If Conn’s Inc. (NASDAQ: CONN) is in your portfolio or you are considering for investment, there a few things you should keep in mind regarding this stock.
In case you want to throw your eyes to the performance of the stock, have it that the stock has retreated nearly 60% so far in 2016 and is down nearly 66% since a year ago.
Conn’s Inc. (NASDAQ: CONN) reported mixed results for its F2Q2017. Revenue of $398.2 million rose 0.5% YoY, but trailed the consensus estimate by $15 million. The company posted adjusted EPS loss of $0.04 for the quarter, better than EPS loss of $0.07 that analysts were expecting on the average, but sharply below EPS profit of $0.47 in the same quarter last year.
The 0.5% uptick in revenue in the latest quarter did not have any strong underlying support as the topline boost came from new stores. However, comparable store sales tumbled 5.1%.
For F3Q2017, Conn’s Inc. (NASDAQ: CONN) sees sales falling a high single-digit percentage, indicating that recovery at the company could be prolonged.
Where is the problem for Conn’s Inc. (NASDAQ: CONN)?
A tough retail environment characterized by intense competition and soft consumer spending is one reason Conn’s is unable to impress investors. However, a major problem seems to exist in the company’s credit division. Conn’s operates a consumer financing unit that is designed to support sales at its retail division. However, the credit unit is being burdened by bad loans, thus causing problems to the whole organization.
Signs that challenges at Conn’s credit unit are multiplying instead of reducing can be seen in the recent move by the company to boost provisioning for bad loans. The company said that provision for bad debts in F3Q will be in the range of 14.25% to 15.25% of customer portfolio balance. That indicates an increase from bad debt provision of 13% in F2Q2017 and 11% in F2Q2016.
Therefore, looking at the situation at Conn’s Inc (NASDAQ: CONN), it goes without saying that the management has to do something about the credit business to protect the company’s future.