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Conn's Earnings Show That Gadget Sellers Can Still Thrive

Conn's posts better than expected quarterly results, a glimmer of hope in the sorry state of America's big consumer electronics retailers.

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Inside A Conn's Store Ahead Of Earnings Figures
Aaron M. Sprecher/Bloomberg/Getty Images
Life hasn't been easy for consumer electronics retailers these days. Shares of Best Buy (BBY) and hhgregg (HGG) are among the market's biggest losers of 2014, down 31 percent and 34 percent, respectively, though the first five months of the year.

However, there was a glimmer of hope on Monday when Conn's (CONN) posted better than expected quarterly results. Sales soared 34 percent to $335.4 million as a combination of a 15.6 percent spike in same-store sales and brisk store expansion kept the registers of the regional chain busy. Adjusted earnings rose 31 percent to 80 cents a share. Analysts were only holding out for a profit of 73 cents a share on $328.5 million in revenue.

The gains come at a welcome time for Conn's shareholders. As bad as this year has gone for Best Buy and hhgregg investors, shares of Conn's had plunged 41 percent through the first five months of 2014.

A strong report out of Conn's won't change that, but it's clear that bricks-and-mortar consumer electronics retailers aren't about to go away.

Circuit Pity

It's been five years since creditors moved to liquidate the Circuit City's remaining stores. The consensus at the time was that the country's second-largest seller of consumer electronics was perishing from self-inflicted wounds.

It operated under an unpopular commission-based model that scared away potential shoppers. Consumers don't like pushy salespeople, nor retailers that pry into your history. Remember how RadioShack (RSH) used to hound you for your phone number? That didn't go over so well either; just one of the many reasons that once-popular small-box retailer is on borrowed time.

Circuit City rebuffed buyout offers when the going was good and made matters worse by making bad choices when the economy went south. In a cost-cutting move that it would regret, it booted many of its more seasoned salespeople who were at the high end of the chain's pay scale -- the ones who had the consumer electronics knowledge that customers came for. Replacing costly but knowledgeable employees with cheap newbies was the last straw for many shoppers.

Challenge Remain

Consumer electronics are more popular than ever, and a housing boom has generated added interest in the appliances that most leading chains also stock. However, the digital revolution has been more foe than friend to bricks-and-mortar retailers. Folks may buy their devices -- smartphones, smart TVs, tablets, e-readers and video game consoles -- from the chains, but they buy their content online. The chains used to be able to rely on the weekly arrival of new CDs, DVDs, games and the like to lure traffic back into their stores. Now that more music, movies and games can be downloaded directly or streamed, the chains are in trouble.

The remaining consumer electronics superstores know that they can't just sell gadgets. Furniture and mattress sales were the big winners at Conn's, soaring 65 percent over the prior year. In fact, furniture, mattresses, and home appliances accounted for a whopping 57 percent of the retailer's sales in its latest quarter. That's a good thing since these are big and bulky items that are a harder sell online, where shipping costs can be substantial.

Diversification isn't just helping Conn's. Best Buy experienced a 9 percent uptick in same-store appliance sales, helping to partly offset a decline in services and traditional consumer electronics. The situation is hairier at hhgregg, but it too managed to post a modest uptick in appliance sales as its other three categories tanked.

Another way that consumer electronics retailers are helping create their own luck is by taking advantage of their local presence in ways that e-tailers can't. Best Buy's Geek Squad provides a mobile fleet of information technology pros. We're seeing retailers, including hhgregg, tackle showrooming by offering to price-match online deals, giving smart shoppers the best of both worlds: a great deal and instant gratification.

We can't read too much into the positives of Conn's report, but it's yet another sign that consumer electronics chains aren't all going the way of Circuit City anytime soon.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.

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bdgrizcp

First of all: what's new to buy? Everything is a rehash. The difference between picture tube TV and hi-def is astonishing, and the 'new' formats don't have that initial wow factor. They are slightly better but not worth the money. As for the Shack, shopping there is a little like shopping at a CVS or Walgreen's for anything but prescriptions--you pay for convenience and the Shack's prices are ridiculous.

June 03 2014 at 10:11 PM Report abuse rate up rate down Reply