Conn’s Inc. (CONN) Q4 2021 Earnings Call Transcript

Conn’s Inc. (NASDAQ: CONN) Q4 2021 earnings call dated Mar. 31, 2021

Corporate Participants:

Norm Miller — President, Chief Executive Officer and Chairman

George L. Bchara — Chief Financial Officer

Analysts:

Brian Nagel — Oppenheimer — Analyst

Kyle Joseph — Jefferies — Analyst

Brad Thomas — KeyBanc Capital Markets — Analyst

Rick Nelson — Stephens — Analyst

Bill Ryan — Compass Point — Analyst

Presentation:

Operator

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, 2021. My name is Darryl and I will be your operator today.

[Operator Instructions]

The company’s earnings release dated March 31, 2021 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 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 their 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 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 George Bchara, the company’s CFO.

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

Norm Miller — President, Chief Executive Officer and Chairman

Good morning and welcome to Conn’s Fourth Quarter Fiscal Year 2021 Earnings Conference Call. Over the past 12 months, we took decisive actions focused on supporting our associates, customers and communities while derisking our business, enhancing our balance sheet and expanding our digital and e-commerce capabilities. These actions, combined with the resiliency of our business model and the dedication of our associates directly contributed to our ability to successfully navigate the COVID-19 pandemic. We have emerged from the pandemic stronger, more efficient and better positioned to compete in a rapidly changing market and this year is off to a strong start. We believe we are at a turning point in our growth strategy as we continue to leverage our market-leading in-house and third party credit offerings, increase digital and e-commerce investments, expand our brick and mortar footprint and enhance our merchandising and marketing strategies.

Before I go into more detail about our strategic initiatives, I wanted to provide several fourth quarter and fiscal year highlights. We ended fiscal year 2021 in a strong financial and operating position and positive trends accelerated during the quarter. Fourth quarter GAAP earnings increased approximately 400% to $0.85 per diluted share primarily due to a lower provision for bad debts as our credit performance continued to improve as well as a tax benefit related to the CARES Act. Customer accounts 60-plus days past due at January 31, 2021, declined by 24% from the prior fiscal year. Reaged customer accounts declined by 33% and the weighted average monthly payment rate increased by approximately 10% for the year ending January 31, 2021. Improving credit trends reflect the intended outcome of the previously discussed derisking efforts we implemented last year in response to the COVID 19 crisis, which also prudently reduced retail sales financed through our in-house credit offering. These actions also had a positive impact on our balance sheet and capital position. In addition, net cash provided by operating activities increased by $382 million year-over-year to $462.1 million.

Same-store sales improved quarter-to-quarter throughout fiscal year 2021 despite our continued conservative underwriting approach and industry-wide disruptions in the global supply chain, which we believe demonstrates favorable underlying demand for our products. We also experienced strong growth of cash sales and sales financed through our third party partners, which helped offset the impact tighter Conn’s in-house underwriting had on our retail segment. We believe we are well positioned for same-store sales growth going forward as our products and our financing options resonate with consumers. Since the beginning of January, same-store sales are positive. In addition, as of today’s call, same-store sales are up over 3% through the first two months of the quarter, reflecting strong underlying consumer demand and the successful implementation of our growth initiatives despite our continued conservative credit strategy. Recent retail trends are especially encouraging as we have offset the significant challenges that February 2021 winter storm had on many of our markets, which also impacted traffic over President’s Day weekend.

To put this historic storm into context, we lost over 170 store selling days compared to approximately 100 lost store selling days for Hurricane Harvey in 2017. The first quarter was also impacted by last year’s leap year which resulted in one fewer calendar selling day this year. As you can see from our positive sales growth, momentum in our business is accelerating and we believe we have been able to successfully reposition the company during the COVID-19 pandemic to take advantage of favorable secular trends underway across our markets. Our success capturing market share of customers who purchased with cash and third-party payment options throughout fiscal year 2021 demonstrates the opportunity we have to pursue a larger addressable market. These non-Conn’s finance sales also reduce the risk of the business and require less capital. With a stronger balance sheet and less capital needs, we can continue to make investments in our business and create value for our shareholders. As a result, we are emerging from the crisis as a stronger company with a well-defined strategy and robust foundation to support our long-term growth opportunity.

So let’s look at our growth strategies in more detail, starting with the opportunities we have across our credit offerings. Throughout my tenure at Conn’s, we have talked about the uniqueness of our hybrid credit retail business model. Our established point-of-sale financing model has allowed us to offer an affordable credit product unlike other high-cost financing options available to our core customer base and remains the cornerstone of our overall credit strategy. During the past year, we approved less than 50% of the nearly 1.3 million applications for our in-house credit offering. We believe we can capture more retail sales financed through our in-house credit offering as our confidence in the economic outlook improves and we implement new credit strategies focused on driving more sales of Conn’s in-house financing with less risk. Our credit waterfall also helps us control risk within our credit segment and supports a sizable lease-to-own growth opportunity as over 670,000 applications did not qualify for our in-house credit offering last year.

We believe that many of these consumers should have the opportunity to purchase with the lease-to-own product, and we have continually communicated that we believe lease-to-own sales should represent at least 10% of our total retail sales. In the fourth quarter, we made meaningful progress towards this goal by adding additional lease-to-own partners. As a result, lease-to-own sales in dollars increased by 38% over the prior fiscal year period and were a quarterly record of 9.8% of our total retail sales. Robust lease-to-own sales growth has continued during the first quarter of fiscal year 2022 and quarter-to-date lease-to-own sales are approximately 12% of our total retail sales. For fiscal year 2021, we also experienced strong growth in cash and third-party financed sales, which increased 32% from the prior fiscal year period. The brand name home products we sell draw people into our showrooms and onto our website.

In addition, we believe having a local presence, next-day delivery and in-house service capabilities further distinguishes us from our competitors. Our value proposition is resonating with an expanded population of consumers and we are actively targeting a larger total addressable market than we were before the pandemic. As a result, we believe we can grow retail sales across our market-leading credit offerings and we are excited by the opportunities we have to serve prime, near-prime and subprime consumers. We also continue to embark on a digital transformation, which drove an increase in fiscal year 2021 e-commerce sales of 109% over the prior fiscal year. Increasing digital and e-commerce investments are primarily focused on enhancing our direct-to-consumer platform, upgrading our marketing resources, expanding our e-commerce team and improving the functionality of our digital capabilities to become a best-in-class omni-channel retailer. I am pleased with the progress we have made in our digital transformation over the past two years.

As you may recall, in fiscal year 2019, we launched features that allowed customers to transact online with Conn’s in-house financing for the first time. Since that time, e-commerce sales have increased over 8 times from $3 million two years ago to over $26 million last year. We believe we can double e-commerce sales again this year to over $50 million as we remain focused on serving our customers where and how they choose to shop. We also believe it is important to continue investing in our geographic expansion alongside our digital growth strategies. Last fiscal year, we opened nine new showrooms growing the total number of showrooms at the end of the year to 146. I’m excited to report that since the end of our fiscal year, we have surpassed 150 showrooms, a key milestone for the company. We have plans to open a total of nine to 11 new showrooms this fiscal year, all within existing markets. In fact, we believe we can support our brick and mortar growth strategy over the next several years without the need to open additional DCs, leveraging our existing fixed cost structure.

As we emerge from the COVID-19 pandemic, we have increased our focus on improving our retail acumen and capabilities. We continue to position our retail strategy to take advantage of changing consumer behavior and renewed consumer focus on home-related products and we expect to further enhance our product and merchandising strategies throughout the current fiscal year. Some specific actions include, enhancing our furniture selection to appeal to a broader customer base as well as reinventing our mattress segment by increasing the number of brands and price points. In addition, more consumers are recognizing Conn’s as a leading appliance retailer. As a result, we are focused on leveraging the 8.5% increase in sales we experienced in our appliance category this past fiscal year by expanding our appliance assortment. We also continue to pursue opportunities across complementary home products such as flooring, countertops and fitness related offerings. Finally, we are focused on improving our customer targeting and we continue to adjust our marketing and customer acquisition strategies. To help us achieve this goal, our spend in digital advertising has increased over 100% in the past year. We anticipate our digital spend this year will be 4 times higher than our spend was just two years ago as we shift marketing investments to what we believe will be a more effective and targeted approach.

As you can see, this was a transformative year for the company as we de-risked our business and balance sheet, expanded our addressable market and repositioned our strategy. We have reached an inflection point in our evolution and positive momentum is accelerating across our business. I am extremely excited by our growth plans and believe we have a compelling opportunity to create significant value for our shareholders. Finally, our success is only made possible because of the amazing dedication and commitment of our associates. On behalf of the entire leadership team, thank you for your continued hard work and service.

Now, let me turn the call over to George to review our financial performance.

George L. Bchara — Chief Financial Officer

Thanks, Norm. I want to start by highlighting the positive transformation we have made to our balance sheet, including deleveraging the business and repositioning our capital structure over the past year. The business generated $462.1 million in operating cash flow in fiscal year 2021, which was a $382 million increase from the prior fiscal year. This increase was a result of the significant year-over-year growth in cash and third-party finance sales, strong cash collections on our customer portfolio and less originations as a result of our tighter underwriting. We have used this increase in operating cash flow primarily to pay down debt.

We ended fiscal year 2021 with $549.3 million in net debt compared to $945.3 million at the end of the prior fiscal year. More importantly, net debt as a percent of the ending portfolio balance declined from approximately 59% at the end of fiscal year 2020 to approximately 45% at the end of fiscal year 2021, representing the lowest level in seven years. Since the end of our fiscal year, we have completed several actions that have further strengthened our balance sheet. In February, we completed the sale of our Class C Series 2020-A asset-backed notes for a principal amount of $62.9 million at a 4.2% fixed rate, representing the best coupon a Class C note we have ever achieved since reentering the ABS market nearly six years ago.

In March, we amended our ABL facility which extended the maturity to March of 2025, increased the advance rate and provided additional flexibility to manage the business. We also called the remaining $141.2 million balance of our senior notes that were due in July of 2022 using existing sources of liquidity and we expect to complete this transaction during the first quarter. As you can see, we have transformed our balance sheet, strengthened our capital position and extended our debt maturities. This provides us with flexibility to invest in our business, support our growth strategies and pursue additional opportunities that create long-term shareholder value.

Moving to our financial results. On a consolidated basis, revenues were $367.8 million for the fourth quarter, representing a 10.9% decline from the same period last fiscal year. We reported GAAP net income of $0.85 per diluted share for the fourth quarter compared to $0.17 per diluted share for the same period last fiscal year. On a non-GAAP basis, adjusting for certain charges and credits, we reported net income of $0.91 per diluted share for the fourth quarter compared to $0.20 per diluted share for the same period last fiscal year. Reconciliations of GAAP to non-GAAP financial measures are available in our four quarter earnings press release that was issued this morning.

Consolidated SG&A expenses for the fourth quarter and $128.3 million, a $3.7 million decline from the prior year period. For fiscal year 2021, consolidated SG&A expenses declined $24.3 million from the prior fiscal year period even with the addition of nine new showrooms. While we remain focused on cost controls, we expect SG&A expense in the first quarter and full year to increase year-over-year as we accelerate investments in our digital and e-commerce growth initiatives, continue to invest in new stores and lap certain expense reductions we made in response to the COVID-19 crisis.

Looking at our retail segment in more detail. Total retail revenues for the fourth quarter were $294.7 million, a 6.5% decline from the same period last fiscal year. The decrease in retail revenue was primarily driven by a decrease in same-store sales of 10.1% and lower RSA commissions and retrospective income, partially offset by new store growth. While same-store sales declined primarily due to tighter underwriting, sales of cash and third party credit transactions increased by 35% during the fourth quarter. We are encouraged by the sales momentum we are experiencing so far this year, especially as we have overcome store closures due to the winter storm, the loss of one calendar selling day due to a leap year occurring last year and industry-wide supply chain issues. We expect same-store sales to remain positive this fiscal year as we pursue opportunities across our entire credit waterfall and execute on our growth strategies, despite potential supply chain challenges continuing throughout the current fiscal year. Retail gross margin for the fourth quarter were 37.4%, a decrease of 290 basis points from the same period last fiscal year. As expected, a decline in RSA commissions and retrospective income as a result of lower sales of Conn’s in-house financing were the primary drivers of the year-over-year decline in retail gross margin. We expect continued pressure on our retail gross margin on a year-over-year basis throughout the current fiscal year. Retail segment operating income was $12.7 million compared to $35.7 million for the same period last fiscal year, primarily due to lower retail sales and lower retail gross margin.

Turning to our credit segment. Finance charges and other revenues were $73.1 million during the fourth quarter. The 25.2% decline from the same period last fiscal year was primarily due to 20.6% reduction in the average balance of the customer receivable portfolio, lower insurance commissions due to a decline in the balance of sale of our in-house credit financing and a decline in insurance retrospective income. For the current fiscal year, we expect finance charges and other revenue will be down on a year-over-year basis primarily due to a lower balance of customer receivables. Our provision for bad debt continues to benefit from a decline in the allowance for bad debts as a result of a shrinking portfolio balance, which was magnified by higher reserve percentages under CECL. In addition, during the fourth quarter, the allowance for bad debt declined due to a reduction in forecasted unemployment rates. As a result, our fourth quarter provision for bad debts was $25.1 million compared to $69.3 million for the same period last year. We expect our provision to be down year-over-year throughout the current year primarily due to a lower balance of customer receivables, improvements in our credit quality and an encouraging economic outlook. Our credit spread for the fourth quarter was 7.2% compared to 7.9% for the same period last fiscal year and 6.4% at the end of the third quarter. Credit segment income before taxes improved to $4.4 million compared to a loss before taxes of $28.6 million for the same period last fiscal year. The year-over-year improvement was driven by a decline in the provision for bad debts, which reflects a stronger cash collections rate, newer, higher quality originations and the reduction in the portfolio balance as a result of higher cash and third-party sales.

Finally, during the fourth quarter, we recognized a discrete tax benefit as a result of tax planning in connection with the CARES Act, which impacted the provision for income taxes by $12.4 million and benefited earnings by $0.42 per diluted share. As you can see, we have successfully navigated the COVID 19 crisis by derisking our business, strengthening our balance sheet, expanding our addressable market and repositioning our strategy. We are emerging from the pandemic as a stronger company and I’m excited by our growth prospects and the direction we are headed. On behalf of the entire leadership team, I want to thank our associates for your continued hard work, service and dedication.

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

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session.

[Operator Instructions]

Our first question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

Brian Nagel — Oppenheimer — Analyst

Good morning, guys. Congratulations on really nice job managing a tough year. The first question, I was looking back at my notes, I think this is a kind of a follow to question I’d be asking every quarter now. But I might ask again. So with regard to retail, so Norm you talked again about the more conservative path that Conn’s taken. George, I think you alluded maybe your comments, maybe some lighting up and the question I have is, at what point, hopefully the economy starting to pull out of COVID crisis now, at what point do you foresee Conn’s getting more aggressive at the issuance of credit? And then a second to that is as you look at these results and even the acceleration in sales here at early this fiscal year, how much do you think sales have been held back by how tight you’ve been with credit and I have some follow-ups?

Norm Miller — President, Chief Executive Officer and Chairman

Sure. So, as you know, Brian, this year, going back to March a year ago, we’ve taken a very conservative approach with Conn’s financing and impacted it — restricted sales well north of 20%. Now during that timeframe, we’ve been putting together starting last summer actually, some new modeling, significant energy and effort so that when the time came and we saw the economy improving, we would be prepared to be able to take more risk with better modeling and better underwriting to be able to drive sales with less risk. We have begun testing from a strategy standpoint on some of those models. It’s a very limited basis. It’s not impacting sales much at this point, very limited here in the first quarter, but we would expect by the second quarter to really start being able to realize increased sales and start capturing back some of that 20% plus of the Conn’s financing that we restricted sales this past year. The improvement in same-store sales that we’ve seen and the acceleration here in the first quarter is not being driven by the Conn’s financing, we’re still running in the 50% range of balance of sale versus the high 60%, 70% pre-pandemic. It’s really being driven by continued very strong performance in cash and credit customers, the high credit quality and as we highlighted on the call Brian, our lease-to-own, which is up 40% as we’ve added two additional lease-to-own partners in the past three months to help capture what we believe is an underpenetrated consumer in our stores. So we’re extremely bullish as we start to take advantage of the significant opportunities we have — we believe we have with Conn’s financing here in the second quarter and beyond that, that will be a nice tailwind for us from a sales standpoint balance of the year. But most importantly, I think is we’ve really changed our mindset from a total addressable market pre-pandemic, we’ve realized with cash customers for the past year having risen from 8% balance of sale pre-pandemic to 20% balance of sale and Synchrony or high credit quality customers increasing as well. We recognized that not only do we have a differentiator from a Conn’s in-house financing standpoint, but our entire credit spectrum with lease-to-own high credit quality and cash, we have the opportunity to grow sales in each of those four categories and that’s really what we’re focused on for the balance of this year but Conn’s financing will remain the cornerstone of our business.

George L. Bchara — Chief Financial Officer

Yeah Brian, and I would just as we look forward for the current year, we really expect the growth for the current year to come from the Conn’s financing segment as well as the lease-to-own segment while we maintain the success that we’ve had with the cash and higher credit quality customer.

Brian Nagel — Oppenheimer — Analyst

That’s extraordinarily helpful. I appreciate all the color there. Then a quick follow-up if I could. So you talked about the acceleration in sales here early in the current fiscal year and again which is mentioned obviously with a lot of that relates to the [00:28:48] in the business, but to what extent do you think this last round of stimulus could be helping Conn’s and to the extent is how would you think about that factor into maybe the near-term sustainability of what you’ve seen on topline?

Norm Miller — President, Chief Executive Officer and Chairman

It’s had a limited effect — I mean, to this point because from the stimulus, it’s only impacted the last 10 days or so of 12 days of March and we had strong performance in February, there were some stimulus impact in January that certainly helped us. We did have a positive comp in January as well as we mentioned in the notes. But the stimulus certainly has helped the back half of March and we expect it to help us in April as well.

Brian Nagel — Oppenheimer — Analyst

Great, thank you very much. Congratulations. Best of luck for the new year.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks, Brian.

Operator

Thank you. Our next question comes from the line of Kyle Joseph with Jefferies. Please proceed with your questions.

Kyle Joseph — Jefferies — Analyst

Hey, good morning guys, congratulations on navigating a challenging year. Just hoping to get a — just a follow-up in terms of the cadence of same-store sales and you talked about positive in January and positive quarter-to-date. Can you just give us a sense for how same-store sales compared in February versus March. I do recognize the storm activity was in February, that’s a leap year comp and also stimulus in March, but I’m just trying to get a sense for really started lapping the underwriting changes you guys undertook in calendar year 2020 and just want to see what comps look like in March?

Norm Miller — President, Chief Executive Officer and Chairman

Yeah. So that actually we combined it because there was written volume in February. It’s the storm — after the storm that it recovered and frankly the underwriting changes we have not — the underwriting changes we took, we didn’t implement until a week ago at the very end of March. So there is really no underwriting very limited underwriting, a few days actually, a week in March that impacted the from last year from same-store sales standpoint.

Kyle Joseph — Jefferies — Analyst

Got it and then good growth in lease-to-own. Sounds like you’ve added some new partners there obviously, 10% has been kind of the target. It sounds like it’s above that quarter-to-date. With the additional partners, what sort of number do you think is appropriate there?

Norm Miller — President, Chief Executive Officer and Chairman

Yeah, we, we’ve been talking about 10% target for a while now and have always believed that was kind of the minimum threshold from a balance of sales standpoint. What I would say is and as I mentioned in the call, we’re at 12% balance of sale quarter-to-date or approximately. Our focus is really not on a balance of sale because as this year unfolds and we see Conn’s financing being able to take — being able to capture more sales, we don’t want lease-to-own sales at the expense of Conn’s financing. We don’t want Conn’s financing at the expense of the other credit segment. So we’re really focused on — instead of a target from a balance of sales standpoint, the lease to own sales are up 40% as we mentioned in the call and that’s really what we’re focusing on is total dollar growth. We don’t want to shift within the segments of the pie. We believe we have the opportunity from an addressable market standpoint to grow all the segments of the pie. And that’s really what we’re more focused on as opposed to some arbitrary balance of sale number.

Kyle Joseph — Jefferies — Analyst

Got it. And then one last one for me for George. Obviously, there are a lot of moving parts of the allowance last year with CECL and the pandemic, but longer term, if you were in kind of a more steady state economic environment, can you give us a sense for where you picture the allowance trending over time?

George L. Bchara — Chief Financial Officer

Sure. So I would certainly say that for the current year Kyle, we would expect the allowance, both dollars and percent, to come down and that’s going to be driven by a few factors. The first is the fact that our expectation for the year is that the portfolio will continue to improve in terms of 60-day plus balances — balance of reaged accounts and so forth. And that is one of the contributing factors to a decline in the allowance. The other factor that I would point to here as you look at the allowance for the current year is the economic component. And as we continue to move through this cycle, with improving unemployment rate forecast, that will have or could have a positive benefit on the allowance for loan loss balance. So both of those factors, both the portfolio and the economic factor will be — our expectation is that those will be drivers of the reduction in the allowance balance for the current year.

Kyle Joseph — Jefferies — Analyst

Very helpful. Thanks for answering my questions.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks, Kyle.

Operator

Thank you. Our next questions come from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your questions.

Brad Thomas — KeyBanc Capital Markets — Analyst

Hi, thanks guys, and want to add my congratulations on your execution in 2020. I just wanted to follow up on the last question about how you’re thinking about losses and provisions. And I’m curious how you view some of the uniqueness of this recession that we’ve gone through, it’s been sort of the unrecession where you’ve seen payment rates be better than usual and of course there has been a tremendous amount of stimulus. So I’m curious, as you think about us lapping that, how you factor that into your expectation for losses?

George L. Bchara — Chief Financial Officer

So certainly the accounts that we’ve originated since March of last year has been under a materially tighter underwriting regime than they were pre-pandemic. And as we look at losses for the current year, that’s going to be the biggest driver of our lower loss expectations for FY ’22 compared to FY ’21. Having said that, we are certainly benefiting now from additional government stimulus as well as just the fact that consumers have been spending less on discretionary purchases over the last year. But on balance, we expect that the losses will come down year-over-year, driven by our tighter underwriting.

Brad Thomas — KeyBanc Capital Markets — Analyst

Great. And at a high level, it’s very encouraging to hear about the trends in same-store sales and your optimism for growth this year. Is there any way you can help us think about some of the major puts and takes here. I mean, quite clearly, there is an opportunity to have your inventory in a better position going forward and if you go deeper into your underwriting, that can be a tailwind. Of course on the flip side, some of the categories at year end had a very good 2020. So, at a high level, can you help us think at all more through some of those puts and takes?

Norm Miller — President, Chief Executive Officer and Chairman

Sure, Brad. A couple of things first. If you look at from a credit standpoint filter first, we saw significant growth in cash sales and in high credit quality sales with Synchrony this past year and our expectation is, we would not see those as high growth categories. However, we do expect to be able to continue to service that customer at an elevated level from where we were pre-pandemic. The opportunities credit wise are on the lease-to-own side of the house. We expect to continue to be able to build on what we’ve seen over the past three to four months there. And clearly, as I mentioned earlier from a Conn’s financing standpoint, that’s our biggest opportunity from a growth standpoint. If you look category-wise, from a more challenging standpoint, home office is certainly — was very strong in the first half of the year. So we expect that to be a headwind. That is our smallest category but we saw triple-digit improvements — increases in March through the June, July timeframe there. Mattress and furniture categories, the more discretionary categories because they are more heavily Conn’s financing, those were down significantly last year. So we expect from a product category standpoint to have significant upside in those categories — in those two categories. Appliances, as you heard on the call have been very robust, even pre-pandemic. So that will be more challenging to maintain that growth rate. Now, I will say a lot of the growth rate is being driven by ASP as much as units as the manufacturers have dramatically reduced the amount of promotions that are going on in that category. We’ve seen a significant improvement from an ASP standpoint. We, as I mentioned on the call, we’re expanding our appliance assortment in a number of areas as well because that category has resonated so well with our consumers. So we believe that that’s going to provide us some additional tailwind there to help mitigate the overall pressure that may exist in that category in the back half of the year. And then if you layer on top, supply chain issues have been a problem from almost every category that has pushed or impacted our ability to capture the sales that were there. We expect the supply chain challenges to persist, at least through the second quarter, but our expectation is in the back half of the year that that should alleviate to some degree, which should give us tailwinds from a supply chain standpoint in almost every category.

Brad Thomas — KeyBanc Capital Markets — Analyst

That’s very helpful Norm. And if I could squeeze one more in here, just about SG&A. You’re off to a great start here in the year from a store opening standpoint with six more stores, store count up I think a little bit over 9%. I presume that some costs need to go back into the P&L here. How should we be thinking about modeling SG&A, at least directionally going forward here?

George L. Bchara — Chief Financial Officer

So certainly, with our expectation of opening nine to 11 stores this year, that will be one contributing factor of an increase in SG&A expense, but the other factor that I would point to here is that we continue to make investments in technology and commerce and that’s going to drive an increase in SG&A expense compared to last year. Also recall that, starting now last year, we made some significant cuts to expenses that were reflected in our P&L for most of the year last year. So this year in FY ’22, we start to lap those reductions.

Brad Thomas — KeyBanc Capital Markets — Analyst

And George, is there an ability to keep sales as a percentage of sales close to flat or get some leverage or do you think that the setup here — for the year with the store growth and lapping some of the cuts from last year, sets you up for perhaps a little bit of deleverage in 2021.

George L. Bchara — Chief Financial Officer

I think this year we will deleverage [Speech Overlap] but be next year and beyond we start to leverage.

Brad Thomas — KeyBanc Capital Markets — Analyst

Very helpful. Thank you all so much and good luck.

Norm Miller — President, Chief Executive Officer and Chairman

Thanks, Brad.

Operator

Thank you. Our next questions come from the line of Rick Nelson with Stephens. Please proceed with your question.

Rick Nelson — Stephens — Analyst

Thanks and my congrats on a very strong results. 3% same-store sales quarter-to-date, can you talk about what you’re lapping February-March a year ago and do in fact the comparisons get easier as that we push into April?

Norm Miller — President, Chief Executive Officer and Chairman

So last year from a February standpoint, I don’t have February and March combined but in February, we were down high single-digits last year and in March, we really didn’t start lapping the pandemic to the last or the pandemic didn’t really come in full force until this last week in March the last 10 days or so and really the month of April is when it was in full force.

George L. Bchara — Chief Financial Officer

Yeah. As you recall, Rick, we were down 17.6% comp sale of last year in the first quarter. Most of that came in April when we started to see the impacts of the pandemic and our tighter underwriting.

Rick Nelson — Stephens — Analyst

And can you quantify that decline that you saw in April last year?

Norm Miller — President, Chief Executive Officer and Chairman

I’m sorry, can you say that again Rick. Can quantify what?

Rick Nelson — Stephens — Analyst

Can you quantify the April decline that you saw last year?

Norm Miller — President, Chief Executive Officer and Chairman

We don’t typically give out monthly sales numbers. But what I would say Rick is that the substantial decline in the first quarter was driven — last year was driven by April.

Rick Nelson — Stephens — Analyst

And curious about [Indecipherable] underwriting standards. If you could provide some color around that — the results of those tariffs and maybe what it could potentially mean for same-store sales. I know you are fully lapping now the tighter underwriting. But in fact, you more broadly rollout these easier standards, what that could mean for Conn’s?

Norm Miller — President, Chief Executive Officer and Chairman

So the modeling, I mean the testing is that we’re doing now is really validating and confirming the estimates that we have from the modeling that we’re doing. So it’s early to — it’s too early to project what that will actually contribute from a sales standpoint, but what I would say is we’re very focused. We’ve recognized that we’ve taken out 20% of Conn’s financing, even though we continue from an approval standpoint and a usage standpoint and that’s both in decline, the number of customers and credit limits as well, and we believe we have the opportunity to capture back a material amount of those sales and going forward into the future and do that with less risk. And in part why the lease-to-own partner is so important is and growing that business is it works hand in hand with our Conn’s financing because where we’re able to work closely with that partner and drive those sales, it gives us opportunity to take more risk with the higher credit quality customer knowing that we can capture that business on the lower credit quality with the lease-to-own partners. So what I would say is, in the second quarter of this year and beyond, we believe we have a material opportunity to drive sales from a Conn’s financing standpoint. Again, not at the expense of balance of sale of the other categories while we still see lease-to-own sales growing materially year-over-year and maintaining our high level of cash and high credit quality customers that we’ve been able to address during the pandemic as well.

Rick Nelson — Stephens — Analyst

Just to follow-up. I mean — Conn’s [Phonetic] credit proportion, it was 52% of sales this past year?

Norm Miller — President, Chief Executive Officer and Chairman

No, it’s a good question. Trust me, we’ve had a lot of dialog that — internally about that and what I would tell you Rick is we’re focused less on the balance of sale, we’re seeing that more as an outcome as opposed to a target. What we’re looking for is we want Conn’s sales overall to grow. But again, I don’t want to get 60%, 65% of Conn’s financing at the expense of taking it from not growing the cash customers, not growing the lease-to-own, it’s about growing total dollar sales from an overall addressable market standpoint across the credit spectrum. What I will say is, although I’m not putting limits of, it needs to be a certain percentage or a certain level we think, it’s going to be ultimately, we’ll probably end up being in the high 50s, low 60’s, probably not back to the level that it was, but the overall dollars will be greater even though the balance of sale will be less because of the growth in the other categories. And what I would say is we highlighted with what has transformed from a balance sheet standpoint over the past year, by having aggressive growth in the other categories, lease-to-own, high credit quality, we derisk the portfolio by having a bit smaller overall as a percentage of the business. Conn’s portfolio, it also generates a lot of cash, as you’ve seen over the past 12 months, to be able to basically pay down our high yield notes and do it just from the cash we generate from the business, it’s pretty remarkable. And to have our debt as a percent of revenue lower than it’s been in seven years, the balance sheet, I would argue is stronger than it’s been any time since the company has been public, frankly, certainly in the six years that I’ve been here. So this transformation of the business of being able to have Conn’s financing as our cornerstone but a little bit smaller part of the business from an overall sales standpoint and growing those other segments have real advantages from a cash flow and a balance sheet standpoint and a risk standpoint as well in the future of the unknown or what happens with the portfolio on a macro economic recession or an issue if there is a recession in the future.

George L. Bchara — Chief Financial Officer

Rick, I would just add that the key theme for us coming out of the pandemic is that our value proposition really resonates with customers that we don’t necessarily need to finance ourselves. And so, as we think about the business strategically going forward, we expect to see a more balanced mix of financing types across all revenue.

Norm Miller — President, Chief Executive Officer and Chairman

With Conn’s financing still being at least half of our business.

Rick Nelson — Stephens — Analyst

Thanks a lot and good luck.

Operator

Thank you. Our next questions come from the line of Bill Ryan with Compass Point. Please proceed with your question.

Bill Ryan — Compass Point — Analyst

Thanks and good morning. Couple of questions. One, you talked about your cash position really building up, you are sort of delevering the balance sheet. Everything looks really good. Is there any thought down the line, I know you did it a couple of years ago, but about some potential capital return coming in the future given the cash position and the outlook that you’re talking about? And then the second thing, just in reference to a question that you answered a little bit earlier, it sounded like you may have done a little bit more of a rollout of some of the new underwriting models in very late March. Just wanted to get some clarity on that if you did? Thanks.

George L. Bchara — Chief Financial Officer

So in terms of the balance sheet, as Norm mentioned, our balance sheet is in a better position than it has been in a long time and that gives us a lot of flexibility. Having said that, we continue to see strong returns from investments in the business, whether that’s new stores or now our increasing investments in e-commerce. And so, our primary focus is to continue to invest in the business. Having said that, we will continue to evaluate all other options from a shareholder return standpoint, including M&A, share buybacks and anything else.

Norm Miller — President, Chief Executive Officer and Chairman

The other question you asked Bill as far as the testing on the Conn’s financing, the testing we’re doing here in March is a very, very small percentage, having a very limited effect from a sales standpoint. The testing we’re doing is really just to confirm what our modeling and what we will occur, so that we’re positioned to be able to expand it later in April and most predominantly in the second quarter the Conn’s financing to start taking back some of the opportunities that we were tighter on last year. But it had a very limited impact, very, very limited impact from a sales standpoint here in the first quarter.

Bill Ryan — Compass Point — Analyst

Okay, thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to Norm Miller for any closing remarks.

Norm Miller — President, Chief Executive Officer and Chairman

Thank you. First, I want to again send out a note of appreciation to our 4,400 associates across the company for their hard work, not only this past quarter but throughout this very challenging year. Our success in navigating the pandemic would not have happened without their hard work and we also appreciate your interest in the company and we look forward to talking with you in a couple of months with our first quarter results. Have a great day.

Operator

[Operator Closing Remarks]