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Conn's (NASDAQ:CONN)
Q3 2019 Earnings Conference Call
Dec. 4, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for holding. Welcome to the Conn's, Inc. conference call to discuss earnings for the fiscal quarter ended October 31, 2018. My name is Doug, and I'll be your operator today.

[Operator instructions] As a reminder, this conference call is being recorded. The company's earnings release dated December 4, 2018, distributed before market opened this morning, can be accessed via the company's Investor Relations website at ir.conns.com. I must remind you that some of the statements made in this call are forward-looking statements within the meaning of federal securities laws. These forward-looking statements represent the company's present expectations or beliefs concerning future events.

The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today. Your speakers today are Norm Miller, the company's CEO; and Lee Wright, the company's CFO. I would now like to turn the conference call over to Mr. Miller.

Please go ahead.

Norm Miller -- Chief Financial Officer

Good morning, and welcome to Conn's third-quarter fiscal-year 2019 earnings conference call. I'll begin the call with an overview, and then Lee will complete our prepared remarks with additional comments on the financial results. Fiscal-year 2019 is shaping up to be one of the best years of profitability in Conn's 128-year history. Through the first nine months of fiscal-year 2019, operating income was $107.5 million, an increase of 53.1% from the prior fiscal-year period with increases in both the retail and credit segments.

This also represents the second highest nine-month operating income we have ever achieved, which reflects our growing credit spread and strong retail gross and operating margins. Our consolidated operating margin before charges and credits was 10.1% for the first nine months of fiscal-year 2019 and is the highest operating margin we have achieved in five fiscal years. Our third-quarter results demonstrate that the strategies we have implemented are achieving our intended results as our credit spread approaches 1,000 basis points, and we progress toward positive same-store sales. With a strong highly profitable foundation now in place, we are well-positioned to capitalize on our compelling long-term and differentiated growth strategy.

So with this introduction, let's look at our third-quarter results in more detail, starting with our retail business. I am pleased with the overall trend of same-store sales and the initiatives under way to improve retail performance. Throughout our retail transformation, we have successfully improved retail margins, invested in our retail operations and created a powerful platform to execute our retail growth opportunity. We believe our non-Harvey market performance is the best indicator to use when analyzing retail trends during the quarters impacted by the hurricane.

As a result, the presentation posted on our website this morning includes a slide on the same-store sales performance by category within our non-Harvey and Harvey markets. I encourage analysts and investors to review this slide, as I comment on the increasing momentum under way in our retail segment. I am pleased to report that the same-store sales for the month of November in non-Harvey markets were up 8.5%. This drove a 3.6% increase in total same-store sales for the month of November, which included a 7.5% decline in same-store sales in Harvey markets.

Non-Harvey same-store sales for November represents the highest level of monthly same-store sales in over four fiscal years, and our strong retail performance gives us confidence that the strategies under way to grow sales are gaining traction. In addition, November sales demonstrate the initial benefits from the newness in our merchandising strategy and higher consumer demand in large-screen TV category, which our customers prefer. TV sales in non-Harvey markets drove 270 basis points of the November same-store sales growth. For the fourth quarter, we expect same-store sales in our non-Harvey markets to range from positive 4% to positive 6% and our total same-store sales to range from flat to positive 2%.

Our guidance reflects the contribution of our retail growth strategies including our improved product offering and new marketing campaign, offset by potentially pulled forward demand from December and January and the continued tougher comparison from lapping the benefit of Hurricane Harvey rebuilding. We have a lot of opportunities in the fourth quarter to drive retail growth, and we are excited about our potential during this important quarter. Total same-store sales in the third quarter of fiscal-year 2019 declined 4.4%, primarily due to the significant benefit Hurricane Harvey rebuilding efforts had last fiscal year. After being up 3.1% in the second quarter of fiscal-year 2019, Hurricane Harvey markets were down 11.8% during the third quarter while non-Harvey markets were only down 1.3%.

Total same-store sales for the third quarter masked many improvements in our retail results, and we believe, we are reaching an important inflection point in our retail performance. Our home office category continues to produce positive total same-store sales after we successfully completed a full-line review and implemented plans to improve the product assortment within this category. This included revamping the assortment to fit our better, best retail strategy and offering products more aligned with customer preferences. Home office same-store sales were up 9.9% during the third quarter of fiscal-year 2019.

And since we implemented this refresh, we have produced three straight quarters of positive same-store sales within this category. In non-Harvey markets, home office same-store sales were up 11.4% in the third quarter of fiscal-year 2019, demonstrating even further strength within this category. In the consumer electronics category, in non-Harvey markets, this is the second consecutive quarter we have reported positive same-store sales. I am encouraged by the initial performance of gaming in our stores and our decision to reenter this category is paying off.

Not only is gaming an important driver for the holiday season, it is also helping us increase customer utilization rates while creating a better customer experience. Momentum is also building in our home appliance category as the same-store sales trend in non-Harvey markets has improved for the second consecutive quarter. While the furniture and mattress category experienced a 4% decline in non-Harvey markets during the third quarter of fiscal-year 2019, trends are stabilizing and we are excited by the opportunity to improve the performance of our largest category. We believe, these trends combined with November same-store sales, demonstrates that the strategies under way to enhance our marketing efforts, optimize merchandising assortment and improve retail execution are starting to take hold.

It will take several more quarters until all retail improvement strategies are fully implemented, but we are headed in the right direction. We believe these strategies will produce positive annual same-store sales for fiscal-year 2020. So with this overview, let's look at some of the drivers of our performance. After a thorough review of our marketing strategy, our new chief marketing officer and his team are focused on improving our brand awareness, creating more compelling advertising and increasing customer engagement across all of our markets.

These initiatives included a comprehensive review of our brand strategy and the creation of a new framework to effectively engage with our customer base. In the fourth quarter, we launched a new marketing campaign, and we believe that November's performance demonstrates these initial actions are resonating with our customers. As we proactively push to drive more traffic into our stores and to our website, we have focused on making sure we have the right product offerings combined with compelling promotions in our stores that fit within our better, best merchandising strategy. For example, this fiscal year, we shifted our TV selection to even larger screen sizes and premium technologies with artificial intelligence capabilities.

In appliances, we have upgraded our assortment to emphasize higher-end models with larger capacities, smart home technology and other premium features. We continue to believe that there are additional opportunities to improve and expand our product assortment across all categories over the next several quarters. This includes a major update of our furniture assortment to drive sales in this important high-margin business. Within this category, we have launched new complementary product such as Wall Art, home accessories and barstools across our chain.

We're also working on programs to update our furniture offerings in our largest categories of upholstery, bedroom and dining. The first wave of new furniture groups started arriving in recent weeks. These updates will largely be completed by the end of second quarter of fiscal-year 2020. Turning to initiatives to drive retail execution, I am pleased with the improvements we made during the third quarter and the direction our retail platform is headed.

The percent of retail sales from third-party lease-to-own increased to 8% during the third quarter and represented the highest quarterly level we have ever achieved with our new lease-to-own partner and is approximately 300 basis points higher than the historic average we experienced with our former partner. While it will still take some time to get to our 10% goal, I am pleased with the progress we are making and continue to believe that this goal is attainable. Since temporarily assuming the responsibilities and oversight of the retail segment, the performance between our top-performing and bottom-performing districts has narrowed from 13.1% in the second quarter of fiscal-year 2019 to 11.8% in the third quarter. During this quarter, the average same-store sales performance of our top three districts was up approximately 5.2% compared to the average of our bottom three districts, excluding Harvey-impacted districts, which was down approximately 6.6%.

Our new store growth plan is an important driver for future growth. During fiscal-year 2019, we will open a total of seven stores. This includes three new stores opened in Virginia during the third quarter and an additional Virginia store opened in the current quarter. New store revenues and credit performance are in line with our expectation, which provides us with increasing confidence in our retail expansion plan.

With our enhanced credit model in place, we expect new stores will experience a slower sales ramp to better manage credit risk while providing a tailwind to sales as new stores build the base of recurring customers. We have also increased the lower end of the number of new stores we plan to open in fiscal-year 2020 and now plan to open 12 to 15 new stores in existing states next fiscal year. As part of our new growth strategy and after extensive customer and market research, we have recently developed a new store of the future concept. This updated store layout will launch this fiscal year in Baton Rouge and features an enhanced customer experience and more efficient sales process.

I am excited by the potential of our growth plans and new store layout and look forward to sharing more details in the coming quarters. As with our credit turnaround, with each passing quarter, our retail platform grow stronger, and I am confident our retail segment can produce consistent, positive low single-digit same-store sales growth in the near future. So now let's look at our credit performance during the quarter. Credit segment operating income for fiscal-year 2019 third quarter was $0.2 million compared to an operating loss of $8.7 million for the same period last fiscal year.

This improvement was a result of improving credit trends and favorable portfolio composition. This is the third consecutive quarter of positive credit segment operating income. For the fiscal-year 2019 nine-month period, credit segment operating income was $1.8 million compared to an operating loss of $22.7 million for the same period last fiscal year, representing the strongest credit segment operating income since the fiscal-year 2014 nine-month period. For the third quarter of fiscal-year 2019, the credit spread increased to 940 basis points compared to 460 basis points in the prior fiscal-year period, and we are closing in on our 1,000 basis point target.

In dollar terms, our credit spread was $36.1 million in the third quarter of fiscal-year 2019 compared to $17.6 million for the same period last fiscal year. For the third quarter, interest income and fees were a record $83 million and increased nearly 12% from the prior fiscal period as a result of higher interest rates and better charge-off performance.  This drove a 190 basis point improvement in our net yield, which was a record 21.7% for the third quarter of fiscal-year 2019. Segments of our portfolio including current originations are already producing our 23% to 25% net yield goal, and we are confident the entire portfolio will be at that level within nine months. I am pleased to report that our 60-plus-day delinquency rate declined 20 basis points from 9.9% in the third quarter of last fiscal year to 9.7% in the third quarter of fiscal-year 2019, representing the fifth consecutive quarter that the rate declined year over year.

Looking at reaged accounts, the percent of reaged accounts to the total outstanding balance increased to 25.5% at October 31, 2018 from 24.3% at July 31, 2018. As a result of higher-quality underwriting and improved collections execution, account balances that have been reaged are remaining in the portfolio for longer but resulting in lower delinquencies and charge-offs. The 60-plus-day delinquency rate of TDR balances, a subset of the reaged balances, also reflects this trend, which for the fifth consecutive quarter was lower year over year. For all accounts not classified as TDR, the delinquency rate of accounts 12 months after being reaged was 630 basis points better in the third quarter of fiscal-year 2019 compared to the same period last fiscal year.

Additionally, in the third quarter of fiscal-year 2019, the percent of accounts brought current from delinquency by reaging compared to accounts brought current without reaging decreased by 370 basis points year over year. With the improving quality of reaged and TDR accounts, balances remain in the portfolio longer compared to prior fiscal years when these accounts would simply charge-off at higher levels. Higher interest rates as a result of programs implemented to enhance yield have also caused the reaged balance to increase. Looking at credit losses, annualized charge-offs as a percent of the average outstanding balance were 12.3%, a 290 basis point improvement over the same period last fiscal year.

It's also important to note that net charge-offs declined $9.7 million or 17.1% this quarter compared to the prior fiscal-year quarter. As we stated in previous calls, we have a meaningful opportunity to convert charged-off accounts to recovery dollars. The investments we have made to develop a robust recovery process and infrastructure continue to pay off and our strategy is successfully reducing losses in older vintages as shown by our static loss table. We expect these trends will continue as the recovery stream builds and payments flow through origination vintages with low or zero balances.

Year to date, we have collected $14.3 million of recoveries, almost doubling the $7.3 million collected for the same period last fiscal year. We utilize third-party vendors to help with various parts of our recovery process and during the third quarter, we began transitioning away from one of our largest partners. We are in the process of implementing additional recovery partners, and we believe it will take another quarter or two to produce our expected recovery run rate. As a result, we anticipate recoveries in fiscal-year 2019 will be $18 million to $19 million compared to our earlier expectation of approximately $20 million.

Despite this temporary impact, fiscal-year 2019 recoveries will compare favorably to $10.9 million in the prior fiscal year, which represents at least a 65% improvement year over year. Our third-quarter credit results continue to demonstrate better operating performance and favorable credit trends. We are well-positioned to achieve our goal of 1,000 basis point credit spread over the next nine months. With a well-run credit operation in place, we are proactively controlling credit risk and have the appropriate foundation to support our compelling retail growth opportunity.

So to conclude my prepared remarks, before I turn the call over to Lee, third quarter and fiscal year-to-date results demonstrate the strength of our financial model and the positive evolution of our business. Our successful credit transformation combined with the investments under way to maximize our retail performance have created the strongest foundation since I came to the company almost three and a half years ago, and we are well-positioned as we finish out this fiscal year. As we plan for our next fiscal year, we expect stronger retail growth driven by improving same-store sales, coupled with 12 to 15 new Conn's HomePlus locations. We continue to believe our retail model and credit platform can consistently support total annual retail sales growth of 8% to 10% and with each passing quarter, we are making progress toward achieving this goal.

I look forward to ending this fiscal year on a strong note and the meaningful opportunities we have to drive controlled growth in the future. With this, let me turn the call over to Lee.

Lee Wright -- Chief Financial Officer

Thanks, Norm. Consolidated revenues were $373.8 million for the third quarter of fiscal-year 2019, an increase from $373.2 million for the same period last fiscal year. GAAP net income improved significantly to $14.6 million or $0.45 per diluted share for the third quarter of fiscal-year 2019 compared to $1.6 million or $0.05 per diluted share for the prior fiscal-year quarter. This represents our sixth consecutive quarter of profitability and second-best third-quarter GAAP earnings per diluted share in the company's history.

On a non-GAAP basis, adjusting for certain charges and credits and losses from extinguishment of debt, net income for the third quarter of fiscal-year 2019 was $0.59 per diluted share, compared to $0.18 per diluted share for the same period last fiscal year. A reconciliation of GAAP to non-GAAP financial results is available in our third-quarter press release that was issued this morning. Third quarter of fiscal-year 2019 retail revenues were $284.1 million, which decreased $7.9 million or 2.7% from the same quarter last fiscal year. Retail gross margin as a percentage of retail revenues for the third quarter of fiscal-year 2019 expanded by 140 basis points from the same quarter in the prior fiscal year to a third-quarter record of 41.2%.

The improvement in retail gross margin is primarily due to higher product margin across most product categories. While we believe there are more opportunities to grow retail gross margin over time, we do not expect retail gross margin will improve year over year at the same pace and magnitude we've been experiencing over the last couple of years. Retail SG&A expense was $80.9 million, an increase of approximately $200,000 from the same quarter in the prior fiscal year. While retail SG&A expense as a percentage of revenue deleveraged 90 basis points to 28.5% primarily due to costs for new stores and an increase in the corporate overhead allocation.

We typically start incurring costs associated with new stores approximately six months ahead of opening. With 12 to 15 new stores planned for next fiscal year and multiple openings happening in the first quarter, there will be additional expenses incurred in the fourth quarter and throughout fiscal-year 2020, as we prepare to open these locations. We remain focused on strategies to control SG&A, however, the company will be making investments in new stores along with continued enhancements to our business platforms to ensure our ability to successfully manage future growth. Turning now to our credit segment, finance charges and other revenues were a quarterly record of $89.8 million for the third quarter of fiscal-year 2019, up 10.5% from the same period last fiscal year.

The increase versus last fiscal year was due to a record yield of 21.7%, an increase of 190 basis points from last fiscal year, partially offset by a 4.5% decline in insurance commissions. As expected, there continues to be no retrospective commissions as a result of higher claim volumes related to the increased severity of weather events in addition to lower insurance penetration rates and other factors. We continue to monitor both our partners and our overall performance in this space. SG&A expense in the credit segment for the third quarter increased 11.3% versus the same quarter last fiscal year, and on an annualized basis, as a percentage of the average customer portfolio balance, was 9.9% compared to 9.1%.

The increase in credit SG&A expense primarily reflects the investments we are making to pursue our compelling recovery opportunity, an increase in compensation cost and an increase in the corporate overhead allocation. Provision for bad debts in the credit segment was $47.3 million for the third quarter of fiscal-year 2019, a decrease of $9.1 million from the same period last fiscal year, as a result of a $9.7 million year-over-year reduction in net charge-offs. The bad debt allowance as a percent of the total portfolio was 13.6% at October 31, 2018, which was flat with the prior fiscal-year period. Interest expense for the third quarter was $15.1 million, which was a decrease of $3 million or 16.6% from the same period last fiscal year.

This is a seventh consecutive quarter where our interest expense has declined sequentially and the lowest quarterly interest expense in the past 13 quarters as a result of continued deleveraging and reductions in our all-in cost of funds. For the third quarter, annualized interest expense as a percentage of average portfolio balance was 4% compared to 4.9% for the same period last fiscal year. Average net debt as a percentage of average portfolio balance was approximately 60% compared to approximately 69% for the same period last fiscal year. During the third quarter, we continued to make progress on deleveraging our balance sheet, diversifying our sources of capital and reducing our all-in cost of funds.

ABS notes currently outstanding include all classes of our 2017 B and 2018 A notes. We do not expect to complete another ABS transaction during the current fiscal year. I am pleased with the continued improvements we are making on our capital position. We remain focused on deleveraging our balance sheet and proactively reducing our interest expense from prior-period levels.

We expect to fund the anticipated growth in our portfolio as a result of new store openings and same-store sales growth through internally generated funds and our existing capital sources. With this overview, I'll turn the call back over to Norm, to conclude our prepared remarks.

Norm Miller -- Chief Financial Officer

Thanks, Lee. We are extremely excited about the direction we are headed. Our strong third-quarter results and November same-store sales demonstrate the growing momentum in our business. With that, operator, please open the call up to questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.

David Bellinger -- Oppenheimer & Co. -- Analyst

Hey, guys, good morning. This is David Bellinger on for Brian.

Norm Miller -- Chief Financial Officer

Hi, David. Good morning.

David Bellinger -- Oppenheimer & Co. -- Analyst

Hey, good morning. So a couple of questions, just focusing on the risks -- retail side of the business and trying to get a sense of underlying sales momentum there. So how did comps progressed throughout the quarter, specifically in the non-Harvey impacted areas? And can you expand on what you've seen so far in the November in the sales pickup for that month?

Norm Miller -- Chief Financial Officer

Sure, absolutely. Well, we've actually seen strength across all of the categories. Without getting into the individual specific side, we're positive in furniture and appliances, significant uptick from an electronic standpoint, both with the addition of the gaming plus we're seeing TVs rebound as well with the larger screen TVs. So we're seeing strength across the entire business through the month of November.

David Bellinger -- Oppenheimer & Co. -- Analyst

Anything on how comps progressed throughout the quarter?

Norm Miller -- Chief Financial Officer

Well, obviously, when you -- if you focus on the non-Harvey, you saw we guided lower than we did -- than we performed for the month of November. And we did that specifically, because the numbers were so strong in the month of November. Our concern was, did we pull some business forward in December -- from December into the month of November is really -- and from a conservative standpoint, why we guided to that range.

David Bellinger -- Oppenheimer & Co. -- Analyst

Got it. And just on that pull forward, what's the dynamic you've seen there? Does that mean you're around TV sales? Or is there something else there that would lead you to guide Q4 a bit lower than the gain we've seen so far in November?

Norm Miller -- Chief Financial Officer

It's just the TV side of the house. TVs represented about half of the improvement from a same-store sales standpoint for the month of November. So with the aggressive promotions that were out in the marketplace, not just with us but across the industry from a TV standpoint. And our concern was there may be some TV sales in the month of December pulled into the month of November.

Nothing else from any of the other categories.

David Bellinger -- Oppenheimer & Co. -- Analyst

Got it. Thank you very much, and good luck for the holiday quarter.

Norm Miller -- Chief Financial Officer

Thank you, David.

Operator

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

Brad Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Hey, good morning, Norm; good morning, Lee. Wanted to ask first about same-store sales and then a couple of credit questions, if I could. Norm, I was hoping for a little more of an update on how some of the initiatives around the funnel are progressing and how you're feeling about your work on that front.

Norm Miller -- Chief Financial Officer

Very pleased. We think that that's having an impact. As we talked about, for example, the credit -- or the utilization rates and the attachment, so the introduction of gaming, introduction of then the furniture category, the Wall Arts, the accessories, we are seeing improvements from an attachment standpoint. That is helping to fuel some of those same-store sales.

We have gotten some newness from a category standpoint on the furniture side of the house but that's in the relatively early innings. We still expect to see some increased momentum there into the first half of next year and later in the fourth quarter. But very pleased. And I think that one of the primary reasons we're seeing sequential improvement from a same-store sales standpoint is the effort in every element of the funnel, retail execution to attachment rates to performance on a day in day out basis, both online and in the stores.

Brad Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Great. And clearly, you saw an uptick in the RTO, the leasing business from 2Q to 3Q. I guess, could -- last quarter had fallen short of where you had wanted it to be. Could you talk a little bit about the progress you've made there? And what kind momentum do you think you might see in 4Q in this, as we move into next year?

Norm Miller -- Chief Financial Officer

Yes. Very pleased, again. The primary driver there is nothing underlying was different from either an underwriting standpoint or with our partnership with Progressive. It was simply driven predominantly through retail execution at the storefront level.

So I'm pleased with the progress that we've made. Now fourth quarter, although, we will see an improvement year-over-year, typically, from a sequential standpoint with the holiday season, we see better credit quality customers during holiday seasons. So our expectation is fourth quarter will traditionally be one of our lower quarters from a lease-to-own balance of sales standpoint, not necessarily from a dollar standpoint but from a balance of sales standpoint. And believe we're on track to -- at some point next fiscal year to achieve that 10% balance of sale.

Although, I will say, the last 1.5% to 2% are the most difficult to get there. But as I've mentioned in previous calls, we have multiple districts that are at that 10% range now. So we know it's a number that's achievable.

Brad Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Yes. Great. And then on the credit side, a question on yield and a question on the bad debt. When we look at the yield, there's still clearly some very strong momentum in the yields.

But the finance fees came in a little bit lower than we had been modeling for 3Q. I guess, could you talk about some of the puts and takes here. Maybe -- it looks like the 0% financing was a little higher percentage than we had modeled. How is that yield performing relative to what you would like to see?

Lee Wright -- Chief Financial Officer

Brad, it's Lee. So we're very pleased with the yield. Obviously, as you said, there's a lot of inputs that go into it. Our interest was up a wee bit but not much.

And then when you really think about it, obviously, our portfolio was a little lower. We were at the lower end of our portfolio growth and that obviously drives the dollars that goes through. But from a percentage basis, as you mentioned earlier, very pleased with the progression and still feel very comfortable with the range that we've continued to guide at 23% to 25% long-term yield rate.

Brad Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Great. Great. And then just lastly on the bad debt, it looks like you're expecting a little bit more of an uptick in that in 4Q. I mean, how much is that just a portfolio growing versus what you're seeing out of the 60-day delinquencies and how that's maturing?

Norm Miller -- Chief Financial Officer

Yes. It has nothing to do with 60-day delinquencies. We could not be more pleased with the performance of the portfolio, where the portfolio is going. It is all about -- it's really driven by two things with the quarter four provision.

One is seasonality. Season -- from a seasonality standpoint, periodic charge-offs in quarter four are always higher than -- almost always higher than quarter three. So that's an element of it. But it's -- so that's a piece of it.

Now having said that, the portfolio balance growth is really the primary driver. When we start growing positive same-store sales, as we've done here in November, one of the things that will occur is provision dollars will go up, because we have to reserve for the first 12 months of losses for those -- for that new business that we're bringing on. But that's provision growth that we want to see. That's healthy provision growth.

It won't impact the rate. I mean, we expect the rate to be stable. But the provision dollars will go -- grow -- go up in a growing portfolio. So I can't emphasize enough how pleased I am with our credit business, the portfolio with where it's at and how it's performing.

Lee Wright -- Chief Financial Officer

Brad, just to add on to what Norm said. Again, as he mentioned, obviously, charge-offs are going to be up Q3 to Q4. That's a natural seasonal progression of any portfolio. But when you think about our Q4 of this year versus Q4 of last year, our charge-offs -- we expect our charge-offs to be down meaningfully.

So again, as Norm said, we're very pleased with where we stand from a credit perspective.

Brad Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

That's very helpful. Thank you, guys. Congrats on a strong start to 4Q here end, good luck to your solid base.

Norm Miller -- Chief Financial Officer

Thanks.

Lee Wright -- Chief Financial Officer

Thanks.

Operator

Our next question comes from the line of Rick Nelson with Stephens. Please proceed with your question.

Rick Nelson -- Stephens Inc. -- Analyst

Thanks, good morning. I'd like to follow up on same-store sales have done -- Harvey markets, obviously a very strong November, what is assumed for December and January to hit that plus 4% to 6% for the quarter?

Norm Miller -- Chief Financial Officer

I'm sorry, I don't understand the -- so you -- I mean, we're not providing by month what that is. We're just giving the range for it. I mean, you can -- Rick, you can back in to, I'm sure, what the number is on the implied side on -- based on what the portfolio growth is. But we're not breaking it out by month through the quarter.

We're just giving the range for it. For non-Harvey, it's in that 4% to 6% range.

Rick Nelson -- Stephens Inc. -- Analyst

OK. Do you think that 4% to 6% is a sustainable number as we push into fiscal 2020?

Norm Miller -- Chief Financial Officer

Well, I mean, we're not prepared to guide into -- by quarter into fiscal '20, Rick. But we did say in our prepared comments, we expect positive same-store sales in fiscal-year '20 for the full year. We are getting benefit from a TV, electronic and gaming standpoint in the fourth quarter. But as I've talked about for over three years now, our business model's based on low single-digit same-store sales and then enough new stores in next year, that's going to be 12 to 15 stores to get us in that 8% to 10% total retail sales growth year over year.

Obviously, in the fourth quarter here, we're projecting in non-Harvey for same-store sales to be above that low single-digit same-store sales. And it's clearly -- we would welcome that if we're able to perform at that level. But the business model as it's built, is very, very accretive and profitable at low single-digit same-store sales. And by the way, we're very, very focused on making sure that we don't destabilize the credit portfolio and we can continue to deliver the credit performance and metrics that we've delivered over the past year.

And one of the ways we do that is make sure that we keep our arms around retail growth.

Rick Nelson -- Stephens Inc. -- Analyst

OK. Thanks for that color. Also, in terms of store growth, you've got six stores opened this year. Any comments on early learnings or the economics that you're seeing with these openings relative to your expectations?

Lee Wright -- Chief Financial Officer

Rick, it's Lee. No -- we're really pleased with the new store openings. Now again, our ramp is certainly different than from what you saw in the prior years. We're obviously focused on ensuring from a credit perspective or controlling the growth of those new stores.

But they are in line with our expectations. Overall EBITDA payback of roughly a year or so. I mean, very pleased -- which is why we raised the lower end of our range for new store openings from 10 to 15 up to 12 to 15 for next year. So we're just very excited to continue to push forward on a new store growth.

Norm Miller -- Chief Financial Officer

And just to put it in context, Rick, I mean, even though, we have a slower initial ramp up from a sales growth standpoint in year one of $6 million to $7 million is what we're projecting, certainly, in newer markets. Our -- to speak about the power of our retail model, our stores are profitable at between $3.5 million, $3.8 million in revenue. So even at that $6 million, $7 million, year one, we still expect a longer-term ramp of $10 million to $12 million like our core stores that, that is achievable, it just will take a few years in order for us to achieve that. Speaks to the power of our retail model when we're four-wall EBITDA breakeven in a year or less and we're profitable in them clearly after a year with the revenues that we're seeing.

And we're not seeing anything different with the stores that we're opening this past year. By the way, you're correct that there's six stores but we will open a seventh in the -- in this fourth quarter. So we'll end the fiscal year with seven new stores.

Rick Nelson -- Stephens Inc. -- Analyst

Finally, you talked about the step-up in the provision for the fourth quarter related to store growth. SG&A looks like it's guided a little higher than where we were modeling. Is that also related to store growth for the new year?

Lee Wright -- Chief Financial Officer

Rick, it's Lee. That certainly plays a big piece of that as we continue to ramp that up. So you're going to see that increase from there.

Rick Nelson -- Stephens Inc. -- Analyst

Gotcha. Thanks and good luck.

Operator

Our next question comes from the line of John Baugh with Stifel. Please proceed with your question.

John Baugh -- Stifel Financial Corp. -- Analyst

Thank you and good morning. A couple things, Page 32, you have the static pool of loss expectations. And I believe, if I'm not mistaken, fiscal year '17 and '18 have gone up slightly from mid-14% now in '17 from low and the '18 is now high 12% versus mid. Could you discuss what's driving that?

Norm Miller -- Chief Financial Officer

Sure. No problem, John. Yes, again, continue to be very pleased with the performance, certainly, of fiscal '17 and '18 vintages and where they're performing versus our expectations. We did raise that slightly as we get -- as we've got more data points in.

But I would emphasize a couple of things about it: first, when we talk about 1,000 basis points credit spread and where our yield is today versus where it's going over the next nine months in that 23% to 25% range, we're well within that 1,000 basis points of spread with where we're showing in fiscal year '18. The second piece is, it's very difficult to project with a level of preciseness to 0.1 basis point or 20 basis points for a $1.6 billion portfolio out of the gate. So to see some slippage from the mid-12s to low 12s or high 12s as that portfolio seasons is not unusual from my experience.

John Baugh -- Stifel Financial Corp. -- Analyst

And Norm, as you mentioned a couple of data points, could you be more specific? And is it Harvey-related or across the system?

Norm Miller -- Chief Financial Officer

Yes. I mean, it's not Harvey-related in fiscal '18. I mean, we've -- I won't say Harvey's completely gone, because we have reaged accounts that are still there. Now they're performing better than what our traditional reaged account balances are.

It just is we see pockets -- again, 10 basis points or 20 basis points, very difficult even to pinpoint specifically that it's this geography or area. It's just -- it might be some softness in a -- within a bucket or within a geographical area that we're seeing that is driving that, John. It's very difficult at $1.6 billion to say, at any one point, it's going to 12% -- we're talking about 12.5% or 12.6% to 12.7% or 12.8%. It's just very, very difficult to do that, especially for vintage, it's going to last for three years or four years.

And we've still got a fair amount of that portfolio that's got to work through.

John Baugh -- Stifel Financial Corp. -- Analyst

OK. And I was curious when I saw the legal settlement, it's just was $4.8 million relating to charged-off accounts, I guess, you sold. Could you elaborate on what that relates to?

Norm Miller -- Chief Financial Officer

Yes. That was a lawsuit that was brought by the previous leadership team. And it was one the company used to charge-off accounts.

Lee Wright -- Chief Financial Officer

Sell those charge-offs.

Norm Miller -- Chief Financial Officer

Sell off the -- sell-off charged accounts. One of the reasons we don't do that any longer, there's a number of issues around doing that from an oversight standpoint. And although the company won the case at the District Court level, it was reversed on a technicality at the Appeals Court level and the company ended up losing that. It's from a 2014 case.

John Baugh -- Stifel Financial Corp. -- Analyst

OK. And then could you talk about the provision -- I know you're not guiding next year but presumably, if your comps are positive and you open maybe slightly more stores, your portfolio balance is going to grow even more, which mean provision dollars going to be that -- even that much higher than perhaps we've all modeled. Am I kind of rationally thinking about that correctly?

Norm Miller -- Chief Financial Officer

You're very much thinking of it in the right way, John. Dollars -- rate will -- you should see somewhat of a fairly stable -- as long as performance continues as it is, which from our delinquency and our buckets and what we're seeing performing, we don't expect anything as we sit here today to be different than that. The rate, you should see somewhat consistent but you will see a growth in dollars as that -- as the portfolio grows with same-store sales and new store growth.

John Baugh -- Stifel Financial Corp. -- Analyst

And on that rate and I guess I'm talking about consumer electronics now increasing as a percentage of mix. As I recall, the losses tend to be, on the credit side, worse in that category than, say, furniture, which is currently mixing down. Is -- does that, everything being equal, maybe raise the rate a little bit? And I assume that's not in your provision right now but maybe plays a role in next fiscal year?

Norm Miller -- Chief Financial Officer

Really from an underwriting standpoint that -- we really take that into account with the products and what we've done with the gaming and the things we've brought in to mitigate the higher losses that you typically see in charge-offs, that you see in those higher-risk categories, number one. And number two, in quarter four, specifically, when electronics is at its peak, it's also the highest credit quality customers that we see coming in the door. So some of that offsets that as well. It's not enough to materially move the static loss rates next -- or the expected losses next year.

John Baugh -- Stifel Financial Corp. -- Analyst

OK. And then lastly, hopefully, this is the low point. But at the end of October, if I did the calculations right, your customer account was down 7.2%, at least on the credit side. And the number of applicants, I believe, processed in the quarter was down 12% year over year.

And you've mentioned significant improvement in November, so I assume some of those numbers have already improved. But I guess, as we go out sort of a year and, whether it's the reset with merchandise categories or whatnot, I'm curious as to where you think those numbers move through time.

Norm Miller -- Chief Financial Officer

Sure, John, what I would say is, you'd have to see those numbers go up as the portfolio -- same-store sales and the portfolio grows. Even though, we can do some things to improve utilization rates and other things to get more out of customers that are coming in. You'd still expect those to go up. Now what I will say is one of the reasons in quarter three that you saw the low point that you did is, year over year is, remember, Harvey was at its peak at that point, so -- last year.

So that's showing – that's creating the real disparate performance year over year.

John Baugh -- Stifel Financial Corp. -- Analyst

Absolutely. All right, thank you very much and good luck.

Operator

Our next question comes from the line of Kyle Joseph with Jefferies.

Kyle Joseph -- Jefferies -- Analyst

Good morning, guys. Thanks for taking my questions. ust -- I was hoping to get a little bit more color on the outlook for margins in the fourth quarter. Is that kind of -- I don't know, Lee, you talked about how we shouldn't expect to see the same-store to year-over-year expansion there.

But is there any sort of mix shift we should think about? Or any pricing changes you've implemented?

Lee Wright -- Chief Financial Officer

Yes. Kyle, good question. It really gets back to, in Q4, the heavier electronics mix, which obviously has a little bit lower margin from there. But again -- and so you're seeing as we lap a lot of the stuff that we put into place, it's still -- we still are projecting our midpoint to be above last year, but certainly not at the same pace and magnitude as we did before.

But we still think we have opportunity as we continue to go forward, opening new stores, because, again, we've talked about the mix in new stores, higher furniture and mattress, which were higher margins. So we do expect to get some gradual improvement but certainly not at the same pace as previously.

Kyle Joseph -- Jefferies -- Analyst

Got it. That's helpful. And then in terms of your core customers, can you just talk about the health of your underlying customer? We've seen tax changes and talks of wage inflation, gas prices have been all over the place. But just talk about the overall health of your consumer in terms of both credit as well as resale demand.

Norm Miller -- Chief Financial Officer

Yes. I mean, Kyle, it's Norm. I would say, it's as strong as it's been, at least from my perspective, in a while. With the oil prices coming back down again, that was an area that had a concern a quarter ago or six months ago, because that's an integral part of disposable income for our customer.

But with oil prices coming down and the tax benefits they continue to see from a take-home pay standpoint and wage -- the opportunity from a wage standpoint, our customers -- and we're seeing it both from a credit standpoint, as well as from a retail sales standpoint.

Kyle Joseph -- Jefferies -- Analyst

Got it. That's helpful. Thanks a lot for answering my questions.

Norm Miller -- Chief Financial Officer

Thanks, Kyle.

Operator

There are no further questions in the queue. I'd like to hand the call back to Norm Miller, for closing comments.

Norm Miller -- Chief Financial Officer

Thank you. I want to take a moment and thank our 4,500-plus associates across the company for their hard work throughout this year and this holiday season and helping to make it happen. I also want to wish everyone a safe and happy holiday season. We look forward to sharing our fourth quarter performance next year.

Thank you.

Operator

[Operator signoff]

Duration: 53 minutes

Call Participants:

Norm Miller -- Chief Financial Officer

Lee Wright -- Chief Financial Officer

David Bellinger -- Oppenheimer & Co. -- Analyst

Brad Thomas -- KeyBanc Capital Markets, Inc. -- Analyst

Rick Nelson -- Stephens Inc. -- Analyst

John Baugh -- Stifel Financial Corp. -- Analyst

Kyle Joseph -- Jefferies -- Analyst

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