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Conn’s Sees Furniture Surpassing CE

Beaumont, Texas – Conn’s foresees its burgeoning furniture and
bedding business to comprise as much as 50 percent of its sales mix over time at
the expense of CE.

Chairman/CEO Theo Wright said the category may also eventually occupy
40 percent to 50 percent of the chain’s sales floors while CE revenue and real
estate “will diminish proportionately.”

Wright assured analysts during a fourth-quarter earnings call that
electronics will remain a core category which the company is “not pulling away”
from. Nonetheless, he acknowledged that CE is a challenging business and one
that Conn’s is becoming increasingly less reliant upon for gross profits.

Despite the growing dominance of furniture and mattresses, Wright
stressed that major appliances remains “our most important category” and represents
a key growth opportunity.

CE is still the company’s largest merchandise profit driver, generating
33 percent of product gross profits in its fourth quarter, ended Jan. 31.
However, that figure fell from 46 percent during the year-ago period while
furniture and mattresses rose from 19 percent, to 25 percent, of product gross
profits, and white goods’ contribution edged up from 27 percent, to 29 percent.

Furniture and mattresses also outpaced all other product
categories in same-store sales growth, showing a 46 percent spike in the fourth
quarter compared with a 21.2 percent increase in major appliances and a 9.8
percent decline in CE comps.

Furniture and mattress margins are also the richest for Conn’s,
at 38.5 percent, compared with 27.5 percent for majaps, 18.1 percent for CE and
12.6 percent for home office.

Driving the growth of furniture and mattresses at Conn’s is a
shift to better goods, an ongoing store remodeling program that devotes greater
showroom space to the category, and the launch of a container-sized
direct-sourcing program that will allow the company to increase margins while
remaining promotional.

Conn’s said the gains in furniture and bedding contributed to a
sharp reversal of its fourth-quarter fortunes, which included a nearly $8
million profit compared to a $3.6 million year-ago loss.

Conversely, Conn’s has reduced its CE exposure by moving away
from low-profit products and focusing on “higher-ticket TVs with new
technologies and larger screen sizes that will provide a reasonable profit,”
Wright said.

He added that Conn’s supports vendors’ new uniform pricing
policies and stands to benefit from them if they hold, although the changes
make it difficult for the retailer to plan its TV business.