- Stein Mart's first quarter showed the strains of the COVID-19 crisis as losses hit $65.7 million, compared to net income of $4 million in the same period last year.
- All of the discounter's stores reopened by mid-June. CEO Hunt Hawkins said in a press release that sales have exceeded expectations and traffic has steadily increased. However, he added that they remain below last year's figures and the company "expect[s] it will take some time" for sales to recover.
- With Stein Mart's credit facility under a "strain," the retailer borrowed $10 million under the federal Paycheck Protection Program to boost liquidity.
While traffic is increasing to Stein Mart after stores reopened, the company said that "COVID-19 is continuing to have a negative effect on the Company's business as a result of lower in-store traffic."
With sales down, the company is leaning on its credit line, like many retailers have since closing their footprints in response to the pandemic. At the end of its first quarter ended May 2, Stein Mart had just $22.4 million available on its credit facility when last year at the same time it had more than $100 million.
That has both added to the company's debt load — which increased $44 million to roughly $198 million during the quarter — and could mean liquidity strains down the road should the company continue burning cash and run out of credit to keep operating the business.
It was, in part, that liquidity pressure that prompted a "going concern" warning from Stein Mart earlier this month. That is, the company warned it might not be able to survive the challenges created by the pandemic. As it manages its liquidity, Stein Mart was able to negotiate changes to its credit agreement which, along with new reporting requirements, include higher availability.
Stein Mart is certainly not alone in that respect. Retailers have drawn tens of billions of dollars from their credit lines to stay afloat during and after the store closures while also pushing out rent and vendor payments to a later point. All of that adds leverage to companies in a selling environment that has been hard on indebted retailers over the years.
Along with seeking government aid, the retailer said it is seeking other forms of capital and "strategic alternatives" to help it operate through the COVID-19 crisis, including a company sale.
Among everything else the pandemic disrupted, Stein Mart had a sale in hand from a private equity buyer at the beginning of the year, but that deal was terminated during the closure period. The sale followed years of declines and underperforming stock.
In other words, Stein Mart was already struggling. It had a suitor and a plan to leave the public markets to work on its turnaround. But COVID-19 scrambled those plans and has amplified all of its financial woes.
While Hawkins acknowledged the "period of uncertainty" and "near-term challenges" posed by COVID-19, he also said the company has a path forward through the crisis. "While these challenges are significant, they are not insurmountable but will require much from our teams, as well as the continued support of our external partners," he said.