Image source: Conn's.  

One of this year's biggest losers was a winner last week. Shares of Conn's (CONN -0.61%) soared 24% last week after posting fresh financials. The struggling chain of consumer electronics stores posted a narrower-than-expected loss in its latest quarter.

Conn's results for its fiscal second quarter won't dazzle even the most ardent of bulls. Total net revenue climbed 2% since the prior year to hit $332.4 million, but that was entirely the handiwork of new locations that have opened over the past year. Comps actually declined 5.1%. Back out the retailer's decision to stop selling video game products, digital cameras, and most tablets last year and comparable-store sales still fell a problematic 4.6%. Comps fell across all four of its product categories, including furniture and home appliances which each account for a little more than a third of all store sales. 

The store-level sales performance is a sharp contrast to what niche leader Best Buy (BBY 13.42%) reported late last month. Best Buy may have posted flat enterprise sales, but that was with fewer stores after a few closings. Comps actually rose 0.8% for the period. That may be a modest uptick, but it's a relative victory when pitting Best Buy against Conn's for the July quarter.  

The bottom line at Conn's checked in with loss of $0.39 a share, reversing a year-ago profit. Back out the one-time charges and credits as well as the impact of the changes in estimates related to its troublesome credit portfolio and the deficit clocks in at $0.04 a share. That's still red ink, but analysts were holding out for a loss of $0.08 a share on that adjusted basis. 

Prose and Conn's

The retailer fell short of Wall Street's sales targets, but beating on the bottom line came as a relief for a company that had fallen well short of earnings expectations in each of the three previous quarters. The news was just as mixed on the credit front. 

Provision for bad debts at Conn's has increased by $8.7 million to $60.1 million over the past year. It has been the chain's problematic consumer financing business that has typically dragged the stock lower, serving as an even bigger burden than its ability to keep up with Best Buy and online retailers. 

Its provision for bad debts is expected to be between 14.25% to 15.25% of the average total customer portfolio balance, and that's way too many deadbeat borrowers for a company taking on the burden of financing purchases for its customers in order to sell its wares. 

French door refrigerators at payday loan financing rates

Conn's is boasting about securing regulatory licenses in the state of Texas -- where roughly 70% of its recent loans are being originated -- to boost its APR from 21% to cap of 29.99% under its new direct loan program. That may seem to give it more wiggle room to write off bad debt, but who do you think is financing a flat-screen TV or leather reclining sofa at nearly 30% annualized interest? It's the shopper that doesn't have access to other means of financing. It probably isn't the shopper that can pay it back. 

This is why last week's stock surge still finds Conn's stock in a huge hole. The shares have surrendered 64% of their value. With comps slipping and credit concerns rising it's hard to get excited about last week's stock surge. 

The only sure thing with Conn's stock is that it will be volatile whenever it steps up with financial results. The stock may have soared 24% last week, but it plunged 24% last time out. The quarter before that it was a 23% decline. 

Conn's may have been a winning investment last year. An argument could have been made that it was the smarter play than Best Buy at the time, given its product mix that favors furniture, mattresses, and home appliances as a way to cash in on the housing boom in light of weaker trends in consumer electronics. However, last week's rally doesn't seem sustainable while there's still more going wrong at Conn's than right.