Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PROG Holdings Inc (PRG, Financial) surpassed expectations for GMV growth and exceeded the high end of their revenue and earnings outlook for Q2 2024.
- The company achieved consolidated revenue of $592.2 million, surpassing the high end of their outlook range by $17.2 million.
- Non-GAAP diluted EPS of $0.92 exceeded expectations, bolstered by a reduced share count from the share repurchase program.
- The PROG Marketplace delivered over 250% growth year to date through June 30, 2024, and is on track to exceed full-year expectations.
- The company maintained a healthy lease portfolio with a write-off rate of 7.7%, consistent with pre-pandemic levels, and expects it to be the peak for 2024.
Negative Points
- Q2 revenues for the Progressive Leasing segment declined 0.8% year-over-year, primarily driven by a smaller gross lease asset balance.
- Gross margin of 32.6% in Q2 2024 was 40 basis points lower compared to Q2 2023, driven by normalized levels of 90-day purchase periods.
- The provision for lease merchandise write-offs was 7.7% in Q2, which is expected to be the high point for the year, indicating potential future volatility.
- Despite cost-cutting measures, the company had to maintain investments in marketing, sales, and technology to drive GMV, which could pressure margins.
- The company faces ongoing challenges in consumer demand due to the macroeconomic environment, which could impact future performance.
Q & A Highlights
Q: Congrats on the execution here in the quarter. Steve, I want to just jump in first in talking about some of the growth drivers in the business. And I was hoping you could just give us a little bit more color or maybe even quantify to some extent how you're thinking about the drivers of GMV going forward here in the balance of the year? And how much comes from the established retail base that you have, these important partners they're still seeing some tough times? How much is improvement from them versus some of the growth initiatives you have? Thanks.
A: Yes. Thanks, Brad. Yes, GMV, we're pleased with the GMV performance, and it was strong and pretty consistent throughout the quarter. I'll talk about the second quarter, and then we can talk about what's baked into the outlook for the balance of the year. But the team's partnered well with our partners to your question about existing retailers, and we were able to get a few initiatives that we have been working on for some time over the goal line during the quarter. So that's going to help us with our productivity within existing retail partnerships. The marketing team also had a hand in it, both in the form of partner marketing with our retailers as well as direct-to-consumer marketing.
Q: That's very helpful, Steve. And if I can ask a follow-up just about sort of the retail landscape. I think there's news of Conn’s filing for bankruptcy today and with the plans to close at least some stores. You used to partner with them. I don't believe you were in them at all. There's other reasons you partner with that obviously close stores and may be at risk of bankruptcy themselves in the future. I guess the question I have is if you could talk a little bit about your relationship more directly with the customer than just a retailer? And how you may be trying to take advantage of situations where there might be like someone like comp that goes away and how you continue to navigate this landscape, whether retail roadmap is changing almost every day.
A: Yes. Thank you. And you're right, it's a dynamic environment. And just for clarity, we do not partner with Coms currently, but it is an important thing that I've talked about before, and we've gotten much, much better on that and more sophisticated, I would say, over the last number of years. So we have good visibility into our customers, wherever they are onboarded from, what their purchase habits have been. We're working on AI and other personalization efforts to try and predict what they may want next. But more fundamentally, we communicate with our customers directly and can say, misses customer. The store in your area has closed, maybe you'd like to take advantage of the going out of business sale. But after that, we've got these other fine retailers that we partner with in your area that we could direct you to. And in fact, we could create offers for some type of promotional activity or some type of incentive to make sure that they stay in our preferred partner network. So it's a very good touch point that we have. And with this dynamic environment, I think we'll be flexing those muscles more than we probably have in the last number of years.
Q: Congrats on the very strong quarter. I just wanted to talk about credit tightening a little bit. It looks like from your outlook, it seems that you guys are incrementally more positive on the trade down from lenders above. So just one -- I just wanted you to confirm whether that is true. And maybe when we think about the environment right now, inflation is coming down, maybe things have gotten a little bit better versus maybe three months ago. So I mean how sustainable do you think this trade-down would be? And I have a follow-up.
A: Sure. Well, I would agree with your characterization that we're incrementally positive, but it's not just about trade down. It's about our execution and the initiatives that we have that are recently deployed as well as things that we've got on the roadmap. Trade down is a factor in it. We talked about it. You'll remember, we kind of were braced for it for a number of years, and it really didn't happen. We started to see some evidence of it in holiday of 2023, and it was into, I'll call it, facets, like more customers that were coming into the retail environment where we thought, or we observed were in need of a payment plan. And that doesn't necessarily mean us. It could mean that they were appropriately partnered with a Prime provider, and that's fine, but more customers needing a payment plan and then couple that with less of them being approved by the providers and the stack above us, does tend to have a funnel dynamic for us, which is positive for us. We read all the public reports from the Prime providers. And you'll see that maybe some of their DQs are stabilizing. But they stabilize because of some tightening efforts on their part. So I'm not calling for an intensity or an increasing benefit. I think the tightened conditions are here at least for the rest of this year. I don't think they're going to continue to tighten, but the tightening conditions have had an impact to the top of our funnel, and we feel pretty good about that continuing. But more impactfully are the things that we're doing on the execution front. We'll see what the view is for 2025. But right now, we're not calling for increased tightening, but we believe that the tightening that's in the market will stick around for a little bit.
Q: Got it. And maybe about your marketplace, I mean, very strong growth there. I mean, can you talk about historically, I mean have you guys been successful in converting PROG Marketplace relationship into like a direct integration relationship?
A: Yes, that's a great question. And the marketplace is an exciting area for us, and it's really growing very quickly. Its origins and it started from really -- because we already partner with some of the best retailers in the country, and it started with just another way for our customers to shop with our retail partners. And it is another evidence of us driving traffic back into the retail environment and helping to demonstrate the value that we provide to the retailers that we partner with. It has morphed into some affiliate relationships, which are retailers that we don't have partnerships with, and we're not going to specifically call out any retailers, but I can tell you that we have had conversations with and had conversations starters due to the volume coming through on the marketplace. In fact, there's been one retailer that we got to call from that we have been having conversations with already, but we got a call from them saying that they had enough volume coming through their customer service line that they wanted to get like a one-page tearsheet for their call center agents to talk about our program and then it kicks start on the biz dev side too. So we're encouraged about just the volume of the DTC motion generally, but also as a complement to our biz-dev partnership efforts.
Q: Congrats on the performance this quarter. Steve, just I wanted to circle back to the GMV
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
