Conn’s ailing consumer finance unit remained a drag on profits in its second fiscal quarter amid robust retail sales.
Consolidated revenues rose 12.2 percent to $396.1 million for the three months, ended July 31, and comp sales climbed 3.1 percent.
But higher provisions for bad consumer debt led to a $9 million operating loss for the in-house credit segment, contributing to a 6.8 percent decline in net income, to $16.5 million for the quarter.
Profits were also trimmed by $1 million in legal and advisory fees stemming from securities-related litigation and the company’s year-long strategic reassessment.
That reevaluation resulted in the naming of a new CEO, Norman Miller, succeeding Theo Wright, and the sale of $1.4 billion in outstanding customer receivables. (See story, here.)
On the retail side, operating income increased 29.2 percent, to $46.1 million, on a 12.8 percent spike in revenue to $325.6 million, reflecting the net addition of nine new stores during the trailing 12 months.
Broken out by product category:
* Average selling prices (ASPs) for consumer electronics increased by 18.1 percent, offset by a 13.7 percent decrease in unit volume.
* TV sales increased 11.4 percent and comps increased 3.4 percent on a 17.5 percent hike in ASPs, offset by a 5.2 percent decrease in unit volume.
* Home office ASPs increased 12.9 percent, offset by a 15.2 decrease in unit volume. Excluding the impact from dropping certain tablet lines, home office comps increased 3 percent.
* Excluding the impact from exiting gaming, imaging and the tablet lines, comp sales rose 6.7 percent for the quarter.
* Majap unit volume increased 21.2 percent, offset by a 4.6 percent decrease in ASPs. Refrigeration sales increased 14.9 percent, laundry sales increased 9.6 percent, and cooking sales increased by 23.7 percent.
* Furniture unit volume increased 28.3 percent, offset by a 3.1 percent decrease in ASPs.
* Mattress unit volume increased 26.7 percent, offset by an 8.3 percent decrease in ASPs.
* Commissions from service contracts rose 34 percent, reflecting increased retail sales and higher retrospective commissions. The latter drove a 100-basis-point increase in retail gross margin, to 41.8 percent.
On the credit side, delinquency rates on payments overdue by 60 days or more rose by 50 basis points to 9.2 percent, up from 8.7 percent last year and 8.4 percent in 2013. The balance of customer receivables accounted for as troubled debt restructurings increased to $101.5 million, or 7 percent of the total portfolio balance, driving $3.4 million of the increase in provision for bad debts.
During the quarter Conn’s opened four new HomePlus stores in Colorado, Georgia and the Carolinas, and presently operates about 95 big-box showrooms across 12 states.