What happened
Shares of Conn's(NASDAQ: CONN) were up 12% as of 10:05 a.m. ET on Tuesday after the retailer reported earnings results for the third quarter. However, Conn's is still struggling in this environment, with sales down year over year.
The stock is likely responding to the new CEO's plan to improve the company's financials. Year to date, Conn's has fallen 59% over weak operating performance amid an uncertainty backdrop for consumer spending.
So what
Conn's continues to struggle to gain traction with customers. Sales fell 21% over the year-ago quarter, coming in at $321 million, which was less than the $326 million analysts expected.
The company reported a wider net loss than expected, coming in at $0.78 per share, which was $0.41 worse than estimates. CEO Norm Miller, who stepped in to lead the company in October, said the company will look to bolster its performance on the bottom line by "taking a disciplined approach" to profitable growth. Miller said it will seek to accomplish this while not sacrificing investments to expand the product assortment and e-commerce business.
Now what
The stock's rally today reflects a big thumbs-up from investors for Miller's plan. He previously served as CEO of Conn's from 2015 to 2021, where he oversaw an improvement in operating profit margin from 7% to 12%. A similar performance over the next five years would very likely send the stock soaring, but it won't be a smooth ride.
The stock trades at a price-to-sales ratio of less than 0.18, which is low even for a discount retailer. But it will be challenging to improve a business in this economy that sells the same goods offered by many other retailers.
The company also carries a large amount of debt and financial lease obligations relative to its cash on the books. Because of this, investors should be careful with this cheap-looking retail stock.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
