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Can Conn’s (CONN) Come Up with a Surprise in Q3 Earnings?

Zacks

Conn’s Inc. CONN is slated to report its third-quarter fiscal 2017 results on Dec 6. In the last quarter, the company had delivered a positive surprise of nearly 42.9%.

However, the company has underperformed the Zacks Consensus Estimate in three of the trailing four quarters, recording an average negative surprise of 129.4%. Let’s see how things are shaping up for this announcement.

CONNS INC Price and EPS Surprise

CONNS INC Price and EPS Surprise | CONNS INC Quote


Factors Influencing This Quarter

Higher delinquency rates and the decision to exit video game products, digital cameras and certain tablets have been weighing on Conn’s sales for a while now. Evidently, the company’s total revenue lagged the Zacks Consensus Estimate in the preceding quarter primarily as growth in retail revenues was offset by the aforementioned headwinds. Additionally, the company reported a decline in comparable sales (comps).

Further, the company provided a dismal guidance for the fiscal third quarter anticipating high-single digits decline in comps. Moreover, retail gross margin as a percentage of total net sales, is anticipated between 36.50–37.25%, and selling, general and administrative expenses as a percentage of total revenues in the range of 29.25–29.90%. Conn’s anticipates the provision for bad debts to be in the band of 14.25–15.25% of the average total customer portfolio balance.

Given the dismal comps trend over the past few months and the high delinquencies, we remain cautious about the company’s performance in the upcoming quarter.

Earnings Whispers

Our proven model does not conclusively show that Conn’s is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Conn’s Earnings ESP is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at a loss of 19 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Conn’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

PVH Corp. PVH is slated to report earnings on Nov 30 and currently has an Earnings ESP of +0.42%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Express Inc. EXPR, with an Earnings ESP of + 8.33% and a Zacks Rank #3, is slated to release earnings on Dec 1.

The Kroger Co. KR, with a Zacks Rank #3 and an Earnings ESP of +2.38%, is scheduled to release earnings on Dec 1.

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