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Aaron's (AAN) Rallies on Positive Trends in Q3 & Upbeat View

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Despite the continuity of COVID-19-related woes, Aaron's, Inc. (AAN - Free Report) announced a business update for third-quarter 2020, which is likely to cheer the investors. Solid performance across all products and categories as well as a strong customer base and robust lease portfolio performance has been contributing to third-quarter results. As a result, management has raised its earnings and sales guidance for the third quarter.

The company anticipates revenues of $1-$1.02 billion in the third quarter, with adjusted earnings of $1.4-$.15 per share. Adjusted EBITDA is projected to be $140-$150 million. This reflects a rise from its earlier view of revenues of $950-$975 million and adjusted earnings of 80-90 cents per share.

Segment-wise, revenues in the Progressive segment are envisioned to be $575-$585 million along with adjusted EBITDA of $100-$105 million. Further, invoice growth is likely to increase on a sequential basis to the tune of low to mid-single digit. Evidently, strong invoice growth in the segment is likely to continue aiding growth in the quarter.

Moreover, revenues for the Aaron's Business segment are forecasted to be $415-$425 million, with same-store revenue growth of 4-6% and adjusted EBITDA of $43-$48 million. Moreover, both Aaron's and Progressive segments are not expected to witness any COVID-19-related expenses in the third quarter.

Background

In the Aaron’s Business unit, the company is on track with the transformational initiatives, which are likely to turnaround the segment. This plan aims to attain sustainable long-term growth in revenues and earnings through investments in activities, to improve customer experience, operating efficiencies, compliance and employee engagement. Additionally, the company’s e-commerce site (Aarons.com) is currently witnessing growth due to the coronavirus-related spike in online sales industry-wide.

In July, management had revealed plans to spin-off into two independent, publicly-traded companies, as part of its efforts to sharpen strategic focus and operational execution while delivering long-term shareholder value. The company will be split into Progressive Leasing and Aaron’s Business. The transaction is expected to be completed by 2020-end.

Though the uncertainties prevail, we expect the recent positive trends to be beneficial to Aaron’s third-quarter results. This is also likely to help the stock maintain momentum in the days ahead. We note that shares of this Zacks Rank #2 (Buy) company have surged 41% in the past three months, outperforming the industry’s growth of 37.1%.

 

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