UPDATE 2-Appliance retailer Conn's warns on profits, shares plunge

Thu Feb 20, 2014 10:49am EST

* Cuts 2015 earnings/share forecast to $3.40-$3.70 vs $3.80-$4.00

* Estimates fourth-quarter adjusted earnings/share $0.75-$0.80 vs est $0.93

* Shares fall as much as 37 pct (Adds analyst comments, background; updates share movement)

By Maria Ajit Thomas

Feb 20 (Reuters) - Electronics and home appliance retailer Conn's Inc lost more than a third of its market value after it cut its profit forecast due to bad debts and weaker sales growth for TVs.

Conn's, which offers credit to customers, said delinquency and charge-offs rose in December and January, leading to an increased provision for bad debts in the fourth quarter.

Woodlands, Texas-based Conn's operates 79 stores in Texas, Louisiana, Arizona, Oklahoma and New Mexico, catering mainly to lower income shoppers.

Conn's reported weaker same-store sales trends in electronics this year, in part due to higher prices for televisions as suppliers cut back on promotions, and said it expects this weakness to continue through the year.

"When vendors pull back, that means the retailer has to make the choice of either selling (TVs) at a higher price or sacrificing margins in order to get that sale ... Conn's was not willing to take the margin hit," B. Riley & Co analyst Scott Tilghman said.

The company has also been shifting its focus toward higher-margin products such as furniture and mattresses and reducing its dependence on consumer electronics.

Conn's estimated furniture unit sales growth of 29 percent in the fourth quarter ended Jan. 31, and mattress unit volume growth of 70 percent. Television sales are expected to rise only by 17 percent.

Rival Hhgregg Inc in January reported a steep fall in quarterly profit and slashed its fiscal 2014 earnings forecast due to declining demand for televisions and tablets.

For the year ending Jan. 31, 2015, Conn's forecast earnings of $3.40-$3.70 per share, down from a range of $3.80-$4.00 issued in December.

Analysts on average expect a profit of $3.96, according to Thomson Reuters I/B/E/S.

For the fourth quarter, Conn's said it expected adjusted earnings of 75-80 cents per share, far below the average analyst estimate of 93 cents per share.

Conn's estimated net sales of $301.6 million for the fourth quarter, below analysts' estimates of $361.5 million.

Conn's shares were down 33 percent at $37.34 in heavy trading on Thursday. More than 12 million shares changed hands by 10:40 am ET, 11 times the 10-day average volume.

B. Riley's Tilghman, however, said the stock plunge was "overdone" as he expects the credit business to improve by the second or the third quarter. (Reporting by Maria Ajit Thomas in Bangalore; Editing by Rodney Joyce and Saumyadeb Chakrabarty)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.