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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)
November 29, 2007
----------------------------
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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) 12 under the
Securities Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) 12 under the
Securities Act (17 CFR 240.13e-2(c))
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Item 2.02 Results of Operations and Financial Condition.
On November 29, 2007, the Company issued a press release announcing its
earnings for the quarter ended October 31, 2007. A copy of the press release is
furnished herewith as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01(c) Exhibits.
Exhibit 99.1 Press Release, dated November 29, 2007
All of the information contained in Item 2.02 and Item 9.01(c) 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.
2
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: November 29, 2007 By: /s/ David L. Rogers
---------------------------------
David L. Rogers
Chief Financial Officer
3
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
99.1 Press Release, dated November 29, 2007, for October
31, 2007 Earnings
4
Exhibit 99.1
Conn's, Inc. Reports Earnings for the Quarter
Ended October 31, 2007
BEAUMONT, Texas--(BUSINESS WIRE)--Nov. 29, 2007--Conn's, Inc.
(NASDAQ/NM:CONN), a specialty retailer of home appliances, consumer
electronics, computers, lawn and garden products, furniture and
mattresses, today announced earnings results for the quarter and nine
months ended October 31, 2007.
Net income for the third fiscal quarter was $4.0 million, compared
with $7.2 million for the third quarter of last year, a decline of
43.8%, due to a non-cash decrease in the fair value of the Company's
interests in securitized assets. Diluted earnings per share declined
43.3% to $0.17, compared with $0.30 for the third quarter of last
year. Net income for the quarter ended October 31, 2007, includes a
non-cash charge, net of tax, of $2.6 million, or $0.11 per diluted
share, to reduce the fair value of the Company's "Interests in
securitized assets." The reduction in fair value was driven by
external financial market conditions, which resulted in an increase in
the risk premium included in the discount rate assumption used in the
Company's determination of the fair value of its "Interests in
securitized assets," and was not related to the performance of the
Company's credit portfolio. Total revenues for the quarter ended
October 31, 2007, increased 9.0% to $189.4 million compared with
$173.7 million for the quarter ended October 31, 2006. This increase
in revenues included increases in net sales of $17.7 million, or
11.6%, and a decrease in "Finance charges and other" of $2.0 million,
or 9.3%. "Finance charges and other" declined due to the non-cash fair
value charge discussed above, which totaled $4.0 million before taxes.
Same store sales (revenues earned in stores operated for the entirety
of both periods) increased 6.8% for the third quarter of fiscal 2008.
The credit portfolio experienced rising delinquencies during the
third quarter, though at a slightly slower pace than in the prior year
quarter. Additionally, the annualized net charge-off rate rose to 2.7%
for the nine months ended October 31, 2007. 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.
During the first quarter of fiscal 2008 the Company adopted
several new accounting pronouncements related to the accounting for
its "Interests in securitized assets." This change in accounting was
adopted effective February 1, 2007, and prior periods were not
adjusted. These pronouncements resulted in the Company electing to
account for its interests in securitized assets at fair value, with
all changes in the fair value included in "Finance charges and other."
Under the fair value accounting pronouncements, the Company is
required to value the interests in securitized assets using
assumptions it believes a market participant would use to value the
asset. During the third quarter of fiscal 2008, "Finance charges and
other" was reduced $4.0 million by the non-cash fair value adjustment,
which was driven primarily by a higher discount rate assumption. The
risk premium included in the discount rate assumption was increased
principally due to external market conditions, and was not a result of
changes in the underlying economics or expected cash flows of the
securitization program. Due to the turmoil in the financial markets
during the third quarter of fiscal 2008, the Company evaluated the
risk premium included in the discount rate used in its discounted cash
flow analysis. After discussions with its bankers and review of
available market information, the Company estimated that, due to
increases in the risk premiums expected for many securities,
especially asset-backed securities, under the volatile market
conditions experienced during the third quarter, a market participant
would require a higher return on their investment if they were to
purchase the Company's interests in securitized assets. The increase
in the discount rate had the effect of reducing the current fair value
of the asset and deferring earnings under the securitization program
to future periods, but did not permanently reduce securitization
income or the earnings of the Company. The deferred earnings will be
recognized in future periods as interest income on the interests in
securitized assets as the actual cash flows from the receivables are
realized. 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-Q which will be filed
later today.
Net income for the nine months ended October 31, 2007, declined
3.7% to $26.6 million compared with $27.6 million for the prior year.
Diluted earnings per share for the nine months ended October 31, 2007,
were $1.11 compared with $1.14 in the prior year period. Net income
for the nine months ended October 31, 2007, includes a non-cash
charge, net of tax, of $2.8 million, or $0.12 per diluted share, to
reduce the fair value of the Company's "Interests in securitized
assets." Total revenues for the nine months ended October 31, 2007,
increased 9.1% to $598.2 million compared with $548.1 million for the
nine months ended October 31, 2006. This increase in revenues included
net sales increases of $42.7 million, or 8.8%, and increases in
"Finance charges and other" of $7.4 million, or 12.3%. The increase in
"Finance charges and other" was partially offset by the non-cash fair
value charge discussed above, which totaled $4.3 million before taxes,
for the nine months ended October 31, 2007. Same store sales (revenues
earned in stores operated for the entirety of both periods) increased
3.5% for the first nine months of fiscal 2008. During the nine months
ended October 31, 2007, the Company completed a legal entity
reorganization that resulted in a one-time reduction in the provision
for income taxes of $0.9 million.
"While we enjoyed solid growth at the top line, we were not
satisfied with our bottom-line performance this quarter, even after
excluding the impact of the fair value adjustment," said Thomas J.
Frank, Sr., the Company's Chairman and CEO. "Since we anticipate the
retail environment continuing to be very competitive, we must improve
our execution to achieve the gross profit and operating margins we
expect."
As part of the previously announced stock repurchase plan, the
Company repurchased 542,100 shares of common stock for $12.0 million
during the three months ended October 31, 2007. The Company has
repurchased 1,041,185 shares since the inception of the plan for $24.5
million and intends to continue repurchasing shares up to the
authorized limit of $50 million, dependent upon market conditions and
share price.
The Company currently has 65 stores in operation. Additionally,
the Company has under development and expects to open 11 stores by
July 31, 2008, including two replacement stores and one new store in
Oklahoma City, Oklahoma. The Company plans to continue its expansion
by opening an additional two to five stores in the last half of next
year.
EPS Guidance
Today, in light of the $0.11 per diluted share fair value
adjustment, the Company lowered its guidance for its fiscal year 2008
(the year ending January 31, 2008) of earnings per diluted share in a
range of $1.64 to $1.74.
Conference Call Information
Conn's, Inc. will host a conference call and audio webcast today,
November 29, 2007, at 10:00 AM, CST, to discuss financial results for
the quarter ended October 31, 2007. The webcast will be available live
at www.conns.com and will be archived for one year. Participants can
join the call by dialing 888-661-5167 or 913-312-1430.
About Conn's, Inc.
The Company is a specialty retailer currently operating 65 retail
locations in Texas and Louisiana: 21 stores in the Houston area, 15 in
the Dallas/Fort Worth Metroplex, 10 in San Antonio, five in Austin,
four in Southeast Texas, one in Corpus Christi, three in South Texas
and six stores in Louisiana. It sells major home appliances, including
refrigerators, freezers, washers, dryers, dishwashers and ranges, and
a variety of consumer electronics, including micro-display projection,
plasma and LCD flat-panel televisions, camcorders, digital cameras,
computers and computer accessories, DVD players (both standard and
high definition), video game equipment, portable audio 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 58% 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. The Company transfers
receivables, consisting of retail installment contracts and revolving
accounts extended to its customers, to a qualifying special purpose
entity (QSPE) in exchange for cash and subordinated securities. The
QSPE funds its purchases of the receivables through the issuance of
medium-term and variable funding notes secured by the receivables and
issued to third parties, and subordinated securities to the Company.
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 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
ability to introduce additional product categories; 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; 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;
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 29, 2007. 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 Nine Months Ended
October 31, October 31,
------------------- -------------------
2006 2007 2006 2007
--------- --------- --------- ---------
Revenues
Total net sales $152,390 $170,052 $487,732 $530,418
Finance charges and other 21,303 19,314 60,353 67,785
--------- --------- --------- ---------
Total revenues 173,693 189,366 548,085 598,203
Cost and expenses
Cost of goods sold,
including warehousing and
occupancy costs 110,627 125,359 356,112 390,007
Cost of parts sold,
including warehousing and
occupancy costs 1,834 2,257 4,788 6,246
Selling, general and
administrative expense 49,701 54,760 144,790 161,129
Provision for bad debts 526 582 959 1,490
--------- --------- --------- ---------
Total cost and expenses 162,688 182,958 506,649 558,872
--------- --------- --------- ---------
Operating income 11,005 6,408 41,436 39,331
Interest income, net (141) (110) (512) (601)
Other income, net (19) (34) (773) (920)
--------- --------- --------- ---------
Income before income taxes 11,165 6,552 42,721 40,852
Provision for income taxes 4,011 2,531 15,074 14,228
--------- --------- --------- ---------
Net income $ 7,154 $ 4,021 $ 27,647 $ 26,624
========= ========= ========= =========
Earnings per share
Basic $ 0.30 $ 0.17 $ 1.17 $ 1.14
Diluted $ 0.30 $ 0.17 $ 1.14 $ 1.11
Average common shares
outstanding
Basic 23,698 23,077 23,658 23,375
Diluted 24,165 23,550 24,318 23,907
Conn's, Inc.
CONDENSED, CONSOLIDATED BALANCE SHEETS
(in thousands)
January 31, October 31,
2007 2007
-------------- --------------
Assets (unaudited)
Current assets
Cash and cash equivalents $ 56,570 $ 23,045
Interests in securitized assets and
accounts receivable, net 168,296 200,995
Inventories 87,098 97,466
Deferred income taxes 551 2,652
Prepaid expenses and other assets 5,247 4,573
-------------- --------------
Total current assets 317,762 328,731
Non-current deferred income tax asset 2,920 -
Total property and equipment, net 59,440 55,362
Goodwill and other assets, net 9,825 9,784
-------------- --------------
Total assets $389,947 $393,877
============== ==============
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ - $ -
Current portion of long-term debt 110 111
Accounts payable 54,045 43,609
Accrued compensation and related
expenses 9,234 9,073
Accrued expenses 20,424 23,785
Other current liabilities 13,209 14,224
-------------- --------------
Total current liabilities 97,022 90,802
Long-term debt 88 28
Non-current deferred income tax
liability - 123
Deferred gains on sales of property 309 1,314
Total stockholders' equity 292,528 301,610
-------------- --------------
Total liabilities and
stockholders' equity $389,947 $393,877
============== ==============
Conn's, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
Nine Months Ended
October 31,
-------------------
2006 2007
--------- ---------
Net cash provided by (used in) operating
activities $ 11,090 $(11,610)
Cash flows from investing activities
Purchase of property and equipment (15,681) (12,043)
Proceeds from sale of property 2,272 8,897
--------- ---------
Net cash used in investing activities (13,409) (3,146)
Cash flows from financing activities
Purchase of treasury stock (684) (20,740)
Proceeds from stock issued under employee
benefit plans 1,695 2,053
Excess tax benefits from stock-based
compensation 196 2
Borrowings under promissory notes 208 -
Payment of promissory notes (145) (84)
--------- ---------
Net cash provided by (used in) financing
activities 1,270 (18,769)
--------- ---------
Net change in cash (1,049) (33,525)
Cash and cash equivalents
Beginning of the year 45,176 56,570
--------- ---------
End of period $ 44,127 $ 23,045
========= =========
CALCULATION OF GROSS MARGIN PERCENTAGE
(dollars in thousands)
Three Months Ended Nine Months Ended
October 31, October 31,
--------------------- ---------------------
2006 2007 2006 2007
---------- ---------- ---------- ----------
A Product sales $ 139,594 $ 155,657 $ 448,750 $ 486,089
B Service maintenance
agreement commissions,
net 6,845 8,336 21,875 26,688
C Service revenues 5,951 6,059 17,107 17,641
---------- ---------- ---------- ----------
D Total net sales 152,390 170,052 487,732 530,418
E Finance charges and
other 21,303 19,314 60,353 67,785
---------- ---------- ---------- ----------
F Total revenues 173,693 189,366 548,085 598,203
G Cost of goods sold,
including warehousing
and occupancy cost (110,627) (125,359) (356,112) (390,007)
H Cost of parts sold,
including warehousing
and occupancy cost (1,834) (2,257) (4,788) (6,246)
---------- ---------- ---------- ----------
I Gross margin dollars
(F+G+H) $ 61,232 $ 61,750 $ 187,185 $ 201,950
========== ========== ========== ==========
Gross margin percentage
(I/F) 35.3% 32.6% 34.2% 33.8%
J Product margin dollars
(A+G) $ 28,967 $ 30,298 $ 92,638 $ 96,082
K Product margin
percentage (J/A) 20.8% 19.5% 20.6% 19.8%
PORTFOLIO STATISTICS
For the periods ended January 31, 2005, 2006 and 2007 and October 31,
2006 and 2007
(dollars in thousands, except average outstanding balance per account)
January 31, October 31,
----------------------------- -------------------
2005 2006 2007 2006 2007
--------- --------- --------- --------- ---------
Total accounts 350,251 415,338 459,065 433,719 490,117
Total outstanding
balance $428,700 $519,721 $569,551 $535,688 $618,561
Average outstanding
balance per account $ 1,224 $ 1,251 $ 1,241 $ 1,235 $ 1,262
60 day delinquency $ 23,143 $ 35,537 $ 37,662 $ 37,800 $ 47,703
Percent delinquency 5.4% 6.8% 6.6% 7.1% 7.7%
Percent of portfolio
reaged 16.3% 17.9% 18.1% 18.5% 16.8%
Net charge-off ratio
(year-to-date,
annualized) 2.4% 2.5% 3.3% 3.4% 2.7%
CONTACT: Conn's, Inc., Beaumont
Chairman and CEO
Thomas J. Frank, 409-832-1696 Ext. 3218