Same-Store Sales Fell 13% at Conn's on Tighter Loan Underwriting Due to COVID-19

Net sales in Conn’s fiscal Q2 fell 8.6% to $279.7 million due to COVID-19 impacts, including underwriting adjustments made in mid-March in response to the pandemic. Same-store sales dropped 13.2% for the quarter ended July 31. Tighter loan underwriting reduced same-store sales by 20% in Q2, said Chief Operating Officer Lee Wright on a Thursday investor call.

The company will remain cautious in its underwriting approach, which will likely affect sales through the fiscal year, said Wright. In Q&A, CEO Norm Miller said there are opportunities geographically and with different customer segments to “take appropriate risk for the back half of the year,” but the company is being “quite cautious as we go forward, with unemployment still at double digits and unknown what’s going to happen, having obviously never been through a pandemic.” The company didn't provide Q3 guidance. The stock plunged 15.9% Thursday, closing at $11.52.

Conn’s had a deceleration in sales after the government stimulus from the Coronavirus Aid, Relief and Economic Security Act waned at the end of July, said Wright. Credit revenue was $87 million versus $94.8 million a year earlier, down 8.2%, due to a 7.3% drop in the average balance of Conn’s customer receivable portfolio, lower insurance commissions due to a decline in the balance of sale of its in-house credit financing and a falloff in insurance retrospective income, the company reported.

Underwriting changes Conn's put in place in March in response to the pandemic drove a 36% decline in sales financed through in-house credit, said Miller. Conn’s adjusted credit operations at the beginning of the pandemic to mitigate potential impact of COVID-19, high unemployment and economic uncertainty on the business.

Appliance sales increased 8.4% in Q2, but CE sales were below pre-COVID levels at 11.7%. CE “continues to experience significant TV price deflation,” Wright said. CE was about 20% of sales over the past 12 months. Wright cited vendors’ supply chain issues, which resulted in lower inventories amid higher demand, mostly in appliances and home office. Q4 demand is expected to “strain the global supply chain.”

In response to what it sees as lasting changes in consumer buying habits, Conn’s is accelerating investment in its digital channel. It launched an e-commerce platform last year and upgraded its website, resulting in 72% e-commerce growth in the quarter vs. 2019. Online was 2%-3% of the balance of sale in Conn’s credit portfolio in Q2, up 70% year on year. Management believes it can ultimately be 10%, said Miller.

Conn's plans to open seven to nine stores in fiscal 2021, down from 14 last year, and eight to 10 in fiscal 2022. The 2022 openings will be mostly in Florida near its Lakeland distribution center, due to open in four months. Storm Laura won’t have a meaningful impact on Q3 results, said Wright. Conn’s closed certain stores in Louisiana to allow employees to evacuate before the Aug. 27 hurricane; all have reopened.