Consumer electronics and housewares retailer Conn's (Nasdaq:CONN) is in the midst of an impressive, and completely unexpected recovery in its sales and profit trends. Brave investors that anted up for the stock about a year ago have more than tripled their money. Shareholder profit prospects are less certain, but there is no denying the firm's surprising comeback.

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Full Year Recap
Conn's full year sales fell 2% to $792.3 million. Retail net sales fell 1.3% to $653.7 million and accounted for 82.5% of total sales. The rest consisted of finance charge revenue from its own credit operations where it allows customers to make a down payment and finance the purchase of its electronics, appliances, furniture and lawn equipment. Finance and other revenue fell 5.1% to $138.6 million to account for the remainder of the top line. Despite the full-year declines, trends improved as the year progressed and Conn's reported fourth quarter sales growth of 3.7% as comparable store sales jumped 12.1%.

Full year operating income declined 9.4% to $29.7 million, primarily due to a $9.1 million charge for store closing costs and an increase in bad debt provisions from its credit operations. An accounting loss from trimming debt to $321 million, down from $373.5 million last year, kept reported net income in negative territory at $3.7 million, or negative 12 cents per diluted share. Backing out one-time charges, management estimated that adjusted earnings were positive at 69 cents per diluted share. This was up significantly from estimated adjusted earnings of 16 cents per diluted share last year.

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Outlook and Valuation
Conn's expects a continued improvement in its profit prospects and projects earnings for the coming year to be between $1.20 and $1.30 per diluted share. Analysts expect total sales of $832.7 million for the year.

The Bottom Line
Conn's does appear to be seeing positive momentum at its stores. It relayed that February 2012 and March 2012 same-store sales rose a combined 16.1%. It also mentioned that its operations are "are on track with our store opening plans and are looking forward to returning to unit growth after a period of retrenchment."

The stock has been on a significant upward trend and has now more than tripled from levels earlier in 2011. Meanwhile, the share prices of key electronics rivals including Best Buy (NYSE:BBY) and hhgregg (NYSE:HGG) are slightly down over this period. Other indirect rivals such as Amazon (Nasdaq:AMZN) and Wal-Mart (NYSE:WMT) have only seen minimal shareholder gains over this timeframe.

The question for Conn's investors is what its prospects will be going forward. Its core customer base tends to be more working class and appears to be benefiting from an improving domestic economy, as well as less stringent credit requirements. This will undoubtedly help Conn's return to a period of total store and sales growth, but at a forward P/E close to 12, much of this upside is already built into the share price valuation.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.



Tickers in this Article: CONN, BBY, HGG, AMZN

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