Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

SEC Aside, Stein Mart, Inc. (SMRT) Looks Ready to Fly

It’s certainly no secret that department stores are among the most troubled of all retail businesses, given their relatively large physical footprints, high operating costs, and disrupted business models courtesy of the Internet. Still, some are prospering through this difficult time by differentiating themselves. Jacksonville, Fla.-based Stein Mart, Inc. (NASDAQ:SMRT) is one of those that has found a way to make it despite strong industry headwinds. In the company’s recently released earnings, profits were up nearly 50%, which should have sent shares higher — instead they dropped. The reason was not to do with operating performance, but the announcement of an SEC investigation into the restatement of prior financial results, along with a change in auditors. Is this unfair punishment to an otherwise strong performer?

Stein Mart, Inc. (NASDAQ:SMRT)

Strong earnings
Stein Mart, Inc. (NASDAQ:SMRT) earned $0.08 per share on $3.4 million in net income this past quarter, up from $0.05 per share in the year-ago quarter. Revenue rose roughly 4% to $291 million. Analysts were expecting roughly the same numbers.

On stores opened at least one year, a great metric for the viability of a chain’s stores, comparables rose 6.4% — a particularly juicy number for a time that Jim Cramer recently noted is the worst period he can remember for the retail industry.

Stein Mart, Inc. (NASDAQ:SMRT) is seeing higher-margin items selling better than before, combined with a lean cost structure, which is how the bottom line was able to grow so substantially over the relatively minor top-line sales figure. The company’s customers are mainly female, and many of them are snowbirds from the North coming down to the Southeast during the winter months. Management was very excited to be launching Stein Mart, Inc. (NASDAQ:SMRT)’s Internet business, a method that they believe will allow loyal snowbird customers to shop Stein Mart, Inc. (NASDAQ:SMRT)’s attractive deals year-round.

For those who either are snowbirds themselves or have spent substantial time around the demographic (the author hails from Sarasota, Fla., home of the snowbird), it is not difficult to see why this is an exciting development.

EBITDA for the quarter grew from $7.3 million in 2012 to $12.8 million.

Looking ahead
On an operating level, Stein Mart’s business looks very attractive. The company has yet to tap into the e-commerce world, where most retailers have found their growth lately. This leaves a long runway for the company to increase earnings, stores aside. Management has closed underperformers, and is expanding the chain to other states, including California and Colorado. The company has $48 million in cash and no debt on the books.

On a trailing basis, EV to EBITDA is 7.22, which makes it a reasonably valued stock with interesting growth potential.

The question with Stein Mart, Inc. (NASDAQ:SMRT) is the SEC investigation, of which we know little other than the aforementioned reasons for the case. Management has been mute on the subject, on advice of council. Though, with the strong current performance, and apparently no question as to the company’s balance sheet accounting (which is immaculate-looking), the investigation does not appear to threaten anything other than legal expenses.

Trading five points down, and possibly more in coming days, Stein Mart may be a briefly discounted stock with appealing upside potential.

The article SEC Aside, Stein Mart Looks Ready to Fly originally appeared on and is written by Michael Lewis.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.