Please ensure Javascript is enabled for purposes of website accessibility

Conn's Stock Has a Lot to Prove on Tuesday

By Rick Munarriz - Mar 31, 2017 at 10:13AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The furniture and consumer-electronics retailer gears up for its holiday-quarter results. The stock's been a big winner the last two times.

It's time to see how Conn's (CONN 5.92%) fared during the holiday quarter. The chain of big-box stores selling furniture, mattresses, and consumer electronics will post fresh financials on Tuesday morning. 

Analysts aren't holding out for much from the 110-store chain. They see revenue for the fiscal quarter that ended in January sliding 6% to $430.2 million. It may not seem like much of a slip, but it will only be the second time that Conn's top line has posted a year-over-year decline in the past five fiscal years. You have to go all the way back to the summer of 2011 to find a larger retreat in revenue. Revenue growth has decelerated sharply at Conn's in each of the past three fiscal years, but now sales are going the wrong way.

The news is supposed to only get worse on the bottom line where those same analysts are targeting a net loss of $0.09 a share. Conn's earned $0.11 a share during the prior year's fiscal fourth quarter. Fiscal 2010 is the last time that Conn's posted a loss during the holiday quarter, but it's been a struggle lately. Conn's has checked in with a deficit in four of the past five quarters. 

A Conn's store exterior at a grand opening in Phoenix.

Image source: Conn's.

Truth or Conn's sequences

We know that this wasn't a banner quarter for consumer electronics. Best Buy (BBY 4.77%) shares took a hit several weeks ago after falling short of Wall Street's revenue targets. Best Buy's guidance for the current quarter was also disappointing. Conn's is about more than just consumer electronics. Its biggest categories are furniture, mattresses, and appliances, but we also saw appliance-centric hhgregg announce last month that it was shuttering dozens of stores and a couple of distribution centers. Whether you pair Conn's up with Best Buy or hhgregg, the prognosis hasn't been pretty.

Thankfully, Conn's shareholders know that their investment won't merely be valued by which way store-level sales go in Tuesday morning's report. The stock soared 34% the week it posted fiscal third-quarter financials, and this was despite a woeful 10.1% slide in comparable-stores sales and the company's first year-over-year revenue dip in years. The market overlooked the unflattering metrics because the sales slump was mostly the handiwork of Conn's refusing to provide credit to potentially deadbeat borrowers. Taking fewer chances with shoppers having weak credit has helped improve its loan-loss provisions at the expense of busier cash registers. 

Improvement on the debt front has been the biggest driver in dictating which way the stock moves on earnings. The stock skyrocketed 24% the week of its rough second-quarter results on encouraging credit portfolio news. Conn's may seem to be in a slump, but it has moved 24% and 34% higher following its last two quarterly reports. The long-term prospects for Conn's remain murky, but it's been able to excel when it's time to step up with quarterly updates lately. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Conn's, Inc. Stock Quote
Conn's, Inc.
$9.49 (5.92%) $0.53
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
$74.69 (4.77%) $3.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.