Conn’s, Inc., a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, recently announced its financial results for the quarter ended April 30, 2021.
“Same store sales exceeded our expectations and increased 19.4% and total sales increased 26.5% as our team capitalized on robust consumer demand and the successful execution of our strategic growth initiatives. Strong first quarter sales were driven by a 70.0% increase in retail sales financed through cash, credit card, and third-party offerings, as our in-house credit underwriting strategy remained conservative during the quarter,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.
“We generated the highest quarterly net earnings in our 131 year history as a result of strong operating performance from both our retail and credit segments. We significantly grew retail sales, while simultaneously managing credit risk demonstrating the power of our unique and hybrid business model, which we believe supports a meaningful and long-term opportunity to expand our platform and attract more consumers.”
“Throughout fiscal year 2022, we are focused on building on the positive momentum underway and pursuing our strategic initiatives, which include increasing retail sales across our best-in-class financing options, executing on our digital transformation, and expanding our brick-and-mortar footprint. I am extremely encouraged by the direction we are headed, and proud of our team’s resiliency and dedication over the past year,” concluded Mr. Miller.
First Quarter Financial Highlights:
- Net earnings for the first quarter increased to a quarterly record of $1.52 per diluted share, compared to a loss of $1.95 per diluted share for the same period last fiscal year;
- Same store sales increased 19.4% for the first quarter of fiscal year 2022 as compared to the first quarter of fiscal year 2021 and increased 1.8% on a two-year basis as compared to the first quarter of fiscal year 2020, primarily due to higher cash and third-party credit sales and an increase in demand across most of the Company’s home-related product categories;
- E-commerce sales during the first quarter of fiscal year 2022 increased 95.7% as compared to the prior fiscal year period;
- Lease-to-own sales during the first quarter of fiscal year 2022 increased 82.0%, as compared to the prior fiscal year period;
- During the first quarter of fiscal year 2022, the Company added six new showrooms, including five within the state of Florida, bringing the total number of showrooms at April 30, 2021 to 152, compared to 139 at April 30, 2020; and
- At April 30, 2021, the carrying value of customer accounts receivable 60+ days past due declined 49.4% year-over-year to the lowest level in seven fiscal years, and the carrying value of re-aged accounts declined 45.1% year-over-year to the lowest level in four fiscal years.
First Quarter Results
Net income for the three months ended April 30, 2021 was $45.4 million, or $1.52 per diluted share, compared to net loss for the three months ended April 30, 2020 of $56.2 million, or $1.95 per diluted share. The increase in net income was primarily due to an increase in retail revenue and a decrease in the provision for bad debts. On a non-GAAP basis, adjusted net income for the three months ended April 30, 2021 was $46.3 million, or $1.55 per diluted share, which excludes a loss on extinguishment of debt. This compares to adjusted net loss for the three months ended April 30, 2020 of $54.6 million, or $(1.89) per diluted share, which excludes professional fees associated with non-recurring expenses related to fiscal year 2020.
Retail Segment First Quarter Results
Retail revenues were $291.5 million for the three months ended April 30, 2021 compared to $230.6 million for the three months ended April 30, 2020, an increase of $60.9 million or 26.4%. The increase in retail revenue was primarily driven by an increase in same store sales of 19.4% and by new store growth. The increase in same store sales reflects higher cash and third-party credit sales and increase in demand across most of the Company’s home-related product categories. The increase also reflects the impact of prior year reductions in store hours, state mandated stay-at-home orders and lower sales of discretionary categories as a result of the COVID-19 pandemic.
For the three months ended April 30, 2021 and 2020, retail segment operating income was $15.7 million and $5.2 million, respectively. The increase in retail segment operating income for the three months ended April 30, 2021 was primarily due to an increase in revenue.
mmissions includes retrospective commissions, which are not reflected in the change in same store sales.
Credit Segment First Quarter Results
Credit revenues were $72.2 million for the three months ended April 30, 2021 compared to $86.6 million for the three months ended April 30, 2020, a decrease of $14.4 million or 16.6%. The decrease in credit revenue was primarily due to a 24.8% decrease in the average outstanding balance of the customer accounts receivable portfolio. These decreases were partially offset by an increase in the yield rate, from 21.3% for the three months ended April 30, 2020 to 23.7% for the three months ended April 30, 2021.
Provision for bad debts decreased to $(17.2) million for the three months ended April 30, 2021 from $117.2 million for the three months ended April 30, 2020, a decrease of $134.4 million. The year-over-year decrease was primarily driven by a decrease in the allowance for bad debts during the three months ended April 30, 2021 compared to an increase during the three months ended April 30, 2020 and by a year-over-year decrease in net charge-offs of $13.9 million. The decrease in the allowance for bad debts during the three months ended April 30, 2021 was primarily driven by a decrease in the rate of delinquencies and re-ages, a decrease in the customer account receivable portfolio and an improvement in the forecasted unemployment rate that drove a $20.0 million decrease in the economic adjustment. During the three months ended April 31, 2020, the increase in the allowance for bad debts was primarily due to a $65.5 million increase in the economic adjustment driven by an increase in forecasted unemployment rates stemming from the COVID-19 pandemic.
Credit segment operating income was $54.2 million for the three months ended April 30, 2021, compared to a loss of $67.5 million for the three months ended April 30, 2020. The increase was primarily due to the decrease in the provision for bad debts partially offset by the decrease in credit revenue.
Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Company’s Form 10-Q for the quarter ended April 30, 2021, to be filed with the Securities and Exchange Commission on June 3, 2021 (the “First Quarter Form 10-Q”).
Showroom and Facilities Update
The Company opened six new Conn’s HomePlus® showrooms during the first quarter of fiscal year 2022 and has opened one new Conn’s HomePlus® showroom during the second quarter of fiscal year 2022, bringing the total showroom count to 153 in 15 states. During fiscal year 2022, the Company plans to open a total of eleven to thirteen new showrooms in existing states, including the seven already opened, to leverage current infrastructure.
Liquidity and Capital Resources
As of April 30, 2021, the Company had $290.4 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $6.6 million of unrestricted cash available for use.
During the three months ended April 30, 2021, cash provided by operating activities of $130.8 million contributed to strengthening the Company’s balance sheet and decreasing net debt as a percentage of the portfolio balance at April 30, 2021 to 39%, the lowest level in eight fiscal years.
On May 12, 2021, the Company completed the redemption of the 2019-A Asset Backed Notes at an aggregate redemption price of $41.1 million (which was equal to the entire outstanding principal balance plus accrued interest). We funded the redemption with cash on hand and borrowings under our revolving credit agreement.
About Conn’s, Inc.: Conn’s is a specialty retailer currently operating 153 retail locations in Alabama, Arizona, Colorado, Florida, 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 8K televisions, gaming products, next generation video game consoles and home theater and portable audio equipment; and
- 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.
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