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CI

CONNS INC (CONN)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 revenue declined 12.8% year over year to $280.1M, with net loss of $51.3M and diluted EPS of $(2.11); retail gross margin held at 33.5% amid continued macro headwinds .
  • Same-store sales fell 15.0% (fourth sequential improvement); eCommerce sales rose 51% to $26.3M; credit applications surged 40.6% YoY, reflecting traction in marketing and financing initiatives .
  • Provision for bad debts increased to $39.1M and interest expense rose to $22.4M (up ~95% YoY), pressuring profitability; credit segment operating loss widened .
  • Conn’s announced acquisition of W.S. Badcock LLC, creating a combined home goods retailer with ~$1.85B annual revenue, targeted >$50M run‑rate cost synergies in 18 months, and ~$125M incremental liquidity; management views this as a transformative catalyst .

What Went Well and What Went Wrong

What Went Well

  • eCommerce growth and applications: “We experienced strong year-over-year growth in credit applications and eCommerce sales” with 51.0% eCommerce growth ($26.3M) and 40.6% application growth, the highest in five years .
  • Retail margin resilience: Retail gross margin increased vs prior year to 33.5% (pricing/assortment changes, product mix, normalizing freight) despite deleveraging fixed distribution costs .
  • Strategic transaction: “The Badcock transaction represents one of the most significant events in Conn’s history… creates a clear path… to deliver strong financial returns,” expanding scale and financing capabilities .

What Went Wrong

  • Topline and earnings pressure: Total revenues fell to $280.1M (−12.8% YoY); net loss widened to $51.3M (EPS $(2.11)) amid softer discretionary spending for home-related products and lower credit revenue .
  • Credit costs and funding: Provision for bad debts rose to $39.1M; interest expense increased to $22.4M on higher debt balances and rates, constraining net portfolio income .
  • Same-store sales decline: SSS decreased 15.0%, driven by weaker discretionary demand post periods of excess consumer liquidity; category declines were notable in appliances and electronics .

Financial Results

Summary Metrics vs Prior Year and Sequential

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Total Revenues ($USD Millions)$321.2 $284.6 $306.9 $280.1
Net (Loss) Income ($USD Millions)$(24.8) $(35.4) $(33.5) $(51.3)
Diluted EPS ($)$(1.04) $(1.47) $(1.39) $(2.11)
Operating (Loss) ($USD Millions)$(18.0) $(20.7) $(15.4) $(38.5)
Retail Gross Margin (%)33.2% 33.5% 36.9% 33.5%
Provision for Bad Debts ($USD Millions)$35.1 $28.9 $33.3 $39.1
Interest Expense ($USD Millions)$11.5 $16.4 $16.8 $22.4
Same-Store Sales (%)—(20.1%) (15.4%) (15.0%)

Segment Net Sales by Category ($000s)

CategoryQ1 2024Q2 2024Q3 2024
Furniture & Mattress$76,368 $81,267 $74,406
Home Appliance$82,266 $90,584 $79,622
Consumer Electronics$25,649 $26,941 $25,146
Home Office$7,626 $8,982 $9,539
Other$12,520 $17,034 $13,918
Product Sales Subtotal$204,429 $224,808 $202,631
RSA Commissions$16,905 $18,757 $15,938
Service Revenues$2,158 $2,274 $2,288
Total Net Sales$223,492 $245,839 $220,857

KPIs and Credit Portfolio

KPIQ1 2024Q2 2024Q3 2024
eCommerce Sales ($USD Millions)$22.7 $27.2 $26.3
Same-Store Sales (%)(20.1%) (15.4%) (15.0%)
Applications Processed (#)293,831 341,118 333,622
Approval & Utilized (%)19.5% 21.5% 18.8%
In‑House Financing (% of Retail Sales)59.1% 62.2% 61.1%
60+ Days Past Due (% of Portfolio)11.6% 11.1% 11.0%
Allowance for Bad Debts + Uncollectible Interest (% of Portfolio)17.4% 16.6% 17.4%
Avg Outstanding Customer Balance ($)$2,608 $2,645 $2,661

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Combined Annual Revenue (Conn’s + Badcock)Post-transactionN/A~$1.85B Introduced
Run‑Rate Cost Synergies18 monthsN/A>$50M Introduced
Incremental LiquidityImmediate post-closeN/A~$125M Introduced
Revolving Credit Facility MaturityFacility term3/29/2025 12/31/2026 Extended
Revolver Min Availability CovenantOngoingPrior min liquidity framework ≥17.5% of borrowing base or ≥$100M Tightened/Modified
Term Loan FacilityFacility$100M Pathlight (SOFR+7.5%) $108M BRF Finance (SOFR+8.0%) Replaced/Refinanced
Minimum EBITDA CovenantFacility covenantN/AAdded to revolver/DDTL Added

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY2024)Current Period (Q3 FY2024)Trend
Focus on core credit‑constrained customerRefocus strategy; in‑house credit volumes improving Continued focus; applications +40.6% YoY Improving engagement
eCommerce platform and digitalPlatform conversion completed; record Q2 eCommerce ($27.2M) eCommerce +51% to $26.3M Sustained growth
In‑house lease‑to‑own (LTO)Launch and expansion plans in FY2024 Expansion progressing (supporting sales/earnings potential) Scaling
Retail gross margin driversPricing/assortment, mix, freight normalization Margin steady at 33.5% with same drivers Stable
Credit portfolio qualityStable within expectations; delinquency ~11% 60+ delinquency 11.0%; allowance 17.4% Stable/slightly improved
Macro/consumer liquidityHeadwinds impacting discretionary demand Continues to weigh on SSS (−15.0%) Persistent headwind
Liquidity/ABS/securitizationsDDTL $50M; ABS $273.7M in Aug Revolver extended; new term loan; combined liquidity uplift Strengthened
M&A integration (Badcock)N/ATransformative combination, scale, synergies New positive catalyst

Management Commentary

  • Norm Miller, CEO: “We remain focused on pursuing strategic priorities aimed at turning around our retail performance and better serving our core credit constrained customers… Despite the progress we are making, our third-quarter performance continued to reflect persistent industry headwinds and challenging economic conditions.”
  • On Badcock transaction: “The transaction… immediately strengthens Conn’s financial position… creating a leading home goods retailer with approximately $1.85 billion in retail sales… [and] represents one of the most significant events in Conn’s history.”
  • Bob Martin, Lead Independent Director: “The combination immediately positions Conn’s as a leading home goods retailer across the southern U.S.… [and] significantly enhances Conn’s scale allowing us to leverage a powerful infrastructure and deliver strong financial returns for many years to come.”

Q&A Highlights

  • The Q3 FY2024 earnings call transcript could not be retrieved due to a source database inconsistency; therefore, specific analyst Q&A themes and management responses are unavailable from the transcript. Prepared remarks and filings indicate emphasis on core customer financing, eCommerce momentum, credit quality stabilization, and Badcock integration and synergy execution .

Estimates Context

  • Consensus EPS and revenue for Q3 FY2024 via S&P Global were unavailable for CONN at the time of analysis; as a result, beat/miss vs consensus cannot be assessed.
  • Management did not provide explicit quarterly guidance ranges; qualitative outlook highlights ongoing macro headwinds and strategic focus areas (core customer, LTO expansion, eCommerce, and integration of Badcock) .

Key Takeaways for Investors

  • Near‑term: Expect continued topline pressure and elevated interest expense while credit provisioning remains high; trading setups likely hinge on integration updates and synergy visibility from Badcock, plus sequential SSS stabilization .
  • Margin trajectory: Retail gross margin is resilient due to pricing/mix/freight normalization; watch SG&A leverage and distribution fixed cost deleverage amid sales declines .
  • Credit quality: 60+ delinquency at ~11% with allowance ~17.4% suggests stable risk metrics within historical ranges; monitor net charge‑offs and origination mix .
  • Liquidity and capital structure: Revolver maturity extended to 12/31/2026 and new term loan enhance runway; combined liquidity and ABS access underpin funding of operations and integration .
  • Strategic upside: Combined Conn’s/Badcock revenue base (~$1.85B) and targeted >$50M run‑rate synergies in 18 months could materially improve earnings power if executed; track procurement/logistics/SG&A synergy capture cadence .
  • Execution risks: Integration, covenant framework (minimum EBITDA added), and macro sensitivity (credit‑constrained customer) are key risk factors; monitor covenant compliance and store productivity .
  • Positioning: Focus on core financing solutions (in‑house credit, LTO) and eCommerce scale may drive share gains in underserved markets if demand normalizes; watch sequential SSS and applications trends for early evidence .