Can Aaron's (AAN) Q2 Earnings Help Revert it to Solid Trend?

Zacks Equity Research Published on July 25, 2016

Aaron's, Inc. (AAN - Free Report) is slated to release second-quarter 2016 results on Jul 29. Last quarter, the company had delivered a negative earnings surprise of 5.3%. Nevertheless, it has outperformed the Zacks Consensus Estimate by an average of 3.4% over the trailing four quarters. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

While Aaron's began 2016 on a soft note, it intends to remain focused on developing its omnichannel network and enhancing its e-commerce trends, in an attempt to boost revenues this year. Further, the company continues to achieve growth at its Progressive segment, which has been reporting solid revenues for a while now, thereby making management reasonably confident of the performance of this segment in 2016. Additionally, Aaron’s remains optimistic of expanding business and augmenting shareholder value, given its robust balance sheet. These factors also encouraged management to reiterate its previously issued outlook for 2016.

While these factors bode well, softness in Aaron’s comparable store sales (comps) remains a concern. For 2016, comps are expected to range from negative 3% to positive 2% in each quarter, while maintaining an improving trend throughout the year. Thus, we would prefer to wait and see what’s in store for Aaron’s in the quarter to be reported.

Earnings Whispers

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, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Aaron's is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 57 cents.

Zacks Rank: Aaron's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

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:

Jack in the Box Inc. (JACK - Free Report) , expected to report earnings on Aug 3, currently has an Earnings ESP of +1.15% and a Zacks Rank #2 (Buy).

Hibbett Sports, Inc. (HIBB - Free Report) , expected to report earnings on Aug 19, currently has an Earnings ESP of +3.70% and a Zacks Rank #2.

Dick's Sporting Goods Inc. (DKS - Free Report) , expected to report earnings on Aug 16, currently has an Earnings ESP of +5.97% and a Zacks Rank #3.

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