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Will Aaron's Initiatives Keep Stock Momentum Alive in 2019?

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Aaron's, Inc. (AAN - Free Report) witnessed strong momentum in 2018 on the back of strength in its Progressive segment that has been delivering growth for a long time. Additionally, Aaron’s Business division is showing significant improvement now, thus, contributing to the company’s solid performance.

As a result, shares of the company have advanced 9.9% in the past year against the industry’s 19.8% decline.

 

This outperformance can also be attributed to Aaron's superb surprise history as it delivered positive earnings surprise in seven of the trailing 10 quarters, with seven consecutive sales beat.

Aaron's Growth Catalysts

Aaron’s Progressive segment includes the virtual lease-to-own business while the Aaron’s Business division revolves around the branded company-owned as well as franchised lease-to-own stores, Aarons.com and Woodhaven. Progressive and Aaron’s Business segments contributed 52.9% and 46.1% to the company’s total revenues in the third quarter of 2018.

Higher number of active doors, robust invoice volume and a solid customer base are the major factors driving growth at the Progressive segment. Revenues for this segment were up 26.6% year over year in the last reported quarter, thanks to invoice volume growth of 26% due to a 3.8% improvement in active doors and 21.4% rise in invoice volumes per active door. As of Sep 30, 2018, this division had 808,000 customers, reflecting 19.7% growth year over year. Also, the segment’s adjusted EBITDA increased 31.6%, with margin expansion of 40 basis points (bps).

Management remains encouraged about the segment’s solid momentum on the back of higher cost of investments toward product innovations, solid e-commerce platforms and impressive pipeline of retail partners.

Aaron’s Business registered 1.7% growth in revenues, driven by higher lease revenues and fees, partly offset by lower non-retail sales. Further, its adjusted EBITDA rose 6.3%, with margin expansion of 40 bps. We note that management has been making transformational efforts to revive and sustain its Aaron’s Business, which otherwise has performed dismally in the past. Though the division is witnessing lower comparable-store sales (comps) now, management believes that comps will turn positive in the future. Apparently, the company is making higher spending in areas to improve customer experience, thus, driving store traffic and the top line.

Apart from these, Aaron’s is benefiting from investments to enhance its omni-channel facilities. Evidently, the inclusion of 90 acquired franchised stores is significantly aiding the company’s top line and strengthening omni-channel capabilities. In fact, management remains focused on leveraging its existing fulfillment centers, stores and logistics to boost its e-commerce business, and overall profitably.

Conclusion

We believe that Aaron’s will continue with its growth potential in 2019 and sustain its stock momentum. Further, the company’s VGM Score of A and Zacks Rank #3 (Hold) highlight its strength.

You May Also Look at These Better-Ranked Retail Stocks

Abercrombie & Fitch Co. (ANF - Free Report) delivered average positive earnings surprise of 88.6% in the last four quarters. Moreover, the company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings, Inc. (BOOT - Free Report) is also a Zacks Ranked #1 stock. It has an impressive long-term earnings growth rate of 23%.

Canada Goose Holdings Inc. (GOOS - Free Report) outpaced earnings estimates in each of the trailing four quarters, the average surprise being 83.2%. It currently carries a Zacks Rank #2 (Buy).

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