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Conn's finds success with furniture, bedding

Larry Thomas Business editorLarry Thomas Business editor
Tired of driving their business with price-sensitive, low-margin electronics and appliances, executives of Beaumont, Texas-based retailer Conn's last year decided to focus on two product categories they believed would improve the bottom line and keep the retailer from following the path of Circuit City. The company decided to get serious about furniture and bedding.
     And how's it working out so far? The numbers from publicly traded Conn's speak for themselves.
     Furniture and bedding sales soared 50% in the quarter ended July 31 - 57.5% on a same-store basis - and was the key ingredient that grew the company's retail gross margin by some 530 basis points to 34.1%.
     Granted, the retailer's decision to move away from promotional price points in all product categories also helped, but it's clear that furniture and bedding are now the key drivers.
     In a recent conference call with securities analysts, Chairman and CEO Theodore Wright said furniture and bedding accounted for 21% of sales in the second quarter (total revenues were $207.4 million), and said the long range goal is for those categories to reach 30% of sales.
     Wright didn't mention a specific numerical sales goal and cautioned it will take "several years to achieve" the 30% figure. But considering that Conn's annual revenues have fluctuated between $800 million and $900 million in recent years, that would conceivably put their furniture and bedding sales north of $250 million annually.
     "We're extremely bullish and confident about furniture and mattresses ... but it's still a new business for us," Wright said.
     A new store in Waco, Texas, that opened in mid-June gives the company good reason to be optimistic. Furniture and bedding already account for 30% of that store's sales, and Wright said the new location is "knocking on the door" of 40% gross margins - a stratospheric figure for a retailer that generates a majority of its revenues from electronics and appliances.
     The retailer plans to open five more stores before the end of the current fiscal year in January, and is in the process of updating or relocating many of its existing 65 stores with remodels including plenty of extra space for furniture and bedding displays.
     In the next fiscal year, the company plans to open 10 to 12 new stores, including its first locations in Arizona and New Mexico. (Existing units are in Texas, Louisiana and Oklahoma.)
     The good news about the second quarter sent Conn's stock skyward once again last week to more than $26 per share. That's a gain of roughly 120% since the beginning of 2012, and a 340% gain in the past 12 months.

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