CONN 10-K update

Key points in CONN’s latest 10-K

1. Omitted the static loss table found in previous 10-Ks and 10-Qs.
2. Removed the following sentence: “Under our current policy, the maximum number of months an account can be re-aged over the life of the account is limited to 12 months.”

I guess I will continue to hold my short position in CONN.  While I don’t entirely know what’s going on, this does not smell right.  (*The borrow is expensive.)

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Google Trends

Google Trends may be an interesting tool for investors.

1. It allows investors to gather data on a company that’s fresher than the last quarter’s earnings release.  This can be helpful in turnaround situations such as Aeropostale (ARO) and Cafepress (PRSS).
2. Having leading earnings indicators can be helpful for manufacturing companies (e.g. RGR, SWHC) where there is not much data on consumer demand due to fluctuating inventory at the retail and distributor level.
3. In rare cases where fraud is suspected, Google Trends may provide some indications about actual revenues.

Here is an example of Google Trends in action:

CONN Q3 2014 earnings: More pain to come?

After Conn’s released its earnings, the stock fell by roughly two fifths from $35.09 to $20.83.  The market was presumably spooked because credit losses were fairly high relative to expectations.  While management has previously stated that the aspirational goal for static loss rates was 8%, it looks like Conn’s may exceed that for 2013 and 2014 vintage originations.  Refer to the static loss tables in the 10-Q (page 32) and make your own extrapolations.

Conn’s originations are very high

Conn’s originations seem to exceed the amount of money lent to its customers.

In FY2014, Conn’s originations were $1,075M.
It provided $757.2M in in-house financing, including down payments and excluding insurance.
The ratio between originations versus in-house financing was ~142%.

(CONN) Financial filings show different numbers

My diagram compares the Static Loss data presented in the Q2 2014 10-Q versus the 2013 10-K.  For some reason the numbers are different and I have no idea why.  I honestly don’t have any good theories.

(CONN) Conn’s lending practices

(This is not a short writeup where I say what I truly think.  I don’t like doing such writeups because I don’t want to get sued.)

In a nutshell, I think that it is worth taking a deep dive into Conn’s lending practices.  In my opinion, the 10-Ks and 10-Qs seem to ignore some important ‘nuances’ of Conn’s lending practices.