) rolled down 4% during yesterday's trade, to close at $29.25 per
share. A cut in earnings and sales forecast for the first quarter
of fiscal 2014 could probably be the reason for this rent-to-own
specialty retailer's share price fall. The company also
kept itself busy with the rejection of Vintage Capital Management
LLC's $2.3 billion takeover bid and the purchase of merchandise
lease-to-own company Progressive Finance Holdings LLC.
Recognizing the negative effect of the recent macroeconomic
environment and adverse weather conditions that weighed on the
quarterly results of most retailers, Aaron's has lowered its
earnings and revenue forecast for the first quarter of fiscal
The company noted that more than 80% of its company-operated
stores are located in areas affected by the severe weather
conditions throughout January and February and early March, while
nearly 70% of its stores faced disrupted operations due to the
weather hazards. This resulted in both same store sales and
customer growth at company-operated stores falling 2% in the
quarter, while franchised stores experienced negative same store
sales and customer growth.
As a result, the company now projects first-quarter revenue of
$587.5 million compared to $600 million guided earlier. Earnings
per share for the quarter are expected to be in the 51 cents - 54
cents range, about 5 cents - 6 cents below the prior guidance
range of 57 cents - 62 cents. The current Zacks Consensus
Estimate stands at 59 cents per share, which may see further
downward revision following the company's lowered forecast.
Further, in a separate event, the company issued a letter to
shareholders communicating the details of the board's intention
and future plan. In the letter, the company stated that after
complete evaluation, the board finds Vintage Capital's buyout
proposal of $30.50 per share or a total of $2.3 billion as
inadequate and illusory. Hence, the company's board appropriately
rejected the private equity firm's fourth takeover attempt since
2011 and chose to acquire the retail credit financing firm,
Progressive Finance Holdings LLC, for about $700 million in cash.
Aaron's believes that the acquisition of Progressive will prove
transformational for the company, furnishing it an opportunity to
expand into the large and growing virtual rent-to-own market.
Progressive, 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 represent 77% annual revenue growth from $228
million in 2012 to $403 million in 2013.
Further, the company expects the acquisition to be accretive in
the double-digits to cash earnings per share in 2014 and
significantly accretive in 2015. Further, Aaron's will benefit
from Progressive's 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 revenue for Aaron's.
Further, the company highlighted that it 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 trajectory, build a strong
online platform, optimize cost savings, limit company-operated
store growth to 2%-3% per year and encourage the 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.
Aaron's currently holds a Zacks Rank #3 (Hold). Other
better-ranked retail stocks that look promising and are expected
to continue with their upbeat performance include
American Apparel Inc.
Foot Locker Inc.
), both of which sport a Zacks Rank #2 (Buy).
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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