Conn's reports 107% increase in fiscal Q3 earnings versus a year ago to US$24.4M, 50.6% yearly growth in consolidated revenues to US$310.9M; quarterly revenue, earnings were highest in company's history

THE WOODLANDS, Texas , December 5, 2013 (press release) –

Adjusted diluted earnings per share of $0.71 for the quarter
Fiscal 2015 earnings guidance initiated at $3.80 to $4.00 per diluted share
Same store sales increased 35% over prior-year period

Conn’s, Inc. (NASDAQ:CONN), a specialty retailer of home appliances, furniture, mattresses, consumer electronics and provider of consumer credit, today announced record financial results for the quarter ended October 31, 2013.

“We achieved the highest quarterly revenue and net income in Conn’s history”

Significant items for the third quarter of fiscal 2014 include:

 

  • Consolidated revenues increased 50.6% over last year to $310.9 million;
  • Retail gross margin expanded 460 basis points from the same period last year to 40.1%,
  • Adjusted retail segment operating income rose 163.3% over the prior-year quarter to $34.1 million;
  • Credit segment operating income was $10.4 million, a 9.8% decrease from the prior-year quarter;
  • Credit segment provision for bad debts on an annualized basis was 10.1% of the average outstanding portfolio balance this quarter;
  • Diluted earnings per share of $0.66 on a reported basis, versus $0.35 per share last year; and
  • Fiscal 2014 earnings guidance raised to $2.75 to $2.80 per diluted share on an adjusted basis.

“We achieved the highest quarterly revenue and net income in Conn’s history,” stated Theodore M. Wright, the Company's Chairman and CEO. “This sales trend continued into November with retail sales expanding 49%. November same store sales rose 32%.”

Mr. Wright continued, “Two new Conn’s HomePlus stores opened in November. All of our new stores are performing well. We expect to open five more stores by January 31, 2014 and add 15 to 20 new locations next fiscal year.”

Retail Segment Results

Revenues were $257.5 million for the quarter ended October 31, 2013, an increase of $89.8 million, or 53.6%, over the prior-year period. Significant sales growth was reported across all major product categories. On a sequential quarter basis, third quarter retail sales reflect the benefit of two stores opened in July 2013 and two additional stores opened during the quarter. The impact of new store openings was partially offset by the closure of two underperforming locations during the current quarter. With new store openings and the remodeling and relocation of existing stores, 40 stores were operating in the Conn’s HomePlus format at October 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 October 31,               Same store  
    2013   % of Total   2012   % of Total     Change   % Change       % change  
    (dollars in millions)                  
Home appliance   $ 66.5   25.9 %   $ 48.5   29.0 %   $ 18.0     37.1   %   22.4   %
Furniture and mattress     63.2   24.6       32.3   19.3       30.9     95.7       55.1    
Consumer electronic     68.4   26.6       47.1   28.1       21.3     45.2       25.8    
Home office     28.6   11.1       16.2   9.7       12.4     76.5       56.6    
Other     7.5   2.9       7.6   4.5       (0.1 )   (1.3 )     (10.8 )  
Product sales     234.2   91.1       151.7   90.6       82.5     54.4       32.7    
                                     

Repair service agreement commissions

    19.6   7.6       12.2   7.3       7.4     60.7       55.4    
Service revenues     3.3   1.3       3.4   2.1       (0.1 )   (2.9 )        
Total net sales   $ 257.1   100.0 %   $ 167.3   100.0 %   $ 89.8     53.7   %   35.1   %
                                     

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 20%. Laundry sales increased 41%, refrigeration sales were up 38%, cooking sales rose 37% and air conditioner sales declined 20%;
  • Furniture unit sales increased 95% and the average selling price increased 5%;
  • Mattress unit volume increased 40% and average selling price was up 19%;
  • Television sales rose 37%, with same store growth in units and average selling price; and
  • Computer sales were up 78% and tablet sales increased 70%.

Retail gross margin was 40.1% for the quarter ended October 31, 2013, up from 35.5% in the prior-year quarter. Margins expanded in all major product categories. Product margin on furniture and mattress sales rose 500 basis points from the prior-year period to 50.3% of sales. Furniture and mattress sales contributed 27.0% of the total product revenue in the current period and generated 38.7% of the total product gross profit.

Credit Segment Results

Revenues totaled $53.4 million in the current period, an increase of 37.8% 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 $944.8 million at October 31, 2013, rising $261.1 million from a year ago. The portfolio interest and fee income yield was 17.8% for the quarter ended October 31, 2013, down 150 basis points from the prior-year period as a result of increased short-term, no-interest financing.

Provision for bad debts was $22.5 million for the quarter ended October 31, 2013, rising $9.3 million from the prior-year period. The annualized provision rate was 10.1% for the quarter and 9.4% year-to-date. The percentage of the customer portfolio balance greater than 60 days delinquent was 8.5% as of October 31, 2013, which compares to 7.0% a year ago and 8.2% as of July 31, 2013.

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 October 31, 2013 to be filed with the Securities and Exchange Commission.

For the quarter ended October 31, 2013, the Company reported net income of $0.66 per diluted share, which includes pre-tax charges of $2.8 million associated with facility closures and lease terminations. The Company’s reported net income was $0.35 per diluted share in the third quarter of fiscal 2013, and includes pre-tax costs of $1.5 million related to extinguishment of debt and the relocation of the Company’s corporate office to The Woodlands, Texas.

Capital and Liquidity

As of October 31, 2013, the Company had $421.3 million of borrowings outstanding under its asset-based loan facility. On November 25, 2013, the Company completed an expansion and extension of its asset-based loan facility with a syndicate of banks. Under the amended terms, the revolving facility commitment increased $265 million to $850 million and the maturity date was extended to November 2017. Borrowing costs under the facility were also reduced by 25 basis points per annum.

After giving effect to the amendment, the Company would have had $231.1 million of immediately available borrowing capacity as of October 31, 2013, and an additional $196.3 million that could become available upon increases in eligible inventory and customer receivable balances under the borrowing base.

Outlook and Guidance

The Company raised its earnings guidance for the fiscal year ending January 31, 2014 to diluted earnings per share of $2.75 to $2.80 on an adjusted basis. The following expectations were considered in developing the current guidance for the full year:

  • Same stores sales up 22% to 25%;
  • New store openings of 13;
  • Retail gross margin between 39.3% and 39.8%;
  • 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 9.4% and 9.7% of the average portfolio balance outstanding based on the same store sales expectations presented above;
  • Selling, general and administrative expense of between 28.5% and 29.0% of total revenues; and
  • Diluted shares outstanding of approximately 37.0 million.

 

The Company also initiated earnings guidance of diluted earnings per share of $3.80 to $4.00 for the fiscal year ending January 31, 2015. The following expectations were considered in developing the guidance:

  • Same stores sales up 7% to 12%;
  • New store openings of 15 to 20;
  • Retail gross margin between 39.0% and 40.0%;
  • An increase in the credit portfolio balance;
  • Credit portfolio interest and fee yield of approximately 18.0%;
  • Credit segment provision for bad debts of between 8.0% to 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 37.1 million.

Conference Call Information

Conn’s, Inc. will host a conference call and audio webcast on Thursday, December 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, Arizona, Oklahoma and New Mexico. 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. 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.

                 
CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
(in thousands, except per share amounts)
                 
    Three Months Ended   Nine Months Ended
    October 31,   October 31,
    2013   2012   2013   2012
Revenues                
Total net sales   $ 257,046   $ 167,323     $ 690,206     $ 505,915  
Finance charges and other     53,830     39,078       142,422       108,773  
Total revenues     310,876

 

  206,401  

 

  832,628  

 

  614,688  
Cost and expenses                

Cost of goods sold, including warehousing and occupancy costs

    151,987     105,688       411,484       325,041  

Cost of parts sold, including warehousing and occupancy costs

    1,286     1,522       4,010       4,513  
Selling, general and administrative expense     90,341     61,210       242,353       180,247  
Provision for bad debts     22,730     13,449       58,049       34,838  
Charges and credits     2,834     641       2,834       1,150  
Total cost and expenses     269,178     182,510       718,730       545,789  
Operating income     41,698

 

  23,891  

 

  113,898  

 

  68,899  
Interest expense     3,714     4,526       10,720       13,159  
Loss on early extinguishment of debt     -     818       -       818  
Other income, net     -     (3 )     (38 )     (105 )
Income before income taxes     37,984     18,550       103,216       55,027  
Provision for income taxes     13,608     6,765       37,502       20,080  
Net income   $ 24,376   $ 11,785     $ 65,714     $ 34,947  
                 
Earnings per share:                
Basic   $ 0.68   $ 0.36     $ 1.84     $ 1.08  
Diluted   $ 0.66   $ 0.35     $ 1.79     $ 1.05  
Average common shares outstanding:                
Basic     35,955     32,553       35,686       32,387  
Diluted     36,965     33,539       36,795       33,207  
                 

 

 
CONN'S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands, except per share amounts)
                 
    Three Months Ended   Nine Months Ended
    October 31,   October 31,
    2013   2012   2013   2012
Revenues                
Product sales   $ 234,159     $ 151,663     $ 628,482     $ 459,804  
Repair service agreement commissions     19,601       12,183       52,756       35,930  
Service revenues     3,286       3,477       8,968       10,181  
Total net sales     257,046  

 

  167,323  

 

  690,206  

 

  505,915  
Finance charges and other     438       340       1,067       857  
Total revenues     257,484  

 

  167,663  

 

  691,273  

 

  506,772  
Cost and expenses                

Cost of goods sold, including warehousing and occupancy costs

    151,987       105,688       411,484       325,041  

Cost of parts sold, including warehousing and occupancy costs

    1,286       1,522       4,010       4,513  
Selling, general and administrative expense     69,920       47,275       188,340       139,832  
Provision for bad debts     203       229       389       630  
Charges and credits     2,834       641       2,834       1,150  
Total cost and expenses     226,230       155,355       607,057       471,166  
Operating income     31,254  

 

  12,308  

 

  84,216  

 

  35,606  
Other income, net     -       (3 )     (38 )     (105 )
Income before income taxes   $ 31,254  

 

$ 12,311  

 

$ 84,254  

 

$ 35,711  
                 
Retail gross margin     40.1 %     35.5 %     39.6 %     34.4 %

Selling, general and administrative expense as percent of revenues

    27.2 %     28.2 %     27.2 %     27.6 %
Operating margin     12.1 %     7.3 %     12.2 %     7.0 %
                 
Number of stores:                
Beginning of period     72       65       68       65  
Opened     2       -       6       1  
Closed     (2 )     -       (2 )     (1 )
End of period     72       65       72       65  
                 

 

                 
CONN'S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands)
                 
    Three Months Ended   Nine Months Ended
    October 31,   October 31,
    2013   2012   2013   2012
Revenues                
Finance charges and other   $ 53,392     $ 38,738     $ 141,355     $ 107,916  
Cost and expenses                
Selling, general and administrative expense     20,421       13,935       54,013       40,415  
Provision for bad debts     22,527       13,220       57,660       34,208  
Total cost and expenses     42,948  

 

  27,155  

 

  111,673  

 

  74,623  
Operating income     10,444  

 

  11,583  

 

  29,682  

 

  33,293  
Interest expense     3,714       4,526       10,720       13,159  
Loss from early extinguishment of debt     -       818       -       818  
Income before income taxes   $ 6,730     $ 6,239     $ 18,962     $ 19,316  
                 

Selling, general and administrative expense as percent of revenues

    38.2 %     36.0 %     38.2 %     37.5 %
Operating margin     19.6 %     29.9 %     21.0 %     30.9 %
                 

 

                 
MANAGED CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(dollars in thousands, except average outstanding balance per account)
                 
            October 31,
            2013   2012
Total outstanding balance           $ 944,826     $ 683,744  
Weighted average credit score of outstanding balances             591       603  
Weighted average months since origination of outstanding balances             8.6       9.7  
Number of active accounts             563,753       462,200  
Average outstanding customer balance           $ 1,676     $ 1,479  
Balance 60+ days delinquent           $ 80,505     $ 47,691  
Percent 60+ days delinquent             8.5 %     7.0 %

Percent of portfolio re-aged

            10.9 %     11.4 %
                 
                 
    Three Months Ended   Nine Months Ended
    October 31,   October 31,
    2013   2012   2013   2012
Data for the periods ended:                
Total applications processed   267,558     198,617       682,453       565,036  
Weighted average origination credit score of sales financed   599     616       601       615  
Weighted average monthly payment rate   5.1 %   5.3 %     5.4 %     5.5 %
Interest and fee income yield, annualized   17.8 %   19.3 %     17.9 %     18.6 %

Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized

  7.6 %   7.6 %     6.9 %     8.2 %
Percent of sales paid for by payment option:                
In-house financing, including down payment received   79.5 %   72.3 %     73.2 %     69.5 %
Third-party financing   11.5 %   14.5 %     11.7 %     14.3 %
Third-party rent-to-own options   2.5 %   3.7 %     2.9 %     3.5 %
Total   93.5 %   90.5 %     87.8 %     87.3 %
                 

 

         
CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED BALANCE SHEETS

(unaudited)
(in thousands)
         
         
    October 31,   January 31,
    2013   2013
Assets        
Current Assets        
Cash and cash equivalents   $ 3,701   $ 3,849
Customer accounts receivable, net     473,795     378,050
Other accounts receivable, net     44,648

 

  45,759
Inventories     131,732     73,685
Deferred income taxes     17,957     15,302
Prepaid expenses and other assets     7,209     11,599
Total current assets     679,042

 

  528,244
Long-term customer accounts receivable, net     400,606     313,011
Property and equipment, net     75,435     46,994
Deferred income taxes     11,298     11,579
Other assets, net     7,983     10,029
Total Assets   $ 1,174,364

 

$ 909,857
         
Liabilities and Stockholders' Equity        
Current Liabilities        
Current portion of long-term debt   $ 527   $ 32,526
Accounts payable     106,422     69,608

Accrued expenses

    42,401     29,496
Other current liabilities     18,035     19,533
Total current liabilities     167,385

 

  151,163
Long-term debt     422,161     262,531
Other long-term liabilities     26,083     21,713
Stockholders' equity     558,735     474,450
Total liabilities and stockholders' equity   $ 1,174,364

 

$ 909,857
         

 

   
NON-GAAP RECONCILIATION OF NET INCOME, AS ADJUSTED
AND DILUTED EARNINGS PER SHARE, AS ADJUSTED
(unaudited)
(in thousands, except earnings per share)
                   
   

Three Months Ended
October 31,

   

Nine Months Ended
October 31,

    2013   2012     2013   2012
Net income, as reported   $ 24,376     $ 11,785       $ 65,714     $ 34,947  
Adjustments:                  
Costs related to facility closures     2,834       -         2,834       163  
Costs related to office relocations     -       641         -       987  
Loss from early extinguishment of debt     -       818         -       818  
Tax impact of adjustments     (1,000 )     (514 )       (1,000 )     (693 )
Net income, as adjusted   $ 26,210     $ 12,730       $ 67,548     $ 36,222  
                   

Average common shares outstanding - Diluted

    36,965       33,539         36,795       33,207  
                   
Earnings per share - Diluted                  
As reported   $ 0.66     $ 0.35       $ 1.79     $ 1.05  
As adjusted   $ 0.71     $ 0.38       $ 1.84     $ 1.09  
                                   

 

NON-GAAP RECONCILIATION OF RETAIL SEGMENT
OPERATING INCOME, AS ADJUSTED
(unaudited)
(in thousands)
                   
   

Three Months Ended
October 31,

 

Nine Months Ended
October 31,

    2013   2012     2013   2012
Operating income, as reported   $ 31,254     $ 12,308       $ 84,216     $ 35,606  
Adjustments:                  
Costs related to facility closures     2,834       -         2,834       163  
Costs related to office relocation     -       641         -       987  
Operating income, as adjusted   $ 34,088     $ 12,949       $ 87,050     $ 36,756  
                   
Retail segment revenues   $ 257,484     $ 167,663       $ 691,273     $ 506,772  
                   
Operating margin                  
As reported     12.1 %     7.3 %       12.2 %     7.0 %
As adjusted     13.2 %     7.7 %       12.6 %     7.3 %
                                   

 

Basis for presentation of non-GAAP disclosures:

To supplement the Company’s condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles ("GAAP"), the Company also provides the following information: adjusted net income and adjusted earnings per diluted share; and adjusted retail segment operating income and adjusted operating margin. These non-GAAP financial measures are not meant to be considered as a substitute for comparable GAAP measures but should be considered in addition to results presented in accordance with GAAP, and are intended to provide additional insight into the Company’s operations and the factors and trends affecting the Company’s business. The Company’s management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics the Company uses in its financial and operational decision making and (2) they are used by some of its institutional investors and the analyst community to help them analyze the Company’s operating results.

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