Accounting Changes Pound Conn’s Q2 Profits

Comp declines and new credit calculations led to big loss
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Comp declines and new credit calculations led to big loss
A series of accounting changes related to Conn’s troubled in-house credit operation contributed to a net loss of nearly $12 million in the company’s second fiscal quarter, compared with year-ago net earnings of $16.5 million.

A series of accounting changes related to Conn’s troubled in-house credit operation contributed to a net loss of nearly $12 million in the company’s second fiscal quarter, compared with year-ago net earnings of $16.5 million.

Also dragging the retailer into the red was a 5.1 percent decline in comp-store sales for the three months, ended July 31. Conn’s said the decrease was exacerbated by its decision to drop gaming, imaging and select tablets last year, although the company lapped the exit in April.

Total retail revenues edged up 2.1 percent, due largely to new store openings.

Chairman, president and CEO Norm Miller described the second-quarter hit in part as a byproduct of a previously announced credit-business turnaround strategy. That effort includes “changes to our credit leadership team, investments in systems and analytics, refinements to our underwriting model and strategies to improve yield,” he said.

As anticipated, tighter credit standards have impacted sales growth on the retail side, Miller noted, and the company has cut its expansion plans to one new store this fiscal year and three during the next, while also trimming overhead by about $10 million for the balance of the year.

On the product front, every category posted comp declines during the quarter, led by an 11.6 percent drop in CE (see table, below).

Conn’s Q2 Net Sales By Category

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Source:Conn's

Among the takeaways:

*Furniture unit volume increased 4.8 percent and average selling price (ASP) increased 4.5 percent.

*Mattress unit volume increased 4.3 percent, partially offset by a 3.2 percent decrease in ASP.

*Majap unit volume increased 5.2 percent with ASPs flat. Total sales for refrigeration increased 7.1 percent, laundry increased 3.9 percent, and cooking was flat.

*CE unit volume decreased 10.1 percent, partially offset by a 5.1 percent increase in ASPs. TV sales decreased 4 percent as unit volume decreased 11.6 percent, partially offset by an 8.5 percent increase in ASPs. Excluding the impact from exiting video game products and digital cameras, CE comps decreased 10.4 percent.

*Home-office unit volume decreased 9.7 percent, partially offset by a 5.4 percent increase in ASPs. Excluding the impact from exiting certain tablet models, home-office comps decreased 7.6 percent.

Conn’s opened four new stores during the quarter — in North Carolina, Mississippi, Tennessee and Alabama — bringing the total store count to 112 locations spanning 13 states from Colorado to the Carolinas.

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