Are Conn's Earnings Another Nail in the Retail Coffin?

Conn’s Inc. (NASDAQ: CONN) is yet another firm getting shipped off to the island of misfit retailers after posting its most recent financial results before the opening bell on Tuesday. Conn’s joins a number of big-name retailers that have just been left behind as the markets are charging new highs.

This furniture and appliances retailer posted $0.61 in earnings per share (EPS) and $377.7 million in revenue, compared with consensus estimates that called for $0.54 in EPS and $394.29 million in revenue. The fiscal third quarter of last year reportedly had $0.59 in EPS and $373.8 million in revenue.

Retail revenues were $280.3 million, a decrease of $3.7 million or 1.3%. The decrease in retail revenue was driven primarily by a decrease in same-store sales of 8.4%, partially offset by new store growth. The decrease in same-store sales was driven by a decrease of 12.8% in markets affected by Hurricane Harvey, and by a decrease of 6.7% in markets not affected by Hurricane Harvey.

Separately, Credit revenues were $97.4 million, an increase of $7.6 million year over year, or 8.5%.

Looking ahead to the fiscal fourth quarter, the company anticipates a decrease in total net sales in the range of 9% to 5% and a decrease in same-store sales between 16% and 12%. Consensus estimates call for $0.95 in EPS and $462.71 million in revenue for the quarter.

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

We made the necessary adjustments to maintain our credit spread of approximately 1,000 basis points, which negatively impacted same store sales by approximately 4% to 5%. Compounding the impact to third quarter retail sales was a combination of significant price deflation for premium large screen televisions, which negatively affected average selling prices, and an increase in production of large screen televisions by second- and third-tier manufacturers, which made cash purchases of large screen televisions more accessible to our core customer and negatively impacted units. These factors in the consumer electronics category further impacted same store sales by approximately 3% to 4% during the quarter.

Shares of Conn’s closed Monday at $20.50, in a 52-week range of $15.40 to $27.57. The consensus price target is $33.83. Following the announcement, the stock was down about 27% at $15.02 in early trading indications Tuesday.

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