Furniture retailer Conn’s Inc. is preparing to close more than 70 stores and liquidate its inventory as it approaches a bankruptcy filing expected in the next few weeks. Florida will experience the most store closures, with 18 locations set to close, while Texas will see nine stores shut down.
The company expanded significantly last year after acquiring W.S. Badcock, a furniture retailer with almost 380 stores in the Southeast. This expansion has since contributed to its financial difficulties. Conn’s is also discussing securing financing to support its bankruptcy proceedings with investors.
Key Takeaways
- Store Closures Across 13 States: Conn’s Inc. is closing 71 stores, representing about 13% of its total locations. Florida will see the highest number of closures with 18 stores, followed by Texas with nine.
- Financial Struggles and Bankruptcy Risks: The company’s financial difficulties, worsened by declining consumer spending and competition, have led to speculation of an imminent Chapter 11 bankruptcy filing, with the possibility of further Conn’s store closures.
- Impact of W.S. Badcock Acquisition: Conn’s expansion following its acquisition of W.S. Badcock, a Southeast-based furniture retailer, has contributed to its financial woes due to integration challenges and operational inefficiencies.
- Significant Losses and Declining Stock: Conn’s reported a net loss of $77 million in 2023, marking its third consecutive year of losses. The company’s stock has dropped over 80% this year, reflecting its worsening financial health.
Conn’s Announces Closure of 71 Stores Amid Financial Struggles and Bankruptcy Concerns
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Conn’s has announced the closure of 71 stores across 13 states, detailed on its website. As of June, these closures account for approximately 13% of the 550 locations it managed under two brands. The affected states include Arizona (7), Alabama (1), Florida (18), Colorado (6), Louisiana (6), Georgia (2), North Carolina (4), Mississippi (2), South Carolina (3), Oklahoma (4), Texas (9), Virginia (5), and Tennessee (4), with Florida facing the largest number of closures at 18, followed by Texas with nine.
Conn’s store closures operate under Conn’s HomePlus brand. Conn’s also owns the W.S. Badcock brand, a furniture retailer it acquired last year. Together, the brands maintained just over 550 locations by April, with around 172 owned by the company. Conn’s uses a franchise model, with approximately 380 dealer-owned locations. Recent reports indicate potential total closures could reach 100, including 30 under the Badcock brand. Earlier this month, bankruptcy rumors surrounded Conn’s, as many reports started floating around that Conn’s might be considering a Chapter 11 bankruptcy filing.
Conn’s has been experiencing difficulties due to heightened competition and a broader decline in consumer spending on non-essential items like furniture. In 2023, the company’s total consolidated revenue fell by 7.8% to $1.24 billion. This included a 9.1% decrease in net sales and a 3.6% drop in finance charges and other revenues. Conn’s concluded 2023 with a net loss of nearly $77 million, a 30% increase from the previous year’s loss of $59.3 million, or $2.46 per diluted share, to $3.17 per diluted share.
The company has sustained losses for three consecutive fiscal years as consumers have reduced their spending on discretionary items to manage the increased costs of essentials. Conn’s stock has dropped over 80% this year, with shares currently trading below $1.
This announcement about store closures comes after the company disclosed in June that it received a delinquency notice from Nasdaq for failing to submit its Q1 report on time. Conn’s has until August 19 to present a plan to regain compliance.
Conn’s current financial status is also cause for concern, as indicated by its FRISK® score. This score, created by CreditRiskMonitor to assess bankruptcy risk, is presently at 2, suggesting a 4% to 9.99% chance of bankruptcy within the next year. This is a decline from May’s score of 4, representing a 1.4% to 2.1% risk, signaling worsening financial health. The company has been maintaining low FRISK scores over the past year, highlighting an increased risk compared to the retail industry average.
CEO Norm Miller had initially expected the acquisition to enhance operational efficiency, yet the anticipated synergies have not been realized. During an earnings call, Miller discussed possible store consolidations in areas where Conn’s and Badcock overlap, including Florida and North Carolina, attributing delays in benefits to integration challenges.
Earlier this year, Miller acknowledged that the acquisition would impact Q1 results but expressed optimism that the benefits of the company’s new integrated operating model would start to become evident in Q2 and continue through the rest of the year, with expectations of faster revenue and earnings growth.
At the time, Miller said that he was confident that the company would see the advantages of its financial strategy in the coming quarters. He highlighted key components driving this model, including an upgraded shopping experience, improved payment options, strong e-commerce capabilities, and a unique dealer network.
However, despite management’s positive forecasts, significant improvements in revenue and earnings have yet to materialize. Miller had promoted a “powerful financial model” centered on improved shopping experiences and enhanced payment options, but these have not yielded the projected results, leading to skepticism among employees and analysts.
Home Retail Sector Faces Financial Struggles and Rising Bankruptcy Risk Since Pandemic
The home goods retail sector has encountered significant financial challenges in recent years, notably since 2021. It has been a major contributor to retail bankruptcy filings in 2023, with significant failures like Bed, Bath & Beyond and the second Chapter 11 filing by Tuesday Morning. Data from S&P Global Market Intelligence indicates that this sector has the highest default risk among retail categories, showing considerable financial difficulties for these companies.
The origin of these issues dates back to the COVID-19 pandemic, which initially prompted a surge in home furnishings purchases as individuals improved their living spaces and home offices during lockdowns. Yet, as the pandemic waned and employees started returning to their workplaces, even if only part-time, consumer spending shifted from home improvements to work-related expenses such as clothing. This shift in spending priorities has severely impacted home retailers, especially those serving lower-income consumers like Conn’s.
Additionally, the sector has faced significant pressure from supply chain disruptions. Increased transportation costs have reduced profit margins for retailers specializing in large, bulky items like furniture. These logistics problems and rising inflation have weakened consumer purchasing power, exacerbating the challenges for businesses reliant on non-essential spending.
About Conn’s Inc
Conn’s Inc. is a specialty retailer focused on home goods, including appliances, furniture, consumer electronics, and home office products. The company also provides branded consumer goods and services and proprietary credit solutions tailored for its primary customers. Conn’s operates through two main segments: retail and credit. The retail operations are conducted through its physical stores and website.
The retail segment offers products such as furniture and mattresses, home appliances, consumer electronics, and home office items from well-known international brands across various price levels. The credit segment delivers financing options to a significant number of credit-limited consumers who typically have few credit alternatives. The available home appliances range from refrigerators and freezers to washers, dryers, dishwashers, and cooking ranges. The furniture and mattresses segment includes a variety of living room, dining room, and bedroom furniture, along with mattresses and related accessories.
Conclusion
Conn’s Inc. faces significant challenges as it prepares to close 71 stores and potentially file for bankruptcy. The company’s financial troubles have been exacerbated by declining consumer spending and the difficulties of integrating its acquisition of W.S. Badcock.
Despite management’s efforts to implement a new financial strategy, the anticipated revenue and operational efficiency improvements have not materialized. With store closures affecting 13 states and speculation of further shutdowns, Conn’s is seeking financing to support its bankruptcy proceedings as it navigates this critical period.
