Conn's Inc (CONN) 2019 Q1 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 fiscal quarter ended April 30, 2018. My name is Candace, and I'll be your operator today. (Operator Instructions) As a reminder, this conference call is being recorded.

The company's earnings release dated June 7, 2018, distributed before market open this morning, can be accessed via the company's Investor Relations website at ir.conns.com.

I must remind you that some of the statements made during the call are forward-looking statements within the meaning of the federal securities 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 CFO. I would now like to turn the conference call over to Mr. Miller. Please go ahead, sir.

Good morning, and welcome to Conn's First Quarter of Fiscal Year 2019 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.

I am encouraged by the excellent start to fiscal year 2019. The first quarter reflects strengthening results across both segments of our business. The retail segment experienced improved same-store sales trends and record first quarter retail gross margin. With each passing quarter, the credit segment continues to improve as the portfolio benefits from higher yields, lower losses and reduced interest expense.

GAAP earnings per diluted share were $0.39 for the first quarter, representing the strongest start to the year that Conn's has experienced since fiscal year 2016. Momentum is accelerating across our business, and we believe fiscal year 2019 will be a strong year for the company.

So let's look at our first quarter results in more detail, starting with our credit business.

Positive credit trends and portfolio composition, combined with the seasonal benefits associated with tax refunds produced credit segment operating income of $1.6 million during the first quarter of fiscal year 2019. This is the first quarter of positive credit segment operating income in 4 years. Our credit spread, which is the difference between interest income and fee yield and net charge-off percentage, increased to 870 basis points for the first quarter, representing the highest spread since the first quarter of fiscal year 2015 and brings us closer to our goal annual -- of an annual credit spread of 1,000 basis points.

Interest income and fee yield was a record 20.8% for the first quarter of fiscal year 2019. We believe current originations are already producing a net yield between 23% and 25% as they benefit from higher interest rates and better charge-off performance. As more of these receivables season into the portfolio, we are confident the entire portfolio will be between 23% and 25% by the end of second quarter of fiscal year 2020.

Turning our attention to portfolio performance. First quarter credit trends were strong as a result of enhanced underwriting, the investments we have made to our credit platform and the seasonal benefits associated with tax refunds that occur during the first quarter. Conn's 60-day-plus delinquency rate declined approximately 30 basis points from the prior year period, representing the third consecutive quarter that this rate has declined. In addition, the dollar balance of 60-day-plus delinquency was at its lowest level in 2 years.

First pay default trends continue to improve. And in 20 of the past 21 months, the rate of first pay defaults was lower compared to the corresponding period in the prior year. The only month where we experienced an increase was in August 2017, which reflects the impact from Hurricane Harvey. The re-aged dollar balance declined by $5.5 million over the past 3 months. The percent of re-aged balances to the total outstanding portfolio increased 20 basis points from the fourth quarter, primarily due to a 2.2% reduction in the portfolio balance driven by tax season payments.

The credit performance of re-aged accounts, including TDR accounts, is improving. The 60-day-plus delinquency rate of TDR balances was 160 basis points lower than the same period in the prior year, and this marks the third consecutive quarter that the delinquency rate was lower on this portion of the portfolio.

Looking at losses, we had our lowest level of charge-offs in 10 quarters. The reduction in charge-offs was driven by improved underwriting, favorable roll rates and seasonality. The level of charge-offs also benefited from the investments we have been making to improve our recovery capabilities.

As you may remember, starting in the fourth quarter of fiscal year 2015, the company stopped selling charged-off accounts. However, it never adequately invested in the capabilities or strategies to pursue recoveries. Since the fourth quarter of fiscal year 2015, we have accumulated a balance of charged-off accounts of over $700 million and therefore have a meaningful opportunity to convert charged-off accounts to recovery dollars.

With this in mind, approximately a year ago, we began building a robust recovery process and infrastructure to pursue this large balance of charged-off accounts, and I am pleased to report that our investments are paying off.

During the first quarter of fiscal year 2019, we collected $5.5 million of recoveries compared to $2.2 million for the same period last fiscal year. In fact, we collected almost as much in recoveries during the first quarter as we did during the entire 2017 fiscal year, demonstrating significantly improved performance in this area.

As we have historically stated, favorable recovery performance will lower loss curves on older vintages where we did not sell charged-off receivables. Towards the end of an origination vintage, the outstanding balance reaches 0 as accounts pay off or charge off. However, recoveries continue and can even increase as legal actions are taken and payment plans are established. Therefore, as the recovery stream builds and payments flow through the origination vintages with low or 0 balances, loss rates will move lower for these periods.

During the first quarter, this situation happened for the first time in our history as the cumulative loss rate on our fiscal year 2014 and 2015 vintages declined by 10 basis points as a result of these recoveries. So what is important for investors to understand: losses in our more recent vintages will go slightly above our terminal loss expectations before they begin to trend downwards as those vintages benefit from more robust recoveries at the end of their life. It's also important to note that a portfolio vintage is considered terminal only when the portfolio balance is 0, and we are no longer receiving recovery dollars, which can take up to 5 years from when the last charge-off occurs.

Based on current portfolio trends, improving recovery expectations and enhanced collection capabilities, cumulative charge-offs for fiscal year 2018 continue to perform better than the prior year. As a result, we expect the terminal loss rate for our fiscal year 2018 origination vintage to be in the mid-12% range. Overall, loss trends are encouraging and demonstrate current underwriting standards are appropriately controlling risk.

As you can see from today's results, Conn's has created a strong credit platform that is producing significantly better financial results. We are progressing towards an annual credit spread of 1,000 basis points, which combined with the proceeds of insurance income, we believe can generate a roughly breakeven credit business. In addition, better credit segment performance is helping us deleverage our balance sheet and reduce our interest expense, even as benchmark rates rise.

I am pleased with the successful transformation of our credit segment and expect our strong performance here will continue. With a stable credit platform now in place, we continue to spend more of our efforts on driving sustainable and predictable growth in our highly profitable retail segment. So let's look at our retail performance for the first quarter of fiscal year 2019 and review why we are so excited about the tremendous opportunity to grow retail sales.

Conn's retail performance remains strong, driven by an improving same-store sales trend and record retail gross margin. Same-store sales for the first quarter of fiscal year 2019 of negative 3.5% came in at the higher end of our guidance and benefited from positive same-store sales in April. This was the first month of positive same-store sales in over 2 years and reflects a continued sales improvement.

Sales through our lease-to-own offering represented 7.5% of total retail sales in the first quarter, up from 6.5% of total retail sales in the fourth quarter. Since we started our full transition to Progressive, lease-to-own sales have grown each quarter and are already higher than the historic average we experienced with our former partner. We continue to believe lease-to-own sales can ultimately get to 10% of total retail sales on an ongoing basis.

Turning to retail segment profitability, Conn's had a record first quarter retail gross margin, which continued to benefit from favorable mix within product categories, higher product margin and our focus on initiatives to improve performance and efficiencies.

For the first quarter of fiscal year 2019, our retail gross margin of 39.6% exceeded our expectations and increased 120 basis points from the first quarter of the prior fiscal year.

As you may recall, on our fourth quarter conference call, we provided information on our sales funnel and opportunities that we have today to drive retail growth going forward. After a significant amount of development and testing during the first quarter, we started implementing several strategies aimed at growing sales. Within our consumer electronics category, we have rolled out new gaming bundles across our store base that feature PlayStation, Xbox and Nintendo consoles. We believe gaming offers customers a compelling product group to add as an attached purchase and helps us capitalize on our credit utilization strategies.

Our sophisticated credit platform and enhanced underwriting team assembled over the past 2-plus years makes us confident in our capabilities to manage loss rates that have been historically associated with gaming products. In addition, customers can choose to finance gaming bundles through our third-party financing options. Initial results of this program from both a retail and credit perspective have been encouraging.

In select stores, we are also currently testing additional product categories, such as robotic vacuums and smart home products. If successful, we will expand these products across our store base throughout the current fiscal year. Within our furniture and mattress category, over the past 2 months, we have expanded the number of home decor and accessory products and now have a more complete and appealing offering of artwork, mirrors and other home accessories.

Increasing the number of products on the sales floor is only part of the equation though. We are also ensuring that we are providing our sales force with the proper resources to drive incremental sales opportunities. We are actively measuring attachment rates across our store base throughout multiple categories and down to the individual salesperson. We have also developed incentives to drive attachment sales and increase credit utilization levels. Every 100 basis point increase in the credit utilization rate of 47% equates to 150 basis points of higher annual same-store sales.

In addition to these merchandising and credit utilization strategies, we are focused on a number of additional opportunities to drive sales growth. As we outlined on our fourth quarter call, this includes improving our approval rate by better analyzing applicants for Conn's in-house credit offering and increasing our customer conversion rate. All of these efforts are being supported by upgrading the quality of field management; improving associate training; enhancing the customer experience; and making it easier for customers to interact with us. These are some of the many strategies we are pursuing to enhance our retail execution.

We are excited about the significant opportunities that we have to grow sales and expect same-store sales for the second quarter to be between 0 and positive 3%. As we have continually communicated, we believe our differentiated, compelling and highly profitable retail model will produce sustainable low single-digit same-store sales. Our guidance for second quarter shows that we are making progress against our sales goal, and I am encouraged by the direction our retail business is headed.

Finally, we continue to enhance our leadership team, and I am pleased to announce that Eddie Combs has joined the company as Chief Marketing Officer. Eddie brings over 30 years of related business and marketing experience to Conn's. Most recently, Eddie was head of Consumer Marketing at Samsung Electronics America. And before that, as Chief Marketing Officer for Sears Home Appliances and Consumer Electronics. His experience and background in 2 of our major product categories will enable us to take our marketing efforts to the next level.

To conclude my prepared remarks, fiscal year 2019 is off to an excellent start, and momentum is growing throughout our business. We have successfully transformed our credit segment into a sophisticated, well-run and compelling component of our overall business model.

Over the past 2-plus years, we have talked about a stable credit platform, supporting a retail business that can produce positive, low single-digit same-store sales and controlled new store growth. I am pleased with the progress we are making and the long-term opportunity to produce consistent, predictable and highly profitable retail sales. As a result, we believe we are extremely well positioned to create significant long-term value for our shareholders.

With this, let me turn the call over to Lee.

Thanks, Norm. Consolidated revenues of $358.4 million for the first quarter of fiscal year 2019 increased 0.7% from the same period last year. GAAP net income improved significantly to $12.7 million or $0.39 per diluted share for the first quarter of fiscal year 2019 compared to a loss of $2.6 million or $0.08 per share for the prior year quarter. This represents our fourth consecutive quarter of profitability.

On a non-GAAP basis, adjusting for certain onetime charges and credits and losses from extinguishment of debt, net income for the first quarter of fiscal year 2019 was $0.40 per diluted share compared to a loss of $0.05 per share for the same period last fiscal year. A reconciliation of GAAP to non-GAAP financial results is available in our first quarter press release that was issued this morning.

First quarter of fiscal year 2019 retail revenues were $275.8 million, which declined $3.6 million or 1.3% from the same quarter a year ago. For the first quarter of fiscal year 2019, same-store sales were down 3.5%. Retail gross margin as a percentage of retail revenues for the first quarter of fiscal year 2019 expanded by 120 basis points from the same quarter in the prior year to a first quarter record of 39.6%. The improvement in gross margin is primarily due to improved product margin across most product categories, favorable product mix and continued focus on increasing efficiencies. While we believe there are more opportunities to grow retail gross margin over time, we do not expect retail gross margin will improve at the same pace and magnitude Conn's has been experiencing.

The mix of sales from the higher-margin furniture and mattress categories represented 38.9% of our first quarter of fiscal year 2019 retail product sales and 55.1% of our product gross profit. We continue to believe the longer term goal of 45% of retail product sales from the furniture and mattress categories is achievable.

Retail SG&A dollars increased by 5.1% in the first quarter versus the same quarter in the prior fiscal year, while retail SG&A as a percentage of revenue deleveraged 170 basis points to 28.2% due to lower sales and higher store occupancy costs. Although we deleveraged on a percentage basis, our absolute SG&A spend only increased by $3.8 million compared to the prior fiscal year, even with additional stores.

Turning now to our credit segment. On an as-reported basis, finance charges and other revenues were a first quarter record of $82.6 million for the first quarter of fiscal year 2019, up 8% from the same period last year, despite a 0.3% decline in the average portfolio balance. The increase versus last year was due to a record yield of 20.8%, an increase of 260 basis points from last year, partially offset by a 32.8% decline in insurance commissions.

As expected, insurance income declined over the prior year period primarily due to the decrease in retrospective commissions as a result of higher claim volumes related to Hurricane Harvey. It will continue to take several quarters of lower claim performance for Conn's to benefit from retrospective insurance commissions.

SG&A expense in the credit segment for the first quarter increased 13.9% versus the same quarter last fiscal year and as a percentage of the average customer portfolio balance annualized was 9.9% compared to 8.6% for the same period last fiscal year.

Provision for bad debts in the credit segment was $43.9 million for the first quarter of fiscal year 2019, a decrease of $11.8 million from the same period last year. The 21.2% decrease in the credit segment provision was primarily the result of lower charge-offs and higher recoveries. The bad debt allowance as a percent of the portfolio balance at April 30, 2018, was 13.7% compared to 14% at April 30, 2017.

Interest expense for the first quarter was $16.8 million, which was a decrease of $7.2 million or 29.9% from the same period last year. This is the fifth consecutive quarter where our interest expense has declined sequentially and the lowest quarterly interest expense in the past 11 quarters as a result of continued deleveraging and reductions in our all-in cost of funds. For the first quarter, annualized interest expense as a percentage of average portfolio balance was 4.5% compared to 6.4% for the same period last year.

Average net debt as a percentage of average portfolio balance was approximately 67% compared to approximately 73% for the same period a year ago. On a related note, I am very pleased with the terms of our amended and restated credit facility that we closed on May 23. In addition to extending the maturity from 3 years to 4 years, the amended credit facility provides us with a higher advance rate on our receivables portfolio. The combination of better economic terms and smaller facility size is expected to save the company over $1 million per year in interest expense.

Over the past 2 years, we have focused on deleveraging our balance sheet, diversifying our sources of capital and reducing our all-in cost of funds. We have made progress on all 3 objectives. As a result, we proactively reduced our amended credit facility size to $650 million, which still provides ample capacity to execute our growth strategies.

On a pro forma basis, under our new credit agreement, as of April 30, we would have had approximately $283.5 million of immediately available borrowing capacity, which is approximately $50 million higher than what was available under the terms of our old credit facility. As a result of our amended credit facility and improving business performance, I am pleased to report that S&P recently upgraded the rating of our senior unsecured notes.

In addition, our 2017-A Class A and B notes were recently upgraded by Kroll Bond Rating Agency, demonstrating strong underlying account performance and increasing confidence in our receivables by the rating agencies. ABS notes currently outstanding include our 2017-A Class B and Class C notes and all outstanding classes of our 2017-B notes. With the success of our ABL renewal and continued deleveraging, we now anticipate completing only one ABS transaction during fiscal year 2019.

Conn's capital position continues to improve, and this is the strongest capital position Conn's has had since the new leadership team came to the company 2 years ago. We still remain focused on deleveraging our balance sheet, diversifying our sources of capital and proactively reducing our interest expense.

With this overview, I'll turn the call back over to Norm to conclude our prepared remarks.

Thanks, Lee. We are extremely excited about the direction we are headed. Our strong first quarter results demonstrate the growing momentum in our business. As a result, we believe fiscal year 2019 will be an excellent year for the company and our shareholders.

With that, operator, please open the call up to questions.

(Operator Instructions) And our first question comes from John Baugh of Stifel.

I wanted to -- first, on the recoveries. You mentioned progress there. And I think a cumulative pool now that's like $700 million that's been charged off if I heard that right. I'm trying to get a sense for what amount of that, that you're really going after.

And you're annualizing at a better than $20 million pace in recoveries, I guess, using the latest quarter. Any sense of what your goals are there? Or -- and how long it'll take to get to whatever that goal is?

Sure, John. A couple things. First, you're right. The $700 million that I referenced in my -- in our prepared comments, represents all the charged-off accounts since we last sold accounts. So going back almost 4 years ago.

And as far as what we think that potential is, clearly, we're not prepared to put out there hard numbers. But what I will say is that the run rate that we've seen here in the first quarter, we don't think we've reached our max potential there. We think there's still opportunity and over $20 million on an annual basis is certainly a starting point for us.

Okay. And then on the re-aged, and appreciate the color about the performance of those trending better. I assume, though, on an absolute basis, they perform worse than a non-reaged account. So I guess I'm looking for some affirmation or contradiction on that.

And then, can you tell us again what, if any, the provision rate, how that's influenced from an account going into re-aged? I know you become current, and you're not 60-day or whatever past due. But it was up over 500 basis points, backing out Harvey.

And just curious -- and that's by my calculation around $75 million. How does that pool perform? And then what's the accounting sort of as we walk through and touching on the provision if there is any adjustment to the provision when you move an account into that status?

Yes. John, it is Lee. So with regards to an account that's been re-aged, obviously, there's no question there's more risk to a balance that has been re-aged. And again, we do separate out the Harvey accounts that were re-aged with our goodwill due date extension during that tragic time period. But those accounts, again, as we've spoken about before, have been performing certainly much better than our typical re-aged pool.

With regards to your accounting question, from a re-aged perspective, that doesn't immediately have a different accounting impact. It's when it becomes a troubled debt restructuring, and that's when it's been touched 3x or more from a re-aged perspective. So that, obviously, has a much higher provision rate once it's touched that number of times.

But in addition to that, John, as we mentioned in the script, even the TDR accounts, when you look at what's happening from a delinquency standpoint, within that group of accounts, they are performing materially better over the last several quarters as well.

Okay. So just to be clear, the -- is the TDRs that get a higher provision rate? Can you -- do I understand that correctly? And then what sort of are those numbers doing? I understand they are trending better in terms of performance, but clearly, they have a higher charge off. I'm trying to get a sense of how that's influencing the provision. And is that something that's playing a role in the provision rate for the Q2 guide being, I think, higher sequentially and year-over-year?

Yes. So with regards to -- again, a troubled debt restructuring, it does have a higher reserve rate that we do apply to it. And again, not to get too into the weeds here, we do lifetime losses on a troubled debt restructuring account versus the next 12 months on a non-TDR account.

With regards to -- if you think about our provision and the guidance we gave in Q2 versus sequentially and then year-over-year. Sequentially, the answer gets back to, one, seasonality. Q1, obviously, we have less charge-offs, we have the tax season, et cetera, we're able to cure more.

And then as you look at, historically, year-over-year, you -- remember last year, we had a change in our reserve methodology allowance. And that gave us a onetime benefit that flowed through. So if you back that out, you'd actually see a better performance.

And then finally, what I would tell you is, and it's important for everyone to realize as we start to go back into growth mode as our overall balance, our portfolio balance increases, our allowance size, our dollar size will increase, which will mean that our provision dollars will ultimately increase.

And so people -- since we've been in a static or even shrinking state, you're seeing those dollars come down. Now as we start to grow, you're going to see provision dollars start to rise. The main focus is going to be on the rate, which we believe will be stable if not better so...

Great. And last one quickly. The new stores you're opening, how were they tracking on first year revenue, number one? And number two, what's -- they're all I think in existing markets. And just curious as to what, if any, cannibalization do you anticipate to the comp from that?

Sure. Yes, so we've opened, as we mentioned, 2 stores so far. They're performing very, very strongly. They're in our existing markets, specifically in the state of Texas. And there is some cannibalization from Austin and San Antonio markets. But net-net, when you look at, from an overall sales standpoint, those stores are huge wins for us out of the gate here in fiscal year '19.

And our next question comes from Brian Nagel of Oppenheimer.

Congrats on a really nice start to the year. So my first question on retail. I wanted to ask -- and Norm, you discussed some of the, I guess, merchandising initiatives in your prepared comments.

But if you look at the progression, clearly, the retail business improved from Q4, then through Q1. And then given your guidance, presumably here into Q2 as well. Is there anything you can really point to that, that's been either from a product standpoint or maybe specific initiative standpoint that sort of, say, supported that trajectory in a relatively short amount of time?

And then along those lines, clearly, if you look at the results of other retailers, I think consumer spend has been getting better. You're in what seems to be a better spending part of the country. Is it -- how -- to what degree is just an overall better environment helping you as well?

Sure, Brian. First, I'll answer the second part first. I would say that we certainly, I think, are feeling some tailwinds from a macro standpoint, both with the tax cuts and the increased income that folks are seeing in their paycheck. And then second -- from a secondary standpoint, the state of Texas, even post-Harvey, continues to see economic growth, and we certainly think that, that's beneficial.

As far as the first part of your question on can we point to any one thing, truly, I would say it's not really one single element. While I tried to identify multiple strategies that we're attacking within the sales funnel, we have so many opportunities that are within our control from a credit utilization. And we talked about some of the strategies there with some of the new products.

There's also retail execution from a convergence standpoint customer-wise, the lease-to-own opportunity, other merchandising things such as the accessories that I mentioned. So it's really from a -- it's not any one single item there. It's really a combination of all of those strategies.

And frankly, why we're so bullish about the future because the opportunities in every single one of those areas, we've only scratched the surface of what we believe our opportunity is.

Got it. And then sort of as a follow-up to that. Looking through the results, the home office category performed significantly better than the other categories you outlined. I apologize if you addressed this already, but is there a reason for that? Or something to explain that?

Really, the reason behind it goes back to merchandising. When you look at -- we relooked at that category about 7 or 8 months ago. We added a couple new items. We redid our entire assortment there. And that's really what's driven not just this past quarter, if you go back the past couple of quarters, you see a strongly improving trend there. And it's really been driven by the merchandising strategy first and foremost.

Now lease-to-own also -- that's a high category for lease-to-own from a mix standpoint. So as lease-to-own gets stronger, that will also help both the electronics category and the home office category.

Got it. And then just a final question. I think, Lee, you talked about the gross margins in your comments and the comment you made is not to expect these same type of gains. So I guess the questions I have there are, one, I mean, how should we think -- what type of gains should we be expecting into retail gross margins going forward? And maybe remind us again, just what the drivers have been there, just given the strength in that line?

Yes, sure. Again, what we try to do is make sure people didn't go ahead and extrapolate out the margin increases that we've had. But we still do believe there's opportunity. And the main driver, obviously, as we've talked about previously is mix. We look at increasing mix in furniture and mattress and the higher margins we're able to get from those categories.

And I would tell you, even, Brian, on the -- for example, the introduction of the new products from a gaming standpoint, we've introduced them differently than what they -- when we had carried them before. They're now in bundles as opposed to just consoles. So they would include a console, headset, some software. And it's packaged from a price standpoint and a margin standpoint that's actually accretive to the overall electronics category margin.

So even as we're looking at adding new products and relooking at our merchandising mix, we're very focused on where the margin is and where we believe we still have opportunity in addition to, as Lee mentioned, the tailwinds we're going to have as we continue to mix from a stronger standpoint into furniture and mattress.

And our next question comes from Rick Nelson of Stephens.

My congratulations as well. I'd like to follow up on same-store sales. If you could provide the trend that you saw in April as well as May and early June as it relates to your guidance for 2Q.

Yes. So we've tried to get away from giving individual month same-store sales while we focus on quarter. As we mentioned, April was positive, and we were happy to see that.

What I would say is we're pleased with where we're at with May and Memorial Day and the start of June, and we've incorporated that into why we're reflecting positive same-store sales for the quarter, which would be the first time that we will have done that, if we're able to execute on that, in almost 2.5 years.

And would you expect each of the quarters will have positive same-store results? I know you've got some tougher compares coming in 3Q.

Yes. I mean, clearly, we're not projecting out the third and the fourth quarter. There is -- the third will be a little lumpy because of the Harvey piece, but we'll share that, what our expectations are, at the second quarter. But our expectations are, as we begin to get traction on all the initiatives and strategies that we've talked about that -- barring other macro things that are happening, we're bullish about the future from a same-store sales standpoint is what I would say.

Okay. If you could update us on progress of how they're executing relative to your plan. We've been pretty stable here at about 7.5% of sales. I know your goal is 10% plus. What it is going to take to push that to the next level?

Yes. Couple things on Progressive. First, we did show a 100 basis point improvement from the fourth quarter to the first quarter from 6.5 to 7.5. And again, just as a recalibration to everyone, that's already 200-plus basis points above the 3-year average that we had with our prior partner.

So even as we sit here today, just one year into the program, we're dramatically better than we ever were with the prior partner, reinforcing that we made the right decision and the right partner choice when we made the change a year ago.

Now having said that, it's not linear and it requires a great deal of retail execution to get there, we still believe 10% ultimately is the right number for our lease-to-own. As far as what time frame that is, the last 2.5% are going to probably be more challenging for us than the first 7.5%, especially as we improve on the Conn financing and the Conn sale standpoint because that gives our sales, our commission sales force opportunities -- increased opportunities in frankly, a lease-to-own transactions, a lower-priced transaction or lower-priced ticket.

And it's a little bit longer sales transaction. So it requires a very, very high level of execution, especially when we're delivering from a Conn's financing side of the house to get to that 10%. But still believe, ultimately, that, that's the right range for us to be in from a lease-to-own balance of sales standpoint.

Finally, immigration concerns. You've mentioned that as a headwind on past calls. I didn't hear that on today's call. Do you think we fully lapped those concerns with your consumer?

We have. We believe we've lapped. And from what we've seen, we lapped in the February time frame, the significant drop that we saw from a year ago.

Now having said that, we -- and it's been fairly stable and consistent since then. We do remain concerned because our consumer demographic is a significant portion there from that -- from an immigration standpoint is impacted there. And depending on how that unfolds and what Washington does going forward, ultimately, we don't see future issues in that area. But at least to this point, it's been fairly stable and consistent the past several months.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Mr. Miller for any closing remarks.

Thank you. First, I want to thank our 4,000-plus associates for their hard work and their contributions day in and day out. They are truly the bedrock of all we do. And I also want to thank you for your interest in the company. We look forward to talking with you at the end of our next quarter. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.