Aaron's (AAN) Down 17.4% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Aaron's Company, Inc. (AAN). Shares have lost about 17.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Aaron's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Aaron's Q4 Loss Wider, Revenues Decline 10.2% Y/Y
Aaron's reported wider loss per share during fourth-quarter 2023. Also, the top line missed the Zacks Consensus Estimate and declined on a year-over-year basis.
Aaron's delivered adjusted loss of 26 cents per share against the consensus estimate of earnings of 3 cents per share. However, the company reported earnings of 9 cents per share in the year-ago quarter.
Quarter in Detail
Consolidated revenues declined 10.2% to $529.5 million, owing to weak lease revenues and fees at the Aaron's Business, and drab retail sales and BrandsMart businesses. The figure lagged the Zacks Consensus Estimate of $543 million.
Breaking up the components of consolidated revenues, we note that lease revenues and fees dropped 8.3% year over year to $331.2 million and retail sales decreased 14% to $166.4 million from $193.4 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 9.3% year over year to $26.4 million, while franchise royalties and other revenues in the quarter decreased 6.8% to $5.5 million from the year-ago quarter.
In the Aaron’s business segment, revenues declined 8.7% year over year to $369.2 million due to weak lease portfolio size, coupled with a lower lease renewal rate and lower lease renewal rate. In the quarter, we had expected sales of $358.8 million from Aaron’s business segment. E-commerce revenues rose 10.4% year over year and represented 20.6% of lease revenues.
For the BrandsMart segment, revenues decreased 12.6% to $164 million in the fourth quarter of 2023. Our estimate for sales from the BrandsMart segment was $185.2 million in the quarter. Its e-commerce product sales were 9.8% of the total product sales.
Margins
Aaron’s gross profit declined 5.8% to $269.4 million while the gross margin expanded 130 basis points (bps) to 62.8%. The operating profit was $14.8 million compared with the year-ago quarter’s operating profit of $17 million.
Adjusted EBITDA declined 6.6% year over year to $33.8 million due to lower lease revenues and fees at the Aaron's business, and weak retail sales at BrandsMart, partly offset by reduced personnel costs and lower write-offs at the Aaron's business. The adjusted EBITDA margin increased 20 bps to 9.1% compared with our estimate of 5.9%.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $59 million, a debt of $194 million and shareholders’ equity of $686.1 million. In 2023, the company provided $180.4 million in cash from operating activities.
At the end of 2023, the company generated an adjusted free cash flow of $102.3 million. Capital expenditure was $94.4 million during 2023.
For 2024, capital expenditure is expected to be $85-$95 million. For 2023, AAN expects an adjusted free cash flow of $15-$30 million.
The company declared dividends worth $3.8 million in the quarter under review.
Outlook
For 2024, the company anticipates revenues of $2.06-$2.16 billion while adjusted EBITDA is projected to be $105-$125 million. It envisions the bottom line in the range of a loss per share of 10 cents to an earnings per share (EPS) of 25 cents for the full year. Loss on a reported basis is expected to be 5-30 cents a share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -124.07% due to these changes.
VGM Scores
At this time, Aaron's has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aaron's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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The Aaron's Company, Inc. (AAN) : Free Stock Analysis Report
