Conn's Inc (CONN) Q1 2020 Earnings Call Transcript
Conn's Inc (NASDAQ: CONN)Q1 2020 Earnings CallMay 31, 2019, 3:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and thank you for holding. Welcome to the Conn's Inc. conference call to discuss earnings for the fiscal quarter ended April 30, 2019. My name is Sherry, I will be your operator today. During the presentation, all participants will be in a listen-only mode. After the speakers' 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 May 31, 2019 was distributed before market opened this morning and can be accessed via the Company's Investor Relations website at ir.conns.com.
During today's call management will discuss, among other financial performance measures, adjusted EBITDA, adjusted net income and adjusted earnings per diluted share. Please refer to the Company's earnings release that was issued today for a reconciliation of these non-GAAP measures to the most comparable GAAP measures.
I must remind you some of the statements made in this call are forward-looking statements within the meanings of the Federal Security 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 today are Norm Miller, the Company's CEO and Lee Wright, the Company's COO. I would now like to turn the conference call over to Mr. Miller. Please go ahead, sir.
Norm Miller -- President, Chief Executive Officer and Chairman
Good morning and welcome to Conn's first quarter of fiscal year 2020 earnings conference call. I'll begin the call with an overview and then Lee will complete our prepared remarks with additional comments on the financial results.
Fiscal year 2020 is off to a strong start as record first quarter retail gross margin combined with the best credit segment performance we have achieved in five years to over 54% year-over-year increase in first quarter earnings per diluted share. While we are disappointed by first quarter retail sales, the significant year-over-year improvement in overall net income demonstrates the power of our business model.
As we focus on growing retail revenues, we believe we have a significant opportunity to expand profitably for many years to come and I'm encouraged by the direction we are headed. Given the Company's strong financial position, our commitment to generating shareholder value and our confidence in the future, I am pleased to announce that our Board of Directors has approved a $75 million stock repurchase plan.
I'm also very pleased with this morning's announcement on the enhancements to our leadership team. To review this morning's press release, Lee Wright has been promoted to the new role of Chief Operating Officer. Rodney Lastinger is joining CONN as our new President of retail, George Bchara has been promoted to Chief Financial Officer and Ryan Nelson has been promoted to Chief Accounting Officer.
Since I joined CONN as CEO four years ago, you have continually heard me talk about the importance of leadership and the need to enhance our recruiting, retention and development capability. Today's announcements demonstrate the significant progress we have made across these three critical areas and follow the September 2018 promotion of John Davis to President of Credit and Collection. Lee, JD and George were early members of our new leadership team and they played critical roles in our financial and operational turnaround and made significant contributions to build the leading platform that is in place today.
It's also important for us to attract proven leaders from outside our organization. Rodney is joining CONN as President of Retail after a successful 18 year career at Target Corporation. Most recently, Rodney served as Senior Vice President of stores and was responsible for managing the Southern US region of Target which comprised of over $21 billion in sales, 85,000 team members and 565 stores.
The team looks forward to working with Rodney as his experience managing a large retail operation will help us capitalize on our significant growth opportunity. We are well positioned to create sustainable value for shareholders and we have assembled a proven, experienced and motivated leadership team to take the Company to the next level. So, with this introduction, let's look at our first quarter results in more detail, starting with our credit business.
First quarter credit results were excellent. Our credit spread for the first quarter was 980 basis points, representing the highest spread in five years as a result of our net yield of 22.1% and a net charge off rate of 12.3%. As our credit performance continues to improve, we are focused on maintaining appropriate underwriting standards and we will not increase credit risk to drive retail sales. In addition, we are proactively managing underwriting at our new stores to control credit performance. First payment default rates at our new stores continue to be 20% better than the Company average.
Overall portfolio performance has benefited from stable underwriting, a healthy economic environment for our core customer and the enhancements we have made in our collection and recovery efforts. As a result, the 60 plus day delinquency rate was 8.7%, representing a 40 basis point improvement from the same period last fiscal year. The improvement in the 60 plus day delinquency rate accelerated from the 20 basis point year-over-year decline the Company experienced in the fourth quarter. Improving our recovery process has also been a strategic focus as higher cash recoveries result in lower net charge-offs and reduce loss rate on our allowance for bad debt.
For the first quarter of fiscal year 2020, we collected $6.5 million of recoveries, an 18% increase from the same period last year and more than we collected in all of fiscal year 2017. We have built a strong recovery platform and we are on track to collect annual recovery exceeding $20 million this fiscal year. First quarter credit results demonstrate that we can operate a roughly breakeven credit business with approximately 1,000 basis points of credit spread. The net loss before taxes of the credit segment, which includes interest expense was only $1.4 million in the first quarter and in line with our breakeven goal. In addition, credit segment profitability increased by $14.3 million over the prior year period and improved $45.5 million versus the first quarter of fiscal year 2017.
We remain focused on maintaining a stable credit business and I am confident in our ability to manage risk going forward, especially as our retail growth accelerating. With a solid credit platform in place, we are focusing more of our efforts on creating a best-in-class, omnichannel retail business. So let's review the drivers of our retail segment and the strategies we are pursuing to grow revenue. First quarter retail sales were lower primarily due to the benefit Hurricane Harvey rebuilding effort had in the first quarter of last fiscal year. We expect this trend to continue to the second quarter of this fiscal year with the potential for some residual impact in the back half of the fiscal year due to pull forward of the replacement cycle in the Harvey market.
Unfortunately, first quarter retail sales in both Harvey and non-Harvey markets were weaker than expected. We believe this was primarily due to a higher-than-anticipated mix of online stores credit applicants who typically have a lower approved and utilized rate and disruptive transition to our new e-commerce platform and the delay in tax refunds, which we believe impacted sales by reducing discretionary buying power across many of our markets. We actively monitor our application volume as it is an important metric for our retail business due to our unique in-house credit offering.
In fiscal year 2019, over 700,000 application or 56% of all credit applications were completed through our website. In the first quarter, the mix of applications originated online grew faster than expected, which resulted in a 325 basis point decline in the approval rate from the same quarter last fiscal year and negatively impacted sales. Online applicants have lower approval rates because they historically demonstrate higher credit risk compared to customers that apply within our stores. As a result, we are very cautious toward online applicants and we will not increase credit risk to drive quarterly retail sales.
Also affecting first quarter retail sales was the transition to our new online platform, which took place in late March. The initial implementation impacted the customer experience on conns.com, increased page load time and interrupted our online application process. These online platform implementation issues and delayed tax refunds caused lower overall applications than expected. Application volume has increased over 9% month-to-date in May compared to a decline of over 2% in the first quarter of fiscal year 2020.
While we are disappointed by the effect that this had on first quarter sales, the implementation of the new website was a critical milestone in our long-term e-commerce strategy. With our trend of higher online applications and desire to create a seamless experience for customers, we have been creating an end-to-end online solution regardless of the applicant financing needs. I am extremely excited to announce that our core customer can now transact with us entirely online using our in-house credit offering as a result of our enhanced and secured website, advanced IT infrastructure and proprietary underwriting capability.
For nearly 60 years, Conn's has been in the credit business and the launch of our e-commerce channel is a significant milestone in the 129-year history of our Company. Our analytics team has spent the past year refining our underwriting strategies to ensure that these sales fit within our risk tolerance and maintain our 1,000 basis point target credit spread. With the majority of applicants already online, we have a great opportunity to grow sales in this channel while now providing an omnichannel experience for our customers.
In addition, our existing logistics infrastructure, warehouse locations and last mile delivery capabilities are fully scalable as we already offer next day delivery across our 14 state store network. To highlight the magnitude of our opportunity, e-commerce sales represented less than $3 million last fiscal year and we're only completed with our highest credit quality customers through a personal credit card or Synchrony card. For the month of May alone, online sales were approximately $1 million. This was achieved without fully marketing or promoting this channel and sales in May are already approximately one-third of last fiscal year's total e-commerce sales.
Over the past year, we have also talked about investments we're making in our retail platform, which include both the focus on higher margin and better, best products, enhancing our merchandising strategy and improving our retail execution. I am pleased to report we made progress on all three fronts during the first quarter. Last year's expansion in the gaming demonstrates our success rolling out new categories that resonate with our customers. These efforts drive traffic and support our retail gross margin expectations, while achieving strong credit results in what was historically a riskier category.
We are using this positive experience we had in gaming as the basis for our overall category expansion strategy, which includes our recently launched test in cellphone, our upcoming test in flooring and our continued test and expansion of smart home products. We also remain focused on newness within our category and during fiscal year 2020 we are executing large scale transitions of products across all categories. This includes enhancing our appliance assortment, adding additional gaming PCs and Chromebooks to our home office selection, refreshing most of our mattress offerings and continuing to update our furniture assortment with on-trend styles and colors.
Our value-added product strategy, which is supported by our affordable credit offerings continues to resonate with our customers. Our product strategy is also benefiting retail gross margin, which increased 40 basis points from the first quarter of last fiscal year to a first quarter record of 40%. We believe an annual retail gross margin above 40% is sustainable as we continue to benefit from our better, best product strategy.
In addition to our merchandising enhancements, we continue to make significant improvements in our retail execution. For example, our penetration rate of lease-to-own sales was 8.4% for the first quarter, up from 7.5% in the prior fiscal year quarter. As you can see, we have a solid retail foundation in place and we are now starting to expand our marketing efforts to drive traffic of our core target customer to both our website and into our stores. This includes a new marketing campaign, refreshing the Conn's HomePlus brand, new and unique promotions and intensifying our media efforts both on and offline.
As the tenure of our Chief Marketing Officer and his team grows, we are excited about the many opportunities we have to expand our reach as well as connect with and empower our customers. During the first quarter of fiscal year 2020, we opened four new stores, including stores in Texas, Louisiana and Alabama. We also opened another new store in Texas this month. New store revenues and credit performance continue to be in line with our expectation, which provides us with increasing confidence in our retail expansion plan.
With our enhanced credit model in place, new stores are ramping at a slower rate compared to the Company's growth pace in fiscal years 2013 through 2016 as we closely control credit risk. We expect sales of new stores to mature to our Company average over time, which will contribute to same-store sales growth as these stores increase the amount of recurring customers and enter the comp base.
In the current year, we now expect to open between 14 and 15 new stores in existing states, which will all be in our new store layout, featuring an enhanced customer experience and a more efficient sales process. With only 128 stores in 14 states, we have significant and long-term opportunity to expand our store base. While retail sales have started out slower than desired, we are excited about the opportunities we have to produce consistent retail growth in the future.
First quarter results demonstrate the strength of our business model and the positive evolution of our Company. We continue to believe our retail model and credit platform can consistently support total annual retail sales growth of 8% to 10% and I'm excited about the opportunities we have in fiscal year 2020 and beyond.
With this, let me turn the call over to Lee.
Lee A. Wright -- Chief Operating Officer
Thanks, Norm. Consolidated revenues were $353.5 million for the first quarter of fiscal year 2020, a 1.4% decrease from $358.4 million for the same period last fiscal year. GAAP net income improved 53.2% to $19.5 million or $0.60 per diluted share for the first quarter of fiscal year 2020 compared to $12.7 million or $0.39 per diluted share for the prior fiscal year quarter.
On a non-GAAP basis, adjusting for certain charges and credits and loss from extinguishment of debt, net income for the first quarter of fiscal year 2020 was $0.58 per diluted share compared to $0.40 per diluted share for the same period last fiscal year. Adjusted EBITDA was $50.4 million or 14.3%, total revenue for the first quarter of fiscal year 2020 compared to $42.9 million or 12% of total revenue for the same period last fiscal year.
Reconciliations of GAAP to non-GAAP financial results are available on our first quarter press release that was issued this morning. First quarter of fiscal year 2020 retail revenues were $262.2 million, a decrease of 4.9% from the same quarter last fiscal year. We achieved record first quarter retail gross margin of 40%. A 40 basis point year-over-year improvement in retail gross margin was a result of the continued benefits of our better, best product strategy, which is enabled by our strong credit platform. An increase in a retrospective commission on a warranty sales due to lower exchanges also helped first quarter retail gross margin.
Regarding the ongoing trade negotiations and tariffs, we are actively monitoring the current and potential impacts. Our merchandising team has been proactively working with our suppliers to diversify production outside China since the specter of tariffs arose last year. We have made substantial progress in doing so with our primary focus on furniture. The actions already taken or in progress will lessen the impact of tariffs but product cost for items remaining in China will increase and result in higher average retail prices if the 25% tariff continues for a prolonged period.
Retail SG&A expense was $79.6 million, an increase of approximately $1.9 million from the same quarter in the prior fiscal year, while retail SG&A expense as a percentage of revenue deleveraged 220 basis points to 30.4% primarily due to the decline in revenues and increased costs for new stores. We plan to open 14 to 15 new stores this fiscal year compared to seven stores last fiscal year. We typically start incurring costs associated with new stores approximately six months ahead of opening and there will be additional expenses incurred throughout the fiscal year as we prepare to open these locations.
We remain focused on strategies to control SG&A expenses. However, to ensure our ability to successfully manage future growth, we will continue to make investments to our platform, which includes expanding our store base, opening a new Houston distribution center and implementing state-of-the-art ERP and loan management system.
Finance charges and other revenues for the credit segment were a first quarter record of $91.3 million for the first quarter of fiscal year 2020, up 10.5% from the same period last fiscal year. The increase versus the first quarter of fiscal year 2019 was primarily due to a yield of 22.1%, an increase of 130 basis points from the same period last fiscal year.
During the quarter, we also began to recognize retrospective insurance income following a period of higher claims in no retrospective insurance income as a result of Hurricane Harvey. First quarter net annualized charge-offs as a percent of the average outstanding balance were 12.3%, a 20 basis point increase over the prior fiscal year period.
Provision for bad debts on the credit segment was $39.9 million for the first quarter of fiscal year 2020, a decrease of $4 million from the same period last fiscal year, primarily due to a strong portfolio performance. The allowance for bad debt and uncollectible interest as a percent of the total portfolio was 13.5% at April 30, 2019, which was down approximately 20 basis points from the prior fiscal year period. As Norm mentioned, for the first quarter of fiscal year 2020, we collected $6.5 million of recoveries, an 18.3% increase from the same period last year. SG&A expense in the credit segment for the first quarter increased 3.1% versus the same quarter last fiscal year and on an annualized basis as a percentage of the average customer portfolio balance, it was 9.8% compared to 9.9%.The increase in credit SG&A expense primarily reflects the continued investments we're making in our recovery efforts and an increase in compensation costs.
Interest expense for the first quarter was $14.5 million, which declined 13.8% from the same period last fiscal year as a result of continued year-over-year deleveraging and reductions in our all-in cost of funds. For the first quarter annualized interest expenses as a percentage of average portfolio balance was 3.7% compared to 4.5% for the same period last fiscal year. Average net debt as a percentage of average portfolio balance was 60.5% compared to 67.3% for the same period last fiscal year.
Last month we closed a new ABS transaction with an all-in cost of funds of 5.26%, which is the lowest all-in cost of funds we have achieved since reentering the ABS market in 2015. ABS notes currently outstanding include all classes of our 2019 A and 2018 A notes and the B&C classes of our 2017 B notes. We currently expect to complete one additional ABS transaction during the current fiscal year.
I am very pleased with the improvements we continue to make in our capital position. The Board's decision to approve a $75 million stock repurchase program reflects Conn's strong balance sheet and diverse funding sources. In addition, we expect to fund the anticipated growth in our portfolio as a result of new store openings and same-store sales growth through internally generated funds in our existing capital sources.
Before opening the call up for questions, I want to review a couple of housekeeping items. First, we expect our annual effective tax rate to be between 25% and 27% for the full 2020 fiscal year. Second, we adopted the new lease accounting standard this quarter, resulting in an increase in lease-related assets of $223 million and an increase in lease-related liability of $216.8 million. The difference between the lease-related assets and liabilities was recorded as an adjustment to retain earnings as of February 1, 2019. Please see our 10-Q for the period ending April 30, 2019, which will be filed later today for additional information on our adoption of the new lease accounting standard.
With this overview, Norm and I are happy to take your questions. Operator, please open the call up to questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question is from Brad Thomas with KeyBanc Capital Markets. Please proceed.
Brad Thomas -- KeyBanc Capital Markets -- Analyst
Hey, good morning, Norm and Lee, and thank you for taking my question. I wanted to ask about same-store sales and then ask about gross margins, starting first just with same-store sales. You addressed that obviously in the prepared remarks, but any ability to give us some more color around maybe what degree the website changeover and maybe some increased applications with the new website had on your same-store sales in 1Q?
Norm Miller -- President, Chief Executive Officer and Chairman
Sure, Brad. Good morning. Well, you look at obviously we're disappointed with the sales momentum in the first quarter and really driven by the same-store sales, really driven by three things. The first was the transition that I talked about in the prepared comments with our e-commerce site and the website Magento 2 that occurred at the end of March and that coupled with the credit quality of the traffic to our website. Our estimation is the combination of those two items has cost us about 400 basis points of the same-store sales. We saw that as we mentioned, again, with total number of applications being down for the quarter. And then the third piece being the delay in the tax refunds with the government shutdown, we estimate that cost us about 150 basis points.
Specifically discretionary spending, when we see the breakout, you'll see appliances actually positive from a same-store sales standpoint, but the furniture and mattress and electronics, some of the discretionary products were actually down.
Lee A. Wright -- Chief Operating Officer
In non-Harvey is what we're really talking about here, Brad.
Norm Miller -- President, Chief Executive Officer and Chairman
I'm bridging toward non-Harvey, I'm sorry.
Brad Thomas -- KeyBanc Capital Markets -- Analyst
Got you, right, because that appliance category overall was the strongest category you reported, including Harvey, right, OK. And so just thinking about Q2 and the guidance for comps to be in the zero to 4 range, you are against a tougher comparison. I guess you're implying that you believe these items are really specific to 1Q. And as they are behind you, you should get back toward the trajectory you thought you'd be on the quarter. I guess any other kind of color around how to think about your expectations for 2Q comps?
Norm Miller -- President, Chief Executive Officer and Chairman
Sure, Brad. Well, a couple of things going on. First, from a Harvey standpoint we still will see an impact we believe in the -- in the second quarter with Harvey, we're seeing that, but we are seeing an improvement or that gap reducing from the Harvey to the non-Harvey market, that gap between, even the fourth quarter and the first quarter improved by about 700 basis points and we expect although it will still be down in the non-Harvey -- in the Harvey, we guided from 7 to 11, that's obviously improvement from where we were. And then with the other items that I had mentioned, clearly the tax refund and we think we're past. The website issues shown by May applications being significantly up from our trend in the first quarter, that's how we get to the same-store sales guidance that we provided in the earnings release.
Brad Thomas -- KeyBanc Capital Markets -- Analyst
Got you. And just to be clear, what do you feel like the website was working properly in the way you wanted to?
Norm Miller -- President, Chief Executive Officer and Chairman
Well, it happened in the mid-March is when we made the transition and it was -- we felt the impact through the latter part of March. It wasn't until latter part of April that we started to really get back on track of what -- our expectations were coming out of the website. Having said that, I will say, Brad, that we've been working on the website transition and the investment on the e-commerce side for -- I know, we haven't advertised it or publicized it very significantly, but from both an infrastructure standpoint with the website itself as well as an investment from an e-commerce standpoint, over the past 12 to 18 months we knew that our customers were migrating more and more to at least shopping online that we had significantly improved that shopping experience, whether the customer actually transacted online, which they could not do with Conn's -- with our financing up until this past quarter.
But even if they shopped on the website prior to making a decision whether they come into our store or not, we knew we had to make significant investments and as I said, we've been working on that both infrastructure-wise since last spring, so a year ago. And if you look at from an e-commerce resource standpoint, when I joined the company four years ago, we had one person from a resource standpoint dedicated with e-commerce. As of a couple of years ago, we had four people. Today we have 12 people and we'll have 20-plus people here before the end of the year and we think it's a material sales driver, number one. People being able to transact and May's performance when we're in very, very early innings, I think represent a material shift is $1 million in sales approximately in May versus $3 million for the entire last year represent that.
So, but even for those not transacting, the shopping experience overall is going to be much better and we think will impact those customers' ability before they come into our stores to be better prepared and hopefully encourage them to shop in our stores that they decide not to do it online.
Brad Thomas -- KeyBanc Capital Markets -- Analyst
That's very helpful. And if I could squeeze in a follow-up, final question just around gross margin. I'll just ask one question here. You all done a great job driving higher gross margins in recent years and I'm seeing 1Q a record high, it looks like your guidance for 2Q is for gross margins to come down. How are you thinking about the puts and takes on gross margins going forward?
Lee A. Wright -- Chief Operating Officer
Yeah, hey, Brad. It's Lee. So Q2 as you said, obviously when you look at it compare versus last year, we're guiding down. If you remember with the tariffs that were applied last year, we had done some purchases forward and we got the benefit of the immediate price increase although our cost of goods were obviously at the old price. So, we got a one-time benefit in Q2, so you're seeing that, as Norm talked about on the call, we still feel really good about the 40% and above for retail gross margin for the entire year and we're sticking with that. So, continue to feel good.
Norm Miller -- President, Chief Executive Officer and Chairman
If you back that out, Brad, it's basically flat year-over-year. if you back that onetime benefit we got last second quarter.
Brad Thomas -- KeyBanc Capital Markets -- Analyst
Got you. That's helpful. Okay. I'll turn it over to others. Thank you all so much.
Norm Miller -- President, Chief Executive Officer and Chairman
Thanks, Brad.
Operator
Our next question is from Brian Nagel with Oppenheimer & Company. Please proceed.
Brian Nagel -- Oppenheimer -- Analyst
Hi, good morning. Thank you for taking my questions. Lee, congratulations on the new responsibilities.
Lee A. Wright -- Chief Operating Officer
Thanks, Brian.
Brian Nagel -- Oppenheimer -- Analyst
So, my first question, I think it's more for Norm. A bit bigger picture related sales. Clearly, your credit business is working very, very well right now. And frankly, if having followed your Company now for a while, it seems as though credit maybe tracking now better than you initially articulated while ago when you joined the Company, when you started talking about where credit could go. The question I have, you mentioned your prepared comments at least a few times, not compromising credit drive sales, but the question, how do you know or what's the thought process behind not loosening credit a bit from these very, very good level to potentially drive better sales?
Norm Miller -- President, Chief Executive Officer and Chairman
That's a great question, Brian. And it's one we talk about regularly within the Company. And what I would guide you to Brian is that 1,000 basis points a spread and as we mentioned in the prepared comments, we're basically there at 980 basis points, which has brought the credit business to, as I talked about four years ago that when we got to that point, the business would be approximately breakeven, which is in essence where we are with the credit business.
So as we are there and maintain there and potentially even get better from there, that gives us opportunity that we will absolutely take advantage of to take some increased risk from an underwriting and a credit standpoint to help us from a sales standpoint. Clearly, it's painful in the short run, Brian, I understand that. And for our investors as we manage the credit business the way we are, but to me that we're not managing the business for a quarterly basis. I'm certainly not. It's done the long-term strength and health of the Company and as we start adding stores and the things we're putting in place, very confident with where we're going from a same-store sales standpoint.
And from a total sales standpoint with the retail investments that we've made, and I do believe we will have opportunity from an increased risk standpoint with the credit business and still maintain that 1,000 basis points spread as we continue, because we're not at our peak with the credit business. We still have more opportunities with recoveries. The team continues to perform better, both on the front end underwriting and the back end collection, which only provides more opportunity -- will provide more opportunities for us from a sales standpoint. And when you couple that with the investments we've made from a retail standpoint with both from a people standpoint and the new store standpoint, my confidence level on the retail business in sales has never been stronger since I've been here over the four years.
Brian Nagel -- Oppenheimer -- Analyst
Okay, I get it. That's a very good, very solid detailed (inaudible). Thanks, Norm. The second question I have, again, I think this maybe somewhat a follow-up to Brad's question before. But you called out here the headwind in Q1. The advancements you made in online both from a credit application and from sales perspective. And I guess what I'm not totally clear yet is, should we think about this shift, assuming that some of your customers now will be interacting with Conn's more online, your customers that historically maybe on interactive store, now online, will that shift lead to a structural change in approvals or is it something that you're tweaking through as the shift occurs?
Norm Miller -- President, Chief Executive Officer and Chairman
Yeah, what I'd say is a couple of things are happening, Brian. First, part of the reason as I mentioned in my response to Brad that we started this process well over the -- 15 months ago, realizing that we needed to dramatically up our game both with the infrastructure, the website and from a resource from the website standpoint. Whilst that we saw -- it was actually about 18 months ago, 24 months ago, we saw a transition of -- the number of web applications we were getting versus retail applications cost over and what I mean by that is 18 months ago or so, 24 months -- between 18, 24 months ago, we saw more web applications than retail applications.
The customers were actually filling the application out before they were coming in the store and prior to that web app -- retail applications always were higher than web applications. So, our customers even though they couldn't transact two years ago, they were going online, they were shopping before they went to our stores at a greater level. They were filling out the web -- the app -- the qualification in the application online and bringing it into the store and they just showed as consumers everywhere showing a desire to do shopping online even before they come into a bricks-and-mortar.
And when you couple that with the fact that with the investment from the credit business with JD and the team, and the underwriting team and the data analytics, we knew we were getting closer to the ability to be able to underwrite without ever seeing the customer in our store. In our 60-year history this first quarter, that's the first time that we've ever been able to do that and that's what drove a significant part of the increase of, you know, from a couple of hundred thousand in sales in the month of May prior year to $1 million plus was the ability to do Conn's financing with those customers not having to come into our stores.
So, that investment and that effort over the past year and upgrading the website from every aspect is actually came live as I mentioned in the middle part of March and we had some growing pains as we went through that. But we think we've weathered based on May results and what we're seeing application-wise, we still have lots of room for improvement to build on the website, but we have the platform in place now to be able to really, as I said, we are in the earlier innings , but to take it to the next level.
Lee A. Wright -- Chief Operating Officer
And Brian, it's Lee, just to add to that. I mean, as you know with your background, being the true omnichannel retailer is such a critical step for us and so exciting with our last mile logistics already in place and what we have to offer the customer. We don't need to make all those additional investments to become that omnichannel retailer. So, we are extremely excited, as Norm said, early innings and just can't wait to continue to take advantage of this opportunity.
Brian Nagel -- Oppenheimer -- Analyst
Got it. And then just one final quick one. I guess more for Lee, on the buyback. It's a relatively large buyback versus your market cap. How should we think about the pace of that? Is it more of a -- do you think more steady repurchase is more opportunistic?
Lee A. Wright -- Chief Operating Officer
Yeah, it's a great question, Brian. We're obviously going to be opportunistic as we see and it's a large number relative to our market cap and I think it really is a testament to our capital position where we stand, liquidity that we have, our access to capital and our belief in the business and what the true value is that we want to make sure we made that statement to the market.
Brian Nagel -- Oppenheimer -- Analyst
Got it, thanks. Good luck.
Norm Miller -- President, Chief Executive Officer and Chairman
Thanks, Brian.
Operator
Our next question is from Rick Nelson with Stephens Inc. Please proceed.
Rick Nelson -- Stephens -- Analyst
Thanks, good morning. So, when you talked about May e-commerce sales and $1 million plus growth there, can you speak to May overall same-store sales, what you're seeing?
Lee A. Wright -- Chief Operating Officer
What I would tell you Rick is with the guidance that we gave, we feel good about the guidance we've given based on -- that's partly why we gave the guidance, we gave based on where May and you can see that the quarter performance is an improvement from our first quarter performance.
Rick Nelson -- Stephens -- Analyst
Got it, and you're tracking that zero to minus 4 range. You've got a few stores now that they have a full year under the belt. If you could speak to how those stores are performing, especially relative to the model, is in your PowerPoint?
Lee A. Wright -- Chief Operating Officer
Yeah, Rick, it's Lee. We are very pleased with how our stores have been performing and what they're doing. So again that's what gives us the confidence. As we said, the original range is usually 12 to 15, we're now going to do 14 to 15 and as we've talked about before, we have that much confidence that we really anticipate doing more the next year. So very much in line with what we have in the PowerPoint.
Rick Nelson -- Stephens -- Analyst
And competitive landscape, are you seeing any changes there and if they're not chopping (ph) accounts, where are these credit -- maybe customers shopping for your products?
Norm Miller -- President, Chief Executive Officer and Chairman
Well, obviously it's fairly well publicized that a large electronics retailer announced that they had started a partnership with progressive in the past several months. So we are seeing that continue to -- the lease-to-own options from a virtual standpoint in major retailers. So, but with our core customer, our core Conn's financing customer that qualifies above that is above that threshold from a lease-to-own standpoint, we're not seeing anything different from a competitive standpoint that we have been seeing. There could be some impact on the folks that don't qualify for our financing -- for the Conn's financing in our stores with that competition for the lease-to-own within our stores as well. But if they're aware of the fact that our financing model provides a much lower average cost and monthly payments for that customer, that Conn's financing customer then a lease-to-own option would provide them. We feel very good about where we sit competitively versus anybody else that's out there.
Rick Nelson -- Stephens -- Analyst
And finally, e-commerce, you could speak to the economics of those sales compared to the in-store sales. And the credit performance if you're seeing any differences (inaudible) loss rates for those e-comm customers.
Norm Miller -- President, Chief Executive Officer and Chairman
Well, I'll. With that part first Rick because we are very conscious of the fact that from a credit quality standpoint, online customers inherently have a higher credit risk than customers that come in the store. So we underwrite appropriately for those customers as a result of that, but what I will say is at least out of the gate we're seeing out that $1 million in May, the largest category significantly is appliances, which is our best credit quality category of any of the categories. Initially out of the gate and it's early, so you can't draw any conclusions but very pleased with what we're seeing with first payment and the initial appearance out of it and confident frankly very confident with where we're at from an underwriting standpoint that we'll be able to manage it within the 1,000 basis points of spread that were targeted for the overall credit business.
Rick Nelson -- Stephens -- Analyst
Profitability of e-comm compared to the stores, is there a cost takeout. I know your commission to shop in stores.
Norm Miller -- President, Chief Executive Officer and Chairman
Well, definitely, all things being equal, and it depends on what the cost of the acquisition of the customers is, that would be the only thing that would be -- could potentially be impacted. But on just a pure cost standpoint, it is more profitable to interact with that customer online as it is in the store because you're not paying a commission and there's some -- obviously there's not the bricks and mortar cost at the same level and it is inherently more profitable.
Rick Nelson -- Stephens -- Analyst
Got it. Thanks and good luck.
Operator
Our next question is from John Baugh with Stifel. Please proceed with your question.
John Baugh -- Stifel Nicolaus -- Analyst
Good morning, congrats on the credit metrics and the (inaudible) title there, Lee.
Lee A. Wright -- Chief Operating Officer
Thanks, John. Appreciate it.
John Baugh -- Stifel Nicolaus -- Analyst
First and foremost, on these web applicants, are any of these existing customers or what's the mix versus the people that come in to the store?
Norm Miller -- President, Chief Executive Officer and Chairman
Yes, some of them are existing customers. We haven't published what that mix is between new and existing, but there are a material number of new customers involved within that have not shopped with us before.
John Baugh -- Stifel Nicolaus -- Analyst
Okay, could you remind us, because you're so much lower on a new store that used to be, what's the ramp year one versus year one and what the expectation is there?
Lee A. Wright -- Chief Operating Officer
Yeah, John, it's Lee. So obviously in store in a newer market for us, it's going to be a larger ramp where our brand name isn't well known. So we've talked anywhere and called a 20% ramp in year two for those newer stores. But then stores in existing markets where we already have stores and a brand name out there, we'll get much closer to the average -- the Company average from the get-go, so it will be a slower ramp at that point.
John Baugh -- Stifel Nicolaus -- Analyst
And I would assume in that existing markets, whatever you pick up in that year two, there might be some headwind from the cannibalization even in year two, so it's kind of a loss or is that a bad way to look at it?
Lee A. Wright -- Chief Operating Officer
John, it's a very good point. And at this point we haven't talked about it again because our new stores in existing markets aren't big enough yet, but yes, we will have cannibalization -- some cannibalization in an existing market, but most certainly and obviously the only reason we open those new stores is that the markets that we will grow the overall market dramatically. But there will be some cannibalization. As we get to that point, we'll make sure we point that out, but it is a good question.
Norm Miller -- President, Chief Executive Officer and Chairman
Highlight the magnitude of what that is, we used to to do that three -- four, five years ago, if you recall, John.
John Baugh -- Stifel Nicolaus -- Analyst
Yes, it is not credit, just trying to think about that P&L quickly, I see the slide deck, you are still thinking gross yield to be 20 -- what 3 to 25. So there's some upside there. I don't know what your expectation on losses are, but they certainly has stabilized. And then your latest ABS, your transaction interest costs are lower. So it all sort of points to the potential that actually make a profit. Now I understand your comments earlier about maybe we take some of that. But for the moment let's assume we didn't make any changes in terms of underwriting, where do you think in a year or two as the loan book matures, where maybe would that credit operation go. I'm just trying to get a sense how much money you might have to play with?
Norm Miller -- President, Chief Executive Officer and Chairman
Well, if you take the midpoint -- at the time we get to the midpoint of the 23 to 25 range, at 24 and you are seeing charge-offs of the mid-12s -- 12, 12.5, then you do the math on that you basically are at about 1,200 basis points or so that would give you several 100 -- a couple of hundred basis points to be able to take some increased risk and maintaining a 1,000 basis points if you just do the simple math, John. I'm sure you've done that, but I'll leave it for you.
John Baugh -- Stifel Nicolaus -- Analyst
And what's -- Norm, what's your clarity on that. And I guess I'm asking almost, what's the timeline on that do you thinking, when you first -- if you do go down that path contemplate potentially loosening underwriting slightly?
Norm Miller -- President, Chief Executive Officer and Chairman
First of all, we don't like to use the word loosening. It's been burned by that before in the past, we prefer to say take measured increased risk, but what I would tell you John as the back half of this year -- I mean we -- and we manage it, just as you know, we share it on a macro level, but frankly we look at that 1,000 basis points of spread geographically. We look at it new customers, existing customers. We look at it in a variety of different cusp of it in a fairly -- from a data standpoint, that will give us, you know, certainly, probably the back half of this year into next year opportunities in various of those segments. They keep us, from a Company standpoint, at that 1,000 basis points overall. But we will do it in a very targeted and specific way.
John Baugh -- Stifel Nicolaus -- Analyst
Okay. And then Texas, you've talked in the past about some of the hispanic concerns with Trump coming in, there was a I believe a tweet made last night that caught some interest. We've had oil prices all over the place and taxes. Is there any granularity on what's going on with your loan book and/or your business, specifically in Texas?
Norm Miller -- President, Chief Executive Officer and Chairman
Nothing on the back end that we're seeing at this point. But I will say we monitor it closely. We do -- and as I woke up this morning and saw the tweets on the tariffs in that, that certainly caused us anxious for dealing with our core customers because we have seen them as you now respond in the past from a reticence and a desire to pull back when they feel that anxiety and unknown of kind of what's happening. So, although we have not seen that yet, we're very focused and measuring what's happening on both the front end and the back end with that key customer of ours.
John Baugh -- Stifel Nicolaus -- Analyst
And last question quickly. Three letters that are kind of scary, ERP, where are we with this, what's the schedule, why does it not blow up? Thank you.
Lee A. Wright -- Chief Operating Officer
Thanks, John. I'll take that one for you. Again, everyone can get scared of an ERP conversion. We are very confident in the testing we've done prior to it. So while it's been extreme focus for a long time and I feel very confident that it's going to go smoothly.
John Baugh -- Stifel Nicolaus -- Analyst
When is the timing on that, Lee?
Lee A. Wright -- Chief Operating Officer
Yeah, it's this quarter.
John Baugh -- Stifel Nicolaus -- Analyst
Thank you.
Operator
Thank you. We have reached the end of our question-and-answer session. I will now turn the call over to Norm Miller for closing remarks.
Norm Miller -- President, Chief Executive Officer and Chairman
Thank you. We appreciate your interest in the Company and we look forward to sharing second quarter results with you in a few months. Have a great day.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.
Duration: 54 minutes
Call participants:
Norm Miller -- President, Chief Executive Officer and Chairman
Lee A. Wright -- Chief Operating Officer
Brad Thomas -- KeyBanc Capital Markets -- Analyst
Brian Nagel -- Oppenheimer -- Analyst
Rick Nelson -- Stephens -- Analyst
John Baugh -- Stifel Nicolaus -- Analyst
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