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Conn's Inc  (NASDAQ:CONN)
Q4 2019 Earnings Conference Call
March 26, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

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 January 31, 2019. My name is Melissa and now I'll be your operator today. During the presentation. All lines will be in a listen-only mode. (Operator Instructions) After the speakers remarks, you'll be invited to participate in a question-and-answer session. As a reminder, this conference call is being recorded. The Company's earnings release, dated March 26, 2019, was distributed before market open this morning and can be accessed via the Company's Investor Relations website at ir.conns.com.

During today's call, management will discuss, among other financial performance measures, adjusted EBITDA, adjusted net earnings and adjusted annual credit segment operating income. Please refer to the Company's earnings release that was issued today for a reconciliation of these non-GAAP measures to their most comparable GAAP measures. I must remind you that some of the statements made in this call are forward looking statements within the meaning of the 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 over to Mr. Miller. Please go ahead, sir.

Norm Miller -- President, Chief Executive Officer and Chairman

Good morning, and welcome to Conn's Fourth 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 was a historic year for Conn's and reflects the growing momentum in our business. Fourth quarter GAAP earnings were $29.5 million or $0.91 per diluted share, which were the best quarterly earnings we have achieved in our 129-year history. Adjusted EBITDA for fiscal year 2019 was a record $212.8 million, a 27% increase from last fiscal year and approximately 18% higher than our previous annual adjusted EBITDA record.

In addition, same-store sales, retail gross margin and bad debt charge-offs, all improved significantly in fiscal year 2019, compared to the prior fiscal year. As we start the new fiscal year, our focus is on retail growth and we expect to achieve both positive same-store sales and accelerated store growth. Our ability to simultaneously manage retail growth and credit risk is the combination of our business transformation and we are embarking on the next phase of our business plan.

Our strategy is to produce 8% to 10% annual retail sales growth and controlled credit performance, which drives a very powerful financial model. We believe we can grow at this rate for many years to come, and we are extremely excited by the long term opportunity we have in front of us to create sustainable shareholder value.

So with this introduction, let's look at our fourth quarter results in more detail, starting with our retail business. As we have stated on previous calls, we believe our non-Harvey market performance is the best indicator to use when analyzing our retail business during the quarters impacted by the hurricane.

I am pleased to report the same-store sales for the fourth quarter in non-Harvey markets were up 3.7%, which validates our retail growth initiatives and is in line with our long term expectation of achieving positive low single digit same-store sales. Overall, same-store sales were down 1.4% for the fourth quarter, primarily due to the benefits Hurricane Harvey rebuilding efforts had in the fourth quarter of last fiscal year. Same-store sales in Harvey markets were down 12.9% in the fourth quarter. As we mentioned in our third quarter conference call, strong Novembers sales benefited from higher promotional activity in the large screen TV category. This pulled demand forward and sales trends decelerated throughout the fourth quarter.

In addition, we believe the government shutdown also impacted fourth quarter sales trend. Looking at fiscal year 2019 sales, total retail sales were

positive for the year ending January 31, 2019, which is the first year of positive retail sales growth in three years.

In addition, for fiscal year 2019, non-Harvey same store sales were down 1%, which is close to our long term annual same-store sales guidance. Lease-to-own sales were 8.1% for the fourth quarter and were an annual record 7.5% for fiscal year 2019. For the month of January, 9.2% of retail sales were financed through lease-to-own programs, reflecting the progress we are making toward our 10% lease-to-own sales goal.

Expanding our product categories is another component of our retail growth strategy during fiscal year 2019, we successfully added gaming systems and robotic vacuums to our assortment. And I'm pleased to report these new product initiatives performed better than expected we also recently launched new upholstery and dining collection and the initial reaction from our customers has been encouraging. During fiscal year 2020, we will continue to focus on enhancing our product offerings with complimentary category that align with our retail and our retail and our credit strategy. As a result, during the first half of fiscal year 2020, we will begin testing cellphone and flooring products in our stores. These large, compelling and exciting categories resonate with our customers and support our strategy of adding aspirational home products that our customers can affordably finance.

We plan on launching new marketing initiatives throughout fiscal year 2020 to help from our expanding product assortment and growing retail presence. Our product strategy is also benefiting retail gross margin, which increased 230 basis points in the fourth quarter to a quarterly record of 42.4%. On an annual basis, retail gross margin was a record 41.2% and was the first time we have reported annual retail gross margin over 40%. We believe our retail gross margin is sustainable as we continue to benefit from our better, best product strategy.

Looking at first quarter sales, February sales were impacted by the slow start to tax season and lower refunds during the month. While the pace of tax refunds has improved and helped March sales, we are cautious on first quarter sales due to February slow start.

In addition, Harvey continues to impact current sales trends. We will begin lapping the impact from Harvey rebuilding efforts in the back half of this fiscal year, which will help same-store sales.

For the first quarter of fiscal year 2020, we are guiding non-Harvey same-store sales in the range of negative 2% to positive 2% and Harvey same-store sales in the range of negative 12% to negative 8%. During fiscal year 2019, we opened a total of seven new stores, including stores in Texas, Virginia and Louisiana. New store revenues and credit performance continue to be in line with our expectation, which provides us with increasing confidence in our retail expansion plan.

With our enhanced credit model in place, new stores are ramping at a slower rate as we closely control credit risk. We expect sales in new stores to mature to our Company average over time, which will provide a tailwind to same-store sales once new stores build the base of recurring customer.

From a credit standpoint, first payment default rates on originations in our new stores opened between July and December 2018 were nearly 20% lower than first payment default rate on total originations made during the same time period. Highlighting our ability to prudently manage credit risk as we open new stores. For fiscal year 2020, we plan to open 12 to 15 new stores in existing states, which will all be in our new store layout featuring an enhanced customer experience and a more efficient sales process. To date, in the first quarter of fiscal year 2020, we have opened a new store in Montgomery, Alabama and a new store in New Orleans, Louisiana. We plan to open two more stores in New Orleans in the coming months and we are extremely excited about our opportunity in this new market. With 125 stores in 14 states, we have a significant and long term opportunity to expand our store base.

In addition to our investments in new stores, we plan on opening our new Houston distribution center late this summer. Once operational, we expect the state of the art facility to improve our logistics efficiencies across our largest market. As we increase new store investment, control sales of new locations, transition into our new Houston, D.C., and make further investments in our I.T. systems to support our growth, we expect some margin degradation will temporarily occur.

However, we expect to leverage these investments as we lap initial costs and grow sales. We are excited to execute our retail growth plan and I look forward to sharing our success in the coming quarters.

Now let's take a look at our strong credit performance during the fourth quarter and fiscal year 2019. Our credit segment achieved several milestones during fiscal year 2019, including a record annual net yield of 21.3% and a periodic charge off rate of 12.7%, which is in line with our long term annual loss expectation of 12% to 13 %.

This performance helped drive $32.1 million improvement in annual adjusted credit segment operating income, which ended the year at $5.7 million versus a loss of $26.4 million last fiscal year. In fact, this was the best annual adjusted credit segment operating income Conn's has produced in five years. For fiscal year 2019, Conn's credit spread increased to 860 basis points, compared to 420 basis points in the prior fiscal year.

In dollar terms, our annual credit spread increased 111% to $131.1 million in fiscal year 2019, compared to $62.2 million for fiscal year 2018. We are closing in on our 1000 basis point annual credit spread target, which we expect to achieve this fiscal year. For the fourth quarter interest income and fees were a record $85.4 million and increased over 9% from the prior fiscal year period, as a result of higher interest rate and better charge off performance. This drove a 110 basis point year-over-year improvement in our net yield, which was 21.6% for the fourth quarter of fiscal year 2019. Higher rates of no interest receivables and charge-offs typically occur in the fourth quarter, which happened this year and drove a 10 basis point reduction in our net yield compared to the third quarter rate.

As we have stated previously, we believe our portfolio will ultimately achieve our net yield goal of 23% to 25%, and we are confident we will produce a 1000 basis point spread during fiscal 2020. Recent 60 plus day delinquency trends demonstrate that we have reached credit stabilization as a result of the successful underwriting changes we implemented several years ago. As a result, we expect delinquency rates to range between 9% to 10% of the total portfolio carrying value, which will vary quarter to quarter based on typical seasonal trend.

Our credit results continue to demonstrate better operating performance and favorable credit trend. I am confident in the continued strength of our credit platform and our ability to manage risk going forward, especially as our retail growth accelerate.

So to conclude my prepared remarks before I turn the call over to Lee, fourth quarter and fiscal year 2019 results demonstrates the strength of our financial model and a positive evolution of our business. We continue to believe our retail model and credit platform can consistently support total annual retail sales growth of 8% to 10%, and we believe we are well positioned to achieve this goal in fiscal year 2020.

With this, let me turn the call over to Lee.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Thanks, Norm. Consolidated revenues were $433 million for the fourth quarter of fiscal year 2019, a 3% increase from $420.4 million for the same period last fiscal year. GAAP net income improved significantly to a record $29.5 million, or $0.91 per diluted share for the fourth quarter of fiscal year 2019, compared to $3.2 million or $0.10 per diluted share for the prior fiscal year quarter. On a non-GAAP basis, adjusting for certain charges and credits and losses from extinguishment of debt, net income for the fourth quarter and fiscal year 2019 was $0.96 per diluted share, compared to $0.56 per diluted share for the same period last fiscal year. Adjusted EBITDA was $67.7 million or 15.6% of total revenue for the fourth quarter of fiscal year 2019, compared to $57.5 million or 13.7% of total revenue for the same period last fiscal year. Reconciliations of GAAP to non-GAAP financial results are available on our fourth quarter press release that was issued this morning.

Fourth quarter of fiscal year 2019 retail revenues were $338.9 million, an increase of 1.3% from the same quarter last fiscal year. We achieved record retail gross margins for the fourth quarter of fiscal year 2019, a 42.4%. The 230 basis points year -over -year improvement in retail gross margin was a result of the continued benefits of our better best product strategy, which is enabled by our strong credit platform.

Retail SG&A expense was $87 million, an increase of approximately $3.9 million from the same quarter in the prior fiscal year. While retail SG&A expense as a percentage of revenue deleverage 90 basis points to 25.7% , primarily due to costs for new stores and an increase in the corporate overhead allocation.

As Norm previously mentioned, we plan on opening 12 to 15 new stores this fiscal year. We typically start incurring costs associated with new stores approximately six months ahead of opening, and there will be additional expenses incurred throughout the fiscal year as we prepare to open these locations.

We remain focused on strategies to control as SG&A expenses, 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. To make it easier for investors to understand our customer accounts receivable and associated credit performance, we are now presenting certain credit measures, primarily those in Note 2 of our 10-K on a carrying value basis.

Carrying value presentation reduces the value of the customer accounts receivable balance by adjusting for deferred fees and origination costs. The allowance for no interest option credit programs and the allowance for uncollectable interest. Our percentages and balances of accounts receivable 60 days plus past due in reaged accounts receivable calculated under our previous and current methodology are available in our investor presentation, which is on our website. References to balances and percentages of accounts receivable 60 days plus past due or reaged on today's conference call and going forward will be at carrying value.

Finance charges and other revenues for the credit segment were a quarterly record of $94.1 million for the fourth quarter of fiscal year 2019, up 9.6% from the same period last fiscal year. The increase versus last fiscal year was primarily due to a yield of 21.6%, an increase of 110 basis points from last fiscal year. As expected, there continues to be no retrospective commissions as a result of higher claim volumes related to the increased severity weather events in addition to lower interest penetration rates and rate changes. We continue to actively monitor both our partners and overall insurance performance.

Fourth quarter net annualized charge offs as a percent of the average outstanding balance were 12.7%, a 220 basis point improvement over the prior fiscal year. It is also important to note that fourth quarter net charge offs declined $6.3 million or 11.2% compared to the prior fiscal year.

For the fiscal year 2019, net charge offs were $32.8 million or 14.5% lower than last fiscal year. Our periodic charge off rate is now in line with our long term guidance, and as a result, we are no longer providing static loss guidance for specific periods of originations. We believe we can continue to achieve a periodic loss rate between 12% and 13% as we open new stores and grow retail sales. Provision for bad debts in the credit segment was $55.4 million for the fourth quarter of fiscal year 2019, an increase of $0.7 million from the same period last fiscal year, primarily due to growth of the portfolio. The allowance for bad debt and uncollectible interest as a percent of the total portfolio was 13.5% at January 31, 2019, which was up 20 basis points from the prior fiscal year period.

Improving our recovery process has been a strategic focus throughout this fiscal year, as higher recoveries benefit cash collections and reduce loss rates on our allowance for bad debt.

For fiscal year 2019, we collected $18.8 million of recoveries, almost doubling last fiscal year results of $10.9 million. We made progress implementing additional recovery partners during the fourth quarter and we believe we are on track to collect annual recoveries exceeding $20 million in fiscal year 2020. For the month of February, recoveries exceeded $2 million, which is the strongest month of recoveries we have ever achieved, and reflect continued improvement.

SG&A expense in the credit segment for the fourth quarter increased 13.7% versus the same quarter last fiscal year, and on annualized basis as a percentage of the average customer portfolio balance was 10.1% compared to 9.2%.

The increase in credit SG&A expense primarily reflects the investments we are making to pursue our compelling recovery opportunity and increase in compensation costs and an increase in the corporate overhead allocation.

Interest expense for the fourth quarter was $15.2 million, which was a decrease of 15.5% from the same period last fiscal year ,as a result of continued year-over-year deleveraging and reductions in all-in cost of funds. For the fourth quarter, annualized interest expense as a percentage of average portfolio balance was 3.9% compared to 4.8% for the same period last fiscal year. Average net debt as a percentage of average portfolio balance was approximately 59.4% compared to approximately 69.5% for the same period last fiscal year. ABS notes currently outstanding include the B and C classes of our 2017 B notes and all classes of our 2018 A note.

We currently expect to complete two ABS transactions during fiscal year 2020. I am pleased with the improvements we made in our capital position during fiscal year 2019. 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, Norm and I are happy to take your questions. 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 and Company. Please proceed with your question.

Brian Nagel -- Oppenheimer and Co -- Analyst

Hi, good morning.

Norm Miller -- President, Chief Executive Officer and Chairman

Good morning, Brain.

Brian Nagel -- Oppenheimer and Co -- Analyst

Thanks for taking my question. First off, congrats. I know you definitely made significant progress here over the last several quarters (inaudible).

Norm Miller -- President, Chief Executive Officer and Chairman

Thank you.

Brian Nagel -- Oppenheimer and Co -- Analyst

The question I have is for both Norm and Lee, with regard to sales growth. Look, there's a lot of trends toward packers (ph) are trading, seemingly trend toward packers out there, whether there would be other issues with the government shutdown or et cetera. But it still seems as though there's something kind of -- there's a factor or factors there is sort of holding back -- which should be better retail sales growth given all the improvements in the business?

And you've taken a very analytical approach to had a better address or penetrate your customer. So the question I have is -- if you look at all this, what is holding it back right now? What can you see that's holding back, which should be better underlying sales growth?

Norm Miller -- President, Chief Executive Officer and Chairman

What I would say, Brian, is first when you look at -- you're right, there are a lot of moving parts and a lot of transitory things, Harvey, the lapping of Harvey being a significant element and as you look at the same-store sales results for the fourth quarter, from a Harvey standpoint, it is down 12.9%, which was greater than what we anticipated it to be. However, as we had shared the non-Harvey was actually up 3.7%, which -- you have to go back five years to find a same-store sales number -- that's in that range where the companies performed at that level.

And we saw strong performance in November, even December was a strong performance -- almost 5% same store sales in December, January -- early part of January, we saw nice performance in January until the middle part of the month or so, early mid part of the month with the government shut down. And that obviously and ultimately the end of the day resulted in a 3.7% number up from an non-Harvey standpoint. So I will tell you, Brian, I'm very, very pleased with -- the underlying performance because I seen non-Harvey as the underlying performance and our February tax season is very, very important to our customers.

And if you look at February results, we're down about 4% same-store sales in February in non-Harvey. Harvey was actually down 17%. And Harvey impacted even more last year because the fact that last year during tax season people had fun to be able to buy our products that they typically wouldn't be able to do during the year. So now what we're seeing in March and April, if you look at our midpoint, our implied midpoint from March and April, we're looking just a little bit under 2% for the two month in non-Harvey and even Harvey down only about 6%. But if you look at the midpoint of our guidance for the quarter, those are the implied numbers for March and April.

So what I would say is, I know there's a lot of noise and moving parts, I've never been more bullish than I am as I sit here today and where our performance is. And, our long term model, as you well know, is low single digit same-store sales. And we were there and exceeded that in the fourth quarter and could it be very close to that, we think here in the first quarter and position ourselves with the new store growth as well to really take advantage of our very powerful retail model going forward.

Brian Nagel -- Oppenheimer and Co -- Analyst

That's really helpful. Let me just ask one followup, with regard to Harvey. We've been talking about the Harvey affected market now for a while. What is -- is it simply that, I think you may have alluded to this in the prepared comments that following the weather events, there was this surge of demand as people replace products within that, that has basically (inaudible) demand going forward or what is -- I guess first I'm really asking, what is it with -- what's the dynamic behind Harvey and how should we think about that? What has to happen that it will take.

Norm Miller -- President, Chief Executive Officer and Chairman

That's a great question, Brian. So what happens is, after the hurricane, you -- within about 30 or 45 day time-frame, you start to see recovery and increase sales from a replacement standpoint. So for us, that was in the middle of the third quarter to fourth quarter. Harvey, as everyone knows, was a rain event, so it stretched out even longer than what you'd typically see with a wind event Hurricane and so we're lapping through the first quarter that the numbers will start to abate in the first quarter, there will still be an impact in the second quarter and then in the third quarter, very early in the quarter, there might be a little bleed into that. But for the most part, as the vast majority of that will be lapsed on the rebuilding side.

Now, the one area that could linger a little bit and impact, we're not talking double digits here, but could have a -- could put some downward pressure in that market is, you do pull replacements forward when you have a hurricane. So somebody that wouldn't be replacing potentially their refrigerator or their furniture for another year and year and a half, are forced to do it because of the hurricanes. So you get some pull forward of demand that, that will pull downward -- some downward pressure but nothing like we're seeing here over the this quarter and last quarter.

Brian Nagel -- Oppenheimer and Co -- Analyst

Thank you very much. Best of luck.

Norm Miller -- President, Chief Executive Officer and Chairman

Thanks Brian.

Operator

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

Rick Nelson -- Stephens Inc. -- Analyst

Hi, thanks good morning. Want to followup on the retail gross margin record levels and up 160 basis points. If you had a mix shift toward what I would think would be lower margin electronics and I'd like to get behind what is driving that improvement?

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Yes, hey Rick, it's Lee. So as you said rightly so, there was a mix shift in with more electronics, one of the things that we have done, I think an excellent job in credit to the merchandising team is continuing to look at your better stores being getting the right value from our vendors and you'll see that come through. So we've been extremely pleased, but even with the mix shift change, that you've seen a higher margin. So it's one of the things that we talked about on the call, though, again we've done a lot of that. So as we go forward, obviously it is important for us to continue and we are focused on enhancing the mix with furniture and mattress, because obviously that's a higher margin. But again, I think it is a big hats off to our team here that we were able to produce those margins with this mix.

Norm Miller -- President, Chief Executive Officer and Chairman

There's been a lot of focus on for obvious reasons on the credit side and the investment we've done from a people standpoint there, but we've made significant investments from a people standpoint on the retail side of the house as well. And the merchandising, the buying team, the effectiveness -- that team has brought to the table here this past year, as far as how they buy, who they buy from, the programs they have in place with our vendors, all have -- has been accretive and enabled us to achieve the record quarterly gross margin we had this past quarter.

Now, as we mentioned, we won't -- we still think we have upside primarily driven by mix going forward. But as we said in the prepared comments, our business model had a 40% plus retail margin is extremely powerful, which is really what our target has been all along to get into that 40% plus margin rate.

Rick Nelson -- Stephens Inc. -- Analyst

Are you in fact taking any prices up in the store to try to stimulate that margin?

Norm Miller -- President, Chief Executive Officer and Chairman

We are not. And we still price -- we do math minus 10% pricing from an advertising standpoint, we still match pricing from price guarantee for anything that's advertised with our major competitors, none of that has changed Rick.

Rick Nelson -- Stephens Inc. -- Analyst

The down payment rate was 2% first (ph) quarter -- it's been trending lower for some time now, had there been (inaudible) to drive same-store sales and are there credit implications down the line from that strategy?

Norm Miller -- President, Chief Executive Officer and Chairman

No, it's not at all -- an effort to drive same-store sales, it's really just inherent credit quality, it's been a little bit better coming in and depending on the overall credit quality coming in is really what's driving that more than anything.

Rick Nelson -- Stephens Inc. -- Analyst

Got you. And store growth, which is really ramping this year. If you could speak to the stores that are now opening here, I think there were couple in Texas you opened a year ago at this time, how those are performing versus the store model that you've got it in your Powerpoint Page 14?

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Yes. Hey, Rick, it's Lee. We're very pleased with our store openings and they're in line with our expectations. Again, as we've talked about stores that are in -- all of our stores we're opening are in existing states, but we do have stores in existing markets and what you see is those stores in the existing markets where we already have advertised and have the brand name, we see a higher ramp than what we have sort of our midpoint average range of sales in the first year.

And then when we're going into new markets, even though there are existing states are still new markets, obviously a bit of a slower ramp, but online -- expectations and we're very excited as Norm talked about on the call with a new store in Montgomery, Alabama. Now it's a new market and a new store in New Orleans and we've talked about two more stores, just very excited about the reception that we're receiving in those markets and again, we've again -- we're very excited about the new store growth plan that we've got this year and the reception we believe will get.

Norm Miller -- President, Chief Executive Officer and Chairman

And one final thing on Rick is, your question is kind of ties to me the question that you had mentioned about the margin, I'm sorry about the deposit down payment and as we mentioned in the -- we highlighted it in the script just so that folks who are comfortable with the fact that we are not playing with the credit model to drive retail sales.

Now, we we're not going to do it if we're not seeing the return on investment invested capital and the risk is not appropriate and we highlighted that our first payment default for our new markets in the back half of last year are actually 20% lower than the total portfolio, which speaks to the fact that the tax we're taking here is a long term one of -- we can drive same positive same-store sales, low single digit by what's -- within our control from a merchandising or retail execution standpoint, a marketing standpoint, and maintain that credit portfolio in a very stable position and we're not going to vary from that. As tempting as sometimes it might be for folks to want us to do that.

Rick Nelson -- Stephens Inc. -- Analyst

Great, good to here. Thanks and good luck.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Thanks, Rick.

Operator

Thank you. Our next question comes from the line of Kyle Joseph with Jefferies. Please proceed with your question.

Kyle Joseph -- Jefferies, LLC -- Analyst

Good morning guys, thanks for taking my questions. Going back to tax refunds, you guys talked about the impact on retail sales. Just looking at the results and guidance, it doesn't look like there was an impact on credit. But can you just talk about (inaudible) sort of delays there and impacts on (inaudible)?

Norm Miller -- President, Chief Executive Officer and Chairman

Yes, we saw a little bit of an impact more driven because our execution is getting better on the collection side of the house, what I would say is we didn't have as good a performance in the last part of February from a collection execution standpoint that we anticipated, even though it was stronger performance than prior year. But I will tell you that in March, with the refunds catching up, we're seeing -- for the two months our performance be -- end up being where we expected to be overall.

Kyle Joseph -- Jefferies, LLC -- Analyst

Got it. And then Lee, kind of talked about credit getting approaching the 12% to 13% long term target in terms of losses. But looking at your credit guidance for the first quarter, it looks very good, looks like you guys are guiding toward a provision being down a little bit year-over-year. Is that just ongoing lingering strength from the end of the year and you'd anticipate it sort of stabilizing going forward? Particularly in the context that your portfolio is now growing a bit?

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Yes, part of that's obviously seasonality in Q1, Kyle, but but again, we're very pleased with the credit platform and the results that were receiving there so, again, don't anticipate any major changes from that perspective.

Kyle Joseph -- Jefferies, LLC -- Analyst

Got it. Thanks very much for answering my questions.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Thanks, Kyle.

Operator

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

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

Hey, good morning, Norman, Lee, and let me add my congratulations as well on another solid year here.

Norm Miller -- President, Chief Executive Officer and Chairman

Thanks Brad.

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

Let's hear, a couple of questions, if I could. Just to follow up on that dynamic of your forecast for provisions for 1Q in dollars the provisions were up a little bit in 4Q. Your portfolio is obviously growing, you have a model down in 1Q. I guess just wanted to follow up on the puts and takes there, particularly as you look at what's happening with tax refunds of late?

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Yes, Brad it's Lee. So, again, obviously, Q1, you get the tax refunds that come in and again, with this Norm talked about the better collections execution, so therefore less charge offs. So that's really what's going to drive our -- from our projection when we put our guidance to lower provision here. So..

Norm Miller -- President, Chief Executive Officer and Chairman

That's the $2 million in recovery.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

It's true. Absolutely.

Norm Miller -- President, Chief Executive Officer and Chairman

We mentioned in February that we're really starting to get traction there as well. So that's a nice tailwind for us as well from a credit standpoint.

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

Got you, OK. And then as we think about SG&A, obviously you'll be opening up stores here and incur some costs ahead of when those stores actually are open, in the fourth quarter SG&A dollars up almost 8%, it looks like maybe in 1Q what's implied is, it might not grow at -- quite that high of a rate, but at a high level is that what you think we should be thinking about here, kind of a mid maybe high single digit growth rate in SG&A dollars for the year?

Norm Miller -- President, Chief Executive Officer and Chairman

Yes. I think that's directionally correct Brad, what I would say is we have to get to the point of where we lap, the consistent number of new stores. That's really -- not the only driver, but it's probably 70% of the driver of that SG&A cost.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Yes, Brad. That's right and obviously as Norm talked about until we start lapping the number of new stores, but one other thing that we did talk about on the call, we are making our investments in new systems, which we're extremely excited about. We will get leverage on the future, but that obviously had some costs. But again, some of the things that we're doing from SG&A perspective, we talk about the new stores and the importance of execution of those obviously, we're hiring managers and training that are in our existing stores, so that we can have existing managers and go staff the new stores because it's so important to get good execution from the new stores.

All of those do add some incremental costs that are important and they're the right investments to make. But that's again, as we talk about the SG&A increase, that's what's driving some of those things.

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

Yes. And just if I kind of triangulate here, you all obviously don't give explicit earnings guidance for quarters or for the annual basis. But when I think about the credit seasoning tailwind that you still have that confidence in the 1000 basis point spread when I look at your implied guidance for 1Q, it does look like we should have earnings higher year-over-year in 1Q and I would think we should get that in just about every quarter of this year with what you know today. Do you think that's a reasonable way of looking at the business?

Norm Miller -- President, Chief Executive Officer and Chairman

We clearly don't like to guide beyond the quarter we're in, but I think that's a very reasonable way to look at the business.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Brad, the one thing to keep in mind, obviously, we've talked about it. As we grow the portfolio we do have to take that allowance, set up fronts of that again add with growth, you do get some hit to your credit from that perspective --

Norm Miller -- President, Chief Executive Officer and Chairman

From the provision.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

From the provision exactly.

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

Great. And if I could squeeze one more in from a product perspective, is it the furniture mattress category did see some acceleration from 3Q into 4Q but performance in that category a little bit below some other areas of the store, I guess. Can you talk about what's going on in there, any other opportunities? Are you still pleased with the switch that you made from the temper products over to the sort of Siemens (ph) products anymore color would be great?

Norm Miller -- President, Chief Executive Officer and Chairman

Yes, I mean, we are still pleased with the transition that we made. We are seeing a little more softness on the mattress side than we are on the furniture side, when you look at the two categories. But frankly, we feel as much of it is on from a retail execution standpoint and we have the ability to impact that. So, our expectation going forward is -- those categories are bread and butter and both mattress and furniture and leaders force and we're looking for improved performance there going.

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

Very helpful. Thank you, guys.

Norm Miller -- President, Chief Executive Officer and Chairman

Thanks Brad.

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Thanks Brad.

Operator

Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Miller for any final comments.

Norm Miller -- President, Chief Executive Officer and Chairman

Thank you. I just want to take a moment, first of all, and always take the time to thank our almost 5000 associates across the Company for the job they do each and every day -- our record profitability results this past year are a direct reflection and result of those folks serving our customers and doing the job they do day in and day out. So thank you to all of them and we appreciate your interest in the Company and we look forward to talking to you at the end of next quarter. Have a great day.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 44 minutes

Call participants:

Norm Miller -- President, Chief Executive Officer and Chairman

Lee A. Wright -- Executive Vice President and Chief Financial Officer

Brian Nagel -- Oppenheimer and Co -- Analyst

Rick Nelson -- Stephens Inc. -- Analyst

Kyle Joseph -- Jefferies, LLC -- Analyst

Bradley Thomas -- Key Banc Capital Markets, Inc. -- Analyst

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