Aaron's Exhibits Weak Q3 Earnings - Analyst Blog
Battered by decline in revenues and higher operating expenses, the leading rent-to-own operator, Aaron's Inc. ( AAN ) posted weak financial results for the third quarter of 2013. The company's adjusted earnings declined 13% year over year to 40 cents per share and missed the Zacks Consensus Estimate of 41 cents.
Further, on a reported basis, Aaron's earnings of 28 cents per share were down 26.3% from 38 cents in the comparable year-ago period.
Due to weak comparable-store sales and customer growth performance, the company's top line increased 1.9% year over year to $539.5 million but fell short of its own guidance as well as the Zacks Consensus Estimate of $540.0 million.
In its preliminary results announced on Oct 4, Aaron's lowered its outlook for the third quarter. The leading rent-to-own operator reduced its revenue expectation to $540 million from $550 million projected earlier. The revision was primarily due to the prevalent sluggish economic environment, which limited consumers' spending.
Furthermore, Aaron's lowered its earnings guidance range for the third quarter to 25-29 cents per share from 48-52 cents forecasted earlier, which included certain one-time charges. Excluding these items, Aaron's was anticipating earnings per share to be 37-41 cents, down from the prior range of 48-52 cents.
Comps at the company-owned stores inched up 0.5% in the quarter, while stores open for over 2 years witnessed a 0.8% fall in sales. Customer traffic at the company-operated stores increased 0.3%. Comps at the company's franchised stores registered a 2.2% rise, attributable to increase in customer traffic by 2.5%.
The company's Sales & Lease Ownership division's revenues were recorded at $522.9 million, up 1% from the third quarter of 2012. The HomeSmart division reported revenues of $14.8 million, increasing 5% from the year-ago comparable quarter.
At the quarter-end, the company's self-operated stores had 1,114,000 customers, while the franchisee customer count was 597,000. Total customer count increased 3.0% when compared with the same period last year.
Operating income came in at $30.2 million, down 35.3% from the year-ago quarter. Consequently, operating margin contracted 320 bps to 5.6%.
Cash and investments at Aaron's as of Sep 30, 2013 were $309.2 million and total shareholder equity was $1,240.4 million. The company generated nearly $244.0 million of cash flow from operating activities during the first nine months of 2013.
On Oct 4, Aaron's announced that its board of directors has authorized an additional share repurchase program of 11 million, bringing the company's total authorization to 15 million. The company has not repurchased shares since the beginning of 2013, but now intends to do so at the earliest.
During the reported quarter, Aaron's opened 5 new company-operated Sales & Lease Ownership stores, 8 new franchised stores, 2 franchised HomeSmart stores and 1 RIMCO store. The company also acquired 6 stores from its franchisees operators and sold out 2 stores to a franchise. Moreover, Aaron's closed 2 company-operated Sales & Lease Ownership stores and 1 franchised RIMCO store.
As of Sep 30, 2013, Aaron's had a total of 1,242 company-operated Sales & Lease Ownership stores, 760 franchised Sales & Lease Ownership stores, 78 HomeSmart stores, 3 franchised HomeSmart stores, 23 company-operated RIMCO stores, and 5 franchised RIMCO stores. At the reported quarter-end, the company operated a total number of 2,111 stores.
Disappointed by lower-than-expected results, Aaron's lowered its full-year 2013 revenue guidance to $2.26 billion, from $2.30 billion forecasted earlier. Moreover, the company lowered its adjusted earnings guidance and now anticipates it in the range of $1.95-$1.99 per share, compared with the earlier projection of $2.15-2.23. Currently, the Zacks Consensus Estimate for 2013 is $2.02 per share, which may witness a revision in the coming days.
Further, management lowered the upper-end of its new store growth target to 4%-5% in 2013 from 4%-6% projected earlier, with equal numbers of company-operated and franchised stores and a small rise in the number of HomeSmart stores. Going forward, Aaron's will be focused on its strategy of acquiring franchised stores or selling underperforming company-operated stores.
Further, Aaron's expects to report total revenue of about $575.0 million in the fourth quarter of 2013. Earnings per share will likely be 38-42 cents in the fourth quarter. Currently, the Zacks Consensus Estimate is 46 cents per share, which could witness a revision in the future following the company's new guidance.
Other Stocks Worth Considering
Aaron's currently has a Zacks Rank #5 (Strong Sell). Other well-performing stocks in the retail consumer electronic space include Best Buy Co., Inc . ( BBY ), GameStop Corp . ( GME ) and hhgregg Inc . ( HGG ). While Best Buy carries a Zacks Rank #1 (Strong Buy), GameStop and hhgregg both have a Zacks Rank #2 (Buy).
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