Conn's Q2 Results Miss Estimates, Slashes 2015 Earnings Outlook

(RTTNews) - Specialty retailer Conn's, Inc. (CONN) reported Tuesday a profit for the second quarter that declined from last year, hurt by increase in interest expenses and higher-than-expected provision for credit losses. Both adjusted earnings per share and quarterly revenues missed analysts' expectations. The company also slashed earnings guidance for the full-year 2015.

In pre-market trading, the company's stock is plummeting 25 percent.

"The retail segment had another outstanding quarter with higher gross margins, expanded operating margins, and the 12th consecutive quarter of increasing same store sales. Strategies to grow sales of our most profitable product lines are proving enduringly successful," Chairman and CEO Theodore Wright said in a statement.

The Woodlands, Texas-based home appliances retailer reported net income of $17.65 million or $0.48 per share for the second quarter, lower than $19.16 million or $0.52 per share in the prior-year quarter.

Excluding items, adjusted net income for the quarter was $18.60 million or $0.50 per share, compared to $19.16 million or $0.52 per share in the year-ago quarter.

On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.75 per share for the quarter. Analysts' estimates typically exclude one-time items.

Total revenue for the quarter grew 30.4 percent to $352.96 million from $270.69 million in the same quarter last year, but missed seven Wall Street analysts' consensus estimate of $353.65 million by a whisker.

Retail segment revenues for the quarter increased 28.8 percent to $288.62 million, reflecting the net addition of 14 stores an 11.7 percent increase in same store sales, the twelfth consecutive quarter of same store sales growth.

Retail gross margin expanded 250 basis points from the year-ago quarter to 40.8 percent, reflecting gross product margin expansion across major product categories and significant growth in higher-margin furniture and mattress sales.

Credit segment revenues increased 37.8 percent from last year to $64.3 million, reflecting an increase in the average receivable portfolio balance outstanding.

However, the company incurred interest expenses of $6.2 million, up from $3.1 million a year ago. Provision for credit losses also increased to $39.59 million from $21.38 million last year.

"Overall results were not satisfactory. Our credit operations ran into unexpected headwinds, resulting in portfolio performance deterioration. Despite tighter underwriting, lower early-stage delinquency and improved collections staffing and execution, delinquency unexpectedly deteriorated across all credit quality levels, customer groups, product categories, geographic regions and years of origination," Wright added.

Looking ahead to fiscal 2015, Conn slashed its adjusted earnings guidance to a range of $2.80 to $3.00 per share from the prior forecast in the range of $3.40 to $3.70 per share, but continues to project same stores sales growth of 5 to 10 percent. Street is currently looking for full-year 2015 earnings of $3.54 per share on annual sales of $1.51 billion.

The company noted that the new guidance reflects primarily the impact of higher expected provision for bad debts and the issuance of $250 million in 7.25% senior unsecured notes in July 2014.

CONN closed Friday's regular trading session at $44.83, up $0.17 on a volume of 0.89 million shares. In Tuesday's pre-market trades, the stock is plummeting $11.18 or 24.94% to $33.65.