Conn's Inc (CONN) 2011 Q3 法說會逐字稿

Good morning and thank you for holding. Welcome to the Conn's, Inc. conference call to discuss earnings for the third quarter ended October 31, 2011. My name is Shawn and I will be your Operator today.

During the presentation, all participants will be in a listen-only mode. After the speaker's 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 December 8, 2011 distributed before the market opens this morning, and slides that will be referenced during today's conference call, can be accessed via the Company's Investor Relations website at ir.conns.com.

I must remind you that some forward-looking -- some of the statements made in this call are forward-looking statements within the meaning of the Securities and Exchange Act of 1934. 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 Theo Wright, the Company's CEO; Mike Poppe, the Company's CFO; Rey de la Fuente, President of the Company's Credit Division; and David Trahan, President of the Company's Retail Division.

I would now like to turn the conference over to Mr. Wright. Please go ahead, sir.

Good morning and welcome to Conn's third quarter of fiscal 2012 earnings call. I'm pleased to have recently accepted the position of Chief Executive Officer. I have a strong belief in Conn's business model and its ability to deliver returns on capital, and returns to our shareholders.

The Company has rapidly improved its retail performance. As you can see on slide 1, over 80% of our customers are taking advantage of one of our monthly payment alternatives. Conn's credit represents 64% of our revenues and GE Money has been a valuable partner, providing financing for 15% of products purchased during the quarter. Sales to RAC Acceptance represented 4% of sales in the third quarter. RAC Acceptance is an important alternative for customers we can't finance using Conn's credit. Although the overall percentage of sales to RAC Acceptance is not yet meeting our goals, in many of our stores, RAC Acceptance is a strong contributor to sales and overall store performance.

We continue to improve product mix, both between and within product categories. Same-store sales of furniture and mattresses increased by 69% in the quarter. As you can see on slide 2, the furniture and mattresses represented 28% of product gross margin in Q3, 2012, an increase of 40%. Despite these increases, growth opportunities with furniture and mattresses remain unrealized.

As shown on slide 3, we delivered much higher than average same-store sales increases in the two stores we remodeled to improve the furniture and mattress presentation. We have two additional remodeling projects nearing completion and 23 additional remodeling projects scheduled for fiscal 2013. The stores expected to be remodeled by the end of 2013 collectively represent nearly half of our retail revenues.

Turning to slide 4, driving customer credit application traffic to our website is increasingly effective. In Q3, 9% of our sales were to customers that initially applied for credit via the Internet. Of these sales, 69% were to new customers. Our Internet initiatives are increasing sales and capturing new customers. Given our customer retention experience, these new customers should contribute long-term to our revenues. We're also improving our sales floor execution. As you can see on slide 5, sales associate turnover rates declined from 156% in Q3 of 2011 to 77% in Q3 of 2012. In November of this year, turnover was 36%.

In the third quarter, we increased our sales force by approximately 200 or 20%, to allow us to meet our sales goals for the holiday season. This investment was critical to sales performance in the third quarter, and was necessary if we intended to convert the much higher Q4 customer traffic into sales transactions. Our new sales associates are not fully productive when they first go on the sales floor. Sales compensation costs in relation to sales increased in Q3 because of this expansion in our sales force. Advertising expenses also increased modestly from 4.7% of sales a year ago to 5% in this year's third quarter.

Increases in selling expenses moderated in November and will moderate further in the remainder of Q4. Our retail strategies have delivered a sharp turnaround in same-store sales. For Q3, our overall same-store sales were up 18.9% over the prior year. In November, against a much tougher comparison than in Q3, same-store sales increased 10.5%. December has started with a solid double-digit rate of same-store sales increases. Our November sales performance is even stronger when you consider we decided not to sell many thousands of televisions at negative margins on Black Friday. Without Black Friday, our November same-store sales increase would have been 22%.

We didn't change our store opening schedule for Black Friday and opened at 5 a.m. Arguably, this cost us sales, but sales of every major product category but televisions increased on Black Friday. Much of the decrease in television sales was the lost opportunity to lose money on low-cost, negative margin televisions. We chose not to have these loss leader deals, so opening at midnight would not, in my opinion, have changed the results significantly. Black Friday was a much more profitable day for Conn's in fiscal 2012 than it was in fiscal 2011.

In the second and third quarter of this year, we aggressively marked down prices on our older inventory, the vast majority of which is accessories and smaller items we discontinued selling in Q1. As we became more aggressive over time trying to find a market clearing price, as well as worked on third-party sales and liquidation channels, it became clear that, for many of these items, the market clearing price was far lower than our book value. Many of these items had little or no market value.

To give you a quick idea of the nature of these items, the average cost per unit is approximately $50. This compares to our average ticket size of about $700. During Q3, sales of these aged products reduced profitability by an estimated $0.02 to $0.04 per share. We determined the additional reserves were necessary at quarter-end to address these inventory valuation issues.

Turning to our stores, we're actively negotiating site leases in planning for store openings in fiscal 2013. We're on track to open 5 to 7 stores in fiscal 2013. Our evidence to support the Company's ability to retain the sales of closed locations becomes stronger each month. We're marketing a handful of additional locations and expect to reach final determinations on these stores in Q4 of this fiscal year.

Turning to our credit segment, the Company has been steadily tightening its underwriting standards since fiscal 2010. As you can see on slide 6, the percentage of accounts with a FICO score below 550 at origination has declined from 14% in fiscal 2007 to 4.5% in the current year. We tightened again in Q4 of this year and expect originations of loans to customers with FICO scores below 550 will continue to decline.

You can also see on slide 6, there's a dramatic difference in performance between lower score counts and accounts closer to our average score. The difference isn't just in the charge-off rate. These lower score counts also require much higher collection effort and related collections expense.

We've also reduced the term of our loans at origination and tightened underwriting standards for high-risk products, principally small electronics. The quality of the loans we underwrite has been steadily and materially improving. We changed our charge-off policy in Q2 of this year to shorten the time to charge-off. Also in Q2, we tightened our policy on re-aging, and these changes that we made in Q2 had minimal impact on delinquency and expected charge-offs. In our Q2 conference call, we indicated we expected to further tighten our re-aging policy. In Q3, we did, in fact, further tighten re-aging policy to require more evidence of a customer's ability to make scheduled payments and to further restrict the length of time we would re-age accounts.

Tightening of re-aging policies in the third quarter caused delinquency and projected charge-offs in the short-term to increase. Our changes to re-aging policy are not expected to significantly increase the amount of charge-off, but are accelerating the timing of the charge-off. Many accounts that under past practice would have been charged off more than a year later will now charge-off within the year period that is used in determination of our reserve for bad debts.

In Q3 2011, we re-aged 6.7% of the total portfolio. In Q3 2012, we re-aged 4.2% of the total portfolio, a decrease of 25%, which you see on slide 8. If we had re-aged at the same rate in Q3 2012 as in Q3 2011, greater than 60-day delinquency at October 31, 2011 would have decreased by about 250 basis points or to 5.4%.

As the impacts of the changes to our re-aging policy became apparent, we reevaluated our decision to tighten re-aging standards. Our work once again supported the conclusion that tightening standards would benefit profitability and cash flows. However, our change in policy does result in a short-term increase in our projected charge-off rate, and therefore, an increase in our provision for bad debts in the current quarter. On slide 8, we show the year of originations of our re-aged accounts. Many of these accounts are well past their original term today and reflect the more relaxed underwriting standards of earlier years.

The impact of reserve increases was $5.7 million and $0.11 per share for the current quarter -- I'm sorry, for the third quarter. Although this is a significant impact on the quarter, the reserve increase represents only 1% of total finance receivables. Our changes to re-aging policy will, starting in the current quarter, allow us to reduce the cost of collections. This benefit will increase over time.

In effect, we exchanged a non-cash difference in the timing of recognizing loan losses in Q3 2012 for a material and recurring reduction in the cash costs of collection. The non-cash increases in reserves for bad debts during the quarter, including those related to the adoption of the new accounting standard that Mike will discuss further, do not reflect deterioration in portfolio quality or collection effectiveness. We haven't seen indications of deterioration in economic conditions in our market areas.

Portfolio quality continues to improve. As shown on slide 9, the average FICO score in the portfolio was 590 at October 31, 2010 and is 602 at October 31, 2011. Despite the changes to our re-aging policy, total 60-day delinquency was down 20 basis points over a year ago. The total percentage of the portfolio re-aged more than 3 months declined from 12% at the beginning of this fiscal year to 16%, which is on slide 10. Payment rates are steadily increasing and were 5.4% in Q3 2012 compared to 5.1% in the year-ago period, which is on slide 11.

That concludes my comments. I'll now turn the call over to Dave.

Thank you, Theo. I'm going to speak today about our sales and margin performance for the quarter. We achieved an adjusted retail gross margin of 28.2% during the third quarter as compared to 25.8% during the third quarter of last year. We have been able to drive this improvement by focusing on improving the product mix we offer to our customers. From a profitability standpoint, the increase in retail gross margin added to a same-store sales increase of 18.9%.

To recap our same-store sales for the primary categories, refer to slide 12, please.

Furniture and mattresses were up 69%. Consumer electronics were up 9%; home appliances were up 17%; and home office was down 2%. In addition to the margin benefits we obtained from focusing on improving the product mix, we saw higher average selling prices in all of our primary categories as compared to the same time last year.

We had a strong quarter in furniture and mattress sales, as we continue to expand the floor space in our product assortment while remaining focused on increasing promotional activity and advertising exposure in these categories. The increase in furniture and mattress sales was driven by a 41% increase in unit sales and combined with a 14% increase in average selling price. Consumer electronics was driven by a 2% increase in total unit sales of television, as our average selling price rose 3% to $782, which represents a 32% higher TV average selling price than the industry during the same time period, according to MPD.

Appliances were up on a 3% increase in unit sales and a 9% increase in average selling price, as we continue to mix into high-efficiency laundry, premium side-by-side, and French door refrigeration. While our home office sales were down, we offset the decline in unit sales with a 6% increase in average selling price, and drove an increase in the category total gross profit contribution this year as compared to last year.

If you would refer to slide [3 -- sic], please. Home office increased from 1% of total gross profit in the third quarter of 2011 to 5% in the third quarter 2012. Our overall retail gross margin benefited from a higher mix in furniture and mattress sales year-over-year, while also seeing gross margins from delivering better product mix in furniture, mattress, and home office categories.

We remain focused on improving the product assortment we offer to our customers by displaying more of the latest technology and better featured products, while also leveraging our competitive advantage by providing those customers with affordable payment solutions. We believe we have adequate inventory to meet our sales objectives for the fourth quarter.

With that, I would like to turn the call over to Mike.

Thank you, David. We reported a net loss this quarter, driven primarily by the required adoption of accounting guidance related to troubled debt restructurings; increased bad debt reserves, as our re-aging policy changes are expected to change the timing of charge-offs; and our increase in reserves to liquidate and dispose of remaining aged inventory. Excluding primarily those items, our adjusted net income for the quarter was $497,000 or $0.02 per share as compared to an adjusted loss of $2.9 million or $0.12 per share in the prior year. The key drivers of the improvement in the adjusted earnings numbers were strong top-line sales growth, higher retail gross margins, and reduced interest expense.

Before I begin my review of our segment financial performance for the quarter and discuss recent performance in our credit operations, I'd like to point out that we have revised interest income, included in finance charges and other, in our prior-period financial statements for a revision to the recognition of interest income on our credit portfolio. It did not materially impact any prior period.

More significantly, we were required to adopt -- this quarter -- recent accounting guidance issued by the FASB related to accounting for troubled debt restructurings, or TDRs. As many of you are aware, our primary method of providing concessions to our credit customers is through extensions of their contracts if they meet certain criteria to qualify for the extension. Consistent with what we understand to be industry practice for consumer loans, we have defined a restructured account as one that has been re-aged a total of four or more months over the life of the account.

As a result, an impairment charge must be recorded to adjust the qualifying accounts to their estimated present value, based on the expected future cash flows. As of October 31, approximately $52 million of our receivables qualified as restructured under these rules. However, there are approximately $14 million of receivables that have been re-aged four or more months that are not considered restructured under the accounting rules, because the accounts have not been re-aged during the current fiscal year. The good news about these accounts is that these customers have been making payments on their accounts this year. It does mean, however, that if these accounts are re-aged in the future, they will be subject to the TDR accounting, and additional impairment charges could be required to be recorded.

As such, there will likely be some impact to earnings over the next several quarters until all accounts re-aged four or more months are paid off, charged off, or reserved according to the TDR accounting guidance. We expect that our recent tightening of the re-aging rules will mitigate the impact to some extent, though. We estimate that if all accounts re-aged four or more months as of October 31 were accounted for as TDRs, then our earnings results would have been reduced by approximately $3.8 million in addition to the $14.1 million charge we incurred this quarter.

I would also note, though, that if this accounting guidance were applied to all accounts re-aged four or more months at January 31, the reserve for TDRs would have declined by approximately $10 million by the end of October as a result of the improving credit quality in the portfolio. The improved credit quality is reflected in the $36.4 million decrease in the balance of accounts re-aged since January 31; the improving payment rate trend; and the rising weighted average credit score of the active accounts in the portfolio.

In reviewing our segment performance for the quarter, the Retail segment incurred a small adjusted operating loss, as a 240 basis point adjusted retail gross margin improvement was offset by an increase in SG&A expense, as we invested in advertising and improving store staffing to drive sales growth. And our retail gross margin was negatively impacted by losses incurred selling aged inventory during the quarter.

The Credit segment operating income decreased sequentially and is compared to the year-ago period. The decline was driven by a higher provision for bad debts and lower revenues, due to the impact of the acceleration of the timing of credit charge-offs resulting from the tightening of our re-aging policies, as Theo discussed earlier, and a lower portfolio balance. Partially offsetting these items was a sequential and year-over-year decrease in credit SG&A expense as the portfolio quality has improved, and we have changed our collection approach related to highly re-aged and delinquent accounts.

While we have tightened our approach to re-aging, we still believe it is an important collection tool when working with our customers. Keep in mind that with our fixed term, fixed payment financing program, the customer does not have a minimum payment option like a revolving credit card that essentially offers a revolving borrower the ability to self-re-age. Though credit segment earnings were down for the quarter, we have continued to see improving credit quality and delinquency performance as a result of the changes we have been making to our underwriting and collection practices.

While we will not know the full impact of the changes for several quarters, the following is a summary of the recent portfolio performance, which indicates the improving quality. We have reduced the balance of re-aged receivables for 11 consecutive months through the end of November to $94.7 million or 15.2% of the portfolio. Net charge-offs through the third quarter totaled $5.4 million compared to $10.7 million for the same quarter last year, and benefited from the charge-off policy change in the prior quarter that accelerated charge-offs of delinquent accounts.

As a result of the tightening of the re-aged policies this quarter, we expect the net charge-offs to be higher over the next couple of quarters. And we have seen the average monthly payment rate increase year-over-year for seven consecutive quarters. Primarily as a result of the refinancing we completed last quarter, interest expense was reduced by $3.8 million as compared to the year-ago period.

Turning to our capital and liquidity position, in order to support the receivables increase driven by our sales growth this quarter, and support inventory needs going into the fourth quarter, our total debt balance outstanding increased by $11 million. As of October 31, we had approximate -- we had immediately available borrowing capacity of approximately $80 million and an additional $46 million that could become available upon increases in eligible customer receivables and inventory. Additionally, during November, we increased the total borrowing capacity of the credit facility by $20 million through an increased commitment from one existing lender and the addition of one new lender.

As of today, as a result of the growth in the credit portfolio and inventory during the month of November, our immediate borrowing availability increased by an estimated $4 million to approximately $84 million, while total debt outstanding is up only $4 million. As of October 31, we were comfortably in compliance with the required credit facility covenants. During the quarter, in an effort to mitigate our exposure to rising interest rates, we purchased 1% interest rate caps with a notional amount of $100 million that expire in August 2014.

Turning to slide 13 in the presentation, we updated our fiscal 2012 guidance and initiated earnings guidance for fiscal 2013. We reduced our adjusted earnings expectations for the current fiscal year by $0.10, driven by a potential $0.03 to $0.05 impact in the fourth quarter due to the newly-adopted TDR accounting guidance. Keep in mind that this is a non-cash charge and is not based on a change in our expectations for portfolio performance; and the $0.11 non-cash impact of the increase bad debt reserves that Theo referred to earlier related to the accelerated timing of charge-offs, due to the changes in re-aging policies.

Our estimate is based on the following assumptions for the fourth quarter -- positive same-store sales; retail gross margin between 28% and 29%; provision for bad debts between 4% and 5% of the average portfolio balance; and consolidated SG&A expense similar to prior-year levels as a percent of revenues, if not slightly lower.

We are initiating fiscal 2013 guidance of $1.05 to $1.15, based on the following assumptions -- same-store sales up low- to mid-single digits; five to seven new stores in new markets; capital expenditures of $16 million to $20 million during the fourth quarter of fiscal 2012 and full-year fiscal 2013; Retail segment gross margin between 28% and 30%; provision for bad debts as a percent of portfolio balance outstanding of 3% to 4%; and SG&A expense as a percent of revenues of 28.5% to 29.5%. Much of this analysis and more will be available in our Form 10-Q to be filed later with the Securities and Exchange Commission.

That completes our prepared remarks. Operator, please begin the question-and-answer portion of the call.

(Operator Instructions). Dan Binder, Jefferies & Co.

This is [John Gleese] in for Dan at Jefferies. I just had a question about the trend of the business over the course of Black Friday weekend. If you can give us a sense of how it kind of trended from Friday as opposed to Saturday and Sunday. And then just as a follow-up, you had mentioned that you had kind of moved away from using TV as a loss leader during Black Friday weekend. Can you talk about what the best performing categories that you saw over the course of the weekend? Thanks.

Okay. This is Theo Wright. I'll address that question.

We saw strong performance over the course of the entire Black Friday weekend, including Cyber Monday. We saw strong double-digit increases Saturday, Sunday, and Monday of that weekend. And overall, our performance was strong in all categories over the full weekend. We were soft in television on Black Friday itself, but we actually had a strong remainder of the weekend with television and all of our other categories. Appliances would have been our strongest category on Black Friday, although we saw increases in home office as well as furniture -- really, all of our categories other than television on Black Friday.

Okay, great. And then -- so based on the way that Black Friday weekend went with the promotional posture, are you guys -- can you talk about how you're going to approach your promotional posture for the rest of the holiday season?

Yes, I can, and I think it will be consistent. We will have some loss leader type smaller television product and other electronic products that we offer at highly competitive prices, but you will not see the extent of those types of products in the fourth quarter. You also will not see the small item traffic-driver type products that we offered a year ago. And I'd refer back to my comments on the products that we exited and the impact on our inventory from those products. We're not going to offer those. So I think you'll see a very consistent posture, promotional posture, for the course of the holidays.

Okay, and last question. Last year in November, I think you guys did a 1.4% comp -- I'm sorry, down 1.4% last November, yet you finished up 5.1% for the fourth quarter. Obviously, you had a strong November overall for comp sales this year, but can you give us a sense of how the comps break down from last year for December and January, to give us a sense of what we're looking at going forward?

Yes, December was low double digits and January was mid-single digits up.

Okay, great. Thank you.

David Magee, SunTrust Robinson Humphrey.

It's David Magee. Congrats on the better numbers, guys. I just have some questions regarding the assumptions for next year. These may be somewhat general, but number one, what is your assumption regarding the direction of the FICO score, say, a year from now? Do you think it sort of flattens out from where we are today? Or how do you see that?

I think the overall average score should be fairly stable, both in the portfolio and at origination. I think what will change, though, is a continued trend to reducing the percentage of low credit scores in that distribution. So, the averages won't move that much, in my opinion, but we will be continuing to work on dropping the lower part of that distribution where you have dramatically higher collection costs and charge-off rates.

Okay. Thanks, Theo. Secondly, with regard to the same-store sales assumption for next year, do you envision it being driven primarily by ASPs next year? Or do you think that traffic takes a bigger piece of that puzzle?

I'll answer -- this is Theo -- I'll answer part of that question, then I'll turn that over to David. But I think in the first part of the year, you'll see increases related to ASPs because of the timing of our change in strategy and approach over the course of fiscal 2012. So I think you'll -- you will see some change in ASPs predominantly in the first half of the year. And I'll let David comment on traffic.

What's going to happen, we feel, is, is it's going to be done by category. We continue to see both unit and ASP-driven like in furniture and mattresses. The industry in January in appliances is going to take a pretty good hit in cost from the manufacturers across the board in all appliances. So that will be driven more of smaller units but bigger ASP. And we feel television will be driven by larger screen sizes, so the ASP will drop at TV business.

Do you feel like TVs will be a better category calendar 2012?

We feel, again, the ASP unit sales probably will not be there, but the ASP definitely will be there as the new 80-inch, 70-inch, 65-inch is now out there in the flat panel.

Okay. So you think sales dollars will increase for TVs for next year?

Yes, I think if you look at our overall forecast, it would imply that sales dollars for television would decrease modestly, so we're bullish on the larger screen sizes. We're not particularly bullish on unit volume for the industry.

Thank you. And then the last question, just -- as you open stores next year, could you refresh our thinking on the economics that you expect, in terms of the investment and furnish your performance metrics?

Yes, we actually covered that on our last conference call and I don't think anything has changed in our thinking about the performance. We would anticipate that the locations that we open would above-average sales potential for Conn's stores, so call it $14 million, I think is what we showed last time. But we'd expect sales volume in the $12 million to $20 million range for these stores.

We would expect to have a total investment in these locations of a little over $1 million. And we'd expect very rapid payback, given the types of locations that we're looking at. So the stores that we're looking at would have, again, above-average potential for our stores and would mirror many of the better-performing stores that we have today, with similar demographics in the local market area that would enable us to capture the full value of our credit offering.

Great. Thanks, Theo, and good luck to the holidays here.

Thank you.

Scott Tilghman, Caris & Company.

Just wanted to check -- we've seen sort of a slight pickup in that service agreement give-back that you're now recognizing with the segment reporting. I apologize if you covered this before, but is any of that tied to the FASB accounting change? Or is it -- is there something else going on there?

It's two things and you hit on it. The first thing, the biggest piece, is certainly related to the TDR accounting -- probably call it $2 million of that. And then the bad debt reserve increase related to the acceleration of charge-off, that contributes a portion also.

Great. Then secondly, just looking at guidance for next year, the retail gross margin guidance looks pretty healthy. Can you comment on -- what portion of that is tied to continuing to be a little bit more rational on the promotional front, and then what is going to be tied to expected mix?

The gross margin that we've forecast next year really does not include a significant change in mix. It really reflects our current strategy on promotions and our current mix. To the extent that we improve mix, that's an opportunity for those -- the achieved gross margins to be better than the forecast. That's really not the basis for our forecast.

All right. Thank you.

Thank you.

Rick Nelson, Stephens Inc.

I'd like to ask about the credit business. The receivables balance was down about 9%; that's been a trend, I guess, for a few quarters now. But the guidance is assuming a recovery in the receivables balance in the fourth quarter and as well as next year. I'm wondering if you can comment both on the decline and the expectation for a recovery?

Absolutely, Rick. So, since July, the portfolio balances up about $6 million, so we have started to reverse that trend with the -- certainly, the higher sales volume. And then the finance penetration this quarter running a little closer to 60%, which you might remember last quarter, we updated our target of 55% to 60%. So as we see sales uptick and the finance penetration in the -- in or around the 60% range, we would expect to continue to see the portfolio grow.

And we did see portfolio growth in November.

Yes.

Got you. And then as well on the factors that are driving the delinquencies and the improvement in cash collections, do you think that's more on the front-end with the extensions? Or on the collection side? Or do you see some improvement in the economy where the consumer is making more timely payments?

I think what we see with the consumer is more stability. You see lower rates of layoff, even though the overall unemployment rate hasn't changed significantly. So I think the improved stability in the consumer's job status is reflected in better payments. Then I'd also say that our improved underwriting over a period of years now has benefited. And the other factor is we stopped some time ago, using promotional credit -- long-term promotional credit on our books, and that also is benefiting our payment rates.

So as an example, we used to do no-interest programs for customers as long as 36 months. And now the programs we do don't extend beyond 12 months. And so that also provides a benefit to our payment rate.

And then as it relates to the guidance for next year, any general industry comments about the overall environment for TVs and appliances? Are you anticipating the industry to be up in those categories?

The first thing I'd say is our performance in recent quarters has been different from the market as a whole. And so it's hard for us to get a clear judge from our business -- a clear judgment from our business on the market trends. But I would say that in thinking about guidance, we did not assume a general market improvement for any of our major categories.

Now, we expect our overall macro view would be television will continue to be challenging, although there's some energy with the larger screen sizes. Appliances will continue to be challenging with the minimal housing starts and other factors. And furniture and mattresses will continue to be challenging. So we've assumed that we're going to capture market share, in effect, rather than made an assumption that we're going to see a significant improvement in economic conditions.

Got you. And then finally, are you contemplating any additional refinancing, say, over the next six months?

When you're in the consumer finance business, I think you look at financings all the time. But our position, having just extended our ABL agreement and increased the sizing, our position right now would allow us to only pursue opportunities opportunistically and where we see a significant benefit from those opportunities.

So we're going to continue to look at the market. And if we see opportunities to improve our financing posture, both in terms of availability and access to different markets that give us more security in our funding sources, we'll consider pursuing those.

Terrific. Thanks a lot. And good luck this holiday season.

Thank you.

(Operator Instructions). Jordan Hymowitz, Philadelphia Financial.

Thanks for taking my question. Theo, congratulations, by the way, on the job, and hopefully, the commute isn't too long.

(laughter) Thank you.

I have a question on slide 6, if you don't mind. I'll wait till you get there.

Go ahead.

Okay. So, first of all, delinquency by credit score. Define delinquency -- how many days?

That is 60-plus delinquency.

Okay. And what percent of those 60-plus delinquency eventually becomes charged off, would you say? Of the lower number, the 40.9%?

Well, Jordan, I think I'd look at the relationship between the two numbers on that slide.

Well, no, because you've got a recovery rate in there, too.

Our recovery rate is minimal, less than 10% currently. So (multiple speakers) -- I think that's a pretty good reflection that of the 40%, that 20% of that ultimately is going to go to charge-off. But we can get you an accurate estimate of that amount.

Okay. So about half between 60-plus and 270 gets made current again?

Yes.

Now, once its delinquent, are you actively -- once you get delinquent status, are you actively repossessing those loans? Or was there a price that you say I'm not going to repossess? In other words, is there a price point or a dollar amount where you actively go out and collect versus write them off?

Yes, they're -- we're going to evaluate the potential of recovery. We also have to deal with the state restrictions on our repossession ability, and how we manage that process and the cost of repossession. But we're not going to repossess every single delinquent loan by any means. We're going to selectively repossess where we see a recoverable value and opportunity to demonstrate our willingness to repossess product.

Okay. And of that -- define the [5 to 525] -- you're no longer doing that any more; is that -- that's done by RAC?

We would do -- I think our current cut-off score is 530, so, yes, we wouldn't do anything above -- below 525 today. That may be effective at the end of this month, I might get confused. But we would do minimal business there, and the only business would be with an existing customer with a proven payment history with us. And that would be business that would be an opportunity for RAC. So in this quarter, we're going to tighten our underwriting standards further and have already -- we're doing it in two steps. But that should create additional opportunities for RAC. And hopefully, we'll still capture some of those customers through RAC rather than financing on Conn's credit.

So the 8% losses from the [5 to 525] would now be RAC'd as well as anything below that, which would have higher losses would now be on their balance sheet versus yours?

Yes.

So in other words, your credit metrics should look better, just by the mix shift up with all else being equal?

That's correct.

Thanks, buddy.

All right, thank you.

I'm not showing any other questions in the queue. I would like to thank everyone for their participation and have a wonderful day. You may now disconnect.

Thank you.

Thank you.