================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report:
(Date of earliest event reported)
April 12, 2004
____________________________
CONN'S, INC.
(Exact name of registrant as specified in charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
000-50421 06-1672840
(Commission File Number) (IRS Employer Identification No.)
3295 College Street
Beaumont, Texas 77701
(Address of Principal Executive
Offices and zip code)
(409) 832-1696
(Registrant's telephone
number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
Item 5. Other Events
From time to time, Conn's, Inc., a Delaware corporation, (the "Company,"
the "Registrant," "we," "us," or "our") may make oral forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
without limitation, during the Company's earnings analyst call to report the
Company's financial results for the fourth quarter and year ended January 31,
2004. In order to avail itself of the safe harbor of those sections, the Company
is filing the following risk factors which the Company may refer to when making
oral-forward-looking statements by referring to this Current Report.
RISK FACTORS
An investment in our common stock involves risks and uncertainties. You
should consider carefully the following information about these risks and
uncertainties before buying shares of our common stock. The occurrence of any of
the risks described below could adversely affect our business, financial
condition or results of operations. In that case, the trading price of our stock
could decline, and you could lose all or part of the value of your investment.
Our success depends substantially on our ability to open and operate profitably
new stores in existing, adjacent and new geographic markets.
We plan to continue our expansion by opening an additional four to six new
stores in fiscal 2005. These new stores include at least four new stores in the
Dallas/Fort Worth metroplex, where we have not previously operated prior to
September 2003. We have not yet selected sites for all of the stores that we
plan to open within the next 18 months. We may not be able to open all of these
stores, and any new stores that we open may not be profitable. Any of these
circumstances could have a material adverse effect on our financial results.
There are a number of factors that could affect our ability to open and
operate new stores consistent with our business plan, including:
-- competition in existing, adjacent and new markets;
-- competitive conditions, consumer tastes and discretionary spending
patterns in adjacent and new markets that are different from those in
our existing markets;
-- a lack of consumer demand for our products at levels that can support
new store growth;
-- limitations created by covenants and conditions under our credit
facilities and our asset-backed securitization program;
-- the availability of additional financial resources;
-- the substantial outlay of financial resources required to open new
stores and the possibility that we may recognize little or no related
benefit;
-- an inability or unwillingness of vendors to supply product on a timely
basis at competitive prices;
-- the failure to open enough stores in new markets to achieve a
sufficient market presence;
-- the inability to identify suitable sites and to negotiate acceptable
leases for these sites;
-- unfamiliarity with local real estate markets and demographics in
adjacent and new markets;
-- problems in adapting our distribution and other operational and
management systems to an expanded network of stores;
2
-- difficulties associated with the hiring, training and retention of
additional skilled personnel, including store managers; and
-- higher costs for print, radio and television advertising.
These factors may also affect the ability of any newly opened stores to
achieve sales and profitability levels comparable with our existing stores or to
become profitable at all.
If we are unable to manage our growing business, our revenues may not increase
as anticipated, our cost of operations may rise and our profitability may
decline.
We face many business risks associated with growing companies, including
the risk that our management, financial controls and information systems will be
inadequate to support our planned expansion. Our growth plans will require
management to expend significant time and effort and additional resources to
ensure the continuing adequacy of our financial controls, operating procedures,
information systems, product purchasing, warehousing and distribution systems
and employee training programs. We cannot predict whether we will be able to
manage effectively these increased demands or respond on a timely basis to the
changing demands that our planned expansion will impose on our management,
financial controls and information systems. If we fail to manage successfully
the challenges our growth poses, do not continue to improve these systems and
controls or encounter unexpected difficulties during our expansion, our
business, financial condition, operating results or cash flows could be
materially adversely affected.
The inability to obtain funding for our credit operations through securitization
facilities or other sources may adversely affect our business and expansion
plans.
We finance most of our customer receivables through asset-backed
securitization facilities. The trust arrangement governing these facilities
currently provides for two separate series of asset-backed notes that allow us
to finance up to $450 million in customer receivables. Under each note series,
we transfer customer receivables to a qualifying special purpose entity in
exchange for cash, subordinated securities and the right to receive cash flows
equal to the interest rate spread between the transferred receivables and the
notes issued to third parties ("interest only strip"). This qualifying special
purpose entity, in turn, issues notes that are collateralized by these
receivables and entitle the holders of the notes to participate in certain cash
flows from these receivables. The Series A program is a $250 million variable
funding note held by Three Pillars Funding Corporation, of which $71.0 million
was drawn as of January 31, 2004 and an additional $10 million of capacity was
absorbed by a mandatory letter of credit that provides the trustee assurance
that monthly funds collected by us, as servicer, will be remitted under the
basic indenture and other related documents. The Series B program consists of
$200 million in private bond placements that was fully drawn as of January 31,
2004.
Our ability to raise additional capital through further securitization
transactions, and to do so on economically favorable terms, depends in large
part on factors that are beyond our control.
These factors include:
-- conditions in the securities and finance markets generally;
-- conditions in the markets for securitized instruments;
-- the credit quality and performance of our financial instruments;
-- our ability to obtain financial support for required credit
enhancement;
-- our ability to service adequately our financial instruments;
3
-- the absence of any material downgrading or withdrawal of ratings given
to our securities previously issued in securitizations; and
-- prevailing interest rates.
Our ability to finance customer receivables under our current asset-backed
securitization facilities depends on our compliance with covenants relating to
our business and our customer receivables. If these programs reach their
capacity or otherwise become unavailable, and we are unable to arrange
substitute securitization facilities or other sources of financing, we may have
to limit the amount of credit that we make available through our customer
finance programs. This may adversely affect revenues and results of operations.
Further, our inability to obtain funding through securitization facilities or
other sources may adversely affect the profitability of outstanding accounts
under our credit programs if existing customers fail to repay outstanding credit
due to our refusal to grant additional credit. Since our cost of funds under our
bank credit facility is expected to be greater in future years than our cost of
funds under our current securitization facility, increased reliance on our bank
credit facility may adversely affect our net income.
An increase in short-term interest rates may adversely affect our profitability.
The interest rates on our bank credit facility and the Series A program
under our asset-backed securitization facility fluctuate up or down based upon
the LIBOR rate, the prime rate of our administrative agent or the federal funds
rate in the case of the bank credit facility and the commercial paper rate in
the case of the Series A program. To the extent that such rates increase, the
fair value of the interest only strip will decline and our interest expense
could increase which may result in a decrease in our profitability.
We have significant future capital needs which we may be unable to fund, and we
may need additional funding sooner than currently anticipated.
We will need substantial capital to finance our expansion plans, including
funds for capital expenditures, pre-opening costs and initial operating losses
related to new store openings. We may not be able to obtain additional financing
on acceptable terms. If adequate funds are not available, we will have to
curtail projected growth, which could materially adversely affect our business,
financial condition, operating results or cash flows.
We estimate that capital expenditures during fiscal 2005 will be
approximately $12 million to $15 million and that capital expenditures during
future years will likely exceed this amount. We expect that cash provided by
operating activities, available borrowings under our credit facility, and access
to the unfunded portion of our asset-backed securitization program will be
sufficient to fund our operations, store expansion and updating activities and
capital expenditure programs through at least January 31, 2006. However, this
may not be the case. We may be required to seek additional capital earlier than
anticipated if future cash flows from operations fail to meet our expectations
and costs or capital expenditures related to new store openings exceed
anticipated amounts.
A decrease in our credit sales could lead to a decrease in our product sales and
profitability.
Historically, we have financed approximately 56% of our retail sales
through our internal credit programs. Our ability to provide credit as a
financing alternative for our customers depends on many factors, including the
quality of our accounts receivable portfolio. Payments on some of our credit
accounts become delinquent from time to time, and some accounts end up in
default, due to several factors, including general and local economic
conditions. As we expand into new markets, we will obtain new credit accounts
that may present a higher risk than our existing credit accounts since new
credit customers do not have an established credit history with us. A general
decline in the quality of our accounts receivable portfolio could lead to a
reduction of available credit provided through our finance operations. As a
result, we might sell fewer products, which could adversely affect our earnings.
Further, because approximately 57% of our credit customers make their credit
account payments in our stores, any decrease in credit sales could reduce
traffic in our stores and lower our revenues. A decline in the credit quality of
our credit accounts could also cause an increase in our credit losses, which
could require us to increase the provision for bad debts on our statement of
operations and result in an adverse effect on our earnings.
4
A downturn in the economy may affect consumer purchases of discretionary items,
which could reduce our net sales.
A large portion of our sales represent discretionary spending by our
customers. Many factors affect discretionary spending, including world events,
war, conditions in financial markets, general business conditions, interest
rates, inflation, consumer debt levels, the availability of consumer credit,
taxation, unemployment trends and other matters that influence consumer
confidence and spending. Our customers' purchases of discretionary items,
including our products, could decline during periods when disposable income is
lower or periods of actual or perceived unfavorable economic conditions. If this
occurs, our net sales and profitability could decline.
We face significant competition from national, regional and local retailers of
major home appliances and consumer electronics.
The retail market for major home appliances and consumer electronics is
highly fragmented and intensely competitive. We currently compete against a
diverse group of retailers, including national mass merchants such as Sears,
Wal-Mart, Target, Sam's Club and Costco, specialized national retailers such as
Circuit City and Best Buy, home improvement stores such as Lowe's and Home
Depot, and locally-owned regional or independent retail specialty stores that
sell major home appliances and consumer electronics similar, and often
identical, to those we sell. We also compete with retailers that market products
through store catalogs and the Internet. In addition, there are few barriers to
entry into our current and contemplated markets, and new competitors may enter
our current or future markets at any time.
We may not be able to compete successfully against existing and future
competitors. Some of our competitors have financial resources that are
substantially greater than ours and may be able to purchase inventory at lower
costs and better sustain economic downturns. Our competitors may respond more
quickly to new or emerging technologies and may have greater resources to devote
to promotion and sale of products and services. If two or more competitors
consolidate their businesses or enter into strategic partnerships, they may be
able to compete more effectively against us.
Our existing competitors or new entrants into our industry may use a number
of different strategies to compete against us, including:
-- expansion by our existing competitors or entry by new competitors into
markets where we currently operate;
-- lower pricing;
-- aggressive advertising and marketing;
-- extension of credit to customers on terms more favorable than we
offer;
-- larger store size, which may result in greater operational
efficiencies, or innovative store formats; and
-- adoption of improved retail sales methods.
Competition from any of these sources could cause us to lose market share,
revenues and customers, increase expenditures or reduce prices, any of which
could have a material adverse effect on our results of operations.
If new products are not introduced or consumers do not accept new products, our
sales may decline.
Our ability to maintain and increase revenues depends to a large extent on
the periodic introduction and availability of new products and technologies. We
believe that the introduction and continued growth in consumer acceptance of new
products, such as DVD players, digital television and digital radio, will have a
significant impact on our ability to increase revenues. These products are
5
subject to significant technological changes and pricing limitations and are
subject to the actions and cooperation of third parties, such as movie
distributors and television and radio broadcasters, all of which could affect
the success of these and other new consumer electronics technologies. It is
possible that new products will never achieve widespread consumer acceptance.
If we fail to anticipate changes in consumer preferences, our sales may decline.
Our products must appeal to a broad range of consumers whose preferences
cannot be predicted with certainty and are subject to change. Our success
depends upon our ability to anticipate and respond in a timely manner to trends
in consumer preferences relating to major household appliances and consumer
electronics. If we fail to identify and respond to these changes, our sales of
these products may decline. In addition, we often make commitments to purchase
products from our vendors up to six months in advance of proposed delivery
dates. Significant deviation from the projected demand for products that we sell
may have a material adverse effect on our results of operations and financial
condition, either from lost sales or lower margins due to the need to reduce
prices to sell excess inventory.
A disruption in our relationships with, or in the operations of, any of our key
suppliers could cause our sales to decline.
The success of our business and growth strategies depends to a significant
degree on our relationships with our suppliers, particularly our brand name
suppliers such as General Electric, Whirlpool, Frigidaire, Maytag, Mitsubishi,
Sony, Hitachi, Panasonic, Thomson Consumer Electronics, Toshiba, Hewlett Packard
and Compaq. We do not have long term supply agreements or exclusive arrangements
with the majority of our vendors. We typically order our inventory through the
issuance of individual purchase orders to vendors. We also rely on our suppliers
for cooperative advertising support. We may be subject to rationing by suppliers
with respect to a number of limited distribution items. In addition, we rely
heavily on a relatively small number of suppliers. Our top six suppliers
represented 61.1% of our purchases for fiscal 2004, and the top two suppliers
represented approximately 28.0% of our total purchases. The loss of any one or
more of these key vendors or our failure to establish and maintain relationships
with these and other vendors could have a material adverse effect on our results
of operations and financial condition.
Our ability to enter new markets successfully depends, to a significant
extent, on the willingness and ability of our vendors to supply merchandise to
additional warehouses or stores. If vendors are unwilling or unable to supply
some or all of their products to us at acceptable prices in one or more markets,
our results of operations and financial condition could be materially adversely
affected.
Furthermore, we rely on credit from vendors to purchase our products. As of
January 31, 2004, we had $26.4 million in accounts payable and $53.7 million in
merchandise inventories. A substantial change in credit terms from vendors or
vendors' willingness to extend credit to us would reduce our ability to obtain
the merchandise that we sell, which could have a material adverse effect on our
sales and results of operations.
You should not rely on our comparable store sales as an indication of our future
results of operations because they fluctuate significantly.
Our historical same store sales growth figures have fluctuated
significantly from quarter to quarter. For example, same store sales growth for
each of the quarters of fiscal 2004 were 1.1%, (2.5)%, 4.1%, and 11.7%,
respectively. Even though we achieved double-digit same store sales growth in
the past, we may not be able to increase same store sales in the future. This is
reflected in the declining rate of increases or, in some cases, actual
decreases, in same store sales that have occurred over the last several
quarters. A number of factors have historically affected, and will continue to
affect, our comparable store sales results, including:
-- changes in competition;
-- general economic conditions;
-- new product introductions;
-- consumer trends;
6
-- changes in our merchandise mix;
-- changes in the relative sales price points of our major product
categories;
-- the impact of our new stores on our existing stores, including
potential decreases in existing stores' sales as a result of opening
new stores;
-- weather conditions in our markets;
-- timing of promotional events; and
-- our ability to execute our business strategy effectively.
Changes in our quarterly and annual comparable store sales results could
cause the price of our common stock to fluctuate significantly.
Because we experience seasonal fluctuations in our sales, our quarterly results
will fluctuate, which could adversely affect our common stock price.
We experience seasonal fluctuations in our net sales and operating results.
In fiscal 2004, we generated 28.8% and 23.5% of our net sales and 33.6% and
23.0% of our net income in the fiscal quarters ended January 31 (which included
the holiday selling season) and July 31 (which included the effects of our
summer air conditioning sales), respectively. We also incur significant
additional expenses during these fiscal quarters due to higher purchase volumes
and increased staffing. If we miscalculate the demand for our products generally
or for our product mix during the fiscal quarters ending January 31 and July 31,
our net sales could decline, resulting in excess inventory, which could harm our
financial performance. A shortfall in expected net sales, combined with our
significant additional expenses during these fiscal quarters, could cause a
significant decline in our operating results. This could adversely affect our
common stock price.
Our business could be adversely affected by changes in consumer protection laws
and regulations.
Federal and state consumer protection laws and regulations, such as the
Fair Credit Reporting Act, limit the manner in which we may offer and extend
credit. Since we finance a substantial portion of our sales, any adverse change
in the regulation of consumer credit could adversely affect our total revenues
and gross margins. For example, new laws or regulations could limit the amount
of interest or fees that may be charged on consumer loan accounts or restrict
our ability to collect on account balances, which would have a material adverse
effect on our earnings. Compliance with existing and future laws or regulations
could require us to make material expenditures, in particular personnel training
costs, or otherwise adversely affect our business or financial results. Failure
to comply with these laws or regulations, even if inadvertent, could result in
negative publicity, fines or additional licensing expenses, any of which could
have an adverse effect on our results of operations and stock price.
Pending litigation relating to the sale of credit insurance and the sale of
service maintenance agreements in the retail industry, including one lawsuit
in which we are the defendant, could adversely affect our business.
States' attorneys general and private plaintiffs have filed lawsuits
against other retailers relating to improper practices conducted in connection
with the sale of credit insurance in several jurisdictions around the country.
We offer credit insurance in all of our stores and require the purchase of
property credit insurance products from us or from third party providers in
connection with sales of merchandise on credit; therefore, similar litigation
could be brought against us. Additionally, we have been named as a defendant in
a purported class action lawsuit alleging breach of contract and violations of
state and federal consumer protection laws arising from the terms of our service
maintenance agreements. While we believe we are in full compliance with
applicable laws and regulations, if we are found liable in the class action
lawsuit or any future lawsuit regarding credit insurance or service maintenance
7
agreements, we could be required to pay substantial damages or incur substantial
costs as part of an out-of-court settlement, either of which could have a
material adverse effect on our results of operations and stock price. An adverse
judgment or any negative publicity associated with our service maintenance
agreements or any potential credit insurance litigation could also affect our
reputation, which could have a negative impact on sales.
If we lose key management or are unable to attract and retain the highly
qualified sales personnel required for our business, our operating results
could suffer.
Our future success depends to a significant degree on the skills,
experience and continued service of Thomas J. Frank, Sr., our Chairman of the
Board and Chief Executive Officer, William C. Nylin, Jr., our President and
Chief Operating Officer, C. William Frank, our Executive Vice President and
Chief Financial Officer, David R. Atnip, our Senior Vice President and
Secretary/Treasurer, and other key personnel. We have entered into employment
agreements with each of these named individuals, all of which include
confidentiality and other customary provisions. If we lose the services of any
of these individuals, or if one or more of them or other key personnel decide to
join a competitor or otherwise compete directly or indirectly with us, our
business and operations could be harmed, and we could have difficulty in
implementing our strategy. In addition, as our business grows, we will need to
locate, hire and retain additional qualified sales personnel in a timely manner
and develop, train and manage an increasing number of management level sales
associates and other employees. Competition for qualified employees could
require us to pay higher wages to attract a sufficient number of employees, and
increases in the federal minimum wage or other employee benefits costs could
increase our operating expenses. If we are unable to attract and retain
personnel as needed in the future, our net sales growth and operating results
could suffer.
Because our stores are located in Texas and Louisiana, we are subject to
regional risks.
Our 47 stores are located exclusively in Texas and Louisiana. This subjects
us to regional risks, such as the economy, weather conditions, hurricanes and
other natural disasters. If the region suffered an economic downturn or other
adverse regional event, there could be an adverse impact on our net sales and
profitability and our ability to implement our planned expansion program.
Several of our competitors operate stores across the United States and thus are
not as vulnerable to the risks of operating in one region.
Our information technology infrastructure is vulnerable to damage that could
harm our business.
Our ability to operate our business from day to day, in particular our
ability to manage our credit operations and inventory levels, largely depends on
the efficient operation of our computer hardware and software systems. We use
management information systems to track inventory information at the store
level, communicate customer information, aggregate daily sales information and
manage our credit portfolio. These systems and our operations are vulnerable to
damage or interruption from:
-- power loss, computer systems failures and Internet, telecommunications
or data network failures;
-- operator negligence or improper operation by, or supervision of,
employees;
-- physical and electronic loss of data or security breaches,
misappropriation and similar events;
-- computer viruses;
-- intentional acts of vandalism and similar events; and
-- hurricanes, fires, floods and other natural disasters.
The software that we have developed to use in granting credit may contain
undetected errors that could cause our network to fail or our expenses to
increase. Any failure due to any of these causes, if it is not supported by our
disaster recovery plan, could cause an interruption in our operations and result
in reduced net sales and profitability.
8
If we are unable to maintain our current insurance coverage for our service
maintenance agreements, our customers could incur additional costs and our
repair expenses could increase, which could adversely affect our financial
condition and results of operations.
There are a limited number of insurance carriers that provide coverage for
our service maintenance agreements. If insurance becomes unavailable from our
current carriers for any reason, we may be unable to provide replacement
coverage on the same terms, if at all. Even if we are able to obtain replacement
coverage, higher premiums could have an adverse impact on our profitability if
we are unable to pass along the increased cost of such coverage to our
customers. Inability to obtain insurance coverage for our service maintenance
agreements could cause fluctuations in our repair expenses and greater
volatility of earnings.
Changes in trade regulations, currency fluctuations and other factors beyond our
control could affect our business.
A significant portion of our inventory is manufactured overseas and in
Mexico. Changes in trade regulations, currency fluctuations or other factors
beyond our control may increase the cost of items we purchase or create
shortages of these items, which in turn could have a material adverse effect on
our results of operations and financial condition. Conversely, significant
reductions in the cost of these items in U.S. dollars may cause a significant
reduction in the retail prices of those products, resulting in a material
adverse effect on our sales, margins or competitive position. In addition,
commissions earned on both our credit insurance and service maintenance
agreement products could be adversely affected by changes in statutory premium
rates, commission rates, adverse claims experience and other factors.
We may be unable to protect our intellectual property rights, which could impair
our name and reputation.
We believe that our success and ability to compete depends in part on
consumer identification of the name "Conn's." We have registered the trademark
"Conn's" and our logo. We intend to protect vigorously our trademark against
infringement or misappropriation by others. A third party, however, could
misappropriate our intellectual property in the future. The enforcement of our
proprietary rights through litigation could result in substantial costs to us
that could have a material adverse effect on our financial condition or results
of operations.
9
Item 7. Exhibits.
Exhibit 99.1 Press Release, dated April 12, 2004
Item 12. Results of Operations and Financial Condition.
On April 12, 2004, the Company issued a press release announcing its
financial results for the quarter and year ended January 31, 2004. A copy of the
press release is furnished herewith as Exhibit 99.1 and is incorporated herein
by reference.
All of the information contained in Item 7 and Item 12 in this Form 8-K and
the accompanying exhibit shall not be deemed to be "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be
incorporated by reference in any filing under the Securities Act of 1933, as
amended.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONN'S, INC.
Date: April 12, 2004 By: /s/ C. Williams Frank
----------------------------
C. William Frank
Executive Vice President
and Chief Financial Officer
11
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
99.1 Press Release, dated April 12, 2004
12
Exhibit 99.1
Conn's, Inc. Reports Record Earnings for Fourth Quarter and Fiscal Year 2004
BEAUMONT, Texas--(BUSINESS WIRE)--April 12, 2004--Conn's, Inc.
(NASDAQ/NM:CONN), a specialty retailer of home appliances, consumer
electronics, home office products, bedding and lawn and garden
products, today announced record earnings results for the fourth
quarter and year ended January 31, 2004.
Net income available for common stockholders for the fourth
quarter increased 46.5% to $8.2 million compared to $5.6 million for
the fourth quarter of last year. Diluted earnings per share available
for common stockholders increased 11.8% to $0.38 from $0.34 in the
prior year. Total revenues for the quarter ended January 31, 2004
increased 19.4% to $144.0 million compared with $120.6 million for the
quarter ended January 31, 2003. This increase in revenue included net
sales increases of $22.4 million, or 21.1%, and increases from
"Finance charges and other" of $1.0 million, or 6.9%. Same store sales
(revenues earned in stores operated for the entirety of both periods)
increased 11.7% for the fourth quarter of fiscal 2004. On a pro forma
basis, as though all shares issued in the initial public offering were
outstanding in both periods for the full period, diluted earnings per
share increased 33.3% to $0.36 for the quarter ended January 31, 2004
from $0.27 for the previous period in fiscal 2003.
Total revenues for the year ended January 31, 2004 increased 12.0%
to $499.3 million compared with $446.0 million for the year ended
January 31, 2003. This increase in revenue included net sales
increases of $51.4 million, or 13.2%, and increases from "Finance
charges and other" of $1.9 million, or 3.4%. Same store sales
increased 2.6% for the year ended January 31, 2004. Net income
available for common stockholders for the year ended January 31, 2004
increased 21.2% to $22.4 million compared to $18.5 million for the
same period last year. Diluted earnings per share available for the
common stockholder increased 10.9% to $1.22 for the year ended January
31, 2004 from $1.10 in the prior year. On a pro forma basis, as though
all shares issued in the initial public offering were outstanding in
both periods for the full year, diluted earnings per share increased
15.7% to $1.03 for the year ended January 31, 2004 from $0.89 for the
previous fiscal year.
During the fourth quarter, the Company continued its expansion
into the Dallas/Fort Worth metroplex with the opening of one
additional store in November, bringing the store count in this market
to three as of January 31, 2004. Two additional stores were opened in
this market in February and April, bringing the Company's total store
count to 47. The Company is in the process of developing additional
sites in this market and expects to open an additional three to five
new locations in this market in the fiscal year 2005. By the end of
January 2005, the Company expects to operate approximately 50 to 52
stores, of which approximately 8 to 10 will be located in the
Dallas/Fort Worth metroplex.
"We are obviously pleased with our performance for the fourth
quarter, particularly with the same store sales growth of 11.7%," said
Thomas J. Frank, Conn's Chairman and Chief Executive Officer. "We feel
that this sales performance certainly illustrates a turn around in our
recent same store sales trend. Our emphasis on track sales and our
ability to take advantage of new product opportunities in bedding and
lawn and garden categories seems to be providing positive results. Our
holiday selling season was impressive and we saw progressively higher
increases in same store sales in all three months of the quarter."
As a result of the completion of its initial public offering, the
Company paid off all interest bearing debt on its balance sheet in
December 2003. The net proceeds of the offering after underwriters'
discount and expenses were approximately $58.4 million, of which $51.3
million was used to pay off debt.
EPS Guidance
The Company also issued guidance for the first quarter of fiscal
year 2005 of earnings per diluted share of approximately $0.30 to
$0.32. Guidance issued for the entire 2005 fiscal year included
earnings per diluted share of approximately $1.18 to $1.20, an
increase of $0.15 to $0.17 per share from the pro forma earnings per
share of $1.03 as though all shares issued in the initial public
offering were outstanding since February 1, 2003. Comparable store
sales increases are still projected in the low to mid single digit
range. The quarterly and full year estimate of earnings per diluted
share is calculated in accordance with generally accepted accounting
principles. Such estimates are most comparable to the pro forma
earnings per share information for the prior year that include initial
public offering shares as though they were outstanding for the full
year ended January 31, 2004.
Conference Call Information
Conn's, Inc. will host a conference call and audio webcast
Tuesday, April 13, 2004 at 10:00 AM, CST, to discuss financial
results for the quarter and year ended January 31, 2004. The webcast
will be available at www.conns.com and will be archived for 30 days.
The webcast is also being distributed over CCBN's Investor
Distribution Network to both institutional and individual investors.
Individual investors can listen to the call through CCBN's individual
investor center at www.fulldisclosure.com. Institutional investors can
access the call via StreetEvents (www.streetevents.com).
About Conn's, Inc.
The Company is a specialty retailer currently operating 46 retail
locations in Texas and Louisiana. It sells major home appliances,
including refrigerators, freezers, washers, dryers and ranges, and a
variety of consumer electronics, including projection, plasma and LCD
televisions, camcorders, VCRs, DVD players and home theater products.
The Company also sells home office equipment, lawn and garden products
and bedding, and continues to introduce additional product categories
for the home to help increase same store sales and to respond to our
customers' product needs.
Unlike many of its competitors, the Company provides in-house
credit options for its customers. Historically, it has financed over
56% of retail sales. Customer receivables are financed substantially
through an asset-backed securitization facility, from which the
Company derives servicing fee income and interest income from these
assets. The Company transfers receivables, consisting of retail
installment contracts and revolving accounts extended to its
customers, to a qualifying special purpose entity, or the issuer, in
exchange for cash and subordinated securities represented by
asset-backed and variable funding notes issued to third parties.
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 have been 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 or expand existing stores; the Company's
estimated capital expenditures and costs related to the opening of new
stores or the update or expansion of existing stores; the Company's
cash flow from operations, borrowings from its revolving line of
credit and proceeds from securitizations to fund operations, debt
repayment and expansion; growth trends and projected sales in the home
appliance and consumer electronics industry and the Company's ability
to capitalize on such growth; relationships with the Company's key
suppliers; the results of the Company's litigation; interest rates;
weather conditions in the Company's markets; 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 current report on Form 8-K filed in connection
with this press release. 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. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
Three Months Ended Year Ended
January 31, January 31,
------------------- -------------------
2003 2004 2003 2004
--------- --------- --------- ---------
(unaudited)
Revenues
Total net $106,085 $128,500 $389,497 $440,918
Finance charges and other 14,501 15,504 56,477 58,392
--------- --------- --------- ---------
Total revenues 120,586 144,004 445,974 499,310
Cost and Expenses
Cost of goods sold,
including warehousing and
occupancy costs 75,621 91,079 272,559 313,637
Cost of parts sold,
including warehousing and
occupancy costs 979 984 4,397 4,075
Selling, general and
administrative expense 31,451 37,614 125,712 135,174
Provision for bad debts 1,291 1,254 4,125 4,657
--------- --------- --------- ---------
Total cost and expenses 109,342 130,931 406,793 457,543
--------- --------- --------- ---------
Operating income 11,244 13,073 39,181 41,767
Interest expense 1,758 574 7,236 4,577
--------- --------- --------- ---------
Income before income taxes 9,486 12,499 31,943 37,190
Total provision for income
taxes 3,346 4,089 11,342 12,850
--------- --------- --------- ---------
Net income 6,140 8,410 20,601 24,340
Less preferred dividends (533) (195) (2,133) (1,954)
--------- --------- --------- ---------
Net income available for common
stockholders $5,607 $8,215 $18,468 $22,386
========= ========= ========= =========
Earnings per share:
Basic $0.34 $0.40 $1.10 $1.26
Diluted $0.34 $0.38 $1.10 $1.22
Average common shares
outstanding:
Basic 16,720 20,744 16,724 17,726
Diluted 16,720 21,379 16,724 18,335
CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31, January 31,
2003 2004
Assets
Current Assets
Cash and cash equivalents $2,448 $12,942
Interest in securitized assets and accounts
receivable, net 73,420 93,940
Inventories 46,118 53,742
Deferred income taxes 4,221 4,148
Prepaid expenses and other assets 3,473 3,031
------------ -----------
Total current assets 129,680 167,803
Non-current deferred tax assets and other
costs 5,328 4,195
Total property and equipment, net 38,266 54,825
Goodwill and other 8,524 7,937
------------ -----------
Total assets $181,798 $234,760
============ ===========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $7,500 $-
Current portion of long-term debt 7,928 338
Accounts payable 24,501 26,412
Fair value of derivatives 2,895 1,121
Other current liabilities 16,872 22,866
------------ -----------
Total current liabilities 59,696 50,737
Long-term debt 36,564 14,174
Non-current deferred tax liability and other 1,227 1,288
Fair value of derivatives 1,642 202
Minority interest in SRDS - 1,769
Total stockholders' equity 82,669 166,590
------------ -----------
Total liabilities and stockholders' equity $181,798 $234,760
============ ===========
CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year
Ended January 31,
2003 2004
Net cash provided (used) by operating activities $(1,151) $12,393
-------- --------
Cash flows from investing activities
Purchase of property and equipment (15,070) (9,401)
Proceeds from sale of property 14 1,291
-------- --------
Net cash used by investing activities (15,056) (8,110)
-------- --------
Cash flows from financing activities
Purchase of treasury stock (200) -
Net proceeds from sale or redemption of common and
preferred stock - 57,300
Net borrowings (payments) under bank credit
facilities 19,529 (46,999)
Debt issuance costs (492) (213)
Payment of promissory notes (1,753) (4,901)
-------- --------
Net cash provided (used) by financing activities 17,084 5,187
-------- --------
Impact on cash of consolidation of SRDS - 1,024
-------- --------
Net change in cash 877 10,494
Cash and cash equivalents
Beginning of the year 1,571 2,448
-------- --------
End of the year $2,448 $12,942
======== ========
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
PRO FORMA EARNINGS PER SHARE
(in thousands, except earnings per share)
Three Months Ended Year Ended
January 31, January 31,
------------------ -----------------
2003 2004 2003 2004
---------- ------- -------- --------
(unaudited)
Net income available for common
stockholders $5,607 $8,215 $18,468 $22,386
Add preferred dividends 533 195 2,133 1,954
---------- ------- -------- --------
Net income $6,140 $8,410 $20,601 $24,340
========== ======= ======== ========
Total shares outstanding pre-IPO 16,720 16,720 16,720 16,720
Shares issued in IPO, including
over-allotment 4,622 4,622 4,622 4,622
Conversion of preferred stock into
common 1,712 1,712 1,712 1,712
Weighted exercise of options - 9 - 2
Dilution due to outstanding
options - 609 - 609
---------- ------- -------- --------
Pro forma shares outstanding 23,054 23,672 23,054 23,665
========== ======= ======== ========
Pro forma diluted earnings per
share $0.27 $0.36 $0.89 $1.03
========== ======= ======== ========
Reconciliation of pro forma shares
outstanding to presentation
according to GAAP:
Pro forma shares outstanding 23,054 23,672 23,054 23,665
Adjustment since shares were
not outstanding for the full
year (6,334) (2,293) (6,330) (5,330)
---------- ------- -------- --------
Weighted diluted outstanding
shares according to GAAP 16,720 21,379 16,724 18,335
========== ======= ======== ========
The use of pro forma information is considered necessary to provide
the reader with more comparable earnings per share information year
over year. As a result of the IPO transaction, the additional shares
issued were significant relative to the shares outstanding in the
prior year and preferred dividends are no longer accrued or paid.
Consequently, the shares outstanding have been adjusted to reflect the
IPO transaction as though it took place on February 1, 2002 and
preferred dividends have been eliminated in all periods in order to
compute earnings per share on a more comparable basis.
CONTACT: Conn's, Inc., Beaumont
Thomas J. Frank, 409-832-1696 Ext. 3218