Stein Mart F3Q07 (Qtr End 11/3/07) Earnings Call Transcript

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 |  About: Stein Mart, Inc. (SMRT)
by: SA Transcripts

Operator

Good morning. My name is Takia and I’ll be your conferenceoperator today. At this time, I would like to welcome everyone to the SteinMart Inc. third quarter financial results conference call. (OperatorInstructions) It is now my pleasure to turn the floor over to your host, Ms.Linda Farthing, President and CEO of Stein Mart. Madam, you may begin yourconference.

Linda M. Farthing

Good morning. Thank you for joining us. I will provide abrief recap of our third quarter performance and share my perspectives of howwe see our business going forward. Please keep in mind that I have been in mycapacity as CEO for just two months, so what you will hear today is evolving.

After my comments, you’ll here from Jim Delfs, our CFO; BillMoll, our Chief Merchant. We will then take questions, at which time Jay Stein,Chairman of the Board, Hunt Hawkins, Chief Administrative Officer, and MikeRay, Senior Vice President of Stores, will also be available for questions andcomments.

Our third quarter performance was unacceptable. We wereunable to drive sales, resulting in our worst third quarter comp performance inrecent history. As the environment deteriorated, we made midcourse correctionsin marketing, promotion and store environment to try and improve sales.Unfortunately, our efforts were not sufficient.

November sales are trending significantly below last yearand below plan, and we expect the pressure to continue, given the intense levelof promotional activity both pre- and post-Thanksgiving by other retailers.

We will liquidate inventories as expeditiously as possiblein the fourth quarter so we don’t burden 2008 with 2007’s merchandise. Ourplans for next year are still in their initial stages but they are being builtand in a much more conservative assumptions until we have solid indicators of aturnaround in business.

I don’t have to tell you how difficult the currentenvironment is for retailers in general and for companies catering to our corecustomer in particular. Our target customer has not been tempted to shop forapparel, either because the fashion doesn’t excite her or she is worried aboutthe economy or both.

Meanwhile, our competitors have already gone toextraordinary lengths, including deep discounts off of regular pricedmerchandise to attract customers, making it especially difficult for aneveryday low price retailer like Stein Mart.

Additionally, we have experienced softness in what hastraditionally been a Stein Mart strength -- our geographic concentration in theSoutheast. Our core region has come under increasing economic and weatherpressures and are business has suffered accordingly.

We have started to see some slight improvement in the SouthFlorida business but it’s being offset by the overall regionalunderperformance. We also continue to have problems with our home business thathas continued to track well below the company trend.

Fixing this area is a priority but in a soft housing market,this does provide additional challenges. We are looking at alternatives tomaximize the productivity of the home square footage.

Since my arrival at the end of September, I have focused ona top to bottom review of the business. I have spent time in a number of storesand with the corporate division. I have spoken directly with customers andpersonally solicited additional input. I have also enlisted some of our thirdparty partners and other stakeholders to provide their viewpoints as to thestrength and the weaknesses in our business.

This process is far from over but there are some actions weare taking.

We are focused on top line and reversing the negative compstore sales trend we have been experiencing for some time. We have redeployedour marketing dollars. The new branding campaign that the company had embarkedon earlier in the year did not drive customers into the store, so we havestepped away from our television base branding to an aggressive promotioncampaign to be more competitive. As a result, you are seeing a much strongervalue message in every communication from us and both inside and outside ourstores as we reinforce the message with signage. We are using direct mail toour preferred customers and purchase lists, e-mail and special targeting to ourcredit card customers, and we will use TV and radio for our 14-hour sales. Thiscorrection has cost us on the expense side but was necessary to advance ourgoal.

But I also want to tell you that I’m not willing to lay ourpoor performance off on marketing alone. We are looking at every aspect of ouroperation to assess where we are succeeding and what needs to work.

We are pulling back on our new store opening plans todedicate all of our efforts to returning our core business to profitability. Inaddition, we are reevaluating our merchandise mix and the productivity of eachcategory.

We are continuing to ensure we present a strong valuemessage in our store and media. We are evaluating the productivity of eachsquare foot of selling space. We are focusing our capital spending on thoseareas that provide the most immediate and greatest return. We will also becutting costs commensurate with our trend of business.

We assure you that we will leave no stone unturned inlooking into the heart of the Stein Mart business and revalidating every aspectof our operations. This will not happen overnight but I look forward to keepingyou informed on our progress as we continue to develop our strategy goingforward.

I thank you and I now turn it over to Jim Delfs, our ChiefFinancial Officer.

James G. Delfs

Thanks, Linda. In the course of our presentation thismorning and in response to your questions, we may make statements as to certainmatters that constitute forward-looking statements. Additional informationconcerning those factors that could cause actual results to differ from thosein the forward-looking statements can be found in our current report on Form10-K for the year ended February 3, 2007.

For the third quarter of 2007, total sales decreased 1.7%from the third quarter of 2006, while comp store sales decreased 6.3%. Pleasenote that total sales for the 13 weeks and 39 weeks ended November 3, 2007 arecompared to total sales for the 13 weeks and 39 weeks ended October 28, 2006, aone-week shift for each period.

Comp-store sales, on the other hand, are compared for theequivalent 13- and 39-week periods, thus comp-store sales for the 13-week and39-week period ended November 3, 2007 are compared to the equivalent 13-weekand 39-week period ended November 4, 2006. The effect of the one-week shiftpositively affected total sales by approximately $6.7 million for the thirdquarter and positively affected total sales by approximately $7.3 millionyear-to-date.

For the third quarter, gross profit declined to $86.2million, or 25.9% of sales, compared to $89.3 million, or 26.3% of sales in thesame period last year. Merchandise margin was flat due to increased markdownsoffset by increased markups. Occupancy and buying costs increased 40 basispoints, primarily from lack of leverage on lower sales.

Selling, general and administrative expenses were $97.2million, or 29.2% of sales as compared to $92.6 million, or 27.3% of salesduring the same period last year. For the third quarter, SG&A expensesincreased $4.6 million when compared to last year. Store operating expenses forthe non-comp group of stores increased $2.3 million while operating expensesfor the comp stores decreased $3.3 million.

Advertising increased $3.5 million and depreciationincreased $400,000. Costs associated with the transition of the President andCEO were $2.4 million. Share-based compensation totaled $1.8 million in thequarter. That amount is net of a $500,000 reversal of previously accruedperformance grants, since our results do not now support such awards. Theincrease of $300,000 over the prior year’s third quarter is included in cost ofsales at $200,000 and in SG&A at $100,000.

Other income grew to 1.7% of sales in the third quarter ofthis year from 1.1% of sales last year. The increase is due to the addition ofcredit card income this year.

For the third quarter of 2007, we incurred a net loss of $2.7million, or $0.06 per diluted share, as compared to net income of $237,000, or$0.01 per diluted share in the third quarter of 2006.

For the first nine months of 2007, total sales were flatcompared to the first nine months of 2006 while comp store sales decreased3.1%. Gross profit declined to $277.3 million, or 26.7% of sales in the firstnine months of 2007 compared to $280.9 million, or 27% of sales in the sameperiod last year. Merchandise margin was flat as increased markup was offset byincreased markdown.

Occupancy and buying costs increased 30 basis points,primarily from lack of sales leverage and increased share-based buying costs.

SG&A expenses were $282.3 million, or 27.1% of sales inthe first nine months of 2007 as compared to $268 million or 25.8% of salesduring the same period last year. SG&A expenses increased $14.4 million inthe first nine months of 2007 when compared to last year.

Store operating expenses for the non-comp group of storesincreased $4.5 million and operating expenses for the comp stores decreased$2.7 million. Advertising increased $7.1 million and depreciation increased$2.2 million.

Share-based compensation totaled $6.5 million in the firstnine months, which was an increase of $2.8 million over the prior year’s firstnine months. That increase is included in cost of sales at $1.8 million and inSG&A at $1 million.

Other income grew to 1.6% of sales in the first nine monthsof this year from 1.1% of sales last year. The increase is due to the additionof credit card income this year.

The effective tax rate for the quarter and for theyear-to-date was reduced due to lower estimated annual taxable income, certainfederal and state tax credits, and other state tax benefits.

For the first nine months of 2007, net income was $7.6million, or $0.18 per diluted share as compared to net income of $16.1 millionor $0.37 per diluted share for the first nine months of 2006. Bill.

William A. Moll

Thanks, Jim. As you know, our comparable store salesdeclined more than 6% in the quarter. Just briefly, for the third quarter, onlyour intimate apparel area posted positive comps. Ladies and boutique wasactually above the company trend and accessories was flat to the company trend.Men’s fell below the company trend in the third quarter and in our homedivision, both gifts and linens were down double digits.

Specific positive callouts within divisions were men’s dressfurnishing and accessories, men’s moderate branded sports wear and golfapparel. In ladies, dresses, novelty jackets, key item sweaters and basicpants. Special sizes and intimate apparel both continued to outperform since weexpanded them last year.

In accessories, jewelry, particularly bracelets and rings,bath and body and hosiery did well. Our luggage business continues to excel.

Obviously men’s and ladies cold weather categories sufferedin this period, as did men’s suit separates and ladies career collections,social occasion, and casual bottoms. In accessories, handbags continued to bedifficult. Linens, furniture and home décor continue to significantly under-perform.

Year-to-date, while our comps are down 3.1%, there is a widerange of performance among the divisions. Men’s, ladies and boutique are abovethe company trend and ladies and boutique, which is our largest contributor tothe business, is actually low single digit positive on a year-to-date basis.

I want to note here that some of the softness we are seeingin the men’s area is related to the diminished polo assortment and the fact thatour strategy to replace that product with other brands and proprietary productis still evolving.

Ladies accessories lags the company’s trends slightly andintimate apparel, a very small part of our business, is up double digits.Unfortunately, our home business continues to decline and for the year, it isdown double digits as well.

Overall, inventories were down 5.2% on an average storebasis at the end of the quarter. Coming into the fourth quarter, the areaswhere we have seen holiday strength are in ladies cashmere sweaters, men’smoderate sportswear and dress shirts, and box accessories, both men’s andwomen’s.

Our goal for the fourth quarter is to effectively clearremaining fall and winter merchandise through aggressive price point promotionbefore the holidays and begin our traditional red dot clearance cadence afterChristmas.

Looking ahead, we have intensified the moderate part of ourassortment and have adopted a more aggressive price point approach across ourentire assortment, and we have aligned our advertising and promotion to supportthat action. In our troubled home area, this will be particularly visible inthe coming months. We have a conservative posture about our spring plans andwe’ll strive to enter this season with enough liquidity to take advantage ofopportunistic purchases.

Our goal is a smooth conversion to the new season so we canfeature and promote fresh product without the hangover of prior seasonmerchandise. We have advanced some early spring product to our resort storesand have been pleased with the initial reaction to that product.

That concludes our prepared remarks and now we will takequestions.

Question-and-AnswerSession

Operator

(Operator Instructions) Your first question is coming from ShaunSmolarz with Sidoti & Company.

Shaun Smolarz -Sidoti & Company

My first question is I would appreciate some additionaltransparency on the circumstances surrounding Linda’s appointment as CEO. Howdid the board decide to immediately announce Mike’s replacement? And also, wereother candidates considered?

Linda M. Farthing

Jay, would you mind?

Jay Stein

I’ll be happy to. Let me say this; we have been with Lindain excess of 10 years, so we knew her capability. She has chaired the majorcommittees on the board. She is a very action oriented person. She thinks veryclearly and we found her to be on the board itself a clear leader.

Now, we announced it so immediately because we startedobviously before -- we started talking to her some time ago and we worked outthe details of it so that she could -- there would be as immediate continuityas possible after Mike left.

Shaun Smolarz -Sidoti & Company

Okay. That was very helpful. I appreciate that.

Jay Stein

It was done in a very planned, orderly manner, I can assureyou. I called Linda and it took a while to in fact convince her that she neededone more challenge in her life and she loves this company and loves it a greatdeal. And as a result, accepted it.

Linda M. Farthing

Thank you, Jay.

Shaun Smolarz -Sidoti & Company

My next question is as you look out into 2008, do you think2008 in terms of results will be closer to this year’s 2007 or 2006?

Linda M. Farthing

Obviously we are looking at 2008 from -- I mean, we’relooking at all aspects of our business and as I stated, what we are looking todo is to bring the company back to the kind of productivity levels and resultsthat we have seen historically, so we are looking at all aspects to make thathappen.

Shaun Smolarz -Sidoti & Company

And do you think that your results could significantlyimprove in 2008, absent a macroeconomic improvement in the Southeast, and thusimproving the results just based on internal changes that you hope to see?

Linda M. Farthing

Jim, would you like to?

James G. Delfs

I think right now we are focusing primarily on managing ourway through the fourth quarter and as Linda said, we are focusing on allaspects of the business right now. She’s looking with a fresh set of eyes atall aspects and we are putting together plans for 2008 but at this point, we’renot ready to share any of the details of those plans.

Linda M. Farthing

It would be very inappropriate at this time.

Shaun Smolarz -Sidoti & Company

In terms of possible changes in terms of new initiatives,perhaps you could comment on some of them, like in terms of with a downturn inthe housing market, are you considering downscaling on the home division, oreliminating it in some stores entirely?

Linda M. Farthing

What we are looking at is the productivity of the squarefootage in our stores and you can take it from there.

Shaun Smolarz -Sidoti & Company

And when you look at the distribution process, are youconsidering possibly building a full scale distribution center as opposed to adrop shipment under the current process?

James G. Delfs

That’s not anywhere in our current thinking right now, Sean.

Linda M. Farthing

Everything is on the table but that is not currently in thethinking.

Shaun Smolarz -Sidoti & Company

And you said that you were going to downscale the new storeopenings for 2008. Do you have a range of store openings for 2008 that you areconsidering?

William A. Moll

Shaun, we don’t have a range of stores because it’s still awork in progress but I can tell you it will be significantly fewer than the 14we opened this past year.

Jay Stein

It will be in the single digits.

Shaun Smolarz -Sidoti & Company

All right, and my last question for now is given the expensecutting initiatives and reduced store opening schedule, could you give us anyadditional insight into how you expect total SG&A dollars to increase nextyear?

James G. Delfs

Again, Sean, we’re looking at all areas of the business andthat’s certainly part of that exercise.

Shaun Smolarz -Sidoti & Company

All right. Thank you very much, guys.

Operator

Thank you. Your next question is from David Mann with JohnsonRice.

David M. Mann -Johnson Rice & Company

Thank you. Linda, welcome back to the hot seat.

Linda M. Farthing

Thank you.

David M. Mann -Johnson Rice & Company

My question first is on the store base, the existing storebase; if you assume the outlook that you’ve put out today, how many stores willbe losing money on an [overall] basis this year?

James G. Delfs

We don’t go into those kinds of specifics, David.

David M. Mann -Johnson Rice & Company

Okay. Would it be reasonable to assume that you are, inaddition to slowing store growth, you’re considering closing stores again?

James G. Delfs

As we’ve said in the past, after the fourth quarter is over,we look at all stores, looking at the underperforming stores and makedeterminations as to how to react to those stores, whether it be additionalemphasis on improving their operations or taking the steps to close them and weprobably will close a handful of stores every year.

Jay Stein

David, I want to emphasize a handful only. This is not amass closing.

David M. Mann -Johnson Rice & Company

Okay. Thank you, Jay. In terms of capital expenditures, canyou give us a sense on what maintenance CapEx is, at least on a go-forwardbasis? Or what it’s been, at least?

James G. Delfs

Again, we’re looking at all aspects of the business, how tobest utilize our cash flow. That’s something that will go along with thevaluation of new stores, how much to spend on existing stores, as well assystems next year.

Linda M. Farthing

And we’re taking a very conservative approach on that.

David M. Mann -Johnson Rice & Company

All right. And then in terms of regional issues, you talk interms of November, was the weakness pretty -- or the deceleration, was itpretty broad-based or was it in certain markets that you felt it?

Michael D. Ray

We performed better in the north than we did elsewhere. Ourweakest area was in the west where we had some unseasonably warm temperaturesand to some extent, wildfires affected us there.

David M. Mann -Johnson Rice & Company

Okay, and then maybe one last question, Linda; it soundslike in this quarter there’s obviously a change in the promotional cadenceversus what the company had tried to do a few years ago towards avoidinggetting into the -- you know, going head-to-head with the department stores andevery promotional coupon and item out there. Can you just talk aboutpositioning wise how you are thinking about that? Do you think you’re going tobe able to get back to more branding, less coupon oriented kind of promotionalsales?

Linda M. Farthing

David, that obviously would be our goal but in this currentenvironment, I am sure all of you are opening your newspapers and seeing 40%off entire stock of this, come in and get a third off of anything you want. Imean, I have never seen it as promotional as it is.

We do realize that that promotion is going to go into 2008but we are addressing it as appropriate for our particular business. We hadoriginally planned a very aggressive branding campaign, as I mentioned in myearlier remarks. Branding takes a long time and right now we needed immediateaction and therefore diverted those dollars to where we could be much morepromotional in our approach and that’s the way we need to be in thisenvironment.

David M. Mann -Johnson Rice & Company

Thank you. Good luck in the holiday.

Operator

Thank you. Your next question is coming from Paula Kalandiakwith Broadpoint Capital.

Paula Kalandiak -Broadpoint Capital

Good morning. My first question is about your merchandise. Iwas wondering if you’re seeing more opportunistic buys from your vendors assome of the other retailers, like department stores, cancel orders from them.

William A. Moll

Paula, that’s very accurate. There’s the opportunistic buysout there are starting to increase from all avenues and we are looking at thoseand as you noted, as you remember my comment, that is a part of our plan goingforward to make sure we are aggressively positioned to take advantage of thoseopportunistic buys as they open up.

Paula Kalandiak -Broadpoint Capital

Okay, and then I think you also mentioned that you are goingto intensify your moderate offering. So would that be some of the lesswell-recognized brand things that are below say Ann Klein or Michael Kors?

William A. Moll

No, they are very well recognizable brands, quite frankly.They could just be at moderate price points but very well recognizable andunderstood brands in the economy at large.

Paula Kalandiak -Broadpoint Capital

Can you give us some examples of what you consider moderatebrands?

William A. Moll

Well, you can go on the floor right now and see GeoffreyBeene. You can see Arrow. You can see all different brands like that on thefloor. You can go on the ladies floor and see Joan’s divisions on the floor inthere. You can see Pappagallo brands on the floor that have intensified. So youcan see many different brands on the floor.

Paula Kalandiak -Broadpoint Capital

Okay. And then just finally, and I know you won’t know howmany stores you’re closing until the end of the year, but at this point do youexpect to be a net store opener or closer next year?

William A. Moll

I think that’s still a decision that will still be made.

Paula Kalandiak -Broadpoint Capital

Okay. Thanks and good luck.

Operator

Thank you. Your next question is coming from Robin Murchisonwith SunTrust Robinson.

Robin Murchison -SunTrust Robinson Humphrey

Thanks very much. Good morning. Some of my questions havebeen answered but I wondered if it’s too difficult at this point to provide anysort of inventory guidance at the end of fourth quarter. Clearly it depends onyour liquidation but I’m just thinking about it all holistically from an end ofquarter positioning and then how you view inventory receipts. I’m suredefensively heading into first quarter but how you would be planning your opento buy. And would you even buy for positive comps or maybe flat comps and tryto chase margin here?

William A. Moll

Robin, a lot of questions there. I think you can look at itthis way, as you heard in my statements, our goal is to liquidate our fallholiday product properly on time to go into the new season with the properamount of freshness and that is very important. It is a hallmark to Stein Martthat we enter January and February with fresh fashion appropriate color andweights for wherever our stores are geographically. So we are doing that.

We are obviously, as I just stated, looking at opportunisticbuys that will enhance those situations. So that is a goal and I really believewe will follow that goal and that is where we are headed right now and we areaggressive in December to get to that number.

Linda M. Farthing

And Robin, as you saw in our guidance, it reflects veryaggressive markdowns to get ourselves positioned so that we can go 2008 asfresh as possible.

Robin Murchison -SunTrust Robinson Humphrey

Thank you, Linda. Bill, with regard to spring ’08 and maybejust looking about and looking at business trends, merchandise trends, andgetting a little bit away from this other stuff but when you look at Spring’08, what do you think about the trends out there? I mean, correct me if I’mwrong, but the return to the waist look is what I’m seeing out there and thengenerally a more colorful palette and bright colors, intensified colors versuswhat we had in spring ’07, which would seem to benefit the novelty part of theequation, which would seem to benefit Stein Mart.

William A. Moll

Robin, you are absolutely accurate. I’ll give one additionto that; the colors look very strong, they fit into our strength and metallicon top of the colors look to be very good in handbags and accessories. Waisttreatment has definitely got a little higher and also if you remember lastyear, we talked about narrow leg jeans and narrow leg pants. The wider leg isbeing tested and I think will hit our sweet spot of our demographics muchbetter.

So yes, we feel good about the fashion trends going into2008 because of color, fabrication and I think it’s also that core careercustomer that we do so well with.

Robin Murchison -SunTrust Robinson Humphrey

Bill, when you talk about the intensified moderateassortment, do you mean bringing in more merchandise in the middle part --speaking of the women’s business, sort of like the middle part and mayberedoing boutique square footage and putting it over to the moderate, or you’rejust talking about --

William A. Moll

No, no, no -- boutique is a hallmark of this company and itwill not change. As you noticed in my comments, boutique is actually slightlyahead in the year-to-date number. Boutique will stay the same. We will continueto grow that, continue to work that as we will [over time].

We are going to intensify our moderate product in the ladiesfloor and try to intensify as much branding in there as we possibly can andthat’s a major initiative, and then to be at very key price points so we can havekey price points on a day-to-day basis and challenge ourselves on what arethose key price points.

Robin Murchison -SunTrust Robinson Humphrey

Is Florida still tracking at about three times, give ortake, the chain average?

James G. Delfs

It is. We’re performing -- obviously that’s one of ourstrongholds, so it is.

Robin Murchison -SunTrust Robinson Humphrey

Okay, and then lastly, I just had a little bit of adifficult time trying to dig up the covenants. Do you remain in compliance? Arethe banks -- are you hearing anything from the banks?

James G. Delfs

We are hearing nothing from them and our covenant basicallyis do we have enough inventory to secure the borrowings, and we do.

Robin Murchison -SunTrust Robinson Humphrey

Very good. Thank you, guys and good luck.

Operator

Thank you. Your next question is coming from Larry [Source]with Robert W. Baird.

Larry Source - RobertW. Baird

Good morning, everybody. Stepping away from your operationsfor a second, on the question of your stock buy-back, could you tell us andremind us, I guess, where we are against your current authorization and whatyour current feelings are. Your average cost, just doing some quick arithmetic,is over $11 on shares you’ve accumulated so far. Where are we against thecurrent authorization and what are your views with a $5.36 stock these days?

James G. Delfs

We have about 800,000 shares left on the board’s currentauthorization and I trust that your math is probably correct on the averageprice that we bought back at. Certainly at today’s price, that would not looklike it was a very good buy.

As to what we’re going to do, I think again let me go backto what we’ve said -- we’re evaluating all parts of the business, continuing toevaluate alternative uses of cash and at this time, I’m not going to predictwhen we’ll be back in the market purchasing stock.

Larry Source - RobertW. Baird

Thank you.

Operator

(Operator Instructions) Your next question is a follow-upquestion from Shaun Smolarz.

Shaun Smolarz -Sidoti & Company

Linda, you mentioned earlier that you are undertaking acomplete analysis of the company from top to bottom to find areas forimprovement. My question is what is your goal with regard to the timing of whenyour analysis will conclude and then communicate a detailed turnaroundinitiative for 2008 and beyond?

Linda M. Farthing

That’s a good question. To remind everyone, I’ve been heretwo months. We are working aggressively to review all of these areas and Iwould hope to be able to give you a much more definitive answer in terms of thechanges in our strategy probably at the -- I want to say some time at the endof the first quarter but it’s evolving and there will be things prior to that.

Shaun Smolarz -Sidoti & Company

All right. Thanks a lot.

Operator

Thank you. Your next question is also a follow-up from DavidMann.

David M. Mann -Johnson Rice & Company

Thank you. In your previous comments, you were talking aboutmoving towards more moderate brands. Can you just talk about what that meansabout the performance of some of your private label product and how you expectprivate label to play a role going forward, Linda?

William A. Moll

David, I’ll answer that question for you. We still feel goodabout our proprietary brands, both in men’s and women’s and in home, and wewill continue to grow them at the pace that they should grow at, evaluatingeverything on board. We are looking at moderate brands to be -- to have theproper brands that the consumer can identify with and have very compellingprice points, and that’s what that whole message means.

It is not a reflection against or for the proprietarybrands. They will stand on their own and we will evaluate them as we goforward.

David M. Mann -Johnson Rice & Company

Is there anything in terms of customer research thatsupports that your customers are looking for more moderate brands or is it justmore to be able to offer them a lower price point?

William A. Moll

It’s more -- it’s not so much a lower price point; it’s avalue-oriented price point through our proposition.

David M. Mann -Johnson Rice & Company

Okay. Can you give us an update on profit logic? It seemslike you should have enough data now to be able to assess -- it seems like ithasn’t helped you too much.

William A. Moll

Well, remember profit logic is a tool to work you throughyour markdowns. When you are in a down-trending economy, the markdowns are themarkdowns, so profit logic is working. We’re working with it and I think we useto the best of our ability right now but we are in a down-trending market thatwe need to liquidate our product on a timely basis.

David M. Mann -Johnson Rice & Company

Okay, and then one last question; I think in this pastquarter, you had some change by DSW in terms of the product offering. Could youjust give an update on how that might have worked?

William A. Moll

Sure. Our shoe business continues to track our business, butthere’s been -- the difference between spring and fall, there’s been dramaticimprovement and I think DSW is very pleased with what they are seeing happenhere as we are.

David M. Mann -Johnson Rice & Company

Okay, great. Thank you very much.

Linda M. Farthing

I want to respond further to the question that Sean asked asto when we would present the whole strategy and re-emphasizing that this isevolving and there are pieces that we are adding as we go along. So when I saidthe end of the first quarter, I don’t want you to think that there are going tobe no changes until the end of the first quarter. I just want to clarify that.

Operator

Thank you. There appear to be no further questions. I’llturn it back to management for any closing remarks.

Linda M. Farthing

Again, I would like to thank all of you for being on the call.We appreciate your interest in our company and I look forward to theopportunity to speak with your again as our strategy is evolving. Again, thankyou very much.

Operator

This does conclude today’s Stein Mart Inc. conference call.You may now disconnect your lines.

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