One. Two. Three. That’s how many lucrative plays investors can make on the consumer electronics industry. The first one is Best Buy
As a result, understanding Conn's requires getting a handle on how it extends credit to customers and securitizes these receivables, which now-retired CFO David Rogers helped walk me through when I met with him last fall. Current credit-market turmoil is causing Conn's to make adjustments for things such as cash reduction in the fair value of its" interests in these securitized assets." I'll spare you the rest of the details, but the key takeaway from the earnings release is that the company is working through credit turmoil and the core retailing business is strong. Case in point: First-quarter sales increased 7.6% as same-store sales grew a respectable 1%.
Gross margins compressed to the tune of 320 basis points as management cited an extremely competitive retail environment, but it was able to stay firmly profitable, with credit portfolio charge-offs staying steady at 3.2%. The company was also able to lean on a national buying group that pools the purchasing power of smaller electronics chains to help keep product costs low.
Posting $0.54 per share and beating analyst expectations helped boost the stock by 4.5% today as investors applauded clarity from the credit side and Conn's continued strength in the electronics category, including LCD televisions and video game equipment.
Conn's credit portfolio is a key competitive advantage, helping it serve a more blue-collar customer in Texas, Louisiana, and Oklahoma. With only 71 current stores and prime exposure to fast-growing Southern markets, Conn's should be able to build on its status as the nation's ninth-largest electronics retailer.