Conn's Cuts Outlook, Costs After Q2 Revenue Drop Steeper Than Expected

Conn’s is cutting operating costs, reducing capital expenditures and maintaining “conservative credit underwriting” in response to “challenging macroeconomic pressures,” said CEO Chandra Holt on a Q2 earnings call Tuesday.

The retailer's Q2 revenue fell 17.1% to $346.6 million on a 19.4% falloff in net sales and a 6.3% drop in finance charges and other revenue for the quarter ended July 31. Factors affecting the Q2 revenue drop were tough comparisons against strong Q2 ’21 results fueled by stimulus programs and “weaker consumer demand for discretionary categories,” Holt said.

Conn's scaled back full-year revenue projections to low- to mid-teens from previous expectations of a high single-digit decline, said Chief Financial Officer George Bchara. Annual retail revenue is expected to drop by mid-teens, with credit revenue shrinking by high single digits, he said.

The retailer entered Q2 with a cautious outlook for the remainder of the year, but the retail environment “deteriorated further” during the quarter, leading management to accelerate cost-cutting, said Holt. Conn’s expects current cost-cutting initiatives and prior actions to combine for $12 million-$16 million in second-half savings. It also plans to cut back its marketing spend, she said.

Lower-income customers are shifting spending away from discretionary products to household essentials, which is affecting Conn’s financial access revenue from its in-house credit offering and third-party lease-to-own product, Holt said. Q2 sales in that segment plunged 24% year on year vs. a 12% decline for higher income customers paying with cash or Conn’s private-label credit card, she said.

Sales of appliances, Conn’s least discretionary category, were flat year on year, Holt said, while CE, “the most discretionary,” and lease-to-own, “the lowest income,” were down 60% year on year in Q2. Conn’s plans to revamp category strategies and “optimize” the product assortment, including adding more value-oriented TV models in response to “shifting consumer demand.”

Holt referenced Conn’s stable credit performance and “meaningful” liquidity, which will enable the retailer to pursue actions to drive sales, including investing in e-commerce channels, pursuing partnerships and expanding payment options. The company had a successful pilot for a layaway program in Q1 and plans to support layaway sales in the holiday season, Holt said.

The retailer cut back its fiscal 2023 new store opening plans to 10-12 stand-alone locations and 15-20 store-within-a-store locations, said Bchara. It added two stand-alone stores in Q2, bringing the total to 163 at the end of the quarter. Conn's also added four store-within-a-store locations with Belk, bringing the total to eight. It expects to launch an e-commerce experience on belk.com before the holiday season. Holt believes Conn’s delivery and repair services “can be the foundation for a much larger business,” and the company is looking for “multiple partnership opportunities," she said.

Conn’s same-store sales fell 22% year on year in Q2; e-commerce sales grew 11.5% to $19.3 million. The company completed the first phase of an e-commerce platform migration in the quarter, but Holt tempered expectations about the “digital transformation,” saying “short-term disruptions can occur even during successful implementations.” The final phase of Conn’s platform migration centers on credit and payment functions. The website “replatforming” is expected to be complete by year-end.