Conn's (CONN) Tops Q1 EPS by 4c, Revenues Miss, Comp. Sales Down 8.2%; Announces Up to $75M Share Buyback

May 31, 2019 6:10 AM EDT
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Price: $20.89 +6.42%

Financial Fact:
Operating income: 16.39M

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Conn's (NASDAQ: CONN) reported Q1 EPS of $0.58, $0.04 better than the analyst estimate of $0.54. Revenue for the quarter came in at $353.51 million versus the consensus estimate of $369.27 million.

  • Opened four new Conn’s HomePlus locations in Texas, Louisiana and Alabama
  • Record first quarter retail gross margin of 40.0%
  • Consolidated operating margin of 11.0%, 190 basis points higher than the first quarter of last fiscal year
  • Credit spread of 980 basis points, the best first quarter credit spread in five years
  • Credit segment revenues of $91.3 million, an increase of 10.5% over the prior fiscal year period
  • Credit segment loss before tax of $1.4 million, compared to a loss before tax of $15.6 million for the same period last fiscal year
  • Bad debt charge-offs (net of recoveries) of 12.3% of the average customer receivable portfolio balance
  • Interest expense of $14.5 million, compared to $16.8 million for the same period last fiscal year
  • GAAP earnings of $0.60 per diluted share, an increase of 53.8% over the prior fiscal year period
  • Adjusted earnings of $0.58 per diluted share, an increase of 45.0% over the prior fiscal year period
  • First quarter net income of $19.5 million, an increase of 53.2% over the prior fiscal year period
  • Adjusted EBITDA of $50.4 million, or 14.3% of total revenues

“Record first quarter retail gross margin combined with the best credit segment performance in five years drove a 54% year-over-year increase in first quarter earnings per diluted share. Credit segment profitability continues to improve as a result of higher yields, better portfolio performance and lower borrowing costs. In April 2019, we closed a new ABS transaction with an all-in cost of funds of 5.26%, which was the lowest all-in cost of funds we have achieved since reentering the ABS market in 2015. Given the Company’s strong financial position and our commitment to generating shareholder value, I am pleased to announce that the Board has approved a $75 million stock repurchase plan,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.

“The strong credit platform we have created supports our compelling, differentiated and highly profitable retail business. While first quarter retail sales were lower than expected, we believe we are well positioned to achieve positive same store sales as the fiscal year progresses. First quarter sales were affected by a greater-than-expected shift towards online applications, which exhibit higher credit risk and lower approval rates, disruption in the transition to our new e-commerce platform to support our full omnichannel offering and the delay in federal tax refunds. In addition, the benefit Hurricane Harvey rebuilding had in the first quarter last fiscal year continues to impact year-over-year same store sales comparisons. Over the past year we have seen improvement in our merchandise and retail execution. With a solid retail foundation now in place, we are beginning to expand our marketing efforts to drive traffic of our core target customer to our website and into our stores. We continue to believe our large addressable market and balanced credit strategy can support low single digit same store sales growth, which, combined with a significant store expansion opportunity, can drive very powerful financial results.”

Share Buyback

On May 30, 2019, Conn’s Board of Directors approved a stock repurchase program, effective as of May 31, 2019, pursuant to which the Company may repurchase up to $75 million of its outstanding common stock. The program will remain effective for one year, unless extended by the Board of Directors.

Outlook and Guidance

The following are the Company’s expectations for the business for the second quarter of fiscal year 2020:

  • Change in same store sales between negative 4% and 0%;
    • Markets not impacted by Hurricane Harvey between negative 2% and positive 2%; and
    • Markets impacted by Hurricane Harvey between negative 11% and negative 7%;
  • Retail gross margin between 39.75% and 40.25% of total net retail sales;
  • Selling, general and administrative expenses between 32.0% and 33.0% of total revenues;
  • Provision for bad debts between $47.5 million and $51.5 million;
  • Finance charges and other revenues between $93.0 million and $97.0 million;
  • Interest expense between $14.5 million and $15.5 million; and
  • Effective tax rate between 26% and 28% of pre-tax income.

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



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