by 6 weeks into Badcock acquisition, retailer already seeing benefits
THE WOODLANDS, Texas — The much-anticipated fourth-quarter and fiscal-year earnings results for Conn’s were made public Thursday, showing the company faring pretty well early into its acquisition of Badcock.
Conn’s reported earnings for the fourth quarter ended Jan. 31 of $43.3 million, a complete turnaround from the $42.8 million loss for the same period a year ago. The turnaround came on total consolidated revenues of $366 million, compared to $335 million for the fourth quarter of fiscal 2023, or a 9.3% gain. Analysts were expecting revenues of about $422 million, however.
“Our fourth-quarter financial performance reflects ongoing industry headwinds, as well as one-time costs primarily associated with the completion of the Badcock transaction,” said Tim Santo, Conn’s chief financial officer, on the conference call.
Conn’s acquired Badcock from Franchise Group in an all-stock deal on Dec. 18 last year, giving Conn’s 550 retail locations in 15 mostly Southern 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, while driving material cost savings, enhancing gross margins and improving operating leverage,” Conn’s CEO Norm Miller said on the conference call.
For the fiscal year ended Jan. 31, Conn’s reported a loss in net income of $76.9 million, which compares to a $59.3 million loss in fiscal 2023.
On a per share level, Conn’s fourth-quarter adjusted loss was $1.25, which compares to a $1.55 per share loss for the same period a year ago.
According to the financials posted, the Badcock transaction contributed $68.4 million to total consolidated revenue for the quarter.
For the fiscal year, total consolidated revenue declined 7.8% to $1.2 billion, a drop attributed by the company to a 9.1% decline in total net sales. For the year, the net loss per diluted share was $3.17, which accounted for one-time transaction expenses, and the adjusted net loss ended up at $6.22 per diluted share.
“As a result of our team’s efforts, we have removed approximately $50 million of combined expenses during the fourth quarter and we have identified over $50 million of additional cost synergies that we expect to realize over the next 18 months,” Miller said. “In addition, during this period we expect to drive over $50 million of revenue synergies as we transition Badcock’s credit program to Conn’s in-house loan product, offer Conn’s successful e-commerce capabilities to Badcock’s customers and pursue shared retail growth strategies.”
Conn’s reported retail revenues were $297 million for the quarter, up almost 10% over the $271 million reported a year ago. While Conn’s same-store sales dropped 14.4%, the Badcock chain contributed more than $60 million in quarterly revenues. This added up to a $38 million quarterly operating loss for Conn’s retail, which is almost double that for the same period a year ago ($19.5 million).
For the fiscal year ended Jan. 31, Conn’s reported total net sales of $978.3 million, which is 9.1% lower than the $1.08 billion reported for fiscal 2023. Total revenues for 2024 were $1.24 billion, down 7.8% off the $1.34 billion reported a year prior.
Celebrated on the call were quarterly and fiscal-year increases in retail gross margins. For the quarter, the gross margin was 38.3%, which compares to 33.7% for the same period a year prior. For the entire fiscal year, retail gross margins were up nearly two percentage points to 35.9%, compared to 34% for fiscal 2023.
In short, just six weeks into the acquisition, Conn’s is already benefiting from the higher percentage of furniture and mattress sales in Badcock locations.
“The contribution of Badcock was the primary driver of our gross margin improvement from the third quarter,” Miller said. “As our integration efforts continue, we expect our retail gross margin to improve to over 40% in the coming quarters.”
Badcock was founded as a furniture and mattress retailer, expanding its product categories to include appliances, consumer electronics and home office. At the time of the acquisition, furniture and mattress sales represented 70% of Badcock’s annual sales. By contrast, Conn’s was founded as an appliance retailer, expanding into consumer electronics, furniture, mattress and home office. At the time of the acquisition, approximately 60% of Conn’s sales were in the categories of appliances, electronics and computers, according to Miller.
In the near term, Miller said the priority for Conn’s will be to capitalize on “credit-driven growth strategies,” particularly on the Badcock side, by seeking to lower the average monthly payment for Badcock customers.
“Our core customer makes the purchasing decision primarily based on the amount of their monthly payment,” Miller said. “We believe we can significantly increase Badcock’s average ticket. … We have 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.”
By more widely implementing its digital application process across both chains, the company hopes to make it easier for Badcock customers to apply for multiple payment options. The number of digital applications filed with Conn’s jumped nearly 22% during the fiscal year just ended, according to its filing.
Miller also pointed to the transition from the Badcock in-house revolving credit option to Conn’s in-house installment loan.
“Before we even consider expected increases in Badcock’s sales, we believe the transition to Conn’s in-house installment loan will contribute nearly $20 million in incremental finance charges and other revenue,” Miller said.
Also of note was significant growth for Conn’s in e-commerce, offsetting modest losses online recorded by Badcock. For the fiscal year, Miller said Conn’s posted record e-commerce sales of $109.3 million, a 38% increase over fiscal 2023, nearly a nine-fold expansion over the $12.6 million recorded just four years ago.
E-commerce sales on the Badcock side were just $22.4 million for the year, a 27% dive compared to fiscal 2023.
E-commerce, therefore, represented 11% of Conn’s total retail sales last year compared to less than 5% 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 multiyear process to align Badcock with Conn’s growing balance of e-commerce sales,” Miller said on the call. “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.
Miller said he expects to see e-commerce sales reach over $300 million in the next several years.
SGA will also be a focus. For the quarter, SGA increased to 46% from 38%, while for the year, SGA was up slightly to 36% from 34% for fiscal 2023. One near-term opportunity Miller identified on the call is the supply chain. Approximately 95% of the two chains’ product categories overlap, but they only share 45% of the same vendors, he said.
“As we align our assortment across our combined product categories, we are focusing on capitalizing on the bestselling products at both Conn’s and Badcock,” Miller said. “We will also take advantage of material, margin and cost opportunities as we consolidate vendors.”
