Battered by decline in revenues and
higher operating expenses, the leading rent-to-own operator,
Aaron's Inc. (AAN) posted weak financial results
for the third quarter of 2013. The company’s adjusted earnings
declined 13% year over year to 40 cents per share and missed the
Zacks Consensus Estimate of 41 cents.
Further, on a reported basis,
Aaron’s earnings of 28 cents per share were down 26.3% from 38
cents in the comparable year-ago period.
Quarterly
Highlights
Due to weak comparable-store sales
and customer growth performance, the company’s top line increased
1.9% year over year to $539.5 million but fell short of its own
guidance as well as the Zacks Consensus Estimate of $540.0
million.
In its preliminary results
announced on Oct 4, Aaron’s lowered its outlook for the third
quarter. The leading rent-to-own operator reduced its revenue
expectation to $540 million from $550 million projected earlier.
The revision was primarily due to the prevalent sluggish economic
environment, which limited consumers’ spending.
Furthermore, Aaron’s lowered its
earnings guidance range for the third quarter to 25–29 cents per
share from 48–52 cents forecasted earlier, which included certain
one-time charges. Excluding these items, Aaron’s was anticipating
earnings per share to be 37–41 cents, down from the prior range of
48–52 cents.
Comps at the company-owned stores
inched up 0.5% in the quarter, while stores open for over 2 years
witnessed a 0.8% fall in sales. Customer traffic at the
company-operated stores increased 0.3%. Comps at the company’s
franchised stores registered a 2.2% rise, attributable to increase
in customer traffic by 2.5%.
The company’s Sales & Lease
Ownership division’s revenues were recorded at $522.9 million, up
1% from the third quarter of 2012. The HomeSmart division reported
revenues of $14.8 million, increasing 5% from the year-ago
comparable quarter.
At the quarter-end, the company’s
self-operated stores had 1,114,000 customers, while the franchisee
customer count was 597,000. Total customer count increased 3.0%
when compared with the same period last year.
Operating income came in at $30.2
million, down 35.3% from the year-ago quarter. Consequently,
operating margin contracted 320 bps to 5.6%.
Financial
Position
Cash and investments at Aaron’s as
of Sep 30, 2013 were $309.2 million and total shareholder equity
was $1,240.4 million. The company generated nearly $244.0 million
of cash flow from operating activities during the first nine months
of 2013.
On Oct 4, Aaron’s announced that
its board of directors has authorized an additional share
repurchase program of 11 million, bringing the company’s total
authorization to 15 million. The company has not repurchased shares
since the beginning of 2013, but now intends to do so at the
earliest.
Store
Update
During the reported quarter,
Aaron’s opened 5 new company-operated Sales & Lease Ownership
stores, 8 new franchised stores, 2 franchised HomeSmart stores and
1 RIMCO store. The company also acquired 6 stores from its
franchisees operators and sold out 2 stores to a franchise.
Moreover, Aaron's closed 2 company-operated Sales & Lease
Ownership stores and 1 franchised RIMCO store.
As of Sep 30, 2013, Aaron’s had a
total of 1,242 company-operated Sales & Lease Ownership stores,
760 franchised Sales & Lease Ownership stores, 78 HomeSmart
stores, 3 franchised HomeSmart stores, 23 company-operated RIMCO
stores, and 5 franchised RIMCO stores. At the reported quarter-end,
the company operated a total number of 2,111 stores.
Management
Guidance
Disappointed by lower-than-expected
results, Aaron’s lowered its full-year 2013 revenue guidance to
$2.26 billion, from $2.30 billion forecasted earlier. Moreover, the
company lowered its adjusted earnings guidance and now anticipates
it in the range of $1.95–$1.99 per share, compared with the earlier
projection of $2.15–2.23. Currently, the Zacks Consensus Estimate
for 2013 is $2.02 per share, which may witness a revision in the
coming days.
Further, management lowered the
upper-end of its new store growth target to 4%–5% in 2013 from
4%–6% projected earlier, with equal numbers of company-operated and
franchised stores and a small rise in the number of HomeSmart
stores. Going forward, Aaron's will be focused on its strategy of
acquiring franchised stores or selling underperforming
company-operated stores.
Further, Aaron's expects to report
total revenue of about $575.0 million in the fourth quarter of
2013. Earnings per share will likely be 38–42 cents in the fourth
quarter. Currently, the Zacks Consensus Estimate is 46 cents per
share, which could witness a revision in the future following the
company’s new guidance.
Other Stocks Worth
Considering
Aaron’s currently has a Zacks Rank
#5 (Strong Sell). Other well-performing stocks in the retail
consumer electronic space include Best Buy Co.,
Inc. (BBY), GameStop Corp. (GME) and
hhgregg Inc. (HGG). While Best Buy carries a Zacks
Rank #1 (Strong Buy), GameStop and hhgregg both have a Zacks Rank
#2 (Buy).
AARONS INC (AAN): Free Stock Analysis Report
BEST BUY (BBY): Free Stock Analysis Report
GAMESTOP CORP (GME): Free Stock Analysis Report
HHGREGG INC (HGG): Free Stock Analysis Report
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