Add me to the list of Fools who've been pleasantly surprised during a visit to a Stein Mart (NASDAQ:SMRT), the apparel-heavy retailer that takes inspiration from discount retailers and department stores alike. I've had the opportunity to visit one more than once in recent days, and I've come away impressed with its service, selection, and appearance.
Though this weekend was supposed to be the worst possible time to hit the malls, the Stein Mart I visited was well-stocked; its staff was helpful (but unobtrusive), nicely dressed and even seemed relaxed; and the clean store was perkily decorated for the holiday season. In short, it recalled a visit to Federated Stores' (NYSE:FD) Macy's or a J.C. Penney's (NYSE:JCP), but with sale prices often associated with T.J. Maxx (NYSE:TJX), Marshall's, or Ross (NASDAQ:ROST). It's a nice mix.
Recent numbers from the company, however, paint a somewhat uncertain picture. Earlier this month the company reported fiscal Q3 (ended Oct. 30) financial results: Revenues rose 5.4% year-over-year to $330 million on the shoulders of 6.6% same-store sales growth, certainly some impressive figures -- especially given that the company has been closing stores and actually operates fewer now (260) than it did a year ago (264).
But gross margins ticked back slightly. Evidently the company used markdowns liberally in order to prepare its merchandise mix for the holidays, and there was still some evidence of that in the store I visited. Further, the company trumpeted that its selling, general and administrative expenses fell to 25.2% year-over-year from nearly 30% in last year's quarter -- a decrease that narrows substantially if you back out store closing and asset impairment charges.
Looking forward, Stein Mart hopes high-visibility advertising will help it drive traffic and cut back on discounts. Interestingly, however, it expects Q4 same-store sales to fall somewhat from Q3 levels. Still, that strategy would, if successful, almost certainly deliver the kind of profit growth it expects: Q4 EPS, management believes, will rise perhaps 25% or more.
But investors are with me in believing the company's nine-month report moderates a generally more upbeat first half: Stein Mart shares have fallen noticeably since the news was released. With Q4 its main revenue and profit driver, their disappointment is understandable.
Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article.
