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Aaron's (AAN) Q2 2019 Earnings Call Transcript

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Aaron's (NYSE: AAN)
Q2 2019 Earnings Call
Jul 25, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. My name is Kate and I will be your conference coordinator. At this time, I would like to welcome everyone to the Aaron's Inc. second-quarter 2019 earnings conference call.

[Operator instructions]. I will now turn the call over to Mr. Michael Dickerson, vice president of corporate communications and investor relations for Aaron's, Inc. You may begin your conference.

Michael Dickerson -- Vice President of Corporate Communications and Investor Relations

Thank you and good morning, everyone. Welcome to the Aaron's, Inc. second-quarter 2019 earnings conference call. Joining me this morning are John Robinson, Aaron's, Inc.

president and chief executive officer; Ryan Woodley, chief executive officer of progressive leasing; Douglas Lindsay, president of the Aaron's business; and Steve Michaels, Aaron's, Inc. chief financial officer and president of strategic operations. Many of you have already seen a copy of our earnings release issued this morning. For those of you who have not, it is available on the investor relations section of our website at aarons.com.

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During this call, certain statements we make will be forward-looking. I want to call your attention to our Safe Harbor provision for forward-looking statements that can be found at the end of our earnings release. The Safe Harbor provision identifies risks that may cause the actual results to differ materially from the content of our forward-looking statements. Also please see our Form 10-K for the year ended December 31, 2018, and subsequent filings with the SEC for a description of the risks related to our business that may cause the actual results to differ materially from our forward-looking statements.

Listeners are cautioned not to place undue emphasis on forward-looking statements and we undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures including EBITDA and adjusted EBITDA, non-GAAP net earnings, and non-GAAP EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance.  Lastly, effective with the first quarter of 2019, the company adopted ASC 842, a new standard related to accounting for leases.

In our press release, we have added some information to the revenue table to provide you a year-over-year comparison on an equivalent basis. Throughout our call today, we'll make comments related to the comparability of certain items with the prior year and have assumed in these comments that the adoption of this new standard was made at the beginning of each period compared.  With that, I will now turn the call over to John Robinson.

John Robinson -- President and Chief Executive Officer

Thanks, Mike. And thank you all for joining us today. The strong start to the year we reported in the first quarter continued through the second quarter. On a consolidated basis, we achieved revenue growth of 10.3% over the same quarter in 2018.

This increase is primarily a result of continued strong invoice growth at progressive and the Aaron's business acquisition of franchise locations in 2018, partially offset by the closure of underperforming Aaron's stores in the first half of 2019.  Adjusted EBITDA and diluted non-GAAP EPS were 107 million and $0.93 per share, respectively, both up meaningfully from the prior-year second quarter. Progressive's invoice volume grew 20.4% over the prior-year second quarter, an acceleration from the 14.2% growth experienced in the first quarter of 2019. We are encouraged by this accelerating growth and are maintaining our strategy of investing in people and systems to grow existing and new retail partner relationships.  The Aaron's business performed well in the quarter despite a lower-than-expected beginning portfolio balance, which put pressure on revenue and earnings. I'm pleased with the work our teams are doing to drive revenue and manage costs, and we're maintaining our previously provided annual outlook for the business.

We remain optimistic about the future of the Aaron's business and continue to invest in initiatives to advance our direct-to-consumer omnichannel strategy.  Overall, we remain conservatively capitalized with a net debt to adjusted EBITDA ratio of well below one turn and ended the second quarter with available liquidity of approximately $500 million. Our strong balance sheet provides us flexibility to continue to invest in our business, explore strategic opportunities and return capital to shareholders. During the quarter, we repurchased approximately 243,000 shares of company's common stock, returning approximately $17 million to our shareholders through these repurchases and our quarterly cash dividend.  I will now turn the call over to Ryan to discuss progressive's second-quarter results.

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Thanks, John. The progressive team delivered a great second quarter, continuing the strong growth and profitability trends we have been experiencing. Revenues were 516 million in the second quarter, up 19.1% as compared to the second quarter of 2018. Revenue growth was driven by a 20.4% increase in invoice volume in the quarter resulting from a 23.4% increase in invoice per active door.

The significant increase in invoice per active door was driven by strong year-over-year increases in lease transactions per door in nearly every vertical. Our second-quarter active door count was approximately 19,800, down 2.5% from the second quarter of 2018. As evidenced by the accelerating growth and total invoice and invoice per active door, we believe door count has become less predictive as a leading indicator of future revenue growth, particularly as our overall mix shifts toward larger footprint and online retailers.  EBITDA increased 22.3% as compared to the same period last year primarily due to the 19.1% increase in revenues. On a consistent accounting basis, EBITDA was 13.2% of revenues, an increase of 30 basis points from the 12.9% in year-ago period.

The EBITDA margin expansion was driven by a 130 basis point increase in gross margin resulting primarily from a lower level of 90-day buyout activity. The increase in gross margin was partially offset by accelerating investments in SG&A to support the growth of existing retail partners, as well as future pipeline conversion. Also calculated on a consistent accounting basis, write-offs were 7.6% of revenues in the second quarter of 2019 compared to 7.5% in the year-ago period. As demonstrated by the consistency of this metric, our lease pools continue to perform well and are in line with our expectations.

Our risk team lead by Tanner Barney is doing an excellent job designing and executing decisioning strategies that account for ongoing shifts in portfolio mix while enabling us to deliver results within the target ranges of profitability we provided.  I remain excited about the momentum we're carrying into the second half of the year. I'm pleased with the significant effort the team has made toward providing the best possible experience for credit-challenged consumers. I'll now turn the call over to Douglas to discuss the Aaron's business second-quarter results.

Douglas Lindsay -- President of the Aaron's Business

Thanks, Ryan. I'm pleased with the performance of the Aaron's business in the second quarter despite entering the period with a lower portfolio balance than expected. Same store revenues were up 0.1% in the quarter and represent a year-over-year improvement of 190 basis points. Same store revenues have been near flat for four consecutive quarters and we expect this trend to continue for the second half of the year.

In the quarter, we returned to positive year-over-year recurring revenue written into the portfolio including a 68% increase in our e-commerce channel. As a reminder, recurring revenue written into the portfolio is a key indicator of future revenue performance. Revenues increased 1.9% as compared to the second quarter of 2018. Lease revenue increased to 8% as compared to the same quarter last year primarily driven by the franchise stores acquired in 2018.

Lease revenues also benefited from the ongoing investment in our aarons.com platform which continued its strong growth in the second quarter.  aarons.com is the key pillar of our omnichannel strategy and continues to attract younger higher-ticket customer who prefers a mobile shopping experience. Adjusted EBITDA decreased 2.7 million or 6.4%, and was 8.9% of revenues versus 9.7% in the year-ago quarter. Adjusted EBITDA declined primarily due to the planned timing of 2019 marketing spend and higher write-offs partially offset by a $3.6 million insurance recovery from hurricane losses incurred in 2017.  Write-offs were 5.6% of revenues versus 4% in the same period last year. Contributing to the increase in write-offs was the planned increase in the number and type of promotional offerings, higher ticket leases and the closure of 151 stores in the first half of 2019 and an increasing mix of e-commerce as a percent of revenue.  Our first half of 2019 store closures are a continuation of our market repositioning strategy, which includes store merges, relocations and investments in our next generation store concepts.

The impact of store closures on write-offs results primarily from the initial attrition of customers who were transferred to other Aaron's locations. We believe this unfavorable impact on write-offs is temporary and these closures will result in improved net margin performance in the future periods.  I'm encouraged with the progress we're making in the Aaron's business including the improved delivery activity experienced in the latter part of the quarter. We believe this improvement is primarily driven by our new direct response marketing programs and a redesigned sales training and incentive plans. We continue to invest in key strategic initiatives to improve the customer experience and drive operational efficiencies.

We're pleased with the progress of these initiatives and we'll continue to evaluate their results as we scale them more broadly.  I'll now turn the call over to Steve.

Steve Michaels -- Chief Financial Officer and President of Strategic Operations

Thanks, Douglas. Now I'll review some financial highlights for the quarter. On a consolidated basis, revenues for the second quarter of 2019 were 968.1 million, an increase of 10.3% over the same period a year ago when calculated on a basis consistent with the 2019 adoption of ASC 842. Adjusted EBITDA for the company was 107.4 million for the second quarter of this year compared to 97 million for the same period last year, an increase of 10.4 million or 10.7%.

adjusted EBITDA was 11.1% of revenue in the second quarter of 2019 consistent with the second quarter of 2018 on a constant-accounting basis. Diluted EPS on a non-GAAP basis for the quarter increased 10.7% to $0.93 versus $0.84 in the prior-year quarter. Operating expenses decreased approximately 4.7 million. Adjusting operating expenses in the second quarter of 2018 to be consistent with 2019 reporting, operating expenses would have increased 45 million in the second quarter of 2019 compared to the year-ago period.

Approximately half of the increase in operating expenses relates to the acquisition of franchise stores throughout 2018. The balance relates to the incremental write-offs evenly split between progressive and the Aaron's business, the acceleration of Aaron's business planned marketing spent into the second quarter and increased personnel costs at Progressive. During the second quarter, the company closed approximately 70 Aaron store locations as a result of management's strategic review of the existing store portfolio. The company recorded restructuring charges of 18.7 million, primarily consisting of impairment charges associated with the closed stores.

Cash generated from operating activities was 245 million for the six months ended June 30, 2019 and we ended the quarter with 100 million in cash compared to 15 million at the end of 2018. In mid-April, we made a scheduled principal payment on our senior unsecured notes of $60 million. The remaining outstanding balance of our senior unsecured notes is of 120 million, with no additional scheduled principal payments on these notes until April of 2020. During the quarter we repurchased 242,860 shares of the company's common stock for approximately $59.35 per share, returning approximately 17 million to our shareholders through these repurchases and our quarterly cash dividend.

We remain conservatively capitalized and ended the second quarter with available liquidity of $486 million and a net debt to adjusted EBITDA ratio of 0.6 turns. You will note that we've updated our outlook for 2019. We are raising our EPS outlook from a range of $3.65 to $3.85 to an updated range of $3.85 to $4 per share, primarily reflecting the strength in our progressive segment. Year to date we have achieved low double-digit consolidated revenue growth and expect to continue to do so for the balance of the year.

We've increased our adjusted EBITDA outlook for the year, as we expect progressive to continue to achieve high EBITDA growth rates in the second half of 2019. Despite a lower than expected portfolio balance entering the second quarter, we are maintaining the previously provided full-year outlook for the Aaron's business. Overall, we are pleased that we again reported strong consolidated results this quarter. With that, I'll turn the call over to the operator to assist with taking your questions.

Questions & Answers:


Operator

[Operator instructions]. The first question comes from Kyle Joseph of Jefferies. Please go ahead.

Kyle Joseph -- Jefferies -- Analyst

Hey, good morning, guys, and congratulations on a good quarter. I want to just start on the progressive side of the business. Ryan, if you could give us a sense for the rollout with the recently announced partnerships, any color you can provide us with there?

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

We're happy with how they're going. We obviously continue to be very proud to partner with all of those folks and excited about what we're accomplishing together. The teams are working hard. We're focused on executing the best we possibly can for them and their stores and for our mutual customers.

I won't comment on them specifically, but we're pleased with where we're at and really excited about the opportunity ahead of us.

Kyle Joseph -- Jefferies -- Analyst

Got it. And then if you can just, I think this question is probably for Steve, just give us a sense for the cash efficiency of the progressive model and how much the business can grow on the existing balance sheet? And then refresh us on your capital allocation plans as well.

Douglas Lindsay -- President of the Aaron's Business

Yeah, I mean that's one of the many beautiful elements of the progressive model, which I assume you're speaking of specifically. The Aaron's business has a great cash efficiency and cash generation as well, but as it relates to progressive and its growth, because of the 12-month lease pools with an average life of seven months, the cash turns over very quickly and has a very efficient cash conversion cycle. So we have -- the progressive business has grown in the last several years in the call it mid-20s and has generated cash. And depending on the timing of the invoice, it could certainly grow in excess of 40% and still sell fund, but then obviously beyond that, one of our strengths is our conservatively capitalized balance sheet and access to liquidity.

So we've got plenty of opportunity and dry powder, if you will, to be able to support growth in excess of that. But at the levels and the size that progressive is, those are some very nice growth rates that it can sell fund.

Kyle Joseph -- Jefferies -- Analyst

That's very helpful. Thanks a lot for answering my questions.

Operator

The next question is from Anthony Chukumba of Loop Capital Markets. Please go ahead.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Good morning. And let me add my congrats on nice quarter as well. So I just had a question, obviously progressive had a great quarter, you have also made sequential acceleration in terms of invoice by per active door growth particularly, including our two-year stack basis. And you raised your guidance, but for progressive EBITDA for the year, which didn't raise your guidance for progressive's revenues for the year.

So I was just trying to sort of reconcile that.

Douglas Lindsay -- President of the Aaron's Business

Yeah, Anthony, this is Steve. I mean, as we talked about in the prepared remarks, we believe and we said we expect low double-digit or consistent year-over-year growth rates in the back half of the year that we achieved in the front half of the year. And we did not, as you noted, tighten or change the revenue range, but we expect to continue the trends that we've been delivering thus far.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Got it. That's helpful. Thank you.

Operator

The next question is from Brad Thomas of KeyBanc. Please go ahead.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Hey, good morning. Great quarter. I guess I was hoping we could talk a little bit more about the trends in bad debts and write-offs, and maybe we could start with Douglas and then move over to Ryan. If you could talk about what you're seeing in the different business segments and how that's playing out relative to expectations and how if at all your outlook for that line item is changing as we think about the back half of the year?

Douglas Lindsay -- President of the Aaron's Business

It's Douglas. As we mentioned, I believe we mentioned this last call. We've been experiencing elevated write-offs in the last few quarters. It has mainly been driven by our acquisition of new customers.

We talked about our promotional strategy is driving new customers in the door. We've also opened on Sunday on all of our stores now which is attracting a lot more new customers and that e-com, I mean e-com is over 12% of our GAAP written into the portfolio this quarter and that's attracting mainly the new customer. So with all the new customer entering into the each of the pools, we're seeing higher write-offs. We also mention on the call, we're seeing a temporary increase in write-offs due to the closure of 151 stores in the first six months of the year.

And this is just basically we're merging customers from one store into another. And as we move them, we did the best we can to increase the customer service and connectivity with our customer or moving them a longer away from their home to another store. We bake all of this into our underwriting and our decisioning when we close doors, but we do experience higher write-offs when that happens. So we're happy with the ROI on that decision, but we will have a temporary period of increase write-offs.

We expect to have elevated write-offs as we go forward just due to the promotional strategy, the growth in e-commerce and attracting new customers with a higher rate, but that's all reflected in our guidance.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

And so just to be clear, Douglas, do you think that the write-offs probably continue to be higher year over year through the second half?

Douglas Lindsay -- President of the Aaron's Business

Yeah, we would expect, yes, an elevated amount of write-offs even once the merger settle down.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

OK. Great. And, Ryan, could you comment a bit more about how you're thinking about write-offs of bad debts?

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Yeah, on the same accounting basis write-offs were 7.6 versus 7.5 a year ago, and we didn't -- I don't think we mentioned bad debt as we've changed accounting, but just for information bad debt was flat on the same accounting basis, 10.3% of revenues versus 10.3% last year. I'd say it was, you know, strengthened our decisioning activities, I mentioned that in the prepared remarks and the payment assistance team is doing excellent as well and that combined is delivering very consistent pool performance. We provided that annual range on write-offs of 6 to 8% more well-positioned to end there on the year.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Great. And if I could ask a follow up to you, Ryan, about revenue growth. I know you don't want to break out for sales occurring at specific accounts, but could you maybe give us a little bit more flavor, a little bit more help thinking about where your revenue growth today is coming from and just how we should think about how much is coming from some of these big, large, national accounts versus what you're seeing from some of the regional or smaller players that you work with, particularly in the context of us watching that active door number be down a little bit year over year right now?

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Yeah. Sure, happy to. We talked a lot about invoice as a leading indicator of revenue. So the focus on invoice, I mentioned that was driven by strong increases in productivity per door, which we measure as invoice volume per door.

It was actually a record level in the quarter which was great to see. And I did mention, we're seeing that pretty broad base. I think the teams are working hard with our existing partners to grow them and we've obviously benefited from some nice new additions to the portfolio that are also productive and doing well for us. We've just been really focused on trying to help our partners drive more of those opportunities to the top of the funnel and optimize our efforts to convert them through the bottom of the funnel and they're doing great.

Obviously, those larger accounts, given their scale, are driving a big portion of the growth, and we expect that trend to continue, but we're pleased with what we're seeing across the book.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Great. Thank you so much.

Operator

The next question is from John Baugh of Stifel. Please go ahead.

John Baugh -- Stifel Financial Corp. -- Analyst

Thank you. Good morning. I wanted to get to the store side if I could and is there a better sense, and I guess this is for John or Douglas, where we might sort out in the longer term on store count and are we still retaining sort of a similar 12 months after closure and moving kind of retention rate or is that changing in any way?

John Robinson -- President and Chief Executive Officer

It's John Robinson. In terms of where we think we'll settle out on stores, I think that is an ongoing, kind of evolving process that we continue to evaluate as our kind of omnichannel strategy takes hold. We've been really pleased with the growth in e-com and the ability to serve a broader market with that in potentially fewer stores. We certainly think the number of stores by market in, say a mature market, in the metro market for example would probably be less than we have today.

We can't tell you the exact number because we're kind of honing in on that as we continue to learn from the data. But certainly, our expectation is we'll have probably fewer stores and a more robust e-com platform, which includes the mobile platform as we move forward. So that's the direction we're broadly going. In terms of the mergers, and I'll let Douglas to come in if this is incorrect, but we're having good results from that.

That's the reason we've continued to do these close emerges is that we have been pleased with the predictability and the kind of runoff and retention of merged customers over time. And that's one of the advantages we have versus the traditional retailers. We do have a portfolio of leases in these stores with the recurring revenue base. And so, our ability to retain that when we close and merge into another store is we're accretive from a profitability standpoint, and we've seen good predictability around that.

And then there is the mileage component depending on how far away the stores are apart, but we've been pleased with the performance of that and that's one of the reasons we've continued to execute that strategy.

Douglas Lindsay -- President of the Aaron's Business

Yeah. The only thing I'd add to that, John, is this is all part of our larger market repositioning strategy which includes closing stores, relocating stores and opening our next gen store concepts. We opened six next-gen stores in the quarter and we're continuing to refine our national marketing plans, optimizing the footprint of, as John said, our rural market store versus the urban store, and really value engineering of what we're doing. I think the magic and a lot of what we're doing right now and the momentum we're starting to see is in the operating model, not just in the way we sort of free our people up to get a cell and convert the customers that walk in the doors, but also reducing our -- being more efficient in our dollars we spend in our operating model and getting greater productivity through things like digital decisioning and centralized collecting.

And so, we'll to continue to pursue that with this real estate strategy.

John Baugh -- Stifel Financial Corp. -- Analyst

OK. And then if I could, a quick question on progressive for Ryan. I appreciate we're not going to get the rollout in the retailers we're talking with, but I'm curious on the -- you said frankly ever since progressive has been part of Aaron that you're spending for future growth. And the question is, where are we in terms of have we spent enough, have we spent too much, based on what you know, again won't share necessarily, but I'm trying to get a sense of whether or not the business is growing about the pace you saw and your infrastructure is ready or do you have some retailers you're talking with who maybe you're having to hold off because you're growing maybe faster than you thought?

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

So just broad-based comments. Obviously, our belief in the merits of investing in the business is derived from the fact that we think it's a large underserved market. We really believe it's a $20-plus billion market, a fraction of which is currently being served, and we think we're well-positioned, very well-positioned to capture the bulk of that opportunity, which is why we have sort of the interest in investing. I'd say we're very pleased that we've been able to do that while generating margin expansion and at the pace at with which we've been invested in the business has been very measured.

We try to be thoughtful about pacing that investment with the pace of evolution and the pipeline. And I think we've managed to pace that pretty well. I'm very confident that we can handle any of the volume sitting in our pipeline. And we've made the appropriate investments, I'd say, in infrastructure and team to be able to support that.

It's that we talk a lot about investing in people and systems and that really is what it is. We have an extremely talented team across all the functions in the business and every one of those has grown over the last year and we're continuing to invest in those so that we really can handle any opportunity out there. And I feel good about where we're at, I feel good about where the pipeline is today, I feel good about our ability to manage those opportunities.

John Robinson -- President and Chief Executive Officer

And John, this is John Robinson. I'll say, just having been around progressive a while now, I think all those things Ryan said exactly right. I feel better about our ability to capture the opportunity in front of us today than I've ever felt and relative to the pipeline we have in front of us, our ability to handle that, manage it not only from an operational standpoint, but from a capital standpoint for sure in really all aspects of the business. So I think the business is very well-positioned to continue to capitalize on the opportunity.

And we've said this in the past and I'll just repeat it, but we are -- and Ryan and the team have done a great job of balancing, managing margin, EBITDA margin, in the context of this big unserved market. But we really are focused on capturing the opportunity more than trying to capture every last dollar of margin right now because we just think it's such a big opportunity and being the incumbent, being the first to have retailers is important and has proven to be over time and we just want to continue to kind of win that race. We think we have an advantage in the market right now from a product and team standpoint and we want to continue to kind of build on that advantage so that we can continue to have these wins and have these growth rates, which these guys have put up now for really consistently for a number of years.

John Baugh -- Stifel Financial Corp. -- Analyst

And, John, on that front really quickly. Obviously, this is a growing industry and it's attracting competitors and capital. Are you seeing any change in competition, which I know you've always cited, there's always somebody that walks in and offers a better conversion rate or approval rate, whatever? Is it changing to a degree it's impacting you? Obviously, your margins are good, but I'm just curious in the competitive landscape.

John Robinson -- President and Chief Executive Officer

Yeah, I mean, it's a good question. It's definitely. I mean, all the way back to when Aaron's acquired Progressive, we feel like it has attracted more and more competitors and the awareness around the industry is higher among capital providers. So there is certainly more competitors probably than we've ever seen in the market.

I kind of think of it as those competitors who are serving the regions versus the ones who are serving the large enterprise accounts. I feel like we have a real unmatched product and team to serve a large retailer. And just as I mentioned before, we want to continue to build on the lead we think we have there. And it's definitely there are some good competitors.

We think we're the best provider out there. But we've got to stay on our toes and we've got to keep investing to stay ahead. So that's part of what you see. And if you ask Ryan the question where we're investing, we're investing across all functional areas to get better across the whole enterprise to be able to continue to be the best provider out there.

But it has been competitive, it remains competitive, it's always changing. And we just put a lot of pressure on ourselves to keep getting better and have the best solution in the market. And that's how we think about it. We're always feeling a great sense of urgency to improve and we have a great kind of roadmap of product and how we need to change and grow and get better and we're working down that pipeline as fast as we can.

John Baugh -- Stifel Financial Corp. -- Analyst

Great. Thanks. Good luck.

Operator

The next question is from Bill Chappell of SunTrust. Please go ahead.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Thanks. Good morning. Bill, a few hopefully quick questions and one longer. On the Aaron's side, Douglas, I guess would you expect just a little more clarification kind of the write-offs to be at this level for the next few quarters or would they go higher before they go lower? And then also on same-store sales, what's kind of the outlook on same-store sales growth as we start to lap some of the Sunday openings by the time we get to the fourth quarter?

Douglas Lindsay -- President of the Aaron's Business

Yeah, hey Bill, just addressing the write-offs first. We just closed the second set of 70 stores at the end of the quarter. So I would expect in the third quarter to see sort of the same as what you've seen in the second quarter, adjusted for our normal seasonal third-quarter increase. But year over year, you should expect to see kind of what you're seeing here in the second quarter, given the store closure pace.

That will moderate toward the end of the year. But we've been up about 100 basis points year over year. And I expect that's where it will settle back down. We will continue to try to drive new customers into the pipeline I think that are higher write-off rate; one, because they've got a higher book value of the assets they're writing off and two, they just write off at a higher rate as new customers normally do.

And as far as same-store comps, I'm really proud of the team. We had another quarter of positive comps. I think we're 190 basis points over last year. As you recall, first quarter was our first positive comp since 2013.

So the team has done an awesome job on that. What I'm most excited about is that we rebounded on our key leading indicator of recurring revenue written into the portfolio, which was up this quarter and continues that streak from last year that we were seeing. We're attracting more new customers and probably importantly, we saw strength in the latter part of the quarter, which we're excited about. So we've kept our guidance at zero to 2%.

We see ourselves coming in within that guidance and it will be sort of flat to 0.2% for the year. What's driving a lot of that right now is this reinvestment that I mentioned on the call and marketing and sales training and incentive programs, along with these merchandising strategies that continue to get traction, and of course we talked about e-com, that was up 67% and the revenue we put into the portfolio year over year. So those are all helping us with comps considerably.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. And then, Ryan, switching to Progressive. I understand your commentary that store count is becoming less and less relevant, but there's certainly some of your existing customers that are being door shrinking and will continue that way. I mean, do you expect this trend, your door count, to be at this level for a while in terms of down 12 percentage points year over year? Does it get worse? Does it get better as others start to expand a little bit faster?

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Good question. So we talked about the specific drivers of the decline we're currently seeing in the business. On the base of 19,800, we did have some nice additions from new and existing partnerships inside of that number, obviously overcome by the two drivers we mentioned on the last call: the decline in mattress from one of our partners there and then in mobile as well. So that being said, we'll still be comping those declines throughout this year.

But there are obviously significant basis of doors still out there left to win and onboard on the platform. So that opportunity is out there. And then once we comp those two specific reductions, obviously we won't be facing that headwind as well on the existing base, which has seen some growth inside of it that was just offset by those two declines. So we'll be comping -- short answer is we'll be comping those for this year and we've got some opportunity to grow it going forward.

John Robinson -- President and Chief Executive Officer

And Bill, obviously -- this is John -- a lot of the opportunity in the pipeline is our e-com and/or larger footprint type door. So they can bring a lot of invoice without necessarily moving the door metric as much as we might have seen in the past with other types of doors. So that has been the case for the last couple of years for us as we just had very productive doors coming to the system.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Perfect segue into my last question. Just -- Ryan, maybe just if you were to have signed a large kind of online e-commerce customer, how does that work in terms of versus the traditional door, how quickly it ramps? Just because the signage is obviously different, the customer interaction is different. And so I don't know if it takes significantly longer than a bricks and mortar retailer that has a similar revenue base or if it's much, much faster.

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Fair question. I would say it -- I expect it to be very similar to our offline partnerships, which is a very dramatically partner to partner. And it depends on both the nature and the integration and then the level of collaboration between the teams and the extent to which the offering is being promoted on the site as the corollary of being promoted in store with POP and all of those will be -- will have a significant influence on the pace of growth in our online opportunities. We're super excited about the channel.

We've spent a lot of time and resource investing and building out our technology offering there, as well as our team. I'm pleased with where we're at, excited about where we're going. Our goal is to develop the toolkit we need to help a broad base of e-commerce retailers serve this customer as we've done over the past two decades offline. I think it's a really large opportunity and I think we're sort of uniquely positioned to help execute on that strategy for our online partners.

We were very bullish on online and mobile representing a big portion of the business years into the future.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. Thank you.

Operator

The next question is from Budd Bugatch of Raymond James. Please go ahead.

Budd Bugatch -- Raymond James -- Analyst

Good morning everyone. Thank you for taking my questions.  Ryan, I was curious, you had talked about the 130 basis points of gross margin expansion due primarily I think if I recall properly from a lower penetration of 90-day or due significantly from that. Can you talk a little bit about that, maybe give us some color of any indication of what the verticals that may be in or whether that's some commentary about the health of the credit challenged consumer?

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Sure, will do. So not necessarily a health of the consumer, really an artifact of the shift and mix. And that's the function of a lot of variables there that go into our portfolio mix. I'll give you some examples.

So when we onboard a new partner, that partner may have a naturally different level of 90 -- organic level of 90-day buyouts based on their customer composition. If we see different rates of growth across partners that can influence it, if we see a different pricing, overall growth of the portfolio, all of those things have the ability to influence levels of 90-day where we saw 190 basis points of expansion in Q1, so it has moderated a bit from that level to the 130 in Q2. We expect it to continue to moderate and it really just depends on the timing and mix of invoice, especially new invoice being added.

Budd Bugatch -- Raymond James -- Analyst

And Douglas, rapid customer onboarding, how is that progressing? How many stores are doing that? And what does it look like in the portfolio?

Douglas Lindsay -- President of the Aaron's Business

Sure. Glad you asked because we've been working hard on that. We've been testing it in about 200 stores. We've seen great success in adoption.

Our team members love it. It takes considerable amount of labor out of the stores and leaves the processing to us versus processing sitting at the store. What they like probably most about it is the digital interface where we can onboard a customer and offer them all of our products and e-sign our docs and send them away with digital docs, which is a convenience to the customer and it also helps us to lead them through the onboarding process in a more uniform way. In terms of the decisioning, we've seen really strong results there.

We continue to optimize it. We should be with digital tablets, onboarding tablets in every store by the end of the year and then shortly following with decisioning platform that would allow us to make -- sort of size the customer. And if you think of it at the journey, that's where you come into an Aaron's store, fill in your information and we tell you what your leasing power is and then you go shop and then we check it out digitally on a tablet. And the vision of that experience is coming to light right now in our stores and will probably be in the first half of 2020.

John Robinson -- President and Chief Executive Officer

And, Budd, I'll add one thing, this is John. Following the last set of questions, one of the exciting parts about rapid customer onboarding and as Douglas said, it is an evolution of our business. You know this business well. We're going through a transformation and you've got to do it in steps.

And Douglas and his team, John Smith and Steve Olsen, they're doing an amazing job executing this. But we've got to do it -- we've got to sequence it right, they're doing that. One of the exciting parts about rapid customer onboarding is the ability, once it's in place, to centrally manage risk better than we've ever been able to do it before. That's one of the huge advantages we have at progressive is our ability to turn on and off different pools of opportunity and approval rates and the things that we can change, really agile, be very agile and changing, we can do that at progressive, we can't do it at Aaron's.

But rapid customer onboarding will get us to that point, which gives you a much better ability to kind of dial-up your risk-adjusted margin you're looking for. And the progressive guys have been hugely helpful in getting us there on the Aaron's side, but it's a big opportunity that we don't really get the benefit of this year, but we're excited about in the future.

Douglas Lindsay -- President of the Aaron's Business

One last thing, Budd, I mean I'll just add we get data capture and sales conversion data and have additional labor hours we can deploy into the selling process, which are all great benefits of this as well.

Budd Bugatch -- Raymond James -- Analyst

But to make sure I understand it, I thought -- I think you said you're going to have it in all stores by the end of the year, but right now it's only in 200, so that's like up a hundred from where it was earlier. So you're really backend loading this and it's a 2020 advantage as opposed to 2019?

Douglas Lindsay -- President of the Aaron's Business

Yeah, let me be clear. We're going to have the digital platform in our checkout process in all stores by the end of the year and that's going to allow our associates to get comfortable with the process and we will layer on the decisioning part of that in the first part of 2020 and we should get the benefits throughout 2020.

John Robinson -- President and Chief Executive Officer

But to further clarify, in the 200-plus stores today we have the digital and the decisioning.

Douglas Lindsay -- President of the Aaron's Business

Yeah, we've both of them in there.

John Robinson -- President and Chief Executive Officer

Which has enabled us to get a lot of data and to understand performance of lease pools based on the decisioning.

Budd Bugatch -- Raymond James -- Analyst

OK. And last for me. You closed about, well, just under 70 stores if my math is right, at the end of the quarter you said. What's the balance of the year look like? Are you going to do some more close mergers of size or are we pretty well done for 2019?

Douglas Lindsay -- President of the Aaron's Business

Yeah. I mean We're going to follow our normal course process, Budd, but we don't expect any large-scale closures between now and the end of the year.

Budd Bugatch -- Raymond James -- Analyst

Thank you very much. Good luck on the balance of the year.

Operator

The next question is a follow up Anthony Chukumba of Loop Capital Markets. Please go ahead.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Thanks for allowing me to double dip here a bit. So you talked briefly about the new store concept now path, and I know that you've seen some pretty impressive results from that. I guess I was just looking for an update in terms of rolling out some of the learning from those concept stores to the rest of the store base?

Douglas Lindsay -- President of the Aaron's Business

Sure. We're now up to 10 stores that we've opened with the new store concept. We initially had a prototype store where we, as you might imagine, sort of spent what we needed to spent to get it right and drive volume. We learned that we could drive the top line and we needed to optimize the rest of the model.

We've been working hard to do that. And so, we've been working on value engineering or build out, figuring out what our new labor model is and really refining what's in the store. I mean, if you think about our new store concept, it's a larger showroom, really removing the servicing offices, completely remodeled the exterior and interior, new brand look and it's totally static in the main part of the showrooms and they're pre-leased. And we have dedicated pre-leased areas and then we have, as we talked about with RCO, digital onboarding and a virtual shopping experience within those stores.

Layering on that, we've put in centralized servicing there and so we've learned a lot from that. The biggest thing we've learned is we can not only value-engineer, but we can optimize the operating model to give us a return within the lease periods that we're signing. So we're gaining confidence. We've also learned that slightly bigger stores operate better.

And with that confidence, it has allowed us to sort of accelerate the pace of our build out of these stores. So we've got a number of stores in the pipeline as we've communicated previously. And we are building a team on the real estate side that is much more strategic in terms of the way we think about markets and where we put these things. It will not be a one size fits all.

So in Aransas Pass, Texas, we may have a smaller store that is more remote than a store we might put in Atlanta where we have other stores nearby. We could foresee in the future within our high-density markets having higher stores with smaller surrounding satellite stores that may potentially be serviced through hubs and shared resources. But we're really optimistic about the concept.

John Robinson -- President and Chief Executive Officer

And Anthony, I'll add just to make sure on your question. The things -- some of the things that we are scaling across the system already and we just talked about digital customer onboarding, that has been one of their kind of pieces of the new store concept that Douglas and the team have tested, seeing great results from, seeing great customer adoption and feedback from customers. We're now, as we've just discussed, scaling across the whole system this year.We've also learned in part of our new store concept was new incentive programs and we're also adopting some new sales training. And those are two effective and big projects right now that we are scaling across the whole system.

So these are all things that have been part of this transformation effort that are getting across the whole system. The real estate part, as Douglas just discussed, is a longer-term process that we're trying to get right given that there's more capital involved. And we want to make sure we're very prudent about how we spend that capital. So we're refining it and it's going to be a little different by market, as Douglas said, and there's going to be a big e-com component.

And Douglas and his team have done an awesome job figuring out the right mix by market.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Got it. That's helpful. And then just one last question. You mentioned that the strong progressive invoice volume per active door growth is driven by increase in lease transacted in nearly every vertical.

I guess, I was wondering, as you add these larger partners, is it a reasonable expectation to think that your invoice volume per active door growth will continue to be quite robust as you layer in these larger partners who obviously are going to do a lot more volume than postpaid wireless reseller?

John Robinson -- President and Chief Executive Officer

On the whole, Anthony, yes, I'd say that's true. It's also going to be true as the mix shifts toward online more as well just given how we count those doors. We're going to see higher levels of average door productivity coming from online, but yes.

Douglas Lindsay -- President of the Aaron's Business

And one thing I will emphasize that I think Ryan said earlier, I want to make sure everyone understands is that the team has done an amazing job of bringing on new retailers with big footprint doors. But they're doing an equally admirable job of driving more volume in the existing doors that we have, with our existing retail partners. So a lot of the investment, much of the investment that we make is to make our existing partners more successful and the team has done an excellent job of doing that. And that's showing up in these numbers.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Got it. That's helpful. And, sorry, just one last clarification. The 68% increase in e-commerce revenues, was that just in the Aaron's business or was that overall?

Douglas Lindsay -- President of the Aaron's Business

That's just in the Aaron's business and just to further clarify, that 68% of increase in recurring revenue written into the portfolio, which is our leading indicator. That's not a revenue number, but it's what we put into the portfolio, 68% higher than what we did last year.

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

It's effectively the recurring revenue that you expect. If you think about a transaction, you have a recurring payment. It's just the recurring payment aggregated that we've written into the portfolio at any given period.

Anthony Chukumba -- Loop Capital Markets -- Analyst

That's helpful. And thanks so much.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Robinson for closing remarks.

John Robinson -- President and Chief Executive Officer

Thank you. To summarize, we are pleased with the strong first half of 2019. We recognize we must continue to execute on our plan to achieve the improved results indicated by our updated outlook and our team is up to the task. We are pleased with ongoing performance of progressive and the progress being made by the Aaron's business and its transformation efforts.

I'd like to thank all of our associates, retail partners and franchisees for their dedication to providing high quality products to our customers. And thank you very much for joining us today.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

Michael Dickerson -- Vice President of Corporate Communications and Investor Relations

John Robinson -- President and Chief Executive Officer

Ryan Woodley -- Chief Executive Officer of Progressive Leasing

Douglas Lindsay -- President of the Aaron's Business

Steve Michaels -- Chief Financial Officer and President of Strategic Operations

Kyle Joseph -- Jefferies -- Analyst

Anthony Chukumba -- Loop Capital Markets -- Analyst

Brad Thomas -- KeyBanc Capital Markets -- Analyst

John Baugh -- Stifel Financial Corp. -- Analyst

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Budd Bugatch -- Raymond James -- Analyst

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