Stein Mart, Inc. (SMRT)
F3Q08 Earnings Call
November 20, 2008 10:00 am ET
Linda Farthing – President and Chief Executive Officer
James Delfs – Senior Vice President and Chief Financial Officer
D. Hunt Hawkins - Chief Administrative Officer and Executive Vice President, Operations
William Moll – Executive Vice President and Chief Merchandising Officer
David Mann - Johnson Rice & Company
Robin Murchison - Suntrust Robinson Humphrey
Previous Statements by SMRT
» Stein Mart, Inc. Q3 2009 Earnings Call Transcript
» Stein Mart, Inc. F2Q09 (Qtr End 08/01/09) Earnings Call Transcript
» Stein Mart, Inc. F4Q08 (Qtr End 1/31/09) Earnings Call Transcript
I would now like to turn the call over to Linda Farthing, President and CEO. Please go ahead, ma'am.
Thank you, Vanessa. Good morning, everyone. Thank you for being with us to discuss our third quarter results. I will make opening remarks and then Jim Delfs, our Chief Financial Officer, will review the quarter and year-to-date financials. After our prepared remarks, Jim and I and other members of the management team will be glad to take your questions.
Third quarter was, in a word, unprecedented. I don't need to tell you how difficult the environment is - you're all very much aware of that - or I don't need to tell you how customers appear to be paralyzed by the daily headlines.
On our last conference call, I told you that in light of the challenging environment, our planning for fall was prudent, and quite frankly at that time it seemed to be very prudent. But the sales slowdown that slowdown that has occurred over the last several weeks has been extraordinary, beyond anyone's possible imagination.
We believe our target customer's confidence has been badly shaken by recent developments and her appetite for shopping clearly has been diminished. It has become a battle to get her into the door, and once there it takes a surprisingly deep discount to open her wallet.
We have seen some modest success in some areas where we feature novelty merchandise or where we have an exceptional brand name and, conversely, we're doing well with the basic layering pieces. She is replenishing what she needs in her wardrobe. Sales in merchandise other than those two categories remain challenging, and I would say that's to say the least.
Geographically, Florida continues to significantly lag the chain in sales, while the mid-South region is performing better than the company trend.
We were able to reduce our year-over-year inventory - [it's down 12-2] - to be in line with our sales trends at the end of third quarter, but I must emphasize it came at a great cost to our bottom line. Although we have been persistently adjusting our inventory plan as the economic climate worsened, no one could have anticipated the degree of comp declines that we and others have been having. It will need even more aggressive markdowns in the fourth quarter to end the year with season-appropriate inventories at the proper levels. And it is critical to us that our inventory be current as we move to the spring season.
Looking ahead, we are being very, very, very - underline, underline - conservative for the spring season, not only to keep inventories in line but so that we can have plenty of firepower to take advantage of the great brand opportunities that have been presenting themselves to us. We are holding the inventories extremely tight, and we certainly are not planning to have any of these issues in the spring season.
Our marketing message is more focused on our value offering these days. You've probably seen our emphasis on a different kind of discount store, and you will see it in both our advertising and our instore signage. And I'm sure you've seen "Love Shopping, Love Saving" tag line. It sums up what we believe our customer's unique relationship with Stein Mart is. And we talk about the fact, when you mention Stein Mart to someone, their immediate response is, "Wow, I love Stein Mart."
Much of our work this quarter was in testing and learning from various media mix options, including alternative direct mail formats, better market stratification, reduced newspaper circulation and direct mail quantities. The more successful of these strategies are being intensified for fourth quarter and will certainly take us into 2009.
We are already seeing a startling amount of promotional activity and I'm sure you've all been seeing that, and our strategy will be to focus on key events with aggressive offers, using mass media to drive traffic as well as sharpen focus on our efficient direct marketing for a better integrated plan. Going forward, we are committed to keeping flexibility in our plan so we can react quickly to a very fluid environment.
Expense reduction continues to be paramount in our effort to operate efficiently through this business downturn. As we had said in our news release, our strategic review prompted a reduction in managerial headcount and associate work force hours and renegotiated contracts for nonmerchandise procurement. These expense reductions, while initially offset by certain fees and severance costs, will have a significant benefit in 2009 and even greater benefit beyond 2009, and we will quantify them as they occur.
The most notable outcome is the transformation of our supply chain management distribution process as we transition to third-party providers to efficiently move our merchandise from vendors through distribution centers to the stores. The new system will begin to give us logistical efficiencies without the capital expenses of building DCs.