Good morning, and thank you for holding. Welcome to the Conn's Inc. Conference Call to discuss earnings for the third quarter ended October 31, 2012. My name is Karen, and I'll be your operator today. [Operator Instructions] As a reminder, this conference call is being recorded. The company's earnings release dated December 3, 2012, distributed before the market opened this morning and slides that will be referenced during today's conference call can be accessed via the company's investor relation website at ir.conns.com. I must remind you that some of the statements made in this call are forward-looking statements within the meaning of the Securities and Exchange Act of 1934. 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. Earlier today, the company issued a press release concerning the offering of its common stock. The company will not be entertaining any questions on this call with respect to the offering. Your speakers today are Theodore Wright, the company's CEO; Mike Poppe, the company's COO; Brian Taylor, the company's CFO; and David Trahan, President of the company's Retail division. I would now like to turn the conference over to Mr. Wright. Please go ahead, sir.

Good morning, and welcome to Conn's Third Quarter of Fiscal 2013 Earnings Conference Call. I'll begin the call with an overview focused on our retail segment. Mike will then discuss our credit segment, and Brian will complete our prepared comments with additional financial information and review of our capital position. Our strategy in providing valuable credit offering to all customers continues to work well. Slide 1 shows the percentage of our sales for each of our consumer credit alternatives, which is relatively stable from the second quarter of this year. Same-store sales for the third quarter of that category our on Slide 2. Strength in appliances, furniture and mattresses and home office offset slight weakness in electronics, principally television. Same-store sales were up 12.6% in total for the quarter. On Slide 3, you can see our gross margins by product category for the third quarter. Gross margin percentages improved across the board along with average selling prices. Our strategy focusing on higher selling prices is benefiting our gross margins in every category. Furniture and mattresses maintain momentum, benefiting both same-store sales and margins. The 1,400-basis-point increase in furniture and mattress gross margin percentages from the period a year ago reflects both the benefit of higher average selling prices and improved sourcing. For the third quarter, electronics represented only 25% of total gross margin dollars. We previously established a goal of 35% retail segment gross margins, and we achieved this goal in the third quarter. The opportunity to further increase margins by increasing average selling prices is limited. The opportunity to increase margins longer term from their current levels will be dependent on our ability to execute plans to increase the share of sales from furniture and mattresses. Preliminary November same-store sales were up approximately 6% with increasing gross margin percentages compared to November a year ago. All major categories, except television, saw solid double-digit increases in sales. Furniture and mattresses increased over 40%. Appliance same-store sales were up about 20%, which we think strongly outpaced the market. Electronics were down high-single digits, and home office was roughly flat. Black Friday sales were down 10%. For the entire Black Friday weekend, however, sales were flat. On Black Friday, all categories other than electronics and home office increased, and combined gross margin percentages increased by 35% to 40% for the day. And the day was more profitable, by far, than a year ago despite the weakness in television sales. Appliance and furniture sales were notably strong, and we believe we benefited from aggressive promotion in these categories. For the day of Black Friday, furniture sales were up over 80%. No question, competitors opening on Thanksgiving Day had a negative impact on our electronics business. The aggressive promotions we have in place for the early-morning opening on Black Friday did not pull traffic as expected, and our shortfall from Black Friday was in the first 2 hours of the day. Our competitors satisfied this demand the day before. However, this is more of a lost sales opportunity than a lost profit opportunity since most of these sales would have been at very low gross margins. Our schedule will be reevaluated next year, and then it's likely we'll respond to the consumers' direction. Our post-Thanksgiving sales of appliances and furniture and mattresses were stronger than forecast, putting pressure on our ability to deliver products and record sales. We start December with a higher-than-normal backlog of undelivered products and sales yet to be booked. The holiday calendar in December is also friendlier than normal with 5 weekends during the month. Windows 8 launched well for us. Our customer isn't likely to rush in for the latest technology, but the operating system seems accepted by our customers. Once we have better availability and assortment in touchscreens, we think Windows 8 may gain more traction. Smart television is becoming a more compelling product offering. By far, the #1 SKU in television currently is one of LG's Google televisions. This TV's remote with the mini keyboard feature makes demonstrating Internet capabilities easier. We're enhancing display and demonstration of all Smart televisions with adequate bandwidth in our stores to enable true representation of the benefits of these technologies. Smart television and Windows 8 should give us better tools to fight for market share and average selling price. Manufacturers' UPP or unilateral pricing programs are definitely helping our margin performance in television. In our opinion, this price discipline is not having a negative impact on sales. But our ASP is among the highest in the industry, and UPP is likely more helpful to us than others. Updated guidance for fiscal 2013 is for total same-store sales to increase mid-single digits for the fourth quarter. We're cautious on the television market and think we have -- we will have negative comparisons for the fourth quarter in this category. Television is a higher percentage of sales in the fourth quarter than in our other quarters. Turning to Slide 4, sales floor execution continued to improve. Sales customer satisfaction scores were 95% for the quarter. Productivity improved to nearly $60,000 per sales associate. Turnover was only 44% in the quarter compared to 80% in the prior year quarter. Our lower turnover rates and improving productivity is making Conn's a preferred employer for retail sales associates. Turnover among tenured productive sales associates is extremely low. We can also competitively recruit experienced productive retail associates in the marketplace. Closing our conversion rates are measured now on a consistent basis and can improve as our sales floor tenure and execution improves, and closing rates have begun to show a strong improvement trend. SG&A expenses remain well-controlled and benefited from operating leverage during the quarter. Operating leverage was, however, partially offset by preopening costs. Turning now to Slide 5, the new Waco location opened this past June continues to perform well. The store led the company for the quarter in furniture and mattress sales as a percentage of total sales and led the company in gross margin percentage. Four-wall profit margin percentages for the store are among the highest in the company. The Waco location contributed to net profitability from the time it opened, and we expect rapid payback on our investment. Our Albuquerque location is starting out even faster than Waco, which we would expect based on the market demographics and improved execution. The stronger start is despite a somewhat less aggressive approach to advertising with an initial soft opening. This store is on pace to be one of our very best stores, although it is still early in the store's development. Conn's business is based on repeat business, with almost 70% of credit sales to existing customers. These locations should build sales over time as we build the base of customers that understand and appreciate the unique value of Conn's offering. We expect to add 3 more stores in the current fiscal year. All 3 should open within a week. For fiscal 2014, we plan to open 10 to 12 stores. The new stores have more square footage than our average store today, and the planned store locations serve markets with higher sales potential. We believe we have the infrastructure and management resources to support this reasonable growth pace. Store and district management staff is already in place to support our fiscal 2014 plan. Remodeling of existing stores continues, and we're on target to complete 20 remodels this fiscal year. Our credit performance will be covered by Mike in detail, but I want to comment that performance improvements are accelerating and the trend is solidly positive. We're looking forward to a more stable operation and the benefit of changes made to this segment in the year ahead. For the third time this year, we're raising guidance for fiscal 2013. As we did last year at this time, we're initiating guidance for the upcoming fiscal year, fiscal 2014. Brian will go over our guidance assumptions. Underlying these assumptions is a view on market conditions. Appliances and furniture are expected to remain reasonably stable, but we think we have the ability to take share in these categories. Mattresses continue to benefit from product cycle developments and the decline of specialty mattress price points to levels affordable to our core customer. We also think we can take share in mattresses. Television and home office are forecast to be modestly negative. We think we can at least hold our share of these categories. Overall, our guidance implies same-store sales expansion in appliance, furniture and mattress categories will offset shrinkage in television and home office for a low- to mid-single-digit positive comparison. The upside opportunity is to deliver the same performance in appliances and furniture we have over the last several months and hold electronics close to flat. The biggest downside risks we see are from greater-than-expected weakness in electronics or declines in general economic conditions. Our previously stated goal is to deliver returns on equity of 17%. Our updated guidance for this year implies a return on equity of about 14%. Guidance for next year is in line with our goal. Year-to-date performance has much improved, but we're still early in the process of improving the quality and increasing the number of store locations, expanding sales of higher margin furniture and mattresses, executing better on the sales floor and improving credit segment profitability. Now I'll turn the call over to Mike. Mike?

Thank you, Theo. As the credit portfolio grew and we saw continued improvement in portfolio quality, adjusted credit segment operating profits increased 108% over the prior year and 9% sequentially. We expect to see continued growth in the fourth quarter, driven by additional portfolio growth and performance improvement. We typically see our highest portfolio growth during the fourth quarter each year, driven by the higher holiday sales volumes. The interest income and fee yield also contributed to the profit improvement, increasing to 19.3% during the third quarter, equaling the highest yield we have achieved in the last 3.5 years. The improvements in portfolio quality are evidenced by the increasing weighted average credit score of the portfolio. As shown on Slide 6, the concentration of balances in the portfolio continues to increase in the 550 to 650 credit score range, our core customer. As a result, the portfolio's weighted average credit score has increased to 603 at October 31 compared to 588 4 years ago. With tightened underwriting standards over the past few years and changes to our collection practices last year focused on improving credit quality, Slide 7 shows the steady increase in the weighted average credit score of the portfolio achieved over the past 4 years. We have made no changes to our underwriting standards this year, and the last increase of the minimum origination credit score took place in the fourth quarter last year. See Slide 8. Through the first 9 months of last fiscal year, 5% of our originations had a credit score below 550 compared to 2% so far this year. And this year's customers with credit scores below 550 are prior credit customers with proven payment history at Conn's. The other contributors to improved portfolio quality are the changes to our charge-off and re-aging policy, which have reduced the age of the receivables in the portfolio and the percent of balances in the portfolio that have ever been re-aged. As a result, the percentage of the portfolio re-aged, shown on Slide 9, is 460 basis points lower than the year-ago period, nearly a 30% reduction in the relative balance of the portfolio re-aged and is 880 basis points lower than the high reached at January 31, 2010. The percent of the portfolio re-aged is up seasonally in the third quarter. We would expect under normal conditions to see re-aging pick up somewhat during the third and fourth quarters each year and decline during the first quarter. Looking at the long-term delinquency trends on Slide 10, in addition to the reduction in re-aging, we have seen a declining trend over the past 3 years in the percent of the portfolio that's in the early stages of delinquency, 31 to 60, 61 to 90 and 91 to 120 days past due. Additionally, the 60-plus day delinquency rate as of October 31 has been reduced by 160 basis points since January 31 compared to a 90-basis-point increase in the same period last year. The improving portfolio trends have continued since the end of the third quarter. During November, the 60-plus day delinquency rate was reduced 10 basis points to 6.9% compared to a 30-basis-point increase last November to 8.2%. This equates to a reduction in the balance 60-plus days delinquent of roughly 16% on a relative basis and a reduction in the 60-plus day delinquency rate of 170 basis points so far this year compared to an increase of 140 basis points for the same period last year. Additionally, in November, we saw strong payment rate performance as it exceeded the rate for the same month last year. For the third quarter, the payment rate increased sequentially, which is counterintuitive to the typical seasonal trend we experience. On a year-over-year basis, the payment rate was down 13 basis points, due largely to the fact that the portfolio is growing. The payment rate is lower early in the life of an account and increases over time as the balance declines, given that our contracts have a fixed monthly payment. As expected, the charge-off trends improved during the third quarter, delivering our lowest charge-off rate since third quarter of last year, which benefited from the acceleration of charge-offs during the second quarter of that year. We expect the charge-off rate to decline sequentially during the next 2 quarters. Overall, for next year, based on our current underwriting and collection practices, we would expect the net charge-off rate to run between 5% and 6%. On top of the improvements in the underlying credit quality of the receivables, we have been improving our servicing performance through enhancements to our collection strategy to more precisely identify high-risk accounts and the appropriate strategies to apply to those accounts, as well as increasing our staffing levels to ensure adequate resources are available to execute the plan. During the month of November, we completed the planned increases to our staffing levels discussed on the last call. The recent delinquency and charge-off results prove we are moving closer to achieving our expectations and are on track to deliver improved and consistent profit contributions from the credit operation. Combining these improving trends with portfolio growth, driven by same-store sales growth and new store openings, portfolio yield expansion from improved portfolio quality and the ability to charge higher interest rates as we enter new markets, such as New Mexico and Arizona, where we will earn 26% on interest-bearing accounts, operating leverage as a result of portfolio growth, yield expansion and improved performance and the ability to fund much of the portfolio growth from company earnings, we expect to see a much improved profit contribution from the credit operation over the coming year. Before turning the call over to Brian Taylor, I'd like to take a moment to thank Rey De La Fuente for his 14 years of service to Conn's. We wish him all the best in his future endeavors. Brian?

Thank you, Mike, and good morning to all. Our operations generated record third quarter results, guided by continued same-store sales growth, margin expansion and growth in and returns on our customer receivable portfolio. Net income was $12.7 million or $0.38 per diluted share in the current quarter after excluding charges. This compares to adjusted net income of $0.5 million or $0.02 last year. Reported net income was $0.35 per diluted share versus the loss of $0.40 per share in the prior period. Reported results for the current period include a pretax charge of $1.4 million associated with the relocation of our corporate office and the recent expansion of our credit facility. Revenues for our retail segment were $168 million, up 8% from the same period last year, driven in large part by the 30-plus percent increase in furniture and mattress sales. Reported growth was tempered by the impact of store closures last year. On a same-store basis, revenues rose 13% on top of a 19% increase reported last year and marked our fifth straight quarter of double-digit year-over-year same-store growth. Retail gross margin was 35.5%, an increase of over 1,000 basis points from the prior year quarter, which include an adjustment to inventory reserves that reduced the recorded prior year margin by 300 basis points. As shown on Slide 11, retail segment SG&A expenses declined 140 basis points to 28.2% of sales in the current quarter, reflecting the leveraging effect of higher sales volumes. As a result of the significant expansion in gross margin and improved leverage on SG&A, adjusted operating income for our retail operations rose $13.8 million to $12.9 million in the current quarter. Credit segment revenues rose $7.1 million over the prior year period, driven by a 12% increase in the average portfolio balance and an increase in interest and fee yield. SG&A expenses were flat with the prior year level but increased sequentially, with planned increases in staffing levels to improve portfolio performance and future returns. As a percentage of revenues, servicing costs were 36% this quarter of revenue, a decline of 8 percentage points from last year, reflecting the leveraging impact of the 22% increase in revenue. While relatively consistent with prior year levels, after excluding the impact of the adoption of required accounting guidance, annualized provision for bad debt was 7.8%. As Mike discussed, we're seeing improvement in the portfolio delinquency and declines in charge-off rates. We expect this to favorably influence reserve requirements for the majority of our portfolio in the future periods. Interest expense increased $600,000 over the prior year as a result of the issuance of ABS notes earlier this year, which carry an effective interest rate of 8.2%, as well as an increase in outstanding borrowing levels. As the ABS notes amortize over the next 2 quarters, we expect a reduction in our overall effective interest rate. Additionally, we should see additional modest benefit from the reduction in borrowing rates under our recently amended revolving credit facility. Turning to the balance sheet and liquidity. Inventory turns were 5.9 in the current quarter of fiscal 2013 compared to a 5.0 level last year. At October 31, approximately 86% of our $77 million in inventory was financed through outstanding accounts payable. We continue to target funding 100% of our inventory through accounts payable. Turning to Slide 12. Our customer receivable portfolio balance equaled $684 million at October 31, up $40.4 million from year end. Outstanding debt at October 31 equaled $331 million or 48% of the customer receivable portfolio balance, down from the prior year end. Cash flow provided from operations for the 9 months ended October 31 totaled $15 million and reflects the impact of an $85 million increase in customer receivable portfolio. Said differently, our operations are generating significant profitability, funding the growth in our receivable portfolio, as well as the majority of our capital expenditures. In addition, it contributed to the improvement in our debt to equity ratio, which stood at 0.08x [ph] at October 31, 2012, compared to 0.9x at year end. We have taken a number of steps to provide us with additional liquidity to support our longer-term growth plans. We amended our asset-based revolving credit facility in September, increasing commitments by $75 million to $525 million, improving availability, lowering borrowing cost and extending the terms to September 2016. Last week, another lender was added to our bank syndicate and the commitment level was raised to $545 million. As of October 31, we had immediately available borrowing capacity of $158 million, with an additional $91 million that could become available with growth in eligible receivables and inventory, giving us total borrowing capacity of $249 million at quarter end. Annualized return on stockholders' equity was 13% on an adjusted basis for the third quarter of 2013 compared to our long-term goal of 17% return on equity. Given our current capital position and growth plans for the next year, we do not believe any additional capital will be required to fund the business for at least the next 12 months. We, however, continue to evaluate financing alternatives to support our longer-term needs. Turning to Slide 14. We've increased our earnings guidance again for fiscal 2013 to $1.55 to $1.60 per share based on the following full year expectations: same-store sales growth of 13% to 16%, open 5 new stores, retail gross margin range between 34.5% and 35% and no significant increase in share count. The company also initiated earnings guidance for diluted earnings per share of $2.05 to $2.15 for the fiscal year ended January 31, 2014. The following expectations were considered in developing the guidance: same-store sales flat to up 5%, new store openings between 10 and 12, retail gross margin between 34.5% and 35.5%, an increase in the credit portfolio balance, SG&A expense as a percentage of revenue ranges between 28% and 29% of revenues and no significant change in the number of shares outstanding. Much of this analysis and more is available in our Form 10-Q that was filed with the SEC. That completes our prepared remarks. Karen, please begin the question-and-answer portion of the call.

[Operator Instructions] Our first question comes from the line of Peter Keith from Piper Jaffray.

I wanted to just ask about your remodeled stores. I know you've kind of maintained some guidance at the remodeled stores should comp about 10% to 15%. I saw one of your filings this morning that the remodeled stores, at least for this last quarter, were comping 19%. I guess I want to think about that recent performance and how we should think about the remodeled stores going forward, if perhaps maybe you're doing some of the most needed stores first so it's a little bit above the normalized run rate or actually the remodeled just in general maybe performing better than you expected?

Peter, I think the remodels are performing as we have expected. I think given a relatively small number of stores, you have some extraordinary performances, both good and bad. And we still think that if you look at the aggregate of our stores, we should see a 10% to 15% increase. And that the majority of that increase would be in furniture and mattress categories as we expand the floor space and improve the presentation for those categories.

Okay. I guess, a separate question on your gross margin. So you had mentioned that the gross margin impact from taking up ASPs is probably limited going forward, probably more mix driven. But Theo, you talked too little about being able to take up the category margin for furniture and mattresses from some of your improved sourcing efforts. Could you give us an update there and if you still see some meaningful opportunity to take up that category margin next year?

Well, we took that margin from the low 30s to the mid-40s just quarter-over-quarter. And we think we have a little more room to improve, we could maybe get into the high 40s. But I think that realistically, that's the opportunity for us as long as we continue to be aggressive and promotional, which we are in those categories. So I don't think we're going to seek to meet some of the high points that you see in the marketplace with above 50% gross margin in furniture. I think we're going to continue to try to drive revenue and total gross margin dollars, with the possibility of achieving gross margin percentages in the high 40s.

Okay. That's helpful. And if I could just kind of follow up on that comment. So that was sequential improvement from the low 30s to the mid-40s. And I guess if that's correct, I guess, going forward...

That's year-over-year, Peter.

The results [ph] are not sequentially, no.

And our next question comes from the line of John Baugh from Stifel, Nicolaus.

A couple of things. One, could you tell us roughly -- well, I guess you know where these 3 stores are opening next week, but the plan for 10 to 12 next year sort of geographically the spread as well?

Geographically, the spread for next year is we'll advance -- actually advance into Arizona this year with a store in Tucson, and then we expect to expand our operations next year in Arizona markets, including Phoenix. And then the remainder of the growth we anticipate for next year would be building out in Arizona and expanding our locations in the states that we operate in today.

Okay. And then on the heels of the last question, you've had a tremendous, I think, over 700 basis point adjusted for your inventory charge increase in product margin for the 9 months year-over-year. And your comment that you'd like to expand the furniture and mattress a little further. In light of your gross margin guidance, it would seem that something has to, I guess, soften or go negative. Have I miscalculated that? Or is that caution on the TV outlook? Any color?

Yes. I certainly wouldn't say that you've miscalculated anything. But I would say that if you look at the share of business in electronics generally in the fourth quarter, it's higher, and that would have a modest downward pressure on gross margins. And that's reflected in our forecast for the fourth quarter. And then for next year, I think we'd remain cautious on the television market. That's correct. And we're considering in our forecast for gross margin, some caution about market conditions for next year, particularly in the television category.

Great. And then my last question, quickly on yield. Help me with thinking about that prospectively, you just put up, as you said, I think, equaled your highest yield ever. You're going into a couple new states that have an even higher opportunity. But I think the credit promotions can play into this, and I think you've increased some promotional efforts so maybe that brings the yield down. So help me with all those cross currents.

So to start at the end of your question, John, as far as the credit promotion, that and the noninterest programs we offer through our offering, is pretty well baked into the yield we are achieving today. As charge-off continues to come down, we should actually still see some upside benefit in the yield as charge-off rates improve. And then with our current yield, call it low, mid-19% range in our core states as we grow in Arizona and New Mexico at a 26% stated yield, and our stated yield in our existing states is 21%, there's certainly opportunity to get north of 20% over the next year to 2 years.

And our next question comes from the line of Rick Nelson from Stephens.

I'd like to ask you about the store size a bit, the recent store openings, Waco and Albuquerque and the 3 that are coming in early December, and how much of that store space is represented by furniture?

Okay, Rick. The store that was opened in Waco was close to 40,000 -- I'm sorry, 50,000 square feet, and the store that opened in Albuquerque was in the high 30s, with about 37,000 square feet on the sales floor. And if you look at the stores that we're opening this year and next year, almost all of these are in existing locations. The size of the box is going to vary between the low 30s on the low side to close to 50,000 on the high side. And the way we look at our store layout is the allocation of space to our electronics and appliance categories is relatively fixed, and that takes roughly 17,000 or 18,000 square feet. And there's some quirks about how it would lay out in each individual location, but call it 17,000 square feet to 18,000 square feet. And then the remainder of the space would be allocated to furniture and mattresses. So as we go into larger location, we have more display area for furniture and mattresses. A smaller location, we have less display area for furniture and mattresses.

Okay, got you. And the store's high density [indiscernible], it looks like almost half of those square footage is devoted to furniture and mattresses, and furniture and mattresses represented 19% of your sales this quarter. And I guess what is the endgame there in terms of proportion of sales? It would seem to be a big growth opportunity.

Well, it's certainly not our forecast, but it's our goal to generate the same type of sales per square foot in our furniture and mattress categories as we do in the rest of the business, and in fact, mattresses is already there. Mattresses are among our highest sales per square foot category, so it's really furniture we're talking about where the big opportunity is in sales per square foot. And as we improve our sales training, our sales execution in the furniture category, as we improve assortment, our pricing and promotion to become more competitive as a furniture retailer, we think that we can achieve our goals. It's not a 1-quarter, 2-quarter type of profits. Some of the changes that we need to make are cultural, within our sales organization, with a lot of tenure and a lot of experience, where we haven't been in the furniture business as aggressively in the past. So we think over the next several years, we can move towards that goal of delivering sales per square foot in the furniture category that's similar to our other categories.

All right. Got you. And as that mix shifts toward furniture in the coming year, I'm looking at your gross margin guidance for next year, it seems relatively conservative, flattish with the current year.

Yes, it's certainly less than the margin that we saw in the current quarter, and we've just been cautious on our outlook for the upcoming year in television. And as we're looking out fairly far into the future about general economic conditions, which we can't predict with great accuracy, so yes, at this point, we're going to lean towards the cautious side on gross margin.

All right. Got you. And final question, Mike. You mentioned that New Mexico and Arizona are carrying 26% interest rates, so is there any opportunity to go back in Texas and garner higher rates there?

With the retail installment lending product we use today, there's not but we continue to research for in the states we are what the other opportunities are to potentially achieve a higher yield.

And I would just follow on with a comment, and that's absolutely accurate. We would like to get a higher yield. But I'd also say that in New Mexico and Arizona, we're not charging the allowable maximum. We do recognize that our relatively low interest rates for our customer is a competitive advantage for us. And yes, we'd like to get some more yield, but we're not seeking to charge the maximum that's possible. We're trying to generate the maximum number of profitable sales and credit transactions for the company.

Okay. Out of curiosity, what is the statutory max in those 2 states?

It's unlimited.

In Texas, you're capped currently at around 20%?

21%, in fact.

And your next question comes from the line of Laura Champine from Canaccord.

I wondered if you could talk about the succession plans now that Rey is stepping aside in the credit division, what you're looking for and what your leadership beneath that level looks like.

The succession plan in effect has been in place for quite some time. Mike Poppe, in an informal way, has been engaged in our credit operations for over a year. And for nearly 9 months, credit has reported directly to Mike, and he's been actively involved on a day-to-day basis with the credit operations in all its elements, underwriting, collections, personnel, every element of the business. And that's been essentially what he's done, with very little activity elsewhere for this period of time. And so we think the succession [indiscernible] results, and we'll be excited for the upcoming year and beyond.

And our next question comes from the line Brad Thomas from KeyBanc.

I wanted to follow up on some of the questions on the financing side of the business. Obviously, the Conn's credit, over 72% of sales in the quarter, GE credit also moving up. Could you maybe talk a little bit about your expectations going forward, especially as the geographic mix starts to change?

Our expectation going forward is that we would see a mix fairly similar to what we have this quarter. If you look sequentially from the second to third quarter, not a great move upward in our Conn's credit percentage. We've been steadily moving upward as ASPs move up. That's really what's driving the percentage of sales that we finance as we're offering products that are at price points more likely to require or need financing. So as I mentioned in the comments about gross margin, we don't think there's a lot of room left to push ASP up higher, so we think that the credit percentages should remain fairly stable. They may move around a few percentage points, but we don't think that those moves will be dramatic. As we go into new states, I don't think we have clarity yet about how much of our sales will be financed. We just haven't been in these states long enough. Initial indications are that our proportion of sales financed might be somewhat lower than in our existing stores. But I would say it's just too early to tell there. Certainly, no indication that the percentage of sales financed would be higher, but that could prove to be the case over time.

Great. And then just a couple of quick housekeeping items. Theo, last quarter, we talked about the company increasing selling square footage by 20% this year and 30% next year. Are those numbers still what you're planning for?

Yes, that was -- the 50% increase was really over a 2-fiscal-year period, and nothing has changed in our expectation of the additional square footage from a quarter ago.

Great. And then just lastly on the earnings guidance for this year, the $1.55 to $1.60, the press release obviously says that's an as-adjusted number. So is that something that excludes the $0.03 that we had in this quarter, or is that something that's on a GAAP basis? I just want to make sure we're looking at the right numbers for the implied guidance for fourth quarter.

Brad, that excludes the charges we had in the current quarter.

And our next question comes from the line of David Magee from SunTrust.

I've got 2 questions. One is with regard to TVs, are you seeing much in the form of assistance from vendors as you try to move the units? And as you look to next year, is some of the promising things you talked about as far as Smart TV, is that enough to really sort of resurrect the category to some degree in 2013? That's my first question.

David Trahan, if you could take the first part of the question, that'd be great.

I think what the vendors are doing, they're really being very strategic on what their offering is based on NPD weeks [ph] as they go out there and really get aggressive with. So we really feel the rest of this year, especially for fourth quarter, December selling season, that they will continue their promotions, like they're doing right now, that are working.

And I'll follow on, on the second part of that question and say that we think better functionality and better display in Smart Television is going to help us hold our ground and potentially take some meaningful market share because of our ability to demonstrate the more highly featured, higher-price-point television. But I wouldn't say the better functionality in Smart Television gives us a positive view on the category overall and think that we're going to see a positive product cycle and industry-wide increases in sales in television.

Okay. Fair enough there. And then secondly, on the expansion being so robust this year and next, what is distribution -- is there an opportunity for distribution cost to be less as a percent of sales? Is that a sort of quiet profit driver as well?

Yes, in particular, as we build same-store sales, we're seeing the benefits there. And as we add stores and locations where we can generate higher than our current average sales per location, we think that, that could be a driver of leverage in distribution and also in store expenses.

And our next question comes from the line of Scott Tilghman from Caris & Company.

I wanted to touch quickly on 2 things. First, as you get your feet wet in New Mexico and Arizona, do you have a better sense as to what type of footprint you can ultimately have in those 2 states?

We're beginning to get a sense, Scott. I don't think that we have a clear vision at this point of how many locations we could have in those states. We do have expansion plans already in place for those states, but the ultimate number of stores, I think we're going to let performance drive our thinking on the ultimate number of stores that we have in those markets. And I'd also say that based on the experience that we have with closing stores as well as opening stores, that we're not going to go back to the store density that we had previously in some of our Texas metro markets. So we're not going to see the same number of stores in relation to the population that we've seen in the past because we don't think that's necessary to serve our customer base, and we think that, that increases the risk of having underperforming stores.

And then my second question was on SG&A. Obviously, looking at next year's guidance suggests a fair amount of leverage, but I was wondering if there are any discrete cost items from this current year that are falling out that help get to the 28% to 29% range given the guidance of a relatively modest comp.

Not particularly, Scott. Looking forward, as we continue to open new stores, we would expect to have some additional costs as the number of stores open up and that type of thing. We'll get good leverage from the sales growth, but we do look -- the store opening trajectory is a little bit higher than it was this year.

And our next question comes from the line of Dan Binder from Jefferies.

It looks like your inventory is down 20%, if my numbers are right. I'm just curious, with the upcoming store openings and mid-single-digit comp, is that just an unusual timing issue versus last year?

No, I don't think that's unusual timing. I think it reflects the steady improvements that we've had in our inventory management over the last 18 months. And we're managing our inventory more tightly than we have in the past, and we think we're seeing the benefits of that in gross margin, particularly because we're not dealing with the issues that the company's had to deal with previously as we get out of end-of-cycle product with substantial inventory on hand. So I don't think there's anything unusual about it. I think it's in line with the way we would intend to manage our inventory.

Okay. My other question was around insurance and warranty contracts. Given the sales increase, I think it was right around 8%, you've had bigger increases in warranties and insurance commissions. I'm just curious what's driving that. And also, if you could sort of speak to the credit terms, is that -- in your business, is that something that's required, particularly insurance, as they get these credit contracts? Or if you could shed a little color around that.

Sure. The first part of your question, the answer to that is as average selling prices increase and as our credit penetration increases, we would expect that our sales of insurance products and repair service agreements would also increase. So if you think of our typical core customer with limited disposable income, typical length of manufacturer's warranty is 12 months, our contract is probably 32. For that customer that doesn't have the ability to withstand the disruption in their income, having those insurance or warranty products in place makes a lot of sense, and so the penetration rates tend to follow. We do require on our credit product that customers have product insurance, that they insure the item, which is the security for our loan, but we certainly don't require them to purchase it from us. And so there really is no requirement. It's just that customers who understand the risk of loss of the product while the loan is still enforced are more likely to purchase those products.

So if the sales are up -- I mean, insurance is up 43%, how should -- I mean, how should we think about that going forward? Is that the type of rate we should expect to keep seeing? Because that's a fairly significant multiple of the sales growth.

The other thing from a credit insurance perspective, Dan, that benefited us as charge offs come down and we've moved further away from the impacts of the recession is our retrospective profit commission in the credit insurance program is higher this year than last year, so that gives some benefit. And then I would also note, last year, part of why last year is so much lower is there was a charge related to TDR that ran through the credit insurance line item, so it was also adversely affected by the TDR accounting we adopted in the third quarter.

And the warranty growth, is that being purchased on furniture and mattresses as well? That seems like that's mostly electronics business. Is that fair?

Well, we sell those products on everything that we sell. And the attachment, what we would refer to as the attachment rates, are reasonably close across all of our categories, again, the value to our consumers' protection against loss during a period in which they're still paying for the product. So again, I don't think it's necessarily something in our business that's limited to electronics in any way.

Okay. If you could just address 2 more statistics, it looked like the down payment rate was lower year-on-year, with the FICO score similar. Just curious if that's a promotional factor. And then finally, the average balance is up, I think, a little over 15%, also with a similar FICO score. Is there a lot more room for that to go up from there? It seems like a pretty big jump given the ASPs. I'm sure that's probably helping -- what's helping drive it. As we look forward, should that growth slow?

I'll tell you, first off, on the down payment, Dan, the issue there is the dramatic reduction in low credit score underwriting, not necessarily the average but the number of loans that we're initiating with low credit scores, where we would typically require a fairly substantial down payment. So for our 600-plus FICO score typical customer, the down payment is normally 0. One of our slides, we'll direct you to the right one, Slide 8, I think, helps answer your question quite directly. The customers that we would require a large down payment from, the percentage of our underwritings there are significantly lower than they've been in the past. The average balance is increased with ASP increases. That's absolutely correct. But the other factor is just the growth in the portfolio, so you have new loans coming in sort of full balance, and you have a number of loans that are rolling off with relatively small balances. So part of it is just a function of the average age of an account within our portfolio.

So as we model that going forward, we lap these big ASP increases, should we start to see the portfolio and the average balance growth more similar to sales growth?

It should be more similar, but you also -- you'll continue to have the effect, the portfolio growth because we did forecast, as we said, the portfolio would grow over the next year.

Our next question comes from the line of Peter Homans from Parkman.

I'm more familiar with the electronic retailing side of the business than the furniture and mattress side. And I gather that, from reading all the documentation, that one of the reasons that you're moving into furniture and mattress, which is quite a different customer, different shelf life, et cetera, was to improve your margins. It looks to me, from a revenue standpoint, that over the last 3 quarters, which are, as far as I can see from reading your data, sort of the first 3 quarters that are the result of your restructuring the business. The total revenue has oscillated. It took a jump from the $150 million level to sort of $167 million, $171 million kind of level, so that you are seeing strong year-over-year growth, but in one more quarter, you will have lapped the much lower numbers from January 31 of 2012. I'm sort of curious where you -- and along with that, a lot of your increases, as described in the press release of the 8th, in terms of ASPs versus unit sales levels, a lot of it has come from ASPs. How sustainable are the ASP increases? I think you've already said they aren't terribly sustainable. And if they're not -- if you're not going to get much more out of that and even with those big ASP increases you've been, on a sequential basis, growing -- I mean, you're up from April until October, you're up $1 million and in terms of total product rev. Where is the growth going to come from outside of new stores once you lap this, the effect of the very effective restructuring?

Okay, I'm going to try to break that into pieces and do my best to answer all the questions.

I appreciate it.

Furniture is going to have a customer that's fairly similar to our typical appliance purchaser. So although it is a different product with a different product cycle, the primary purchaser is going to look a lot like our appliance purchaser. So we see a lot of synergy between appliances and furniture. We wouldn't necessarily see the same in electronics. The second thing is ASP increases, yes. We think the pace of increase, certainly, is not sustainable. We think our current levels of ASP are sustainable. And our strategy of promoting and driving ASP grew over time, so we think over the next several quarters, we'll still see some continued year-over-year improvement possibly because our strategy wasn't fully implemented at this time a year ago. But again, we don't see ASP as being a major driver in sales growth. We think unit growth will be the driving factor going forward. And I'd just say if you look at our guidance for next year, we're forecasting 0% to 5% up, so we're considering the fact -- and that compares to up mid-teens for this year. So we're considering in our guidance the fact that we don't expect, as comparisons get tougher, we don't expect to maintain the same pace of same-store growth. But we do see significant opportunities, which we've talked about, in furniture and mattresses. We don't believe we're executing at anywhere near a competitive level yet as a furniture and mattress retailer. Lots of opportunities just to execute basic retailing assortment, training, display, all of those sorts of things because we are not -- we don't have the heritage in those categories. Another opportunity for us is in appliances. Our performance in appliances has been accelerating. November, we're looking at a 20%, roughly 20% same-store increase in appliances, very strong performance. And over the last 12 months, we've seen some acceleration in our performance in appliances. And it's hard to put a concrete number on this, but if you look at our remodeled stores, the presentation of appliances is so much better. And we think that is now beginning to have a beneficial impact on our sales in appliances. Initially, you see the furniture and mattresses, and you see some of the big sales increases in those categories, and that's what catches our attention. But we are seeing we think some momentum developing in the appliance categories from our remodeled stores.

Okay. Can I ask you just one teeny question and just to familiarize myself of mattresses and appliances, et cetera? How do your gross margins and ASPs in the mattress market compare to your competitors? Because Tempur-Pedic and mattress -- I forget the -- there are about 3 companies that are pop-like in addition to yourselves. And I was curious how your margin -- your gross margin and ASP compare to theirs. And also, I'm sort of curious how it was that even though you increased long- and short-term debt by about $9 million sequentially, cash declined by around $800,000, $900,000. I haven't run a cash flow statement, but I was just curious how that was. So basically, one is how do you compare to the other furniture retailers in margins and ASPs? And the second was the cash burn, if you will.

Okay, I'll address the first question. Our margin on furniture and mattresses in both cases are pretty competitive. Our ASP will be similar in mattresses, but the distribution will be different. We don't sell the very high-priced principally Tempur-Pedic product. And we don't have those very high ASPs, but we also don't really sell mattresses at the very lowest price points. So we're more concentrated in the middle of the market with mattresses, but the end result is our ASPs would look pretty similar to the market as a whole. And Peter, with respect to cash, we don't -- earnings substantial return on cash. We use available cash to pay down debt. So there's nothing to look at the cash. And the cash flow statement is in the 10-Q that we filed this morning.

And our next question is a follow-up from the line of Peter Keith from Piper Jaffray.

Theo, one thing that was not talked about was the revision you were going to make to your advertising strategy, and I thought that was potentially going to start in the fourth quarter. I was wondering if you could provide us with an update on that, if you've had some of your new tests rolling out and what the performance of that has been.

Yes, we've made some revisions to our advertising strategy that are reflected in the fourth quarter, and we've seen the results of that strategy so far with, I think, a better quality customer in the sense of a customer that's more motivated to purchase. Our closing rates have been increasing sequentially, and we see strong progress there. But based on the traffic counts that we've seen, they're pretty well stable or close to stable from a year ago with an increasing closing rate.

And just qualitatively, what are some of the changes to the ad strategy that you've made in recent weeks?

Really shift of more of our advertising spend to broadcast media. That's principally it. Less reliance on print and more broadcast media because we believe our core customer is not -- we know they're not as likely to be subscribers to the paper.

And that concludes our question-and-answer session for today. I'd like to turn the conference back for any concluding remarks.

Thank you, everyone, for joining.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.