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Conn’s, Inc. Announces Record Second Quarter Net Income

Stocks in this article: CONN

Retail gross margin was 34.1% in the current-year quarter compared to 28.8% in the prior-year. Margin expansion was reported within each of the major product categories. Additionally, results were favorably influenced by sales mix, with the 50% increase in higher-margin, furniture and mattress sales outpacing the overall growth realized in the other product categories. The broad margin improvement across all categories was driven by the exit of low price-point, low margin products and continued focus on sourcing opportunities.

Credit Segment Results

The credit segment’s results, compared to the same quarter in the prior year, were impacted by:

  • Lower servicing costs, attributable primarily to a reduction in staffing over the prior-year period;
  • Lower borrowing cost, reflecting reductions in the effective interest rate on outstanding borrowings and the average level of debt outstanding;
  • An increase in the provision for bad debts, driven by changes in expected charge-off trends and a 46% increase in customer receivable originations compared to the prior-year quarter; and
  • A decline in portfolio interest and fee yield to 18.4%, due to a higher relative amount of short-term promotional receivables and increased charge-offs.

Additional information on the credit portfolio and its performance may be found in the table included within this press release and in the Company’s Form 10-Q to be filed with the Securities and Exchange Commission.

For the three months ended July 31, 2012, the Company reported net income of $0.35 per diluted share, which includes a pre-tax charge of $0.3 million associated with the relocation of the Company’s corporate office from Beaumont to The Woodlands, Texas. The new office opened in late-August.

The Company’s reported net loss was $0.10 per diluted share in the second quarter of fiscal 2012, and includes pre-tax charges of $14.7 million associated with the early repayment of debt and store closures. The Company recorded a pre-tax charge of $0.8 million, or $0.02 per diluted share, during the first quarter of the prior year associated with employee severance costs.

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