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Aaron's Inc. registered an earnings per share growth of 22.0% in the first quarter of 2011, climbing to 55 cents a share from the year-ago quarter earnings of 45 cents a share. Aaron also outpaced the Zacks Consensus Estimate of 51 cents a share.

Quarterly Details

Aaron’s top line jumped 8.0% to $532.7 million from $495.3 million in the year-ago quarter. The company has been witnessing positive trends in comparable-store sales. After a 6.2% increase in the fourth quarter of fiscal 2010, comparable-store sales climbed  another 6.0% in the quarter under review.  However, total revenue marginally fell short of the Zacks Consensus Estimate of $534.0 million.                             

Aaron's Sales & Lease Ownership division’s revenue increased to $529.9 million thereby contributing 8.0% to total top-line growth. However, Aaron's Office Furniture stores adversely affected total revenue growth with sales plummeting 64% to $1.4 million in this business.

Consolidated lease revenues and fees jumped 9.0% and franchise royalties and fees also increased 9.0% for the first quarter of fiscal 2011.  Non-retail sales, which are primarily sales of lease merchandise to Aaron's Sales & Lease Ownership franchisees, surged 5.0% to $100.4 million for the first quarter of 2011 from $96.1 million in the comparable period in 2010. 

Financial Position

Cash and cash equivalents, in the reported quarter, came in at $196.2 million and total shareholder equity was $1,017.5 million.  

Store Update

In the quarter under review, Aaron's Sales & Lease Ownership division opened 10 new company-operated stores and 9 new franchised stores, one RIMCO store, and two HomeSmart stores thereby bringing the total to 1,140 company-operated stores, 666 franchised stores, 11 company-operated RIMCO stores, six franchised RIMCO stores and five HomeSmart stores.

In the first quarter of 2011, the company gave area development agreements to open six additional franchised stores. At the end of March 2011 there were development agreements awarded to open 271 franchised stores.

Management Guidance

The company expects to report total revenue of $480 million and earnings per share of 38 cents to 42 cents in the second quarter of fiscal 2011. For fiscal 2011, the company sees total revenue of $2.0 billion and expects to earn in the range of $1.69 to $1.81 per share, an increase from the previous guided range of $1.61 to $1.77 per share. 

Management targets new store growth for both the company-operated and franchised stores to be 5% to 9% for 2011.

Zacks Estimate Trend

The Zacks Consensus Estimate on Aaron’s earnings for the second quarter of fiscal 2011 is currently pegged at 37 cents a share and for the fiscal year ending December 2011 at $1.72 per share.

Aaron is a rent-to-own operator in the United States and has a low price provider strategy.  The company is involved in the rental and specialty retailing of consumer electronics, residential and office furniture, household appliances, and accessories.

The company is in direct competition with Rent-A-Center Inc.

Aaron’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term recommendation on the stock remains ‘Neutral’.

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