This morning, Conn's (CONN 37.70, +6.20 +19.7%) moves to better than two-year highs in reaction to better than expected Q3 earnings.
CONN’s is a specialty retailer focused on furniture, mattress, home appliance, and home office products. The company also provides consumer credit to finance purchases in addition to third-part financing programs and third-part lease-to-own payment plans.
Turning quickly to the print, CONN reported an earnings beat in Q3 registering earnings of $0.18 per share. Revenues were mostly in-line with Street expectations, despite falling 1.0% compared to last year, to about $373.2 million.
Q3 same store sales were down 7% and the company achieved a record net yield of 19.8%, and its credit spread increased to 460 basis points, which was the highest level in the past 11 quarters. As a result, approximately 90% of current originations are now at higher rates and the average APR on total originations for the month of October was 27.9%, compared to 21.4% in July of last fiscal year.
Further, during Q3 the company’s 60+ delinquency rate fell year-over-year for the first time in four years. Based on the performance of originations since June of last fiscal year, the company anticipates credit segment profitability will continue to improve as newer accounts become a larger percentage of the portfolio.
In all, Retail segment revenues were down 5.3% to $291.9 million driven by a decrease in same store sales of 7.0%, partially offset by new store growth. CONN’s also noted sales for the three months ended October 31, 2017 were impacted negatively by general softness in consumer spending. On a product basis, Home Appliance unit volumes performed the best, albeit dipping 5.0% in the quarter but partially offset by a 1.8% increase in average selling prices. Home Office average selling prices saw the best move in the quarter, up 15.5%, despite performing the worst by unit volumes sold, down 20.4%. The company’s largest portion of Retail, Furniture and mattress, saw net sales dip 1.8% to about $97.15 million.
In the Credit segment, revenues were up 18.8% to $81.3 million as a result of increased originations of the company’s higher-yielding direct loan product, which contributed to the increase in the portfolio yield rate to 19.8% from 15.0%, but partially offset by the impact of a 3.7% decline in the average balance of the customer receivables portfolio. Provision for bad debts was $56.3 million compared to $51.3 million last year, an increase of $5.0 million.
As for guidance, CONN sees Q4 SSS down mid single digits on retail gross margins between 39.0-39.5% of total retail net sales. The company also sees provision for bad debts in the range of $55.0-59.5 million on finance charges and other revenues between $86.0-90.0 million.