Conn’s hires new CEO, sells debt as it changes mix
Company will devote more effort to selling mattresses, furniture and appliances; net income decreases in second quarter
Appliances and home furnishings retailer Conn’s announced Wednesday that it has replaced its chief executive and sold its $1.4 billion consumer loan portfolio that had been a drag on its bottom line.
The Woodlands-based Conn’s appointed a former Sears Automotive president and head of DFC Global Corp., Norman Miller, as president and CEO, effective this week.
A company announcement lauded Miller’s experience in past roles with serving “unbanked and under-banked” consumers. DFC Global is an international firm that offers financial services such as check-cashing, unsecured short-term loans and prepaid debit cards.
The company also revealed that for the second quarter 9.2 percent of its credit customers were delinquent after 60 days, up from 8.7 percent in the same period a year earlier. The company posted a $9 million operating loss
in its credit segment, citing increased allowances for bad debts.
The company, which has tightened credit standards after a spike in delinquencies last year, said the weighted average credit score for its customers rose to 617 for the three-month period, up from 607 a year earlier, but still down from 2011.
The second quarter also was the period in which Conn’s completely stopped selling gaming hardware, cameras and certain tablets. Conn’s chief operating officer, Michael J. Poppe, told investors during a conference call that the company expects the changes to pay off.
“As our product mix shifts toward more furniture and mattress and appliance balances, it is expected to benefit our delinquency rates over time,” Poppe said. “The elimination of tablets, gaming hardware and cameras is helping to speed the shift in product mix.”
Though the loss of those electronics dented samestore sales growth for the quarter, it is a more sensible long-term decision wrote Stephen Ward, commercial director and retail analyst with the Conlumino research agency.
Those products are more difficult and less profitable to sell on credit and moving away from them frees up in-store space for Conn’s continued migration toward furniture, Ward wrote.
New CEO Miller, a graduate of West Point, has more than 30 years in business management in positions with Aramark, Nestlé, Kraft and PepsiCo.
In a statement, Miller cited “a deep connection to the purpose of Conn’s mission in serving the unbanked consumer and look forward to leading our like-minded employees while meeting our shareholders’ goals.”
Former CEO Theodore M. Wright will remain on Conn’s board as executive chairman, the company said.
Also Wednesday, the company announced second-quarter net income fell to $16.5 million, or about 45 cents per diluted share, down 3 cents per share from one year ago.
Total sales increased by 12.7 percent. Same-store sales increased by 3.1 percent.
Wright said the company’s goal is for furniture and mattress sales to account for 45 percent of total product sales. In the second quarter, those sales totaled 33.7 percent, up from 30.8 percent last year.
The company is on track to complete its goal of opening 15 to 18 new stores during this fiscal year and 22 to 25 stores next year, Wright said during the conference call.
Conn’s also said it is selling off its $1.4 billion consumer loan portfolio and will use the money to pay down debts. That will leave about $380 million in cash, some of which will be used to repurchase some of the company’s stock.
Standard & Poor’s Ratings Services said afterward that the portfolio sale would not lower Conn’s credit rating, currently Bnegative.
“This is a good move as it will allow the company to focus more on the retail operation, and will also relieve it of the burden of dealing with bad debt — something which has traditionally dragged down earnings,” Ward wrote in his analysis.
Conn’s stock price closed Wednesday at $28.49 per share, down $1.45.