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Conn's, Inc. Reports Third Quarter Fiscal 2019 Financial Results

November Same Store Sales up 8.5% in Non-Harvey Markets, Demonstrating Strong Start to Fourth Quarter

Third Quarter GAAP Earnings per Diluted Share of $0.45, compared to $0.05 during Prior Year Period

Record Third Quarter Retail Gross Margin of 41.2%

Third Quarter Credit Spread of 940 basis points

THE WOODLANDS, Texas, Dec. 04, 2018 (GLOBE NEWSWIRE) -- Conn's, Inc. (NASDAQ: CONN) ("Conn's" or the "Company"), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended October 31, 2018.

“Fiscal year 2019 is shaping up to be one of the best years of profitability in Conn’s 128-year history.  This is primarily due to our growing credit spread and strong retail gross and operating margins.  Conn’s credit spread was 940 basis points in the third quarter of fiscal year 2019 as a result of record interest income and fee yield and lower charge-offs of bad debts.  From a retail perspective, even with Hurricane Harvey’s impact on same store sales, we achieved a retail operating margin of 12.4% during the third quarter of fiscal year 2019,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.

“Our successful credit transformation combined with the investments underway to maximize our retail performance have created the strongest foundation since I came to the company over three years ago. We are well positioned headed into the fourth quarter as November same store sales increased 8.5% in our non-Harvey markets.  Total same store sales increased 3.6% in November, even as we lapped strong sales in the prior year in our Hurricane Harvey impacted markets.”

“As we plan for our next fiscal year, we expect stronger retail growth driven by improving same store sales trends, coupled with opening 12 to 15 new Conn’s HomePlus locations.  I am pleased with the progress we are making, and the positive momentum our highly profitable and differentiated business is achieving,” concluded Mr. Miller.

Third quarter of fiscal year 2019 highlights include:

  • Opened three new Conn’s HomePlus locations in Virginia
  • Record third quarter retail gross margin of 41.2%
  • Retail operating margin of 12.4%, 230 basis points higher than the third quarter of last fiscal year
  • Credit spread of 940 basis points, the best third quarter credit spread in five years
  • Record quarterly credit segment revenues of $89.8 million
  • 60+ day delinquency rate of 9.7%, representing the fifth consecutive quarter that the rate has declined year-over-year
  • Third consecutive quarter of positive credit segment operating income, which has generated a $24.5 million improvement fiscal year-to-date compared to the prior fiscal year period
  • Interest expense of $15.1 million, compared to $18.1 million for the same period last fiscal year
  • GAAP earnings of $0.45 per diluted share, compared to $0.05 per diluted share for the same period last fiscal year
  • Adjusted earnings of $0.59 per diluted share, an increase of 228% over the prior year period

Third Quarter Results

Net income for the three months ended October 31, 2018 was $14.6 million, or $0.45 per diluted share, compared to net income for the three months ended October 31, 2017 of $1.6 million, or $0.05 per diluted share.  On a non-GAAP basis, adjusted net income for the three months ended October 31, 2018 was $18.9 million, or $0.59 per diluted share, which excludes severance costs related to a change in the executive management team and costs related to a legal judgment from a 2014 sale of charged-off accounts (refer to Note 6, Contingencies, in our Quarterly Report on Form 10-Q for the three months ended October 31, 2018).  This compares to adjusted net income for the three months ended October 31, 2017 of $5.6 million, or $0.18 per diluted share, which excludes a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013 and a loss from extinguishment of debt related to the early redemption of our 2016-A Notes.

Retail Segment Third Quarter Results

Retail revenues were $284.1 million for the three months ended October 31, 2018 compared to $291.9 million for the three months ended October 31, 2017, a decrease of $7.9 million or 2.7%.  The decrease in retail revenue was primarily driven by a decrease in same store sales of 4.4%, partially offset by new store growth. The decrease in same store sales was due to a decrease in same store sales for markets impacted by Hurricane Harvey of 11.8% and a decrease in same store sales for non-Hurricane Harvey markets of 1.3%. We believe that the decrease in same store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts during the three months ended October 31, 2017. For the three months ended October 31, 2018 and 2017, retail segment operating income was $35.3 million and $29.6 million, respectively.  On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2018 was $36.0 million, after excluding severance costs related to a change in the executive management team. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2017 was $35.4 million, after excluding a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013.

The following table presents net sales and changes in net sales by category:

  Three Months Ended October 31,       %   Same Store
(dollars in thousands) 2018   % of Total   2017   % of Total   Change   Change   % Change
Furniture and mattress (1) $ 91,342     32.2 %   $ 97,146     33.3 %   $ (5,804 )   (6.0 )%   (6.6 )%
Home appliance 79,542     28.0     83,837     28.7     (4,295 )   (5.1 )   (6.4 )
Consumer electronics (1) 60,008     21.1     58,062     19.9     1,946     3.4     (0.2 )
Home office (1) 22,661     8.0     20,295     7.0     2,366     11.7     9.9  
Other 3,178     1.1     4,446     1.5     (1,268 )   (28.5 )   (26.6 )
Product sales 256,731     90.4     263,786     90.4     (7,055 )   (2.7 )   (4.2 )
Repair service agreement commissions (2) 23,579     8.3     24,488     8.4     (909 )   (3.7 )   (6.3 )
Service revenues 3,564     1.3     3,534     1.2     30     0.8      
Total net sales $ 283,874     100 %   $ 291,808     100 %   $ (7,934 )   (2.7 )%   (4.4 )%


(1)   During the three months ended October 31, 2017, we reclassified certain products from the consumer electronics and home office product categories into the furniture and mattress product category. Net sales of these products reflected in the consumer electronics and home office product categories for the three months ended October 31, 2017 were $2.7 million and $0.8 million, respectively. The change in same store sales reflects the current product classification for both periods presented.
(2)   The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.

The following provides a summary of the same store sales performance of our product categories during the three months ended October 31, 2018 as compared to the three months ended October 31, 2017:

  • Furniture unit volume decreased 8.9%, partially offset by a 2.8% increase in average selling price;
  • Mattress unit volume decreased 16.6%, partially offset by a 11.3% increase in average selling price;
  • Home appliance unit volume decreased 14.0%, partially offset by a 8.8% increase in average selling price;
  • Consumer electronic unit volume decreased 7.4%, partially offset by a 7.8% increase in average selling price; and
  • Home office unit volume increased 24.5%, partially offset by a 11.7% decrease in average selling price.

Enhancements to the product assortment and improved product sales mix for higher-priced items have driven an increase to average sales prices in most product categories.

Credit Segment Third Quarter Results

Credit revenues were $89.8 million for the three months ended October 31, 2018 compared to $81.3 million for the three months ended October 31, 2017, an increase of $8.5 million or 10.5%. The increase in credit revenue was driven by the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to 21.7% from 19.8% for the comparative periods, and by a 2.2% increase in the average balance of the customer receivable portfolio. The total customer portfolio balance was $1.53 billion at October 31, 2018 compared to $1.49 billion at October 31, 2017, an increase of 2.7%.

The provision for bad debts decreased to $47.3 million for the three months ended October 31, 2018 from $56.3 million for the three months ended October 31, 2017, a decrease of $9.0 million. The decrease was driven by a year-over-year reduction in net charge-offs of $9.7 million.

Credit segment operating income was $0.2 million for the three months ended October 31, 2018, compared to an operating loss of $8.7 million for the three months ended October 31, 2017.  On a non-GAAP basis, adjusted credit segment operating income for the three months ended October 31, 2018 was $5.0 million, after excluding costs related to a legal judgment from a 2014 sale of charged-off accounts (refer to Note 6, Contingencies, in our Form 10-Q for the three months ended October 31, 2018). On a non-GAAP basis, adjusted credit segment operating loss for the three months ended October 31, 2017 was $8.7 million.

Additional information on the credit portfolio and its performance may be found in the Customer Receivable Portfolio Statistics table included within this press release and in the Company's Form 10-Q for the quarter ended October 31, 2018, to be filed with the Securities and Exchange Commission on December 4, 2018.

Store Update

The Company opened three new Conn's HomePlus® stores during the third quarter of fiscal year 2019.  In November, the Company opened one additional store bringing the total store count to 122. During fiscal year 2019, the Company plans to open a total of seven new stores in existing states to leverage current infrastructure.

Liquidity and Capital Resources

As of October 31, 2018, the Company had $401.6 million of immediately available borrowing capacity under its $650.0 million revolving credit facility, with an additional $162.8 million that may become available under the Company's revolving credit facility if the Company grows the balance of eligible customer receivables and total eligible inventory balances under the borrowing base. The Company also had $3.5 million of unrestricted cash available for use.

Outlook and Guidance

The following are the Company's expectations for the business for the fourth quarter of fiscal year 2019:

  • Change in same store sales between 0% and positive 2%:
    • Markets not impacted by Hurricane Harvey between positive 4% and positive 6%; and
    • Markets impacted by Hurricane Harvey between negative 9% and negative 7%;
  • Retail gross margin between 40.0% and 40.5% of total retail net sales;
  • Selling, general and administrative expenses between 28.5% and 30.5% of total revenues;
  • Provision for bad debts between $54.0 million and $58.0 million;
  • Finance charges and other revenues between $93.0 million and $97.0 million; and
  • Interest expense between $15.5 million and $16.5 million.

Conference Call Information

The Company will host a conference call on December 4, 2018 at 10 a.m. CT / 11 a.m. ET to discuss its three months ended October 31, 2018 financial results. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and the third quarter fiscal year 2019 conference call presentation will be available at ir.conns.com.

Replay of the telephonic call can be accessed through December 11, 2018 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13685240.

About Conn's, Inc.

Conn's HomePlus is a specialty retailer currently operating 122 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia.  The Company's primary product categories include:

  • Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
  • Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
  • Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, and smart televisions, Blu-ray players, home theaters, portable audio equipment, and gaming products; and
  • Home office, including computers, printers and accessories.

Additionally, Conn's HomePlus offers a variety of products on a seasonal basis.  Unlike many of its competitors, Conn's HomePlus provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.

This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.  Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “predict,” “will,” “potential, or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts.  Such forward-looking statements are based on our current expectations.  We can give no assurance that such statements will prove to be correct, and actual results may differ materially.  A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018, Part II, Item 1A, Risk Factors, in our Quarterly Report on Form 10-Q for the three months ended July 31, 2018 and other reports filed with the SEC.  If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.  We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance.  All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

CONN-G

S.M. Berger & Company
Andrew Berger (216) 464-6400

CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share amounts)
 
  Three Months Ended
October 31,
  Nine Months Ended
 October 31,
  2018   2017   2018   2017
Revenues:              
Total net sales $ 283,874     $ 291,808     $ 855,943     $ 857,506  
Finance charges and other revenues 89,950     81,364     260,888     238,139  
Total revenues 373,824     373,172     1,116,831     1,095,645  
Costs and expenses:              
Cost of goods sold 166,886     175,591     507,102     519,847  
Selling, general and administrative expense 118,380     114,355     353,948     332,524  
Provision for bad debts 47,548     56,512     142,455     161,891  
Charges and credits 5,537     5,861     5,837     11,156  
Total costs and expenses 338,351     352,319     1,009,342     1,025,418  
Operating income 35,473     20,853     107,489     70,227  
Interest expense 15,098     18,095     47,484     62,142  
Loss on extinguishment of debt     461     1,773     2,907  
Income before income taxes 20,375     2,297     58,232     5,178  
Provision for income taxes 5,745     728     13,859     1,916  
Net income $ 14,630     $ 1,569     $ 44,373     $ 3,262  
Income per share:              
Basic $ 0.46     $ 0.05     $ 1.40     $ 0.10  
Diluted $ 0.45     $ 0.05     $ 1.38     $ 0.10  
Weighted average common shares outstanding:              
Basic 31,712,862     31,292,913     31,636,270     31,121,177  
Diluted 32,321,874     31,764,594     32,251,952     31,457,420  


CONN'S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
 
  Three Months Ended
October 31,
  Nine Months Ended
 October 31,
  2018   2017   2018   2017
Revenues:              
Product sales $ 256,731     $ 263,786     $ 773,224     $ 774,741  
Repair service agreement commissions 23,579     24,488     72,104     72,703  
Service revenues 3,564     3,534     10,615     10,062  
Total net sales 283,874     291,808     855,943     857,506  
Other revenues 179     95     291     267  
Total revenues 284,053     291,903     856,234     857,773  
Costs and expenses:              
Cost of goods sold 166,886     175,591     507,102     519,847  
Selling, general and administrative expense 80,894     80,676     241,649     233,290  
Provision for bad debts 286     189     789     584  
Charges and credits 737     5,861     1,037     11,156  
Total costs and expenses 248,803     262,317     750,577     764,877  
Operating income $ 35,250     $ 29,586     $ 105,657     $ 92,896  
Retail gross margin 41.2 %   39.8 %   40.8 %   39.4 %
Selling, general and administrative expense as percent of revenues 28.5 %   27.6 %   28.2 %   27.2 %
Operating margin 12.4 %   10.1 %   12.3 %   10.8 %
Store count:              
Beginning of period 118     116     116     113  
Opened 3         5     3  
End of period 121     116     121     116  


CONN'S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
 
  Three Months Ended
October 31,
  Nine Months Ended
 October 31,
  2018   2017   2018   2017
Revenues:              
Finance charges and other revenues $ 89,771     $ 81,269     $ 260,597     $ 237,872  
Costs and expenses:              
Selling, general and administrative expense 37,486     33,679     112,299     99,234  
Provision for bad debts 47,262     56,323     141,666     161,307  
Charges and credits 4,800         4,800      
Total costs and expenses 89,548     90,002     258,765     260,541  
Operating income (loss) 223     (8,733 )   1,832     (22,669 )
Interest expense 15,098     18,095     47,484     62,142  
Loss on extinguishment of debt     461     1,773     2,907  
Loss before income taxes $ (14,875 )   $ (27,289 )   $ (47,425 )   $ (87,718 )
Selling, general and administrative expense as percent of revenues 41.8 %   41.4 %   43.1 %   41.7 %
Selling, general and administrative expense as percent of average total customer portfolio balance (annualized) 9.9 %   9.1 %   9.9 %   8.9 %
Operating margin 0.2 %   (10.7 )%   0.7 %   (9.5 )%


CONN'S, INC. AND SUBSIDIARIES
CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(unaudited)
 
  As of October 31,
  2018   2017
Weighted average credit score of outstanding balances (1) 593     589  
Average outstanding customer balance $ 2,578     $ 2,405  
Balances 60+ days past due as a percentage of total customer portfolio balance (2) 9.7 %   9.9 %
Re-aged balance as a percentage of total customer portfolio balance (2)(3) 25.5 %   23.8 %
Account balances re-aged more than six months (in thousands) $ 87,484     $ 80,516  
Allowance for bad debts as a percentage of total customer portfolio balance 13.6 %   13.6 %
Percent of total customer portfolio balance represented by no-interest option receivables 21.7 %   22.3 %


  Three Months Ended
 October 31,
  Nine Months Ended
 October 31,
  2018   2017   2018   2017
Total applications processed(4) 283,274     321,373     862,324     909,287  
Weighted average origination credit score of sales financed (1) 610     611     609     609  
Percent of total applications approved and utilized 28.5 %   29.1 %   30.1 %   31.1 %
Average down payment 2.4 %   2.9 %   2.7 %   3.2 %
Average income of credit customer at origination $ 45,400     $ 43,500     $ 44,200     $ 42,700  
Percent of retail sales paid for by:              
In-house financing, including down payment received 69.7 %   72.0 %   70.1 %   71.7 %
Third-party financing 15.6 %   15.1 %   15.7 %   15.8 %
Third-party lease-to-own option 8.0 %   5.7 %   7.3 %   5.7 %
  93.3 %   92.8 %   93.1 %   93.2 %


(1)   Credit scores exclude non-scored accounts.
(2)   Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.
(3)   First time re-ages related to customers affected by Hurricane Harvey within FEMA-designated disaster areas included in the re-aged balance as of October 31, 2018 and October 31, 2017 were 2.2% and 4.8%, respectively, of the total customer portfolio balance.
(4)   The total applications processed during the three months ended October 31, 2017, we believe, reflect the impact of the rebuilding efforts following Hurricane Harvey.


CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
 
  October 31,
 2018
  January 31,
 2018
Assets      
Current Assets:      
Cash and cash equivalents $ 3,492     $ 9,286  
Restricted cash 70,043     86,872  
Customer accounts receivable, net of allowances 630,396     636,825  
Other accounts receivable 63,752     71,186  
Inventories 227,164     211,894  
Income taxes recoverable 556     32,362  
Prepaid expenses and other current assets 15,164     31,592  
Total current assets 1,010,567     1,080,017  
Long-term portion of customer accounts receivable, net of allowances 654,320     650,608  
Property and equipment, net 146,326     143,152  
Deferred income taxes 23,157     21,565  
Other assets 6,642     5,457  
Total assets $ 1,841,012     $ 1,900,799  
Liabilities and Stockholders' Equity      
Current liabilities:      
Current maturities of capital lease obligations $ 804     $ 907  
Accounts payable 110,359     71,617  
Accrued expenses 87,607     66,173  
Other current liabilities 22,206     25,414  
Total current liabilities 220,976     164,111  
Deferred rent 90,410     87,003  
Long-term debt and capital lease obligations 920,366     1,090,105  
Other long-term liabilities 22,226     24,512  
Total liabilities 1,253,978     1,365,731  
Stockholders' equity 587,034     535,068  
Total liabilities and stockholders' equity $ 1,841,012     $ 1,900,799  


CONN'S, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share amounts)
 
RETAIL SEGMENT OPERATING INCOME, AS ADJUSTED
 
  Three Months Ended
 October 31,
  Nine Months Ended
 October 31,
  2018   2017   2018   2017
Retail segment operating income, as reported $ 35,250     $ 29,586     $ 105,657     $ 92,896  
Adjustments:              
Facility closure costs             1,349  
Securities-related regulatory matter and other legal fees         300     34  
Employee severance 737         737     1,317  
Indirect tax audit reserve             2,595  
Write-off of capitalized software costs     5,861         5,861  
Retail segment operating income, as adjusted $ 35,987     $ 35,447     $ 106,694     $ 104,052  
Retail segment total revenues $ 284,053     $ 291,903     $ 856,234     $ 857,773  
Retail segment operating margin:              
As reported 12.4 %   10.1 %   12.3 %   10.8 %
As adjusted 12.7 %   12.1 %   12.5 %   12.1 %


CREDIT SEGMENT OPERATING INCOME (LOSS), AS ADJUSTED
 
  Three Months Ended
 October 31,
  Nine Months Ended
 October 31,
  2018   2017   2018   2017
Credit segment operating income (loss), as reported $ 223     $ (8,733 )   $ 1,832     $ (22,669 )
Adjustments:              
Legal judgment 4,800         4,800      
Credit segment operating income (loss), as adjusted $ 5,023     $ (8,733 )   $ 6,632     $ (22,669 )
Credit segment total revenues $ 89,771     $ 81,269     $ 260,597     $ 237,872  
Credit segment operating margin:              
As reported 0.2 %   (10.7 )%   0.7 %   (9.5 )%
As adjusted 5.6 %   (10.7 )%   2.5 %   (9.5 )%


NET INCOME, AS ADJUSTED, AND DILUTED EARNINGS PER SHARE, AS ADJUSTED
 
  Three Months Ended October 31,   Nine Months Ended October 31,
  2018   2017   2018   2017
Net income, as reported $ 14,630     $ 1,569     $ 44,373     $ 3,262  
Adjustments:              
Facility closure costs             1,349  
Securities-related regulatory matter and other legal fees         300     34  
Employee severance 737         737     1,317  
Indirect tax audit reserve             2,595  
Legal judgment 4,800         4,800      
Write-off of capitalized software costs     5,861         5,861  
Loss on extinguishment of debt     461     1,773     2,907  
Tax impact of adjustments (1,240 )   (2,289 )   (1,811 )   (5,092 )
Net income, as adjusted $ 18,927     $ 5,602     $ 50,172     $ 12,233  
Weighted average common shares outstanding - Diluted 32,321,874     31,764,594     32,251,952     31,457,420  
Diluted earnings per share:              
As reported $ 0.45     $ 0.05     $ 1.38     $ 0.10  
As adjusted $ 0.59     $ 0.18     $ 1.56     $ 0.39  

Basis for presentation of non-GAAP disclosures:

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides the following non-GAAP financial measures: retail segment adjusted operating income, retail segment adjusted operating margin, credit segment adjusted operating income (loss), credit segment adjusted operating margin, adjusted net income, and diluted earnings per share, as adjusted.  These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP.  They are intended to provide additional insight into our operations and the factors and trends affecting the business. Management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision making, and (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results.

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