIBOR (with a floor of 1.5 percent) plus 8.5 percent per annum.

The weighted average interest rate for the amount outstanding under the Term Loan was 10.81 percent as of May 5, 2018.

The following table sets forth the aggregate maturities of our long-term debt at May 5, 2018 for the following fiscal years (in thousands):

5. Commitments and Contingencies

We are involved in various routine legal proceedings incidental to the conduct of our business. During both the 13 weeks ended May 5, 2018 and April 29, 2017, we did not accrue for any actual or anticipated legal settlements. During the 13 weeks ended April 30, 2016, we accrued $1.4 million for actual and anticipated legal settlements.loss contingencies. 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.

6. Income Taxes

Our income tax expense for the 13 weeks ended May 5, 2018, reflects our net operating loss carryforward position along with the valuation allowance established against deferred tax assets during the fourth quarter of 2017. The first quarter of 2018 expense represents certain state income tax expense. We expect the effective tax rate to be close to zero percent for all of 2018.

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 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 Form10-K/A10-K for the fiscal year ended January 28, 2017,February 3, 2018, filed with the Securities and Exchange Commission (“SEC”) on April 18, 2017.May 4, 2018. 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 Statements included in our Annual Report on Form10-K/A10-K for the year ended January 28, 2017,February 3, 2018, filed with the SEC on April 18, 2017.May 4, 2018.

Overview

We are a nationalspecialty andoff-price retailer retailer offering designer and name-brand fashion apparel, home décor, accessories and shoes at everyday lowdiscount prices. Stein Mart provides real value that customers love every day both in stores and online. We currently operate 292289 stores across 3130 states.

Financial Overview for the First Quarter of 2017

13 Weeks Ended May 5, 2018