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Will Aaron's (AAN) Progressive Business Unit Aid Q2 Earnings?

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Aaron's, Inc. (AAN - Free Report) is scheduled to report second-quarter 2018 results on Jul 26. The company boasts an impressive earnings surprise history, having surpassed estimates in six of the trailing eight quarters.

The Zacks Consensus Estimate for the second quarter is pegged at 77 cents, reflecting 13.2% growth from the year-ago quarter. Notably, estimates have moved south by a penny over the past 30 days.

Aaron's, Inc. Price, Consensus and EPS Surprise

Aaron's, Inc. Price, Consensus and EPS Surprise | Aaron's, Inc. Quote

Notably, analysts polled by Zacks expect revenues of $925.4 million, up 13.5% from the year-ago quarter. Apart from robust earnings history, Aaron’s has an impressive top-line trend. It has delivered sales beat for five straight quarters now. Also, revenues in first-quarter 2018 were up 13% year over year, mainly driven by progressive leasing revenues.

How Things Are Shaping Up Before Earnings Release

Aaron’s Progressive division has been performing exceedingly well since last few quarters, courtesy of solid growth in number of active doors and a strong customer base. In first-quarter 2018, revenues at this segment’s surged 32.9% driven by a 10% rise in the number of active doors and 20% growth in invoice volume per active door. Robust performance at this segment is likely to continue in the second quarter as well backed by management’s upbeat guidance for 2018. This, in turn, will boost the company’s top-line growth and profitability.

However, Aaron's is witnessing sluggishness across its Aaron’s Business segment for the past few quarters due to lower non-retail sales, weak comparable-store sales (comps) and lower franchisee revenues. Also, soft customer counts and waning store traffic are denting the company’s comps for quite a while now. Evidently, comps dropped 4.4%, 5.4%, 5.6%, 8.1% and 9.3% in the first quarter of 2018, fourth, third, second and first quarters of 2017, respectively. In first-quarter 2018, non-retail sales declined 23.2% year over year.

Although management is making investments in its Aaron's Business segment to enhance direct-to-consumer platform and boost growth, it remains to be seen whether it can deliver improved sales and revive the segment’s performance. Meanwhile, we believe the Progressive segment will continue helping the company to sail through tough times.

Zacks Model

Our proven model does not conclusively show that Aaron’s is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Aaron’s Earnings ESP of +3.32% increases the predictive power of an earnings beat, the company’s Zacks Rank #4 (Sell) makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to beat estimates:

Urban Outfitters, Inc. (URBN - Free Report) has an Earnings ESP of +1.46% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Home Depot, Inc. (HD - Free Report) has an Earnings ESP of +2.22% and a Zacks Rank of 3.

GameStop Corp. (GME - Free Report) has an Earnings ESP of +2.13% and a Zacks Rank #3.

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