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Conn’s (CONN - Snapshot Report) can trace its roots back to 1890 where it started
life as a plumbing company in Beaumont Texas.
In the early to mid 20th century, Conn’s began selling
refrigerators and ranges and the rest is history.
Since coming public less than a decade ago, Conn’s has
continued to expand (conservatively) and now operates 68 retail locations in
Texas, Louisiana, Oklahoma, New Mexico, and Arizona. The specialty retailer sells everything from
home appliances and consumer electronics to computers, furniture, mattresses
and even lawn and garden equipment.
Conn’s also offers customers flexible in-house credit
options instead of farming them off to outside banks. Their unique in-house financing allows them
to capture more customers, sell higher margin product to consumers with less
than perfect credit and also control approval rates and credit limits. It also allows Conn’s to capture fees and
interest on accounts that are performing.
They also offer competitive third-party financing programs
and third-party rent-to-own payment plans.
Conn’s is not only expanding their stores (Conn’s added 3
new “HomePlus” locations in the last quarter), but their earnings are moving in
the right direction. Their last earnings
report was a record breaker; here are some highlights:
- Total revenues increased 10.6% to $206.4
Retail gross margin was 35.5%;
- Same store sales rose 12.6% over the prior
quarter, on top of same store sales growth of 18.9% vs. a year ago
Adjusted retail segment operating income was
$12.9 million, up $13.8 million on an adjusted basis over the prior-year
- Credit segment operating income totaled $11.6
million, compared to adjusted operating income of $5.6 million for the
Conn’s earned $0.35 per share on a reported basis, versus a
loss of $0.40 per share the year prior, which is a huge turnaround for the
They also raised 2013 earnings guidance to $1.55 to $1.60 on
an adjusted basis. Year over year revenue grew by 10.6% and inventories shrank
by 20.22% during the same time period.
The company has managed to increase profits quarter over
quarter for the last year and beat the Zacks consensus over those last 4
reports by an average of 16.73%.
Analysts have been upping their estimates leading into their
next report in April and even though sales are expected to be flat, cost
cutting, margin and financing profits are expected to add 15% to earnings over
the next year.
Consumers Holding On
It’s fair to say that the most recent initial GDP reading
was a disappointment, but when you look at the employment trends and couple
that with consumer spending, durable goods and home sales, the consumer is
alive and well. Employment growth has also been stable and sentiment is improving after a three month decline.
The earnings momentum and macro economic data provides a
firm foundation for Conn’s to continue to grow.
Their unique store layout, aggressive pricing and buy-here,
pay-here type financing makes them an option for the many consumers who may not
have the perfect credit to go elsewhere.
The fact that they are only trading at 17 times earnings
makes their stock an easier pill to swallow and one that’s worth a look,
especially since they are a Zacks Rank #1 stock.