Falling sales pressure Stein Mart profit

By Don Hogsett -- Home Textiles Today, 5/26/2003 12:00:00 AM

JACKSONVILLE, FL —

Pressured by falling sales, thinning margins and rising costs, first-quarter profits at off-price retailer Stein Mart Inc. dropped off by 86.7 percent, to $1.5 million from $11.4 million a year ago.

Sales fell by 7.1 percent, to $330.6 million from $356.0 million last year. The crucial gauge of same-store sales fell by 9.3 percent.

Under heavy markdown pressure as the retailer cleaned up its inventories, average gross margin was squeezed thinner by 180 basis points, or 1.8 percentage points, declining to 25.3 percent from 27.1 percent. Caught between the falling sales and eroding margins, gross margin dollars tumbled by 13.3 percent, to $83.7 million from $96.5 million.

Hurt by falling sales, operating costs jumped up by 280 basis points, or 2.8 percentage points, to 25.6 percent of sales from 22.8 percent a year ago. Measured in absolute dollars, costs increased by 4.0 percent $84.5 million from $81.3 million.

Providing some modest relief, interest expense was reduced by more than a third, by 34.0 percent, to $405,000 from $614,000, a savings of $209,000.

An even bigger assist came as the company caught a break on its tax bill. The company's income tax provision was down by 86.7 percent, to $928,000 from $7.0 million in the same period a year ago.

"Our results were adversely impacted by the lack of expense leverage on negative comparable-store sales and the additional markdowns necessary to manage our inventory," said Michael Fisher, president and ceo. "With sales continuing substantially below plan, inventory management has taken on even greater importance." Inventory levels were reduced by 4.5 percent, or $15.7 million, to $329.8 million from $345.5 million.

If current sales trends continue, the retailer said, same-store sales for the second quarter will decline in the mid-single-digit range, producing a loss in the period.

Stein Mart Inc.