Stein Mart Inc. is the latest retailer to hint at COVID-induced challenges that could precede a tour through bankruptcy court.
The off-price chain issued a going-concern warning in its annual report filed with the Securities and Exchange Commission, though it has struggled since at least 2018, with factors in the past year predicting financial turmoil ahead.
Stein Mart sought to head off its liquidity problems by selling itself to Stratosphere Holdco, an entity to hold the operations, and other related assets for parent firm Kingswood Capital Management in a deal inked on Jan. 3. But when the coronavirus pandemic hit, Stein Mart and Kingswood mutually agreed to terminate their merger agreement on April 16. Under the terms of their agreement to end the planned transaction, neither party will be required to pay the other a termination fee.
In completing the final audit for the year ended Feb. 1, Stein Mart’s independent auditor KPMG said in a letter to shareholders and the company’s board that the temporary closure of all stores due to COVID-19 caused a “material adverse effect on the company’s sales, results of operations, liquidity and cash flows.” The impact, it read, raises “substantial doubt” over the company’s capacity to continue operations.
In a footnote in the annual report, Stein Mart noted that the extent of the COVID-19 impact on the business and financial results will depend largely on the outbreak’s trajectory and how consumer spending bounces back. Because all the uncertainty, the retailer said it’s unclear whether it will be able to “continue as a going concern over the next twelve months.”
In addition to its website, Stein Mart operates 283 stores across 30 states across the Northeast, Midwest, Southeast, Texas and the Southwest, although it is fully concentrated in the Southeast and Texas where it has 182 doors, which average 34,000 gross square feet. Monday’s filing said it has reopened 281 stores in limited capacity through reduced hours and with social distancing measure in place. It also has negotiated lease amendments with landlords for 220 locations and is still in talks with 41 landlords for rents deferrals or other concessions.
The retailer is the latest nameplate grappling with financial pressures that just might force a bankruptcy filing. Others in recent weeks include New York & Co.’s parent RTW Retailwinds, J.Jill and Francesca’s. Many on the bubble that have been able muddle along saw their fortunes change virtually overnight when the pandemic-driven store closures cut off a regular source of cash flow for liquidity-strapped retailers.