Why Conn's Shares Popped

Is this meaningful? Or just another movement?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Sep 5, 2012 at 12:00AM
Other

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of home appliances retailer Conn's (Nasdaq: CONN) climbed 10% today after its quarterly results and guidance topped Wall Street expectations.

So what: The stock was crushed in 2011 on weak sales and big bottom-line losses, but another solid quarter in 2012 -- Conn's swung to a profit of $11.6 million in the second quarter versus a loss of $3.1 million in the year-ago period -- coupled with upbeat full-year guidance suggests that its turnaround momentum isn't slowing. In fact, same-store sales surged 21.5% for the quarter, fueled by a 57.5% spike in furniture and mattress sales, giving investors plenty of optimism for even more growth going forward.

Now what: Management now sees full-year EPS of $1.40 to $1.50, up from its prior view of $1.30 to $1.40, and expects same-store sales growth of 10% to 15%. "Improvements in our retail operating performance continued into August, when we experienced growth in same store sales of 12% on top of a 6% increase last year," said Chairman and CEO Theodore Wright. However, given Conn's still-hefty debt load and skyrocketing stock price (up a staggering 375% over the past year), I'd be careful about buying into that bullish talk at this point.

Interested in more info on Conn's? Add it to your watchlist.