Conn’s (CONN) Shares off Sharply After 1Q Earnings Miss

Shares of Conn’s Inc. (CONN) were trading down -1.91 or -16.31 percent to $9.80 per share in Thursday’s premarket after the company reported first quarter earnings that missed analyst expectations. In addition, the company announced the appointment of three new executives including Chief Financial Officer. Conn’s Inc. stock closed at $11.71, up +0.60 or +5.40 percent in Wednesday’s regular trading session.

Stock Analysis

The Woodlands, Texas based Conn’s Inc. is a specialty retailer of furniture, home appliances, mattresses and consumer electronics.
The chain operates 100 retail locations in Texas, Arizona, New Mexico, Colorado, Georgia, Nevada, Tennessee, North and South Carolina, 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.

For the company’s first quarter of 2017, Conn’s reported a diluted loss of -$0.32 per share versus earnings of $0.43 per share in 2016's first quarter. Adjusted diluted earnings for the quarter came to a loss of -$0.31 compared to $0.44 in the same period one year ago.

Revenue for the quarter came to $319.0 million, an increase of $20.4 million or +6.8 percent over last year. The increase was due to new store openings partially offset by a lower same store sales number. With the exclusion of the impact of the company’s April decision to exit digital cameras, video game products and certain tablets, same store sales for the quarter fell -1.3 percent. Sales growth was also impacted by underwriting changes in 2016’s fourth quarter and the first quarter of 2017.  Analysts expected the company to report earnings of +$0.06 per share on revenue of $393.0 million.

Conn's Chairman, Chief Executive Officer and President Norm Miller stated in the company’s press release that, “Our results this quarter reflect the transition we are undergoing this year to transform our credit business. We have a strong, differentiated retail model that delivers an excellent value to our customers. Our work the past few years to revitalize our retail operation was highly successful, but changes in the underlying behavior of our customer base exposed the need for increased investment in credit risk management.”

For the second quarter, the company is expecting gross margins of between 37.0 percent and 37.5 percent of total net sales, with a provision of 14.25 percent and 15.25 for bad debts of the average annualized customer portfolio balance. Credit segment finance charges and other revenues are expected to be 18.25 percent and 18.75 percent of the average total customer portfolio balance.

For the full year, Conn’s is now expecting revenue growth in the low to mid single digits, with same store sales to range down mid to low single digits taking into consideration the sales impact of underwriting changes. The company had previously forecast revenue growth in the second quarter to be in the mid to high single digits, while same store sales were previously forecast to be down in the low single digits to flat.

In addition to the earnings release, Conn’s announced several executive changes: Lee Wright will succeed Tom Moran as Chief Financial Officer beginning on June 22nd, with Moran remaining at the company for 120 days to support a seamless transition.

John Davis was appointed Conn’s Chief Credit Officer late last month and was formally the founder and Chief Executive of GFC Advisors Ltd. a consulting firm for the consumer credit industry. Michael Poppe was promoted to Chief Operating Officer of Credit and Collections from his former position as Executive Vice President.

Other News About CONN

Moody's downgrades Conn's CFR to B1

Moody’s downgraded all ratings for the company including Conn’s Corporate Family Rating.


Due to its recent price decline, Zacks recommended selling the stock last month.

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Published on Jun 2, 2016
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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