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- 2014 - February - 24th -

Jay Stein integral to Stein Mart’s success, analyst says

By Mark Basch, Contributing Writer

It’s hard to separate Jay Stein from Stein Mart Inc., since of course it’s his name on the company banner.

However, it’s about more than a name, according to one analyst. She says the Jacksonville-based fashion retailer doesn’t do as well when Stein is not around.

Stein retired as CEO, but remained chairman, of Stein Mart in 2001 before returning as interim CEO in 2011 and full-time CEO last year. The company went through four CEOs before Stein returned to the role.

“It was up against some challenging macroeconomic headwinds during the recessionary period in 2007-2009, but overall Stein Mart never really made progress during Stein’s 10-year hiatus from the CEO role,” Canaccord Genuity analyst Laura Champine said in her report on the company.

“During that time, same-store sales declined in eight of the 10 years, and the adjusted operating margin contracted a cumulative 90 basis points,” or 0.9 percentage points, she said.

“At the same time, the quality of Stein Mart’s merchandise assortment was deteriorating as it was losing focus on brands, which we believe provides the company a competitive advantage in the discount retail space,” she said.

“Upon his return to the CEO role in September 2011, Stein immediately addressed some of these issues. In his first full year at the helm, national brands accounted for 65 percent of Stein Mart’s total sales, compared with 42 percent in 2010 prior to his return. He also decreased the level of regular price coupons and reduced the number of price-driven 12-hour sales events from a peak of nine per year to seven.”

Champine also credits Executive Vice President and Chief Merchandising Officer Brian Morrow, who joined Stein Mart in 2010, with helping to bring in a better national brand assortment.

Champine began coverage of Stein Mart with a “buy” rating, saying that the company’s initiatives will continue to grow sales and earnings.

“Stein Mart is in the midst of a product-driven top and bottom line recovery. Our projections call for earnings to grow at a compounded annual rate of 16 percent over the next five years,” she said.

Champine projects earnings to grow 25 percent this year to 81 cents a share, with same-store sales growing 3 percent this year after 3.7 percent growth last year. Same-store, or comparable-store, sales are sales at stores open for more than one year and are a key indicator of a retailer’s performance.

Champine has an $18 price target for Stein Mart’s stock, which has traded mainly between $12 and $13 this month.

“Shares do not warrant their current discount to the specialty apparel peer group given Stein Mart’s growth prospects,” she said.

With Champine’s rating, four of the five analysts currently following Stein Mart rate it as a “buy,” according to Thomson Financial.

Winter weather challenging for CSX

A lot of us like to gloat when we see scenes of the awful winter weather in much of the country – particularly those of us who escaped northern cities for life in Jacksonville.

However, management at CSX Corp. isn’t chuckling as much as the rest of us.

During an investor conference last week, CSX management “described the weather as providing very challenging operating conditions since mid-December,” Wells Fargo Securities analyst Anthony Gallo said in a research note.

“Constrained economic activity” related to the weather is affecting CSX’s business, Gallo said.

“This is reflected in lackluster carload volumes thus far in the first quarter for CSX and the Rails more broadly. Additionally, CSX sees perhaps ‘a few pennies (lost EPS) from additional expenses,’ including overtime, reduced equipment utilization and higher fuel expense, among other weather related headwinds,” he said.

There is a bright side, though.

“Full year expectations remain largely intact because the weather has helped reduce stubbornly high coal stockpiles,” Gallo said. “In turn, CSX mentioned ‘good visibility’ on several million tons of incremental utility coal in the second half of 2014 that had not been previously expected.”

Coal shipments are CSX’s biggest business, but coal volume has been down in the past several years.

Beyond the first quarter, “CSX offered a generally encouraging outlook for intermodal and merchandise volumes once the weather clears,” Gallo said.

Analysts back off St. Joe

Now that the “Hope Trade” period is over, Raymond James analysts Buck Horne and Paul Puryear downgraded The St. Joe Co. and a group of homebuilder stocks.

Last fall, the analysts touted those stocks, saying that homebuilders consistently outperform the market in the Hope Trade period, which runs from about mid-November to Super Bowl Sunday.

Horne and Puryear, the only analysts following St. Joe, lumped the residential real estate developer in with the homebuilder stocks and upgraded their rating on the company from “market perform” to “outperform” for that time period.

Now that it’s over, they reversed course, downgrading St. Joe back to “market perform” and also downgrading some of the homebuilders.

“After another successful Hope Trade cycle for the homebuilding sector (10 years in a row now), we are pulling back several of our ratings to adopt a more balanced — albeit cautiously optimistic — weighting to the group,” the analysts said in their report.

During this year’s Hope Trade period, homebuilder stocks rose by 14.6 percent, while the Standard and Poor’s 500 stocks fell 0.9 percent, they said.

“Historically speaking, though, we are now entering a calendar period where the risk/reward equation is materially less favorable than during the Hope Trade window,” they said.

St. Joe made some news during the Hope Trade period, agreeing to sell its last remaining development in Northeast Florida, RiverTown in St. Johns County. The company also agreed to sell 382,834 acres of land in the Florida Panhandle, leaving the company with about 180,000 acres total.

“While we view recent announcements (sale of timberland, non-core Jacksonville assets) as a positive step towards simplifying the St. Joe story, we note a lack of clarity on intended use of proceeds or timing of cash inflows likely means a near-term catalyst for unlocking value remains absent (and potentially still a ways off), positioning St. Joe shares for only those investors with a long-time horizon,” Horne and Puryear said.

Parkway likes the Deerwood market

If the company’s recent acquisition activity didn’t already give it away, Parkway Properties Inc. let everyone know in its quarterly conference call last week that the Orlando-based commercial real estate firm really likes the Deerwood office market in Jacksonville.

Orlando-based Parkway last year acquired the Deerwood North and Deerwood South office parks, consisting of eight buildings, for $130 million. Last month, it bought the JTB Center, a three-building complex in Deerwood, for $33.3 million.

“The Deerwood submarket has benefited from the growing presence and relocations of back office operations of a number of prominent financial services firms including Bank of America, Deutsche Bank, and PNC,” Parkway Executive Vice President, Chief Investment Officer and Chief Financial Officer David O’Reilly said in the conference call.

“According to CBRE research, strong leasing activity in the Deerwood submarket has led to total vacancy of only 8.2 percent as of the end of the fourth quarter,” he said.

The JTB Center was 94.4 percent leased when it was acquired by Parkway and according to the company’s yearend report, Deerwood North was 95.7 percent leased and Deerwood South was 92.5 percent leased.

Jacksonville has become one of the most significant markets for Parkway, which owns or has an interest in 50 office properties in eight states.

Besides the Deerwood buildings, Parkway also owns the Stein Mart and Riverplace South buildings near the Southbank and has a 30 percent interest in the 245 Riverside building near Downtown.

The Stein Mart building was 100 percent leased and 245 Riverside was 98.8 percent leased, according to the yearend report, but Riverplace South was only 65.6 percent leased.

BAE drops on 2014 outlook

BAE Systems was the worst performer Thursday in the FTSE 100 index of the largest companies on the London Stock Exchange. BAE fell 8.3 percent after a disappointing earnings forecast.

The London-based defense contractor projected 2014 earnings to fall by 5 percent to 10 percent, due in large part to “continuing U.S. budget pressures.”

BAE in October said it was expanding its Jacksonville ship-building facility, which it acquired in 2010 when it bought Atlantic Marine Holding Co. The company was planning to add 100 workers to its 475-person staff at the shipyard.

Medtronic earnings fall

Medtronic Inc. last week reported adjusted earnings fell 2 percent to 91 cents a share for the third quarter ended Jan. 24, which was in line with analysts’ forecasts.

The Minneapolis-based medical device maker said revenue rose 4 percent to $4.2 billion, after adjustments for currency fluctuations.

Medtronic’s surgical technologies division, which is headquartered in Jacksonville, grew revenue by 11 percent to $386 million after currency adjustments.

mbasch@baileypub.com

(904) 356-2466

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