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Edited Transcript of SMRT earnings conference call or presentation 20-Nov-19 9:30pm GMT

Q3 2019 Stein Mart Inc Earnings Call

Jacksonville Jan 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Stein Mart Inc earnings conference call or presentation Wednesday, November 20, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* D. Hunt Hawkins

Stein Mart, Inc. - CEO & Director

* James B. Brown

Stein Mart, Inc. - Executive VP, CFO & Secretary

* MaryAnne Morin

Stein Mart, Inc. - President & Director

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Presentation

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Operator [1]

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Greetings, and welcome to the Stein Mart Third Quarter 2019 Earnings Conference Call. In the course of this presentation, statements may be made as to certain matters that constitute forward-looking information that is subject to certain risks and uncertainties. Additional information concerning those factors that could cause actual results to differ from those in the forward-looking statements can be found in the company's fiscal 2018 annual report on the Form 10-K for the year ended February 2, 2019, and other filings with the SEC.

(Operator Instructions) I would now like to turn the call over to Hunt Hawkins, CEO of Stein Mart.

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D. Hunt Hawkins, Stein Mart, Inc. - CEO & Director [2]

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Good afternoon, everyone, and welcome to Stein Mart's Third Quarter Earnings Call. I have with me today our President, MaryAnne Morin; our Chief Financial Officer, James Brown; and our Director of Investor Relations, Linda Tasseff.

As usual, I'll begin with some opening comments, and then I'll turn the call over to MaryAnne. And after that, James will review our financial results.

Our third quarter sales trends improved significantly from the first half of the year. While essentially flat, comparable sales were 250 basis points better. The increase reflects traction from our fall initiatives with the most impactful being the launch of our Kids department and a double-digit increase in omni sales. With the launch of Kids in August, now Stein Mart is once again a one-stop destination for the entire family. It's great to have Kids back in our stores and to see our customers' response to the assortment. We're pleased with early sales results and expect this business to continue to grow throughout the fourth quarter with an enhanced offering for the holiday selling season.

Our third quarter omni sales growth was driven by expanded online assortments, drop ship capabilities and technology that has increased customer engagement and importantly, conversion. Ship-from-store fulfillment increased significantly during the quarter largely due to the rollout of Smart Fulfillment. And of course, we're extremely proud of our September launch of buy online and pick up in store, making Stein Mart the first U.S. off-price retailer to offer this service. While still in its infancy, adoption is growing rapidly, and we expect use of this service will increase as we build customer awareness.

We are pleased with the progress we have made with our initiatives during the third quarter and look forward to the positive impact that they will have as they take greater hold in the fourth quarter and beyond. MaryAnne will expand on these initiatives in more detail in a moment.

Inventories are in good shape as we enter the fourth quarter with an appropriate mix of our regular-price and clearance merchandise. Average store inventories, excluding additional amounts for kids, are comparable to last year's reduced levels which were 20% lower than the prior year. This is a result of our strong inventory management with a focus on continually flowing receipts and an improved markdown cadence.

For the quarter, gross profit dollars were the same as last year with a gross profit rate consistent with last year's significantly improved rate. So with flat gross profit and lower expenses, including interest expense, we reduced our net loss for the quarter by over $4 million or 26% lower. We also reduced our debt more than $20 million and increased total availability at the end of the third quarter compared to last year's third quarter end. We expect to continue lower year-over-year debt levels through year-end. So with our improved third quarter sales trend, we believe we are in a good position heading into the fourth quarter and expect to continue to make healthy progress with our business.

So now I'd like to turn the call over to MaryAnne. MaryAnne?

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MaryAnne Morin, Stein Mart, Inc. - President & Director [3]

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Thank you, Hunt. Good afternoon, everyone. We've made meaningful progress across a number of initiatives that are beginning to positively impact our results. This will become more evident in the fourth quarter as our strategies take greater hold. For the quarter, our core apparel businesses performed the best with positive comps in most areas. Women's apparel was the leader for the quarter with strong comps in dresses, active and collection sportswear, driven by newness as well as brand expansions. All other categories, accessories, men's and home, saw sales trend improvement versus the first 6 months of the year.

Incremental sales from our new Kids department also contributed to our improved sales trend. Home overall continues to be our softest category but décor is beginning to stabilize. We're thrilled to have Kids back in our stores and online. This is an opportunity for us to better serve the needs of our customer by expanding our product offerings. As planned, Kids is creating incremental sales by attracting a new customer to Stein Mart as well as increasing basket size for existing customers that can now conveniently shop for their children in our stores and online.

Looking at our initial Kids performance, babies was the strongest, driven by apparel and coordinating gifts. Girls is also doing well, particularly in holiday dresses. Boys has been a bit slower to start mostly due to the timing of deliveries. We are continually learning and fine-tuning our assortment. Reacting to the high demand for boys active, we've already expanded it to maximize our strongest boys category.

Our customer is already reacting favorably to our holiday assortment, which includes big sister/little sister outfits, items for baby's first Christmas and great boy's dress-up. We've also expanded our selection of toys for all ages that are perfect for holiday gift giving.

Moving on to another new category. Earlier this month, we launched our new Fine Jewelry department in 51 stores and online. Our new Fine Jewelry collection, called Stein Mart Jewel Box, features diamonds, pearls, 14-karat gold and gemstones with prices ranging from $200 to $5,000. At 40% to 60% off competitors' prices every day, our jewelry is an exceptional value.

We've also introduced a key item fine jewelry program in all stores that is perfect for gifting. This key item assortment composed of diamond and sterling silver pieces priced under $200, all perfectly boxed for gift giving. The addition of Fine Jewelry allows us to expand our luxury offerings and is another way we differentiate from other off-price retailers. And importantly, all of our diamonds are responsibly sourced and are certified conflict free.

Omni sales for the quarter continued to grow by double digits. Expanding omnichannel capabilities has been an ongoing priority for us and, again, differentiates us from other off-price retailers. Earlier this year, we rolled out Endless Aisle and mobile point-of-sale technology to all our stores. And this quarter, we began using Smart Fulfillment Logic and launched our buy online, pick up in store service, or BOPIS, at all locations.

Smart Fulfillment identifies the best locations from which to ship an online order. This technology has shifted a significant amount of online sales shipments from our e-commerce warehouse to our stores. The primary benefits of this system are shorter in-transit times and fewer packages per order which will reduce fulfillment and shipping charges. Customers are using BOPIS to buy today and wear today when they choose to pick up their online order in store. This convenient service saves them time and money. For us, bringing the customer into the store increases profitability by creating incremental attachment sales and reducing our shipping costs. We expect more of our demand sales will shift to in-store pickup as we build our customers' awareness of this new service.

In addition to our key initiatives, omni sales have increased due to improvements we've made to our steinmart.com website that makes online shopping more enjoyable for our customer. These include improved navigation and checkout speed and adding tools to help her find her fit or put together that perfect outfit. All of this has increased customer engagement and conversion.

Now an update on our enhanced loyalty program, SMart Rewards, that we introduced last month. Cardholders began earning their new benefits in October and received their rebranded cards this month. Rebranding and issuing the cards reengages current cardholders and encourages new cardholders to sign up for the program. We are already seeing an increase in acquisition and greater use of our Stein Mart credit cards.

We are on schedule to pilot an enhanced multi-tender loyalty program during the first quarter of next year in about 100 of our stores. The focus of the pilot program is to attract non-credit card customers who will receive rewards for the very first time and make it easier to transition these customers to credit.

In marketing, we continue to focus on creating meaningful messaging that speaks to the way the customer shops. Today, our digital marketing is more paired to our customers' shopping preferences. By sending more relevant but fewer overall e-mail, we are seeing an increase in attachment sales from e-mail.

I'm truly proud of all that our teams have accomplished this year. It's terrific to see these initiatives live and begin to impact our business, but we are not done. We are continually seeking out ways to better serve and inspire our customer.

Now over to James to discuss our operating results.

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James B. Brown, Stein Mart, Inc. - Executive VP, CFO & Secretary [4]

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Thank you, MaryAnne, and good afternoon, everyone. Comparable sales for the third quarter were essentially flat at a negative 0.1%. This is a 250 basis point improvement from the negative 260 basis point comp sales decrease we saw for the first half of the year. The improvement was driven by incremental sales from our Kids department and higher omni sales. Omni sales, which include all online sales regardless of fulfillment channel, were up 18% and lifted our comparable sales results by 90 basis points for the third quarter. Omni sales represented 6.1% of net sales for the quarter. Average unit retail sales price increased driven by higher regular-priced selling, which more than offset lower clearance and promotional selling. This is in line with our longer-term objective of being less reliant on our larger sales events. Units per transaction were flat, and transactions were slightly lower.

Net sales for the third quarter of 2019 were $276.1 million compared to $279 million in 2018. The decrease in net sales includes the impact of fewer stores in 2019.

Gross profit for the third quarter of 2019 was $69.4 million or 25.1% of sales compared to $69.8 million or 25% of sales in 2018.

SG&A expenses for the third quarter of 2019 were $83.3 million compared to $86.6 million in 2018. SG&A expenses for the third quarter of 2019 include a $1.9 million benefit from a Visa/MasterCard claim settlement. SG&A expenses for the third quarter of 2018 include $1.1 million in advisory fees for the extension of our credit agreement last year and $700,000 of hurricane-related expenses. Excluding these amounts from both periods, SG&A expenses were $85.2 million in 2019 and $84.8 million in 2018. The increase in SG&A expenses includes higher advertising expenses for planned additional branded television and higher e-commerce expenses to support this growing business. These increases were partially offset by lower store-related expenses, including the impact of closed stores.

Interest expense decreased to $2.3 million for the third quarter of 2019 compared to $3.1 million in 2018 primarily due to lower debt balances during the third quarter.

Operating loss for the third quarter of 2019 was $9.6 million compared to $13.1 million in 2018. Net loss for the third quarter of 2019 was $12.1 million or $0.25 per share compared to a net loss of $16.3 million or $0.35 per share in 2018.

Now I'll touch on the results for the first 9 months. Comparable store sales for the first 9 months of 2019 decreased 1.9%. Omni sales were up 13% and lifted our comparable sales results by 60 basis points for the first 9 months of 2019. Omni sales represented 5.9% of net sales.

Transactions were lower while units per transaction and average unit retail prices were flat.

Net sales for the first 9 months of 2019 were $882.7 million compared to $916.5 million in 2018. The decrease reflects lower comparable sales and fewer stores in 2019.

Gross profit for the first 9 months of 2019 was $231.5 million or 26.2% of sales compared to $245.1 million or 26.7% of sales in 2018. The lower gross profit rate primarily reflects higher markdowns as a percent of sales taken during the first half of the year.

SG&A expenses for the first 9 months of 2019 were $247.9 million compared to $258.1 million in 2018. Excluding the benefit of the Visa/MasterCard claim settlement from this year and the advisory fees and hurricane expenses from last year, SG&A expenses were $249.8 million in 2019 and $256.3 million in 2018. The decrease in SG&A expense was primarily due to lower store expenses, including the impact of closed stores and lower incentive-based compensation. These decreases were partially offset by higher advertising expenses for planned additional branded television and increased e-commerce expenses.

Interest expense decreased $1.4 million to $7 million for the first 9 months of 2019 compared to $8.4 million in 2018 primarily due to lower debt levels this year.

Net loss for the first 9 months was $10.2 million or $0.22 per share in 2019 compared to a net loss of $9.9 million or $0.21 per share in 2018.

Taking a look at the balance sheet. Inventories at the end of the third quarter of 2019 were $307.1 million compared to $305 million at the end of the third quarter of last year. Inventories at the end of the third quarter of 2019 include higher amounts to support our new Kids department. Excluding this impact, average inventories per store were down slightly to last year.

Total borrowings decreased $20.6 million to $171 million at the end of the third quarter of 2019 compared to $191.6 million at the end of the third quarter of 2018. Total unused availability, inclusive of amounts available to borrow under life insurance policies, increased $11.9 million to $99.6 million at the end of the third quarter of 2019 compared to the end of the third quarter of 2018. We expect to maintain lower year-over-year debt levels for the remainder of the year.

I'll wrap up with a review of our fourth quarter outlook. We are forecasting fourth quarter operating income to be influenced by the following factors. First, we're anticipating a flat to low single-digit increase in comparable sales driven by our new fall sales initiatives. Next, we expect our gross profit rate to be slightly lower than last year's improved rate. And last, excluding a $3.3 million benefit in last year's fourth quarter related to a change in vacation policy, SG&A expenses are expected to be lower for the fourth quarter.

Now back to you, Hunt.

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D. Hunt Hawkins, Stein Mart, Inc. - CEO & Director [5]

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Thank you, James. This will conclude today's call. As I hope you can tell, we're encouraged by the positive shift in our sales trend from our new fall initiatives, and we are looking forward to the continued positive impact they will have on our business as they are further embraced by our customer. Of course, you can always reach us to answer any questions that you may have by contacting our Director of Investor Relations, Linda Tasseff. Her contact information is included in our earnings release and posted on our website.

So for all of us, thank you for joining us today, and we look forward to talking to you next quarter.

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Operator [6]

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This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.