Conn's, Inc. (NASDAQ:CONN) Q1 2021 Earnings Conference Call June 9, 2020 11:00 AM ET
Norm Miller - CEO
Lee Wright - COO
George Bchara - CFO
Conference Call Participants
Brad Thomas - KeyBanc Capital Markets
Rick Nelson - Stephens
Brian Nagel - Oppenheimer
Kyle Joseph - Jefferies
Bill Ryan - Compass Point
Good morning and thank you for holding. Welcome to the Conn's, Inc. Conference Call to discuss Earnings for the Fiscal Quarter ended April 30th, 2020. My name is Brock 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 a question-and-answer session. As a reminder, this conference call is being recorded.
The company's earnings release dated June 9th, 2020 was distributed before market opened this morning and can be accessed via the company's Investor Relations website at ir.conns.com.
During today's call, management will discuss, among other financial performance measures, adjusted net loss and adjusted earnings per diluted share. Please refer to the company's earnings release that was issued today for a reconciliation of these non-GAAP measures to their most comparable GAAP measures.
I must remind you that some of the statements made in this call are forward-looking statements within the meaning of 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; Lee Wright, the company's COO; and George Bchara, the company's CFO.
I would now like to turn the conference over to Mr. Miller. Please go ahead, sir.
Good morning and welcome to Conn's first quarter of fiscal year 2021 earnings conference call. I want to start today's call by updating you on the actions we are taking to navigate the COVID-19 crisis before turning the call over to Lee and George who will provide additional details on the quarter and our response to the current economic and business landscape.
Since our last call only two months ago, economic and market conditions remain extremely fluid as a result of the evolving COVID-19 pandemic. During the first quarter, local municipalities recognized the essential home products we offer our communities and nearly all our showrooms remained open. In addition, the diversity of our retail products, financial offerings, and distribution channels has helped offset the extreme challenges Conn's and other retailers have encountered during this period. We continue monitoring federal, state, and local mandates and we will take decisive actions as the crisis evolves to ensure we are protecting the health and safety of our employees and our customers.
Consumers across our markets are looking for high quality brand name products to adapt to their in-home lifestyles. Our free next-day delivery in home service and product support and omnichannel platform are especially resonating with consumers during these challenging times. Customers are also looking for flexible credit options to affordably finance their purchases.
We believe Conn's compelling value proposition will remain strong throughout the COVID-19 crisis, demonstrating the resiliency of our business model. As the country emerges from the crisis, we believe that our addressable market will grow as credit scores decline and our value proposition will resonate with more consumers as other lenders limit access to credit.
In addition, we believe that consumers will be increasingly interested in investing in their homes, aligning with our focus on home products. While the near-term will remain uncertain as a result of the COVID-19 crisis, we believe we will benefit from the investments we have made to our business over the past five years, our experience leadership team, and the diversity of our retail and financial products.
I want to also thank our associates for their continued dedication, serving our customers through these uncertain times.
So, with this overview, let me turn the call over to Lee, who will provide more details on our first quarter operating results and the specific actions we are taking to respond to the COVID-19 crisis.
Thanks Norm. Starting with our credit performance, our first quarter results reflect the build in our allowance for bad debts associated with accounting for the COVID-19 crisis under CECL, which was responsible for more than half of our first quarter provision. George will provide additional details on the components of our provision for bad debts and our allowance for loan losses in his prepared remarks.
Overall, underlying credit and portfolio performance during the quarter was mixed, primarily due to the economic impacts of the COVID-19 crisis. However, during the quarter, our core customer benefit from tax refunds and government stimulus, which combined with strong collection performance, help drive favorable payment and portfolio trends.
Our first quarter credit spread was 620 basis points. Over the next several quarters, we expect our credit spread will continue to be under pressure as charge-offs remain elevated due to lower performing vintages and the economic impacts of the COVID-19 pandemic.
Overall, we remained focused on de risking our credit segment. In mid-March, we began implementing a series of underwriting changes in response to the COVID-19 crisis. These included reducing originations of higher risk applicants, selectively increasing down payments, and lowering credit limits.
As a result, we believe we are taking the necessary actions to prudently manage risk. During the first quarter, the balance of retail sales financed through Conn's in-house financing fell to the lowest level in eight years and was 63.3% compared to 68.2% for the same period last fiscal year. These trends continued in May and the balance of retail sales financed through Conn's in-house credit offering fell even further for the month.
Unlike other companies, we have the flexibility to tighten credit, while still providing consumers with alternative financing options as a result of our multiple third-party partnerships in diverse credit options.
During the first quarter, we experienced an increase in cash and credit card transactions in retail sales financed through Synchrony Financial, further derisking our credit segment. Combined, over 28% of sales were to cash and higher credit quality customers, which we believe reflects our strong relationship with Synchrony and our ability to attract a wide variety of customers.
Our next-day delivery, in-home service capabilities, and omni channel experience provided additional opportunities to connect with a larger number of higher credit quality customers.
In addition, we believe there are opportunities to expand our lease-to-own sales as a result of recent underwriting changes and in the higher application volume we have experienced. The balance of sales through lease-to-own was 8.5% of total retail sales during the first quarter. We are working with Progressive and continue to refine and improve our internal execution to drive higher lease-to-own sales.
For sales financed through our in-house offering, we are leveraging the experience we have gained from past natural disasters to balance collection efforts with customer support programs.
Tax refunds and government stimulus combined with our own internal relief programs have helped relieve some of the financial burden many of our customers have experienced despite the disproportionate impact that COVID-19 crisis has had on lower-income households.
Consumers have also been spending less and saving more, with many consumers using excess cash to pay down debt. As a result, first quarter cash repayments on outstanding loans were in line with typical seasonal trends.
Lastly, we are encouraged by the strong application trends we are seeing, which we believe demonstrates the growing need for our unique in-house credit offering. Total applications increased 14.2% from the prior year period to over 295,000 applications in the first quarter, representing the highest first quarter application volume in four years. This was driven by strong growth in online applications versus the prior year and we experienced sequential monthly improvements throughout the first quarter.
As you can see, we are taking decisive actions within our credit segment to ensure we can navigate this period of significant economic uncertainty, while experiencing strong application trends for our in-house credit offering and establishing lasting relationships with our customers. We believe tighter underwriting will continue to impact retail sales over the near-term, but these strategies are necessary as we respond to the COVID-19 crisis.
So, let's look at our retail segment performance in more detail. Total retail sales were down 12.1% for the first quarter and benefited from the contribution of new stores and higher home appliance and home office sales.
First quarter same-store sales were down 17.6%, primarily due to the impact of COVID-19 on our operations, including more stringent underwriting standards and lower sales of discretionary categories.
As we mentioned on our last conference call, first quarter same-store sales initially improved from fourth quarter levels. Same-store sales were down approximately 30% in late March and early April as a result of reduced store hours and occupancy in response to the COVID-19 crisis and the impact proactive underwriting changes implemented during the quarter had on sales.
Towards the end of April, retail trends started improving and we are encouraged by the positive momentum that continued in May. Total retail sales for May were down only 1.6%, while same-store sales were down 6.8% representing an over 20 percentage point improvement from April.
In addition, we estimate same-store sales have been impacted by 15% to 20% since we began adjusting underwriting in mid-March in response to the COVID-19 crisis. We have also increased down payment requirements for in-house credit customers and down payments in May were 5.6% compared to 2.4% in February before recent underwriting adjustments began.
The dramatic increase in cash, credit card, and Synchrony customers also continued during the month of May and represented 43.1% of retail sales, which is up over 17 percentage points from May 2019. This growth speaks to the strength of our business model and our diverse retail offering.
Recent retail trends are encouraging, but we expect continued variability in our monthly performance as a result of the uncertain economic environment and more challenging sales comparisons later in the second quarter.
Last year's launch of our new e-commerce platform enabled significant growth in this channel and sales increase over 700% compared to the prior year period and accelerated from the growth rate we experienced in the fourth quarter.
We believe stay-at-home mandates were the primary drivers of this increase, but the growth in first quarter e-commerce sales also highlights our ability to serve customers through this digital channel.
Having robust digital capabilities is important not only for the retail purchase, but also to support credit applications and customer engagement. We continue to invest in our digital capabilities and momentum is building in our evolving online mobile and e-commerce strategy.
In addition, our existing infrastructure and ability to offer free next-day delivery of large home goods directly to households is a distinct advantage which should support our future digital growth.
Another meaningful driver to first quarter retail performance was the shifting mix of retail sales. As customers began to shelter-in-place, we experienced increase in demand for essential products within the home appliances and home office categories, partially offsetting the declines in more discretionary categories such as furniture and mattress, and consumer electronics.
It is important to know margins in home appliances and home office are not as high as our furniture and mattress category. This shift in retail product mix combined with lower total sales pressured first quarter retail gross margin, which declined 380 basis points from the prior fiscal year period.
During the first quarter, we opened two new showrooms in existing markets and we plan on opening a total of six to eight new showrooms this fiscal year. As part of our response to the COVID-19 crisis, we have reduced the amount of new showrooms planned for this fiscal year and have also decided to delay any new showrooms associated with our future Florida distribution center to next fiscal year.
To conclude my prepared remarks, we believe our differentiated business model is resilient to changing economic cycles as a result of our omnichannel retail and credit platforms. This combined with our compelling financial model, experienced leadership team, and strong balance sheet, will provide the necessary resources to navigate the current economic challenges as a result of the COVID-19 crisis.
We are working hard to support our employees, customers, and communities throughout this period and I look forward to updating investors on the progress we are making as we respond to the COVID-19 pandemic and improve our credit and retail performance.
Before I turn the call over to George, I also want to thank our associates across the 14 states in which we operate. On behalf of the entire leadership team, thank you for your hard work, service, and dedication through this challenging period.
Now, let me turn the call over to George to review our financial performance.
Thanks Lee. Before discussing our financial results, I want to start by highlighting a couple of items. On June 5th, 2020, we amended the terms of our ABL facility to provide four quarters of relief from the interest coverage covenant. Our ABL facility is an important source of funding for our business and we believe that this amendment will help navigate the uncertainty as a result of the COVID-19 pandemic.
To put our current liquidity situation into context, when we drew down on the ABL in March, we had approximately $400 million of cash and immediately available liquidity and we ended the quarter with $439 million of cash and immediately available liquidity.
We had over $295 million in total cash and available liquidity at June 5th 2020 after adjusting for a $125 million liquidity buffer that we are required to maintain during the covenant relief period of our amended ABL facility.
As you can see, since the beginning of the COVID-19 pandemic, we have used relatively little cash and available liquidity and in some periods, actually generated cash, as we have purchased less inventory and our existing customer accounts receivable portfolio has paid down.
I also want to highlight the impact of CECL, which we adopted on February 1st, 2020. As a result of the adoption of CECL, we recorded a $98.7 million increase to our allowance for bad debts to reflect the required change to lifetime expected losses. This increase was recorded through equity on February 1st, 2020.
During the first quarter, our allowance for bad debts also increased by $65.5 million to account for the change in the economic outlook as a result of the COVID-19 pandemic. This increase was recorded through our first quarter provision for bad debt and impacted first quarter net income by $1.76 per share.
As we've communicated before, CECL is an accounting change and does not affect the cash flow or fundamental economics of our business. Despite the loss, we record for three months ended April 30th, 2020, we generated strong operating cash flows of $152.5 million. The 207% increase in operating cash flow over the prior fiscal year period was primarily due to an increase in payments from our customers, a higher percentage of third-party sales, and effective working capital management.
Moving to our financial results, on a consolidated basis, revenues were $317.2 million for the first quarter of this fiscal year, representing 10.3% decline from the same period last fiscal year.
For the first quarter, we reported a GAAP loss of $1.95 cents per share compared to GAAP net income of $0.60 per diluted share for the same period last fiscal year. On a non-GAAP basis, adjusting for certain charges and credits, we reported a loss of $1.89 per share for the first quarter compared to income of $0.58 per diluted share for the state period last fiscal year. Reconciliations of GAAP to non-GAAP financial measures are available in our first quarter earnings press release that was issued this morning.
From an investment and operational perspective, we continue to focus on delaying or eliminating certain uncommitted capital expenditures, more aggressively managing working capital levels, and reducing SG&A expenses.
Consolidated SG&A for the first quarter of fiscal year 2021 was $113 million, a 4.2% decline from the prior fiscal year period. As the COVID-19 crisis began impacting our operations halfway through the quarter, we quickly and aggressively reduced expenses and more than offset higher costs associated with 12 additional showrooms opened over the last 12 months.
Looking at our retail segment in more detail, total retail revenues for the first quarter were $230.6 million, a 12.1% decline from the same period last year. Retail segment operating income was $5.2 million compared to $25.9 million for the same period last fiscal year.
Retail gross margin for the first quarter was 36.2%, a decrease of 380 basis points from the same period last year. The reduction in retail gross margin during the quarter was primarily driven by the impact fixed logistics costs on lower sales, a decrease in retrospective income on RSA commissions, and higher sales of lower margin products.
Finally, turning to the credit segment, finance charges and other revenues were $86.6 million, a 5.1% decline from the same period last fiscal year. The credit segment loss before taxes was $82.4 million compared to a loss before taxes of $1.4 million for the same period last fiscal year.
The first quarter of fiscal year 2021 credit segment loss was primarily due to the $77.2 million year-over-year increase in the provision for bad debts in the credit segment, which was driven by the first quarter allowance build as a result of COVID-19.
With this overview, Norm, Lee, and I are happy to take your questions. Operator, please open the call up to questions.
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]
The first question today is from Brad Thomas of KeyBanc Capital Markets. Please proceed with your question.
Hi, good morning, Norm, Lee, and George and thanks for taking my question.
Good morning Brad.
I wanted to first start-off a bit with same-store sales and discussion a little bit of maybe the trend and some of the underlying drivers. Could you maybe talk a little bit about the types of customers that you're seeing show up how average selling price is changing, what it is they're coming to you for? And maybe how that's changed as you've moved into May and thus far in June? Thanks.
Sure, absolutely Brad. First, just kind of a recap where we were, if you remember from the call -- from our call a couple of months ago, as COVID -- as the pandemic originally hit, we were seeing the same-store sales down in the 25% to 30% range. We saw that rebound mid-April so up into the high teens to the low 20s. And we've seen that continue to build through April and into May, with May same-store sales being down only 6.8%.
We have seen from a mixed standpoint, which is why you saw our margins where they were a shift much stronger from an appliance -- a home product standpoint. Now, I will say in the last three weeks or four weeks, we've seen a material pickup in what we consider more discretionary categories, such as furniture. We have seen the furniture category pick up materially from the 30%, 35% down that it was back in the midst of the pandemic. So, that's positive to see.
We have seen a material shift from a mix standpoint. As you heard we've -- from a customer credit standpoint, during the pandemic as well, Conn's financing which historically is run in the mid to high 60% range, approaching at time 70% is down less than 50% of the business as we sit here today -- as we've tightened 15% to 20% of the customers coming in. As a result of that we've seen our Synchrony and our cash customers go up dramatically, as Lee mentioned in the script, up in May, over 43%, which is 1,700 basis points up from just a year ago in May.
We've also seen our lease-to-own for the quarter at 8.5%, which is still under where we expect it to be, but it is the strongest performance that we've seen in a quarter since we partnered with Progressive two years ago and think that we have significant upside there going forward.
That's really helpful, Norm. Thank you. And just to follow-up on that, with the tightening that you've done, what's the current run rate headwind to same-store sales? Is that that 15% to 20% number that you just referenced -- again, what's the headline -- headwinds run rate number on same-store sales from the tightening and how are you thinking about the underwriting decisioning and the ability to loosen or get tightened more tight as you think about perhaps the months ahead here?
Hey, Brad, it’s Lee. So, as you said it is 15% to 20% on a run rate basis that we have tightened that we believe. As we as we think about our customer mix and what's going on from the economic environment today, we want to be cautious. Clearly, there's a lot of government stimulus there and it certainly helped with -- as we talked about from a collection standpoint, payment standpoint, but obviously, as you continue to go forward in the quarter and in the year, we have to be thoughtful about how that customer is going to be able to react.
But as Norm talked about, we're very pleased as we've seen the cash, credit card, and Synchrony customer mix increased pretty dramatically, which is why I go back to the fact that we're an omnichannel retailer providing home products.
So, and as Norm talked about early in the pandemic, we saw the home office, equipment, the computers, the online learning, the at-home work process, we had those computers and necessary equipment for our customers, then it shifted to appliances, now coming back to furniture and mattresses, which again as the customer is more focused on what's going on in their home, we have all of those product categories.
So, actually, we're in a very good position. And we're actually very pleased with our ability to serve our customers that full spectrum of credit offerings, regardless of who's walked in the door and whatever they want for their home.
Yes, what I would say Brad is when I talk about the increase of cash customers in Synchrony, that strategic effort of us, recognizing we had the opportunity to grow that business actually did not start with the pandemic.
If you go back, you will see over the quarters, you've seen a steady increase of our Synchrony business from about 15% of the product mix before the pandemic -- or 15% of our sales mix before the pandemic several years ago. So, we've been seeing that approaching before the pandemic up into the low 20 percentage balance of sale and now we're seeing it pick-up even higher than that. So, we've been putting energy and effort with Synchrony and our marketing efforts to ensure that we're tapping on that customer base and utilizing the entire credit spectrum.
Our Conn's financing we think is the differentiator with anybody else out in the marketplace, but our full credit spectrum from lease-to-own to Conn to Synchrony and cash and the fact that we can offer the products -- the quality products and the merchandise for customers over the entire spectrum, we believe gives us a significant differentiator in the market -- differentiation in the marketplace.
Really helpful. Thanks so much Norm. Thanks Lee.
The next question is from Rick Nelson of Stephens. Please proceed with your question.
Thanks very much. Good morning guys.
So, Norm, can you speak to credit trends from April to May as the economies have opened up what you're seeing there may be with delinquencies or any other way you want to frame-up the credit book?
I mean, clearly with the tightening that that we had initiated with March and very, very early what I would say within the process, we started initially tightening in early March, pleased with what we're seeing with the credit book.
Now, the credit book, obviously on the Conn's financing side is certainly going to be smaller, so some of the optics from a metric standpoint will be challenged as the denominator is smaller going forward. But when we look at payments and behavior of the customer, within the portfolio, combination of both the stimulus and our ability to stay in contact with the customers, frankly, to be at or above where our payments were a year ago, with the customer in the midst of the pandemic, that's certainly very, very encouraging to us going forward.
Now, when the extended unemployment benefit and how the recovery continues to unfold, difficult for us to predict, so we're still being very cautious from an underwriting standpoint. But I would say as you I'm sure heard from many other lenders out there in the marketplace, very encouraged and frankly, a little surprised with the behavior of the customer up to this point in the pandemic, I would say.
Great. Thanks for that color. Also want to ask about the margin pressures that we saw on the quarter. I know you pointed to mix as one of the drivers, but if you could provide some color around that on a like category basis as perhaps what you're saying in terms of margin? And then the online sale, I'm curious how the profitability compares their versus those stores?
So, the margins within the categories, we're pleased, generally, what that performances year-over-year and it's fairly consistent. What I'd say is there's two primary drivers, Rick, with when you look at the margin being down 300 plus basis points, probably 70% of it is just simply mix between the categories. As we mix with appliances -- stronger appliances and home office, those are our lower margin categories compared to our mattress and furniture category. So, that's driving probably 70% of the mix.
The other 30% of the margin is some deleveraging on from a distribution cost standpoint, both the new Houston distribution center that we built and although, we've delayed the Florida bills -- we have for the Florida opening, we are starting to incur some costs there from a distribution standpoint, and clearly lower sales overall are generally going to delever your fixed costs there.
So, it's really those two things. There's nothing inherently that we have concerns about the overall margin of the business on any individual category.
And Rick from an e-commerce standpoint, obviously, we're very pleased with the growth that we're seeing, but it's not inherently less profitable in the sense that the product -- the overall product margin is basically the same as our bricks-and-mortar operation.
Again, we have the same logistics operation to get those products delivered into our customers' home. The only I might say it's the overall ticket size a little bit smaller than we see online, but again, from an overall growth standpoint, what we're doing from e-commerce, we're very excited about the opportunity we have in front of us.
You typically have less payroll costs and commission-wise there with e-commerce. So, anything net-net even of the tickets smaller, your margin rate is actually as good if not a little better right now with our e-commerce business.
Great. Thanks for that. Finally, if I could ask you about regional performance, what is standing out in terms of areas of strength and weakness? I guess the oil patch; given the oil price decline what you're seeing in the Houston market?
Yes, what I would say is regionally that's the one area I would highlight is that -- and Houston, we don't even frankly consider Houston as much. We do have a very strong oil market in the West -- in West Texas, in parts of Louisiana that we consider that impacted by the oil and we are seeing delinquencies there.
Historically, they run lower than the company average. They are up in that market. They're still at about now where the company averages delinquency-wise, but we have seen those rise at a higher level than other regions and from a tightening standpoint and a credit standpoint, we're aware of that and adjust accordingly if that orders to be cautious in case that would linger within those oil markets.
Got you. Great. Thanks a lot and good luck as we push forward.
The next question is from Brian Nagel of Oppenheimer. Please proceed with your question.
Hi, good morning.
Good morning Brian.
Thanks for taking my question. The first question want to ask and it bridges credit in retail. But Norm, as you talked on the call, clearly Conn's took the action to tighten lending standards, but you've also said that you've been -- I think, if I understood, you correctly said that you've been pleased with -- or even surprised with the underlying performance of the consumer.
So, the question I have is, especially if this downturn so to say is unique in nature, shorter term in nature, does Conn's run the risk of getting too conservative here with credited time to underline demand for the products you're selling is actually quite good?
That's a fair question, Brian. I mean it's -- the issue with the credit businesses, the decisions we make today, we won't see those fully played out for seven, eight, nine, 10 months into the future. So, with the unknown on the recovery side and the punitive nature, that if we are to lose from a credit standpoint that would impact the business in a detrimental way down the road. It's a risk opportunity.
We may give up some sales in the short run, if we're more conservative from an underwriting standpoint, but frankly, I would take that trade-off to ensure that we don't have a significant issue from a credit standpoint down the road, if it plays out whether recovery is not -- is more longer in nature and deeper than expected. But it's a fair question.
Yes, explains the [Indiscernible]. Thanks Norm. And the second question, I think, this is more for George. It's clear -- George clearly some noise here within the loan loss provision given the accounting change and underlying shifting credit dynamics, is there a way that you could help us understand how -- and I know this is difficult to do, but how we should think about the loan loss provision through the balance of 2020. Now, that you've moved past at least that initial change in the accounting standard?
Yes, I think -- so, first of all, as you mentioned, we recorded a $65.5 million charge in the first quarter in our provision related to the change in the macroeconomic outlook related to COVID.
As Norm and Lee mentioned, we've actually not seen deteriorations in the portfolio here over the last couple of months and what that would mean is that our expected charge-offs as a result of COVID-19 won't occur until the next calendar year. So, I think it's fair to say that the allowance balance will stay where it is and maybe slightly decline this year before we recognize what would you say is the expected charge offs from COVID-19.
Got it. Thank you very much.
The next question is from Kyle Joseph of Jefferies. Please proceed with your question.
Hey, good morning, guys. Thanks very much for taking my questions. Just a few more on the credit side of the business, I guess this one's for George. If you could just give us a sense for the economic -- underlying economic assumptions that are baked in here, reserve currently just talking about GDP and unemployment specifically?
Sure, I could give you a general sense. I mean, I think we use a Moody's based macroeconomic forecast, which is consistent with many other public issuers. Our base case assume that the economic -- the performance of the portfolio would be consistent with where it was pre-COVID for a first couple of quarters and then converge towards that Moody's economic output and that's kind of where we're seeing things shake out today.
Okay, that's helpful. And then really appreciate the color you gave on the comp in terms of the monthly performance there. But just delving into credit, I just wanted to get a sense for -- if you could give us a sense of how delinquencies were trending by month, just looking at your master trust data, it did look like DQs dropped between March and April. If you could give us a sense for what your consolidated books did between March, April, and even into my from a delinquency perspective?
Yes, sure. Kyle, it's Lee. I guess what I would tell you is that it was an interesting and you guys wrote about this in your report, which I thought was well done. What we saw was March the tax season got truncated due to the COVID-19 pandemic and what came through and so we saw a difference in behavior in March than what we traditionally see, but as the government stimulus started roll through in April, we saw tremendous benefits for our consumer and their own balance sheet, which obviously flowed through to us.
So, overall for the quarter, we actually came out all right. And then I would tell you as we continue to move in and obviously, we're still early in the quarter, but saw good performance from our customers and their overall liquidity right now, obviously, as we look forward and as we see what happens after some of the unemployment benefits in the end of July and as Norm talked about, some of the uncertainty going forward, that's what gives us a bit of pause as we try and balance how do we extend credit and how do we think about that versus what we're seeing in our portfolio today.
Got it. And then just in terms of modeling, looks like the yield on the portfolio has been under a bit of pressure, is that -- obviously, I think the mix shift and more originations at a higher yield will pressure that upwards, is that being offset more by the higher levels of DQs? Or is that more of a deferment impact there?
No, it's driven by higher levels of charge-offs.
So, the gross yield are up, but it's being offset by higher charge-offs in the quarter.
That makes sense. And then last one for me just if you could give us an update on your competitive trends as the economy reopens. I think about you guys on your competitive trends on two fronts. First one is versus other retailers and then the second would be just more broadly the availability of credit. If you guys could give us an update on those competitive dynamics as the economy started to reopen?
Yes, what I would say from a general standpoint first Kyle is -- and I think we mentioned it in comments; we're seeing applications in the first quarter, continuing to see applications at elevated levels.
As customers across the credit spectrum and as I highlighted in my earlier comments in one of the responses, we're seeing our cash and Synchrony customers, the higher credit quality customers up significantly year-over-year, that's helping to mitigate, our Conn's financing tightening that we're undertaking in addition to that.
Now, at least initially out of the gate, we're seeing traffic stronger in our showrooms as well as the applications online. So, we think we're well-positioned with both our credit spectrum and the offerings that we have for any type of credit quality customer and and positioned well with home products to be to capture on what we think is some real demand out there from the consumer.
All right, very helpful. Thanks very much for taking my questions, guys and good luck.
The next question is from Bill Ryan of Compass Point. Please proceed with your question.
Good morning and thanks for taking my questions. First one just on the provision, if you could maybe be a little bit more granular on it in the sense of what component of the $117 million provision may have been specifically related to the current originations in the quarter, stripping out obviously, COVID-19 and any other ancillary impacts?
And second thing as it relates to credit as well, I agree with your comment that tightening credit better be more conservative than a little bit too loose because you end up having to clean it up over a longer period of time. But what you need to see for you to cut before you start to relax your credit standards, sort of back to where they were before all this began to take place. Thanks.
Thanks Bill. I'll answer the first question and I'll let -- second part of the question and I'll give it to George to talk on the provision side. So, first, what we would want to see is from a payment standpoint and what -- how we see in the portfolio, perform from payments -- first payment default credit delinquency standpoint, as we see those buckets roll from a delinquency standpoint, we want to see the strength and we're obviously segmenting those customers and the consumers in a variety of ways, including new and existing regional and depending on where -- how we see that unfold over the next three to six months, we've determined if, frankly, we needed to do additional tightening if there happened to be a second surge or stress that we had not envisioned with the significant provision that we took in the first quarter for the ability to be able to take increased risk, because of the performance that we see giving us confidence that the customers is not as distressed as our tightening is fearful that they will be.
Yes. And Bill in terms of the provision, I mean, I think the best way to think about it, which we've laid it out in the earnings release is the $117 million provision include the $65 million -- $65.5 million provision related to the economic outlook from COVID-19, that's on the entire portfolio, including what we originated in the first quarter. And then we also had higher charge-offs year-over-year and that gets you back to that $117 million number.
Okay. And just one last thing, when do you anticipate perhaps doing the next ABS transaction?
Yes, I mean, I think -- first of all, I would say that we are encouraged by the ABS market right now, we've seen a number of comparable issuers get deals done here over the last -- the last six weeks or so. We think we can do an ABS transaction right now, but we are also in a position where we don't need to do an ABS transaction here for a while, primarily because of some of the factors that Norm and Lee mentioned around the shift in portfolio mix.
So, the fact that we're selling -- selling fewer more third-party and cash customers, in addition to the fact that sales are down that we have less liquidity needs. Having said that, our expectation is to do one before the end of the year.
There are no additional questions at this time. I'd like to turn a call back to Norm Miller for closing remarks.
Thank you very much for the interest in the company. And again, I want to thank all of our associates across our facility in the 14 states that we operate for their hard work and -- during these challenging times and we look forward to sharing with you information on the company at our next quarterly call. Have a great day.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.