Conn’s Returns to Profitability
Credit Spread Reaches Highest Level in Seven
Quarters as Credit Transformation Gains Momentum
Retail Gross Margin Grows to Record
Demonstrating Strength of Underlying Retail Model
Conn's, Inc. (NASDAQ:CONN), a specialty retailer of
furniture and mattresses, home appliances, consumer electronics and
home office products, and provider of consumer credit, today
announced its financial results for the second quarter ended July
31, 2017.
“I am pleased to announce that Conn’s returned to profitability
during the second quarter of fiscal year 2018. This achievement is
the direct result of Conn’s differentiated and highly profitable
retail model, the initiatives implemented to turn around our credit
business, and the talented and experienced team we have assembled,”
commented Norm Miller, Conn's Chairman, Chief Executive Officer and
President.
“Conn’s credit business continues to improve as recent
originations become a larger percentage of the portfolio balance,
and benefit from tighter underwriting standards and higher yields.
The Company achieved a credit spread of 390 basis points during the
second quarter of fiscal year 2018, which was the largest spread in
seven quarters. We continue to make significant progress towards
our goal of improving the profitability of the credit segment and
achieving a credit spread of at least 1,000 basis points.
“Conn’s underlying retail model remains strong. Favorable mix
within product categories and lower warehouse, delivery, and
transportation costs continue to benefit retail gross margins,
which exceeded our expectations and increased 270 basis points to a
record 39.8% during the second quarter of fiscal year 2018 compared
to the second quarter of fiscal year 2017, and 140 basis points
from the first quarter of fiscal year 2018. We anticipate same
store sales will improve as last year’s meaningful underwriting
changes were lapped at the end of the second quarter, and the
penetration of our lease-to-own offering increases throughout the
year.”
Hurricane Harvey, which made landfall on August 25th and the
unprecedented levels of rain and flooding, caused Conn's to close
23 stores, its distribution and service centers in Beaumont and
Houston, as well as its Beaumont corporate office. All of Conn’s
stores are now open, as well as the Company’s Beaumont corporate
office, and distribution and service centers. In total, Conn’s lost
approximately 100 selling days as a result of the storm.
It’s been only eight days since Harvey ended and the situation
in southeast Texas and southwest Louisiana is still very dynamic.
Because of the near-term uncertainty Harvey has created, Conn’s
will not provide specific financial guidance for the third quarter.
The company will resume quarterly guidance when third quarter
results are announced in December.
Over the near term, retail sales will be impacted by the loss of
selling days associated with store closures, along with the
unprecedented disruption the aftereffects of the storm are causing
within our local communities. Collections will also be impacted by
customers whose lives have been upended by the storm’s devastation.
Management expects these trends will be temporary and, as the
company experienced in prior storms, retail sales rebounded in
subsequent quarters as rebuilding efforts got underway. In
addition, as customers’ lives get back to normal over the next
several quarters, collections are expected to improve.
Mr. Miller concluded, “I’d like to thank all of Conn’s
employees, customers, and shareholders for their hard work,
support, and patience over the past two years. While we still have
much to accomplish, I am encouraged with the solid foundation we
have created and the direction we are headed. As we enter the
second half of our fiscal year, we are focused on further enhancing
our financial and operating performance, and continue to anticipate
full-year profitability.”
Second Quarter Results
Net income for the second quarter of fiscal year 2018 was $4.3
million, or $0.14 per diluted share, compared to a net loss for the
second quarter of fiscal year 2017 of $11.9 million, or $0.39 per
diluted share. On a non-GAAP basis, adjusted net income for the
second quarter of fiscal year 2018 was $8.2 million, or $0.26 per
diluted share, which excludes charges and credits and the loss from
extinguishment of debt related to the early redemption of our
2015-A Notes. This compares to adjusted net loss for the second
quarter of fiscal year 2017 of $1.2 million, or $0.04 per diluted
share, which excludes charges and credits and the impact of changes
in estimates.
Retail Segment Second Quarter Results
Total retail revenues were $286.5 million for the second quarter
of fiscal year 2018 compared to $332.4 million for the second
quarter of fiscal year 2017, a decrease of 13.8%. The decrease in
retail revenue was primarily driven by a decrease in same store
sales of 15.1%, partially offset by new store growth. Sales were
negatively impacted by underwriting changes made during the 2017
fiscal year, the transition of our lease-to-own partner and general
softness in consumer spending. For the second quarter of fiscal
year 2018, retail segment operating income was $31.3 million.
The following table presents net sales and changes in net sales
by category:
Three Months Ended July 31,
% Same store (dollars in thousands)
2017
% of Total 2016 % of
Total Change Change % change Furniture and
mattress $ 95,297 33.3 % $ 105,562 31.8 % $ (10,265 ) (9.7 )% (12.8
)% Home appliance 89,085 31.1 $ 101,359 30.5 $ (12,274 ) (12.1 )
(13.7 ) Consumer electronics 52,946 18.5 65,735 19.8 (12,789 )
(19.5 ) (19.5 ) Home office 17,862 6.2 21,701 6.6 (3,839 ) (17.7 )
(17.6 ) Other 4,403 1.5 5,366 1.6 (963
) (17.9 ) (17.7 ) Product sales 259,593 90.6 299,723 90.3 (40,130 )
(13.4 ) (15.0 ) Repair service agreement commissions 23,519 8.2
28,310 8.5 (4,791 ) (16.9 ) (15.7 ) Service revenues 3,301
1.2 3,966 1.2 (665 ) (16.8 ) Total net sales
286,413 100.0 % 331,999 100.0 % (45,586 ) (13.7 ) (15.1 )%
The following provides a summary of items impacting the
performance of our product categories during the second quarter of
fiscal year 2018 compared to the second quarter of fiscal year
2017:
- Furniture unit volume decreased 24.3%,
partially offset by a 12.6% increase in average selling price;
- Mattress unit volume decreased 15.9%,
partially offset by a 11.3% increase in average selling price;
- Home appliance unit volume decreased
12.0% and average selling price decreased 2.0%;
- Consumer electronic unit volume
decreased 21.2%, partially offset by a 2.1% increase in average
sales price; and
- Home office unit volume decreased 13.2%
and average selling price decreased 5.1%.
Credit Segment Second Quarter Results
Credit revenues were $80.1 million for the second quarter of
fiscal year 2018 compared to $65.7 million for the second quarter
of fiscal year 2017, an increase of 21.9%. The increase in credit
revenue was primarily the result of originating our higher-yield
direct loan product, which contributed to the increase in the
portfolio yield rate to 18.7% from 14.0%, partially offset by a
4.2% decline in the average balance of the customer receivables
portfolio. Interest income and fees for the second quarter of
fiscal year 2017 included the negative impact of adjustments of
$8.2 million as a result of changes in estimates for allowances for
no-interest option credit programs and deferred interest. Excluding
the impact of changes in estimates, the yield rate increased 260
basis points from the second quarter of fiscal year 2017. The total
customer portfolio balance was $1.48 billion at July 31, 2017
compared to $1.54 billion at July 31, 2016, a decrease of
4.2%.
Provision for bad debts was $49.3 million for the second quarter
of fiscal year 2018 compared to $60.1 million for the second
quarter of fiscal year 2017, a decrease of $10.8 million. The most
significant reasons for the decrease in the provision for bad debts
for the second quarter of fiscal year 2018 compared to the second
quarter of fiscal year 2017 were (i) a decrease in our non-TDR loss
rate as a result of the inclusion of first payment default rates as
a factor in our allowance for bad debts estimate, (ii) changes in
estimates of $5.0 million reflected as an increase to provision for
bad debts for the second quarter of fiscal year 2017 related to
sales tax recovery on previously charged-off accounts, (iii) growth
in the customer receivables portfolio in the second quarter of
fiscal year 2017 compared to a decline in the second quarter of
fiscal year 2018, partially offset by (iv) an increase in the
provision related to TDR accounts.
Additional information on the credit portfolio and its
performance may be found in the Customer Receivable Portfolio
Statistics table included within this press release and in the
Company's Form 10-Q for the quarter ended July 31, 2017, to be
filed with the Securities and Exchange Commission.
Store Update
During fiscal year 2018, the Company has opened three new Conn's
HomePlus® stores, two of which were opened during the first quarter
of fiscal year 2018 in North Carolina, and one of which was opened
during the second quarter of fiscal year 2018 in Virginia, bringing
the total store count to 116. The Company does not intend to open
any additional stores in fiscal year 2018.
Liquidity and Capital Resources
As of July 31, 2017, the Company had $130.5 million of
immediately available borrowing capacity under its $750.0 million
revolving credit facility, with an additional $416.8 million that
may become available under the Company's revolving credit facility
if the Company grows the balance of eligible customer receivables
and total eligible inventory balances under the borrowing base. The
Company also had $35.0 million of unrestricted cash available for
use.
Conference Call Information
The Company will host a conference call on September 7,
2017 at 10 a.m. CT / 11 a.m. ET to discuss its second quarter
fiscal 2018 financial results. Participants can join the call by
dialing 877-754-5302 or 678-894-3020. The conference call will also
be broadcast simultaneously via webcast on a listen-only basis. A
link to the earnings release, webcast and second quarter fiscal
2018 conference call presentation will be available at ir.conns.com.
Replay of the telephonic call can be accessed through September
14, 2017 by dialing 855-859-2056 or 404-537-3406 and Conference ID:
75892735. It can also be accessed online at http://www.leaderview.com/leaderview/la.jsp using
Conference ID number: 75892735 and Web PIN: 0378.
About Conn's, Inc.
Conn's is a specialty retailer currently operating 116 retail
locations in Alabama, Arizona, Colorado, Georgia, Louisiana,
Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South
Carolina, Tennessee, Texas, and Virginia. The Company's primary
product categories include:
- Furniture and mattress, including
furniture and related accessories for the living room, dining room
and bedroom, as well as both traditional and specialty
mattresses;
- Home appliance, including
refrigerators, freezers, washers, dryers, dishwashers and
ranges;
- Consumer electronics, including LED,
OLED, Ultra HD, and internet-ready televisions, Blu-ray players,
home theater and portable audio equipment; and
- Home office, including computers,
printers and accessories.
Additionally, Conn's offers a variety of products on a seasonal
basis. Unlike many of its competitors, Conn's provides flexible
in-house credit options for its customers in addition to
third-party financing programs and third-party lease-to-own payment
plans.
This press release contains forward-looking statements within
the meaning of the federal securities laws, including but not
limited to, the Private Securities Litigation Reform Act of 1995,
that involve risks and uncertainties. Such forward-looking
statements include information concerning our future financial
performance, business strategy, plans, goals and objectives.
Statements containing the words "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "plan," "project," "should,"
“predict,” “will,” “potential,” or the negative of such terms or
other similar expressions are generally forward-looking in nature
and not historical facts. Such forward-looking statements are based
on our current expectations. We can give no assurance that such
statements will prove to be correct, and actual results may differ
materially. A wide variety of potential risks, uncertainties, and
other factors could materially affect our ability to achieve the
results either expressed or implied by our forward-looking
statements including, but not limited to: general economic
conditions impacting our customers or potential customers; our
ability to execute periodic securitizations of future originated
customer loans on favorable terms; our ability to continue existing
customer financing programs or to offer new customer financing
programs; changes in the delinquency status of our credit
portfolio; unfavorable developments in ongoing litigation;
increased regulatory oversight; higher than anticipated net
charge-offs in the credit portfolio; the success of our planned
opening of new stores; technological and market developments and
sales trends for our major product offerings; our ability to manage
effectively the selection of our major product offerings; our
ability to protect against cyber-attacks or data security breaches
and to protect the integrity and security of individually
identifiable data of our customers and employees; our ability to
fund our operations, capital expenditures, debt repayment and
expansion from cash flows from operations, borrowings from our
revolving credit facility, and proceeds from accessing debt or
equity markets; and other risks detailed in Part I, Item 1A, Risk
Factors, in our Annual Report on Form 10-K for the fiscal year
ended January 31, 2017 and other reports filed with the SEC. If one
or more of these or other risks or uncertainties materialize (or
the consequences of such a development changes), or should our
underlying assumptions prove incorrect, actual outcomes may vary
materially from those reflected in our forward-looking statements.
You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
press release. We disclaim any intention or obligation to update
publicly or revise such statements, whether as a result of new
information, future events or otherwise, or to provide periodic
updates or guidance. All forward-looking statements attributable to
us, or to persons acting on our behalf, are expressly qualified in
their entirety by these cautionary statements.
CONN-G
CONN'S, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share
amounts)
Three Months Ended July
31,
Six Months Ended July 31, 2017
2016 2017 2016 Revenues: Total
net sales $ 286,413 $ 331,999 $ 565,698 $ 650,541 Finance charges
and other revenues 80,234 66,158 156,775
136,729
Total revenues 366,647
398,157 722,473 787,270
Costs and expenses: Cost of goods sold 172,306
208,869 344,256 413,335 Selling, general and administrative
expenses 111,632 119,846 218,169 233,093 Provision for bad debts
49,449 60,196 105,379 118,414 Charges and credits 4,068
2,895 5,295 3,421
Total costs and
expenses 337,455 391,806
673,099 768,263 Operating income
29,192 6,351 49,374 19,007 Interest
expense 20,039 24,138 44,047 50,034 Loss on extinguishment of debt
2,097 — 2,446 —
Income (loss) before
income taxes 7,056 (17,787 ) 2,881
(31,027 ) Provision (benefit) for income taxes 2,783
(5,863 ) 1,188 (9,354 )
Net income (loss)
$ 4,273 $ (11,924 )
$ 1,693 $ (21,673 )
Income (loss) per share: Basic $ 0.14 $ (0.39 ) $ 0.05 $
(0.71 ) Diluted $ 0.14 $ (0.39 ) $ 0.05 $ (0.71 )
Weighted
average common shares outstanding: Basic 31,094 30,731 31,034
30,696 Diluted 31,435 30,731 31,292 30,696
CONN'S,
INC. AND SUBSIDIARIES CONDENSED RETAIL SEGMENT FINANCIAL
INFORMATION
(unaudited)
(dollars in thousands)
Three Months Ended July
31,
Six Months Ended July 31, 2017
2016 2017 2016 Revenues: Product
sales $ 259,593 $ 299,723 $ 510,955 $ 586,213 Repair service
agreement commissions 23,519 28,310 48,215 56,495 Service revenues
3,301 3,966 6,528 7,833 Total net sales
286,413 331,999 565,698 650,541 Other revenues 92 437
172 931
Total revenues 286,505
332,436 565,870 651,472
Costs and expenses: Cost of goods sold 172,306 208,869
344,256 413,335 Selling, general and administrative expenses 78,667
84,838 152,614 164,821 Provision for bad debts 165 127 395 525
Charges and credits 4,068 2,895 5,295 3,421
Total costs and expenses 255,206
296,729 502,560 582,102
Operating income $ 31,299 $
35,707 $ 63,310 $
69,370 Retail gross margin 39.8 % 37.1 % 39.1 % 36.5
% Selling, general and administrative expense as percent of
revenues 27.5 % 25.5 % 27.0 % 25.3 % Operating margin 10.9 % 10.7 %
11.2 % 10.6 %
Store count: Beginning of period 115 108 113
103 Opened 1 4 3 9 End of period 116
112 116 112
CONN'S,
INC. AND SUBSIDIARIES CONDENSED CREDIT SEGMENT FINANCIAL
INFORMATION
(unaudited)
(dollars in thousands)
Three Months Ended July 31, Six Months
Ended July 31, 2017 2016
2017 2016 Revenues: Finance charges
and other revenues $ 80,142 $
65,721 $ 156,603 $
135,798 Costs and expenses: Selling, general
and administrative expenses 32,965 35,008 65,555 68,272 Provision
for bad debts 49,284 60,069 104,984 117,889
Total costs and expenses 82,249
95,077 170,539 186,161
Operating loss (2,107 ) (29,356
) (13,936 ) (50,363 ) Interest
expense 20,039 24,138 44,047 50,034 Loss on extinguishment of debt
2,097 — 2,446 —
Loss before income
taxes $ (24,243 ) $ (53,494
) $ (60,429 ) $ (100,397
) Selling, general and administrative expense as percent of
revenues 41.1 % 53.3 % 41.9 % 50.3 % Selling, general and
administrative expense as percent of average total customer
portfolio balance (annualized) 8.9 % 9.1 % 8.8 % 8.8 % Operating
margin (2.6 )% (44.7 )% (8.9 )% (37.1 )%
CONN'S, INC. AND
SUBSIDIARIES CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(unaudited)
As of July 31, 2017 2016
Weighted average credit score of outstanding balances 589 595
Average outstanding customer balance $ 2,375 $ 2,365 Balances 60+
days past due as a percentage of total customer portfolio balance
10.4 % 9.6 % Re-aged balance as a percentage of total customer
portfolio balance 16.0 % 15.3 % Account balances re-aged more than
six months (in thousands) $ 75,694 $ 69,415 Allowance for bad debts
as a percentage of total customer portfolio balance 13.7 % 13.0 %
Percent of total customer portfolio balance represented by
no-interest option receivables 24.1 % 33.3 %
Three Months
Ended July 31, Six Months Ended July
31, 2017 2016 2017
2016 Total applications processed 297,587 334,854 587,914
649,232 Weighted average origination credit score of sales financed
609 611 608 610 Percent of total applications approved and utilized
32.8 % 35.4 % 32.1 % 36.1 % Average down payment 3.0 % 3.3 % 3.3 %
3.6 % Average income of credit customer at origination $ 42,300 $
41,500 $ 42,200 $ 40,900 Percent of retail sales paid for by:
In-house financing, including down payment received 72.6 % 71.8 %
71.6 % 73.6 % Third-party financing 17.2 % 17.2 % 16.2 % 14.9 %
Third-party lease-to-own options 3.8 % 4.9 % 5.7 % 5.1 % 93.6 %
93.9 % 93.5 % 93.6 %
CONN'S, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
July 31, 2017 January 31, 2017
Assets Current Assets: Cash and cash equivalents $
35,018 $ 23,566 Restricted cash 86,436 110,698 Customer accounts
receivable, net of allowances 644,148 702,162 Other accounts
receivable 59,401 69,286 Inventories 196,768 164,856 Income taxes
recoverable 1,353 2,150 Prepaid expenses and other current assets
14,530 14,955
Total current assets 1,037,654
1,087,673 Long-term portion of customer accounts receivable,
net of allowances 601,990 615,904 Property and equipment, net
154,788 159,202 Deferred income taxes 72,435 71,442 Other assets
8,196 6,913
Total assets $ 1,875,063
$ 1,941,134 Liabilities and Stockholders'
Equity Current liabilities: Current maturities of
capital lease obligations $ 906 $ 849 Accounts payable 100,268
101,612 Accrued expenses 54,541 39,781 Other current liabilities
23,093 25,139
Total current liabilities
178,808 167,381 Deferred rent 85,538 87,957 Long-term
debt and capital lease obligations 1,060,720 1,144,393 Other
long-term liabilities 24,720 23,613
Total liabilities
1,349,786 1,423,344 Stockholders' equity 525,277
517,790
Total liabilities and stockholders' equity
$ 1,875,063 $ 1,941,134
CONN'S, INC. AND SUBSIDIARIES NON-GAAP
RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share
amounts)
NET INCOME (LOSS), AS ADJUSTED, AND DILUTED INCOME (LOSS)
PER SHARE, AS ADJUSTED Three Months Ended July
31, Six Months Ended July 31, 2017
2016 2017 2016 Net income (loss), as
reported $ 4,273 $ (11,924 )
$ 1,693 $ (21,673 ) Adjustments:
Changes in estimates — 13,168 — 13,168 Facility closure costs 122 —
1,349 — Impairments from disposals — 1,385 — 1,385 Legal and
professional fees related to the exploration of strategic
alternatives and securities-related litigation 34 135 34 589
Employee severance 1,317 1,213 1,317 1,213 Indirect tax audit
reserve 2,595 — 2,595 — Executive management transition costs — 162
— 234 Loss on extinguishment of debt 2,097 — 2,446 — Tax impact of
adjustments (2,232 ) (5,301 ) (2,803 ) (5,440 )
Net income
(loss), as adjusted $ 8,206 $
(1,162 ) $ 6,631 $
(10,524 ) Weighted average common shares outstanding
- Diluted 31,435 30,731 31,292 30,696
Income (loss) per
share: As reported $ 0.14 $ (0.39 ) $ 0.05 $ (0.71 ) As
adjusted $ 0.26 $ (0.04 ) $ 0.21 $ (0.34 )
Basis for presentation of non-GAAP
disclosures:
To supplement the condensed consolidated financial statements,
which are prepared and presented in accordance with accounting
principles generally accepted in the United States of America
("GAAP"), we also provide retail segment adjusted operating income,
retail adjusted operating margin, adjusted net loss, and adjusted
loss per diluted share. These non-GAAP financial measures are not
meant to be considered as a substitute for comparable GAAP measures
and should be considered in addition to results presented in
accordance with GAAP. They are intended to provide additional
insight into our operations and the factors and trends affecting
the business. Management believes these non-GAAP financial measures
are useful to financial statement readers because (1) they allow
for additional transparency with respect to key metrics we use in
our financial and operational decision making and (2) they are used
by some of our institutional investors and the analyst community to
help them analyze our operating results.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170907005575/en/
S.M. Berger & CompanyAndrew Berger, 216-464-6400
Conns (NASDAQ:CONN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Conns (NASDAQ:CONN)
Historical Stock Chart
From Sep 2023 to Sep 2024