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Press release from Business Wire

Conn's, Inc. Announces Record Revenues and Net Income

<p class='bwalignc'> <i>Adjusted diluted earnings per share of $0.71 for the quarter</i><br/><i>Fiscal 2015 earnings guidance initiated at $3.80 to $4.00 per diluted share</i><br/><i>Same store sales increased 35% over prior-year period</i> </p> <p class='bwalignc'> </p>

Thursday, December 05, 2013

Conn's, Inc. Announces Record Revenues and Net Income

07:00 EST Thursday, December 05, 2013

THE WOODLANDS, Texas (Business Wire) -- Conn's, Inc. (NASDAQ:CONN), a specialty retailer of home appliances, furniture, mattresses, consumer electronics and provider of consumer credit, today announced record financial results for the quarter ended October 31, 2013.

Significant items for the third quarter of fiscal 2014 include:

  • Consolidated revenues increased 50.6% over last year to $310.9 million;
  • Retail gross margin expanded 460 basis points from the same period last year to 40.1%,
  • Adjusted retail segment operating income rose 163.3% over the prior-year quarter to $34.1 million;
  • Credit segment operating income was $10.4 million, a 9.8% decrease from the prior-year quarter;
  • Credit segment provision for bad debts on an annualized basis was 10.1% of the average outstanding portfolio balance this quarter;
  • Diluted earnings per share of $0.66 on a reported basis, versus $0.35 per share last year; and
  • Fiscal 2014 earnings guidance raised to $2.75 to $2.80 per diluted share on an adjusted basis.

“We achieved the highest quarterly revenue and net income in Conn's history,” stated Theodore M. Wright, the Company's Chairman and CEO. “This sales trend continued into November with retail sales expanding 49%. November same store sales rose 32%.”

Mr. Wright continued, “Two new Conn's HomePlus stores opened in November. All of our new stores are performing well. We expect to open five more stores by January 31, 2014 and add 15 to 20 new locations next fiscal year.”

Retail Segment Results

Revenues were $257.5 million for the quarter ended October 31, 2013, an increase of $89.8 million, or 53.6%, over the prior-year period. Significant sales growth was reported across all major product categories. On a sequential quarter basis, third quarter retail sales reflect the benefit of two stores opened in July 2013 and two additional stores opened during the quarter. The impact of new store openings was partially offset by the closure of two underperforming locations during the current quarter. With new store openings and the remodeling and relocation of existing stores, 40 stores were operating in the Conn's HomePlus format at October 31, 2013.

The following table presents net sales by category and changes in net sales for the current and prior-year quarter:

       
Three Months Ended October 31, Same store
2013   % of Total   2012   % of Total Change % Change     % change
(dollars in millions)
Home appliance $ 66.5 25.9 % $ 48.5 29.0 % $ 18.0 37.1 % 22.4 %
Furniture and mattress 63.2 24.6 32.3 19.3 30.9 95.7 55.1
Consumer electronic 68.4 26.6 47.1 28.1 21.3 45.2 25.8
Home office 28.6 11.1 16.2 9.7 12.4 76.5 56.6
Other   7.5 2.9     7.6 4.5   (0.1 ) (1.3 ) (10.8 )
Product sales 234.2 91.1 151.7 90.6 82.5 54.4 32.7
 

Repair service agreement commissions

19.6 7.6 12.2 7.3 7.4 60.7 55.4
Service revenues   3.3 1.3     3.4 2.1   (0.1 ) (2.9 )
Total net sales $ 257.1 100.0 % $ 167.3 100.0 % $ 89.8   53.7 % 35.1 %
 

The following provides a summary of items influencing the Company's major product category performance during the quarter, compared to the prior-year period:

  • Home appliance unit volume increased 20%. Laundry sales increased 41%, refrigeration sales were up 38%, cooking sales rose 37% and air conditioner sales declined 20%;
  • Furniture unit sales increased 95% and the average selling price increased 5%;
  • Mattress unit volume increased 40% and average selling price was up 19%;
  • Television sales rose 37%, with same store growth in units and average selling price; and
  • Computer sales were up 78% and tablet sales increased 70%.

Retail gross margin was 40.1% for the quarter ended October 31, 2013, up from 35.5% in the prior-year quarter. Margins expanded in all major product categories. Product margin on furniture and mattress sales rose 500 basis points from the prior-year period to 50.3% of sales. Furniture and mattress sales contributed 27.0% of the total product revenue in the current period and generated 38.7% of the total product gross profit.

Credit Segment Results

Revenues totaled $53.4 million in the current period, an increase of 37.8% over the prior-year quarter. The revenue growth was attributable to the increase in the average receivable portfolio balance outstanding. The customer portfolio balance equaled $944.8 million at October 31, 2013, rising $261.1 million from a year ago. The portfolio interest and fee income yield was 17.8% for the quarter ended October 31, 2013, down 150 basis points from the prior-year period as a result of increased short-term, no-interest financing.

Provision for bad debts was $22.5 million for the quarter ended October 31, 2013, rising $9.3 million from the prior-year period. The annualized provision rate was 10.1% for the quarter and 9.4% year-to-date. The percentage of the customer portfolio balance greater than 60 days delinquent was 8.5% as of October 31, 2013, which compares to 7.0% a year ago and 8.2% as of July 31, 2013.

Additional information on the credit portfolio and its performance may be found in the table included within this press release and in the Company's Form 10-Q for the quarter ended October 31, 2013 to be filed with the Securities and Exchange Commission.

For the quarter ended October 31, 2013, the Company reported net income of $0.66 per diluted share, which includes pre-tax charges of $2.8 million associated with facility closures and lease terminations. The Company's reported net income was $0.35 per diluted share in the third quarter of fiscal 2013, and includes pre-tax costs of $1.5 million related to extinguishment of debt and the relocation of the Company's corporate office to The Woodlands, Texas.

Capital and Liquidity

As of October 31, 2013, the Company had $421.3 million of borrowings outstanding under its asset-based loan facility. On November 25, 2013, the Company completed an expansion and extension of its asset-based loan facility with a syndicate of banks. Under the amended terms, the revolving facility commitment increased $265 million to $850 million and the maturity date was extended to November 2017. Borrowing costs under the facility were also reduced by 25 basis points per annum.

After giving effect to the amendment, the Company would have had $231.1 million of immediately available borrowing capacity as of October 31, 2013, and an additional $196.3 million that could become available upon increases in eligible inventory and customer receivable balances under the borrowing base.

Outlook and Guidance

The Company raised its earnings guidance for the fiscal year ending January 31, 2014 to diluted earnings per share of $2.75 to $2.80 on an adjusted basis. The following expectations were considered in developing the current guidance for the full year:

  • Same stores sales up 22% to 25%;
  • New store openings of 13;
  • Retail gross margin between 39.3% and 39.8%;
  • An increase in the credit portfolio balance;
  • Credit portfolio interest and fee yield of between 17.8% and 18.1%, reflecting a higher proportion of the portfolio balance represented by no-interest credit programs than in fiscal 2013;
  • Credit segment provision for bad debts of between 9.4% and 9.7% of the average portfolio balance outstanding based on the same store sales expectations presented above;
  • Selling, general and administrative expense of between 28.5% and 29.0% of total revenues; and
  • Diluted shares outstanding of approximately 37.0 million.

The Company also initiated earnings guidance of diluted earnings per share of $3.80 to $4.00 for the fiscal year ending January 31, 2015. The following expectations were considered in developing the guidance:

  • Same stores sales up 7% to 12%;
  • New store openings of 15 to 20;
  • Retail gross margin between 39.0% and 40.0%;
  • An increase in the credit portfolio balance;
  • Credit portfolio interest and fee yield of approximately 18.0%;
  • Credit segment provision for bad debts of between 8.0% to 9.0% of the average portfolio balance outstanding based on the same store sales and new store opening expectations presented above;
  • Selling, general and administrative expense of between 28.0% and 29.0% of total revenues; and
  • Diluted shares outstanding of approximately 37.1 million.

Conference Call Information

Conn's, Inc. will host a conference call and audio webcast on Thursday, December 5, 2013, at 10:00 A.M. CT, to discuss its earnings and operating performance for the quarter. A link to the live webcast, which will be archived for one year, and slides to be referred to during the call will be available at ir.Conns.com. Participants can join the call by dialing 877-754-5302 or 678-894-3020.

About Conn's, Inc.

Conn's is a specialty retailer operating over 70 retail locations in Texas, Louisiana, Arizona, Oklahoma and New Mexico. The Company's primary product categories include:

  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
  • Consumer electronic, including LCD, LED, 3-D and plasma televisions, Blu-ray players, home theater and video game products, camcorders, digital cameras, and portable audio equipment; and
  • Home office, including computers, tablets, printers and accessories.

Additionally, the Company offers a variety of products on a seasonal basis. Unlike many of its competitors, the Company provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Although we believe that the expectations, opinions, projections, and comments reflected in these forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to continue existing or offer new customer financing programs; changes in the delinquency status of our credit portfolio; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores and the updating of existing stores; technological and market developments and sales trends for our major product offerings; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and the other risks detailed in our SEC reports, including but not limited to, our Annual Report on Form 10-K. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, we are not obligated to publicly release any revisions or update to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

       
CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
(in thousands, except per share amounts)
 
Three Months Ended Nine Months Ended
October 31, October 31,
2013 2012 2013 2012
Revenues
Total net sales $ 257,046 $ 167,323 $ 690,206 $ 505,915
Finance charges and other   53,830   39,078     142,422     108,773  
Total revenues 310,876

 

206,401

 

832,628

 

614,688
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

151,987 105,688 411,484 325,041

Cost of parts sold, including warehousing and occupancy costs

1,286 1,522 4,010 4,513
Selling, general and administrative expense 90,341 61,210 242,353 180,247
Provision for bad debts 22,730 13,449 58,049 34,838
Charges and credits   2,834   641     2,834     1,150  
Total cost and expenses   269,178   182,510     718,730     545,789  
Operating income 41,698

 

23,891

 

113,898

 

68,899
Interest expense 3,714 4,526 10,720 13,159
Loss on early extinguishment of debt - 818 - 818
Other income, net   -   (3 )   (38 )   (105 )
Income before income taxes 37,984 18,550 103,216 55,027
Provision for income taxes   13,608   6,765     37,502     20,080  
Net income $ 24,376 $ 11,785   $ 65,714   $ 34,947  
 
Earnings per share:
Basic $ 0.68 $ 0.36 $ 1.84 $ 1.08
Diluted $ 0.66 $ 0.35 $ 1.79 $ 1.05
Average common shares outstanding:
Basic 35,955 32,553 35,686 32,387
Diluted 36,965 33,539 36,795 33,207
 

 
CONN'S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands, except per share amounts)
       
Three Months Ended Nine Months Ended
October 31, October 31,
2013 2012 2013 2012
Revenues
Product sales $ 234,159 $ 151,663 $ 628,482 $ 459,804
Repair service agreement commissions 19,601 12,183 52,756 35,930
Service revenues   3,286     3,477     8,968     10,181  
Total net sales   257,046  

 

  167,323  

 

  690,206  

 

  505,915  
Finance charges and other   438     340     1,067     857  
Total revenues 257,484

 

167,663

 

691,273

 

506,772
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

151,987 105,688 411,484 325,041

Cost of parts sold, including warehousing and occupancy costs

1,286 1,522 4,010 4,513
Selling, general and administrative expense 69,920 47,275 188,340 139,832
Provision for bad debts 203 229 389 630
Charges and credits   2,834     641     2,834     1,150  
Total cost and expenses   226,230     155,355     607,057     471,166  
Operating income 31,254

 

12,308

 

84,216

 

35,606
Other income, net   -     (3 )   (38 )   (105 )
Income before income taxes $ 31,254  

 

$ 12,311  

 

$ 84,254  

 

$ 35,711  
 
Retail gross margin 40.1 % 35.5 % 39.6 % 34.4 %

Selling, general and administrative expense as percent of revenues

27.2 % 28.2 % 27.2 % 27.6 %
Operating margin 12.1 % 7.3 % 12.2 % 7.0 %
 
Number of stores:
Beginning of period 72 65 68 65
Opened 2 - 6 1
Closed   (2 )   -     (2 )   (1 )
End of period   72     65     72     65  
 

       
CONN'S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands)
 
Three Months Ended Nine Months Ended
October 31, October 31,
2013 2012 2013 2012
Revenues
Finance charges and other $ 53,392 $ 38,738 $ 141,355 $ 107,916
Cost and expenses
Selling, general and administrative expense 20,421 13,935 54,013 40,415
Provision for bad debts   22,527       13,220       57,660       34,208  
Total cost and expenses   42,948  

 

  27,155  

 

  111,673  

 

  74,623  
Operating income 10,444

 

11,583

 

29,682

 

33,293
Interest expense 3,714 4,526 10,720 13,159
Loss from early extinguishment of debt   -     818     -     818  
Income before income taxes $ 6,730   $ 6,239   $ 18,962   $ 19,316  
 

Selling, general and administrative expense as percent of revenues

38.2 % 36.0 % 38.2 % 37.5 %
Operating margin 19.6 % 29.9 % 21.0 % 30.9 %
 

       
MANAGED CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(dollars in thousands, except average outstanding balance per account)
 
October 31,
2013 2012
Total outstanding balance $ 944,826 $ 683,744
Weighted average credit score of outstanding balances 591 603
Weighted average months since origination of outstanding balances 8.6 9.7
Number of active accounts 563,753 462,200
Average outstanding customer balance $ 1,676 $ 1,479
Balance 60+ days delinquent $ 80,505 $ 47,691
Percent 60+ days delinquent 8.5 % 7.0 %

Percent of portfolio re-aged

10.9 % 11.4 %
 
 
Three Months Ended Nine Months Ended
October 31, October 31,
2013 2012 2013 2012
Data for the periods ended:
Total applications processed 267,558 198,617 682,453 565,036
Weighted average origination credit score of sales financed 599 616 601 615
Weighted average monthly payment rate 5.1 % 5.3 % 5.4 % 5.5 %
Interest and fee income yield, annualized 17.8 % 19.3 % 17.9 % 18.6 %

Percent of bad debt charge-offs (net of recoveries) to average outstanding balance, annualized

7.6 % 7.6 % 6.9 % 8.2 %
Percent of sales paid for by payment option:
In-house financing, including down payment received 79.5 % 72.3 % 73.2 % 69.5 %
Third-party financing 11.5 % 14.5 % 11.7 % 14.3 %
Third-party rent-to-own options 2.5 % 3.7 %   2.9 %   3.5 %
Total 93.5 % 90.5 %   87.8 %   87.3 %
 

   
CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED BALANCE SHEETS

(unaudited)
(in thousands)
 
 
October 31, January 31,
2013 2013
Assets
Current Assets
Cash and cash equivalents $ 3,701 $ 3,849
Customer accounts receivable, net 473,795 378,050
Other accounts receivable, net 44,648

 

45,759
Inventories 131,732 73,685
Deferred income taxes 17,957 15,302
Prepaid expenses and other assets   7,209   11,599
Total current assets 679,042

 

528,244
Long-term customer accounts receivable, net 400,606 313,011
Property and equipment, net 75,435 46,994
Deferred income taxes 11,298 11,579
Other assets, net   7,983   10,029
Total Assets $ 1,174,364

 

$ 909,857
 
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 527 $ 32,526
Accounts payable 106,422 69,608

Accrued expenses

42,401 29,496
Other current liabilities   18,035   19,533
Total current liabilities 167,385

 

151,163
Long-term debt 422,161 262,531
Other long-term liabilities 26,083 21,713
Stockholders' equity   558,735   474,450
Total liabilities and stockholders' equity $ 1,174,364

 

$ 909,857
 

 
NON-GAAP RECONCILIATION OF NET INCOME, AS ADJUSTED
AND DILUTED EARNINGS PER SHARE, AS ADJUSTED
(unaudited)
(in thousands, except earnings per share)
       

Three Months Ended
October 31,

Nine Months Ended
October 31,

2013 2012 2013 2012
Net income, as reported $ 24,376 $ 11,785 $ 65,714 $ 34,947
Adjustments:
Costs related to facility closures 2,834 - 2,834 163
Costs related to office relocations - 641 - 987
Loss from early extinguishment of debt - 818 - 818
Tax impact of adjustments   (1,000 )   (514 )   (1,000 )   (693 )
Net income, as adjusted $ 26,210   $ 12,730   $ 67,548   $ 36,222  
 

Average common shares outstanding - Diluted

36,965 33,539 36,795 33,207
 
Earnings per share - Diluted
As reported $ 0.66 $ 0.35 $ 1.79 $ 1.05
As adjusted $ 0.71 $ 0.38 $ 1.84 $ 1.09
 

NON-GAAP RECONCILIATION OF RETAIL SEGMENT
OPERATING INCOME, AS ADJUSTED
(unaudited)
(in thousands)
         

Three Months Ended
October 31,

Nine Months Ended
October 31,

2013 2012 2013 2012
Operating income, as reported $ 31,254 $ 12,308 $ 84,216 $ 35,606
Adjustments:
Costs related to facility closures 2,834 - 2,834 163
Costs related to office relocation   -     641     -     987  
Operating income, as adjusted $ 34,088   $ 12,949   $ 87,050   $ 36,756  
 
Retail segment revenues $ 257,484 $ 167,663 $ 691,273 $ 506,772
 
Operating margin
As reported 12.1 % 7.3 % 12.2 % 7.0 %
As adjusted 13.2 % 7.7 % 12.6 % 7.3 %
 

Basis for presentation of non-GAAP disclosures:

To supplement the Company's condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles ("GAAP"), the Company also provides the following information: adjusted net income and adjusted earnings per diluted share; and adjusted retail segment operating income and adjusted operating margin. These non-GAAP financial measures are not meant to be considered as a substitute for comparable GAAP measures but should be considered in addition to results presented in accordance with GAAP, and are intended to provide additional insight into the Company's operations and the factors and trends affecting the Company's business. The Company's management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics the Company uses in its financial and operational decision making and (2) they are used by some of its institutional investors and the analyst community to help them analyze the Company's operating results.

CONN-F

Conn?s, Inc.
Brian Taylor 936-230-5899
Chief Financial Officer and Treasurer
or
Investors:
S.M. Berger & Company
Andrew Berger, 216-464-6400

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