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Conn's Sees Furniture As Growth Category

4/09/2012 12:01:00 AM Eastern

BEAUMONT, TEXAS – Conn’s foresees its burgeoning
furniture and bedding business to comprise
as much as 50 percent of its sales mix over
time at the expense of CE.

Chairman/CEO Theo Wright said the category
may also eventually occupy 40 percent to 50 percent
of the chain’s sales floors while CE revenue
and real estate “will diminish proportionately.”

Wright assured analysts during a fourth-quarter
earnings call last week (see financial report
on page 30) that electronics will remain a core
category which the company is “not pulling away”
from. Nonetheless, he acknowledged that CE is
a challenging business and one that Conn’s is
becoming increasingly less reliant upon for gross
profits.

Despite the growing dominance of furniture
and mattresses, Wright stressed that major appliances
remains “our most important category”
and represents a key growth opportunity.

CE is still the company’s largest merchandise
profit driver, generating 33 percent of product
gross profits in its fourth quarter, ended Jan. 31.
However, that figure fell from 46 percent during
the year-ago period while furniture and mattresses
rose from 19 percent, to 25 percent, of product
gross profits, and white goods’ contribution edged up from 27 percent, to 29 percent.

Furniture and mattresses also outpaced
all other product categories in same-store
sales growth, showing a 46 percent spike
in the fourth quarter compared with a 21.2
percent increase in major appliances and a
9.8 percent decline in CE comps.

Furniture and mattress margins are also
the richest for Conn’s, at 38.5 percent, compared
with 27.5 percent for majaps, 18.1
percent for CE and 12.6 percent for home
office.

Driving the growth of furniture and mattresses
at Conn’s is a shift to better goods,
an ongoing store remodeling program that
devotes greater showroom space to the category,
and the launch of a container-sized
direct-sourcing program that will allow the
company to increase margins while remaining
promotional.

Conn’s said the gains in furniture and
bedding contributed to a sharp reversal of
its fourth-quarter fortunes, which included a
nearly $8 million profit compared to a $3.6
million year-ago loss.

Conversely, Conn’s has reduced its CE
exposure by moving away from low-profit
products and focusing on “higher-ticket TVs
with new technologies and larger screen
sizes that will provide a reasonable profit,”
Wright said.

He added that Conn’s supports vendors’
new uniform pricing policies and stands to
benefit from them if they hold, although the
changes make it difficult for the retailer to
plan its TV business.

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