Aaron's Earnings Miss Est., Lowers View

Zacks

Leading rent-to-own operator, Aaron's Inc. (AAN) reported lower-than-expected financial results for the first quarter of 2013. This Zacks Rank #4 (Sell) company’s quarterly earnings of 67 cents per share were below its own guidance range of 70–74 cents as well as the Zacks Consensus Estimate of 71 cents.

However, on a year-over-year basis, Aaron’s earnings increased 4.7% to 67 cents per share from adjusted earnings of 64 cents posted in the year-ago quarter, primarily driven by improved top-line performance.

Further, on a reported basis, Aaron’s earnings of 67 cents per share were down 27.2% from 92 cents reported in the comparable year-ago period. The first quarter of 2011 included an income of $35.5 million or 28 cents per share related to a lawsuit settlement.

Quarterly Details

On the back strong comparable-store sales (comps) growth, Aaron’s top line nudged up 1.6% to $595.1 million from $586.0 million in the year-ago quarter, marking the highest-ever first-quarter revenues for the company. However, total revenue fell short of the company’s earlier projection of $630.0 million as well as the Zacks Consensus Estimate of $631.0 million.

Comps at the company-owned stores increased 3.4% in the quarter, while stores open for over 2 years witnessed a rise of 1.8%. The improved comps performance came on the back of 4.1% growth in customer traffic at the company-operated stores. Moreover, comps at the company’s franchised stores registered a 2.6% increase attributable to a 6.6% rise in customer traffic.

Aaron's Sales & Lease Ownership division’s revenues were recorded at $575.3 million, up 0.8% from the first quarter of 2012. The company’s HomeSmart division reported revenues of $16.9 million, increasing $4.4 million from the year-ago quarter.

The company’s self-operated stores ended the first quarter with 1,108,000 customers, while its franchisee customer count came in at 592,000. Total customer count increased 6.0% compared with the same period last year.

Gross profit increased 6.5% to $504.0 million from $473.4 million in the year-ago quarter primarily due to lower cost of goods sold. Consequently, gross profit margin improved 390 basis points (bps) to 84.7% from 80.8% in the first quarter of 2012.

Operating income (excluding reversal of accrued lawsuit expenses and depreciation) came at $250.0 million, up 4.8% from $238.5 million in the year-ago quarter. Consequently, operating margin expanded 130 bps to 42.0%.

Financial Position

Cash and investments at Aaron’s as of Mar 31, 2013 were $210.0 million and total shareholder equity was $1,188.9 million. The company generated nearly $103.0 million of cash flow from operating activities.

At the end of first quarter, the company still has 4,044,655 shares remaining under its current authorization, as it did not repurchase any shares.

Store Update

During the first quarter, Aaron’s opened 4 new company-operated Sales & Lease Ownership stores, 7 new franchised stores and 1 RIMCO store. The company also acquired 1 store from its franchisees operators. Moreover, Aaron's closed 2 company-operated Sales & Lease Ownership stores.

As of Mar 31, 2013, Aaron’s had a total of 1,230 company-operated Sales & Lease Ownership stores, 748 franchised Sales & Lease Ownership stores, 78 HomeSmart stores, 1 franchised HomeSmart store, 20 company-operated RIMCO stores, and 6 franchised RIMCO stores. At the end of first quarter, the number of stores opened stood at 2,083.

Management Guidance

Battered by lower-than-expected quarterly results, Aaron’s lowered its full-year 2013 revenue guidance to $2.35 billion from $2.40 billion expected earlier. Moreover, the company now anticipates earnings per share in the range of $2.11–2.23 per share, down from the previously announced guidance of $2.25–2.41. Currently, the Zacks Consensus Estimate stands at $2.31 per share, which could witness a revision in the future following the company’s revised guidance.

In 2013, management targets new store growth of about 4%–6% over 2012, with equal numbers of company-operated and franchised stores and a small rise in the number of HomeSmart stores. Going forward, Aaron's will also 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 $565.0 million in the second quarter of 2013. Earnings per share are anticipated to be 45– 49 cents compared with adjusted earnings of 47 cents in the comparable prior-year period. Currently, the Zacks Consensus Estimate stands at 55 cents per share, which could witness a revision in the future following the company’s guidance.

Our View

Aaron’s leverages an extensive network of stores to effectively penetrate into its target markets, which in turn, facilitates the company to generate healthy sales and gain a competitive advantage over its rivals, Rent-A-Center, Inc. (RCII) and Advance America.

Other well performing stocks in the retail consumer electronic universe are Conns Inc. (CONN) and hhgregg Inc. (HGG). Conns currently holds a Zacks Rank #1 (Strong Buy) while hhgregg carries a Zacks Rank #2 (Buy).

Read the Full Research Report on RCII

Read the Full Research Report on AAN

Read the Full Research Report on HGG

Read the Full Research Report on CONN

Zacks Investment Research



More From Zacks.com

Rates

View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Enjoy this refreshing Triple Play offer!

    Get FIOS TV Mundo starting at $79.99/mo. w/ no annual contract + 2-yr. price guarantee. Or sign for 2 yrs. & get a $300 prepaid Visa. Click here.

    AdChoicesVerizon FiOS ®Sponsored
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

    Bloomberg
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

    CNBC
  • Accomplish your career goals

    At Capella University, you can learn the skills you need to succeed. Why wait another day? Get started today.

    AdChoicesCapella UniversitySponsored
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

    AdChoicesagoodcooksSponsored
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

    CNBC
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Master's Degree in Nursing

    CCNE accredited MS in nursing in as few as 18 months online. Learn more today!

    AdChoicesNorwich UniversitySponsored
  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…

    Credit.com