Conn's: Everything Going Downhill

Trending 9 months ago

Luxury Furniture Goods


Investment Thesis

Conn's, Inc. (NASDAQ:CONN) precocious posted disappointing Q3 FY23 results. They saw a diminution successful income successful each department. Their indebtedness besides accrued successful the quarter. In this thesis, I volition analyse their Q3 FY23 results and springiness my sentiment connected the company's future. Given the macroeconomic headwinds, I judge they volition proceed to conflict successful the future. I delegate a merchantability standing connected CONN.

About CONN

CONN is simply a location goods retailer, including user electronics, location furniture, and mattress. They run done 2 segments, recognition and retail. They supply location goods similar refrigerators, dishwashers, and dryers. They besides connection user electronics similar LED, 8k televisions, video crippled consoles, location theater, and portable audio equipment. They person 160 retail stores crossed 15 states with implicit 3500 employees. They besides run done its online tract ( providing next-day transportation installation and installation services. It was founded successful 1890 and is headquartered successful the Woodlands.

Financial Analysis

CONN precocious posted its Q3 FY23 results. They bushed the marketplace EPS estimation by 6% and the marketplace gross estimation by 1.8%. Their reported revenues for Q3 FY23 were $321.2 million, a alteration of 20.7% compared to the corresponding 4th of past year. I judge determination were respective reasons down this decline; the merchantability of furnishings and mattress successful Q3 FY23 saw a driblet of 25% compared to the Q3 FY22, the merchantability of location appliances successful Q3 FY23 decreased by 20% compared to the Q3 FY22, gross from location bureau products successful Q3 FY23 saw a diminution of 50.3% compared to the Q3 FY22, merchantability of user electronics besides saw a diminution of 31.7%. Inflation severely impacted their income successful Q3 FY23. They struggled successful each department, owed to which their revenues fell successful Q3 FY23. The reported nett nonaccomplishment for Q3 FY23 was $24.8 million, compared to the nett income of $18.2 cardinal successful Q3 FY22. I judge the superior crushed down the alteration was the accrued atrocious debts. The reported atrocious debts for the Q3 FY23 was $34.8 million, an summation of 31.3% compared to the Q3 FY22.

Income statement

CONN's Investor Relations

The reported diluted nonaccomplishment per stock for the Q3 FY23 was $1.04 compared to the EPS of $0.6 for the Q3 FY22. In my view, their fiscal show successful Q3 FY23 was disappointing; everything went downhill for them, macroeconomic headwinds similar ostentation challenged their retail sales. I judge recession fears mightiness interaction their income successful upcoming quarters.

Technical Analysis

Technical chart


Technically, CONN is looking precise bearish. It is presently trading astatine $6.5, down 90% from its all-time precocious of $80. The banal is continuously forming little highs and little lows enactment since the past 1 year, which is considered a precise bearish pattern. It is good beneath its 200 ema, which is astatine $11; erstwhile a banal trades beneath its 200 ema, it is considered successful a downtrend. There is simply a saying, "Don't effort to drawback a falling knife," aforesaid applies here. In my opinion, determination is nary buying accidental successful CONN. It mightiness autumn up to the level of $3. One tin lone participate the banal if it breaks the level of $11, forming a caller high. If it breaks the level of $11, past it mightiness beryllium a motion of inclination reversal, but till then, successful my view, 1 should debar entering the stock.

Should One Invest In CONN?

Quant has a merchantability awesome for CONN, and I hold with it too. With a marketplace headdress of $157 million, they person full indebtedness of $972.3 million, which is immense and a substance of concern. Companies with steadfast revenues tin wage disconnected their indebtedness and involvement expenses, but if we speech astir CONN, determination has been adjacent to nary gross maturation from the past 4 fiscal years. If we look astatine the gross estimates, the institution expects its FY23 gross to beryllium astir $1.34 billion, a alteration of 18.6% compared to the FY22 revenue. I judge the gross alteration volition surely enactment a load connected the company. With macroeconomic headwinds similar ostentation and recession fears, they mightiness person a hard clip successful 2023. So successful my view, it is champion to enactment distant from it.


Seeking Alpha

They person an EV/EBITDA (FWD) ratio of 26.8x compared to the assemblage ratio of 8.9x, which shows that they are overvalued with constricted maturation potential.


High Competition

The marketplace for user electronics and furnishings is highly competitive. They vie against a specialized radical of nationalist retailers, location betterment stores, and autarkic retail specialty stores. Some of their competitors person a fiscal vantage implicit them. The competitors mightiness beryllium capable to acquisition inventory astatine little costs, and they mightiness beryllium capable to supply products astatine a little terms erstwhile compared to CONN. They person to walk a batch connected advertizing and find ways to connection products astatine a amended terms to past successful the market. If they neglect to pull customers, past it mightiness impact their sales. They already person sizeable debt, and the effect connected income mightiness severely interaction the company's balance sheet.

Bottom Line

In my opinion, it is amended to enactment distant from loss-making companies. Conn's, Inc. is looking technically and fundamentally weak. Their revenues are declining with each quarter, and indebtedness is besides increasing. Given the recession fears and different macroeconomic headwinds, I judge Conn's, Inc. volition proceed to conflict successful upcoming quarters. So aft analyzing each the parameters, I delegate a merchantability standing connected Conn's, Inc.

This nonfiction was written by

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Disclosure: I/we person nary stock, enactment oregon akin derivative presumption successful immoderate of the companies mentioned, and nary plans to initiate immoderate specified positions wrong the adjacent 72 hours. I wrote this nonfiction myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary concern narration with immoderate institution whose banal is mentioned successful this article.

Source Seekingalpha