CONN’s swings to a Loss in Q2; Shares rally on Earnings Outlook
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    Stock Alert for Conn’s Inc. (CONN)

    Conn’s Inc. (CONN) is a specialty retailer currently operating 71 retail locations in Texas, Louisiana and Oklahoma.  The Company’s primary product categories include: Home appliances, including refrigerators, freezers, washers, dryers, dishwashers and ranges; Consumer electronics, including LCD, LED, 3-D, plasma and DLP televisions, camcorders, digital cameras, Blu-ray and DVD players, video game equipment, portable audio, MP3 players, and home theater products; Furniture and mattresses, including furniture for the living room, dining room, bedroom and related accessories, and mattresses; and Home office, including desktop, notebook, netbook and tablet computers, printers and computer accessories. CONN also offers a variety of products on a seasonal basis, including lawn and garden equipment, and continues to introduce additional product categories for the home to help respond to its customers’ product needs and to increase same store sales. The Company provides flexible in-house credit options for its customers, in addition to third-party financing programs and third-party rent-to-own payment plans. In the last three years, the Company financed, on average, approximately 60% of its retail sales under its in-house financing plan.

    Share Statistics (09-Sept-11) FY2010 FY2011 % Chg Q32010 Q32011 % Chg
    Symbol CONN Revenue, $Mn 873.98 790.52 -9.5% 213.12 184.38 -13.5%
    Current price $8.11 Gross marg. 20.3% 21.1% 3.9% 21.1% 23.7% 12.3%
    52wk Range: $3.12-$9.98 Oper. margin 3.6%
    Avg Vol (3m): 268,383 Net margin 0.4% -0.1% 125.0% 0.8% -1.9% -337.5%
    Market Cap. 258.31M
    Shares Outstanding 31.77M EPS, $ 0.32 0.03 -90.6% 0.06 0.54 800.0%

    Source: Reuters.com, SEC Filings.

    Investment Highlights

    Shares of CONN have gained 54.8% in the last five trading days; 29.1% in the last month; and 92.3% year-to-date.

    Shares of the Beaumont, Texas-based specialty retailer traded as much as 13.4% higher on Friday after the Company was upgraded at Caris & Co. to Above Average from Average.

    The Company last week reported better-than-expected earnings for its second quarter of fiscal 2012, and projected full-year earnings that also topped market forecasts.

    CONN reported adjusted diluted earnings of $0.17 per share for the quarter ended July 31, 2011, excluding the impact of the term loan payoff and store closings. This compares to earnings of $0.06 per share for the same period in the prior fiscal year. Analysts were looking for earnings of $0.11 per share, according to a poll by Thomson Reuters I/B/E/S.

    Total revenues were $184.4 million, down 13.5% from the same period in the prior fiscal year, on a same store sales decline of 12.8%.

    Retail segment retail gross margin increased 320 basis points to 28.9%.  Retail segment adjusted operating income increased to $3.1 million for the quarter, as compared to $2.2 million for the same quarter in the prior fiscal year.

    Credit segment operating income increased to $13.0 million for the quarter, as compared to $7.3 million for the same quarter in the prior fiscal year.  Credit segment 60+ day delinquency percentage declined to 6.1%

    The Company recorded a pretax charge of $11.1 million related to the repayment of its $100 million term loan, and a pretax charge of $3.7 million for costs related to the closing of three stores during the quarter, resulting in a reported net loss of $3.4 million, or $0.11 per diluted share outstanding.

    During the second quarter of fiscal 2012, the Company completed an expansion and extension of its asset-based loan facility, increasing the total commitment to $430 million and extending the maturity date to July 2015. Additionally, the Company entered into an $8 million real estate loan, using three of its owned store locations as collateral. With the proceeds of these financing facilities, the Company repaid the entire balance of its $100 million term loan during the quarter. The Company estimates, based on its current debt balance and current market rates, the above transactions will benefit diluted earnings per share by approximately $0.27 on an annual basis.

    CONN anticipates full-year earnings in the range of $0.65 to $0.75 per share, topping the Thomson Reuters consensus estimate of $0.54 per share.

    The Company expects its same stores sales to be flat for the last two quarters of the fiscal year, with the third quarter expected to be positive and fourth quarter expected to be slightly negative.  Retail segment retail gross margin is expected to be between 27.0% and 29.0% during the last two quarters, with the fourth quarter margin expected to be lower than the third quarter due to typical holiday selling season product mix.

    Source:

    http://ir.conns.com/releasedetail.cfm?ReleaseID=603644

    http://www.reuters.com/article/2011/09/07/conns-idUSL3E7K725X20110907?feedType=RSS&feedName=marketsNews&rpc=43

    Financial Strength (09-Sept-2011)

    Company

    Industry

    Sector

    S&P 500

    Quick Ratio (MRQ) 3.54 0.66 1.10 0.76
    Current Ratio (MRQ) 4.27 1.34 1.33 1.12
    LT Debt to Equity (MRQ) 82.85 37.87 55.79 110.90
    Total Debt to Equity (MRQ) 82.99 69.53 97.43 149.25
    Interest Coverage (TTM) 0.71 0.69 0.32 23.29

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    Analyst Recommendations and Revisions

    1-5 Linear Scale

    Current

    1 Month
    Ago

    2 Month
    Ago

    3 Month
    Ago

    (1) BUY 1 1 1 1
    (2) OUTPERFORM 0 0 0 0
    (3) HOLD 3 3 3 3
    (4) UNDERPERFORM 0 0 0 0
    (5) SELL 0 0 0 0
    No Opinion 0 0 0 0
    Mean Rating 2.50 2.50 2.50 2.50

    Source: http://www.reuters.com/finance/stocks/analyst?symbol=CONN.O

    Consensus Estimates Analysis

    # of Estimates

    Mean

    High

    Low

    1 Year Ago

    SALES (in millions)
    Quarter Ending Oct-11 3 161.17 167.40 153.00
    Quarter Ending Jan-12 3 202.90 208.00 197.80
    Year Ending Jan-11 4 794.85 796.40 793.80
    Year Ending Jan-12 4 734.42 749.30 722.50 845.47
    Year Ending Jan-13 3 733.10 773.30 694.00
    EARNINGS (per share)
    Quarter Ending Oct-11 4 0.08 0.13 0.03
    Quarter Ending Jan-12 4 0.22 0.28 0.13
    Year Ending Jan-11 4 0.18 0.23 0.12
    Year Ending Jan-12 4 0.54 0.67 0.38 0.53
    Year Ending Jan-13 3 0.79 0.82 0.76
    LT Growth Rate (%) 2 32.50 52.00 13.00 14.00

    Technical Analysis

    Source: http://stockcharts.com

    CONN’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility.

    CONN’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below 0, which suggests that the underlying moving averages are bearish.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Sept09-2011 symbol Share, $ $ Mn 2011 2012 2011 2012
    Sears Holdings Corp. SHLD 53.34 5.70B n/a n/a 0.13 0.13
    Lowe’s Companies Inc. LOW 19.06 24.03B 11.99 10.71 0.48 0.47
    Wal-Mart Stores Inc. WMT 51.47 177.40B 11.49 10.53 0.40 0.38
    Best Buy Co. Inc. BBY 24.47 9.15B 7.03 6.61 0.18 0.17
    Electronics Stores Median       11.74 n/a 1.45 n/a
    Conn’s Inc. CONN 8.07 256.53M 14.94 10.22 0.35 0.35

    Source: Thomson Financial

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