Conn’s (CONN) Stock off Sharply on Third Quarter Earnings

Shares of Conn's Inc. (CONN) were trading down -11.21 or -31.95 percent to $23.88 in this morning's premarket, after the company announced a loss for its fiscal third quarter, 2015 ended on October 31st 2014. Analysts were expecting the company to post a profit for the quarter. Conn's stock closed at $35.09, down -0.15 or 0.45 percent in Monday's regular trading session.

The Woodlands, Texas based Conn's Inc. is a specialty retailer of furniture, home appliances, mattresses and consumer electronics.
The chain operates stores in Texas, Arizona, New Mexico, Louisiana and Oklahoma. In addition to its retail outlets, the company also provides consumer credit to and third party financing for its customers. Conn's Inc. had its initial public offering in November of 2003, selling 4.6 million shares and listing its stock on the NASDAQ exchange. The company is currently a defendant in a lawsuit over its alleged practices of extending credit to high risk customers.

Conn's Inc. reported a fiscal third quarter loss of -$0.08 per share, or -$3.1 million on revenue of $370.1 million. The analyst consensus for the company's third quarter was for a profit of +$0.68 on revenue of $382.5 million.

The company reported increased sales in computers, furniture, televisions, mattresses and home appliances. Nevertheless, Conn's also reported an increase of +21.6 percent in credit revenues that was attributable to an increase in the average receivable portfolio balance outstanding. For the third quarter, annual fee income and income yield was 16.9 percent, down 90 basis points from the same period one year ago, reflecting the higher provision for uncollectable interest.

Conn's Chairman and Chief Executive Officer, Theodore M. Wright stated in the company's press release that, "In the third quarter, we drove significant growth and expanded gross margins in the retail segment, but these gains were more than offset by additional provisions for credit losses. Customer credit scores continue to deteriorate. Despite underwriting changes reducing the percentage of originations to customers with scores below 550, the proportion of customers in late stage delinquency with a score below 550 increased this year, though it has remained relatively constant since the end of the second quarter. As a result, delinquency rates have increased and losses are being realized at a faster pace than originally anticipated.

He continued, "The retail segment successfully opened six new stores and delivered increased retail gross margins compared to the prior year quarter. Additionally, we had only a slight decline in same store sales, despite underwriting changes that negatively impacted same store sales by approximately 12% during the third quarter. November same store sales increased 0.5%. Television same store sales in November increased 5.5%, led by strong sales of Ultra HD televisions.

In addition to the dismal earnings news, Conn's also announced the departure of the company's Chief Financial Officer, Brian Taylor. The company has appointed Mark Haley, a Vice President and Chief Accounting Officer to the position effective immediately, while the company identifies qualified candidates for the permanent position.

Conn's Inc. stock was already down significantly from its high of $80.34 before getting pummeled in this morning's premarket. With continued problems and the current litigation facing the company, Conn's stock could continue under pressure.

Other News About Conn's Inc
Shareholder derivative lawsuit filed against Conn's executives, alleges insider trading
Lawsuit filed on December 1st naming board members and executive officers for unjust enrichment.
Conn's Offers a Bargain for Buyout Firms: Real M&A
Article on the viability of Conn's for a takeover.

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Published on Dec 9, 2014
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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