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



Why Conn’s Looks Like a Good Pick

Conn's (NASDAQ: CONN  ) , an electronics and appliance store chain selling a diverse range of home appliances, home electronics, furniture, and other goods in the U.S., has had a terrific run this year. It has gained around 66% year-to-date. It had jumped as high as 125% at one point, but prices declined sharply after the company declared disappointing second quarter results.

Conn's released its second-quarter results last month and revenue came in at $270.7 million, up 30% from the same period last year. This increase in revenue was on the back of strong performances across all categories, with growth ranging from 20% for home electronics to almost 60% for furniture and mattresses. Growth was driven by an increase of 18.4% in comparable-stores sales and new store openings .

The road ahead
Conn's has a unique business model in which it generates approximately 75% of its retail sales by financing sales through its in-house financing segment. Anyone with a credit rating, even if it would not be considered good otherwise, can buy any item in store and pay interests on the financed portion of the purchase.

In addition, consumers with a good credit rating can opt for a long-term interest-free plan available in partnership with GE. One of the major headwinds for in-house financing has been delinquency, which this company is fighting hard to bring under manageable levels. Bad debts on an annualized basis were 10.6% of the average outstanding balance last quarter.

Looking ahead, retail sales in the holiday season are estimated to increase 2 .4%. Store traffic is expected to fall 1.4%, however, which means that retailers will have to fight hard to grab customers' attention. It is estimated that during the holiday season, appliance sales will rise 2.3% and sales of home goods will rise 1.98 %. Conn's has already seen a good month of August, with net sales increasing 51% versus the same period last year. Comps in August were up 31%. This is an encouraging sign, and the company expects the trend to continue going into the holiday season.

Moreover, housing starts, which fell to a historic low of 550,000 in 2009, are expected to increase to 1.5 million by 2015 . This is good news for the company, as its highest-margin products are in the furniture, mattresses, and home appliances segments. Growth in the housing sector would mean higher sales of furnishings and home appliances. However, there are other players looking for a share of the pie as well.

More options in the space
Hhgregg (NYSE: HGG  ) operates in the same market space as Conn's. The company is trying to turn around, and it seems that its strategies are working as it reported a loss of $0.04 per share as compared to a loss of $0.10 per share in the year-ago period. This was driven by cost-cutting measures, growth in comps, and a decline of 13.6% in the share count. The company reported an increase of 7.2% in sales to $524.9 million .

Persistent efforts on improving the product mix, expanding its customer base, and enhancing offerings has resulted in an improvement in the financial performance of hhgregg. The company is also preparing to employ 500 people at its 223 stores in preparation for the holiday season , which means that it is expecting higher sales in the period.

Best Buy (NYSE: BBY  ) is the largest of the three when it comes to market cap, almost 13 times greater than Conn's. The company was badly hit because of the ever-growing share of e-commerce in the electronics market. It has turned itself around to some extent, however. Best Buy is undertaking cost-cutting measures and aims to cut costs by $750 million going forward, apart from implementing steps to achieve better utilization of store floor space.

Best Buy has been shuttering under-performing stores and revamping others to minimize the impact of online sales channels that have been giving it tough competition. It has also opened more in-store areas for leading manufacturers such as Apple and Samsung, and invested in better training its staff to prevent show-rooming.

Best Buy is also working on improving its website to provide a better experience to visitors, and the company also offers a price-matching policy. These moves have impressed investors, and shares are up a whopping 240% this year.

The takeaway
Conn's performance has not been as outstanding as hhgregg's and Best Buy's this year, but the company's focus on electronics, home appliances, and even furniture gives it a diversified portfolio. In addition, the company's financing policy should help it to further increase sales in the future. With analysts expecting annual earnings growth of 22.50% for the next five years and Conn's trading at a relatively cheap forward P/E of 16, it might turn out to be a good investment.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Read/Post Comments (0) | Recommend This Article (1)

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: 2671043, ~/Articles/ArticleHandler.aspx, 9/30/2016 12:57:58 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 18,320.79 177.34 0.98%
S&P 500 2,170.37 19.24 0.89%
NASD 5,314.82 45.66 0.87%

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

9/30/2016 12:42 PM
BBY $38.20 Up +0.79 +2.11%
Best Buy CAPS Rating: *
CONN $10.56 Up +0.49 +4.82%
Conn's CAPS Rating: **
HGG $1.86 Up +0.05 +2.76%
hhgregg CAPS Rating: *