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Conn's Details Strong Sales, Profits In Q2

9/08/2013 08:00:00 PM Eastern

THE WOODLANDS, TEXAS — Conn’s said rising comp-store sales and product margins led to sharply higher earnings and revenue for its second fiscal quarter.

Net income rose 65.1 percent to $19.2 million for the multiregional furniture, appliance and CE chain, while net revenues rose 30.5 percent to $270.7 million for the three months, ended July 31.

But despite the strong results the quarter came in shy of Wall Street estimates due to increased delinquencies within Conn’s credit segment, and the company’s share price fell more than 8 percent in the hours following last week’s earnings announcement.

Within the retail segment, revenues increased 30.3 percent to $224 million, driven in part by new store openings, and comp sales rose 18.4 percent on gains in every product category.

Specifically, furniture and mattress comps increased 33.7 percent; home office comps increased 18.9 percent; majap comps increased 13.3 percent; and CE comps increased 8.2 percent.

Within the latter, TV sales rose 15 percent on same-store unit growth and slightly higher average selling prices (ASPs).

Within majaps, laundry sales were up 26 percent, refrigeration was up 23 percent, cooking category sales rose 20 percent, and total unit volume increased 10 percent. Within home office, tablet sales soared 52 percent and computer sales increased 20 percent.

Unit sales of furniture rose 47 percent and ASPs were up slightly, while unit sales of mattresses increased 38 percent and ASPs rose 11 percent. Together the two categories contributed 24.9 percent of total product revenue – nearing the long-term goal of 35 percent – and generated 35.3 percent of total product gross profit, although margins expanded in all product categories.

Total retail gross margin increased to 38.3 percent from 34.1 percent in the prior-year period, and average transaction size rose to $1,420 from $1,397 last year as the company repositioned its assortment toward higher priced and higher margin products.

On an earnings call, chairman/CEO Theo Wright said TV remains weak and lacks a strong catalyst for “a big move” in the fourth quarter, although new gaming system introductions could offer “some opportunity” for the chain.

Looking at the current quarter, Wright said net sales rose 51 percent and comp sales increased 31 percent in August, driven by increased direct mail and TV advertising.

Conn’s is projecting full-year comp gains of 15 to 20 percent for the 12 months, ended Jan. 31, 2014. It plans to open a total of 10 to 12 new stores during the current fiscal year and to remodel an equal number of locations.

The new HomePlus format stores are larger at 35,000 square feet, devote more floor space to furniture and bedding, and generate 10-15 percent more sales volume than older format locations, the company said.

Wright added that the company’s first three Phoenix-area stores are “successful” and that the chain is planning to open four more locations within that market over the next several quarters.

Looking ahead, Conn’s plans to open 15 to 20 stores next year, and in an earnings presentation reiterated the “long-term potential” to operate more than 200 stores across the Southern tier of the U.S.

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