Poor Conn's (CONN -1.83%) shareholders can't seem to catch a break. Shares of the consumer electronics retailer tumbled 23% last week, tripped up after posting quarterly results that show the continuation of weak store-level sales and the growth of deadbeat customers.
The quarter itself wasn't dreadful. Revenue clocked in at $456.8 million for the fiscal fourth quarter, 7% ahead of the prior year's holiday period showing. Store expansion was able to more than offset a 1.7% slide in comps, and even that's better than it seems. Conn's chose to stop selling video games, digital cameras, and some tablet lines, and absent that strategic discontinuation, comps would have inched 3.6% higher. Gross margins and adjusted retail segment operating income both moved higher.
However, Conn's is also suffering from folks who aren't interested in settling up after financing their purchases directly through the retailer. The percentage of the chain's customer portfolio balance that hasn't been paid in more than two months has gone from 9.7% to 9.9% over the past year. Conn's credit segment operating loss has widened from $11.3 million to $19.3 million, and that's resulting in a sharp drop in adjusted profitability during the seasonally potent holiday quarter. Conn's eventual adjusted earnings of $0.11 a share was well short of the $0.28 a share profit that analysts were targeting, making this the second quarter in a row where its net income has come up short in a major way.
Consumer electronics has been a hard gig for the chains that have survived the shakeout. Conn's and hhgregg (HGGGQ) have been slammed after soaring in 2013. Niche leader Best Buy (BBY -1.05%) has fared better, but it's still a challenge.
After soaring 157% higher in 2013, we've seen Conn's surrender 76% of its value in 2014. It tried to make some of that back with a 26% gain through 2015, but now Conn's stock has shed 48% of its value so far in 2016. Conn's is in a pickle, even if analysts still see sales growing this fiscal year. You can't say the same thing about hhgregg and Best Buy.
Anyone paying attention can see the problem with the industry. Conn's, hhgregg, and Best Buy are facing stiff competition from online merchants that don't have the same margin-slurping overhead. More importantly, the shift of physical media to digital media -- as books, CDs, and software go from store-bought purchases to stuff that can be downloaded -- has clobbered the consumer electronics model.
Conn's has its own problems, primarily in the form of the stubbornly high rate of borrower delinquency. One can only imagine that things will get worse if the economy stumbles. Conn's has a history of bouncing back from adversity, but this will be its biggest challenge yet.