Tags: Shares | Furniture | Chain | Conns

Shares of Furniture Chain Conn's Plummet as Confidence Is 'Shattered'

Tuesday, 09 December 2014 05:07 PM

Shares of Conn’s Inc., a furniture chain struggling with bad customer debts, plunged 41 percent Tuesday after the company withdrew its 2015 forecast and announced the departure of its chief financial officer, dealing another blow to investors’ already battered confidence.

Conn’s will also will seek a president and chief risk officer as part of an effort to improve oversight, according to a statement from the Woodlands, Texas-based company Tuesday. Mark Haley, chief accounting officer, will be acting CFO while Conn’s searches for a new finance chief. Brian Taylor, who had held that role since 2012, is stepping down.

The retailer, which caters to low-income customers, announced a strategic review in October that it said could include splitting off its credit division. Tuesday Conn’s said that the process is ongoing and doesn’t have a timetable. The company also said its provision for bad debts rose to $72 million last quarter, from $49.4 million a year earlier.

“Our confidence is shattered,” Laura Champine, an analyst with Canaccord Genuity Corp., said in a note to investors. Total late-stage delinquencies are now at the highest rate since the fourth quarter of 2010, though they appear to have held at that level in November, said the analyst, who changed her rating to a hold from a buy Tuesday.

The shares tumbled $14.26 to $20.83 at the close in New York, marking the biggest one-day decline since Feb. 20, leaving the company with a market value of $755 million. The stock was already down 55 percent this year before Tuesday.

Legal Fight

In addition to the management shake-up, the company is facing legal challenges over its debt woes. Conn’s shareholders sued corporate insiders over claims they sold more than $66 million in stock before revealing problems with its customer- credit program, causing shares to plunge.

The case, a so-called derivative lawsuit filed on behalf of the company, names Theodore Wright, Conn’s chairman, president and chief executive officer, along with six other board members. Taylor, the former CFO, and Michael J. Poppe, its operations chief, are also named in the complaint.

“All members of the board knew that Conn’s lowered its underwriting standards and offered credit lines to customers who lacked creditworthiness, as a strategy to generate revenue,” said lawyers in a complaint filed Dec. 1 in Houston federal court.

Derivative Suits

Derivative lawsuits seek to represent the company and often result in corporate-governance changes — and lawyers fees. The directors and officers breached their fiduciary responsibility by misrepresenting Conn’s true financial condition, failing to correct misstatements and mismanaging the company to prop up the share price, the lawyers claim.

The investors contend this self-dealing caused Conn’s stock to trade at artificially inflated prices, climbing from $39.01 a share to $79.24 a share between April and December of last year. When “the truth was revealed” about the company’s true financial condition on Feb. 20, shares plummeted to $31.89, according to the complaint.

Wright, Poppe and three directors allegedly sold at least $66.8 million in shares from April of last year to Feb. 19, the investors claimed. In spite of allegations of self-dealing by senior management, “the board has not filed any lawsuits against any directors of officers who were responsible for the losses,” according to the complaint.

Conn’s, which operates more than 90 stores, had said in September that it expected 2015 earnings excluding certain items of $2.80 to $3 a share.

The case is Hack v. Wright, 14-03442, U.S. District Court, Southern District of Texas (Houston).

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Shares of Conn's Inc., a furniture chain struggling with bad customer debts, plunged 41 percent Tuesday after the company withdrew its 2015 forecast and announced the departure of its chief financial officer.
Shares, Furniture, Chain, Conns
Tuesday, 09 December 2014 05:07 PM
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