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Stein Mart Bleeds $66 Million, Leaving Future in Doubt

Two weeks after raising “substantial doubt” over its ability to continue operations, Stein Mart reaffirmed that it is uncertain it can operate as a “going concern” over the next 12 months, doing little to quell bankruptcy concerns.

COVID-19 has hampered what was already a struggling off-price retail chain, which endured a first-quarter net loss of $65.7 million and posted sales declines of 57.2 percent to $134.3 million.

In a Nutshell: Upon closing all stores on March 19, Stein Mart has since reopened its remaining 281 stores, closing two permanently since the start of the pandemic. On April 23, the company began the staggered reopening of stores, with all locations officially reopened as of June 15 but operating with reduced hours. COVID-19 is continuing to have a negative effect on Stein Mart’s business as a result of lower in-store traffic, the company said in a statement.

Inventories totaled $266.1 million at the end of the first quarter, compared to $274.3 million in the first quarter of 2019. This year, inventory totals included merchandise from Stein Mart’s new kids’ department. Excluding the impact of the kids’ department, average inventories per store were down 7 percent compared to last year as a result of planned inventory reductions and actions taken to reduce inventory receipts during the period of temporary store closures.

Given the high level of uncertainty surrounding the COVID-19 pandemic and its ongoing impact on the retail and economic environments, the company did not provide a financial outlook.

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Selling, general and administrative (SG&A) expenses decreased $17.8 million to $68.3 million for the quarter, reflecting a reduction in operating expenses associated with actions taken in response to the pandemic.

The pandemic increased what was already a burdensome debt load, which rose by $44 million to $197.8 million in the first quarter of 2020, impacted by lower cash flows caused by the temporary store closures.

As Stein Mart’s debt balloons, the retailer is burning through its available credit facility. The retailer has $22.4 million left in the facility, compared to $102 million last year. Additionally, the company only has $1.2 million available to borrow on life insurance policies in the quarter, compared to $15.2 million last year.

“The most immediate issue that we are currently facing is liquidity,” said Stein Mart CEO D. Hunt Hawkins during the company earnings call. “Availability under our credit facilities has diminished due to our borrowing seasonally higher amounts to cover cash shortfalls that were initially caused by the temporary store closures and then by lower sales since reopening.”

Prior to the pandemic, Stein Mart initially sought to eliminate its liquidity problems by selling itself to Stratosphere Holdco and other related assets for parent firm Kingswood Capital Management in a deal inked on Jan. 3. But Stein Mart and Kingswood mutually agreed to terminate their merger agreement on April 16 as the pandemic spread.

Stein Mart has since secured various resources under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including a $10 million Paycheck Protection Program (PPP) loan under the Small Business Administration’s alternate size standard. The company will continue to evaluate the provisions of the CARES Act for ways to improve its liquidity, and is still actively exploring additional sources of financing and other strategic alternatives, including a sale of the company.

The reported results are preliminary and are not final until Stein Mart files a 10-Q with the Securities and Exchange Commission.

Net Sales: Net first-quarter revenues were $134.3 million, plummeting 57.2 percent compared to the $314.2 million driven in the year-ago quarter as all 283 stores at the time closed on March 19.

Digital sales for the first quarter increased 17 percent over last year. In April, digital sales were 47 percent higher than the comparable quarter, driven by fulfillment from closed stores where allowed. Stein Mart only recently debuted its buy online, pick up in store (BOPIS) functionality across all locations in September.

In the first half of the second quarter, digital sales were 50 percent higher than last year, according to chief financial officer MaryAnne Morin.

Stein Mart will launch a new mobile-friendly website in September.

Net Earnings: Stein Mart generated a net loss for the first quarter of $65.7 million, or $1.38 per diluted share, compared to net income of $4 million, or 8 cents per diluted share in the same period last year. The results include non-cash pre-tax asset impairment charges of $10.3 million, or 22 cents per diluted share. Adjusted for the asset impairment costs, losses amount to $1.16 per share.

First-quarter gross profit was a loss of $10 million, or 7.5 percent of sales, compared to $87.5 million or 27.8 percent of sales in the comparable period last year. The lower gross profit reflects factors including higher markdowns.

CEO’s Take: “As our stores re-opened, we have seen traffic steadily increase and omnichannel sales remain strong,” Hawkins said in a statement. “However, while sales are exceeding our expectations, they continue to be down to last year and we expect it will take some time for them to fully recover…Although we are facing a period of uncertainty regarding the continued impacts of COVID-19, we have charted a path forward to proactively address these near-term challenges and preserve our business.”