UPDATE 2-Conn's credit portfolio improves; Q1 beats Street view

* Q1 EPS $0.25 vs est $0.20

* Q1 total revenue $197.5 mln vs est. $191.3 mln

* Delinquencies improve sequentially to 8.6 pct

* Shares rise 12 pct (Recasts; adds details, analyst comment, updates share movement)

By Viraj Nair and Abhishek Takle

BANGALORE, May 27 (Reuters) - Conn's Inc's (CONN.O) first-quarter profit surpassed Wall Street's expectations as it continued to slash costs to boost margins, and the retailer's in-house credit portfolio showed signs of improvement.

Shares of the electronics and home appliances retailer rose as much as 12 percent on the strong quarter. They later pared their gains to trade down 2 percent at $7.29 late Thursday afternoon on Nasdaq.

The Beaumont, Texas-based company, which provides shoppers flexible credit options to buy its products, saw the delinquency rate improve sequentially in the latest quarter, after two consecutive quarters of higher delinquencies.

"The most important metric for Conn's from an investor's perspective is the credit business, where we saw a healthy improvement sequentially," Hudson Square Research analyst Scott Tilghman said.

The company's credit business has been a concern for investors, as credit markets came under greater federal scrutiny following the recession.

The 60 day-plus delinquency rate fell sequentially to 8.6 percent in the fourth quarter from 10 percent, but was still higher than 6.9 percent last year.

The charge-off rate -- the loans the company does not expect to recover -- was 4.6 percent, slightly better than the prior quarter.

The performance of the company's credit portfolio is still not where Hudson Square's Tilghman would like it to be on a year-over-year basis, but the analyst is encouraged by the improving trends.

However, Tilghman, who has a "hold" rating, remains cautious on the stock till sales trends begin to pick up again.

Conn's, which had been benefitting from offering flexible credit options and lower prices to consumers, was one of last retailers to be impacted by the downturn, as its key Texas market sank into a late recession.

"Texas will probably lag on the recovery side as well," Tilghman said.

The company has been forced to slash costs to combat sales declines as hurricane-related rebuilds had boosted sales last year.

Total revenues slumped nearly 18 percent to $197.5 million in the latest first-quarter, while same-store sales fell 19.7 percent.

But Conn's slashed expenses by 15 percent, resulting in retail gross margin improving to 27.9 percent from 25 percent last year.

First-quarter profit came in at $5.5 million, or 25 cents a share, while 20 cents in the quarter, according to Thomson Reuters I/B/E/S.

(Reporting by Abhishek Takle and Viraj Nair; Editing by Vyas Mohan and Prem Udayabhanu)