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Conn's Stock Keeps Massive Rally Alive

The Exchange

Conn's (CONN) was back within striking distance of the all-time high it reached earlier this year after the furniture and appliance seller bolted ahead following its latest earnings.

The company's stock was surging 15.1% to $67.26 on volume that nearly tripled its normal daily total only one hour into the session. At the moment, that was good for the 14th-best gain in its 10-year history, and the best day since August 2012, according to FactSet.

Driving the move was a third-quarter earnings report that featured a 50.6% year-over-year revenue increase to $310.9 million, a gross margin improvement of 460 basis points and an upbeat profit forecast for the 2014 fiscal year that's in its final months.

"We achieved the highest quarterly revenue and net income in Conn’s history," Theodore Wright, the company's chairman and CEO, said in a statement. "This sales trend continued into November with retail sales expanding 49%. November same store sales rose 32%."

Retail revenue for the quarter that ended Oct. 31 rose nearly 54% to $257.1 million, while same-store sales were up 35.1%. Analysts were looking for a 20% gain in comparable sales, so Conn's beat that easily. The overall top line was $21 million better than the $289.3 million consensus forecast. Conn's also records revenue from its financing segment, and there the increase was 37.8% to $53.4 million. Adjusted earnings of 71 cents a share topped projections by 7 cents.

For the fiscal year, Conn's, based in The Woodlands, Texas, is predicting an adjusted profit of $2.75 to $2.80 a share, surpassing its prior outlook range by 15 cents. Looking ahead to the year that will end in January 2015, it's penciling in earnings of $3.80 to $4. Wall Street is calling for $2.61 and $3.61, respectively.

Conn's has climbed 119.4% in 2013, and in the last three years it's up an eye-popping 1,200%. That said, traders covering the short positions that continue to go against them is likely playing some role in the continuing bounce. As of mid-November, around 23% of Conn's float was sold short, totaling 5.8 million shares. That's down from the 7 million peak in March, but about 800,000 ahead of the overall short a year ago.

However, many industries and sectors indeed have lifted along with the broad rally of recent years that's taken the Dow Jones Industrial Average and S&P 500 to record highs, and the space Conn's inhabits has been one of the beneficiaries. It sells a variety of items for the home, from TVs to mattresses to vacuum cleaners.

Among others in the housing-related space, Best Buy (BBY), perhaps the stock market's comeback story of the year, has gained 250% in the past 12 months. Appliance and electronics seller h.h. gregg (HGG) has gained 99% in that time, and recliner dealer La-Z-Boy (LZB) is ahead by 97%. Home Depot (HD) has added 135% since the end of 2010, while deck-and-railing maker Trex (TREX) has tripled.

Conn's is regional player with under 80 stores operating in Texas, Louisiana, Arizona, Oklahoma and New Mexico. Though it doesn't have a wide national following, it's clearly paid off lately for those who know the name and put a long bet on it. If it holds at or rises from its current level, it would mark the third straight year in which the stock more than doubled. Prior to that, however, it did fall each year from 2007 to 2010, FactSet data show. Its best-ever close came in September, at $68.31.