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Why Conn's Inc. Shares Got Crushed

By Brian D. Pacampara, CFA – Feb 20, 2014 at 12:03PM

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Is this meaningful? Or just another movement?

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 electronics and home appliance retailer Conn's (CONN -13.52%) plummeted 32% today after its preliminary fourth-quarter results and 2015 outlook disappointed Wall Street.

So what: The stock has slumped in recent months on concerns over sluggish spending, and today's preliminary Q4 results -- adjusted EPS of $0.75-$0.80 versus the consensus of $0.93 -- coupled with downbeat full-year guidance suggests that things aren't turning anytime soon. In fact, management cited weak demand and high delinquency rates for the disappointing report, raising plenty of worry over intensifying competition, as well as the credit quality of the customers to which it does make sales.

Now what: Management now sees full-year 2015 EPS of $3.40 to $3.70, well below its prior view of as much as $4 per share. "We are excited about Conn's business model and our growth opportunities," Chairman and CEO Theodore Wright reassured investors. "Fiscal 2015 results will be influenced by the full-year impact of the 14 stores opened in fiscal 2014, the planned opening of 15 to 20 new Conn's HomePlus stores and expected same store sales growth." But while Conn's shares might be poised for a short-term bounce, rapidly intensifying competition and swelling bad debt provisions make the long-term story far more uncertain.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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