What happened

Shares of Conn's (CONN), a Texas-based furniture, mattress, electronics, and appliance store chain, were sliding today after the rent-to-own retailer posted disappointing results in its third-quarter earnings report as customer traffic continued to decline during the pandemic.

As of 11:39 a.m. EDT, the stock was down 19.1%.

The entrance to a Conn's store

Image source: Conn's.

So what

Conn's, which makes money from both retail and customer financing, said that same-store sales fell 10.9%, and overall revenue was down 11.2% to $334.2 million, missing the analyst consensus at $345.2 million. 

Retail revenue slipped 7.3%, but revenue from its credit segment declined 22.5% as customers paid down their debts, likely taking advantage of government stimulus money distributed in the spring. On the bottom line, operating income slipped by 20% to $24.1 million, and adjusted earnings per share fell from $0.49 to $0.25, which edged out estimates by a penny.

Despite the decline in revenue, CEO Norm Miller was upbeat about the performance, saying, "Our third quarter results highlight the resilience of our unique hybrid retail and credit business model and the ability to de-risk our credit business while still supporting retail demand through our diverse credit offerings."

Now what

Recessions like the current one normally present a threat to rent-to-own retailers like Conn's as customer delinquencies tend to go up as the unemployment rate rises, however, its yield from its credit portfolio, which is directly affected by customer delinquencies, only fell modestly, by 60 basis points. Its allowance for bad debts also fell sharply from $45.4 million to $27.4 million, showing its portfolio's credit quality is getting better.

Conn's didn't offer guidance in the press release as the company faces significant uncertainty around the pandemic, the economy, and the prospect of another relief package. The stock has fared better than most discretionary retailers this year, perhaps because of its credit business, and shares were actually up year-to-date before today's report. That may explain why the revenue shortfall led to the stock getting clipped as the company is still feeling the impact of the pandemic.