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High Demand, Online Strength Aid Aaron's (AAN) Amid Inflation
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The Aaron’s Company, Inc. (AAN - Free Report) has been gaining from investments in centralized lease decisioning, as well as digital payment and servicing platforms, a solid e-commerce business, strength in the GenNext store program, and gains from the BrandsMart buyout. The company also witnessed better-than-expected customer demand.
This led to the impressive third-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Consolidated revenues grew 31.2% to $593.4 million, driven by gains from the BrandsMart buyout.
Consequently, management raised its 2022 guidance. The company anticipates revenues of $2.23-$2.27 billion, up from the earlier mentioned $2.19-$2.27 billion. Adjusted EBITDA is likely to be $160-$170 million, which compares favorably with the prior stated $150-$170 million. It also envisions adjusted earnings of $1.90-$2.05 compared with the prior stated $1.75-$2.15.
In the Aaron’s Business, revenues are expected to be $1.68-$1.71 billion, up from the previously stated $1.65-$1.71 billion. Adjusted EBITDA is likely to be $190-$195 million compared with the prior mentioned $180-$195 million. Same-store revenues are predicted to decline 7-6%, up from the earlier stated 8-6% decline. In BrandsMart, revenues are anticipated to be $550-$565 million, up from the prior mentioned $545-$565 million. Adjusted EBITDA is forecast to be $20-$25 million.
Driven by these factors, this Zacks Rank #3 (Hold) stock has gained 22.5% in the past three months against the industry’s decline of 3%.
Image Source: Zacks Investment Research
That said, let’s delve deeper into the factors aiding AAN.
Factors Narrating Aaron’s Growth Story
Aaron’s continued strength in its e-commerce platform bodes well. In third-quarter 2022, e-commerce lease revenues were up 11.1%, accounting for 16% of the total revenues. The uptick can be attributable to increased website traffic and a higher conversion rate.
Some other notable efforts are increased investments in digital marketing, improved shopping experience, same-day and next-day delivery services, the personalization of products, and a broader assortment, including the latest product categories. Its express delivery program has also been performing well.
The company’s latest acquisition of appliance and electronics retailer, BrandsMart, enabled it to strengthen its market position and expand the customer base. Notably, revenues were $183.3 million in the third quarter of 2022, driven by strength in appliances and e-commerce, which offset weak product sales from the deflation in certain consumer electronics categories.
The company is optimistic about its performance in the near future. It announced the opening of its first BrandsMart store in 2023. BrandsMart revenues are anticipated to be $550-$565 million for 2022, up from the prior mentioned $545-$565 million.
Aaron’s GenNext stores remain major growth drivers. These stores accounted for more than 22% of the total revenues in third-quarter 2022. Management remains on track to open 100 GenNext locations in 2022.
Hurdles on the Way
Despite these upsides, Aaron's has been reeling under dismal margins, lower lease revenues and reduced lease portfolio size. Also, high inflation is concerning.
Notably, the third-quarter gross margin contracted 1280 bps to 50.2%. The operating loss was $17.1 million against the prior-year quarter’s earnings of $33.2 million. Adjusted EBITDA declined 34.3% year over year to $35.2 million due to a dismal gross margin and a higher provision for lease merchandise write-offs at the Aaron's Business. The adjusted EBITDA margin contracted 600 basis points (bps) to 5.9%. Owing to these factors, adjusted earnings of 31 cents per share declined 62.7% year over year from 83 cents per share in the prior-year quarter.
Conclusion
We believe that a solid online show, the BrandsMart buyout and continued strength in the GenNext strategy will aid Aaron’s and help offset inflationary pressures. Also, a VGM Score A raises optimism in the stock. Topping it, AAN’s earnings estimates for 2022 have moved up 2.1% in the past 60 days.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates rises of 4.7% and 24.6%, respectively, from the year-ago period’s reported levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1%, on average.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates growth of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates increases of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.
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High Demand, Online Strength Aid Aaron's (AAN) Amid Inflation
The Aaron’s Company, Inc. (AAN - Free Report) has been gaining from investments in centralized lease decisioning, as well as digital payment and servicing platforms, a solid e-commerce business, strength in the GenNext store program, and gains from the BrandsMart buyout. The company also witnessed better-than-expected customer demand.
This led to the impressive third-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Consolidated revenues grew 31.2% to $593.4 million, driven by gains from the BrandsMart buyout.
Consequently, management raised its 2022 guidance. The company anticipates revenues of $2.23-$2.27 billion, up from the earlier mentioned $2.19-$2.27 billion. Adjusted EBITDA is likely to be $160-$170 million, which compares favorably with the prior stated $150-$170 million. It also envisions adjusted earnings of $1.90-$2.05 compared with the prior stated $1.75-$2.15.
In the Aaron’s Business, revenues are expected to be $1.68-$1.71 billion, up from the previously stated $1.65-$1.71 billion. Adjusted EBITDA is likely to be $190-$195 million compared with the prior mentioned $180-$195 million. Same-store revenues are predicted to decline 7-6%, up from the earlier stated 8-6% decline. In BrandsMart, revenues are anticipated to be $550-$565 million, up from the prior mentioned $545-$565 million. Adjusted EBITDA is forecast to be $20-$25 million.
Driven by these factors, this Zacks Rank #3 (Hold) stock has gained 22.5% in the past three months against the industry’s decline of 3%.
Image Source: Zacks Investment Research
That said, let’s delve deeper into the factors aiding AAN.
Factors Narrating Aaron’s Growth Story
Aaron’s continued strength in its e-commerce platform bodes well. In third-quarter 2022, e-commerce lease revenues were up 11.1%, accounting for 16% of the total revenues. The uptick can be attributable to increased website traffic and a higher conversion rate.
Some other notable efforts are increased investments in digital marketing, improved shopping experience, same-day and next-day delivery services, the personalization of products, and a broader assortment, including the latest product categories. Its express delivery program has also been performing well.
The company’s latest acquisition of appliance and electronics retailer, BrandsMart, enabled it to strengthen its market position and expand the customer base. Notably, revenues were $183.3 million in the third quarter of 2022, driven by strength in appliances and e-commerce, which offset weak product sales from the deflation in certain consumer electronics categories.
The company is optimistic about its performance in the near future. It announced the opening of its first BrandsMart store in 2023. BrandsMart revenues are anticipated to be $550-$565 million for 2022, up from the prior mentioned $545-$565 million.
Aaron’s GenNext stores remain major growth drivers. These stores accounted for more than 22% of the total revenues in third-quarter 2022. Management remains on track to open 100 GenNext locations in 2022.
Hurdles on the Way
Despite these upsides, Aaron's has been reeling under dismal margins, lower lease revenues and reduced lease portfolio size. Also, high inflation is concerning.
Notably, the third-quarter gross margin contracted 1280 bps to 50.2%. The operating loss was $17.1 million against the prior-year quarter’s earnings of $33.2 million. Adjusted EBITDA declined 34.3% year over year to $35.2 million due to a dismal gross margin and a higher provision for lease merchandise write-offs at the Aaron's Business. The adjusted EBITDA margin contracted 600 basis points (bps) to 5.9%. Owing to these factors, adjusted earnings of 31 cents per share declined 62.7% year over year from 83 cents per share in the prior-year quarter.
Conclusion
We believe that a solid online show, the BrandsMart buyout and continued strength in the GenNext strategy will aid Aaron’s and help offset inflationary pressures. Also, a VGM Score A raises optimism in the stock. Topping it, AAN’s earnings estimates for 2022 have moved up 2.1% in the past 60 days.
Stocks to Consider
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Hilton Grand Vacations (HGV - Free Report) , RCI Hospitality Holdings (RICK - Free Report) and Hyatt Hotels (H - Free Report) .
Hilton Grand Vacations currently sports a Zacks Rank #1 (Strong Buy). HGV has a trailing four-quarter earnings surprise of 3.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates rises of 4.7% and 24.6%, respectively, from the year-ago period’s reported levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1%, on average.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates growth of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates increases of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.