Conn’s Stock is Getting Cheap

Specialty electronics, appliances, and furniture retailer Conn’s NASDAQ: CONN stock has lost (-60%) year-to-date in 2022 bear market. Inflationary pressures, supply chain disruption, and rising logistics expenses are some of the headwinds taking the steam out of the regional home products retailer. The Company enjoyed the pent-up demand pressures as stimulus money was spent on home products. However, the reversion was expected as the stimulus payments dried up. The Company is implementing a store-in-a-store partnership with department store chain Belk. Each location will range from 10,000 to 25,000 square feet. Conn’s expects to open 10 to 20 locations this year and expand the program nationwide eventually. E-commerce sales grew 71% in the quarter as the Company continues to upgrade its digital infrastructure. Conn’s continues to accelerate it digital transformation as it plans to integrate its acquired lease-to-own platform by fiscal Q4 2023 and add an addition $25 million of incremental annual income by 2025. Prudent investors seeking exposure in a retail home electronics and goods play can look for opportunistic pullbacks in shares of Conn’s.

Fiscal Q1 2022 Earnings Release

On June 1, 2022, Conn’s released its fiscal first-quarter 2022 results for the quarter ended April 2022. The Company reported diluted earnings-per-share (EPS) profit of $0.25, beating consensus analyst estimates for $0.17 by $0.08. Revenues fell (-6.6%) year-over-year (YOY) to $339.8 million missing analyst estimates for $360.78 million. Total comparable sales fell (-9.5%) but rose 9.9% on a two-year basis. The Company opened three new Conn’s HomePlus stores in the first quarter bringing it store count to 161 in 15 states with plans to open 20 to 34 new stores consisting of 10 to 14 standalone and 10 to 20 store-within-in-a-store locations. Conn’s CEO Chandra Holt commented, "As expected, our first quarter retail performance was impacted by lapping government stimulus, continued third-party lease-to-own tightening, and a challenging macro environment. These trends disproportionately impacted sales for our financial access customer during the first quarter, while sales to our fast and reliable customer segment increased year-over-year for the 12th consecutive quarter. Retail performance was also impacted by higher year-over-year supply chain, freight, and fuel costs. Going forward, our outlook for the remainder of the year has become more cautious as a result of worsening economic conditions." 

Conference Call Takeaways

CEO Holt provided color on the challenging fiscal first quarter which was impacted by overlapping stimulus program, tightening in the third party lease-to-own segment, and worsening macroeconomic conditions. Higher supply chain costs included freight and fuel inflation led to the (-9.5%) drop in same-store-sales. CEO Holt has gotten more cautious for the remainder of fiscal 2023 as economic conditions worsen. The Company is still on track to achieve $2 billion to $2.5 billion in annual revenues and high single digit EBIT margin by fiscal year 2025. Its private label credit card payment option customers were impacted by the macro environment. Higher fuel costs and lower retail sales resulted in lower gross margins despite being partially offset by RSA commissions. The Company is implementing cost savings measures to mitigate the impact of lower sales. The store-in-store concept is a key strategy in partnership with retail department store chain Belk. They will be adding 10 to 20 more store-in-a-store in Belk locations comprised of 10,000 to 25,000 square footage of space. Initially, the locations will be within Conn’s territories, but eventually planning on expanding to new territories. Conn’s will roll out its phase 2 digital strategy by improving cart preferences and the checkout process. The final phase in the fall will focus on making it easier for customers to apply for credit and payment options. The Company accelerated its in-house lease-to-own roadmap by 12 months to 18 months with its acquisition of an established lease to own platform, which should be implemented in fiscal Q4 2023.

CONN Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for CONN stock. The weekly rifle chart formed an inverse pup breakdown on the collapse through the $15.55 Fibonacci (fib) level and continued to sink to a low of $7.87 before staging a rally. The weekly downtrend has a falling 5-period moving average (MA) falling at $10.37 followed by the 15-period MA at $14.16. The weekly lower Bollinger Bands (BBs) sit near the $5.21 fib level. The weekly stochastic is stalled just under the 10-band where it can either cross back up for a bounce or capitulate in a mini inverse pup lower. The weekly market structure low (MSL) buy triggers on a breakout through $10.96. The daily rifle chart is staging a rally as the 5-period MA rises at $8.73 towards the 15-period MA at $9.36. The daily 50-period MA sist at $13.09. The daily stochastic bounced and is coiled just under the 20-band with a mini pup. The daily lower BBs is flat at $5.54. Prudent investors can watch for opportunistic pullback levels at the $9.06 fib, $8.35 fib, $7.73 fib, $7.35, $5.95 fib, and the $5.64 fib level. Upside trajectories range from the $11.77 fib level up towards the $16.26 fib level.