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Conn's Reports Second-Quarter Fiscal 2015 Financial Results; Twelfth consecutive quarter of same store sales growth

September 3, 2014

ENP Newswire - 03 September 2014

Release date- 02092014 - THE WOODLANDS, Texas - Conn's, Inc. (NASDAQ:CONN), a specialty retailer of furniture, mattresses, home appliances, consumer electronics and provider of consumer credit, today announced its financial results for the second quarter ended July 31, 2014.

Second-quarter fiscal 2015 significant items include (on a year-over-year basis unless noted):

Consolidated revenues increased 30.4% to $353.0 million;

Same store sales increased 11.7%, on top of an 18.4% increase a year ago;

Retail gross margin increased 250 basis points to 40.8%;

Furniture and mattress sales increased 60.6% and accounted for 30.8% of total product sales;

Opened eight Conn's HomePlus stores in seven new markets;

Invested in employees and marketing in advance of the opening of four new stores in August;

Adjusted retail segment operating income increased 39.1% to $35.7 million;

Credit segment operating income declined $7.7 million to an operating loss of $0.2 million;

The percentage of the customer portfolio balance 60+ days delinquent increased 70 basis points sequentially to 8.7% as of July 31, 2014;

Credit segment provision for bad debts on an annualized basis was 13.9% of the average outstanding portfolio balance in the current quarter and 11.1% on an annualized basis for the first six months of fiscal 2015;

Diluted earnings was $0.48 per share, compared to $0.52 per share in the prior year;

Adjusted diluted earnings was $0.50 per share, compared to $0.52 per share a year ago; and

Full-year fiscal 2015 guidance was updated to a range of $2.80 to $3.00 adjusted earnings per diluted share. The new full-year 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.

Theodore M. Wright, Conn's chairman and chief executive officer commented, '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.

'Over the last five months we have successfully opened an additional 14 stores, in 11 markets. We are reaching customers that were underserved before, giving low-income consumers the opportunity to purchase quality, durable, branded products for their homes at affordable monthly payments.

'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. Tighter underwriting and better collections execution did not offset deterioration in our customer's ability to resolve delinquency.

'Delinquency rates improved through May and increased modestly in June, consistent with typical seasonal trends. However, over sixty-day delinquency rates unexpectedly deteriorated a combined 90 basis points in July and August. We now expect future 60-plus day delinquency to increase to levels above our historical highs in the third and fourth quarter of fiscal 2015. Early stage delinquency remains lower than historical averages through August.

'We have made additional minor changes to tighten underwriting in August. Over time, more of the total portfolio will have been originated under the tighter underwriting policies implemented in late fiscal 2014 and early fiscal 2015. Declining sales of electronics as a percentage of total sales, slower expected originations growth and an expected reduction in the percentage of originations to new customers should also benefit future portfolio performance. Longer term, we believe the changes necessary to optimize portfolio performance are in place, although we may not return to credit loss rates of prior years.

'In response to higher delinquency, we are reducing the level of no-interest programs and raising the interest rates in some markets to increase portfolio yield.

'As it has been for half a century, our combined retail and credit business model proved its strength and resiliency. Retail profitability cushioned the impact of credit performance volatility inherent in subprime consumer credit. Had we not pushed ahead to expand our retail sales, we would not have mitigated negative credit trends by strongly growing retail profits.

'We remain confident in the business model. The mid-point of our revised guidance for the full year assumes EPS growth of 12% and a 17% return on equity. This performance is expected to be achieved while absorbing high customer acquisition costs from credit losses on new customers, elevated advertising expenses in new markets and inefficiently utilized distribution infrastructure. As our expansions mature and growth pace declines to more stable and predictable rates, we anticipate our performance will be more stable as well.'

Retail Segment Second-Quarter Results (on a year-over-year basis unless otherwise noted)

Total retail revenues increased $64.6 million, or 28.8%, to $288.6 million for the quarter ended July 31, 2014. The retail revenue growth reflects the impact of the net addition of 14 stores over the past 12 months as well as an 11.7% increase in same store sales this quarter. The company's decision to discontinue sales of lower-margin lawn equipment reduced the reported year-over-year sales increase by $9.3 million. Excluding the impact of lawn equipment revenues, same store sales rose 17.1% over the prior year period.

The following table presents net sales by category and changes in net sales for the current and prior-year quarter: Refer to the table in the full press release at:

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Source: ENP Newswire

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