Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Conn's (NASDAQ:CONN)
Q3 2021 Earnings Call
Dec 08, 2020, 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, 2020. 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 8, 2020, was distributed before market opened 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 net income and adjusted earnings per diluted share. 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 just want to remind you that some of the statements made in this call are forward-looking statements within the meaning of federal securities law. 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; Lee Wright, the company's COO; and George Bchara, the company's CFO.

I would now like to turn the conference over to Mr. Miller. Please go ahead.

Norman Miller -- Chairman, Chief Executive Officer, and President

Good morning, and welcome to Conn's third quarter fiscal-year 2021 earnings conference call. I'll begin the call with a strategic overview, then Lee will provide additional details on the quarter before turning the call over to George, who will complete our prepared remarks with additional comments on the financial results. The economic environment remains extremely fluid as the pandemic continues to impact many communities across the country. We believe our conservative operating approach has allowed the company to successfully navigate current market conditions, while also positioning the business to capitalize on our long-term growth opportunities.

Our home-related product strategy and multiple financing options continue to drive strong growth of cash and third-party credit sales, which increased 32.7% year-over-year during the third quarter. Overall, same-store sales continue to be impacted by the underwriting changes we implemented beginning in March 2020 in response to the COVID-19 crisis. We believe underwriting changes, combined with industrywide inventory shortages in certain product categories reduced year-over-year same-store sales by approximately 20% in the third quarter. Despite these impacts, I am encouraged by the sequential improvement in same-store sales.

Third quarter credit performance reflects the quick and proven adjustments we made earlier this year to mitigate the potential impacts on our business of high unemployment and economic uncertainty. As a result, our credit segment is benefiting from newer, higher quality originations and strong cash collections. Since the beginning of our fiscal year, our balance sheet has strengthened significantly as a result of the reduction in the portfolio balance due to the stronger rate of cash collections and higher cash and third-party sales. In fact, we ended the third quarter with the lowest level of net debt as a percent of the portfolio balance in over six fiscal years.

We also successfully closed an ABS transaction in October 2020, our first since the onset of the pandemic. We believe the progress we made during the quarter provides us with significant flexibility to support our business through the COVID-19 crisis. During the third quarter, we also continued to invest in our long-term growth initiatives, which include expanding the capabilities of our e-commerce and omnichannel platforms, enhancing our credit platform to extend credit to more customers while achieving 1,000 basis points of credit spread and capturing more declined applications for Conn's credit to third-party lease-to-own solutions. These actions will not only help our business through the COVID-19 pandemic, but will also expand our long-term growth opportunities.

In addition, we continue to pursue our geographic expansion strategy and open new showrooms in targeted markets. On November 6, we opened our first Florida showroom in Pensacola, and we are excited by the potential the Florida market represents. We plan to open a majority of our new showrooms next fiscal year in Florida to leverage our Lakeland distribution center that is scheduled to open in January 2021. As you can see, we continue to focus on successfully navigating the COVID-19 crisis while investing in our business to support future growth opportunities.

I want to personally thank all of our associates for their continued dedication during this challenging period. On behalf of everyone at Conn's, we remain committed to helping our customers and communities in this time of need. So with this overview, let me turn the call over to Lee, who will provide more details on our third-quarter operating results.

Lee Wright -- Chief Operating Officer

Thanks, Norm. I'll start my prepared remarks today, looking at our credit operation in more detail. Overall, our credit business reflects the successful execution of the prudent credit strategies we implemented in mid-March to successfully navigate the impacts of the COVID-19 crisis while supporting our retail sales with our multiple third-party credit options. The strength of cash repayments on outstanding loans within our portfolio is encouraging and continues to exceed the seasonal trends we typically experience.

In fact, the third-quarter payment rate increased 16.3% year over year and represented the best third-quarter cash payment rate in over 10 fiscal years. We believe this strong internal collection efforts and lower consumer spending are having positive impacts on cash collections within our portfolio. As we stated in our last conference call, we revised certain of our reaged programs in June to be more restrictive and improve the balance of reaged accounts within our portfolio. As a result, the dollar balance of the carrying value of reaged accounts on October 31, 2020 has declined $75.7 million or 17.9% year over year and is down by $45.5 million or 11.6% from July 31, 2020.

In addition, the dollar balance of 60-plus day delinquencies has declined from the prior fiscal-year period. It will take time for overall credit trends to normalize given the severe economic challenges COVID-19 pandemic has caused in the prudent credit strategies we have put in place. However, we expect favorable underlying performance within our portfolio to continue to lead to sequentially lower charge-offs for the remainder of this fiscal year. In addition, accounts originated after March's underwriting changes have benefited from higher FICO scores and higher mix of existing customers.

We also continue to see a larger population of higher quality applicants as other prime and near prime lenders have tightened their underwriting standards. As we continue to successfully navigate this challenging and uncertain economic period, we are encouraged by the improving credit trends we are experiencing. On October 31, 2020, our credit spread was 6.4%, representing a 420-basis point improvement from July 31, 2020. We also continue to expand the capabilities and enhance the infrastructure of our credit segment.

TJ Fenton joined Conn's in July as the company's chief credit officer and has over 20 years of leadership experience at various prime and near prime consumer finance companies. TJ is quickly contributing to our success in several credit initiatives are under way to identify opportunities to increase retail sales while maintaining credit risk. Capturing more retail sales through our third-party lease on solutions remains an important priority for our team and represents a significant opportunity for Conn's and our third-party providers. We have a strong belief that lease-to-own sales should be at least 10% of our total retail sales compared to 7.2% in the most recent quarter.

This is especially true now that we are declining more applications as a result of our tighter underwriting standards. We are working with both our existing partner and testing other lease-to-own providers to achieve this call, and I look forward to updating investors on our success in the coming quarters. Overall, we believe our third-quarter results highlight the resiliency and flexibility of our unique credit and retail business model and the ability to derisk our credit business while still supporting retail demand through our diverse credit option. So looking at our retail segment performance in more detail.

Total retail sales declined 7.3%, while same-store sales declined 10.9% for the third quarter compared to the prior year period, primarily due to the underwriting adjustments that we began implementing in mid-March in response to the COVID-19 crisis and to a lesser extent, limited product availability. We believe these headline numbers do not reflect the positive underlying trends that are occurring within our retail segment, which include strong year-over-year growth in cash and third-party sales, sequential improvements in monthly same-store sales throughout the third quarter and a 1.2% year-over-year increase in third quarter same-store transactions. These favorable trends have occurred despite the continued impact on retail sales of tighter underwriting, which we believe, combined with industrywide inventory shortages reduced year-over-year same-store sales by an estimated 20% during the third quarter. We are pleased to see the November same-store sales came in better than the third-quarter result despite the nationwide COVID-19 resurgence and the continued impacts of tighter underwriting.

Looking at our product categories in more detail. Total appliance sales during the quarter increased 10.5%, which represents a 210-basis point increase from the growth rate in the second quarter. We are also starting to experience improving trends within our furniture and mattress category as total sales of furniture and mattress increased 2.2% sequentially. Conversely, our consumer electronics category remains challenged and continues to experience significant TV price deflation.

Industrywide supply chain challenges continued throughout the third quarter across most of our categories. Inventory availability suffered as a result of COVID-19 related impacts on factory production as well as transportation delays, especially for imports. We expect inventory constraints to continue throughout the holiday season with product availability improving in the first quarter of our upcoming fiscal year. Turning to our retail growth initiatives.

We are constantly testing new ways to leverage our unique in-house financing and better serve our core customers. Flooring and fitness are two product groups where we believe our core customer is underserved. After a successful test of both product groups within select markets, home fitness equipment now for sale in all of our showrooms, and flooring is now sold in more than half of our showrooms. We plan to continue to expand and refine our product strategies to offer more home-related products to resonate with our core customers.

Last year's launch of our new e-commerce platform and upgraded website continues to support e-commerce growth and third-quarter sales through this channel increased nearly 61% compared to the prior fiscal-year period. E-commerce represents only 1.9% of trailing 12-month sales, and we believe that we have a substantial opportunity to increase sales through this channel. As a result, we have increased investments in our e-commerce efforts and expect to accelerate these initiatives over the coming year, which we expect will impact our total SG&A spend. To assist in offsetting higher e-commerce investments, we continue to focus on driving cost savings and improving efficiencies across our organization, and we successfully lowered operating expenses across several categories since mid-March.

Compared to the prior fiscal-year period, retail SG&A expenses have declined $13.9 million year-to-date despite an approximately 4.5% year-over-year increase in retail square footage. We opened two additional showrooms during the third quarter and have opened one new showroom in the fourth quarter, bringing the total number of new stores opened to date in the fiscal year to seven. As of today, we operate a total of 144 showrooms across 15 states and have plans to open eight to 10 new showrooms next fiscal year. We continue to believe that as an omnichannel retailer, we have opportunities to grow both our brick-and-mortar and online business simultaneously.

So to conclude my prepared remarks, I am pleased with the progress we are making in navigating the COVID-19 pandemic while refining our strategies to support the current and future needs of our business. We believe our third-quarter results demonstrate the resiliency of our business model and the growing success of our digital platform. This, combined with our compelling financial model, experienced leadership team and strong balance sheet provides the necessary resources to successfully manage the business through this challenging period. On behalf of the entire leadership team, I'd like to thank our employees for your continued hard work, service and dedication.

Now let me turn the call over to George to review our financial performance.

George Bchara -- Chief Financial Officer

Thanks, Lee. Over the past nine months, our balance sheet and capital position have strengthened materially because of the actions we took to mitigate the potential impacts on our business of high unemployment and economic uncertainty. The business generated operating cash flow of $79.7 million during the third quarter and $385.5 million year-to-date, which is a $293 million increase from the prior year-to-date period. This was primarily driven by the significant year-over-year increase in cash and third-party sales and the decline in our customer accounts receivable balance as a result of tighter underwriting and a stronger rate of cash collections.

The year-over-year increase in operating cash flow also drove a decline in net debt as a percent of the ending portfolio balance from approximately 59% at January 31, 2020, to approximately 48% at the end of the third quarter. In October, we closed our latest ABS transaction and our first since the onset of the pandemic. Our 2020 A transaction exhibited strong demand and favorable pricing. We sold the Class A and Class B notes for $240.1 million with an all-in cost of funds of approximately 4.84%.

This reflects the second best pricing through the Class B notes we have achieved in the ABS market and is only 64 basis points higher than our last pre-COVID transaction. We also chose to retain the $62.9 million of Class C notes issued in the transaction based on our strong liquidity position and the current capital needs of the business. The Class C notes may be sold at a later date to support the future liquidity needs of the business. At October 31, 2020, we had total cash and immediately available liquidity of approximately $384.7 million, which included $107.8 million in cash and cash equivalents and $276.9 million of availability under our existing revolving credit facility.

We believe this provides more than enough liquidity to support the current needs of our business. And on November 30, 2020, we announced a cash tender offer for up to $100 million of our 7.25% senior notes that mature in July of 2022. We expect to complete the tender by the end of the calendar year. As you can see, our capital position and liquidity remains strong, and we are proactively managing our cost of funds while ensuring we have the financial resources to support the long-term needs of our business.

Moving to our financial results. On a consolidated basis, revenues were $334.2 million for the third quarter, representing an 11.1% decline from the same period last fiscal year. We reported GAAP net income of $0.25 per diluted share for the third quarter compared to GAAP net income of $0.39 per diluted share for the same period last fiscal year. On a non-GAAP basis, adjusting for certain charges and credits, we reported net income of $0.25 per diluted share for the third quarter compared to net income of $0.49 per diluted share for the same period last fiscal year.

Reconciliations of GAAP to non-GAAP financial measures are available in our third-quarter earnings press release that was issued this morning. Our financial results for the third quarter reflect the success of our cost savings initiatives. Consolidated SG&A expenses were $122.2 million, a $3.4 million decline from the prior year. Year-to-date, consolidated SG&A expenses have declined $20.6 million from the prior fiscal-year period.

While we remain focused on cost controls, we expect fourth quarter SG&A expense to be approximately flat year over year. Looking at our retail segment in more detail. Total retail revenues for the third quarter were $259.9 million, a 7.3% decline from the same period last fiscal year. Retail gross margin for the third quarter was 38.3%, a decrease of 90 basis points from the same period last fiscal year.

A decline in RSA commissions and retrospective income as a result of lower sales of Conn's in-house financing was the primary driver of the year-over-year decline in retail gross margin. We expect this will continue to put pressure on our retail gross margin on a year-over-year basis during the fourth quarter. Retail segment operating income was $15.2 million compared to $19.6 million for the same period last fiscal year, primarily due to lower retail sales and lower retail gross margin, partially offset by reductions in retail SG&A expense. Turning to our credit segment.

Finance charges and other revenues were $74.2 million during the third quarter. The 22.5% decline from the same period last fiscal year was primarily due to a 16% reduction in the average balance of the customer receivable portfolio, lower insurance commissions due to the decline in the balance of sale of our in-house credit financing and a decline in insurance retrospective income. For the fourth quarter of fiscal-year 2021, we expect finance charges and other revenue to be down year over year, primarily due to a lower balance of loans. Our provision for bad debt continues to benefit from a decline in the allowance for bad debts as a result of a shrinking portfolio balance, which was magnified by higher reserve percentages under CECL.

In addition, during the third quarter, the allowance for bad debt declined as a result of a decline in forecasted unemployment rates. This decrease was partially offset by an increase in our allowance related to accounts that received the COVID-19 payment deferral based on the portfolio performance of these accounts. As a result, our third quarter provision for bad debt was $27.4 million compared to $45.4 million for the same period last fiscal year despite higher year-over-year charge-offs. Our credit spread for the third quarter was 6.4%, a 420-basis point increase from the credit spread of 2.2% last quarter.

Credit segment loss before taxes improved to a loss of $2.7 million compared to a loss before taxes of $4.3 million for the same period last fiscal year. The year-over-year improvement was driven by a decline in the provision for bad debts, which reflects a stronger cash collections rate, newer, higher quality originations and the reduction in the portfolio balance as a result of higher cash and third-party sales. Finally, the third-quarter tax rate was 41% compared to 24.8% for the same period last fiscal year. The year over year increase in the effective tax rate was driven by a $1.7 million discrete tax expense recognized in the current period as a result of a reversal of a tax loss carryback that was recognized earlier this year.

We expect to recognize a discrete tax benefit in the fourth quarter as a result of tax planning in connection with the CARES Act. So with this overview, Norm, Lee and I are happy to take your questions. Operator, please open the call up to questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from the line of Rick Nelson with Stephens. Please proceed with your question.

Rick Nelson -- Stephens Inc. -- Analyst

Thanks a lot. Good morning. Norm, George or Lee, what you think is driving the sequential improvement that you saw same-stores sales during the third quarter and the fourth quarter to-date? And if you could get more specific around those trends, especially the Black Friday period.

Norman Miller -- Chairman, Chief Executive Officer, and President

Yes. So as Lee mentioned in his comments, we saw improvement each month through the third quarter on same-store sales and continue to see improvement as we mentioned in the month of November. So very pleased. We have not changed from a credit underwriting standpoint, where we've been in mid-March.

So it's not because of anything we're doing on the credit side of the house. It's really being driven by that cash and third-party customer, the combination of creating cash and lease-to-own and the improvement year over year is driving that.

Rick Nelson -- Stephens Inc. -- Analyst

How are you getting more aggressive? I guess promotions we could see some margin declines year over year?

Norman Miller -- Chairman, Chief Executive Officer, and President

No. I would say our promotions are fairly consistent year over year. That's certainly not what's driving it. And I think the execution is better.

And I think some of our e-commerce efforts for the very first time, we've ever had buy online, pick-up in-store. We implemented that in the month of November, late October, and that has been doing very well for us, helping to drive our e-commerce sales as well. So the digital and e-commerce side as well as the non-Conn's financing side are really the primary drivers of what's driving the sales. And that's why we're so bullish about next year because as we look at the opportunities on the Conn's financing and the credit side, we know we will have opportunities there next year to help us from a same-store sales side.

So to be at what 20% impact of same-store sales and only be down a 10.5% speaks to the power of the business model and what we believe our opportunity is for next year.

Lee Wright -- Chief Operating Officer

Rick, and one thing just to add on a category-specific basis is clearly, we're pleased with the strength in appliances, but also the improvement we saw in furniture and mattress, which is clearly an important category. So -- and we're pleased to see that continued progression.

Rick Nelson -- Stephens Inc. -- Analyst

Can you speak to e-commerce penetration, where you stand there and these recent recommendations from the CDC to avoid in the store shopping, and have you seen any change in customer behavior?

Lee Wright -- Chief Operating Officer

Yes, Rick. We certainly -- there's no question that customers are more reluctant to enter into a showroom. So we were pleased to see, obviously, our overall growth in e-commerce. But again, as you think about our e-commerce opportunity, we think we have a unique opportunity to grow that significantly today.

In the last 12 months, we're basically a 2% balance of sales from e-commerce, and we think we have the ability to grow that significantly by multiples as customers get more accustomed to shopping online. As you guys know, we started to invest and have been investing significantly. And as I said in my prepared remarks, we'll continue to invest, and that's an important channel for us as we really -- we're going to be that omnichannel retailer and that we will be there for our customers, whether they want to shop online or in our showroom and certainly have the broadest spectrum of financing options, which we think we have a unique ability to offer to our customers.

Rick Nelson -- Stephens Inc. -- Analyst

OK. Thanks for that color. And then shifting to the credit side. I'm curious where you think law suits are going to shake out, especially in the recent [Inaudible] as we look at the credit laws and data.

And it looks like things are widening a bit there, if you could comment on what -- where your expectation is?

Lee Wright -- Chief Operating Officer

Sure, Rick. And clearly, you look to the FY '20 vintage, which, obviously, we've discussed in previous calls, where we took some higher risk, and obviously, we knew we were going to, and we talked about that, that we would have higher charge-offs from there. One of the things that we could include in that table, though, which we think is important as you think about progression, clearly, you can see the higher interest rates, the yield that we're getting. So that offsets it.

But again, clearly, as I talked about in my prepared remarks, we've got TJ on board, our chief credit officer, we're doing some things from a credit perspective that we think is very exciting, and we talked about being able to approve more but maintain the level of risk. So we're excited about what we have going forward. As we work with TJ, looking at new credit scorecards, new systems, we think we have unique opportunities. So we're pleased going forward.

And I guess the last thing I would tell you, Rick, I know you're focused on the losses. But clearly, with CECL, we reserve at a full lifetime of loss. So those reserves are incorporated. So really, there's nothing that we're going to see unexpected as we look going forward because we're reserving full lifetime losses.

Norman Miller -- Chairman, Chief Executive Officer, and President

Yes. Remember, Rick, we took a significant with CECL that changed the CECL at the beginning of the year. So we believe we're adequately reserved even for those underwriting changes we made last summer that clearly impacted the losses in the back half of fiscal '20. However, with fiscal '21, since the pandemic, very, very positive with FPDs and 60-day delinquencies and those trends that will bode for a strong performance going forward into next year.

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 -- Analyst

Good morning, Norm, Lee and George. Thanks for taking my question. I just want to follow-up on that last topic around the underwriting trends. I mean there's clearly a number of metrics that would indicate that the customer is going into the portfolio of late have set up a backdrop for one of the stronger portfolios you had in some time.

I guess, could you help to quantify to some degree, what sort of opportunity you might have to loosen or return maybe to normal into what prior trends were? What kind of benefit that might be able to be the sales as you get comfortable that the world is getting more normal?

Norman Miller -- Chairman, Chief Executive Officer, and President

Sure. What I would say, Brad, is you're right. I mean the portfolio, both from a size standpoint as well as a performance standpoint, probably both smaller and stronger performance than any time in the last six or seven years for certain, maybe longer than that. So what that bode to is with TJ coming aboard and not just TJ, we've added additional resources there as well.

It really does two things. No. 1, we're aggressively more than we've ever done, going after the non-Conn's financing side of the house, both through e-commerce as well as Lee mentioned, on the lease-to-own side, we still believe we have there, but also as the world gets a little more normal and hopefully, we come out of the pandemic, early part of next year, our expectation is that 20% that we've taken a cut to that there's a material amount of that, we believe that we will be able to start taking greater risk with. Will it be 20%? No, we don't believe we'll need to go to that to be able to have positive store sales, but we believe there's material opportunity there into the first half of next year.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Great. And Norm, you talked about the plans to continue opening in Florida next year. If I'm not mistaken, you've talked about eight to 10 stores next year in the past. Is that still the plan? And can you give us some sense of the timing of those openings? And maybe, George, any color on next year, any color you might be able to share about how to think about the SG&A and P&L implications from getting the store openings going?

Norman Miller -- Chairman, Chief Executive Officer, and President

Yes. I'll start initially with the store stuff. Yes. Eight to 10 is the right number that we're targeting.

Most of those will we expect to be the vast majority of those to be in Florida as we leverage the new distribution center that opens in January. A significant portion of the stores will be in the first half of the year, even the first quarter. So I think George had mentioned on SG&A that we would be flattish year over year in the fourth quarter. The quarter we're in now, part of that is because we're incurring expenses as we talk as we get ready to open new stores in Florida.

George Bchara -- Chief Financial Officer

Yes. And our guidance around preopening expenses, Brad, hasn't changed. So we would still expect to see something around $250,000 to $350,000 per new store in the first -- the six months preceding the opening. But now that we're opening eight to 10 stores next year compared to nine stores this year on a year-over-year basis, you won't see as much of an impact to SG&A.

But remember, as you're looking at SG&A next year relative to this year, it's going to be higher on a dollar basis because of some of the cost cuts we put in place that have now -- we've started to respend here in the back half of the year.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Very helpful. Thank you all so much, and hope you all have a great holiday.

George Bchara -- Chief Financial Officer

Thanks, Brad.

Operator

Our next question comes from the line of Brian Nagel with Oppenheimer and Company. Please proceed with your question.

Brian Nagel -- Oppenheimer & Co. -- Analyst

Hi. Good morning. Thanks for taking my questions. So my -- I think a bit of a follow-up to Rick and Brad's questions, too.

But look, first off, congratulations we've seen the significant benefits to the tighten the lending standards here on your financials. The question I have is, the sales that you're -- with the lending centers being tightened, so you're foregoing some sales. Any idea where those sales would be going? And then the question I have -- another question is, as the environment allows you to get maybe a little more aggressive with your lending standards, is there the risk that you run having disappointed or distance yourselves from those customers, they may not return?

Norman Miller -- Chairman, Chief Executive Officer, and President

The first -- it's a good question, Brian. The first question, as far as those customers that don't get approved from a Conn's financing standpoint, their options really are very -- are fairly limited. They can go to a lease-to-own option either in our store or to a rent-to-own store. And as you know, a number of retailers as well have lease-to-own option -- a number of big-box retailers have lease-to-own options as well or they go to a cheaper item and pay cash.

They typically would not have another opportunity from a financing standpoint. And then regarding the second question, do you want to take?

Lee Wright -- Chief Operating Officer

Yes. And Brian, just to go back to, clearly, with regards to. It's why we talked about the importance of the LTO, the fact that we are declining more, we want to make sure, which is, as I mentioned in my prepared remarks, we're working with our existing partner very closely on making sure that we're maximizing the opportunities of the declines that we have. But as I mentioned, we're testing some additional solutions out there as well.

That's an important piece. And then to the extent that we've disappointed customers and will they come back? Look, clearly, I think that we know and that we offer a best class financing solution for those customers for their needed home goods. So -- and obviously, we have the ability to remarket to them as well. So I mean, we want to make sure that we're giving them an appropriate experience and that we can bring them back.

We're keeping track of it. So good news we've been around for a long time. But it is a good question, Brian, but we'll obviously continue to stay in touch with those customers and bring them back from the fold, we believe, especially with our digital marketing, as well.

Norman Miller -- Chairman, Chief Executive Officer, and President

And at the 29% APR that we're at, they really don't have that option if they want to finance it someplace else, and we recognize that, and they do as well and why we offer to lease-to-own. And as Lee said, frankly, we've been disappointed with our balance of sale on lease-to-own and believe firmly and I'm very confident we will get north of 10% their balance of sale here into the coming year.

Brian Nagel -- Oppenheimer & Co. -- Analyst

Got it. That's helpful, very helpful. Then just one quick follow-up. I just want to understand the math.

And I think, Lee, I think you were the one that in prepared comments, commented, but you said that the action taken and then combined with some supply constraints have reduced your sales by 20%. So does that mean comps are down, call it, 10% without those factors, you're company plus 10%. Is it that simple?

Lee Wright -- Chief Operating Officer

Yes.

Norman Miller -- Chairman, Chief Executive Officer, and President

That's the right math.

Brian Nagel -- Oppenheimer & Co. -- Analyst

OK. Very good. Thank you.

Operator

Our next question comes from the line of Ryan Carr with Jefferies. Please proceed with your question.

Ryan Carr -- Jefferies -- Analyst

Good morning, guys. And thank you for taking my question and congrats on the positive impacts to credit performance. It's definitely shown out to date this year. Just first question for me.

Obviously, you're going -- you are adopting more along the lease-to-own side as well as Synchrony. I mean, just curious where you think it will shake out in terms of where Conn's percentage of financing is going to be. Last quarter was a little bit under 50%. This quarter, you're 52%.

So really taking into account the 10% lease-to-own share, where do you think you'll really be running from your part of the book financing?

Norman Miller -- Chairman, Chief Executive Officer, and President

Well, we've been very -- I've been very cautious about giving a number because we really are not targeting a set percentage within the pie because our goal is not just to reallocate the pieces of the pie, but most importantly, to grow the pie overall. Having said that, so as long as we can underwrite from a risk standpoint, and we're comfortable with that, with what we're putting in place, very comfortable with Conn's financing being more than the 52% it was for this quarter, certainly being up to 60% or even over 60%. Historically, it's been as high as the high 60s. So we're comfortable at those percentages with the appropriate risk from in-house standpoint.

But same time, we think the growth opportunity on Synchrony and cash customers. If you look at Synchrony and cash customers combined over the last quarter, it's almost 40% of the business versus pre-COVID, it was 25% of the business or thereabouts approximately. So will it stay at that level? We're comfortable there and certainly, marketing and going after that business on an ongoing basis. But -- and that's why we -- I really can't put a number saying, here's where the percentage should be.

Because we want to let it play out with whatever the customer wants from a financing standpoint, as long as we're comfortable with in-house financing that we can do that with appropriate risk, we'll let the percentages fall whether they may. But I would expect Conn's financing to move up over the next year higher than the 52% because of the significant opportunity we have there.

Ryan Carr -- Jefferies -- Analyst

Got it. Thank you very much. That's very helpful. And then I guess, within that as well, you saw record cash collections year-to-date.

I mean do you see the same performance from a cash purchase perspective? Are you seeing the same trends in that regard? Or what have you observed to date on that?

Norman Miller -- Chairman, Chief Executive Officer, and President

Yes. As I said before, I mean, our cash collections, the cash we're generating and collecting is a combination of two things. No. 1, collecting at a higher level from the portfolio standpoint, but also collecting more cash from third-party transactions as well, which include not only cash but Synchrony and lease-to-own as well.

So all of that impact on the cash collected. And we continue to see that. As Lee mentioned, I think in his comments, we're at a 10-year high of cash collections in the third quarter. And even going on into the fourth quarter, we continue to see it perform nicely above prior year, which as you know, that certainly helps from a portfolio performance standpoint significantly.

Ryan Carr -- Jefferies -- Analyst

Got it. And then last one for me. Delinquencies were up a bit quarter to quarter. I mean is that just a function of the lower portfolio balance? Or what really caused the decline or the increase there?

Norman Miller -- Chairman, Chief Executive Officer, and President

It's really a couple of things. First, seasonality wise, third quarter is typically the highest quarter of any of the quarters from a delinquency standpoint. And then it's really the denominator effect is the primary driver. 60-day dollars are actually down, but the portfolio is declining at a faster rate than the 60-day dollars are going down.

George Bchara -- Chief Financial Officer

Yes. And as you know, it's a seasonal impact as well, which you see going from Q2 to Q3. And from a dollar perspective, looking year over year, it was only up about $10 million versus $20 million last year as well.

Ryan Carr -- Jefferies -- Analyst

Got it. Thank you very much. That's very helpful.

Operator

Our next question comes from the line of Bill Ryan with Compass Point. Please proceed with your question.

Bill Ryan -- Compass Point -- Analyst

Thanks. Good morning. A question on the allowance and the provision. Sort of looking back when you adopted CECL, the allowance level look to be about 20% -- just under 21% of receivables, closer to 25% right now.

I know you're holding reserves up fairly high, just in, I guess, I'd say, not knowing how everything is going to perform, kind of the wait and see mentality of things. But looking at it going forward, with the tight origination standards that you have credit eventually kind of working its way through one way or another. I mean, is it fair to assume that the provisioning rate on the new receivables will be -- that reserve level might drift lower than where it was at the beginning of the year?

George Bchara -- Chief Financial Officer

Yes. That is a -- over the long term, with a significantly lower balance of sale of Conn's financing as we've seen with much higher quality underwriting, it is fair to assume that over time, the allowance rate will...

Norman Miller -- Chairman, Chief Executive Officer, and President

Will drift down...

George Bchara -- Chief Financial Officer

Drift down below where it was before. Just a one key factor, as you pointed out, Bill, is the fact that we've got a significant reserve still on the balance sheet associated with the increase in forecasted unemployment rates. And so that's the x factor in terms of whether -- when we will actually start to see the reserve percentages drift down below where they were when we adopted CECL.

Norman Miller -- Chairman, Chief Executive Officer, and President

Not only that, Bill. In addition, as you heard in the comments, I mean, our reages and our TCR balances and percentages are coming down as well. So -- and we've done that proactively and aggressively to de-risk the portfolio. And as you know, those are reserved at materially higher rates.

So as those balances continue to come down and we focus there, that will ultimately result in a lower allowance and provision as well.

Bill Ryan -- Compass Point -- Analyst

OK. And just one follow-up a little bit more granular, but on the provision in the quarter. You mentioned there's a couple of factors kind of one, push the provision a little higher, one was a little bit lower, the benefit being a lower unemployment rate. If you net those two out, were they kind of a wash on those two factors mean the provision is kind of like net-net, kind of a fair number to use relative to the originations that you're putting on the books for the quarter?

George Bchara -- Chief Financial Officer

The two factors were a wash when you look at it on a relative basis. Bill, the primary driver of the decrease in the allowance portfolio turning quarter over quarter. So the allowance rate was about flat quarter over quarter.

Bill Ryan -- Compass Point -- Analyst

All right. Thank you.

Operator

There are no further questions, I'd like to hand the call back to Mr. Miller for closing remarks.

Norman Miller -- Chairman, Chief Executive Officer, and President

Thank you. We appreciate everyone's interest in the company and look forward to talking to everyone at the conclusion of our fourth quarter. Wishing everyone a Merry Christmas and a happy holidays. Thank you.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Norman Miller -- Chairman, Chief Executive Officer, and President

Lee Wright -- Chief Operating Officer

George Bchara -- Chief Financial Officer

Rick Nelson -- Stephens Inc. -- Analyst

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Brian Nagel -- Oppenheimer & Co. -- Analyst

Ryan Carr -- Jefferies -- Analyst

Bill Ryan -- Compass Point -- Analyst

More CONN analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.