Why Conn’s Is Tuesday’s Big Earnings Loser

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When Conn’s Inc. (NASDAQ: CONN) reported its fiscal third-quarter financial results before the markets opened on Tuesday, the company posted $0.59 in earnings per share (EPS) and $373.8 million in revenue. That compares with consensus estimates of $0.58 in EPS and $385.69 million in revenue, as well as the $0.18 per share and $373.17 million posted in the same period of last year.

Retail revenues were $284.1 million for this past quarter, compared to $291.9 million in the third quarter of last year. The decrease in retail revenue was primarily driven by a decrease in same-store sales of 4.4%, partially offset by new store growth.

The decrease in same-store sales was due to a decrease in same-store sales for markets affected by Hurricane Harvey of 11.8% and a decrease in same-store sales for non-Hurricane Harvey markets of 1.3%. Management believes that the decrease in same-store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts in the third quarter of 2017.

Separately, credit revenues were $89.8 million for the quarter, compared to $81.3 million in the same period of last year.

Looking ahead to the fiscal fourth quarter, the company expects to see same-store sales in the range of flat to 2% with a retail gross margin of 40.0% to 40.5%. Consensus estimates call for $0.94 in EPS and $439.94 million in revenue for the quarter.

Norm Miller, Conn’s board chair and chief executive, commented:

Fiscal year 2019 is shaping up to be one of the best years of profitability in Conn’s 128-year history.  This is primarily due to our growing credit spread and strong retail gross and operating margins.  Conn’s credit spread was 940 basis points in the third quarter of fiscal year 2019 as a result of record interest income and fee yield and lower charge-offs of bad debts.  From a retail perspective, even with Hurricane Harvey’s impact on same store sales, we achieved a retail operating margin of 12.4% during the third quarter of fiscal year 2019.

Shares of Conn’s were last seen down 16% at $24.28, in a 52-week range of $22.10 to $42.65. The consensus analyst price target is $42.42.