Conn’s Q4 Profits Fall 44% - Twice

Conn’s Q4 Profits Fall 44%

CE comps up 8 percent on gains in TV
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Conn’s fourth-quarter profits fell 44 percent to $15.5 million as operating losses widened within its credit segment.

The Woodlands, Texas – Conn’s fourth-quarter profits fell 44 percent to $15.5 million as operating losses widened within its credit segment.

But total revenue for the three months ended Jan. 31 rose 18.2 percent to $426.7 million, reflecting a comp-sale increase of 1.3 percent and the net addition of 11 stores over the past 12 months, including two new Colorado locations in the fourth quarter.

Separately, management has decided to leave the company intact following a six-month strategic review that considered such options as spinning off the credit segment or even selling the chain outright.

Net retail sales rose 16.2 percent to $350.5 million for the quarter, offset by tighter customer credit and tough year-ago comparisons when comps increased 33.4 percent after a change in marketing strategy.

Still, a 110-basis-point decline in retail gross margin to 39.5 percent, due to lower average selling prices (ASPs), a new timetable for vendor allowances and unleveraged warehousing costs, led to a nearly 17 percent drop in retail operating income, to $159 million.

Broken out by product category, CE – the company’s largest at 30 percent of total sales – also enjoyed the largest comp increase, up 8.2 percent on a 15.7 percent gain in TV sales.

Majaps, representing 23.4 percent of total sales, also had a good quarter, with comps rising 6.6 percent on a 22 percent increase in unit volume. Specifically, cooking sales were up 20 percent, refrigeration sales soared 19.3 percent, and laundry sales rose 18.6 percent, offset by a 2.5 percent decrease in ASPs.

Comps for furniture and mattresses rose 4.7 percent, with unit volume up 23.3 percent for the former on flat ASPs despite supply-chain disruptions from bad winter weather and the labor dispute at the West Coast ports. Unit volume for mattresses, which are sourced domestically rose 26.5 percent and ASPs increased 3.1 percent.

Furniture and mattresses was the company’s second-largest product category with 24 percent of total sales, and was also its most profitable, contributing 41.1 percent of the total product gross profit in Q4. It was followed by majaps at 23.7 percent of total product gross profit, CE at 27 percent, and home office at 6.1 percent.

Regarding the latter, home office comps fell 22 percent on a 54 percent drop in tablet sales, negating a 1.5 percent rise in sales of computers.

Comps for repair service commission slipped 1.2 percent and service revenues declined 5.3 percent.

Within the credit segment, the operating loss widened from $9.5 million to $11.3 million, reflecting a $20 million increase in provision for bad debts, to $58.1 million, as 60-plus day delinquencies increased from 8.8 percent to 9.7 percent year over year as of Jan. 31.

Chairman/CEO Theo Wright said the company expects that “delinquency levels and charge-offs will remain elevated over the short-term,” although “our ability to resolve less than 60-day delinquency has improved.”

Conn’s also said it will look to sell or refinance all or a portion of its $1.4 billion loan portfolio and has hired a credit risk officer, reporting to COO Michael Poppe. The chain is also looking to hire a president.

The moves follow a six-month strategic review by management and an independent financial advisor, who had also considered separating the credit and retail divisions or selling the entire company.

Elsewhere, Wright said February comps fell 5.8 percent due to lingering supply-chain disruptions which are expected to abate but still remain “significant” at least through April.

The company currently operates 89 stores in ten states and plans to open 15 to 18 new locations this year.

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