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Stein Mart Inc. Reports Operating Results (10-Q)

September 08, 2010 | About:
10qk

10qk

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Stein Mart Inc. (SMRT) filed Quarterly Report for the period ended 2010-07-31.

Stein Mart Inc. has a market cap of $330.5 million; its shares were traded at around $7.62 with a P/E ratio of 11.5 and P/S ratio of 0.3. SMRT is in the portfolios of Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

For the second quarter of 2010, we had net income of $11.3 million or $0.25 per diluted share as compared to net income of $1.5 million or $0.04 per diluted share for the same 2009 period. Pretax income for the second quarter of 2010 was $13.5 million compared to $5.6 million in 2009. Net income for the second quarter of 2010 includes a $9.7 million pretax gain to recognize breakage income on unused gift and merchandise return cards, an offsetting $1.2 million charge associated with changing our physical inventory process and a favorable tax rate adjustment of $1.3 million. Our 2009 second quarter results were impacted by an unfavorable tax rate adjustment of $2.1 million. Excluding the impact of these items, our second quarter diluted earnings per share would have been $0.08 in 2010 compared to $0.09 in 2009. Without the breakage gain and the charge associated with changing our physical inventory process, pretax income would have been $5.0 million for the second quarter of 2010 compared to $5.6 million in 2009.

Gross profit for the second quarter of 2010 was $69.1 million or 25.0 percent of net sales compared to $75.4 million or 26.2 percent of net sales for the second quarter of 2009. The $6.3 million decrease in gross profit reflects a $5.0 million decrease in the comparable store group and a $1.7 million decrease in the closing/closed store group, offset by a $0.4 million increase in the non-comparable store group due to the inclusion of operating results for two stores opened in 2009. Gross profit as a percent of sales decreased during the second quarter of 2010 as a result of higher buying expenses and their negative leverage on lower sales, and slightly lower purchase markup related to higher home and Fabulous Finds receipts, which carry lower markup but have lower markdowns.

SG&A expenses were $70.1 million or 25.4 percent of net sales for the second quarter of 2010 as compared to $74.2 million or 25.8 percent of net sales for the same 2009 period. The $4.1 million decrease in SG&A expenses reflects a $7.3 million decrease in store expenses, offset by a $2.7 million increase in advertising expenses and a $0.5 million increase in corporate expenses. Store expense reductions include a $3.0 million decrease in personnel expense reductions from our new supply chain process, a $2.6 million decrease in other store operating and depreciation expenses, a $1.7 million decrease due to the elimination of operating costs from closed stores and a $1.2 million decrease in store closing costs (fewer closed stores), offset by a $1.2 million charge associated with changing our physical inventory process. Store operating expenses were lower as a result of continued cost savings initiatives. Depreciation expense was lower as a result of asset impairment charges taken at the end of fiscal 2009. The $1.2 million charge related to a change in the process and timing of our physical inventories, as well as accelerating one-half of our stores inventory observations to mid-year from year-end. Advertising spend was higher to support our revenues in the current economic environment.

Gross profit for the first half of 2010 was $156.6 million or 27.1 percent of net sales compared to $172.3 million or 28.4 percent of net sales for the first half of 2009. The $15.7 million decrease in gross profit reflects a $12.6 million decrease in the comparable store group and a $4.4 million decrease in the closing/closed store group, offset by a $1.3 million increase in the non-comparable store group due to the inclusion of operating results for two stores opened in 2009. Gross profit as a percent of sales decreased during the first half of 2010 primarily as a result of margins being enhanced in the first quarter of 2009 due to an accelerated markdown cadence at the end of fiscal 2008 and higher buying expenses and their negative leverage on lower sales.

SG&A expenses were $141.7 million or 24.6 percent of net sales for the first half of 2010 as compared to $154.1 million or 25.4 percent of net sales for the same 2009 period. The $12.4 million decrease in SG&A expenses reflects a $14.6 million decrease in store expenses and a $0.1 million decrease in corporate expenses, offset by a $2.3 million increase in advertising expenses. Store expense reductions include a $6.0 million decrease in personnel expenses resulting from our new supply chain process, a $4.7 million decrease in other store operating and depreciation expenses, a $3.8 million decrease due to the elimination of operating costs from closed stores and a $1.3 million decrease in store closing costs (fewer closed stores), offset by a $1.2 million charge associated with changing our physical inventory process. Store operating expenses were lower as a result of continued cost savings initiatives. Depreciation expense was lower as a result of asset impairment charges taken at the end of fiscal 2009. The $1.2 million charge related to a change in the process and timing of our physical inventories, as well as accelerating one-half of our stores inventory observations to mid-year from year-end. Advertising spend was higher to support our revenues in the current economic environment.

Net cash provided by operating activities was $13.3 million for the first half of 2010 compared $58.8 million for the first half of 2009. Less cash was provided by operating activities during the first half of 2010 compared to the first half of 2009 primarily due to $30.2 million more cash used for inventories and accounts payable, $17.5 million less cash from income tax refunds, net of taxes paid, and $2.6 million less cash provided by other operating activities, offset by $4.8 million more cash provided by net income plus non-cash charges. Inventories at the end of the first half this year include $27 million more merchandise in third-party distribution centers that was received earlier than at the end of the first half last year as part of our new supply chain network which was in the start-up phase last year. The effect of earlier ownership of inventories also increased accounts payable at the end of the first half this year compared to last year.

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