Conn's (CONN) Posts Q3 GAAP Loss of 8c/Share; CFO Taylor to Depart; Advisor Engaged to Explore Alternatives

December 9, 2014 7:03 AM EST
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Price: $19.63 --0%

Financial Fact:
Provision for bad debts: 51.56M

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Conn's (NASDAQ: CONN) reported Q3 EPS of ($0.08), which may not compare with the analyst estimate of $0.68. Revenue for the quarter came in at $370.1 million versus the consensus estimate of $376.8 million.

Same store sales declined 1.0%, influenced by tighter credit underwriting standards and the lapping of marketing strategy changes that drove a 35.1% increase a year ago;

Management Change

Conn’s today announced the departure of Brian Taylor, the Company’s Chief Financial Officer. Effective immediately, the Company has appointed Mark Haley as Interim Chief Financial Officer. Prior to joining Conn’s as Vice President and Chief Accounting Officer in October 2014, Mr. Haley was Vice President and Chief Accounting Officer at Coldwater Creek, Inc. for four years. He previously served as Senior Director, Financial Reporting at Supervalu, Inc. for three years and spent 16 years with Deloitte in Assurance Services. The Company has engaged an executive search firm to identify qualified candidates for the permanent Chief Financial Officer position. The search process will include both internal and external candidates.

“On behalf of Conn’s Board of Directors, I would like to thank Brian for his valuable contributions to Conn’s growth over the last several years and wish him the best in his future endeavors. Brian’s commitment and effort were essential to the expansion of the Company. Given Mark’s relevant industry and leadership experience, I have the utmost confidence in his ability to assume the responsibilities of CFO during the search for a permanent successor,” Mr. Wright said.

Additional Oversight

Conn’s also announced several new initiatives by its Board of Directors that are intended to enhance oversight of the business at a time when the senior management team is contending with a combination of rapid portfolio growth and a more difficult credit collection environment. Although the Company’s retail operations have performed well, with successful new store openings and product margin expansion, the performance of the Company’s credit operations has been disappointing several times over the last twelve months. Additionally, the Company recognizes that its credit operations forecasting has not been acceptably accurate.

To help address these challenges, the Board of Directors has established a Credit Risk and Compliance Committee. The Board of Directors members on this committee will be responsible for reviewing credit risks, underwriting strategy and credit compliance activities. The committee will direct and supervise an independent evaluation of underwriting standards to validate underwriting processes and results. A Board of Directors-directed evaluation of collections operations by two independent third-party advisors has already been completed. These reviews identified no significant deficiencies in operations effectiveness but did identify opportunities for improvement, particularly in collections cost efficiency.

Additionally, the Board of Directors has approved two new positions to augment its management team. The Board of Directors has initiated a search for a President, who will report directly to the Company’s Chairman and Chief Executive Officer. The Company is seeking candidates for this position with demonstrated senior leadership capabilities in large, complex retail and/or consumer credit organizations. The Board of Directors has also initiated a search for a Chief Risk Officer, who will report to the Company’s Chief Operating Officer and provide periodic reporting to the Credit Risk and Compliance Committee of the Board of Directors. The Board of Directors is taking these actions in response to the growing scale and complexity of the Company’s credit business, along with increasing industry-wide regulatory scrutiny.

Strategic Alternatives

In October 2014, the Company announced that its Board of Directors authorized management to explore a full range of strategic alternatives for the Company to potentially enhance value for stockholders. The Company has engaged an independent financial advisor to assist in this process and is actively engaged in preliminary discussions with multiple parties about a range of potential strategic alternatives.

No timetable has been set for the completion of the process.

Conn's does not expect to comment further or update the market with any further information on the process unless and until its Board of Directors has approved a specific transaction or otherwise deems disclosure appropriate or necessary. There can be no assurance that this strategic alternatives review will result in the Company changing its current business plan, pursuing a particular transaction or completing any such transaction.

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

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