April 3, 2013

Conn's, Inc. Announces Record Fourth-Quarter Fiscal 2013 Earnings

Adjusted diluted earnings per share of $0.54 for the quarter
Fiscal 2014 earnings guidance raised to $2.40$2.50 per diluted share

THE WOODLANDS, Texas--(BUSINESS WIRE)-- Conn's, Inc. (NASDAQ:CONN), a specialty retailer of home appliances, furniture, mattresses, consumer electronics and provider of consumer credit, today announced its results for the quarter ended January 31, 2013.

Significant items for the fourth quarter of fiscal 2013 include:

  • Consolidated revenues grew 10.4% from the prior-year period to $250.3 million;
  • Same store sales increased 7.0% year-over-year, on top of same store sales growth of 12.1% last year;
  • Retail gross margin equaled 36.9% for the quarter;
  • Retail segment operating income was $19.8 million on an adjusted basis, over double the level reported in the prior-year period;
  • Adjusted credit segment operating income totaled $13.6 million, an increase of 12.2% from the prior-year quarter; and
  • Diluted earnings per share was $0.50 on a reported basis, versus $0.24 per share last year.

"Continued revenue and profitability improvement in our retail and credit operations generated record fourth-quarter and full-year results," stated Theodore M. Wright, the Company's Chairman and CEO. "Our five new Conn's HomePlus stores are performing well and we plan to open 10 to 12 more over the balance of fiscal 2014. Average revenue for the new stores was 1.6 times the overall Company average for the three months ended March 31, 2013, with approximately 36% of those sales generated from furniture and mattresses. Same store sales for February and March rose 15% on a combined basis over last year despite a 3% decline in same store sales of consumer electronics."

Retail Segment Results

Revenues were $208.7 million for the three-month period ended January 31, 2013, an increase of $18.4 million, or 9.7%, over the prior-year period. Furniture and mattress sales rose 54.2% from the same quarter last year, accounting for the majority of the reported growth. Double-digit revenue growth was also reported for appliances and home office equipment. The year-over-year comparison also reflects the benefit of the five new Conn's HomePlusTM stores opened in fiscal 2013 — with January 2013 being the first full month all new stores were operating. Additionally, 20 existing stores were updated to the Conn's HomePlus format as of year-end, favorably influencing results. The closure of one store during the current quarter and seven stores in the previous four quarters tempered the reported growth.

For the quarter ended January 31, 2013, retail gross margin was 36.9%, an increase of 720 basis points over last year. Continued margin improvement was realized in each of the product categories — reflecting the benefit of the sale of higher price-point, higher-margin goods, and sourcing opportunities. The majority of the margin expansion was driven by the consumer electronic and appliance categories which accounted for almost two-thirds of product revenue for the current quarter. Product margin on furniture and mattress sales rose 11.1 percentage points from the prior-year period to 46.7% of sales, also favorably impacting retail gross margin. Furniture and mattress sales were 20.9% of total product revenue in the current period and accounted for 30.8% of the total product gross profit.

Credit Segment Results

Revenues were $41.6 million for the current quarter, up 14.5% from the prior-year period. The revenue increase was attributable primarily to a comparable year-over-year increase in the average receivable portfolio balance outstanding. The portfolio balance rose to $741.5 million at year-end, from $643.3 million as of January 31, 2012, due to higher retail sales volumes and credit penetration over the past year. The portfolio interest and fee income yield was 18.7% for the three months ended January 31, 2013, relatively consistent with the prior-year period but down 60 basis points sequentially as a result of increased short-term, no-interest financing.

Provision for bad debts rose $2.4 million over last year to $12.7 million for the quarter ended January 31, 2013. This additional provision was driven by the $57.8 million increase in the receivable portfolio during the current quarter — 53.5% above the growth experienced in the fourth quarter of fiscal 2012.

Additional information on the credit portfolio and its performance may be found in the table included within this press release and in the Company's Form 10-K to be filed with the Securities and Exchange Commission.

For the quarter ended January 31, 2013, the Company reported net income of $0.50 per diluted share, which includes pre-tax charges of $1.9 million associated with store closures and lease terminations, employee severance and the relocation of the Company's corporate office to The Woodlands, Texas. The Company's reported net income was $0.24 per diluted share in the fourth quarter of fiscal 2012, and includes pre-tax costs and impairment charges of $5.1 million related to store closures.

Capital and Liquidity

During the fourth quarter of fiscal 2013, the Company completed a common stock offering in which it sold approximately 2.2 million shares of common stock and received net proceeds of $56.0 million, after deducting underwriting discounts and commissions and other offering-related expenses. Additionally, the Company received net proceeds of $22.4 million in connection with the sale and lease back of four properties. The proceeds from these transactions were used to reduce outstanding debt balances.

As of January 31, 2013, the Company had $262.4 million outstanding under its asset-based loan facility, excluding $4.3 million of letters of credit. Additionally, as of January 31, 2013, the Company had $209.5 million of immediately available borrowing capacity, and an additional $68.8 million that could become available upon increases in eligible inventory and customer receivable balances under the borrowing base.

On March 27, 2013, the Company received an additional $40 million of lender commitments under its asset-based loan facility increasing total commitments to $585 million.

Outlook and Guidance

The Company increased earnings guidance for the fiscal year ending January 31, 2014, to diluted earnings per share of $2.40 to $2.50 on an adjusted basis. The following expectations were considered in developing the guidance for the full year:

  • Same stores sales up 3% to 8%;
  • New store openings of between 10 and 12;
  • Retail gross margin between 35.5% and 36.5%;
  • An increase in the credit portfolio balance;
  • Provision for bad debts of between 6.0% and 6.5% of the average portfolio balance outstanding;
  • Selling, general and administrative expense of between 28.0% and 29.0% of total revenues; and
  • Diluted shares outstanding of approximately 36.5 million.

Conference Call Information

Conn's, Inc. will host a conference call and audio webcast on Wednesday, April 3, 2013, at 10:00 A.M. CT, to discuss its earnings and operating performance for the quarter. A link to the live webcast, which will be archived for one year, and slides to be referred to during the call will be available at ir.Conns.com. Participants can join the call by dialing 877-754-5302 or 678-894-3020.

About Conn's, Inc.

Conn's is a specialty retailer currently operating 68 retail locations in Texas, Louisiana, Oklahoma, New Mexico and Arizona. The Company's primary product categories include:

  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom as well as both traditional and specialty mattresses;
  • Consumer electronic, including LCD, LED, 3-D and plasma televisions, Blu-ray players, home theater and video game products, camcorders, digital cameras, and portable audio equipment; and
  • Home office, including computers, tablets, printers and accessories.

Additionally, the Company offers a variety of products on a seasonal basis, including lawn and garden equipment, room air conditioners and outdoor furniture. Unlike many of its competitors, the Company provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans.

This press release contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Although we believe that the expectations, opinions, projections, and comments reflected in these forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to continue existing or offer new customer financing programs; changes in the delinquency status of our credit portfolio; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores and the updating of existing stores; technological and market developments and sales trends for our major product offerings; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and the other risks detailed from time-to-time in our SEC reports, including but not limited to, our Annual Report on Form 10-K. 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, we are not obligated to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED, CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
                                 
Three Months Ended January 31, Year Ended January 31,
2013 2012 2013 2012
Revenues
Total net sales $ 208,352 $ 189,671 $ 714,267 $ 653,684
Finance charges and other   41,992     37,000     150,765     138,618  
Total revenues 250,344 226,671 865,032 792,302
Cost and expenses
Cost of goods sold, including
warehousing and occupancy costs 129,641 130,719 454,682 455,493
Cost of parts sold, including
warehousing and occupancy costs 1,452 1,554 5,965 6,527
Selling, general and administrative expense 72,942 62,491 253,189 237,098
Provision for bad debts 12,821 10,440 47,659 53,555
Charges and credits   1,875     5,082     3,025     9,928  
Total cost and expenses   218,731     210,286     764,520     762,601  
Operating income 31,613 16,385 100,512 29,701
Interest expense 3,888 3,978 17,047 22,457
Loss on early extinguishment of debt 79 - 897 11,056
Other (income) expense, net   (48 )   (11 )   (153 )   70  
Income (loss) before income taxes 27,694 12,418 82,721 (3,882 )
Provision (benefit) for income taxes   10,029     4,717     30,109     (159 )
Net income (loss) $ 17,665   $ 7,701   $ 52,612   $ (3,723 )
 
Earnings (loss) per share:
Basic $ 0.52 $ 0.24 $ 1.60 $ (0.12 )
Diluted $ 0.50 $ 0.24 $ 1.56 $ (0.12 )
Average common shares outstanding:
Basic 34,072 31,997 32,862 31,860
Diluted 35,161 32,572 33,768 31,860
 
 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands, except per share amounts)
                                 
Three Months Ended January 31, Year Ended January 31,
2013 2012 2013 2012
Revenues
Product sales $ 189,712 $ 173,446 $ 649,516 $ 596,360
Repair service agreement commissions 15,718 12,629 51,648 42,078
Service revenues   2,922     3,596     13,103     15,246  
Total net sales   208,352     189,671     714,267     653,684  
Finance charges and other   379     657     1,236     1,335  
Total revenues 208,731 190,328 715,503 655,019
Cost and expenses
Cost of goods sold, including
warehousing and occupancy costs 129,641 130,719 454,682 455,493
Cost of parts sold, including
warehousing and occupancy costs 1,452 1,554 5,965 6,527
Selling, general and administrative expense 57,666 48,631 197,498 180,234
Provision for bad debts 128 121 758 590
Charges and credits   1,348     5,082     2,498     9,522  
Total cost and expenses   190,235     186,107     661,401     652,366  
Operating income 18,496 4,221 54,102 2,653
Other (income) expense, net   (48 )   (11 )   (153 )   70  
Income before income taxes $ 18,544   $ 4,232   $ 54,255   $ 2,583  
 
Retail gross margin 36.9 % 29.7 % 35.2 % 28.7 %
Selling, general and administrative expense
as percent of revenues 27.6 % 25.6 % 27.6 % 27.5 %
Operating margin 8.9 % 2.2 % 7.6 % 0.4 %
 
Number of stores:
Beginning of period 65 71 65 76
Opened 4 - 5 -
Closed   (1 )   (6 )   (2 )   (11 )
End of period   68     65     68     65  
 
 

CONN'S, INC. AND SUBSIDIARIES

CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(in thousands)
                                 
Three Months Ended January 31, Year Ended January 31,
2013 2012 2013 2012
Revenues
Finance charges and other $ 41,613 $ 36,343 $ 149,529 $ 137,283
Cost and expenses
Selling, general and administrative expense 15,276 13,860 55,691 56,864
Provision for bad debts 12,693 10,319 46,901 52,965
Charges and credits   527     -     527     406  
Total cost and expenses   28,496     24,179     103,119     110,235  
Operating income 13,117 12,164 46,410 27,048
Interest expense 3,888 3,978 17,047 22,457
Loss on early extinguishment of debt   79     -     897     11,056  
Income (loss) before income taxes $ 9,150   $ 8,186   $ 28,466   $ (6,465 )
 
Selling, general and administrative expense
as percent of revenues 36.7 % 38.1 % 37.2 % 41.4 %
Operating margin 31.5 % 33.5 % 31.0 % 19.7 %
 
 
MANAGED CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(dollars in thousands, except average outstanding balance per account)
                                 
January 31,
2013 2012
Data as of:
Total outstanding balance $ 741,544 $ 643,301
Number of active accounts 483,219 484,169
Average outstanding customer balance $ 1,535 $ 1,329
Balance 60+ days past due $

52,839

$ 55,190
Percent 60+ days past due 7.1 % 8.6 %

Percent of portfolio re-aged

11.7 % 13.8 %
Weighted average credit score of
outstanding balances 600 602
 
 
Three Months Ended January 31, Year Ended January 31,
2013 2012 2013 2012
Data for the periods ended:
Weighted average origination credit score of
sales financed 611 617 614 621
Weighted average monthly payment rate 5.1 % 5.2 % 5.4 % 5.6 %
Interest and fee income yield, annualized 18.7 % 18.8 % 18.6 % 18.7 %
Percent of bad debt charge-offs (net of recoveries)
to average outstanding balance, annualized 7.4 % 8.0 % 8.0 % 7.5 %
Percent of sales generated by payment option:
In-house financing, including down payment 74.6 % 66.5 % 70.9 % 60.4 %
Third-party financing 16.1 % 15.2 % 14.8 % 12.5 %
Third-party rent-to-own option 3.3 % 2.6 %   3.5 %   3.5 %
Total 94.0 % 84.3 %   89.2 %   76.4 %
 
   

CONN'S, INC. AND SUBSIDIARIES
CONDENSED, CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands)

             
 
January 31,
  2013   2012
Assets
Current Assets
Cash and cash equivalents $ 3,849 $ 6,265
Customer accounts receivable, net 378,050 316,385
Other accounts receivable, net 45,759 38,715
Inventories 73,685 62,540
Deferred income taxes 15,302 17,111
Prepaid expenses and other assets   11,599   11,542
Total current assets 528,244 452,558
Long-term customer accounts receivable, net 313,011 272,938
Property and equipment, net 46,994 38,484
Deferred income taxes 11,579 9,754
Other assets, net   10,029   9,564
Total Assets $ 909,857 $ 783,298
 

Liabilities and Stockholders' Equity

Current Liabilities
Current portion of long-term debt $ 32,526 $ 726
Accounts payable 69,608 44,711
Accrued expenses 29,496 31,243
Other current liabilities   19,533   17,994
Total current liabilities 151,163 94,674
Long-term debt 262,531 320,978
Other long-term liabilities 21,713 14,275
Stockholders' equity   474,450   353,371
Total liabilities and stockholders' equity $ 909,857 $ 783,298
 
Total debt as a percentage of stockholders' equity 62.2% 91.0%
 
 
NON-GAAP RECONCILIATION OF NET INCOME, AS ADJUSTED
AND DILUTED EARNINGS PER SHARE, AS ADJUSTED
(unaudited)
(in thousands, except earnings per share)
                                 
 
Three Months Ended January 31, Year Ended January 31,
2013 2012 2013 2012
Net income (loss), as reported $ 17,665 $ 7,701 $ 52,612 $ (3,723 )
Adjustments:
Costs related to store closings and 1,032 5,082 1,195 9,115
lease terminations
Costs related to office relocation 215 - 1,202 -
Severance costs 628 - 628 813
Loss from early extinguishment of debt 79 - 897 11,056
Inventory reserve adjustment - - - 4,669
Charge to record reserves required by the adoption
of troubled debt restructuring accounting guidance - - - 27,487
Reserves previously provided related to accounts
considered restructured under the troubled debt
restructuring accounting guidance - - - (13,350 )
Tax impact of adjustments   (688 )   (1,789 )   (1,381 )   (14,006 )
Net income, as adjusted $ 18,931   $ 10,994   $ 55,153   $ 22,061  
 
Average common shares
outstanding - Diluted 35,161 32,572 33,768 31,860
 
Earnings (loss) per share - Diluted
As reported $ 0.50 $ 0.24 $ 1.56 $ (0.12 )
As adjusted $ 0.54 $ 0.34 $ 1.63 $ 0.69
 
 
NON-GAAP RECONCILIATION OF RETAIL SEGMENT
OPERATING INCOME, AS ADJUSTED
(unaudited)
(in thousands)
                               

Three Months Ended January 31,

Year Ended January 31,
2013 2012 2013 2012
Operating income, as reported $ 18,496 $ 4,221 $ 54,102 $ 2,653
Adjustments:
Costs related to store closings and lease terminations 1,032 5,082 1,195 9,115
Costs related to office relocation 215 - 1,202 -
Severance costs 101 - 101 407
Inventory reserve adjustment   -     -     -     4,669  
Operating income, as adjusted $ 19,844   $ 9,303   $ 56,600   $ 16,844  
 
Retail segment revenues $ 208,731 $ 190,328 $ 715,503 $ 655,019
 
Operating margin
As reported 8.9 % 2.2 % 7.6 % 0.4 %
As adjusted 9.5 % 4.9 % 7.9 % 2.6 %
 
 
NON-GAAP RECONCILIATION OF CREDIT SEGMENT
OPERATING INCOME, AS ADJUSTED
(unaudited)
(in thousands)
                                 
Three Months Ended January 31, Year Ended January 31,
2013 2012 2013 2012
Operating income, as reported $ 13,117 $ 12,164 $ 46,410 $ 27,048
Adjustments:
Severance costs 527 - 527 406
Charge to record reserves required by the adoption
of troubled debt restructuring accounting guidance - - - 27,487
Reserves previously provided related to accounts
considered restructured under the troubled debt
restructuring accounting guidance   -     -     -     (13,350 )
Operating income, as adjusted $ 13,644   $ 12,164   $ 46,937   $ 41,591  
 
Credit segment revenues $ 41,613 $ 36,343 $ 149,529 $ 137,283
 
Operating margin
As reported 31.5 % 33.5 % 31.0 % 19.7 %
As adjusted 32.8 % 33.5 % 31.4 % 30.3 %
 

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 the following information: adjusted net income and adjusted earnings per diluted share; adjusted retail segment operating income and adjusted operating margin; and adjusted credit segment operating income and operating margin. 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

Conn's, Inc.
Chief Financial Officer
Brian Taylor, (936) 230-5899
or
Investors:
S.M. Berger & Company
Andrew Berger, (216) 464-6400

Source: Conn's, Inc.

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