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Why Is Aaron's (AAN) Down 3.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have lost about 3.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aaron's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Aaron's Q2 Earnings & Revenues Beat Estimates, View Up

Aaron's reported second-quarter 2021 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Further, both metrics improved year over year. Results gained from solid demand, higher customer payment activities and a robust lease portfolio. Increased focus on advanced technology, digital payment facilities as well as improved in-store and online shopping experiences boosted productivity and margins. Backed by impressive results, the company raised its 2021 view.

Management remains on track with its GenNext real estate strategy, which is performing well. As of Jun 30, 2021, it boasts 64 GenNext stores and further expects to open more than 60 such stores by 2021.

Q2 Highlights

Aaron's delivered adjusted earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 64 cents. The bottom line grew 26.5% year over year from 83 cents in the prior-year quarter. On a GAAP basis, the company recorded earnings of 95 cents per share, up 43.9% year over year from 66 cents reported in the year-ago quarter.

Consolidated revenues rose 8.5% to $467.5 million and beat the Zacks Consensus Estimate of $447 million. The uptick is mainly due to improved quality and the size of its lease portfolio as well as robust customer payment activities, which more than offset the impact of the net closure of 42 company-operated stores and 71 franchised stores in the 15-month period ended Jun 30, 2021.

Same-store revenues rose 11.2% in the second quarter, driven by a robust lease portfolio and higher payment activities. E-commerce lease revenues were up 15.2%, accounting for 14% of total revenues.

Breaking up the components of consolidated revenues, we note that lease and retail revenues grew 8.7% in the reported quarter to $444.1 million. Non-retail sales, which mainly include merchandise sales to franchisees, fell 1.8% year over year. Franchise royalties and fees in the quarter surged 79% to $6.5 million from the year-ago quarter.

Aaron’s franchisee revenues decreased 20.9% year over year to $82.5 million on reduced franchise locations. Same-store revenues for franchised stores grew 1.9% year over year. Notably, revenues and customers of franchisees are not deemed as revenues and customers of the company.

Aaron’s adjusted EBITDA rose 16.2% year over year to $65.3 million from $56.2 million reported in the year-ago quarter. Adjusted EBITDA margin expanded 100 basis points (bps) to 14% in the reported quarter on the back of revenue growth and reduced write-offs.

Financial Position

The company ended the quarter with cash and cash equivalents of $48 million and shareholders’ equity of $797.1 million. As of Jun 30, 2021, the company generated cash from operations of $60.2 million. It had total available liquidity of $281.5 million as of Jun 30, 2021. Capital expenditure is now expected to be $90-$100 million for 2021, up from the earlier guided view of $80-$90 million.

The company bought back 1,166,010 shares of Aaron's common stock, worth roughly $38.6 million. Year to date through Jul 23, it repurchased 1,839,313 shares for nearly $57.4 million. Currently, the company has shares worth $92.6 million remaining to be bought back, under its existing share repurchase program of $150 million. The board also approved a quarterly dividend of 10 cents per share, which was paid out on Jul 6.

Outlook

Driven by solid results, management raised its 2021 view. For 2021, the company anticipates revenues of $1.775-$1.8 billion, up from the earlier mentioned $1.725-$1.775 billion. Same-store revenues are forecast to increase 6-8% as compared with 4-6% growth stated previously. Adjusted EBITDA is likely to be $215-$225 million, which reflects an improvement from the previously mentioned $190-$205 million. It anticipates generating a free cash flow of $90-$100 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.9% due to these changes.

VGM Scores

At this time, Aaron's has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Aaron's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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