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Aaron's (AAN) Q4 Earnings Beat Estimates, Revenues Up Y/Y
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The Aaron's Company, Inc. (AAN - Free Report) delivered fourth-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year. However, the bottom line declined due to the reduced gross profit and increased provision for lease merchandise write-offs at the Aaron's Business.
Management’s guidance for 2023 considers the ongoing macroeconomic pressure on consumer demand and a smaller lease portfolio size to begin the year with. Management expects the second half of 2023 to be stronger as it anticipates better consumer demand, payment activity and cost reductions.
The company updated its multi-year strategic plan. It is aimed at fueling revenues, transforming the company’s cost structure and enhancing operating margins.
Quarter in Detail
Aaron's delivered adjusted earnings of 9 cents per share compared with the Zacks Consensus Estimate of a loss of 2 cents and our estimate of a loss of 5 cents. However, the bottom line declined 85% year over year from the 60 cents per share reported in the prior-year quarter. On a GAAP basis, AAN reported a loss of 19 cents per share against earnings of 50 cents in the year-ago quarter.
The Aaron's Company, Inc. Price, Consensus and EPS Surprise
Consolidated revenues grew 32.5% to $589.6 million, driven by gains from the BrandsMart buyout, somewhat offset by weak lease revenues and fees and drab retail sales at the Aaron's Business. The figure beat the Zacks Consensus Estimate of $585 million and our estimate of $582.1 million.
Breaking up the components of consolidated revenues, we note that lease and retail revenues increased 37% in the reported quarter to $554.6 million and beat our estimate of $545.1 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 13.7% year over year to $29.1 million and lagged our estimate of $30.8 million. Franchise royalties and fees in the quarter decreased 6.4% to $5.8 million from the year-ago quarter compared with our estimate of $6 million.
In the Aaron’s Business, revenues declined 9.1% year over year to $404.3 million due to lower same-store revenues. Further, same-store revenues fell 8.4% year over year in the quarter due to a reduced lease renewal rate, the lower exercise of early purchase options, a smaller same-store lease portfolio size and drab retail sales. E-commerce revenues were up 7.3%, accounting for 16.7% of lease revenues.
For BrandsMart, revenues were $187.7 million in the fourth quarter of 2022, driven by strength in small appliances and housewares and e-commerce strength. These were somewhat offset by weak product sales stemming from lower store traffic and deflation in certain major appliances and electronics categories.
Margins
Aaron’s gross profit rose 3.2% to $285.9 million, while the gross margin contracted 1,380 bps to 48.5%. The operating loss came was $6.2 million against the prior-year quarter’s earnings of $19.9 million.
Adjusted EBITDA declined 33% year over year to $27.7 million due to the lower gross profit and a higher provision for lease merchandise write-offs at the Aaron's Business, partly offset by gains from the BrandsMart buyout and reduced personnel costs at the Aaron's Business. The adjusted EBITDA margin contracted 460 bps to 4.7% in the reported quarter.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $27.7 million, debt of $242.4 million and shareholders’ equity of $695.4 million. In the fourth quarter, the company generated operating cash flow of $46.6 million.
Capital expenditure was $24.3 million in the reported quarter. Adjusted free cash flow amounted to $24.7 million in the quarter. Capital expenditures are expected in the band of $95-$115 million for 2023. AAN expects adjusted free cash flow in the range of $50-$60 million for 2023.
Further, Aaron’s declared dividends worth $3.4 million and made share repurchases of $2.3 million in the quarter under review.
Outlook
For the full-year 2023, the company anticipates revenues in the band of $2.2-$2.3 billion. Adjusted EBITDA (excluding stock-based compensation) is likely to be in the range of $140-$160 million. It envisions adjusted earnings per share (EPS) of 70 cents to $1.10 for the full year. Diluted EPS is expected in the band of 55-80 cents.
In the Aaron’s business, revenues are expected in the range of $1.53-$1.60 billion. Adjusted EBITDA is likely to be in the band of $165-$180 million.
In BrandsMart, revenues are anticipated in the range of $665-$695 million. Adjusted EBITDA is forecast in the band of $17.5-$22.5 million.
Shares of this Zacks Rank #4 (Sell) company have dipped 0.2% in the past three months compared with the industry’s 4.5% decline.
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Aaron's (AAN) Q4 Earnings Beat Estimates, Revenues Up Y/Y
The Aaron's Company, Inc. (AAN - Free Report) delivered fourth-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year. However, the bottom line declined due to the reduced gross profit and increased provision for lease merchandise write-offs at the Aaron's Business.
Management’s guidance for 2023 considers the ongoing macroeconomic pressure on consumer demand and a smaller lease portfolio size to begin the year with. Management expects the second half of 2023 to be stronger as it anticipates better consumer demand, payment activity and cost reductions.
The company updated its multi-year strategic plan. It is aimed at fueling revenues, transforming the company’s cost structure and enhancing operating margins.
Quarter in Detail
Aaron's delivered adjusted earnings of 9 cents per share compared with the Zacks Consensus Estimate of a loss of 2 cents and our estimate of a loss of 5 cents. However, the bottom line declined 85% year over year from the 60 cents per share reported in the prior-year quarter. On a GAAP basis, AAN reported a loss of 19 cents per share against earnings of 50 cents in the year-ago quarter.
The Aaron's Company, Inc. Price, Consensus and EPS Surprise
The Aaron's Company, Inc. price-consensus-eps-surprise-chart | The Aaron's Company, Inc. Quote
Consolidated revenues grew 32.5% to $589.6 million, driven by gains from the BrandsMart buyout, somewhat offset by weak lease revenues and fees and drab retail sales at the Aaron's Business. The figure beat the Zacks Consensus Estimate of $585 million and our estimate of $582.1 million.
Breaking up the components of consolidated revenues, we note that lease and retail revenues increased 37% in the reported quarter to $554.6 million and beat our estimate of $545.1 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 13.7% year over year to $29.1 million and lagged our estimate of $30.8 million. Franchise royalties and fees in the quarter decreased 6.4% to $5.8 million from the year-ago quarter compared with our estimate of $6 million.
In the Aaron’s Business, revenues declined 9.1% year over year to $404.3 million due to lower same-store revenues. Further, same-store revenues fell 8.4% year over year in the quarter due to a reduced lease renewal rate, the lower exercise of early purchase options, a smaller same-store lease portfolio size and drab retail sales. E-commerce revenues were up 7.3%, accounting for 16.7% of lease revenues.
For BrandsMart, revenues were $187.7 million in the fourth quarter of 2022, driven by strength in small appliances and housewares and e-commerce strength. These were somewhat offset by weak product sales stemming from lower store traffic and deflation in certain major appliances and electronics categories.
Margins
Aaron’s gross profit rose 3.2% to $285.9 million, while the gross margin contracted 1,380 bps to 48.5%. The operating loss came was $6.2 million against the prior-year quarter’s earnings of $19.9 million.
Adjusted EBITDA declined 33% year over year to $27.7 million due to the lower gross profit and a higher provision for lease merchandise write-offs at the Aaron's Business, partly offset by gains from the BrandsMart buyout and reduced personnel costs at the Aaron's Business. The adjusted EBITDA margin contracted 460 bps to 4.7% in the reported quarter.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $27.7 million, debt of $242.4 million and shareholders’ equity of $695.4 million. In the fourth quarter, the company generated operating cash flow of $46.6 million.
Capital expenditure was $24.3 million in the reported quarter. Adjusted free cash flow amounted to $24.7 million in the quarter. Capital expenditures are expected in the band of $95-$115 million for 2023. AAN expects adjusted free cash flow in the range of $50-$60 million for 2023.
Further, Aaron’s declared dividends worth $3.4 million and made share repurchases of $2.3 million in the quarter under review.
Outlook
For the full-year 2023, the company anticipates revenues in the band of $2.2-$2.3 billion. Adjusted EBITDA (excluding stock-based compensation) is likely to be in the range of $140-$160 million. It envisions adjusted earnings per share (EPS) of 70 cents to $1.10 for the full year. Diluted EPS is expected in the band of 55-80 cents.
In the Aaron’s business, revenues are expected in the range of $1.53-$1.60 billion. Adjusted EBITDA is likely to be in the band of $165-$180 million.
In BrandsMart, revenues are anticipated in the range of $665-$695 million. Adjusted EBITDA is forecast in the band of $17.5-$22.5 million.
Shares of this Zacks Rank #4 (Sell) company have dipped 0.2% in the past three months compared with the industry’s 4.5% decline.
Have a Look at These Picks
Here we have highlighted three better-ranked stocks.
BJ's Wholesale Club (BJ - Free Report) operates warehouse clubs. BJ currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for BJ's Wholesale’s current financial-year EPS suggests a rise of 16.6% from the year-ago reported figure. BJ's Wholesale has a trailing four-quarter earnings surprise of 18.2%, on average.
H&R Block (HRB - Free Report) provides assisted income tax return preparation and do-it-yourself tax return preparation services. HRB currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for H&R Block’s current financial-year EPS suggests growth of 9.4% from the year-ago reported figure. H&R Block has a trailing four-quarter earnings surprise of 10.7%, on average.
Costco Wholesale Corporation (COST - Free Report) operates membership warehouses. The stock currently carries a Zacks Rank #2. COST has an expected EPS growth rate of 9.6% for three to five years.
The Zacks Consensus Estimate for Costco’s current financial-year EPS suggests a rise of 8.6% from the year-ago reported figure. Costco has a trailing four-quarter earnings surprise of 3.7%, on average.