Top25-SA-Banner

Stein Mart, Inc. (SMRT) Announces Fourth Quarter and Fiscal 2017 Results


Stein Mart, Inc. (NASDAQ:SMRT) announced financial results for the fourth quarter and fiscal year ended February 3, 2018. Investors must have liked what they heard because Stein Mart stock jumped nearly 25% in after-hours trading Wednesday.

Operating income for the fourth quarter of 2017 was $4.1 million compared to an operating loss of $8.1 million in 2016. Fourth quarter results include non-cash pretax asset impairment charges of $3.2 million in 2017 compared to $1.2 million in 2016. Excluding these charges, adjusted operating income for the fourth quarter was $7.3 million, up $14.3 million from the adjusted operating loss of $7.0 million in 2016.

Net loss for the fourth quarter was $0.4 million or $0.01 per diluted share compared to a net loss of $4.9 million or $0.11 per diluted share in 2016. In addition to the asset impairment charges noted above, fourth quarter 2017 results also include $2.2 million higher income tax expense related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”) (see below). Excluding these expenses, fourth quarter adjusted net income was $3.7 million or $0.08 per diluted share in 2017 compared to adjusted net loss of $4.2 million or $0.09 diluted loss per share in 2016.

Adjusted earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the fourth quarter was $15.4 million compared to $2.1 million in 2016.

“2017 was a year of transition that positions us for the future. We have updated our assortment and improved inventory productivity through reduced inventory levels, changes to receipt flow and better markdown practices. We also launched a new advertising campaign, cut expenses and capital spending, and expanded e-Commerce by adding ship-from-store fulfillment,” said Hunt Hawkins, CEO. “These changes allowed us to achieve meaningful fourth quarter adjusted operating income that grew $14.3 million from last year driven by gross profit expansion and even greater growth in our merchandise margins.”

“We are encouraged by the sales trend we saw in February and early March driven by very strong regular-priced selling, particularly in our warm weather and resort markets where spring selling begins. These leading indicators give us confidence that comparable sales trends will dramatically improve in the first quarter as spring regular-price selling builds in other markets. With improved first quarter comparable sales, our gross profit expansion and continued expense control, we expect first-half operating income in excess of $8 million, most of which will occur in the first quarter.”

Sales

Total sales for the fourth quarter of 2017 decreased 0.2 percent to $384.9 million, while comparable store sales decreased 5.4 percent. Total sales for the year decreased 3.1 percent to $1.32 billion for 2017, while comparable store sales decreased 6.2 percent. The month of January included a 53rd week in fiscal 2017, creating a 14-week fourth quarter. Comparable store sales are based on 13 and 52-week comparisons to fiscal 2016.

Gross Profit

Gross profit for the fourth quarter of 2017 was $102.4 million or 26.6 percent of sales compared to $87.9 million or 22.8 percent of sales in 2016. The 380 basis point improvement in the gross profit rate was primarily due to a higher merchandise margin rate from reduced markdowns and better inventory productivity.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the fourth quarter of 2017 were $98.3 million compared to $96.1 million in 2016. Excluding expenses related to this year’s additional 53rd week and asset impairment charges, SG&A expenses decreased $2.9 million for the quarter.

Income Taxes

The fiscal 2017 effective tax rate was 32.5%, which includes $1.7 million of expense related to the Tax Act. The additional expense consists of a $2.4 million valuation allowance against deferred tax assets, net of a $0.7 million benefit for reduced corporate income tax rates on existing net deferred tax assets and liabilities. The establishment of a valuation allowance does not have an impact on our cash position, nor does it preclude us from using our loss carryforwards, tax credits or other deferred tax assets in the future. Excluding the impact of the Tax Act, the fiscal 2017 effective tax rate was 38.3%.

Income tax expense for the fourth quarter includes $2.2 million higher expense related to the Tax Act items.

Balance Sheet

Inventories were $270 million at the end of 2017 compared to $291 million last year. Average inventories per store were down 10 percent to last year and will continue to be down substantially in the first quarter.

Capital expenditures totaled $21.2 million in 2017 compared to $42.4 million in 2016. For fiscal 2018, we expect capital expenditures to be approximately $10 million as we focus on being even more efficient with our cash investments.

Borrowings under our credit facilities and short-term obligations were $156 million at the end of 2017 compared to $182 million at the end of last year. Unused availability at the end of 2017 was $57 million. 2018 availability will be positively impacted by improved operating results, lower inventories, and other working capital management. Availability has been impacted by credit restraints from certain vendors and their factors. As our operating results improve, we expect these restraints will lessen.

Today the Company announced that it has entered into a new $50 million term loan with Gordon Brothers Finance Company that replaces $25 million of borrowings under the current credit agreement with Wells Fargo Bank. The Company expects the new term loan will increase availability up to $25 million.

Store Activity

We had 293 stores at the end of 2017 compared to 290 at the end of 2016. We opened nine new stores and closed six stores in 2017. For fiscal 2018, we plan to close four to six stores and open two new stores in the fall.

First Half 2018 Outlook

We expect the following factors to influence our business in the first half of 2018 compared to the first half of 2017:

  • We anticipate flat to low single-digit increases in comparable sales driven by much higher regular-price selling
  • We expect gross profit expansion of approximately 200 basis points
  • SG&A expenses are expected to be slightly lower, inclusive of higher ecommerce and advertising expenses
  • Interest expense is estimated to be $2 million higher

Based on the above factors, we expect first-half operating income to be in excess of $8 million compared to an operating loss of $11.5 million in 2016.