Conn's, Inc. (CONN)

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Conn's Inc. (CONN)

Q3 2009 Earnings Call

November 25, 2009 11:00 am ET


Michael Poppe - CFO

Timothy Frank - CEO and President


Rick Nelson - Stephens

David Magee - SunTrust Robinson Humphrey

Jeff Blaeser - Morgan Joseph

Dan Binder - Jefferies



Welcome to the Conn's, Inc. Conference Call to discuss earnings for the third quarter ended October 31, 2009. My name is Anthony. I will be your operator today. During the presentation all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder this conference is being recorded.

Your speakers today are Mr. Timothy L. Frank, the company's President and CEO, and Mr. Michael J. Poppe, the company's Chief Financial Officer.

I would like to turn the conference over to Mr. Poppe. Please go ahead, sir.

Michael Poppe

Thank you, Anthony. Good morning, everyone and thank you for joining us. I am speaking to you today from Conn's corporate offices in Beaumont, Texas.

You should have received a copy of our earnings release dated November 25, 2009, distributed before the market opened this morning, which describes our earnings and other financial information for the quarter ended October 31, 2009. If for some reason you did not receive a copy of the release, you can download it from our website at

I must remind you that some of the statements made in this call are forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These forward-looking statements represent the company's present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today.

I would now like to turn the call over to today's host, Tim Frank, Conn's President and CEO. Tim?

Timothy Frank

Thank you, Mike. Good morning and thank you for joining us today. Mike and I are going to speak to our sales, financial performance, and the current status of our credit and financing operations. We continue to face very challenging conditions in our markets and we are focused on maintaining control of credit portfolio performance, removing cost from the model, and getting back on track with profitable operating results.

We reported a $20.7 million loss in the third quarter consisting of $17.4 million in non-cash or non-reoccurring items, including $4.1 million of the $4.9 million Texas Attorney General settlement, a $3.7 million fair value adjustment, and a $9.6 million goodwill write-down.

For the first nine months of our fiscal year, we remain profitable and I expect that we will be profitable during the fourth quarter.

During the third quarter, we increased market share in our key categories of electronics, appliances, and furniture and mattresses despite the current challenging economic environment as evidenced by our sales performance relative to published industry information.

According to the US Census Advance Retail Sales report, revenues for consumer electronic and appliance retailers during the three months ended October 31, 2009, were down 8.7%, while our revenues declined 6.5% in those categories.

In fact, our total TV unit sales increased 26.5% during the third quarter over the prior year with LCD unit sales up 20% and plasma units up 117% as we offered our customers a great selection of top brands and expanded our lineup this year.

Our furniture and mattress business has continued to exceed industry performance. According, again to the US Census, sales for furniture retailers during the three months ended October 31, 2009, were down 8.9%, while our business was up 10%.

Net sales for the quarter were down 7.2%. The same-store sales declined 9.3%. Revenue growth from furniture and mattresses was offset by revenue declines in consumer electronics, appliances, track, and lawn and garden.

Our appliance revenues were down 9.9% with refrigeration sales down 7.1%, laundry down 9.6%, and cooking sales down 3.6%. Despite the revenue decline, TracLine, an online syndicated market research service, reported that our market share grew during the third quarter compared to last year. We grew our furniture and mattress revenue 10% by improving our product mix and continuing to broaden our selection.

Consumer electronics revenue declined by 3.6%, despite a 26.5% increase in total television units sold due to a 23.4% decline in average selling prices. Again, according to TracLine, our market share in TVs grew in our markets during the third quarter compared to last year.

A bright spot in our track performance was that computer and peripheral sales dollars were up 3.8% led by laptops that were up 9.4% on a unit sales increase of 39.9%. Our repair service agreement sales continued to underperform in the third quarter, but we anticipate a return to normal penetration now that the Attorney General lawsuit has been settled.

The same-store sales performance was adversely impacted by economic activity in our markets evidenced by the unemployment rate in Texas increasing from 5.3% in October 2008 to 8.3% in October 2009.

We are cautiously optimistic about fourth-quarter sales though we do expect a decline versus last year's performance. This expectation is driven by the fact that last year we experienced a 12.5% comp sale increase during the fourth quarter. We are positioned well for Black Friday, have sufficient product on hand, and our stores are merchandized better than ever have been.

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