Shares of home appliance and electronics retailer Conn's
Our recent Fool by Numbers will walk you through more of the specifics, but basically Conn's is in the midst of a hangover, since hurricane rebuilding efforts benefited sales last year. This made same-store sales growth more difficult to achieve.
Conn's is also seeing a higher level of loan delinquencies in its credit portfolio. Fellow Fool David Meier recently wrote a very insightful article explaining that Conn's is as much a financing company as a retailer; 50%-60% of items sold involve clients using its financing options to pay for those televisions and major home appliances. That makes the Conn's operating model different from Best Buy
Conn's does have a solid track record of serving its core Louisiana and Texas market from its 60 retail locations, and it operates with very minimal long-term debt on the balance sheet. At a recent presentation at the Southwestern Showcase, management detailed that it is the ninth largest retailer of appliances in the country and is eyeing expansion opportunities close to home in Oklahoma, Arkansas, and prudently near the Mexican border, where more consumers are likely to use its financing options.
The company's credit business clearly adds another layer of complexity. For one thing, metrics aren't broken out separately; for another, a special-purpose entity -- formed to buy its receivables and securitize them for sale to third parties -- requires an understanding of consumer finance. There is also the risk that deteriorating credit trends can hurt the bottom line (as they have recently), but loan losses have stayed under 4% since 2000 and usually stay below 3%.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned. The Fool has an ironclad disclosure policy.