The massive, multi-year rally in Conn's (CONN) was taking a major hit Thursday, as the furniture and electronics retailer cut its forecast and talked of troubles in its credit division, sending shares tumbling more than 30%.
On a preliminary basis, Conn's said fourth-quarter sales and earnings will badly lag analysts' consensus, a disclosure that pushed the stock as far down as $35.10, a 37% drop from the previous close. Recently, the stock was diving 31.9% to $38, and it's in position to record the worst session in its 10-plus-year trading history. For now, that belongs to a 33.4% slump on Oct. 20, 2009.
For the quarter, revenue rose nearly 45% to $301.6 million, of which $275.4 million came from product sales. Same-store sales were up 33.4% from last year. At the same time, earnings will be 75 cents to 80 cents a share, excluding a gain of a penny a share. Compared with what Wall Street anticipated, that's a disaster. Currently, the revenue estimate is above $360 million, whereas profits should have been 93 cents in order to meet the target.
As a result of that quarterly earnings range, full-year profits will be $2.59 to $2.64, down from the $2.75 to $2.80 band that had been projected. In the coming year, earnings also will be worse than predicted, at $3.40 to $3.70 a share, Conn's says. Previously, the bottom line for the year ahead was seen at $3.80 to $4.
The fourth quarter was hurt, the company says, by a higher bad debt provision needed to cope with credit charge-offs and late customer payments. However, the fiscal 2015 outlook additionally factors in a slower-than-expected sales increase, mainly on the electronics side. Conn's said it still has a positive view regarding sales of its other products, which include appliances and mattresses.
"Credit segment performance did not keep pace and delinquency and charge-offs rose in December and January," the company said in a press release. "Sales-driven portfolio growth combined with seasonal portfolio increases placed pressure on our collections operation and execution deteriorated. Sustained below-normal temperatures and the related higher energy costs in some of our markets also temporarily impacted our consumer's income available for debt service."
Prior to this year, shares of Conn's had enriched investors, though it's not a widely known name. Based in The Woodlands, Texas, Conn's is a regional outfit with a heavy concentration in the Lone Star State. For those who did bet on it, they've been happy. In the past three years, the stock was up 137%, 176% and 157%, respectively, ultimately reaching an all-time high at $80.34 last Dec. 26, according to FactSet.
But the past few weeks have seen severe erosion. Between the last trading day of 2013 and Wednesday's close, the shares had fallen 29% already. That tracked similarly sizable drops in electronics sellers Best Buy (BBY), down 37%, and hh gregg (HGG), off 31%, as traders booked gains and signaled they don't have a great deal of faith consumers will spend heavily on personal electronics gear in 2014. Best Buy, up more than 200% in 2013, was the Yahoo Finance comeback stock of the year, and that momentum most certainly has not carried over.
Compared with its peak, Conn's has surrendered almost 53% of its value. Shorts, meanwhile, are doing fine. They've got a position equal to 23.7% of the float.