Stein Mart (NASDAQ:SMRT), the discount retailer with an upscale flair, continues to attract shoppers. I visited a Stein Mart not long ago under the mistaken impression that I could find a nice sampling of beer steins to add to my Anheuser-Busch (NYSE:BUD) collection, but alas there were none to be found. Instead, the Jacksonville, Fla.-based company has a simple, yet effective, strategy: "offer the fashion merchandise, service, and presentation of a better department store at prices competitive with off-price retail chains."
While I was there, I went ahead and picked up a nice belt at an even nicer price -- my contribution to the firm's 6.5% increase in second-quarter sales to $320.6 million. Earnings climbed to $5.7 million, or $0.13, reversing last year's $2.8 million loss and beating estimates by two cents.
Stein Mart's same-store sales growth remains impressive, with second-quarter gains of 10.3% and an 11.1% improvement year to date. These numbers compare favorably with rival J.C. Penney's (NYSE:JCP) 7.1% second-quarter bounce and look even stronger beside marginal growth of 3% at TJX (NYSE:TJX) and 3.3% at Federated Department Stores (NYSE:FD), as well as May's (NYSE:MAY) 2.2% retraction.
There were several improvements on other fronts. Higher markups coupled with fewer markdowns helped expand gross margins by nearly three full points to 26.3%. Furthermore, SG&A expenses were trimmed by 130 basis points to 24.5%. Management has also pulled the plug on 22 underperforming stores over the past 18 months, slashing the losses associated with those units to $2 million, from more than $11 million at this point last year.
Stein Mart looks well positioned for a strong year-end push. Current inventories are down 7.1% from last year, with less last-season merchandise hanging on the racks. A net of six new units will be put into operation, bringing the total store count to 262. Though seasonal clearance in August and September typically produces a modest third-quarter loss, comps are still expected to rise 6% to 8%, and full-year earnings are slated to soar from $0.05 to a $0.72 to $0.83 range.
Valuations based on trailing earnings aren't terribly appealing, as the stock has more than tripled over the past year. However, with steady improvements in margin and comps, and a PEG ratio of 0.79 (half of the sector average), Stein Mart seems intriguing for anyone looking to dive into the retail industry.
Fool contributor Nathan Slaughter is satisfied with his Stein Mart belt, but still on the lookout for decorative (or functional) beer steins. He owns none of the companies mentioned.
