Conn's stock takes another giant step backward

Furniture and electronics retailer Conn's (CONN) has had a series of major moves after recent earnings reports. The trend repeated itself Tuesday, and this time it was one of the very negative varieties.

On this day, investors were fleeing as fast as they could. The stock was down 40.6% to $20.83 a share, putting the year-to-date loss at 73%. Conn's shares are now worth only about one quarter of what they were at the all-time high of $80.34, set last December.

The summary: Customer credit delinquencies have been a concern and continue to be. Following prior earnings warnings, the company now has decided to withdraw its 2015 outlook. It had a loss for the latest quarter when Wall Street was anticipating a profit. And the chief financial officer is leaving immediately. This news arrives two months after Woodlands, Texas-based Conn's said it was studying strategic options for the business, including the potential for a sale.

It has to be noted at this point that two of Conn's top holders are known as activists -- Luxor Capital Group and David Einhorn's Greenlight Capital. The duo built up stakes in the firm this year, according to data from FactSet Research Systems. Together, they own about 31% of Conn's, based on the most recent data. Combined with Conn's own announcement that it's pursuing some kind of change, it seems all but certain a shift will take place in its operations. Conn's has 91 stores in 11 states, mostly in the Southeast and Southwest.

Management changes are underway already. Brian Taylor is being replaced as CFO on an interim basis by Mark Haley, who joined Conn's in October. Because Conn's says its credit division "has been disappointing several times over the last twelve months" and that "its credit operations forecasting has not been acceptably accurate," it's set up a new board committee to review credit risks, compliance and underwriting. At the same time, the company is hoping to hire a president and a chief risk officer for the management team.

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As for the third quarter, the major metrics all missed analysts' estimates. Revenue was up 19% to $370.1 million, although that was around $6 million short of the consensus view. Same-store sales fell 1%, partly, the company said, as it grew more stringent with its lending. A gain of 1.7% was projected. Meanwhile, it posted a loss of 8 cents a share, or 7 cents minus certain charges, widely missing FactSet estimates of a profit of 68 cents a share.

The credit segment logged an operating loss of $33.2 million in the midst of a greater provision for bad debts, which climbed $49.4 million to $72 million. As of Oct. 31, 10% of the $1.25 billion customer portfolio balance at Conn's was more than 60 days late, an increase of 1.3 percentage points from 8.7% in July.

"Despite underwriting changes reducing the percentage of originations to customers with scores below 550, the proportion of customers in late stage delinquency with a score below 550 increased this year, though it has remained relatively constant since the end of the second quarter," Chairman and CEO Theodore M. Wright said in a press release.

While the outlook for 2015 has been taken away, Conn's did offer a degree of insight on the fourth quarter, saying same-store sales should be flat to up 3%. More importantly, the company said it would start providing investors with monthly same-store sales data and information on borrowers who are beyond 60 days late until it starts seeing "more stability" in the business.

Though good news was considerably difficult to find, Conn's said November "has provided evidence of stabilizing credit trends," as the 60-day and later rates have held steady. Also, the rate of late accounts between one and two months overdue has declined from last year.