A solid year-to-date return of 136% along with strong third-quarter fiscal 2013 preliminary results and rising estimates aided Conns Inc. (CONN) to attain a Zacks #1 Rank (Strong Buy) on November 9, 2012. This durable consumer goods retailer has consistently outperformed the Zacks Consensus Estimates in the last three quarters by an average magnitude of 8.7%.
However, one of the company’s peers, Best Buy Company, Inc.’s (BBY) Zacks Rank has been recently downgraded to #5 (Strong Sell) after it posted a 94% decline in its third quarter 2012 earnings per share. Best Buy’s earnings of 3 cents a share also missed the Zacks Consensus Estimate of 12 cents.
The Rank Drivers
Strong same-store sales momentum, continued share gains, the pricing power, margin improvement and unit remodeling are the rank drivers for this stock.
On November 8, Conns reported preliminary sales, same store sales and gross margin results for its fiscal third quarter. Net sales went up 8% year over year to $167.3 million in the quarter, primarily driven by robust same-store sales growth.
Same store sales increased 12.6% during the quarter, marking the fifth consecutive double-digit same-store sales growth for the company. The upside in retail sales was the result of higher average selling prices, increased furniture and mattress offerings and growth in home office sales. This was offset by a decline in unit volume due to the previously closed stores.
The retail gross margin stood at 35% in the quarter, up 970 basis points year over year. A favorable sales mix across all product categories, combined with an expanded furniture and mattress business, were primarily responsible for the improvement.
During the second quarter earnings release, the company raised its diluted earnings per share guidance for fiscal 2013 to $1.40–$1.50 per share from the range of $1.30–$1.40 projected earlier. Growth in same stores sales is now expected to be 10%–15%, compared with the company’s previously guided mid- to high-single digit growth. Conns also plans to open as many as five new stores during the year. Of these, the company has so far opened two stores, one each in Texas and New Mexico.
Conns is scheduled to release its complete fiscal 2013 third quarter results on December 3, 2012.
Preliminary Results Drive Estimates
On the heels of the preliminary results, earnings estimates have been trending higher in the past 30 days. The Zacks Consensus Estimate for fiscal 2013 climbed 2.7% to $1.52 per share, as 4 of 7 estimates were revised upward. This represents year-over-year growth of 120.3%.