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Conn’s Reassessing Business Plan

The Woodlands, Texas – Conn’s is taking stock of its strategic direction in the wake of its poor stock performance.

 The multiregional retailer said in a statement this morning that it will explore “a full range of strategic alternatives” including selling the company, splitting its retail and credit operations, or slowing the pace of new store openings.

Conn’s share price tumbled from a year-to-date high of $77 on Jan. 3 to a low of $27 on Sept. 23 due to a worrisome rate of delinquencies and defaults within its in-house consumer finance unit. Shares fell 26 percent alone following a disappointing second-quarter earnings report, in which surging retail sales and margins couldn’t overcome a deteriorating credit outlook.

In the statement, chairman/CEO Theo Wright said the company’s current multi-state expansion strategy remains on track and that it has ample capital and liquidity to fund it.

Nevertheless, “We have decided to conduct a strategic review and explore options to accelerate the realization of value for our stockholders.”

Wright famously took the company’s helm four years ago when it was on the brink of bankruptcy and returned it to profitability in one year by overhauling operations, focusing on furniture and remodeling stores.

He then embarked on an ambitious geographic build-out that extended the Texas chain’s reach from Colorado to the Carolinas within two years.

The retail segment thrived under the plan, with net sales surging 30 percent, comps rising nearly 12 percent, and retail operating income increasing 33 percent during its most recent quarter.

The problem, however, is that fully 77 percent of those sales are paid for with Conn’s credit, and more of its core lower-income customers continued to fall behind in their payments despite efforts to tighten credit terms and step up collections activities.

Conn’s has hired BofA Merrill Lynch as financial advisor and Vinson & Elkins LLP as legal counsel to assist in the reassessment.

In concert with the strategic review, Conn’s board has taken steps to prevent a takeover of the company by an outside investor or group. The action was not taken in response to a specific takeover bid or acquisition proposal, the board said.