CONN
$9.99
Conn's
$.03
.30%
Earnings Details
2nd Quarter July 2020
Thursday, September 3, 2020 6:00:00 AM
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Summary

Conn's (CONN) Recent Earnings

Conn's (CONN) reported 2nd Quarter July 2020 earnings of $0.75 per share on revenue of $366.9 million. The consensus estimate was a loss of $0.16 per share on revenue of $377.8 million. Revenue fell 8.5% compared to the same quarter a year ago.

Conn', Inc., is a specialty retailer of branded consumer durable goods. It also provides consumer credit to support its customers’ purchases.

Results
Reported Earnings
$0.75
Earnings Whisper
-
Consensus Estimate
($0.16)
Reported Revenue
$366.9 Mil
Revenue Estimate
$377.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Conn’s, Inc. Reports Second Quarter Fiscal Year 2021 Financial Results

THE WOODLANDS, Texas, Sept. 03, 2020 (GLOBE NEWSWIRE) -- Conn’s, Inc. (NASDAQ: CONN) (“Conn’s” or the “Company”), 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 quarter ended July 31, 2020.

“Throughout the COVID-19 pandemic, we have focused on serving our customers by providing access to essential home-related products, while supporting our team members and communities. Overall, our second quarter results were better than expected given the unprecedented disruption the COVID-19 crisis has caused and I want to personally thank all of our associates for their continued dedication during this challenging period.  While the current environment remains uncertain, I am proud of our performance, which highlights the resiliency of our business model and the actions our team has taken to successfully navigate this unprecedented pandemic,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer. 

Second quarter of fiscal year 2021 highlights include:

  • Earnings of $0.70 per diluted share, a 13% increase from the prior fiscal year period, driven by positive credit segment operating results and cost saving initiatives
  • Cash and third-party sales grew 51% compared to the prior fiscal year period reflecting strong demand for home-related products
  • Sales financed by Conn’s in-house credit declined by 36% from the prior fiscal year period as a result of tighter underwriting, despite a 5% year-over-year increase in applications  
  • E-commerce sales grew 72% from the prior fiscal year period
  • Cash payment rate on outstanding loans increased to the highest second-quarter level in 9 fiscal years
  • Operating cash flow increased 242% year-over-year driven by growth of cash and third-party sales, strong payment rates on our customer receivables portfolio and a decline in Conn’s in-house credit originations

Second Quarter Results

Net income for the three months ended July 31, 2020 was $20.5 million, or $0.70 per diluted share, compared to net income for the three months ended July 31, 2019 of $20.0 million, or $0.62 per diluted share.  On a non-GAAP basis, adjusted net income for the three months ended July 31, 2020 was $21.7 million, or $0.75 per diluted share, which excludes professional fees associated with non-recurring expenses.  This compares to adjusted net income for the three months ended July 31, 2019 of $20.0 million, or $0.62 per diluted share.

Retail Segment Second Quarter Results

Retail revenues were $279.9 million for the three months ended July 31, 2020 compared to $306.3 million for the three months ended July 31, 2019, a decrease of $26.4 million or 8.6%.  The decrease in retail revenue was primarily driven by a decrease in same store sales of 13.2%, partially offset by new store growth.  The decrease in same store sales reflects proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic.

For the three months ended July 31, 2020 and 2019, retail segment operating income was $23.2 million and $36.1 million, respectively.  On a non-GAAP basis, adjusted retail segment operating income for the three months ended July 31, 2020 was $24.5 million after excluding professional fees associated with non-recurring expenses.  On a non-GAAP basis, adjusted retail segment operating income for the three months ended July 31, 2019 was $36.1 million.

The following table presents net sales and changes in net sales by category:

 Three Months Ended July 31,     Same Store
(dollars in thousands)2020 % of Total 2019 % of Total Change % Change % Change
Furniture and mattress$80,984  29.0% $99,455  32.5% $(18,471) (18.6)% (21.9)%
Home appliance107,682  38.5  99,356  32.5  8,326  8.4   3.6  
Consumer electronics47,384  16.9  53,692  17.5  (6,308) (11.7)  (16.2) 
Home office14,979  5.4  17,883  5.8  (2,904) (16.2)  (20.3) 
Other5,113  1.8  4,192  1.4  921  22.0   16.7  
Product sales256,142  91.6  274,578  89.7  (18,436) (6.7)  (10.9) 
Repair service agreement commissions (1)20,164  7.2  27,647  9.0  (7,483) (27.1)  (30.2) 
Service revenues3,430  1.2  3,837  1.3  (407) (10.6)   
Total net sales$279,736  100.0% $306,062  100.0% $(26,326) (8.6)% (13.2)%

(1) The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.

Credit Segment Second Quarter Results

Credit revenues were $87.0 million for the three months ended July 31, 2020 compared to $94.8 million for the three months ended July 31, 2019, a decrease of $7.8 million or 8.2%.  The decrease in credit revenue was primarily due to a decrease of 7.3% in the average balance of the customer receivable portfolio, a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing, and a decrease in insurance retrospective income. The decrease was partially offset by an increase in the yield rate to 23.2% during the three months ended July 31, 2020, 130 basis points higher than the three months ended July 31, 2019.

Provision for bad debts decreased to $31.9 million for the three months ended July 31, 2020, from $49.8 million for the three months ended July 31, 2019, a decrease of $17.9 million.  The decrease was driven by a greater decrease in the allowance for bad debts during the three months ended July 31, 2020 compared to the three months ended July 31, 2019.  The decrease in the allowance for bad debts was primarily driven by the year-over-year decrease in the customer accounts receivable portfolio, a decrease in the estimated loss rate driven by a decline in delinquencies and higher charge-offs.

Credit segment operating income was $18.2 million for the three months ended July 31, 2020, compared to $5.7 million for the three months ended July 31, 2019.  On a non-GAAP basis, adjusted credit segment operating income for the three months ended July 31, 2020 was $18.4 million after excluding professional fees associated with non-recurring expenses.  On a non-GAAP basis, adjusted credit segment operating income for the three months ended July 31, 2019 was $5.7 million.

Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Company’s Form 10-Q for the quarter ended July 31, 2020, to be filed with the Securities and Exchange Commission on September 3, 2020 (the “Second Quarter Form 10-Q”).

Showroom and Facilities Update

The Company opened two new Conn’s HomePlus® showrooms during the second quarter of fiscal year 2021 and has opened two new Conn’s HomePlus® showrooms during the third quarter of fiscal year 2021, bringing the total showroom count to 143 in 14 states.  During fiscal year 2021, the Company plans to open a total of seven to nine new showrooms in existing states to leverage current infrastructure.

Liquidity and Capital Resources

As of July 31, 2020, the Company had $409.7 million of immediately available borrowing capacity under its $650.0 million revolving credit facility, prior to giving effect to a minimum liquidity requirement of $125.0 million pursuant to the third amendment to our revolving credit facility.  The Company also had $6.4 million of unrestricted cash available for use.

Conference Call Information

The Company will host a conference call on September 3, 2020, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended July 31, 2020.  Participants can join the call by dialing 877-451-6152 or 201-389-0879.  The conference call will also be broadcast simultaneously via webcast on a listen-only basis.  A link to the earnings release, webcast and second quarter fiscal year 2021 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through September 10, 2020 by dialing 844-512-2921 or 412-317-6671 and Conference ID:  13705652.

About Conn’s, Inc.

Conn’s is a specialty retailer currently operating 143 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, QLED, 4K Ultra HD, 8K and smart televisions, gaming products and home theater and portable audio equipment; and
  • 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.

This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “predict,” “will,” “potential,” or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements, including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 outbreak; the impact of our previous restatement and correction of the Company’s previously issued financial statements; the previously identified material weakness in the Company’s internal control over financial reporting and the Company’s ability to remediate that material weakness; the initiation of legal or regulatory proceedings with respect to the prior restatement and corrections; the adverse effects on the Company’s business, results of operations, financial condition and stock price as a result of the previous restatement and correction process; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020 and other reports filed with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

CONN-G

S.M. Berger & Company
Andrew Berger (216) 464-6400

 
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share amounts)
     
  Three Months Ended
July 31,
 Six Months Ended
July 31,
  2020 2019 2020 2019
Revenues:        
Total net sales $279,736  $306,062  $510,066  $568,041 
Finance charges and other revenues 87,180  94,997  174,010  186,530 
Total revenues 366,916   401,059   684,076   754,571  
Costs and expenses:                
Cost of goods sold 176,623  182,065  323,637  339,293 
Selling, general and administrative expense 115,278  127,484  228,285  245,398 
Provision for bad debts 32,045  49,736  149,371  89,782 
Charges and credits 1,534    3,589  (695)
Total costs and expenses 325,480   359,285   704,882   673,778  
Operating income (loss) 41,436   41,774   (20,806) 80,793  
Interest expense 13,222  14,396  28,215  28,893 
Income (loss) before income taxes 28,214   27,378   (49,021) 51,900  
Provision (benefit) for income taxes 7,694  7,404  (13,339) 12,417 
Net income (loss) $20,520   $19,974   $(35,682) $39,483  
Income (loss) per share:        
Basic $0.71  $0.64  $(1.23) $1.25 
Diluted $0.70  $0.62  $(1.23) $1.23 
Weighted average common shares outstanding:                
Basic 29,070,607  31,442,909  28,948,216  31,660,320 
Diluted 29,140,546  31,958,704  28,948,216  32,198,024 
             


CONN’S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
 
  Three Months Ended
July 31,
 Six Months Ended
July 31,
  2020 2019 2020 2019
Revenues:        
Product sales $256,142  $274,578  $463,340  $509,023 
Repair service agreement commissions 20,164  27,647  40,265  51,671 
Service revenues 3,430  3,837  6,461  7,347 
Total net sales 279,736  306,062  510,066  568,041 
Finance charges and other 196  203  431  405 
Total revenues 279,932   306,265   510,497   568,446  
Costs and expenses:        
Cost of goods sold 176,623  182,065  323,637  339,293 
Selling, general and administrative expense 78,584  88,147  156,758  167,769 
Provision for bad debts 182  (19) 350  110 
Charges and credits 1,355    1,355  (695)
Total costs and expenses 256,744   270,193   482,100   506,477  
Operating income $23,188   $36,072   $28,397   $61,969  
Retail gross margin 36.9% 40.5% 36.5% 40.3%
Selling, general and administrative expense as percent of revenues 28.1% 28.8% 30.7% 29.5%
Operating margin 8.3% 11.8% 5.6% 10.9%
Store count:                
Beginning of period 139  127  137  123 
Opened 2  4  4  8 
End of period 141  131  141  131 
             


CONN’S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
     
  Three Months Ended
July 31,
 Six Months Ended
July 31,
  2020 2019 2020 2019
Revenues:        
Finance charges and other revenues $86,984  $94,794  $173,579  $186,125 
Costs and expenses:                
Selling, general and administrative expense 36,694  39,337  71,527  77,629 
Provision for bad debts 31,863  49,755  149,021  89,672 
Charges and credits 179    2,234   
Total costs and expenses 68,736   89,092   222,782   167,301  
Operating income (loss) 18,248   5,702   (49,203) 18,824  
Interest expense 13,222  14,396  28,215  28,893 
Income (loss) before income taxes $5,026   $(8,694) $(77,418) $(10,069)
Selling, general and administrative expense as             
percent of revenues 42.2% 41.5% 41.2% 41.7%
Selling, general and administrative expense as            
percent of average outstanding customer
accounts receivable balance (annualized)
 10.3% 10.2% 9.6% 10.0%
Operating margin 21.0% 6.0% (28.3)% 10.1%

CONN’S, INC. AND SUBSIDIARIES
CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS
(unaudited)

   
 As of July 31, 
 2020 2019 
Weighted average credit score of outstanding balances (1) 596  594 
Average outstanding customer balance $2,589  $2,711 
Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3)(4) 10.0% 8.7%
Balances 60+ days past due (in thousands) (2)(4) $131,696  $132,187 
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(4) 29.9% 25.8%
Re-aged balance (in thousands) (2)(4) $392,610  $389,591 
Carrying value of account balances re-aged more than six months (in thousands) (3) $103,220  $97,510 
Allowance for bad debts and uncollectible interest as a percentage of total customer      
accounts receivable portfolio balance (5) 24.8% 13.3%
Percent of total customer accounts receivable portfolio balance represented by no-interest      
option receivables 18.3% 23.7%
       
 Three Months Ended
July 31,
 Six Months Ended
July 31,
 2020 2019 20202019
Total applications processed326,958  311,062   622,509  569,849 
Weighted average origination credit score of sales financed (1)617  609   613  609 
Percent of total applications approved and utilized20.0% 28.0%  21.1% 27.8%
Average income of credit customer at origination$46,300  $45,700  $
46,300
  $45,500 
Percent of retail sales paid for by:         
In-house financing, including down payments received48.5% 68.8%  55.1% 68.5%
Third-party financing23.9% 17.7%  20.8% 16.9%
Third-party lease-to-own option8.4% 6.5%  8.4% 7.3%
 80.8% 93.0%  84.3% 92.7%

(1)  Credit scores exclude non-scored accounts.
(2)  Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.
(3)  Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.
(4)  Increase was primarily driven by higher risk loans originated during the first half of fiscal year 2020 and an increase in new customer mix.
(5)  For the period ended July 31, 2020, the allowance for bad debts and uncollectible interest is based on the expected loss methodology. For the period ended July 31, 2019, the allowance for bad debts and uncollectible interest is based on the incurred loss methodology.

 
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
 
 July 31, 2020 January 31, 2020
Assets   
Current Assets:   
Cash and cash equivalents$6,385  $5,485 
Restricted cash63,836  75,370 
Customer accounts receivable, net of allowances514,528  673,742 
Other accounts receivable55,335  68,753 
Inventories180,893  219,756 
Income taxes receivable15,539  4,315 
Prepaid expenses and other current assets9,440  11,445 
Total current assets845,956   1,058,866  
Long-term portion of customer accounts receivable, net of allowances479,632  663,761 
Property and equipment, net192,300  173,031 
Operating lease right-of-use assets266,046  242,457 
Deferred income taxes43,243  18,599 
Other assets14,523  12,055 
Total assets$1,841,700   $2,168,769  
Liabilities and Stockholders’ Equity       
Current liabilities:       
Current finance lease obligations$758  $605 
Accounts payable63,269  48,554 
Accrued expenses73,719  63,090 
Operating lease liability - current38,003  35,390 
Other current liabilities18,084  14,631 
Total current liabilities193,833   162,270  
Operating lease liability - non current355,577  329,081 
Long-term debt and finance lease obligations748,902  1,025,535 
Other long-term liabilities24,802  24,703 
Total liabilities1,323,114   1,541,589  
Stockholders’ equity518,586  627,180 
Total liabilities and stockholders’ equity$1,841,700   $2,168,769  
        

CONN’S, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share amounts)

Basis for presentation of non-GAAP disclosures:

To supplement the Condensed Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides the following non-GAAP financial measures: adjusted retail segment operating income, adjusted credit segment operating income (loss), adjusted net income (loss), adjusted net income (loss) per diluted share. These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP.  They are intended to provide additional insight into our operations and the factors and trends affecting the business.  Management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision making and (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results.

RETAIL SEGMENT ADJUSTED OPERATING INCOME AND
RETAIL SEGMENT ADJUSTED OPERATING MARGIN
 
 Three Months Ended
July 31,
 Six Months Ended
July 31,
 2020 2019 2020 2019
Retail segment operating income, as reported$23,188   $36,072   $28,397   $61,969  
Adjustments:       
Professional fees (1)1,355    1,355   
Facility relocation costs (2)      (695)
Retail segment operating income, as adjusted$24,543   $36,072   $29,752   $61,274  
Retail segment total revenues$279,932  $306,265  $510,497  $568,446 

(1)  Represents professional fees associated with non-recurring expenses.

(2)  Represents a gain from increased sublease income related to the consolidation of our corporate headquarters.

 
CREDIT SEGMENT ADJUSTED OPERATING INCOME (LOSS) AND
CREDIT SEGMENT ADJUSTED OPERATING MARGIN
     
  Three Months Ended
July 31,
 Six Months Ended
July 31,
  2020 2019 2020 2019
Credit segment operating income (loss), as reported $18,248   $5,702   $(49,203) $18,824  
Adjustments:        
Professional fees (1) 179    2,234   
Credit segment operating income (loss), as adjusted $18,427   $5,702   $(46,969) $18,824  
Credit segment total revenues $86,984  $94,794  $173,579  $186,125 

(1)  Represents professional fees associated with non-recurring expenses.

 
ADJUSTED NET INCOME (LOSS) AND ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE
     
  Three Months Ended
July 31,
 Six Months Ended
July 31,
  2020 2019 2020 2019
Net income (loss), as reported $20,520   $19,974   $(35,682) $39,483  
Adjustments:                
Professional fees (1) 1,534    3,589   
Facility relocation costs (2)       (695)
Tax impact of adjustments (343)   (803) 156 
Net income (loss), as adjusted $21,711   $19,974   $(32,896) $38,944  
Weighted average common shares outstanding - Diluted 29,140,546  31,958,704  28,948,216  32,198,024 
Earnings (loss) per share:        
As reported $0.70  $0.62  $(1.23) $1.23 
As adjusted $0.75  $0.62  $(1.14) $1.21 

(1)  Represents professional fees associated with non-recurring expenses.

(2)  Represents a gain from increased sublease income related to the consolidation of our corporate headquarters.


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Source: Conn's, Inc.