The Woodlands, Texas — Greater provisions for rising credit delinquencies offset double-digit sales gains to push Conn’s into the red last quarter.
The loss and burgeoning credit crisis prompted the departure of chief financial officer Brian Taylor after 2.5 years in the job. Taylor was succeeded on an interim basis by Mark Haley, who joined the company in October as chief accounting officer.
Conn’s is also bringing in more management firepower by creating the positions of president and chief risk officer, and has begun a search to fill those slots.
The retailer has also hired an independent financial advisor and is exploring “strategic alternatives” with several parties. Conn’s previously said its options could include a spinoff of the credit segment or a sale of the company.
The multiregional furniture, appliance and CE chain posted a $3.1 million loss for its fiscal third quarter, ended Oct. 31, while total revenues rose 19 percent to $370.1 million.
Net sales increased 18.5 percent to $304.6 million, although comp store sales slipped 1 percent due to tighter customer credit requirements and tough year-ago comparisons, the company said.
But despite stricter underwriting standards and collections policies, “delinquency rates have increased and losses are being realized at a faster pace than originally anticipated,” Conn’s chairman/CEO Theo Wright acknowledged.
The company’s in-house finance segment, whose easy credit has long fueled its retail sales, posted a $42.1 million loss, compared with a year-ago profit of $6.7 million, compelling Conn’s to set aside a $72 million provision for bad debts.
On the retail side, furniture and mattress sales rose 37.4 percent, majap sales increased 24.6 percent and CE sales climbed 7.8 percent year over year. Commissions from service contracts rose 17.6 percent and service revenues were up 3.9 percent.
Conn’s opened six HomePlus-format stores during the quarter, including the new markets of Denver; Greenville, S.C.; and Charlotte, N.C. It also opened two additional Colorado stores last month, in Fort Collins and Colorado Springs, bringing the total store count to 91.
The chain plans to open 15 to 18 new stores and close two next year.
In a research note, Janney Capital Markets retail analyst David Strasser said Conn’s earnings miss could be indicative of a struggling sub-prime consumer.
He added that disappointing financials from Conn’s, hhgregg, RadioShack and Sears, plus the unreported closures of myriad independent dealers, is consolidating CE industry volume around four national retailers: Best Buy, Walmart, Costco and Amazon.
“Not exactly rose-colored for most vendors,” he observed.