Sales Push Stein Mart Profits

Company Eliminates All Interest Expense, Strengthens Margins

Don Hogsett, May 23, 2005

Jacksonville, Fla. —Driven sharply higher by stronger sales and margins, coupled with the elimination of interest expense, Stein Mart Inc. drove first quarter earnings up a palmy 45.8 percent, to $16.8 million from $11.5 million last year.

Sales at the fashion and home off-pricer rose 4.7 percent, to $380.7 million from $363.6 million a year ago. Same-store sales improved 3.2 percent.

Wall Street and investors applauded the news and pushed the retailer's stock up 10 percent in value, or $2.34 per share, to $25.77 after the news came out on Thursday, May 19.

Behind the big earnings gain, in addition to stronger sales, was a substantially widened margin, which benefited from strong sales at full price. Average gross margin swelled 210 basis points, or 2.1 percentage points, to 29.3 percent from 27.2 percent the year before. Coupled with rising sales, gross margin dollars shot up 13.1 percent, to $111.7 million from $98.7 million.

In a further boost to the bottom line, the company eliminated all interest expense during the period, after paying $39 million during the same period a year ago. At the same time, Stein Mart earned $394,000 on money it put in the bank.

Inventories remained well controlled, rising at roughly the rate of sales. Stockpiles were valued at $302.9 million, up 5.1 percent from $288.2 million last year, only slightly ahead of the 4.7 percent growth in sales. The retailer said inventories rose “because of certain planned buys as well as some opportunistic purchases.” The company said it plans “to enter the fall selling season with slightly more inventory than last year in order to take advantage of certain selling opportunities.”

Stein Mart Inc.

Qtr. 4/30 (x000) 2005 2004 % change
a. First quarter results include $394,000 in interest income; $480,000 in store closing costs, compared with $180,000 last year. Earnings in the prior-year quarter included an after-tax loss of $139,000 from discontinued operations.
Sales $380,654 $363,608 4.7
Oper. Income (EBIT) 22,727 15,201 49.5
Net income 16,794a 11,515a 45.8
Per share (diluted) 0.38 0.27 40.7
Average gross margin 29.3% 27.2%
SG&A expenses 23.4% 23.0%

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