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Conn's Q1 Profits Fall, Gives Market Overview

6/06/2011 12:01:00 AM Eastern
BEAUMONT, TEXAS – Conn’s reported a 31-percent decline in fiscal first-quarter profits and outlined market conditions for key categories now and later in the year.

Net earnings were $4 million on a 4.3 percent decline in net revenues, to $189.3 million, for the three months ended April 30. Comparablestore sales slipped 3.9 percent.

Product sales fell by 3.2 percent on weakness in the CE, major appliances and home office categories, which was partially offset by a 25-percent spike in sales of furniture and mattresses.

In a conference call the day of the financial report, retail president David Trahan said comp sales fell 5 percent in CE, 8 percent in majaps and 19 percent in home office during the quarter due to lower average selling prices and consumer preference for entry-level products.

Specifically, Conn’s customers are choosing lowerpriced plasma and LCD TVs, and top-load washers and top-mount refrigerators, over costlier LED, 3D and connected TVs and front-load washers, Trahan said.

Majap demand has also been impacted by recentlyimplemented vendor price hikes, he noted. The increases are averaging about 2.5 percent, and may be followed by another round of increases in August, he said.

However, demand for fully-featured TVs could improve this quarter when manufacturers begin providing promotional support for their new 2011 lines, he added.

Chairman and interim CEO Theodore Wright noted that the annual income of Conn’s core customers is $36,000, and that “price is a critical factor in their purchasing decisions.” In response, the company will continue to price-match competitors and mount aggressive, albeit selective, promotions.

Looking ahead, Wright projected same-store sales declines in the mid- to high-single digits during the current quarter due to lower average selling prices for TVs and laundry products, as rising gas and food costs and high unemployment continue to pressure customers.

Nevertheless, retail gross margins will likely remain between 27 percent and 28 percent, he said, and he was encouraged by the improved performance of the retail and credit segments.

On the product front, the company has begun adding tablet computers to its PC mix, and plans to have a full assortment by the third quarter, Trahan said.

Tablets, along with TVs, will also be used as bundled loss leaders in furniture package promotions.

Trahan added that the crisis in Japan will likely lead to shortages of digital cameras through the fourth quarter, but should have no significant impact on TV and appliance availability. However, TV sales would be impacted by a late or non-start of the football season.

During the quarter Conn’s closed one store, in Austin, Texas; will shut five additional stores during the current quarter; and will allow leases to expire on two locations, which will leave the chain with 68 stores in Louisiana, Oklahoma and Texas.

Wright said Conn’s could resume expansion next year with five to 10 new stores, and is currently evaluating new metropolitan markets and real estate.
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