March 26, 2009

Conn's, Inc. Reports Results for the Quarter Ended January 31, 2009

BEAUMONT, Texas, Mar 26, 2009 (BUSINESS WIRE) -- Conn's, Inc. (NASDAQ/NM:CONN), a specialty retailer of home appliances, consumer electronics, computers, lawn and garden products, furniture and mattresses, today announced its operating results for the quarter and year ended January 31, 2009.

Total revenues for the quarter ended January 31, 2009, increased 19.5% to $269.9 million, as a result of the following changes:

  • Total net sales increased 22.4% to $245.4 million,
  • Finance charges and other increased 12.5% to $29.0 million, and
  • The non-cash fair value decrease to the Company's Interests in securitized assets reduced revenues by $4.5 million in the fourth quarter of fiscal 2009, as compared to $0.4 million in the fourth quarter of fiscal 2008.

The growth in Total net sales was driven by a same store sales (revenues earned in stores operated for the entirety of both periods) increase of 12.5% for the fourth quarter of fiscal 2009.

The Company experienced improved operating performance during the quarter as product gross margins improved to 22.2%, as compared to 20.7% for the quarter ended October 31, 2008, and selling, general and administrative expenses, as a percent of revenues, were down 220 basis points, as compared to the fourth quarter of fiscal 2008. The Company reported Net income on a GAAP basis of $12.6 million for the fourth quarter of fiscal 2009, including the effects of a $4.5 million non-cash decrease in its Interests in securitized assets. Adjusted net income, excluding the non-cash fair value adjustments, was $15.5 million for the fourth fiscal quarter, compared with adjusted net income, excluding the non-cash fair value adjustments, of $13.3 million for the fourth quarter of the prior fiscal year. Adjusted diluted earnings per share, excluding the non-cash fair value adjustments in both periods, increased to $0.69, compared with $0.58 for the fourth quarter of last year.

The credit portfolio's annualized net charge-off rate was 3.4% for the three months ended January 31, 2009, consistent with the Company's experience in the quarter ended October 31, 2008, and up slightly from the 3.2% rate experienced in the fourth quarter of the prior fiscal year. The 60+ day delinquency rate dropped to 7.3% at January 31, 2009, as compared to 8.1% at October 31, 2008, and 7.6% at January 31, 2008. Additionally, the percent of the portfolio reaged declined to 18.7% at January 31, 2009, after it increased as a result of the hurricanes in September 2008 to 19.7% at October 31, 2008, though it has increased from 16.6% at January 31, 2008. More information on the credit portfolio and its performance may be found in the table included with this press release and in the Company's filing with the Securities and Exchange Commission on Form 10-K which will be filed later today.

Total revenues for the year ended January 31, 2009, increased 8.1% to $890.8 million compared with $824.1 million for the year ended January 31, 2008. This increase in revenues consisted of:

  • Increases in Total net sales of $74.1 million, or 10.1%,
  • Increases in Finance charges and other of $12.3 million, or 12.5%, and
  • Increased non-cash fair valued decreases to Interests in securitized assets reduced revenues by $24.5 million in fiscal 2009, as compared to $4.8 million in fiscal 2008.

The Total net sales growth was driven by revenues from new stores and same store sales (revenues earned in stores operated for the entirety of both periods) increases of 2.0% for fiscal 2009. The increased non-cash fair value adjustments and impacts of Hurricanes Gustav and Ike on sales, expenses and credit portfolio performance negatively affected our operating results for fiscal year 2009. As a result, the Company reported a decline in Net income on a GAAP basis to $25.7 million in the current year as compared to $39.7 million in the prior year. Adjusted net income, excluding the non-cash fair value adjustments, was $41.6 million for fiscal 2009, compared with adjusted net income, excluding the non-cash fair value adjustments, of $42.8 million for fiscal 2008. Net income for the prior fiscal year also benefited from $0.5 million of gains on the sales of two properties and a $0.9 million one-time reduction in the provision for income taxes. Adjusted diluted earnings per share, excluding the fair value impact in both periods, was $1.84 for the 2009 fiscal year, compared with $1.81 for the prior fiscal year.

The non-cash fair value charges to the Company's Interests in securitized assets during the year ended January 31, 2009, were driven primarily by increases in the discount rate risk premium input included in the Company's estimate of the fair value of its Interests in securitized assets. The discount rate risk premium was increased principally due to external market conditions, and was not the result of changes in management's expectations regarding the underlying economics or expected cash flows of the securitization program. In addition to the discount rate risk premium input changes, during the third quarter, as a result of the external market conditions and the expected impact of the hurricanes on the Company's customers, the net charge-off rate input included in the estimate of the fair value was increased. More information on these changes may be found in the notes to the financial statements in the Company's filing with the Securities and Exchange Commission on Form 10-K which will be filed later today.

The Company now has 75 stores in operation, after closing its clearance center in San Antonio, Texas, to provide for expansion of the credit collection center located in the same facility. During fiscal year 2009 the Company opened a total of seven new stores and three replacement stores.

EPS Guidance

Today, the Company initiated guidance for its fiscal year 2010 (the year ending January 31, 2010) of earnings per diluted share in a range of $1.75 to $1.85, excluding the impact of potential fair value adjustments. This guidance includes an increased provision for bad debts related to expected increases in the balance of receivables retained on the Company's balance sheet, not as a result of changes in the Company's expectations about the performance of the receivables portfolio.

Conference Call Information

Conn's, Inc. will host a conference call and audio webcast today, March 26, 2009, at 10:00 AM, CDT, to discuss financial results for the quarter ended January 31, 2009. The webcast will be available live at www.conns.com and will be archived for one year. Participants can join the call by dialing 877-741-4245 or 719-325-4800.

About Conn's, Inc.

The Company is a specialty retailer currently operating 75 retail locations in Texas, Louisiana and Oklahoma: 23 stores in the Houston area, 19 in the Dallas/Fort Worth Metroplex, nine in San Antonio, five in Austin, five in Southeast Texas, one in Corpus Christi, four in South Texas, six in Louisiana and three in Oklahoma. It sells home appliances, including refrigerators, freezers, washers, dryers, dishwashers and ranges, and a variety of consumer electronics, including LCD, plasma and DLP televisions, camcorders, digital cameras, computers and computer accessories, Blu-ray and DVD players, video game equipment, portable audio, MP3 players, GPS devices and home theater products. The Company also sells lawn and garden products, furniture and mattresses, and continues to introduce additional product categories for the home to help respond to its customers' product needs and to increase same store sales. Unlike many of its competitors, the Company provides flexible in-house credit options for its customers. In the last three years, the Company has financed, on average, approximately 61% of its retail sales.

This press release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," or the negative thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements will prove to be correct, the Company can give no assurance that such expectations will prove to be correct. The actual future performance of the Company could differ materially from such statements. Factors that could cause or contribute to such differences include, but are not limited to: the Company's growth strategy and plans regarding opening new stores and entering new markets; the Company's intention to update, relocate or expand existing stores; the Company's estimated capital expenditures and costs related to the opening of new stores or the update, relocation or expansion of existing stores; the Company's ability to introduce additional product categories; the Company's ability to offer flexible financing programs; the Company's cash flow from operations, borrowings from its revolving lines of credit and proceeds from securitizations to fund operations, debt repayment and expansion; the ability of the Company and the QSPE to obtain additional funding for the purpose of funding the receivables generated by the Company, including limitations on the ability of the QSPE to obtain financing through its commercial paper-based funding sources and its ability to maintain the current credit ratings of its securities; the cost of any renewed or replacement credit facilities; growth trends and projected sales in the home appliance and consumer electronics industry and the Company's ability to capitalize on such growth; the pricing actions and promotional activities of competitors; relationships with the Company's key suppliers; the results of the Company's litigation; interest rates; general economic conditions; weather conditions in the Company's markets; delinquency and loss trends in the receivables portfolio; changes in the assumptions used in the calculation of the fair value of its interests in securitized assets; potential goodwill impairment charges resulting from the Company's required annual assessment; changes in the Company's stock price; and the actual number of shares of common stock outstanding. Further information on these risk factors is included in the Company's filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K to be filed later today. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company is not obligated to publicly release any revisions to these forward-looking statements to reflect the events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

Conn's, Inc.
CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except earnings per share)
Three Months Ended

January 31,

Year Ended

January 31,

2008200920082009
Revenues
Total net sales $ 200,574 $ 245,408 $ 730,992 $ 805,049
Finance charges and other 25,765 28,985 97,941 110,209
Decrease in fair value (414 ) (4,479 ) (4,805 ) (24,508 )
Total revenues225,925269,914824,128890,750
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

140,906 177,571 508,787 580,423

Cost of parts sold, including warehousing and occupancy costs

2,133 2,565 8,379 9,638
Selling, general and administrative expense 62,062 68,184 245,317 253,813
Provision for bad debts 418 879 1,908 4,273
Total cost and expenses205,519249,199764,391848,147
Operating income20,40620,71559,73742,603
Interest (income) expense, net 86 593 (515 ) 961
Other (income) expense, net (23 ) 15 (943 ) 117
Income before income taxes20,34320,10761,19541,525
Provision for income taxes7,2817,48121,50915,833
Net income$13,062$12,626$39,686$25,692
Earnings per share
Basic $ 0.58 $ 0.56 $ 1.71 $ 1.15
Diluted $ 0.57 $ 0.56 $ 1.68 $ 1.14
Average common shares outstanding
Basic 22,651 22,439 23,193 22,413
Diluted 22,976 22,494 23,673 22,577
Conn's, Inc.
CONDENSED, CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31,January 31,
20082009
Assets
Current assets
Cash and cash equivalents $ 11,015 $ 11,798
Accounts receivable, net 33,110 94,003
Interests in securitized assets 178,150 176,543
Inventories 81,495 95,971
Deferred income taxes 2,619 13,354
Prepaid expenses and other assets 4,449 5,933
Total current assets310,838397,602
Non-current deferred income tax asset-2,035
Non-current accounts receivable, net2,99041,172
Total property and equipment, net59,253 62,551
Goodwill and other assets, net9,77113,269
Total assets $382,852$516,629
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ - $ -
Current portion of long-term debt 102 5
Accounts payable 28,179 57,809
Accrued compensation and related expenses 9,748 11,473
Accrued expenses 21,487 23,703
Other current liabilities 17,549 25,541
Total current liabilities77,065118,531
Long-term debt1762,912
Non-current deferred income tax liability131-
Deferred gains on sales of property1,2211,036
Total stockholders' equity304,418334,150
Total liabilities and stockholders' equity$382,852$516,629

Conn's, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in thousands)

Year Ended
January 31,
20082009
Net cash used in operating activities$(5,634)$ (42,700)
Cash flows from investing activities
Purchase of property and equipment (18,955 ) (17,597 )
Proceeds from sale of property 8,921 224
Net cash used in investing activities(10,034)(17,373)
Cash flows from financing activities
Borrowings under lines of credit, net - 62,900
Purchases of treasury stock (33,274 ) -
Increase in debt issuance costs - (2,794 )
Proceeds from stock issued under employee benefit plans 3,491 852
Payment of promissory notes (104 ) (102 )
Net cash provided by (used in) financing activities(29,887)60,856
Net change in cash(45,555)783
Cash and cash equivalents
Beginning of the year 56,570 11,015
End of period$11,015$11,798

CALCULATION OF GROSS MARGIN PERCENTAGE

(dollars in thousands)

Three Months EndedYear Ended
January 31,January 31,
2008200920082009
A Product sales $ 185,482 $ 228,325 $ 671,571 $ 743,729
B Service maintenance agreement commissions, net 9,736 11,771 36,424 40,199
C Service revenues 5,356 5,312 22,997 21,121
D Total net sales 200,574 245,408 730,992 805,049
E Finance charges and other 25,765 28,985 97,941 110,209
F Net decrease in fair value (414 ) (4,479 ) (4,805 ) (24,508 )
G Total revenues 225,925 269,914 824,128 890,750

H

Cost of goods sold, including warehousing and occupancy cost

(140,906 ) (177,571 ) (508,787 ) (580,423 )

I

Cost of parts sold, including warehousing and occupancy cost

(2,133 ) (2,565 ) (8,379 ) (9,638 )
J Gross margin dollars (G+H+I)$82,886$ 89,778$306,962$300,689
Gross margin percentage (J/G)36.7%33.3%37.2%33.8%
K Product margin dollars (A+H)$44,576$50,754$162,784$163,306
Product margin percentage (K/A)24.0%22.2%24.2% 22.0%
PORTFOLIO STATISTICS
For the periods ended January 31, 2006, 2007, 2008 and 2009
(dollars in thousands, except average outstanding balance per account)
January 31,
2006200720082009
Total accounts 415,338 459,065 510,922 537,957
Total outstanding balance $ 519,721 $ 569,551 $ 654,867 $ 753,513
Average outstanding balance per account $ 1,251 $ 1,241 $ 1,282 $ 1,401
60 day delinquency $ 35,537 $ 37,662 $ 49,778 $ 55,141
Percent delinquency 6.8 % 6.6 % 7.6 % 7.3 %
Percent of portfolio reaged 17.6 % 17.8 % 16.6 % 18.7 %
Net charge-off ratio (YTD annualized) 2.5 % 3.3 % 2.9 % 3.2 %

NON-GAAP RECONCILIATION OF NET INCOME, AS ADJUSTED

AND DILUTED EARNINGS PER SHARE, AS ADJUSTED

(unaudited)
Three Months Ended

January 31,

Year Ended

January 31,

2008200920082009

Net income, as reported

$13,062$12,626$39,686$25,692
Adjustments:
Decrease in fair value 414 4,479 4,805 24,508

Tax impact of fair value adjustment

(146 ) (1,576 ) (1,691 ) (8,627 )
Net income, as adjusted$13,330$15,529 $42,800$41,573

Average common shares outstanding - Diluted

22,976 22,494 23,673 22,577

Earnings per share - Diluted

As reported $ 0.57 $ 0.56 $ 1.68 $ 1.14
As adjusted $ 0.58 $ 0.69 $ 1.81 $ 1.84

Basis for presentation of non-GAAP disclosures:

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles ("GAAP"), the Company also provides adjusted net income and adjusted earnings per diluted share information. These non-GAAP financial measures are not meant to be considered as a substitute for comparable GAAP measures but should be considered in addition to results presented in accordance with GAAP, and are intended to provide additional insight into the Company's operations and the factors and trends affecting the Company's business. The Company's management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics the Company uses in its financial and operational decision making and (2) they are used by some of its institutional investors and the analyst community to help them analyze the Company's operating results.

CONN-F

SOURCE: Conn's, Inc.

Conn's, Inc., Beaumont
Chairman and CEO
Thomas J. Frank, 409-832-1696 Ext. 3218

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