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Category: Stock Market and Conn's
Date: 3 September 2019 Stock Price: $23.89 We take a look at the 2nd quarter earnings report of their 2020 fiscal year of Conn's home plus, the speciality furniture and related accessories group
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About Conn's
We are a specialty retailer currently operating 128 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. We sell furniture and related accessories for the living room, dining room and bedroom, as well as traditional and specialty mattresses; home appliances, including refrigerators, freezers, washers, dryers, dishwashers and ranges; a variety of consumer electronics, including LED, OLED, Ultra HD and internet-ready televisions, Blu-ray players, home theater and portable audio equipment; and home office products, including computers, printers and accessories. We also offer a variety of products on a seasonal basis. Unlike many of our competitors, we provide flexible in-house credit options for our customers in addition to third-party financing programs and third-party lease-to-own payment plans.
Financial overview of Conn's latest earnings report
The numbers we are interested in (for the quarter):
- Total revenues: $401.059 million (up from $384.620 million for the same quarter of the previous year)
- Total costs and expenses: $359.285 million (up from $345.368 million for the same quarter of the previous year)
- Net income: $19.974 million (up from $17.011 million for the same quarter of the previous year)
- Net income per share: $0.62 (up from $0.53 for the same quarter of the previous year)
- Diluted number of shares in issue: 31,958,704
- Cash and cash equivalents: $7.563 million
- Cash and cash equivalents per share: $0.23 per share
- Cash and cash equivalents makes up 0.35% of the group's total assets
- Cash and cash equivalents per share: $0.23 per share
- Customer accounts receivable, net of allowances: $664.980 million
- Accounts receivable makes up 30.9% of the group's total assets (anything more than 20% and we get worried)
- Inventories: $213.513 million
- Inventories makes up 9.94% of the group's total assets
- Stockholders equity: $636.735 million
- Stockholders equity per share: $19.92
Conn's management commentary on the results and earnings guidance
THE WOODLANDS, Texas, Sept. 03, 2019 (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, 2019.
“Retail sales growth as a result of new store openings, strong retail profitability, and favorable credit performance drove record second quarter earnings of $0.62 per diluted share. Our e-commerce sales are quickly ramping, and we are well positioned to serve our customers online as we expand our geographic footprint. During the second half of this fiscal year, we expect to lap the benefits Hurricane Harvey rebuilding efforts had on same store sales, which has impacted the year-over-year sales comparison over the past four quarters,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.
“With strong operating performance and financial results, I am excited to announce our plans to enter the Florida market next fiscal year. We believe that the state of Florida can support over 40 Conn’s HomePlus locations once fully penetrated. Positive momentum is accelerating across our business and we believe fiscal year 2020 is shaping up to be a year of strong earnings and operational growth,” concluded Mr. Miller.
Second quarter of fiscal year 2020 highlights include:
Outlook and Guidance
The following are the Company’s expectations for the business for the third quarter of fiscal year 2020:
“Retail sales growth as a result of new store openings, strong retail profitability, and favorable credit performance drove record second quarter earnings of $0.62 per diluted share. Our e-commerce sales are quickly ramping, and we are well positioned to serve our customers online as we expand our geographic footprint. During the second half of this fiscal year, we expect to lap the benefits Hurricane Harvey rebuilding efforts had on same store sales, which has impacted the year-over-year sales comparison over the past four quarters,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.
“With strong operating performance and financial results, I am excited to announce our plans to enter the Florida market next fiscal year. We believe that the state of Florida can support over 40 Conn’s HomePlus locations once fully penetrated. Positive momentum is accelerating across our business and we believe fiscal year 2020 is shaping up to be a year of strong earnings and operational growth,” concluded Mr. Miller.
Second quarter of fiscal year 2020 highlights include:
- Total retail sales of $306.1 million, an increase of 3.3% over the prior fiscal year period
- Same store sales increase of 0.4% in non-Hurricane Harvey markets
- Earnings of $0.62 per diluted share, an increase of 17.0% over the prior fiscal year period
- Second quarter retail gross margin of 40.5%
- Consolidated operating margin of 10.4%
- Credit spread of 890 basis points, the best second quarter credit spread in six years
- Credit segment revenues of $94.8 million, an increase of 7.5% over the prior fiscal year period
- Net income of $20.0 million, compared to $17.0 million during the prior fiscal year period
- Adjusted EBITDA of $54.0 million, or 13.5% of total revenues
- Repurchase of 1.9 million shares at an average share price of $18.30
Outlook and Guidance
The following are the Company’s expectations for the business for the third quarter of fiscal year 2020:
- Total retail sales growth between 4% and 8%;
- Change in same store sales between negative 3% and positive 1%;
- Markets not impacted by Hurricane Harvey between negative 2% and positive 2%; and
- Markets impacted by Hurricane Harvey between negative 8% and negative 4%;
- Retail gross margin between 40.0% and 40.5% of total net retail sales;
- Selling, general and administrative expenses between 32.25% and 33.25% of total revenues;
- Provision for bad debts between $46.5 million and $50.5 million;
- Finance charges and other revenues between $94.0 million and $98.0 million;
- Interest expense between $14.5 million and $15.5 million; and
- Effective tax rate between 27% and 29% of pre-tax income.
Conn's (NASDAQ: CONN) stock price history
The image below shows the stock price history of Conn's over the last 5 years. And the story its telling is one of volatile ride but with a underlying downward trend in the overall stock price. 5 years ago, the stock price of Conn's was trading at above $30 a stock, and today its trading at $23.89. So stockholders in the group has lost quiet a bit when looking at it over a 5 year period. While the group is about $7 away from its 52 week low, its even further away, about $20 a share from its 52 week high. What this tells us is the recent stock price trend is skewed more towards the negative than positive.
Conn's (NASDAQ: CONN) latest stock valuation
Based on the group's latest earnings report and the guidance provided for the rest of their fiscal year 2020, we have a target price for the group $41.60 based on our valuation models estimates. We therefore believe the group's stock price will tick upwards towards our target price (full value price) and it offers fundamental long term investors a good entry point. Our only worry is the large contribution accounts receivable makes up of their total assets. Bad debt provisions might start increasing if there is any weakness entering the US economy and consumers cannot pay back the money owed to the group. In the group's guidance it is already making provisions for bad debt close to $50 million (or 7.5% of what is owed to the group by their customers)