Conn’s, Inc. (CONN) Reports Results for the Quarter Ended April 30, 2013

Conn’s, Inc. (NASDAQ: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 HomePlus^TM 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	%
		Three Months Ended
		April 30,
		2013				2012
Weighted average origination credit score of sales financed			602				615
Weighted average monthly payment rate			6.2	%			6.1	%
Interest and fee income yield, annualized			18.0	%			18.0	%
Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized			6.1	%			8.5	%
Percent of sales paid for by payment option:
In-house financing, including down payment received			74.0	%			66.9	%
Third-party financing			11.8	%			12.5	%
Third-party rent-to-own options			3.8	%			3.7	%
Total			89.6	%			83.1	%

 

CONN’S, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands)
		April 30,				January 31,
		2013				2013
Assets
Current Assets
Cash and cash equivalents		$	4,310			$	3,849
Customer accounts receivable, net			395,085				378,050
Other accounts receivable, net			51,565				45,759
Inventories			88,862				73,685
Deferred income taxes			15,327				15,302
Prepaid expenses and other assets			6,121				11,599
Total current assets			561,270				528,244
Long-term customer accounts receivable, net			324,213				313,011
Property and equipment, net			51,731				46,994
Deferred income taxes			10,938				11,579
Other assets, net			9,122				10,029
Total Assets		$	957,274			$	909,857
Liabilities and Stockholders’ Equity
Current Liabilities
Current portion of long-term debt		$	222			$	32,526
Accounts payable			74,748				69,608
Accrued liabilities			33,078				29,496
Other current liabilities			24,451				19,533
Total current liabilities			132,499				151,163
Long-term debt			293,773				262,531
Other long-term liabilities			22,572				21,713
Stockholders’ equity			508,430				474,450
Total liabilities and stockholders’ equity		$	957,274			$	909,857
Total debt as a percentage of stockholders’ equity			57.8	%			62.2	%