Conn’s, Inc. Reports Record Second Quarter Net Income

Diluted earnings per share of $0.52 for the quarter

Same store sales rose 18.4% over prior-year period

Business Wire

THE WOODLANDS, Texas--(BUSINESS WIRE)--

Conn’s, Inc. (CONN), a specialty retailer of home appliances, furniture, mattresses, consumer electronics and provider of consumer credit, today announced its results for the quarter ended July 31, 2013.

Significant items for the second quarter of fiscal 2014 include:

  • Fiscal 2014 earnings guidance reaffirmed at $2.50 to $2.65 per diluted share;
  • Net income was $19.2 million, up $7.6 million, or 65.1%, over the prior-year period;
  • Earnings per diluted share increased to $0.52 from $0.35 per share a year ago on an 11.3% rise in diluted shares outstanding;
  • Consolidated revenues totaled $270.7 million, an increase of 30.5% from last year;
  • Retail gross margin equaled 38.3% for the quarter, expanding 420 basis points over the prior-year quarter;
  • Retail segment operating income equaled $25.7 million, $13.1 million above the level reported in the prior-year period;
  • Credit segment operating income was $7.5 million, down $3.1 million from the prior-year quarter; and
  • Credit segment provision for bad debts on an annualized basis was 10.6% of the average outstanding portfolio this quarter.

Theodore M. Wright, the Company's Chairman and CEO, commented, “August net sales increased 51% over the prior-year period. Same store sales in August rose 31%. Phoenix market store openings have been successful with three stores now open. We plan to open four more Phoenix area locations over the next several quarters.”

Mr. Wright continued, “The performance of our credit segment for the second quarter was below our expectations due to short-term execution issues in our collection operations. Corrective actions were taken and negative delinquency trends rapidly reversed. Early stage delinquency at the end of August had declined 12% from peak levels earlier in the month. At August 31, early stage delinquency was below the levels experienced at the end of each of the past nine quarters. We expect further improvement in overall delinquency rates over the next several months. Despite the challenges in our collections operations in the second quarter, we are reaffirming our guidance for the year.”

Retail Segment Results

Revenues were $224.0 million for the quarter ended July 31, 2013, an increase of $52.1 million, or 30.3%, over the prior-year quarter. Sales in all product categories increased driven by the 18.4% increase in same store sales and new store openings. With new store openings and the remodeling of existing stores, 31 stores were operating in the Conn’s HomePlus format at July 31, 2013.

The following table presents net sales by category and changes in net sales for the current and prior-year quarter:

    Three Months Ended July 31,       Same store
  2013   % of Total       2012   % of Total   Change % Change   % change
(dollars in millions)
Home appliance $ 63.8 28.5 % $ 51.9 30.3 % $ 11.9 23.0 % 13.3 %
Furniture and mattress 50.7 22.6 32.0 18.6 18.7 58.6 33.7
Consumer electronic 55.8 24.9 46.6 27.1 9.2 19.7 8.2
Home office 18.7 8.4 14.4 8.4 4.3 29.6 18.9
Other   14.5 6.5     11.1 6.5     3.4 29.9

21.6

Product sales 203.5 90.9 156.0 90.9 47.5 30.4 17.6
 

Repair service agreement commissions

17.1 7.7 12.4 7.2 4.7 38.9 29.8
Service revenues   3.1 1.4     3.3 1.9     (0.2) (5.8)
Total net sales $ 223.7 100.0 % $ 171.7 100.0 % $ 52.0 30.3 % 18.4 %
 

The following provides a summary of items influencing the Company’s major product category performance during the quarter, compared to the prior-year period:

  • Home appliance unit volume increased 10%. Laundry sales increased 26%, refrigeration sales were up 23% and cooking sales rose 20%;
  • Furniture unit sales increased 47% and the average selling price was up slightly;
  • Mattress unit volume increased 38% and average selling price was up 11%;
  • Television sales rose 15%, with same store growth in units and average selling price; and
  • Tablet sales increased 52% and computer sales were up 20%.

Retail gross margin was 38.3% for the quarter ended July 31, 2013, up from 34.1% in the prior-year quarter. Margins expanded in all product categories. Product margin on furniture and mattress sales rose 330 basis points from the prior-year period to 47.0% of sales. Furniture and mattress sales contributed 24.9% of the total product revenue in the current period and generated 35.3% of the total product gross profit.

Credit Segment Results

Revenues totaled $46.7 million in the current period, an increase of 31.5% over the prior-year quarter. The revenue growth was attributable to the increase in the average receivable portfolio balance outstanding. The customer portfolio balance equaled $843.1 million at July 31, 2013, increasing $181.3 million from a year ago. The portfolio interest and fee income yield was 17.9% for the quarter ended July 31, 2013, down 50 basis points from the prior-year period as a result of increased short-term, no-interest financing.

Provision for bad debts was $21.3 million for the quarter ended July 31, 2013, rising $9.3 million from the prior-year period. Additional provision was required for a 24.6% increase in the average receivable portfolio balance outstanding and deterioration in delinquency rates in June and July of the current year. The percentage of the customer portfolio balance greater than 60 days delinquent was 8.2% as of July 31, 2013, which compares to 7.5% a year ago and 6.7% as of April 30, 2013. The increase in delinquency resulted in approximately $5.9 million, or 28%, of the total provision for bad debts during the three months ended July 31, 2013. Collection operations performance improved in August with the early stage, 1 to 90 day, delinquency rate declining 160 basis points. As of August 31, 2013, 90-plus day delinquency was 6.3%, up 50 basis points from quarter end.

Additional information on the credit portfolio and its performance may be found in the table included within this press release and in the Company’s Form 10-Q for the quarter ended July 31, 2013 to be filed with the Securities and Exchange Commission.

Capital and Liquidity

The Company’s improved operating performance allowed it to internally fund a significant portion of the increase in its credit portfolio as well as invest in capital expenditures. As of July 31, 2013, the Company had $334.0 million of borrowings outstanding under its asset-based loan facility. Additionally, the Company had $225.2 million of immediately available borrowing capacity as of July 31, 2013, and an additional $24.5 million that could become available upon increases in eligible inventory and customer receivable balances under the borrowing base.

Outlook and Guidance

The Company reaffirms its earnings guidance for the fiscal year ending January 31, 2014 to diluted earnings per share of $2.50 to $2.65 on an adjusted basis. The following expectations were considered in developing the current guidance for the full year:

  • Same stores sales up 15% to 20%;
  • New store openings of between 10 and 12;
  • Retail gross margin between 37.5% and 38.5%;
  • An increase in the credit portfolio balance;
  • Credit portfolio interest and fee yield of between 17.8% and 18.1%, reflecting a higher proportion of the portfolio balance represented by no-interest credit programs than in fiscal 2013;
  • Credit segment provision for bad debts of between 8.5% and 9.0% of the average portfolio balance outstanding based on the same store sales and new store opening expectations presented above;
  • Selling, general and administrative expense of between 28.0% and 29.0% of total revenues; and
  • Diluted shares outstanding of approximately 37.0 million.

Conference Call Information

Conn’s, Inc. will host a conference call and audio webcast on Thursday, September 5, 2013, at 10:00 A.M. CT, to discuss its earnings and operating performance for the quarter. A link to the live webcast, which will be archived for one year, and slides to be referred to during the call will be available at ir.Conns.com. Participants can join the call by dialing 877-754-5302 or 678-894-3020.

About Conn’s, Inc.

Conn’s is a specialty retailer operating over 70 retail locations in Texas, Louisiana, Oklahoma, New Mexico and Arizona. The Company’s primary product categories include:

  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
  • Consumer electronic, including LCD, LED, 3-D and plasma televisions, Blu-ray players, home theater and video game products, camcorders, digital cameras, and portable audio equipment; and
  • Home office, including computers, tablets, printers and accessories.

Additionally, the Company offers a variety of products on a seasonal basis, including lawn and garden equipment, room air conditioners and outdoor furniture. Unlike many of its competitors, the Company provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans.

This press release contains forward-looking statements within the meaning of 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," or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Although we believe that the expectations, opinions, projections, and comments reflected in these forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. 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 continue existing or offer new customer financing programs; changes in the delinquency status of our credit portfolio; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores and the updating of existing stores; technological and market developments and sales trends for our major product offerings; 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 the other risks detailed in our SEC reports, including but not limited to, our Annual Report on Form 10-K. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, we are not obligated to publicly release any revisions or update to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(in thousands, except per share amounts)
         
Three Months Ended Six Months Ended
July 31, July 31,
  2013     2012     2013     2012  
Revenues
Total net sales $ 223,712 $ 171,655 $ 433,160 $ 338,592
Finance charges and other   46,977     35,781     88,592     69,695  
Total revenues 270,689

 

207,436

 

521,752

 

408,287
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

136,040 110,910 259,497 219,353

Cost of parts sold, including warehousing and occupancy costs

1,318 1,441 2,724 2,991
Selling, general and administrative expense 78,757 59,381 152,012 119,037
Provision for bad debts 21,382 12,204 35,319 21,389
Charges and credits   -     346     -     509  
Total cost and expenses   237,497     184,282     449,552     363,279  
Operating income 33,192

 

23,154

 

72,200

 

45,008
Interest expense 3,135 4,874 7,006 8,633
Other income, net   (32 )   (6 )   (38 )   (102 )
Income before income taxes 30,089 18,286 65,232 36,477
Provision for income taxes   10,927     6,680     23,894     13,315  
Net income $ 19,162   $ 11,606   $ 41,338   $ 23,162  
 
Earnings per share:
Basic $ 0.54 $ 0.36 $ 1.16 $ 0.72
Diluted $ 0.52 $ 0.35 $ 1.13 $ 0.70
Average common shares outstanding:
Basic 35,777 32,404 35,549 32,304
Diluted 36,849 33,119 36,688 33,017
 
 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands, except per share amounts)
         
Three Months Ended Six Months Ended
July 31, July 31,
  2013     2012     2013     2012  
Revenues
Product sales $ 203,463 $ 156,026 $ 394,323 $ 308,141
Repair service agreement commissions 17,166 12,355 33,155 23,747
Service revenues   3,083     3,274     5,682     6,704  
Total net sales   223,712  

 

  171,655  

 

  433,160  

 

  338,592  
Finance Charges and other   290     276     629     517  
Total revenues 224,002

 

171,931

 

433,789

 

339,109
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

136,040 110,910 259,497 219,353

Cost of parts sold, including warehousing and occupancy costs

1,318 1,441 2,724 2,991
Selling, general and administrative expense 60,910 46,508 118,420 92,557
Provision for bad debts 72 189 186 401
Charges and credits   -     346     -     509  
Total cost and expenses   198,340     159,394     380,827     315,811  
Operating income 25,662

 

12,537

 

52,962

 

23,298
Other income, net   (32 )   (6 )   (38 )   (102 )
Income before income taxes $ 25,694  

 

$ 12,543  

 

$ 53,000  

 

$ 23,400  
 
Retail gross margin 38.3 % 34.1 % 39.3 % 33.9 %

Selling, general and administrative expense as percent of revenues

27.2 % 27.1 % 27.3 % 27.3 %
Operating margin 11.5 % 7.3 % 12.2 % 6.9 %
 
Number of stores:
Beginning of period 70 65 68 65
Opened 2 1 4 1
Closed   -     (1 )   -     (1 )
End of period   72     65     72     65  
 
 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands)
         
Three Months Ended Six Months Ended
July 31, July 31,
  2013     2012     2013     2012  
Revenues
Finance charges and other $ 46,687 $ 35,505 $ 87,963 $ 69,178
Cost and expenses
Selling, general and administrative expense 17,847 12,873 33,592 26,480
Provision for bad debts   21,310       12,015       35,133       20,988  
Total cost and expenses   39,157  

 

  24,888  

 

  68,725  

 

  47,468  
Operating income 7,530

 

10,617

 

19,238

 

21,710
Interest expense   3,135     4,874     7,006     8,633  
Income before income taxes $ 4,395   $ 5,743   $ 12,232   $ 13,077  
 

Selling, general and administrative expense as percent of revenues

38.2 % 36.3 % 38.2 % 38.3 %
Operating margin 16.1 % 29.9 % 21.9 % 31.4 %
 
 
MANAGED CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(dollars in thousands, except average outstanding balance per account)
         
July 31,
  2013     2012  
 
Total outstanding balance $ 843,071 $ 661,740
Weighted average credit score of outstanding balances 595 602
Number of active accounts 519,867 460,675
Average outstanding customer balance $ 1,622 $ 1,436
Balance 60+ days delinquent $ 69,158 $ 49,763
Percent 60+ days delinquent 8.2 % 7.5 %

Percent of portfolio re-aged

10.8 % 10.7 %
 
Three Months Ended Six Months Ended
July 31, July 31,
2013   2012     2013     2012  
Data for the periods ended:

Weighted average origination credit score of sales financed

601 615 601 615
Weighted average monthly payment rate 5.2 % 5.2 % 5.7 % 5.7 %
Interest and fee income yield, annualized 17.9 % 18.4 % 17.9 % 18.2 %

Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized

7.0 % 8.4 % 6.6 % 8.5 %
Percent of sales paid for by payment option:
In-house financing, including down payment received 76.8 % 69.4 % 75.4 % 68.1 %
Third-party financing 12.2 % 15.8 % 12.0 % 14.2 %
Third-party rent-to-own options 2.5 % 3.2 %   3.1 %   3.5 %
Total 91.5 % 88.4 %   90.5 %   85.8 %
 
 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands)
     
 
July 31, January 31,
  2013   2013
Assets
Current Assets
Cash and cash equivalents $ 3,799 $ 3,849
Customer accounts receivable, net 428,083 378,050
Other accounts receivable, net 38,573

 

45,759
Inventories 90,561 73,685
Deferred income taxes 16,910 15,302
Prepaid expenses and other assets   13,101   11,599
Total current assets 591,027

 

528,244
Long-term customer accounts receivable, net 352,134 313,011
Property and equipment, net 60,685 46,994
Deferred income taxes 10,976 11,579
Other assets, net   8,638   10,029
Total Assets $ 1,023,460

 

$ 909,857
 
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 385 $ 32,526
Accounts payable 81,249 69,608
Accrued compensation and related expenses 9,056 8,780
Other current liabilities   42,740   40,249
Total current liabilities 133,430

 

151,163
Long-term debt 334,298 262,531
Other long-term liabilities 23,512 21,713
Stockholders' equity   532,220   474,450
Total liabilities and stockholders' equity $ 1,023,460

 

$ 909,857
 

Contact:
Conn’s, Inc.
Chief Financial Officer and Treasurer
Brian Taylor, 936-230-5899
or
Investors:
S.M. Berger & Company
Andrew Berger, 216-464-6400

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