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Conn’s, Inc. Reports Second Quarter Fiscal Year 2023 Financial Results
来源: Nasdaq GlobeNewswire / 30 8月 2022 06:00:00 America/New_York
THE WOODLANDS, Texas, Aug. 30, 2022 (GLOBE NEWSWIRE) -- Conn’s, Inc. (NASDAQ: CONN) (“Conn’s” or the “Company”), a specialty retailer of home goods, including furniture, appliances, and consumer electronics, with a mission to elevate home life to home love, today announced its financial results for the quarter ended July 31, 2022.
“Challenging macroeconomic conditions continued to pressure consumer spending during our second quarter, which disproportionately affected year-over-year sales to our financial access customer segment and sales of our discretionary product categories. While we entered the second quarter with a cautious outlook for the remainder of the fiscal year, the retail environment has continued to deteriorate prompting us to accelerate our efforts to reduce operating costs, and lower capital expenditures as well continue to maintain conservative credit underwriting. In July, we successfully completed our latest ABS transaction and ended the second quarter with over $211.0 million of available liquidity and cash. This provides us with the financial flexibility to support the current needs of our business, while investing in our long-term growth and transformation,” stated Chandra Holt, Conn's Chief Executive Officer.
“During the second quarter, we completed the first phase of our eCommerce platform migration, launched our store-within-a-store pilot at Belk, Inc. ("Belk"), and expanded our best-in-class payment options with the launch of a new layaway program across our retail footprint. We continue to pursue new go to market strategies and partnerships aimed at leveraging our industry-leading next-day white glove delivery capabilities. We believe we are taking the correct near-term actions to successfully navigate a difficult retail environment, while continuing to pursue long-term growth opportunities that we believe will drive value for our shareholders and our customers,” concluded Ms. Holt.
Second Quarter Financial Highlights as Compared to the Prior Fiscal Year Period (Unless Otherwise Noted):
- Total consolidated revenue declined 17.1% to $346.6 million, due to a 19.4% decline in total net sales, and a 6.3% reduction in finance charges and other revenues;
- Same store sales decreased 22.0%;
- eCommerce sales increased 11.5% to a second quarter record of $19.3 million;
- Credit spread was 960 basis points, and fiscal year-to-date the credit spread was 1,060 basis points;
- Net earnings were $0.09 per diluted share, compared to net earnings of $1.22 per diluted share for the same period last fiscal year;
- Adjusted earnings were $0.04 per diluted share, compared to adjusted earnings of $1.22 per diluted share for the same period last fiscal year;
- Added two new standalone stores bringing the total number of stores at July 31, 2022 to 163 and added four store-within-a store locations with Belk; and
- The Company completed an ABS transaction demonstrating the Company’s ability to access the capital markets even during turbulent market conditions resulting in the issuance and sale of $407.7 million aggregate principal amount of Class A and Class B Notes, and issued and retained Class C Notes in an aggregate principal amount of $63.1 million.
Strategic Update
In response to challenging macroeconomic pressures, the Company has updated its near-term strategic priorities which include:
- Reducing operating costs. The Company is conducting an extensive review and prioritization of its cost structure. The Company expects current initiatives, combined with prior actions, to generate cost savings of approximately $12.0 - $16.0 million in the back half of this fiscal year.
- Lowering capital expenditures. The Company is delaying or eliminating several planned capital investments, including adjusting planned new store openings and distribution center expansions. As a result, Conn’s expects to reduce investments in capital expenditures for fiscal year 2023 by approximately $20.0 million compared to its prior expectation.
- Maintaining conservative credit underwriting. The Company is focused on maintaining conservative credit underwriting and remaining disciplined in its approach to credit collections. At July 31, 2022, the weighted average credit score of outstanding balances was 611, 60+ days past due balances as a percentage of the total customer portfolio carrying value was 11.0%, and re-aged balances as a percentage of the total customer portfolio carrying value was 16.1%.
Second Quarter Results
Net income for the three months ended July 31, 2022 was $2.1 million, or $0.09 per diluted share, compared to net income for the three months ended July 31, 2021 of $37.0 million, or $1.22 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended July 31, 2022 was $1.0 million, or $0.04 per diluted share. This compares to adjusted net income for the three months ended July 31, 2021 of $37.0 million, or $1.22 per diluted share.
Retail Segment Second Quarter Results
Retail revenues were $279.8 million for the three months ended July 31, 2022 compared to $347.0 million for the three months ended July 31, 2021, a decrease of $67.2 million or 19.4%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 22.0%. The decrease in same store sales was primarily driven by a tightening of underwriting standards by our lease-to-own partners, the effect the benefits stimulus had on sales in the prior year period and lower consumer demand in the current period. The decrease in same store sales was partially offset by new store growth.
For the three months ended July 31, 2022, retail segment operating income was $0.1 million compared to retail segment operating income of $28.7 million for three months ended July 31, 2021. On a non-GAAP basis, adjusted retail segment operating loss for the three months ended July 31, 2022 was $1.4 million after excluding the gain on lease termination. On a non-GAAP basis, the adjusted retail segment operating income for the three months ended July 31, 2021 was $28.7 million. The decrease in retail segment operating income for the three months ended July 31, 2022 was primarily due to a decrease in revenue as described above and a decline in the retail gross margin percentage.
The decrease in retail gross margin was primarily driven by increased product costs as a result of higher freight, higher fuel costs and the deleveraging of fixed distribution costs. These increases were partially offset by an increase in RSA commissions and a more profitable product mix.
The SG&A decrease in the retail segment was primarily due to a decline in variable costs and declines in advertising and labor costs as a result of cost saving initiatives. These decreases were partially offset by an increase in occupancy costs due to higher utilities costs and new store growth.
The following table presents net sales and changes in net sales by category:
Three Months Ended July 31, Same Store (dollars in thousands) 2022 % of Total 2021 % of Total Change % Change % Change Furniture and mattress $ 86,320 30.9 % $ 109,259 31.5 % $ (22,939 ) (21.0 )% (24.6 )% Home appliance 120,748 43.2 135,444 39.1 (14,696 ) (10.9 ) (13.1 ) Consumer electronics 31,860 11.4 48,413 14.0 (16,553 ) (34.2 ) (36.2 ) Home office 8,857 3.2 17,986 5.2 (9,129 ) (50.8 ) (50.1 ) Other 7,664 2.7 9,143 2.6 (1,479 ) (16.2 ) (16.9 ) Product sales 255,449 91.4 320,245 92.4 (64,796 ) (20.2 ) (22.7 ) Repair service agreement commissions (1) 21,615 7.7 23,700 6.8 (2,085 ) (8.8 ) (15.3 ) Service revenues 2,448 0.9 2,840 0.8 (392 ) (13.8 ) Total net sales $ 279,512 100.0 % $ 346,785 100.0 % $ (67,273 ) (19.4 )% (22.0 )% (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 $66.8 million for the three months ended July 31, 2022 compared to $71.4 million for the three months ended July 31, 2021, a decrease of $4.6 million or 6.4%. The decrease in credit revenue was primarily due to a 4.9% decrease in the average outstanding balance of the customer accounts receivable portfolio as well as a decline in insurance commissions.
Provision for bad debts increased to $26.8 million for the three months ended July 31, 2022 from $10.1 million for the three months ended July 31, 2021, an overall change of $16.7 million. The year-over-year increase was primarily driven by a smaller decrease in the allowance for bad debts during the three months ended July 31, 2022 compared to the three months ended July 31, 2021 and a year-over-year increase in net charge-offs of $4.9 million. The decrease in the allowance for bad debts during the three months ended July 31, 2022 was primarily driven by a decrease in the customer account receivable portfolio balance and an improvement in historical loss rates. During the three months ended July 31, 2021, the decrease 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 $5.0 million decrease in the economic adjustment.
Credit segment operating income was $7.9 million for the three months ended July 31, 2022, compared to operating income of $25.5 million for the three months ended July 31, 2021. The decrease was primarily due to the increase in the provision for bad debts and 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, 2022, to be filed with the Securities and Exchange Commission on August 30, 2022 (the “Second Quarter Form 10-Q”).
Store and Facilities Update
The Company opened two new standalone stores during the second quarter of fiscal year 2023 bringing the total store count to 163 in 15 states and opened four store-within-a-store locations with Belk. During fiscal year 2023, the Company plans to open a total of 10 to 12 standalone locations and 15 to 20 store-within-a-store locations.
Liquidity and Capital Resources
As of July 31, 2022, the Company had $186.8 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $24.3 million of unrestricted cash available for use.
On July 21, 2022, the Company completed an ABS transaction resulting in the issuance and sale of approximately $407.7 million in aggregate principal amount of Class A and Class B Notes secured by customer accounts receivables and restricted cash held by a consolidated VIE, which resulted in proceeds of approximately $402.8 million, net of debt issuance costs. The Company retained Class C Notes in an aggregate principal amount of $63.1 million.
Conference Call Information
The Company will host a conference call on August 30, 2022, at 10 a.m. CT / 11 a.m. ET, to discuss its three months ended July 31, 2022 financial results. 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 2023 conference call presentation will be available at ir.conns.com.
Replay of the telephonic call can be accessed through September 6, 2022 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13729951.
About Conn’s, Inc.
Conn's HomePlus (NASDAQ: CONN) is a specialty retailer of home goods, including furniture, appliances and consumer electronics, with a mission to elevate home life to home love. With over 160 stores across 15 states and online at Conns.com, our over 3,500 employees strive to help all customers create a home they love through access to high-quality products, next-day delivery and personalized payment options, including our flexible, in-house credit program. Additional information can be found by visiting our investor relations website at https://ir.conns.com and social channels (@connshomeplus on Twitter, Instagram, Facebook and LinkedIn).
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; expansion of our e-commerce business; 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, 2022 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 31,2022 2021 2022 2021 Revenues: Total net sales $ 279,512 $ 346,785 $ 551,775 $ 638,081 Finance charges and other revenues 67,120 71,598 134,677 144,004 Total revenues 346,632 418,383 686,452 782,085 Costs and expenses: Cost of goods sold 182,718 216,042 361,100 400,921 Selling, general and administrative expense 130,142 137,870 262,925 263,919 Provision (benefit) for bad debts 27,226 10,262 41,956 (6,874 ) Charges and credits (1,484 ) — (1,484 ) — Total costs and expenses 338,602 364,174 664,497 657,966 Operating income 8,030 54,209 21,955 124,119 Interest expense 6,808 6,088 12,329 15,292 Loss on extinguishment of debt — — — 1,218 Income before income taxes 1,222 48,121 9,626 107,609 Provision (benefit) for income taxes (907 ) 11,117 1,276 25,207 Net income $ 2,129 $ 37,004 $ 8,350 $ 82,402 Income per share: Basic $ 0.09 $ 1.26 $ 0.34 $ 2.80 Diluted $ 0.09 $ 1.22 $ 0.34 $ 2.74 Weighted average common shares outstanding: Basic 23,833,100 29,438,605 24,306,524 29,382,162 Diluted 23,916,269 30,212,448 24,461,836 30,072,401 CONN’S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)Three Months Ended
July 31,Six Months Ended
July 31,2022 2021 2022 2021 Revenues: Product sales $ 255,449 $ 320,245 $ 505,422 $ 589,456 Repair service agreement commissions 21,615 23,700 41,452 42,831 Service revenues 2,448 2,840 4,901 5,794 Total net sales 279,512 346,785 551,775 638,081 Finance charges and other 273 224 544 433 Total revenues 279,785 347,009 552,319 638,514 Costs and expenses: Cost of goods sold 182,718 216,042 361,100 400,921 Selling, general and administrative expense 98,035 102,157 194,065 193,050 Provision for bad debts 409 142 588 160 Charges and credits (1,484 ) — (1,484 ) — Total costs and expenses 279,678 318,341 554,269 594,131 Operating income (loss) $ 107 $ 28,668 $ (1,950 ) $ 44,383 Retail gross margin 34.6 % 37.7 % 34.6 % 37.2 % Selling, general and administrative expense as percent of revenues 35.0 % 29.4 % 35.1 % 30.2 % Operating margin 0.0 % 8.3 % (0.4 )% 7.0 % Store count: Beginning of period 161 152 158 146 Opened 2 3 5 9 End of period (1) 163 155 163 155 (1) Does not include four store-within-a-store locations with Belk opened during the three and six months ended July 31, 2022.
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)Three Months Ended
July 31,Six Months Ended
July 31,2022 2021 2022 2021 Revenues: Finance charges and other revenues $ 66,847 $ 71,374 $ 134,133 $ 143,571 Costs and expenses: Selling, general and administrative expense 32,107 35,713 68,860 70,869 Provision for bad debts 26,817 10,120 41,368 (7,034 ) Total costs and expenses 58,924 45,833 110,228 63,835 Operating income 7,923 25,541 23,905 79,736 Interest expense 6,808 6,088 12,329 15,292 Loss on extinguishment of debt — — — 1,218 Income before income taxes $ 1,115 $ 19,453 $ 11,576 $ 63,226 Selling, general and administrative expense as percent of revenues 48.0 % 50.0 % 51.3 % 49.4 % Selling, general and administrative expense as percent of average outstanding customer accounts receivable balance (annualized) 12.2 % 12.9 % 12.8 % 12.4 % Operating margin 11.9 % 35.8 % 17.8 % 55.5 % CONN’S, INC. AND SUBSIDIARIES
CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS
(unaudited)As of July 31, 2022 2021 Weighted average credit score of outstanding balances (1) 611 608 Average outstanding customer balance $ 2,508 $ 2,414 Balances 60+ days past due as a percentage of total customer portfolio carrying value (2)(3)(4) 11.0 % 7.2 % Re-aged balance as a percentage of total customer portfolio carrying value (2)(3)(5) 16.1 % 20.4 % Carrying value of account balances re-aged more than six months (in thousands) (3) $ 35,808 $ 70,058 Allowance for bad debts and uncollectible interest as a percentage of total customer accounts receivable portfolio balance 17.2 % 18.3 % Percent of total customer accounts receivable portfolio balance represented by no-interest option receivables 34.0 % 29.8 % Three Months Ended
July 31,Six Months Ended
July 31,2022 2021 2022 2021 Total applications processed 257,381 336,438 525,085 634,344 Weighted average origination credit score of sales financed (1) 620 614 620 615 Percent of total applications approved and utilized 23.5 % 22.5 % 21.8 % 22.2 % Average income of credit customer at origination $ 50,800 $ 47,700 $ 50,500 $ 48,100 Percent of retail sales paid for by: In-house financing, including down payments received 52.1 % 50.9 % 51.0 % 49.9 % Third-party financing 18.9 % 17.5 % 18.4 % 17.2 % Third-party lease-to-own option 6.8 % 11.5 % 7.1 % 11.9 % 77.8 % 79.9 % 76.5 % 79.0 % (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) Increase was primarily due to a decrease in cash collections driven by the impact of stimulus benefits in prior year.
(5) Decrease was primarily due to 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 and fiscal year 2022.
CONN’S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)July 31,
2022January 31,
2022Assets (unaudited) Current Assets: Cash and cash equivalents $ 24,256 $ 7,707 Restricted cash 47,855 31,930 Customer accounts receivable, net of allowances 434,824 455,787 Other accounts receivable 55,565 63,055 Inventories 262,952 246,826 Income taxes receivable 6,813 6,745 Prepaid expenses and other current assets 10,101 8,756 Total current assets 842,366 820,806 Long-term portion of customer accounts receivable, net of allowances 398,127 432,431 Property and equipment, net 210,814 192,763 Operating lease right-of-use assets 252,653 256,267 Other assets 50,849 52,199 Total assets $ 1,754,809 $ 1,754,466 Liabilities and Stockholders’ Equity Current liabilities: Current finance lease obligations $ 909 $ 889 Accounts payable 77,691 74,705 Accrued expenses 89,934 109,712 Operating lease liability - current 57,940 54,534 Other current liabilities 15,517 18,576 Total current liabilities 241,991 258,416 Operating lease liability - non current 321,104 330,439 Long-term debt and finance lease obligations 602,412 522,149 Deferred tax liability — 7,351 Other long-term liabilities 29,425 21,292 Total liabilities 1,194,932 1,139,647 Stockholders’ equity 559,877 614,819 Total liabilities and stockholders’ equity $ 1,754,809 $ 1,754,466 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 retail segment operating income, adjusted net income, and adjusted net income per diluted share and net debt. 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.
RETAIL SEGMENT ADJUSTED OPERATING INCOME (LOSS)
Three Months Ended
July 31,Six Months Ended
July 31,2022 2021 2022 2021 Retail segment operating income (loss), as reported $ 107 $ 28,668 $ (1,950 ) $ 44,383 Adjustments: Lease termination (1) (1,484 ) — (1,484 ) — Retail segment operating income (loss), as adjusted $ (1,377 ) $ 28,668 $ (3,434 ) $ 44,383 (1) Represents a gain on the termination of a lease.
ADJUSTED NET INCOME AND ADJUSTED NET INCOME PER DILUTED SHARE
Three Months Ended
July 31,Six Months Ended
July 31,2022 2021 2022 2021 Net income, as reported $ 2,129 $ 37,004 $ 8,350 $ 82,402 Adjustments: Lease termination (1) (1,484 ) — (1,484 ) — Loss on extinguishment of debt (2) — — — 1,218 Tax impact of adjustments 337 — 337 (274 ) Net income, as adjusted $ 982 $ 37,004 $ 7,203 $ 83,346 Weighted average common shares outstanding - Diluted 23,916,269 30,212,448 24,461,836 30,072,401 Earnings per share: As reported $ 0.09 $ 1.22 $ 0.34 $ 2.74 As adjusted $ 0.04 $ 1.22 $ 0.29 $ 2.77 (1) Represents a gain on the termination of a lease.
(2) 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.