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Aaron's Decides to Declassify Board

Zacks Equity Research

After severe criticism from shareholders regarding the board’s action over the last few months, the board of directors of Aaron’s Inc. (AAN) has unanimously voted for making amendments in the company’s regulations to declassify the board. The board will ask for approval from its shareholders at the company’s Annual Meeting on Jun 10.

Under the declassified format, shareholders get an opportunity to change all board members on an annual basis. Therefore, board members work efficiently toward making shareholder friendly policies.

On the other hand, board members are categorized under several classes in the classified board structure, and only one class participates in the proxy voting every year. Therefore, it is difficult to make significant changes in management under the classified board format.

Aaron’s has been witnessing soft top-line and bottom-line performances for the last several quarters. Various shareholders including the second largest shareholder of the rent-to-own retailer, Vintage Capital Management LLC and Starboard Value LP have blamed the ill-advised strategies of current management for the downfall of Aaron’s.

On Mar 7, 2014, Vintage Capital sent notice to Aaron’s intimating it of the nomination of five candidates, while Starboard sent a notice regarding nomination of four candidates to the company’s board at the Annual General Meeting. However, last week Starboard withdrew the names of its nominated candidates and has opted to support Vintage Capital’s nominations. Further, Vintage Capital in a letter delivered on Apr 29 to Aaron's Chairman, Ray Robinson, proposed to go for a shareholder approval regarding the declassification of board in the 2014 Annual General Meeting.

We believe that the boards’ recent move may lead to changes in leadership which may reinstate Aaron’s former stature.

The board’s recent move is well appreciated by the investors as was reflected in the company’s share price that touched a new 52-week high of $33.85 during yesterday’s trading session. The stock closed trade at $33.30, up 3.5% from the previous day’s closing price. Further, this inspired Zacks Investment Research to promote Aaron’s to a Zacks Rank #1 (Strong Buy) on May 13.

The company has been witnessing rising earnings estimates since it released its first-quarter 2014 earnings results on Apr 25, 2014, wherein its earnings of 53 cents per share came within its own guidance range. Moreover, an upbeat guidance for 2014 further boosts analyst confidence. The quarterly earnings came in line with the Zacks Consensus Estimate.

Other Stocks Worth Considering

Some better-performing stocks in the wholesale retail sector include Best Buy Co., Inc. (BBY), American Apparel, Inc. (APP) and Foot Locker, Inc. (FL). All of these stocks carry a Zacks Rank #2 (Buy).

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