Despite 3Q Loss, Conn’s Plans to Recover for 4Q

Jaclyn Mitchell
jaclynm@smu.edu

In an economy like this one retail companies can expect to be hit negatively and Conn’s is no exception. Conn’s, a Texas based retailer of home appliances, electronics, and furniture, filed its report for the quarter ending October 31, 2009 on the day before Thanksgiving. Although total revenue for the quarter was down .5 percent compared to the same period in 2008 and the company’s net loss almost doubled, to $15.3 million, Conn’s CEO Tim Frank and CFO Michael Pope are optimistic that the company will be profitable in the fourth quarter.

“Our third quarter results were disappointing, but we are focused on improving credit portfolio performance and expense control and are taking the actions necessary to address the debt covenant compliance concerns,” Frank said in a press release on November 25th.

Conn’s has a unique customer base because of its in-house financing that practically anyone can take advantage of. Although this brings sales to Conn’s that competitors cannot make, it has caused a $1.2 million increase in bad debts during the quarter.

Frank said in the company’s earnings conference call that Conn’s is trying to find third party financing programs to “reduce dependence” on its in-house credit.

Total net sales were down 7.2 percent this quarter compared to the same quarter last year. The company attributes this decline to the dramatic decrease of prices of flat panel televisions and the economic climate. This explains why the 26.5 percent increase in television unit sales reported did not help the company earn more money.

There was also an increase in furniture and mattress revenues which could have helped Conn’s numbers but were instead “offset by the decline in consumer electronics, appliances, lawn and garden and also repair service agreements,” as stated in the documents Conn’s filed with the Securities and Exchange Commission. The economic downturn that has hit the real estate market has therefore negatively influenced Conn’s sales. The U.S. Census Bureau recently reported that total retail sales fell 1.7 percent in October 2009 compared to October 2008, while sales of home furnishings and furniture declined 8.9 percent.

To save money the company has cut advertising costs by over $430,000, lowered inventory levels, and cut other costs by $1.2 million in preparation for the fourth quarter.
Conn’s reports a $15.3 million net loss this quarter compared to a net loss last year of $7.8 million. The net loss this quarter has caused a loss of $.68 per share.

The press release says “the challenging economic and highly competitive retail environment put continued pressure on product gross margins.” Conn’s has a plan to get out from under its debt and losses. For now, all they can do is cross their fingers and hope their hard work and a slow steady rise in retail sales will pay off.