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Aaron Meets Estimates

Zacks Equity Research

Aaron's Inc. (NYSE:AAN - News) registered an earnings per share growth of 36.7% in the second quarter of 2011, climbing to 41 cents a share from the year-ago earnings of 30 cents. Earnings in the relevant quarter however came in line with the Zacks Consensus Estimate.

Quarterly Details

Aaron’s top line jumped 9.0% to $484.4 million from $446.3 million in the year-ago quarter. The company posted positive comparable-store sales of 5.0% in the quarter under review. Total revenue was also at par with the Zacks Consensus Estimate.                             

Aaron's Sales & Lease Ownership division’s revenue increased to $479.9 million thereby contributing 9.0% to total top-line growth. Aaron's Office Furniture stores reported revenue of $0.8 million. The company is left with just one Office Furniture store to liquidate.

Consolidated lease revenues and fees jumped 8.0% and franchise royalties and fees increased 7.0% for the second quarter of fiscal 2011.  Non-retail sales, which are primarily sales of lease merchandise to Aaron's Sales & Lease Ownership franchisees, surged 15.0% to $84.6 million for the quarter from $73.6 million in the comparable period in 2010. 

Financial Position

Cash and cash equivalents, in the reported quarter, came in at $176.4 million and total shareholder equity was $1,001.1 million.  

Store Update

In the quarter under review, Aaron's Sales & Lease Ownership division opened 17 new company-operated stores, 12 new franchised stores, 10 HomeSmart stores, and 1 RIMCO store, thereby bringing the total to 1,143 company-operated stores, 681 franchised stores, 15 HomeSmart stores, 12 company-operated RIMCO stores, and six franchised RIMCO stores.

Management Guidance

The company expects to report total revenue of $480 million and earnings per share of 35 cents to 39 cents in the third quarter of fiscal 2011. For fiscal 2011, the company sees total revenue of $2.0 billion and expects to earn in the range of $1.73 to $1.81 per share. 

Management targets new store growth for both the company-operated and franchised stores to be 5% to 9% for 2011.

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 is in direct competition with Rent-A-Center Inc. (NasdaqGS:RCII - News)

Aaron’s shares maintain a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. Our long-term recommendation on the stock remains ‘Neutral’.

RENT A CENTER INC (RCII): Read the Full Research Report

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