Market Overview

Conn's, Inc. Reports First Quarter Fiscal 2019 Financial Results

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Favorable Retail Results Driven by an Improving Same Store Sales Trend and Record Q1 Retail Margin

Credit Segment Operating Income Turns Positive as Portfolio Performance Strengthens

Lowest Interest Expense in 11 Quarters as a result of Reduced Cost of Funds and Continued Deleveraging

Strong Start to Fiscal Year 2019

THE WOODLANDS, Texas, June 07, 2018 (GLOBE NEWSWIRE) -- Conn's, Inc. (NASDAQ:CONN), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended April 30, 2018.

"Fiscal year 2019 is off to an excellent start.  First quarter retail results were driven by an improving same store sales trend.  This included positive same store sales for the month of April, which is the first positive month of same store sales in over two years.  In addition, retail results benefited from record first quarter retail gross margin.  Credit performance strengthened during the quarter, and our credit segment had its first quarter of operating income in four years.  With our credit platform on a clear path towards improved financial results, we continue to focus on driving sustainable growth in our highly profitable retail segment.  Our first quarter results reflect accelerating momentum throughout our business and we believe that fiscal year 2019 will be a strong year for the Company," stated Norm Miller, Conn's Chairman and Chief Executive Officer.

First quarter of fiscal year 2019 highlights include:

  • Improving same store sales trend, best performance in eight quarters
  • Record first quarter retail gross margin of 39.6%
  • Credit spread of 870 basis points was the highest level since the quarter ending April 30, 2014
  • 60+ delinquency rate of 9.5%, representing the third consecutive quarter the rate has declined year-over-year 
  • Charge-offs, net of recoveries of 12.1%, was the lowest rate in ten quarters
  • Strong first quarter recoveries reduced cumulative loss rates for fiscal year 2014 and 2015 vintages
  • Interest expense of $16.8 million, compared to $24.0 million for the same period last fiscal year
  • Earnings per diluted share of $0.39, compared to a loss of $0.08 per share for the same period last fiscal year
  • Adjusted earnings per diluted share of $0.40, representing the highest first quarter earnings in three years

First Quarter Results

Net income for the three months ended April 30, 2018 was $12.7 million, or $0.39 per diluted share, compared to a net loss for the three months ended April 30, 2017 of $2.6 million, or $0.08 per diluted share.  On a non-GAAP basis, adjusted net income for the three months ended April 30, 2018 was $13.0 million, or $0.40 per diluted share, which excludes a loss on extinguishment of debt related to the early redemption of our Series 2016-B Class B Notes.  This compares to adjusted net loss for the three months ended April 30, 2017 of $1.6 million, or $0.05 per diluted share, which excludes certain charges primarily related to exit costs associated with reducing the square footage of a distribution center and the extinguishment of debt related to the amendment of our revolving loan facility.

Retail Segment First Quarter Results

Total retail revenues were $275.8 million for the three months ended April 30, 2018 compared to $279.4 million for the three months ended April 30, 2017.  The decrease of 1.3% was primarily related to a decline in same store sales partially offset by new store openings.  For the three months ended April 30, 2018 and 2017, retail segment operating income was $31.2 million and $32.0 million, respectively.  On a non-GAAP basis, adjusted retail segment operating income for the three months ended April 30, 2018 and 2017 was $31.2 million and $33.2 million, respectively, after excluding certain charges of $1.2 million related to exit costs associated with reducing the square footage of a distribution center in 2017.

The following table presents net sales and changes in net sales by category:

  Three Months Ended April 30,       %   Same Store
(dollars in thousands) 2018   % of Total   2017   % of Total   Change   Change   % Change
Furniture and mattress (1) $ 97,020     35.2 %   $ 94,443     33.8 %   $ 2,577     2.7 %   (2.9 )%
Home appliance 78,023     28.3     80,122     28.7     (2,099 )   (2.6 )   (4.5 )
Consumer electronics (1) 52,302     19.0     55,753     20.0     (3,451 )   (6.2 )   (4.5 )
Home office (1) 18,310     6.6     16,788     6.0     1,522     9.1     12.8  
Other 3,659     1.3     4,256     1.5     (597 )   (14.0 )   (17.3 )
Product sales 249,314     90.4     251,362     90.0     (2,048 )   (0.8 )   (3.0 )
Repair service agreement commissions 22,863     8.3     24,696     8.8     (1,833 )   (7.4 )   (7.1 )
Service revenues 3,579     1.3     3,227     1.2     352     10.9      
Total net sales $ 275,756     100.0 %   $ 279,285     100.0 %   $ (3,529 )   (1.3 )%   (3.5 )%

(1) During the three months ended July 31, 2017, we reclassified certain products from the consumer electronics and home office product categories into the furniture and mattress product category.  Net sales of these products reflected in the consumer electronics and home office product categories for the three months ended April 30, 2017 were $2.8 million and $0.8 million, respectively. The change in same store sales reflects the current product classification for both periods presented.

The following provides a summary of the items impacting same store sales performance of our product categories during the three months ended April 30, 2018 as compared to the three months ended April 30, 2017:

  • Furniture unit volume decreased 9.9%, partially offset by a 6.4% increase in average selling price;
  • Mattress unit volume decreased 7.5%, partially offset by a 9.2% increase in average selling price;
  • Home appliance unit volume decreased 6.1%, partially offset by a 1.8% increase in average selling price;
  • Consumer electronic unit volume decreased 4.4% and average sales price decreased 0.1%; and
  • Home office unit volume increased 40.9%, partially offset by a 20.0% decrease in average selling price.

Credit Segment First Quarter Results

Credit revenues were $82.6 million for the three months ended April 30, 2018 compared to $76.5 million for the three months ended April 30, 2017. The 8.1% increase in credit revenue was primarily due to the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to 20.8% from 18.2% offset by a 0.3% decrease in the average balance of the customer receivable portfolio. The total customer portfolio balance was $1.49 billion at April 30, 2018 compared to $1.48 billion at April 30, 2017, an increase of 0.9%.

Provision for bad debts was $43.9 million for the three months ended April 30, 2018 compared to $55.7 million for the three months ended April 30, 2017, a decrease of $11.8 million.  The decrease was primarily driven by a reduction in net charge-offs of $13.8 million during the three months ended April 30, 2018 compared to the three months ended April 30, 2017, partially offset by a smaller reduction in the allowance for doubtful accounts during the three months ended April 30, 2018 compared to the three months ended April 30, 2017.

Additional information on the credit portfolio and its performance may be found in the Customer Receivable Portfolio Statistics table included within this press release and in the Company's Form 10-Q for the quarter ended April 30, 2018, to be filed with the Securities and Exchange Commission.

Store Update

The Company has opened two new Conn's HomePlus® stores in Texas during the three months ended April 30, 2018, bringing the total store count to 118 in 14 states. During fiscal year 2019, the Company plans to open a total of five to nine new stores in existing states to leverage current infrastructure.

Liquidity and Capital Resources

As of April 30, 2018, the Company had $233.5 million of immediately available borrowing capacity under its $750.0 million revolving credit facility, with an additional $366.2 million that may become available under the Company's revolving credit facility if the Company grows the balance of eligible customer receivables and our total eligible inventory balances under the borrowing base. The Company also had $6.2 million of unrestricted cash available for use.

Outlook and Guidance

The following are the Company's expectations for the business for the second quarter of fiscal year 2019:

  • Change in same store sales between 0.0% and positive 3.0%;
  • Retail gross margin between 40.25% and 40.75% of total retail net sales;
  • Selling, general and administrative expenses between 30.5% and 32.5% of total revenues;
  • Provision for bad debts between $51.0 million and $55.0 million;
  • Finance charges and other revenues between $85.0 million and $89.0 million; and
  • Interest expense between $16.0 million and $17.0 million.

Conference Call Information

The Company will host a conference call on June 7, 2018 at 10 a.m. CT / 11 a.m. ET to discuss its three months ended April 30, 2018 financial results. Participants can join the call by dialing 877-754-5302 or 678-894-3020. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and the first quarter fiscal year 2019 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through June 14, 2018 by dialing 855-859-2056 or 404-537-3406 and Conference ID: 1375317.

About Conn's, Inc.

Conn's is a specialty retailer currently operating 118 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.  The Company's primary product categories include:

  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
  • Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, and smart televisions, Blu-ray players, home theaters, portable audio equipment, and gaming products;
  • Home office, including computers, printers and accessories.

Additionally, Conn's offers a variety of products on a seasonal basis.  Unlike many of its competitors, Conn's provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.

This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, 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," "predict," "will," "potential," or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts.  Such forward-looking statements are based on our current expectations.  We can give no assurance that such statements will prove to be correct, and actual results may differ materially.  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 execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; 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 other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018 and other reports filed with the SEC.  If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.  We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance.  All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

CONN-G

S.M. Berger & Company
Andrew Berger (216) 464-6400

CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands, except per share amounts)

  Three Months Ended
 April 30,
  2018   2017
Revenues:      
Total net sales $ 275,756     $ 279,285  
Finance charges and other revenues 82,631     76,541  
Total revenues 358,387     355,826  
Costs and expenses:      
Cost of goods sold 166,589     171,950  
Selling, general and administrative expense 114,878     106,537  
Provision for bad debts 44,156     55,930  
Charges and credits     1,227  
Total costs and expenses 325,623     335,644  
Operating income 32,764     20,182  
Interest expense 16,820     24,008  
Loss on extinguishment of debt 406     349  
Income (loss) before income taxes 15,538     (4,175 )
Provision (benefit) for income taxes 2,806     (1,595 )
Net income (loss) $ 12,732     $ (2,580 )
Income (loss) per share:      
Basic $ 0.40     $ (0.08 )
Diluted $ 0.39     $ (0.08 )
Weighted average common shares outstanding:      
Basic 31,540,684     30,972,312  
Diluted 32,452,864     30,972,312  


CONN'S, INC. AND SUBSIDIARIES

CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)

  Three Months Ended
 April 30,
  2018   2017
Revenues:      
Product sales $ 249,314     $ 251,362  
Repair service agreement commissions 22,863     24,696  
Service revenues 3,579     3,227  
Total net sales 275,756     279,285  
Other revenues 14     80  
Total revenues 275,770     279,365  
Costs and expenses:      
Cost of goods sold 166,589     171,950  
Selling, general and administrative expense 77,752     73,947  
Provision for bad debts 260     230  
Charges and credits     1,227  
Total costs and expenses 244,601     247,354  
Operating income $ 31,169     $ 32,011  
Retail gross margin 39.6 %   38.4 %
Selling, general and administrative expense as percent of revenues 28.2 %   26.5 %
Operating margin 11.3 %   11.5 %
Store count:      
Beginning of period 116     113  
Opened 2     2  
End of period 118     115  


CONN'S, INC. AND SUBSIDIARIES

CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)

  Three Months Ended
 April 30,
  2018   2017
Revenues:      
Finance charges and other revenues $ 82,617     $ 76,461  
Costs and expenses:      
Selling, general and administrative expense 37,126     32,590  
Provision for bad debts 43,896     55,700  
Total costs and expenses 81,022     88,290  
Operating income (loss) 1,595     (11,829 )
Interest expense 16,820     24,008  
Loss on extinguishment of debt 406     349  
Loss before income taxes $ (15,631 )   $ (36,186 )
Selling, general and administrative expense as percent of revenues 44.9 %   42.6 %
Selling, general and administrative expense as percent of average total customer portfolio balance (annualized) 9.9 %   8.6 %
Operating margin 1.9 %   (15.5 )%


CONN'S, INC. AND SUBSIDIARIES

CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(unaudited)

  As of April 30,
  2018   2017
Weighted average credit score of outstanding balances(1) 592     588  
Average outstanding customer balance $ 2,462     $ 2,360  
Balances 60+ days past due as a percentage of total customer portfolio balance(2) 9.5 %   9.8 %
Re-aged balance as a percentage of total customer portfolio balance(2)(3) 24.5 %   15.8 %
Account balances re-aged more than six months (in thousands) $ 79,906     $ 74,238  
Allowance for bad debts as a percentage of total customer portfolio balance 13.7 %   14.0 %
Percent of total customer portfolio balance represented by no-interest option receivables 21.4 %   26.0 %


  Three Months Ended
 April 30,
  2018   2017
Total applications processed 283,486     290,327  
Weighted average origination credit score of sales financed(1) 609     608  
Percent of total applications approved and utilized 29.2 %   31.1 %
Average down payment 3.1 %   3.7 %
Average income of credit customer at origination $ 43,800     $ 41,900  
Percent of retail sales paid for by:      
In-house financing, including down payment received 70.0 %   70.5 %
Third-party financing 14.9 %   15.1 %
Third-party lease-to-own option 7.5 %   7.6 %
  92.4 %   93.2 %

(1) Credit scores exclude non-scored accounts.

(2) Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.

(3) The re-aged balance as a percentage of total customer portfolio as of April 30, 2018 includes $54.2 million, or 3.6%, in first time re-ages related to customers affected by Hurricane Harvey within FEMA-designated disaster areas.

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

  April 30,
 2018
  January 31,
 2018
Assets      
Current Assets:      
Cash and cash equivalents $ 6,190     $ 9,286  
Restricted cash 76,724     86,872  
Customer accounts receivable, net of allowances 618,160     636,825  
Other accounts receivable 73,543     71,186  
Inventories 190,312     211,894  
Income taxes recoverable 620     32,362  
Prepaid expenses and other current assets 15,664     31,592  
Total current assets 981,213     1,080,017  
Long-term portion of customer accounts receivable, net of allowances 635,508     650,608  
Property and equipment, net 141,314     143,152  
Deferred income taxes 22,052     21,565  
Other assets 4,662     5,457  
Total assets $ 1,784,749     $ 1,900,799  
Liabilities and Stockholders' Equity      
Current liabilities:      
Current maturities of debt and capital lease obligations $ 23,180     $ 907  
Accounts payable 82,362     71,617  
Accrued expenses 57,319     66,173  
Other current liabilities 31,113     25,414  
Total current liabilities 193,974     164,111  
Deferred rent 85,729     87,003  
Long-term debt and capital lease obligations 929,535     1,090,105  
Other long-term liabilities 25,856     24,512  
Total liabilities 1,235,094     1,365,731  
Stockholders' equity 549,655     535,068  
Total liabilities and stockholders' equity $ 1,784,749     $ 1,900,799  


CONN'S, INC. AND SUBSIDIARIES

NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands)

RETAIL SEGMENT OPERATING INCOME, AS ADJUSTED

  Three Months Ended April 30,
  2018   2017
Retail segment operating income, as reported $ 31,169     $ 32,011  
Adjustments:      
Facility closure costs     1,227  
Retail segment operating income, as adjusted $ 31,169     $ 33,238  
Retail segment total revenues $ 275,770     $ 279,365  
Retail segment operating margin:      
As reported 11.3 %   11.5 %
As adjusted 11.3 %   11.9 %

NET INCOME (LOSS), AS ADJUSTED, AND DILUTED INCOME (LOSS) PER SHARE, AS ADJUSTED

  Three Months Ended April 30,
  2018   2017
Net income (loss), as reported $ 12,732     $ (2,580 )
Adjustments:      
Facility closure costs     1,227  
Loss on extinguishment of debt 406     349  
Tax impact of adjustments (89 )   (571 )
Net income (loss), as adjusted $ 13,049     $ (1,575 )
Weighted average common shares outstanding - Diluted 32,452,864     30,972,312  
Income (loss) per share:      
As reported $ 0.39     $ (0.08 )
As adjusted $ 0.40     $ (0.05 )

Basis for presentation of non-GAAP disclosures:

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company also provides the following non-GAAP financial measures: retail segment adjusted operating income, retail segment adjusted operating margin, adjusted net income (loss), and adjusted income (loss) per diluted share.  These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP.  They are intended to provide additional insight into our operations and the factors and trends affecting the business. 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 we use in our financial and operational decision making, and (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results.

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