How Conn's Is Crushing Best Buy

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On Thursday, Conn's will release its latest quarterly results. With the stock having hit all-time highs, Conn's is clearly overcoming many of the obstacles that have plagued its better-known peers in the industry.

On its surface, Conn's doesn't stand out much from its competition, with a selection of appliances, consumer electronics, and furniture giving consumers the chance to furnish their homes with a variety of products. But Conn's has seen very strong growth lately. Let's take an early look at what's been happening with Conn's over the past quarter and what we're likely to see in its quarterly report.

Stats on Conn's

Analyst EPS Estimate

$0.55

Change From Year-Ago EPS

57%

Revenue Estimate

$245.98 million

Change From Year-Ago Revenue

22.5%

Earnings Beats in Past 4 Quarters

3


Source: Yahoo! Finance.

Can Conn's keep its growth up this quarter?
In recent months, analysts have upped their views on Conn's substantially, boosting their April-quarter estimates by more than 25% and adding 20% to 25% increases for this fiscal year and next. The stock's strong advance reflects that enthusiasm, as Conn's shares have risen almost 55% just since the end of February.

For years, electronics-retail investors have focused their attention on Best Buy and its faltering prospects. After having defeated rival Circuit City, Best Buy seemed poised for huge growth, but the increasing presence of online retail giant Amazon.com onto the electronics retail scene put the brakes on Best Buy's growth story. Even now, Amazon remains a formidable force that has left Best Buy struggling to make strategic changes, including looking to smaller stores and making margin-reducing price-matching guarantees in order to compete.

But Conn's has managed to avoid much of the pressure that Best Buy has suffered. Its secret has been to focus on appliances, furniture, and lawn-care equipment, all of which are extremely large and difficult to ship by online-based retailers. The company has seen impressive same-store sales gains of its new Home Plus store format, with comps gaining 15% in February and March. That led Conn's to boost its full-year earnings outlook in April, with impressive margins also supporting the stock.

The big question facing Conn's is whether the recent recovery in housing will continue. Conn's gets some of its highest-margin business from furniture and mattress sales, and as fundamentals in those industries have improved, competition has heated up again. Direct competitor hhgregg hasn't seen quite the success that Conn's has, but its shares recently hit two-year highs using a similar business model to Conn's. Moreover, if Best Buy is able to capitalize on its turnaround efforts, then it could pose a renewed threat to the smaller retailer.

In Conn's quarterly report, watch to see how the company's consumer-credit results perform this quarter. Offering direct credit to customers is a key advantage Conn's has, but it leaves the company vulnerable to changing credit conditions. As long as American consumers can sustain their relative strength, then Conn's looks poised to benefit.

The brick-and-mortar vs. e-commerce battle wages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.

Click here to add Conn's to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

The article How Conn's Is Crushing Best Buy originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends hhgregg. It recommends and owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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