Conn’s is a specialty retailer selling home appliances, consumer electronics, furniture and mattresses, home office, and lawn and garden quipment. The company operates approximately 70 retail stores located primarily in Texas, as well as Louisiana, Oklahoma, Arizona, New Mexico and online. Conn’s provides its own proprietary inhouse credit program, including sales of related credit insurance products.
All amounts in US$ unles
Consumer & Retail — Specialty Retail
TOP-LINE GROWTH AND EXPANDING RETAIL GROSS MARGINS REMAIN SIGNIFICANT ATALYSTS
We expect Conn’s to generate average annual revenue growth of 21% over the next five years supported by the company’s proprietary in-house financing program. We believe Conn’s square footage growth potential is the highest in the retail group, and increasing penetration of the higher-margin furniture and mattress business should continue to expand retail gross margin.
We are raising our FY14 retail gross margin forecast of by 120bps to 37.7% driven by our expectation for a faster mix shift to the furniture assortment. As a result, our FY14 EPS estimate moves $0.13 higher to $2.63, $0.14 above consensus and the highest estimate among sell-side analysts. We are raising our FY15 projection by $0.18 to $3.61, which is $0.43 ahead of consensus and the high estimate.
Store surveys indicate Conn’s is on track to grow square footage in line with our +31% FY14 estimate. Furniture penetration appears as high as 75% at new locations.
We are raising our price target from $53 to $63 using an equal blend of the peer group multiple, our sum-of-the-parts valuation, and our DCF valuation model.
- Can Conns Beat These Numbers? (dailyfinance.com)