Consumer Credit Woes, Same-Store Sales Drop Lead to $11.9M Loss at Conn’s

September 9, 2016  by Jane Chero in Business Strategy, Industry   

Total revenues edged up 0.5% to $398.2 million, but that was more than offset by a same-store sales decline of 5.1%, an $8.5 million increase in its bad debt provision and a $15 million increase in selling, general and administrative expenses.

In the same quarter last year, Conn’s recorded a profit of $16.5 million or 45 cents per share, but since then, the company has tightened its credit underwriting requirements and taken several other steps to stem the losses from its consumer credit business.

In the most recent quarter, furniture and bedding sales rose 6.8% to $105.6 million and represented 31.8% of total retail sales. The next largest category was home appliances, which saw sales rise 4.2% to $101.4 million. That represented 30.5% of total retail sales.

Sales of consumer electronics, meanwhile, fell 5.7% and represented 19.8% of retail sales, while sales in the home office category, which includes computers and printers, fell 5.4% and represented 6.6% of retail sales.

“Our retail business continued to perform well in the second quarter, with retail gross margin increasing 130 basis points from the fiscal 2017 first quarter, said Norm Miller, Conn’s Chairman, President and CEO. “In our effort to turn around our credit business, we have made the conscious decision to refine our underwriting model, slow sales growth, and improve our infrastructure to produce consistent and predictable earnings. We are also adjusting our new store grand opening strategy and reducing the number of new stores we plan to open over the next two years.”

Miller said the company recently received regulatory approval in Texas to begin offering direct consumer loans through its in-house credit program with interest rates of up to 30%. The previous maximum Conn’s could offer in Texas, where 70% of its loans originate, was 21%.

In several states without rate caps, he said the retailer already has boosted the interest rate to 29.99%.

"Our transformation is well underway, and we remain confident in the direction we are headed. The value Conn's offers consumers is significant and our market opportunity is truly unique in today's rapidly evolving retail environment,” Miller added. “I understand there are many drivers impacting this year's financial results and appreciate our shareholders' patience as we improve our execution and put Conn's back on a path of sustainable long-term profitability and growth."

For the six months ended July 31, total revenues rose 3.5% to $787.3 million. The six-month net loss totaled $21.7 million or 71 cents per share. In the first half of the previous fiscal year, the retailer recorded net income of $32.2 million or 87 cents per share.

Conn’s operates more than 110 stores in 13 southern and western states.