Stein Mart Delivers Great Quarter, Shares Crash?

Though it delivered top- and bottom-line results that were right on target, along with other encouraging information, department store Stein Mart (NASDAQ: SMRT  ) took a 10% hit in Thursday's trading. The Florida-based chain saw continued sales growth across all sectors and its gross margin improved. At this point in the year, Stein Mart has opened four new stores, relocated four, and closed three. It plans to double its new store openings next year while decreasing the number of closings. With a solid round of seemingly good news, why is the stock getting a substantial haircut today? Let's take a closer look.

Earnings recap
S&P Capital IQ's consensus estimate for Stein Mart's third quarter was breakeven ($0.00 per share), and that's exactly what the company delivered. In the year-ago quarter, the company posted a loss of $0.04 per share. Sales grew by more than 6% to $290.5 million, with same-store sales growing a healthy 4.8%. Analysts were originally looking for sales in the neighborhood of $283 million, but the company preannounced its chunkier figure and estimates realigned. Through the first nine months, the company had same-store sales growth of 4%. EBITDA more than doubled.

The numbers are not astronomical, but they are far from poor. So what's going on here?

Looking ahead, Stein Mart management is expecting a 100-basis-point reduction in the gross-profit rate, which should lower the year's second-half gross rate in general. Part of this is due to the company's brand-new e-commerce initiative, which has lower margins. This can't possibly be the culprit, though.

Year over year, the company's cash horde dropped to just $60 million from a little more than $100 million. This was due to two quarterly dividend payments and a $1-per-share special dividend paid out late last year.

Just because
We'll have to go back to the conference call and see if there was a hidden reason for the sell-off. At less than $700 million in market cap, Stein Mart is more susceptible to above-average volume (twice the norm, today), but this could be just a profit-taking day.

Since the beginning of the year, the company's shares have doubled.

What is still befuddling, though, is that Stein Mart's future looks just as bright as its recent history. The company is building out distribution centers aimed at lowering costs, with an expected positive impact as early as next year. The website was just launched in September and could easily boost sales next year. A new private-label credit-card program has shown great results, with members spending 50% more than nonmembers and returning to the store more often.

Unless there is something glaring that somehow passed these tired eyes, Stein Mart is on sale today as an attractive long-term pick.

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