Aaron's Slashed to Strong Sell Owing to Lowered Guidance


On Jul 18, 2014, Zacks Investment Research downgraded Aaron's, Inc. (AAN), the consumer electronics and household appliances retailer, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Estimates for Aaron's have shown a downtrend since the company lowered its earnings and sales forecast for the second quarter of fiscal 2014 due to dismal performance of its core business. Following last week’s announcement, the company’s shares have slipped 2.5% to date.

This rent-to-own specialty retailer came up with its preliminary results for the second quarter that reflects strong revenue performance at the recently acquired Progressive business, more than offset by disappointing results at its core operations. That being said, the company forecasts revenue to be nearly $672 million in the second quarter as against $675 million projected earlier.

Consequently, Aaron’s slashed its adjusted earnings per share, which is now expected to be in the range of 34–37 cents, while its earlier anticipated adjusted earnings ranged between 43–48 cents per share.  

Adjusted earnings results for the quarter excludes the amortization expenses and transaction costs related to Progressive’s purchase as well as other one-time costs and expenses. On a GAAP basis, the company projects earnings in the range of 9–12 cents per share.

This trimmed guidance triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that fell 9.5% to $1.81 for 2014 and 6.4% to $2.48 per share for 2015 in the past 7 days.

Though Aaron’s core business remains troubled, the company is encouraged by the better-than-expected second quarter earnings and revenue results of the recently acquired Progressive business. Looking forward, Aaron’s remains confident of Progressive’s future growth and is on track to revive its core business results through its strategic initiatives.

Other Stocks to Consider

A better-ranked retail stock in the related industry that looks promising and is expected to continue with its upbeat performance includes Conns Inc. (CONN) with a Zacks Rank #2 (Buy). Meanwhile, other stocks performing well in the retail industry include Citi Trends Inc. (CTRN) and Christopher & Banks Corp. (CBK), each carrying a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on AAN
Read the Full Research Report on CBK
Read the Full Research Report on CTRN
Read the Full Research Report on CONN

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