GlobeNewswire Inc | Sep 1, 2021 06:00AM EDT

September 01, 2021

THE WOODLANDS, Texas, Sept. 01, 2021 (GLOBE NEWSWIRE) -- Conns, Inc. (NASDAQ: CONN) (Conns or the Company), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended July31, 2021.

Strong second quarter retail and credit results exceeded our expectations and demonstrate that our growth strategies are taking hold. Second quarter same store sales increased 16.4% and total retail sales are up 24.0% over the prior year period. Strong retail performance combined with a second quarter credit spread of 1,200 basis points, contributed to record second quarter earnings per diluted share. In fact, earnings per diluted share of $2.74 for the first six months of the year are higher than any annual earnings in Conns 131-year history, stated Chandra Holt, Conns Chief Executive Officer.

Momentum remains positive across our business reflecting strong consumer demand and the growth strategies we have put in place. Total retail sales for the first half have increased at the fastest growth rate in seven years. As a result, we are increasing our fiscal year 2022 same store sales expectation from high single-digit same store sales growth to mid-teens same store sales growth, continued Ms. Holt.

I believe Conns is well positioned to continue to innovate, grow and capitalize on an enormous addressable market. As my tenure as CEO begins, I am excited by the direction Conns is headed and the opportunities we have to create sustainable value for our shareholders. I also want to thank all our team members for their contributions to our success and their continued dedication, concluded Ms. Holt.

Second Quarter Financial Highlights as Compared to the Prior Fiscal Year Period (Unless Otherwise Noted):

-- Net earnings increased to a second quarter record of $1.22 per diluted share, compared to $0.70 per diluted share for the same period last fiscal year; -- Same store sales increased 16.4% for the second quarter of fiscal year 2022 as compared to the second quarter of fiscal year 2021 and increased 3.2% on a two-year basis; -- Strong same store sales combined with the contribution of new showrooms drove a 24.0% increase in total retail sales for the second quarter; -- eCommerce sales increased 210.9% to a quarterly record of $17.3 million; -- Lease-to-own sales increased 70.3% to $41.6 million; -- At July 31, 2021, the carrying value of customer accounts receivable 60+ days past due declined 42.1% year-over-year to the lowest level in eight fiscal years, and the carrying value of re-aged accounts declined 44.5% year-over-year to the lowest level in six fiscal years; and -- Total debt decreased from $749.7 million at July 31, 2020 to $439.6 million at July 31, 2021, a decrease of 41%. Net debt as a percent of the portfolio balance at July 31, 2021, was approximately 36%, compared to 50% at July 31, 2020, and represents the lowest level in over a decade.

Second Quarter Results

Net income for the three months ended July31, 2021 was $37.0 million, or $1.22 per diluted share, compared to net income for the three months ended July31, 2020 of $20.5 million, or $0.70 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended July31, 2021 was $37.0 million, or $1.22 per diluted share. This compares to adjusted net income for the three months ended July31, 2020 of $21.7 million, or $0.75 per diluted share, which excludes professional fees associated with non-recurring expenses.

Retail Segment Second Quarter Results

Retail revenues were $347.0 million for the three months ended July31, 2021 compared to $279.9 million for the three months ended July31, 2020, an increase of $67.1 million or 24.0%. The increase in retail revenue was primarily driven by an increase in same store sales of 16.4% and by new store growth. The increase in same store sales reflects an increase in demand across all of the Companys home-related product categories. The increase also reflects the impact of prior year proactive underwriting changes and industry wide supply chain disruptions, each of which was the result of the COVID-19 pandemic.

For the three months ended July31, 2021 and 2020, retail segment operating income was $28.7 million and $23.2 million, respectively. The increase in retail segment operating income for the three months ended July 31, 2021 was primarily due to an increase in revenue.

The following table presents net sales and changes in net sales by category:

Three Months Ended July 31, Same Store(dollars in 2021 % of 2020 % of Change % Change %thousands) Total Total ChangeFurnitureand $ 109,259 31.5 % $ 80,984 29.0 % $ 28,275 34.9 % 22.0 %mattressHome 135,444 39.1 107,682 38.5 27,762 25.8 17.8 applianceConsumer 48,413 14.0 47,384 16.9 1,029 2.2 0.1 electronicsHome office 17,986 5.2 14,979 5.4 3,007 20.1 10.4 Other 9,143 2.6 5,113 1.8 4,030 78.8 71.3 Product 320,245 92.4 256,142 91.6 64,103 25.0 16.7 salesRepairserviceagreement 23,700 6.8 20,164 7.2 3,536 17.5 13.6 commissions^(1)Service 2,840 0.8 3,430 1.2 (590 ) (17.2 ) revenuesTotal net $ 346,785 100.0 % $ 279,736 100.0 % $ 67,049 24.0 % 16.4 %sales

(1) The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.

Credit Segment Second Quarter Results

Credit revenues were $71.4 million for the three months ended July31, 2021 compared to $87.0 million for the three months ended July31, 2020, a decrease of $15.6 million or 17.9%. The decrease in credit revenue was primarily due to a 22.7% decrease in the average outstanding balance of the customer receivable portfolio. These decreases were partially offset by an increase in the yield rate, from 23.2% for the three months ended July 31, 2020 to 23.3% for the three months ended July31, 2021 and an increase in insurance commissions.

Provision for bad debts was $10.1 million for the three months ended July31, 2021 compared to $31.9 million for the three months ended July31, 2020, a decrease of $21.8 million. The change was primarily driven by a year-over-year decrease in net charge-offs of $43.8 million, partially offset by a smaller decrease in the allowance for bad debts during the three months ended July 31, 2021 compared to the three months ended July 31, 2020. The smaller decrease was driven by a lower year-over-year decline in the customer accounts receivable portfolio balance, partially offset by a $5.0 million decrease in the economic adjustment that was driven by an improvement in the forecasted unemployment rate.

Credit segment operating income was $25.5 million for the three months ended July31, 2021, compared to $18.2 million for the three months ended July31, 2020. The increase was primarily due to the decrease in the provision for bad debts partially offset by the decrease in credit revenue.

Additional information on the credit portfolio and its performance may be found in the Customer Accounts Receivable Portfolio Statistics table included within this press release and in the Companys Form 10-Q for the quarter ended July31, 2021, to be filed with the Securities and Exchange Commission on September1, 2021 (the Second Quarter Form 10-Q).

Showroom and Facilities Update

The Company opened three new Conns HomePlus showrooms during the second quarter of fiscal year 2022, all within the state of Florida, bringing the total showroom count to 155 in 15 states. During fiscal year 2022, the Company plans to open a total of eleven to thirteen new showrooms (inclusive of the nine new showrooms opened during the first half of fiscal year 2022).

Liquidity and Capital Resources

As of July31, 2021, the Company had $362.9 million of immediately available borrowing capacity under its $650.0 million revolving credit facility. The Company also had $8.7 million of unrestricted cash available for use.

Conference Call Information

The Company will host a conference call on September1, 2021, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended July 31, 2021. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and second quarter fiscal year 2022 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through September 8, 2021 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13722190.

About Conns, Inc.

Conns is a specialty retailer currently operating 155 retail locations in Alabama, Arizona, Colorado, Florida, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Companys primary product categories include:

-- Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses; -- Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges; -- Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, and 8K televisions, gaming products, next generation video game consoles and home theater and portable audio equipment; and -- Home office, including computers, printers and accessories.

Additionally, Conns offers a variety of products on a seasonal basis. Unlike many of its competitors, Conns provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.

This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words anticipate, believe, could, estimate, expect, intend, may, plan, project, should, predict, will, potential, or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements, including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; the effects of epidemics or pandemics, including the COVID-19 pandemic; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 and other reports filed with the Securities and Exchange Commission. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

CONN-G

S.M. Berger & Company

Andrew Berger (216) 464-6400

CONNS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(dollars in thousands, except per share amounts)

Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020Revenues: Total net sales $ 346,785 $ 279,736 $ 638,081 $ 510,066 Finance charges and 71,598 87,180 144,004 174,010 other revenuesTotal revenues 418,383 366,916 782,085 684,076 Costs and expenses: Cost of goods sold 216,042 176,623 400,921 323,637 Selling, general and 137,870 115,278 263,919 228,285 administrative expenseProvision for bad debts 10,262 32,045 (6,874 ) 149,371 Charges and credits ? 1,534 ? 3,589 Total costs and expenses 364,174 325,480 657,966 704,882 Operating income (loss) 54,209 41,436 124,119 (20,806 )Interest expense 6,088 13,222 15,292 28,215 Loss on extinguishment ? ? 1,218 ? of debtIncome (loss) before 48,121 28,214 107,609 (49,021 )income taxesProvision (benefit) for 11,117 7,694 25,207 (13,339 )income taxesNet income (loss) $ 37,004 $ 20,520 $ 82,402 $ (35,682 )Income (loss) per share: Basic $ 1.26 $ 0.71 $ 2.80 $ (1.23 )Diluted $ 1.22 $ 0.70 $ 2.74 $ (1.23 )Weighted average common shares outstanding:Basic 29,438,605 29,070,607 29,382,162 28,948,216 Diluted 30,212,448 29,140,546 30,072,401 28,948,216

CONNS, INC. AND SUBSIDIARIES CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION(unaudited)(dollars in thousands)

Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020Revenues: Product sales $ 320,245 $ 256,142 $ 589,456 $ 463,340 Repair service agreement 23,700 20,164 42,831 40,265 commissionsService revenues 2,840 3,430 5,794 6,461 Total net sales 346,785 279,736 638,081 510,066 Finance charges and other 224 196 433 431 Total revenues 347,009 279,932 638,514 510,497 Costs and expenses: Cost of goods sold 216,042 176,623 400,921 323,637 Selling, general and 102,157 78,584 193,050 156,758 administrative expenseProvision for bad debts 142 182 160 350 Charges and credits ? 1,355 ? 1,355 Total costs and expenses 318,341 256,744 594,131 482,100 Operating income $ 28,668 $ 23,188 $ 44,383 $ 28,397 Retail gross margin 37.7 % 36.9 % 37.2 % 36.5 %Selling, general andadministrative expense as 29.4 % 28.1 % 30.2 % 30.7 %percent of revenuesOperating margin 8.3 % 8.3 % 7.0 % 5.6 %Store count: Beginning of period 152 139 146 137 Opened 3 2 9 4 End of period 155 141 155 141

CONNS, INC. AND SUBSIDIARIES CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION(unaudited)(dollars in thousands)

Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020Revenues: Finance charges and other $ 71,374 $ 86,984 $ 143,571 $ 173,579 revenuesCosts and expenses: Selling, general and 35,713 36,694 70,869 71,527 administrative expenseProvision for bad debts 10,120 31,863 (7,034 ) 149,021 Charges and credits ? 179 ? 2,234 Total costs and expenses 45,833 68,736 63,835 222,782 Operating income (loss) 25,541 18,248 79,736 (49,203 )Interest expense 6,088 13,222 15,292 28,215 Loss on extinguishment of ? ? 1,218 ? debtIncome (loss) before income $ 19,453 $ 5,026 $ 63,226 $ (77,418 )taxesSelling, general andadministrative expense as 50.0 % 42.2 % 49.4 % 41.2 %percent of revenuesSelling, general andadministrative expense aspercent of average 12.9 % 10.3 % 12.4 % 9.6 %outstanding customeraccounts receivable balance(annualized)Operating margin 35.8 % 21.0 % 55.5 % (28.3 ) %

CONNS, INC. AND SUBSIDIARIES CUSTOMER ACCOUNTS RECEIVABLE PORTFOLIO STATISTICS(unaudited)

As of July 31, 2021 2020Weighted average credit score of outstanding 608 596 balances ^(1)Average outstanding customer balance $ 2,414 $ 2,589 Balances 60+ days past due as a percentage of total 7.2 % 10.0 %customer portfolio carrying value ^(2)(3)(4)Re-aged balance as a percentage of total customer 20.4 % 29.9 %portfolio carrying value ^(2)(3)(5)Carrying value of account balances re-aged more $ 70,058 $ 103,220 than six months (in thousands) ^(3)Allowance for bad debts and uncollectible interestas a percentage of total customer accounts 18.3 % 24.8 %receivable portfolio balancePercent of total customer accounts receivableportfolio balance represented by no-interest option 29.8 % 18.3 %receivables

Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020Total applications 336,438 326,958 634,344 622,509 processedWeighted averageorigination credit 614 617 615 613 score of salesfinanced ^(1)Percent of totalapplications approved 22.5 % 20.0 % 22.2 % 21.1 %and utilizedAverage income ofcredit customer at $ 47,700 $ 46,300 $ 48,100 $ 46,300 originationPercent of retail sales paid for by:In-house financing,including down 50.9 % 48.5 % 49.9 % 55.1 %payments receivedThird-party financing 17.5 % 23.9 % 17.2 % 20.8 %Third-party 11.5 % 8.4 % 11.9 % 8.4 %lease-to-own option 79.9 % 80.8 % 79.0 % 84.3 %

(1)Credit scores exclude non-scored accounts.

(2)Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.

(3)Carrying value reflects the total customer accounts receivable portfolio balance, net of deferred fees and origination costs, the allowance for no-interest option credit programs and the allowance for uncollectible interest.

(4)Decrease was primarily due to an increase in cash collections and the tightening of underwriting standards that occurred in fiscal year 2021.

(5)Decrease was primarily due to an increase in cash collections, the change in the unilateral re-age policy that occurred in the second quarter of fiscal year 2021 and the tightening of underwriting standards that occurred in fiscal year 2021.

CONNS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(unaudited)(in thousands)

July 31, 2021 January 31, 2021Assets Current Assets: Cash and cash equivalents $ 8,736 $ 9,703 Restricted cash 30,961 50,557 Customer accounts receivable, net of allowances 461,491 478,734 Other accounts receivable 55,260 61,716 Inventories 223,662 196,463 Income taxes receivable 32,223 38,059 Prepaid expenses and other current assets 20,725 8,831 Total current assets 833,058 844,063 Long-term portion of customer accounts receivable, 415,208 430,749 net of allowancesProperty and equipment, net 186,072 190,962 Operating lease right-of-use assets 258,702 265,798 Deferred income taxes ? 9,448 Other assets 15,907 14,064 Total assets $ 1,708,947 $ 1,755,084 Liabilities and Stockholders? Equity Current liabilities: Current finance lease obligations $ 1,371 $ 934 Accounts payable 89,001 69,367 Accrued expenses 99,078 82,990 Operating lease liability - current 54,800 44,011 Other current liabilities 17,170 14,454 Total current liabilities 261,420 211,756 Operating lease liability - non current 338,289 354,598 Long-term debt and finance lease obligations 438,242 608,635 Deferred tax liability 7,803 ? Other long-term liabilities 20,743 22,940 Total liabilities 1,066,497 1,197,929 Stockholders? equity 642,450 557,155 Total liabilities and stockholders? equity $ 1,708,947 $ 1,755,084

CONNS, INC. AND SUBSIDIARIES NON-GAAP RECONCILIATIONS(unaudited)(dollars in thousands, except per share amounts)

Basis for presentation of non-GAAP disclosures:

To supplement the Condensed Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (GAAP), the Company also provides the following non-GAAP financial measures: adjusted net income (loss), adjusted net income (loss) per diluted share and net debt as a percentage of the portfolio balance. These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP. They are intended to provide additional insight into our operations and the factors and trends affecting the business. Management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision making and (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results.

ADJUSTED NET INCOME (LOSS) AND ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE

Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020Net income (loss), as $ 37,004 $ 20,520 $ 82,402 $ (35,682 )reportedAdjustments: Loss onextinguishment of ? ? 1,218 ? debt ^(1)Professional fees ^ ? 1,534 ? 3,589 (2)Tax impact of ? (343 ) (274 ) (803 )adjustmentsNet income (loss), as $ 37,004 $ 21,711 $ 83,346 $ (32,896 )adjustedWeighted averagecommon shares 30,212,448 29,140,546 30,072,401 28,948,216 outstanding - DilutedEarnings (loss) per share:As reported $ 1.22 $ 0.70 $ 2.74 $ (1.23 )As adjusted $ 1.22 $ 0.75 $ 2.77 $ (1.14 )

(1) Represents a loss of $1.0 million from retirement of $141.2million aggregate principal amount of our 7.25% senior notes due 2022 (Senior Notes) and a loss of $0.2million related to the amendment of our Fifth Amended and Restated Loan and Security Agreement.

(2) Represents professional fees associated with non-recurring expenses.

NET DEBT

July 31, 2021 2020Debt, as reported Current finance lease obligations $ 1,371 $ 758Long-term debt and finance lease obligations 438,242 748,902Total debt $ 439,613 $ 749,660Cash, as reported Cash and cash equivalents 8,736 6,385Restricted Cash 30,961 63,836Total cash $ 39,697 $ 70,221Net debt $ 399,916 $ 679,439Ending portfolio balance, as reported $ 1,105,713 $ 1,357,030Net debt as a percentage of the portfolio balance 36.2% 50.1%