CONN - Earnings call transcript Q1 2023

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Operator

Greetings. And welcome to the Conn's Inc.

First Quarter Fiscal Year 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chandra Holt, President and Chief Executive Officer. you. Thank

begin. may You

Chandra Holt

strategic welcome results call. first with I’ll quarter will on of and over the XXXX George, more to a fiscal detail. earnings the who our update an conference start our and before to morning turning quarter call financial Conn's review year review priorities in Good today’s call

macro As lease-to-own tightening, third-party overlapping stimulus expected, our program, first quarter a retail environment. challenging performance was impacted by and

including fuel Our have year-over-year costs, more first for quarter supply spoke fiscal last become affected was worsened of XXXX year outlook conditions freight. higher by and in performance also our the economic we remainder cautious. has Since chain March, and

EBIT by become progress for related I'm our in encouraged track on January. billion products. XXXX. $X.X initiatives revenue I adjustments initiatives credit offering a $X confident core, focused while near to experience of against Conn's laid out on to providing our differentiated term, business premium growth the strategy more that our billion enhance destination year by annual while customers unified And to we've our in Conn's a over remain transform I'm As the far made high growth making retailers navigate position multiple believe shopping pursue strengthen we're first the will we commerce with continuing result, the our a pursuing margin growth initiatives. digit leading in long-term to one so into difficult are we and And a operating our environment single home to achieve fiscal We and

impacted of and lease-to-own quarter were primary sales quarter our the economic from access first store in factors quarter, the financial for overlapping During decline X.X% conditions underwriting disproportionately program, These tighter sales. worsening the customers. same first first our party third partners, stimulus drivers

this fast card and approximately year. customer that options. the Total also environment utilize first in fiscal for first credit quarter the after label reliable in sales payment in last X% quarter our year-over-year XX% While private the customers segment macro affected increasing cash increased

and of gross are we increased fixed In counteract XX retail commissions. a partially compared last was sales XX% due year in by was RSA savings fast our deleveraging are higher basis costs. our the fact, total higher our year-over-year fiscal lower the sales to in offset the margin fiscal customer the XX% distribution for we to the fuel and retail some over The several costs, To on approximately which past Retail near-term year. that over XX-month of implementing profitability, remainder gross XXXX. having by on to lower sales segment overall sales in consecutive cost of represents reliable compounded resulted quarters have impact impact margin reduction expect initiatives

outstanding balances, our credit including Indicators with quarter, during flexibility our to economic score continues simultaneously navigate re-aged opportunities. strong portfolio to positive which growth average team environment to charge of credit the credit and the current weighted net pursue Turning long-term produce results, and remained the off. first segment, provide health annualized of accounts us the

and consecutive accounts re-aged basis driven as X,XXX points best quarter. fact, over years. spread and credit underwriting four was of at the are the portfolio in strategies levels In the over a strong percent Disciplined performance for credit first fourth portfolio have quarter the

sales that going spread With continue basis new while of trends approximately for fast growth believe our create and are which long-term in financial we significant as our an this we expect overview, of the will and to credit both want time points closely opportunities spend forward to pursuing the support X,XXX looking segments, credit access reviewing to I drive risk. manage remainder annual and We credit maintain for value we my strategies reliable customer watch shareholders. long-term to

strategic of strategic Belk, in updates we’ve terms I year. start to want store-within-a-store a entered concept into this by sharing In beginning initiatives, Inc. on QX to with partnership of our pilot a

our As company in-store was capability ago, I Conn's joined the advantage, logistics XX a value delivery. assortment. by the class high and business. and foundation almost well This can I for best-in- that next-day orders service the be approximately online also fact I larger believe when and months capabilities competitive our the distribution, our key recognized established received infrastructure white-glove I of stated much all as a is Belk at fulfillment as impressed quality

retail proposition. a as name brand This and under coming value Conn's introducing will categories, on product all of white-glove next-day, XX,XXX in locations brand fast states Belk presence giving approximately and pilot as chains strategy eCommerce It Conn's regional opportunities Conn's our planning square exciting differentiators. by serve a broader additional core We this program which with and one store through future. our product Belk.com. to are we concept by showcasing months. believe per reliable key industry a of in-house The successfully department the pilot Belk’s will Conn's strong XX is the locations XX plan through it will existing is this largest store-within-a-store with also that also to to nearly feature partnership on over to has capability. us well a and expands on Belk year. repair store-within-a-store differentiators access introduce value markets us maximize brand our partnership XXX customer of opportunity believe to customers. Our to the Both assortment markets brand, the will focus reimagined provides of providing Belk new with will complementary be retail because customers segment in with the service we and to XX feet We opportunity enter index the store delivery and leading and serve in major Belk locations new XX,XXX partnership Belk.com. our can in new categories Pilot a identity

Moving to first for eCommerce million. strategy, eCommerce growth record sales increased quarter $XX.X XX.X% the of to quarter our a

get by digital is our will quarter and one late credit make began our started we is that end we infrastructure listing it our product improving two QX front phase and As apply of homepage our upgrading pages. for website, mentioned and checkout first Phase Phase are the payments. replatforming replatforming to we on in easier and our the our final including for successfully focused and customers transformation online on make functions during enhanced The last our experience. digital cart website. the of focused quarter, of

this complete our enhanced complete, We their across improved expect our fall. website customers see to an with online will journey. once the replatforming And website of functionality

We core product are assortment to increase and also conversion. successfully enhance our increasing online experience our online retail

we add categories number as launched merchandise through our of quarter, first we entirely and dropship During of without having vendors By customers, the SKUs online such patio the our new to available program. can shipped increasing doubled lighting recently furniture directly inventory.

significant both items eCommerce. Finally, to investments during backend same and core the pursuit These the our leading first quarter, because a positioned believe by we in our to becoming step a add enabling retailer of become supply unified forward will first commerce our we uniquely for strengthen in-store unified retailers stores store Conn's took one is is commerce and of continue online only transactions. chain to to the our associates

lease-to-own transformative offering of with add us differentiated million our technology year will our that originate goals. house. on an business, will initiatives We credit quarter, acquisition of incremental is offering lease-to-own year. originating schedule, The be in last We and our revenue roadmap announced to our our by financial in-house EBIT platform. the the lease-to-own and The at the fiscal we during that a will majority expect believe of Looking and that reflected this to year and platform in-house months XXXX offering approximately integration fiscal in-house leases transactions quarter acquiring approximately to in-house transition lease-to-own fiscal believe transactions we annual $XX lease-to-own three income by XX our believe this established by fiscal enhance fully begin statements. years XXXX. service fourth operating accelerated of us in year a originating achieve will be take We XX margin an enable help lease-to-own to to we next under

the are We acquisition have our and will business lease-to-own on this in-house an offering customers. the value opportunities by excited our for have will

lease-to-own to strong credit offering. an program cash are cash higher have in-house also that traditional expect our on returns We in-house than

certain we Our level under headwind lease-to-own to supporting expect platform has consolidate performance, lease-to-own the to lease-to-own lease-to-own over this that our sales. been is sales our payment a through to we by significant transition achieve create quarter. as initiative past To performance retail have of our is an option. to chosen we tightening volume committed retail business Continue the that partners a one a partner our lease-to-own l important supports improve

with sales options been to American Financial We diverse benefit into coming goes the expect payment our First strategic expanded of lease-to-own Having once cornerstone in differentiation. has effect weeks. the our it partnership

for Our have option a new payment everyone. to vision is

for QX, With year at launch use successful fiscal pleased There provides a to with don't incremental a with reasons. I'm this stores these Conn's that turned to a of customers. and this are payment program that lease-to-own For year. down. after that to more and in customers credit want to of variety program an program provides this we example, are there pilot roll for that each decided out planning a opportunity layaway us mind, applicants additional XXX,XXX over we in option a are serve are report to apply customers layaway also to

backdrop has as our lease-to-own the underwriting direction our retail we I economic is performance, impacted achieve our financial year XXXX fiscal the macro decline our May. a business ability near-term as our With tighter retail in headed third-party saw challenging am goals. recent uncertainty sales quarter While well first partners, from and confident strategic throughout into and to

will expected by I'm cost to underway reductions of my implementing As To expect our in certain value related total create in lower expenses that are macro XXXX. now we To remarks, environment, prepared down shareholders. some impacts result, sales transformation progressing. annual sustainable to digits profitability. help marketing single for are encouraged our high revenues And a to savings on conclude offset we be including strategies and initiatives, year have challenging more is near-term navigate fiscal the the labor a

the and entire customers for team profitable direction their members. I are hard am and proud I our company, our excited work thank cost to to of our of credit commitment adjustments and challenges we growth. our in our the team strategic dedication stable economic simultaneously by and from to accelerated headed local successfully want and believe to communities. positioned this for growth prudent this will investing allow our navigate making stronger trends. are long-term maintaining We structure, and initiatives period emerge We and near-term difficult while better us our

the our Now, to over let George me call turn to review financial performance.

George Bchara

the Chandra. XXXX, a of were basis, quarter year the X.X% revenues from last period million consolidated representing fiscal a total $XXX.X year. decrease Thanks same On for first fiscal

quarter diluted share share per For net income fiscal net was the for year. the last first year XXXX, compared fiscal income $X.XX to per period $X.XX diluted of of same

of that associated with financial morning. quarter a our $XX.X million press As result cost our a economic Reconciliations our release the in portion earnings this debt measures of first a earnings GAAP in from bad COVID-XX fiscal quarter issued first are of benefit the benefited in lower available for as of and last the to release non-GAAP provision a was reminder, year reserve. pandemic

our retail Florida stores partners. XX quarter retail sales primarily total on of had fiscal revenues retail tighter stores quarter underwriting decline state our including total quarter more two and the stores segment in due during ended the detail, challenging quarter benefits open three was the $XXX.X with at stimulus a were across revenue X.X% retail the to lapping from XXX last in first of environment, lease-to-own Looking year-over-year this We first for The more million. year and a states. within first

are we within leverage XX XX which existing XXXX, to costs. all to planning will to locations standalone year markets, fiscal now locations XX fixed and store-within-a-store For open XX

was eCommerce of points retail $XXX,XXX primarily new fixed retail driven costs, our expand making freight partially costs, impact by stock by in X.X% increased basis fuel labor capital and footprint. same quarter occupancy highly the way expect to plus last was by our margin with a higher them XX.X%, SG&A for the display to compensation due first is RSA our fiscal store-within-a-store inventory, XXX The offset gross capital which and the gross efficient period in of decline store higher locations and of in growth, margin investment commissions. growth. increased will expense deleveraging approximately costs the expenses from investments segment associated We Retail primarily year. decrease require a of

to sales, first fiscal retail of quarter the percent the XX.X% year. XX.X% were for a same compared last for expenses period SG&A As

retail contributed first operating also we first to of the the million quarterly costs sales same period discussed has the and segment lower last in $X.X segment for as quarter retail higher of retail the sales Seasonality As today's loss throughout income year. call, during to retail typically quarter lowest operating $XX.X compared a profitability fiscal segment fiscal retail impacted the year. million

average Turning positive to our quarter, X,XXX remain portfolio X.X% segment decline fiscal which we of due other us same The and underwriting navigate credit period the our maintaining customer receivable evolving revenue finance a help economic revenues the believe the to prior for was from last million first of portfolio of balance year. will $XX.X in our encouraging, X.X% charges basis segment, decline disciplined, in were the focused The over the reduction and credit points the as we spread. period on performance credit receivables environment. is year fiscal a strategies

programs. percent to period X.X% at XX for to last portfolio April from of As XXXX, XX and year, last stimulus XX.X% the the same expectations. XX.X% account fiscal the year. was compares the due period past fiscal was of a with line for same balance which compared plus the as re-aged our portfolio This benefited XX.X% day balance The in of percent a

of for charge-offs same XX.X% balance For period the fiscal as first the portfolio were last XX.X% percent average to net compared year. a quarter, the

During $XX.X the XXXX, year. to debts for was a year $XX.X of our provision million, to bad quarter fiscal credit provision for first benefit compared debts the million last bad

revenue, segment same period smaller last year. debt provision partially $XX.X the bad $XX.X The an bad a in to million, segment reduction deleverage primarily to quarter and first from expense. a the year, for we balance, $XX income fixed SG&A portion and was credit expenses higher million average credit reserve. due primarily With before economic improvement the for higher portfolio expenses of benefited compared by before SG&A our credit segment provision of in income million offset a was interest segment For taxes for last a credit fiscal debts, taxes lower release

position to collections $XXX.X customer remains receivable credit of produce and our to cash cash end from significant portfolio. ended and compared and to strong and the now million This year. position, sheet $XXX.X balance year-over-year meaningful quarter operating Turning our sales in and on capital We net we continues continue our the in the last at flow. to label card first sheet quarter first of balance cash benefit capital growth with robust million debt private

of the at a In of percent quarter to was of the first portfolio end quarter, last year. first the the as addition, ending XX% XX% approximately compared approximately at debt balance of net the end

challenging in our to economic growth us navigate the initiatives. believe continue access We while flexibility environment long-term to to liquidity provides capital our and with investing

review want expectations of questions, for remainder the we up I to Before our XXXX. to fiscal open the year call

we As total for down expect single high Chandra fiscal digits year be to mentioned, XXXX. revenue

challenging reflects year include in We our a customer. Our to operating to finance annual The as lower for guidance retail marketing outlook, to our partially lower of look decline and our revenue sales offering. margin X% macroeconomic trends our digit portfolio negative with single single credit impact which revenue the sales between platform contracts fiscal credit Reductions in-house cost deleveraging compared lower high financial underway, from are more reflects change and offset a decline access X%, lower by spending, and previous acquisition, sales, now we digit to our including recent high due as expenses our in through particularly consistent and in and retail as to near-term the the for labor more consumer expect to lease-to-own to expectations guidance. be on offset reductions challenging impact environment. a

our Lastly, eCommerce half to sales financial goals. us credit more proposition help excited believe including reflects year achieve the of We value including the our and initiatives we in back initiatives store-within-a-store strategy strategy softer are these will growth, our drive environment, our and while by with Belk. underway, the economic improve our enhance offering expand customers, guidance to a trends long-term

also team my I to Finally, our all members share thanks work, want to their continued hard for and dedication. service

overview, Operator, So questions. with are Chandra open take this and to to happy I the call questions. up your please

Operator

Nagel the of Instructions] Oppenheimer. [Operator from Our Brian comes line question first with

Brian Nagel

Hi, morning. good

your balance So the little couple it guess I year. I've then you the is, to questions. I current regard and about right lower now. seeing the have which of got and retail, could just may the to question you a you guess I I environment, that further mean elaborate you're for on of guidance comments made with led the a what be first,

that actually So know if challenging comparison year's significantly your very QX. But rebounded year a rather result. I the last I was two it look basis, at, extraordinarily in here on sales if comp strong with

So I weakening when consumer. simply is think business in I last how underlying the is, do guess working true it the year versus really looking the you, towards at mean, a that your difficult question you how comparison you're right just much I'm do of now,

Chandra Holt

drivers the stimulus the that QX, a macro as shifted spending softness an from discretionary in from other decline inflation due you've to retailers. spending have as in consumer quarters. environment impact categories we future and to some and overall away continue heard we was We've confidence. deterioration sure consumers definitely of seen decline the stimulus I'm in consumer will and in are of But in overlapping money seeing QX, the So so are our one of

things strong see resulting at credit for were consumer quarter last balance specifically, net XX% activity XX% is have re-age to charge-offs year we One portfolio continue can decline. of to Conn's that continue versus that this in and last payment performance, seen year remains our versus and strong us the

Brian Nagel

then that located in the this shifting customers, to the your just existing with actually Conn's Belk announcing. I Okay. catering new you I so think a comments cannibalize And stores second guess you your stores mentioned could new relationship, mentioned, Conn's Chandra, And you've the on have market are potential question Belk you are are basically I is, you the the business. relationship to the question you're in --

Chandra Holt

step take of doing of Yes, so me chain pretty non-conveyable the that Conn's a in-class what supply if we best-in-class relationship, supply narrow segment the mainly market things our for drew the and to we're is Belk one at narrow, with back chain a that serving a look market. goods. was Today best-

So much for is broader chain much, capabilities our able to be my to supply a ambition utilize service and market.

even over locations. do very own store. index bifurcating in than customer where real that different customer in that, Belk of Conn's have see the at or or marketing option estate incremental which segment, we to customer retailers is with and either The an our partner changing a our having are strategies, at the we're already who we that's necessarily don't same segment we Belk traditional we though geographic serve today, So

it our an geographic high and model So profitable expand easy with we're supply partner markets a to prove makes that their fast be to partnership chain of I for geographically. to allow it index excited segment have to and us they density as today over add gates. this stores and eventually We're first out and in the customers Belk in us both overlap have our believe reliable partnership will growth a as so retail the our

And for that learn QX many we're of where going of XX to of number we're long excited in for pilot terms with stores in to we're likely with XX pilot how are term. Belk terms the In see to of stores. starting stores, a

Operator

comes Jefferies. next of from question the Kyle Our line Joseph with

Kyle Joseph

the for Thanks taking for morning. to guess time just questions. good I Hey, my on stay being. Belk

to guess reliable targeting customer fast LTO? that much I right, in-house expect if and heard a either be you like or how So would I is primarily Belk and you sales financed a

Chandra Holt

fast the a Belk expect its reliable We being percentage of customer. to sales and be high

to Belk to customers we the gates So we credit capability of expect from of out the have offer and but will cash to sales the come majority financing card.

George Bchara

if allows Kyle, real be could just if And this do what markets have access solve Belk real that think to fast that, play closer real standpoint. right, you our to for financial a in density reliable estate estate you if a think about a we that high strategy estate of allows customer. us to today, add And segment stores customer strategy I is partnership the and to us the from about,

Kyle Joseph

us sense for and a store? expectations you store-within-a-store of traditional give can then Conn's productivity Okay, of versus a just a

Chandra Holt

volume Conn's a CapEx much to our Yes, I than generally be mean, store-within-a-store is. is store. what But Conn's a the a lower also we store store-within-a-store lower expect for than

Kyle Joseph

you on guys Yes, okay. And on how cetera. Belk, and the in-housing of cash, then private sales obviously, term, label in a and us your terms LTO. have LTO, going longer lot you update But shift with envision can mix et you in-house

Chandra Holt

any type terms amount of business, will personal don't the of see we, our we in cash end where shift up indexing see cards. a growth in drive we and terms Conn's do model, significant balance in But of that is partnership if over So to that if using credit of major we of sale. core

Operator

the question of from line comes Our with next Vincent Stephens. Caintic

Vincent Caintic

taking Thanks for morning. on question. Belk. more good my Hey, One

guess, to be. clarify, to in fiscal Just in XXXX. the of up revenues I come would won't ramp But terms Belk that that I in expenses yet so guess

that fiscal right, margin is things that driving XXXX. lower of the first, So maybe for that and the is one are expectations

Chandra Holt

So Belk QX our year. of starting partnership we're this in

it But we to open driver of being the stores XX a so profitability. anticipate end some is, revenue we'll QX, negative of will Belk partnership we this by the XX see from Belk don't So year.

George Bchara

previous compared guidance, a think couple ways. of change, Vincent, drivers if I about to you And it think would about, of margin in the our

costs. with a is first sales on that some obviously outlook, The lower we're fixed deleveraging

initiatives. as with partially cost to offset savings some that, expect we mentioned Now, we've

also expect well. the since as some were, side, they is changed couple that side, spoke last provision be months the what we for the ago lower then smaller margin else which fuel year the than a But expense, deleveraging dynamics gross portfolio margin but the is fuel, the significantly we we costs expectation a balance be at are around On has now higher the there was retail of the impact which greater last will is on point deleveraging of as it sales. year. beginning to a And higher than of expect percentage on our

Vincent Caintic

Okay, performance And that's really to spread points you. question XX% year, the on, impressed that actually higher segment last versus I'm so was second basis and the I'm wondering between maybe credit Or maybe was then credit kind in the interplay helpful. down to. you. your Thank they that segment And between are And really guide quarter. you actually retail strong X,XXX improvement this charge-offs about retail your the about than XX% of net the some the of talk two? maybe sales of tightening the thinking segment could sales Is you credit? or is. versus the credit if driving interplay that Thank kinds much Are weakness?

Chandra Holt

overall, weakness want conservative are with factors. be in the challenging Yes, to macro to Obviously, a be time macro want really it's from environment, we credit. driven we being sales appropriately where a in

home trends sales you, risk But discretionary categories macro real always overall, with adjustments, you the categories. with specifically when so customer higher, from we're based factors to at customers we're if our declines home to related time drive off underwriting to look from been and are our seeing. away inflation the sales and And they related in driven making shifting both business that limit

Operator

I'd are remarks. There in closing further for call no the hand like to back queue. questions to the management

Chandra Holt

hard time thank for in Yes, the I coming dedication. everyone in want performance. to associates and business forward investors strategic and Conn's. to priorities for look our their our I your And on interest updating thanks and work quarters

Operator

Thank your Ladies teleconference. and conclude for does this gentlemen, participation. you today's

You have your disconnect And a lines may now. day. wonderful

Conns (CONNQ) 1 Jun 222023 Q1 Earnings call transcript