10-Q 1 smrt-10q_20190803.htm 10-Q smrt-10q_20190803.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 3, 2019

or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 0-20052

STEIN MART, INC.

(Exact name of registrant as specified in its charter)

 

Florida

 

64-0466198

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

1200 Riverplace Blvd., Jacksonville, Florida

 

32207

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (904) 346-1500

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, $0.01 par value

SMRT

The NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

[  ]

 

Accelerated filer

[  ]

Non-accelerated filer

[X]

 

Smaller reporting company

[X]

 

 

 

Emerging growth company

[  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ] No [X]

 

The number of shares outstanding of the Registrant’s common stock as of August 30, 2019, was 48,217,202.

 


 

 

Stein Mart, Inc.

Table of Contents

 

 

 

 

PAGE

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited):

 

 

 

 

 

 

 

Consolidated Balance Sheets at August 3, 2019, February 2, 2019 and
August 4, 2018

 

3

 

 

 

 

 

Consolidated Statements of Operations for the 13 and 26 Weeks Ended
August 3, 2019 and August 4, 2018

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the 13 and 26 Weeks Ended August 3, 2019 and August 4, 2018

 

5

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity for the 13 and 26 Weeks Ended
August 3, 2019 and August 4, 2018

 

6

 

 

 

 

 

Consolidated Statements of Cash Flows for the 26 Weeks Ended August 3, 2019 and August 4, 2018

 

7

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

Item 4.

Controls and Procedures

 

26

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

27

 

 

 

 

Item 1A.

Risk Factors

 

27

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

27

 

 

 

 

Item 4.

Mine Safety Disclosures

 

28

 

 

 

 

Item 6.

Exhibits

 

29

 

 

 

SIGNATURES

 

30

 

2


 

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

 

Stein Mart, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except for share and per share data)

 

 

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,481

 

 

$

9,049

 

 

$

10,030

 

Inventories

 

 

238,433

 

 

 

255,884

 

 

 

240,813

 

Prepaid expenses and other current assets

 

 

30,817

 

 

 

28,326

 

 

 

34,215

 

Total current assets

 

 

278,731

 

 

 

293,259

 

 

 

285,058

 

Property and equipment, net of accumulated depreciation and

   amortization of $263,109, $251,793 and $243,500, respectively

 

 

110,344

 

 

 

119,740

 

 

 

134,930

 

Operating lease assets

 

 

362,244

 

 

 

-

 

 

 

-

 

Other assets

 

 

23,910

 

 

 

24,108

 

 

 

24,970

 

Total assets

 

$

775,229

 

 

$

437,107

 

 

$

444,958

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

87,301

 

 

$

89,646

 

 

$

66,272

 

Current portion of debt

 

 

-

 

 

 

-

 

 

 

125,253

 

Current portion of operating lease liabilities

 

 

80,300

 

 

 

-

 

 

 

-

 

Accrued expenses and other current liabilities

 

 

75,861

 

 

 

77,650

 

 

 

73,741

 

Total current liabilities

 

 

243,462

 

 

 

167,296

 

 

 

265,266

 

Long-term debt, net of current portion

 

 

137,762

 

 

 

153,253

 

 

 

49,286

 

Deferred rent

 

 

-

 

 

 

39,708

 

 

 

40,814

 

Noncurrent operating lease liabilities

 

 

319,150

 

 

 

-

 

 

 

-

 

Other liabilities

 

 

31,138

 

 

 

33,897

 

 

 

36,881

 

Total liabilities

 

 

731,512

 

 

 

394,154

 

 

 

392,247

 

COMMITMENTS AND CONTINGENCIES (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock - $0.01 par value, 1,000,000 shares authorized;

   no shares issued or outstanding

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - $0.01 par value; 100,000,000 shares authorized;

   48,225,585, 47,874,286 and 47,937,786 shares issued and

   outstanding, respectively

 

 

482

 

 

 

479

 

 

 

479

 

Additional paid-in capital

 

 

61,208

 

 

 

60,172

 

 

 

57,888

 

Retained deficit

 

 

(18,194

)

 

 

(17,951

)

 

 

(5,419

)

Accumulated other comprehensive income (loss)

 

 

221

 

 

 

253

 

 

 

(237

)

Total shareholders’ equity

 

 

43,717

 

 

 

42,953

 

 

 

52,711

 

Total liabilities and shareholders’ equity

 

$

775,229

 

 

$

437,107

 

 

$

444,958

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

Stein Mart, Inc.

Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Net sales

 

$

292,369

 

 

$

310,859

 

 

$

606,526

 

 

$

637,464

 

Other revenue

 

 

3,963

 

 

 

3,569

 

 

 

9,188

 

 

 

7,951

 

Total revenue

 

 

296,332

 

 

 

314,428

 

 

 

615,714

 

 

 

645,415

 

Cost of merchandise sold

 

 

217,703

 

 

 

231,519

 

 

 

444,401

 

 

 

462,140

 

Selling, general and administrative expenses

 

 

78,470

 

 

 

80,936

 

 

 

164,606

 

 

 

171,445

 

Operating income

 

 

159

 

 

 

1,973

 

 

 

6,707

 

 

 

11,830

 

Interest expense, net

 

 

2,192

 

 

 

2,865

 

 

 

4,718

 

 

 

5,328

 

(Loss) income before income taxes

 

 

(2,033

)

 

 

(892

)

 

 

1,989

 

 

 

6,502

 

Income tax expense

 

 

52

 

 

 

60

 

 

 

105

 

 

 

120

 

Net (loss) income

 

$

(2,085

)

 

$

(952

)

 

$

1,884

 

 

$

6,382

 

Net (loss) earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04

)

 

$

(0.02

)

 

$

0.04

 

 

$

0.14

 

Diluted

 

$

(0.04

)

 

$

(0.02

)

 

$

0.04

 

 

$

0.14

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

47,406

 

 

 

46,669

 

 

 

47,258

 

 

 

46,639

 

Diluted

 

 

47,406

 

 

 

46,669

 

 

 

47,581

 

 

 

47,139

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

Stein Mart, Inc.

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(In thousands)

 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Net (loss) income

 

$

(2,085

)

 

$

(952

)

 

$

1,884

 

 

$

6,382

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive income (loss)

 

 

(16

)

 

 

5

 

 

 

(32

)

 

 

9

 

Comprehensive (loss) income

 

$

(2,101

)

 

$

(947

)

 

$

1,852

 

 

$

6,391

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

Stein Mart, Inc.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance on February 2, 2019

 

 

47,874

 

 

$

479

 

 

$

60,172

 

 

$

(17,951

)

 

$

253

 

 

$

42,953

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,969

 

 

 

-

 

 

 

3,969

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16

)

 

 

(16

)

Reacquired shares, net

 

 

(87

)

 

 

(1

)

 

 

(102

)

 

 

-

 

 

 

-

 

 

 

(103

)

Issuance of restricted stock, net

 

 

278

 

 

 

3

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

730

 

 

 

-

 

 

 

-

 

 

 

730

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

5

 

Adjustment for adoption of accounting

   standard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,133

)

 

 

-

 

 

 

(2,133

)

Balance on May 4, 2019

 

 

48,065

 

 

 

481

 

 

 

60,797

 

 

 

(16,110

)

 

 

237

 

 

 

45,405

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,085

)

 

 

-

 

 

 

(2,085

)

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16

)

 

 

(16

)

Common shares issued under employee

   stock purchase plan

 

 

147

 

 

 

1

 

 

 

106

 

 

 

-

 

 

 

-

 

 

 

107

 

Reacquired shares, net

 

 

(12

)

 

 

-

 

 

 

(11

)

 

 

-

 

 

 

-

 

 

 

(11

)

Issuance of restricted stock, net

 

 

26

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

316

 

 

 

-

 

 

 

-

 

 

 

316

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

Balance on August 3, 2019

 

 

48,226

 

 

$

482

 

 

$

61,208

 

 

$

(18,194

)

 

$

221

 

 

$

43,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance on February 3, 2018

 

 

47,978

 

 

$

480

 

 

$

56,002

 

 

$

(11,843

)

 

$

(246

)

 

$

44,393

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,334

 

 

 

-

 

 

 

7,334

 

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

4

 

Reacquired shares

 

 

(45

)

 

 

(1

)

 

 

(36

)

 

 

-

 

 

 

-

 

 

 

(37

)

Issuance of restricted stock, net

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

995

 

 

 

-

 

 

 

-

 

 

 

995

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

8

 

Balance on May 5, 2018

 

 

47,910

 

 

 

479

 

 

 

56,961

 

 

 

(4,501

)

 

 

(242

)

 

 

52,697

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(952

)

 

 

-

 

 

 

(952

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Common shares issued under employee

   stock purchase plan

 

 

92

 

 

 

1

 

 

 

89

 

 

 

-

 

 

 

-

 

 

 

90

 

Reacquired shares

 

 

(3

)

 

 

-

 

 

 

(10

)

 

 

-

 

 

 

-

 

 

 

(10

)

Issuance of restricted stock, net

 

 

(61

)

 

 

(1

)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

847

 

 

 

-

 

 

 

-

 

 

 

847

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

34

 

 

 

-

 

 

 

34

 

Balance on August 4, 2018

 

 

47,938

 

 

$

479

 

 

$

57,888

 

 

$

(5,419

)

 

$

(237

)

 

$

52,711

 

 

The accompanying notes are an integral part of these consolidated financial statements.

6


 

Stein Mart, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

26 Weeks Ended

 

 

26 Weeks Ended

 

 

 

August 3, 2019

 

 

August 4, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,884

 

 

$

6,382

 

Adjustments to reconcile net income to net cash provided by

   (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

14,123

 

 

 

15,824

 

Share-based compensation

 

 

1,046

 

 

 

1,842

 

Store closing benefits

 

 

(101

)

 

 

(92

)

Impairment of property and other assets

 

 

11

 

 

 

689

 

Loss on disposal of property and equipment

 

 

43

 

 

 

102

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Inventories

 

 

17,451

 

 

 

29,424

 

Prepaid expenses and other current assets

 

 

(3,290

)

 

 

(7,595

)

Other assets

 

 

(456

)

 

 

(2,329

)

Accounts payable

 

 

(2,400

)

 

 

(53,528

)

Accrued expenses and other current liabilities

 

 

(2,196

)

 

 

(4,619

)

Operating lease assets and liabilities, net

 

 

(3,092

)

 

 

 

Other liabilities

 

 

(3,189

)

 

 

(2,984

)

Net cash provided by (used in) operating activities

 

 

19,834

 

 

 

(16,884

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net acquisition of property and equipment

 

 

(3,458

)

 

 

(4,082

)

Proceeds from canceled corporate owned life insurance policies

 

 

-

 

 

 

2,514

 

Proceeds from insurance claims

 

 

82

 

 

 

296

 

Net cash used in investing activities

 

 

(3,376

)

 

 

(1,272

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

185,288

 

 

 

781,051

 

Repayments of debt

 

 

(200,871

)

 

 

(761,923

)

Debt issuance costs

 

 

-

 

 

 

(896

)

Cash dividends paid

 

 

(70

)

 

 

(122

)

Capital lease payments

 

 

(366

)

 

 

(367

)

Proceeds from exercise of stock options

 

 

107

 

 

 

90

 

Repurchase of common stock

 

 

(114

)

 

 

(47

)

Net cash (used in) provided by financing activities

 

 

(16,026

)

 

 

17,786

 

Net increase (decrease) in cash and cash equivalents

 

 

432

 

 

 

(370

)

Cash and cash equivalents at beginning of year

 

 

9,049

 

 

 

10,400

 

Cash and cash equivalents at end of period

 

$

9,481

 

 

$

10,030

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid (received)

 

$

82

 

 

$

(295

)

Interest paid

 

 

4,559

 

 

 

4,976

 

Accruals and accounts payable for capital expenditures

 

 

569

 

 

 

854

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


Stein Mart, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements. In our opinion, all adjustments (consisting primarily of normal and recurring adjustments) considered necessary for a fair presentation have been included. Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended February 2, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2019.

As used herein, the terms “we,” “our,” “us” and “Stein Mart” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases, to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. We adopted this ASU and the related amendments as of February 3, 2019.

At transition, we elected the package of practical expedients, which allowed us to carry forward the historical lease classification, to not reassess prior conclusions related to initial direct costs, and to not reassess whether any expired or existing contracts are or contain leases. We did not elect the use of hindsight to determine the term of our leases at transition. We also elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead to combine them and account for them as a single lease component. We made an accounting policy election not to capitalize leases with an initial term of twelve months or less.

Adoption of the new standard had a significant effect on our Consolidated Balance Sheets due to the addition of operating lease assets of $382.5 million and operating lease liabilities of $422.7 million, as of February 3, 2019. We also recognized a cumulative effect adjustment that increased retained deficit by $2.1 million for transition impairments related to previously impaired leased locations. The standard did not have a significant effect on our results of operations or cash flows. Consistent with the optional effective date transition method, the financial information in the Consolidated Balance Sheets prior to the adoption of this new lease accounting guidance has not been adjusted and is therefore not comparable to the current period presented.

See Note 8 “Leases” for additional information.

Recent Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This update provides additional guidance to ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which was issued in April 2015. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). This ASU is effective for annual reporting periods beginning on or after December 15, 2019, and interim periods within those annual periods with early adoption permitted in any interim period for which financial statements have not yet been issued. We are in the process of evaluating the effect that this ASU will have on our financial condition, results of operations and cash flows.

 

8


Stein Mart, Inc.

Notes to Consolidated Financial Statements - Continued

 

2. Revision of Previously Issued Financial Statements

During the quarter ended May 4, 2019, we identified a financial statement misstatement related to previous impairment calculations, which resulted in an overstatement of property and equipment, net, and an understatement of retained deficit of $4.1 million and $3.7 million as of February 2, 2019 and August 4, 2018, respectively. The error also resulted in an understatement of selling, general and administrative expenses of $0.2 million and $0.2 million for the year ended February 2, 2019 and 26 weeks ended August 4, 2018, respectively. Based on an analysis of quantitative and qualitative factors, we determined that the error was not material to our prior interim and annual financial statements. To correct this error, we revised the accompanying Consolidated Balance Sheets as of February 2, 2019 and August 4, 2018 and the Statement of Operations for the 26 weeks ended August 4, 2018.

 

3. Revenue Recognition

Revenue from sales of our merchandise is recognized at the time of sale net of any returns, discounts and percentage-off coupons. Our Ecommerce operation records revenue as orders are fulfilled and provided to a carrier for delivery. Shipping and handling fees charged to customers are also included in total net sales with corresponding costs recorded as cost of goods sold as they are considered a fulfillment cost. Future merchandise returns are estimated based on historical experience. Sales tax collected from customers is not recognized as revenue and is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets until paid. Our shoe department and vintage luxury handbag department inventories are each owned by separate single suppliers under supply agreements. Our commissions from the sales in these areas are included in net sales on the Consolidated Statements of Operations.

We offer gift and merchandise return cards to our customers. At the time gift cards are sold, the issuance is recorded as a liability to customers, and no revenue is recognized. At the time merchandise return cards are issued for returned merchandise, the sale is reversed and a liability to customers is recorded. These card liabilities are reduced and sales revenue is recognized when they are redeemed for merchandise. Card liabilities are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Our gift and merchandise return cards may not ultimately be redeemed either in full or partially. We account for this “breakage” of unused amounts as revenue in proportion to the pattern of rights exercised by the customer. Breakage revenue is recorded within other revenue in the Consolidated Statements of Operations. During the 13 weeks ended August 3, 2019 and August 4, 2018, we recognized $0.2 million and $0.3 million, respectively, of breakage revenue on unused gift and merchandise return cards. During the 26 weeks ended August 3, 2019 and August 4, 2018, we recognized $0.8 million and $0.9 million, respectively, of breakage revenue on unused gift and merchandise return cards.

Stein Mart Credit Cards

We offer co-branded and private label credit cards under the Stein Mart brand. These cards are issued by Synchrony Bank (“Synchrony”) in accordance with our Amended and Restated Co-Brand and Private Label Credit Card Consumer Program Agreement (the “Agreement”). Synchrony extends credit directly to card holders, provides all servicing for the credit card accounts and bears all risk of credit and fraud losses.

We receive royalty revenue from Synchrony based on card usage in our stores and at other retailers for the Stein Mart Mastercard. We also receive revenues for new accounts and gain share based on the profitability of the overall program. Credit card revenue is recorded within other revenue in the Consolidated Statements of Operations. These revenues are recorded as they are earned based on the occurrence of the various program activities and represent the majority of other revenue. Subsequent to quarter-end on August 21, 2019, we entered into an amendment to our Agreement with Synchrony whereby Synchrony waived its rights to require us to post cash reserves to cure our failure to satisfy one or more of the quarterly financial covenants specified in the Agreement for periods through October 31, 2020 (the “Exemption Period”). As consideration for Synchrony’s entry into this amendment, we agreed to reduce the amount of fees paid to us by Synchrony under the Agreement from September 1, 2019 through the end of the Exemption Period.

Card holders are eligible to participate in the credit card rewards program, which provides for reward certificates. We defer a portion of our revenue for loyalty points earned by customers and recognize the revenue as the certificates earned are used to purchase merchandise by our customers. This revenue is recorded within other revenue in the Consolidated Statements of Operations.

9


Stein Mart, Inc.

Notes to Consolidated Financial Statements - Continued

 

Certificates may not ultimately be redeemed either in full or partially. We account for this “breakage” of unused amounts as revenue in proportion to the pattern of rights exercised by the customer. Breakage revenue is recorded within other revenue in the Consolidated Statements of Operations. During the 13 weeks ended August 3, 2019 and August 4, 2018, we recognized $1.9 million and $0.9 million, respectively, of breakage revenue on unused credit card reward certificates and points. During the 26 weeks ended August 3, 2019 and August 4, 2018, we recognized $3.8 million and $2.4 million, respectively, of breakage revenue on unused credit card reward certificates and points.

Revenue

The following table sets forth our revenue by type of contract (in thousands):

 

 

 

13 Weeks Ended

August 3, 2019

 

 

13 Weeks Ended

August 4, 2018

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Store sales (1)

 

 

$

273,025

 

 

$

292,014

 

 

 

$

566,314

 

 

$

598,845

 

Ecommerce sales (1)

 

 

 

13,462

 

 

 

13,017

 

 

 

 

27,206

 

 

 

25,831

 

Licensee commissions (2)

 

 

 

5,882

 

 

 

5,828

 

 

 

 

13,006

 

 

 

12,788

 

Net sales

 

 

$

292,369

 

 

$

310,859

 

 

 

$

606,526

 

 

$

637,464

 

Credit card revenue (3)

 

 

 

1,791

 

 

 

2,221

 

 

 

 

4,355

 

 

 

4,489

 

Breakage revenue (4)

 

 

 

2,077

 

 

 

1,221

 

 

 

 

4,615

 

 

 

3,216

 

Other

 

 

 

95

 

 

 

127

 

 

 

 

218

 

 

 

246

 

Other revenue

 

 

 

3,963

 

 

 

3,569

 

 

 

 

9,188

 

 

 

7,951

 

Total revenue

 

 

$

296,332

 

 

$

314,428

 

 

 

$

615,714

 

 

$

645,415

 

 

(1)

Store and Ecommerce sales are net of any returns, discounts and percentage-off coupons.

 

(2)

Licensed department commissions are net of any returns.

 

(3)

Credit card revenue earned from Synchrony programs.

 

(4)

Breakage revenue earned on unused gift and merchandise return cards and unused certificates and loyalty reward points.

The following table sets forth the gross-up of the sales return reserve (in thousands):

 

 

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

Reserve for sales returns

 

 

$

(3,603

)

 

$

(3,469

)

 

$

(3,756

)

Cost of inventory returns

 

 

 

1,994

 

 

 

1,984

 

 

 

1,976

 

 

The following table sets forth the contract liabilities and their relationship to revenue (in thousands):

 

 

 

August 3, 2019

 

 

February 2, 2019

 

 

August 4, 2018

 

Deferred revenue contracts

 

 

$

(10,217

)

 

$

(11,017

)

 

$

(11,817

)

Gift card liability

 

 

 

(9,287

)

 

 

(12,246

)

 

 

(9,328

)

Credit card reward liability

 

 

 

(5,615

)

 

 

(5,583

)

 

 

(5,034

)

Liability for deferred revenue

 

 

$

(25,119

)

 

$

(28,846

)

 

$

(26,179

)

The following table sets forth a rollforward of the amounts included in contract liabilities for the periods presented (in thousands):

 

 

 

26 Weeks Ended

August 3, 2019

 

 

26 Weeks Ended

August 4, 2018

 

Beginning balance

 

 

$

28,846

 

 

$

29,381

 

Current period gift cards sold and loyalty reward points earned

 

 

 

16,970

 

 

 

16,311

 

Net sales from redemptions (1)

 

 

 

(15,282

)

 

 

(15,503

)

Breakage and amortization (2)

 

 

 

(5,415

)