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Aaron's In Line, Reiterates Guidance

Zacks Equity Research

Leading rent-to-own operator Aaron's Inc. (NYSE:AAN - News) registered earnings per share of 43 cents in the fourth quarter of fiscal 2011, an increase of 13.2% from 38 cents reported a year ago. Earnings in the reported quarter were in line with the Zacks Consensus Estimate of 43 cents per share.

On a GAAP basis, the company posted a 5% increase with earnings per share reaching 40 cents per share in the fourth quarter, including 3 cents separation charge primarily related to the accelerated vesting of restricted stock units and stock options previously granted to its former Chief Executive Officer.

Adjusted earnings per share for full-year 2011 came in at $1.75, up 22% from the year-ago earnings of $1.44 and in line with the Zacks Consensus Estimate of $1.75. The company’s GAAP earnings of $1.43 per share for full year were down 1% year over year and included the fourth quarter separation-related charge and a second quarter lawsuit-related charge.

Quarterly Details

Aaron’s top line in the quarter jumped 8.1% to $523.5 million from $484.4 million in the year-ago quarter. Total revenue was also above the Zacks Consensus Estimate of $519.0 million. The company posted positive comparable-store sales of 3.7% in the quarter under review.

For the full year, Aaron’s revenue increased 8% to 2,024.0 million, surpassing the year-ago revenue of $1,876.8 million by 8%. Fiscal 2011 revenue also marginally beats the Zacks Consensus Estimate of 2,020.0 million.

Aaron's Sales & Lease Ownership division’s revenue, excluding HomeSmart stores, increased to $511.5 million in the quarter, up 6.2% from the year-ago quarter. Full-year sales at the Sales & Lease Ownership division rose 7.4% year over year to $1,999 million. Aaron's Office Furniture stores reported revenue of $720,000 and $3.7 million for the fourth quarter and full year, respectively. The company is left with just one Office Furniture store to liquidate.

Financial Position

Cash and cash equivalents, in the reported quarter, came in at $176.3 million and total shareholders’ equity was $976.6 million.

Store Update

In the quarter, Aaron's opened 16 new company-operated Sales & Lease Ownership stores, 18 new franchised stores, eight HomeSmart stores, and three RIMCO store. Additionally, the company acquired four stores from franchisees and seven stores from third party operator (converted to HomeSmart store), while it sold one store to franchisee. The company also closed ten company-operated stores and one franchisee store.

As of December 31, 2011, the total number of stores at Aaron’s was 1,144 company-operated stores, 707 franchised stores, 71 HomeSmart stores, 16 company-operated RIMCO stores, and 6 franchised RIMCO stores. Additionally, the company had one Aaron's Office Furniture store.  Stores open at year-end 2011 totaled 1,945.

Management Guidance

The company expects to report total revenue of $570.0 million and earnings per share of 58 cents to 62 cents in the first quarter of fiscal 2012. For fiscal 2012, the company expects total revenue of $2.15 billion and has reiterated its earnings guidance range of $1.88 to $2.04 per share.

In 2012, management targets new store growth of about 5%-7% over fiscal 2011, mostly slated to grow equally between company-operated and franchised stores with a small number of HomeSmart stores.

Aaron is a rent-to-own operator in the United States and has a low price provider strategy. The company is involved in the rental and specialty retailing of consumer electronics, residential and office furniture, household appliances, and accessories. The company competes directly with Rent-A-Center Inc. (NasdaqGS:RCII - News)

Aaron’s shares maintain a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating. Our long-term recommendation on the stock remains ‘Neutral’.

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