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Why Is Aaron's (AAN) Down 16.3% 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 16.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Aaron's released second-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate while the top line missed the same. In the quarter, both the top and bottom lines declined on a year-over-year basis.
Aaron's delivered adjusted earnings of 39 cents per share, outpacing the Zacks Consensus Estimate of 18 cents. However, the bottom line declined 50.6% year over year from 79 cents per share reported in the prior-year quarter. On a GAAP basis, Aaron reported earnings of 21 cents per share versus a loss of 17 cents in the year-ago quarter.
Quarter in Detail
Consolidated revenues declined 13.1% to $530.4 million, owing to weak lease revenues & fees and drab retail sales at both Aaron's and BrandsMart businesses. The figure came below the Zacks Consensus Estimate of $541 million.
Breaking up the components of consolidated revenues, we note that lease revenues and fees dropped 8.5% year over year to $353.8 million and retail sales decreased to $148 million from $190.8 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 15.6% year over year to $22.8 million, while franchise royalties and other revenues in the quarter decreased 3.3% to $5.8 million from the year-ago quarter.
In Aaron’s business segment, revenues declined 9.6% year over year to $388.9 million due to lower lease portfolio size and lease renewal rate coupled with fewer exercises of early purchase options and weak retail sales. In the quarter, we had expected sales of $376.2 million from Aaron’s business segment. E-commerce revenues rose 5.5% year over year and represented 17.9% of lease revenues.
For the BrandsMart segment, revenues were $143.8 million in the second quarter of 2023. Our estimate for sales from the BrandsMart segment was $157.5 million in the quarter. Its e-commerce product sales were 8.1% of total product sales.
Margins
Aaron’s gross profit declined 3.7% to $282.3 million and the gross margin expanded 520 basis points (bps) to 53.2%. The operating profit came in at $11.3 million compared with the prior-year quarter’s operating loss of $9.5 million.
Adjusted EBITDA declined 17% year over year to $42.4 million, due to lower lease revenues & fees at the Aaron's business and weak retail sales at BrandsMart, partly offset by reduced personnel costs and lower write-offs at Aaron's business. The adjusted EBITDA margin also contracted 40 bps to 8% compared with our estimate of 6.8%.
Financial Position
Aaron ended the quarter with cash and cash equivalents of $38.4 million, debt of $186.1 million and shareholders’ equity of $710.6 million. In the quarter, the company provided $53.4 million in cash from operating activities.
At the end of the second quarter, the company generated an adjusted free cash flow of $36 million. Capital expenditure was $21.4 million in the reported quarter. For 2023, capital expenditures are expected in the band of $85-$100 compared with $90-$105 million guided earlier. For 2023, Aaron’s expects adjusted free cash flow in the range of $85-$95 million, higher than its earlier projection of $75-$85 million.
The company declared dividends worth $3.9 million in the quarter under review.
Outlook
For 2023, the company anticipates revenues of $2.12-$2.22 billion versus the $2.15-$2.25 billion stated earlier. Adjusted EBITDA (excluding stock-based compensation) is projected at $140-$160 million. It envisions adjusted earnings per share (EPS) of $1.00-$1.40 for the full year. Earnings per share are expected to be 55-80 cents compared with the earlier stated 70-95 cents.
For the Aaron’s business, revenues are expected to be $1.50-$1.57 billion. Adjusted EBITDA is likely to be $170-$185 million.
For BrandsMart, revenues are anticipated to be $615-$645 million, lower than the $645-$675 million stated previously. Adjusted EBITDA is forecast at $12.5-$17.5 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -65.86% due to these changes.
VGM Scores
At this time, Aaron's has an average Growth Score of C, a grade with the same score on the momentum front. However, 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. 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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Why Is Aaron's (AAN) Down 16.3% 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 16.3% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Aaron's Q2 Earnings Beat Estimates, Revenue View Lowered
Aaron's released second-quarter 2023 results, wherein the bottom line beat the Zacks Consensus Estimate while the top line missed the same. In the quarter, both the top and bottom lines declined on a year-over-year basis.
Aaron's delivered adjusted earnings of 39 cents per share, outpacing the Zacks Consensus Estimate of 18 cents. However, the bottom line declined 50.6% year over year from 79 cents per share reported in the prior-year quarter. On a GAAP basis, Aaron reported earnings of 21 cents per share versus a loss of 17 cents in the year-ago quarter.
Quarter in Detail
Consolidated revenues declined 13.1% to $530.4 million, owing to weak lease revenues & fees and drab retail sales at both Aaron's and BrandsMart businesses. The figure came below the Zacks Consensus Estimate of $541 million.
Breaking up the components of consolidated revenues, we note that lease revenues and fees dropped 8.5% year over year to $353.8 million and retail sales decreased to $148 million from $190.8 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 15.6% year over year to $22.8 million, while franchise royalties and other revenues in the quarter decreased 3.3% to $5.8 million from the year-ago quarter.
In Aaron’s business segment, revenues declined 9.6% year over year to $388.9 million due to lower lease portfolio size and lease renewal rate coupled with fewer exercises of early purchase options and weak retail sales. In the quarter, we had expected sales of $376.2 million from Aaron’s business segment. E-commerce revenues rose 5.5% year over year and represented 17.9% of lease revenues.
For the BrandsMart segment, revenues were $143.8 million in the second quarter of 2023. Our estimate for sales from the BrandsMart segment was $157.5 million in the quarter. Its e-commerce product sales were 8.1% of total product sales.
Margins
Aaron’s gross profit declined 3.7% to $282.3 million and the gross margin expanded 520 basis points (bps) to 53.2%. The operating profit came in at $11.3 million compared with the prior-year quarter’s operating loss of $9.5 million.
Adjusted EBITDA declined 17% year over year to $42.4 million, due to lower lease revenues & fees at the Aaron's business and weak retail sales at BrandsMart, partly offset by reduced personnel costs and lower write-offs at Aaron's business. The adjusted EBITDA margin also contracted 40 bps to 8% compared with our estimate of 6.8%.
Financial Position
Aaron ended the quarter with cash and cash equivalents of $38.4 million, debt of $186.1 million and shareholders’ equity of $710.6 million. In the quarter, the company provided $53.4 million in cash from operating activities.
At the end of the second quarter, the company generated an adjusted free cash flow of $36 million. Capital expenditure was $21.4 million in the reported quarter. For 2023, capital expenditures are expected in the band of $85-$100 compared with $90-$105 million guided earlier. For 2023, Aaron’s expects adjusted free cash flow in the range of $85-$95 million, higher than its earlier projection of $75-$85 million.
The company declared dividends worth $3.9 million in the quarter under review.
Outlook
For 2023, the company anticipates revenues of $2.12-$2.22 billion versus the $2.15-$2.25 billion stated earlier. Adjusted EBITDA (excluding stock-based compensation) is projected at $140-$160 million. It envisions adjusted earnings per share (EPS) of $1.00-$1.40 for the full year. Earnings per share are expected to be 55-80 cents compared with the earlier stated 70-95 cents.
For the Aaron’s business, revenues are expected to be $1.50-$1.57 billion. Adjusted EBITDA is likely to be $170-$185 million.
For BrandsMart, revenues are anticipated to be $615-$645 million, lower than the $645-$675 million stated previously. Adjusted EBITDA is forecast at $12.5-$17.5 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -65.86% due to these changes.
VGM Scores
At this time, Aaron's has an average Growth Score of C, a grade with the same score on the momentum front. However, 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. Notably, Aaron's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.