Conn's, Inc. Reports Record Second Quarter Net Income

Conn's, Inc. Reports Record Second Quarter Net Income

Diluted earnings per share of $0.52 for the quarter

Same store sales rose 18.4% over prior-year period


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 July 31, 2013.

Significant items for the second quarter of fiscal 2014 include:

  • Fiscal 2014 earnings guidance reaffirmed at $2.50 to $2.65 per diluted share;
  • Net income was $19.2 million, up $7.6 million, or 65.1%, over the prior-year period;
  • Earnings per diluted share increased to $0.52 from $0.35 per share a year ago on an 11.3% rise in diluted shares outstanding;
  • Consolidated revenues totaled $270.7 million, an increase of 30.5% from last year;
  • Retail gross margin equaled 38.3% for the quarter, expanding 420 basis points over the prior-year quarter;
  • Retail segment operating income equaled $25.7 million, $13.1 million above the level reported in the prior-year period;
  • Credit segment operating income was $7.5 million, down $3.1 million from the prior-year quarter; and
  • Credit segment provision for bad debts on an annualized basis was 10.6% of the average outstanding portfolio this quarter.

Theodore M. Wright, the Company's Chairman and CEO, commented, "August net sales increased 51% over the prior-year period. Same store sales in August rose 31%. Phoenix market store openings have been successful with three stores now open. We plan to open four more Phoenix area locations over the next several quarters."

Mr. Wright continued, "The performance of our credit segment for the second quarter was below our expectations due to short-term execution issues in our collection operations. Corrective actions were taken and negative delinquency trends rapidly reversed. Early stage delinquency at the end of August had declined 12% from peak levels earlier in the month. At August 31, early stage delinquency was below the levels experienced at the end of each of the past nine quarters. We expect further improvement in overall delinquency rates over the next several months. Despite the challenges in our collections operations in the second quarter, we are reaffirming our guidance for the year."

Retail Segment Results

Revenues were $224.0 million for the quarter ended July 31, 2013, an increase of $52.1 million, or 30.3%, over the prior-year quarter. Sales in all product categories increased driven by the 18.4% increase in same store sales and new store openings. With new store openings and the remodeling of existing stores, 31 stores were operating in the Conn's HomePlus format at July 31, 2013.

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

  Three Months Ended July 31,   Same store
 2013 % of Total   2012 % of Total Change% Change % change
(dollars in millions)
Home appliance$63.828.5%$51.930.3%$11.923.0%13.3%
Furniture and mattress50.722.632.018.618.758.633.7
Consumer electronic55.824.946.627.19.219.78.2
Home office18.78.414.48.44.329.618.9
Other 14.56.5  11.16.5  3.429.9

21.6

Product sales203.590.9156.090.947.530.417.6
 

Repair service agreement commissions

17.17.712.47.24.738.929.8
Service revenues 3.11.4  3.31.9  (0.2)(5.8)
Total net sales$223.7100.0%$171.7100.0%$52.030.3%18.4%
 

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 unit volume increased 10%. Laundry sales increased 26%, refrigeration sales were up 23% and cooking sales rose 20%;
  • Furniture unit sales increased 47% and the average selling price was up slightly;
  • Mattress unit volume increased 38% and average selling price was up 11%;
  • Television sales rose 15%, with same store growth in units and average selling price; and
  • Tablet sales increased 52% and computer sales were up 20%.

Retail gross margin was 38.3% for the quarter ended July 31, 2013, up from 34.1% in the prior-year quarter. Margins expanded in all product categories. Product margin on furniture and mattress sales rose 330 basis points from the prior-year period to 47.0% of sales. Furniture and mattress sales contributed 24.9% of the total product revenue in the current period and generated 35.3% of the total product gross profit.

Credit Segment Results

Revenues totaled $46.7 million in the current period, an increase of 31.5% over the prior-year quarter. The revenue growth was attributable to the increase in the average receivable portfolio balance outstanding. The customer portfolio balance equaled $843.1 million at July 31, 2013, increasing $181.3 million from a year ago. The portfolio interest and fee income yield was 17.9% for the quarter ended July 31, 2013, down 50 basis points from the prior-year period as a result of increased short-term, no-interest financing.

Provision for bad debts was $21.3 million for the quarter ended July 31, 2013, rising $9.3 million from the prior-year period. Additional provision was required for a 24.6% increase in the average receivable portfolio balance outstanding and deterioration in delinquency rates in June and July of the current year. The percentage of the customer portfolio balance greater than 60 days delinquent was 8.2% as of July 31, 2013, which compares to 7.5% a year ago and 6.7% as of April 30, 2013. The increase in delinquency resulted in approximately $5.9 million, or 28%, of the total provision for bad debts during the three months ended July 31, 2013. Collection operations performance improved in August with the early stage, 1 to 90 day, delinquency rate declining 160 basis points. As of August 31, 2013, 90-plus day delinquency was 6.3%, up 50 basis points from quarter end.

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 for the quarter ended July 31, 2013 to be filed with the Securities and Exchange Commission.

Capital and Liquidity

The Company's improved operating performance allowed it to internally fund a significant portion of the increase in its credit portfolio as well as invest in capital expenditures. As of July 31, 2013, the Company had $334.0 million of borrowings outstanding under its asset-based loan facility. Additionally, the Company had $225.2 million of immediately available borrowing capacity as of July 31, 2013, and an additional $24.5 million that could become available upon increases in eligible inventory and customer receivable balances under the borrowing base.

Outlook and Guidance

The Company reaffirms its 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 current guidance for the full year:

  • Same stores sales up 15% to 20%;
  • 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 17.8% and 18.1%, reflecting a higher proportion of the portfolio balance represented by no-interest credit programs than in fiscal 2013;
  • Credit segment provision for bad debts of between 8.5% and 9.0% of the average portfolio balance outstanding based on the same store sales and new store opening expectations presented above;
  • 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, September 5, 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 operating over 70 retail locations in Texas, Louisiana, Oklahoma, New Mexico and Arizona. 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 within the meaning of the Private Securities Litigation Reform Act of 1995 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 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 or update 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 INCOME
(unaudited)
(in thousands, except per share amounts)
     
Three Months EndedSix Months Ended
July 31,July 31,
 2013  2012  2013  2012 
Revenues
Total net sales$223,712$171,655$433,160$338,592
Finance charges and other 46,977  35,781  88,592  69,695 
Total revenues270,689

 

207,436

 

521,752

 

408,287
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

136,040110,910259,497219,353

Cost of parts sold, including warehousing and occupancy costs

1,3181,4412,7242,991
Selling, general and administrative expense78,75759,381152,012119,037
Provision for bad debts21,38212,20435,31921,389
Charges and credits -  346  -  509 
Total cost and expenses 237,497  184,282  449,552  363,279 
Operating income33,192

 

23,154

 

72,200

 

45,008
Interest expense3,1354,8747,0068,633
Other income, net (32) (6) (38) (102)
Income before income taxes30,08918,28665,23236,477
Provision for income taxes 10,927  6,680  23,894  13,315 
Net income$19,162 $11,606 $41,338 $23,162 
 
Earnings per share:
Basic$0.54$0.36$1.16$0.72
Diluted$0.52$0.35$1.13$0.70
Average common shares outstanding:
Basic35,77732,40435,54932,304
Diluted36,84933,11936,68833,017
 

 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands, except per share amounts)
     
Three Months EndedSix Months Ended
July 31,July 31,
 2013  2012  2013  2012 
Revenues
Product sales$203,463$156,026$394,323$308,141
Repair service agreement commissions17,16612,35533,15523,747
Service revenues 3,083  3,274  5,682  6,704 
Total net sales 223,712 

 

 171,655 

 

 433,160 

 

 338,592 
Finance Charges and other 290  276  629  517 
Total revenues224,002

 

171,931

 

433,789

 

339,109
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

136,040110,910259,497219,353

Cost of parts sold, including warehousing and occupancy costs

1,3181,4412,7242,991
Selling, general and administrative expense60,91046,508118,42092,557
Provision for bad debts72189186401
Charges and credits -  346  -  509 
Total cost and expenses 198,340  159,394  380,827  315,811 
Operating income25,662

 

12,537

 

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