Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Conn's Blown Over

Shares of home appliance and electronics retailer Conn's (Nasdaq: CONN  ) have trended down over the past couple of days, as the company released earnings that came in slightly below analyst expectations.

Our recent Fool by Numbers will walk you through more of the specifics, but basically Conn's is in the midst of a hangover, since hurricane rebuilding efforts benefited sales last year. This made same-store sales growth more difficult to achieve.

Conn's is also seeing a higher level of loan delinquencies in its credit portfolio. Fellow Fool David Meier recently wrote a very insightful article explaining that Conn's is as much a financing company as a retailer; 50%-60% of items sold involve clients using its financing options to pay for those televisions and major home appliances. That makes the Conn's operating model different from Best Buy (NYSE: BBY  ) and CircuitCity (NYSE: CC  ) , companies that rely heavily on the sale of merchandise rather than credit. Conn's doesn't separate credit metrics from retail statistics, as it considers both an integral part of retaining its customer base, but it also doesn't hide the fact that credit has been a focus at the company since 1962.

Conn's does have a solid track record of serving its core Louisiana and Texas market from its 60 retail locations, and it operates with very minimal long-term debt on the balance sheet. At a recent presentation at the Southwestern Showcase, management detailed that it is the ninth largest retailer of appliances in the country and is eyeing expansion opportunities close to home in Oklahoma, Arkansas, and prudently near the Mexican border, where more consumers are likely to use its financing options.

The company's credit business clearly adds another layer of complexity. For one thing, metrics aren't broken out separately; for another, a special-purpose entity -- formed to buy its receivables and securitize them for sale to third parties -- requires an understanding of consumer finance. There is also the risk that deteriorating credit trends can hurt the bottom line (as they have recently), but loan losses have stayed under 4% since 2000 and usually stay below 3%.

Best Buy (NYSE: BBY  ) may be the safer bet because of its purer retail focus, larger size, and geographic diversity, but it trades at a higher P/E and has lower net margins than Conn's. Conn's has a forward P/E below 12, offering some form of downside protection from the higher-risk financing operations and other potential retailing snafus. It also has a reputation for posting double-digit growth in sales and earnings, and possesses plenty of room for future expansion. It may take some more investigation into the credit operations to get comfortable with the name, but Conn's represents another interesting option for overall consumer electronics exposure.

For related Foolishness:

Best Buy isa recommendation ofMotley Fool Stock Advisor, where Tom and David Gardner are always on the lookout for the market's best investments. Try it out for yourself -- it'sfree for 30 days.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned. The Fool has an ironclad disclosure policy.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 517711, ~/Articles/ArticleHandler.aspx, 10/28/2016 2:23:29 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,108.25 -61.43 -0.34%
S&P 500 2,122.24 -10.80 -0.51%
NASD 5,182.65 -33.33 -0.64%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 2:05 PM
CONN $9.61 Down -0.05 -0.52%
Conn's CAPS Rating: **
BBY $38.90 Up +0.42 +1.09%
Best Buy CAPS Rating: *
CC.DL2 $0.10 Down +0.00 +0.00%
Circuit City Store… CAPS Rating: *