Conn's Inc (CONN) 2020 Q4 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 January 31, 2020. My name is Michelle, and I'll be your operator today. (Operator Instructions) As a reminder, this conference call is being recorded. The company's earnings release dated April 9, 2020, was distributed before market opened this morning and can be accessed via the company's Investor Relations website at ir.conns.com.

During today's call, management will discuss, among other financial performance measures, adjusted EBITDA, adjusted net income and adjusted earnings per diluted share. Please refer to the company's earnings release that was issued today for a reconciliation of these non-GAAP measures to the most comparable GAAP measures.

I must remind you that some of the statements made in this 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 the 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 COO; and George Bchara, the company's CFO. I would now like to turn the conference call over to Mr. Nick (sic) [Norm] Miller. Please go ahead, sir.

Good morning. And welcome to Conn's Fourth Quarter and Fiscal Year 2020 Earnings Conference Call.

I want to start today's call by reviewing the rapidly evolving COVID-19 crisis before turning the call over to Lee and George, who will provide additional details on the quarter and our response to the current economic and business landscape as a result of the COVID-19 situation.

The COVID-19 health crisis has had a significant impact on our daily lives, and our hearts go out to anyone who has been impacted by the illness. We are taking decisive actions to respond to the near-term challenges that have occurred since the crisis began. The health and safety of our customers and employees has always been our top priority. We are closely monitoring federal and state guidelines to ensure we are doing our part in helping prevent the spread of the illness while focusing on keeping our stores, distribution centers and service operations open to provide essential products and services that help our customers adjust to in-home activities and lifestyles.

As of today, nearly all our showrooms are open, and I am pleased that we can continue supporting our communities by offering necessary homegoods and affordable financing programs. We are in regular contact with our state and local officials to ensure our stores remain open to provide essential products such as refrigerators, freezers, washers, dryers, air conditioners and home office products. Critical to our response to the COVID-19 crisis are the actions we have taken over these past 4 years to improve our balance sheet and credit operations, which provides us greater flexibility to successfully operate our business through this period of uncertainty.

For over 130 years, Conn's has provided essential products and services that improve the lifestyles of our local communities, while supporting customers in good and bad times through our affordable financing options. In fact, our credit business started over 50 years ago to help Texas oil workers finance essential products for their homes during difficult market cycles. We are proud of the strong relationships we established during challenging periods as our products, financing options and support help our customers recover and our communities rebuild.

I'm extremely pleased and grateful with how our team has responded. I want to thank all our associates for their dedication through these uncertain times. Demonstrating our commitment to our associates, I'm pleased to announce we have temporarily increased wages by $2 an hour to support our frontline employees through this crisis.

In addition, we are temporarily reducing the salaries and compensation for certain business leaders. This includes a salary reduction of 20% for our named executives and Section 16 officers, and a 25% reduction in my salary. Throughout our history, Conn's business model has demonstrated its resiliency. While our fourth quarter credit and retail results were disappointing, our near-term objective is focused on navigating the unprecedented challenges created by the COVID-19 crisis. We remain committed to helping our customers, employees and communities in this time of need. Our experienced leadership team, profitable operating model and strong balance sheet provides us with the necessary platform and resources to respond to this challenging period.

So with this overview, let me turn the call over to Lee, who will provide more details on our fourth quarter operating results and the specific actions we are taking to respond to the COVID-19 crisis.

Thanks, Norm. Our fourth quarter financial results did not meet our expectations, and we are disappointed with the performance of our credit and retail segments. During the fourth quarter, we experienced declining credit trends associated with higher risk vintages, an increase in new customers and difficulties in collection efforts related to the implementation of our new loan management system. As a result, we experienced an increase in first payment defaults, 60-plus day delinquencies and re-aged balances. In addition, higher charge-offs during the fourth quarter impacted our credit spread, which declined to 790 basis points for the fourth quarter of fiscal year 2020 compared to 890 basis points for the fourth quarter last fiscal year. In late March, John Davis, President of Credit and Collections, resigned from the company, and I have temporarily assumed his responsibilities until a replacement is found. The difficulties in collection efforts associated with the loan management system are largely behind us, and we are focused on improving underwriting and pursuing additional programs to enhance our yield.

Looking at our fourth quarter retail results, we believe tighter underwriting standards that we announced during the third quarter impacted same-store sales by approximately 3% to 4% in the fourth quarter. The challenging market conditions within our consumer electronics category, we mentioned on our last call, also impacted same-store sales by approximately 6% to 7%. In addition, we continue to see some residual impact from Hurricane Harvey during the fourth quarter as well as the continued impact new store cannibalization has had on same-store sales. Offsetting some of the retail weakness we experienced in the fourth quarter were strong sales of appliances, accelerating e-commerce sales and the contribution of new stores.

I am encouraged that we were able to maintain retail gross margin above 40% for the fourth quarter and full year despite lower retail sales. While our fourth quarter retail and credit results are disappointing, we remain confident in our long-term opportunities. We are committed to the previous growth strategies we have communicated over the past several quarters, which includes growing our store base, increasing our e-commerce sales, expanding our product categories and leveraging our credit offerings. However, over the near term, we are adjusting our priorities to respond to the COVID-19 crisis.

So let's look at the actions we are taking in more detail. We entered this challenging period in a strong financial position. As our near-term priorities adjust, we have revised our fiscal year 2021 store expansion plans and now plan on opening between 6 and 8 showrooms this fiscal year, which is a reduction from 16 to 18 showrooms we previously announced. We have also decided to delay any new showrooms associated with our future Florida distribution center to next fiscal year. From an operational standpoint, in-store shopping hours have been temporarily reduced across our store base to provide flexibility for our employees and to allow more time for additional cleaning within our showrooms. We are closely monitoring CDC and federal guidelines promoting a safe and healthy environment for our customers and employees. In addition, as required in certain jurisdictions, we are limiting the number of customers in our showrooms at one time in practicing social distancing. Meanwhile, the investment we made throughout fiscal 2020 to our e-commerce, digital and mobile platforms have played an important role in our ability to interact with customers more effectively while improving our online user experience and providing customers with important updates and account access 24 hours a day. As customers adapt to in-home lifestyles, we have recently experienced an increase in demand for central home appliances and home office products, which have partially offset weaker demand for more discretionary categories like furniture and mattress.

From a credit perspective, the lessons we have learned from past disasters has provided us an operating framework to quickly respond to customer, operational and performance issues. For example, we utilized third-party collection companies with assets around the world, which will enable us to quickly increase capacity as the volume of delinquencies rise. In addition, many of our internal collectors and third-party resources can work remotely, which enables us to continue to operate this important function. To control delinquencies and charge-offs, we have implemented a series of underwriting changes starting in March to remove higher risk applicants, selectively increase down payments and lowered credit limits to improve performance of loans originated during this period. The investments we have made in our credit platform allows us to actively monitor portfolio trends, and we will continue to evaluate further underwriting changes to manage risks based on performance indicators.

Finally, we have launched a number of payment relief programs to help customers through the hardships they are facing as a result of the COVID-19 crisis.

To conclude my prepared remarks, while we made a lot of progress during fiscal year 2020 and saw our full year credit spread expand to 920 basis points, we experienced challenging retail and credit results during the fourth quarter, and we are disappointed with our recent performance. We believe our experienced leadership team, profitable operating model and strong balance sheet, as well as the essential retail and credit products we provide customers, will support us through the unprecedented challenges that COVID-19 health crisis has created. We are working hard to support our employees, customers and communities throughout this period. And I look forward to updating investors on the progress we are making as we respond to the COVID-19 pandemic and improve our credit and retail performance.

Before I turn the call over to George, I also want to thank our 4,100 associates across the 14 states in which we operate. On behalf of the entire leadership team, thank you for your hard work, service and dedication through this challenging period. Now let me turn the call over to George to review our financial performance.

Thanks, Lee. On a consolidated basis, revenues were $413 million for the fourth quarter of this fiscal year, representing a 4.6% decline from the same period last fiscal year. GAAP net income was $0.17 per diluted share compared to $0.91 per diluted share for the fourth quarter of fiscal year 2019. On a non-GAAP basis, adjusting for certain charges and credits, net income for the fourth quarter of fiscal year 2020 was $0.20 per diluted share compared to $0.96 per diluted share for the same period last fiscal year. Adjusted EBITDA was $35.8 million or 8.7% of total revenue for the fourth quarter compared to $67.7 million or 15.6% of total revenue for the same period last fiscal year. Reconciliations of GAAP to non-GAAP financial measures are available on our fourth quarter earnings press release that was issued this morning.

Looking at our retail segment in more detail, total retail revenues for the fourth quarter were $315.3 million, a 7% decline from the same period last fiscal year. Retail segment operating income was $35.7 million compared to $54.7 million for the same period last fiscal year. The decline in retail segment profitability was primarily a result of lower retail sales and higher SG&A expenses associated with a greater number of new showrooms and additional investments we have made to support our growth.

Turning to the credit segment, finance charges and other revenues were $97.7 million, up 3.8% from the same period last fiscal year. The credit segment loss before taxes was $28.6 million compared to a loss before taxes of $16.2 million for the same period last fiscal year. The larger segment loss -- credit segment loss was primarily due to the $13.9 million year-over-year increase in the provision for bad debt in the credit segment as a result of an increase in the incurred loss rate as well as higher first payment default and delinquency rates.

With this overview on our fourth quarter financial results, I want to discuss our current financial situation and the actions we have taken in response to the COVID-19 pandemic. We entered this challenging period in a strong financial position with diverse funding sources and ample liquidity. We have more than 2 years until our high-yield notes or revolving credit facility mature, and we recently completed a $486 million ABS transaction in November. As a precautionary measure to maintain financial flexibility, in mid-March, we borrowed an additional $275 million under our existing revolving credit facility. And as of today's call, we have over $270 million of cash on our balance sheet. We also have approximately $120 million of availability under our revolving credit facility, bringing our total cash and immediately available liquidity to approximately $400 million as of today's call. We believe that our available cash and liquidity and history accessing the capital markets give us a distinct advantage as navigate this uncertain economic environment.

From an investment and operational perspective, we are delaying or eliminating certain nonessential capital expenditures, more aggressively managing working capital levels and cutting SG&A expenses. For example, related to capital expenditures, we have significantly reduced the number of new showrooms we plan to open this fiscal year, including delaying our Florida expansion. It is important to note that our stores remain profitable even with significantly lower revenue as a result of the variable cost structure of our retail stores and high retail gross margins. On average, our showrooms breakeven with a reduction in retail revenue of nearly 60% from fiscal year 2020 levels. We believe that our retail operating model provides us with additional flexibility to navigate challenging economic period, including most recently during the 2008 and 2009 recession. We also expect to benefit from several provisions in the recently passed CARES Act, including accelerating certain tax deductions, utilizing net operating loss carrybacks at higher tax brackets and delaying the payment of certain payroll taxes. In addition, the CARES Act has a number of unemployment and employer benefits that will help provide temporary relief to many of our customers.

As a note, as you can see in the press release that was issued this morning, we have revised our unaudited financial results for the third quarter of fiscal year 2020 to reflect the correction of an error. This error has been updated in our historical financial results and did not impact full year financial results for the year ended January 31, 2020. Before providing a final comment on CECL, I want to mention that like many other retailers and given the near-term uncertainty surrounding COVID-19, we are suspending our quarterly financial guidance. As we have communicated over the last couple of quarters, we were required to adopt CECL, the current expected credit loss accounting standard on February 1, 2020. We currently estimate that adopting CECL will increase our total allowance for bad debt by 40% to 60% based on the portfolio composition and economic outlook as of February 1, 2020.

As a reminder, CECL is simply an accounting change and does not affect the cash flow or fundamental economics of our business. However, we believe that the combination of adopting CECL and the economic uncertainty surrounding COVID-19, will increase the variability of our provision for bad debt in the future and could impact quarterly segment profitability as a result of higher provisions for bad debt.

With this overview, Norm, Lee and I are happy to take your questions. Operator, please open the call up to questions.

(Operator Instructions) Our first question comes from the line of Rick Nelson with Stephens.

I know that you don't have first quarter guidance. But if you could speak to anything that you're seeing, we're 2 weeks to quarter end in terms of the sales, the credit book delinquencies before and after the COVID outbreak?

Sure, Rick. I'll start on the same-store sales trends, and then Lee can touch on the credit side of the house. On the same-store sales, prior to the coronavirus hitting, we were seeing same-store sales trends had improved from the fourth quarter trends. Once the virus hit, we saw modest improvement from that trend initially in the same-store sales, but a significant mix shift away from more discretionary purchases, if you will, furniture and mattresses, and towards more essential purchases appliances, home office products. In the last several weeks, I will say, it's been fairly volatile, but we've seen same-store sales settle in at approximately down 30%, driven by several factors. Obviously, as Lee mentioned, our reduced hours in our showrooms, about 60% of our stores have limited occupancy of how many customers and/or associates can be in our stores at any one time. Also, as Lee mentioned, it was about a month ago, we started a variety of credit tightening efforts in anticipation of credit pressure with the coronavirus. And we're estimating that, that impacted about 16% -- 15% to 16% of sales, at least the underwriting changes that we've done to this point. We continue to examine the portfolio on a daily basis and determine and be comfortable with where our underwriting is at. The customer traffic in the stores are down slightly more than the same-store sales trend as customers are coming into the stores from an intent to purchase standpoint, probably at a higher level than it typically is. So we're converting more of the customers that come in. Applications online are up dramatically year-over-year by 30% plus. I will say, the dynamics are changing by the day and by the week. As I said earlier, high degree of variability. For example, the shopping patterns are very, very different than what they were pre-coronavirus. During the week, we get much heavier traffic than we do on the weekends. The weekend, the traffic has dropped off dramatically pre-coronavirus and stronger patterns during the week, relatively speaking. So it's a very dynamic environment, one that we're obviously monitoring on a regular basis. We feel fortunate that 95% of our stores are open and able to operate and our associates have responded. I can't stress enough in such a manner to be able to safely serve our customers, take care of our customers with these essential products that we provide our communities. And the way they've responded has been pretty remarkable and a testament to the quality of the workforce that we have. So do you want to touch on the credit side, Lee?

Yes. Rick, on the credit side, obviously, you saw we increased our provision because our allowance was increased for the fourth quarter due to what we are seeing in the portfolio for future charge-offs that we believe we're going to roll through. So we saw that. I would tell you, we were having an excellent tax season as the economy was humming along prior to the complete outbreak of the COVID-19 pandemic. Obviously, post many of the sheltering places and basically shutdown of the economy, we saw collections activity decrease. I would tell you that started to come back. We're pleased with the CARES Act from the stimulus programs that's gone out and the unemployment benefits. So as Norm said, one of the benefits of having our showrooms open is that 25% to 30% of our customers have historically made payments in our showrooms, so that's enabled us to continue that. But obviously, from a collection standpoint, we have people not only still in our call center, still working, but we also have work-from-home capabilities. So we're actively continuing to collect. And we have seen, from a collection standpoint, things stabilize a bit and we're certainly very focused on making sure that we're collecting from our portfolio during this time period.

Yes. Because of our diverse, both in-house and third-party collection groups, and the ability from a flexibility standpoint to be able to work from home, about 50% of our collectors are working from home now outside of our showrooms. And then we've increased collection efforts with a third-party as well. We feel confident right now that the turns we're getting and the connects we're getting with customers, the issue is them having that -- the cash and how that plays out in subsequent months, makes it very difficult to predict what will happen with the portfolio. But suffice to say, we understand how critical it is to stay connected with our customers, the recency from a payment standpoint, which is what -- a big reason why we want the stores open, not just to be able to deliver those essential products, but also for those customers to be able to make payments, which they are continuing to do at a significant level in the stores. But very difficult to predict what will happen with the portfolio going forward with a number of unknowns we have.

If you could speak to the ABS market, how that's looking? And when you anticipate to go to market? Again, I know you just completed a deal in November, but the go-forward potential.

Sure. Rick, this is George. Let me start by saying that as of today, we have approximately $400 million of cash and immediately available liquidity on our balance sheet. To put that in context, when we drew down on the ABL about a month ago, we had just over $400 million. So over the last month, we've essentially used relatively little cash and available liquidity. To answer your question, specifically, a few weeks ago, the ABS market was dried up completely. Now we're starting to see sort of prime auto deals get done and more activity in the ABS market. But as we sit here today, with $400 million of cash and available liquidity on our balance sheet, we've got enough liquidity to last us for the near term.

Got you. And finally, you've had that restatement. Is that onetime catch-up due to the accounting change? Or is there a go-forward implication that we should think about for the current year?

No. It's just a flip between Q3 and Q4.

Our next question comes from the line of Kyle Joseph with Jefferies.

Thanks for answering my questions and for all the color you provided given the volatility we've seen recently. First, George, just going back to CECL, we've seen some headlines about potential relief related to CECL. I think it ties more to banks. Are there any potential options to delay CECL? Or is it -- it's going to go into effect, kind of, consistent with the color you gave us last quarter?

No changes. Unfortunately, the language in the CARES Act was specific to depository institutions. And there were some conversations about it being broadened. But as we sit here today, our intention is to adopt CECL consistent with the requirements in the first quarter.

Sure. And then just one follow-up for me related to credit in the post-CECL world. Can you give us a sense for -- I know you guys mentioned you're still collecting, but what options do customers have that have been impacted? Should we anticipate sort of the re-aged balance increasing kind of similar to what we saw post Harvey? And just give us a sense for how you see that impacting DQs, re-aged balances and then -- as well as the balance sheet in the P&L?

Yes. Kyle, it's Lee. So obviously, it's still early. We do have relief programs for our customers. Obviously, we want to balance the fact that these are ongoing customers with us. We want to show compassion during a time period of great financial stress in their lives. At the same point, obviously, we've extended credit and need to get paid. But we do have relief programs for our customers. And similar, as you said, to what we did in Harvey, where we did a goodwill to aid the relief programs. That being said, people do have to reach out to us directly. It's not an automatic granting to every single person. We want to make sure that they call us, we understand their exact circumstances and what's happening. But we do have programs for them to provide them relief. How that's going to roll through? Obviously, we've got to watch very carefully. It's still pretty early for us to see what transpires there. But clearly, as Norm talked about, we're very focused on collections. We understand the importance of it. And we have a lot of different ways and means to stay recent with our customers and still get some cash, but also show the appropriate compassion to them.

And in addition to that, Kyle, we also have some programs where the customers are paying a certain amount of cash in an effort to keep that recency with them. We are giving them some benefits from a concession standpoint to ensure that we're staying connected there and keeping that cash flowing in. So -- but again, all of these, as Lee mentioned, are driven by the customer. We're not doing anything unilateral across the portfolio. And we will track this going forward both COVID forbearance programs and not to be able to hopefully give some color on what's happening with forbearance program part of the portfolio as well as the remainder of the portfolio.

I appreciate that. One last one for me, too. Given COVID and the economic disruption we've seen and going back to the last financial downturn, can you give us a sense for how the financing options change and sort of the penetration rates of the third-party financial firms you guys use or third-party financing firms you guys use?

Yes. Kyle, it's Lee, again. Well, look, clearly, it's one of the benefits that we have as a retailer. The fact that we have a broad spectrum of financing options for our customers. If you want to pay cash or credit, that's fantastic. Obviously, we have Synchrony with some best-in-class, no interest financing options to our higher credit score customers. And then obviously, we have our core Conn's credit programs for our customers. And then to the extent that it makes more sense, there's a lease-to-own option. So unlike a lot of other retailers, we have the full spectrum. I will tell you what we have seen and what we talked about in our investor decks and other investor meetings is, during the time of stress, what we do see is we see customers start to fall somewhat. So to the extent that they may have been able to use cash or credit or use alternative means of financing, they may fall into our bucket. So we have the ability to provide them Conn's financing or if they fall out of us, we've got lease-to-own. So what we have seen, and Norm mentioned, the number of applications that have come to us via web has been up a very large amount. So we've seen people looking for credit. Obviously, they understand the importance of credit, and that's one of the beauties of our retail and credit model put together.

And as you know, Kyle, being in the credit space for a while and understand that -- as in 2008, 2009 was the subprime market, you see a tightening at the higher end. So that actually creates, ultimately, as you work through the environment typically some sales opportunities for us as things fall into our core Conn's credit. But as Lee mentioned, we -- having credit options across the spectrum enables us, ultimately, to serve those customers wherever they fall in the spectrum.

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

I wanted to just follow up on some of the recent trends and the tightening, just to make sure I heard you right. Norm, I think you said that you had settled out closer to 30% down more recently on same-store sales. And I think you said that you thought changes in underwriting may be hurting you right now by 15% to 16% on same-store sales. Did I hear that right?

You did. Those are the correct numbers as we sit here today.

Okay. Great. And so just as we're thinking about how the rest of the year plays out, if the current underwriting setup has you running at a 15% to 16% headwind. I guess, can you help us think about how dynamic that underwriting scorecard might be? What might make you change things back to the way they used to be, so that some of that headwind goes away? I'm just trying to separate out how much your same-store sales might be hit by traffic issues and social distancing issues versus some of the changes in underwriting you all are putting into place?

No, I understand. What I would say, Brad, is I wish I could give you -- I wish we had more concrete information we could give you in projecting what's going to happen. I will tell you, we're looking at the underwriting, our first payment defaults, what's happening, early delinquency trends in the buckets on literally a daily basis, cash collected. So those changes that we've done, that 15% to 16%, they've been in 3 or 4 different iterations where we've done a variety of things, credit limits, higher risk credit band. And we're doing that based on what we're seeing with the portfolio on a daily basis. So as Lee mentioned, we've seen the portfolios come in a more stable place here recently from a collection standpoint. So that gives us encouragement with some of the stimulus things that are going on. And frankly, as we connect with our customers, and they understand the importance that we provide because, in essence, although we're not a line of credit, customers understand from doing business with us through the years that when they pay us and they're in good stead with us, they have the ability to come back and borrow from us in the future for these essential products and services in their home. So keeping that connectivity with them and the importance for the customer to continue to pay us so that we can continue to serve them in the future are important talk-off points for our collection teams and our collection efforts that -- as we see that stabilize, that will ultimately determine what we will do with the portfolio going forward. But for us, to predict that right now, very difficult, if not impossible to do.

Got you. That's helpful color. And then I guess just a question that we've been getting about the business, is how to think about the puts and takes on cash flow and liquidity. And it's clear that you all are being proactive about making sure you have ability to access your revolver and liquidity. If we were to continue to see the sales running down at this 30% level. I guess, could you help us give us some color around what sort of leverage you can pull in terms of inventory reduction or perhaps tightening even more so that you don't need cash as much? Any more color around that would be helpful.

Yes. Brad, this is George. I think the first thing that's important to point out is that the liquidity dynamics of our business are different from other traditional retailers. When the sale is slow for us, we continue to collect on receivables on our portfolio, but we're purchasing less inventory. So it actually is positive -- can be positive from a liquidity standpoint in the short term. In addition to that, we've taken actions to improve our working capital levels and cut expenses. So the combination of those 2 things are the reason why our liquidity has basically remained unchanged in the last months since the coronavirus pandemic started.

And it's an area, Brad, that we continue to look at from an expense standpoint, from a capital standpoint or -- now our stores are open. Our collection centers are -- we're still delivering into homes. Our service teams are still out servicing our products if they break down. So our organization, although a number of folks are working remotely from a headquarters standpoint, in the field, we're -- our objective here is to get whatever revenue we can to fill the needs from our customers and continue to be able to collect and service our customers and weather through that way will mitigate our need to have to take more draconian measures is our hope on an expense standpoint.

Our next question comes from the line of Brian Nagel with Oppenheimer.

I appreciate all the color so far. So I had a few topics I wanted to dive into here. First off, I guess this is mostly for Lee. You talked about in the press release and in your prepared comments, the issues with the loan management system. I just want to understand better what happened there? And then probably more importantly, is that issue or those issues now corrected?

Brian, so just not to go into great detail, but to add some color. As you know, we implemented 2 new systems last year, one of which was our loan management system where we made a change.

The implementation of that created some difficulties from, as we looked at our ability to see and interface with our actual collection system and the visibility that we had was more modeled than we would have liked. So from a nimbleness perspective and ability to act as quickly as we would have liked, we weren't able to do that. And that was what caused some of the issues that flowed through that we talked about in the call.

And those are predominantly, at this point, we -- those have been corrected and we have the visibility we need to be able to effectively collect at the rate that we would expect going forward.

Okay. Got it. Then the second question, obviously, with the COVID crisis and there's a lot of moving parts here. But before we were talking -- before the crisis we were discussing and talking a lot about the dynamic within the TV business knowing that the more functional higher-priced TVs have come down in price significantly, and that really impacted the value, so to say, that Conn's added in that market. Again, lots going on. But how should we think about that dynamic now? Is that beginning to correct itself or has this COVID crisis potentially lengthened that issue as TV manufacturers maybe are not introducing as quickly as they could have with more functional TVs?

Yes, Brian. What I would say is -- I don't know if it's lengthened it. It certainly has exacerbated the issue. With the latest NPD data that was out from 2 weeks ago was showing ASPs from a national standpoint on TVs were under $300, which it has never -- I mean, that's the lowest point it has ever been, because as -- what's happened is TV units are actually up slightly, but ASPs across the board are down, and they're down even at a greater extent at the higher value TVs because Walmart, Costco, the big box guys are open, that's where -- and the online. That's where a significant majority of the TVs are being purchased as we sit here today. So in the absence of 8-K, which is coming out this year and some other new functions and functionality TV wise, depending on how that plays out with the COVID-19 and gets introduced into the stores, I don't expect that to abate or to improve in the short term. But we believe longer term, this is just a cyclical nature of the TV electronics business that's occurred in the past before. But my assessment would be that the COVID-19 crisis is not going to help us in that area. Our ASP is still over $1,000, but it's down 20-plus percent -- continues to be down 20-plus percent from prior year.

That's helpful. And then my final question. Just looking forward, it's clearly, no one knows how long this crisis will persist. But as you think -- you know the business extraordinarily well. How -- I mean, assuming that the crisis does abate in the not-too-distant future, how should we think about the recovery potential for Conn's, both from a retail and a credit standpoint as these -- as the shock or as these headwinds begin to lessen?

Yes. I would say, on the credit side first, there'll probably be more stress in the credit portfolio initially, depending on re-ages and the performance of those customers if the employment comes back relatively quickly. And one of the things about our core customer is they make about -- around $47,000, $48,000 a year and they live in recession all the time, basically. They live paycheck to paycheck. And interestingly enough, even when we were in the very early stages of the COVID and the shelter-in-place orders were -- had not been issued yet, but you were starting to see the media pick up in early March, we were already seeing our customers cut back from a tax season standpoint and reserving cash because they understand how to do that very, very well, and they're very, very nimble in that environment. So in the short term, the credit portfolio is what will be, if we have stress in the business, that's where it will come from. We believe, ultimately, it will create more opportunities from a retail standpoint as credit gets tightened by those higher end in the spectrum. And now with our full credit offering from GE, all the way down to lease-to-own, we believe it will create more opportunities ultimately from a retail sales opportunity going forward as this abates.

Our next question comes from the line of John Baugh with Stifel.

I was wondering if we could maybe start with John Davis departure. It was an important hire. You built up a team around him. What -- in hindsight, I'm just trying to get some color for either what went wrong with his decision-making or execution versus external factors, which there are, of course, many to start there?

John, it's Lee. Good morning. Look, obviously, can't respond directly to his resignation. But clearly, as I said in my prepared remarks, not happy with our credit performance in the quarter. And obviously, we increased our allowance as we foresaw future charge-offs increasing. And obviously, we had a material weakness on the restatement and the operational issues that resulted from that certainly

created that, certainly didn't make us happy. So I mean that's probably the most that we can go into.

I think what I would add, though, is we did build up a deep credit team. So we do have a team that certainly has been built up. And that's why we have been able to make -- continue to make underwriting changes. We continue to make those, obviously, and monitor very closely with the team that we have in place. So you're right. He was very important, and he did add value while he was here, but we still have a full team. And obviously, we're actively looking forward for replacement and we'll continue to go forward. And, obviously, I've stepped into that role and working very closely with the team going forward.

And then could you perhaps tell us, you mentioned losses are up. FPDs are up, delinquencies are up. Is there a way of looking at that and saying how much or all perhaps, probably not, is due to "new customers" or are you seeing deterioration with existing customers as well?

So John, again, as I said in the prepared remarks, obviously, we had higher risk vintages that we had originally originated in the summer, and that was even through Q3. Obviously, we made some underwriting changes in the middle of Q3. All that takes time to bake as it rolls through. And we certainly have seen an increase in new customers, we've continued to talk about that. And we've always talked about new customers are riskier than existing customers, and it takes time to sort of settle them out and bake them. Look, from a percent of the overall portfolio, at the end of the fiscal year, new customers were 40% versus 38% last fiscal year. And probably, more importantly, what we even saw in Q4 was new customers were approximately 43% versus last year they were 34%. So the new customer mix that we saw as well as the higher risk vintages, and then I talked about the difficulties and the collection efforts related to the implementation of our loan management system, all 3 of those things had caused some issues. And then you overlay with the COVID-19 situation. So clearly, we're monitoring very closely. We're working through it.

I think we've made the right moves from an underwriting perspective to make sure that who we are extending credit to is going to pay us back even with some of the COVID-19 issues rolling through. But again, I would just tell you, we're very focused on monitoring all of that.

Let me highlight 2 things, too, if I could, John. One is just to amplify the comments that Lee made. The credit team is in a very different place than it was 4.5, 5 years ago, the depth of resources, the quality of the team, the sophistication of the team is very different than it was 4.5, 5 years ago when the credit business was losing a couple of hundred -- $250 million. The second piece of it is, the credit business itself is in a very different place than it was 4.5, 5 years ago. With that, as we move to and in the third quarter, saw 1,000 basis points of spread. And even in this fourth quarter, with disappointing performance, still at about 790, 800 basis points of spread, we have -- part of the reason that I've talked about for multiple years that 1,000 basis points of spread is to give the company the flexibility during challenging, difficult times to weather through things that are outside of our control. And it has put us in a place, even with disappointing results coming out of the fourth quarter, to be in a very solid position going forward to weather not only the deterioration of some of the credit performance in the portfolio, but also the COVID-19 pandemic as we weather through that here in the coming weeks and months.

And my last question was on the lease-to-own piece, which I think was a 6% plus range for the January quarter. As you've tightened here again in March underwriting, would we expect to see that funnel increase and be a bit of an offset maybe to the pressure you're seeing? And then likewise, what happens sort of at the high end of your Synchrony piece? Where do you see the mix, in other words, of all the 3 underwriting buckets?

Well, I mean it's still early in the process. What I would say is we are seeing lease-to-own balance of sale increase. We're also seeing Synchrony increase as well. So on both ends of the credit spectrum, cash and credit is also -- people paying by cash and their credit cards is also up initially out of the gate as well. So -- and for us, all of those are light cash customers. So those are very positive from both a cash flow standpoint and our credit portfolio standpoint.

And lastly, if I could sneak one last one and maybe for George. You mentioned the last month being a kind of a breakeven cash flow period. Is there some seasonal unusual benefit from the tax season that makes of all the other metrics of your business just similar in the next month, a different cash flow number or that's kind of a stable number?

I don't expect that our portfolio -- that our cash position is going to remain flat here. I mean as a general comment, and I think you know this, John, when sale is slow for us, our business can generate cash. Obviously, we're monitoring our cash and liquidity position here closely, and we believe that we've got enough cash and available liquidity to last us here in the near term.

Our final question comes from the line of Bill Ryan with Compass Point.

First question, to what extent, if any, have -- some of the states have implemented various collection moratoriums? And if that may be impacting your ability to do collections or perform the collections? And related to that, there's obviously -- there's a lot of deferrals going on, forbearances and various programs that all the credit companies are offering. How has that impacted the way you are recognizing interest income in the income statement? And then the second question is just on SG&A. I think everybody is kind of modeling a little bit north of or had been modeling a little bit north of $500 million in SG&A for fiscal '21. You obviously got some efforts to bring those expenses under control and bring them back down a little bit, and you pulled -- dialed back on your new store openings. How should we be thinking about that number? If you can give us a little bit of thought on that going into fiscal '21?

Bill, it's Lee. So with regards to your first question on states and restrictions or moratoriums on collection efforts. Obviously, each of the states, and it's really only a handful that have done that. And typically, what we have seen, at least for the states that we are actively in, it's restricted third-party collection efforts. Obviously, we're a first-party collector. So it really hasn't impacted us much at all to the extent that there is anything outsource. Obviously, we're compliant by any of the state regulations or statements that they made out there. But it really hasn't had a significant impact at all on us, in particular. But obviously, we're monitoring closely.

Those states that we do, we pull it back. We do have some third-party that does collections and in Nevada and in the states where there has been some impact, it's not been material. We just pulled it back in-house and done it ourselves.

Yes.

And as it relates to your question about SG&A. Obviously, we've gone from opening 16 to 18 stores to 6 to 8. We incur upfront expenses associated with opening those new stores. So that, by itself, will reduce our SG&A expense lower than it otherwise would have been. In addition to that, we've taken a number of proactive measures to cut costs. And so you should expect to see SG&A expense lower than it otherwise would have been. Now obviously, we've not put out Q1 guidance. And don't expect to put out full year guidance here. But I think just as a directional sense, that's how I think about it.

And what I would say, Bill, is we -- this is the time frame when our next earnings call is fairly close, relatively speaking, because of the year-end. So early June, when we report for the first quarter, our expectation is we would be able to provide -- even if we're not giving some guidance, be able to provide some direction from an SG&A standpoint on the activities that we've taken.

Okay. And just the final question was related to interest income recognition. Obviously, all financial institutions are granting various waivers, deferments, forbearances. Has that impacted or will it impact the way you recognize interest income on loans that receive some of those deferrals?

No. And it depends on the nature of the concession. As we sit here today, extending a loan is consistent with some of our policies that we have already. That does not in and of itself change the income recognition on the account.

There are no further questions at this time. I'd like to turn the call back over to Mr. Miller for any closing remarks.

Thank you very much. First, we appreciate the participation and the investors and your questions, and your interest in the company, especially -- at all times, but especially during these unprecedented times. And we look forward to providing you an update in a couple of months on our first quarter results and performance. Have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.