GlobeNewswire Inc | Sep 3, 2020 06:00AM EDT

September 03, 2020

THE WOODLANDS, Texas, Sept. 03, 2020 (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, 2020.

Throughout the COVID-19 pandemic, we have focused on serving our customers by providing access to essential home-related products, while supporting our team members and communities. Overall, our second quarter results were better than expected given the unprecedented disruption the COVID-19 crisis has caused and I want to personally thank all of our associates for their continued dedication during this challenging period. While the current environment remains uncertain, I am proud of our performance, which highlights the resiliency of our business model and the actions our team has taken to successfully navigate this unprecedented pandemic, stated Norm Miller, Conns Chairman and Chief Executive Officer.

Second quarter of fiscal year 2021 highlights include:

-- Earnings of $0.70 per diluted share, a 13% increase from the prior fiscal year period, driven by positive credit segment operating results and cost saving initiatives -- Cash and third-party sales grew 51% compared to the prior fiscal year period reflecting strong demand for home-related products -- Sales financed by Conns in-house credit declined by 36% from the prior fiscal year period as a result of tighter underwriting, despite a 5% year-over-year increase in applications -- E-commerce sales grew 72% from the prior fiscal year period -- Cash payment rate on outstanding loans increased to the highest second-quarter level in 9 fiscal years -- Operating cash flow increased 242% year-over-year driven by growth of cash and third-party sales, strong payment rates on our customer receivables portfolio and a decline in Conns in-house credit originations

Second Quarter Results

Net income for the three months ended July31, 2020 was $20.5 million, or $0.70 per diluted share, compared to net income for the three months ended July31, 2019 of $20.0 million, or $0.62 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended July31, 2020 was $21.7 million, or $0.75 per diluted share, which excludes professional fees associated with non-recurring expenses. This compares to adjusted net income for the three months ended July31, 2019 of $20.0 million, or $0.62 per diluted share.

Retail Segment Second Quarter Results

Retail revenues were $279.9 million for the three months ended July31, 2020 compared to $306.3 million for the three months ended July31, 2019, a decrease of $26.4 million or 8.6%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 13.2%, partially offset by new store growth. The decrease in same store sales reflects 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, 2020 and 2019, retail segment operating income was $23.2 million and $36.1 million, respectively. On a non-GAAP basis, adjusted retail segment operating income for the three months ended July31, 2020 was $24.5 million after excluding professional fees associated with non-recurring expenses. On a non-GAAP basis, adjusted retail segment operating income for the three months ended July31, 2019 was $36.1 million.

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

Three Months Ended July 31, Same Store(dollars in 2020 % of 2019 % of Change % Change % Changethousands) Total TotalFurnitureand $ 80,984 29.0 % $ 99,455 32.5 % $ (18,471 ) (18.6 ) % (21.9 ) %mattressHome 107,682 38.5 99,356 32.5 8,326 8.4 3.6 applianceConsumer 47,384 16.9 53,692 17.5 (6,308 ) (11.7 ) (16.2 ) electronicsHome office 14,979 5.4 17,883 5.8 (2,904 ) (16.2 ) (20.3 ) Other 5,113 1.8 4,192 1.4 921 22.0 16.7 Product 256,142 91.6 274,578 89.7 (18,436 ) (6.7 ) (10.9 ) salesRepairserviceagreement 20,164 7.2 27,647 9.0 (7,483 ) (27.1 ) (30.2 ) commissions^(1)Service 3,430 1.2 3,837 1.3 (407 ) (10.6 ) revenuesTotal net $ 279,736 100.0 % $ 306,062 100.0 % $ (26,326 ) (8.6 ) % (13.2 ) %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 $87.0 million for the three months ended July31, 2020 compared to $94.8 million for the three months ended July31, 2019, a decrease of $7.8 million or 8.2%. The decrease in credit revenue was primarily due to a decrease of 7.3% in the average balance of the customer receivable portfolio, a decrease in insurance commissions due to a decline in the balance of sale of our in-house credit financing, and a decrease in insurance retrospective income. The decrease was partially offset by an increase in the yield rate to 23.2% during the three months ended July 31, 2020, 130 basis points higher than the three months ended July 31, 2019.

Provision for bad debts decreased to $31.9 million for the three months ended July31, 2020, from $49.8 million for the three months ended July31, 2019, a decrease of $17.9 million. The decrease was driven by a greater decrease in the allowance for bad debts during the three months ended July 31, 2020 compared to the three months ended July 31, 2019. The decrease in the allowance for bad debts was primarily driven by the year-over-year decrease in the customer accounts receivable portfolio, a decrease in the estimated loss rate driven by a decline in delinquencies and higher charge-offs.

Credit segment operating income was $18.2 million for the three months ended July31, 2020, compared to $5.7 million for the three months ended July31, 2019. On a non-GAAP basis, adjusted credit segment operating income for the three months ended July31, 2020 was $18.4 million after excluding professional fees associated with non-recurring expenses. On a non-GAAP basis, adjusted credit segment operating income for the three months ended July31, 2019 was $5.7 million.

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, 2020, to be filed with the Securities and Exchange Commission on September3, 2020 (the Second Quarter Form 10-Q).

Showroom and Facilities Update

The Company opened two new Conns HomePlus showrooms during the second quarter of fiscal year 2021 and has opened two new Conns HomePlus showrooms during the third quarter of fiscal year 2021, bringing the total showroom count to 143 in 14 states. During fiscal year 2021, the Company plans to open a total of seven to nine new showrooms in existing states to leverage current infrastructure.

Liquidity and Capital Resources

As of July31, 2020, the Company had $409.7 million of immediately available borrowing capacity under its $650.0 million revolving credit facility, prior to giving effect to a minimum liquidity requirement of $125.0million pursuant to the third amendment to our revolving credit facility. The Company also had $6.4 million of unrestricted cash available for use.

Conference Call Information

The Company will host a conference call on September3, 2020, at 10 a.m. CT / 11 a.m. ET, to discuss its financial results for the three months ended July 31, 2020. 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 2021 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through September 10, 2020 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13705652.

About Conns, Inc.

Conns is a specialty retailer currently operating 143 retail locations in Alabama, Arizona, Colorado, 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, 8K and smart televisions, gaming products 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 outbreak; the impact of our previous restatement and correction of the Companys previously issued financial statements; the previously identified material weakness in the Companys internal control over financial reporting and the Companys ability to remediate that material weakness; the initiation of legal or regulatory proceedings with respect to the prior restatement and corrections; the adverse effects on the Companys business, results of operations, financial condition and stock price as a result of the previous restatement and correction process; 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, 2020 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 & CompanyAndrew Berger (216) 464-6400

CONN?S, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)(dollars in thousands, except per share amounts) Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Revenues: Total net sales $ 279,736 $ 306,062 $ 510,066 $ 568,041 Finance charges and 87,180 94,997 174,010 186,530 other revenuesTotal revenues 366,916 401,059 684,076 754,571 Costs and expenses: Cost of goods sold 176,623 182,065 323,637 339,293 Selling, general and 115,278 127,484 228,285 245,398 administrative expenseProvision for bad 32,045 49,736 149,371 89,782 debtsCharges and credits 1,534 ? 3,589 (695 )Total costs and 325,480 359,285 704,882 673,778 expensesOperating income 41,436 41,774 (20,806 ) 80,793 (loss)Interest expense 13,222 14,396 28,215 28,893 Income (loss) before 28,214 27,378 (49,021 ) 51,900 income taxesProvision (benefit) 7,694 7,404 (13,339 ) 12,417 for income taxesNet income (loss) $ 20,520 $ 19,974 $ (35,682 ) $ 39,483 Income (loss) per share:Basic $ 0.71 $ 0.64 $ (1.23 ) $ 1.25 Diluted $ 0.70 $ 0.62 $ (1.23 ) $ 1.23 Weighted averagecommon shares outstanding:Basic 29,070,607 31,442,909 28,948,216 31,660,320 Diluted 29,140,546 31,958,704 28,948,216 32,198,024

CONN?S, INC. AND SUBSIDIARIESCONDENSED RETAIL SEGMENT FINANCIAL INFORMATION(unaudited)(dollars in thousands)

Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Revenues: Product sales $ 256,142 $ 274,578 $ 463,340 $ 509,023 Repair service 20,164 27,647 40,265 51,671 agreement commissionsService revenues 3,430 3,837 6,461 7,347 Total net sales 279,736 306,062 510,066 568,041 Finance charges and 196 203 431 405 otherTotal revenues 279,932 306,265 510,497 568,446 Costs and expenses: Cost of goods sold 176,623 182,065 323,637 339,293 Selling, general and 78,584 88,147 156,758 167,769 administrative expenseProvision for bad debts 182 (19 ) 350 110 Charges and credits 1,355 ? 1,355 (695 )Total costs and 256,744 270,193 482,100 506,477 expensesOperating income $ 23,188 $ 36,072 $ 28,397 $ 61,969 Retail gross margin 36.9 % 40.5 % 36.5 % 40.3 %Selling, general andadministrative expense 28.1 % 28.8 % 30.7 % 29.5 %as percent of revenuesOperating margin 8.3 % 11.8 % 5.6 % 10.9 %Store count: Beginning of period 139 127 137 123 Opened 2 4 4 8 End of period 141 131 141 131

CONN?S, INC. AND SUBSIDIARIESCONDENSED CREDIT SEGMENT FINANCIAL INFORMATION(unaudited)(dollars in thousands) Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Revenues: Finance charges and other $ 86,984 $ 94,794 $ 173,579 $ 186,125 revenuesCosts and expenses: Selling, general and 36,694 39,337 71,527 77,629 administrative expenseProvision for bad debts 31,863 49,755 149,021 89,672 Charges and credits 179 ? 2,234 ? Total costs and expenses 68,736 89,092 222,782 167,301 Operating income (loss) 18,248 5,702 (49,203 ) 18,824 Interest expense 13,222 14,396 28,215 28,893 Income (loss) before $ 5,026 $ (8,694 ) $ (77,418 ) $ (10,069 )income taxesSelling, general andadministrative expense aspercent of revenues 42.2 % 41.5 % 41.2 % 41.7 %Selling, general and administrative expense aspercent of averageoutstanding customer 10.3 % 10.2 % 9.6 % 10.0 %accounts receivablebalance (annualized)Operating margin 21.0 % 6.0 % (28.3 ) 10.1 % %

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

As of July 31, 2020 2019 Weighted average credit score of outstanding 596 594 balances ^(1)Average outstanding customer balance $ 2,589 $ 2,711 Balances 60+ days past due as a percentage oftotal customer portfolio carrying value ^(2) 10.0 % 8.7 %(3)(4)Balances 60+ days past due (in thousands) ^(2) $ 131,696 $ 132,187 (4)Re-aged balance as a percentage of total 29.9 % 25.8 %customer portfolio carrying value ^(2)(3)(4)Re-aged balance (in thousands) ^(2)(4) $ 392,610 $ 389,591 Carrying value of account balances re-aged $ 103,220 $ 97,510 more than six months (in thousands) ^(3)Allowance for bad debts and uncollectible interest as a percentage of total customeraccounts receivable portfolio balance ^(5) 24.8 % 13.3 %Percent of total customer accounts receivable portfolio balance represented by no-interestoption receivables 18.3 % 23.7 % Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Total applications 326,958 311,062 622,509 569,849 processedWeighted averageorigination credit 617 609 613 609 score of salesfinanced ^(1)Percent of totalapplications 20.0 % 28.0 % 21.1 % 27.8 %approved andutilizedAverage income ofcredit customer at $ 46,300 $ 45,700 $ 46,300 $ 45,500 originationPercent of retail sales paid for by:In-house financing,including down 48.5 % 68.8 % 55.1 % 68.5 %payments receivedThird-party 23.9 % 17.7 % 20.8 % 16.9 %financingThird-party 8.4 % 6.5 % 8.4 % 7.3 %lease-to-own option 80.8 % 93.0 % 84.3 % 92.7 %

(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) Increase was primarily driven by higher risk loans originated during the first half of fiscal year 2020 and an increase in new customer mix.(5) For the period ended July 31, 2020, the allowance for bad debts and uncollectible interest is based on the expected loss methodology. For the period ended July 31, 2019, the allowance for bad debts and uncollectible interest is based on the incurred loss methodology.

CONN?S, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(unaudited)(in thousands)

July 31, 2020 January 31, 2020Assets Current Assets: Cash and cash equivalents $ 6,385 $ 5,485 Restricted cash 63,836 75,370 Customer accounts receivable, net of allowances 514,528 673,742 Other accounts receivable 55,335 68,753 Inventories 180,893 219,756 Income taxes receivable 15,539 4,315 Prepaid expenses and other current assets 9,440 11,445 Total current assets 845,956 1,058,866 Long-term portion of customer accounts 479,632 663,761 receivable, net of allowancesProperty and equipment, net 192,300 173,031 Operating lease right-of-use assets 266,046 242,457 Deferred income taxes 43,243 18,599 Other assets 14,523 12,055 Total assets $ 1,841,700 $ 2,168,769 Liabilities and Stockholders? Equity Current liabilities: Current finance lease obligations $ 758 $ 605 Accounts payable 63,269 48,554 Accrued expenses 73,719 63,090 Operating lease liability - current 38,003 35,390 Other current liabilities 18,084 14,631 Total current liabilities 193,833 162,270 Operating lease liability - non current 355,577 329,081 Long-term debt and finance lease obligations 748,902 1,025,535 Other long-term liabilities 24,802 24,703 Total liabilities 1,323,114 1,541,589 Stockholders? equity 518,586 627,180 Total liabilities and stockholders? equity $ 1,841,700 $ 2,168,769

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 retail segment operating income, adjusted credit segment operating income (loss), adjusted net income (loss), adjusted net income (loss) per diluted share. 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.

RETAIL SEGMENT ADJUSTED OPERATING INCOME ANDRETAIL SEGMENT ADJUSTED OPERATING MARGIN

Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Retail segment operating $ 23,188 $ 36,072 $ 28,397 $ 61,969 income, as reportedAdjustments: Professional fees ^(1) 1,355 ? 1,355 ? Facility relocation costs ? ? ? (695 )^(2)Retail segment operating $ 24,543 $ 36,072 $ 29,752 $ 61,274 income, as adjustedRetail segment total $ 279,932 $ 306,265 $ 510,497 $ 568,446 revenues

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

(2) Represents a gain from increased sublease income related to the consolidation of our corporate headquarters.

CREDIT SEGMENT ADJUSTED OPERATING INCOME (LOSS) ANDCREDIT SEGMENT ADJUSTED OPERATING MARGIN Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Credit segment operatingincome (loss), as $ 18,248 $ 5,702 $ (49,203 ) $ 18,824 reportedAdjustments: Professional fees ^(1) 179 ? 2,234 ? Credit segment operatingincome (loss), as $ 18,427 $ 5,702 $ (46,969 ) $ 18,824 adjustedCredit segment total $ 86,984 $ 94,794 $ 173,579 $ 186,125 revenues

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

ADJUSTED NET INCOME (LOSS) AND ADJUSTED NET INCOME (LOSS) PER DILUTED SHARE Three Months Ended Six Months Ended July 31, July 31, 2020 2019 2020 2019Net income (loss), $ 20,520 $ 19,974 $ (35,682 ) $ 39,483 as reportedAdjustments: Professional fees ^ 1,534 ? 3,589 ? (1)Facility relocation ? ? ? (695 )costs ^(2)Tax impact of (343 ) ? (803 ) 156 adjustmentsNet income (loss), $ 21,711 $ 19,974 $ (32,896 ) $ 38,944 as adjustedWeighted averagecommon shares 29,140,546 31,958,704 28,948,216 32,198,024 outstanding -DilutedEarnings (loss) per share:As reported $ 0.70 $ 0.62 $ (1.23 ) $ 1.23 As adjusted $ 0.75 $ 0.62 $ (1.14 ) $ 1.21

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

(2) Represents a gain from increased sublease income related to the consolidation of our corporate headquarters.