• Clint Engel

Conn's swings to a 2Q profit, but sales slump

With uncertainty surrounding the immediate impact of Harvey, Conn's forgoes 3Q guidance

THE WOODLANDS, Texas — Conn’s moved to a profit in its fiscal second quarter, but sales continued to slump due in part to “softness in consumer spending,” and tighter lending standards.

And with Hurricane Harvey cutting into sales and collections starting in late August and uncertainty over the storm’s impact continuing, the company said it will not provide third quarter financial guidance but would resume the practice when its announces third quart results in December.

The 116-store furniture, electronics and appliance retailer posted net income of $4.3 million, or 14 cents per share, for the quarter ended July 31, up from a net loss of $11.9 million, or 39 cents per share, for a same period a year ago. Adjusted earnings, which exclude certain credits and charges and loss related early redemption of debt, were $8.2 million, or 26 cents per share, up from a loss of $1.2 million or, 4 cents per share.

Total retail revenues decreased 13.8% to $286.5 million from $332.4 million while same-stores sales decreased 15.1%. Conn’s said sale were hurt by the tighter underwriting standards that have improved its profitability, “general softness in consumer spending and the transition to a new lease-to-own partner — Aaron’s Progressive Leasing."

All categories posted declines in both sales and same-store sales, although the furniture and mattress business showed the smallest decline, with sales down 9.7% to $95.3 million and same-stores sales off 12.8%

Furniture unit volume decreased 24.3%, offset by a 12.6% increase in average selling process. Mattress unit volume was off 15.9%, while average selling price increased. 11.3%.

In a release, Chairman, CEO and President Norm Miller said the company’s return to profitability “is the direct result of Conn’s differentiated and highly profitable retail model, the initiatives implemented to turn around our credit business and the talented and experienced team we have assembled.”

He said the company retail model “remains strong” and that its “favorable mix within product categories and lower logistics costs continued to help retail gross margins. Conn’s expect same-store sales will improve now that the underwriting changes have been in place for a full year and as its lease-to-own business picks up.

Hurricane Harvey led Conn’s to close 23 stores and distribution and service centers in Beaumont, Texas, and Houston as well as its Beaumont corporate office. All locations have since reopened, but the retailer lost about 100 selling days as result of the storm.

The situation in southeast Texas and southeast Louisiana remains “very dynamic,” the company said, and “because of the near-term uncertainty Harvey has created,” Conn’s is skipping financial guidance for the third quarter.

“Over the near term, retail sales will be impacted by the loss of selling days associated with store closures, along with the unprecedented disruption the aftereffects of the storm are causing within our local communities,” the retailer said. “Collections will also be impacted by customers whose lives have been upended by the storm’s devastation.”

The retailer expects the trends will be temporary, noting how sales rebounded in later quarters following prior storms as rebuilding efforts got under way.

Through the first half of its fiscal years, total revenues decreased 8.2% to $722.5 million. Net income was $1.7 million, or 5 cents per share, vs. a loss of $21.7 million, or 71 cents per share for the first half of last year.

Conn’s opened three Conn’s HomePlus stores this year, including one in Virginia in the second quarter for a total of 116 showrooms. It doesn’t plan to open any more for the remainder of its fiscal year.

Clint EngelClint Engel | Senior Retail Editor, Furniture Today
cengel@furnituretoday.com

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