SMRT

Stein Mart, Inc. (SMRT)

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Industry: Consumer Services
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Stein Mart, Inc. (SMRT)

F4Q08 Earnings Call

March 19, 2009 10:00 am ET

Executives

David H. Stovall, Jr. – President and Chief Executive Officer

James Delfs – Senior Vice President and Chief Financial Officer

Glori Katz - Senior Vice President, Marketing/Advertising

Michael D. Ray - Senior Vice President, Stores

D. Hunt Hawkins - Chief Administrative Officer and Executive Vice President, Operations

Analysts

Robin Murchison - Suntrust Robinson Humphrey

David Mann - Johnson Rice & Company

Presentation

Operator

Good morning. My name is [Christy] and I will be your conference operator today. At this time I would like to welcome everyone to the Stein Mart, Inc. 2008 financial results conference call. (Operator Instructions)

I will now turn the call over to David Stovall, President and CEO.

David H. Stovall, Jr.

Thank you. Good morning and thank you for joining us. In just a few moments Jim Delfs, our Chief Financial Officer will go over the numbers with you. But first, I want to give your our agenda for this call.

After Jim's review I'll discuss the changes that have occurred and are occurring at Stein Mart. I'll then talk about our strategic reactions to the current economic environment. And finally, I'll give you more detail regarding our focus for 2009.

There are also members of our management team here who will be available during the question-and-answer should you have further questions about merchandise, finance, store operations or marketing.

So I'll now turn it over to Jim Delfs. Jim?

James Delfs

Thanks, Dave, and good morning, everyone. Let me first remind you of our safe harbor statement.

In the course of our presentation this morning and in response to your questions, we may make statements as to certain matters that constitute forward-looking statements. Additional information concerning those factors that could cause actual results to differ from those in the forward-looking statements can be found in our current report on Form 10-K for the year ended February 2, 2008.

In addition, we report consolidated financial results in accordance with generally accepted accounting principals or GAAP. However, to supplement these consolidated financial results, management believes that certain non-GAAP operating results, which exclude asset impairment, store closing, and certain other charges, may provide a more meaningful measure on which to compare our results of operations between periods. We believe these non-GAAP results provide useful information to both management and investors by excluding certain expenses that we believe impact the comparability of our operating results. A reconciliation of 2008 and 2007 fourth quarter and total year net loss per diluted share on a GAAP basis to adjusted net loss per diluted share on a non-GAAP basis are presented in today's news release.

On the statement of operations for the fourth quarter of 2008, net sales decreased 12.8% to $363.9 million from $417.4 million in the same period the previous year. Comp store sales for the quarter decreased 12%, driven by a 9% decrease in the average transaction and a 3% decrease in the number of transactions.

Gross profit decreased to $54.9 million or 15.1% of net sales compared to $84.1 million or 20.1% of net sales in the fourth quarter last year. The 500 basis point decrease in the gross profit rate resulted from a 320 basis point increase in markdowns and a 260 basis point increase in buying and occupancy costs, slightly offset by an 80 basis point increase in markup.

SG&A expenses were $117.1 million or 32.2% of net sales as compared to $106.2 million or 25.4% of net sales during the same period last year. Excluding asset impairment and store closing charges, SG&A expenses in the fourth quarter of 2008 were $96.1 million or 26.4% of net sales compared to $101.6 million or 24.3% of net sales in the same period last year. This $5.5 million decrease in SG&A resulted from significant reductions in advertising and store operating expenses, somewhat offset by professional fees related to our expense reduction initiatives. The SG&A rate was higher due to a lack of sales leverage.

Excluding the $40.1 million in charges for asset impairments, store closings and deferred tax asset valuation allowance, the company had an adjusted net loss of $23.8 million or $0.57 per diluted share in the fourth quarter of 2008 compared to an adjusted net loss of $9.4 million or $0.23 per diluted share in the fourth quarter of 2007.

For the year 2008, net sales decreased 9% to $1.3265 billion from $1.4576 billion last year. Comp store sales for the year decreased 10.9%, driven by a 6.3% decrease in the average transaction and a 4.6% decrease in the number of transactions.

For the year, gross profit decreased to $294.2 million or 22.2% of net sales compared to $361.4 million or 24.8% of net sales in 2007. The 260 basis point decrease in the gross profit rate resulted from a 110 basis point increase in markdowns and a 200 basis point increase in buying and occupancy costs, slightly offset by a 50 basis point increase in markups.

For the year, SG&A expenses were $394.8 million or 29.8% of net sales as compared to $388.6 million or 26.7% of net sales last year. Excluding asset impairment and store closing charges, SG&A expenses were $369.3 million or 27.8% of net sales in 2008 compared to $383.4 million or 26.3% of net sales last year. This $14.1 million decrease in SG&A resulted from significant reductions in advertising and store operating expenses, somewhat offset by professional fees related to our expense reduction initiatives. The SG&A rate for the year was higher due to a lack of sales leverage.

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