Why Conn's Inc. Shares Surged, Then Slipped

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of electronics and appliance retailerConn'sspiked by 19% shortly after the opening bell Thursday, but dropped throughout the morning to settle in at a strong (but less eye-popping) 9% gain as of this writing. The pop was driven by a double-digit increase in total retail salesin December over the year-ago period.

So what: Conn's reported$132.4 million in total net sales last month, up 11.5% fromDecember 2013. This followed Conn's report of a 19.4% year-over-year gain in net sales for November. Same-store sales declined by half a percentage point in December, but this small drop came a year after Conn's reported monster same-store sales growth of 38.5% for December 2013. The company blamed the decline on a 5% to 7% sales headwind due to tighter underwriting standards, and also noted that same-store sales actually grew by 1.4% when excluding Arizona and New Mexico, where new stores have opened recently.

Conn's reported that 60-plus day delinquencies slipped from 10% in November to 9.7% in December. CEO Theodore Wright also pointed out that shorter-term delinquencies were running "well below" rates seen a year ago.

Now what: Today's pop does little to salve the pain of Conn's shareholders, who have seen the retailer's stock become one of the past year's worst with a decline of over 75%. Conn's delinquency problems are well known and have not yet been fully addressed, but the company appears to be working toward better lending practices, which could help put a floor on its share price and send it back to growth if things go well over the coming quarters.

Conn's P/E is barely in double-digits today, but its free cash flow has not been positive on a trailing 12-month basis since mid-2013 and has yet to show signs of genuine improvement. I'd keep an eye on the stock, but would caution against buy-now optimism over one reasonably solid sales report.

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The article Why Conn's Inc. Shares Surged, Then Slipped originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.