10-Q 1 smrt-10q_20191102.htm 10-Q smrt-10q_20191102.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 November 2, 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 November 29, 2019, was 48,174,038.

 


 

 

Stein Mart, Inc.

Table of Contents

 

 

 

 

PAGE

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited):

 

 

 

 

 

 

 

Consolidated Balance Sheets at November 2, 2019, February 2, 2019 and
November 3, 2018

 

3

 

 

 

 

 

Consolidated Statements of Operations for the 13 and 39 Weeks Ended
November 2, 2019 and November 3, 2018

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Loss for the 13 and 39 Weeks Ended November 2, 2019 and November 3, 2018

 

5

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity for the 13 and 39 Weeks Ended
November 2, 2019 and November 3, 2018

 

6

 

 

 

 

 

Consolidated Statements of Cash Flows for the 39 Weeks Ended November 2, 2019 and November 3, 2018

 

8

 

 

 

 

 

Notes to Consolidated Financial Statements

 

9

 

 

 

 

Item 2.

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

 

19

 

 

 

 

Item 4.

Controls and Procedures

 

27

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

28

 

 

 

 

Item 1A.

Risk Factors

 

28

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

 

 

 

 

Item 3.

Defaults upon Senior Securities

 

28

 

 

 

 

Item 4.

Mine Safety Disclosures

 

29

 

 

 

 

Item 6.

Exhibits

 

30

 

 

 

SIGNATURES

 

31

 

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)

 

 

 

November 2, 2019

 

 

February 2, 2019

 

 

November 3, 2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,953

 

 

$

9,049

 

 

$

13,884

 

Inventories

 

 

307,124

 

 

 

255,884

 

 

 

305,010

 

Prepaid expenses and other current assets

 

 

23,368

 

 

 

28,326

 

 

 

35,638

 

Total current assets

 

 

343,445

 

 

 

293,259

 

 

 

354,532

 

Property and equipment, net of accumulated depreciation and

   amortization of $270,205, $251,793 and $249,705, respectively

 

 

108,781

 

 

 

119,740

 

 

 

129,683

 

Operating lease assets

 

 

361,168

 

 

 

-

 

 

 

-

 

Other assets

 

 

25,949

 

 

 

24,108

 

 

 

24,594

 

Total assets

 

$

839,343

 

 

$

437,107

 

 

$

508,809

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

126,541

 

 

$

89,646

 

 

$

122,019

 

Current portion of operating lease liabilities

 

 

80,936

 

 

 

-

 

 

 

-

 

Accrued expenses and other current liabilities

 

 

80,223

 

 

 

77,650

 

 

 

82,043

 

Total current liabilities

 

 

287,700

 

 

 

167,296

 

 

 

204,062

 

Long-term debt

 

 

170,292

 

 

 

153,253

 

 

 

190,657

 

Deferred rent

 

 

-

 

 

 

39,708

 

 

 

40,558

 

Noncurrent operating lease liabilities

 

 

316,890

 

 

 

-

 

 

 

-

 

Other liabilities

 

 

32,554

 

 

 

33,897

 

 

 

35,982

 

Total liabilities

 

 

807,436

 

 

 

394,154

 

 

 

471,259

 

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;

   48,194,610, 47,874,286 and 47,898,068 shares issued and

   outstanding, respectively

 

 

482

 

 

 

479

 

 

 

479

 

Additional paid-in capital

 

 

61,504

 

 

 

60,172

 

 

 

59,009

 

Retained deficit

 

 

(30,283

)

 

 

(17,951

)

 

 

(21,706

)

Accumulated other comprehensive income (loss)

 

 

204

 

 

 

253

 

 

 

(232

)

Total shareholders’ equity

 

 

31,907

 

 

 

42,953

 

 

 

37,550

 

Total liabilities and shareholders’ equity

 

$

839,343

 

 

$

437,107

 

 

$

508,809

 

 

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

November 2, 2019

 

 

13 Weeks Ended

November 3, 2018

 

 

39 Weeks Ended

November 2, 2019

 

 

39 Weeks Ended

November 3, 2018

 

Net sales

 

$

276,132

 

 

$

279,047

 

 

$

882,658

 

 

$

916,511

 

Other revenue

 

 

4,291

 

 

 

3,814

 

 

 

13,479

 

 

 

11,765

 

Total revenue

 

 

280,423

 

 

 

282,861

 

 

 

896,137

 

 

 

928,276

 

Cost of merchandise sold

 

 

206,721

 

 

 

209,286

 

 

 

651,122

 

 

 

671,426

 

Selling, general and administrative expenses

 

 

83,285

 

 

 

86,626

 

 

 

247,891

 

 

 

258,071

 

Operating loss

 

 

(9,583

)

 

 

(13,051

)

 

 

(2,876

)

 

 

(1,221

)

Interest expense, net

 

 

2,306

 

 

 

3,078

 

 

 

7,024

 

 

 

8,406

 

Loss before income taxes

 

 

(11,889

)

 

 

(16,129

)

 

 

(9,900

)

 

 

(9,627

)

Income tax expense

 

 

203

 

 

 

171

 

 

 

308

 

 

 

291

 

Net loss

 

$

(12,092

)

 

$

(16,300

)

 

$

(10,208

)

 

$

(9,918

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.25

)

 

$

(0.35

)

 

$

(0.22

)

 

$

(0.21

)

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

47,545

 

 

 

46,743

 

 

 

47,354

 

 

 

46,674

 

 

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

4


 

Stein Mart, Inc.

Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

13 Weeks Ended

November 2, 2019

 

 

13 Weeks Ended

November 3, 2018

 

 

39 Weeks Ended

November 2, 2019

 

 

39 Weeks Ended

November 3, 2018

 

Net loss

 

$

(12,092

)

 

$

(16,300

)

 

$

(10,208

)

 

$

(9,918

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

(17

)

 

 

5

 

 

 

(49

)

 

 

14

 

Comprehensive loss

 

$

(12,109

)

 

$

(16,295

)

 

$

(10,257

)

 

$

(9,904

)

 

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

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,092

)

 

 

-

 

 

 

(12,092

)

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

 

 

(17

)

Reacquired shares, net

 

 

(8

)

 

 

-

 

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

(6

)

Issuance of restricted stock, net

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

302

 

 

 

-

 

 

 

-

 

 

 

302

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

3

 

Balance on November 2, 2019

 

 

48,195

 

 

$

482

 

 

$

61,504

 

 

$

(30,283

)

 

$

204

 

 

$

31,907

 

 

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

6


 

Stein Mart, Inc.

Consolidated Statements of Shareholders’ Equity, continued

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Equity

 

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

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,300

)

 

 

-

 

 

 

(16,300

)

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Reacquired shares

 

 

(4

)

 

 

-

 

 

 

(10

)

 

 

-

 

 

 

-

 

 

 

(10

)

Issuance of restricted stock, net

 

 

(36

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

1,131

 

 

 

-

 

 

 

-

 

 

 

1,131

 

Dividends, net of forfeitures

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13

 

 

 

-

 

 

 

13

 

Balance on November 3, 2018

 

 

47,898

 

 

$

479

 

 

$

59,009

 

 

$

(21,706

)

 

$

(232

)

 

$

37,550

 

 

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

7


 

Stein Mart, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

39 Weeks Ended

 

 

39 Weeks Ended

 

 

 

November 2, 2019

 

 

November 3, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,208

)

 

$

(9,918

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21,220

 

 

 

23,799

 

Share-based compensation

 

 

1,348

 

 

 

2,973

 

Store closing benefits

 

 

(31

)

 

 

(180

)

Impairment of property and other assets

 

 

11

 

 

 

693

 

Loss on disposal of property and equipment

 

 

44

 

 

 

137

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Inventories

 

 

(51,240

)

 

 

(34,773

)

Prepaid expenses and other current assets

 

 

4,159

 

 

 

(9,018

)

Other assets

 

 

(5,348

)

 

 

(1,882

)

Accounts payable

 

 

36,976

 

 

 

2,559

 

Accrued expenses and other current liabilities

 

 

1,046

 

 

 

3,977

 

Operating lease assets and liabilities, net

 

 

(3,640

)

 

 

-

 

Other liabilities

 

 

(4,197

)

 

 

(3,928

)

Net cash used in operating activities

 

 

(9,860

)

 

 

(25,561

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net acquisition of property and equipment

 

 

(5,145

)

 

 

(7,379

)

Proceeds from canceled corporate owned life insurance policies

 

 

2,900

 

 

 

2,514

 

Proceeds from insurance claims

 

 

82

 

 

 

296

 

Net cash used in investing activities

 

 

(2,163

)

 

 

(4,569

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

305,032

 

 

 

1,033,415

 

Repayments of debt

 

 

(288,132

)

 

 

(997,990

)

Debt issuance costs

 

 

-

 

 

 

(1,146

)

Cash dividends paid

 

 

(91

)

 

 

(147

)

Capital lease payments

 

 

(869

)

 

 

(551

)

Proceeds from exercise of stock options

 

 

107

 

 

 

90

 

Repurchase of common stock

 

 

(120

)

 

 

(57

)

Net cash provided by financing activities

 

 

15,927

 

 

 

33,614

 

Net increase in cash and cash equivalents

 

 

3,904

 

 

 

3,484

 

Cash and cash equivalents at beginning of year

 

 

9,049

 

 

 

10,400

 

Cash and cash equivalents at end of period

 

$

12,953

 

 

$

13,884

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid (received)

 

$

117

 

 

$

(332

)

Interest paid

 

 

6,696

 

 

 

7,758

 

Accruals and accounts payable for capital expenditures

 

 

558

 

 

 

324

 

 

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

 

8


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 do not believe that the adoption will have a material effect on our financial condition, results of operations or cash flows.

 

9


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 $3.4 million as of February 2, 2019 and November 3, 2018, respectively. The error also resulted in an understatement of selling, general and administrative expenses of $0.2 million for the year ended February 2, 2019 and an overstatement of selling, general and administrative expenses of $0.3 million and $0.5 million for the 13 and 39 weeks ended November 3, 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 November 3, 2018 and the Statement of Operations for the 13 and 39 weeks ended November 3, 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 online orders are fulfilled and provided to a carrier for delivery from vendor and/or our warehouses. Store sales include online orders that are fulfilled and shipped or picked up from our stores. 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 November 2, 2019 and November 3, 2018, we recognized $0.2 million and $0.3 million, respectively, of breakage revenue on unused gift and merchandise return cards. During each of the 39 weeks ended November 2, 2019 and November 3, 2018, respectively, we recognized $1.1 million 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 typically represent the majority of other revenue. 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.

10


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 November 2, 2019 and November 3, 2018, we recognized $1.6 million and $1.7 million, respectively, of breakage revenue on unused credit card reward certificates and points. During the 39 weeks ended November 2, 2019 and November 3, 2018, we recognized $5.4 million and $4.1 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

November 2, 2019

 

 

13 Weeks Ended

November 3, 2018

 

 

39 Weeks Ended

November 2, 2019