Conns Crashes on Profit Warning
Shares of electronics retailer Conns Inc. (CONN) crashed nearly 43% in a single day after the company trimmed its fourth-quarter fiscal 2014 and fiscal 2015 earnings guidance. The company also provided an insight into its fourth-quarter fiscal 2014 performance.
For the quarter, retail segment net sales grew 44.8% year over year to $301.6 million, while same store sales rose 33.4% year over year. In spite of the year-over-year growth, management now anticipates quarterly earnings in the range of 75–80 cents, way below the Zacks Consensus Estimate of 93 cents.
Sluggish electronics sales and higher provision for bad debt (triggered by higher charge-offs, accounts receivable and delinquency rates) compelled management to lower its outlook. For fiscal 2014, the company now expects earnings in the band of $2.59 to $2.64, as against $2.75 to $2.80 projected earlier. The current Zacks Consensus Estimate is pegged at $2.77 per share.
Further, anticipating the impact of lower sales and higher provision to spill over in fiscal 2015, management trimmed its full-year earnings guidance to $3.40–$3.70 from $3.80–$4.00 per share. However, the company reaffirmed its guidance of opening 15–20 stores in 2015. The current Zacks Consensus Estimate is pegged at $3.93 per share.
Conns’ Credit segment failed to deliver as loan delinquency rates and higher charge-offs rose significantly in December and January, pushing up provisions for bad debt. The percentage of customer portfolio balance over 60 days delinquent was 8.8% as of Jan 31, 2014, as against 7.1% in the past year. The customer portfolio balance was $1,068.3 million as of Jan 31, 2014, increasing 44.1% from Jan 31, 2013.
While a severe winter and subsequent rise in energy expenses at the customers’ end impacted debt payments, the company’s focus on sales growth marred its debt collection operations.
Apart from this, factors such as rise of e-shopping have added to the company’s troubles. Heightened competition from online giants like Amazon.com Inc. (AMZN) has significantly affected prices and reduced footfall at several brick and mortar stores.
Earlier this year, several electronic chains including Best Buy Co., Inc. (BBY) and hhgregg, Inc. (HGG) have reported dismal holiday sales data and subsequently trimmed their guidance. In fact, Best Buy lost 30% of its market capitalization in a single day after having risen twofold in 2013.
Currently, Conns carries a Zacks Rank #3 (Hold).
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