Stein Mart, Inc. (NASDAQ: SMRT) today announced financial results
for the first quarter ended May 2, 2020 and provided an update
on its response to the COVID-19 pandemic. Results include $10.3
million of non-cash long-lived asset impairment charges which are
preliminary and subject to adjustment.
Covid-19 UpdateThe Company’s first quarter
results were impacted by the temporary closure of all stores on
March 19 due to the COVID-19 pandemic. Beginning April 23, the
Company began the staggered reopening of stores. All stores were
re-opened as of June 15 and are operating with reduced hours.
COVID-19 is continuing to have a negative effect on the Company’s
business as a result of lower in-store traffic.
"As our stores re-opened, we have seen traffic steadily increase
and omnichannel sales remain strong. However, while sales are
exceeding our expectations, they continue to be down to last year
and we expect it will take some time for them to fully recover.
COVID-19 has put a strain on our credit facilities, as we are
borrowing seasonally higher amounts to cover cash shortfalls from
lower sales," said Hunt Hawkins, Chief Executive Officer.
“Although we are facing a period of uncertainty regarding the
continued impacts of COVID-19, we have charted a path forward to
proactively address these near-term challenges and preserve our
business. While these challenges are significant, they are not
insurmountable but will require much from our teams, as well as the
continued support of our external partners,” continued Hawkins.
As a result of factors noted above, the Company’s revenues,
results of operations and cash flows have been materially adversely
impacted which raises substantial doubt about its ability to
continue as a going concern over the next twelve months. In
response, the Company is taking aggressive and prudent actions to
preserve ongoing operations and liquidity. (See Liquidity
below.)
First Quarter 2020 ResultsNet loss for the
first quarter of 2020 was $(65.7) million or $(1.38) per diluted
share compared to net income of $4.0 million or $0.08 per diluted
share for the first quarter of 2019. First quarter 2020 results
include non-cash pre-tax asset impairment charges of $10.3 million
or $0.22 per diluted share.
Net sales for the first quarter of 2020 were $134.3 million
compared to $314.2 million for the first quarter of 2019. Net sales
were impacted by the temporary store closures related to the
COVID-19 pandemic. Omni sales for the first quarter increased 17
percent over last year. In April, omni sales were 47 percent higher
than last year driven by fulfillment from closed stores where
allowed.
Gross profit for the first quarter of 2020 was a loss of $(10.0)
million or (7.5) percent of sales compared to $87.5 million or 27.8
percent of sales in the comparable period last year. The lower
gross profit reflects deleverage of occupancy costs as a percentage
of sales and higher markdowns.
Selling, general and administrative (“SG&A”) expenses
decreased $17.8 million to $68.3 million for the first quarter
2020, reflecting a reduction in operating expenses associated with
actions taken in response to the COVID-19 pandemic (see Liquidity
below). Decreases in SG&A expenses for the first quarter of
2020 were partially offset by non-cash long-lived asset impairment
charges of $10.3 million to reduce the carrying amount of store
assets and right-of-use assets to their respective fair values.
The income tax benefit for the first quarter of 2020 reflects
benefits associated with the enactment of the Coronavirus Aid,
Relief, and Economic Security (“CARES”) Act.
InventoriesInventories were $266.1 million at
the end of the first quarter of 2020 compared to $274.3 million at
the end of the first quarter of 2019. Inventories at the end of the
first quarter of 2020 included amounts to support our new Kids
department. Excluding the impact of Kids, average inventories per
store were down 7 percent to last year as a result of planned
inventory reductions and actions taken to reduce inventory receipts
during the period of temporary stores closures.
LiquidityDebt increased $44.0 million to $197.8
million at the end of the first quarter of 2020 compared to the end
of the first quarter of 2019, impacted by lower cash flows caused
by the temporary closure of stores. At the end of the first quarter
of 2020, debt includes $9.9 million collateralized by life
insurance policies. The Company did not borrow on the life
insurance policies at the end of the first quarter of 2019.
Unused availability under the credit facility was $22.4 million
at the end of the first quarter of 2020 compared to $102.0 million
at the end of the first quarter of 2019. In addition, the Company
had $1.2 million available to borrow on life insurance policies at
the end of the first quarter of 2020 and $15.2 million at the end
of the first quarter of 2019. Including these amounts, the decrease
in total availability was due to higher borrowings, as well as a
reduction of availability due to failure to satisfy a covenant
related to the fixed charge coverage ratio under the credit
facility and a lower inventory advance rate on the term loan for
the first quarter of 2020.
The Company has taken actions to manage its cash outflows and
preserve its liquidity, including reducing payroll expense by
furloughing associates, temporarily decreasing salaries of all
other non-furloughed associates while stores were closed and
workforce reductions; base salary reductions for senior leadership;
suspending compensation to its Board of Directors; actively
negotiating modified terms, cost reductions and payment deferrals
with vendors and landlords; and renegotiating its credit agreements
(see below).
Additionally, the Company has secured various relief under the
CARES Act, including a $10.0 million Paycheck Protection Program
(“PPP”) Loan under the Small Business Administration’s alternate
size standard, as disclosed in a Form 8-K filed on June 23, 2020.
The Company will continue to evaluate the provisions of the CARES
Act for ways to improve its liquidity. The Company is also actively
exploring additional sources of financing and other strategic
alternatives, including a sale of the company.
On June 11, 2020, the Company entered into amended and restated
credit agreements on its credit facility and term loan (the
"Amended Credit Agreements"). The Amended Credit Agreements do not
change overall commitment amounts, but provide for, among other
things, the modification of certain provisions and reporting
requirements, including slightly higher availability. The Amended
Credit Agreements also provide waivers related to the "going
concern" qualification in the Company's annual audited financial
statements for the fiscal year ended February 1, 2020, which was an
event of default under its credit agreements.
Further information regarding the Amended Credit Agreements can
be found in the Company's Annual Report on Form 10-K filed with the
SEC on June 15, 2020.
Merger Agreement TerminationOn January 31,
2020, the Company announced that it had entered into an Agreement
and Plan of Merger (the “Merger Agreement”) with an affiliate of
Kingswood Capital Management, L.P. (“Kingswood”) to acquire all of
the outstanding stock of Stein Mart not already beneficially owned
by affiliates of Jay Stein, Stein Mart’s former CEO and current
member of its Board of Directors, and related investors. On April
16, 2020, as a result of uncertainty caused by the COVID-19
pandemic, the parties mutually agreed to terminate the Merger
Agreement.
Fiscal 2020 OutlookGiven the high level of
uncertainty surrounding the COVID-19 pandemic and its ongoing
impact on the retail and economic environments, the Company is not
providing a financial outlook at this time.
Store ActivityWe had 281 stores at the end of
the first quarter of 2020 compared to 283 at the end of the first
quarter of 2019, reflecting two stores that were closed during
2020.
Filing of Form 10-QReported results are
preliminary, including our analysis of impairment of long-lived
assets, and not final until the filing of our Form 10-Q for the
first quarter ended May 2, 2020 with the Securities and
Exchange Commission (“SEC”), and therefore remain subject to
adjustment.
Conference CallA conference call to discuss the
Company’s first quarter results will be held at 4:30 p.m. ET on
June 30, 2020. The call may be heard on the Company’s investor
relations website at http://ir.steinmart.com. A replay of the
conference call will be available on the website through July 31,
2020.
About Stein Mart Stein Mart, Inc. is a national
specialty omni off-price retailer offering designer and name-brand
fashion apparel, home décor, accessories and shoes at everyday
discount prices. Stein Mart provides real value that customers love
every day. The company operates 281 stores across 30 states. For
more information, please visit www.SteinMart.com.
Forward-Looking StatementsCertain statements in
this release constitute “forward-looking statements” under the
federal securities laws. These forward-looking statements are
intended to be covered by the safe harbors created by the Private
Securities Litigation Reform Act of 1995. When we use words such as
“anticipate,” “intend,” “plan,” “may,” “could,” “believe,”
“estimate,” “expect,” “predict,” or similar expressions, we do so
to identify forward-looking statements. Forward-looking statements
are based on current expectations that involve assumptions that are
difficult or impossible to predict accurately and many of which are
beyond our control. Actual results may differ materially from those
expressed or implied in these statements as a result of significant
risks and uncertainties, including, but not limited to our ability
to continue as a going concern, risks and uncertainties relating to
the duration and severity of COVID-19 pandemic, actions that may be
taken by governmental authorities to contain the COVID-19 pandemic
or treat its impact, the negative impacts of the COVID-19 pandemic
on the global economy and foreign sourcing, the impact of the
COVID-19 pandemic on the Company’s financial condition, liquidity
and business operations, including the Company’s ability to
negotiate extended payment terms with supplier and landlords,
obtain suitable merchandise in a timely manner, and secure
additional financing or negotiate a strategic transaction.
Additional information about these risks and uncertainties, as well
as others that may cause actual results to differ materially from
those projected, is contained in the Company’s filings with the
SEC, including the Company’s Annual Report on Form 10-K and the
Company’s quarterly reports on Form 10-Q. The statements in this
report speak only as of the date of hereof and we undertake no
obligation to update or revise any forward-looking statement,
whether as a result of new information, future developments or
otherwise, except as may be required by law.
For more information:Linda L. TasseffDirector of External
Communications and Investor Relationsltasseff@steinmart.com(904)
858-2639
Stein Mart,
Inc.Consolidated Statements of
Operations(Unaudited)(In thousands,
except for per share amounts)
|
13 WeeksEnded May 2, 2020 |
|
13 WeeksEnded May 4, 2019 |
Net sales |
$ |
134,273 |
|
|
$ |
314,157 |
|
Other revenue |
3,909 |
|
|
5,225 |
|
Total revenue |
138,182 |
|
|
319,382 |
|
Cost of merchandise sold |
144,308 |
|
|
226,698 |
|
Selling, general and
administrative expenses |
68,325 |
|
|
86,136 |
|
Operating (loss) income |
(74,451 |
) |
|
6,548 |
|
Interest expense, net |
2,077 |
|
|
2,526 |
|
(Loss) income before income taxes |
(76,528 |
) |
|
4,022 |
|
Income tax (benefit)
expense |
(10,811 |
) |
|
53 |
|
Net (loss) income |
$ |
(65,717 |
) |
|
$ |
3,969 |
|
Net (loss) earnings per common
share: |
|
|
|
Basic |
$ |
(1.38 |
) |
|
$ |
0.08 |
|
Diluted |
$ |
(1.38 |
) |
|
$ |
0.08 |
|
Weighted-average shares
outstanding: |
|
|
|
Basic |
47,456 |
|
|
47,111 |
|
Diluted |
47,456 |
|
|
47,556 |
|
|
|
|
|
|
|
Stein Mart,
Inc.Consolidated Balance
Sheets(Unaudited)(In thousands, except
for share and per share data)
|
May 2, 2020 |
|
February 1, 2020 |
|
May 4, 2019 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
2,213 |
|
|
$ |
9,499 |
|
|
$ |
21,933 |
|
Inventories |
266,088 |
|
|
248,588 |
|
|
274,281 |
|
Prepaid expenses and other current assets |
27,721 |
|
|
23,032 |
|
|
31,838 |
|
Total current assets |
296,022 |
|
|
281,119 |
|
|
328,052 |
|
Property and equipment, net |
86,707 |
|
|
101,893 |
|
|
114,252 |
|
Operating lease assets |
351,431 |
|
|
356,347 |
|
|
374,039 |
|
Other assets |
23,995 |
|
|
26,155 |
|
|
24,255 |
|
Total assets |
$ |
758,155 |
|
|
$ |
765,514 |
|
|
$ |
840,598 |
|
LIABILITIES AND
SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
103,970 |
|
|
$ |
87,312 |
|
|
$ |
114,495 |
|
Current portion of long-term debt |
197,844 |
|
|
— |
|
|
— |
|
Current portion of operating lease liabilities |
86,624 |
|
|
82,126 |
|
|
80,167 |
|
Accrued expenses and other current liabilities |
66,428 |
|
|
80,231 |
|
|
84,118 |
|
Total current liabilities |
454,866 |
|
|
249,669 |
|
|
278,780 |
|
Long-term debt |
— |
|
|
141,438 |
|
|
152,999 |
|
Non-current operating lease liabilities |
306,576 |
|
|
310,290 |
|
|
332,079 |
|
Other liabilities |
30,422 |
|
|
32,179 |
|
|
31,335 |
|
Total liabilities |
791,864 |
|
|
733,576 |
|
|
795,193 |
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
|
|
Shareholders’ (deficit)
equity: |
|
|
|
|
|
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; 48,497,994, 48,354,642 and
48,065,250 shares issued and outstanding, respectively |
485 |
|
|
484 |
|
|
481 |
|
Additional paid-in
capital |
61,832 |
|
|
61,744 |
|
|
60,797 |
|
Retained deficit |
(96,254 |
) |
|
(30,534 |
) |
|
(16,110 |
) |
Accumulated other
comprehensive income |
228 |
|
|
244 |
|
|
237 |
|
Total shareholders’ (deficit) equity |
(33,709 |
) |
|
31,938 |
|
|
45,405 |
|
Total liabilities and shareholders’ (deficit) equity |
$ |
758,155 |
|
|
$ |
765,514 |
|
|
$ |
840,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stein Mart,
Inc.Consolidated Statements of Cash
Flows(Unaudited)(In thousands)
|
13 Weeks Ended May 2, 2020 |
|
13 Weeks Ended May 4, 2019 |
Cash flows from
operating activities: |
|
|
|
Net (loss) income |
$ |
(65,717 |
) |
|
$ |
3,969 |
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities: |
|
|
|
Depreciation and amortization |
6,884 |
|
|
7,338 |
|
Share-based compensation |
155 |
|
|
730 |
|
Store closing benefits |
(40 |
) |
|
(8 |
) |
Impairment of property and other assets |
10,300 |
|
|
— |
|
Loss on disposal of property and equipment |
1 |
|
|
1 |
|
Changes in assets and liabilities: |
|
|
|
Inventories |
(17,500 |
) |
|
(18,397 |
) |
Prepaid expenses and other current assets |
(4,689 |
) |
|
(4,311 |
) |
Other assets |
2,822 |
|
|
(847 |
) |
Accounts payable |
17,079 |
|
|
24,951 |
|
Accrued expenses and other current liabilities |
(13,412 |
) |
|
6,244 |
|
Operating lease assets and liabilities, net |
4,896 |
|
|
(2,091 |
) |
Other liabilities |
(1,445 |
) |
|
(2,396 |
) |
Net cash (used in) provided by operating activities |
(60,666 |
) |
|
15,183 |
|
Cash flows from
investing activities: |
|
|
|
Net acquisition of property and equipment |
(1,836 |
) |
|
(1,679 |
) |
Net cash used in investing activities |
(1,836 |
) |
|
(1,679 |
) |
Cash flows from
financing activities: |
|
|
|
Proceeds from borrowings |
109,432 |
|
|
102,025 |
|
Repayments of debt |
(53,688 |
) |
|
(102,325 |
) |
Cash dividends paid |
(3 |
) |
|
(49 |
) |
Capital lease payments |
(459 |
) |
|
(168 |
) |
Proceeds from exercise of stock options and other |
16 |
|
|
— |
|
Repurchase of common stock |
(82 |
) |
|
(103 |
) |
Net cash provided by (used in) financing activities |
55,216 |
|
|
(620 |
) |
Net (decrease) increase in
cash and cash equivalents |
(7,286 |
) |
|
12,884 |
|
Cash and cash equivalents at
beginning of year |
9,499 |
|
|
9,049 |
|
Cash and cash equivalents at
end of period |
$ |
2,213 |
|
|
$ |
21,933 |
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURESWe
report our consolidated financial results in accordance with U.S.
generally accepted accounting principles (“GAAP”). However,
management believes that certain non-GAAP financial measures
provide users of the Company’s financial information with
additional useful information in evaluating operating
performance.
Adjusted EBITDAEBITDA is defined as earnings
before interest, income taxes, depreciation and amortization.
EBITDA is not a measure of financial performance under GAAP.
However, we present EBITDA in this release because we consider it
to be an important supplemental measure of our performance and
because it is frequently used by analysts, investors and others to
evaluate the performance of companies. EBITDA is not calculated in
the same manner by all companies. EBITDA should be used as a
supplement to results of operations and cash flows as reported
under GAAP and should not be considered to be a more meaningful
measure than, or an alternative to, measures of operating
performance as determined in accordance with GAAP.
The following table shows the Company’s reconciliation of net
(loss) income to EBITDA and Adjusted EBITDA, which are considered
Non-GAAP financial measures (in thousands). Adjusted EBITDA
excludes certain non-cash items (impairment charges) and amounts
incurred with significant transactions or events that we believe
are not indicative of our core operating performance.
|
13 Weeks Ended |
|
May 2, 2020 |
|
May 4, 2019 |
Net (loss) income |
$ |
(65,717 |
) |
|
$ |
3,969 |
|
Add back amounts for
computation of EBITDA: |
|
|
|
Interest expense, net |
2,077 |
|
|
2,526 |
|
Income tax (benefit) expense |
(10,811 |
) |
|
53 |
|
Depreciation and amortization |
6,884 |
|
|
7,338 |
|
EBITDA |
(67,567 |
) |
|
13,886 |
|
Adjustments: |
|
|
|
Non-cash impairment charges |
10,300 |
|
|
— |
|
Merger-related expenses (1) |
823 |
|
|
— |
|
Total adjustments |
11,123 |
|
|
— |
|
Adjusted EBITDA |
$ |
(56,444 |
) |
|
$ |
13,886 |
|
|
|
|
|
|
|
|
|
______________
(1) |
Advisory, legal and Board of Director Special Committee fees
related to a merger that was mutually terminated in April
2020. |
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