Greenberg: Conn's Crunched by Credit


This article appeared at 11:11 a.m. EDT on RealMoney Sept. 2.

SAN DIEGO (RealMoney) -- Funny tweet this morning from Barbarian Capital:

"$CONN discovers Marketing 101: giving stuff away works. SSS up double digits, credit performance collapses."

And therein lies the issue with Conn's (CONN) , the Texas retailer famous for providing credit for the un-creditworthy.

While same-store sales rose, the company missed second-quarter earnings expectations and guided down, as it increased its provision for bad debts. As I noted in Columnist Conversation this morning, credit has always been the bearish story at Conn's.

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In retrospect, cracks in the company's credit story have been getting wider and wider, quarter after quarter.

As far back as a year ago, the company was blaming "short-term execution issues in our collections operations" for unexpectedly bad performance in its credit operations, which account for nearly a quarter of all revenue.

The situation worsened in February, with a twist: the company blamed the weather (and a bunch of other stuff) for its poor credit performance, which in turn led to an earnings warning.

As is the case today, the stock collapsed on that news, only to slowly recover as investors unwisely shrugged off credit concerns.

From today's release:

"Our credit operations ran into unexpected headwinds, resulting in portfolio performance deterioration. Despite tighter underwriting, lower early-stage delinquency and improved collections staffing and execution, delinquency unexpectedly deteriorated across all credit quality levels, customer groups, product categories, geographic regions and years of origination. Tighter underwriting and better collections execution did not offset deterioration in our customers' ability to resolve delinquency."

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