Why Conn's Earnings Were Not Up to Snuff

Chris Lange

Conn’s Inc. (NASDAQ: CONN) reported its fiscal first-quarter financial results before the markets opened on Thursday. The company had a net loss of $0.31 per share on $389.1 million in revenue. The consensus estimates from Thomson Reuters had called for $0.06 in earnings per share (EPS) on $392.64 million in revenue. The same period from last year had $0.44 in EPS on $365.08 million in revenue.

Just looking at how far Conn’s was off the consensus estimates on the bottom line suggests that something went very wrong this quarter.

Total retail revenues were $319.0 million for the first quarter of fiscal 2017, an increase of $20.4 million, or 6.8%, primarily a result of new store openings partially offset by a decline in same store sales.

On the other hand, credit revenues increased 5.5% to $70.1 million. The credit revenue growth was attributable to the increase in the average receivable portfolio balance outstanding.

In terms of guidance, for the fiscal second quarter the company expects retail gross margin between 37.0% and 37.5% of total net sales, credit segment finance charges and other revenues between 18.25% and 18.75% of average total customer portfolio balance (annualized). The consensus estimates call for $0.25 in EPS on $427.39 million in revenue for the coming quarter.

Apart from the earnings, Conn’s appointed a few new faces to its executive team:

  • Lee Wright will join as new chief financial officer.
  • Mark Prior will join as general counsel and corporate security.
  • John Davis will join as chief credit officer.
  • Michael Poppe was promoted to president and chief operating officer of Credit and Collections.

Norm Miller, chairman, CEO and president of Conn’s, commented:

Our results this quarter reflect the transition we are undergoing this year to transform our credit business. … We are temporarily slowing the pace of growth to allow us to implement strategies to turn around our credit segment’s financial performance. These strategies include investments in our credit risk management team, improvements to our underwriting strategies and reviewing opportunities to increase the yield on the portfolio. It will take several quarters before the benefits of these efforts begin to meaningfully impact our reported results …

On the books, Conn’s cash and cash equivalents totaled $11.54 million at the end of the quarter, compared to $12.25 million at the end of the previous quarter.

Shares of Conn’s closed Wednesday up 5.4% at $11.71, with a consensus analyst price target of $19.33 and a 52-week trading range of $9.64 to $43.95. Following the release, the stock was down nearly 14% at $10.09 in early trading indications Thursday.