Q4 2021 Conn's Inc Earnings Call
Good morning, and thank you for holding and welcome to the Cons, Inc Conference call to discuss earnings for the fiscal quarter ended January 31, 2021, and my name is Daryl and I will be your operator today during the presentation. All participants will be in a listen only mode. After the Speakers' remarks, you will be invited to participate.
And the question and answer session.
As a reminder, at this conference call is being recorded.
Company's earnings release date at March 31, 2021 was distributed before market opened this morning and can be accessed via the company's Investor Relations website at IR Dot <unk> Dot com.
During today's call management.
Scott among other financial performance measures adjusted net income and adjusted earnings per diluted share.
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 and <unk>.
Just to remind you that some of the statements made on this call are forward looking statements.
And it will just depend on the meaning of federal Securities laws.
Forward looking statements represent the companys 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.
<unk> of those indicated today.
Our speakers today are norm Miller, the Companys CEO and George for share of the company's CFO I would now like to turn the conference call over to Mr. Miller. Please go ahead Sir.
Good morning, and welcome to <unk> fourth quarter of fiscal year 2021 earnings Conference call.
Over the past 12 months, we took decisive actions focused on supporting our associates customers and communities, while de risking our business enhancing our balance sheet and expanding our digital and e-commerce capabilities.
These actions combined with the resiliency of our business model and the dedication of our associates.
Associates directly contributed to our ability to successfully navigate the COVID-19 pandemic.
We have emerged from the pandemic stronger more efficient and better positioned to compete and a rapidly changing market and this year is off to a strong start.
We believe we are at a turning point and.
Our growth strategy as we continue to leverage our market, leading in house and third party credit offerings increased digital and e-commerce investments expand our brick and mortar footprint and enhance our merchandising and marketing strategies.
Before I go into more detail about our strategic initiatives I.
I wanted to provide several fourth quarter and fiscal year highlights we ended fiscal year, 2021, and our strong financial and operating position and positive trends accelerated during the quarter.
Fourth quarter GAAP earnings increased approximately 400% to 85 per diluted share.
<unk>, primarily due to a lower provision for bad debts as our credit performance continued to improve as well as a tax benefit related to the cares Act cut.
Customer accounts 60, plus days past due at January 31, 2021 declined by 24% from the prior fiscal year.
<unk> customer accounts declined by 33% and the weighted average monthly payment rate increased by approximately 10% for the year ending January 31 2021.
Improving credit trends reflect the intended outcome of the previously discussed Derisking efforts we implemented.
And at last year and response to the COVID-19 crisis, which also prudently reduced retail sales finance through our in house credit offering.
These actions also has had a positive impact on our balance sheet and capital position. In addition, net cash provided by operating activities increased.
<unk> by $382 million year over year to $462 $1 million.
Same store sales improved quarter to quarter throughout fiscal year 2021, Despite our continued conservative underwriting approach and industry wide disruptions and the global supply chain.
<unk>, which we believe demonstrates favorable underlying demand for our products.
We also experienced strong growth of cash sales and sales finance through our third party partners, which helped offset the impact tighter cons and house underwriting had on our retail segment.
We believe we are well.
Well positioned for same store sales growth going forward as our products and our financing options resonate with consumers.
Since the beginning of January same store sales are positive.
In addition, as of today's call same store sales are up over 3% through.
The first two months of the quarter, reflecting strong underlying consumer demand and a successful implementation of our growth initiatives. Despite our continued conservative credit strategy.
Recent retail trends are especially encouraging as we have offset the significant challenges the February.
In 2021 Winter storm had on many of our markets, which also impacted traffic over Presidents' day weekend.
To put this historic storm and the context, we lost over 170 store selling days compared to approximately 100 lost store selling days for hurricane Harvey and too.
<unk> thousand 17.
The first quarter was also impacted by last year's leap year, which resulted in one fewer calendar selling day this year.
As you can see from our positive sales growth momentum and our business is accelerating and we believe we have been able to successfully reposition.
And the company during the COVID-19 pandemic to take advantage of favorable secular trends underway across our markets.
Our success, capturing market share of customers, who purchased with cash and third party payment options throughout fiscal year 2021 demonstrates the opportunity we have.
Have to pursue of larger addressable market.
These non con finance sales also reduced the risk of the business and require less capital.
With a stronger balance sheet and less capital needs. We can continue to make investments and our business and create value for our shareholders.
As a result, we are of emerging from the crisis as a stronger company with a well defined strategy and robust foundation to support our long term growth opportunity.
Let's look at our growth strategies and more detail starting with the opportunities we have across our credit offerings.
Throughout my tenure at cons, we have talked about the uniqueness of our hybrid credit retail business model. Our established point of sale financing model has allowed us to offer and affordable credit product. Unlike other high cost financing options available to our core customer base and remains.
And the cornerstone of our overall credit strategy.
During the past year, we approved less than 50% of the nearly one 3 million applications for our in house credit offering.
We believe we can capture more retail sales finance through our in house credit offering as our comps.
Confidence and the economic outlook improves and we implement new credit strategies focused on driving more sales of cons in house financing.
With less risk.
And our credit waterfall also helps us control risk within our credit segment and supports a sizable lease to own growth opportunity.
Opportunity is over 670000 applications did not qualify for our in house credit offering last year. We believe that many of these consumer should have the opportunity to purchase with a lease to own product and we of continually communicated that we believe lease to own sales should reference.
Represent at least 10% of our total retail sales.
And the fourth quarter, we made meaningful progress towards this goal by adding additional lease to own partners as a result lease to own sales and dollars increased by 38% over the prior fiscal year period.
And were a quarterly record of nine 8% of our total retail sales.
Robust lease to own sales growth has continued during the first quarter of fiscal year, 2020, two and quarter to date lease to own sales are approximately 12% of our total retail sales.
For.
Fiscal year 2021 we also experienced strong growth and cash and third party finance sales, which increased 32% from the prior fiscal year period.
The brand name home products, we sell draw people into our showrooms and onto our website.
In addition.
We believe having a local presence next day delivery and in house service capabilities further distinguishes us from our competitors.
Our value proposition is resonating with and expanded population of consumers and we are actively targeting of larger total addressable market.
And then we were before the pandemic.
As a result, we believe we can grow retail sales across our market, leading credit offerings and we are excited by the opportunities we have to serve prime near prime and subprime consumers.
We also continue to embark.
On a digital transformation, which drove an increase in fiscal year 2021 e-commerce sales of 109% over the prior fiscal year.
Increasing digital and E. Commerce investments are primarily focused on enhancing our direct to consumer platform upgrading our marketing resources.
<unk>, expanding our ecommerce team and improving the functionality of our digital capabilities to become a best in class Omnichannel retailer.
I am pleased with the progress we've made and our digital transformation over the past two years.
As you may recall and fiscal year 2019.
We launched features that allowed customers to transact online with <unk> in house financing for the first time.
Since that time e-commerce sales have increased over eight times from $3 million two years ago to over $26 million last year we.
We believe we can double e-commerce sales again this year to over $50 million as we remain focused on serving our customers where and how they choose to shop.
We also believe it is important to continue investing and our geographic expansion alongside our digital growth strategy.
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Last fiscal year, we opened nine new showrooms growing the total number of showrooms at the end of the year to 146 I'm excited to report that since the end of our fiscal year, we have surpassed 150 showrooms and a key milestone for the company.
We are <unk>.
Plans to open a total of 9% to 11, new showrooms this fiscal year all within existing markets. In fact, we believe we can support our brick and mortar growth strategy over the next several years without the need to open additional dcs and leveraging our existing fixed cost structure.
Emerge from the COVID-19 pandemic, we have increased our focus on improving our retail acumen and capabilities.
We continue to position our retail strategy to take advantage of changing consumer behavior and renewed consumer focus on home related products and we expect to further enhance our product.
<unk> and merchandising strategies throughout the current fiscal year.
Some specific actions include enhancing our furniture selection to appeal to a broader customer base as well as reinventing our mattress segment by increasing the number of brands and price points.
In addition, more consumer.
<unk> are recognizing <unk> as a leading appliance retailer as.
As a result, we are focused on leveraging the eight 5% increase and sales we experienced and our appliance category. This past fiscal year by expanding our appliance assortment.
We also continue to pursue opportunities across.
Of course complementary home products, such as flooring countertops and fitness related offerings.
Finally, we are focused on improving our customer targeting and we continue to adjust our marketing and customer acquisition strategies to help us achieve this goal our spend and digital advertising.
<unk> has increased over 100% and the past year, we anticipate our digital spend this year will be four times higher than our spend was just two years ago as we shift marketing investments to what we believe will be of more effective and targeted approach.
As you can.
And see this was a transformative year for the company as we Derisked, our business and balance sheet expanded our addressable market and repositioned our strategy. We have reached an inflection point and our evolution and positive momentum is accelerating across our business I am extremely excited.
By our growth plans and believe we have a compelling opportunity to create significant value for our shareholders.
Finally, our success is only made possible because of the amazing dedication and commitment of our associates on behalf of the entire leadership team. Thank you for your continued hard work and.
Of course now.
Now, let me turn the call over to George to review our financial performance.
Thanks, Norm I wanted to start by highlighting the positive transformation, we have made to our balance sheet, including deleveraging the business and repositioning our capital structure over the past year.
The business generated.
<unk> hundred $62 1 million and operating cash flow and fiscal year, 2021, which was of $382 million increase from the prior fiscal year.
This increase was a result of the significant year over year growth and cash and third party finance sales.
And for strong cash collections on our customer portfolio and less originations as a result of our tighter underwriting.
We have used this increase in operating cash flow primarily to pay down debt.
We ended fiscal year, 2021, with $549 $3 million and net debt compared to 900.
$45 $3 million at the end of the prior fiscal year.
More importantly, net debt as a percent of the ending portfolio balance declined from approximately 59% at the end of the fiscal year 2020 to approximately 45% at the end of fiscal year 2021, representing the lowest.
Third and seven years.
Since the end of our fiscal year, we have completed several actions that have further strengthened our balance sheet.
In February we completed the sale of our class C series 2020, a asset backed notes for a principal amount of $62 $9 million at.
Level, 2% fixed rate, representing the best coupon on a class C. Note, we have ever achieved as reentering, the ABS market nearly six years ago.
In March we amended our ABL facility, which extended the maturity to March of 2025 increase the advance rate and provided.
For panel flexibility to manage the business.
We also call the remaining $141 $2 million balance of our senior notes that were due in July of 2022, using existing sources of liquidity and we expect to complete this transaction during the first quarter.
As you can see we have transformed our balance sheet strengthened our capital position and extended our debt maturities. This provides us with flexibility to invest and our business support our growth strategies and pursue additional opportunities that create long term shareholder value.
Moving to our financial results.
Additionally, on a consolidated basis revenues were $367 $8 million for the fourth quarter, representing a 10, 9% decline from the same period last fiscal year.
We reported GAAP net income of <unk> 85 per diluted share for the fourth quarter compared to <unk> 17 per diluted share for the same period.
And last fiscal year.
On a non-GAAP basis adjusting for certain charges and credits we reported net income of 91 per diluted share for the fourth quarter compared to <unk> 20 per diluted share for the same period last fiscal year.
Reconciliations of GAAP to non-GAAP financial measures are available and our fourth quarter earnings.
<unk> press release that was issued this morning.
Consolidated SG&A expenses for the fourth quarter for $128 3 million, a $3 7 million decline from the prior year period.
For fiscal year 2021, consolidated SG&A expenses declined 24.
Earnings for $3 million from the prior fiscal year period, even with the addition of nine new showrooms.
While we remain focused on cost controls, we expect SG&A expense and the first quarter and full year to increase year over year, and Reaccelerate investments and our digital and e-commerce growth initiatives continue to invest.
0.2, new stores and lap certain expense reductions we made in response to the COVID-19 crisis.
Looking at our retail segment and more detail total retail revenues for the fourth quarter were $294 $7 million of six 5% decline from the same period last fiscal year.
Invested decrease and retail revenue was primarily driven by a decrease and same store sales of 10, 1% and lower RSA commissions and retrospective income partially offset by new store growth.
While same store sales declined primarily due to tighter underwriting sales of cash and third party credit transaction increase.
By 35% during the fourth quarter.
We are encouraged by the sales momentum we are experiencing so far this year, especially as we have overcome and store closures due to the winter storm the loss of one calendar selling day due to leap year occurring last year and industry wide supply chain issues.
And we expect same store sales to remain positive this fiscal year as we pursue opportunities across our entire credit waterfall and execute on our growth strategies. Despite potential supply chain challenges continue continuing throughout the current fiscal year.
Retail gross margin for the fourth quarter was 37.
<unk> percent a decrease of 290 basis points from the same period last fiscal year.
As expected a decline and RSA commissions and retrospective income as a result of lower sales of <unk> in house financing were the primary drivers of the year over year decline and retail gross margin.
We expect continued.
For for on our retail gross margin on a year over year basis throughout the current fiscal year.
Retail segment operating income was $12 7 million compared to $35 7 million for the same period last fiscal year, primarily due to lower retail sales and lower retail gross margin.
Turning to our credit.
Pressure finance charges and other revenues were $73 $1 million during the fourth quarter.
The 25, 2% decline from the same period last fiscal year was primarily due to a 26% reduction and the average balance of the customer receivable portfolio lower insurance commissions due to a decline and the balance.
Segment sales of our in house credit financing and a decline and insurance retrospective income.
For the current fiscal year, we expect finance charges and other revenue will be down on a year over year basis, primarily due to a lower balance of customer receivables.
Our provision for bad debt continues.
Balance of it from a decline and the allowance for bad debt as a result of a shrinking portfolio balance which was magnified by higher reserve percentage is under Cecil. In addition, during the fourth quarter the allowance for bad debt declined due to a reduction and forecasted unemployment rates.
As a result, our fourth quarter provision for bad debt was 20.
<unk> $1 million compared to $69 3 million for the same period last year.
We expect our provision to be down year over year throughout the current year, primarily due to a lower balance of customer receivables improvements and our credit quality and and encouraging economic outlook.
Our credit.
Five of the fourth quarter was seven 2% compared to seven 9% for the same period last fiscal year and six 4% at the end of the third quarter.
Credit segment income before taxes improved to $4 4 million compared to a loss before taxes of $28 6 million for the same period last fiscal.
Fred for their day.
The year over year improvement was driven by a decline and the provision for bad debts, which reflects a stronger cash collections rate newer higher quality originations and the reduction and the portfolio of balance as a result of higher cash and third party sales.
Finally during the fourth quarter, we recognized a discrete.
Tax benefit as a result of tax planning and connection with the cares Act, which impacted the provision for income taxes by $12 $4 million and benefited earnings by 42 per diluted share.
As you can see we have successfully navigated the COVID-19 crisis by Derisking our business.
Fiscal and strengthening our balance sheet, expanding our addressable market and repositioning our strategy. We are emerging from the pandemic as a stronger company and I'm excited by our growth prospects and the direction we are headed.
On behalf of the entire leadership team I want to thank our associates for your continued hard work.
And service and dedication.
So with this overview norm and I are happy to take your questions. Operator, Please open the call up to questions.
Thank you we will now be conducting a question and answer session.
And would like to ask a question. Please press star one on your telephone keypad.
And confirmation tone will indicate your line is and the question queue.
May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Our first questions come from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.
Good morning, guys.
Good morning, Brian My question.
Bachelor Lake mine and.
Nice job manager of here.
Thanks.
Okay.
First question I had and I was looking back at my notes, just 10 minutes and that kind of a follow up at for somebody else even at every quarter now, but and ask again so.
With regard to retail.
So normally of you talked again about just the.
And the more conservative portion of costs taken George I think you alluded, maybe and your your comments and maybe somebody at up and half of the question I have is at.
And quite.
With the hopefully the economy, starting to pull out of Covid quite at what point do you proceed cards getting more getting again getting more aggressive on the issues of credit and then a second of that as you look at these results and even though acceleration and sales.
Here at early.
Just first for you how much do you think sales of it held back.
At what point, how tight you been like with credit and I have some follow ups.
Sure.
So as you know Brian this this year going back to March a year ago, we've taken a very conservative approach, Wisconsin financing and impacted at a you know.
Restricted sales well north of 20% now doing.
Back time frame, we've been putting together starting last summer actually some new modeling.
Our significant energy and effort so that when the time came and we saw the economy, improving we would be prepared to be able to take more scalable.
To be able to take more risk with.
And that time.
And better modeling and a better underwriting to be able to drive sales with less risk.
We we b.
Have begun testing from.
From a strategy standpoint on some of those models.
It's a very limited basis, it's not.
And with acting sales much at this point.
Very limited here and the first quarter, but we would expect by the second quarter to really start being able to realize increase sales and start capturing back some of that.
20% plus of the cons financing that we restricted.
Not unveils this past year the improvement in same store sales that we've seen and the acceleration here and the first quarter.
Not be and driven by the cons financing, we're still running and the 50% range of balance of sale versus the high Sixty's.
And 70% pre pandemic.
And it's really being driven by continued very strong performance and the cash and credit cost customers of high credit quality and as we highlighted on the call Brian our lease to own which is up 40% as we've added two additional lease to own partners.
And in the past three months.
Debt to help capture what we believe is and Underpenetrated consumer.
And our stores. So we're extremely bullish as we start to take advantage of the average significant opportunities. We have we believe we have with <unk>.
Seven sensing here in the second quarter and beyond that that will be a nice tailwind for us from a sales standpoint balance of the year, but most importantly, I think is we've really changed our mindset from a total addressable market.
Pre pandemic, we've realized with cash.
Cash customers for.
For the past year.
Having risen from 8% balance of sale of pre pandemic to 20%.
Balance of sale.
And synchrony, our high credit quality customers, increasing as well we recognize that not only do we have.
Fine <unk> from of Cons, and house financing standpoint, but our entire credit spectrum with lease to own high credit quality and cash we have the opportunity to grow sales and each of those four categories and that's really what we're focused on for the balance of this year, but kind of financing will remain the cornerstone of our.
Our business.
And I would just add as we look forward for the current year.
And we really expect for the growth for the current year income from the Collins financing segment as well as the lease to own segment, while we maintain the success that we've had with the cash and high credit quality customer.
And that's.
And that's extraordinarily helpful. I appreciate all the color there and then a quick follow up and I could show you talked about the acceleration of sales here.
Here early in the current fiscal year and again would you just mentioned obviously a lot of that relates to your base of business, but to what extent do you think this last round of stimulus could be helping cards and indeed to the extent of how would you think.
About that factory and maybe the near term sustainability of what Youre seeing on the top line.
It's had a limited effect I mean to this point because from the stimulus that's only impacted the last.
10 days or so of 12.
12 days of March and that February and we had strong.
Wrong performance in February there was some stimulus impact in January and that's certainly helped US we did have a positive comp in January as well as I mentioned and the notes so.
But the stimulus certainly has helped the back half of March and we expect it to help us in April as well.
Great. Thank you very much and congratulations and best of luck here into the new year.
Thanks, Brian.
Thank you. Our next question comes on the line of Kyle Joseph with Jefferies. Please proceed with your questions.
Hey, good morning, guys congratulations.
And on navigating a challenging year.
So just hoping to get a just a follow up and in terms of the cadence of same store sales and you talked about positive and January and positive quarter to date can you just give us a sense for how same store sales.
<unk> and.
On February versus March and I do recognize the storm activity and was in February of that's of a leap year comp and also of stimulus day in and March but I'm, just trying to get a sense for.
And we really started lapping the underwriting changes you guys undertook and calendar year 2020, and just wanted to see what comp.
It looked like in March.
Yeah, so that actually we combined at because and all.
There was written and volume in February as of the storm at.
After the storm that at recovered and frankly, the underwriting changes we have not the.
And the underwriting changes we took we.
Didn't implement until a week ago at the very end of March So theres really no underwriting very limited underwriting a few days actually a week and and March that impacted the from last year from same store sales standpoint.
Got it.
And then good growth and lease to own and sounds like you've added some new partners. There at 10% and has been kind of at the target it sounds like its above that.
Quarter to date with the additional partners.
Sort of number of do you think is appropriate there.
Yeah, we.
We've been talking.
Looking about a 10% target for for a while now and have always believed that that was kind of the minimum threshold from a balance of sales standpoint, what I would say is and as I mentioned and the call we're at 12% balance of sale.
To date or.
Approximately.
Our focus is really not on our balance of sale because of this year unfolds and we see <unk> financing.
And <unk>.
Being able to take of being able to capture more sales, we don't want lease to own sales at the expense of cons financing or we.
Don't want and cons financing at the expense of the other credit segments. So we're really focused on and are.
Instead of a target from our balance of sales standpoint for lease to own sales are up 40%.
And now as we mentioned.
And in the call and that's really what we're focusing on is total dollar growth.
We don't want of shift within the segments of the pie. We believe we have the opportunity from an addressable market standpoint to grow all of the segments of the pie and that's really what we're more focused on as opposed to some arbitrary balance of sales number.
Got it and then one last one for.
And for me for George.
Obviously the.
There were a lot of moving parts of the allowance last year with with C store and the pandemic, but longer term if it were and kind of a more steady state economic environment can you give us a sense for where you pick.
Picture of the allowance trending over time.
Sure. So I would certainly say that for the current year, Kyle we would expect the allowance both dollars and percentage of come down and that's going to be driven by a few factors. The first is the fact that our expectation for the year is that the portfolio will continue to improve in terms of <unk>.
60 day, plus balances balance of re aged accounts and and so forth and that is one of the contributing factors to a decline and the allowance did the other factor that I would point to here as you look at the allowance for the current year.
Is the economic component and as we continue to move through this cycle.
With improving unemployment rate forecast that will have or could have a positive benefit on our on the allowance for loan loss balance and so at both of those doctors, both the portfolio and the economic factor.
Our expectation and that those will be drivers of the reduction and the allowance balance for the current.
Yeah.
Very helpful and thanks for answering my questions.
Thanks Kyle.
Thank you. Our next question is coming from the line of Brad Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Thanks, guys and let me add my congratulations.
<unk> on your execution in 2020.
And just wanted to follow up on on the last question about how youre thinking about.
Losses, and provisions and I'm curious how you view.
Some of the uniqueness of this recession that we've gone through it.
It's been sort of the unrest.
Session, where you've seen payment rates be better than usual.
And of course, there's been a tremendous amount of stimulus so I'm curious.
As you think about us lapping that how you factor that into your expectation for losses.
Okay.
Sure.
And so.
Certainly the the are the accounts that we've originated since March of last year has been under a materially tighter underwriting regime than they were pre pandemic and as we look at losses for the current year, that's going to be the biggest driver of our lower loss expectations for FY.
For a 22 compared to compared to FY 'twenty, one having said that we are certainly benefiting now from additional government stimulus as well as just the fact that consumers have been spending less on on discretionary purchases over the last year.
But on balance we expect.
And that losses will come down year over year, driven by our tighter underwriting.
Great and and and at a high level.
And it's very encouraging to hear about the trends and same store sales and your optimism for growth this year.
Is there any way you can help us.
Think about some of the major puts.
Puts and takes here I mean, clearly theres an opportunity of your inventory in a better position going forward.
And.
If you go deeper into your underwriting that can be a tailwind of core.
On the flip side of some of the categories that you're in had a very good at.
2020.
So at the high end and at a high level.
Help us think at all Morris for some of those puts and takes.
Yes, sure Brad a couple of things first.
And if you look at from a credit standpoint filter first.
We saw significant growth in.
And cash sales.
And in a high credit quality sales with synchrony.
At this past year and our expectation is we would not see those as high growth categories. However, we do expect to be able to continue to service that customer at an elevated level from where we were pre pandemic the opportunities.
These credit wise or on the lease to own side of the house and we expect to continue to be able to build on on what we've seen over the past three to four months, there and clearly as I mentioned earlier from of cons financing standpoint, that's our biggest opportunity from a from.
From a gross standpoint.
You look category wise.
From a from a more challenging standpoint.
Home office and <unk>.
Certainly was very strong and the first half of the year.
So we expect that to be of headwind that is our smallest category, but we.
<unk> triple digit.
Improvements increases and and March to the June July timeframe there.
Mattress and furniture categories for more discretionary categories because of they are more heavily cons financing those were down significantly.
We saw last year. So we expect from a product category standpoint to have significant upside in those categories and those two categories appliances as you heard on the call of been very robust even pre pandemic.
And so that will be more challenging to maintain that growth rate and how.
And I'll say a lot of the growth rate is being driven by a S. P. As much as units as the manufacturers have dramatically reduced the amount of promotions that are going on in that category, we've seen a day.
We get improvement and from an ASP standpoint.
We as I mentioned on the call we're expanding.
And I was on our appliance assortment.
And a number of areas as well because of that category has resonated so well with our consumer. So we believe that that's going to provide us some additional tailwind there to help mitigate the overall pressure that may exist and that category the back half of the year.
Banding and then if you layer on top of supply chain issues have been a problem from from almost every category that have.
Pushed or impacted our ability to capture of the sales that were there we expect the supply chain challenges to.
<unk> persist at least through the second quarter, but our expectation is and the back half of the year that that should alleviate to some degree which should give us tailwind from a supply chain standpoint, and in almost every category.
That's very helpful and arm and for.
And I could squeeze one more and.
And just about SG&A.
SG&A and <unk>.
At two great start here in the year for from a store openings standpoint, with six more stores and store count up I think of little bit over 9%.
And I presume that some costs need to go back into the P&L here, how should we be thinking about modeling SG&A.
And he and Directionally going forward here.
Yes, so certainly with our expectation of opening nine to 11 stores. This year and that will be one contributing factor of and increase in SG&A expense, but the other factor that I would point to here is that we continue to make investments.
And at least in technology, and e-commerce, and and that's going to drive.
And increase in SG&A expense compared to last year also recall that a.
Starting now last year, we made some significant.
Cuts to two expenses.
And that were.
And then selected and our P&L for most of the year last year. So this year and FY 'twenty two we start to lap those those reductions.
And in Georgia, and air and ability to.
And keep sales as a percentage of sales close to flat and.
Or get some leverage or do.
But at the set up here with me for the year with the store growth and lapping some of the customer last year set you up for perhaps a little bit of deleverage in 2000, and I think this year, we will deleverage could be next year, we should start to lift for next year and beyond and we start to leverage.
Very helpful.
Thank you all so much and and good luck.
And you think thanks Brad.
Thank you. Our next question is come from the line of Rick Nelson with Stephens. Please proceed with your question.
Our current.
And my congrats on all of Us who arent.
Very strong results.
3% and same store.
Yeah.
And quarter could day.
Can you talk about kind of what you're lapping.
On February March for a year ago and.
They weren't a factor of the comparison does get easier and Scott.
And we pushed into April.
Yeah. So.
And last year from of February standpoint I.
I don't have February and March combined, but and February we were down high single digits last year.
And in March we really Didnt start lapping the pandemic for the last of the pandemic didn't really come.
For us until this last week and March the last 10 days or so and really the month of April is when it was in full force yet.
Recall, Rick we were down 17, 6% comp sales last year and the first quarter most of that came in April.
And when when we're starting.
And for them and parts of preparing for on a on our tighter underwriting.
And can you quantify the good karma too so I'm at <unk> last year.
I'm, sorry can you say that again Ric cannot quantify what kind.
Can you quantify it for.
Good quantity.
And since all of last year.
We don't typically get out of monthly sales numbers, but what I would say Rick is that the substantial.
And the first quarter was driven last year was driven by April.
Okay and.
Curious about.
Choose good kind of stalled so use your underwriting standards.
And I hope.
Some color around that.
It was hold on boats and.
And maybe what it could put tangible and me and for the same store sales I know you fully.
Now at the tighter underwriting and put them back to you more broadly on our ROE.
All of us.
He's here.
Standards, what kind of kidney and for comps.
Yeah. So the modeling I mean, the testing is of that we're doing now is really validating.
He lagging and and confirming the.
The the estimates that we have on the modeling that we're doing so.
At its early to it's too early to project what that will at.
Actually contribute from a sales standpoint, but what I would say is we're very focused we.
Alidades debt and all.
And we've taken out 20% of cons financing, even though we continue you know from an approval standpoint and end of usage standpoint.
And that's both and declines and number of customers and credit limits as well and we believe we have the opportunity to capture back of material amount of those.
<unk> and going forward into the future.
And and do that with less risk and partly and in part why the lease to own partner is so important is that and growing that business as it works hand in hand, with our cons financing because you know where we're able to work.
Those sales, mostly with that partner and drive those sales and gives us opportunity take more risk with the higher credit quality customer knowing that we can capture of that business on the lower credit quality with the lease to own and partner so.
And what I would say is you know and the second quarter.
Of this year.
Work on we believe we have of material opportunity to drive sales from of costs financing standpoint, again, not at the expense of balance of sales of the other categories, while we still see lease to own sales growing materially year over year, and maintaining our high level of cash and and.
And bad credit quality of customers.
We've been able to address during the pandemic as well.
Yeah.
To follow up on right.
I mean, you could call ups.
At this time.
And so credit per port and would go for it.
2% on sales of whose path.
And Hi Greer.
Oh no.
No. It's a good question Trust Trust me, we've had a lot of dialogue that and internally about that and.
What I would tell you Rick is we're focused less on the balance of sales, we're seeing that more as of as an outcome as opposed to of target well.
So for US we want con sales overall to grow but again I don't I don't want to get 60, 65% of of cons financing at the expense of taking it from not growing the cash customer is not growing at least at home. It's about growing total dollar sales from an overall address.
And we're looking at market standpoint across the credit spectrum, what I will say is and although I am not putting limits of you know it needs to be.
A certain percentage of a certain level, we think it's.
And it's going to be ultimately will probably end up being and and Ah hi.
Dress at these.
Low sixty's, probably not back to the level that it was.
But the overall dollars will be greater.
Even though the balance of sale will be less because of the growth and the other categories, but and and what I would say is.
And now we highlighted with what.
<unk> has transformed from a.
From a balance sheet standpoint over the past year and now.
By having you know.
And Ah.
Aggressive growth and and the other categories at lease to own high credit quality, we don't we derisk the portfolio.
Bye.
A bit smaller overall as a percentage of the business <unk> portfolio. It also generates a lot of cash as you've seen over the past 12 months at.
To be able to to basically pay down our high yield notes and do it just from the cash we generate from the business.
Having now.
Pretty remarkable and they have our debt as a percentage of revenue lower than its been and seven years now on the balance sheet I would argue is stronger than its been any time since the company has been public frankly, certainly and the six years that I've been here. So you know what.
This.
And its formation of the business of being able to have cons financing is our cornerstone, but a little bit smaller part of the business from an overall sales standpoint, and grown and those other segments have real advantages from a cash flow and a balance sheet standpoint and of risks risk standpoint as well.
Trans and the future of Dr.
And the unknown of what happens with the portfolio and of macroeconomic recession or or.
Or an issue if there's a recession and the future.
And Rick averages that day.
The key theme for us coming out of the pandemic is that our value proposition.
And it really resonates with customers that we don't necessarily need to finance ourselves and.
So as we think about the business strategically going forward, we expect to see a more balanced mix of financing types of across our revenue.
What's kind of financing still being at least half.
And <unk> business.
Okay.
Uh huh.
And good luck.
Thank you. Our next question is coming from the line of Bill Ryan with Compass point. Please proceed with your question.
Thanks, and good morning, a couple of questions one.
Half of you talked about your cash and cash position are really building up your sort of delevering the balance sheet.
Everything looks really good is there any thought down the line I know you did at a couple of years ago, but about <unk>.
Some potential of capital return.
And the future given the cash position and the outlook.
You're talking about.
And then the second thing just.
And reference to a question that you answered a little bit earlier. It sounded like you may have done a little bit more of a rollout of some of the new underwriting models and very late March just wanted to get some clarity on that if you did thanks.
Looked at sure yes.
So in terms of.
The balance sheet of as norm mentioned.
Our balance sheet is in a better position than it has been and a long time and that gives us a lot of flexibility having said that we continue to see strong returns from investments and the business whether that's.
And of course or now our increasing investments.
And E Commerce, and so all of our primary focus and still continue to invest and the business of himself.
And that we will continue to evaluate all other options for a shareholder return standpoint.
Including M&A sure.
Share buybacks.
New store and anything else.
The other question you asked bill as far as of the testing on the <unk> financing.
Testing, we're doing here and in March is a very very small percentage, having a very limited effect from a from a sales standpoint.
Testing we're doing.
And I really just to confirm what are what our modeling and what we believe will occur so that we're positioned to be able to expand at all.
Later in April and most.
Predominantly in the second quarter, the cons financing to start taking back some of the.
Israel communities that are that we're tighter on last year, but at it as it had a very limited impact very very limited impact from a sales standpoint.
And the first quarter.
Okay. Thank you.
Thank you there are no.
For further questions at this time I would like to turn the call back over to norm Miller for any closing remarks.
Thank you first I want to again.
Send out of a note of appreciation to our 4400 associates across the company for their hard work not only this past quarter.
The offer throughout this a very.
Very challenging year for our success and navigating the pandemic would not have happened without their hard work and we also appreciate your interest and the company and we look forward to talking with you and a couple of months.
With our first quarter results have a great day.
But thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Have a great day.