Conn’s considers sale, adopts ‘poison pill,’ as it deals with bad customer debts

The Woodlands, Texas – Conn’s Inc. announced a strategic review that could involve splitting up its retail and credit businesses or a sale of the company. The retailer also adopted a poison pill, or shareholders’ rights plan, and stressed that it was not adopted in response to any specific takeover bid or other proposal to acquire the company.



The move follows an increasing number of bad debts at Conn’s, which has long offered no-interest loans to customers. Delinquent loans forced the company to cut its annual profit forecast last month,



“Our strategic initiatives remain on track with new store openings and the penetration of new geographic markets, and we remain committed to our current strategic plan,” stated Theodore M. Wright, Conn’s chairman and CEO. “We are extremely proud of what our Conn’s team has accomplished. While we remain confident in the company’s future prospects and have ample capital and liquidity to execute our business plan, we have decided to conduct a strategic review and explore options to accelerate the realization of value for our stockholders.”



For the second quarter, ended July 31, the company reported earnings of $17.7 million, down from $19.2 million. Conn’s also reduced its full-year earnings forecast to a range of $2.80 to $3 a share, compared with an earlier prediction of $3.70, citing bad customer debt.



Conn’s sales growth has long been driven by easy credit. But the percentage of the customer portfolio balance delinquent for 60 or more days increased to 8.7% which caused Conn’s to increase its provision for bad debts. The delinquency situation is expected to worsen in the third and fourth quarters.



“Our credit operations ran into unexpected headwinds, resulting in portfolio performance deterioration,” Wright said in regards to the second quarter results. “Despite tighter underwriting, lower early-stage delinquency and improved collections staffing and execution, delinquency unexpectedly deteriorated across all credit quality levels, customer groups, product categories, geographic regions and years of origination. Tighter underwriting and better collections execution did not offset deterioration in our customer’s ability to resolve delinquency.”



Conn’s said no timetable has been set to complete the strategic review. The company has engaged BofA Merrill Lynch as financial advisor and Vinson & Elkins LLP as legal counsel to assist in the process.