Conn's Eyeing New Markets

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Beaumont, Texas - Conn's is looking to expand beyond its three-state base of Texas, Oklahoma and Louisiana.

Adjacent markets under consideration include Arkansas, Arizona, Kansas, Mississippi and New Mexico, the CE, majaps and furniture chain indicated during a

second-quarter earnings

call this morning.

Chairman Theo Wright told analysts that the 71-store retailer plans to open five to seven new locations next year in both current and new states, and that the latter may require a new distribution center to support them.

The new markets can provide a larger pool of potential retail and credit customers he said, compared with the five Conn's locations that were closed this year. The shuttered stores cannibalized other Conn's locations, and the areas' average household incomes were well above the company's core demographic, he explained.

Based on an analysis of the store closings additional locations may be shuttered going forward, he said.

Other growth engines at Conn's include an expanding rent-to-own business, which rose 4.4 percent in sales during the second quarter; a store-remodeling program that dedicates increased floor space to the higher-margin furniture and mattress categories; improved sales execution; and increased use of online credit applications, which has helped drive traffic and sales, Wright said.

Conn's retail president David Trahan said the company was also able to achieve higher average selling prices (ASPs) by focusing on more fully featured TVs in larger screen sizes, by adding better products to the majap mix such as French door refrigerators and high-efficiency laundry, and by expanding the furniture and mattress assortment. ASPs were up 7.2 percent for CE, 5 percent for appliances and 7 percent for computers, he noted, while second-quarter gross margins were 14.8 percent for home office, 19.4 percent for CE, 22.8 percent for majaps, and 33.9 percent for furniture and mattresses.

Nevertheless, CE comp sales plunged 20 percent in dollars and 27 percent in units during the quarter; computers fell 18 percent in dollars and 28 percent in units, and majaps declined 10 percent in dollars on lower unit sales, Trahan said.

In contrast, furniture and mattress dollar volume was up 11 percent year over year.


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