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Edited Transcript of SMRT earnings conference call or presentation 21-Aug-19 8:30pm GMT

Q2 2019 Stein Mart Inc Earnings Call

Jacksonville Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Stein Mart Inc earnings conference call or presentation Wednesday, August 21, 2019 at 8:30:00pm 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 Second 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 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 conference 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 Second 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 always, I'll begin with some opening comments, and then I'll turn the call over to MaryAnne to add some more color. And after that, James will review our financial results.

So let's start with our sales results. As we previously discussed, the shift of our 12-hour sale event from the second quarter to the first, benefited sales in the first quarter, but unfavorably impacted sales in the second quarter. However, if we adjust for the event shift, comparable sales decreased 1.9% for the second quarter compared to a decrease of 3.3% for the first quarter.

While adjusted comps are still negative, comp sales for the combined last 2 months of the quarter were essentially flat. Our 2019 sales-driving initiatives were all planned for deployment in the back half of the year and are all beginning to roll out now. This gives us confidence that our comp sales trend will improve in the second half.

Our gross profit rate for the second quarter was flat to last year's improved rate. However, as a reminder, in 2018, we drove our gross profit rate significantly higher with strong inventory productivity, and we continue to emphasize this to our teams.

We've been quite disciplined about maintaining an appropriate mix of our regular-priced and (inaudible) clearing inventories. Accelerating our markdown cadence and having a continuous flow of receipts across all months has increased our turn and keeps our inventory position healthy. Excluding some year-over-year timing differences, average store inventories were down 3% at the end of the second quarter.

Through our continued conservative cash management and improved credit terms from our factors and vendors compared to last year, we significantly reduced our debt and increased our total availability compared to the end of the second quarter of 2018.

And like I mentioned over the past year, our teams have been working hard on a number of initiatives that are now being introduced. We completed the rollout of our Endless Aisle mobile technology to all stores at the end of June. This month, we launched our new kids department. And just this week, we are launching our buy online, pick up in store service, or BOPIS. And by the end of October, we'll have our new Fine Jewelry product line available in 50-plus stores online and with a smaller offering in all stores. We are very excited about the opportunities that these and other initiatives provide us to grow sales through higher traffic and new customer acquisition throughout the fall and beyond.

So now, I'd like to turn the call over to MaryAnne to add more color. MaryAnne?

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

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Thank you, Hunt. Good afternoon, everyone. As we begin the fall selling season, our new strategies have begun to roll out with more to come over the next few weeks, and it's terrific to see them come to life. These actions will serve to broaden our appeal to a larger consumer base. These include new businesses, new brands, new technology, new marketing initiatives and new ways of understanding customer shopping behaviors. We are laser-focused on giving her what she wants, the right fashion, a great value. And now for the whole family, with the addition of kids, we're now giving her multiple shopping options, which is unique in the off-price space. She can shop in-store, online or buy online, pick up in store. We can locate merchandise her local store may have sold out of in another location and ship it to her. We are tailoring her marketing message that is appropriate to the way she shops. And we are now giving her a richer reward program as she shops with her credit card.

Let's start with our newly launched Kids department. We are so excited about kids. Kids is now available in our stores with an expanded online offering. Years ago, kids was a fairly sizable business for us, and our customer has been asking us to bring it back.

Stein Mart kids features apparel for babies, girl sizes 2 to 16 and boy sizes 2 to 20, plus several other categories, including shoes and toys. Our buyers have obtained some of the best kid's brand available such as Little Me, Baby Essentials, Disney's Frozen, Lucky, Champion, Nautica and many other famous brands, you will instantly recognize them, but we are not able to discuss them publicly. You will just have to come visit our stores and check them out.

This month, we are marketing kids through e-mail and in-store signage, holding our more comprehensive media launch for inclusion in our fall marketing campaign. In September, we'll be launching kids through a 16-page insert that will be part of our fall fashion mailer. Digital and TV will also kick off in September and continue into October. After that, kids becomes part of our storewide marketing as we ramp up for the holiday selling season. We anticipate that kids will create incremental sales by attracting new customer and increased basket size for existing customers that can now conveniently shop for their children in our stores and online. And while we have only receded a percentage of our assortment in so far, we are very pleased with early sales results and have already placed reorders.

Next, moving on to Fine Jewelry. Our Fine Jewelry department will debut in 51 stores in October. E-comm will be previewing an expanded assortment in September. This is the next step in the evolution of our luxury offerings. Our jewelry will have an average price point of $500 and includes a great collection of diamonds, pearls, 14-karat gold, gemstones and more. Our everyday low pricing is very compelling since we have partnered with a vendor that has amazing sourcing capabilities. We expect to expand the full assortment to more doors in 2020.

In addition to this, we are also introducing some key item Fine Jewelry styles at great prices below $200 that will go to all stores and have special fixtures to highlight this product.

Continuing our digital expansion, we are launching buy online, pick up in store, or BOPIS, this week. Customers can now purchase most merchandise on steinmart.com and conveniently pick it up at a store of their choice. BOPIS is gaining momentum as a customer experience differentiator. Customers want a quick, convenient online shopping journey. They also want to save time and money with a free in-store pickup and BOPIS provides both. And we are the first off-price retailer to offer this option. We expect about 15% of our demand sales will shift to in-store pickup. By bringing a customer into the store, they are more likely to purchase additional items.

While expanding our customer choices, BOPIS will also improve our profitability by creating incremental attachment sales and reducing shipping costs. Next, an update on Endless Aisle and mobile point of sale. We've completed our chain-wide rollout of this technology. Using a mobile device, our store associates can now locate product and order it online for their customers. It also provides convenient mobile checkout to expedite line busting during peak selling periods. We're already seeing great results, including higher order average values and a significant increase in credit card enrollment.

Smart Fulfillment Logic, an initiative to speed up shipping times and lower direct consumer costs using an enterprise-wide view of inventory was launched early this month. This technology identifies the best location by the warehouse through store from which to ship a steinmart.com order. While we only have a couple weeks worth of data, we are beginning to see the intended benefits of this system including fewer split orders, decreased packages per order and increased units per package.

We are introducing our new Stein Mart rewards program in October. This program combines our existing credit card and preferred customer programs into a single loyalty program. Under the new program, we double the earn rate, which means cardholders will earn their reward twice as fast. Cardholders will now earn 2 points per dollar and Stein Mart Elite cardholders will earn 4 points per dollar on purchases made on a Stein Mart credit card. Rebranding our credit card and issuing a new card will reengage current cardholders and encourage new cardholders to sign up to engage into the program, which will drive incremental trips and traffic to the stores. As we look for new ways to advance loyalties, we have plans to pilot an enhanced multi-tender loyalty program early next year in about 100 stores. This pilot program will be available to all customers regardless of pay method. Its primary focus is to attract noncredit cardholders. It will include a value proposition for noncredit customers, lower hurdles to achieve reward and faster expiration of rewards to create urgency to use.

Now an update on our new marketing tool, Campaign Management. We've just begun using this tool and have executed several automated e-mail marketing campaigns based on our customers' behavior. Campaign Management enables us to use customer spending and online browsing information to create and push out personalized e-mail and direct mail messaging that is focused on individual preferences. This technology will unlock incremental sales as we begin to communicate and market to the customers the way they shop.

Since our last call, we've completed the planned rollout of our conversion improvement program. This program analyzes store traffic and transactions and provides daily store-level performance feedback to store management. Using this data, stores can adjust payroll hours and tasks to better align with customer peak traffic period. This allows for better customer service and thus drives conversion. Early results are encouraging. This program is now active in about half our stores, and we have plans for further expansion next year.

With all these exciting initiatives, we have not lost sight of our core businesses and continue to seek out new opportunities. We have over 30 new brands in women's apparel and 15 in accessories. The teams have truly embraced testing and reacting to newness since the consumer is moving ever faster.

Now over to James to discuss our operating results. James?

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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.

Operating income for the second quarter of 2019 was $0.2 million compared to $2 million in 2018. Net loss for the second quarter of 2019 was $2.1 million or $0.04 per share compared to net loss of $1 million or $0.02 per share in 2018. Comparable sales for the second quarter decreased 3.6%. As Hunt described, comparable sales in the first and second quarters were impacted by an event shift. Excluding the event shift, adjusted comp sales decreased an estimated 3.3% for the first quarter of 2019 and decreased 1.9% for the second quarter.

Transactions and units per transaction were lower, and average unit retail sales price was slightly higher. E-commerce sales, which are included in comp sales, were up 7%, including online orders shipped from our stores. E-commerce lifted our comparable sales results by 40 basis points for the quarter and represented 6.1% of net sales.

Net sales for the second quarter of 2019 were $292.4 million compared to $310.9 million in 2018. The decrease reflects fewer stores in 2019 and lower comparable sales, including the impact of the event shift.

Gross profit for the second quarter of 2019 was $74.7 million compared to $79.3 million in 2018. The gross profit rate for the second quarter was flat to last year's 25.5% of sales. On a 2-year basis, our rate has improved 470 basis points on lower markdowns and improved inventory productivity.

SG&A expense for the second quarter were $78.5 million compared to $80.9 million in 2018. The decrease in SG&A expense is primarily due to lower store expenses, including the impact of closed stores. Existing store expenses were lower as we continue to manage payroll well, reacting to the lower-than-planned sales trend.

Interest expense was $2.2 million for the second quarter of 2019 compared to $2.9 million in 2018. The reduction in expense was primarily due to lower debt during the second quarter.

Now I'll touch on results for the first half. Net income for the first half of 2019 was $1.9 million or $0.02 per share compared to net income of $6.4 million or $0.14 per share in 2018.

Adjusted EBITDA for the first half of 2019 was $20.8 million compared to $28.7 million in 2018. Comparable store sales for the first half of 2019 decreased 2.6% primarily due to lower transactions. E-commerce sales were up 11%, including online orders shipped from our stores. Online sales lifted our comparable sales results by 40 basis points for the half and represented 5.8% of net sales.

Net sales for the first half of 2019 were $606.5 million compared to $637.5 million in 2018. The decrease reflects lower comparable sales and fewer stores in 2019. Gross profit for the first half of 2019 was $162.1 million or 26.7% of sales compared to $175.3 million or 27.5% of sales in 2018. The lower gross profit rate reflects higher markdowns as a percent of sales as well as the deleverage of occupancy cost on lower sales. Markdowns were higher as a percent of sales primarily due to our planned accelerated markdown cadence.

SG&A expenses for the first half of 2019 were $164.6 million compared to $171.4 million in 2018. The decrease in SG&A expense is primarily due to lower store expenses, including the impact of closed stores partially offset by higher E-commerce expenses to support this growing business.

For the second half of the year, we expect SG&A expenses to be down slightly to last year's second half.

Taking a look at the balance sheet and cash flows. Inventories at the end of the second quarter of 2019 were $238.4 million compared to $240.8 million at the end of the second quarter of last year. Inventories at the end of the second quarter of 2019 include higher amounts for the planned acceleration of receipts for categories that were trending strong as well as amounts to support our recently launched kids department. Excluding these impacts, average inventory per store were down 3% to last year.

Total inventories were even lower due to fewer stores at the end of the quarter. Our accounts payable balance was $21 million higher at the end of the second quarter of 2019 compared to the end of the second quarter of 2018. This reflects improved credit terms from our vendors and factors since the second quarter of 2018.

Total borrowings decreased $36.8 million to $138.5 million at the end of the second quarter of 2019 compared to $175.3 million at the end of the second quarter of 2018. Unused availability under our credit facility plus additional amounts available to borrow under life insurance policies was $77.4 million at the end of the second quarter of 2019. This is a $34.1 million increase over 2018's unused availability.

Cash management continues to be a priority for us as we diligently work to deleverage our balance sheet.

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. So this will conclude today's call. As you've heard today, we are very excited about the great new initiatives beginning to come online to improve our second half results, and we believe our customers will embrace the positive changes we've made to make their shopping experience in Stein Mart even more enjoyable. Of course, we're always available to answer any questions that you may have. You can reach us by calling our Director of Investor Relations, Linda Tasseff. Her contact information is included in our earnings release and posted on our website.

So let me thank you all for joining us today, and say that we look forward to talking with you at the end of 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.