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Aaron's (AAN) Beats on Q1 Earnings & Sales, Stock Gains
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Aaron's, Inc. (AAN - Free Report) came out with robust first-quarter 2017 results, wherein both earnings and sales surpassed estimates. While the bottom line marked its fourth straight beat, top line broke its four-quarter long negative surprise trend. Shares of this Atlanta-based company surged 11.9% following the sturdy results. Further, the stock yielded 45.1% in the past six months, outperforming the Zacks categorized Retail – Consumer Electronics industry’s gain of 36.1%.
The company posted adjusted earnings of 80 cents per share, which outpaced the Zacks Consensus Estimate of 66 cents and rose 12.7% from the prior-year quarter. Including one-time items, the company reported earnings of 74 cents per share, which improved 8.8% year over year.
Results gained from superb Progressive Leasing performance, along with strong execution at Aaron's Business. These factors contributed to greater customer count, and lease revenues, alongside boosting the bottom line.
However, this rent-to-own company’s top line dipped 1.2% to $844.6 million, though it exceeded the Zacks Consensus Estimate of $833.3 million. The downside can mainly be attributed to a fall in revenues at the Aaron’s Business and a decline in comparable store sales (comps).
Comps at company-operated stores dropped 9.3%, while the customer count on a same-store basis fell 5.9%. At quarter end, the company-operated Aaron’s stores had 937,000 customers, reflecting a 6.7% year-over-year decline. Further, Aaron’s franchisee revenues declined 7.8% to $230.4 million in the reported quarter. Comps at the company’s franchise stores decreased 4.9%, while same-store customer count declined 4.1%. The franchisees had a customer base of 520,000, representing a 7.5% decline year over year.
The company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter increased 5.2% year over year to $109.4 million. In addition, the adjusted EBITDA margin improved 80 basis points (bps) to about 13% in the quarter.
Segment Details
Aaron's, which carries a Zacks Rank #3 (Hold), operates through three primary businesses: Aaron's branded company-owned and franchised lease-to-own stores, Aarons.com and Woodhaven (collectively, the Aaron's Business); the Progressive virtual lease-to-own business; and Dent-A-Med, Inc. – DAMI.
Aaron's Business
Aaron’s Business’ total revenues declined 13.4% to $470.2 million in the reported quarter. Moreover, lease revenues and fees were down 13.2% during the quarter. Non-retail sales also plunged nearly 12.6 in the quarter.
On May 13, 2016, the company sold the assets of its HomeSmart unit, which recorded revenues of $17.8 million in first-quarter 2016. Excluding the HomeSmart unit, total revenue for the segment fell 10.5% in the quarter.
Adjusted EBITDA for the Aaron's Business segment was $61.2 million, down 13.7% from the year-ago figure of $70.9 million. Also, EBITDA margin contracted 10 bps to 13%.
Progressive
Progressive revenues came in at $366.1 million in first-quarter 2017, marking a 19.4% year-over-year surge. This was driven by a 38% rise in the number of active doors in the quarter, though invoice volume per active door fell 12.8%. Progressive had 604,000 customers as of Mar 31, 2017, representing 19% year-over-year growth.
The segment’s EBITDA was $48.5 million for the quarter, compared with $34.8 million in the year-ago quarter. Also, EBITDA margin expanded 190 bps to 13.2%.
DAMI
Revenues at the DAMI segment were $8.2 million in the reported quarter, significantly up from $4.8 million in the same year-ago period.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $348.5 million, debt of $484.7 million, and total shareholders’ equity of $1,500.2 million.
During the first quarter, the company generated cash from operations of $104.2 million. Additionally, Aaron’s repurchased 1.2 million shares for roughly $34 million in the first quarter. Further, the company had an authorization to buy back 7.9 million shares as of Mar 31, 2017.
For 2017, management still expects capital expenditures in the band of $60–$80 million.
Store Update
In first-quarter 2017, Aaron’s shut down or consolidated one company-operated outlet and nine franchisee outlets, while it sold nine company-operated stores. As of Mar 31, 2017, Aaron’s had a total of 1,155 company-operated stores and 688 franchised stores.
Clearly, the company is on track with its strategy of closing down the underperforming stores in order to right size its operating scale. In fact, management identified nearly 70 outlets to be shut down in second-quarter 2017. Overall, the company anticipates incurring a pre-tax charge worth $13 million in 2017, on account of the store closures.
Guidance
Management remains pleased with its start to 2017 that was backed by solid execution at the Aaron’s business and continued strength at the Progressive business. Going forward, the company remains optimistic of growing Progressive business further, and it continues to focus on transforming Aaron’s direct-to-consumer operations.
Consequently, management reiterated its outlook for 2017. Aaron's expects total revenue (excluding franchisees’ revenues) in the range of $3.10–$3.31 billion. Segment-wise, total revenue for Aaron’s Business are projected in the band of $1.68–$1.78 billion, including lease revenue of $1.30–$1.40 billion. Further, revenues at Progressive and DAMI segments are estimated in the band of $1.40–$1.50 billion and $25–$35 million, respectively.
In addition, comps at Aaron’s Business segment are expected to decline in the range of 8–12%.
The company’s adjusted EBITDA is projected in the range of $320−$353 million. On a segmental basis, Aaron’s Business adjusted EBITDA is expected in the range of $155−$170 million. Adjusted EBITDA for the Progressive division is guided at $170−$185 million. Moreover, EBITDA at DAMI segment is estimated in the range of negative $2 million–$5 million.
Management anticipates 2017 adjusted earnings in the band of $2.15–2.40 per share, while GAAP earnings are projected in the $1.85–$2.10 range. The Zacks Consensus Estimate for 2017 is currently pegged at $2.29 per share.
Best Buy, with a long-term earnings growth rate of 10.8%, has posted an average beat of 27.7% in the past four quarters.
Children's Place, with a long-term earnings growth rate of 8%, has an average beat of 39% in the past four quarters.
Wal-Mart has a long-term earnings growth rate of 6.1%. Further, the stock has a superb earnings surprise history.
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Aaron's (AAN) Beats on Q1 Earnings & Sales, Stock Gains
Aaron's, Inc. (AAN - Free Report) came out with robust first-quarter 2017 results, wherein both earnings and sales surpassed estimates. While the bottom line marked its fourth straight beat, top line broke its four-quarter long negative surprise trend. Shares of this Atlanta-based company surged 11.9% following the sturdy results. Further, the stock yielded 45.1% in the past six months, outperforming the Zacks categorized Retail – Consumer Electronics industry’s gain of 36.1%.
The company posted adjusted earnings of 80 cents per share, which outpaced the Zacks Consensus Estimate of 66 cents and rose 12.7% from the prior-year quarter. Including one-time items, the company reported earnings of 74 cents per share, which improved 8.8% year over year.
Results gained from superb Progressive Leasing performance, along with strong execution at Aaron's Business. These factors contributed to greater customer count, and lease revenues, alongside boosting the bottom line.
However, this rent-to-own company’s top line dipped 1.2% to $844.6 million, though it exceeded the Zacks Consensus Estimate of $833.3 million. The downside can mainly be attributed to a fall in revenues at the Aaron’s Business and a decline in comparable store sales (comps).
Comps at company-operated stores dropped 9.3%, while the customer count on a same-store basis fell 5.9%. At quarter end, the company-operated Aaron’s stores had 937,000 customers, reflecting a 6.7% year-over-year decline. Further, Aaron’s franchisee revenues declined 7.8% to $230.4 million in the reported quarter. Comps at the company’s franchise stores decreased 4.9%, while same-store customer count declined 4.1%. The franchisees had a customer base of 520,000, representing a 7.5% decline year over year.
The company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter increased 5.2% year over year to $109.4 million. In addition, the adjusted EBITDA margin improved 80 basis points (bps) to about 13% in the quarter.
Segment Details
Aaron's, which carries a Zacks Rank #3 (Hold), operates through three primary businesses: Aaron's branded company-owned and franchised lease-to-own stores, Aarons.com and Woodhaven (collectively, the Aaron's Business); the Progressive virtual lease-to-own business; and Dent-A-Med, Inc. – DAMI.
Aaron's Business
Aaron’s Business’ total revenues declined 13.4% to $470.2 million in the reported quarter. Moreover, lease revenues and fees were down 13.2% during the quarter. Non-retail sales also plunged nearly 12.6 in the quarter.
On May 13, 2016, the company sold the assets of its HomeSmart unit, which recorded revenues of $17.8 million in first-quarter 2016. Excluding the HomeSmart unit, total revenue for the segment fell 10.5% in the quarter.
Adjusted EBITDA for the Aaron's Business segment was $61.2 million, down 13.7% from the year-ago figure of $70.9 million. Also, EBITDA margin contracted 10 bps to 13%.
Progressive
Progressive revenues came in at $366.1 million in first-quarter 2017, marking a 19.4% year-over-year surge. This was driven by a 38% rise in the number of active doors in the quarter, though invoice volume per active door fell 12.8%. Progressive had 604,000 customers as of Mar 31, 2017, representing 19% year-over-year growth.
The segment’s EBITDA was $48.5 million for the quarter, compared with $34.8 million in the year-ago quarter. Also, EBITDA margin expanded 190 bps to 13.2%.
DAMI
Revenues at the DAMI segment were $8.2 million in the reported quarter, significantly up from $4.8 million in the same year-ago period.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $348.5 million, debt of $484.7 million, and total shareholders’ equity of $1,500.2 million.
During the first quarter, the company generated cash from operations of $104.2 million. Additionally, Aaron’s repurchased 1.2 million shares for roughly $34 million in the first quarter. Further, the company had an authorization to buy back 7.9 million shares as of Mar 31, 2017.
For 2017, management still expects capital expenditures in the band of $60–$80 million.
Store Update
In first-quarter 2017, Aaron’s shut down or consolidated one company-operated outlet and nine franchisee outlets, while it sold nine company-operated stores. As of Mar 31, 2017, Aaron’s had a total of 1,155 company-operated stores and 688 franchised stores.
Clearly, the company is on track with its strategy of closing down the underperforming stores in order to right size its operating scale. In fact, management identified nearly 70 outlets to be shut down in second-quarter 2017. Overall, the company anticipates incurring a pre-tax charge worth $13 million in 2017, on account of the store closures.
Guidance
Management remains pleased with its start to 2017 that was backed by solid execution at the Aaron’s business and continued strength at the Progressive business. Going forward, the company remains optimistic of growing Progressive business further, and it continues to focus on transforming Aaron’s direct-to-consumer operations.
Consequently, management reiterated its outlook for 2017. Aaron's expects total revenue (excluding franchisees’ revenues) in the range of $3.10–$3.31 billion. Segment-wise, total revenue for Aaron’s Business are projected in the band of $1.68–$1.78 billion, including lease revenue of $1.30–$1.40 billion. Further, revenues at Progressive and DAMI segments are estimated in the band of $1.40–$1.50 billion and $25–$35 million, respectively.
In addition, comps at Aaron’s Business segment are expected to decline in the range of 8–12%.
The company’s adjusted EBITDA is projected in the range of $320−$353 million. On a segmental basis, Aaron’s Business adjusted EBITDA is expected in the range of $155−$170 million. Adjusted EBITDA for the Progressive division is guided at $170−$185 million. Moreover, EBITDA at DAMI segment is estimated in the range of negative $2 million–$5 million.
Management anticipates 2017 adjusted earnings in the band of $2.15–2.40 per share, while GAAP earnings are projected in the $1.85–$2.10 range. The Zacks Consensus Estimate for 2017 is currently pegged at $2.29 per share.
Key Picks in the Retail Space
Better-ranked stocks in the Retail-Wholesale sector include Best Buy Co., Inc. (BBY - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Wal-Mart Stores, Inc. (WMT - Free Report) . While Best Buy and Children’s Place sport a Zacks Rank #1 (Strong Buy) each, Wal-Mart carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy, with a long-term earnings growth rate of 10.8%, has posted an average beat of 27.7% in the past four quarters.
Children's Place, with a long-term earnings growth rate of 8%, has an average beat of 39% in the past four quarters.
Wal-Mart has a long-term earnings growth rate of 6.1%. Further, the stock has a superb earnings surprise history.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>.