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Conns Downgraded to Strong Sell on Dismal Q3 Results

Zacks Equity Research

On Dec 11, 2014, Zacks Investment Research downgraded Conns Inc. (CONN), a specialty retailer of durable consumer goods and related services, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

The primary reason for the downgrade has been the negative trend seen in its earnings estimate revisions following the announcement of the company’s dismal third-quarter fiscal 2015 results on Dec 9, as well as the departure of its Chief Financial Officer (CFO).

The Zacks Consensus Estimate fell 38% to 57 cents for the fourth quarter, 37.7% to $1.80 for fiscal 2015 and 26.6% to $2.50 per share for fiscal 2016 in the past 7 days. Further, the stock has also been seeing some disappointing trading lately, as the share price dropped 50.3% in the past week.

Struggling with the persistent issues in its credit segment, the company posted a loss of 8 cents per share in the third quarter of fiscal 2015 comparing unfavorably with earnings of 66 cents recorded in the prior-year quarter as well as the Zacks Consensus Estimate of 68 cents. The decline resulted from higher delinquent debt rates that weighed on the company’s profits despite an outstanding performance delivered by the retail division.

Consolidated revenues for the quarter advanced 19% year over year to $370.1 million, primarily driven by solid performance at the company’s retail segment and the new store model. However, it missed the Zacks Consensus Estimate of $383 million.

During the quarter, Conns’ retail segment delivered excellent results on the back of solid store openings. However, overall results remained affected by the credit segment’s disappointing performance. Despite tight underwriting standards, consumers failed to resolve delinquency issues and hence, the company is realizing losses before expected. Consequently, provision for credit losses recorded this quarter was wider on the assumption that this trend is likely to continue.

Considering the present scenario and the ongoing strategic initiatives and alternatives, Conns withdrew its earnings guidance for fiscal 2015 and for the time being prefers to remain mute on the same for fiscal 2016.

Also, concurrent to its earnings announcement, the company declared the exit of its CFO, Brian Taylor, who will be replaced by Mark Haley, working as Interim CFO.

Other Stocks to Consider

A better-ranked stock in the consumer electronics industry is Best Buy Co. Inc. (BBY) with a Zacks Rank #2 (Buy). Other stocks performing well in the broader retail sector include The Kroger Co. (KR) and Safeway Inc. (SWY), both carrying a Zacks Rank #2.

Read the Full Research Report on KR
Read the Full Research Report on BBY
Read the Full Research Report on SWY
Read the Full Research Report on CONN


Zacks Investment Research