With all the controversy over at The Men’s Wearhouse, Inc. (NYSE:MW) surrounding its founder George Zimmer, it’s comforting for investors in Stein Mart, Inc. (NASDAQ:SMRT) to know that they don’t have to deal with that issue. Jay Stein is no longer interim CEO, but rather the permanent CEO. He has been chairman since 1989 and was CEO from 1990 to 2001.
Jay Stein is the largest shareholder in Stein Mart, Inc. (NASDAQ:SMRT) and his grandfather founded the company. It was during his tenure that the company experienced its greatest growth. Investors are hoping for the same in act two. The market is obviously pleased as the stock hit a new 52-week high after the news was announced.
The discount department store
Stein Mart, Inc. (NASDAQ:SMRT)’s business model is that of a department store with discount prices. The stores sell off-price brand-name clothing for men, women and children. Fashions range from formal to casual. Stein Mart also sells jewelry, handbags, home décor, shoes and perfume. The company has over 260 stores located primarily in the Southeastern U.S. and Texas.
For the fist quarter of this year, net income was $14.7 million compared to $10.8 million in the same quarter last year. Total sales for the quarter increased 3.8% while comparable sales increased 1.2%. The gross profit rate increased to 30.5% compared to 29.7% last year.
The strong sales trend has been continuing for Stein Mart, Inc. (NASDAQ:SMRT). In May, same-store sales increased 8.2% and total sales increased 3.6% to $107.3 million. In June, the company declared its first-ever quarterly dividend of $0.05 per share for an annual yield of 1.5%. Shares have increased 89% year-to-date.
Going forward, what I like about Stein Mart, Inc. (NASDAQ:SMRT) is that the company has no online presence. This will change in the third quarter when the company launches its e-commerce site. I also like the fact that Stein Mart is partnering with a subsidiary of eBay Inc (NASDAQ:EBAY) to host the site, provide customer service, and do fulfillment from its facilities. According to CFO Gregory Kleffner on the company’s earnings call:
We expect out e-commerce business to provide us with significant future benefit as we grow those sales and we’ll keep you updated as our roll-out proceeds.
The other fact that I like about Stein Mart, Inc. (NASDAQ:SMRT) is its competitive pricing. In a research report from Avondale Partners, analyst Mark Montagna went to Stein Mart stores and conducted a price check of items found in the store and compared them with online prices. Of the 28 items that he identified, 21 of them were cheaper in the Stein Mart store than online. On average, the prices in the Stein Mart store were 24% cheaper than online. This study provides further proof of the strength in Stein Mart’s competitive pricing and will keep shoppers coming into the stores.
The competition
In terms of going head-to-head with a major department store, Stein Mart’s chief competitor is Macy’s, Inc. (NYSE:M). Macy’s operates approximately 840 department stores under the names Macy’s and Bloomingdale’s.
In the first quarter of this year, Macy’s, Inc. (NYSE:M) sales were up 4% over last year and comparable-store sales were up 3.8%. These results were impressive considering the cold winter that Macy’s faced. The gross margin for the quarter was 38.8%. Net income rose 20% to $217 million.
The company spent approximately $360 million during the quarter buying back stock. Macy’s, Inc. (NYSE:M) increased the quarterly dividend by 25% to $0.25 per share and also increased the buyback authorization by $1.5 billion to a total of $2.6 billion.
Macy’s, Inc. (NYSE:M) continues to prove why it’s one of the best-run department stores in the country. The company’s “My Macy’s” program actually monitors 69 different cities and adjusts merchandise to each particular market. Macy’s tailors its merchandise store by store. CEO Terry Lundgren said of the “My Macy’s” program:
That translates into increased sales, profitability and cash flow.
On the discount side, a serious competitor to Stein Mart, Inc. (NASDAQ:SMRT) is The TJX Companies (NYSE:TJX) . TJX is the largest off-price department store chain in the U.S. The company is best-known for its chains T.J. Maxx, Marshalls, and HomeGoods.
In the first quarter of this year, earnings per share increased 13%. Comparable- store sales increased 2%. Overall net sales increased 7% to $6.2 billion. The company repurchased $300 million in stock and plans to buyback a total of $1.3 billion to $1.4 billion in stock this year. The company increased the dividend 26% and this year marked the 17th consecutive year of dividend increases.
In looking forward, the company sees the potential to increase its store base by 50%. With 3,000 stores today, the company’s goal is to increase that number to 4,500.
Where I think the real potential for TJX is in Europe. TJX is the only major off-price retailer in Europe. The reality is that the off-price model works in practically any country and TJX has successfully implemented its strategy in six countries.
The other opportunity for TJS is in e-commerce. The company’s T.J. Maxx brand does not have an e-commerce platform. The website is set to be launched later this year. This is a tremendous opportunity for TJX and can really propel growth going forward.
Foolish assessment
I really like these retailers, but my favorite is Stein Mart. It is the smallest of the three and has the most growth potential. CEO Jay Stein knows his business better than anyone and shareholders are fortunate to have him back as CEO. I look for continued growth in Stein Mart.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article This CEO Is Back Permanently And That’s Great News originally appeared on Fool.com.
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