A retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices competitive with off-price retail chains.
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Stein Mart, Inc. operates 268 retail chain stores that offer fashion merchandise in the US. It offers branded apparel for men and women as well as accessories, gifts, linens and shoes, and primarily targets fashion-conscious women at the age of 35 to 60 years. The company sells at 25% to 60% below the departmental stores’ prices.
Majority of the target customers of the company, which forms about 35% of the total female population, belongs to the baby boomer generation. Women from baby boomers generation outpacing average women apparel spending by 13% augurs well for the company. Due to more disposable income and longer life spans of this segment, many US retailers are targeting this segment. With newly introduced Gap’s Forth and Towne Brand, Martin OSA by American Eagle Outfitters, and Chico’s by Chico Fas, which target the same market, Stein Mart’s business is getting tougher.
Additionally, Stein Mart has comparatively lesser stores than its competitors. Also, the recent performance of the company has been dismal with substantial decline in net earnings. Company primarily suffered due to higher payroll expenses and expects higher such expenses in the fourth quarter. Management guidance of flat fourth quarter earnings will result in almost 26% decline in annual net earnings.
On the positive side, Stein Mart has added Nina Campbell Line to its home segment, which contributes about 15% to the topline. However, revenue growth of the company over the years has been negligible. With weak key retail metrics and there being no strong initiatives in line, we feel Stein Mart is not smart.
Stein Mart is finding the going tough in the highly fragmented apparel market. Bottom- lines of the company have suffered by approximately 27% in fiscal 2006 owing to an increase in markdowns coupled with increased advertising and payroll expenses. Albeit, low, the pace of store opening has picked up a bit, with 6 net stores opened in 2006. However, Stein Mart is a victim of intense competition due to which it has not been able to register a decent top line growth in the past couple of years. On a positive note, company plans to open approximately net 18 more stores in fiscal 2007. Nevertheless, this fashion apparel retailer is currently in a race with big players like American Eagle Outfitters, Chico Fas and Ross stores, which have a much higher store base.Also, looking at the macroeconomic factors, rising energy prices is likely to take its toll on the consumer spending which could have an unfavorable impact the fortunes of the company. Going forward, the company plans to unveil a new branding message to the masses for which it has selected DeVito/Verdi to do customer research and produce imaginative advertisements. However, it is too early to ascertain the benefits associated with this marketing program and further the company has no major initiatives lined up to heighten its growth prospects. Additionally, weather has played a spoilsport for the company as it hurt the sales of spring merchandise in February. As a result, management has lowered its same store sales growth expectations for the coming quarter. Thus, the outlook isn’t much exciting for the company and the stock is likely to head southwards from the current levels.