Last Thursday, Stein Mart (Nasdaq: SMRT ) released its third-quarter earnings. In our Fool By Numbers column, we asked whether it was worth shopping at Stein Mart. Well, the store might be worth a look, but judging from the 15% drop in share price since the earnings release, the company's stock might not be. Sluggish sales and flat earnings guidance rarely generate positive investor sentiment.
The results for the quarter were actually sanguine. The apparel retailer earned $.01 per diluted share, versus analyst expectations of breakeven. Earnings were down from $.03 per diluted share in the third quarter of 2005. Sales for the quarter increased to $339.2 million, up 1% from $336.5 million in the third quarter of 2005. Comparable same-store sales contributed 0.2% of the increase. Certainly, those aren't eye-popping results, but it was the forward guidance that caused much of the negative sentiment.
While management slightly exceeded targets for the third quarter, it issued guidance for $0.48 earnings per diluted share, the same as fourth-quarter 2005. Analysts were expecting $0.53 for the fourth quarter. Gauging by analyst questions during the conference call, much of the weakness is based around the less-than-stellar performance of the company's 14-hour promotional in-store sales events. The disappointing results caused management to take a more conservative stance for the rest of the fourth quarter.
However, there are several new initiatives that should bring positive momentum to Stein Mart's operations. The company recently began a co-branded credit card program, which will help strengthen its preferred customer program. Management is also taking positive steps toward focusing more on its target clientele, women from ages 35 to 60, by discontinuing the sales of children's apparel. This will create more room for a broader selection of women's apparel, including intimates and plus sizes. Lastly, the company is using psychographics to help identify store locations where there is fashion consciousness.
Now, I am not sure how one determines fashion consciousness, nor have I ever been psychographically analyzed, but I sure hope it works for Stein Mart. Slow sales and lack of increasing comparable same-store sales are no panacea for increasing operating expenses. And this is at a time when the competition for Stein Mart's target clientele is heating up. Gap (NYSE: GPS ) has introduced its Forth & Towne brand; American Eagle Outfitters (Nasdaq: AEOS ) has introduced Martin + Osa; Abercrombie & Fitch (NYSE: ANF ) has recently announced a new store brand called Concept 5.
Until I see a catalyst to spark earnings momentum, I don't see much value in Stein Mart's current stock price. If you're looking for a retailer to fit into your portfolio, I would focus on companies with less exposure to home decor and more upside potential, such as Chico's FAS (NYSE: CHS ) and Gap.
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Fool contributor Matthew Crews welcomes your feedback -- really! He has a financial position in American Eagle Outfitters and no position in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.