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Basch Report
Jax Daily Record Monday, Nov. 20, 201706:50 AM EST

Stein Mart seeks 4th quarter pickup after hurricanes disrupt business

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Comparable store 3Q sales fall 6.9 percent.
by: Mark Basch Contributing Writer

As Jacksonville companies reported third-quarter earnings over the past few weeks, nearly every one disclosed some kind of financial setback from Hurricane Irma.

For fashion retailer Stein Mart Inc., the storm was particularly untimely because it coincided with the launch of a new campaign to reinvigorate its sagging sales.

Stein Mart last week reported total sales for the third quarter ended Oct. 28 fell 4.7 percent to $285.4 million and comparable-store sales dropped 6.9 percent.

Comparable-store sales are sales at stores open for more than one year and are considered a key indicator of a retailer’s performance.

As sales dropped, Stein Mart recorded a net loss of $14.6 million, or 31 cents a share, in the quarter.

Stein Mart Chief Financial Officer Gregory Kleffner

During the company’s conference call, Chief Financial Officer Gregory Kleffner said 44 of Stein Mart’s 293 stores are in Texas and 46 are in Florida and most of those had to close or reduce hours as hurricanes Harvey and Irma came ashore.

One store in Bonita Springs remains closed because of storm damage, but is expected to reopen at the end of this month.

Kleffner said the direct impact of those closures reduced comparable-store sales by more than 1 percentage point.

“The indirect impact from lower traffic caused by concern over the hurricane track, evacuations and general disruptions was substantially more, but difficult to estimate,” he said.

Besides the store closings, the storms also affected Stein Mart’s new marketing campaign

“The planned September launch of our new advertising campaign unfortunately fell during the distractions of Hurricane Irma. So, to realize the full potential of our new messaging, we made the decision to add more television advertising in October,” CEO Hunt Hawkins said.

The campaign seemed to have an impact, as comparable-store sales were flat in October after the sharp declines earlier in the quarter, with “slightly positive traffic” in the stores, Hawkins said.

Stein Mart also is cutting costs. The company last month eliminated 48 positions at its Southbank headquarters, leaving it with 293 corporate staff employees in the offices at 1200 Riverplace Blvd.

“These actions are part of our ongoing efforts to control costs and simplify our business processes in this challenging retail environment,” Hawkins said.

The job cuts and other expense reductions are expected to save $10 million in 2018.

“We have made meaningful progress across a number of the initiatives that are beginning to positively impact our results. This will become more evident in the fourth quarter, when our business is not disrupted by hurricanes as it was in the third quarter and our initiatives take even greater hold,” Hawkins said.

Still no revenue for ParkerVision

ParkerVision Inc. was supposed to have revenue to show for its third quarter, but once again last week the Jacksonville-based developer of wireless technology reported no sales.

ParkerVision has not had any products on the market for several years, so it has not been generating any revenue. The company has become best known for a series of lawsuits against major electronics manufacturers that ParkerVision alleges have been infringing on its patented technology. Those legal actions remain ongoing.

However, in August ParkerVision began taking online orders for its new product called Milo, which is designed to enhance in-home Wi-Fi performance. With shipments scheduled for September, that seemed to assure the company would have revenue in the third quarter, but it didn’t happen.

“We made the decision to delay shipments by about one month in order to further refine our mobile app, which is important to the user experience,” CEO Jeff Parker said in the company’s conference call last week.

Parker said product shipments began Oct. 13.

Chief Financial Officer Cindy Poehlman said the company did begin recording revenue from Milo sales in October, as the fourth quarter began.

“I am pleased to report that we are tracking exactly in line with our forecast and I do believe it’s reasonable to expect, at a minimum, revenues in the hundreds of thousands of dollars in Q4 of 2017, and ramping towards millions of dollars in subsequent quarters,” she said.

Parker also is optimistic.

“The feedback that we have heard thus far is confirming our own belief that Milo fits into a significant market opportunity, where tens of millions of Wi-Fi home users are unhappy with their current Wi-Fi coverage, but they don’t want to spend hundreds or thousands of dollars to fix the Wi-Fi,” he said.

Milo systems start at $129.

“We continue to believe that Milo has the potential to generate significant revenue over the next several quarters and well beyond,” Parker said.

With no revenue, ParkerVision reported a net loss of $4.4 million, or 24 cents a share, for the third quarter.

Goldman Sachs analyst: CSX a ‘sell’

Goldman Sachs analyst Matt Reustle initiated coverage last week of Jacksonville-based CSX Corp. with a “sell” rating on the stock.

“While we believe new CEO Hunter Harrison can drive a turnaround in operating performance, we believe investors are overestimating the speed and magnitude of the earnings benefits,” Reustle said in his report.

CSX’s stock has outperformed the S&P 500 index by 26 percent since reports started in January that Harrison was interested in the CEO job, he said. 

Harrison had been credited with big improvements in performance at previous positions at Canadian Pacific Railway Ltd. and Canadian National Railway Co.

“While we acknowledge Mr. Harrison’s success as an operator, we believe he is entering a materially different situation at CSX (versus CN and CP),” Reustle said.

“We see headwinds to CSX’s margin initiatives given constraints on operating a dense eastern rail network and note that CSX is starting from a stronger operating position than CP and CN had at the time of Mr. Harrison starting at these firms,” he said.

Besides his belief that investors have overvalued Harrison’s impact, Reustle has a bearish overall view on the railroad industry.

“We believe the secular growth drivers for the economy are aligned with airfreight/logistics and less so with rail,” he said.

“E-commerce focuses on speed and flexibility in networks which do not align with ‘precision railroading.’ ”

Precision railroading is a phrase used by Harrison to describe an "operationally and financially efficient railroad," said Reustle.

Dick’s Wings owner reports profit

Jacksonville-based ARC Group Inc., operator of the Dick’s Wings & Grill restaurant chain, reported third-quarter adjusted earnings of $67,877, or 1 cent per share.

Revenue quintupled to $1.05 million due to the acquisition of two Dick’s restaurants, which formerly were owned by franchisees.

Results could have even been higher, ARC Group President Seenu Kasturi said in a news release.

 “Our revenue was negatively impacted by Hurricane Irma, which forced the closure of our company-owned stores and those of some of our franchisees for a few days, and our operating expenses were negatively impacted by some one-time rent expenses that we incurred,” he said.

Dick’s Wings has 17 restaurants in Florida and five in Georgia.

Highstar sells more Advanced Disposal 

For the second time since its initial public offering 13 months ago, Advanced Disposal Services Inc.’s largest stockholder is selling shares.

Affiliates of Highstar Capital controlled Ponte Vedra-based Advanced Disposal before the IPO, holding 63.7 percent of the stock. When the company sold new shares in the IPO, Highstar’s stake fell below 50 percent.

In May, Highstar sold off about 14 million of its shares, reducing its stake to 31.6 percent.

Last week, a Securities and Exchange Commission filing by Advanced Disposal shows Highstar intends to sell another 6 million shares.

That will reduce its stake to almost 22 million shares, or 24.8 percent of the stock.

FIS exits China

Fidelity National Information Services Inc., or FIS, announced an agreement last week to sell a business that serves the China market.

FIS is selling SunGard Kingstar Data System (China) Company Ltd. to Zhongping Capital. Terms of the deal were not disclosed. 

The business provides software and processing solutions for China’s financial markets.

“The divestiture is consistent with FIS’ primary goals of serving financial institutions and maintaining leadership positions in markets where the company has meaningful scale,” FIS said in a news release.

FIS, which provides technology services for banks, sold another business that provided software to Chinese financial institutions in early 2015, saying it was not part of its strategic plans.

FIS acquired SunGard Data Services Inc., the parent of Kingstar, in November 2015.

FIS has not provided any financial data for Kingstar, but Robert W. Baird analyst David Koning estimates it produces about $10 million to $20 million in annual revenue and a penny per share in earnings to FIS.

FIS reported adjusted revenue of $6.8 billion and earnings of $3.06 a share in the first nine months of this year.

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