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Conn's Conference Call Highlights

Shazir Mucklai

Conn's, Inc. (NASDAQ: CONN) reported its Q3 earnings this week. Shares of the company were down 40 percent.

Below are some key highlights from its conference call.

View more earnings on CONN

Performance Metrics and Plans:

• Over the last 10 months, we've successfully opened an additional 20 stores in eight markets and three new warehouses.
• We're reaching more customers than ever before, giving low-income consumers the opportunity to purchase quality, durable, branded products for their homes at affordable monthly payments.
• Revenues and gross margins expanded yet again in the quarter, and operating income in the retail segment grew.
• These changes were reflected in the FICO score underwritten in Q3 of fiscal 2015 of 608 compared to 599 in Q3 of fiscal 2014.
• The aggregate impact of these changes is estimated to be a reduction in sales rate of 12% compared to the third quarter a year ago.
• As we have indicated previously, the fiscal 2014 origination static losses will be elevated and we expect these to be around 9.5% based on current collections trends.
• Fiscal 2015 origination static loss had been expected to trend down from fiscal 2014 because of tighter underwriting standards.
• Turning to our retail segment, November same-store sales were up 0.5%. November a year ago delivered a 31% same-store increase.
• A year ago comparisons become easier for each of the next three quarters.
• November same-store sales of televisions increased 6%.
• Same-store sales of furniture and mattresses increased 7% in the third quarter, on top of a 55% increase a year ago. For our new store, sales of furniture and mattresses are about 39% of the total in the quarter.
• In total, under-levered operating cost related to facility openings totaled $4.5 million this quarter, impacting earnings by about $0.08 a share.
• In the fourth quarter of last year, we opened eight stores, including severallate in the quarter.
• As of October 31, 55% of our $169 million in inventory was financed with outstanding accounts payable.
• Inventory was up 23% on a sequential basis while our store count grew 7%.
• Our inventory turn rate was approximately 4.5% for the quarter.
• We'll open stores in markets with existing marketing spend, existing distribution of both.
• The recent delinquency and charge-off trends are shown on slide eight. 60-plus day delinquency increased 130 basis points during the quarter to 10%.
• As of November 30, the 60-plus day delinquency rate was consistent with October at 10% compared to 8.5% last year.
• The net charge-off rate decreased 110 basis points sequentially to 8.9%.
• The decrease was partially due to increased sales of charged off accounts during the quarter compared to the prior quarter.
• $7.6 million reduction in recoveries expected over the next 12 months due to our decision to pursue collection internally and a $4 million increase related to an 18% increase in balances treated as troubled debt restructuring for accounting purposes.

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