Our effective tax rate was 39.8 percent for the first six months of 2013 compared to 42.2 percent in 2012. Last year's rate was higher primarily due to non-deductible expenses associated with our post-retirement life insurance benefit that was discontinued during the fourth quarter of 2012.
Balance Sheet Highlights
Cash at the end of the second quarter was $48.1 million compared to $94.1 million at the end of the second quarter of 2012. The lower cash balance reflects payment of a special dividend of $43.8 million at the end of 2012 and a quarterly dividend ($0.05 per share) of $2.2 million during the second quarter of 2013. We have not borrowed on our credit facility since the beginning of 2009.
Inventories were $250.7 million at the end of the second quarter of 2013 compared to $237.9 million at the end of the second quarter last year. Inventories were 5.4 percent higher than last year to support our higher sales.
Initiatives
We have completed the transition of two of the three supply chain distribution centers from third-party to company-operated locations during the second quarter. While this change will not result in an immediate savings in distribution expenses due to start-up costs and an initial capital investment in equipment and software, we believe transitioning distribution to company-operated locations will provide an excellent return on our investment and we expect to see a positive impact starting in 2014. The third and final distribution center in Los Angeles will be completed by early next year.
Over the next few weeks we will be launching our new e-commerce business. As discussed in our fall outlook below, this initiative will have a negative bottom line impact in 2013 from start-up costs and margins that are lower than our physical stores due to relatively high fulfillment costs at our initial expected sales levels. We expect significant future benefit as we grow our e-commerce sales.
Fall 2013 Outlook/Updated Guidance
"Supported by our strong first six months results, we are entering the fall season with optimism about our ability to grow sales," commented Stein. "As we begin our third quarter, we now believe that our gross margin rate will continue to be better than last year and that our expense structure will allow much of our higher gross margin dollars to drop to our bottom line."
Stein Mart