* Says continuing to closely monitor capital availability
* Says net sales fell 1.3 pct in first 2 months of Q3
* Says temporarily discontinued providing earnings view
* Stephens cuts stock to “equal-weight” from “overweight”
* Shares lose about a third of their value (Adds analyst comments)
By Mihir Dalal
BANGALORE, Oct 20 (Reuters) - Specialty retailer Conn’s Inc (CONN.O) on Tuesday said it might post a third-quarter net loss as it may have to increase its bad debt allowance and record goodwill charges, and withdrew its earnings outlook, triggering a 33 percent plunge in its shares.
Conn’s also said preliminary total net sales fell 1.3 percent through the first two months of the quarter ending Oct. 31. Through the first half of October, net sales were down about 20 percent.
Brokerage Stephens cut its rating on the stock to “equal-weight” from “overweight,” citing sales weakness and credit pressures related to the growing economic challenges.
Conn’s, which provides flexible in-house credit options to its customers and has financed about 61 percent of its retail sales in the last three years, has been hurt by rising unemployment in its key Texas market this year.
As delinquencies have risen, Conn’s has been setting aside more money to cover losses from receivables, which contributed to a lower profit in the second quarter.
Conn’s said the 60-day delinquency rate rose to 8.6 percent at Sept. 30, from 8 percent in the year-ago period.
Due to economic conditions in Texas, the company has now tightened its lending standards, particularly for the bottom end of the credit portfolio, which has been hurting sales, Stephens analyst Rick Nelson said.
Though its credit portfolio will likely improve in November and December, sales will continue to be hit by the tighter credit standards, Nelson said.
The electronics and home appliances retailer, which operates 75 retail locations in Texas, Louisiana and Oklahoma, said it was continuing to closely monitor its capital availability and compliance with the various credit facility covenants.
The Beaumont, Texas-based company, which will temporarily not provide earnings outlook, said its product gross margins in the first two months of the quarter fell about 110 basis points sequentially.
Analysts on average were expecting third-quarter earnings of 17 cents a share, before special items, according to Thomson Reuters I/B/E/S.
However, excluding potential charges, it expects to be profitable in the fourth quarter, Conn’s said in a statement.
In August, Conn’s said it expected to post a full-year profit of $1.40 to $1.60 a share, excluding fair value adjustments.
Shares of the company were down $3.81 at $8.23 in midday trade Tuesday on Nasdaq. They touched a low of $8.02 earlier in the day. (Reporting by Mihir Dalal in Bangalore; Editing by Anne Pallivathuckal and Unnikrishnan Nair)