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Conns Inc. (CONN): Zacks Rank Buy

Zacks Equity Research

Conns Inc. (CONN) hit a 52-week high of $28.10 on November 8 after releasing preliminary sales and gross margin numbers for the fiscal third quarter. Shares of this Zacks #1 Rank (Strong Buy) specialty retailer of durable consumer products have more than doubled in price since the beginning of the year, riding bullish traits such as strong same-store sales momentum, constant share gains in the appliance market, the ability to charge higher price points than peers, strong margin improvement, unit remodeling and an increase in its credit portfolio balance.

Preliminary 3Q Sales and Gross Margin

On November 8, Conns reported preliminary sales, same store sales and gross margin results for the third quarter of fiscal 2013. Net sales were up 8% year over year to $167.3 million, compared to the Zacks Consensus Estimate of $199 million.

Same store sales increased 12.6% during the quarter, marking the fifth consecutive double-digit same store sales growth for the company. The upside in retail sales was driven by higher average selling prices, increased furniture and mattress offering and growth in home office sales. This was offset by declines in unit volume due to previously closed stores.

Retail gross margin was 35% in the quarter, up 970 basis points year over year. A favorable sales mix across all product categories, combined with expansion of the furniture and mattress business, largely drove retail gross margin in the quarter.

Conns is scheduled to release its complete fiscal 2013 third quarter results on December 3, 2012.

Preliminary Results Drive Estimates

Following the preliminary results, earnings estimates have been trending higher in the past 7 days. The Zacks Consensus Estimate for fiscal 2013 rose 2.7% to $1.52 per share as 4 of 7 estimates were revised higher. This represents year-over-year growth of 120.3%.

The Zacks Consensus Estimate for fiscal 2014 advanced 3.3% to $1.90 per share over the same time frame as, again, 4 of 7 estimates advanced, reflecting a year-over-year increase of 24.8%.


Shares of Conns have recorded a year-to-date return of 128.8%, which shows that it is gaining from its earnings and sales momentum.

Moreover, shares have continually traded above the 200-day moving average since the beginning of calendar year 2012. The stock is also trading above its 50-day moving average since July 26, 2012. Additionally, the company has outperformed the S&P 500 Index since February 6, 2012.

Founded in 1890 and headquartered in Beaumont, Texas, Conns is a retailer of durable consumer products in the United States. The company deals in home appliances, furniture and mattress, consumer electronics and home office products. Additionally, the company offers a variety of products on a seasonal basis, including lawn and garden equipment. The company also provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans. Conns has a market cap of 868.8 million.

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