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Conn’s Q4 Profits Crumble On Credit Segment Losses

Conn’s said rapid expansion and lagging infrastructure contributed to a 93 percent drop in fourth-quarter profits.

Net income for the three months, ended Jan. 31, fell to $1 million, and full-year profits declined 47 percent to just under $31 million.

But Q4 earnings were also impacted by a $19.3 million operating loss in its in-house credit segment; sales declines in all product categories except furniture and bedding; and nearly $4 million in pre-tax charges for consulting fees, securities litigation, sales tax audit reserves and payouts associated with president/CEO Theo Wright’s ouster last fall. His successor, Norman Miller, will also assume Wright’s former role as chairman when his term on the board ends in May.

In a statement, Miller said the company will moderate its agressive expansion of recent years and will increase capital investments to keep pace. “We are making strategic enhancements in our business to digest the rapid growth we have experienced and improve our infrastructure to produce consistent and predictable earnings growth,” he announced. “During fiscal 2017 we will make investments in IT, credit and personnel to support our long-term goal of becoming a national retailer, while moderating our revenue growth plan to ensure a high level of execution.”

Over the past two years Conn’s had upped the pace of new store openings by 20 percent in its march to become a national 500-store chain, and marked its 100th location in November. But the company, which now stretches from Nevada and Colorado in the West to the Carolinas in the East, is slowing the pace of expansion, with 10 to 15 new stores planned for this year, down from as many as 25 in previous projections.

On the retail front, total revenues rose 7.2 percent for the quarter, to $376.9 million, on the strength of furniture and mattresses, which is now the company’s largest category with 31 percent of the sales mix. Comps for that segment rose 15.2 percent, while total retail comps slipped 1.7 percent, reflecting Conn’s exit from the gaming and imaging categories, its dropping of select tablets, and weakness in CE (see chart, below).

Revenues from its in-house credit business rose 6.4 percent to $79.9 million during the quarter, but the company had to increase its provision for bad debts by $6.4 million, to $64.5 million, due in part to a 20-basis-point increase in 60-day delinquencies, to 9.9 percent.

Looking ahead at the current fiscal year, Conn’s is projecting mid- to high-single-digit revenue growth; flat comps due to stricter underwriting standards; and retail gross margins of about 37.5 percent, reflecting the company’s focus on bedding and furniture.