Conn’s Slashes 400 Jobs Amid Sharp Decline in CE Sales

Conn’s slashed 400 jobs and has begun fully outsourcing home delivery services in two markets, moving to cut costs amid a sharp decline in sales, executives said Friday on an earnings call. The job cuts in late August were spread across the company, leaving it with 2,500-2,600 employees, and were in proportion to employment levels, Chief Financial Officer Michael Poppe told us. Conn’s had a sales staff at its 76 stores of about 1,300 prior to job cuts, he said. Conn’s also has reduced operating hours at six locations and outsourced home delivery to third-party companies in Austin, Texas, and Lafayette, La., Poppe said. It has previously used third-party delivery for parts of the Houston, Texas market, Poppe said.

Conn’s also is weighing closing a single store in Dallas, partly depending on its performance during the holiday season, Poppe said. It hasn’t moved to close more stores, but is “continuously evaluating” them and won’t rule out shutting more locations, CEO Timothy Frank said. There are no immediate plans for opening new stores, he said.

Conn’s posted a 16 percent same-store revenue decrease in August and September as CE revenue plunged 29 percent, Frank said. The downturn in CE was mainly from a drop in LCD TV sales and an 8.5 percent decline in average selling prices for the TVs, he said. TV unit sales were down 21 percent, while dollar volume dropped 29 percent, Franks said. On the up side, sales of LED-backlit sets rose 53 percent in units and 10 percent in dollars during the two-month period, he said. Sales of major appliances fell 18 percent, Frank said. TV pricing is “extremely aggressive,” which wouldn’t be a “bad thing” if the U.S. economy would “turn a little,” because the current over-production of sets might spur a resurgence in sales albeit at lower retails, Frank said.

Conn’s also tightened underwriting requirements for its credit business. It has shifted customers who don’t qualify for credit under new terms to the third-party The Rental Store, which has set up shop in 27 Conn’s locations and expects to reach 40 by mid-Q4, Poppe said. Conn’s had hoped to have The Rental Store in 60 locations by year-end, but it “hasn’t moved as quickly as we would have liked,” Frank said. The Rental Store assumes the credit risk and since it started at Conn’s in late Q2, credit sales have dropped to “a little less than” 60 percent of the chain’s total transactions, Frank said. Conn’s credit portfolio balance dropped to $692.6 million from $748.3 million. Customers 60 days or more delinquent in payments increased to 9.8 percent or $67.7 million of the portfolio from 8.6 percent or $64.2 million a year earlier, company officials said. Charge-offs for August and September were $6.3 million or 5.3 percent of the average outstanding credit balance, the company said.

Conn’s also is seeking to refinance its debt. The chain expects to secure an expanded asset-based loan facility of up to $375 million and a $100 million senior secured term loan, maturing in 2013 and 2014. The pacts contain new covenants and will increase interest charged on borrowing by two percent, company officials said. The existing $210 million loan facility, signed in August 2008, was to mature in 2011. Conn’s also could raise $25 million in equity through a possible rights offering the board authorized. The rights would be redeemable for one share of the company. Among those expected to exercise rights are Stephens Inc. and The Stephens Group, which own 21.3 percent and 26 percent, respectively, of the chain’s outstanding common stock.