Q1 2021 Conn's Inc Earnings Call
Good morning, and thank you for holding.
Welcome to constant conference call to discuss things for the fiscal quarter ended April Thirtyth Twentytwenty.
My name is Brock and I'll be your operator today.
During the presentation, all participants will be listen only mode.
After the speaker's remarks, you won't be invited to participate and the question answer session.
As a reminder, this conference call is being recorded.
The Companys earnings release dated June 2020 was distributed before market opened this morning and can be accessed via the company's investor Relations website at <unk> Dot com stock comp.
During today's call management will discuss among other financial performance measures adjusted net loss and adjusted earnings per diluted share.
Please refer to the company's earnings release that was issued today for a reconciliation of these non-GAAP measures to their most comparable GAAP measures.
I must remind you that some statements made in this call are forward looking sense within eating up federal security laws.
These forward looking statements represent the company's present expectations or beliefs concerning future events.
The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today.
Your speakers today or norm Miller, the company's CEO.
Right, the Companys, COO, and Georgia Shara, the company's CFO.
I would now like to turn it over and over extreme Miller. Please go ahead Sir.
Good morning, and welcome to Cons first quarter fiscal year 2021 earnings conference call.
I want to start today's call by updating you on the actions, we're taking to navigate the cobot 19 crisis before turning the call over to lead George will provide additional details on the quarter and our response to the current economic and business landscape.
Since our last call only two months ago economic and market conditions remain extremely fluid as a result of the evolving covert 19 pandemic.
During the first quarter local municipalities recognized the essential home products, we offer our communities and nearly all are showrooms remained open.
In addition, the diversity of our retail products financial offerings and distribution channels. That's helped offset the extreme challenges con and other retailers have encountered during this period.
We continue monitoring federal state and local mandates and we will take decisive actions as the crisis evolves to ensure we are protecting the health and safety of our employees and our customers.
Consumers across our markets are looking for high quality brand name products to adapt to their in home lifestyles.
Our free next day delivery in home service and product support an omni channel platform, our especially resonating with consumers during these challenging times.
Customers are also looking for flexible credit options to affordably finance their purchases.
We believe cons compelling value proposition will remain strong throughout the Kobin 19 crisis, demonstrating the resiliency of our business model.
That's the country emerges from the crisis, we believed that our addressable market will grow as credit scores decline and our value proposition will resonate with more consumers as other lenders limit access to credit.
In addition, we believe the consumers will be increasingly interested in investing in their homes aligning with our focus on home products.
Well the near term will remain uncertain as a result at the covert 19 crisis. We believe we will benefit from the investments we've made to our business over the past five years are experienced leadership team and the diversity of our retail and financial products.
I want to also think our associates for their continued dedication serving our customers through these uncertain times.
So with this overview, let me turn the call overly well provide more details on our first quarter operating results and the specific actions, we're taking to respond to the cobot 19 crisis.
It's norm starting with our credit performance, our first quarter results reflect the build in our allowance for bad debts associated with accounting for the Cobot 19 crisis under Cecil which was responsible for more than half of our first quarter provision.
George will provide additional details on the components of our provision for bad debts in our allowance for loan losses in his prepared remarks.
Overall underlying credit and portfolio performance during the quarter was mixed primarily due to the economic impact. So the cobot 19 crisis. However, during the quarter, our core customer benefited from tax refunds and government stimulus, which combined with strong collection performance helped drive favorable payment and portfolio trends.
Our first quarter credit spread was 620 basis points over the next several quarters, we expect our credit spread will continue to be under pressure as charge offs remained elevated due to lower performing vintages and the economic impact so the cobot 19 pandemic.
Overall, we remain focused on de risking our credit segment in mid March we began implementing a series of underwriting changes in response to the Coven 19 crisis. These included reducing originations of higher risk applicants selectively increasing down payments and lowering credit limits. As a result, we believe we are taking the necessary action.
As to prudently manage risk.
During the first quarter the balance of retail sales finance through cons in house financing Bell to the lowest level in eight years and was 63.3% compared to 68.2% for the same period last fiscal year.
These trends continued in may in the balance of retail sales finance through cons in house credit offerings fell even further for the month.
Unlike other companies, we have the flexibility to tighten credit while still providing consumers with alternative financing options as a result of our multiple third party partnerships and diverse credit options.
During the first quarter, we experienced an increase in cash and credit card transactions in retail sales finance through synchrony financial further de risking our credit segment.
Combined over 28% of sales were to cash and higher credit quality customers, which we believe reflects our strong relationship with synchrony and our ability to attract a wide variety of customers.
Our next day delivery in home service capabilities and Omnichannel experience provided additional opportunities to connect with the larger number of higher credit quality customers.
In addition, we believe there are opportunities to expand our lease to own sales as a result of recent underwriting changes in the higher application volume we have experienced the balance of sales through lease to own was 8.5% of total retail sales during the first quarter.
We are working with progressive and continue to refine and improve our internal execution to drive higher lease to own sales [laughter].
For sales finance through our in house offering we are leveraging the experience. We have gained from past natural disasters to balance collection efforts with customer support programs.
Tax refunds and government stimulus combined with our own internal really programs have helped relieve some of the financial burden many of our customers have experienced despite the disproportionate impact. The Coca 19 crisis has had on lower income households, consumers have also been spending less and saving more with many consumers using excess cash to pay down debt.
Yes.
As a result first quarter cash repayments on outstanding loans were in line with typical seasonal trends.
Lastly, we are encouraged by the strong application trends, we are seeing which we believe demonstrates the growing need for our unique in house credit offerings.
Total applications increased 14.2% from the prior year period to over 295000 applications in the first quarter, representing the highest first quarter application volume in four years.
This was driven by strong growth in online applications versus the prior year in we experienced sequential monthly improvements throughout the first quarter.
As you can see we are taking decisive actions within our credit segment to ensure we can navigate this period of significant economic uncertainty, while experiencing strong application trends for our in house credit offerings, and establishing lasting relationships with our customers. We believe tighter underwriting will continue to impact retail sales over the near term, but these.
Strategies are necessary as we respond to the cobot 19 crisis.
So let's look at our retail segment performance in more detail.
Total retail sales were down 12.1% for the first quarter and benefited from the contribution of new stores and higher home appliance and home office sales.
First quarter same store sales were down 17.6%, primarily due to the impacts of cobot 19 on our operations, including more stringent underwriting standards in lower sales of discretionary categories.
As we mentioned on our last conference call first quarter same store sales initially improved from fourth quarter levels same store sales were down approximately 30% in late March in early April as result of reduced store hours and occupancy in response to the coven 19 crisis and the impact proactive underwriting changes implemented during the quarter had on.
Sales.
Towards the end of April retail trends started improving we are encouraged by the positive momentum that continued in may.
Total retail sales for me were down only 1.6% while same store sales were down 6.8% representing in over 20 percentage point improvement from April.
In addition, we estimate same store sales have been impacted by 15% to 20% since we began adjusting underwriting in mid March in response to the cobot 19 crisis.
We have also increased down payment requirements for in house credit customers and down payments in may were 5.6% compared to 2.4% in February before recent underwriting adjustments began.
The dramatic increase in cash credit card and synchrony customers also continue during the month of May in represented 43.1% of retail sales, which is up over 17 percentage points from May 2019.
This growth speaks to the strength of our business model and our diverse retail offering.
Recent retail trends are encouraging, but we expect continued variability in our monthly performance as a result of the uncertain economic environment and more challenging sales comparisons later in the second quarter.
Last year's launch of our new ecommerce platform enabled significant growth in this channel as sales increase over 700% compared to the prior year period and accelerated from the growth rate, we experienced in the fourth quarter.
We believe stay at home mandates were the primary drivers of this increase but the growth in first quarter ecommerce sales also highlights our ability to serve customers customers through this digital channel.
Having robust digital capabilities is important not only for the retail purchase but also to support credit applications and customer engagement.
We continue to invest in our digital capabilities and momentum is building in our evolving online mobile and ecommerce strategy.
In addition, our existing infrastructure and ability to offer free next day delivery of large home goods directly to households is a distinct advantage, which should support our future digital club.
Another meaningful driver to first quarter retail performance was a shifting mix of retail sales.
As customers began to shelter in place, we experienced increasing demand for essential products within the home appliances and home office categories, partially offsetting the declines in more discretionary categories, such as furniture, and mattress and consumer electronics. It is important to note margins in home appliances and home office are not as high as our furniture and.
Mattress category.
This shift in retail product mix combined with lower total sales pressured first quarter retail gross margin, which declined 380 basis points from the prior fiscal year period.
During the first quarter, we opened two new showrooms in existing markets and we plan on opening a total of six to eight new showrooms this fiscal year.
As part of our response to the Coven 19 crisis, we have reduced the amount of new show Rose plan for this fiscal year and have also decided to delay any new showrooms associated with our future, Florida distribution center to next fiscal year.
To conclude my prepared remarks, we believe our differentiated business model is resilient to changing economic cycles as result of our omnichannel retail and credit platforms.
This combined with our compelling financial model experienced leadership team and strong balance sheet will provide the necessary resources to navigate the current economic challenges as result of the cobot 19 crisis.
We are working hard to support our employees customers and communities throughout this period and I look forward to updating investors on the progress we are making as we respond to the coven 19, pandemic and improve our credit and retail performance.
Before I turn the call over to George I also want to thank our associates across 14 states in which we operate on behalf of the entire leadership team. Thank you for your hard work service and dedication through this challenging period now let me turn the call over to George to review our financial performance.
Lastly, before discussing our financial results I want to start by highlighting a couple of items.
June 2020, we amended the terms of our ABL facility to provide four quarters are really from the interest coverage covenant.
Our ABL facility is an important source of funding for our business and we believe that this amendment will help navigate the uncertainty as a result of the covert 19 pandemic.
To put our current liquidity situation into context, when we drew down on the AB out in March we had approximately $400 million of cash and immediately available liquidity and we ended the quarter with $439 million on cash and immediately available liquidity.
We had over $295 million total cash and available liquidity June 5th 2020. After adjusting for a 125 million dollar liquidity buffer that we are required to maintain during the covenant relief period of Ari.
Blended ABL facility.
As you can see since the beginning of the covert 19 pandemic, we have used relatively little cash in available liquidity and in some period actually generated cash.
As we have purchased less inventory and our existing customer accounts receivable portfolio has paid down.
I also want to highlight the impact of Cecil, which we adopted on February one 2020.
As a result of the adoption of Cecil we recorded a 98.7 million dollar increase to our allowance for bad debts to reflect the required change to lifetime expected losses.
This increase was recorded through equity on February Onest 2020.
During the first quarter, our allowance for bad debts also increased by $65.5 million to account for the change in the economic outlook as a result of the cobot 19 pandemic.
This increase was recorded through our first quarter provision for bad debts and impacted first quarter net income by $1.76 cents per share.
As we've communicated before Csos, an accounting change and does not affect the cash flow or fundamental economics of our business.
Despite the loss we recorded for the three months ended April Thirtyth 2020, we generated strong operating cash flows of $152.5 million, the 207% increase in operating cash flow over the prior fiscal year period was primarily due to an increase in payments from our customers a higher percentage.
I'd sales and effective working capital management.
Moving to our financial results on a consolidated basis revenues were $317.2 million for the first quarter of this fiscal year, representing 10.3% decline from the same period last fiscal year.
For the first quarter, we reported a GAAP loss of $1.95 cents per share compared to GAAP net income of 60 cents per diluted share for the same period last fiscal year.
On a non-GAAP basis adjusting for certain charges and credits we reported a loss of one dollar and 89 cents per share for the first quarter compared to income of 58 cents per diluted share for the same period last fiscal year.
Reconciliations of GAAP to non-GAAP financial measures are available in our first quarter earnings press release that was issued this morning.
From an investment and operational perspective, we continue to focus on delaying or eliminating certain uncommitted capital expenditures more aggressively managing working capital levels and reducing SGT expenses.
Consolidated as today for the first quarter fiscal year, 2021 was $113 million, a 4.2% decline from the prior fiscal year period.
As the Cobot 19 crisis began impacting our operations halfway through the quarter, we quickly and aggressively reduced expenses and more than offset higher cost associated with 12 additional showrooms opened over the last 12 month.
Looking at our retail segment in more detail total retail revenues for the first quarter were $230.6 million, a 12.1% decline from the same period last fiscal year.
Retail segment operating income was $5.2 million compared to $25.9 million for the same period last fiscal year.
Retail gross margin for the first quarter was 36.2% decrease of 380 basis points from the same period last year.
The reduction in retail gross margin during the quarter was primarily driven by the impact fixed logistics costs.
Lower sales decrease in retrospective income on our stake emissions and higher sales of lower margin products.
Finally, turning to the credit segment finance charges and other revenues were $86.6 million, a 5.1% decline from the same period last fiscal year.
The credit segment loss before taxes was $82.4 million compared to a loss before taxes of $1.4 million for the same period last fiscal year.
The first quarter fiscal year 2021 credit segment loss was primarily due to the $77.2 million year over year increase in the provision for bad debts and the credit segment, which was driven by the first quarter allowance build as a result of covered by team.
With this overview normally and I are happy to take your questions. Operator, Please open the call up to questions.
Thank you at this time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please what we pull for questions.
The first question today is from Brad Thomas of Keybanc Capital markets. Please proceed with your question.
Hi, Good morning, Norm, Lee and George and Thanks for taking my question Good morning, Brad.
I wanted to first start off a bit with.
Same store sales and.
Discussion a little bit maybe the trend and some of the underlying drivers.
Could you maybe talk a little bit about.
The types of customers that your see scene.
Show up.
How average selling price is changing.
What it is they're coming to you for and maybe how thats changed as you've moved into May and thus far in Jan. Thanks.
Sure absolutely Grad first just kind of to recap, where we were if you remember from the call from recall a couple of months ago.
As cobot.
The pandemic originally hit we were seeing same store sales down in the 25% to 30% range.
We saw that rebound.
Ill.
Mid April or so.
Up into the high teens to the low twentys and we've seen that continue to build.
Through April and into May with May same store sales being down.
Only 6.8%.
We have seen from a mix standpoint, which is why you saw our margins where they were a shift a much stronger from an appliance home products standpoint.
Now I will say in the last.
Three weeks or four weeks, we've seen a material pickup and what we consider more discretionary categories such as furniture, we have seen the furniture category pick up materially from.
30%, 35% down that it was.
Back in the mid pandemic.
So that's a positive DC, we have seen a material shift from a mix standpoint, as you heard weve bought from a customer credit standpoint.
During the pandemic as well.
Con financing, which historically is Ron in.
Mid to high 60% range.
Approaching a time, 70% is down less than 50% of the business as we sit here today as we've tightened 15% to 20%.
Customers coming in as a result of that we've seen our synchrony and our cash customers.
Go up dramatically.
As Lee mentioned in the script.
In may.
Over 43%, which is 1700.
Basis points up from just a year ago and May we've also seen our lease down for the quarter at 8.5%, which still under where we.
We expected to be but it is the strongest performance that we've seen in a quarter.
Since we partnered with progressive two years ago, and think that we have significant upside there going forward.
That's really helpful and arm. Thank you.
And just a follow up on that.
With the tightening that you've done.
What's the current run rate headwind same store sales with that that 15% to 20% number that you just referenced.
Again, what the headline.
The headwind run rate number on same store sales from the tightening and how are you thinking about.
The underwriting decisioning and the ability to loosen or get tight and more tight.
As you think about perhaps the months ahead there.
Hey, Brad Italy.
So as you said it is 15% to 20% on a run rate basis that we have tightened we believe.
As we as we think about.
Our customer mix.
What's going on from the economic environment today, we want to be cautious clearly, there's a lot of government stimulus there and it certainly helped with as we talked about from a collection standpoint payment standpoint, but obviously as you continue to go forward in the quarter and in the year.
We have to be thoughtful about how that customer's going to be able to react but as norm talked about we're very pleased as we've seen the cash credit card and synchrony customer mix increased but pretty dramatically, which is why go back to the fact that were in omni channel retailer, providing home products, so and as norm talked about early in the pandemic we saw the hallmark.
Office equipment, the computer should be online learning the at home work process, we had those computers and necessary equipment for our customers than its shifted to appliances now coming back to furniture, and mattresses, which again is the customers more focus on what's going on their home. We have all of this product categories. So actually we're in a very good position and we're actually very pleased with.
Our ability to serve our customers that full spectrum of credit offerings, regardless of who's walked in the door and whatever they want for their own what I would say Brad is.
You know.
When I talk about the increase of cash customers and synchrony that strategic effort of us recognizing we had the opportunity to grow that business actually did not start with the pandemic. If you go back you will see over the quarters, you've seen a steady increase of our seem pretty business.
From about 15% of the product mix before the panned out or 15% of our sales mix before the pandemic.
Several years ago, so we've been seeing that approaching before the pandemic up into the low too.
Low 20 percentage balances sale and now we're seeing in tick up even higher than that so we've been putting energy and effort with synchrony and our marketing efforts to ensure that we're tapping on that customer base and utilizing the entire credit spectrum. Our cons financing, we think is a differentiator with anybody.
Ill out in the marketplace, but our full credit spectrum from lease to own to cons synchrony and cash in the fact that we can offer the products the quality products in the merchandise for customers over the entire spectrum. We believe gives us a significant differentiator in the March differentiation in the marketplace.
Really helpful. Thanks, So much storm thanks.
Thanks, Brad.
The next question is from Rick Nelson of Stephens. Please proceed with your question.
[laughter] parents very mature tomorrow.
No.
No.
Hey.
Okay.
Trends from April commands the economy.
Wow.
Our troops hearing there maybe werent delinquency is hurt.
The other where you want to frame up the credit Burke.
I mean.
Clearly with.
With the tightening that.
We had initiated due in March.
And it's very very early what I would say within the process. We started initially tightening in early March pleased with what we're seeing what the credit book now the credit book, obviously on the Con financing side is certainly going to be smaller so some of the optics from a.
Metric standpoint, we will be challenged the denominator is smaller going forward, but.
When we look at payments and behavior the customer within the portfolio.
Combination of both the stimulus and.
Our ability to stay in contact with the customers frankly.
Be at or above where our payments were a year ago with the customer in the midst of the pandemic.
Certainly very very encouraging to us going forward now when the extended unemployment benefits and how the recovery continues to unfold difficult for us to predict so we're still being very cautious from an underwriting standpoint, but I would say.
As as I'm sure heard from any other lenders out there in the marketplace.
Very encouraged and frankly, a little surprised with the behavior of the customer up to this point in the pandemic I would say.
Okay current parents for that color also want to ask about the margin.
Sure. So we fell on a quarter I know you pointed to mix.
As one of the drivers product.
No provide some color around that I'm not like.
Category as hurts.
Perhaps whatever's going on in terms of merger.
And then beyond lying.
Ill.
Just curious how the probably the bill.
Compared as her versus those stores.
Yes, so the margins within the categories were please generally what outperformance is year over year and it's fairly consistent what I'd say is there's two primary drivers Rick with when you look at the margin being down 300, plus basis points, probably 70% of it is just simply mix between the categories as we mix.
With appliances.
Stronger appliances and home office, those are lower margin categories compared to our mattress and and furniture category. So thats driving probably 70% of the of the Miss the other 30% of the margin. This is.
So de leveraging on from a distribution cost standpoint, both the new Houston distribution center that we build and although we delayed.
The Florida build we have or the Florida opening we are starting to encourage some costs there.
From a distribution standpoint, and clearly lower sales overall are generally going to de lever your.
Your fixed costs there. So it's really those two things theres nothing inherently that we have concerns about the overall margin of the business on any individual category and rig from an ecommerce standpoint, obviously, we're very pleased with the growth that we're seeing.
It's not inherently less profitable in the sense that.
The product.
Overall product margin.
Is basically the same as our bricks and mortar operation again, we have the same logistics operation to get those products delivered.
Into our customers home, usually only I might say, if the overall ticket size a little bit smaller than we see online.
Again from an overall growth standpoint, what we're doing from E. Commerce, we're very excited about the opportunity we have in front of US you typically have less payroll costs and commission wise, there with E commerce, so anything netting that even though the ticket smaller.
Yes, your margin rate is actually.
Good if not a little better right now with our E Commerce business.
Right, Okay. Thanks for that.
Finally, I'd ask you about.
Regional.
Performance, what computer programming out in terms of areas of strength or weakness hydrocarbon oil patch given the oil price decline, what's your screen Houston Mark.
Yeah, what I would say is regionally that's the one area I would highlight is that.
And in Houston, we don't even frankly consider Houston as much what would you have a very strong oil market in the west.
West Texas.
In parts of Louisiana that we consider that.
Impacted by the oil and we are seeing delinquencies there.
Historically, they run lower than the company average they are up in though in that market.
Theres still add about now where the company averages delinquency wise.
We have seen those dry.
A higher level that.
In other regions and from a from a tightening standpoint, it and credit standpoint, we're aware that and adjust accordingly.
If that.
I'd be cautious in case that were to linger.
Within those oil markets.
That's.
Great. Thanks, Hello, and good luck curves repurchase program.
Correct.
The next question is from Brian Nagel of Oppenheimer. Please proceed with your question.
Hi, good morning, pointing grindrod.
Thanks for taking my question.
Typically the first question one asking it bridges credit in retail.
Good morning.
You talked to him back on the call your quarterly comps.
The action to type lending standards, but you've also said that you've been.
Regarding if I understood you correctly, you said that you've been pleased with where even surprised with regard to why performance.
Oh good consumer.
So the question.
Especially if.
I'll now turn so to say is unique in nature shorter term and nature.
Just as Collins run the risk of getting too conservative here with credited time the underlying demand for departures Sony is actually quite good.
That's a fair question, Brian I mean its a.
The issue with the credit businesses the decisions, we make today, we won't see those fully played out for.
789 10.
Months into the future.
So with the unknown under recovery side and the punitive nature that if if we are to lose from a credit standpoint.
That would impact the business in a detrimental way down the road. It's it risk opportunity we may give up some sales in the short Ron if were more conservative from an underwriting standpoint, but frankly I would take that trade off.
Sure that we don't.
Have a significant issue from a credit standpoint down the ROE if it plays out where the recovery is not is more.
Longer in nature.
And deeper than expected.
But it's a fair question.
Yes, that's screens that are Richard thanks.
And the second question I have a good things more for George.
George quite some noise here with in the loan loss provision given the accounting change in an underlying shifting credit dynamics.
Is there way that you could help us understand how I know would be difficult gear.
How we should think about the loan loss provision through the balance of 2020 now that you've moved past at least that initial changing accounting standards.
Yeah, I think so first of all as you mentioned, we recorded a 65.5 million dollar.
Charge in the first quarter and our provision related to.
The change in the macroeconomic macroeconomic outlook related to Cove it.
As normally mentioned, we've actually not seen deteriorations in the portfolio here.
Over the last couple of months and what that would mean is that are expected charge offs as a result of.
I've covered 19 wont occur until the next calendar year.
So I think it's fair to say that the allowance balance will stay where it is and maybe slightly decline. This year before before we recognize what we say we expect the charge offs from a from from Coker 19.
Got it.
Thank you very much thanks, Brian Brian.
The next question just from Kyle Joseph of Jefferies. Please proceed with your question.
Hey, good morning, guys. Thanks, very much taking my questions.
Just a few more on the on the credit side of the business.
Yes. This one's for George if you could just give us a sense of the economic underlying economic assumptions that are baked into your reserve currently just talking about GDP in unemployment specifically.
Sure I could give you a general sense of it I think we use a booties based macro economic forecasts, which is consistent with.
Many other public issuers.
You know our base case assumed that the economic the performance of the portfolio would be.
Consistent with where it was pre covered for for a first couple of quarters, and then converge towards that that that Moody's economic.
Output and that's kind of where we're seeing things shake out today.
Okay. That's helpful.
And then I really appreciate the color you gave on the on the comp in terms of.
The monthly performance, there, but just delving into credit I, just wanted to get a sense for you could give a sense of how how delinquencies were trending by month. They you know just looking at your your Master Trust data. It did look like Dqs dropped between March and April if you could give us a sense for what your consolidated book did between March.
April and even in May for my delinquency perspective.
Yes sure.
Obviously, you know I guess, what I would tell you as it was an interesting and you guys wrote about this and your report, which I thought it was well done.
We saw was March the tax season got truncated due to the coven 19 pandemic in what came through and so.
So we saw the difference in behavior in March and what we traditionally see but as the government stimulus start roll through in April we saw tremendous benefits for our consumer in their own balance sheet, which obviously flowed through to us. So overall for the quarter, we actually came out all right.
Then I would tell you as we continue to move in and obviously, we're still early in the quarter, but but saw good performance from our customers and their overall liquidity right now. It's obviously as we look forward and as we see what happens after some of the unemployment benefits and at the end of July and as norm talked about somebody uncertainty going forward, that's what gives us a bit upon.
As as we try and balance how do we how do we extend credit and how do we think about that versus what we're seeing in our portfolio today.
Got it and then just in terms of modeling.
It looks like the yield on the portfolio has been under a bit of pressure is that.
Obviously, I think the mix shifted more originations at a higher yield pressure that upwards as not being offset more by the high level to be keys or is that more of a deferment.
Impact there.
No, it's driven by by higher levels of charge offs.
Okay, so that the gross.
But it's being offset by a higher charge offs in the quarter.
That makes sense and then last one from me.
If you could give us an update on you.
Competitive trend.
On the reopens I think about you guys on your competitive trends on two fronts first one is versus other retailers and then the second would be just more broadly the availability of credit.
If you guys give us an update on those competitive dynamics as the economy started to reopen.
Yeah, what I would say from the general standpoint for his colleagues and I think we mentioned in his comments, we're seeing a applications in the first quarter, you and to see applications at.
Elevated levels.
As.
As customers across the credit spectrum and as I highlighted in my earlier comments in one of the responses.
You know, we're seeing our cash and synchrony customers the higher credit quality customers up significantly year over year, that's helping to mitigate a.
Our con financing tightening that were.
There were undertaking in addition to that.
No. It's as at least initially out of the gate, we see in traffic a stronger.
In our showrooms.
Well as the applications online so we think we're well positioned.
Both our credit spectrum and the offerings that we have for any type of credit quality customer.
And and positioned well with home products.
Able to capture on what we think is some real demand out there from the consumer.
Very helpful. Thanks, very much for taking my questions guys and good luck.
Thanks.
The next question is from Bill Ryan of Compass point. Please proceed with your question.
Good morning, and thanks for taking my questions first one just on the provision.
If you could maybe be a little bit more granular on it in the sense of what component of the $117 million provision may have been specifically related to the current originations.
In the quarter stripping out obviously cobot 19 in any other ancillary impacts.
And.
Second thing you know as it relates to credit as well.
I agree with your comment that tightening credit better be more conservative than little bit to lose because you end up having to cleaned it up over a longer period of time.
But what do you need to see for you to cut before you start to relax your credit standards sort of back to where they were before all this began to take place. Thanks.
Thanks, Bill I'll answer. The first question then I'll, let second part of the question and I'll give it to George to talk on.
On the provision side of the house. So first what we would want to see is.
From a payment standpoint.
And what how we see in the portfolio.
Reform from both the payment a first payment default credit delinquencies standpoint, as we see those buckets roll from a delinquency standpoint, we want to see the strength and we're obviously segmenting those customers.
And the consumers in a variety of ways, including new and existing regional and depending on where how we see that unfold over the next three to six months would determine.
If.
Frankly, we needed to do additional tightening if they're happened to be a a second surge or or stress that that we had not envisioned with the significant provision that we took in the first quarter or the ability to be able to take increased risk because of the performance that we.
The giving us confidence that the customer is not as distressed is.
As our tightening is fearful that they will be.
Yes, and bill in terms of the the provision I mean, I think the best way to think about it.
Which weve laid it out in the in the earnings release.
The $117 million provision include the $65 million 65.5 million dollar.
Provision related to the.
Economic outlook from covert 19 dots on the entire portfolio, including what we originated.
In the first quarter and then we also had higher charge off year over year that that gets you back to.
That 117 billion dollar number.
Okay, and just one last thing when do you anticipate a perhaps during the next ABS transaction.
Yeah, but I think first of all I would say that we are encouraged by by the ABS market right now we've seen a number of comparable issuers get deals done here over the last or the last six weeks or so.
We think we could do an ABS transaction right now.
But we're also in a position where we don't need to do an ABS transaction here for a while primarily because of some of the factors that normally you mentioned around the shift in portfolio mix. So so the fact that we're selling.
Selling fewer or.
More more third party in cash customers.
In addition to the fact is sales are down means that we have less less liquidity needs, having said that our expectation is to do one before the end of the year.
Okay. Thanks.
There are no additional questions at this time I'd like to turn the call back to ignore Miller for closing remarks.
Thank you very much for the interest in the company and again I want to thank all of our associates across all our facilities in the 14 states that we operate for their hard work and.
During these challenging times, we look forward to sharing with you information in the company at our next quarterly call have a great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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