Aaron's (AAN) Out of Investor Favor Despite Q4 Earnings Beat
Aaron's, Inc. AAN reported robust fourth-quarter 2019 results, wherein both top and bottom lines improved year over year. The company’s earnings surpassed the Zacks Consensus Estimate, after missing the same in the preceding quarter. Meanwhile, sales marginally missed the consensus mark. However, the solid performance was not enough to appease investors, who seem to be let down by the 2020 outlook, which was lower than analysts’ expectations. Notably, shares of the company lost almost 19% during the trading session on Feb 20.
In the past six months, shares of the Atlanta, GA-based company dipped 29.2% against the industry’s growth of 13.9%.
Q4 Highlights
Aaron's delivered adjusted earnings of $1.15 per share, which surpassed the Zacks Consensus Estimate of $1.06. Moreover, the metric rose 12.7% from the prior-year quarter.
Aaron's, Inc. Price, Consensus and EPS Surprise
Aaron's, Inc. price-consensus-eps-surprise-chart | Aaron's, Inc. Quote
Including one-time items, the company reported a loss per share of $1.60 on a GAAP basis against earnings per share of 89 cents reported in the year-ago quarter.
Consolidated revenues inched up 1% to $1003.6 million but missed the Zacks Consensus Estimate of $1008 million. The top line grew 8.4% when calculated based on the 2019 adoption of ASC 842 associated with lease accounting. Revenue growth was backed by an increase in Progressive revenues and contributions from franchised stores acquired by the Aaron's Business segment. This was partly offset by the company’s store closures in 2019.
Aaron’s franchisee revenues declined 13.5% to $101.2 million. However, same-store revenues for franchised stores decreased 1.2% and same-store customer counts dipped 4.9% in the reported quarter. Notably, the company’s franchisees had a customer base of 239,000 at the end of the quarter.
Adjusted EBITDA rose 11.1% year over year to $125.2 million, owing to robust growth at the Progressive segment. The adjusted EBITDA margin was up 30 basis points (bps) to 12.5% when calculated based on the 2019 adoption of ASC 842.
Segment Details
Progressive Leasing
Revenues at the segment grew to $559.5 million in the reported quarter, up 6.7% year over year. Invoice volume rose 34.4%, owing to a 23.3% rise in invoice volume per active door and a 9% reduction in active doors to roughly 22,000. As of Dec 31, 2019, the division had 1,072,000 customers, reflecting 22.4% growth year over year.
The segment’s EBITDA was $77.1 million, up 17.6% from the year-ago quarter. Further, EBITDA margin contracted 50 bps to 13.8%.
Aaron's Business
Total revenues at the Aaron’s Business segment fell 5.4% to $435 million, thanks to the lack of revenues from net closure of 145 stores in 2019, and expected attrition of revenues from prior-year store mergers and lower collections. This was partly offset by gains from contributions from the buyout of 152 franchised locations. Moreover, same-store revenues inched up 0.4%, while customer count declined 4.8%.
Non-retail sales tumbled 30.8% on a year-over-year basis. Lease revenues and fees for the three months ended Dec 31, 2019, decreased 1.2% from the year-ago quarter. At the quarter end, company-operated Aaron’s stores had 946,000 customers, reflecting an 8.9% year-over-year decrease.
The segment’s adjusted EBITDA was $49.3 million, up 3.6% year over year, driven by recovery in collections performance, expense management and gains from real estate sales. Also, adjusted EBITDA margin expanded 90 bps to 11.3%.
As of Dec 31, 2019, the Aaron's Business segment had 1,167 company-operated stores and 335 franchised stores.
Vive
Sales at the Vive segment, formerly known was Dent-A-Med, Inc. (DAMI), amounted to $9.1 million, in line with the year-ago period.
Financial Position
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $57.8 million, debt of $341 million, and shareholders’ equity of $1,737.3 million. As of Dec 30, 2019, the company generated cash from operations of $317.2 million.
Moreover, it repurchased 513,900 shares for $29.8 million in 2019. The company expects capital expenditure of $90-$100 million for 2020.
Guidance
Management provided guidance for 2020, which was lower than analyst expectations. The company projects total revenues of $4,150-$4,300 million for 2020. The company’s sales guidance is below the Zacks Consensus Estimate of $4,440 million for 2020. Adjusted EBITDA is anticipated to be $430-$458 million.
Total Revenues at the Aaron’s Business segment are projected to be $1,575-$1,625 million, while revenues at the Progressive segment are envisioned to be $2,540-$2,635 million. However, revenues at the Vive segment are expected to be $35-$40 million.
Adjusted EBITDA is anticipated to be $125-$135 million for the Aaron’s Business and $310-$325 million for the Progressive division. For the Vive segment, management projects adjusted EBITDA of negative $2-$5 million.
For 2020, management expects adjusted earnings of $3.80-$4.00 per share, below the Zacks Consensus Estimate of $4.53.
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