Technology

Aaron's (AAN) Up 7.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Aaron's (AAN). Shares have added about 7.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Aaron's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Aaron's Earnings & Revenues Surpass Estimates in Q2

Aaron’s better-than-expected results for second-quarter 2020. Both top and bottom lines grew year over year. Solid performance of the Progressive segment, driven by strong invoice growth, operating cost management and sturdy customer payment activity, also contributed to quarterly results.

Q2 Highlights

Aaron's delivered adjusted earnings of $1.18 per share, which surpassed the Zacks Consensus Estimate of 82 cents. Further, the metric advanced 26.9% from the prior-year quarter’s reported figure. Reported earnings per share were $1.01 on a GAAP basis, up 62.9% year over year from 62 cents reported in the year-ago quarter.

Consolidated revenues rose 6.4% to $1,030.1 million and surpassed the Zacks Consensus Estimate of $984 million. Revenue growth was mainly backed by an increase in Progressive revenues, partly offset by soft revenues at the Aaron's Business segment.

Aaron’s franchisee revenues declined 3.5% to $104.2 million. Same-store revenues for franchised stores increased 6.6% and same-store customer counts dropped 7.6% in the reported quarter. Notably, the company’s franchisees had a customer base of 216,000 at the end of the quarter.

Adjusted EBITDA grew 20.9% year over year to $129.8 million, with adjusted EBITDA margin expanding 150 basis points (bps) to 12.6% in the reported quarter.

Segment Details

Progressive Leasing

Revenues at the segment grew 14.2% to $589.7 million in the reported quarter. Moreover, invoice volumes fell 2.2% due to a 1.7% rise in invoice volume per active door and a 3.9% decrease in active doors to roughly 19,000. As of Jun 30, 2020, the division had 902,000 customers, reflecting a 0.8% decline year over year.

The segment’s EBITDA was $70.7 million, up 3.7% from the year-ago quarter. However, EBITDA margin contracted 120 bps to 12%.

Aaron's Business

Total revenues at the Aaron’s Business segment fell 2.8% to $431 million, mainly due to net reduction of 185 outlets in the 15 months ended Jun 30, and lower lease portfolio balance impact and temporary store closures stemming from the COVID-19 pandemic. This was somewhat offset by robust customer payment activities. Moreover, same-store revenues rose 1.4%, while customer count on a same-store basis dropped 6.5%.

Non-retail sales decreased 3.2% on a year-over-year basis. Lease revenues and fees for the three months ended Jun 30 declined 2.8% from the year-ago quarter. At the quarter-end, the company-operated Aaron’s stores had 898,000 customers, reflecting an 8.7% year-over-year drop.

The segment’s adjusted EBITDA was $57.1 million, up 44% year over year on the back of enhanced merchandise write-offs, reduced SG&A expenses and solid customer payment activity, which somewhat offset adverse impacts from lower portfolio balance and temporary store closures as a result of coronavirus. Also, adjusted EBITDA margin expanded 420 bps to 13.2%. As of Jun 30, 2020, Aaron's Business had 1,098 company-operated stores and 316 franchised stores.

Vive

Sales at the Vive segment, formerly known as Dent-A-Med, Inc., amounted to $9.4 million in the quarter under review.

Financial Position

The company ended the quarter with cash and cash equivalents of $313.1 million, debt of $285.8 million and shareholders’ equity of $1,521.2 million. As of Jun 30, 2020, the company generated cash from operations of $360.8 million.

During the quarter, the company did not repurchase shares but paid out dividends of $5.4 million. Also, the company has roughly $800-million liquidity as of Jun 30, which is likely to help it stay afloat amid this crisis.

Outlook

Going ahead, management issued a third-quarter view. Notably, it anticipates revenues of $950-$975 million and adjusted earnings of 80-90 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 45.92% due to these changes.

VGM Scores

At this time, Aaron's has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Aaron's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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