Stein Mart Inc. (SMRT) swung to a fiscal fourth-quarter GAAP net income of $2.7 million, from a GAAP net loss of $56.2 million in the year-ago quarter. Excluding special items, adjusted earnings per share came in at 19 cents, which came in ahead of the Zacks Consensus Estimate of 17 cents. The better-than-expected performance was primarily driven by a robust increase in gross margin and aggressive cost saving initiatives.

The company has an impressive track record of beating earnings expectations as it has topped the Zacks Consensus Estimate in each of the last 4 quarters with an average positive surprise of 132.3%, or 12 cents. This implies that Stein Mart’s earnings have surpassed the Zacks Consensus Estimate by 32.3% on an average over the last 4 quarters.

During the reported quarter, Stein Mart reported a 6.1% year-over-year decline in net sales to $341.8 million from $363.9 million in the year-ago quarter. The decrease was mainly attributable to a 3.8% reduction in same-store sales coupled with the closure of 11 stores in the last one-year period.

Stein Mart’s gross margin surged by 1080 basis points (bps) to 25.9% primarily due to prudent inventory management and improved merchandise mix. Selling, general and administrative expenses, as a percentage of sales, reduced by 680 bps to 25.4% primarily due to strict management efforts to reduce overheads. Accordingly, the company recorded an operating profit of $6.0 million during the quarter, compared to an operating loss of $58.1 million in the year-ago period.

At the end of the quarter, Stein Mart had cash and cash equivalents of $81.0 million, compared to $88.9 million in the year-ago period. During the fiscal, the company raised $57.3 million from bank borrowings and deployed $157.3 million towards repayment of debt and $7.6 million towards capital expenditure.

Moving forward, Stein Mart plans to close four stores and open three during 2010, while it expects to relocate five to ten stores to better locations. The company also stated that it will incur $30 million towards capital expenditure in 2010 of which $20 million will be deployed towards improving information systems. Meanwhile, the Zacks Consensus Estimate for the year ending Jan 2011 currently stands at 80 cents per share, which has remained unchanged over the past three months.

Stein Mart stores offer fashion merchandise at prices competitive with off-price retail chains. As of Jan 30, 2010, the company operated 267 stores in 31 states.
Read the full analyst report on “SMRT”
Zacks Investment Research