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Conn's Soars Despite Terrible Results and Guidance

By Timothy Green – Sep 8, 2016 at 4:53PM

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A smaller loss than expected was enough for investors to forget about all of the problems facing the retailer.

Image Source: Conn's.

What happened

Shares of consumer electronics and furniture retailer Conn's (CONN -8.17%) jumped on Thursday following the company's second-quarter report. Despite a steep decline in comparable sales and results that were mixed relative to analyst estimates, the stock was up about 13% at 3 p.m. EDT.

So what

Conn's reported second-quarter revenue of $398.2 million, up 0.5% year over year, but $15 million below the average analyst estimate. Comparable sales tumbled 5.1%, with every category of product registering a decline. Revenue from new stores was enough for Conn's to grow revenue despite this decline. Excluding product categories that were exited, comparable sales still fell by 4.6%.

Non-GAAP (generally accepted accounting principles) EPS came in at a loss of $0.04, down from a gain of $0.47 during the prior-year period, but $0.03 higher than analysts were expecting. On a GAAP basis, Conn's posted a loss of $0.39 per share, down from earnings of $0.45 per share during the prior-year period. Operating income from the retail segment dropped 21%, but the major driver of Conn's losses was a near-tripling of the credit segment's operating loss.

Third-quarter guidance was disappointing. Conn's expects comparable sales to decline by a high-single-digit percentage, with the company's provision for bad debts jumping to between 14.25% and 15.25% of the total customer portfolio balance on an annualized basis. That's up from 13% during the second quarter of this year and 11% during the second quarter of last year.

Now what

Despite what looks like an abysmal quarter for Conn's, investors pushed the stock higher. Perhaps investors expected the company's results or guidance to be even worse. Conn's credit business is still hemorrhaging money, and the company's efforts to fix the problem have yet to bear fruit.

Meanwhile, the retail side of the business is struggling, with new store openings barely managing to drive revenue higher. With an even larger decline in comparable-store sales coming next quarter, it's difficult to fathom why shares of Conn's are up today.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Conn's, Inc. Stock Quote
Conn's, Inc.
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