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Will Solid Progressive Unit Drive Aaron's (AAN) Q4 Earnings?

Zacks Equity Research

Aaron's, Inc. AAN is scheduled to report fourth-quarter 2018 results on Feb 14, before the opening bell.

The company has a mixed record of earnings surprise history in the last four quarters. Nevertheless, it posted a trailing four-quarter average beat of 2%. Further, the Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.03, mirroring 58.5% growth year over year. Estimates remained stable over the past 30 days.

Aaron's, Inc. Price, Consensus and EPS Surprise

Aaron's, Inc. Price, Consensus and EPS Surprise | Aaron's, Inc. Quote

What You Should Know Prior to 4Q18 Release

Aaron’s Progressive segment, which covers the virtual lease-to-own business, has been significantly boosting the company’s overall results. Robust growth in number of active doors, invoice volume and a solid customer base has been the key strengths for the segment. Additionally, the company’s Aaron’s Business segment is witnessing notable improvement backed by higher lease revenues and fees. Also, the inclusion of 90 acquired franchised stores has been contributing to the segment’s performance.

These factors are likely to continue driving the company’s top- and bottom-line performance in the to-be-reported quarter. Notably, the consensus estimate for quarterly revenues is pegged at $966 million, up 9.2% from the year-ago quarter. For the Progressive and Aaron’s Business segments, revenue estimates stand at $509 million and $457 million, respectively. These estimates portray a respective growth of 18.8% and 2.3% from the year-ago quarter.

The company anticipates total revenues for 2018 between $3.80 billion and $3.86 billion. Further, earnings per share are envisioned to be in the $3.30-$3.45 range. Notably, this guidance excludes the Progressive segment and franchise acquisition associated with intangible amortization along with future one-time or unusual items. EBITDA is expected to be $382-$395 million.

At the Progressive division, revenues are estimated to be $1.99-$2.02 billion for 2018, significantly up from $1.57 billion recorded last year. Meanwhile, EBITDA is estimated to be $217.5-$222.5 million, up from $187.8 million registered in 2017. While revenues for the Aaron’s Business segment are expected between $1.77 billion and $1.80 billion, the DAMI segment revenues are projected to be $35-$40 million.

However, Aaron’s has been witnessing lower comparable-store sales (comps) at the company-operated stores since last few quarters. Soft customer count on a same-store basis and waning store traffic are hurting comps. For 2018, management anticipates comps to be between negative 2% to negative 1%, which is also a concern for the company in the fourth quarter.

What the Zacks Model Unveils

Our proven model does not conclusively show that Aaron’s is likely to beat estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Aaron’s has a Zacks Rank #2, which increases the predictive power of earnings beat. However, the company’s Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Chico's FAS, Inc. CHS has an Earnings ESP of +16.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly's, Inc. TLYS has an Earnings ESP of +0.33% and a Zacks Rank #2.

PVH Corp. PVH has an Earnings ESP of +1.31% and a Zacks Rank #3.

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Aaron's, Inc. (AAN) : Free Stock Analysis Report
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