Owing to unfavorable weather conditions,
) posted weak financial results for the first-quarter 2014,
wherein both its top and bottom lines declined year over year.
Subsequently, the company's share price fell approximately 4.1%
in Friday's trading session.
Aaron's earnings for the quarter declined 20.9% from the
comparable prior-year quarter to 53 cents per share. The
year-over-year decline in the bottom line was mainly due to
decreased revenues and higher operating expenses. However, the
company's earnings came within its own guidance range and were in
line with the Zacks Consensus Estimate as well.
Due to decline in both comparable-store sales (comps) and
softness witnessed in customer growth performance, the company's
top line decreased 1.3% year over year to $585.4 million and fell
short of its own guidance as well as the Zacks Consensus Estimate
of $590.0 million.
In its preliminary results announced on Apr 15, Aaron's had
lowered its outlook for the first quarter owing to the negative
effect of the recent macroeconomic environment and adverse
weather conditions. The leading rent-to-own operator reduced its
revenue expectation to $587.5 million from the earlier projection
of $600.0 million. Furthermore, Aaron's lowered its earnings per
share guidance range for the first quarter to 51-54 cents from
57-62 cents forecasted earlier.
Coming to the quarter under review, comps at the company-owned
stores fell 2.1% in the quarter while stores open for over 2
years witnessed a 3.7% decrease in sales. Customer traffic at the
company-operated stores decreased 1.4%. Comps at the company's
franchised stores registered a 1.0% fall owing to a decline in
customer traffic by 1.8%.
The company's Sales & Lease Ownership division's revenues
were recorded at $566.8 million, down 1% from the first quarter
of 2013. The HomeSmart division reported revenues of $17.3
million, increasing 3% from the year-ago comparable quarter.
At the quarter-end, the company's self-operated stores had
1,091,000 customers while the franchisee customer count was
590,000. Total customer count decreased 1.0% from the same period
Operating income came in at $61.9 million, down 25.7% from the
year-ago quarter primarily due to lower sales and higher
operating expenses. Consequently, operating margin contracted 340
basis points to 10.6%.
Cash and investments at Aaron's as of Mar 31, 2014 were $397.1
million and total shareholder equity was $1,179.0 million. The
company generated nearly $62.0 million of cash flow from
operating activities during the quarter.
Moreover, in the said quarter, Aaron's bought back 1,000,952
shares of its common stock and completed its previously announced
$125 million accelerated share repurchase program. The company
revealed that it has an additional authorization of repurchasing
Aaron's opened 9 company-operated Sales & Lease Ownership
stores, 7 franchised stores and 2 company-operated HomeSmart
stores in the quarter. The company also acquired 1 store from its
franchisees operator and sold 5 outlets to a franchisee.
Furthermore, Aaron's also shut down five of its company-operated
stores during the quarter.
As of Mar 31, 2014, Aaron's had a total of 1,262
company-operated Sales & Lease Ownership stores, 784
franchised Sales & Lease Ownership stores, 83
company-operated HomeSmart stores, 3 franchised HomeSmart stores.
At the quarter-end, the company operated 2,132 stores in
Update on Progressive Acquisition
In an update on the recently announced acquisition of
Progressive Finance Holdings LLC, Aaron's revealed that from the
beginning of second quarter, it will provide consolidated
financial statements that will include Progressive Finance
Aaron's believes that the acquisition of Progressive Finance
Holdings will prove transformational by giving it an opportunity
to expand into the large and growing virtual rent-to-own market.
Progressive Finance Holdings, which provides web-based
lease-to-own financing programs for retailers, is expected to
provide solid investor returns for Aaron's shareholders, given
its exceptional growth metrics that registered 77% annual revenue
growth from $228 million in 2012 to $403 million in 2013.
Further, the company expects the acquisition to increase cash
earnings per share in 2014 in double digits and be significantly
accretive in 2015 as well. Further, Aaron's will benefit from
Progressive Finance Holdings' tie-ups with the largest U.S.
retailers, including Mattress Firm,
Big Lots Inc.
), Art Van Furniture and Sleepy's, which adds about 15,000 new
sources of revenues for Aaron's.
Looking ahead, Aaron's has updated its outlook for 2014 and
2015 after taking the benefits of Progressive Finance Holdings
acquisition into account. However, due to incomplete valuation
related to the acquisition, the company provided earnings per
share guidance for 2014 and 2015 on an adjusted basis that
excluded one-time items.
For second-quarter 2014, the company anticipates revenues of
$675.0 million and earnings between 43 cents and 48 cents per
share. Currently, the Zacks Consensus Estimate for revenues and
earnings stand at $660.0 million and 46 cents per share,
Similarly, for full-year 2014, Aaron's now expects revenues
and earnings in the range of $2.65-$2.75 billion and $1.95-$2.10
per share, respectively. This is higher than the previous revenue
and earnings guidance range of $2.3 billion and $1.80-$2.00 per
share, respectively. Currently, the Zacks Consensus Estimate for
both the top and bottom line is pegged at $2.669 billion or $2.02
For 2015, the company expects revenues and earnings in the
range of $3.25-$3.35 billion and $2.55-$2.80 per share,
respectively. Currently, the Zacks Consensus Estimate for both
the top and bottom line is pegged at $3.290 billion or $2.66 per
Further, management anticipates no increase in
company-operated Aaron's stores in 2014 after taking in account
store closures. However, it intends to raise the number of
franchised stores by 25 stores during 2014.
Further, the company is shifting focus on reviving its core
business operations through disciplined growth, better execution,
portfolio optimization, cost cutting and return of capital. In
the process, the company expects to concentrate on returning to
same-store sales growth, building a strong online platform,
optimizing cost savings, limiting company-operated store growth
and driving expansion of its franchise store base. Additionally,
the company targets debt-to-capitalization ratio of 20% and
expects to use excess cash to reward shareholders.
Other Stocks Worth Considering
Aaron's currently has a Zacks Rank #2 (Buy). Other stocks
worth a look in the retail sector include
American Apparel Inc.
Foot Locker, Inc
), both of which have the same Zacks Rank as Aaron's.
AARONS INC (AAN): Free Stock Analysis Report
AMER APPAREL (APP): Free Stock Analysis
BIG LOTS INC (BIG): Free Stock Analysis
FOOT LOCKER INC (FL): Free Stock Analysis
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