Retailer’s Subprime Explodes, Shares Crash 40%, Junk Bonds Fall into “Price Discovery”…(The Word “Toast” Come To Mind…)

Wednesday, December 10, 2014
By Paul Martin

by Wolf Richter
December 10, 2014

Conn’s hits reality six months after peak of junk-bond bubble.

When Conn’s – a retailer of furniture, home appliances, and consumer electronics with 91 stores in Texas and surrounding states – announced earnings on Tuesday, its stock crashed 29% premarket and ended the day down 41%. It has lost 73% from its peak a year ago when it still had been a hot miracle retailer that could do no wrong. And the junk bonds it issued six months ago at the very peak of the junk-bond bubble went into “price discovery.”

Turns out, it also finances in-house about 75% of what its customers buy.

And people buy at Conn’s because they can’t buy anywhere else. They’re subprime. They’re the strung-out consumers with bad credit and no cash, the modern American proletariat, the hollowed-out, hard-working middle class whose real wages have declined for years. They’ve been turned down elsewhere. Their credit cards are maxed out, have been cancelled, or are past due. And they walk into Conn’s, and the pressure is on to buy, buy, buy what they can’t afford and didn’t want and may not need. But no problem because Conn’s is going to finance it all.

Selling to these folks and charging for the privilege is one of the most irresistible money makers. It doesn’t matter if they find the same product for a lot less on Amazon because they can’t buy it there. Subprime customers are sitting ducks.

This works wonderfully. Until it’s time to collect….

On September 3, Conn’s had already issued a warning on subprime [Subprime Blows up on Retailer, CEO Warns on ALL Subprime, Hits Auto Sales]. Analysts should have expected the worst. But they didn’t. They still somehow expected a profit of $0.68 per share for this quarter – now obviated by reality, with a vengeance.

The Rest…HERE

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