Back to top

Image: Bigstock

Factors Likely to Decide Aaron's (AAN) Fate in Q3 Earnings

Read MoreHide Full Article

Aaron's, Inc. (AAN - Free Report) is scheduled to report third-quarter 2018 numbers on Oct 25, before the opening bell. The company boasts an impressive earnings surprise history, having surpassed estimates in seven of the trailing nine quarters.

Investors are keeping their fingers crossed and expecting Aaron's to continue with its positive earnings surprise streak in the quarter to be reported as well. The Zacks Consensus Estimate for the quarter under review is pegged at 75 cents, reflecting 74.4% growth from the year-ago quarter number. However, the consensus mark moved south by a penny over the past 30 days.

The consensus estimate for third-quarter revenues is pegged at $948.5 million, up approximately 13% from the year-ago quarter. Apart from robust earnings history, Aaron’s has an impressive top-line trend. It has delivered sales beat for six straight quarters now. Also, revenues in the second quarter were up 13.8% year over year, driven by substantial increase in progressive leasing revenues.

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

How Things Are Shaping Up Before Earnings Release

Aaron’s Progressive segment, which covers the virtual lease-to-own business, is performing exceedingly well since the past several quarters. Notably, robust growth in number of active doors, invoice volume and a solid customer base led to the impressive performance. In second-quarter 2018, revenues at this segment surged 29.5% year over year backed by a 24.7% increase in invoice volume owing to a 6% improvement in active doors and 17.6% growth in invoice volume per active door. As a result, revenues at the Progressive division are estimated to be between $1.95 billion and $2.05 billion in 2018, significantly up from $1.57 billion last year.

Robust performance at Aaron’s Progressive segment is likely to continue in the third quarter as well. Further, the Zacks Consensus Estimates for revenues at this segment is pegged at $498 million, up 25% from the year-ago quarter. This, in turn, will boost the company’s top-line growth and profitability.

The company’s Aaron's Business also looks promising. In the second quarter, sales at this segment edged up 0.3% marking an improvement from the trend of sales decline in the preceding quarters. Further, the segment’s lease revenues and fees grew 5.1% from the year-ago period number. The Zacks Consensus Estimates for this segment is pegged at $443 million, up 2.6% from the year-ago quarter.

Recently, the company bought 90 Aaron's-branded franchised stores, which are expected to strengthen its omni-channel capabilities. These efforts are likely to enhance the Aaron’s Business segment’s performance and raise confidence in the company.

However, Aaron’s has been witnessing lower comparable-store sales (comps) at the company-operated stores for a while now. This downturn can be attributed to the company’s soft customer count on a same-store basis and waning store traffic. In second-quarter 2018, comps dropped 1.8% year over year. Further, the customer count on a same-store basis dipped 4.3%. This follows the comps decline of 4.4%, 5.4%, 5.6% and 8.1% in the first quarter of 2018, fourth, third and second quarters of 2017, respectively. Unfortunately, the trend is likely to continue in 2018 as well.

While management anticipates comps for the Aaron’s business to come in at the favorable end of its previous guidance of negative 4% to negative 1% for 2018, the metric is still expected to decline. Further, the Zacks Consensus Estimates for comps reflects a decline of 1.3%.

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 an Earnings ESP of -1.89% and a Zacks Rank #4 (Sell), consequently making the surprise prediction difficult.

As it is we caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

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:

Best Buy Co., Inc. (BBY - Free Report) has an Earnings ESP of +6.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Five Below, Inc. (FIVE - Free Report) has an Earnings ESP of +5.26% and a Zacks Rank #2.

Boot Barn Holdings, Inc. (BOOT - Free Report) has an Earnings ESP of +3.70% and a Zacks Rank #2.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Published in