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 Conn's (CONN +0.00%) have suffered their second 40% drop of 2014 today after the furniture retailer announced it had suffered an unexpected loss, and also announced other highly unwelcome financial news in its fiscal third-quarter earnings report.
So what: Conn's reported a 19% year-over-year rise in revenue to $370.1 million for the quarter, which fell below Wall Street's $376.8 million expectations. Its same-store sales fell by 1%, and its credit segment reported an operating loss of $33.2 million as a result of higher-than-expected bad debt provisions. This led to a loss of $0.08 per share for the quarter, which fell miles below Wall Street's expectations for earnings of $0.68 per share. CEO Theodore Wright blamed this problem on deteriorating credit scores and higher numbers of late-stage (60-plus days) delinquencies, which now make up 10% of the company's loan portfolio.
Conn's has suspended its forward earnings guidance and has let go CFO Brian Taylor as a result of its credit issues. Chief Accounting Officer Mark Haley has assumed the CFO role on an interim basis while Conn's searches for a permanent replacement, and the company's board of directors has moved to establish a Credit Risk and Compliance Committee; it will also seek to hire a Chief Risk Officer to oversee the credit segment.
Now what: Canaccord Genuity analyst Laura Chapmine now says her "confidence is shattered" in Conn's ability to right its ship, and it's hard to disagree with that assessment in light of this miserable performance. Conn's credit problems have been well-known for some time, so investors who've been burned today can't say that the third quarter's results were truly unexpected. The company might be able to overcome this abysmal performance, and it could become a great long-term deep value play if the situation does improve. However, that's a big if, and today probably isn't the best day to dive after this falling knife.
