Stein Mart's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.13.14 | About: Stein Mart, (SMRT)

Stein Mart, Inc. (NASDAQ:SMRT)

Q4 2013 Earnings Conference Call

March 13, 2014 10:00 AM ET

Executives

Jay Stein – Chairman, Chief Executive Officer and Member of Executive Committee

Gregory W. Kleffner – Chief Financial Officer, Executive Vice President and Secretary

Analysts

Matt Temple – Avondale Partners LLC

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Laura A. Champine – Canaccord Genuity, Inc.

Michael Richardson – Sidoti & Company, LLC

Operator

Good morning. My name is Sean and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)

In the course of the presentation this morning, and in response to your questions, statements may be made as certain matters that can constitute forward-looking information that is subject to certain risks and uncertainties. Additional information concerning those factors that could cause actual results to differ from those in the forward-looking statements can be found in the company's current report on the Form 10-K in the year ending February 2, 2013.

I would now like to turn the call over to Jay Stein, CEO of Stein Mart Incorporated.

Jay Stein

Thank you. Good morning you all, and thank you to join us. I am going to make some opening remarks as normal, and then turn the call over to Greg Kleffner our CFO. And then we will certainly take questions after that. As you review our 2013 results, I am confident that like me you will see a financially strong company that has made great accomplishments in the last year.

The operating performance produced by a superb team, a superb team enhanced our strong financial position and annually two years of increased sales is validating that ability to continue growing sales and drive our earnings. A year ago, only a year ago, I promise to you that we would continue to grow sales on the top line at great sales experience in 2012 and we did. And as we look forward to 2014, we've set our sights on doing just that one more time. So let me tell you how we’re going to do it.

First, we will continue to offer our customers to designer at national brands she’s come to expect from Stein Mart everyday along with our distinctive selection of private labels. We’ve said that our apparel sales we’ve seen that apparel sales have suffered 2013 because there wasn’t any compelling fashion, well, we did very well, because our great merchandize and our merchandize continues to get better and better as we look for ways to enhance our offering.

I can tell you going in our stores right now and see firsthand. So as we announced last month, we recently added Nina Home to a very, very successful home assortment, adding quality design and aims like Nina Campbell, helps to further differentiate us from the other off-price retailers.

Secondly we will increase sales by expanding our store base. We are finally seeing more opportunities for us in the real estate market. This is enabled us to put into motion our most aggressive, store opening plan that we've had for 10 years. We’re very excited about our 16 new and relocated stores for 2014. And we’re looking forward to bringing Stein Mart to these communities that we know we can do a good job.

We’re particularly pleased with our new Miami and Washington DC store locations, which were previously occupied by Loehmann's. These were late additions to us bring plan in our real estate team to serves and has received a great deal of credit where we acting so quickly with these great locations, when they became available.

Having a store in the Miami area has been a dream of ours for years and I am thrilled that our first Miami area store will be opening in Aventura this May. I recently saw this store and it’s going to be spectacular. Last but certainly not least our sales will continue to grow as a result of our very important eCommerce business and expanding credit card program.

Also very pleased with the strong financial position that we continue to enjoy. We have instituted our quarterly dividend earlier in 2013. And I’m happy to return this value back to the stockholders. And we have more than enough cash available to grow our operations as we have been doing. Now, I want to talk about this year now that we're nearly six weeks into the first quarter. I want you to know what we've seen so far.

As we have indicated in our temporary same store release, sales were once again impacted slightly by our repeated waves of cold, snow, ice, over a large swath of the company and a very large swath of Stein Mart's footprint. Adding to this late winter were heavy rains in California at the end of the month. We have obviously felt all these things and I must tell you as the weather warms so our sales. When it's cold our business is down significantly. When it's warm, our business is up significantly. Our first quarter will certainly be impacted by a slower start and will not be typical of what we expect for the full year.

Overall, however, we remain very, very encouraged by what we're seeing. In areas during and during weeks where our customers' ability to get into our stores once again, it is not impeded by weather. Our sales are much better than our reported results. Comp store sale increases in February. For Florida and Texas where there was less weather impact have been very favorable, in California where we have 20 stores, sales of positives until the very last month, excuse me, to the very last week of last month when the heavy rains came.

So we have had a number of things that validate that we're on truly our trends are going to continue. What we've seen for the last two years. Our customers still love our merchandise. They love our presentation and now our ease of shopping. So before I turn this over to Greg, first and most importantly, I want to thank publicly our leadership team who executes our strategies oh, so well. This is our most experienced, most high performing management team we've ever had ever. And they are a big reason that we have and will continue to have much success. So Greg over to you?

Gregory W. Kleffner

Thank you, Jay, and good morning, everyone. I’m going to walk through our results for the quarter and highlights of the year as well as discuss our balance sheet, store activity, and our expectations for 2014. Following that we'll be happy to answer any of your questions. As outlined in our press release, our fiscal 2013 and 2012 financial statements include a number of items which impacted reported numbers in ways that we do not believe reflect the results of our operations. Therefore as I review the numbers I'm going to focus on adjusted amounts which we believe provide a more meaningful measure.

The adjustments are presented in the reconciliation of GAAP to non-GAAP and the EBITDA schedules and notes one and two of our press release. The schedules include detailed explanations for each of the adjustments and the adjusted results are non-GAAP financial measures that are provided in addition and not as an alternative to the reported results prepared in accordance with GAAP. The most significant adjustment is the $5 million impact for the accounting estimate change.

During the fourth quarter, we refined the accounting estimation of the amounts of buying and distribution costs allocated to inventories. The primary result of this was to allocate less buying costs to inventories. The change resulted in a $5 million pre-tax non-cash charge recorded in the fourth quarter comprised of a $15 million increase in SG&A expenses and a $10 million increase in gross profit.

This decreased net income by $3.1 million or $0.07 per diluted share. With the new estimates in place going forward, the lower allocation of expenses out of SG&A will be offset by higher gross profit. The only meaningful impact on future reported earnings will result from changes in inventory levels, as has been the case in the past.

Fourth quarter adjusted net income was $13.1 million or $0.29 per diluted share, compared to adjusted net income of $12.3 million or $0.28 per diluted share in 2012. Comparable store sales for the 13 week fourth quarter of 2013 ended February 01 increased 3.1% over last year’s 13 week fourth quarter. The same store sales increase was driven by increases and average unit retail prices and average units per transaction somewhat offset by a decrease in the number of transaction.

Total sales for 2012 included $15.8 million in the 53rd week. Total sales for this year's 13 week fourth quarter were $360.8 million compared to last year's 14 week fourth quarter of $368.6 million. Shoe sales in our lease department increased at a rate lower than for the rest of our chain.

Gross profit in the fourth quarter was a $111.3 million, excluding the $10 million impact of our accounting estimate change; gross profit was $101.3 million or 28.1% of sales for the fourth quarter of 2013 compared to $106.3 million or 28.8% of sales in 2012. The 70 basis point decrease in the adjusted gross profit rate was the result of higher markdowns in the fourth quarter this year compared to the low markdowns last year on sales exceeded plan. The rate was also higher last year due to the positive impact of last year’s 53rd week due to it’s having no incremental expense.

And finally, this year was impacted by greater penetration of our home division or margins are slightly lower. These decreases were somewhat offset by our higher markup. SG&A expenses for the quarter were $100.6 million excluding the $15 million accounting estimate change SG&A expenses for the fourth quarter were $85.6 million or 23.7% of sales compared to $89.1 million or 24.2% of sales last year. This $3.5 million decrease in SG&A expenses includes $2.1 million lower investigation related costs, higher operating expenses in last year's 53rd week, and lower healthcare costs resulting from favorable claims experience.

These decreases were somewhat offset by $1.4 million in higher store closing and asset impairment charges this year. And asset impairments this year includes $1 million for write-off of IT equipment that was replaced. The fourth quarter effective tax rates in both 2013 and 2012 were lower than the annual rates which I will talk about in a minute.

Now I'll touch on the full year results. Adjusted net income for 2013 was $32.8 million or $0.73 per diluted share compared to adjusted net income of $22.9 million or $0.52 per diluted share in 2012. This is a 40% increase. Adjusted EBITDA for the year increased $19.6 million to $80.3 million this year.

Comparable store sales for this year increased 3.7% over last year's 52 weeks. This same store sales increase was driven by increases in average unit retail and average units per transaction, somewhat offset by a decrease in the number of transactions. Total sales for this 52 week fiscal year increased 2.5% to $1.26 billion compared to total sales of $1.23 billion for the 53 week 2012 year.

Again, the 53rd week included sales of $15.8 million. Gross profit for the year was $367.4 million, excluding the $10 million impact of the accounting estimate change gross profit was $357.4 million or 28.3% of sales for 2013 compared to $342.6 million or 27.8% of sales in 2012. The 50 basis point increase in the gross profit rate for the year was primarily due to higher markup.

SG&A expenses were $326.5 million for the year excluding the $15 million impact of the accounting estimate change, SG&A expenses were $311.5 million or 24.7% of sales compared to $306.4 million, or 24.9% of sales last year.

This $5.1 million increase in SG&A expenses includes items presented in the non-GAAP table in the press release and those are the change in the store closing and asset impairment charges, the change in investigation and related fees, this year’s supply chain and eCommerce startup costs, last year’s change in gift card breakage assumptions, and SG&A for last year’s 53rd week.

Higher compensation costs were also part of the increase, including higher earnings-based incentive compensation expense, as well as increased store payroll to support our new stores and higher sales.

And finally, SG&A in 2013 includes $3.9 million higher depreciation expense due to our recent capital spending. These increases were somewhat offset by lower healthcare costs resulting from favorable claims experience. Our effective income tax rate for the year was 37% compared to 30.5% in 2012. The lower 2012 rate was the result of a $2.5 million tax benefit relating to the elimination of post retirement life insurance benefits in the fourth quarter.

Excluding this benefit, the effective tax rate last year would have been 37.3%. The 2013 rate has approximately 200 basis points lower than the rate we expect in the future primarily due to the impact of a lower effective state tax rate based on apportionment changes and non-taxable gains on our split dollar life insurance investments.

Taking a look at the balance sheet, our financial position remains strong with $66.9 million in cash and no debt. This balance is after our increased investment in inventories, capital expenditures of $37.5 million and our reinstituted quarterly dividend, which totaled $6.7 million during the year.

Inventories at the end of the year are up 7.5% to $261.5 million. With the impact of the $5 million decrease from our accounting estimate change, inventories increased 9.5%. We had higher inventory levels in our home area to support higher sales and the recent Nina Home launch. And we also had higher in transit amounts for early February receipts into our stores.

And lastly, inventories were greater this year end for our new online store and one additional brick and mortar store. Capital expenditures totaled $37.5 million for the year, compared to $45.4 million last year. Expenses were higher last year due to a greater investment and information systems, including the Oracle Merchandise Information System, which went live during 2012, and due to store remodeling.

We expect capital expenditures for 2014 will be approximately $38 million, including $13 million for continued information systems upgrades, $13 million for existing store remodels and new fixtures, and finally, $12 million for our new and relocated stores.

Before I talk about our 2014 outlook, I’d like to briefly update you on a couple of our key 2013 initiatives. We finalized our supply chain transition with our last company-run distribution center in Ontario, California becoming fully operational in January. Our supply chain team did just a great job and the transition of our three distribution centers from third-party to company operated was seamless this past year. This is going to deliver our cost savings and operational benefits for us going forward.

We continue to be pleased with the presentation and functionality of our eCommerce site, and for 2014, we will be focused on ways to drive traffic. I want to remind everyone that this is not just a sales driver, but there is a marketing tool to drive new business and customers to our stores. This will continue to be a learning experience in the short-term, but there is a significant business opportunity for us on a long-term basis. We anticipate incurring a loss of about $2 million for our eCommerce area in 2014.

Finally, a credit card program had a great year, which included the first full-year of our private label card. As we said before our credit card customers spend more than 50% above our other customers. Our 2013 penetration was above 8%, which has significantly increased from the 5% that we had before the launch of our private label card.

Now I will walk through the outlook for 2014. Jay talked about our exciting new store plans for this coming year, we currently planned to open 10 stores, relocate six stores to better location in the respective markets and closed two stores in 2014. Three of the new stores will open this spring, one in March and two in May. These stores are in Los Vegas, Nevada, Aventura Florida which is the Miami area and Falls Church, Virginia which is the Washington DC area.

The other seven new stores will open this fall, six in October and one in November. Our two stores closings are already completed in February and we have very few remaining underperforming stores, so going forward we should not expect more than two or three closings per year.

For 2014, you can also expect – also expect that total sales will increase almost 1% and 1.5% more than our comparable store sales increases due to the – the new stores net of closings. This is entire because most of the 2014 new stores are coming online in the fall, so much of their impact will be in 2015. The gross profit rate is expected to decrease slightly from our 29.1% rate this year, impacted by a slow start to first quarter’s sales as a result of severe winter weather, lower eCommerce margins, which include third-party fulfillment costs and slightly higher penetration of home sales which have lower margins.

We expecting SG&A to increase by approximately $10 million from the $326.5 million reported in 2013 including the following. SG&A expenses will be approximately $5 million higher in the new stores in 2013 and 2014 including $4 million of pre-opening costs that compares to our $2 million of pre-opening cost in 2013.

Depreciation expenses was estimated to increase $2 million from recent year’s capital investments, eCommerce is expected to incur a loss of $2 million in 2014, the sales planned at about 1% of our total. These increases were offset by various efficiency items. Finally for 2014, we expect our annual tax rate to be approximately 39%.

This concludes the prepared portion of our comments and now we'd be happy to take your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mark Montagna from Avondale Partners. Your line is open.

Matt Temple – Avondale Partners LLC

Hi. Good morning. This is Matt for Mark. I was just wondering if you could remind us what's kind of a minimum level of cash you feel comfortable with on your balance sheet?

Gregory W. Kleffner

Yes, Matt, good morning, thanks for being with us on the call. This is Greg, I'd say it's more – it's what we have and when we clearly are going to use the cash going forward to invest in our business. It's a little more than we need, but we're comfortable with that right now. Remember we came from levels draw back with not very much cash of own that borrow but then in the last three years have been up to over a $100 million or so. So we're clearly comfortable with what we are right now.

Matt Temple – Avondale Partners LLC

Okay. That's fair. I think you guys have said recently that you're experiencing more visits from customers that spend more money and you're kind of dropping of customers that come in less often and tend to spend less. Do you view that as an opportunity to see merchandise margin expansion?

Gregory W. Kleffner

I'm not sure that's really a margin play as much as it is just where we've been focusing our customers. We just, I think we're trading up to a better customer that as you said this is more and spends more when she visits. Clearly some of that’s our better brands with some that’s also how we’re targeting on marketing.

Jay Stein

And that clearly more hit the margin.

Gregory W. Kleffner

Yes. That’s right.

Jay Stein

By any means…

Matt Temple – Avondale Partners LLC

Okay. Do you guys…

Gregory W. Kleffner

We don't factor that in per say.

Matt Temple – Avondale Partners LLC

Right, okay.

Gregory W. Kleffner

For the margin.

Matt Temple – Avondale Partners LLC

Do you guys have any new brands outside of Nina that you're expecting to add this year?

Gregory W. Kleffner

Yes, we do. We have a number of them. I don't think that we're prepared right now to go into all of them. But I mean, Matt, everyday we get – as this company becomes more viable and gets more exposed to the market at large, you can count on your left hand the number of brands that we cannot get.

Matt Temple – Avondale Partners LLC

And is that kind of…

Gregory W. Kleffner

It's a question of what we want.

Matt Temple – Avondale Partners LLC

Yes. So is that…

Gregory W. Kleffner

And we don't take that for granted. We’re very appreciative.

Matt Temple – Avondale Partners LLC

And that's across the whole chain...

Gregory W. Kleffner

Well, absolutely.

Matt Temple – Avondale Partners LLC

Category specific…

Gregory W. Kleffner

Well, absolutely. It’s across the chain – it’s across the chain. The procurement of merchandise has never been an issue with us, thank goodness. That has been one problem that we don't have as a retailer.

Matt Temple – Avondale Partners LLC

Okay. And moving on with the increase in inventory that you guys have seen, kind of the slower start to Q1, are you expecting that you may need to take increased markdowns for the duration of spring?

Gregory W. Kleffner

Matt, at this point I think it's way too early to make that call.

Matt Temple – Avondale Partners LLC

Yes.

Gregory W. Kleffner

We see when the weather has gotten good, our sales have been just great. So I think it’s way too early to make that call and so we certainly hope not.

Jay Stein

But Matt, this is the latter – this week has been very encouraging, very encouraging.

Matt Temple – Avondale Partners LLC

Okay, great. That's all I've got for now. Thanks, guys.

Jay Stein

Thank you.

Gregory W. Kleffner

Thanks, Matt.

Jay Stein

Thank you. Thanks for being here.

Operator

The next question comes from the line of David Mann from Johnson Rice. Your line is open.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

All right. Thank you, jay. Congratulations to you and the team on a great year.

Jay Stein

Thank you.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

I guess some, – just a follow-up on that last question. If I heard correctly in your comments about gross profit for 2014, it sounds like you are including some additional markdowns in the first quarter in your guidance, or is that not correct?

Jay Stein

David, I'd say that’s more of just when we look out and obviously, we don't give inordinately specific guidance. We just think that’s maybe a little bit of a reason for us to look at the margins and say, we think we'll be a little bit lower than last year.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Understood.

Jay Stein

And David in part it not has to do with marking down current spring goods as much as it has to do with lack of traffic perhaps on fall goods. So that I mean, there are small issues that we're dealing with.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

In terms of Greg, the gross margin comments and guidance that you gave, you were talking about it being down from the reported number. But it seems like it will be up from the adjusted number. Is that correct?

Jay Stein

Actually, the adjusted number is really what you all look at going forward for the most part. The adjusted number – I'm sorry, think about once more, the reported number is how it's going to roll forward. And so when you look at what happened the year-end impact of this change in estimate effectively created that shift between SG&A and gross profit. So next year you are going to have that shift of $15 million higher SG&A and lower gross profit. But that will be similar to what we had and what we reported, not to be adjusted, what we reported this year for the SG&A and gross profit.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Right. Then in terms of the other puts and takes in gross margin, it seem like you had talked in the past about some benefits from your new supply chain, can you just talk about how that's playing into your thought process?

Jay Stein

Sure, and that is in gross margin, David, good memory on that. It's clearly a plus there. I would say, we certainly haven't talked about it specifically other than to say that our investment has really good payback on what we've been doing there.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Okay. In terms of the new stores that you're opening up, it's encouraging with your confidence to accelerate the new store growth. Can you share with us some of the new store metrics, it would seem to, based on your comment about sales growth, it would seem to imply that these new stores should open at pretty high volume levels in the first year relative to the average store. Any metrics would be appreciated.

Gregory W. Kleffner

David, again, this is Greg. I would say, we – any store that we look at opening to be above the average, so ride of the bad, I'd say. We're probably not looking at opening a store if it's going to be a below average store to begin with. Some of the stores are opening at higher rents. I mean if you don’t have to, you know Aventura and Falls Church area and Virginia, the rents there will be pretty high. But we feel good with what we feel the business we can do in those stores, we feel, we can get a lot of business in a lot of those locations. Basically, we're going to look at a store. We want to have good four wall return projections or we just aren't going to be really looking at opening things.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Okay. When you were talking about not being below average, these stores should open easily at or above that, around that $5 million level?

Jay Stein

Easily, I mean the other thing we all look at is how they mature over time. But, certainly those stores in a mature basis, will be above average.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Very good.

Jay Stein

Go ahead.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

The home business obviously it's been comping pretty strong for almost a couple of years. Where did it end the year 2013 in terms of penetration? And how do you look at that in terms of 2014 and some of the longer term targets you've talked about?

Jay Stein

David, we’re right about 13% penetration and end of the year for that. And that was with the year ramping up through the year. So got a good start going into 2014. It's been the strongest category for two years basically now. When we talked and you look in our investor presentation we really talk about the opportunity where we came down from 20% some timing ago and think we ought to be well up into those sorts of high teens as a percent of penetration.

Gregory W. Kleffner

David. We have a lot of catching up to do. We're mindful of that. And we now catch up. We're all determined to catch up.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

That's great to hear. Then my last question is sort of maybe a little catch up as well Appreciate the data on the credit card penetration at 8%, but that seems to be pretty far below a lot of the peer group and others. Obviously, you're just getting started. But how fast do you think that can grow on an annual basis? And where would you think could be in three to five year time frame?

Jay Stein

Well, if you listen to our comments and thanks for recognizing that we decided to share that information. So we ended up with 8% for the year. So you can pretty well assume that we were higher than that at the end of the year because it's been accelerating, and we were 5% before we launched the private label card. So you can ride off the back look at that as an increase, so just really about year-over-year going from 5% to 8%. So that's pretty quick increase. I can say we're probably one of the fast as increasing penetration with anybody we know, we got lots of headroom volume out there.

David M. Mann – Johnson Rice & Company, L.L.C., Research Division

Again. Thanks for all the detail. Good luck in 2014.

Gregory W. Kleffner

David, thank you for being on.

Jay Stein

Yes, thanks, David.

Operator

Your next question comes from the line of Laura Champine from Concordia [ph]. Your line is open.

Laura A. Champine – Canaccord Genuity, Inc.

Good morning. My question is on the $13 million is being still on information systems this year. What are you buying for that?

Gregory W. Kleffner

Laura, this is Greg. It's a lot of thing, it's not any one specific thing. We're investing all the time in continuous upgrades. So I know we have – less upgrades this year that are going to increase some operational capabilities for us. There is continued investments in the merchandising systems. There is some refinement in the distribution systems.

And it's a little bit of everything. So it's not anything major. I think you sort of implied in your question and I'll sort of take a stab at or you want to go with this. We're in a mode now where this is probably some more in the neighborhood of what we need to spend on an on going basis to just keep ourselves moving forward in the right way.

And Laura, we also, I wont’ assure you trading up in the people that run that area as well, and that’s very important to us to have those people sitting in those chairs that can help us the most and we’re doing that.

Laura A. Champine – Canaccord Genuity, Inc.

Great. And so Greg as I look in future years, is about 3% of sales the right amount that Stein Mart ought to be spending on capital expenditures?

Gregory W. Kleffner

You know, it's going to vary probably the most. I think if you look at this next year, all we said, so if you look and say the breakout so it's almost a third, a third, a third on the existing stores, new stores, and the IT. I would say the new stores fluctuation is really what's going to drive the variances in that mostly the others should stay fairly sort of similar. So if we have opportunities to open more new stores.

And then what happens on the new stores, sometimes depends on whether the landlord does the build-out or we do it. The economics are the same. But the accounting is different. If we actually do the build-out may pay us back ends up to capital expense for us, so there's some vagaries in how the new and relocated stores work for us.

Laura A. Champine – Canaccord Genuity, Inc.

And are there any margin opportunities that are not in your guidance from taking the distribution system in house and coupled with that are there sales opportunities just from having better control over your inventories?

Gregory W. Kleffner

I think there are some sales opportunities going forward. It's a little bit like the merchandising systems where we have a tool that we can use to help us manage better, so post distribution and some other things with that. That can even help us a little bit on the margin. In our guidance we've considered a little bit of that certainly on there from the margin standpoint.

Laura A. Champine – Canaccord Genuity, Inc.

Great. Thank you.

Gregory W. Kleffner

Thank you, Laura.

Operator

Your next question comes from the line of Michael Exstein from Credit Suisse. Your line is open.

Unidentified Analyst

Hi, Greg this is Michael, I’m [Indiscernible] I just have two questions, the first you talked about the credit card penetration rate increasing. Can you talk about the trends you are seeing regarding credit card profitability? Some retailers have indicated that customers are getting more credit worthy and delinquencies are declining, are you seeing this as well. And then second I just wanted to clarify on the accounting charges, so on the year-end impact this year an how we should be looking at that next year, are you referring to the total annual impact or is that during each of the first three quarters.

Gregory W. Kleffner

Yes, let me take the credit card one and then will come back and I’ll try to clarify in the other and you can certainly follow-up if I don’t answer your question on that one right. So from a credit card standpoint one remember that, none of the credit risk is ours. So G.E. who is our partner on this does all the credit risk part of things.

So our agreement with them certainly has some direct benefit advantages to us and those are increasing as our penetration and our volume on that increase. So – but I think what you asked in your questions is yes, I mean and other are seeing that same thing, that the credit worthiness is good. Our customers are pretty credit worthy to begin with by the way, so we have a pretty good approval rates for the credit card and all, but it doesn’t – any losses from [Indiscernible] those are GE’s.

And then moving on to the charges. Let me maybe answer it this way and see if this answers your question. So this year when we change the estimate there was – a couple things happened. So you basically had more SG&A because we allocated less out of the SG&A against the inventory purchases and that was $50 million.

That all happened in the fourth quarter. Because this was the time when we actually changed the estimates, some of that ended up in the inventory balance and because of that reduced inventory by the $5 million and that was just the turn of the $50 million allocation. Then that was what hit us in P&L.

Next year, because the beginning inventories and the ending inventories will have that $5 million sort of decrease in them, it doesn’t have a P&L impact because it’s in both the beginning and the ending. You’ll still have that $15 million higher SG&A offset by $15 million of higher gross profit because it’s really just a reclassification from SG&A up into cost of sales which gives you the gross profit.

And one of the other things just to help people I know as you do your models and look at this. When you are looking at the SG&A and gross profit next year, you need to spread the $50 million change in estimate of the gross profit relatively equally across the quarters with a slightly lower amount in the third quarter. And then when you look at SG&A that spreads fairly equally again although there are slightly smaller amounts in the second and the fourth quarter, so again for 2014, have that higher SG&A lower gross profit.

Now, again the reported SG&A in 2013 already has been lowered for that. The gross profit only has the $10 million benefit for 2013. All of that happened in the fourth quarter. Does that answer you question

Unidentified Analyst

Okay. Yes. That’s very helpful. Thank you.

Jay Stein

And then certainly feel free to call Greg back or Linda back for any questions you’ve got on this.

Gregory W. Kleffner

Yes, we want to make sure everybody really gets this and…

Jay Stein

And that the fact that there was no cash charges on this whatsoever.

Gregory W. Kleffner

Yes. It’s just accounting allocations and – throughout next year.

Jay Stein

We got the same cash charge, we got last year or two years ago, when we had $2.5 million of breakage. And there was no cash increase.

Unidentified Analyst

Understood. Okay, thank you very much.

Gregory W. Kleffner

Thank you.

Jay Stein

Thanks for being on the call.

Operator

Your next question comes from the line of Mike Richardson from Sidoti. Your line is open.

Michael Richardson – Sidoti & Company, LLC

Yes. Good morning. Thanks for taking my questions. First one is I’m just wondering have you guys signed leases for all the new stores that are going to be opened this fall I guess while I’m getting, is there any risk that you’re not able to open any of those stores?

Jay Stein

Those are 100% standout.

Michael Richardson – Sidoti & Company, LLC

Okay. And you’ve been pretty aggressive with the remodels over the last few years. Will this $13 million basically finished that up or is that a figure we should think out about as sort of one normalized.

Jay Stein

I would say are the later Mike, we’re probably still a little bit catch up modes, so that maybe couple million high. But we need to spend on our existing stores to keep them fresh and for a period time we frankly understand, so we were in catch up mode last couple years, we’re getting close to being caught up on that, but we’ll always be looking doing some upgrades making our stores will better.

Gregory W. Kleffner

We never finish, Mike, it's a question of degrees

Michael Richardson – Sidoti & Company, LLC

Okay. And just getting back to the question, that somebody just ask before, I just wanted confirm the impact of accounting estimate change on the P&L in 2014 year-over-year should be minimal, correct?

Gregory W. Kleffner

Correct. The $50 million between SG&A and gross profit.

Michael Richardson – Sidoti & Company, LLC

Okay. And just the last one. What are you expectations for eCommerce on total sales this year. And eCom sales going to included in the comp?

Gregory W. Kleffner

eCom are included in the comp. Our expectation this year is about like the fourth quarter was about 1% of total sales.

Michael Richardson – Sidoti & Company, LLC

Okay. Great. Thanks best of luck.

Jay Stein

Sure. Thank you.

Gregory W. Kleffner

Thanks Mike for being on

Operator

(Operator Instructions) Your next question comes from the line of Mark Montagna from Avondale Partners. Your line is open.

Matt Temple – Avondale Partners LLC

Hi guys, this Matt again. Looking for a little more clarification on inventory. I think you said the home increase was attributable for some of that. Could you maybe give us the increase if you backed out home or quantify the reasons going into the increase?

Gregory W. Kleffner

Sure, Matt there is really, three things, and I would say just in general the home and the higher early February sort of an even split between those two, but then you also looking sort overlays on top. When we looked this last year we didn't have the year before when that the increase we didn't have the online stores, the additional stores we have this year end. So those are certainly part of that. And frankly as you look forward, think about and the effect they'll have on inventory all good investments. But home is clearly a lot of that is driven by Nina Campbell and the distance overall strength in the home area that we want to make sure we have right inventory.

Matt Temple – Avondale Partners LLC

Do say its kind of evenly spilt 1/3rd 1/3rd 1/3rd across the reason.

Gregory W. Kleffner

And I would say probably now little more home in the France the early February are bigger than the kind of store. You can sort of figure out the store in the eCommerce impact just done how many stores we have and things.

Matt Temple – Avondale Partners LLC

Okay. Are you guys planning any differences in your marketing scheme for 2014?

Jay Stein

Hopefully so, I mean we’re becoming less and less reliant on newspapers. But I mean that Mark we produce – Matt excuse me, we are producing some very, very good mailouts. We just recently had one on accessories. Our mailouts are as good, I think as anybody in this business, they’re very upscale and they’re attracting a lot of customers. So, I mean, those are the kind of things that we would like to talk to the customer one-to-one, and that’s what we are doing.

Matt Temple – Avondale Partners LLC

Okay, great. And then one other thing on your credit cards, I know you have the Master Card as well. Have you included that with the private label? Where is your penetration?

Jay Stein

Our penetration includes both of those, Matt.

Matt Temple – Avondale Partners LLC

With what with 8%?

Jay Stein

Yes, it so does.

Matt Temple – Avondale Partners LLC

All right. It sounds good. Thanks. Best of luck.

Jay Stein

Thank you, Matt.

Gregory W. Kleffner

Thank you, Matt.

Operator

There are no further questions at this time. Gentlemen, I turn the call back over to you.

Jay Stein

Thank you. I want to thank you all for being with us today. If you want to know what I think is a predictability of how well next quarter is going to be and this year is going to be just walking our stores and see the presentation and the merchandise and the value that we offer. We’re pretty excited about that. It’s a new company, it’s a new Stein Mart, and I think you will like it. I think our customers like it. So, anyway, thank you all very much. Thank you very much and great thank you.

Gregory W. Kleffner

Thank you everybody. Goodbye.

Operator

This concludes today’s conference call. You may now disconnect.

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Stein Mart, Inc. (SMRT): Q4 EPS of $0.29 beats by $0.03. Revenue of $360.7M (-2.1% Y/Y) misses by $3.8M.