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On Jan 16, 2014, Zacks Investment Research downgraded Aaron's, Inc. (AAN - Snapshot Report), the consumer electronics and household appliances retailer, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Estimates for Aaron's have shown a downtrend since the company lowered its fourth-quarter and full-year 2013 guidance. The leading rent-to-own operator revealed that the revised guidance is based on lower-than-expected revenue and customer growth in the fourth quarter.

The company trimmed its fourth-quarter revenue expectation to $555 million from $575 million projected earlier. For 2013, Aaron’s now anticipates revenues of $2.24 billion, down from its earlier guidance of $2.26 billion.

The downward revision was primarily due to the prevalent sluggish economic environment. The company’s comparable sales and customer growth fell 1% year over year during the fourth quarter. Moreover, shipments of franchised products declined from the year-ago comparable quarter.

The company believes that the current business environment will not dramatically change in the near term. Looking at the current business scenario, Aaron’s now intends to slow down the pace of opening namesake and HomeSmart stores and expects net new store growth to remain under 4% in 2013.

Considering the above-mentioned factors, Aaron’s lowered its earnings guidance range for the fourth quarter and 2013. The company now projects earnings between 27 cents and 31 cents per share, down from its previous guidance range of 38–42 cents.

The trimmed guidance triggered a downtrend in the Zacks Consensus Estimates, as analysts became less constructive on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that fell 5.6% to $1.86 for 2013 and 12.8% to $1.91 per share for 2014 in the past 7 days. The current Zacks Consensus Estimate for the quarter is pegged at 29 cents per share that dropped 27.5% in the same time frame.

Other Stocks that Warrant a Look

Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Conns Inc. (CONN - Snapshot Report), Tiffany & Co. (TIF - Analyst Report) and Netflix, Inc. (NFLX - Analyst Report), all of which hold a Zacks Rank #1 (Strong Buy).
 

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