Conns Crashes 25% on Q4 Earnings Miss, Offers FY17 View

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Shares of Conns Inc.CONN plunged 24.5% after the company posted dismal fourth-quarter fiscal 2016 earnings.

Quarterly adjusted earnings per share of this Zacks Rank #4 (Sell) company slumped 76.1% year over year to 11 cents, falling way short of the Zacks Consensus Estimate of 27 cents. Including one-time items, the company's earnings of 3 cents per share nosedived 92.9% from the year-ago period.

Conn's Inc. (CONN) Street Actual & Estimate EPS - Last 5 Quarters | FindTheCompany

Conns' consolidated revenue advanced 7% year over year to $456.8 million, marginally ahead of the Zacks Consensus Estimate of $456 million. The year-over-year improvement in the top line was primarily driven by store openings and an increase in credit revenue of the customer receivable portfolio.

Segment Discussion

Conns offers consumer durable products in the U.S. under the Retail segment, which includes home appliances, furniture and mattresses, home office as well as consumer electronics. During the fourth quarter, the company recorded improved revenues across Furniture and mattress along with Home appliance, while the Home office, Consumer Electronics and Other segments witnessed a year-over-year sales decline.

The segment's total revenue increased 7.2% to $376.9 million, mainly backed by store growth, partly offset by negative comparable store sales (comps). Comps for the quarter slipped 1.7%, while excluding the impact of Conns' decision to discontinue the sale of video game products, digital cameras and certain tablets, the same jumped 3.6%.

Further, gross margin at the Retail segment improved 40 basis points (bps) to 36.1%, fuelled by favorable mix coupled with greater retrospective commissions on repair service agreements. This was somewhat offset by greater warehousing, freight and delivery expenses.

Revenues from the company's Credit segment jumped 6.4% to $79.9 million in the quarter, benefitting from higher average receivable portfolio balance outstanding. The customer portfolio balance soared 16.3% year over year to $1.6 billion at quarter end.

Portfolio interest and fee income yield on an annualized basis, contracted 130 bps to 16.9%.

During the quarter, the company's provision for bad debts increased by $6.4 million to $64.5 million. The rise was led by a 17.6% increase in average receivable portfolio balance, 5.4% growth in balances originated in the quarter, a rise in delinquencies and an increase in the balance of customer receivables treated as troubled debt restructurings.

The increase in provision of bad debts and fall in portfolio yield led the operating loss at the Credit segment to expand to $19.3 million.

The company's delinquency rate (percentage of customer portfolio balance over 60 days), rose 20 bps year over year, while it contracted 30 bps sequentially, to 9.9% as of Jan 31, 2016.

Liquidity Position

The company ended the year with cash and cash equivalents of nearly $12.3 million as of Jan 31, 2016, while total shareholders' equity was approximately $538.3 million.

Borrowings outstanding under Conns' revolving credit facility as of Jan 31, 2016, were $169.2 million.

Apart from this, the company repurchased 4 million shares for $100 million during the fourth quarter, taking its total repurchases for fiscal 2016 to $151.6 million. As of the end of the fiscal year, Conns had shares worth $0.5 million available for repurchases.

Further, during Mar 2016, Conns securitized an incremental $705.1 million of customer accounts receivables, amounting to net proceeds of roughly $478 million.

Store Update

Conns opened 2 new stores during the quarter and introduced 15 new stores in fiscal 2016, while closing 2. Going forward, the company expects to open 10-15 stores in fiscal 2017.

Other Developments

Conns named its current President and Chief Executive Officer, Norm Miller as the company's new Chairman. Miller will replace the existing Chairman, Theodore M. Wright. This change is slated to take effect from May 2016, which will mark an end to Wright's term.


For fiscal 2017, the company anticipates revenues to increase in the mid to high single digit range. Further, comps growth is expected in the range of negative low single digits to flat. Retail gross margin for the fiscal is envisioned in the band of 37.25%-37.75%.

For the first quarter of fiscal 2017, Conns anticipates percentage of bad debt charge-offs (net of recoveries) to average outstanding balance in the range of 13.25%-13.75%. Interest income and fee yield are expected to be in the range of 15.75%-16.25% in the first quarter.

Stocks to Consider

A better-ranked stock in the same industry is hhgregg, Inc. HGG , with a Zacks Rank #2 (Buy). Some better-ranked stocks in the broader retail sector include Target Corp. TGT and Dollar General Corporation DG , also carrying a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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