Stein Mart 2012 Annual Report Download - page 17

15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis set forth below in this Item 7 has been amended and restated to reflect the restatement of our financial
statements as described in the Explanatory Note to this Annual Report on Form 10-K and in Note 2 of the Notes to Consolidated Financial
Statements included elsewhere in this Annual Report.
The following discussion should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included
elsewhere in this Form 10-K. The following discussion and analysis contains forward-looking statements which involve risks and
uncertainties, and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the table of contents.
Overview
We are a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices
comparable to off-price retail chains. Our focused assortment of merchandise features current-season moderate to better fashion apparel
for women and men, as well as accessories, shoes and home fashions.
2012 Highlights
Comparable store sales for 2012 increased 2.7 percent compared to 2011 and total sales increased 4.6 percent. Net income for 2012 was
$25.0 million or $0.57 per diluted share compared to $19.9 million or $0.44 per diluted share for 2011.
Cash and cash equivalents at year-end 2012 was $67.2 million after payment of a $43.8 million dividend, compared to $94.1 million at
year-end 2011. We had no outstanding debt at fiscal year-end.
2013 Outlook
In 2013, we are continuing to embrace our value proposition with controlled couponing and even lower prices on selected merchandise.
Our goal is to build on the sales increases we experienced in 2012 primarily by deepening our relationship with existing customers,
attracting new customers and increasing our share of existing customers’ spending.
We expect the following factors to influence our business in 2013:
x The gross profit rate is expected to be slightly lower than in 2012 as we continue to manage our selling prices and couponing
and from lower margins on e-commerce sales in the second half of the year.
x Selling, general and administrative (“SG&A”) expenses are expected to increase approximately $3-4 million as a result of the
following:
o We will incur approximately $3.0 million in start-up costs related to the launch of our new e-commerce business and
the transition of our supply chain from third-party to company-operated locations.
o Depreciation will increase by approximately $3.0 million as a result of recent years’ investments in capital.
o 2012 SG&A included the impact of certain expenses and income not expected to reoccur in 2013, including $4.0
million of professional fees related to the restatement of our financial statements and $2.1 million of breakage income
on unused gift and merchandise return cards as a result of changes in breakage assumptions.
x The effective tax rate for the year is expected to be approximately 39.5 percent.
x Current plans are to open four stores, close three stores and relocate four stores to better locations in their respective markets in
2013.
x Capital expenditures for 2013 are expected to be approximately $34 million, including $14 million for continuing information
system upgrades, $5 million for distribution center equipment and software, and the remainder for new and relocated stores,
store remodels and new fixtures.
We will be launching our new e-commerce business in mid to late 2013 with a representative merchandise selection. This will enable us to
reach new customers and increase our share of existing customers’ spend through a multi-channel approach. As noted above, this
initiative will actually have a negative bottom line impact in 2013 from start-up costs and margins that are lower than for our brick and
mortar stores due to relatively high fulfillment costs at our initial expected sales volume levels. This is an important initiative from which we
expect significant future benefit as we grow our sales.
Another important initiative for 2013 is the transition of our supply chain distribution centers from third-party to company-operated locations
beginning in the second quarter. While this change will not result in an immediate savings in distribution expenses due to start-up costs
and an initial capital investment in equipment and software, this initiative offers an excellent return on our investment with positive impact
starting in 2014.