What's Behind Conns' Stock Fall of 27% Thus Far in June?
Conns Inc. 's CONN stock has been slipping down the charts for quite some time, given the company's dismal sales trend, disappointing earnings history and high delinquency rates. This Texas-based consumer durables retailer has plunged 27.3% so far in June. Let's delve deeper to find out why.
CONNS INC Price and Consensus
June began with the release of Conns' first-quarter fiscal 2017 results, which marked the company's third straight quarter of bottom-line miss. The company posted a loss of 31 cents per share as against earnings of 44 cents per share in the year-ago quarter. The Zacks Consensus Estimate for the reported quarter was of earnings of 10 cents.
While the top line improved year over year, the same fell short of our estimate. Also, Conns' posted negative comparable store sales (comps) for the quarter, bearing the brunt of refinements in underwriting, which were executed in the fourth quarter of fiscal 2016 and the first quarter of fiscal 2017.
However, management revealed that while its retail model is robust, the company is on track to transform its credit segment by undertaking several investments and implementing various strategies. Conns also stated that efficient execution of these strategies will require it to mellow down its growth pace for a temporary period. Thus, the company issued a bleak outlook for fiscal 2017, anticipating sales to grow in the low-to-mid single digits and comps to be down in the mid-to-low single digits.
Moving ahead in June, Conns posted its comps and sales metrics for the month of May, which represented this Zacks Rank #5 (Strong Sell) company's hat-trick of negative comps. While May sales inched up 0.8%, comps for the month slumped 7.6%, as reported on Jun 7. Shares of the company have dropped 6.7% since the announcement.
Comps continued to be adversely impacted by the company's Apr 2015 decision to discontinue its video game products, digital cameras and certain tablets. Excluding the effect of the discontinuation of these products, Conns' May comps fell 6.7%, impacted by a decline witnessed across all segments.
Moreover, the company continued to post adverse delinquency data. Conns' 60-plus day delinquency rate expanded 30 basis points (bps) sequentially and 40 bps year over year to 8.9%, as of May 31, 2016. The unfavorable year-over-year comparison was attributable to persistent softness in portfolio growth pace.
We believe that all these factors caused a downtrend in the Zacks Consensus Estimate for fiscal 2017, which has slumped 88.4% to 11 cents a share over the past 30 days. Clearly, analysts are turning less constructive on the stock, which seems to be struggling to hit the green.
Let's wait and see if the company's transformation plans can do any good to the stock.
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