Conn's Reports Business Downturn

Alan Wolf -- TWICE, 10/20/2009

Beaumont, Texas - Conn's said growing unemployment in its home state of Texas has slowed sales and increased delinquencies for its in-house credit business, which may lead to an earnings loss for the current quarter, ended Oct. 31.

The multiregional appliance and electronics chain said earnings are also being squeezed by continued margin pressure. Product gross margins were down about 110 basis points during the first two months of the quarter, it reported, compelling the company to boost margins and cut expenses.

Conn's is currently testing a new compensation plan for sales associates that's designed to accomplish both by lowering base pay and increasing incentives, TWICE earlier reported.

Meanwhile, net sales have fallen 20 percent during the first half of October, the chain said, compared with a 1.3 percent dip for August and September.

Conn's attributed the marketplace deterioration to rising unemployment in Texas, and cited Bureau of Labor Statistics figures that showed the percentage of those out of work rising from 5.5 percent in December to 8 percent in August.

This contributed to an average net loss rate of about 4 percent within the company's credit operation during August and September, Conn's said, and the figure is expected to rise going forward. In response, the company is increasing the use of promotional credit programs for high-credit-quality customers, is raising the floor on the credit scores accepted in the portfolio, and is increasing down payment levels.

Conn's also said it is continuing to "closely monitor" its capital availability and will adjust its plans if necessary to maintain adequate liquidity and compliance with its various capital facility covenants.

As a result of the current economic conditions and its effects on the company's operating results, Conn's withdrew its previously issued earnings guidance and has decided to temporarily discontinue its practice of providing earnings projections.