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Conn's (CONN) Q1 Loss Narrower than Expected, Stock Tumbles
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Shares of Conn's, Inc. (CONN - Free Report) tumbled 9.1% yesterday, when the company posted a loss in first-quarter fiscal 2018. Also, the top line declined year over year, lagging our estimate. Nonetheless, the loss figure fared better than the year-ago period, as well as the Zacks Consensus Estimate. This marked Conn’s fourth consecutive quarter of positive bottom-line surprise.
Incidentally, this positive surprise history has also helped this Zacks Rank #1 (Strong Buy) stock to surge a whopping 106.9% in the last one year, outperforming the Zacks categorized Retail–Consumer Electronics industry growth of 67.8%.
Q1 Highlights
The company recorded adjusted loss of 5 cents per share in the quarter, significantly narrower than the Zacks Consensus Estimate of a loss of 22 cents, as well as a loss of 31 cents reported in the same year-ago period. Including one-time items, the company posted a loss of 8 cents per share, compared with a loss of 32 cents in the year-ago quarter.
Total revenue declined 8.6% year over year to $355.8 million and also fell short of the Zacks Consensus Estimate of $359 million.
Segment Discussion
Conn’s offers consumer durable products in the U.S. under the Retail segment, including home appliances, furniture and mattresses, home office as well as consumer electronics. During the fiscal first quarter, the company witnessed a year-over-year sales decline across all these categories, apart from Home appliance.
The Retail segment’s total revenue decreased 12.3% to $279.3 million, mainly due to lower comps, partly offset by the introduction of new stores. Also, sales were adversely affected by soft consumer patterns, underwriting changes made in fiscal 2017, delay in tax refunds and absence of an extra day from the leap year. Comps for the reported quarter declined 15.2%.
Gross margin at the segment expanded 260 basis points (bps), on the back of favorable mix, along with reduced warehouse, transportation and delivery expenses. Moreover, adjusted operating profit at the Retail segment came in at $33.2 million, down 2.9% year over year. However, the adjusted operating margin expanded 120 bps to 11.9%, backed by improved gross margin and a fall in retail SG&A expenses.
Revenues from the company's Credit segment advanced 9.1% to $76.5 million in the quarter. This was driven by the company’s higher-yield direct loan product. This led to a 240 bps expansion in the portfolio yield rate to 18.2%, in the quarter. This was partially negated by a 3.1% drop in average balance of customer receivables. At quarter end, total customer portfolio balance slid 3.9% year over year to $1.5 billion.
During the quarter, the company’s provision for bad debts decreased by $2.1 million to $55.7 million. This was led by a marginal improvement noted in the allowance for bad debt, somewhat offset by higher net charge-offs.
Liquidity Position
As of Apr 30, 2017, the company had cash and cash equivalents of nearly $112.8 million, long-term debt and capital lease obligations of $1,206.5 million, and total shareholders’ equity of approximately $517 million.
Borrowings outstanding under Conn’s revolving credit facility, as of Apr 30, 2017, were $128.8 million. The company also had $112.8 million free cash available for use.
Store Update
So far, in fiscal 2018, Conn’s introduced three new Conn's HomePlus store in North Carolina, raising the company’s total store count to 116. The company doesn’t have any openings planned for fiscal 2018.
Guidance
Management remained impressed with its first quarter operating performance. Also, the company’s credit business is progressing well. In this regard, the company had recently inked a deal with Aaron's, Inc.’s (AAN - Free Report) subsidiary – Progressive Leasing, per which the latter will offer lease-to-own payment solutions to those customers who are not eligible for Conn’s proprietary credit offering. Management revealed that the implementation of this deal was done ahead of plan, and Progressive’s solutions were available across all Conn’s locations, before the Memorial Day holiday.
The company, which has been gaining from its differentiated business strategy, remains focused on enhancing its operational and financial results, with hopes to revert to full-year profitability this year.
For second-quarter fiscal 2018, the company expects comps to decrease in a range of 12–15%. Further, retail gross margin is anticipated between 37.75–38.25%, and SG&A expenses, as a percentage of total revenues, in the range of 30.5–32%.
Conn’s also projects the provision for bad debts to be in the band of $52–$56 million. Also, other revenues and credit segment finance charges are estimated between $78–$82 million. Interest expenses are anticipated in the range of $20.5–$22.5 million.
Other Stocks to Consider
Other stocks in the retail sector worth considering include Best Buy Co., Inc. (BBY - Free Report) and Target Corporation (TGT - Free Report) .
Target carries a Zacks Rank #2, and has long-term earnings growth rate of 8.2%.
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By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>
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Conn's (CONN) Q1 Loss Narrower than Expected, Stock Tumbles
Shares of Conn's, Inc. (CONN - Free Report) tumbled 9.1% yesterday, when the company posted a loss in first-quarter fiscal 2018. Also, the top line declined year over year, lagging our estimate. Nonetheless, the loss figure fared better than the year-ago period, as well as the Zacks Consensus Estimate. This marked Conn’s fourth consecutive quarter of positive bottom-line surprise.
Incidentally, this positive surprise history has also helped this Zacks Rank #1 (Strong Buy) stock to surge a whopping 106.9% in the last one year, outperforming the Zacks categorized Retail–Consumer Electronics industry growth of 67.8%.
Q1 Highlights
The company recorded adjusted loss of 5 cents per share in the quarter, significantly narrower than the Zacks Consensus Estimate of a loss of 22 cents, as well as a loss of 31 cents reported in the same year-ago period. Including one-time items, the company posted a loss of 8 cents per share, compared with a loss of 32 cents in the year-ago quarter.
Conn's, Inc. Price, Consensus and EPS Surprise
Conn's, Inc. Price, Consensus and EPS Surprise | Conn's, Inc. Quote
Total revenue declined 8.6% year over year to $355.8 million and also fell short of the Zacks Consensus Estimate of $359 million.
Segment Discussion
Conn’s offers consumer durable products in the U.S. under the Retail segment, including home appliances, furniture and mattresses, home office as well as consumer electronics. During the fiscal first quarter, the company witnessed a year-over-year sales decline across all these categories, apart from Home appliance.
The Retail segment’s total revenue decreased 12.3% to $279.3 million, mainly due to lower comps, partly offset by the introduction of new stores. Also, sales were adversely affected by soft consumer patterns, underwriting changes made in fiscal 2017, delay in tax refunds and absence of an extra day from the leap year. Comps for the reported quarter declined 15.2%.
Gross margin at the segment expanded 260 basis points (bps), on the back of favorable mix, along with reduced warehouse, transportation and delivery expenses. Moreover, adjusted operating profit at the Retail segment came in at $33.2 million, down 2.9% year over year. However, the adjusted operating margin expanded 120 bps to 11.9%, backed by improved gross margin and a fall in retail SG&A expenses.
Revenues from the company's Credit segment advanced 9.1% to $76.5 million in the quarter. This was driven by the company’s higher-yield direct loan product. This led to a 240 bps expansion in the portfolio yield rate to 18.2%, in the quarter. This was partially negated by a 3.1% drop in average balance of customer receivables. At quarter end, total customer portfolio balance slid 3.9% year over year to $1.5 billion.
During the quarter, the company’s provision for bad debts decreased by $2.1 million to $55.7 million. This was led by a marginal improvement noted in the allowance for bad debt, somewhat offset by higher net charge-offs.
Liquidity Position
As of Apr 30, 2017, the company had cash and cash equivalents of nearly $112.8 million, long-term debt and capital lease obligations of $1,206.5 million, and total shareholders’ equity of approximately $517 million.
Borrowings outstanding under Conn’s revolving credit facility, as of Apr 30, 2017, were $128.8 million. The company also had $112.8 million free cash available for use.
Store Update
So far, in fiscal 2018, Conn’s introduced three new Conn's HomePlus store in North Carolina, raising the company’s total store count to 116. The company doesn’t have any openings planned for fiscal 2018.
Guidance
Management remained impressed with its first quarter operating performance. Also, the company’s credit business is progressing well. In this regard, the company had recently inked a deal with Aaron's, Inc.’s (AAN - Free Report) subsidiary – Progressive Leasing, per which the latter will offer lease-to-own payment solutions to those customers who are not eligible for Conn’s proprietary credit offering. Management revealed that the implementation of this deal was done ahead of plan, and Progressive’s solutions were available across all Conn’s locations, before the Memorial Day holiday.
The company, which has been gaining from its differentiated business strategy, remains focused on enhancing its operational and financial results, with hopes to revert to full-year profitability this year.
For second-quarter fiscal 2018, the company expects comps to decrease in a range of 12–15%. Further, retail gross margin is anticipated between 37.75–38.25%, and SG&A expenses, as a percentage of total revenues, in the range of 30.5–32%.
Conn’s also projects the provision for bad debts to be in the band of $52–$56 million. Also, other revenues and credit segment finance charges are estimated between $78–$82 million. Interest expenses are anticipated in the range of $20.5–$22.5 million.
Other Stocks to Consider
Other stocks in the retail sector worth considering include Best Buy Co., Inc. (BBY - Free Report) and Target Corporation (TGT - Free Report) .
Best Buy, with long-term earnings growth rate of 11.8%, has a splendid earnings surprise history. Also, the stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Target carries a Zacks Rank #2, and has long-term earnings growth rate of 8.2%.
3 Stocks to Ride a 588% Revenue Explosion
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold…
By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>