Conn’s, Inc. Reports Second Quarter Fiscal Year 2022 Financial Results

THE WOODLANDS, Texas, Sept. 01, 2021 (GLOBE NEWSWIRE) -- Conn’s, Inc. (NASDAQ: CONN) (“Conn’s” or the “Company”), 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 July 31, 2021.

“Strong second quarter retail and credit results exceeded our expectations and demonstrate that our growth strategies are taking hold. Second quarter same store sales increased 16.4% and total retail sales are up 24.0% over the prior year period. Strong retail performance combined with a second quarter credit spread of 1,200 basis points, contributed to record second quarter earnings per diluted share. In fact, earnings per diluted share of $2.74 for the first six months of the year are higher than any annual earnings in Conn’s 131-year history,” stated Chandra Holt, Conn’s Chief Executive Officer.

“Momentum remains positive across our business reflecting strong consumer demand and the growth strategies we have put in place. Total retail sales for the first half have increased at the fastest growth rate in seven years. As a result, we are increasing our fiscal year 2022 same store sales expectation from high single-digit same store sales growth to mid-teens same store sales growth,” continued Ms. Holt.

“I believe Conn’s is well positioned to continue to innovate, grow and capitalize on an enormous addressable market. As my tenure as CEO begins, I am excited by the direction Conn’s is headed and the opportunities we have to create sustainable value for our shareholders. I also want to thank all our team members for their contributions to our success and their continued dedication,” concluded Ms. Holt.

Second Quarter Financial Highlights as Compared to the Prior Fiscal Year Period (Unless Otherwise Noted):

  • Net earnings increased to a second quarter record of $1.22 per diluted share, compared to $0.70 per diluted share for the same period last fiscal year;
  • Same store sales increased 16.4% for the second quarter of fiscal year 2022 as compared to the second quarter of fiscal year 2021 and increased 3.2% on a two-year basis;
  • Strong same store sales combined with the contribution of new showrooms drove a 24.0% increase in total retail sales for the second quarter;
  • eCommerce sales increased 210.9% to a quarterly record of $17.3 million;
  • Lease-to-own sales increased 70.3% to $41.6 million;
  • At July 31, 2021, the carrying value of customer accounts receivable 60+ days past due declined 42.1% year-over-year to the lowest level in eight fiscal years, and the carrying value of re-aged accounts declined 44.5% year-over-year to the lowest level in six fiscal years; and
  • Total debt decreased from $749.7 million at July 31, 2020 to $439.6 million at July 31, 2021, a decrease of 41%. Net debt as a percent of the portfolio balance at July 31, 2021, was approximately 36%, compared to 50% at July 31, 2020, and represents the lowest level in over a decade.

Second Quarter Results

Net income for the three months ended July 31, 2021 was $37.0 million, or $1.22 per diluted share, compared to net income for the three months ended July 31, 2020 of $20.5 million, or $0.70 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended July 31, 2021 was $37.0 million, or $1.22 per diluted share. This compares to adjusted net income for the three months ended July 31, 2020 of $21.7 million, or $0.75 per diluted share, which excludes professional fees associated with non-recurring expenses.

Retail Segment Second Quarter Results

Retail revenues were $347.0 million for the three months ended July 31, 2021 compared to $279.9 million for the three months ended July 31, 2020, an increase of $67.1 million or 24.0%. The increase in retail revenue was primarily driven by an increase in same store sales of 16.4% and by new store growth. The increase in same store sales reflects an increase in demand across all of the Company’s home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic.

For the three months ended July 31, 2021 and 2020, retail segment operating income was $28.7 million and $23.2 million, respectively. The increase in retail segment operating income for the three months ended July 31, 2021 was primarily due to an increase in revenue.

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

 Three Months Ended July 31,     Same Store
(dollars in thousands)2021 % of Total 2020 % of Total Change % Change % Change
Furniture and mattress$109,259  31.5% $80,984  29.0% $28,275  34.9% 22.0%
Home appliance135,444  39.1  107,682  38.5  27,762  25.8  17.8 
Consumer electronics48,413  14.0  47,384  16.9  1,029  2.2  0.1 
Home office17,986  5.2  14,979  5.4  3,007  20.1  10.4 
Other9,143  2.6  5,113  1.8  4,030  78.8  71.3 
Product sales320,245  92.4  256,142  91.6  64,103  25.0  16.7 
Repair service agreement commissions (1)23,700  6.8  20,164  7.2  3,536  17.5  13.6 
Service revenues2,840  0.8  3,430  1.2  (590) (17.2)  
Total net sales$346,785  100.0% $279,736  100.0% $67,049  24.0% 16.4%

(1) The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.

Credit Segment Second Quarter Results

Credit revenues were $71.4 million for the three months ended July 31, 2021 compared to $87.0 million for the three months ended July 31, 2020, a decrease of $15.6 million or 17.9%. The decrease in credit revenue was primarily due to a 22.7% decrease in the average outstanding balance of the customer receivable portfolio. These decreases were partially offset by an increase in the yield rate, from 23.2% for the three months ended July 31, 2020 to 23.3% for the three months ended July 31, 2021 and an increase in insurance commissions.

Provision for bad debts was $10.1 million for the three months ended July 31, 2021 compared to $31.9 million for the three months ended July 31, 2020, a decrease of $21.8 million. The change was primarily driven by a year-over-year decrease in net charge-offs of $43.8 million, partially offset by a smaller decrease in the allowance for bad debts during the three months ended July 31, 2021 compared to the three months ended July 31, 2020. The smaller decrease was driven by a lower year-over-year decline in the customer accounts receivable portfolio balance, partially offset by a $5.0 million decrease in the economic adjustment that was driven by an improvement in the forecasted unemployment rate.

Credit segment operating income was $25.5 million for the three months ended July 31, 2021, compared to $18.2 million for the three months ended July 31, 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 July 31, 2021, to be filed with the Securities and Exchange Commission on September 1, 2021 (the “Second Quarter Form 10-Q”).

Showroom and Facilities Update

The Company opened three new Conn’s HomePlus® showrooms during the second quarter of fiscal year 2022, all within the state of Florida, bringing the total showroom count to 155 in 15 states. During fiscal year 2022, the Company plans to open a total of eleven to thirteen new showrooms (inclusive of the nine new showrooms opened during the first half of fiscal year 2022).

Liquidity and Capital Resources

As of July 31, 2021, the Company had $362.9 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $8.7 million of unrestricted cash available for use.

Conference Call Information

The Company will host a conference call on September 1, 2021, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended July 31, 2021. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and second quarter fiscal year 2022 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through September 8, 2021 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13722190.

About Conn’s, Inc.

Conn’s is a specialty retailer currently operating 155 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.

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; the effects of epidemics or pandemics, including the COVID-19 pandemic; 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, 2021 and other reports filed with the Securities and Exchange Commission. 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
July 31,
 Six Months Ended
July 31,
 2021 2020 2021 2020
Revenues:       
Total net sales$346,785  $279,736  $638,081  $510,066 
Finance charges and other revenues71,598  87,180  144,004  174,010 
Total revenues418,383  366,916  782,085  684,076 
Costs and expenses:       
Cost of goods sold216,042  176,623  400,921  323,637 
Selling, general and administrative expense137,870  115,278  263,919  228,285 
Provision for bad debts10,262  32,045  (6,874) 149,371 
Charges and credits  1,534    3,589 
Total costs and expenses364,174  325,480  657,966  704,882 
Operating income (loss)54,209  41,436  124,119  (20,806)
Interest expense6,088  13,222  15,292  28,215 
Loss on extinguishment of debt    1,218   
Income (loss) before income taxes48,121  28,214  107,609  (49,021)
Provision (benefit) for income taxes11,117  7,694  25,207  (13,339)
Net income (loss)$37,004  $20,520  $82,402  $(35,682)
Income (loss) per share:       
Basic$1.26  $0.71  $2.80  $(1.23)
Diluted$1.22  $0.70  $2.74  $(1.23)
Weighted average common shares outstanding:       
Basic29,438,605  29,070,607  29,382,162  28,948,216 
Diluted30,212,448  29,140,546  30,072,401  28,948,216 



CONN’S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)

 Three Months Ended
July 31,
 Six Months Ended
July 31,
 2021 2020 2021 2020
Revenues:       
Product sales$320,245  $256,142  $589,456  $463,340 
Repair service agreement commissions23,700  20,164  42,831  40,265 
Service revenues2,840  3,430  5,794  6,461 
Total net sales346,785  279,736  638,081  510,066 
Finance charges and other224  196  433  431 
Total revenues347,009  279,932  638,514  510,497 
Costs and expenses:       
Cost of goods sold216,042  176,623  400,921  323,637 
Selling, general and administrative expense102,157  78,584  193,050  156,758 
Provision for bad debts142  182  160  350 
Charges and credits  1,355    1,355 
Total costs and expenses318,341  256,744  594,131  482,100 
Operating income$28,668  $23,188  $44,383  $28,397 
Retail gross margin37.7% 36.9% 37.2% 36.5%
Selling, general and administrative expense as percent of revenues29.4% 28.1% 30.2% 30.7%
Operating margin8.3% 8.3% 7.0% 5.6%
Store count:       
Beginning of period152  139  146  137 
Opened3  2  9  4 
End of period155  141  155  141 



CONN’S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)

 Three Months Ended
July 31,
 Six Months Ended
July 31,
 2021 2020 2021 2020
Revenues:       
Finance charges and other revenues$71,374  $86,984  $143,571  $173,579 
Costs and expenses:       
Selling, general and administrative expense35,713  36,694  70,869  71,527 
Provision for bad debts10,120  31,863  (7,034) 149,021 
Charges and credits  179    2,234 
Total costs and expenses45,833  68,736  63,835  222,782 
Operating income (loss)25,541  18,248  79,736  (49,203)
Interest expense6,088  13,222  15,292  28,215 
Loss on extinguishment of debt    1,218   
Income (loss) before income taxes$19,453  $5,026  $63,226  $(77,418)
Selling, general and administrative expense as percent of revenues50.0% 42.2% 49.4% 41.2%
Selling, general and administrative expense as percent of average outstanding customer accounts receivable balance (annualized)12.9% 10.3% 12.4% 9.6%
Operating margin35.8% 21.0% 55.5% (28.3)%



CONN’S, INC. AND SUBSIDIARIES
CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS
(unaudited)

 As of July 31,
 2021 2020
Weighted average credit score of outstanding balances (1)608  596 
Average outstanding customer balance$2,414  $2,589 
Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3)(4)7.2% 10.0%
Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(5)20.4% 29.9%
Carrying value of account balances re-aged more than six months (in thousands) (3)$70,058  $103,220 
Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance18.3% 24.8%
Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables29.8% 18.3%


 Three Months Ended
July 31,
 Six Months Ended
July 31,
 2021 2020 2021 2020
Total applications processed336,438  326,958  634,344  622,509 
Weighted average origination credit score of sales financed (1)614  617  615  613 
Percent of total applications approved and utilized22.5% 20.0% 22.2% 21.1%
Average income of credit customer at origination$47,700  $46,300  $48,100  $46,300 
Percent of retail sales paid for by:       
In-house financing, including down payments received50.9% 48.5% 49.9% 55.1%
Third-party financing17.5% 23.9% 17.2% 20.8%
Third-party lease-to-own option11.5% 8.4% 11.9% 8.4%
 79.9% 80.8% 79.0% 84.3%

(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)   Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.

(4)   Decrease was primarily due to an increase in cash collections and the tightening of underwriting standards that occurred in fiscal year 2021.

(5)   Decrease was primarily due to an increase in cash collections, the change in the unilateral re-age policy that occurred in the second quarter of fiscal year 2021 and the tightening of underwriting standards that occurred in fiscal year 2021.



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

 July 31, 2021
 January 31, 2021
  
Assets   
Current Assets:   
Cash and cash equivalents$8,736  $9,703 
Restricted cash30,961  50,557 
Customer accounts receivable, net of allowances461,491  478,734 
Other accounts receivable55,260  61,716 
Inventories223,662  196,463 
Income taxes receivable32,223  38,059 
Prepaid expenses and other current assets20,725  8,831 
Total current assets833,058  844,063 
Long-term portion of customer accounts receivable, net of allowances415,208  430,749 
Property and equipment, net186,072  190,962 
Operating lease right-of-use assets258,702  265,798 
Deferred income taxes  9,448 
Other assets15,907  14,064 
Total assets$1,708,947  $1,755,084 
Liabilities and Stockholders’ Equity   
Current liabilities:   
Current finance lease obligations$1,371  $934 
Accounts payable89,001  69,367 
Accrued expenses99,078  82,990 
Operating lease liability - current54,800  44,011 
Other current liabilities17,170  14,454 
Total current liabilities261,420  211,756 
Operating lease liability - non current338,289  354,598 
Long-term debt and finance lease obligations438,242  608,635 
Deferred tax liability7,803   
Other long-term liabilities20,743  22,940 
Total liabilities1,066,497  1,197,929 
Stockholders’ equity642,450  557,155 
Total liabilities and stockholders’ equity$1,708,947  $1,755,084 



CONN’S, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share amounts)

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: adjusted net income (loss), adjusted net income (loss) per diluted share and net debt as a percentage of the portfolio balance. 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.


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

 Three Months Ended
July 31,
 Six Months Ended
July 31,
 2021 2020 2021 2020
Net income (loss), as reported$37,004  $20,520  $82,402  $(35,682)
Adjustments:       
Loss on extinguishment of debt (1)    1,218   
Professional fees (2)  1,534    3,589 
Tax impact of adjustments  (343) (274) (803)
Net income (loss), as adjusted$37,004  $21,711  $83,346  $(32,896)
Weighted average common shares outstanding - Diluted30,212,448  29,140,546  30,072,401  28,948,216 
Earnings (loss) per share:       
As reported$1.22  $0.70  $2.74  $(1.23)
As adjusted$1.22  $0.75  $2.77  $(1.14)

(1)   Represents a loss of $1.0 million from retirement of $141.2 million aggregate principal amount of our 7.25% senior notes due 2022 (“Senior Notes”) and a loss of $0.2 million related to the amendment of our Fifth Amended and Restated Loan and Security Agreement.

(2)   Represents professional fees associated with non-recurring expenses.


NET DEBT

 July 31,
 2021 2020
Debt, as reported   
Current finance lease obligations$1,371 $758
Long-term debt and finance lease obligations438,242 748,902
Total debt$439,613 $749,660
Cash, as reported   
Cash and cash equivalents8,736 6,385
Restricted Cash30,961 63,836
Total cash$39,697 $70,221
Net debt$399,916 $679,439
Ending portfolio balance, as reported$1,105,713 $1,357,030
Net debt as a percentage of the portfolio balance36.2 % 50.1 %

 


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