Conn's (CONN) Tops Q3 EPS by 7c, Revenues Miss

December 10, 2019 6:07 AM EST
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Price: $20.89 +6.42%

Financial Fact:
Total cost and expenses: 360.38M

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Conn's (NASDAQ: CONN) reported Q3 EPS of $0.61, $0.07 better than the analyst estimate of $0.54. Revenue for the quarter came in at $377.71 million versus the consensus estimate of $394.29 million.

  • Highest Quarterly Credit Spread in Six Years of 1,070 Basis Points Produces Positive Credit Segment Income
  • GAAP Earnings Increased 13.3% to $0.51 Per Diluted Share
  • Same Store Sales Impacted by Underwriting Adjustments and Market Challenges in Consumer Electronics Category
  • New Stores Contributed over 7% Growth to Retail Sales

“For the first time in five and a half years, Conn’s produced positive credit segment income before taxes, primarily as a result of a third quarter credit spread of 1,070 basis points. This is a significant milestone for the company and validates our 1,000-basis point credit spread operating strategy. Our credit model is the foundation of our overall business and enables our unmatched value proposition for our core customer, while providing us the flexibility to support our retail growth strategy,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.

“We are disappointed by our third quarter same store sales performance of negative 8.4%, which reflects the impact of underwriting adjustments we consider prudent and unprecedented market dynamics within our consumer electronics category. During the third quarter, we began to see deteriorating performance of certain segments of the portfolio, primarily driven by new customers and sales from online applicants. We made the necessary adjustments to maintain our credit spread of approximately 1,000 basis points, which negatively impacted same store sales by approximately 4% to 5%. Compounding the impact to third quarter retail sales was a combination of significant price deflation for premium large screen televisions, which negatively affected average selling prices, and an increase in production of large screen televisions by second- and third-tier manufacturers, which made cash purchases of large screen televisions more accessible to our core customer and negatively impacted units. These factors in the consumer electronics category further impacted same store sales by approximately 3% to 4% during the quarter.”

“We are committed to making the necessary adjustments to our credit segment as we transition to our growth-focused strategy. In addition, we have implemented several near-term initiatives to help offset the current market environment for consumer electronics, which include expanding our product and service offerings, while maintaining a disciplined credit strategy. Our credit strategy and strong capital position provide us with flexibility to navigate near-term retail challenges, while investing in our long-term unit growth plan. We remain confident in our ability to produce annual retail revenue growth of 8-10% as new stores contributed over 7% growth to retail sales during the third quarter,” concluded Mr. Miller.

Outlook and Guidance

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

  • Change in total retail sales between negative 9% and negative 5%;
  • Change in same store sales between negative 16% and negative 12%;
  • Retail gross margin between 39.25% and 39.75% of total net retail sales;
  • Selling, general and administrative expenses between 32.25% and 33.25% of total revenues;
  • Provision for bad debts between $55.0 million and $59.0 million;
  • Finance charges and other revenues between $97.0 million and $101.0 million;
  • Interest expense between $15.5 million and $16.5 million; and
  • Effective tax rate between 25% and 27% of pre-tax income.

The Company’s fourth quarter same store sales guidance reflects the continuation of the same factors that impacted same stores sales in the third quarter of fiscal year 2020.

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

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