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Why Is Aaron's (AAN) Down 26.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have lost about 26.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Aaron's Q4 Earnings Beat Estimates, Revenues Up Y/Y
Aaron's 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.
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. Further, Aaron’s declared dividends worth $3.4 million and made share repurchases of $2.3 million in the quarter under review.
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.
Outlook
For 2023, the company anticipates revenues of $2.2-$2.3 billion. Adjusted EBITDA (excluding stock-based compensation) is likely to be $140-$160 million. It envisions adjusted earnings per share (EPS) of 70 cents to $1.10 for the year. Diluted EPS is expected to be 55-80 cents.
In the Aaron’s business, revenues are expected to be $1.53-$1.60 billion. Adjusted EBITDA is likely to be $165-$180 million. In BrandsMart, revenues are anticipated at $665-$695 million. Adjusted EBITDA is forecast to be $17.5-$22.5 million. Also, AAN expects an effective tax rate of 25-26%, along with a diluted weighted average share count of 31.5 million shares. It also noted that it would not repurchase any shares in 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -34.15% due to these changes.
VGM Scores
Currently, Aaron's has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aaron's has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is Aaron's (AAN) Down 26.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have lost about 26.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Aaron's Q4 Earnings Beat Estimates, Revenues Up Y/Y
Aaron's 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.
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. Further, Aaron’s declared dividends worth $3.4 million and made share repurchases of $2.3 million in the quarter under review.
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.
Outlook
For 2023, the company anticipates revenues of $2.2-$2.3 billion. Adjusted EBITDA (excluding stock-based compensation) is likely to be $140-$160 million. It envisions adjusted earnings per share (EPS) of 70 cents to $1.10 for the year. Diluted EPS is expected to be 55-80 cents.
In the Aaron’s business, revenues are expected to be $1.53-$1.60 billion. Adjusted EBITDA is likely to be $165-$180 million. In BrandsMart, revenues are anticipated at $665-$695 million. Adjusted EBITDA is forecast to be $17.5-$22.5 million. Also, AAN expects an effective tax rate of 25-26%, along with a diluted weighted average share count of 31.5 million shares. It also noted that it would not repurchase any shares in 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -34.15% due to these changes.
VGM Scores
Currently, Aaron's has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aaron's has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.