BEAUMONT, TEXAS —
Nearly $15 million in onetime
pretax charges pushed Conn’s into the red during
its second fiscal quarter, ended July 31.
But despite a $3.4 million loss for the period and a
13.5 percent decline in sales, to $184.4 million, the
multiregional CE, majap and furniture chain reported
plans 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 company indicated
during an earnings call.
Comparable store sales fell 12.8 percent for the
quarter, reflecting a 20 percent drop CE dollars and
a 27 percent decline in units; an 18 percent decline
in computer revenue and a 28 percent decrease in
units; and dollar declines of 10 percent in majaps, 8.9
percent in extended service revenue, and 5.2 percent
in extended-service commissions.
In contrast, furniture and mattress dollar volume
was up 11 percent year over year.
Retail gross margin increased 320 basis points to
28.9 percent thanks to an increased mix of highermargin
furniture and mattresses, improved gross margins
in the CE, majap and home office categories,
and increased sales of extended-service contracts.
Conn’s retail president David Trahan said the company
was 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 highefficiency
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.
Conn’s said it recorded a pretax charge of $11.1
million for the early repayment of a $100 million term
loan, and a pretax charge of $3.7 million for closing
three stores with unexpired leases. Excluding the
charges, the company’s adjusted net income was
$5.5 million.
The store closings bring to five the number of locations
exited during Conn’s current fiscal year, leaving
the chain with 71 showrooms. Based on an analysis
of the store closings, additional locations may be
shuttered going forward, Chairman Theo Wright said.
The company also plans to open five to seven new
locations next year in both current and new states,
Wright told analysts, which 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.
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.
Operating income within the company’s credit
segment increased 78 percent to $13 million, as the
60-plus day delinquency percentage declined to 6.1
percent. Nevertheless, continued declines in the total
portfolio balance and delinquency levels resulted in
lower interest earnings and reduced servicing costs,
the company said.
“We are pleased with our progress on improving
margins and reducing our cost of capital,” Wright
said in a statement. “While softer industry conditions
resulted in sales slightly below our expectations, the
changes made to date position us to drive improved
profitability.”
Looking ahead, Conn’s is projecting flat compstore
sales for the last two quarters of its fiscal year,
with the third quarter expected to be positive and
fourth quarter expected to be slightly negative.
