UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 4,August 3, 2019

or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number0-20052

LOGO

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, $0.01 par value

SMRT

SMRT

The NASDAQ Global Select Market

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 every Interactive Data File required to be submitted 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 such files). Yes [X] No [  ]

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

 

Large accelerated filer

[  ]

Accelerated filer

[  ]

Non-accelerated filer

[X]

Smaller reporting company

[X]

Emerging growth company

[  ]

Smaller reporting company [X]
Emerging growth company [  ]

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 June 13,August 30, 2019, was 48,062,929.48,217,202.

 

1

Stein Mart, Inc.

Table of Contents

 

PAGE

PAGE

PART I

FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets at May 4,August 3, 2019, February 2, 2019 and May 5,
August 4, 2018

3

Condensed Consolidated Statements of Operations for the 13 weeksand 26 Weeks Ended May 4,
August 3, 2019 and May 5,August 4, 2018

4

Condensed Consolidated Statements of Comprehensive (Loss) Income for the 13 weeksand 26 Weeks Ended May 4,August 3, 2019 and May 5,August 4, 2018

5

Condensed Consolidated Statements of Shareholders’ Equity for the 13 weeksand 26 Weeks Ended May 4,
August 3, 2019 and May 5,August 4, 2018

6

Condensed Consolidated Statements of Cash Flows for the 13 weeks26 Weeks Ended May 4,August 3, 2019 and May 5,August 4, 2018

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 4.

Controls and Procedures

25

26

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

25

27

Item 1A.

Risk Factors

25

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

27

Item 3.

Defaults upon Senior Securities

26

27

Item 4.

Mine Safety Disclosures

26

28

Item 5.

Other Information

26

Item 6.

Exhibits

26

29

SIGNATURES 

SIGNATURES

28

30

 


2

PART I – FINANCIALFINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stein Mart, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

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

 

   May 4, 2019    February 2, 2019    May 5, 2018   

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

ASSETS

   

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

   

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 $21,933  $9,049  $16,165 

 

$

9,481

 

 

$

9,049

 

 

$

10,030

 

Inventories

 274,281  255,884  296,964 

 

 

238,433

 

 

 

255,884

 

 

 

240,813

 

Prepaid expenses and other current assets

 31,838  28,326  35,597 

 

 

30,817

 

 

 

28,326

 

 

 

34,215

 

Total current assets

 328,052  293,259  348,726 

 

 

278,731

 

 

 

293,259

 

 

 

285,058

 

Property and equipment, net of accumulated depreciation and amortization of $255,845, $250,955 and $234,910, respectively

 114,252  119,740  140,184 

Property and equipment, net of accumulated depreciation and

amortization of $263,109, $251,793 and $243,500, respectively

 

 

110,344

 

 

 

119,740

 

 

 

134,930

 

Operating lease assets

 374,039   -   - 

 

 

362,244

 

 

 

-

 

 

 

-

 

Other assets

 24,255  24,108  24,838 

 

 

23,910

 

 

 

24,108

 

 

 

24,970

 

Total assets

 $840,598  $437,107  $513,748 

 

$

775,229

 

 

$

437,107

 

 

$

444,958

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

   

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

   

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 $114,495  $89,646  $93,632 

 

$

87,301

 

 

$

89,646

 

 

$

66,272

 

Current portion of debt

  -   -  159,415 

 

 

-

 

 

 

-

 

 

 

125,253

 

Current portion of operating lease liabilities

 80,167   -   - 

 

 

80,300

 

 

 

-

 

 

 

-

 

Accrued expenses and other current liabilities

 84,118  77,650  78,418 

 

 

75,861

 

 

 

77,650

 

 

 

73,741

 

Total current liabilities

 278,780  167,296  331,465 

 

 

243,462

 

 

 

167,296

 

 

 

265,266

 

Long-term debt, net of current portion

 152,999  153,253  49,266 

 

 

137,762

 

 

 

153,253

 

 

 

49,286

 

Deferred rent

  -  39,708  41,535 

 

 

-

 

 

 

39,708

 

 

 

40,814

 

Noncurrent operating lease liabilities

 332,079   -   - 

 

 

319,150

 

 

 

-

 

 

 

-

 

Other liabilities

 31,335  33,897  38,785 

 

 

31,138

 

 

 

33,897

 

 

 

36,881

 

Total liabilities

 795,193  394,154  461,051 

 

 

731,512

 

 

 

394,154

 

 

 

392,247

 

COMMITMENTS AND CONTINGENCIES

   

COMMITMENTS AND CONTINGENCIES (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

   

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock - $.01 par value, 1,000,000 shares authorized; no shares issued or outstanding

  -   -   - 

Common stock - $.01 par value; 100,000,000 shares authorized; 48,065,250, 47,874,286 and 47,910,450 shares issued and outstanding, respectively

 481  479  479 

Preferred stock - $0.01 par value, 1,000,000 shares authorized;

no shares issued or outstanding

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - $0.01 par value; 100,000,000 shares authorized;

48,225,585, 47,874,286 and 47,937,786 shares issued and

outstanding, respectively

 

 

482

 

 

 

479

 

 

 

479

 

Additionalpaid-in capital

 60,797  60,172  56,961 

 

 

61,208

 

 

 

60,172

 

 

 

57,888

 

Retained deficit

 (16,110)  (17,951)  (4,501) 

 

 

(18,194

)

 

 

(17,951

)

 

 

(5,419

)

Accumulated other comprehensive income (loss)

 237  253  (242) 

 

 

221

 

 

 

253

 

 

 

(237

)

Total shareholders’ equity

 45,405  42,953  52,697 

 

 

43,717

 

 

 

42,953

 

 

 

52,711

 

Total liabilities and shareholders’ equity

 $840,598  $437,107  $513,748 

 

$

775,229

 

 

$

437,107

 

 

$

444,958

 

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 data)

 

     13 Weeks Ended       13 Weeks Ended   
   May 4, 2019   May 5, 2018 

Net sales

  $314,157    $326,605  

Other revenue

   5,225     4,382  

Total revenue

   319,382     330,987  

Cost of merchandise sold

   226,698     230,621  

Selling, general and administrative expenses

   86,136     90,509  

Operating income

   6,548     9,857  

Interest expense, net

   2,526     2,463  

Income before income taxes

   4,022     7,394  

Income tax expense

   53     60  

Net income

  $3,969    $7,334  

Net earnings per common share:

    

Basic

  $0.08    $0.16  

Diluted

  $0.08    $0.16  

Weighted-average shares outstanding:

    

Basic

   47,111     46,610  

Diluted

   47,556     46,659  

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Net sales

 

$

292,369

 

 

$

310,859

 

 

$

606,526

 

 

$

637,464

 

Other revenue

 

 

3,963

 

 

 

3,569

 

 

 

9,188

 

 

 

7,951

 

Total revenue

 

 

296,332

 

 

 

314,428

 

 

 

615,714

 

 

 

645,415

 

Cost of merchandise sold

 

 

217,703

 

 

 

231,519

 

 

 

444,401

 

 

 

462,140

 

Selling, general and administrative expenses

 

 

78,470

 

 

 

80,936

 

 

 

164,606

 

 

 

171,445

 

Operating income

 

 

159

 

 

 

1,973

 

 

 

6,707

 

 

 

11,830

 

Interest expense, net

 

 

2,192

 

 

 

2,865

 

 

 

4,718

 

 

 

5,328

 

(Loss) income before income taxes

 

 

(2,033

)

 

 

(892

)

 

 

1,989

 

 

 

6,502

 

Income tax expense

 

 

52

 

 

 

60

 

 

 

105

 

 

 

120

 

Net (loss) income

 

$

(2,085

)

 

$

(952

)

 

$

1,884

 

 

$

6,382

 

Net (loss) earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

(0.02

)

 

$

0.04

 

 

$

0.14

 

Diluted

 

$

(0.04

)

 

$

(0.02

)

 

$

0.04

 

 

$

0.14

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

47,406

 

 

 

46,669

 

 

 

47,258

 

 

 

46,639

 

Diluted

 

 

47,406

 

 

 

46,669

 

 

 

47,581

 

 

 

47,139

 

 

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)

 

     13 Weeks Ended      13 Weeks Ended   
   May 4, 2019  May 5, 2018 

Net income

  $3,969  $7,334 

Other comprehensive income (loss), net of tax:

   

Amounts reclassified from accumulated other comprehensive income (loss)

   (16)   4 

Comprehensive income

  $3,953  $7,338 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Net (loss) income

 

$

(2,085

)

 

$

(952

)

 

$

1,884

 

 

$

6,382

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive income (loss)

 

 

(16

)

 

 

5

 

 

 

(32

)

 

 

9

 

Comprehensive (loss) income

 

$

(2,101

)

 

$

(947

)

 

$

1,852

 

 

$

6,391

 

 

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


5

Stein Mart, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands)

 

               Accumulated    
         Additional     Other  Total 
   Common Stock  Paid-in  Retained  Comprehensive  Shareholders’ 
   Shares  Amount  Capital  Deficit  Income (Loss)  Equity 

Balance on February 2, 2019

   47,874  $479  $    60,172  $(17,951)  $253  $42,953 

Net income

   -       -       -             3,969   -       3,969 

Other comprehensive loss, net of tax

   -       -       -       -       (16)   (16) 

Reacquired shares, net

   (87)   (1)   (102)   -       -       (103) 

Issuance of restricted stock, net

   278   3   (3)   -       -       -     

Share-based compensation

   -       -       730   -       -       730 

Cash dividends paid

   -       -       -       (49)   -       (49) 

Cash dividends payable

   -       -       -       54   -       54 

Adjustment for adoption of accounting standard

   -       -       -       (2,133)   -       (2,133) 

Balance on May 4, 2019

   48,065  $481  $60,797  $(16,110)  $237  $45,405 
                         

Balance on February 3, 2018

   47,978  $480  $56,002  $(11,843)  $(246)  $44,393 

Net income

   -       -       -       7,334   -       7,334 

Other comprehensive income, net of tax

   -       -       -       -       4   4 

Reacquired shares

   (45)   (1)   (36)   -       -       (37) 

Issuance of restricted stock, net

   (23)   -       -       -       -       -     

Share-based compensation

   -       -       995   -       -       995 

Cash dividends paid

   -       -       -       (147)   -       (147) 

Cash dividends payable

   -       -       -       155   -       155 

Balance on May 5, 2018

   47,910  $479  $56,961  $(4,501)  $(242)  $52,697 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance on February 2, 2019

 

 

47,874

 

 

$

479

 

 

$

60,172

 

 

$

(17,951

)

 

$

253

 

 

$

42,953

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,969

 

 

 

-

 

 

 

3,969

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16

)

 

 

(16

)

Reacquired shares, net

 

 

(87

)

 

 

(1

)

 

 

(102

)

 

 

-

 

 

 

-

 

 

 

(103

)

Issuance of restricted stock, net

 

 

278

 

 

 

3

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

730

 

 

 

-

 

 

 

-

 

 

 

730

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

5

 

Adjustment for adoption of accounting

   standard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,133

)

 

 

-

 

 

 

(2,133

)

Balance on May 4, 2019

 

 

48,065

 

 

 

481

 

 

 

60,797

 

 

 

(16,110

)

 

 

237

 

 

 

45,405

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,085

)

 

 

-

 

 

 

(2,085

)

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16

)

 

 

(16

)

Common shares issued under employee

   stock purchase plan

 

 

147

 

 

 

1

 

 

 

106

 

 

 

-

 

 

 

-

 

 

 

107

 

Reacquired shares, net

 

 

(12

)

 

 

-

 

 

 

(11

)

 

 

-

 

 

 

-

 

 

 

(11

)

Issuance of restricted stock, net

 

 

26

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

316

 

 

 

-

 

 

 

-

 

 

 

316

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

Balance on August 3, 2019

 

 

48,226

 

 

$

482

 

 

$

61,208

 

 

$

(18,194

)

 

$

221

 

 

$

43,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on February 3, 2018

 

 

47,978

 

 

$

480

 

 

$

56,002

 

 

$

(11,843

)

 

$

(246

)

 

$

44,393

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,334

 

 

 

-

 

 

 

7,334

 

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

4

 

Reacquired shares

 

 

(45

)

 

 

(1

)

 

 

(36

)

 

 

-

 

 

 

-

 

 

 

(37

)

Issuance of restricted stock, net

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

995

 

 

 

-

 

 

 

-

 

 

 

995

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

8

 

Balance on May 5, 2018

 

 

47,910

 

 

 

479

 

 

 

56,961

 

 

 

(4,501

)

 

 

(242

)

 

 

52,697

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(952

)

 

 

-

 

 

 

(952

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Common shares issued under employee

   stock purchase plan

 

 

92

 

 

 

1

 

 

 

89

 

 

 

-

 

 

 

-

 

 

 

90

 

Reacquired shares

 

 

(3

)

 

 

-

 

 

 

(10

)

 

 

-

 

 

 

-

 

 

 

(10

)

Issuance of restricted stock, net

 

 

(61

)

 

 

(1

)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

847

 

 

 

-

 

 

 

-

 

 

 

847

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

34

 

 

 

-

 

 

 

34

 

Balance on August 4, 2018

 

 

47,938

 

 

$

479

 

 

$

57,888

 

 

$

(5,419

)

 

$

(237

)

 

$

52,711

 

 

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


6

Stein Mart, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

  13 Weeks Ended 13 Weeks Ended 
  

May 4, 2019

 

 

May 5, 2018

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

August 3, 2019

 

 

August 4, 2018

 

Cash flows from operating activities:

   

 

 

 

 

 

 

 

 

Net income

  $3,969  $7,334 

 

$

1,884

 

 

$

6,382

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

   

 

 

 

 

 

 

 

 

Depreciation and amortization

   7,338  8,070 

 

 

14,123

 

 

 

15,824

 

Share-based compensation

   730  995 

 

 

1,046

 

 

 

1,842

 

Store closing (benefits) charges

   (8)  116 

Store closing benefits

 

 

(101

)

 

 

(92

)

Impairment of property and other assets

   -  299 

 

 

11

 

 

 

689

 

Loss on disposal of property and equipment

   1  99 

 

 

43

 

 

 

102

 

Changes in assets and liabilities:

   

 

 

 

 

 

 

 

 

Inventories

   (18,397)  (26,727) 

 

 

17,451

 

 

 

29,424

 

Prepaid expenses and other current assets

   (4,311)  (8,977) 

 

 

(3,290

)

 

 

(7,595

)

Other assets

   7,553  (2,311) 

 

 

(456

)

 

 

(2,329

)

Accounts payable

   24,951  (25,735) 

 

 

(2,400

)

 

 

(53,528

)

Accrued expenses and other current liabilities

   6,422  217 

 

 

(2,196

)

 

 

(4,619

)

Operating lease assets and liabilities, net

 

 

(3,092

)

 

 

—

 

Other liabilities

   (13,065)  (586) 

 

 

(3,189

)

 

 

(2,984

)

Net cash provided by (used in) operating activities

   15,183  (47,206) 

 

 

19,834

 

 

 

(16,884

)

Cash flows from investing activities:

   

 

 

 

 

 

 

 

 

Net acquisition of property and equipment

   (1,679)  (1,664) 

 

 

(3,458

)

 

 

(4,082

)

Proceeds from cancelled corporate owned life insurance policies

   -  2,514 

Net cash (used in) provided by investing activities

   (1,679)  850 

Proceeds from canceled corporate owned life insurance policies

 

 

-

 

 

 

2,514

 

Proceeds from insurance claims

 

 

82

 

 

 

296

 

Net cash used in investing activities

 

 

(3,376

)

 

 

(1,272

)

Cash flows from financing activities:

   

 

 

 

 

 

 

 

 

Proceeds from borrowings

   102,025  428,877 

 

 

185,288

 

 

 

781,051

 

Repayments of debt

   (102,325)  (375,587) 

 

 

(200,871

)

 

 

(761,923

)

Debt issuance costs

   -  (802) 

 

 

-

 

 

 

(896

)

Cash dividends paid

   (49)  (147) 

 

 

(70

)

 

 

(122

)

Capital lease payments

   (168)  (183) 

 

 

(366

)

 

 

(367

)

Proceeds from exercise of stock options

 

 

107

 

 

 

90

 

Repurchase of common stock

   (103)  (37) 

 

 

(114

)

 

 

(47

)

Net cash (used in) provided by financing activities

   (620)  52,121 

 

 

(16,026

)

 

 

17,786

 

Net increase in cash and cash equivalents

   12,884  5,765 

Net increase (decrease) in cash and cash equivalents

 

 

432

 

 

 

(370

)

Cash and cash equivalents at beginning of year

   9,049  10,400 

 

 

9,049

 

 

 

10,400

 

Cash and cash equivalents at end of period

  $            21,933  $            16,165 

 

$

9,481

 

 

$

10,030

 

Supplemental disclosures of cash flow information:

   

 

 

 

 

 

 

 

 

Income taxes received

  $(182)  $(228) 

Income taxes paid (received)

 

$

82

 

 

$

(295

)

Interest paid

   2,587  2,096 

 

 

4,559

 

 

 

4,976

 

Accruals and accounts payable for capital expenditures

   414  379 

 

 

569

 

 

 

854

 

 

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

 

7

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) 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 annual audited 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 Condensed Consolidated Financial Statements (Unaudited) should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form10-K for the year ended February 2, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2019.

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

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”("ASU")No. 2016-02,Leases Leases,, to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. We adopted this ASU and the related amendments as of February 3, 2019.

At transition, we elected the package of practical expedients, which allowed us to carry forward the historical lease classification, to not reassess prior conclusions related to initial direct costs, and to not reassess whether any expired or existing contracts are or contain leases. We did not elect the use of hindsight to determine the term of our leases at transition. We also elected the practical expedient to not separatenon-lease components from the lease components to which they relate and instead to combine them and account for them as a single lease component. We made an accounting policy election not to capitalize leases with an initial term of twelve months or less.

Adoption of the new standard had a significant effect on our Condensed Consolidated Balance Sheets (Unaudited) due to the addition of operating lease assets of $382.5 million and operating lease liabilities of $422.7 million, as of February 3, 2019. We also recognized a cumulative effect adjustment that increased retained deficit by $2.1 million for transition impairments related to previously impaired leased locations. The standard did not have a significant effect on our results of operations or cash flows. Consistent with the optional effective date transition method, the financial information in the Condensed Consolidated Balance Sheets (Unaudited) prior to the adoption of this new lease accounting guidance has not been adjusted and is therefore not comparable to the current period presented.

See Note 8 “Leases” for additional information.

Recent Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASUNo. 2018-15, Intangibles—Goodwill andOther—Internal-Use Software (Subtopic350-40). This update provides additional guidance to ASUNo. 2015-05, Intangibles—Goodwill andOther—Internal-Use Software (Subtopic350-40), which was issued in April 2015. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software (and hosting arrangements that include an internal use software license). This ASU is effective for annual reporting periods beginning on or after December 15, 2019, and interim periods within those annual periods with early adoption permitted in any interim period for which financial statements have not yet been issued. We are in the process of evaluating the effect that this ASU will have on our financial condition, results of operations and cash flows.

8

Stein Mart, Inc.

Notes to Consolidated Financial Statements - Continued

2. Revision of Previously Issued Financial Statements

During the quarter ended May 4, 2019, we identified a financial statement misstatement related to previous impairment calculations, which resulted in an overstatement of property and equipment, net, and an understatement of retained deficit of $4.1 million and $3.9$3.7 million as of February 2, 2019 and May 5,August 4, 2018, respectively. The error also resulted in an understatement of selling, general and administrative expenses of $0.2 million and less than $0.1$0.2 million for the year ended February 2, 2019 and 1326 weeks ended May 5,August 4, 2018, respectively. Based on an analysis of quantitative and qualitative factors, we determined that the error was not material to our prior interim and annual financial statements. WeTo correct this error, we revised the accompanying Condensed Consolidated Balance Sheets (Unaudited) as of February 2, 2019 and May 5,August 4, 2018 and the Statement of Operations (Unaudited) for the 1326 weeks ended May 5,August 4, 2018.

8

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

 

3. Revenue Recognition

Revenue from sales of our merchandise is recognized at the time of sale net of any returns, discounts andpercentage-off coupons. Our Ecommerce operation records revenue as orders are fulfilled and provided to a carrier for delivery. Shipping and handling fees charged to customers are also included in total net sales with corresponding costs recorded as cost of goods sold as they are considered a fulfillment cost. Future merchandise returns are estimated based on historical experience. Sales tax collected from customers is not recognized as revenue and is included in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets (Unaudited) until paid. Our shoe department and vintage luxury handbag department inventories are each owned by separate single suppliers under supply agreements. Our commissions from the sales in these areas are included in net sales on the Condensed Consolidated Statements of Operations (Unaudited).Operations.

We offer gift and merchandise return cards to our customers. At the time gift cards are sold, the issuance is recorded as a liability to 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 is recognized when they are redeemed for merchandise. Card liabilities are included in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets (Unaudited).Sheets.

Our gift and merchandise return cards may not ultimately be redeemed either in full or partially. We account for this “breakage” of unused amounts as revenue in proportion to the pattern of rights exercised by the customer. Breakage revenue is recorded within other revenue in the Condensed Consolidated Statements of Operations (Unaudited).Operations. During both the 13 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, we recognized $0.6$0.2 million and $0.3 million, respectively, of breakage revenue on unused gift and merchandise return cards. During the 26 weeks ended August 3, 2019 and August 4, 2018, we recognized $0.8 million and $0.9 million, respectively, of breakage revenue on unused gift and merchandise return cards.

Stein Mart Credit CardCards

Weoffer co-branded and private label credit cards under the Stein Mart brand. These cards are issued by Synchrony Bank (“Synchrony”) in accordance with our Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement (the “Agreement”). 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 for new accounts and gain share based on the profitability of the overall program. Credit card revenue is recorded within other revenue in the Condensed Consolidated Statements of Operations (Unaudited).Operations. These revenues are recorded as they are earned based on the occurrence of the various program activities and represent the majority of other revenue. Subsequent to quarter-end on August 21, 2019, we entered into an amendment to our Agreement with Synchrony whereby Synchrony waived its rights to require us to post cash reserves to cure our failure to satisfy one or more of the quarterly financial covenants specified in the Agreement for periods through October 31, 2020 (the “Exemption Period”). As consideration for Synchrony’s entry into this amendment, we agreed to reduce the amount of fees paid to us by Synchrony under the Agreement from September 1, 2019 through the end of the Exemption Period.

Card holders are eligible to participate in the credit card rewards program, which provides for reward certificates. We defer a portion of our revenue for loyalty points earned by customers and recognize the revenue as the certificates earned are used to purchase merchandise by our customers. This revenue is recorded within other revenue in the Condensed Consolidated Statements of Operations (Unaudited).Operations.

9

Stein Mart, Inc.

Notes to Consolidated Financial Statements - Continued

Certificates may not ultimately be redeemed either in full or partially. We account for this “breakage” of unused amounts as revenue in proportion to the pattern of rights exercised by the customer. Breakage revenue is recorded within other revenue in the Condensed Consolidated Statements of Operations (Unaudited).Operations. During the 13 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, we recognized $1.9 million and $1.4$0.9 million, respectively, of breakage revenue on unused credit card reward certificates and points.

9

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

During the 26 weeks ended August 3, 2019 and August 4, 2018, we recognized $3.8 million and $2.4 million, respectively, of breakage revenue on unused credit card reward certificates and points.

Revenue

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

 

  13 Weeks Ended
May 4, 2019		   13 Weeks Ended
May 5, 2018		 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Store sales (1)

  $                293,289   $ 306,831 

 

 

$

273,025

 

 

$

292,014

 

 

 

$

566,314

 

 

$

598,845

 

Ecommerce sales (1)

   13,744    12,814 

 

 

 

13,462

 

 

 

13,017

 

 

 

 

27,206

 

 

 

25,831

 

Licensed department commissions (2)

   7,124    6,960 

Licensee commissions (2)

 

 

 

5,882

 

 

 

5,828

 

 

 

 

13,006

 

 

 

12,788

 

Net sales

  $314,157   $                326,605 

 

 

$

292,369

 

 

$

310,859

 

 

 

$

606,526

 

 

$

637,464

 

Credit card revenue (3)

   2,564    2,268 

 

 

 

1,791

 

 

 

2,221

 

 

 

 

4,355

 

 

 

4,489

 

Breakage revenue (4)

   2,538    1,995 

 

 

 

2,077

 

 

 

1,221

 

 

 

 

4,615

 

 

 

3,216

 

Other

   123    119 

 

 

 

95

 

 

 

127

 

 

 

 

218

 

 

 

246

 

Other revenue

   5,225    4,382 

 

 

 

3,963

 

 

 

3,569

 

 

 

 

9,188

 

 

 

7,951

 

Total revenue

  $319,382   $330,987 

 

 

$

296,332

 

 

$

314,428

 

 

 

$

615,714

 

 

$

645,415

 

 

(1)

Store and Ecommerce sales are net of any returns, discountsand percentage-off coupons.

(2)

Licensed department commissions are net of any returns.

(3)

Credit card revenue earned from Synchrony programs.

(4)

Breakage revenue earned on unused gift and merchandise return cards and unused certificates and loyalty reward points.

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

 

 

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

Reserve for sales returns

 

 

$

(3,603

)

 

$

(3,469

)

 

$

(3,756

)

Cost of inventory returns

 

 

 

1,994

 

 

 

1,984

 

 

 

1,976

 

The following table sets forth the contract liabilities and their relationship to revenue (in thousands):

 

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

Deferred revenue contracts

 

 

$

(10,217

)

 

$

(11,017

)

 

$

(11,817

)

Gift card liability

 

 

 

(9,287

)

 

 

(12,246

)

 

 

(9,328

)

Credit card reward liability

 

 

 

(5,615

)

 

 

(5,583

)

 

 

(5,034

)

Liability for deferred revenue

 

 

$

(25,119

)

 

$

(28,846

)

 

$

(26,179

)

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

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Beginning balance

 

 

$

28,846

 

 

$

29,381

 

Current period gift cards sold and loyalty reward points earned

 

 

 

16,970

 

 

 

16,311

 

Net sales from redemptions (1)

 

 

 

(15,282

)

 

 

(15,503

)

Breakage and amortization (2)

 

 

 

(5,415

)

 

 

(4,010

)

Ending balance

 

 

$

25,119

 

 

$

26,179

 

The following table sets forth the gross up of the sales return reserve (in thousands):(1)

   May 4, 2019  February 2, 2019  May 5, 2018 

Reserve for sales returns

  $(6,286)  $(3,469)  $(6,133)

Cost of inventory returns

                   3,372                       1,984                       3,378

 

The following table sets forth the contract liabilities and their relationship to revenue (in thousands):

 

 

   May 4, 2019  February 2, 2019  May 5, 2018 

Deferred revenue contracts

  $(10,617)  $(11,017)  $(12,115)

Gift card liability

   (9,631)   (12,246)   (9,675) 

Credit card reward liability

   (5,510)   (5,583)   (4,449) 

Liability for deferred revenue

  $(25,758)  $(28,846)  $(26,239)

Contract liabilities include consideration received for gift card and loyalty related performance obligations that 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):

 

 

 

   13 Weeks Ended
May 4, 2019		   13 Weeks Ended
May 5, 2018		 
  

 

 

 

Beginning balance

  $                  28,846   $ 29,381  

Current period gift cards sold and loyalty reward points earned

   7,501    7,101  

Net sales from redemptions (1)

   (7,651)    (7,851)  

Breakage and amortization (2)

   (2,938)    (2,392)  
  

 

 

 

Ending balance

  $25,758   $                  26,239  
  

 

 

 

(1)

$4.4 million6.2 and $4.5$6.4 million in net sales from redemptions were included in the beginning balance of contract liabilities for the 1326 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, respectively.

(2)

$2.83.0 million and $2.3$2.7 million in breakage and amortization were included in the beginning balance of contract liabilities for the 1326 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, respectively.

 

10

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

4. Accrued Expenses and Other Current Liabilities

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

 

    May 4, 2019       February 2, 2019           May 5, 2018     

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

Property taxes

  $18,557   $18,852   $14,280   

 

 

$

16,534

 

 

$

18,852

 

 

$

14,950

 

Unredeemed gift and merchandise return cards

   9,631    12,246    9,675   

 

 

 

9,287

 

 

 

12,246

 

 

 

9,328

 

Compensation and employee benefits

   6,691    9,271    8,068   

 

 

 

7,240

 

 

 

9,271

 

 

 

8,613

 

Accrued vacation

   4,316    4,365    7,632   

 

 

 

4,266

 

 

 

4,365

 

 

 

7,632

 

Other

   44,923    32,916    38,763   

 

 

 

38,534

 

 

 

32,916

 

 

 

33,218

 

Accrued expenses and other current liabilities

  $84,118   $77,650   $78,418   

 

 

$

75,861

 

 

$

77,650

 

 

$

73,741

 

5. Shareholders’ Equity

Dividends

During the 1326 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, there were no cash dividends declared.

Stock Repurchase Plan

During the 13 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, we repurchased 102,54311,886 shares and 45,1033,306 shares, respectively, of our common stock in the open market at a total cost of less than $0.1 million, respectively. During the 26 weeks ended August 3, 2019 and August 4, 2018, we repurchased 114,429 shares and 48,409 shares, respectively, of our common stock in the open market at a total cost of $0.1 million and less than $0.1 million, respectively. Stock repurchases on the open market, under a Board of Directors authorized plan, were for taxes due on the vesting of employee stock awards. As of May 4,August 3, 2019, there are 366,889 shares which can be repurchased pursuant to the Board of Directors’ current authorization.

6. Earnings (Loss) per Share

Basic earnings (loss) per share (“("EPS”) is computed by dividing net income (loss) by the basic weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by also considering the impact of potential common stock equivalents on both net income (loss) and weighted-average number of common shares outstanding. We no longer compute EPS under thetwo-class method since we do not have any remaining participating securities containingnon-forfeitable rights to dividends.

The following table sets forth a reconciliation of basic weighted-average number of common shares to diluted weighted-average number of common shares (in thousands):

 

  13 Weeks Ended
May 4, 2019		     13 Weeks Ended  
May 5, 2018		 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Basic weighted-average shares outstanding

   47,111    46,610 

 

 

47,406

 

 

 

46,669

 

 

 

47,258

 

 

 

46,639

 

Incremental shares from share-based compensation plans

   445    49 

 

 

-

 

 

 

-

 

 

 

323

 

 

 

500

 

Diluted weighted-average shares outstanding

   47,556    46,659 

 

 

47,406

 

 

 

46,669

 

 

 

47,581

 

 

 

47,139

 

Diluted weighted-average shares outstanding exclude approximately 2.92.4 million shares and 3.72.3 million shares during the 13 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, respectively, which are anti-dilutive for the periods presented. Diluted weighted-average shares outstanding exclude approximately 2.6 million shares and 3.0 million shares during the 26 weeks ended August 3, 2019 and August 4, 2018, respectively, which are anti-dilutive for the periods presented. These shares are comprised of a mix of stock options, performance awards and restricted stock units. 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 units and performance shares excluded were shares that were anti-dilutive as calculated using the treasury stock method.

11

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

7. Debt

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

 

          May 4, 2019             February 2, 2019               May 5, 2018        

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

Revolving credit facility

    $118,800    $119,100    $146,128 

 

 

$

103,517

 

 

$

119,100

 

 

$

112,253

 

Term loan

   35,000 35,000   50,000 

 

 

 

35,000

 

 

 

35,000

 

 

 

50,000

 

Promissory note

   -   -    13,287 

 

 

 

-

 

 

 

-

 

 

 

13,000

 

Total debt

   153,800 154,100   209,415 

 

 

 

138,517

 

 

 

154,100

 

 

 

175,253

 

Current portion

   -   -    (159,415) 

 

 

 

-

 

 

 

-

 

 

 

(125,253

)

Debt issuance costs

   (801)  (847)    (734) 

 

 

 

(755

)

 

 

(847

)

 

 

(714

)

Long-term debt

    $152,999   $153,253    $49,266 

 

 

$

137,762

 

 

$

153,253

 

 

$

49,286

 

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”), with an original maturity of 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 of 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 of $0.4 million were associated with the Revolving Credit Facility and the Equipment Term Loan. Debt issuance costs associated with the Credit Agreement arewere being amortized over its term. We repaid the Equipment Term Loan in full on January 22, 2018, at which time the associated debt issuance costs were fully amortized.

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 provided 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) occurred as of the effective date of the Credit Agreement Amendment and at all times thereafter. Because of the Cash Dominion Event, all of our cash receipts were swept daily to repay outstanding borrowings under the Credit Agreement and the amount outstanding under the Credit Agreement was classified as a short-term obligation. As noted below, the Third Credit Agreement Amendment removed the Cash Dominion Event effective September 18, 2018.

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 provided for, among other things, the following: (1) the $25.0 millionTranche A-1 Revolving Loans (as defined in the Second Credit Agreement Amendment) were 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.

On September 18, 2018, we entered into Amendment No. 3 (the “Third Credit Agreement Amendment”) to the Credit Agreement with Wells Fargo. The Third Credit Agreement Amendment provided for, among other things, the following: (1) the increase of Aggregate Tranche A Revolving Loan Commitments (as defined in the Second Credit Agreement Amendment) from $225.0 million to $240.0 million; (2) an extension of the maturity date of the Revolving Credit Facility to the earlier of (a) the maturity date of the Term Loan Agreement (as defined below) or (b) September 18, 2023; and (3) the elimination of Cash Dominion Event status and a change in Cash Dominion to be triggered only in the event of (a) the occurrence and continuance of any Event of Default or (b) Excess Availability of less than (A) 10.0% of the loan cap at any time or (B) 12.5% of the loan cap for three consecutive business days. During 2018, debt issuance costs of less than $0.1 million were associated with the Third Credit Agreement Amendment and are being amortized over its term. Debt issuance costs of $0.1 million remaining under the initial Credit Agreement will also beare being amortized over the new term of the Third Credit Agreement Amendment. The elimination of cash dominion status changed the debt classification from a short-term to long-term obligation.

12

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

On February 26, 2019, we entered into Amendment No. 4 (the “Fourth Credit Agreement Amendment”) to the Credit Agreement with Wells Fargo. The Fourth Credit Agreement Amendment provided for, among other things, a modification to the definition of “Capital Expenditures” and “Permitted Indebtedness” as defined in the Fourth Credit Agreement Amendment.

The total amount available for borrowings under the Credit Agreement is the lesser of $240.0 million or 100 percent of eligible credit card receivables and the net recovery percentage of eligible inventories less reserves. On May 4,August 3, 2019, in addition to outstanding borrowings under the Credit Agreement, we had $7.9$8.0 million of outstanding letters of credit and our Excess Availability (as defined in the Credit Agreement) was $102.0$61.9 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 consists of substantially all of our personal property. Wells Fargo has a first lien on all collateral other than equipment.

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 4.123.87 percent as of May 4,August 3, 2019.

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”). Debt issuance costs associated with the Term Loan were capitalized in the amount of $0.9 million and will beare being amortized over the term of the Term Loan. The net proceeds of $49.1 million from the Term Loan were used to permanently pay off the $25.0 millionTranche A-1 Revolving Loan (as defined in the Credit Agreement) and to pay down the Revolving Credit Facility. After utilizing proceeds from the Term Loan for repayment of amounts outstanding under the existingTranche A-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 originally matured 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.

On September 18, 2018, we entered into Amendment No. 2 (the “Second Term Loan Amendment”) to the Term Loan with Gordon Brothers Finance Company. The Second Term Loan Amendment provided for, among other things, the following: (1) the reduction of the maximum amount of the Term Loan to $35.0 million; (2) an extension of the maturity date of the Term Loan Agreement to the earlier of (a) the termination date specified in the Revolving Credit Facility (as defined in the Third Credit Agreement Amendment), and (b) September 18, 2023; (3) the reduction ofthe non-default interest rate applicable to the Term Loan under the Term Loan Agreement to a fluctuating rate of interest equal to three-month LIBOR (with a floor of 1.5%) plus 8.25% per annum; and (4) the elimination of Cash Dominion Event status and a change in Cash Dominion to be triggered only in the event of (a) the occurrence and continuance of any Event of Default or (b) Excess Availability of less than (A) 10.0% of the Revolving Loan Cap at any time or (B) 12.5% of the Revolving Loan Cap for three consecutive Business Days. During 2018, debt issuance costs of approximately $0.3 million were associated with the Term Loan and are being amortized over its term. The elimination of cash dominion status changed the debt classification from a short-term to long-term obligation.

13

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

On February 26, 2019, we entered into Amendment No. 3 (the “Third Term Loan Amendment”) to the Term Loan Agreement. The Third Term Loan Amendment provided for, among other things, a modification to the definition of “Capital Expenditures” and “Permitted Indebtedness” as defined in the Third Term Loan Amendment.

13

Stein Mart, Inc.

Notes to Consolidated Financial Statements - Continued

The Term Loan Agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, includingwhich include 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 eventsor during the occurrence of default for a facilityan Event of this type. Default (as defined in the Term Loan Agreement.

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 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.

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. The Intercreditor Agreement was also amended on September 18, 2018 to incorporate the amendment to the Revolving Credit Facility and the Term Loan Agreement.

The weighted average interest rate for the amount outstanding under the Term Loan was 10.8410.57 percent as of May 4,August 3, 2019.

Promissory Note

We believe we can borrow, on a short-term basis and subject to the formal agreement of the lender, amounts up to the cash surrender value of the life insurance policies related to our executive deferred compensation plans to provide additional liquidity if needed. At May 4,August 3, 2019, the cash surrender value of our life insurance policies was $15.2$15.5 million.

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 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 was 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 had 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 could be prepaid in whole or in part at any time. All unpaid principal and accrued interest on the Promissory Note would have become due and payable on the Maturity Date. The Trustee could offset payments due under the Promissory Note against amounts we would otherwise be entitled to withdraw from the Trust under the terms of the Trust Agreement. On June 29, 2018, we repaid the outstanding balance of the second promissory note.

On July 31, 2018, we executed a second promissory note from SunTrust Bank for $13.0 million, which carried a fixed interest rate of 3.58 percent per annum and an original maturity date of September 10, 2018. This note included the same terms as the Promissory Note executed on February 2, 2018. On September 10, 2018, we repaid the outstanding balance of the Promissory Note.

14

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

The following table sets forth the aggregate maturities of our long-term debt at May 4,August 3, 2019, for the following fiscal years (in thousands):

 

2020

   $- 

 

$

 

-

 

2021

   - 

 

 

-

 

2022

   - 

 

 

-

 

2023

   153,800 

 

 

138,517

 

2024

   - 

 

 

-

 

Thereafter

   - 

 

 

 

-

 

  

 

Total

   $          153,800 

 

$

 

138,517

 

  

 

8. Leases

We lease all our retail store locations, support facilities and certain equipment under operating leases. Our store leases have varying terms and are generally for 10 years with options to extend the lease term for two or more5-year periods. Annual store rent is generally comprised of a fixed minimum amount plus an insignificant contingent amount based on a percentage of sales in excess of specified levels. Most store leases also require additional payments covering real estate taxes, common area costs and insurance. Certain lease agreements contain rent holidays, and/or rent escalation clauses. Except for contingent rent, we recognize rent expense on a straight-line basis over the lease term.term. Contingent rent, determined based on a percentage of sales in excess of specified levels, is recognized as rent expense when achievement of the specified sales that triggers the contingent rent is probable. Construction allowances and other such lease incentives are recorded on the Condensed Consolidated Balance Sheets (Unaudited) and are amortized on a straight-line basis as a reduction of rent expense. The leaselease agreements do not contain any material residual value guarantees or material restrictive covenants. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement or modification date in determining the present value of lease payments.

In additionaddition to the operating lease assets presented on the Condensed Consolidated Balance Sheets, (Unaudited), assets under finance leases of $2.0$3.0 million are included in property and equipment, net on the Condensed Consolidated Balance Sheets (Unaudited) as of May 4,August 3, 2019. The remaining finance lease obligation is split between accrued expenses and other current liabilities for the short-term portion and other liabilities for the long-term portion on the Condensed Consolidated Balance Sheets (Unaudited).Sheets.

The followingfollowing table summarizes our classification of lease cost (in thousands):

 

 

 

 

 

13 Weeks Ended

 

 

26 Weeks Ended

 

 

 

Statement of Operations Location

 

August 3, 2019

 

 

August 3, 2019

 

Operating lease cost (1)

 

Selling, general and administrative expenses

 

$

24,149

 

 

$

47,676

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

Amortization of finance lease

   assets

 

Selling, general and administrative expenses

 

 

160

 

 

 

312

 

Interest on lease liabilities

 

Interest expense, net

 

 

17

 

 

 

33

 

Variable lease cost

 

Selling, general and administrative expenses

 

 

9,330

 

 

 

19,260

 

Net lease cost

 

 

 

$

33,656

 

 

$

67,281

 

13 Weeks Ended
                Statement of Operations LocationMay 4, 2019

Operating lease cost (1)

Selling, general and administrative expenses

  $23,527 

Finance lease cost:

 Amortization of finance lease assets

Selling, general and administrative expenses

152 

 Interest on lease liabilities

Interest expense, net

16 

Variable lease cost

Selling, general and administrative expenses

9,930 

Net lease cost

  $                33,625 

(1)

Includes lease costs for short-term leases, which are immaterial.

15

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

As of May 4,August 3, 2019, the following table summarizes the maturity of the company’s lease liabilities (in thousands):

 

  Operating Finance   
  Leases Leases Total 

 

Operating

 

 

Finance

 

 

 

 

 

  

 

 

 

 

Leases

 

 

Leases

 

 

Total

 

Remainder of 2019

    $75,170  $553  $75,723   

 

$

50,047

 

 

$

487

 

 

$

50,534

 

2020

   94,868  574  95,442   

 

 

96,054

 

 

 

855

 

 

 

96,909

 

2021

   84,084  1  84,085   

 

 

85,561

 

 

 

282

 

 

 

85,843

 

2022

   68,574   -       68,574   

 

 

70,371

 

 

 

281

 

 

 

70,652

 

2023

   53,515   -       53,515   

 

 

55,309

 

 

 

151

 

 

 

55,460

 

After 2023

   105,493   -       105,493   

 

 

107,324

 

 

 

1

 

 

 

107,325

 

  

 

 

 

Total lease payments

   481,704  1,128  482,832   

 

 

464,666

 

 

 

2,057

 

 

 

466,723

 

Less: Interest

   (69,458)  (50)  (69,508)  

 

 

(65,216

)

 

 

(182

)

 

 

(65,398

)

  

 

 

 

Present value of lease liabilities

    $        412,246  $      1,078  $         413,324   

 

$

399,450

 

 

$

1,875

 

 

$

401,325

 

  

 

 

 

The following table summarizes our lease term and discount rate:

 

13 Weeks Ended

August 3, 2019

                        May  4, 2019                        

Weighted-average remainderremaining lease term (years):

Operating leases

 5.8

5.7 years

Finance leases

 1.9

2.7 years

Weighted-average discount rate:

Operating leases

 5.4     %

5.4

%

Finance leases

 5.7     

6.4

%

The following table summarizes the other information related to our lease liabilities (in thousands):

 

13 Weeks Ended
            May 4, 2019             

Cash paid for amounts included in the measurement of lease liabilities:

 

 

13 Weeks Ended

 

 

26 Weeks Ended

 

 

 

August 3, 2019

 

 

August 3, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

25,480

 

 

$

50,697

 

Operating cash flows from finance leases

 

 

17

 

 

 

33

 

Financing cash flows from finance leases

 

 

199

 

 

 

367

 

  Operating cash flows from operating leases

  $            25,218  

  Operating cash flows from finance leases

16  

  Financing cash flows from finance leases

168  

As of February 2, 2019, in accordance with ASC 840,Leases, the aggregate minimumnon-cancelable lease payments under operating leases were as follows (in thousands):

 

 Operating Finance 
 Leases Leases 

 

Operating

 

 

Finance

 

 

 

 

 

 

Leases

 

 

Leases

 

2019

   $101,139     $738   

 

$

101,139

 

 

$

738

 

2020

 93,190    574   

 

 

93,190

 

 

 

574

 

2021

 82,324    1   

 

 

82,324

 

 

 

1

 

2022

 66,820     -        

 

 

66,820

 

 

 

-

 

2023

 50,697     -        

 

 

50,697

 

 

 

-

 

Thereafter

 102,550     -        

 

 

102,550

 

 

 

-

 

 

 

 

 

Total minimum lease payments

   $    496,720    1,313   

 

$

496,720

 

 

 

1,313

 

 

 

  

Amount representing interest

  (67)  

 

 

 

 

 

 

(67

)

  

 

 

Present value of minimum lease payments

  1,246   

 

 

 

 

 

 

1,246

 

Less: current portion

  (685)  

 

 

 

 

 

 

(685

)

  

 

 

Long-term capital lease obligations

   $        561   

 

 

 

 

 

$

561

 

  

 

 

 


16

Stein Mart, Inc.

Notes to Condensed Consolidated Financial Statements - Continued

(Unaudited)

 

9. Commitments and Contingencies

We are involved in various routine legal proceedings incidental to the conduct of our business. While some of these matters could be material to our results of operations or cash flows for any 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. During both the 13 and 26 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018, we did not accrue for any actual or anticipated loss contingencies.

10. Income Taxes

The provision for income taxes is based on a current estimate of the annual effective tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate may fluctuate from quarter to quarter as a result of a variety of factors, including changes in our assessment of certain tax contingencies, valuation allowances, changes in tax law, outcomes of administrative audits, the impact of discrete items, and the mix of earnings. Our income tax expense for both the 13 and 26 weeks ended May 4,August 3, 2019, reflects our estimated minimal taxable income for the year. The effective tax rate will be close to zero percent for all of 2019.

 


17

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 for the fiscal year ended February 2, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2019. 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 for the year ended February 2, 2019, filed with the SEC on March 28, 2019.

Overview

We are a nationalspecialty off-price retailer offering designer and name-brand fashion apparel, home décor, accessories and shoes at everyday discount prices. We currently operate 283 stores across 30 states.

Financial Overview for the 13 and 26 weeks Ended May 4,August 3, 2019

●

Net sales were $314.2$292.4 million for the 13 weeks ended May 4,August 3, 2019, compared to $326.6$310.9 million for the 13 weeks ended May 5,August 4, 2018, and $606.5 million for the 26 weeks ended August 3, 2019, compared to $637.5 million for the 26 weeks ended August 4, 2018.

●

Comparable sales for the 13 weeks ended May 4,August 3, 2019, decreased 1.73.6 percent compared to the 13 weeks ended May 5,August 4, 2018, and for the 26 weeks ended August 3, 2019, decreased 2.6 percent compared to the 26 weeks ended August 4, 2018.

●

Net loss for the 13 weeks ended August 3, 2019 was $2.1 million, or $0.04 per share, compared to net loss of $1.0 million, or $0.02 per share, during the 13 weeks ended August 4, 2018.

●

Net income for the 1326 weeks ended May 4,August 3, 2019 was $4.0$1.9 million, or $0.08$0.04 per diluted share, compared to net income of $7.3$6.4 million, or $0.16$0.14 per diluted share, during the 1326 weeks ended May 5,August 4, 2018.

●

We had $153.8$138.5 million, $154.1 million and $209.4$175.3 million of direct borrowings from our credit facilities as of May 4,August 3, 2019, February 2, 2019, and May 5,August 4, 2018, respectively.

Stores

The following table sets forth the stores activity for the 13 and 26 weeks ended May 4,August 3, 2019 and May 5,August 4, 2018:

 

 13 Weeks Ended
May 4, 2019		 13 Weeks Ended 
May 5, 2018 		 
 

 

 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Stores at beginning of period

 287  293 

 

 

283

 

 

 

289

 

 

287

 

 

 

293

 

Stores opened during the period

  -   -   

Stores closed during the period

 (4)  (4)  

 

 

-

 

 

 

-

 

 

(4)

 

 

 

(4

)

 

 

 

 

Stores at the end of period

 283  289 

 

 

283

 

 

 

289

 

 

 

283

 

 

 

289

 

 

 

 

 

Inventories

Inventory levels were $274.3$238.4 million as of May 4,August 3, 2019, compared to $255.9 million as of February 2, 2019 and $297.0$240.8 million as of May 5, 2018. Average inventories per store as of MayAugust 4, 2019, decreased 4.9 percent from May 5, 2018. Total inventories decreased due to fewer stores and lower average inventories per store at the end of the firstsecond quarter of 2019 versus 2018, and apartially offset by planned decrease in Ecommerce inventories.acceleration of receipts for categories that were trending, as well as amounts to support our recently launched Kids department.

 


18

Results of Operations

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

 

    13 Weeks Ended  
May 4, 2019		   13 Weeks Ended  
May 5, 2018		 
  

 

 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Net sales

   100.0%  100.0% 

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Other revenue

   1.7%  1.3% 

 

 

1.4

%

 

 

1.1

%

 

 

1.5

%

 

 

1.2

%

Total revenue

   101.7%  101.3% 

 

 

101.4

%

 

 

101.1

%

 

 

101.5

%

 

 

101.2

%

  

 

 

 

Cost of merchandise sold

   72.2%  70.6% 

 

 

74.5

%

 

 

74.5

%

 

 

73.3

%

 

 

72.5

%

Selling, general and administrative expenses

   27.4%  27.7% 

 

 

26.8

%

 

 

26.0

%

 

 

27.1

%

 

 

26.9

%

  

 

 

 

Operating income

   2.1%  3.0% 

 

 

0.1

%

 

 

0.6

%

 

 

1.1

%

 

 

1.8

%

Interest expense, net

   0.8%  0.8% 

 

 

0.8

%

 

 

0.9

%

 

 

0.8

%

 

 

0.8

%

  

 

 

 

Income before income taxes

   1.3%  2.3% 

(Loss) income before income taxes

 

 

(0.7

)%

 

 

(0.3

)%

 

 

0.3

%

 

 

1.0

%

Income tax expense

   0.0%  0.0% 

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

  

 

 

 

Net income

   1.3%  2.2% 
  

 

 

 

Net (loss) income

 

 

(0.7

)%

 

 

(0.3

)%

 

 

0.3

%

 

 

1.0

%

 

(1)

Table may not foot due to rounding.


Stein Mart Credit Cards

Stein Mart has both co-branded MasterCard and Private Label Credit Cards available for our customers based on credit approvals in accordance with our Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement (the “Agreement”). These cards are issued by our business partner, Synchrony Bank (“Synchrony”), who bears all credit risk associated with the cards. Synchrony provides us certain direct financial benefits based on sales on the cards and other factors. Subsequent to quarter-end on August 21, 2019, we entered into an amendment to our Agreement with Synchrony whereby Synchrony waived its rights to require us to post cash reserves to cure our failure to satisfy one or more of the quarterly financial covenants specified in the Agreement for periods through October 31, 2020 (the “Exemption Period”). As consideration for Synchrony’s entry into this amendment, we agreed to reduce the amount of fees paid to us by Synchrony under the Agreement from September 1, 2019 through the end of the Exemption Period. We expect the average reduction in monthly fees receivable will be approximately $0.1 million. The Company has obtained waivers for its failure to satisfy these covenants in the past and would not have expected to satisfy these covenants for at least the next five fiscal quarters had they not been exempted.

Important Information RegardingNon-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, we believe that certainnon-GAAP financial measures provide users of our financial information with additional useful information in evaluating operating performance.Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, financial results prepared in accordance with GAAP. Items excluded from or included innon-GAAP financial measures may be significant and should be considered in assessing our financial condition and performance. The methods we used to calculate thesenon-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, thenon-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.


Calculations of our comparable sales including sales from licensed departments arenon-GAAP financial measures. We believe that providing calculations of changes in comparable sales, both including and excluding sales from licensed departments, assists in evaluating our ability to generate sales growth, whether through owned businesses or departments licensed to third parties. The following table sets forth these calculations.

 

  

        13 Weeks Ended        

May 4, 2019

   

      13 Weeks Ended      

May 5, 2018

 
 

 

 

 

Decrease in comparable sales on an owned basis (1)

  (2.5) %        (1.8) %     

Impact of growth in comparable sales of departments licensed to third parties (2)

  0.8  %        1.1  %    
 

 

 

 

Decrease in comparable sales on an owned plus licensed basis

  (1.7) %        (0.7) %     
 

 

 

 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Decrease in comparable sales excluding sales

   from leased departments (1)

 

 

(4.4

)%

 

 

(0.4

)%

 

 

(3.4

)%

 

 

(1.1

)%

Effect of growth in comparable sales of leased

   departments (2)

 

 

0.8

%

 

 

1.1

%

 

 

0.8

%

 

 

1.1

%

Increase (decrease) in comparable sales

   including sales from leased departments

 

 

(3.6

)%

 

 

0.7

%

 

 

(2.6

)%

 

 

0.0

%

 

(1)

Represents theperiod-to-period percentage change in net sales from stores open throughout the period presented and the same period in the prior year and all online sales of steinmart.com, excluding commissions from departments licensed to third parties.

(2)

Represents the impact of including the full sales amounts for departments licensed to third parties throughout the period presented and the same period in the prior year on the calculation of comparable sales. We license our shoe and vintage handbag departments to third parties and receive a commission from these third parties based on a percentage of their sales. In our financial statements prepared in conformity with GAAP, we include commissions (rather than sales of the departments licensed to third parties) in our net sales. We do not include the commission amounts from licensed department sales in our comparable sales calculation.

19

13 and 26 Weeks Ended May 4,August 3, 2019, Compared to the 13 and 26 Weeks Ended May 5,August 4, 2018 (tables presented in thousands):

Net Sales

 

   13 Weeks Ended  
May 4, 2019		   13 Weeks Ended  
May 5, 2018		 Decrease 

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

 

 

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

Net sales

    $314,157  $326,605  $  (12,448) 

 

 

$

292,369

 

 

$

310,859

 

 

$

 

(18,490

)

 

$

606,526

 

 

$

637,464

 

 

$

 

(30,938

)

Sales percent change:

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

   (3.8)% 

 

 

 

 

 

 

 

 

 

 

 

(5.9

)%

 

 

 

 

 

 

 

 

 

 

(4.9

)%

Comparable store sales on an owned plus licensed basis

   (1.7)% 

Comparable store sales

including sales from

leased departments

 

 

 

 

 

 

 

 

 

 

 

(3.6

)%

 

 

 

 

 

 

 

 

 

 

(2.6

)%

The 3.85.9 percent decrease in net sales reflects lower comparable store sales, including the shift of a 12-Hour Sale event from the second quarter to the first, and fewer stores for the 13 weeks ended May 4,August 3, 2019, compared to the 13 weeks ended May 5,August 4, 2018. The 1.73.6 percent decrease in comparable stores sales on an owned plus licensed basis for the 13 weeks ended May 4,August 3, 2019, was primarily driven by a decrease in the number of transactions driven by lower store traffic.traffic and lower units per transaction, somewhat offset by higher average unit retail dollars. Comparable store sales reflect stores open throughout the period and prior fiscal year and include Ecommerce. Ecommerce sales were approximately 5.36.1 percent of net sales. Ecommerce sales increased 13.67.2 percent, including online orders shipped from our stores, and positively affected our total comparable store sales by 40 basis points for the 13 weeks ended MayAugust 3, 2019. The 4.9 percent decrease in net sales reflects lower comparable store sales and fewer stores for the 26 weeks ended August 3, 2019, compared to the 26 weeks ended August 4, 2018. The 2.6 percent decrease in comparable stores sales on an owned plus licensed basis for the 26 weeks ended August 3, 2019, was primarily driven by a decrease in the number of transactions driven by lower store traffic. Ecommerce sales were approximately 5.8 percent of net sales. Ecommerce sales increased 10.6 percent, including online orders shipped from our stores, and positively affected our total comparable store sales by 40 basis points for the 26 weeks ended August 3, 2019.

Other Revenue

 

   13 Weeks Ended  
May 4, 2019		   13 Weeks Ended  
May 5, 2018		  Increase  

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

 

 

 

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

Other revenue

    $    5,225  $    4,382  $        843  

 

 

$

3,963

 

 

$

3,569

 

 

$

 

394

 

 

 

$

9,188

 

 

$

7,951

 

 

$

1,237

 

Percentage of net sales

 1.7%  1.3%  0.4% 

 

 

 

1.4

%

 

 

1.1

%

 

 

0.3

%

 

 

 

1.5

%

 

 

1.2

%

 

 

0.3

%

The increase in other revenue for the 13 and 26 weeks ended August 3, 2019, is the result of higher penetration from our growing credit card program, which has increased royalty, breakage and bounty income.income, partially offset by higher accrual of customer loyalty points.


Gross Profit

Gross profit is determined as follows:

 

   13 Weeks Ended  
May 4, 2019		   13 Weeks Ended  
May 5, 2018		   Decrease   

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

 

 

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

Net sales

   $314,157  $326,605  $  (12,448) 

 

 

$

292,369

 

 

$

310,859

 

 

$

 

(18,490

)

 

 

$

606,526

 

 

$

637,464

 

 

$

 

(30,938

)

Cost of merchandise sold

 226,698  230,621  (3,923) 

 

 

 

217,703

 

 

 

231,519

 

 

 

(13,816

)

 

 

 

444,401

 

 

 

462,140

 

 

 

(17,739

)

 

 

 

 

Gross profit

   $87,459  $95,984  $(8,525) 

 

 

$

74,666

 

 

$

79,340

 

 

$

 

(4,674

)

 

 

$

162,125

 

 

$

175,324

 

 

$

 

(13,199

)

Percentage of net sales

 27.8%  29.4%  (1.6)% 

 

 

 

25.5

%

 

 

25.5

%

 

 

0.0

%

 

 

 

26.7

%

 

 

27.5

%

 

 

(0.8

)%

The gross profit rate for the 13 weeks ended August 3, 2019 was flat compared to the 13 weeks ended August 4, 2018. The decrease in gross profit rate for the 1326 weeks ended May 4,August 3, 2019 wasreflects higher markdowns as a percentage of sales, as well as the deleverage of occupancy costs on lower sales. Markdowns were higher as a percent of sales primarily driven bydue to a planned reduction from accelerated markdown cadence, the impact of the shift of the12-hour sales event from the second to the first quarter of 2019 and slightly higher markdowns to clear fall merchandise.cadence.

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

 

   13 Weeks Ended  
May 4, 2019		   13 Weeks Ended  
May 5, 2018		  Decrease  

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

 

 

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

Selling, general and administrative expenses

    $  86,136  $  90,509  $    (4,373) 

 

 

$

78,470

 

 

$

80,936

 

 

$

 

(2,466

)

 

 

$

164,606

 

 

$

171,445

 

 

$

 

(6,839

)

Percentage of net sales

 27.4%  27.7%  (0.3)%  

 

 

 

26.8

%

 

 

26.0

%

 

 

0.8

%

 

 

 

27.1

%

 

 

26.9

%

 

 

0.2

%

The decrease in SG&A decrease for the 13 and 26 weeks ended May 4,August 3, 2019, wasis primarily the result of lower store-related expenses, including the impact of closed stores.

20

Interest Expense, Net

 

    13 Weeks Ended  
May 4, 2019		     13 Weeks Ended  
May 5, 2018		    Increase  

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

 

 

  

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

Interest expense, net

     $2,526   $2,463   $63 

 

 

$

2,192

 

 

$

2,865

 

 

$

(673

)

 

 

$

4,718

 

 

$

5,328

 

 

$

(610

)

Percentage of net sales

   0.8%    0.8%    0.0% 

 

 

 

0.8

%

 

 

0.9

%

 

 

(0.2

)%

 

 

 

0.8

%

 

 

0.8

%

 

 

0.0

%

Interest expense is flatdecreased by $0.7 million and $0.6 million, respectively, for the 13 and 26 weeks ended May 4,August 3, 2019, compared to the 13 and 26 weeks ended May 5,August 4, 2018. While debt is lower during the 13 weeks ended May 4, 2019,The decrease in interest expense is flatprimarily due to last year because of a higher blended interest rate onlower average debt thisamounts compared to last year.

Income Taxes

 

    13 Weeks Ended  
May 4, 2019		     13 Weeks Ended  
May 5, 2018		    Decrease  

 

13 Weeks Ended

 

 

13 Weeks Ended

 

 

 

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

 

 

  

 

 

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

 

August 3, 2019

 

 

August 4, 2018

 

 

Variance

 

Income tax expense

     $53   $  60    $(7)  

 

 

$

52

 

 

$

60

 

 

$

(8

)

 

 

$

105

 

 

$

120

 

 

$

(15

)

Effective tax rate

   1.3%    0.8%    (0.5)% 

 

 

 

(2.6

)%

 

 

(6.7

)%

 

 

4.1

%

 

 

 

5.3

%

 

 

1.8

%

 

 

3.5

%

The small amount of income tax for the 13 and 26 weeks ended May 4,August 3, 2019, reflects our estimated minimal taxable income for the year. The effective tax rate will be close to zero percent for all of 2019.

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, our $240.0 million senior secured revolving credit facility pursuant to a second amended and restated credit agreement with Wells Fargo Bank and our $35.0 million Term Loan (as discussed below).


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”) with an original maturity of 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 of 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 of $0.4 million were associated with the Revolving Credit Facility and the Equipment Term Loan. Debt issuance costs associated with the Credit Agreement arewere being amortized over its term. We repaid the Equipment Term Loan in full on January 22, 2018, at which time the associated debt issuance costs were fully amortized.

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 provided 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) occurred as of the effective date of the Credit Agreement Amendment and at all times thereafter. Because of the Cash Dominion Event, all of our cash receipts were swept daily to repay outstanding borrowings under the Credit Agreement and the amount outstanding under the Credit Agreement was classified as a short-term obligation. As noted below, the Third Credit Agreement Amendment removed the Cash Dominion Event effective September 18, 2018.

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 provided for, among other things, the following: (1) the $25.0 millionTranche A-1 Revolving Loans (as defined in the Second Credit Agreement Amendment) were 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.

On September 18, 2018, we entered into Amendment No. 3 (the “Third Credit Agreement Amendment”) to the Credit Agreement with Wells Fargo. The Third Credit Agreement Amendment provided for, among other things, the following:

21

(1) the increase of Aggregate Tranche A Revolving Loan Commitments (as defined in the Second Credit Agreement Amendment) from $225.0 million to $240.0 million; (2) an extension of the maturity date of the Revolving Credit Facility to the earlier of (a) the maturity date of the Term Loan Agreement (as defined below) or (b) September 18, 2023; and (3) the elimination of Cash Dominion Event status and a change in Cash Dominion to be triggered only in the event of (a) the occurrence and continuance of any Event of Default or (b) Excess Availability of less than (A) 10.0% of the loan cap at any time or (B) 12.5% of the loan cap for three consecutive business days. During 2018, debt issuance costs of less than $0.1 million were associated with the Third Credit Agreement Amendment and are being amortized over its respective term. Debt issuance costs of $0.1 million remaining under the initial Credit Agreement will also be amortized over the new term of the Third Credit Agreement Amendment. The elimination of cash dominion status changed the debt classification from a short-term to long-term obligation.

On February 26, 2019, we entered into Amendment No. 4 (the “Fourth Credit Agreement Amendment”) to the Credit Agreement with Wells Fargo. The Fourth Credit Agreement Amendment provided for, among other things, a modification to the definition of “Capital Expenditures” and “Permitted Indebtedness” as defined in the Fourth Credit Agreement Amendment.

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 consists of substantially all of our personal property. Wells Fargo has a first lien on all collateral other than equipment.

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 4.123.87 percent as of May 4,August 3, 2019.

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”). Debt issuance costs associated with the Term Loan were capitalized in the amount of $0.9 million and will beis being amortized over the term of the Term Loan. The net proceeds of $49.1 million from the Term Loan were used to permanently pay off the $25.0 millionTranche A-1 Revolving Loan (as defined in the Credit Agreement) and to pay down the Revolving Credit Facility. After utilizing proceeds from the Term Loan for repayment of amounts outstanding under the existingTranche A-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 originally matured 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.

On September 18, 2018, we entered into Amendment No. 2 (the “Second Term Loan Amendment”) to the Term Loan with Gordon Brothers Finance Company. The Second Term Loan Amendment provided for, among other things, the following: (1) the reduction of the maximum amount of the Term Loan to $35.0 million; (2) an extension of the maturity date of the Term Loan Agreement to the earlier of (a) the termination date specified in the Revolving Credit Facility (as defined in the Third Credit Agreement Amendment), and (b) September 18, 2023; (3) the reduction ofthe non-default interest rate applicable to the Term Loan under the Term Loan Agreement to a fluctuating rate of interest equal to three-month LIBOR (with a floor of 1.5%) plus 8.25% per annum; and (4) the elimination of Cash Dominion Event status and a change in Cash Dominion to be triggered only in the event of (a) the occurrence and continuance of any Event of Default or (b) Excess Availability of less than (A) 10.0% of the Revolving Loan Cap at any time or (B) 12.5% of the Revolving Loan Cap for three consecutive Business Days. During 2018, debt issuance costs of approximately $0.3 million were associated with the Term

22

Loan and are being amortized over its term. The elimination of cash dominion status changed the debt classification from a short-term to long-term obligation.

On February 26, 2019, we entered into Amendment No. 3 (the “Third Term Loan Amendment”) to the Term Loan Agreement. The Third Term Loan Amendment provided for, among other things, a modification to the definition of “Capital Expenditures” and “Permitted Indebtedness” as defined in the Third Term Loan Amendment.

The Term Loan Agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, includingwhich include 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 eventsduring the occurrence of default for a facilityan Event of this type.Default (as defined in the Term Loan Agreement). 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 have a first lien security interest.

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.

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. The Intercreditor Agreement was also amended on September 18, 2018 to incorporate the amendment to the Revolving Credit Facility and the Term Loan Agreement.


The weighted average interest rate for the amount outstanding under the Term Loan was 10.8410.57 percent as of May 4,August 3, 2019.

Promissory Note

We believe we can borrow, on a short-term basis and subject to the formal agreement of the lender, amounts up to the cash surrender value of the life insurance policies related to our executive deferred compensation plans to provide additional liquidity if needed. At May 4,August 3, 2019, the cash surrender value of our life insurance policies was $15.2$15.5 million.

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 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 was 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 had 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 could be prepaid in whole or in part at any time. All unpaid principal and accrued interest on the Promissory Note would have become due and payable on the Maturity Date. The Trustee could offset payments due under the Promissory Note against amounts we would otherwise be entitled to withdraw from the Trust under the terms of the Trust Agreement. On June 29, 2018, we repaid the outstanding balance of the Promissory Note.

On July 31, 2018, we executed a second promissory note from SunTrust Bank for $13.0 million, which carried a fixed interest rate of 3.58 percent per annum and an original maturity date of September 10, 2018. This note included the same terms as the Promissory Note executed on February 2, 2018. On September 10, 2018, we repaid the outstanding balance of the second promissory note.

Cash flows from operations are driven by sales as well as the credit terms available to us from our vendors and their factors. Our sales generate cash almost immediately and are affected by customer traffic to our stores and the desirability of our merchandise to those customers. Customer traffic is in turn affected by our marketing and advertising, general economic

23

and business conditions, and weather. Changes in these factors could have a material effect on our ability to generate sales and thus cash inflows to operate our business.

Our cash outflows can be materially affected by changes in credit terms and availability from our vendors and their factors. During the first quarter of 2018, our vendors and factors constricted our credit terms and limits significantly. This was a reaction to our 2017 third-quarter results, as well as concern about the general retail environment at the time, which included multiple bankruptcies and restructurings by other retailers in the same business. This constriction caused us to make payments to our vendors and factors more quickly than in prior periods, thus increasing our debt levels during that period. The added availability from the Term Loan Agreement was a key part of our ability to fund the accelerated payments. Wehave non-disclosure agreements with the major factors, credit insurers and several of our largest vendors whichthat allow us to communicate our operating results and cash flows to them on a regular basis. During 2018, we made periodic presentations to our key vendors and factors and we continue to communicate our operating results and cash flows to them. These steps have contributed to the positive movement in their credit arrangements with us, which has continued through the firstsecond quarter of 2019.

Our working capital fluctuates with seasonal variations, which affect our borrowings and availability. Our availability is highest just after our strong seasonal spring and holiday selling seasons and is lowest just before those seasons as we build inventory levels. Working capital is also used to support capital investments for maintenance of our existing stores, system improvements and new store openings. We have reduced our capital investments to enhance our cash flows. These reduced levels of investment can be sustained for the foreseeable future as prior to this our store base and systems have been well maintained. Positive operating results and cash flows will help us preserve satisfactory credit terms and allow us to operate within the borrowing availability under our Credit Agreement and Term Loan Agreement.

Based on our current expectations regarding our operating results, we consider our resources adequate to satisfy our cash needs for at least the next 12 months.


As of May 4,August 3, 2019, we had cash and cash equivalents of $21.9$9.5 million and $118.8$103.5 million in borrowings under our Credit Agreement and $35.0 million in borrowings under the Term Loan, for a total of $153.0$137.8 million in outstanding borrowings, net of $0.8 million in unamortized debt issuance costs. As of February 2, 2019, we had cash and cash equivalents of $9.0 million and $119.1 million in borrowings under our Credit Agreement and $35.0 million in borrowings under the Term Loan, for a total of $153.3 million in outstanding borrowings, net of $0.8 million in unamortized debt issuance costs. As of May 5,August 4, 2018, we had cash and cash equivalents of $16.2$10.0 million and $146.1$112.3 million in borrowings under our Credit Agreement, $50.0 million in borrowings under the Term Loan and $13.3$13.0 million in borrowings under the Promissory Note, for a total of $209.4$174.5 million in outstanding borrowings.borrowings, net of $0.7 million in unamortized debt issuance costs. The total amount available for borrowings and letters of credit under our Credit Agreement is the lesser of $240.0 million or 100 percent of eligible credit card receivables and the net recovery percentage value of inventories less reserves. On May 4,August 3, 2019, in addition to outstanding borrowings under the Credit Agreement and Term Loan, we had $7.9$8.0 million of outstanding letters of credit. Our Excess Availability (as defined in the Credit Agreement) was $102.0$61.9 million on May 4,August 3, 2019. As of May 4,August 3, 2019, we had $15.2$15.5 million available to borrow, on a short-term basis and subject to the formal agreement of the lender, which would be collateralized by life insurance policies.

Cash Flows

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

 

Change

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

$

19,834

 

 

$

(16,884

)

 

$

 

36,718

 

Investing activities

 

 

 

(3,376

)

 

 

(1,272

)

 

 

 

(2,104

)

Financing activities

 

 

 

(16,026

)

 

 

17,786

 

 

 

 

(33,812

)

Net increase (decrease) in cash and cash equivalents

 

 

$

432

 

 

$

(370

)

 

$

 

802

 

 

     13 Weeks Ended  
May 4, 2019		    13 Weeks Ended  
May 5, 2018		  Change   
  

 

 

 

Cash provided by (used in):

    

Operating activities

    $        15,183  $(47,206)   $    62,389 

Investing activities

   (1,679)   850   (2,529) 

Financing activities

   (620)   52,121   (52,741) 
  

 

 

 

Net increase in cash and cash equivalents

    $        12,884  $            5,765  $7,119 
  

 

 

 

Net cash provided by operating activities was $15.2$19.8 million for the 1326 weeks ended May 4,August 3, 2019, compared to net cash used in operating activities of $47.2$16.9 million for the 1326 weeks ended May 5,August 4, 2018. The increase in cash provided by operating activities was primarily due to improved credit terms from vendors and factors since the firstsecond quarter of 2018. Our decreased inventory purchases over last year also affected operating cash flows.

Net cash used in investing activities was $1.7$3.4 million for the 1326 weeks ended May 4,August 3, 2019, compared to net cash provided byused in investing activities of $0.9$1.3 million for the 1326 weeks ended May 5,August 4, 2018. The change is primarily due to last year’s proceeds from cancelled corporate-owned life insurance policies.

24

Net cash used in financing activities was $0.6$16.0 million during the 1326 weeks ended May 4,August 3, 2019, compared to cash provided by financing activities of $52.1$17.8 million during the 1326 weeks ended May 5,August 4, 2018. During the 1326 weeks ended May 4,August 3, 2019, we had net repayments of debt of $0.3 million. We paid accrued cash dividends on vested employee stock awards of less than $0.1 million and capital lease payments of $0.2 million. In addition, we repurchased 102,543 shares of common stock for $0.1$15.6 million. During the 1326 weeks ended May 5,August 4, 2018, we had net proceeds of debt of $53.3$19.1 million, primarily used to pay vendors due to our accelerated payments to vendors. We also paid debt issuance costs of $0.8 million, paid accrued cash dividends on vested employee stock awards of $0.1 millionpayment terms mostly in the first half. The increase in borrowings and capital lease payments of $0.2 million. In addition, we repurchased 45,103 shares of common stock for less than $0.1 million. See Note 5 “Shareholders’ Equity”repayments was a result of the Notes to Condensed Consolidated Financial Statements (Unaudited) for further discussion.cash dominion discussed above.

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 Form10-K for the year ended February 2, 2019 and filed with the SEC on March 28, 2019. Except for the adoption of the lease accounting standard (Topic 842), we have made no significant changes in our critical accounting policies and estimates since February 2, 2019.

Recent Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 “Basis of Presentation” of the Notes to Condensed Consolidated Financial Statements (Unaudited).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 income 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 materially by inflation in the future.


ITEM 4. CONTROLS AND PROCEDURES

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the 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 Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of May 4,August 3, 2019, to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within 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 Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting other than the Company adopted ASC 842,Leases,on February 3, 2019, and implemented new controls and processes to meet the requirements of the standard.reporting.


PART II – OTHEROTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See the discussion of legal proceedings in Note 9 “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements (Unaudited) 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

ThereOther than noted below, there have been no material changes in our risk factors from those described in our Annual Report on Form10-K for the year ended February 2, 2019.

 

25

We recently received a notice from Nasdaq advising us that we do not meet the continued listing standards of The Nasdaq Global Market. If we are unable to maintain a listing on a national securities exchange, it could negatively impact the price and liquidity of our common stock, which could impair the value of your investment.

Our common stock is currently listed on The Nasdaq Global Market. In order to maintain that listing, we must satisfy minimum financial and other listing requirements. On July 8, 2019, the Nasdaq Listing Qualifications Department notified us that we did not meet the $1.00 minimum bid price for the last 30 consecutive business days as required by Rule 5450(a)(1). In accordance with Rule 5810(c)(3)(A), we have 180 calendar days, or until January 6, 2020, to regain compliance with the bid price requirement. If we are unable to comply with the bid price requirement during the applicable grace period, an additional 180 days may be granted to regain compliance if we (i) meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Global Market (except for the bid price requirement) and (ii) provide written notice of our intention to cure the deficiency during the second 180-day compliance period.

Although no determination regarding our response has been made at this time, we intend to take any reasonable actions to resolve our noncompliance with the minimum bid price requirement as may be necessary. However, there can be no assurance that we will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.

The delisting of our common stock from The Nasdaq Global Market could adversely affect the market liquidity of our common stock and could result in other negative implications, including the potential loss of confidence by suppliers, customers and employees, and fewer business development opportunities. Any such developments could impair the value of your investment.

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

The following table sets forth information regarding repurchases of our common stock during the quarter ended May 4,August 3, 2019:

 

ISSUER PURCHASES OF EQUITY SECURITIESISSUER PURCHASES OF EQUITY SECURITIES

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

  

Total
number

of shares
purchased

 

   

Average

price

paid per

share

 

   

 

Total number of
shares purchased
as part of publicly
announced plans
or programs (1)

 

   

 

Maximum number  
of shares that may  
yet be purchased  
under the plans or  
programs (1) (2)  

 

 

Total number

of shares

purchased

 

 

Average price

paid per share

 

 

Total number

of shares

purchased as

part of publicly

announced plans

or programs (1)

 

 

Maximum

number

of shares

that may yet be

purchased under

the plans or

programs (1) (2)

 

February 3, 2019 – March 2, 2019

   12,759   $            1.14    -   366,889

March 3, 2019 – April 6, 2019

   9,623    1.11    -   366,889

April 7, 2019 – May 4, 2019

   

 

80,161

 

 

 

   

 

0.97

 

 

 

   

 

-

 

 

 

  366,889

 

May 5, 2019 – June 1, 2019

 

 

1,264

 

 

$

 

0.92

 

 

 

-

 

 

 

366,889

 

June 2, 2019 – July 6, 2019

 

 

9,450

 

 

 

0.92

 

 

 

-

 

 

 

366,889

 

July 7, 2019 – August 3, 2019

 

 

1,172

 

 

 

0.73

 

 

 

-

 

 

 

366,889

 

Total

   

 

102,543

 

 

 

  $

 

1.00

 

 

 

   

 

-

 

 

 

  366,889

 

 

 

11,886

 

 

$

 

0.90

 

 

 

-

 

 

 

366,889

 

 

(1)

Our Open Market Repurchase Program is conducted pursuant to authorizations made from time to time by our Board of Directors.

(2)

On November 30, 2015, the Board of Directors announced that it had authorized the repurchase of 500,000 shares of our common stock in addition to amounts previously authorized.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETYSAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Subsequent to the disclosure of our first quarter earnings release on May 22, 2019 and prior to the filing of this Quarterly Report on Form 10-Q, we recognized a cumulative effect adjustment totaling $2.1 million for transition impairments associated with previously impaired leased locations relating to the adoption of ASU 2016-02,Leases, which was recorded as a reduction to operating lease assets and an increase to retained deficit. Furthermore, we identified a financial statement misstatement related to previous impairment calculations, which resulted in an overstatement of property and equipment, net, and an understatement of retained deficit of $4.1 million and $3.9 million as of February 2, 2019 and May 5, 2018, respectively. The error also resulted in an understatement of selling, general and administrative expenses of $0.2 million and less than $0.1 million for the year ended February 2, 2019 and 13 weeks ended May 5, 2018, respectively. Additionally, we revised the classification between the current and noncurrent portions of operating lease liabilities by $4.0 million for the 13 weeks ended May 4, 2019 which reduced the current portion and increased the noncurrent portion by this amount. These adjustments are reflected in the financial results included in this Quarterly Report on Form 10-Q.


ITEM 6. EXHIBITS

10.1

Amendment No.  4 to Second Amended and Restated Credit Agreement, dated as of February  26, 2019, by and among Wells Fargo Bank, National Association, as administrative agent, the lenders party thereto, Stein Mart, Inc., Stein Mart Buying Corp. and Stein Mart Holding Corp., incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form10-K for the fiscal year ended February 2, 2019

10.2

Third Amendment to Term Loan Credit Agreement, dated February 26, 2019, by and among Stein Mart, Inc., Stein Mart Buying Corp., the guarantors named therein, Gordon Brothers Finance Company and the other lenders named therein, incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form10-K for the fiscal year ended February 2, 2019

10.3*

Gregory Kleffner Consulting Agreement, dated February 1, 2019, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form8-K/A (Amendment No. 2) filed on April 24, 2019

31.1+

Certification of Chief Executive Officer Pursuant to Rule13a-14(a) or15d-14(a)

31.2+

Certification of Chief Financial Officer Pursuant to Rule13a-14(a) or15d-14(a)

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

 

26

101

Interactive data files from Stein Mart, Inc.’s Quarterly Report on Form10-Q for the quarter ended May 4,August 3, 2019, formatted in XBRL (extensible(eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (Unaudited), (ii) the Condensed Consolidated Statements of Operations, (Unaudited), (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (Unaudited), (iv) the Condensed Consolidated Statements of Shareholders’ Equity, (Unaudited), (v) the Condensed Consolidated Statements of Cash Flows, (Unaudited), and (vi) the Notes to Condensed Consolidated Financial Statements (Unaudited)

*

Management contract or compensatory plan or arrangements.

+

Filed herewith.

 

27


SIGNATURESSIGNATURES

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.

 

STEIN MART, INC.

Date: June 18,September 9, 2019

By:

/s/ D. Hunt Hawkins

D. Hunt Hawkins

Chief Executive Officer

/s/ James B. Brown

James B. Brown

Executive Vice President and Chief Financial Officer

 

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