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Conn's Reports Q2 Loss

9/07/2011 10:00:06 AM Eastern
Beaumont, Texas - Nearly $15 million in one-time pretax charges pushed Conn's into the red during its second fiscal quarter, ended July 31.

The multiregional CE, majap and furniture chain reported a $3.4 million loss for the period, compared with year-ago earnings of $1.6 million. Total revenue declined 13.5 percent to $184.4 million, and comp-store sales fell 12.8 percent for the quarter.

Conn's said it recorded a pretax charge of $11.1 million for the early repayment of its $100 million term loan, and a pretax charge of $3.7 million for closing three stores with unexpired leases. Excluding the charges, the company's adjusted net income was $5.5 million.

Retail revenue declines reflect a 16.1 percent drop in sales of CE, majap and home-office products; a 5.2 percent decrease in extended-service commissions; and an 8.9 percent falloff in extended service revenue. Retail gross margin increased 320 basis points to 28.9 percent from 25.7 percent thanks to an increased sales mix of higher-margin furniture and mattresses, improved gross margins in the CE, majap and home office categories, and increased sales of extended-service contracts.

The store closings bring to five the number of locations exited during Conn's current fiscal year, leaving the chain with 71 showrooms, although the retailer said it plans to open five to seven stores in new markets next year.

Operating income within the company's credit segment increased 78 percent to $13 million, as the 60-plus day delinquency percentage declined to 6.1 percent. Nevertheless, continued declines in the total portfolio balance and delinquency levels resulted in lower interest earnings and reduced servicing costs, the company said.

 "We are pleased with our progress on improving margins and reducing our cost of capital," stated chairman Theodore Wright. "While softer industry conditions resulted in sales slightly below our expectations, the changes made to date position us to drive improved profitability."

Looking ahead, Conn's is projecting flat comp-store sales for the last two quarters of its fiscal year, with the third quarter expected to be positive and fourth quarter expected to be slightly negative.
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