Over 154 Years of Service to the Furniture Industry
Furniture World Logo

Conn's, Inc. Reports First Quarter Fiscal 2018 Financial Results

Furniture World News Desk on 6/28/2017


Conn's, Inc. (NASDAQ:CONN), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the first quarter ended April 30, 2017.

“We are encouraged by our fiscal 2018 first quarter financial performance, operating results and strong retail profitability - which is all underscored by ongoing progress with our credit business,” commented Norm Miller, Conn's Chairman, Chief Executive Officer and President. “Conn’s credit segment performance is improving as a result of higher finance charges, strengthening portfolio trends, controlled expenses, and lower borrowing costs. Interest income and fee yield of 18.2% was the highest since the fiscal 2015 fourth quarter as a result of the strategies we have implemented to increase yield. Approximately 84% of our current originations have a weighted average interest rate of 28.6%, compared to almost 22% in September. As higher rate originations become a larger percentage of Conn’s credit portfolio, we now expect interest income and fee yield will ultimately increase to 23 - 25%.”

Retail segment profitability improved, despite a 12.3% decline in total sales, reflecting the strength of our retail model. Favorable mix within product categories and lower warehouse, delivery, and transportation costs increased retail gross margin 260 basis points compared to the fiscal 2017 first quarter. Retail operating margins were 11.5%, compared to 10.6% for the same period last fiscal year, as a result of record first quarter gross margins and a 7.5% decline in retail SG&A expenses.

“Progressive’s lease-to-own platform was available throughout all Conn’s locations as of May 24th. Implementation was ahead of schedule, reflecting the strong partnership between our two companies and the desire to have Progressive’s lease-to-own platform available to all customers before the Memorial Day Holiday. We are excited about the potential of our new partnership with Progressive and believe lease-to-own sales can be a meaningful long-term driver of retail growth,” continued Mr. Miller.

During the first quarter, Conn’s enhanced its capital structure by closing a $469.8 million securitization transaction. The all-in cost of funds of the Class A and B notes was approximately 5.4%, representing a 150-basis point improvement from the 6.9% all-in cost of funds for the Class A and B notes issued in Conn's October 2016 securitization transaction. This is the fourth consecutive ABS transaction that experienced better terms and lower all-in costs, demonstrating investors’ growing confidence in our credit strategy.

Mr. Miller concluded, “Our first quarter performance demonstrates the progress we are making improving our financial results, while creating a sustainable platform for long-term profitable growth. The foundation of our success is Conn’s differentiated business strategy, which offers our customers the ability to affordably finance top-of-the-line, brand name products for their homes. This compelling retail experience provides Conn’s with a significant opportunity to grow retail sales and become a national retailer. During fiscal 2018, we will continue to focus on improving our financial results and operating performance, and we expect to return to full-year profitability.”

First Quarter Results

Net loss for the first quarter of fiscal year 2018 was $2.6 million, or $0.08 per share, compared to a net loss for the first quarter of fiscal year 2017 of $9.7 million, or $0.32 per share. On a non-GAAP basis, adjusted net loss for the first quarter of fiscal year 2018 was $1.6 million, or $0.05 per share, which excludes certain charges related to exit costs associated with reducing the square footage of a distribution center and the extinguishment of debt related to the amendment of our revolving loan facility. This compares to adjusted net loss for the first quarter of fiscal year 2017 of $9.4 million, or $0.31 per share, which excludes certain charges primarily related to legal and professional fees related to the exploration of strategic alternatives and securities-related litigation, and executive management transition costs.

Retail Segment First Quarter Results

Total retail revenues were $279.4 million for the first quarter of fiscal year 2018 compared to $319.0 million for the first quarter of fiscal year 2017, a decrease of 12.4%, primarily related to a decline in same store sales partially offset by new store openings. Sales were negatively impacted by underwriting changes made during the 2017 fiscal year, the delay in receipt of tax refunds by our customers, one less business day in 2017 versus the leap year in 2016, and general consumer softness. For the first quarter of fiscal year 2018, retail segment operating income was $32.0 million and adjusted retail segment operating income was $33.2 million after excluding certain one-time charges of $1.2 million related to exit costs associated with reducing the square footage of a distribution center.

The following provides a summary of items impacting the performance of our product categories during the first quarter of fiscal year 2018 compared to the first quarter of fiscal year 2017:

  • Furniture unit volume decreased 24.1%, partially offset by a 11.8% increase in average selling price
  • Mattress unit volume decreased 21.6%, partially offset by a 15.0% increase in average selling price
  • Home appliance unit volume decreased 9.7% and average selling price decreased 1.8%
  • Consumer electronic unit volume decreased 16.0% and average sales price decreased 2.0%
  • Home office unit volume decreased 28.7%, partially offset by a 2.5% increase in average selling price.

Credit Segment First Quarter Results

Credit revenues were $76.5 million for the first quarter of fiscal year 2018 compared to $70.1 million for the first quarter of fiscal year 2017, an increase of 9.1%. The increase in credit revenue was primarily the result of originating our higher-yield direct loan product, which resulted in an increase in the portfolio yield rate to 18.2% from 15.8%, partially offset by a 3.1% decline in the average balance of the customer receivables portfolio. The total customer portfolio balance was $1.48 billion at April 30, 2017 compared to $1.54 billion at April 30, 2016, a decrease of 3.7%.

Provision for bad debts was $55.7 million for the first quarter of fiscal year 2018 compared to $57.8 million for the first quarter of fiscal year 2017, a decrease of $2.1 million. The decrease was primarily a result of a decline in the allowance for bad debts driven by a decline in the balance of customer receivables in the first quarter of fiscal year 2018 compared to an increase in the allowance for bad debts in the first quarter of fiscal year 2017, partially offset by higher net-charge offs in the first quarter of fiscal year 2018 compared to the first quarter of fiscal year 2017.

Additional information on the credit portfolio and its performance may be found in the Customer Receivable Portfolio Statistics table included within this press release and in the Company's Form 10-Q for the quarter ended April 30, 2017, to be filed with the Securities and Exchange Commission.

Store Update
During fiscal year 2018, the Company has opened three new Conn's HomePlus® stores, two of which were opened during the first quarter of fiscal year 2018 in North Carolina, and one of which was opened in May of fiscal year 2018 in Virginia, bringing the total store count to 116. The Company does not intend to open any additional stores in fiscal year 2018.

Liquidity and Capital Resources
As of April 30, 2017, the Company had $128.8 million of immediately available borrowing capacity under its $750.0 million revolving credit facility, with an additional $615.4 million that may become available under the Company's revolving credit facility if the Company grows the balance of eligible customer receivables and total eligible inventory balances under the borrowing base. The Company also had $112.8 million of unrestricted cash available for use.

Outlook and Guidance

The following are the Company's expectations for the business for the second quarter of fiscal year 2018:

  • Change in same store sales down between 12.0% and 15.0%
  • Retail gross margin between 37.75% and 38.25% of total retail net sales
  • Selling, general and administrative expenses between 30.5% and 32.0% of total revenues
  • Provision for bad debts between $52.0 million and $56.0 million
  • Finance charges and other revenues between $78.0 million and $82.0 million
  • Interest expense between $20.5 million and $22.5 million.
More about Conn's, Inc.: Conn's is a specialty retailer currently operating 116 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. The Company's primary product categories include:
  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses
  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges
  • Consumer electronics, including LED, OLED, Ultra HD, and internet-ready televisions, Blu-ray players, home theater and portable audio equipment
  • Home office, including computers, printers and accessories.
Additionally, Conn's offers a variety of products on a seasonal basis. Unlike many of its competitors, Conn's provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.