Beaumont, Texas - Conn's said there is "a reasonable likelihood" that it will violate its loan covenants beginning Jan. 31 as a result of its weak third-quarter operating results.
The CE, appliance and furniture chain reported a net loss of $15.3 million for the fiscal quarter, ended Oct. 31, which it attributed to recent economic declines within its trading areas, a $9.6 million impairment charge, and a $4.1 million increase in its litigation reserves to cover yesterday's settlement with the Texas attorney general over allegedly deceptive trade practices.
The company said it is in discussions with its lenders to amend its credit line covenants and is reviewing options to pay down debt to avoid triggering loan violations.
Net sales declined 7.2 percent to $161.4 million for the three-month period and same-store sales decreased 9.3 percent. Total revenues decreased 0.5 percent to $182.8 million, and finance charges from the company's in-house credit operation and "other" decreased 1.5 percent to $25.2 million. The annualized net charge-off rate for it consumer credit portfolio was 4.3 percent.
"Our third-quarter results were disappointing, but we are focused on improving credit portfolio performance and expense control and are taking the actions necessary to address the debt covenant compliance concerns," president/CEO Tim Frank said in a statement.
Conn's increased its credit line to $52.1 million as of Oct. 31 by paying down debt, and said it expects to be "solidly profitable" during its current fiscal quarter. The company believes its market share in CE, major appliances and furniture grew during the current calendar-year quarter based on Census Bureau sales data and a 26.5 percent increase in unit sales of TVs.