This is a summary of the second quarter fiscal 2008 earnings call conducted by Stein Mart, Inc. (SMRT) on August 25, 2008.
Management:
–
President & CEO: Linda Farthing
–
Sr. VP & CFO: James Delfs
–
Executive VP & CMO: William Moll
–
Sr. VP & Director of Stores: Michael Ray
–
Sr. VP Marketing & Advertising: Glori Katz
Key Investor Issues:
- Gross profits dropped to $74.1 million, or 23.8% of sales in the quarter, compared to $86.2 million, or 26.1% of sales a year ago.
- Stein Mart reported a drop in net sales in the second quarter, with a decline to $311.6 million, or 5.8% from last year.
- Same-store sales for the quarter declined 9.7% versus a 9.3% drop last quarter.
- The apparel retailer reported a net loss of $8 million and said the gross profit drop was due to higher markdowns in stores.
Second Quarter Highlights:
The lackluster same store sales trend continued through second quarter and in response to the highly promotional environment the company was forced to discount heavily in order to clear merchandise. Top line suffered while markdowns grew.
Regionally the northern tier of stores in Texas performed better then the company trend, while the southeast experienced the greatest drop off in sales with Florida and Arizona continuing to be the poorest performers.
However, the company was successful in moving seasonal merchandise and at the end of the quarter inventory was down 12.8% on an average store basis.
Because of the aggressive stance taken on markdowns, the assortment is far more current then it was at this time last year giving us a much better platform for new fall merchandise.
Stein Mart has a number of merchandise initiatives that are in various stages of testing and in some cases implementation with an emphasis on brands to further validate the company’s value proposition.
Stein Mart placed a very high priority on expense reduction and productivity improvements and thus far the company has made meaningful progress in the area of non-merchandise procurement.
Stein Mart expects to close 10 stores in 2008.
As of last Thursday, the company opened its final new location for the year. Having completed the store opening program will allow the company to concentrate all of its energy on the improvement of the business moving into the fall.
For the second quarter of 2008 total sales decreased 5.8% from the second quarter of 2007 while comp store sales decreased 9.7%.
- Gross profit decreased $12.1 million and as a percent of sales decreased 230 basis points.
- Merchandise margin decreased 60 basis points due to increased markdowns offset by increased markup.
- Occupancy costs increased 170 basis points primarily from lack of leverage on lower sales.
For the second quarter SG&A expenses increased $4.8 million and as percent of sales increased 320 basis points.
- Store operating expenses for the non-comp group of stores increased $3.4 million while operating expenses for the comp stores decreased $2.6 million.
- Store closing costs increased $1.3 million and Stein Mart incurred certain non-recurring legal expenses and professional fees related to the ongoing expense reduction initiatives which totaled $2.4 million.
Other income was up slightly over last year due to increased credit card income.
For the second quarter of 2008 Stein Mart incurred a net loss of $8 million or $0.19 per share as compared to net income of $2.2 million or $0.05 per share in the second quarter of 2007.
- For the first six months of 2008 total sales decreased 6.1% from the first six months of 2007 while comp store sales decreased 9.5%.
- Gross profit decreased $19.2 million and as a percent of sales decreased 110 basis points.
- Merchandise margin increased 30 basis points due to increased markup somewhat offset by increased markdowns.
Occupancy costs increased 140 basis points primarily from lack of sales leverage.
