Conn’s Sees Larger TV Sizes Boosting ASPs Next Year

Conn’s decision not to sell “many thousands of televisions at negative margins” on Black Friday paid off on the November ledger, Chairman and newly named CEO Theodore Wright said on the chain’s fiscal Q3 earnings call Thursday.

Conn’s didn’t open at midnight or earlier to match late-Thanksgiving Day openings at rival chains such as Target and Best Buy, electing instead to open at 5 a.m. Black Friday morning. “Arguably, this cost us sales, but sales of every major product category but televisions increased on Black Friday,” Wright said. The decrease in TV sales was a “lost opportunity to lose money on low-cost, negative-margin televisions,” he said. Since the company chose not to have loss-leader deals, opening at midnight “would not have changed the results significantly,” he said. Black Friday was a “much more profitable day” for Conn’s in fiscal 2012 than in fiscal 2011, he said.

Conn’s saw “strong performance” over the course of the Black Friday weekend, including Cyber Monday, Wright said. The chain reported double-digit growth Saturday, Sunday and Monday of that weekend “in all categories,” including appliances, home office and furniture/mattresses, he said. Sales of TVs were “soft” on Black Friday but picked up over the remainder of the weekend, he said.

Smaller TVs and other electronics will be among the loss-leader promotions the chain offers at “highly competitive prices” during the rest of the holiday season, but not to the extent that the chain discounted small electronics a year ago, Wright said.

In product mix for fiscal Q3, consumer electronics as a percentage of gross profit dropped to 28 percent, compared with 35 percent in fiscal Q3 2011, largely at the expense of furniture and mattresses, which grew 8 percent in gross profit contribution, Conn’s said. Higher average selling prices from larger screen sizes will drive TV sales over the first half of the calendar year, executives said. Regarding the prospects for the TV business in 2012, Wright said unit sales “probably will not be there” in calendar 2012, but the ASPs will be there from new 80-, 70- and 65-inch TVs. “Sales dollars for TVs will increase modestly. We're bullish on larger screen sizes but not particularly bullish on unit volume for the industry,” he said.

Conn’s reduced guidance for the fiscal year ending Jan. 31, 2012, to an earnings per share range of $0.55 to $0.65, excluding charges related to the company’s refinancing completed during Q2, costs related to completed and future store closings, the impact of the required adoption of accounting guidance related to troubled debt restructuring and additional inventory reserves recorded. Earnings guidance for the fiscal year ending Jan. 31, 2013, is for earnings per share of $1.05 to $1.15, the company said.

Wright commented on the company’s efforts to “steadily tighten underwriting standards” since 2010. The percentage of accounts with a FICO score below 550 has declined from 14 percent in 2007 to 4.5 percent in fiscal 2012, he said. The company expects loans in that segment to continue to decline due to further credit tightening measures as the company looks to reduce collection costs and drop-off rates. Wright said the net charge-off rate by credit score was reported as 40.9 percent for 500-525 FICO scores and 4.4 percent for scores of 600-625. “We're not going to repossess every single delinquent loan by any means,” Wright said. “We're going to selectively repossess where we see a recover value and an opportunity to demonstrate our willingness to repossess product,” he said. The company will no longer offer credit to customers with FICO scores under 525 unless they have a proven credit history with the company, he said.