After reporting a negative earnings surprise in first-quarter 2018, Aaron's, Inc.AAN delivered a positive surprise in the second quarter. Also, the company's top line surpassed estimates for the sixth straight quarter. In fact, both earnings and sales improved on a year-over-year basis. Management reiterated its outlook for 2018 as well.
Results were driven by significant growth at the Progressive segment and notable improvement in the Aaron's Business division. Improvements in average ticket size, customer retention rates and collections also contributed to the company's impressive performance in the quarter under review.
In the past month, shares of this Zacks Rank #3 (Hold) company have gained 11.6%, outperforming the industry 's 1.9% rise.
Aaron's delivered adjusted earnings of 84 cents per share, which surpassed the Zacks Consensus Estimate of 76 cents and increased 23.5% from the prior-year quarter.
Including one-time items, the company reported GAAP earnings per share of 54 cents, up from 51 cents in the year-ago quarter. The metric gained from higher sales and lower U.S. corporate tax rate.
Revenues totaled $927.9 million, up 13.8% year over year and marginally came ahead of the Zacks Consensus Estimate of $926 million. The upside was driven by substantial increase in progressive leasing revenues.
Comparable-store sales (comps) at company-operated stores dropped 1.8%. Further, the customer count on a same-store basis dipped 4.3%. At quarter end, the company-operated Aaron's stores had 956,000 customers, reflecting a 2.6% year-over-year increase.
Aaron's, Inc. Price, Consensus and EPS Surprise
Aaron's, Inc. Price, Consensus and EPS Surprise | Aaron's, Inc. Quote
Aaron's franchisee revenues declined 23.6% to $158.1 million in the first six months of 2018. Same-store sales for franchised stores and same-store customer counts decreased 2.7% and 4.5%, respectively, in the reported quarter. In fact, the franchisees had a customer base of 386,000, at the end of Jun 30, 2018.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 1.4% year over year to $97 million. However, the adjusted EBITDA margin contracted 120 basis points (bps) to about 10.5% in the quarter under review.
Aaron's operates through three primary businesses - the Progressive Leasing's virtual lease-to-own business (Progressive Leasing), Aaron's branded company-owned and franchised lease-to-own stores, Aarons.com and Woodhaven (collectively known as Aaron's Business), and Dent-A-Med, Inc. - DAMI.
Sales at this segment summed $483.7 million in the reported quarter, up 29.5% year over year. Additionally, invoice volume rose 24.7% owing to a 6% improvement in active doors and 17.6% growth in invoice volume per active door. As of Jun 30, 2018, this division had 758,000 customers, mirroring 17.3% growth year over year.
Moreover, the segment's adjusted EBITDA was $55.8 million, up 11.6% from the year-ago quarter. However, adjusted EBITDA margin contracted 190 bps to 11.5%.
Total sales at the Aaron's Business segment inched up 0.3% to $435 million. Non-retail sales fell 22.9% on a year-over-year basis. However, lease revenues and fees for the three months (ended Jun 30, 2018) grew 5.1% from the year-ago period.
Adjusted EBITDA at this division was $42.4 million, down 9.2% from the year-ago figure of $46.7 million. Also, adjusted EBITDA margin contracted 110 bps to 9.7%.
Sales at the DAMI segment amounted to $9.2 million, up from $8.5 million in the year-ago period.
Aaron's ended the quarter with cash and cash equivalents of $94.3 million, debt of $272.9 million and shareholders' equity of $1,744.8 million.
Moreover, the company repurchased 1,233,670 shares for $50 million in the quarter. Currently, it has an authorization to repurchase $431.6 million.
During the first six months of 2018, the company generated cash from operations of $266.8 million.
In the quarter under review, Aaron's had purchased three franchised stores and six consolidated company-operated stores. Further, in July 2018, it bought 90 Aaron's-branded franchised stores worth $126.8 million.
As of Jun 30, 2018, the Aaron's Business segment had 1,179 company-operated stores and 530 franchised stores.
Management remains impressed with Aaron's solid second-quarter performance, wherein it witnessed higher profits and sales. Notably, the buyout of Aaron's-branded franchised stores is expected to strengthen the company's omnichannel capabilities.
Following the quarterly results, the company reiterated its guidance for 2018. It anticipates comparable store sales from the Aaron's Business segment to come in at the favorable end of the previous guided range of negative 4% to negative 1%.
Aaron's continues to expect total sales to be between $3.68 billion and $3.89 billion. Adjusted earnings are still anticipated in the band of $3.20-3.50 per share. Notably, this guidance excludes the Progressive segment and franchisee acquisition associated with intangible amortization along with the future one-time or unusual items. This apart, projections for GAAP earnings continue to be in the band of $2.90-$3.20 per share.
Total sales at the Aaron's Business segment are still projected to be in the band of $1.70-$1.80 billion, which comprises lease revenues of $1.40-$1.50 billion. While sales at the Progressive segment are envisioned to be between $1.95 billion and $2.05 billion, the same at the DAMI segment are projected to be in the $30-$40 million band.
The company's EBITDA is still expected to be in $380-$413 million range. On a segmental basis, Aaron's Business' adjusted EBITDA is continued to be anticipated in the $170-$185 million band. EBITDA at the Progressive division is envisioned in the range of $215-$230 million. For the DAMI segment, its EBITDA is still projected to decline $2-$5 million.
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