Conn's, Inc. Reports Results for the Quarter Ended April 30, 2013

Conn's, Inc. Reports Results for the Quarter Ended April 30, 2013

Diluted earnings per share of $0.61 for the quarter

Fiscal 2014 earnings guidance raised to $2.50 - $2.65 per diluted share


THE WOODLANDS, Texas--(BUSINESS WIRE)-- Conn's, Inc. (NAS: CONN) , a specialty retailer of home appliances, furniture, mattresses, consumer electronics and provider of consumer credit, today announced its results for the quarter ended April 30, 2013.

Significant items for the first quarter of fiscal 2014 include:

  • Net income equaled $22.2 million, $10.6 million above last year;

  • Earnings per diluted share rose to $0.61 from $0.35 per share a year ago on a 10.8% increase in diluted shares outstanding;

  • Consolidated revenues were $251.1 million, up 25.0% over the prior-year quarter;

  • Same store sales rose 16.5% from the prior-year period, on top of same store sales growth of 17.8% last year;

  • Retail gross margin was 40.3% for the quarter, an increase year-over-year of 660 basis points;

  • Retail segment operating income was $27.3 million, $16.5 million above the level reported in the prior-year period; and

  • Credit segment operating income totaled $11.7 million, an increase of 5.5% from the prior-year quarter.

"We are pleased to again report record net income. Over the past six quarters, our operations have delivered year-over-year expansion in both same store sales and retail margins. With the addition of new stores and update of existing stores, furniture and mattress sales growth is accelerating. Furniture and mattress sales were up over 70% from last year and accounted for 26% of our total product sales in the current period," stated Theodore M. Wright, the Company's Chairman and CEO. "May 2013 same store sales rose 18% with same store sales of consumer electronics up 4%."

Retail Segment Results

Revenues for the quarter ended April 30, 2013 increased $42.6 million, or 25.5%, over the prior-year period to $209.8 million. The year-over-year growth was driven by the significant expansion in same store sales and the five Conn's HomePlusTM stores opened in fiscal 2013. Two new stores opened on April 26, 2013. As of quarter end, 22 existing stores were updated to the Conn's HomePlus format.

The following table presents net sales by category and changes in net sales for the current and prior-year quarter:

Three Months ended April 30,

Same store

% change

2013

% of Total

2012

% of Total

Change

% Change

(dollars in millions)

Home appliance

$

57.7

27.6

%

$

48.3

29.0

%

$

9.4

19.4

%

11.5

%

Furniture and mattress

49.1

23.5

28.4

17.0

20.7

72.7

50.9

Consumer electronic

56.8

27.1

52.4

31.4

4.4

8.3

(0.8

)

Home office

17.5

8.4

12.2

7.3

5.3

44.1

34.2

Other

9.7

4.6

10.8

6.5

(1.1

)

(9.6

)

(15.3

)

Product sales

190.8

91.2

152.1

91.2

38.7

25.5

15.2

Repair service agreement commissions

16.0

7.6

11.4

6.8

4.6

40.4

28.0

Service revenues

2.6

1.2

3.4

2.0

(0.8

)

(24.2

)

Total net sales

$

209.4

100.0

%

$

166.9

100.0

%

$

42.5

25.5

%

16.5

%

The following provides a summary of items influencing the Company's major product category performance during the quarter, compared to the prior-year period:

  • Home appliance average selling price rose 14.6% and unit volume increased 3.8%. Laundry sales increased 25.8%, refrigeration sales were up 16.2% and cooking sales rose 19.4%;

  • Furniture unit sales increased 81.6% and the average selling price was down slightly;

  • Mattress unit volume increased 33.6% and average selling price was up 19.7%;

  • Same store sales of consumer electronics improved through the quarter. In April, same store sales were up 5.9%; and

  • Tablet sales increased 218.0% and computer sales were up 16.2%.

Retail gross margin was 40.3% for the quarter ended April 30, 2013, compared to 33.7% in the prior-year period. Certain of the Company's vendors provide higher promotional assistance during the first quarter of each fiscal year which benefited retail gross margin by approximately 150 basis points in both periods. Margin improvement was reported in each of the product categories - reflecting the benefit of the sale of higher price-point, higher-margin goods and realization of sourcing opportunities. Product margin on furniture and mattress sales rose 6.1 percentage points from the prior-year period to 48.3% of sales. Furniture and mattress sales were 25.7% of total product revenue in the current period and generated 34.8% of the total product gross profit.

Credit Segment Results

Revenues were $41.3 million for the current quarter, up 22.6% from the prior-year period. The revenue increase resulted from an increase in the average receivable portfolio balance outstanding. The portfolio balance rose to $773.4 million at April 30, 2013, from $635.2 million in the prior-year period, due to higher retail sales volumes and credit penetration over the past year. The portfolio interest and fee income yield was 18.0% for the three months ended April 30, 2013, relatively consistent with the prior-year period, but down 70 basis points sequentially as a result of increased short-term, no-interest financing.

Provision for bad debts was $13.8 million for the quarter ended April 30, 2013, an increase of $4.8 million from the prior-year period. This additional provision was driven primarily by the substantial year-over-year growth in the average receivable portfolio balance outstanding, which includes an increase of $31.9 million during the current quarter.

Additional information on the credit portfolio and its performance may be found in the table included within this press release and in the Company's Form 10-Q to be filed with the Securities and Exchange Commission.

Capital and Liquidity

In March of 2013, the Company received an additional $40 million of lender commitments under its asset-based loan facility increasing total commitments under the facility to $585 million. During the first quarter, the Company also repaid the remaining asset-backed notes. In connection with the early repayment of the asset-backed notes, the Company accelerated the amortization of deferred financing cost resulting in an additional $0.4 million of interest expense.

The Company's improved operating performance and credit portfolio velocity allowed it to internally fund the growth in its credit portfolio as well as capital expenditures. As of April 30, 2013, the Company had $293.7 million of borrowings outstanding under its asset-based loan facility. Additionally, the Company had $244.6 million of immediately available borrowing capacity as of April 30, 2013, and an additional $45.3 million that could become available upon increases in eligible inventory and customer receivable balances under the borrowing base.

Outlook and Guidance

The Company increased earnings guidance for the fiscal year ending January 31, 2014, to diluted earnings per share of $2.50 to $2.65 on an adjusted basis. The following expectations were considered in developing the guidance for the full year:

  • Same stores sales up 8% to 13%;

  • New store openings of between 10 and 12;

  • Retail gross margin between 37.5% and 38.5%;

  • An increase in the credit portfolio balance;

  • Credit portfolio interest and fee yield of between 18.0% and 18.3%, reflecting a higher proportion of the portfolio balance represented by no-interest credit programs than in fiscal 2013;

  • Provision for bad debts of between 6.5% and 7.0% of the average portfolio balance outstanding;

  • Selling, general and administrative expense of between 28.0% and 29.0% of total revenues; and

  • Diluted shares outstanding of approximately 37.0 million.

Conference Call Information

Conn's, Inc. will host a conference call and audio webcast on Thursday, June 6, 2013, at 10:00 A.M. CT, to discuss its earnings and operating performance for the quarter. A link to the live webcast, which will be archived for one year, and slides to be referred to during the call will be available at ir.Conns.com. Participants can join the call by dialing 877-754-5302 or 678-894-3020.

About Conn's, Inc.

Conn's is a specialty retailer currently operating 70 retail locations in Texas (58), Louisiana (6), Oklahoma (3), New Mexico (2) and Arizona (1). The Company's primary product categories include:

  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;

  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;

  • Consumer electronic, including LCD, LED, 3-D and plasma televisions, Blu-ray players, home theater and video game products, camcorders, digital cameras, and portable audio equipment; and

  • Home office, including computers, tablets, printers and accessories.

Additionally, the Company offers a variety of products on a seasonal basis, including lawn and garden equipment, room air conditioners and outdoor furniture. Unlike many of its competitors, the Company provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans.

This press release contains forward-looking statements that involve risks and uncertainties.Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives.Statements containing the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Although we believe that the expectations, opinions, projections, and comments reflected in these forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to continue existing or offer new customer financing programs; changes in the delinquency status of our credit portfolio; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores and the updating of existing stores; technological and market developments and sales trends for our major product offerings; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and the other risks detailed from time-to-time in our SEC reports, including but not limited to, our Annual Report on Form 10-K.You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.Except as required by law, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

Three Months Ended

April 30,

2013

2012

Revenues

Total net sales

$

209,448

$

166,937

Finance charges and other

41,615

33,914

Total revenues

251,063

200,851

Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

123,457

108,443

Cost of parts sold, including warehousing and occupancy costs

1,406

1,550

Selling, general and administrative expense

73,255

59,656

Provision for bad debts

13,937

9,185

Charges and credits

-

163

Total cost and expenses

212,055

178,997

Operating income

39,008

21,854

Interest expense

3,871

3,759

Other income, net

(6

)

(96

)

Income before income taxes

35,143

18,191

Provision for income taxes

12,967

6,635

Net income

$

22,176

$

11,556

Earnings per share:

Basic

$

0.63

$

0.36

Diluted

$

0.61

$

0.35

Average common shares outstanding:

Basic

35,313

32,195

Diluted

36,452

32,904

CONN'S, INC. AND SUBSIDIARIES

CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION

(unaudited)

(in thousands)

Three Months Ended

April 30,

2013

2012

Revenues

Product sales

$

190,860

$

152,115

Repair service agreement commissions

15,989

11,392

Service revenues

2,599

3,430

Total net sales

209,448

166,937

Finance charges and other

339

241

Total revenues

209,787

167,178

Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

123,457

108,443

Cost of parts sold, including warehousing and occupancy costs

1,406

1,550

Selling, general and administrative expense

57,510

46,049

Provision for bad debts

114

212

Charges and credits

-

163

Total cost and expenses

182,487

156,417

Operating income

27,300

10,761

Other income, net

(6

)

(96

)

Income before income taxes

$

27,306

$

10,857

Retail gross margin

40.3

%

33.7

%

Selling, general and administrative expense as percent of revenues

27.4

%

27.5

%

Operating margin

13.0

%

6.4

%

Number of stores:

Beginning of period

68

65

Opened

2

-

Closed

-

-

End of period

70

65

CONN'S, INC. AND SUBSIDIARIES

CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION

(unaudited)

(in thousands)

Three Months Ended

April 30,

2013

2012

Revenues

Finance charges and other

$

41,276

$

33,673

Cost and expenses

Selling, general and administrative expense

15,745

13,607

Provision for bad debts

13,823

8,973

Total cost and expenses

29,568

22,580

Operating income

11,708

11,093

Interest expense

3,871

3,759

Income before income taxes

$

7,837

$

7,334

Selling, general and administrative expense as percent of revenues

38.1

%

40.4

%

Operating margin

28.4

%

32.9

%

CUSTOMER RECEIVABLE PORTFOLIO STATISTICS

(dollars in thousands, except average outstanding customer balance)

April 30,

2013

2012

Total outstanding balance

$

773,436

$

635,233

Weighted average credit score of outstanding balances

596

601

Number of active accounts

486,988

458,493

Average outstanding customer balance

$

1,588

$

1,385

Account balances 60+ days past due

$

51,543

$

46,438

Percent 60+ days past due

6.7

%

7.3

%

Percent of portfolio re-aged

11.2

%

11.6

%