Conn's, Inc.

Good morning and thank you for holding. Welcome to the CONS, Inc. conference call to discuss earnings for the second quarter fiscal year 2022. My name is Melissa and I will be your operator today. During the presentation, all participants will be in a listen-only mode. After the prepared remarks, you will be invited to participate in a question and answer session. As a reminder, this conference call is being recorded. The company's earnings release dated September 1, 2021, was distributed before market opening this morning and may be accessed via the company's Investor Relations website at ir.cons.com. During today's call, management will discuss, among other financial performance measures, adjusted net income and adjusted earnings per diluted share. Please refer to the company's earnings release that was issued today for reconciliation of these non-GAAP measures to their most comparable GAAP measures. I must remind you that some of the statements made on this call are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements represent the company's present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions, which are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated today. Your speakers on the call today are Norm Miller, the company's executive chairman, Chandra Holt, the company's CEO, and George Pachara, the company's CFO. I would now like to turn the call over to Mr. Miller. Please go ahead, sir.

Good morning, and welcome to Kahn's second quarter fiscal year 2022 earnings conference call. I'll start today's call with a brief introduction before turning the call over to Chandra to provide additional information on the quarter and an update on our strategic initiatives, and then George will review our financial results. This is an exciting time at Kahn's, and I am delighted to welcome our new CEO and President, Chandra Holt, to the company. Kahn's is performing at its strongest level since I joined as CEO in September 2015, reflecting the powerful foundation we have created. When I started at Kahn's, the company was unprofitable, primarily due to an underperforming credit segment, underinvested business, and elevated debt levels. I am proud of our accomplishments during my tenure as we have significantly improved our financial results, strengthened our balance sheet, created a robust infrastructure, and assembled a strong leadership team. In addition, we have developed a compelling growth strategy, and our strong year-to-date financial results demonstrate that these initiatives are taking hold. With this strong foundation in place and as positive momentum across our business builds, I believe the time is right for me to step back from my operational duties. The board has actively been looking for a successor as part of our multi-year succession planning, and I am excited that we were able to attract a leader who possesses the skill set necessary to capitalize on the enormous growth opportunity ahead of us. Chendra comes to the company after an impressive career at several of the largest and most sophisticated retailers in the world. Most recently, she led Walmart's multibillion-dollar U.S. e-commerce business, delivering over 70% growth in fiscal year 2021. As a proven leader, I feel confident she is the right person to guide cons through the next chapter of the company's 131-year history. With Chandra's appointment on August 9th, I have transitioned to executive chairman, and I am working closely with the entire leadership team to ensure a seamless transition. Before I turn the call over to Chandra, I wanted to take a moment and thank our over 4,000 associates here at Consome Plus for their hard work and dedication. It always seems to be the architect that gets the praise when in fact the builders do all the hard work. All of you on this amazing team are the builders of everything that we have achieved. Our incredible second quarter performance and record earnings for the first half of the year are a direct result of your contributions. I continue to be impressed by the level of commitment and passion for this great company that you show every single day. It has truly been my honor and privilege to lead this incredible team and organization these past six years. Let's continue building the future together. So with this introduction, let me turn the call over to Chandra.

Thanks, Norm, and good morning to everyone on today's call. I am honored to be appointed CEO and President of CONS at such an exciting time for the company. I want to start today's call by offering our thoughts and prayers to anyone impacted by Hurricane Ida. Prior to the hurricane making landfall on August 29th, we closed five Louisiana stores to give our employees time to evacuate. While we are still fully assessing the impact from the storm, We do not expect Hurricane Ida to materially impact our third quarter financial results. At this point, we remain dedicated to supporting our team members and helping our communities recover and rebuild from this devastating storm. So with this update, and since this is my first earnings call as CEO, I wanted to share some thoughts on why I joined CONS. Overall, I believe the company has enormous potential to create lasting value for our customers, team members, and shareholders. Our differentiated business model combines a strong retail organization with a best-in-class credit offering. This hybrid model is extremely difficult to replicate and allows us to offer a value proposition to our customers that is unlike any national, regional, or e-commerce retailer that I have seen. As a result, I believe there is a tremendous opportunity to grow our market share within our existing markets as well as pursue a significant and long-term geographic expansion strategy. When I was considering joining Cons, I was also impressed by the fact that almost all in-store and online orders received next day white glove delivery. This fulfillment capability is an important competitive advantage, and I believe our established infrastructure can be the foundation for a much larger e-commerce business. The company's proven leadership team, strong balance sheet, and solid strategic plan will serve as the basis for our success going forward. I am confident CONS is headed in the right direction, and I want to use my time today to first talk about the company's impressive financial performance and then provide an update on the company's strategic growth initiatives. Our recent success has created what is arguably one of the strongest financial positions in the company's 131 year history. We made tremendous progress growing retail sales during the second quarter. Total retail sales increased 24% over the prior fiscal year, driven by a 16.4% increase in second quarter same store sales. In addition, on a two year stack, same store sales for the second quarter increased 3.2%, an acceleration from the 1.8% two-year stack we experienced in the first quarter. We are also pleased with the contribution of our new stores, which added 7.6% to total retail sales during the second quarter. Strong retail performance combined with a second quarter credit spread of 1,200 basis points contributed to record second quarter earnings of $1.22 per diluted share. In fact, earnings per diluted share of $2.74 for the first six months of the year are higher than any annual earnings in our history. Our balance sheet and capital position are also at historically strong levels. We ended the second quarter with the lowest level of net debt as a percent of the portfolio balance in over a decade. Cons has the financial flexibility to support the long-term needs of our business and fund our growth initiatives. Now, let's look at our four strategic initiatives in more detail, starting with our e-commerce strategy. As I mentioned earlier, I am excited by our fulfillment capabilities. The company has a leading last-mile infrastructure that enables profitable next-day delivery, which is especially impressive given the large, high-keep items the company sells. As a result, I believe Khan's existing backend infrastructure is a key component of our market differentiation and can support a much larger e-commerce business as we grow. Equally important is providing customers with a frictionless digital experience, which in Khan's case, extends to both our retail and credit operations. Investments are underway to develop leading frontend solutions that create a modern digital experience for our customers. Our rapidly growing e-commerce business is producing strong results. Second quarter e-commerce sales increased 211% over the prior fiscal year to a quarterly record of $17.3 million. In addition, second quarter e-commerce sales increased over 60% from the first quarter. I believe the company is well positioned to grow e-commerce sales to approximately $70 million this fiscal year compared to e-commerce sales of $26 million last fiscal year. I believe we can continue to grow e-commerce sales by increasing our focus on serving our customers where and how they choose to shop. The next strategic growth initiative I want to review today is the success we are seeing enhancing our retail performance and capabilities. Over the past several quarters, we have been focused on optimizing our product assortment and expanding our offering to include more complimentary home-related products. The improvements CONS has made to its retail segment are encouraging, and all of our product categories posted positive same-store sales during the second quarter. Our appliance category continues to set records in both sales dollars and units. Inventory levels improved within the category, and I believe our expanded product assortment and next-day delivery are helping us capture incremental sales. Sales also accelerated within the furniture and mattress category. This was driven primarily by our efforts to optimize our assortment. In addition, the recent introduction of DreamSpot, our private label mattress brand, continues to contribute to growth. DreamSpot was the company's number one selling mattress brand, both in units and dollars during the second quarter. I believe we have additional opportunities to expand our private label offerings in the future. Overall, we were able to capture strong consumer demand during the second quarter despite ongoing industry-wide pressures throughout the supply chain. Our performance would not be possible without the efforts of our supply chain, merchandising, and store teams. Our retail performance has improved significantly, and our home-related product categories are well aligned to evolving consumer trends. Now, let's look at our brick-and-mortar growth strategy in more detail. Cons currently has 155 stores and only 15 states. Year to date, we have opened nine locations and expect to open a total of 11 to 13 new stores this fiscal year. Since our first Florida location opened in November of 2020, we are actively growing our presence within this compelling market. We currently have nine stores in the state and we believe increasing our scale will help leverage marketing expenses and the fixed costs related to our Florida distribution center. As I visit our stores, I am impressed by the knowledge and service-oriented approach of our commissioned sales associates. Our physical footprint is an important part of our value proposition as it allows our customers to see and touch the large ticket products we sell prior to completing a purchase. I believe our stores and sales associates are an important part of our strategy and support today's omnichannel customer. Our credit strategy is the last growth initiative I want to review today. I am fortunate to step into the CEO role with the best credit performance the company has achieved in almost 10 years as measured by our credit spread. This strong performance is due to the sophisticated platform, strong team, and innovative credit strategy Cons has developed. I see Conn's best-in-class credit strategy as a key market differentiator that allows us to offer an attractive value proposition to our customers. Over the last year, we have demonstrated that the strategies we put in place to serve customers outside our historical focus, including cash and lease-to-own customers, are winning. This success supports our belief we can continue to target a larger addressable market. Our credit programs, including our core in-house offering, provide affordable financing options for our customers to pay for their retail purchase over time. As a result, I believe we have opportunities to grow sales across the spectrum of prime, near-prime, and sub-prime customers. Our complete point-of-sale financing solutions create lasting relationships while supporting our customers' financial well-being. In conclusion, momentum remains strong across our business and quarter to date same store sales are similar to second quarter levels reflecting strong consumer demand and the growth strategies we have put in place. As a result, we are increasing our annual same store sales guidance. We now expect mid-teen same store sales growth compared to our previous forecast of high single digits. I am thrilled to join Quons at such an exciting time in the company's history. I believe there is meaningful opportunity to create sustainable value for our shareholders because of Kahn's differentiated hybrid business model, rapidly growing e-commerce business, and significant geographic expansion opportunity. In addition, Kahn's has a proven leadership team, strong financial position, and a solid strategic plan that will serve as the foundation of our success going forward. I look forward to presenting our detailed strategic growth plan and long-term financial outlook at an investor day later this fiscal year. Finally, an organization is only as good as the people and culture supporting the business. Over the past several weeks, I have listened to and learned from team members across the company. I am particularly impressed by a culture that cares deeply about its customers, employees, and communities. I am proud to lead CONS through the next phase of its growth and create sustainable value for all of our stakeholders. Now, let me turn the call over to George to review our financial performance.