Stein Mart released restated third-quarter results Friday that showed an upwardly revised loss that wasn’t quite as bad as originally feared.
The company said its loss for the third quarter increased by an additional $1.3 million, or three cents a share, to $3.1 million, or seven cents, as the revised results reflected the impact of markdowns which weren’t accurately reflected in previously released figures. Stein Mart had previously reported a third-quarter loss of $1.8 million, or four cents a share, but then last week said it expected the size of the loss to increase by a range of $1.3 million to $1.6 million or three to four cents a share once accounting issues were resolved relating to the gross margin impact of markdowns.
Resolution of the accounting problems will allow Stein Mart to file its quarterly report with the Securities and Exchange Commission and regain compliance with NASDAQ listing requirements. The company also said it is working to put controls in place to address the material weakness.
As it was explained when the issue was first disclosed, July and August merchandise unit balances in the company’s legacy perpetual inventory system were understated as a result of a planned, but improperly executed, one-time override of an automated records purge process. The legacy perpetual inventory system is scheduled to be replaced with a new system, which is anticipated to go live in the first quarter of 2012. The company said transactions recorded in the retail stock ledger, which is the accounting system of record for inventory and cost of merchandise sold, were correct except for permanent markdowns.
The issue occurred as Stein Mart was experiencing challenging sales conditions. Same-store sales declined 2.9% and total sales declined 3.5% to $258.5 million during the third quarter and conditions didn’t appear to improve in November when comps declined another 4.6%. Stein Mart is attempting to revert to more of an every day low price strategy and the weak results are due in part to cycling against prior year periods of heightened promotional activity.