n's(CONN) - 2021 Q4 - Annual Report

Part I Business Conn's, Inc. operates as a specialty retailer with Retail and Credit segments, offering durable goods and proprietary financing across 146 stores in 15 states - Conn's operates two segments, Retail and Credit, with 146 stores across 15 states as of January 31, 2021[12] FY2021 Sales by Financing Type | Financing Type | Percentage of Purchases | | :--- | :--- | | Proprietary In-house Credit | 52.1% | | Third-party Financing | 28.9% | | Cash or Credit Card | 19.0% | FY2021 Product Sales Breakdown | Product Category | % of Total Product Sales | | :--- | :--- | | Home Appliance | 40.2% | | Furniture and Mattress | 33.2% | | Consumer Electronics | 17.8% | | Home Office | 6.7% | - Six vendors accounted for 76.0% of total inventory purchases in FY2021, with Samsung, LG, and GE as key suppliers[22] - The business is seasonal, with higher sales and operating profit in the fourth quarter and improved cash collection in the first quarter due to tax refunds[21] Risk Factors The company faces significant business and regulatory risks, including COVID-19 impacts, economic downturns, credit portfolio performance, and changes in consumer protection laws - The COVID-19 pandemic poses significant risks to customer traffic, store operations, and customer credit repayment ability[46][51] - Economic downturns can reduce consumer purchases and impair customers' ability to repay credit obligations, impacting financial health[46][53] - A significant portion of the credit portfolio comprises sub-prime borrowers, leading to a higher risk of default, delinquency, and increased credit losses[60] - The business is heavily regulated by federal and state consumer protection laws, where changes or CFPB actions could limit credit offerings and collections[50][85][87] - Store concentration in the southern U.S., especially Texas (71 of 146 stores), makes the company vulnerable to regional economic downturns and natural disasters[46][74] Unresolved Staff Comments The company has no unresolved staff comments from the SEC - None Properties Property details, including store count and locations, are referenced in the Business section of this report - Property details are disclosed in Part I, Item 1, under the "Store Operations" caption[94] Legal Proceedings Legal proceedings details are incorporated by reference from Note 12, Contingencies, in the Consolidated Financial Statements - Information on legal proceedings is located in Note 12 of the Consolidated Financial Statements[95] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "CONN," with no cash dividends paid in FY2021 or FY2020, and none anticipated due to debt restrictions - The company's common stock is traded on the NASDAQ Global Select Market under the symbol "CONN"[100] - No cash dividends were declared or paid in FY2021 or FY2020, and none are anticipated in the foreseeable future[100] Selected Financial Data This section provides a five-year financial summary, showing FY2021 total revenues of $1.39 billion, a net loss of $3.1 million, and reduced total debt of $609.6 million Selected Financial Data (FY2017-FY2021) | (dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $1,386,025 | $1,543,686 | $1,549,813 | $1,516,031 | $1,596,848 | | Operating income | $30,614 | $134,519 | $161,255 | $115,068 | $64,098 | | Net income (loss) | $(3,137) | $56,004 | $73,849 | $6,463 | $(25,562) | | Diluted EPS | $(0.11) | $1.82 | $2.28 | $0.20 | $(0.83) | | Total assets | $1,755,084 | $2,168,769 | $1,884,907 | $1,900,799 | $1,941,134 | | Total debt, net | $609,569 | $1,026,140 | $955,331 | $1,091,012 | $1,145,242 | | Change in same store sales | (12.8)% | (8.2)% | (2.2)% | (11.4)% | (6.3)% | | Number of stores (End of year) | 146 | 137 | 123 | 116 | 113 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) FY2021 total revenues decreased by 10.2% to $1.39 billion, resulting in a net loss of $3.1 million, while liquidity improved with $462.1 million in operating cash flow and $416.6 million debt reduction FY2021 vs. FY2020 Performance Summary | Metric | FY2021 | FY2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1.39 billion | $1.54 billion | -10.2% | | Retail Revenues | $1.07 billion | $1.16 billion | -8.5% | | Credit Revenues | $320.9 million | $379.6 million | -15.5% | | Same Store Sales | -12.8% | -8.2% | -460 bps | | Retail Gross Margin | 37.2% | 40.0% | -280 bps | | Net Income (Loss) | ($3.1 million) | $56.0 million | -105.6% | | Diluted EPS | ($0.11) | $1.82 | -106.0% | - Retail revenue decreased due to a 12.8% decline in same-store sales, tighter underwriting, reduced store hours, and COVID-19 related supply chain disruptions[114] - The company improved its financial position by reducing total debt by $416.6 million year-over-year, reaching a seven-year low[117] - FY2022 strategic priorities include improving financial metrics, growing sales via credit options, accelerating e-commerce, and opening 9 to 11 new stores[120] Results of Operations FY2021 total revenues decreased 10.2% to $1.39 billion, leading to a net loss of $3.1 million due to lower retail sales, reduced credit revenue, and a contracted retail gross margin Consolidated Results of Operations (FY2021 vs. FY2020) | (in thousands) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,386,025 | $1,543,686 | $(157,661) | | Operating income | $30,614 | $134,519 | $(103,905) | | Net income (loss) | $(3,137) | $56,004 | $(59,141) | Retail Net Sales by Product Category (FY2021 vs. FY2020) | (dollars in thousands) | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Furniture and mattress | $322,770 | $370,931 | (13.0)% | | Home appliance | $390,964 | $360,441 | 8.5% | | Consumer electronics | $172,932 | $221,449 | (21.9)% | | Home office | $65,405 | $73,074 | (10.5)% | | Total net sales | $1,064,311 | $1,163,235 | (8.5)% | - The provision for bad debts decreased slightly by $3.2 million, driven by a smaller portfolio allowance, partially offset by a $28.0 million increase in net charge-offs[132] Customer Accounts Receivable Portfolio The customer accounts receivable portfolio decreased to $1.23 billion, with the allowance for bad debts rising to 24.2% due to CECL adoption and in-house financing declining to 52.1% Customer Portfolio Statistics (as of Jan 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Portfolio Balance (in thousands) | $1,233,717 | $1,602,037 | | Balances 60+ days past due % | 12.4% | 12.5% | | Re-aged balance % | 25.9% | 29.4% | | Allowance for bad debts % | 24.2% | 14.6% | - The percentage of retail sales financed in-house (including down payments) decreased significantly from 67.6% in FY2020 to 52.1% in FY2021[160] - The net charge-off rate increased to 16.3% in FY2021 from 12.6% in FY2020, driven by a lower average portfolio balance and higher bad debt charge-offs[164] Liquidity and Capital Resources FY2021 liquidity strengthened with $462.1 million in operating cash flow, $426.8 million in debt repayments, and $336.0 million available under the Revolving Credit Facility Cash Flow Summary (in millions) | Cash Flow Activity | FY2021 | FY2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $462.1 | $80.1 | | Net cash used in investing activities | $(55.9) | $(56.8) | | Net cash used in financing activities | $(426.8) | $(7.3) | - As of January 31, 2021, the company had $336.0 million of immediately available borrowing capacity under its Revolving Credit Facility[171] - On December 28, 2020, the company retired $85.8 million of its 7.250% Senior Notes due 2022 through a tender offer[167][251] - Anticipated capital expenditures for FY2022 are between $35.0 million and $45.0 million, primarily for opening 9 to 11 new stores and renovating showrooms[173] Quantitative and Qualitative Disclosures About Market Risk The primary market risk is interest rate fluctuations on the variable-rate Revolving Credit Facility, with $52.0 million outstanding as of January 31, 2021 - The primary market risk is interest rate fluctuations on the variable-rate Revolving Credit Facility, with an outstanding balance of $52.0 million as of January 31, 2021[184] - A 100 basis point increase in interest rates on the Revolving Credit Facility would increase annual borrowing costs by an estimated $0.5 million[184] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2021, including balance sheets, statements of operations, cash flows, and detailed notes on accounting policies and segment performance Consolidated Balance Sheets As of January 31, 2021, total assets decreased to $1.76 billion, driven by reduced customer receivables, while total liabilities fell to $1.20 billion due to lower long-term debt Consolidated Balance Sheet Summary (in thousands) | | Jan 31, 2021 | Jan 31, 2020 | | :--- | :--- | :--- | | Total current assets | $844,063 | $1,058,866 | | Total assets | $1,755,084 | $2,168,769 | | Total current liabilities | $211,756 | $162,270 | | Long-term debt and finance lease obligations | $608,635 | $1,025,535 | | Total liabilities | $1,197,929 | $1,541,589 | | Total stockholders' equity | $557,155 | $627,180 | Consolidated Statements of Operations FY2021 total revenues were $1.39 billion, with operating income at $30.6 million, resulting in a net loss of $3.1 million or ($0.11) per diluted share Consolidated Statement of Operations (in thousands, except per share amounts) | | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Total revenues | $1,386,025 | $1,543,686 | $1,549,813 | | Operating income | $30,614 | $134,519 | $161,255 | | Net income (loss) | $(3,137) | $56,004 | $73,849 | | Diluted EPS | $(0.11) | $1.82 | $2.28 | Consolidated Statements of Cash Flows FY2021 net cash from operating activities significantly increased to $462.1 million, while $426.8 million was used in financing activities, ending with $60.3 million in cash Consolidated Statement of Cash Flows (in thousands) | | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $462,115 | $80,066 | | Net cash used in investing activities | $(55,927) | $(56,822) | | Net cash used in financing activities | $(426,783) | $(7,326) | | Net change in cash, cash equivalents and restricted cash | $(20,595) | $15,918 | | Cash, cash equivalents and restricted cash, end of period | $60,260 | $80,855 | Notes to Consolidated Financial Statements The notes detail accounting policies, including CECL adoption impacting retained earnings by $76.5 million, and provide breakdowns of receivables, debt, and segment performance for Retail and Credit divisions - Effective February 1, 2020, the company adopted the CECL standard (ASU 2016-13), resulting in a net decrease to retained earnings of $76.5 million[232][212] - The company securitizes customer receivables through consolidated bankruptcy-remote Variable Interest Entities (VIEs), whose assets collateralize asset-backed notes and are unavailable to general creditors[221][280] Segment Operating Income (Loss) (in thousands) | Segment | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Retail | $56,323 | $117,315 | | Credit | $(25,709) | $17,204 | | Total | $30,614 | $134,519 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None Controls and Procedures Management concluded that disclosure controls and procedures were effective as of January 31, 2021, having remediated a prior material weakness in IT general controls - Management concluded that disclosure controls and procedures were effective as of January 31, 2021[299] - A material weakness in IT general controls (ITGCs) identified in the FY2020 10-K was fully remediated as of January 31, 2021[300] - Management's assessment concluded that internal control over financial reporting was effective as of January 31, 2021, a conclusion audited and confirmed by Ernst & Young LLP[301][307] Other Information On March 29, 2021, the company amended its revolving credit facility, extending its maturity to March 2025 and modifying terms - On March 29, 2021, the company amended its revolving credit facility, extending its maturity to March 2025 from May 2022 and implementing other modifications[311] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[314] Executive Compensation Information for this item is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[315] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[315] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[315] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2021 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[315] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section contains a list of all financial statements and exhibits filed with the Form 10-K[318][319] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None