Norm Miller - CEO Lee Wright - CFO Mike Poppe - COO

Brad Thomas - Keybanc Capital Markets Rick Nelson - Stephens Brian Nagel - Oppenheimer John Baugh - Stifel Mitch Sells - SunTrust

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, 2017. My name is Candis and I'll be your operator today. During the presentation all participants will be in a listen only mode. After the speakers remarks you will be invited to participate in the question and answer session. As a reminder this conference call is being recorded. The company's earnings release dated April 4, 2017 distributed before market open this morning and slides that will be referenced during today's conference call can be accessed via the company's investor relations website at ir.conn.com. I must remind you that some statements made in this call are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements represent the Company’s present expectations, or beliefs concerning future events. The Company cautions that such statements are necessarily based on 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; Mike Poppe, the Company’s COO; and Lee Wright, the Company’s CFO. I would now like to turn the conference call over to Mr. Miller. Please go ahead sir.

Good morning and welcome to Conn’s fourth quarter fiscal 2017 earnings conference call. I will begin the call with an overview and then Mike Poppe will discuss our credit performance for the quarter. Lee Wright will complete our prepared remarks with additional comments on the financial results. As we have discussed throughout the year our goals for fiscal 2017, were focused on turning around our financial results and creating a solid foundation to profitably support our long term and differentiated retail growth model. Fiscal 2017 financial and operating results demonstrates the progress we are making towards achieving these goals and I am pleased that the company was able to return the profitability on an adjusted basis in the fourth quarter which was driven by an exceptionally strong retail performance. Essential to our long-term success are the significant enhancement we made during the year to the company's credit model including programs to increase yield, reduce losses and lower our borrowing cost. While the ultimate success of these improvements will take time to fully develop I am encouraged with the progress we made in fiscal 2017. I am confident Conn's is headed in the right direction and believe we are positioned to return to annual profitability in the coming year. Over the past 12 months Conns' has assembled proven credit and retail business leaders who have experience managing large complex organizations and are motivated by the significant growth potential Conns' unique business model represent. During the fourth quarter, we announced the appointment of additional seasoned executives including a new President and Chief Operating Officer of retail, Chief Accounting Officer, Vice President of Logistics and Vice President of Service. With these changes the majority of our executive transition is now complete and we can now accelerate the implementation of our strategy. Our retail execution was strong in the fourth quarter despite the decision to proactively slow sales growth by refining our underwriting standards and limiting new store openings. Underwriting refinements made earlier this fiscal year impacted fourth quarter same store sales by approximately 1,000 basis points. Despite lower overall sales I am extremely pleased with our retail execution in the fourth quarter as retail operating margins increased significantly. Retail gross margin was a record 38.9% as a result of favorable product mix within all categories and lower warehouse delivery and transportation cost. In addition, the cost mitigation plans that we announced earlier this year helped to reduce consolidated SG&A expenses by 7% in the quarter versus the prior year period. The outcome of both higher retail gross margins and lower SG&A expenses helped CONN’s produce very strong retail operating margins in the fiscal 2017 fourth quarter. Underwriting adjustments implemented in fiscal 2017 primarily focused on improving new customer credit performance and it’s important to look at same store sales across our three store categories. Core stores, single stores in new markets and new stores in new markets. Core stores represented approximately 57% of our store base. Single stores in new markets represented about 18% of the same store base. The remaining 25% of our same store base represent new stores in new markets with existing locations resulting in the cannibalization of sales in these locations. For the fiscal 2017 fourth quarter, same store sales of our core stores were now 4.7%, single stores in new markets were down 17.6% which while stores in cannibalized markets were down 20.2%. Underwriting refinements impacted all markets, but a greater proportion of the approximately 1,000 basis point impact was in our new markets. Within our stores and through our website, we receive nearly 363,000 applications for credit during the past quarter and over 1.3 million during the fiscal year. Approximately one third of our customers get approved for Conn’s in-house financing and utilize their credit. As a result, a significant amount of traditional lease-to-own subprime customers come through our source and we are uniquely positioned to benefit from this traffic. During the fourth quarter, 9.3% of retail sales were completed through third party lease-to-own plans, up from 4.6% of retail sales in the same period last year. We believe we have the opportunity to capture more lease-to-own sales above four quarter levels and during fiscal 2017 we started to review our third-party lease-to-own strategy. As you may have seen last week, Acceptance Now or ANow a division of Rent-A-Center announced that it has terminated its agreement with Conn's and yesterday Conn's announced a new partnership with Progressive, a subsidiary of Aaron's. There are a lot of moving parts and I thought it might be helpful to understand the evolution of what has transpired in our path forward with Progressive. Conn’s has had a partnership with ANow this for several years and ANow has consistently communicated to us that our lease-to-own partnership has been profitable for them, albeit at a lower level in other ANow business. As our business has evolved and we have seen our declined rate increase, we believe our lease-to-own partners should be completing a greater amount of transactions and we were disappointed with the amount of customers ANow was converting. Since the summer of 2016, we have had multiple discussions with ANow senior management team regarding our disappointment with the high rate of declines and low rates of conversions. Beginning in the fall of 2016, we started having meetings with Progressive who was actively pursuing a lease-to-own partnership with Conn's. On January 2017 we notified ANow that we were terminating our long term exclusive lease-to-own relationship with them and we were only willing to extend that exclusive relationship for two months at a time, while we were monitoring the results of the program. On February 26, 2017 we notified ANow that we were terminating certain locations of our ANow relationship. This termination notice was to allow us to bring Progressive into our stores to begin testing and integration. Over the last several weeks we've been working with Progressive regarding the integration and launch of the Progressive lease-to-own program and a full team of Progressive personnel was in our offices last week to advance the product launch. We expect to have the Progressive program available in our stores starting in May with the wider rollout in June 2017. Progressive's similar growth oriented culture, advanced decisioning capabilities and robust balance sheet provides Conn's with a strong and committed partner. We believe there's a significant opportunity to grow our lease-to-own sales and look forward to partnering with Progressive to help us achieve this goal. As a reminder this is a cash transaction to Conn's and our third-party lease-to-own partners are responsible for underwriting, funding, collecting and servicing accounts. Conn's benefits from the retail transaction and avoids the capital requirements associated with financing the sale. Payments can be made in a Conn's location and we have the unique experience providing in-store service for this customer base which helps Conn's create a relationship and build our brand with this customer. In addition Conn's may also benefit as lease-to-own customers improve their credit scores and potentially qualify and finance subsequent purchases to Conn's in-house credit offering. Retails fourth quarter results demonstrate the compelling value we offer customers. We're confident in our differentiated retail segments ability to deliver long term growth through our broad selection of brand names, top of the line products, leading customer service and affordable credit offerings. The underwriting refinements we implemented in fiscal 2017 will continue to be a headwind to same-store sales throughout the first half of fiscal 2018. However despite this near-term impact we expect our retail business to continue to generate strong profitability and operating income throughout the year with improving same-store sales result as we lap fiscal 2017 to underwriting changes. Our store growth plan will continue to be measured through fiscal 2018 and we expect to open only three locations, two of which we opened in our current quarter. As our turnaround strategies continue to take hold and the credit segments financial performance improves, we'll reexamine our unit growth plans and update investors accordingly. There's a significant opportunity for Conn's to expand its store base and become a national retailer, but creating a sustainable platform first is critical to our success. Moving onto our credit segment, we continue to focus on executing strategies to improve performance and profitability. As we mentioned on our December call, the Texas Direct Loan program was implemented across all 55 Texas locations before the end of October and in times for the holiday season. Texas represented over 68% of originations during the fourth quarter which helped to increase the weighted average interest rate on fourth quarter originations 444 basis points to approximately 27%. In addition in March we successfully expanded our Direct Loan program to Louisiana, reflecting another 5% of our origination. As a result over 80% of current originations now have a weighted average interest rate of 28.3% up from 21.7% in September. During fiscal 2018 we expect to rollout direct loan offerings in three additional loan interest rate state and once completed nearly all originations from Conn's in-house financing will be at higher rate. As we have stated historically our customer is a payment focus buyer and we have not seen any material negative trend associated with charging higher rate. Even at higher APRs Conn's in-house credit offering is a valuable and affordable option for our core customers and the initial success of our direct loan program is encouraging. The ultimate outcome of our transition to a direct lender in certain states and other programs to increase yield is expected to have a profound impact on our credit segments financial model. We continue to believe once this program are fully implemented and seasoned into the portfolio interest income and fee yield will improve approximately 600 basis points to 900 basis points to 22% to 25%. Throughout the past year, we have invested in programs to reduce losses by making refinements to our underwriting model enhancing our origination score cards and improving collection. Conns' core customer continues to be impacted by flat wages, higher living expenses and a greater access to credit. In addition a more stringent regulatory environment makes collections more challenging than it has been historically. We have seen deteriorating trends at other sub-prime lenders and in the sub time auto loan market. During the fourth quarter delays in processing tax refunds for this year's tax season has been impacted portfolio results. It's hard to say what the ultimate impact will be as there are still fewer returns filed and less total refunds paid this year compared to last year. While we cannot control these external drivers, we can adjust our credit segments strategy to ensure we are appropriately managing risk and effectively manage it while adhering to strict compliance standards regardless of the environment or the credit cycle. The refinements we made to underwriting are helping us to navigate a modestly challenging credit cycle, albeit at a slower pace than we would prefer. In addition to improving our underwriting model during the year we upgraded our originations score cards and made investments in people, systems and analytics. With greater sophistication we are able to actively monitor credit performance and adjust as necessary to maximize results. During fiscal 2018 we will continue to make additional investments in people and tools to improve our credit performance. We are confident the strategies underway appropriately managed credit risks and we are seeing recent originations perform better than prior periods. However the benefits of stricter underwriting take time to appear and our overall credit segment results continue to be impacted by slower growth, changes in credit strategy and the performance of accounts originated on the prior underwriting standards. As expected, a cohort of late staged delinquency charged off in the fourth quarter which impacted the fourth quarter’s provision rate. Charge-offs and provision may remain elevated until the majority of these accounts either mature or charge-off. With this said, we are optimistic overall credit performance will improve throughout fiscal 2018 as the legacy accounts leave the portfolio and are replaced with accounts benefitting from the tighter underwriting and higher yields. The overall goal of our strategies to increase yield and reduce losses is aimed at achieving a spread of at least a 1,000 basis points before servicing and financing cost. Creating the spread will provide Conn's with the flexibility to successfully navigate ever changing economic, regulatory and credit trends while maximizing financing performance. The groundwork to achieve this goal was implemented in fiscal 2017 and should be fully realized on a run rate basis by the end of fiscal 2018. Finally, increasing the spread on credits should ultimately reduce our cost of funds. While trending in the right direction, our borrowing cost remained elevated, with improved performance, lower capital requirements and increasing profitability our cost responds and interest expense should decline. As we will discuss in the prepared remarks, our ABS notes are performing in line with expectations. I am pleased that Fitch [ph] recently upgraded our 2016 A Class B note to investment grade. With successful and continued ABS transactions, we continue to broaden our ABS investor base. This combined with the strengthening credit business that generates a widening spread should lead to lower ABS cost even in a rising rate environment. As you can see, we have developed a well-defined strategy to enhance performance and our transformation is well underway. We have assembled a strong leadership of proving credit and retail executives who are improving execution across all levels of Conn's unique organization. I am pleased with the hard work of all of our Conn's associates during this challenging period. Our turnaround initiatives are taking hold and we expect to return to annual profitability which creating a platform for sustained profitable growth. With this, let me turn the call over to Mike.

Thank you, Norm. Our credit portfolio has experienced many changes and has grown from $643 million at January 31, 2012 to $1.6 billion at January 31, 2017. This 142% increase in the portfolio balance was driven primarily by acquisition of new customers, resulting from unit growth and selling square footage expansion as well as expanded retail offerings and enhanced marketing efforts. During this period, we’ve adjusted our credit strategies to improve results and increase the level of sophistication associated with managing a large, rapidly growing and complex portfolio of large, lease sub-prime receivables. Unfortunately, underwriting refinements made during the fiscal year ’15 &’16 did not go far enough and with macro related economic and regulatory headwind performance did not improve as expected. In addition, adjustments to recovery collection strategies made after October of fiscal '15 and the change to our Synchrony Bank long term no interest strategy during fiscal '17 put pressure on the loss trends of early fiscal '17 originations. Recall that the shift to Synchrony occurred in early fiscal '17 and removed the significant volume of high FICO score originations from our portfolio. While the removal of these high-quality originations impacts the optics of our portfolio results, we retain the highly profitable retail sales and increase the portfolio yield. As we work to improve the spread between the yield and charge offs to a minimum of 1,000 basis points we're implementing strategies to increase yield and reduce charge offs. Programs increase yield are fundamentally enhancing the financial model of our credit segment. During fiscal '17 these programs included shifting high FICO long term no interest accounts to Synchrony, raising rates in states without interest rate caps to 29.99% and implementing a new direct loan offering in the state of Texas allowing us to raise interest rates and charge up to $100 administrative fee. We've since implemented a similar direct loan program in the state of Louisiana and expect to have Direct Loan programs rolled out in three additional lower interest rate states by the end of fiscal '18. The outcome of these programs will produce a credit model that improves our interest income and fee yield approximately 600 to 900 basis points to 22% to 25%. Interest income will continue to build as fiscal '18 progresses and legacy accounts are replaced with higher interest rate originations. In addition to the yield programs the other component of the spread, lower losses will be impacted by continued improvement in underwriting and collection execution. We believe the significant underwriting changes made in late March and June of fiscal '17 will help the company reduce delinquency and losses and navigate a more challenging credit cycle. These adjustments to underwriting were focused on reducing credit risk largely related to new customers. Early performance trends for originations made in the second half of fiscal '17 after the more significant underwriting changes were implemented are encouraging. Monthly finished 60 plus delinquency and first pay default rates for originations from July through December of fiscal '17 are better than the same months in the prior fiscal year. We expect similar performance from originations since December however at this point they've not been outstanding long enough to provide this information. Remember that the prior year originations benefited from the high FICO no interest originations now being funded by Synchrony. Originations since late June fiscal '17 underwriting changes account for approximately 45% of the portfolio as of January 31, 2017. The portfolio is expected to benefit from continued origination under these tighter standards. As we've slowed sales and adjusted underwriting standards we've experienced a meaningful increase in the number of repeat customers as shown on Slide 4, this is important because existing customers historically have had meaningfully lower loss rates than new customers. Customer originations with more than five months since their first credit transaction at Conn's were nearly 53% of total originations during the recently completed quarter. This is the highest percentage of repeat customers since fiscal '13 and continues to increase as a result of tightened underwriting standards, slower store opening pace and increases in repeat purchases from customer and new market entered over the past four years. The underwriting changes and reduced store opening have pace have resulted in the portfolio contracting $31.4 million or 2% since January 31, 2016. While slower growth and changes to our credit strategies are benefiting the underlying performance of the portfolio, they continue to have a negative effect on the portfolio metrics including delinquency in provision and charge off rights. However as shown on Slide 5, on a dollar basis we are seeing improvement in the balance of 60 plus day delinquency which was lower sequentially and experienced the lowest year-over-year increase since January 31, 2013. In addition to the macro factors including weakness in the Houston markets slower portfolio growth combined with the decision to shift long term no interest programs to Synchrony impacted the reported 10.7% 60-day delinquency rate for the quarter. The 60-day delinquency rate at the end of the fiscal '17 fourth quarter adjusted for the slower growth and shift to Synchrony would have been 10 basis points better than the prior year on a comparable basis. During the fourth quarter cohort of late-stage delinquency charged off causing bad debt charged off net of recoveries to increase to an annualized rate of 16.7% for the quarter. Slide 6 shows our static pool loss expectations. We are expecting a static pool loss rate of approximately 14% for fiscal '14, which has only 0.5% of the origination amount remaining. The fiscal '15 loss rate expectation was increased slightly to be in the mid 14% range. We increase estimate due to the impact on performance we have seen of the various macro factors we discussed earlier. There's only 5.2% of this vintage remaining compared with 5.5% for fiscal '14 as the same point in its life. The expected loss rate for fiscal '16 is in the upper 13% range. As you can see in our static loss analysis fiscal '17 initial loss rate is higher than the previous year. This is attributable primarily to the decision to shift long term no interest programs to Synchrony and that all the underwriting changes were not in place until the back half of the year. As noted earlier the initial delinquency results for July and subsequent originations are better than the prior year and we'll start to benefit charge off results late in the first quarter of fiscal '18. We continue to believe our credit model can produce long term static loss rates around 12%. Progress to improve credit performance is well underway. We believe our current underwriting standards appropriately manage risks while supporting our differentiated retail strategy. We remain focused on enhancing our collection operation and investing in the right people, systems and analytics to create strong and sustainable credit platform. These strategies combined with programs to enhance yield are positioning the company to achieve a spread of at least 1,000 basis points. We expect fiscal '18's financial performance to show improving credit trends and I'll look forward to sharing our successes with you. Now I will turn the call over to Lee Wright. Lee?

Thanks Mike. Before I discuss the fiscal 2017 fourth quarter financial results I want to review some important changes to our asset base loan facility. As you will see details in the subsequent section of our 10-K that we will file later today on Friday we closed an amendment of this facility. Importantly the amendment extends the majority of its facility by one year to October 30, 2019. In addition certain financial covenants and definitions were adjusted and our pricing was increased slightly. We also reduced the size of the facility by $60 million from $810 million to $750 million. We believe this facility size provides Conn's with an appropriate level of liquidity and financial flexibility to support our long-term business plan. Our lending syndicate remains committed to Conn's and we appreciate their support. Consolidated revenues of $432.8 million for the fourth quarter of fiscal 2017 decreased 5.3% from the same period last year. Conn's was breakeven on a per share basis for the fiscal 2017 fourth quarter, compared to earnings of $0.03 per share for the prior year quarter. On a non-GAAP basis, adjusted for charges and credits and non-recurring tax items, diluted earnings per share for the quarter was $0.05, compared to $0.11 per share last year for the same period. Fourth quarter retail revenues were $356.2 million which declined $20.7 million or 5.5% from the same quarter a year ago while same store sales declined 8.9%. Despite lower revenues, retail gross profit increased by 1.9% in the fourth quarter and gross margin as a percentage of retail revenues expanded by 280 basis points from the same quarter in the prior year to 38.9%, a historical best for the company. On a sequential basis, retail gross margin increased 140 basis points versus the prior quarter. The improvement in gross margin is primarily due to product mix in lower warehouse delivery and transportation expenses that will increase efficiencies and further optimization. Higher margin furniture and mattress sales represented 34.6% of our fiscal 2017 fourth quarter retail product sales and 49% of our product gross profit. For the year, furniture and mattress sales increased to 35.5% of retail product sales, up from 34.2% for fiscal 2016. We continue to believe the longer-term goal of 45% of retail product sales from the furniture and mattress categories is achievable. Disciplined comp management helped reduce retail SG&A by 6.7% in the fourth quarter versus the same quarter in the prior year. We offset our increased store occupancy cost from a higher store base through cost savings in other areas in a onetime $1.7 million financial benefit. Retail SG&A as a percentage of sales also leveraged 30 basis points from the same quarter last year to 22.9% of sales. Turning now to our private segment, finance charges and other revenues were $76.6 million for the fourth quarter of fiscal 2017, down 4.1% from the same period the last year. The decrease versus last year was due to a yield of 16.5%, a decrease of 50 basis points from the last year and lower credit insurance commissions. The average balance of our customer receivables portfolio increased slightly by 20 basis points in Q4 from the same last year. SG&A expense in the credit segments for the quarter decreased 8% versus the same quarter last year. The decrease in SG&A was due to continued expense management, driving greater efficiencies and collections labor, partially offset by investment in credit analytics to improve the performance of our credit business. Credit in SG&A as a percentage of total customer portfolio balance leveraged at new basis points from the same period last year and improved 80 basis points from the fiscal 2017 third quarter. Provisions for bad debts for the credit segment was $72.1 million for the fiscal 2017 fourth quarter, an increase of $7.6 million from the same period last year. Higher than expected charge offs primarily drove the higher loss provision. As of January 31, 2017 we had $23.6 million in cash and approximately $162 million of immediately available borrowing capacity under the revolving credit facility. On a pro forma basis for our new facility site we had additional $406 million which could become available upon increases in eligible inventory and customer receivable balances under the borrowing base. Interest expense for the fourth quarter increased $1.2 million from the same period last year to $25.1 million. For the fourth quarter annualized interest expense as a percentage of average portfolio balance was 6.5% with average net debt as a percentage of average portfolio balance of approximately 75%. We continue to make strides improving our payable to inventory rate; accounts payable as a percentage of inventory was approximately 62% at January 31, 2017 compared to 57% at October 31, 2016 and 43% at January 31, 2016. During the fourth quarter we did not open any new stores, and for fiscal year 2017 we opened 10 new locations. All of these new stores are located in geographies supported by our existing distribution network. For fiscal year 2018 we've committed at only three new locations; two stores have already opened in North Carolina in this current quarter. With limited store openings scheduled for fiscal 2018 we expect to invest between $20 million and $25 million in gross capital expenditures compared to $46.6 million in fiscal year 2017. As we currently focus on improving our capital structure and increasing cash provided by operating activities, we're benefiting from our decision to shift high FICO, long term, no interest accounts to Synchrony. This decision has freed up over $220 million of capital which has reduced Conn's capital requirements. Our 2015 and 2016 ABS notes are performing in line with our expectations. We remain focused on building a track record not only with investors but also with the rating agencies. As Norm mentioned earlier we recently received an upgrade of our 2016-A Class B notes to investment grades with the ratings of BBB. As we improve the spread of our portfolio by increasing the yield on origination and lower losses we expect to continue reducing our cost of funds from our ABS transactions, even in a rising rate environment. As of January 31, 2017 approximately 16% was remaining of our total 2015-A Class A and B notes. Approximately 36% was remaining of our total 2016-A Class A, B, and C notes and approximately 73% was remaining of our 2015-B Class A and B notes. During April we plan to initiate and complete our fourth ABS transaction which will be our first for fiscal 2018. As a point of reference our last ABS deal had a blended all in cost of our issued Class A and B notes of approximately 6.9%. Based on our ABS performance and current market conditions we expect our next ABS transaction will demonstrate further reductions in our ABS financing costs. In addition to this transaction we expect to complete one additional ABS transaction during this fiscal year. We're on track to accomplish our objectives in fiscal 2018 based on the foundation we laid this year. During fiscal 2018 we will continue to focus on programs to enhance yield, refine underwriting, improve execution within our collections operations to reduce delinquency rates and future charge offs, lower our cost of funds, reduce warehouse delivering transportation cost and managed SG&A expenses while continue to offer customers a significant value for quality branded products for their homes. As we execute our near-term business objectives we expect to deliver improving same store results in that achieving full year profitability. Now I'll turn the call back over to Norm.

Thank you, Lee. Before we open the call for questions I wanted to reiterate our optimism and Conn's long term potential. As we have communicated throughout the year we are working hard to reposition Conn's for a sustainable and growing financial results. Our retail business is operating well and continues to demonstrate the value we offered customers as well as the differentiation we have in the market. I believe the turnaround strategies to improve credit performance are well underway and are starting to take whole. With each passing month better performance and higher APR originations are supplanting legacy receivables and we are moving closer to our goal of creating a credit business with the spread over a 1,000 basis points. I am encouraged by the direction we are headed and excited about our opportunities for profitable growth in fiscal 2018. With that operator please open the call up to question.

[Operator Instructions] And our first question comes from Brad Thomas of Keybanc Capital Markets. Your line is now open.

My first question is about just the quality of credit and you have given us tremendous amount of data, its very helpful. But I guess if you could just maybe contextualize a little bit higher level for us. Is there a particular quarter perhaps where you are thinking in 2017 we may start to see an inflection point whether delinquencies start to get better on a year-over-year basis, where that provisioning dollar value start to decline year-over-year? Just trying to understand when you think we might have that inflection point given all the good work you all are doing but balancing that against a back drop that's still been a bit choppy. Thank you.

Brad, this is Mike. So one thing I would point out and it's in the slide deck as you can see the 60 days delinquency dollar trend is tightening on a year-over-year basis and we do expect that trend to continue with the improved and tighter underwriting we have in place. As we noted on the call we do still expect some pressure here in the early part of the year from the legacy receivables as they run out and then as the tighter underwriting -- the receivables generated from the tighter underwriting continue to build in the portfolio they'll have a bigger impact as we move later into the year.

And then if I could just add a follow up on SG&A. You all have done a very good job of controlling cost here. How you are thinking about SG&A going forward given that you do have a growing store base and are we going to start to see areas that you will need to start putting more dollars into the business? Thank you.

Brad it's Lee, so as you know it is obviously very focused on controlling SG&A. Obviously as we have talked about, we're only opening three new stores, of which two have already been opened for this year. So we won't really have any pressure from new store openings as we go through this year and just continue to focus on managing those cost very carefully.

Yeah, I would hey Brad its Norm. Just to chime in, you know from where we were sitting this time last year when you look at almost every single department and function there has been a marked improvement from SG&A in a cost control standpoint and we are able to continue to leverage, continue to gain leverage from a distribution standpoint, warehouse delivery standpoint as those market season as well which continue to bode positively for us going forward.

Great, thanks so much. I’ll turn it over to the next caller.

Thank you and our next question comes from Rick Nelson of Stephens. Your line is now open.

You executed part of the Progressive relationship, if you can compare that the economics there versus acceptance now and if you envisioned any changes in underwritings from where Progressive might take more of your originations.

Yeah Rick its Norm. As you heard in our prepared comments, you know we’ve been examining our lease-to-own strategy beginning last summer because our belief is we have tightened underwriting standards significantly and with that obviously the number of declines increased. Our expectation was just for the sheer volume standpoint, the opportunity for our lease-to-own partner to capture more of that business was significant. And as you saw in the fourth quarter, we started to get some traction and you saw a lease-to-own as a percentage of sale was north of 9%. As we communicated from our perspective, we believe long-term that it can be better than that, north of 10% on an ongoing basis. And our decision to initially test Progressive and then move forward with Progressive which really driven around their sophistication from an underwriting standpoint, their growth minded culture and focus more -- better aligns with our strategy. And then lastly, they have the balance sheet from the capital standpoint to fund the type of growth that we’re expecting going forward.

The same store guidance in the mid-teens does this relate to the transition from acceptance now to Progressive, that it takes time for them to ramp?

That is absolutely a factor that why you saw the degradation in same store sales and guidance quarter-over-quarter. That is an element of it as well. Also the tax delay and processing refund, is an element of that as well. Clearly the underwriting changes we won’t start to lap them till later in the second quarter and early part -- very early part of the third quarter. So and we are seeing some very generally softness from a macro standpoint in some of the market as well. It’s really a combination of all those but, the progressive transition is absolutely important element of that.

Finally, if I can ask you about the retail gross margin coming at a lot better that we anticipated. If you could discuss the drivers there, and are you in fact kind of to taking prices up in the stores to account for the higher loss rates from your customers?

Rick its Lee. So, to answer your question, no this isn't about raising prices in our stores. It's really product mix and product optimization in addition to a better efficiency in our warehouse and delivery, in transportation. Norm mentioned just getting better efficiencies, we're optimizing that front.

Thank you, and our next question comes from Brian Nagel of Oppenheimer. Your line is now open.

So, first question I had, I just want to understand this better, but you mentioned in your press release in your comments about the charge offs in the fourth quarter, I guess better said, the late stage delinquencies going to charge offs, and that having an impact on -- upon your provision rate. So the question there, is that -- did that happen just in the normal course of the maturation of portfolio, or is that some more specific action you took to clean those -- clean it out?

Brian this is Mike. It's two things, one is they are certainly some natural course of those older legacy receivables flowing through and then I'd say there's also some underperformance from an execution standpoint and late stage collections that we made changes now, we're seeing improving results there, that those would be the two key drivers.

And then I guess I think somewhat related to that, I mean you've talked about this, why don’t we get clear on this as well. A lot of talk out there in the marketplace right now about indications of weakness in sub-prime lending, I guess a lot of it -- most of the news has been revolving around the auto business, but generally speaking and you've mentioned a still challenging macro-prime, are you seeing, as you look at your credit business, are you seeing indications that for one reason or another the performance of sub-prime lending has gotten more challenging here recently?

Yes, certainly and it's I'd say predominantly we see it in the existing customers where -- and Houston we've talked consistently about the Houston market and some of that is energy related, some of that maybe other macroeconomic factors, and that's what drove also as we went through this last year a lot of tightening as we saw a weakness in sub-prime, the growth and credit availability to these customers, and making a significant enough change in underwriting to start turning the year-over-year performance, seeing better performance in the more recent originations.

Brian this is Norm. There is absolutely -- we're seeing stress with that sub-prime consumer and our investments from the credit group and an underwriting team is enabling us to really identify those areas and those pockets from both the credit limit standpoint as well as an approval on a decline standpoint of where we can mitigate some of that. But we're absolutely seeing some stress with that sub-prime consumer.

So, you're experiencing -- and just a follow-up on that, I think one of the things that's surprising a lot of investors out there, a lot of market participants is that we're seeing that -- we're hearing indications of this incremental stress in sub-prime consumer, but by a lot of metrics the broader economies seems to be doing well or employment [ph], either Norm or Mike, is there something you can point to explain maybe that dislocation that we are seeing?

I think a couple of things and I think we have talked about this for several calls. First with the sub-prime consumer, it's been a dramatic expansion in access to credit for them. So share of wallet -- people trying to get share of wallet has growing pretty dramatically over the last couple of years and you think about the significant increase in subprime auto lending, there has been growth in sub-prime revolving credit availability, and then all of the new lender sources trying to get in, trying to lend to the consumers, they've put more stress on their wallet. And then you layer on top of that they really have not seen an improvement in their earnings power and so their disposal income continues to get stretched.

It's not an employment issue Brian, as much as it is [technical difficulty] we haven’t seen much wage growth and for that sub-prime or our core consumer, it's really about wage growth and even though the cost to living is not up dramatically even slight increases for our -- sub-prime consumer without the associated increase from a wages standpoint can start to put stress on that consumer.

Thank you. And the next question comes from John Baugh of Stifel. Your line is now open.

I was curious on the mix improvement in retail. You said being driven somewhat by decisioning on the credit underwriting side, but you could certainly influence what is whole by what you underwrite.

John it's Norm. No, it's not driven by underwriting at all. We are still -- I mean we made that decision based on the credit worthiness of the consumer at the end of the day and what their capability is, not to steer them to one product or another, and to reiterate from Rick's earlier question, we have done no price increases in the store, the mix -- the furniture that you saw in this past quarter and over the past year is really, you have seen that progress over the last three or four years as we continue to get better and better from our furniture merchandising and from a furniture retailer standpoint. And we expect to continue to see that improved going forward.

And then you commented all the factors that are impacting the Q1 comp guidance. Obviously you had Q4 where you had a direct loans in place the whole quarter. You are very comfortable I assume with the statement that you just don’t see a drag to retail closing sales from the direct loan program.

John it's Lee. No, we have not seen any material impact from our direct loan program. The increase in rates. Again as I talked about before, our customers or payment buyers and we really continue to see that to be true. One other thing I would add to the comment on our guidance for same store sales, in also what Norm said, is also we are seeing some impact with the immigration comments coming out of DC veterans [ph]creating I think some concern to that community and some lack of consumer spending that community, which certainly is also to having an impact.

And John one additional comments to Lee's thoughts about why we are not seeing an impact sales from the direct loan is, yes they are payment buyers, but this is still the best value available to this consumer in the market. they can acquire these products at this affordable of a monthly payment through any other source and we still offer them a great opportunity to get great quality branded goods for their home.

Yeah, I appreciate that. Mike, may be comment on the payment rate and actually improve slightly, that’s encouraging and I am curious though with longer-term direct loans and I understand it’s not a huge percentage of the portfolio yet, but shouldn’t that impact that somewhat negatively going forward or just discuss payment rate in general.

You bet, so there is a few factors that would impact payment rate and the first one is just going to be credit quality. So it's an indicator of credit quality in the portfolio, we talked about first pay defaults on the more recent originations being down. So number one, just more customers making their payments, payment rate is going to go to the right direction.

Which is the biggest driver of payment rate when everything is said and done.

That’s right. And then you’re right that the longer-term will -- could put some pressure the other way, there is no doubt about it. And then the other factor that’s a positive as we slow down growth in the portfolio seasons in the age of the receivables in the weighted average [indiscernible] accounts season that puts -- that’s a positive benefit to the payment rate also.

Understood. Then 0 to 550 went up as a percentage of the mix, is that just the inverse or the byproduct of the Synchrony business or there are some change in terms of loosening it all to the bucket of customers?

It's absolutely not a change in underwriting, it's just going to be yeah, Synchrony being on certainly on a year-over-year basis is a big impact and we see a lot of different flow of customers in the fourth quarter.

Internally we don’t underwrite under that 550.

Okay.

We saw the existing customer mix coming up, so.

Got it. And two more quick one, one account balances re-age greater six months was that pretty significantly year-over-year, but the comment there has there been any changes in the re-age criteria in the last 12 months?

No, two comments on that. One, there hasn’t been any changes. We have seasonal programs when we go through the holidays, but that would be kind of typical on a year-over-year basis. And then just keep in mind from an accounting standpoint and provisioning once they are re-aged more than three months, the trouble debt restructuring accounting kicks in and we’re basically reserving the full life loss expectation on those accounts. So when it gets there is a much more conservative provisioning and reserve treatment.

Okay, and my last question is just I’m curious 69% is the lowest in-house number. I've seen you underwrite a long-long time. I am curious whether strategically you commented on taking Progressive maybe north of 10%, you know obviously Synchrony business is way up. How do we think about that and is there sort of an implied de-risking strategy here to reduce the amount of your revenues that are tied to in-house financing? Thank you.

Thanks. Well I’ll start in and what I would say is obviously the move to Synchrony was a change of about 1,500 basis points when we move that from in-house to Synchrony, that’s driving the largest percentage of that. And we did that for as we shared previously for a multitude of reasons, not the least of which was from a capital standpoint we were able to -- for someone else to fund that 225 million in capital. From a lease-to-own standpoint it's not about de-risking, from my perspective it's simply a sales opportunity that we have and our stores are unique with the number of sub-prime consumers that walk through our door and it's a much higher percentage of potential lease-to-own that wouldn't qualify for Conn's financing and the intention with the move with Progressive is just to capture a greater percentage of those customers.

Thank you. And our next question comes from David Magee of SunTrust. Your line is now open.

Yes, hi guys, it's actually Mitch on for David. Just first the remaining States you intend to raise APRs, what would be the timeline for that, is there a chance to clear all of them by holiday?

We're certainly -- our target is to have them all completed before the end of the fiscal year, and our goal certainly would be to try to be done before the holiday.

And as you've implemented a number of credit tightening measures over the past few years, are you satisfied with where you're at or do you see the potential additional measures, just given the state of sub-prime industry and what have you?

What I would say is I mean we really can't predict Mitch what's going happen from a macro standpoint, that's a part of the benefit of having a sophisticated credit underwriting team, it's something we look at literally on a daily basis, of what's happening with the customers coming through the door from a credit quality standpoint. Having said that we don't, as we sit here today, expect anything significant. We do look in and make very minor changes from time-to-time both from a sales opportunity standpoint as well as from a loss standpoint, but as we sit here today we don't expect any major underwriting changes.

And then just lastly inventory positions per store looked a little light to me, is that just a function of the warehouse efficiencies that you called out previously?

Mitch it's Lee. Yes, that's exactly right, we're just better optimization of our inventory levels, a lot of focus on that, but certainly nothing from a lightening -- what we have in stores.

Yes, we're moved to an automated warehouse management system during this past year and I've significantly increased as I mentioned in my VP of Logistics that has come aboard, really is driving efficiency, that's driving that lowering of inventory in the distribution centers, not in the stores.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Mr. Miller for closing remarks.

Thank you. I want to thank our thousands of Conn's associates for their hard work, their passion, their commitment each and every day. We look forward to sharing our performance with our investors next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day everyone.