Conn's (CONN) Crashes After Missing Lofty Expectations
Shares of big box retailer Conn's (CONN) plunged last week, after the company reported second quarter earnings that missed Wall Street expectations. Over the past year, Conn's had captured the attention of retail investors with its strategy of selling home electronics and appliances alongside furniture, a unique strategy that helped it outperform rivals like Best Buy (BBY) and RadioShack (RSH). Daily Chart
By offering furniture like beds and sofas -- which are not typically purchased online -- Conn's drew customers in, boosting same-store sales significantly last year.
Rising home sales and demand for new furniture, appliances, and electronics also made Conn's a more popular one-stop shop than Best Buy or furniture stores. Conn's also has a lending arm, which helps customers finance their big ticket purchases. However, with rising top and bottom line growth comes higher expectations. For its second quarter, Conn's earned $0.52 per share -- up from the $0.36 per share it earned in the prior year quarter but falling short of the $0.60 that Thomson Reuters analysts had expected. Revenue climbed 30.5% year-on-year to $270.70 million, topping the consensus forecast of $259.74 million. Conn's attributed its robust top line growth to higher sales of furniture and mattresses, as well as new store openings in the southwest United States. Same-store sales surged 31% from a year earlier. By comparison, same-store sales at Best Buy rose 8.3% last quarter. However, Conn's full year EPS guidance of $2.50 to $2.65 per share fell short of the consensus estimate of $2.66 per share. Shares plunged nearly 20% after its earnings announcement. Analysts are still fairly bullish on Conn's. Oppenheimer currently has a buy rating on the stock with an $85 price target. Analysts at B. Riley raised their price target to $73, while analysts at Suntrust also boosted their price target to $76. Looking forward, Conn's is trading at 15.8 times forward earnings with a 5-year PEG ratio of 1.21 -- signifying that it could be an undervalued growth stock. By comparison, Best Buy trades at 13.9 times forward earnings with a 5-year PEG ratio of 1.95 -- indicating much lower growth expectations. Although Conn's definitely let down some overly bullish investors, the stock is still up more than 100% over the past twelve months and 180% over the past five years. The stock is a rarity in the big box retail sector -- an industry plagued by disasters like Barnes & Noble (BKS
) and Staples (SPLS
) that have succumbed to persistent competition and price pressure from e-commerce giant Amazon (AMZN
). Other News About CONN Why Conn's Shares Plunged
Why did Conn's crash? Conn's EPS Beats, Sales Miss
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Published on Sep 10, 2013
By Leo Sun