CONN (CONN, Financial) is a specialty retailer of appliances, furniture, mattresses and electronics with 79 locationsin Texas and the Southwest. CONN finances 77% of customer purchases through its proprietarysubprime credit portfolio. In February, the company announced 33% comparable store salesgrowth in Q4 with strong gross margins. However, it also announced increased credit losses andreduced earnings guidance from a range of $3.80-$4.00 to a range of $3.40-$3.70 for calendar2014. Given the market’s past experience with deterioration in subprime credit, the stockreaction was severe: The price fell from $79 at the start of the year to $32 on the news. We believe that this is a retailer with 15-20% unit growth and current double digit comparable storesales growth, and that the market overreacted to moderately bad news. We acquired shares at anaverage price of $35.49 and they ended the quarter at $38.85.
From David Einhorn (Trades, Portfolio)'s first quarter 2014 investor letter.
