What happened
Shares of consumer electronics and furniture retailer Conn's (CONN 1.76%) slumped on Tuesday after the company reported a mixed first quarter. While Conn's beat earnings expectations, a double-digit decline in same-store sales sent the stock down as much as 15.3% Tuesday morning. The stock had recovered some lost ground by 3 p.m. EDT, down 8.4%.
So what
Conn's reported first-quarter revenue of $355.8 million, down 8.6% year over year and about $3 million below the average analyst estimate. Same-store sales tumbled 15.2%, with double-digit declines in every product category. Furniture unit volume fell 24.1%, mattress unit volume fell 21.6%, and home-office unit volume fell 28.7%, with higher average selling prices partially offsetting the declines.
Image source: Conn's.
Non-GAAP (generally accepted accounting principles) earnings per share came in at a loss of $0.05, better than a loss of $0.30 during the prior-year period and $0.17 higher than analyst expectations. The improvement was driven by the credit business, which saw an increase in revenue and a decrease in pre-tax loss. Conn's has been forced to tighten its lending standards over the past few years following major losses in the credit business, which has contributed to the steep declines in same-store sales.
Conn's CEO Norm Miller pointed to the positives:
We are encouraged by our fiscal 2018 first quarter financial performance, operating results and strong retail profitability -- which is all underscored by ongoing progress with our credit business. Conn's credit segment performance is improving as a result of higher finance charges, strengthening portfolio trends, controlled expenses, and lower borrowing costs.
Now what
Conn's expects sales to continue to slump in the second quarter. The company guided for a same-store sales decline between 12% and 15%, although gross margin is expected to largely hold up compared to the first quarter.
While the credit business showed signs of improvement, double-digit same-store sales declines are not something to get excited about, especially when the bottom line is negative. Raising prices helped keep gross margin high, but that's unlikely to be a sustainable strategy.
