November 25, 2009

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

BEAUMONT, Texas, Nov 25, 2009 (BUSINESS WIRE) -- Conn's, Inc. (NASDAQ/NM: CONN), a specialty retailer of consumer electronics, home appliances, furniture, mattresses, computers and lawn and garden products today announced its operating results for the quarter ended October 31, 2009.

Significant items for the quarter include:

  • Total revenues were $182.8 million,
  • Same store sales declined 9.3%, though the Company believes it gained market share, as total television unit sales grew 26.5% and total furniture and mattresses revenues grew 10.0%,
  • Credit portfolio annualized net charge-off rate was 4.3%,
  • Litigation reserves adjusted by $4.1 million to total of $4.9 million,
  • Potential debt covenant compliance issues at January 31, 2010, and
  • Diluted loss per share was $0.68 for the third quarter of fiscal 2010, including a $9.6 million non-cash goodwill impairment charge and $3.7 million non-cash fair value adjustment. The adjusted diluted loss per share excluding these items was $0.29.

Total revenues for the quarter ended October 31, 2009, decreased 0.5% to $182.8 million, as compared to the same quarter in the prior fiscal year. Total net sales declined 7.2% to $161.4 million, as compared to the same quarter in the prior fiscal year. Revenue growth in furniture and mattresses was offset by declines in the consumer electronics, appliances and lawn and garden categories and repair service agreement commissions. Finance charges and other decreased 1.5% to $25.2 million, and same store sales (revenues earned in stores operated for the entirety of both periods) decreased 9.3% during the third quarter of fiscal 2010, as compared to the same quarter in the prior fiscal year. The same store sales decline was impacted by the increasingly challenging economic conditions experienced in the Company's markets and the decline in average selling prices on flat-panel televisions. The Company believes it grew its market share in consumer electronics, home appliances and furniture and mattresses during the current year quarter as retail sales for electronics and appliance stores in the United States, according to the U.S. Census Bureau News - Advance Monthly Sales for Retail and Food Services, declined approximately 8.7% during the quarter, while the Company's sales declined 6.5% and the Company grew its total television unit sales by 26.5%. Additionally, retail sales for furniture and home furnishings retailers declined approximately 8.9% during the quarter, according to the U.S. Census Bureau News - Advance Monthly Sales for Retail and Food Services, while the Company's sales increased 10.0%. The challenging economic conditions and highly competitive retail environment put continued pressure on product gross margins.

"Our third quarter results were disappointing, but we are focused on improving credit portfolio performance and expense control and are taking the actions necessary to address the debt covenant compliance concerns," said the Company's President and CEO, Tim Frank.

The credit portfolio performance reported for the quarter included an annualized net charge-off rate of 4.3% for the three months ended October 31, 2009, as compared to the 3.4% rate experienced during the quarters ended July 31, 2009, and October 31, 2008. The net charge-off rate for the twelve month period ended October 31, 2009, was 3.5%. Additionally, the 60+ day delinquency rate was 9.3% at October 31, 2009, as compared to 7.6% at July 31, 2009, and 8.1% at October 31, 2008. As previously reported, the Company expects the net charge-off rate to remain between 4.0% and 5.0% during the fourth quarter, though it is expected to improve from the 4.8% net charge-off rate experienced for the month of October 2009. As a result of the recent credit portfolio performance and expectations about future net charge-offs, the Company increased its bad debt reserves for receivables retained on its balance sheet, as a percent of the customer receivable balance, to 3.8% at October 31, 2009, from 3.3% at July 31, 2009. This change resulted in an approximately $1.2 million increase in the provision for bad debts during the quarter ended October 31, 2009. 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-Q which will be filed later today.

The Company experienced a Net loss on a GAAP basis of $15.3 million, or a diluted loss per share of $0.68, for the third quarter of fiscal 2010. The reported results include a $4.1 million increase in the Company's litigation reserves to reflect its best estimate of the amount it expects will be required to settle outstanding litigation. At this time, the Company is unsure what amount of the litigation reserve will ultimately be deductible for taxes and, as such, has not recorded any tax benefit related to the reserve. Adjusted net loss, excluding the non-cash fair value adjustments and non-cash goodwill impairment charge, was $6.6 million for the third quarter of fiscal 2010, compared with adjusted net income, excluding non-cash fair value adjustments, of $2.5 million for the third quarter of the prior fiscal year. Adjusted diluted loss per share, excluding the non-cash fair value adjustments and the non-cash goodwill impairment charge, was $0.29 for the third quarter of fiscal 2010, compared with adjusted diluted earnings per share, excluding the non-cash fair value adjustments, of $0.11 for the third quarter of the prior fiscal year. Due to the recent deterioration in the economic conditions in the Company's markets and resulting impact on its operating performance and market valuation, the Company completed an interim assessment for impairment of its goodwill and concluded that a $9.6 million impairment charge was required to be recorded during the period.

Total revenues for the nine months ended October 31, 2009, increased 2.2% to $634.4 million, as compared to the same period in the prior fiscal year. Total net sales decreased 1.4% to $551.8 million and Finance charges and other increased 4.4% to $84.8 million. Same store sales (revenues earned in stores operated for the entirety of both periods) decreased 6.1% during the first nine months of fiscal 2010, as compared to the first nine months of the prior fiscal year. The Company reported Net income on a GAAP basis of $1.2 million, or diluted earnings per share of $0.05, for the first nine months of fiscal 2010. The reported results include a $4.9 million increase in the Company's litigation reserves to reflect its best estimate of the amounts it expects will be required to settle outstanding litigation. Adjusted net income, excluding the non-cash fair value adjustments and non-cash goodwill impairment charge, was $8.9 million for the first nine months of fiscal 2010, compared with adjusted net income, excluding non-cash fair value adjustments, of $26.0 million for the first nine months of the prior fiscal year. Adjusted diluted earnings per share, excluding the non-cash fair value adjustments in both periods and the non-cash goodwill impairment charge in the current year period, was $0.39 for the first nine months of fiscal 2010, compared with $1.15 for the first nine months of the prior fiscal year. Income in the current year-to-date period was reduced by growth in the Company's reserve for bad debts of $2.6 million, before taxes, or $0.07 per diluted share, as a result of the growth in retained customer receivables on its balance sheet.

During the quarter ended October 31, 2009, the Company paid down the balance on its asset based loan (ABL) facility by $5 million and its QSPE reduced the balance on its asset backed securitization (ABS) facility by $22 million, including $10 million due under the commitment that expired in August 2009. As a result, the Company increased the financing capacity it has available to fund operations and future growth by $17 million to a total of $85 million at October 31, 2009. The total amount immediately available for borrowing under all of the Company's borrowing agreements at October 31, 2009, increased to $52.1 million, as compared to $48.3 million at July 31, 2009. The Company and its QSPE were in compliance with all of their borrowing facility covenants at October 31, 2009. The recent declines in the economic conditions in the Company's markets have negatively impacted its operating results. As a result, there is a reasonable likelihood that the decline in the Company's operating results could trigger covenant violations under its credit facilities, beginning January 31, 2010, unless it is able to sufficiently improve operating trends, reduce the amount of debt outstanding on its balance sheet or amend the covenants contained in its and its QSPE's credit facilities. The Company has initiated discussions with its lenders and is reviewing options to reduce the balance of debt on its balance sheet prior to January 31, 2010.

The Company has 77 stores in operation and opened a new store in Denton, Texas, at the end of October 2009, and opened a new store in Pasadena, Texas, during November 2009. Additionally, the Company intends to close its clearance center located in Baytown, Texas.

EPS Guidance

The Company previously withdrew its guidance as a result of the change in the economic conditions in its markets, though it still expects to be solidly profitable during the fourth quarter of fiscal 2010, excluding potential fair value adjustments.

Conference Call Information

Conn's, Inc. will host a conference call and audio webcast today, November 25, 2009, at 10:00 AM, CST, to discuss its financial results for the quarter ended October 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 888-215-6899 or 913-312-0857.

About Conn's, Inc.

The Company is a specialty retailer currently operating 77 retail locations in Texas, Louisiana and Oklahoma: with 24 stores in the Houston area, 20 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, LED, 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 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 ability to fund operations, debt repayment and expansion from cash flow from operations, borrowings on its revolving lines of credit and proceeds from securitizations and from accessing equity or debt markets; 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 ability of the Company and the QSPE to maintain compliance with the covenants in their financing facilities; the ability of the financial institutions providing lending facilities to the Company or the QSPE to fund their commitments; the effect on borrowing costs of downgrades by rating agencies or changes in laws or regulations on the Company's or the QSPE's financing providers; 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; 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; the outcome of litigation or government investigations; 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 filed on March 26, 2009. 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

October 31,

Nine Months Ended

October 31,

2008200920082009
Revenues
Total net sales $ 173,929 $ 161,382 $ 559,641 $ 551,832
Finance charges and other 25,567 25,184 81,224 84,790
Decrease in fair value (15,750 ) (3,731 ) (20,029 ) (2,250 )
Total revenues183,746182,835620,836 634,372
Cost and expenses

Cost of goods sold, including warehousing and occupancy costs

127,007 120,963 402,853 407,594

Cost of parts sold, including warehousing and occupancy costs

2,479 2,672 7,073 8,056
Selling, general and administrative expense 62,361 65,548 185,629 193,040
Goodwill impairment - 9,617 - 9,617
Provision for bad debts 2,802 3,504 3,394 7,645
Total cost and expenses194,649202,304598,949625,952
Operating income (loss)(10,903)(19,469)21,8878,420
Interest expense, net 468 1,281 368 2,809
Other (income) expense, net (4 ) (33 ) 102 (54 )
Income (loss) before income taxes(11,367)(20,717)21,4175,665
Provision (benefit) for income taxes(3,625)(5,443)8,3514,469
Net income (loss)$(7,742)$(15,274)$13,066$1,196
Earnings (loss) per share
Basic $ (0.35 ) $ (0.68 ) $ 0.58 $ 0.05
Diluted $ (0.35 ) $ (0.68 ) $ 0.58 $ 0.05
Average common shares outstanding
Basic 22,422 22,459 22,404 22,453
Diluted 22,422 22,459 22,604 22,658
Conn's, Inc.
CONDENSED, CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31,October 31
2009 2009
Assets
Current assets
Cash and cash equivalents $ 11,798 $ 10,582
Other accounts receivable, net 32,878 19,611
Customer accounts receivable, net 61,125 136,600
Interests in securitized assets 176,543 149,366
Inventories 95,971 71,698
Deferred income taxes 13,354 15,070
Prepaid expenses and other assets 5,933 17,475
Total current assets397,602420,402
Non-current deferred income tax asset2,0353,830
Long-term customer accounts receivable, net41,17279,934
Total property and equipment, net62,55161,611
Goodwill and other assets, net13,2693,344
Total assets$ 516,629$569,121
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ - $ -
Current portion of long-term debt 5 156
Accounts payable 57,809 40,845
Accrued compensation and related expenses 11,473 5,935
Accrued expenses 23,703 35,225
Other current liabilities 19,839 17,824
Total current liabilities112,82999,985
Long-term debt62,912125,308
Other long-term liabilities6,7386,661
Total stockholders' equity334,150337,167
Total liabilities and stockholders' equity$516,629$569,121

CALCULATION OF GROSS MARGIN PERCENTAGES

(dollars in thousands)

Three Months EndedNine Months Ended
October 31,October 31,
2008200920082009
A Product sales $ 160,253 $ 148,463 $ 515,404 $ 508,669
B Repair service agreement commissions, net 8,547 7,320 28,428 25,968
C Service revenues 5,129 5,599 15,809 17,195
D Total net sales 173,929 161,382 559,641 551,832
E Finance charges and other 25,567 25,184 81,224 84,790
F Net decrease in fair value (15,750 ) (3,731 ) (20,029 ) (2,250 )
G Total revenues 183,746 182,835 620,836 634,372

H

Cost of goods sold, including warehousing and occupancy cost

(127,007 ) (120,963 ) (402,853 ) (407,594 )

I

Cost of parts sold, including warehousing and occupancy cost

(2,479 ) (2,672 ) (7,073 ) (8,056 )
J

Gross margin dollars (G+H+I)

$54,260$59,200$210,910 $218,722
Gross margin percentage (J/G)29.5%32.4%34.0%34.5%
K Product margin dollars (A+H)$33,246$27,500$112,551$101,075
Product margin percentage (K/A)20.7%18.5%21.8%19.9%
MANAGED PORTFOLIO STATISTICS
For the periods ended January 31, 2006, 2007, 2008, 2009 and October 31, 2008 and 2009
(dollars in thousands, except average outstanding balance per account)
January 31,October 31,
200620072008200920082009
Total accounts 415,338 459,065 510,922 537,957 515,860 544,196
Total outstanding balance $ 519,721 $ 569,551 $ 654,867 $ 753,513 $ 706,210 $ 738,197
Average outstanding balance per account $ 1,251 $ 1,241 $ 1,282 $ 1,401 $ 1,369 $ 1,356
60 day delinquency $ 35,537 $ 37,662 $ 49,778 $ 55,141 $ 57,336 $ 68,512
Percent delinquency 6.8 % 6.6 % 7.6 % 7.3 % 8.1 % 9.3 %
Percent of portfolio reaged 17.6 % 17.8 % 16.6 % 18.7 % 19.7 % 18.8 %
Net charge-off ratio (YTD annualized) 2.5 % 3.3 % 2.9 % 3.2 % 3.1 % 3.6 %
NON-GAAP RECONCILIATION OF NET INCOME (LOSS), AS ADJUSTED
AND DILUTED EARNINGS (LOSS) PER SHARE, AS ADJUSTED
(unaudited)
(in thousands, except earnings (loss) per share)
Three Months Ended

October 31,

Nine Months Ended

October 31,

2008200920082009
Net income (loss), as reported$(7,742)$(15,274)$13,066$1,196
Adjustments:
Decrease in fair value 15,750 3,731 20,029 2,250
Goodwill impairment charge - 9,617 - 9,617

Tax impact of fair value and goodwill adjustments

(5,544 ) (4,698 ) (7,050 ) (4,177 )
Net income (loss), as adjusted$2,464$(6,624)$26,045$8,886

Average common shares outstanding - Diluted

22,422 22,459 22,604 22,658
Earnings (loss) per share - Diluted
As reported $ (0.35 ) $ (0.68 ) $ 0.58 $ 0.05
As adjusted $ 0.11 $ (0.29 ) $ 1.15 $ 0.39

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
Chief Financial Officer
Michael J. Poppe, (409) 832-1696 Ext. 3359

Copyright Business Wire 2009


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