If you've watched the 3-year decline of "big box" appliance and
), you may have thought that this is a business model to stay away
from. I certainly thought so until I discovered
), a family-built retailer with over 50 stores in Texas, 6 in
Louisiana, and newer footholds in Oklahoma City, Albuquerque, and
Conn's roots go back to 1890 where it started life as a plumbing
company in Beaumont, Texas. In 1934, Carroll Wayne Conn, Sr bought
the company and within a few years began selling refrigerators and
gas ranges. He didn't become the Sam Walton of appliances, but his
legacy built a brand that Texans have come to know and trust.
Now they sell just about everything durable for the home, including
entertainment electronics, furniture, mattresses and lawn and
garden equipment -- and they've built a loyal customer base doing
it with a focus on service and satisfaction. The company was also
an early innovator of the in-house financing model in the 1960s.
Sales and Profits Grow With Store Build-Out
Since coming public nearly a decade ago, Conn's has continued to
expand, with quarterly revenues averaging over $200 million for the
past 5 years. The recent Q4FY2013 sales result topped $250 million
for the first time since 2008.
This sales growth is propelled by expansion with new locations
built around their HomePlus store concept. Pricing power and margin
improvement keep their earnings expanding as well.
The company declared strong results on Apr 3, 2013, with EPS of 54
cents a share that surged 58.8% from the 34 cents earned in the
year-ago quarter. Comparable-store sales for the quarter climbed
And Conn's has outperformed the Zacks Consensus Estimate in 4 out
of last 5 quarters, with an average beat of 13.4%.
Revenue from the retail segment increased 9.7% to $208.7 million
and retail gross margins expanded 720 basis points to 36.9%. Credit
card segment revenue soared 14.5% to $41.6 million.
Buoyed by healthy results, management now projects fiscal 2014
earnings between $2.40 and $2.50 with expected comparable-store
sales growth of 3% to 8%.
Following this strong report, analysts have scrambled to raise
estimates, taking the first and second quarters of fiscal 2014 (the
next 2 quarters) up by 29% and 20% to 54 cents and 59 cents,
respectively. For fiscal 2014, the Zacks Consensus Estimate has
vaulted nearly 20% in the past two weeks from $2.08 to $2.48 per
Here's the visual on this reaction by analysts to catch-up with
One analyst writes, "Our new estimate assumes Conn's will complete
15 store remodels and will open 12 new stores this year (+26% YoY
growth in square footage). In addition, we now anticipate comps for
the full year to be around the high end of the guidance range of
3%-8% versus our prior estimate of low single digits."
Big Box Retail 101: Service and Financing
C.W. Conn, Jr. joined his father's company in 1953 after serving in
the Korean War. He recognized that customers needed dependable,
quality service and founded Conn's repair service and maintenance
company, Appliance Parts and Service, in 1962. In 1964 he
co-founded Conn Credit Corporation, a consumer credit company, to
provide financing to Conn's customers for the purchase of products
they needed for their homes.
Mr. Conn, Sr. and Mr. Conn, Jr. were dedicated to their customers
and to the idea that consumers should receive value for the dollars
they spent on the products they offered in their stores. Their
dedication was so strong that they often directed their employees
to seek out dissatisfied customers to find what the company could
do to make them satisfied customers.
The flexible in-house credit options offered by Conn's allows them
to capture more customers, sell higher margin product to consumers
with less than perfect credit, and also control approval rates and
credit limits. Obviously the company can also capture fees and
interest on accounts that are performing. The credit area is also
expected to provide strong growth as new stores gain new customers.
Finally, CONN the stock has had quite a run in the past year,
moving from $15 to nearly $45 and 7-year highs. And this has pushed
the forward P/E to over 16X. While giant competitor Best Buy trades
at only 11X, if you want quality, organic growth that builds
customer loyalty as a top priority in a very tough business space,
consider Conn's on any pullbacks because it can probably support a
high teens multiple in an expanding economy with a spirited housing
Kevin Cook is a Senior Stock Strategist with
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