Conn’s, Inc., a specialty retailer of consumer electronics, home appliances, furniture, mattresses, computers and lawn and garden products today announced its operating results for the quarter ended April 30, 2011.
Significant items for the quarter include:
- Total revenues were $189.3 million, downfurn 4.3% from the same period in the prior fiscal year, on a same store sales decline of 3.9%;
- Retail segment operating income was $4.9 million, or 3.1% of segment revenues, for the quarter, as compared to operating income of $5.4 million, or 3.3% of segment revenues, for the same quarter in the prior fiscal year. Improvement in the segment’s retail gross margin was offset by a 4.0% revenue decline and a 50 basis point increase in Selling, general and administrative expense as a percent of revenues;
- Credit segment income before income taxes was $1.7 million for the quarter, after two consecutive quarterly losses, as compared to income of $4.2 million for the same quarter in the prior fiscal year. Reduced interest earnings and higher borrowing costs were partially offset by lower Selling, general and administrative expenses; and
- Diluted earnings per share was $0.13 for the first quarter of fiscal 2012, as compared to diluted earnings per share of $0.26 for the same period in the prior fiscal year. As a result of the Company’s common stock rights offering during the fourth quarter of the prior fiscal year, diluted common shares outstanding increased by 41.4% during the first quarter, as compared to the year ago period.
The change in the retail segment’s total revenues was comprised of a product sales decrease of 3.2%, a repair service agreement commission decrease of 9.6% and service revenue decrease of 18.3%, as compared to the same quarter in the prior fiscal year. The decrease in sales during the quarter was driven largely by declines in the consumer electronics, appliance and home office categories and was partially offset by a 24.9% increase in furniture and mattresses sales. Repair service agreement commissions declined primarily due to lower product sales volume, and service revenues declined as the Company increased its use of third-party servicers to provide timely product repairs to its customers. The retail segment’s retail gross margin increased to 28.4% in the current year quarter, up from 28.1% in the same quarter of the prior year.
The credit segment’s results, as compared to the same quarter in prior year, were impacted by continued declines in the total portfolio balance and delinquency levels, resulting in lower interest earnings and reduced servicing costs during the current year period. Additionally, as a result of the financing transactions completed during the fourth quarter of fiscal 2011, which increased the Company’s cost of borrowing, interest expense increased as compared to the same period in the prior year. The key credit portfolio performance metrics of the credit segment for the quarter included:
- Net charge-offs for the first fiscal quarter of 2012 totaled $8.5 million, or 5.3% of the average balance outstanding, as compared to 5.1% for the same period in the prior fiscal year, but improved from the 5.9% experienced for the quarter ended January 31, 2011;
- A 150 basis point improvement in the 60+ day delinquency rate since January 31, 2011, to 7.1% at April 30, 2011. The 60+ day delinquency rate was 8.6% at April 30, 2010;
- A 60 basis point improvement in the percentage of the portfolio reaged to 17.9% at April 30, 2011, from 18.5% at January 31, 2011. The percentage of the portfolio reaged at April 30, 2010 was 19.1%; and
- The average monthly payment rate (amount collected from customers as a percentage of the portfolio balance) increased for the fifth consecutive quarter, versus the same quarter in the prior year, to 6.38% for the quarter ended April 30, 2011, from 5.99% for the quarter ended April 30, 2010.
More information on the credit portfolio and its performance may be found in the table included with this press release and in the Company’s Form 10-Q to be filed with the Securities and Exchange Commission.
The Company reported a net income of $4.0 million, or diluted earnings per share of $0.13, for the first quarter of fiscal 2012, compared to net income of $5.8 million, or diluted earnings per share of $0.26, for the first quarter of fiscal 2011. The reported results for the quarter ended April 30, 2011, include employee severance expenses of $0.8 million, or $0.02 per diluted share. Additionally, the increased interest expense incurred as a result of the refinancing transactions completed during the fourth quarter of fiscal 2011 reduced diluted earnings per share by approximately $0.04.
Capital and Liquidity
As of April 30, 2011, there was $226.0 million, excluding $1.9 million of letters of credit, outstanding under the Company’s $375 million asset-based loan facility. Using cash flow generated from operations, including the reduction in the credit portfolio balance, the Company reduced its outstanding revolving debt balance by $53.3 million during the quarter. As of April 30, 2011, the Company had $104.1 million of immediately available borrowing capacity, before considering the minimum availability covenant. “We intend to continue to reduce outstanding debt balances using cash flows from operations, with the ultimate goal of reducing our debt cost of capital,” commented Mike Poppe, the Company’s CFO.
Outlook
Theodore Wright, the Company’s Chairman and Interim Chief Executive Officer stated, “We are encouraged by the improvement in performance in both our retail and credit segments from the weakness in the third and fourth quarters of the prior fiscal year. Our credit segment continues to improve and we expect this segment to contribute more to our profitability in the current quarter than in the first quarter. However, our customers continue to be pressured by increasing gas and food prices and high levels of unemployment and, as a result, we have seen average selling prices for television and laundry decline. As such, we expect second quarter same store sales to decline mid to high single digits. But we expect to maintain retail gross margins of between 27% and 28%.”
The Company completed the closure of one store in Austin, Texas in April. Closure of five of the remaining stores scheduled to be closed should be completed in the current quarter.
Conference Call Information
Conn’s, Inc. will host a conference call and audio webcast today, May 25, 2011, at 8:00 AM, CT, to discuss its financial results for the quarter ended April 30, 2011. The webcast will be available live at IR.Conns.com and will be archived for one year. Participants can join the call by dialing 877-754-5302 or 678-894-3020.
Participation in Stephens Inc. Spring Investment Conference
Company management will be presenting at the Stephens Inc. Spring Investment Conference in New York this afternoon at 12:00 PM CT. The presentation will be webcast and can be accessed via the following link: http://www.wsw.com/webcast/stph16/Conn/.
About Conn’s, Inc.: The Company is a specialty retailer currently operating 75 retail locations in Texas, Louisiana and Oklahoma: with 23 stores in the Houston area, 20 in the Dallas/Fort Worth Metroplex, nine in San Antonio, four in Austin, five in Southeast Texas, one in Corpus Christi, four in South Texas, six in Louisiana and three in Oklahoma. It sells home appliances, including refrigerators, freezers, washers, dryers, dishwashers and ranges, and a variety of consumer electronics, including LCD, LED, 3-D, plasma and DLP televisions, camcorders, digital cameras, computers and computer accessories, Blu-ray and DVD players, video game equipment, portable audio, MP3 players, GPS devices and home theater products. The Company also sells lawn and garden products, furniture and mattresses, and continues to introduce additional product categories for the home to help respond to its customers' product needs and to increase same store sales. Unlike many of its competitors, the Company provides flexible in-house credit options for its customers. In the last three years, the Company financed, on average, approximately 60% of its retail sales.