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Aaron's (AAN) Down 10.5% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have lost about 10.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Aaron's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Aaron's Q1 Earnings Beat Estimates, Sales Lag
Aaron's been gaining from a robust lease-to-own portfolio, strength in its core businesses, solid e-commerce business and a sturdy performance in GenNext stores. Also, it witnessed accretive gains from the acquisition of BrandsMart.
Notably, the company opened 19 GenNext locations in first-quarter 2022. This, along with the 116 existing stores at the beginning of the quarter, accounted for 13.2% of lease and retail revenues in the first quarter. As part of its GenNext strategy, AAN expects to open more than 80 additional GenNext stores in 2022. Earlier, it anticipated 100 new GenNext locations in 2022. But due to global supply-chain challenges, the remaining 20 stores will be completed in 2023.
In first-quarter 2022, the bottom line beat the Zacks Consensus Estimate, while the top line lagged the same. Both metrics declined year over year due to the ongoing inflationary pressures, uncertainty related to geopolitical conflict and supply-chain challenges.
However, the company remains optimistic about solid revenue and double-digit adjusted EBITDA growth on an annual basis in the next five years. Driven by these factors, AAN raised the 2022 view, including the BrandsMart buyout completed on Apr 1, 2022.
Let’s Delve Deeper
Aaron's delivered adjusted earnings of 87 cents per share, which surpassed the Zacks Consensus Estimate of 68 cents. However, the bottom line declined 29.8% year over year from $1.24 per share reported in the prior-year quarter. On a GAAP basis, the company recorded earnings of 68 cents per share, indicating a decrease from $1.04 reported in the year-ago quarter.
Consolidated revenues fell 5.2% to $456.1 million and missed the Zacks Consensus Estimate of $473 million. This is mainly due to reduced lease revenues stemming from expected normalization in the lease renewal rate and a decline in early purchase options. On the flip side, a larger lease portfolio remained an upside.
Same-store revenues fell 4.3% year over year in the first quarter due to expected normalization in the lease renewal rate and a decline in early purchase options, which somewhat offset the larger lease portfolio. However, same-store revenues rose 9.6% on a two-year basis. E-commerce lease revenues were up 3.9%, accounting for 15.4% of the total revenues.
Breaking up the components of consolidated revenues, we note that lease and retail revenues declined 5% in the reported quarter to $421.9 million. Non-retail sales, which mainly include merchandise sales to franchisees, fell 7.1% year over year to $27.8 million. Franchise royalties and fees in the quarter slumped 9.8% to $6.3 million from the year-ago quarter.
Aaron’s adjusted EBITDA declined 25.9% year over year to $54.7 million. Adjusted EBITDA margin contracted 340 basis points (bps) to 12% in the reported quarter due to an expected reduction in lease renewal rates and potential growth in write-offs, which was partly offset by lower personnel and operating costs.
Financial Position
The company ended the quarter with cash and cash equivalents of $13.5 million, and shareholders’ equity of $730.9 million. In the reported quarter, it generated cash from operations of $29.1 million. Capital expenditure is expected to be $100-$125 million for 2022. AAN expects a free cash flow of $45-$55 million for 2022.
In the reported quarter, it bought back 261,924 shares of Aaron's common stock worth $5.7 million. AAN’s board raised the share repurchase authorization on Mar 2 from $150-$250 million, which will be valid till Dec 31, 2024. As of Mar 31, 2022, the company has shares worth $141.2 million remaining under its share repurchase program. The board paid out a quarterly dividend of 11.25 cents per share on Apr 5.
Outlook
In a bid to reflect gains from the BrandsMart buyout, management revised its 2022 view. The company expects revenues of $2.32-$2.39 billion, up from the earlier mentioned $1.775-$1.825 billion. Adjusted EBITDA is likely to be $200-$215 million, which compares favorably with the prior stated $180-$190 million.
It also envisions adjusted earnings of $2.65-$2.90. Excluding the BrandsMart acquisition, the previous guidance remains valid.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Aaron's has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise Aaron's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Aaron's (AAN) Down 10.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have lost about 10.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Aaron's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Aaron's Q1 Earnings Beat Estimates, Sales Lag
Aaron's been gaining from a robust lease-to-own portfolio, strength in its core businesses, solid e-commerce business and a sturdy performance in GenNext stores. Also, it witnessed accretive gains from the acquisition of BrandsMart.
Notably, the company opened 19 GenNext locations in first-quarter 2022. This, along with the 116 existing stores at the beginning of the quarter, accounted for 13.2% of lease and retail revenues in the first quarter. As part of its GenNext strategy, AAN expects to open more than 80 additional GenNext stores in 2022. Earlier, it anticipated 100 new GenNext locations in 2022. But due to global supply-chain challenges, the remaining 20 stores will be completed in 2023.
In first-quarter 2022, the bottom line beat the Zacks Consensus Estimate, while the top line lagged the same. Both metrics declined year over year due to the ongoing inflationary pressures, uncertainty related to geopolitical conflict and supply-chain challenges.
However, the company remains optimistic about solid revenue and double-digit adjusted EBITDA growth on an annual basis in the next five years. Driven by these factors, AAN raised the 2022 view, including the BrandsMart buyout completed on Apr 1, 2022.
Let’s Delve Deeper
Aaron's delivered adjusted earnings of 87 cents per share, which surpassed the Zacks Consensus Estimate of 68 cents. However, the bottom line declined 29.8% year over year from $1.24 per share reported in the prior-year quarter. On a GAAP basis, the company recorded earnings of 68 cents per share, indicating a decrease from $1.04 reported in the year-ago quarter.
Consolidated revenues fell 5.2% to $456.1 million and missed the Zacks Consensus Estimate of $473 million. This is mainly due to reduced lease revenues stemming from expected normalization in the lease renewal rate and a decline in early purchase options. On the flip side, a larger lease portfolio remained an upside.
Same-store revenues fell 4.3% year over year in the first quarter due to expected normalization in the lease renewal rate and a decline in early purchase options, which somewhat offset the larger lease portfolio. However, same-store revenues rose 9.6% on a two-year basis. E-commerce lease revenues were up 3.9%, accounting for 15.4% of the total revenues.
Breaking up the components of consolidated revenues, we note that lease and retail revenues declined 5% in the reported quarter to $421.9 million. Non-retail sales, which mainly include merchandise sales to franchisees, fell 7.1% year over year to $27.8 million. Franchise royalties and fees in the quarter slumped 9.8% to $6.3 million from the year-ago quarter.
Aaron’s adjusted EBITDA declined 25.9% year over year to $54.7 million. Adjusted EBITDA margin contracted 340 basis points (bps) to 12% in the reported quarter due to an expected reduction in lease renewal rates and potential growth in write-offs, which was partly offset by lower personnel and operating costs.
Financial Position
The company ended the quarter with cash and cash equivalents of $13.5 million, and shareholders’ equity of $730.9 million. In the reported quarter, it generated cash from operations of $29.1 million. Capital expenditure is expected to be $100-$125 million for 2022. AAN expects a free cash flow of $45-$55 million for 2022.
In the reported quarter, it bought back 261,924 shares of Aaron's common stock worth $5.7 million. AAN’s board raised the share repurchase authorization on Mar 2 from $150-$250 million, which will be valid till Dec 31, 2024. As of Mar 31, 2022, the company has shares worth $141.2 million remaining under its share repurchase program. The board paid out a quarterly dividend of 11.25 cents per share on Apr 5.
Outlook
In a bid to reflect gains from the BrandsMart buyout, management revised its 2022 view. The company expects revenues of $2.32-$2.39 billion, up from the earlier mentioned $1.775-$1.825 billion. Adjusted EBITDA is likely to be $200-$215 million, which compares favorably with the prior stated $180-$190 million.
It also envisions adjusted earnings of $2.65-$2.90. Excluding the BrandsMart acquisition, the previous guidance remains valid.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Aaron's has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise Aaron's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.