Conn’s CEO lays out 4-pronged approach for future with Badcock

THE WOODLANDS, Texas — In a call with investors on Dec. 19, the day after the announced acquisition of fellow Top 100 retailer Badcock Home Furniture &more, Norm Miller, Top 100 Conn HomePlus president and CEO, touched on four key elements that he believes will make the combined entity a success moving forward.

“Combined, we believe we can leverage the core capabilities of both Conn’s and Badcock to accelerate growth, expand profitability and provide our customers and team members with greater opportunities as part of larger, more dynamic company,” Miller said, noting the four key rationales are that the union accelerates growth opportunities, combines Conn’s credit platform with Badcock’s capabilities, increases scale of both companies and strengthens the financial profile.

Norm Miller

Miller noted that the similarities between the brands is too much to ignore. “The consumers are very similar when you look demographically,” he said. “We carry the same product, similar customer, similar geography, similar business model that is fueled and driven by in-house financing. In almost every single box, when you compare the two companies, the similarities are shocking.”

Opportunities to grow

In talking growth opportunities, Miller noted that Conn’s was founded as an appliance retailer that added furniture and mattresses, plus consumer electronics and home office to its product mix over time. Similarly, Badcock got its start in furniture and mattresses and added categories such as appliances, consumer electronics and home office down the line. Miller said furniture and mattresses represented 70% of Badcock’s sales prior to the transaction and 33.8% of sales for Conn’s in FY 2023.

“Going forward, we expect the furniture and mattress category to represent 47% of our combined revenue, and we believe the transaction with Badcock will drive further growth of these high margin categories,” Miller said. “We believe this complementary sales mix will offer opportunities to drive appliance, consumer electronic and office products at Badcock, while supporting greater furniture and mattress sales at Conn’s.”

He also touted the ability to use private-label brands to accelerate growth, talking specifically about Conn’s Dreamspot private-label mattress brand and Villa Hill furniture brand in addition to Badcock’s competencies in private labeling over the past five years.

“By combining the expertise and resources of Conn’s and Badcock, we believe we can increase our overall capabilities to develop and implement private-label products across multiple categories to drive additional revenue and margin opportunities,” Miller said.

Adopting Conn’s loan model

Looking at the consumer credit picture, Miller said Conn’s will work on transitioning Badcock from a revolving credit model to Conn’s in-house installment loan model. He said that should create significant lift in Badcock’s average tickets once it’s in place.

“As we look at Badcock’s payment offerings, we believe there is a powerful opportunity to leverage Conn’s in-house credit platform,” he said.

Later in the call, Miller elaborated by noting Conn’s longer terms will create a lift in average tickets for Badcock. “Badcock’s average ticket is 30% less than ours largely because of credit product. We think we have a real opportunity with the installment product to lower the monthly payment options for the Badcock customer, which will drive more sales and more options for Badcock customer as well.”

He said bringing Conn’s digital application process to Badcock will make it more customer friendly.

“This innovative program will make it easier for Badcock customers to apply for multiple credit options we provide while limiting the impact an application has on a customer’s credit score. Since rolling out these enhancements earlier this year, applications have increased 26% for Conn’s, and we believe we can replicate this performance at Badcock,” he said.

Working the franchise model

In terms of scale, Miller had a lot to say about Badcock’s independently owned franchise model and how it could be used as a multiplier.

“Dealer-owned stores is a compelling structure that allows dealers to thrive in their local communities while offering lower store startup costs and faster store openings than corporate-owned stores. Badcock maintains ownership of inventory and consigns it to dealers,” Miller said. “The dealer-owned stores are typically smaller, about 17,000 square feet and in more rural markets compared with Conn’s average store size and footprint.

“We believe this provides meaningful opportunities going forward as we can greatly expand product assortment, customer service and retail and credit capabilities of Badcock’s dealer-owned network. In addition, we believe the transaction expands our long-term addressable market by allowing us to profitably enter rural and less populated areas, especially in legacy Conn’s markets, such as the state of Texas.”

He said, in Texas, there are plenty of small towns that could support a right-sized Conn’s franchise store. “In Texas alone, there are 75 municipalities with populations between 10,000 and 75,000 that we believe could support a dealer-owned store, a significant increase in our addressable market.”

He said Florida, Georgia and Texas will account for 55% of the company’s store base and approximately 70% of combined sales.

“We intend to operate both brands to take advantage of the leading awareness Conn’s has in Texas and Badcock has in Florida and Georgia,” Miller said.

On the other side of that coin, he said Conn’s can take Badcock’s e-commerce operations to another level. “Conn’s has experienced strong e-commerce growth and robust customer adoption since accelerating investments in our online product, value proposition, digital experience and distribution capabilities.

“E-commerce sales have increased eightfold from $12.6 million in the year ended Jan. 31, 2020, to more than $100 million at the end of the most recent quarter,” Miller said. “Over the past 12 months, Badcock had e-commerce sales of approximately $24 million, which we believe we can meaningfully expand by leveraging Conn’s digital capabilities and best-in-class logistics network.”

Now a Top 20 retail company

Looking at the financial profile, Miller said combining the brands vaults Conn’s into the top 20 now, with all the benefits that size creates.

“Combined, we have created a leading home goods retailer with approximately $1.85 billion in revenue across 550 stores. Conn’s also becomes top 20 furniture and mattress retailer in the United States based on Furniture Today’s latest Top 100 list,” he said. “As a larger furniture and mattress retailer, we believe we will benefit from purchasing and logistics synergies helping support higher retail gross margin in the future.”

And moving forward, he believes it will put the Conn’s/Badcock group in a stronger position. He said the company has identified $50 million in near-term cost savings with more in future efficiencies, plus he anticipates the combined company to accelerate sales over the next few quarters.

“In two years, we expect to achieve between $2 billion and $2.2 billion in annual revenue and between $180 million and $200 million in adjusted EBITDA by 2026. We are working hard to position the company for long-term success.”

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