Conn's Sales, Profits Slip In Q2

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Beaumont, Texas - Multiregional CE and majaps chain Conn's reported declines in profits, revenue and comp-store sales for its second fiscal quarter, ended July 31.


 Net income fell 67 percent to $1.7 million and total sales declined 6 percent to $178.9 million for the three-month period.

Comp-store sales slipped 6.4 percent from a year-ago decline of 5.2 percent, but showed continuing improvement from the 31.7 percent decline in the fourth quarter and the 19.7 percent decline in the first quarter. Conn's said comp sales were positive in July.

The company attributed its lower second-quarter profits to weakness in its credit operation, reflecting a reduced credit portfolio balance and increased delinquencies.

Sales were impacted by weakening local economies and the company's effort to improve retail gross margin while maintaining price competitiveness, Conn's said.

Expense reductions helped the retail segment increase income before taxes 3 percent to $3.2 million, as the gain in gross margin percentage offset the decline in sales.

In a conference call, president/CEO Tim Frank said CE revenue fell 12.5 percent during the quarter despite a 10 percent increase in unit volume, due to a 20-percent reduction in average selling prices (ASPs).
Track sales, comprised of smaller CE products, declined 3.5 percent as growth in accessories, MP3 players and desktop computers was offset by decreases in video game hardware, PNDs and digital imaging.
In contrast, laptop unit volume grew 17.2 percent on a nearly 15 percent drop in ASPs.
Majap revenue slipped 7.7 percent on a decrease in unit volume despite a slight uptick in ASPs, and revenue from extended warranties fell 5.8 percent despite greater sales penetration due to an increase in contract cancellations.
Despite weakness in LED-TVs, Frank said he is "very enthused" by the company's early success with 3D- and IP-ready TVs, and believes the categories "will eventually help [relieve the] pricing pressure we continue to see across the industry."
Ironically, majaps are facing even greater margin challenges than CE as Lowe's, The Home Depot and Sears continue to discount aggressively, Frank said. "The appliance industry is taking a cue from consumer electronics," he observed, with new models being price-promoted sooner after launch.
Conn's also announced that it is rolling out a rent-to-own (RTO) financing option to all stores this year. The RTO program was outsourced to a third-party provider as Conn's seeks to reduce, but not jettison, its credit operations, Frank said.

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