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Conn’s Q4 Revenue Up 20%

Beaumont, Texas — Conn’s net revenue rose 19.5 percent to $269.9 million for the three months ending Jan. 31, while net income slipped 3.3 percent to $12.6 million.

The revenue gain included a 22.4 percent increase in net sales to $245.4 million and a 12.5 percent hike in finance charges and other revenue, to $29 million.

Net income reflected the impact of a $4.5 million non-cash decrease in the company’s interests in securitized assets.

The sales gains were propelled by the addition of seven new stores during the fiscal year and an increase in same-store sales of 12.5 percent, ostensibly driven by replacement sales of appliances and other big-ticket products in the wake of flooding by hurricanes Gustav and Ike last summer.

Gross margins increased to 22.2 percent from 20.7 percent during the prior quarter, and the delinquency rate for Conn’s credit portfolio dropped to 7.3 percent by Jan. 31, from 8.1 percent by Oct. 31. The annualized net charge-off rate increased slightly to 3.4 percent for the quarter, compared with 3.2 percent during the year-ago period.

The multi-egional appliance, electronics and furniture chain currently operates 75 stores after closing a San Antonio clearance center to accommodate the expansion of a credit-collection center in the same facility.

In a conference call, president, chief operating officer and CEO-elect Timothy Frank reported strength in flat panel TV, video gaming, notebook computers and DVD players.

Total TV revenue rose 44 percent for the quarter and was up 75 percent in unit volume year over year, led by a 61-percent surge in dollar sales of LCDs, he said. LCD unit volume was up 84 percent.

Conn’s furniture business was also strong, up 28.5 percent in dollar volume for the quarter, and even major appliance sales, which cratered for the industry in January, edged up 2.1 percent for the three months.

Frank attributed some of the growth to share gains from Circuit City, as reflected in the accelerated pace of new customer acquisition and the unexpected spike in Black Friday sales, which rose from $12.5 million in 2007 to $20 million last November.

Nevertheless, business was also blunted by Circuit’s liquidation events, which pulled customers in February and March and flooded Conn’s market with inventory due to the proximity of a major regional distribution center in Oklahoma.

But the short-term slowdowns are far outweighed by the long-term opportunities for Conn’s to take its share of an estimated $450 million in Circuit City sales in overlapping product categories and stores, Frank said. Conn’s is well-positioned to capture Circuit customers, who are more likely to choose a similar big box format, and savings from lower advertising costs will be used to fund aggressive pricing to draw new traffic, he said.

Also constraining sales were recent product shortages attributed to “a cautious outlook on inventory levels by manufacturers,” Frank said. Conn’s was forced to temporarily consolidate its TV selection, but thanks to vendors like Toshiba and Panasonic who “stepped up” with extra inventory, the retailer was able to stay in stock on key brands and screen sizes. Availability has since eased with manufacturers’ transition to 2009 models.

As a result of the inventory constraints and liquidation, February same-store sales fell 6 percent and net sales were up by the low-single digits, although trends improved in March with comps down 1 percent month-to-date and net sales up by the mid-single digits, Frank said.

Conn’s also sees growth opportunities in its 30-store refurbishing effort, which includes an expanded furniture department. Thirteen stores have been remodeled so far, with the balance to be completed by the end of the summer. The company hasn’t determined how many new stores will be added this year, however, given the uncertainty in the capital markets.

Conn’s has also redesigned its Web site, which has new features for shoppers and has been integrated into the company’s inventory and store systems on the back end, Frank said.

At the same time, the company has cut expenses through reduced advertising costs and by trimming payroll. Inventory was also down, by 10.2 percent for the quarter year over year, due mainly to the constrained product availability.

New vendors include Panasonic in plasma TV and Bosch in dishwashers, and the retailer has also added the Electrolux appliance brand to its floors to compliment that company’s Frigidaire line.

Looking ahead, Frank said he expects competitive pressures and the squeeze on margins to ease over the course of the year thanks to Circuit City’s exit from the marketplace.