Stein Mart, Inc. (SMRT)

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Stein Mart, Inc. (SMRT)

Q3 2009 Earnings Call

November 19, 2009 10:00 am ET


David Stoval – President, Chief Executive Officer

Gregory Kleffner – Chief Financial Officer

Glori Katz – Senior Vice President Marketing/Advertising


[Jimmy Sheber – Rice Felcher]

David Mann – Johnson Rice & Company

Robin Murchison – Suntrust Robinson Humphrey



Welcome to the Stein Mart’s third quarter financial results conference call. (Operator Instructions)

In the course of the presentation this morning and in response to your questions, statements may be made as to certain matters that constitute forward-looking statements, forward-looking information that is subject to risks and uncertainties. Additional information concerning those factors that could cause actual results to differ materially from those in the forward-looking statements can be found in the company’s current report on Form 10-K for the year ended January 31, 2009. I’d now like to turn the call over to Mr. David Stoval.

David Stoval

Good morning and thank you for joining us. I’m going to make some initial comments about the third quarter, progress we’ve made on several operational fronts, and our outlook for holiday. Then Greg Kleffner, our CFO will review the financials for you, and we’ll take questions after that.

We’re pleased to deliver another profitable quarter. Strategies we put in place late last year and early in 2009 have paid off in operating productivity and profitability. Keeping our inventories lean and our expense structure tightly controlled, clearly worked to improve the bottom line.

Our goal continues to be to improve our top line. While we made some modest progress in comps through the third quarter we still find sales conditions to be very challenging. Customer continues to need an additional incentive, usually a coupon, to come into the store and while we’re pleased with the level and freshness of our inventory, we did find that a lack of clearance merchandise in the third quarter further challenged our sales efforts. At the end of the third quarter our average store inventories are down more than 13% and our clearance inventory is down 34%.

Geographically, our business continues to be strongest in the west, California and Arizona. Late last month we opened our seventh store in the Phoenix/Scottsdale market and it has had a great beginning. Southeast continues to be challenging and the Gulf Coast is particularly weak. The Southeast did not [inaudible].

But work in the third quarter continues to be the casual part of the business. Denim and denim related casual tops continues to perform well as does the relaxed casual category. These items are working well in both women’s and men’s apparel.

The dress business [inaudible] as well. In shape ware, hosiery and costume jewelry are being positively influenced by the success of the dress. In men’s casual is king, and we’re pleased with our business and our men’s accessory business.

We continue to evolve the real Stein Mart shoppers marketing campaign. New TV commercials are appearing in last September. Customer research shows we’re making inroads to brand awareness and [inaudible] particularly among younger shoppers, the most significantly more dollars into the third quarter this year that kept advertising spend overall at 4% of sales similar to last year.

Social networking efforts continue to ramp up. We made an online advertising on sites like Koodo and Our Village in addition to our presence on Face Book, Twitter and the like.

I’m going to wrap up my comments about the third quarter with a supply chain update. As you know all three consolidation centers are in use and as planned, two of the three store distribution centers are fully operational. You may remember that we will not implement the California store distribution center until after the holidays.

The full transition took place during the third quarter. Store receiving operations were converted and vendors were transitioned to the new process.

As with any change of this magnitude, there were issues that created some distraction and bumps along the way, but through a tremendous amount of hard work and cooperation among vendors, merchants, operations and the store’s organization, we’re very pleased with how the process is flowing right now.

Currently, virtually all merchandise destined for stores in Atlanta and Dallas, store distribution centers is flowing through the new supply chain.

I also want to address our thinking about the store network. As you know we opened two new stores and closed 11 this year. While we are always interested in looking at exceptional opportunities, next year we’re focused primarily on relocating stores to better real estate.

Our main thrust is viewing current situations where the leases end or have provisions for early termination. We hope to take advantage of this real estate market and lock in better locations in markets where our stores could have additional opportunity.

Turning to the fourth quarter, we are aggressively going after holiday business this year. Even though inventories at most retailers are more conservative than they were a year ago, we do expect an increase in our competitive ad spending and aggressive promotion aimed at grabbing market share.

In the third quarter, we diverted ad dollars to increase our market spend in the fourth quarter. We expect to be more in the fray for post Thanksgiving and during the weeks leading to Christmas. We have significantly more days of TV and an increase in newspaper inserts this year, and of course we’ll continue online advertising and other digital media.

I think I noted the consumer appetite, just how much they intend to spend this year on who and for what. Because we’re still unsure how to predict their behavior we continue to be extremely conservative in projecting our results.

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