Can Aaron's (AAN) Get Back on Track Via Solid Growth Efforts?
The Aaron's Company, Inc. AAN is currently reeling under ongoing inflationary pressures, uncertainty related to geopolitical conflict and supply-chain challenges. This dented the year-over-year comparison in first-quarter 2022.
Notably, consolidated revenues fell 5.2% to $456.1 million due to reduced lease revenues stemming from the expected normalization in the lease renewal rate and a decline in early purchase options. Same-store revenues fell 4.3% year over year in the first quarter due to the same factors. Also, adjusted earnings of 87 cents per share declined 29.8% year over year. On a GAAP basis, the company recorded earnings of 68 cents per share, indicating a decrease from the $1.04 reported in the year-ago quarter.
As a result, shares of AAN have plunged 28.8% in the past three months compared with the industry’s decline of 6.6%.
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However, management is looking into every nook and cranny for growth prospects. In this regard, Aaron’s has been witnessing a sturdy performance in the GenNext stores. The company opened 19 GenNext locations in first-quarter 2022. This, along with the 116 existing stores at the beginning of the quarter, accounted for 13.2% of lease and retail revenues in the first quarter. As part of its GenNext strategy, AAN expects to open more than 80 GenNext stores in 2022.
The company’s latest acquisition of appliance and electronics retailer, BrandsMart, bodes well. With the buyout, Aaron’s will be able to offer high-quality furniture, appliances, electronics, and other home goods on affordable lease and retail purchase options to its customers. The move is expected to strengthen AAN’s market position and help expand the customer base.
The deal is expected to generate significant cost synergies and aid Aaron’s top line in the near term. Management anticipates more than $3 billion in total annual revenues and above $300 million in adjusted EBITDA from this transaction by 2026.
The company has been witnessing strength in its e-commerce platform, even after stores reopened. In first-quarter 2022, e-commerce lease revenues were up 3.9%, accounting for 15.4% of the total revenues.
The uptick can be attributable to increased investments in digital marketing, improved shopping experience, same-day and next-day delivery facilities, the personalization of products, and a broader assortment, including the latest product categories. AAN’s express delivery program also acts as a key growth driver.
Driven by the above-mentioned factors, management raised its 2022 view. The company expects revenues of $2.32-$2.39 billion, up from the earlier mentioned $1.775-$1.825 billion. Adjusted EBITDA is likely to be $200-$215 million, comparing favorably with the prior stated $180-$190 million. It also issued the bottom-line view, wherein adjusted earnings are envisioned to be $2.65-$2.90.
Conclusion
We believe that a solid online show, the BrandsMart buyout and continued strength in GenNext strategy will aid this Zacks Rank #3 (Hold) company, and help offset inflationary pressures and supply-chain challenges. Also, a VGM Score of A raises optimism in the stock.
Stocks to Consider
Some better-ranked stocks from the same industry are Delta Apparel DLA, Oxford Industries OXM and GIII Apparel Group GIII.
Oxford Industries is an apparel company that designs, sources, markets and distributes products bearing the trademarks of its owned and licensed brands. It currently flaunts a Zacks Rank #1 (Strong Buy). OXM has a trailing four-quarter earnings surprise of 99.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Oxford Industries’ current financial year’s sales and earnings suggests growth of 10.9% and 7.1%, respectively, from the year-ago period's reported numbers.
Delta Apparel, a manufacturer of knitwear products, currently sports a Zacks Rank #1. DLA has a trailing four-quarter earnings surprise of 95.5%, on average.
The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and earnings per share suggests growth of 11.9% and 10.1%, respectively, from the year-ago period's reported numbers.
GIII Apparel, a manufacturer, designer and distributor of apparel and accessories, presently has a Zacks Rank #2 (Buy). GII has a trailing four-quarter earnings surprise of 160.6%, on average.
The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales and earnings suggests growth of 8.7% and 5.2% from the year-ago period’s reported numbers, respectively.
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