Conn’s ‘Cautious’ On TV Business, But Optimistic On Smart TVs
Conn’s reported stronger results for Q3 ended Oct. 31 than it did in the year-ago quarter, as “strength in appliances, furniture and mattresses, and home office offset slight weakness in electronics, principally television,” CEO Theodore Wright said on an earnings call Monday. The TV weakness carried over into November and the retail chain remains “cautious” on that category, but is upbeat about smart TVs, it said.
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Q3 revenue grew to $206.4 million from $186.6 million, with same-store sales up 18.9 percent. Same-store CE sales dipped 3.2 percent, but furniture and mattress same-store sales soared 34 percent, home office grew 27.5 percent and appliances increased 6.4 percent. The retailer swung to an $11.8 million profit, or 35 cents a share, from a $12.7 million loss, or 40 cents. Of the Q3 revenue, $167.7 million came from retail sales, the rest from its credit business. The 8.2 percent retail growth was driven by a 31.7 percent increase in furniture and mattress sales and, “to a lesser extent,” home office equipment and appliances, Conn’s said. The growth also reflected the benefit of opening a Conn’s HomePlus store in Waco, Texas, in mid-June and the completion of 15 store remodels over the past year, it said.
"Gross margin percentages improved across the board in Q3, along with average selling prices” (ASPs) in Q3, said Wright. CE gross margin improved to 24.5 percent from 15.2 percent in the year-ago quarter, while CE ASP jumped to $430 from $357. Appliance gross margin improved to 28.2 percent from 18.9 percent, with ASP growing to $519 from $418.
Preliminary November same-store sales were up about 6 percent from November 2011, said Wright. “All major categories except televisions saw solid double digit increases in sales,” he said. CE was “down high single digits,” while home office was “roughly flat,” he said.
Black Friday sales were down 10 percent from last year and sales for the Black Friday weekend were “flat,” said Wright. On Black Friday, all categories except CE and home office were up, he said. “The day was more profitable by far than a year ago despite the weakness” in TV sales, he said.
There was “no question” that competitors opening on Thanksgiving Day “had a negative impact on our electronics business,” said Wright. “The aggressive promotions we had in place for the early morning opening on Black Friday did not pull traffic as expected” and rivals apparently “satisfied this demand the day before,” he said. But he said it was “more of a lost sales opportunity than a lost profit opportunity since most of these sales would have been at very low gross margins.” Nevertheless, “our schedule will be reevaluated next year and it’s likely we'll respond to the consumers’ direction,” he said.
Windows 8 “launched well for us,” said Wright. The typical Conn’s customer “isn’t likely to rush into the latest technology, but the operating system seems accepted by our customers,” he said. “Once we have better availability and assortment in touch-screen” Windows 8 devices, “we think Windows 8 may gain more traction,” he said.
Smart TVs are “becoming a more compelling product offering by far,” said Wright. Its best-selling TV SKU is an LG model that has a remote with a mini keyboard feature that he said makes demonstrating Internet capabilities easier. Conn’s is “enhancing display and demonstration of all smart” TVs with “adequate bandwidth in our stores to enable true representation of the benefits of these technologies,” he said. Smart TVs and Windows 8 “should give us better tools to fight for market share and average selling price,” he said.
Manufacturers’ unilateral pricing policies (UPPs) “are definitely helping our margin performance” in TVs, and “in our opinion, this price discipline is not having a negative impact on sales,” said Wright. Conn’s ASP “is among the highest in the industry, and UPP is likely more helpful to us than others,” he said.
Conn’s has 66 stores, with 57 in Texas, six in Louisiana, two in Oklahoma and one in New Mexico, it said. It expects to add three more stores this fiscal year, and all “should be open within a week,” including its first Arizona store, in Tucson, said Wright. For fiscal 2014, it plans to open 10-12 stores, he said. Conn’s will open more stores in Arizona next year, including in Phoenix, with the rest of new stores coming in states it’s currently operating in, he said. The company is “on target to complete” 20 store remodels this fiscal year, he said. Remodeled stores are performing “as expected,” the company said.
It expects to report same-store sales growth of 13-16 percent for the fiscal year ending Jan. 31 and boosted its earnings per share forecast to $1.55-$1.60. It expects to report same store sales as high as 5 percent and EPS of $2.05-$2.15 for next fiscal year.
TV and home office market share performance are expected to be “modestly negative” for this year, but Conn’s thinks it can “at least hold our share” in these categories, he said.