Conn's (CONN) Misses Q2 EPS by 2c; Updates on Strategic Initiatives; Approves $75M Common Stock Buyback

Conn's (NASDAQ: CONN) reported Q2 EPS of $0.45, $0.02 worse than the analyst estimate of $0.47. Revenue for the quarter came in at $396.1 million versus the consensus estimate of $396.38 million.

Same store sales for the quarter increased 6.7%, excluding the impact of the Company's decision to exit video game products, digital cameras, and certain tablets.

Conn's announced that, following a thorough exploration of strategic alternatives to enhance shareholder value, it has completed a strategic repositioning of its business and implemented a long-planned leadership succession.

Strategic Initiatives

In separate press releases issued today, Conn’s announced a number of strategic initiatives that collectively represent a major transformation in the business and position the Company to execute its growth strategies while reducing risk and enhancing shareholder value. These actions include the appointment of a new Chief Executive Officer, entering into an agreement to securitize $1.4 billion of retail installment contract receivables, Board authorization to repurchase up to $75.0 million of securities, and termination of the stockholders’ rights plan. The actions represent the culmination of an exploration of strategic alternatives that was initiated by the Company’s Board of Directors in October 2014.

Further details are as follows:

Management and Governance Changes

• The Board of Directors, implementing a long-planned leadership succession, has appointed Norman Miller to serve as Chief Executive Officer and President. Mr. Miller is a seasoned executive with considerable experience in retail and consumer finance, having previously served as President of both Sears Automotive and DFC Global. He succeeds Theodore Wright, who will remain on the Conn’s Board of Directors as Executive Chairman, transitioning to Non-Executive Chairman at the end of the fiscal year.
• As previously reported, the Board of Directors established a Credit Risk and Compliance Committee to review credit risk, underwriting strategy, credit compliance activities, and the provision methodology. An independent evaluation of these areas at the direction of this committee did not result in changes to any of the Company’s practices or procedures.
• In the past year, the Company added a Chief Credit Officer to provide additional capability in analyzing and assessing credit risk, named a new Chief Financial Officer, and created and filled the role of Credit Compliance Officer.

Securitization Transaction

• The Company entered into an agreement to securitize $1.4 billion of retail installment contract receivables. Conn’s intends to execute periodic securitizations of future originated loans including the sale of any remaining residual equity. The Company intends to retain origination and servicing of contracts.
• The Company will maintain its existing asset-based revolving credit facility and at least a portion of its outstanding senior notes.
• This approach creates a diversified capital structure to improve access to multiple debt markets and results in an asset-light business model with less balance sheet risk.
• This transaction is an important step toward creating a simplified capital structure that is also intended to provide a model that is more easily understood by investors.

Repurchase of Securities

• The Board of Directors authorized the Company to repurchase up to a total of $75.0 million of outstanding shares of its common stock or its 7.250% Senior Notes Due 2022. This authorization is the maximum amount permitted under the Company’s credit facility and senior note indenture.
• The Company believes the repurchase program underscores its confidence in its long-term growth prospects, consistent with Conn’s overall commitment to generate continued profitable growth and enhanced long-term shareholder value.

Termination of Stockholders’ Rights Plan

• The Board of Directors approved the termination of the Company’s stockholders’ rights plan, effective at the close of the securitization transaction, currently anticipated to be on or about September 10, 2015.
• The Company had adopted its stockholders’ rights plan in October 2014 to enable management and the Board of Directors to explore strategic alternatives while reducing the likelihood that any person or group would gain control of Conn’s through open market accumulation or otherwise without appropriately compensating all of the Company's stockholders.

Taken together, these actions represent the completion of a carefully considered strategic plan, developed under the leadership of Conn’s Board of Directors, to position the Company for continued future growth and enhanced long-term shareholder value.

For earnings history and earnings-related data on Conn's (CONN) click here.

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