Dive Brief:

• Stein Mart disclosed that there is "substantial doubt" about its ability survive over the next year after the COVID-19 crisis hurt its cash flows, operational results, and ability to pay landlords and vendors.
• The discount retailer said that the "going concern" warning, made in its 10-K report, represented a default on its revolver and term loan agreements. The company was able to reach waiver agreements with Wells Fargo and Gordon Brothers that put additional restrictions on its borrowing terms.
• Stein Mart said in the filing that it is "actively exploring additional sources of financing to provide us with additional liquidity and other strategic alternatives, including a sale of the company." The company added, "However, there is no assurance that such efforts will be successful."

Dive Insight:

Stein Mart has been in search of a buyer for more than two years. Early this year, it finally found a suitor, Kingswood Capital Management. The private equity firm agreed to buy the retailer at 90 cents per share, which was a 38% premium on the company's stock price at the time. That deal, though, fell apart in April after the pandemic hit and forced Stein Mart to temporarily close its stores. 

These days the retailer's stock is trading at even less than it was before it struck its deal with Kingswood (roughly 44 cents a share at the time of this writing). Its exit from the public markets has evaporated. Stein Mart said when the merger was canceled that the COVID-19 pandemic created "uncertainty regarding Stein Mart's ability to satisfy the conditions to closing, and the substantial expense to Stein Mart of soliciting shareholder approval for a transaction which is unlikely to close." The cancellation is now the subject of nine lawsuits, according to the retailer's recent 10-K.

Along with the merger, the pandemic disrupted Stein Mart's entire business, forcing it to scramble for cash. As part of that effort, the company has been able to negotiate lease terms on 220 properties but is currently in negotiations with another 41 landlords to defer rent for the closure period and trying to negotiate with more. Stein Mart noted "there is no assurance that we will be successful." The retailer operates 283 stores in total.

After beginning to reopen stores in late April where it could, nearly all of Stein Mart's stores have opened back up again. However, the retailer noted that while traffic to stores has "steadily increased" it has not recovered to pre-pandemic levels, and omnichannel sales have not compensated for the loss from temporary store closures.

"We are not currently able to predict when all of our stores will reopen, or the consumer purchasing behavior once all of our stores reopen," the company said. "Because of the COVID-19 pandemic, there is significant uncertainty surrounding the potential impact on our level of sales and results of operations, liquidity, cash flows and ability to secure additional merchandise in the future."

Stein Mart had problems going into the pandemic. Net sales fell roughly 3% in 2019 and have fallen 10.4% since 2016. The retailer has posted a net loss for each of the past four fiscal years. 

The retailer has tried in recent years to improve its merchandise, reduce inventory, cut costs and add services like ship from store. To drive traffic, it has also installed self-service Amazon Hub Lockers in hundreds of stores. But COVID-19 has thrown uncertainty on nearly every aspect of the retailer's operations. And it's already taken a toll, financially. The company estimated earlier this month that first-quarter net sales fell 57% amid the store closures while operating loss could hit $68 million.