Q4 2024 Conn's Inc Earnings Call
Okay.
Operator: Good morning, and thank you for holding. Welcome to Conn's Inc.'s conference call to discuss earnings for the fiscal quarter and year ended January 31st, 2024. My name is Doug, and I'll be your operator today. During the presentation, all participants will be in a listen-only mode.
Speaker Change: Good morning, and thank you for holding welcome to <unk> conference call to discuss earnings for the fiscal quarter and year ended January 31 2024.
Doug: My name is Doug and I'll be your operator today.
Doug: During the presentation, all participants will be in a listen only mode.
Operator: After the speaker's remarks, you'll be invited to participate in the question and answer session. As a reminder, this conference call is being recorded. The company's earnings release dated April 11th, 2024, was distributed this morning and can be accessed via the company's investor relations website at IR.com. During today's call, management will discuss, among other financial performance measures, adjusted net income, adjusted retail segment operating loss, and adjusted credit segment operating income. Please refer to the company's earnings release that was issued today for a reconciliation of these non-GATT measures to their most comparable GATT measures. I must remind you that some of the statements made in this call are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements represent the company's present expectations or beliefs concerning future events. However, 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 above. Your statements today are Norm Miller, the company's CEO, and Tim Santo, the company's CFO. I would now like to turn the conference call over to Mr. Miller. Please go ahead.
Doug: After the Speakers' remarks, you'll be invited to participate in a question and answer session.
Doug: As a reminder, this conference call is being recorded.
Company's earnings release dated April 11, 2024 was distributed this morning and is accessed via the company's Investor Relations website at IR Dotcom dotcom.
Doug: During today's call management will discuss among other financial performance measures adjusted net income adjusted retail segment operating loss and adjusted credit segment operating income.
Doug: You can 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.
Doug: I must remind you that some of the statements made in the call are forward looking statements within the meaning of the federal Securities laws.
Doug: These forward looking statements represent the companys present expectations or beliefs concerning future events.
Doug: 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 above.
Speaker Change: Your statements today are norm Miller, the company's CEO and Tim Center, the company's CFO.
Norman L. Miller: I'd now like to turn the conference call over to Mr. Miller. Please go ahead.
Norman L. Miller: Good morning, and thank you for joining today's call to review the progress we're making combining W.S. Badcock and Conn's and our fourth quarter and fiscal year 2024 financial results. I am excited to provide an update on the integration between Badcock and Conn's, as well as the progress we are making executing against several near-term strategic priorities that we believe will position the company for year-over-year improvements in retail sales and profitability. As a reminder, on December 18th, 2023, we announced and closed a transformative transaction with Badcock. By uniting the two companies, each with over 120 years of serving customers, we have created a leading home goods retailer with more than 550 retail locations across 15 states in the southern United States.
Norman L. Miller: Good morning, and thank you for joining today's call to review the progress, we're making combining ws bad cock and cons and our fourth quarter and fiscal year 'twenty 'twenty four financial results.
Norman L. Miller: I'm excited to provide an update on the integration between bad cocking cards as well as the progress we are making executing against several near term strategic priorities that we believe will position the company for a year over year improvements in retail sales and profitability.
Norman L. Miller: As a reminder, on December 18th 20, twenty-three, we announced and closed a transformative transaction with bad cock by uniting the two companies each with over 120 years of serving customers. We have created a leading home goods retailer with more than 550 <unk>.
Norman L. Miller: Retail locations across 15 states in the southern United States once fully integrated we believe the transaction will accelerate our growth by combining two complementary businesses with similar product categories payment solutions and customer profiles well drive.
Norman L. Miller: Once fully integrated, we believe the transaction will accelerate our growth by combining two complementary businesses with similar product categories, payment solutions, and customer profiles while driving material cost savings, enhancing gross margins, and improving operating leverage. For the past three-plus months, the Combined Leadership Team has focused on integrating the two organizations, aligning around a common culture, and establishing a platform to drive significant revenue and cost synergies in the coming quarter. Our cross-functional teams are working with strong momentum to quickly improve our performance and create lasting value for our customers, employees, dealers, communities, and shareholders. As a result, we have identified five near-term strategic priorities that include transitioning Badcock's credit program to Conn's in-house loan product, Optimizing Our Merchandising Strategy, and Fully integrating our combined supply chain.
Norman L. Miller: Material cost savings enhancing gross margins and improving operating leverage.
Over the past three plus months the combined leadership team is focused on integrating the two organizations aligning around a common culture and establishing a platform to drive significant revenue and cost synergies in the coming quarters. Our cross functional teams are working with strong momentum.
Norman L. Miller: To quickly improve our performance and create lasting value for our customers employees dealers communities and shareholders.
Norman L. Miller: As a result, we have identified five near term strategic priorities that include transitioning bad Cox credit program to cons in house loan product.
Norman L. Miller: Optimizing our merchandising strategy.
Fully integrating our combined supply chain.
Norman L. Miller: Leveraging Conn's e-commerce capabilities, and finally realizing significant cost synergies. So, with this overview, let's look at the strategic priorities in more detail, starting with efforts to transition BADCOC to Conn's credit program. As I mentioned on our last call, Badcock currently provides an in-house revolving credit program to its customers, and last year, approximately 60% of their sales were financed using this offering. By their nature, revolving credit products provide consumers with higher monthly payments, lower availability, and shorter durations compared to Conn's installment loan products. For example, Badcock's average ticket last year was approximately $1,400, which in the state of Florida equates to a monthly payment of approximately $110. By comparison, this same $1,400 purchase in Florida would have a monthly payment of approximately $56 under Conn's in-house installment loan.
Norman L. Miller: Leveraging <unk> e-commerce capabilities, and finally, realizing significant cost synergies.
Norman L. Miller: So with this overview, let's look at these strategic priorities in more detail starting with efforts to transition bad Cock the cons credit program.
Norman L. Miller: As I mentioned on our last call Bad Cock currently provides an in house revolving credit program to its customers and last year approximately 60% of their sales were financed using this offering.
Norman L. Miller: By its nature revolving credit products provide consumers with higher monthly payments lower availability and shorter durations compared to cards installment loan product.
Norman L. Miller: For example, bad Cox average ticket last year was approximately $1400, which in the state of Florida equates to a monthly payment of approximately $110.
Norman L. Miller: By comparison, the same 1400 dollar purchase in Florida would have a monthly payment of approximately $56 under cons in house installment loan.
Norman L. Miller: As you can see, at the same average ticket price, Badcock's monthly payment is nearly twice as much as Conn's. We have stated historically that our core customer makes the purchasing decision primarily based on the amount of their monthly payment. As you can see from this example, and with similar product categories and customer profiles, we believe we can significantly increase Badcock's average ticket. In fact, Conn's went through a similar multi-year transition and had an average ticket of under $1,600 when I first joined the company in September 2015, compared to an average ticket of over $1,800 today. This successful transition supports a high degree of confidence that we can provide more purchasing opportunities for Badcox customers. As a result, we believe credit-driven growth strategies will be an important near-term catalyst to unlock revenue and cost synergies in the coming quarter. With much of the work already underway, we launched Conn's Credit in select Badcock stores here in the month of April, with the expectation of offering Conn's Credit across all Badcock locations by the end of May.
As you can see at the same average ticket bad Cox monthly payment is nearly twice as much as cons.
Norman L. Miller: We have stated historically that our core customer makes the purchasing decision primarily based on the amount of their monthly payment.
Norman L. Miller: As you can see from this example, and with similar product categories and customer profiles. We believe we can significantly increase bad Cox average ticket.
Norman L. Miller: In fact cons went through a similar multi year transition and had an average ticket of under $1600. When I first joined the company in September 2015, compared to an average ticket of over $1800 today.
Norman L. Miller: This successful transition supports a high degree of confidence that we can provide more purchasing opportunities for bad Cox customers.
Norman L. Miller: As a result, we believe credit driven growth strategies will be an important near term catalyst to unlock revenue and cost synergies in the coming quarters.
Norman L. Miller: With much of the work already underway, we have launched cons credit in select bad cop stores here in the month of April with the expectation of offering cons credit across all bad cock locations by the end of May.
Norman L. Miller: We are also pursuing additional credit driven opportunities to capture more customers first we will focus on leveraging cons prequalified direct mail and credit based marketing expertise to drive sales at bad Cock.
Norman L. Miller: We are also pursuing additional credit-driven opportunities to capture more customers. First, we will focus on leveraging Conn's pre-qualified direct mail and credit-based marketing expertise to drive sales at Badcock. Most recently, Badcock has focused on a product-based marketing strategy, while over the years, Conn's has utilized credit-based marketing channels and messaging to promote its multiple payment options. Given our similar geographies, customer profiles, and product categories, we believe we can quickly leverage Conn's credit-based marketing experience to better promote the payment options of the combined company. Second, we plan to implement the innovative digital application process we successfully launched last year. This will make it easier for Badcox customers to apply for the multiple payment options we provide while limiting the impact a credit application has on a customer's credit score.
Norman L. Miller: Most recently bad caucus focused on a product based marketing strategy, while over the years Khan says utilized credit based marketing channels and messaging to promote our multiple payment options.
Norman L. Miller: Given our similar geographies customer profiles and product categories. We believe we can quickly leverage cons credit based marketing experience to better promote the payment options of the combined company.
Second we plan to implement an innovative digital application process, we successfully launched last year.
Norman L. Miller: This will make it easier for bad Cox customers to apply for the multiple payment options, we provide while limiting the impact of credit application has on our customers credit score.
Norman L. Miller: The enhancements we made to our application process over the past year had a powerful impact at Conn's as our application volume increased 21.6% year over year. Third, we also believe the transition from Badcock's in-house revolving credit product to Conn's in-house installment loan will enhance the yield on Badcock's portfolio. Before we even consider expected increases in Badcock sales, we believe the transition to Conn's in-house installment loan will contribute nearly $20 million in incremental finance charges and other revenue once the portfolio is fully seasoned. While the yield will be higher, we expect our customers to benefit from a lower monthly payment and greater purchasing power, similar to Conn's successful transition from a retail installment contract to a direct loan structure back in 2016.
Norman L. Miller: The enhancements, we made to our application process over the past year had a powerful impact of cons as our application volume increased 21, 6% year over year.
Norman L. Miller: Third we also believe the transition from bad Cox in house revolving credit product the cons in house installment loan will enhance the yield on bad Cox portfolio.
Norman L. Miller: Before we even consider expected increases in bad car sales, we believe the transition to cons inhouse installment loan will contribute nearly $20 million in incremental finance charges and other revenue once the portfolio is fully seasoned.
Norman L. Miller: While the yield will be higher we expect our customers to benefit from a lower monthly payment and greater purchasing power similar to consequences will transition from a retail installment contract to a direct loan structure back in 2016.
Norman L. Miller: Finally, we expect Badcock to benefit from Conn's 10-plus years of experience offering lease-to-own payment plans to our customers. While Badcock has historically offered third-party lease-to-own plans, they represented only about 3% of sales last year, compared to over 9% of Conn's fourth-quarter retail sales, which was the highest quarterly level at Conn's since I rejoined the company as CEO in October 2022. Leads to Own Growth at Conn's reflects the success of our efforts to refocus on our core credit-constrained customers. Given Badcock's similar product categories, customer profiles, and store locations, we believe there are material opportunities to drive lease-owned sales at Badcock. It's important to note that over the past eight years, Conn's has developed a best-in-class credit infrastructure with a team of highly experienced leaders supporting sophisticated underwriting, servicing, collections, and recovery capabilities.
Norman L. Miller: Finally, we expect bad character benefit from cons 10, plus years of experience offering lease to own payment plans to our customers.
Norman L. Miller: While bad Caulk has historically offered third party lease to own plans. It represented only about 3% of sales last year compared to over 9% of cons fourth quarter retail sales, which was the highest quarterly level of cons since I rejoined the company as CEO in October.
Norman L. Miller: We're 2022.
Norman L. Miller: Lease to own growth at <unk> reflects the success of our efforts to refocus on our core credit constrained customers given bad Cox similar product categories customer profiles and store locations. We believe there are material opportunities to drive lease stone sale.
Norman L. Miller: Or is it bad cock.
Norman L. Miller: It's important to note that over the past eight years concepts developed a best in class credit infrastructure with a team of highly experienced leaders supporting sophisticated underwriting servicing collections and recovery capabilities.
Norman L. Miller: We expect our credit-driven strategies will quickly contribute to sales growth in the coming quarters, and I look forward to updating investors on the success of our rollout on future calls. Optimizing our merchandising strategy is the next priority I want to discuss today. Badcock was founded as a furniture and mattress retailer, expanding its product categories over the years to include appliances, consumer electronics, and home office, with furniture and mattress sales representing 70% of Badcock's annual sales prior to the transaction.
Norman L. Miller: We expect our credit driven strategies will quickly contribute to sales growth in the coming quarters and I look forward to updating investors on the success of our rollout on future calls.
Norman L. Miller: Optimizing our merchandising strategy is the next priority I want to review today.
Norman L. Miller: Babcock was founded as a furniture and mattress retailer expanding its product categories over the years to include appliances, consumer electronics and home office with furniture, and mattress sales, representing 70% of bad Cox annual sales prior to the transaction.
Norman L. Miller: Conversely, Conn's was founded as an appliance retailer, expanding its product categories over the years to include consumer electronics, furniture, mattress, and home office, with appliances, electronics, and computers representing nearly 60% of Conn's product sales prior to the transaction. We believe this complementary sales mix creates opportunities to drive appliance, consumer electronics, and home office sales at Badcock while supporting greater furniture and mattress sales at Conn. As we look at Badcock and Conn's assortment, approximately 95% of our product categories overlap, but we only share 45% of the same vendors. As we align our assortment across our combined product categories, we are focusing on capitalizing on the best-selling products at both Conn's and Badcock. We will also take advantage of material, margin, and cost opportunities as we consolidate vendors, benefit from our larger scale, and leverage the success of both Conn's and Badcock's private label platforms.
Norman L. Miller: Conversely, <unk> was founded as an appliance retailer expanding our product categories over the years to include consumer electronics furniture, mattress and home office with appliance electronics and computers, representing nearly 60% of cons product sales.
Norman L. Miller: Prior to the transaction.
Norman L. Miller: We believe this complementary sales mix creates opportunities to drive appliance consumer electronics and home office sales at bad <unk>, while supporting greater furniture and mattress sales at cons.
Norman L. Miller: As we look at bad Cock and cons assortment, approximately 95% of our product categories overlap, but we only share 45% of the same vendors as.
Norman L. Miller: As we align our assortment across our combined product categories. We are focusing on capitalizing on the best selling products at both cards and bad Cock.
Norman L. Miller: We will also take advantage of material margin and cost opportunities as we consolidate vendors benefit from our larger scale and leverage the success of both cards and bad Cox private label platforms.
Norman L. Miller: We have already started to realize the initial benefits of transitioning Badcock's expertise in higher-margin furniture and mattress categories to Conn's, combining our assortments, and optimizing our merchandising strategy. As we work through our existing inventory over the next 12 to 18 months and further strengthen our assortment, we expect to benefit from additional opportunities to drive sales growth and expand margins over the coming year. We will also benefit from Badcock's higher percentage of furniture and mattress sales.
Norman L. Miller: We have already started to realize the initial benefits of transitioning bad Cox expertise in higher margin furniture, and mattress categories to cards, combining our assortments and optimizing our merchandising strategy.
Norman L. Miller: As we work through our existing inventory over the next 12 to 18 months and further strengthen our assortment, we expect to benefit from additional opportunities to drive sales growth and expand margins over the coming year.
Norman L. Miller: We will also benefit from bad Cox higher percentage of furniture, and mattress sales with just six weeks of bad Cox retail sales our consolidated retail gross margin in the fourth quarter was 38, 3% compared to 33, 5% in the quarter prior.
Norman L. Miller: With just six weeks of Badcock's retail sales, our consolidated retail gross margin in the fourth quarter was 38.3% compared to 33.5% in the quarter prior to the transaction, representing a 480 basis point increase. The contribution of Badcock was the primary driver of our gross margin improvement from the third quarter. As our integration efforts continue, we expect our retail gross margin to improve to over 40% in the coming quarter. The next strategic priority I will review today is the enhancements we are making to integrate our supply chains and transition Badcock to Conn's last mile delivery and service capabilities. In fact, efforts to integrate our supply chain are already underway.
Norman L. Miller: Or did the transaction, representing a 480 basis point increase.
Norman L. Miller: The contribution of bad Caulk was the primary driver of our gross margin improvement from the third quarter.
Norman L. Miller: As our integration efforts continue we expect our retail gross margin to improve to over 40% in the coming quarters.
Norman L. Miller: The next strategic priority I will review today are the enhancements, we are making to integrate our supply chains and transition bad cock the cons last mile delivery and service capabilities.
Norman L. Miller: In fact efforts to integrate our supply chain are already underway.
Norman L. Miller: Recently, we started the process to consolidate regional distribution centers in Florida, Georgia, and North Carolina where Conn's and Badcock overlap. We have also started to leverage Badcock's international freight capabilities and expertise, which we believe will improve our cost per container by approximately $1,000 going forward. Transitioning Badcock's delivery and service capabilities to Conn's best-in-class platform is another important component of our integration plan. Last year, Conn's provided last mile delivery services to approximately 74% of our retail sales. In addition, 95% of appliance and TV repairs are performed by Conn's employees, and our repair time is 50% faster than the industry average. On the other hand, Badcock's delivery and service model is decentralized and differs by location.
Norman L. Miller: Recently, we started the process to consolidate regional distribution centers in Florida, Georgia, and North Carolina, where cons and bad Cock overlap.
Norman L. Miller: We have also started to leverage bad Cox international freight capabilities and expertise, which we believe will improve our cost per container by approximately $1000 going forward.
Norman L. Miller: Transitioning bad Cox delivery and service capabilities. The cons best in class platform is another important component of our integration plan.
Norman L. Miller: Last year cons provided last mile delivery services to approximately 74% of our retail sales.
Norman L. Miller: In addition, 95% of appliance and TV repairs are performed by <unk> employees and our repair time is 50% faster than the industry average.
Norman L. Miller: On the other hand, bad Cox delivery and service model is decentralized and differs by location by transitioning to con centralized platform. We believe we can improve bad Cox customer experience and leverage our existing delivery infrastructure.
Norman L. Miller: By transitioning to Conn's centralized platform, we believe we can improve Badcock's customer experience and leverage our existing delivery infrastructure. In addition, since we operate in the same states, we can quickly transition Badcock's last mile delivery and service capabilities to Conn's, while also driving efficiency. We expect these efforts to provide another opportunity to expand our retail gross margin in the coming quarters. Turning to our e-commerce integration strategies, for the year ending January 31st, 2024, Conn's had record e-commerce sales of $109.3 million, representing a 38.2% increase from last fiscal year and nearly a nine-fold improvement from the $12.6 million in e-commerce sales we achieved just four years ago. Badcock's e-commerce sales were $22.4 million this past year, a 27% year-over-year decline.
Norman L. Miller: In addition, since we operate in the same states. We can quickly transition bad Cox last mile delivery and service capabilities to cards, while also driving efficiencies.
Norman L. Miller: We expect these efforts to provide another opportunity to expand our retail gross margin in the coming quarters.
Norman L. Miller: Turning to our e-commerce integration strategies for the year ending January 31st 'twenty 'twenty four cons had record e-commerce sales of $109.3 million, representing a 38, 2% increase from last fiscal year.
Norman L. Miller: And nearly a nine fold improvement from the $12 $6 million in E. Commerce sales, we achieved just four years ago.
Norman L. Miller: Bad Cox ecommerce sales were $22.4 million this past year, reflecting a 27% year over year decline from our balance of sales standpoint E. Commerce represented 11, 1% of cons total retail sales last year compared to $4 six per.
Norman L. Miller: From a balance of sales standpoint, e-commerce represented 11.1% of Conn's total retail sales last year, compared to 4.6% at Badcock. By leveraging Conn's established digital resources and capabilities, we are confident we can improve Badcock's e-commerce sales and begin a multi-year process to align Badcock with Conn's growing balance of e-commerce sales. Initially, we expect to improve BADCOC's performance through the actions underway to optimize our product assortment and transition BADCOC to Conn's last mile delivery and service model. During the year, we will begin leveraging Conn's digital marketing capabilities, which includes our recently launched application process and the investments we have made across our digital platform to further support the e-commerce growth strategies of the combined company. As a result, we continue to believe we can grow e-commerce sales to well over $300 million in the next several years.
Norman L. Miller: Sent at Bad Cox.
Norman L. Miller: By leveraging <unk> established digital resources and capabilities. We are confident we can improve bad Cox ecommerce sales and begin a multi year process to align bad guy with cards growing balance of ecommerce sales.
Norman L. Miller: Initially, we expect to improve bad Cox performance through the actions underway to optimize our product assortment and transition bad cock the cons last mile delivery and service model.
Norman L. Miller: During the year, we will begin leveraging <unk> digital marketing capabilities, which includes our recently launched application process and the investments we have made across our digital platform to further support the ecommerce growth strategies of the combined company.
Norman L. Miller: As a result, we continue to believe we can grow ecommerce sales to well over $300 million in the next several years.
Norman L. Miller: Yeah.
Norman L. Miller: The final strategic priority I want to review today is the actions we are pursuing to realize significant cost savings and quickly expand profitability. I am pleased to report that we are ahead of plan, and during the fourth quarter alone, we removed approximately $50 million of combined annualized expenses in the form of headcount reductions, optimizing vendor agreements, and eliminating other operating costs. We have identified an additional $50 million of costs that we expect to remove from the combined business over the next 18 months. Looking at our quarter-to-date sales, as of today's call, overall sales are up approximately 40.7% year-over-year as a result of the contribution of Badcock. Quarter-to-date same-store sales for the combined business are down approximately 13.5%.
Norman L. Miller: Our final strategic priority I want to review today are the actions we are pursuing to realize significant cost savings and quickly expand profitability.
I am pleased to report that we are ahead of plan and during the fourth quarter alone we removed approximately $50 million of combined annualized expenses in the form of head count reductions optimizing vendor agreements and eliminating other operating cost we have identified.
An additional $50 million of cost that we expect to remove from the combined business over the next 18 months.
Norman L. Miller: Looking at our quarter to date sales as of today's call overall sales are up approximately 47% year over year as a result of the contribution of bad gawk quarter.
Norman L. Miller: Quarter to date same store sales for the combined business are down approximately 13.5%.
Norman L. Miller: As the year progresses, we expect to see an inflection in same-store sales performance as we benefit from the integration and growth strategies we have outlined today. We also expect market trends for the home-related products we sell to improve in the second half of the year. In addition, we continue to focus on supporting our customers and driving retail sales while prudently managing credit risk as our core customers feel the ongoing effects of higher inflation driven by increased housing costs and car expenses. We believe our sophisticated in-house credit underwriting and collection capabilities, combined with our industry-leading payment options, provide the company with a significant advantage over other retailers. Despite a fluid operating environment, we believe fiscal 2025 will be a transformative year for Conn.
Norman L. Miller: As the year progresses, we expect to see an inflection in same store sales performance as we benefit from the integration and growth strategies, we have outlined today.
Norman L. Miller: We also expect market trends for the home related products, we sell to improve in the back half of the year.
Norman L. Miller: In addition, we continue to focus on supporting our customers and driving retail sales, while prudently managing credit risk as our core customers feel the ongoing effects of higher inflation driven by increased housing costs and car expenses.
Norman L. Miller: We believe our sophisticated in house credit underwriting and collection capabilities combined with our industry, leading payment options provide the company with a significant advantage over other retailers.
Norman L. Miller: Despite a fluid operating environment, we believe fiscal 'twenty 25 will be a transformative year for cards. The bad cop transaction has exceeded our initial expectations. We have quickly identified powerful operating and financial synergies and created a growth.
Norman L. Miller: The Badcock transaction has exceeded our initial expectations. We have quickly identified powerful operating and financial synergies and created a growth-focused integration plan that we are now executing. While there will be continued one-time costs that will impact our results in the first quarter, we believe our shareholders will begin to see the benefits of our new operating model in the second quarter, and we expect to produce accelerating revenue and earnings growth through this year. I want to reiterate my optimism about our path going forward. Over the coming quarters, I am confident we will start to benefit from the powerful financial model we are creating, which is supported by our premium shopping experience, best-in-class payment offerings, leading e-commerce capabilities, and unique dealer networks. In addition, we expect our larger scale will improve purchasing and logistics expenses while also driving opportunities to leverage fixed costs.
Norman L. Miller: Focused integration plan that we are now executing against.
Norman L. Miller: While there will be continued onetime costs that will impact our results in the first quarter. We believe our shareholders will begin to see the benefits of our new operating model in the second quarter, and we expect to produce accelerating revenue and earnings growth through this year.
Norman L. Miller: I want to reiterate my optimism for our path going forward over the coming quarters I am confident we will start to benefit from the powerful financial model, we are creating which is supported by our premium shopping experience best in class payment offerings, leading ecommerce capabilities.
Norman L. Miller: And unique dealer network.
Norman L. Miller: In addition, we expect our larger scale will improve purchasing and logistics expenses, while also driving opportunities to leverage fixed cost, we expect to benefit from more than $100 million of annualized cost synergies as well as over $50 million of revenue.
Norman L. Miller: We expect to benefit from more than $100 million of annualized cost synergies as well as over $50 million of revenue synergies over the next 18 months. As positive momentum in our business builds, we continue to believe that we can achieve annual adjusted EBITDA of between $180 to $220 million on total annual sales between $2 to $2.2 billion by the end of our next fiscal year. I strongly believe we have the right strategies, leadership team, associates, dealers, and platform in place to deliver on the goals we have outlined today.
Speaker Change: Oh geez over the next 18 months.
Speaker Change: As positive momentum in our business builds we continue to believe that we can achieve annual adjusted EBITDA of between $180 million to $220 million on total annual sales between $2 billion to $2.2 billion by the end of our next fiscal year.
Speaker Change: I believe strongly we have the right strategies leadership team associates dealers and platform in place to deliver on the goals we have outlined today.
Timothy P. Santo: Together, we will have an even greater impact on the communities we serve, and I am excited by the opportunities we have in front of us to produce long-term value for our stakeholders. I would like to take this opportunity as well to acknowledge Tim Santo, who was recently appointed Conn's permanent CFO. Tim, on behalf of everyone at Conn's, congratulations on your promotion. Now, I'll turn the call over to Tim to review our financial results in more detail. Thank you, Norm.
Speaker Change: Together, we will have an even greater impact on the communities, we serve and I am excited by the opportunities we have in front of us to produce long term value for our stakeholders.
Speaker Change: I would like to take this opportunity as well to acknowledge Tim Santo who was recently appointed cons permanent CFO, Tim on behalf of everyone at cons. Congratulations on your promotion now I'll turn the call over to Tim to review our financial results in more detail.
Tim: Thank you norm I am pleased to join everyone on this morning's call and excited by the near term strategies, we are pursuing to quickly integrate bad cock and produce improving sales and profitability in the coming quarters.
Timothy P. Santo: I am pleased to join everyone on this morning's call and excited by the near-term strategies we are pursuing to quickly integrate Badcock and produce improving sales and profitability in the coming quarters. I look forward to updating investors on the progress we are making on future calls. Our fourth quarter financial performance reflects ongoing industry headwinds as well as one-time costs primarily associated with the completion of the Bagcock transaction on December 18, 2023. In addition, it is important to note that our fourth quarter results include approximately six weeks of Badcock's performance, and Badcock's financial results will be consolidated in our quarterly results going forward. On a consolidated basis, total revenues were $366.1 million for the fourth quarter, representing a 9.3% year-over-year increase.
Timothy P. Santo: I look forward to updating investors on the progress we are making on future calls.
Timothy P. Santo: Our fourth quarter financial performance reflects ongoing industry headwinds as well as onetime costs, primarily associated with the completion of the Bangkok transaction on December 18th 2023.
Timothy P. Santo: In addition, it is important to note that our fourth quarter results include approximately six weeks of Bangkok's performance and Bangkok financial results will be consolidated in our quarterly results going forward.
Timothy P. Santo: On a consolidated basis total revenues were $366 $1 million for the fourth quarter, representing a nine 3% year over year increase.
Timothy P. Santo: For the fourth quarter, the company reported gap net income of $43.3 million compared to a gap net loss of $42.8 million for the same period in fiscal year 2023. Gap net income includes a one-time bargain purchase gain of $104.9 million, transaction costs of $16.3 million, and a one-time loss on extinguishment of debt of $14.2 million. Reconciliations of GAAP to non-GAAP financial measures are available in our fourth quarter earnings press release that was issued this morning.
Timothy P. Santo: For the fourth quarter. The company reported GAAP net income of $43 $3 million compared to a GAAP net loss of $42 $8 million for the same period in fiscal year 2023.
Timothy P. Santo: GAAP net income includes a one time bargain purchase gain of $104 $9 million transaction costs of $16 $3 million and a one time loss on extinguishment of debt of $14 $2 million.
Timothy P. Santo: Reconciliations of GAAP to non-GAAP financial measures are available in our fourth quarter earnings press release that was issued this morning.
Timothy P. Santo: On an adjusted basis, we reported a net loss of $31 million for the fourth quarter, compared to a net loss of $36.7 million in that same period last fiscal year. Looking at the performance of our retail segment in more detail, total retail revenues were $296.9 million in the fourth quarter. The 9.6% year-over-year increase in retail revenue was primarily driven by Badcock revenue of $60.3 million, offset by a 14.4% decrease in same-store sales. Same-store sales during the fourth quarter were impacted by lower discretionary spending for home-related products following an extended period of excess consumer liquidity which resulted in accelerated sales. For the fourth quarter, retail segment operating loss was $38.1 million compared to a retail segment operating loss of $19.5 million for the same period in fiscal year 2023. On a non-GAAP basis, adjusted retail segment operating loss for the fourth quarter was $21.8 million compared to a loss of $11.7 million for the same period last year.
Timothy P. Santo: On an adjusted basis, we reported a net loss of $31 million for the fourth quarter.
Timothy P. Santo: Compared to a net loss of $36 $7 million in that same period last fiscal year.
Looking at the performance of our retail segment in more detail total retail revenues were $296 $9 million in the fourth quarter.
Timothy P. Santo: The nine 6% year over year increase in retail revenue was primarily driven by bad card revenue of $63 million offset by a 14, 4% decrease in same store sales.
Timothy P. Santo: Same store sales during the fourth quarter were impacted by lower discretionary spending for home related products. Following an extended period of excess consumer liquidity, which resulted in accelerated sales.
Timothy P. Santo: For the fourth quarter retail segment operating loss was $38 $1 million compared to our retail segment operating loss of $19 $5 million for the same period in fiscal year 2023.
Timothy P. Santo: On a non-GAAP basis, adjusted retail segment operating loss for the fourth quarter was $21 $8 million compared to a loss of $11 $7 million for the same period last year.
Timothy P. Santo: Reflecting a decrease in same store sales and higher SG&A costs partially offset by improved retail gross margin. Turning to our credit segment, fourth quarter credit revenues increased 10.4% year over year to $70.8 million, primarily due to the addition of Badcock's receivables, partially offset by a decline in the average balance of the Conn's consumer receivable portfolio. Overall credit trends remain stable, reflecting prudent underwriting strategies aimed at controlling risk during a more uncertain economic period.
Timothy P. Santo: Reflecting a decrease in same store sales and higher SG&A costs, partially offset by improved retail gross margin.
Timothy P. Santo: Turning to our credit segment fourth quarter credit revenues increased 10, 4% year over year to $78 million, primarily due to the addition of bad Cox receivables, partially offset by a decline in the average balance of the cons consumer receivable portfolios.
Timothy P. Santo: Leo.
Overall credit trends remain stable, reflecting prudent underwriting strategies aimed at controlling risk during a more uncertain economic period.
Timothy P. Santo: As a percent of the portfolio, the 60-day delinquency balance was 12.2% at January 31st, 2024, compared to 12.7% last fiscal year. The balance of reaged accounts as a percent of the portfolio was 18.8%, compared to 16.5% for the same period in fiscal year 2023. Both 60-day delinquencies and re-age balances remain well below pre-COVID levels, while we have also experienced a significant increase in the weighted average credit score of finance sales. In fact, our 60-day delinquency balance has improved by 30 basis points. And the re-age balance has improved 10.6 percentage points since January 31st, 2020. For the fourth quarter of fiscal year 2024, net charge-offs as a percent of the average portfolio balance were 15.9%, compared to 17.1% for the same period last fiscal year. The company reported a credit segment loss before taxes of $53.1 million in the fourth quarter, compared to a credit segment loss of $27 million for the same period last fiscal year.
Timothy P. Santo: As a percent of the portfolio. The 60 day delinquency balance was 12, 2% at January 31, 2024, compared to 12, 7% last fiscal year.
Timothy P. Santo: The balance of re aged accounts as a percent of the portfolio was 18, 8% compared to 16, 5% for the same period in fiscal year 2023.
Timothy P. Santo: 60 day delinquencies and re aged balances remain well below pre COVID-19 levels. While we have also experienced a significant increase in the weighted average credit score of finance say it finance sales.
Timothy P. Santo: In fact, our 60 day delinquency balance has improved by 30 basis points and the re age balance has improved 10 six percentage points since January 31 2020.
Timothy P. Santo: For the fourth quarter of fiscal year 2024, net charge offs as a percent of the average portfolio balance were 15, 9% compared to 17, 1% for the same period last fiscal year.
Timothy P. Santo: Yeah.
Timothy P. Santo: The company reported a credit segment loss before taxes of $53 $1 million in the fourth quarter compared to a credit segment loss of $27 million for the same period last fiscal year.
Timothy P. Santo: On a non-GAAP basis, adjusted credit segment operating income for the fourth quarter was $1.4 million, compared to an operating loss of $13.9 million for the same period last year, reflecting higher credit segment revenue, partially offset by an increase in our provision for bad debt. Our credit spread was 7.5% at January 31st, 2024, compared to 9.1% last fiscal year. Looking at our balance sheet and capital position in more detail, on January 26, 2024, we completed a $252.6 million ABS transaction with the Class A bond 13 times oversubscribed and the Class B bond 9 times oversubscribed, which reflects the strong performance of our customer receivables. We anticipate completing two to three additional ABS transactions this year as a result of higher expected sales levels. As of January 31st, 2024, we had $155.3 million of available borrowing capacity under our $555 million revolving credit facility. In addition, we had $50 million of borrowing capacity available under the delayed draw term loan, resulting in a total available borrowing capacity of $205.3 million as we look forward to the future.
Timothy P. Santo: On a non-GAAP basis adjusted credit segment operating income for the fourth quarter was $1 $4 million compared to an operating loss of $13 $9 million for the same period last year.
Timothy P. Santo: Reflecting higher credit segment revenue, partially offset by an increase in our provision for bad debt.
Timothy P. Santo: Our credit spread was seven 5% at January 31, 2024, compared to nine 1% last fiscal year.
Timothy P. Santo: Looking at our balance sheet and capital position in more detail.
And this January 26, 2024, we completed a $252.6 million ABS transaction with the class a bond 13 times oversubscribed and the class B bond nine times oversubscribed, which reflects the strong performance of our customer.
Timothy P. Santo: Receivables.
Timothy P. Santo: We anticipate completing two to three additional ABS transactions. This year as a result of higher expected sales levels.
Timothy P. Santo: At January 31, 2024, we had $155 $3 million of available borrowing capacity under our $555 million revolving credit facility.
In addition, we had $50 million of borrowing capacity available under the delayed draw term loan, resulting in total available borrowing capacity of $205 $3 million.
As we look forward towards the future.
Timothy P. Santo: We are excited by the direction Conn's is headed. There will be continued one-time costs that impact our results in the first quarter, but we expect to see the benefits of our new operating model starting in the second quarter. In addition, we expect to benefit from more than $100 million of annualized cost synergies as well as over $50 million of revenue synergies over the next 18 months. As this positive momentum builds, we expect to generate annual adjusted EBITDA of between $180 to $220 million on total annual sales of between $2 to $2.2 billion by the end of our next fiscal year. Finally, I want to share my thanks with all our team members for their continued hard work, service, and dedication.
We are excited by the direction cons is headed.
Timothy P. Santo: There will be continued onetime costs that impact our results in the first quarter, but we expect to see the benefits of our new operating model starting in the second quarter.
Timothy P. Santo: In addition, we expect to benefit from more than $100 million of annualized cost synergies as well as over $50 million of revenue synergies over the next 18 months.
This positive momentum builds we expect to generate annual adjusted EBITDA of between $180 million to $220 million on total annual sales of between two to $2 $2 billion by the end of our next fiscal year.
Timothy P. Santo: Finally, I want to share my thanks to all our team members for their continued hard work service and dedication.
Operator: So with this overview, Norm and I are happy to take your questions. Operator, please open the call to questions. Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: So with this overview norm and I are happy to take your questions.
Speaker Change: Operator, please open the call to questions.
Speaker Change: Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star King.
Derek Sommers: Our first question comes from the line of Derek Sommers with Jefferies. Please proceed with your question. Hi, good morning, everyone.
Tariffs Almos: Our first question comes from the line of tariffs almost with Jefferies. Please proceed with your question.
Tariffs Almos: Hi, Good morning, everyone can you talk about your expectations for store count that both the cons in Bangkok in the near term.
Norman L. Miller: Can you talk about your expectations for the store count at both Conn's and Badcock in the near future? Yeah, Derek. I appreciate the question. What I would say is, in the near term, and don't expect any variance from the 550 stores we currently have. In the longer term, my expectations would be some overlap, specifically in the Florida market where we are. Conn's is relatively new to that market, and we've got about 20 stores there. And there is some overlap in that market in North Carolina. There could be some consolidation, but I wouldn't expect that to happen probably until next fiscal year. Okay, got it.
Tariffs Almos: Yeah Derek.
Speaker Change: Appreciate the question what I would say is.
Speaker Change: In the near term and don't expect any variance from the 550 stores. We currently have longer term my expectations would be.
Some of the overlaps specifically in the Florida market, where we're.
Speaker Change: <unk> is relatively new in that market and we've got about 20 stores there and there is some overlap.
Speaker Change: And that market in North Carolina, there could be some consolidation, but I wouldn't expect that to happen probably until next fiscal year.
Speaker Change: Okay got it and then on the gross margin expansion.
Norman L. Miller: And then, on the gross margin expansion... In this quarter, can you go into more detail on some of the drivers behind that, you know, how much was attributable? product. Were there any other drivers? Yeah, I'm very excited about what's happening from a gross margin standpoint with the business. As I mentioned in my prepared comments, the product mix shift is a significant portion of it. That's probably 80% of it; both product mix shifts on the Conn side and bringing the Badcocks, Badcock higher mix of furniture and mattresses into the overall combined business is the primary driver of driving the higher margin.
Speaker Change: In this quarter can you go.
Speaker Change: Go into more detail on the drivers behind that you know how much was attributable just you know with the product mix shift and were there any other drivers are behind the expansion.
Speaker Change: Yeah, very excited about what's happening from a gross margin standpoint, with the business as I mentioned in my prepared comments.
Speaker Change: The product mix shift is a significant portion of it.
Speaker Change: That's probably 80% of it both product mix shift on the con side, and bringing the bad Cox bad cock higher mix of furniture and mattress into the overall combined business is.
Speaker Change: Is the primary driver of driving the higher margin.
Norman L. Miller: We are seeing improvement from a freight cost standpoint on both sides of the business, which is being helpful as well. So, very bullish on the gross margin and the retail margin. We would expect, as I said in my comments, to continue to see upside there and that margin to be over 40% on a consistent basis here as we go through the rest of this year and going forward into the future. Got it, thank you, that's very helpful, and then on credit. [inaudible] Can you provide any commentary on what's driving that dynamic or any other color behind it?
Speaker Change: We are seeing improvement from a freight cost standpoint on both sides of the business, which is being helpful as well.
Speaker Change: So we're very bullish on on the gross margin standpoint, the retail margin. We would expect as I said in my comments that to continue to see upside there and that margin to be over 40% on a consistent basis here as we go through the rest of this year and.
Boeing forward.
Speaker Change: In the future.
Speaker Change: Got it. Thank you that's very helpful and.
Speaker Change: And then on credit our applications for the quarter kind of year over year growth is moderating a bit but the mix of sales finance continues to grow them, which it seems a little counterintuitive is there you know.
Speaker Change: Can you provide any commentary on what's driving that dynamic or any other color behind it.
Norman L. Miller: Sure. Part of the reason that you're seeing some moderation in growth is we're starting to lag some of the increases, the dramatic increases we saw in application growth a year ago. But the reason we're still seeing growth is that we're seeing average ticket revenue. And we're also seeing better usage. So it's not just a number of applications; it's how many applications are approved and ultimately used.
Speaker Change: Sure.
Speaker Change: Part of the reason that it's you're seeing some moderation in growth is we're starting to lap some of the increases the dramatic increases we saw in application growth a year ago, a year ago, but the reason you were still seeing growth is we're seeing average ticket increase.
Speaker Change: And we're also seeing better usage. So it's not just a number of applications. It's how many applications are approved and ultimately used and as we get better and more efficient at targeting.
Norman L. Miller: And as we get better and more efficient at targeting the right customers that are going to ultimately be able to use the application, and we're getting more effective from that front, it actually is enabling us to still drive Conn's financing and LTO financing growth year over year, and then on the timeline for integrating Badcock into kind of Conn's financing platform. Is there any kind of differentiation? Will corporate stores from Badcock have more or less x? No, there really isn't any.
Speaker Change: On the right customers that are going to ultimately be able to use the application.
Speaker Change: And we're getting more effective in that from that.
Speaker Change: On that front it actually is enabling us to still drive con financing and L. T O financing growth year over year.
Got it.
Speaker Change:
Speaker Change: And then on the on the timeline for integrating.
Speaker Change: Bad cock onto kind of cons financing platform is there any kind of.
Speaker Change: Kind of.
Speaker Change: We'll we'll oh corporate stores from Bangkok have you know more or less access to financing products and franchisees stores are there any kind of differentiation there on a store mix.
Norman L. Miller: Currently, there is. Within the Badcock stores, they're currently offering third-party financing in the corporate stores, but they are still doing Badcock financing, and they have it in their stores, but as we said, their in-house financing is not nearly as sophisticated from an underwriting standpoint as well as because the product itself is very different with the installment loan versus the revolving credit. As we roll out, and as I said in my comments, that is already underway; we are already in a number of both corporate stores and dealer stores with the Conn's in-house finance product, and it will be the same across, ultimately, all 380 stores. Remember even with the dealers; we control, when I say we, the company controls the underwriting; they control the entire credit infrastructure, who gets lent credit, how much credit, and the collection process.
Speaker Change: No there there there really isn't a differentiation.
Currently there is that.
Speaker Change: Within the bad comp stores. They are currently offering a third party financing in the corporate stores, but they are still doing bad cock.
Financing and they have in their stores, but as we said there they're in house financing is not nearly as sophisticated from an underwriting.
Speaker Change: Standpoint, as well as the product itself is very different with the installment loan versus the revolving credit as we roll out and as I said in my comments that is already underway. We are already in a number of both corporate stores and dealer stores.
Speaker Change: With the cons in house finance product.
Speaker Change: And it will be the same across ultimately all approximately 380 stores remember even with the dealers.
Speaker Change: We control when I say, we that the company controls the underwriting there.
They control the entire credit infrastructure, who gets lend credit how much credit the collection process. It will be it will be the same for both dealer stores and corporate stores all controlled by our credit infrastructure system, which has proven itself to be.
Norman L. Miller: It will be the same for both dealer stores and corporate stores, all controlled by our credit infrastructure system, which has proven itself to be very successful over the last six or seven years. I may add to the comment, as Norm mentioned, we are already starting the process of implementing where the corporate stores did not have the legacy Badcock credit platform, and we are already seeing a sizable lift in sales in those corporate stores. So we are expecting some very strong results.
Speaker Change: Very.
Speaker Change: Very successful over the last six or seven years.
Speaker Change: Yes, I may add to the comment as norm mentioned, we are already starting the process of implementing where the corporate stores did not have the legacy bad Cock credit platform. We are already seeing a sizable lift in sales in those corporate stores. So we are expecting some some very strong.
Speaker Change: <unk> results.
Speaker Change: Got it that's helpful. And then last one for me just any commentary on on tax refund season. So far any noticeable changes in you know kind of retail sales activity from that where we're portfolio collection.
Norman L. Miller: And then last one for me, just any commentary on..., www.TheBusinessProfessor.com, detail sales activity from that. Yeah, I guess having lived through eight or nine of these tax seasons. What I would say is, post COVID, this tax season as from a collection standpoint, pretty pleased with where this is shaking out. It's been very solid for us, very similar to last year for us on the Conn side, a very, very solid tax season. What I will say is on the retail side, since COVID, we did see an uptick, but not nearly to the degree that we had seen previous to the pandemic and COVID. There used to be a larger increase from a retail standpoint when tax season kicked off and during tax season.
Speaker Change: Yes, I guess having lived through.
Speaker Change: Two eight or nine of these tax seasons, what I would say is post COVID-19.
Speaker Change: This tax season as from a collection standpoint pretty pleased with where.
Speaker Change: With where this is shaking out it's been very solid for us very.
Speaker Change: Very similar to last year for us on the Con side is very very solid tax season, what I will say is on the retail side since COVID-19.
Speaker Change: We did see an uptick but not nearly to the degree.
Speaker Change: We had seen previous to the to the pandemic and Covid there used to be a larger increase from a from a retail standpoint.
Speaker Change: When tax season kicked off and during tax season.
Norman L. Miller: My conclusion to that is that both from a pull-forward of demand and with the product categories that we carry and the state of the consumer right now, it's not quite as robust in the high-ticket items within the home. Probably, the consumer has used those funds for other things to a greater degree than they did, probably pre-pandemic, in our category. Alright, great. That's all for me. Thank you for taking my order. Thanks Derek, I appreciate it. There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. Thank you. Just want to take a moment and express my appreciation to all of our employees across both the Conn's organization and the Badcock organization for their hard work, their contributions, and their dedication over the past three or four months as we are working hard to combine the two businesses. Truly remarkable what they're doing, and it's very much appreciated.
Speaker Change: My conclusion to that is that both from a pull forward of demand and with the product categories that we carry.
Speaker Change: And.
Speaker Change: And the state of the consumer right now there is it's not quite as robust in a high ticket items within the home.
Has probably.
Speaker Change: The consumer has use those funds for for other things to a greater degree than they did probably pre pandemic in our categories.
Speaker Change: Yeah.
Speaker Change: Alright, great. That's all for me. Thank you for taking my question.
Speaker Change: Okay.
Speaker Change: Thanks, Eric I appreciate it.
Speaker Change: There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Speaker Change: Thank you just wanted to take a moment and express my appreciation to all of our employees across both the cons organization and the bad Cock organization for their hard work contributions their dedication over the past three or four months is where we are.
Speaker Change: Hard to combine the two businesses.
Speaker Change: Truly remarkable what theyre doing in.
Speaker Change: It's very much appreciated. We also appreciate your interest in the company for those on the call and listening to the call and look forward and excited to share our results and performance in the first quarter. As this integration continues have a great day.
Norman L. Miller: We also appreciate your interest in the company from those on the call and listening to the call and look forward to and are excited to share our results and performance in the first quarter as this integration continues. Have a great day. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.