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Conn’s, Inc. Reports Fourth Quarter Fiscal Year 2021 Financial Results

Furniture World News Desk on 3/31/2021


Conn’s, Inc. a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended January 31, 2021.

“Throughout fiscal year 2021, we took decisive actions focused on supporting our employees, customers, and communities, while de-risking our business, enhancing our balance sheet, and investing in digital and e-commerce. These actions combined with the dedication of our associates directly contributed to our ability to successfully navigate the COVID-19 pandemic. Quarterly same store sales improved sequentially throughout fiscal year 2021, despite continued conservative underwriting strategies, which we believe demonstrates strong underlying demand for our products, and we anticipate positive same store sales momentum will continue into fiscal year 2022,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.

“We have emerged from the pandemic stronger, more efficient and well positioned to compete in a rapidly changing market, and fiscal year 2022 is off to a strong start. Same store sales are up over 3.0% quarter-to-date, despite the impacts of the historic winter storm across many of our markets, one fewer selling day as a result of leap year and continued supply chain challenges. These quarter-to-date results still reflect our more conservative underwriting strategy.”

“Overall, we believe Conn’s is at an inflection point in our growth strategy as we continue to leverage our best-in-class in-house and third-party credit offerings, increase digital and e-commerce investments, expand our brick-and-mortar footprint, and enhance our merchandising and marketing strategies. We believe these strategic initiatives, combined with our unique value proposition, will support long-term and sustainable growth,” concluded Mr. Miller.

Fourth Quarter Financial Highlights:

  • Earnings for the fourth quarter increased approximately 400% to $0.85 per diluted share, compared to $0.17 per diluted share for the same period last fiscal year;
  • Increased fourth quarter cash and third-party credit sales nearly 35% compared to the prior fiscal year period reflecting strong demand for home-related products; and
  • Same store sales declined 10.1% for the fourth quarter, primarily due to a nearly 29% decline in sales financed by Conn’s in-house credit because of tighter underwriting associated with the COVID-19 crisis.

 

Fiscal Year 2021 Financial Highlights:

  • Improved capital position as net cash provided by operating activities was $462.1 million compared to $80.1 million for the year ended January 31, 2020;
  • Reduced overall debt balance by $416.6 million as compared to fiscal year 2020 resulting in debt as a percent of the portfolio balance of approximately 49% at January 31, 2021. Net debt as a percent of the portfolio balance at January 31, 2021 was approximately 45%, representing the lowest level in seven fiscal years;
  • Carrying value of customer accounts receivable 60+ days past due at January 31, 2021 24% lower than the prior fiscal year;
  • Carrying value of re-aged customer accounts receivable at January 31, 2021 33% lower than the prior fiscal year period; and
  • More than doubled e-commerce sales during fiscal year 2021 as compared to the prior fiscal year.

 

Fourth Quarter Results

Net income for the fourth quarter of fiscal year 2021 was $25.1 million, or $0.85 per diluted share, compared to net income for the fourth quarter of fiscal year 2020 of $5.1 million, or $0.17 per diluted share. The increase in net income was primarily due to a decrease in provision for bad debts and tax benefit related to the CARES ACT, partially offset by a decline in revenue. The CARES ACT tax benefit was $12.4 million, or $0.42 per diluted share, for the fourth quarter of fiscal year 2021. On a non-GAAP basis, adjusted net income for the fourth quarter of fiscal year 2021 was $27.1 million, or $0.91 per diluted share, which excludes charges and credits for severance costs related to a change in the executive management team and a gain on extinguishment of debt. This compares to adjusted net income for the fourth quarter of fiscal year 2020 of $5.9 million, or $0.20 per diluted share, which excludes a loss on extinguishment of debt.

Retail Segment Fourth Quarter Results 

Retail revenues were $294.7 million for the three months ended January 31, 2021 compared to $315.3 million for the three months ended January 31, 2020, a decrease of $20.6 million or 6.5%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 10.1% and a decrease in RSA commissions and retrospective income, partially offset by new store growth. The decrease in same store sales reflects proactive tightening of underwriting standards which were the result of the COVID-19 pandemic.

For the three months ended January 31, 2021 and January 31, 2020, retail segment operating income was $12.7 million and $35.7 million, respectively. On a non-GAAP basis, adjusted retail segment operating income for the three months ended January 31, 2021 was $15.4 million, after excluding charges and credits for severance costs related to a change in the executive management team. On a non-GAAP basis, adjusted retail segment operating income for the three months ended January 31, 2020 was $35.7 million.

Credit Segment Fourth Quarter Results 

Credit revenues were $73.1 million for the three months ended January 31, 2021 compared to $97.7 million for the three months ended January 31, 2020, a decrease of $24.6 million or 25.2%. The decrease in credit revenue was primarily due to a decrease of 20.6% in the average balance of the customer receivable portfolio, a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decrease in insurance retrospective income. The yield rate for the three months ended January 31, 2021 was 21.3% compared to 21.5% for the three months ended January 31, 2020. The total customer accounts receivable portfolio balance was $1.2 billion at January 31, 2021 compared to $1.6 billion at January 31, 2020, a decrease of 23.0%.

Provision for bad debts decreased to $25.1 million for the three months ended January 31, 2021 compared to $69.3 million for the three months ended January 31, 2020, a decrease of $44.2 million. The decrease was driven by a reduction in the allowance for bad debts during the three months ended January 31, 2021 as compared to an increase in the allowance during the three months ended January 31, 2020. The decrease in the allowance for bad debts for the three months ended January 31, 2021 was primarily driven by a decrease in customer accounts receivable portfolio as compared to an increase in the customer accounts receivable portfolio balance for the three months ended January 31, 2020. In addition, improvements in forecasted unemployment rates and lower charge-offs contributed to the decline in the allowance for bad debts.

Credit segment operating income was $14.6 million for the three months ended January 31, 2021, compared to an operating loss of $12.3 million for the three months ended January 31, 2020. The increase in credit segment operating income for the three months ended January 31, 2021 as compared to the three months ended January 31, 2020 was primarily driven by a decrease in provision for bad debts offset by a decline in credit revenue, as described above.

Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Company’s Form 10-K for the year ended January 31, 2021, to be filed with the Securities and Exchange Commission on March 31, 2021.


Showroom and Facilities Update

The Company has opened three new Conn’s HomePlus® showrooms and its first distribution center in Florida during the fourth quarter of fiscal year 2021 and has opened six new Conn’s HomePlus® showrooms during the first quarter of fiscal year 2022, bringing the total showroom count to 152 in 15 states. During fiscal year 2022, the Company plans to open 9 to 11 new showrooms, including the six already opened, in existing states to leverage current infrastructure.


Liquidity and Capital Resources

As of January 31, 2021, the Company had $336.0 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $9.7 million of unrestricted cash available for use.

On February 24, 2021, the Company completed the sale of $62.9 million of 4.20% Asset Backed Fixed Rate Notes, Class C, Series 2020-A which was previously issued and retained by the company. The asset-backed notes are secured by the transferred customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in net proceeds to us of $62.5 million, net of debt issuance costs. Net proceeds from the sale were used to repay amounts outstanding under the Company’s Revolving Credit Facility.

On March 29, 2021, the Company entered into the Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amended and Restated Loan Agreement”). The Fifth Amended and Restated Loan Agreement, among other things, extended the maturity date of our existing revolving credit facility to March 2025 (originally scheduled to mature in May 2022). Additional detail with respect to the Fifth Amended and Restated Loan Agreement may be found in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

On March 15, 2021, the Company issued a notice of redemption to holders of our 7.250% Senior Notes due 2022 (the “Senior Notes”) for the redemption of all $141,172,000 outstanding aggregate principal amount of the Senior Notes. Additional detail with respect to the notice of redemption of the Senior Notes, including the redemption date and redemption price for the Senior Notes may be found in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021. The foregoing does not constitute a notice of redemption with respect to the Senior Notes.


About Conn’s, Inc.: Conn’s is a specialty retailer currently operating 152 retail locations in Alabama, Arizona, Colorado, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Company’s primary product categories include:

  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;  
  • Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, and 8K televisions, gaming products, next generation video game consoles and home theater and portable audio equipment; and
  • Home office, including computers, printers and accessories.


Additionally, Conn’s offers a variety of products on a seasonal basis. Unlike many of its competitors, Conn’s provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.