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Aaron's (AAN) Robust Progressive Segment to Drive Growth

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Aaron's, Inc. (AAN - Free Report) looks appeasing, thanks to its Progressive segment that is experiencing sturdy momentum for quite a long time. Notable improvement at the Aaron’s Business division is an added positive.

As a result, management remains pleased with a strong first-half 2019 and raised outlook for the current year. Let’s delve deep.

Solid Progressive Unit & Other Efforts

Aaron’s Progressive segment, which covers the virtual lease-to-own business, is benefiting from robust invoice volume growth and a solid customer base. Notably, the segment’s revenues have doubled from $1 billion in 2015 to $2 billion in 2018, consistently generating higher profits.

In second-quarter 2019, revenues at this segment increased 6.7% and contributed nearly 53.3% to the company’s overall top line. This upside was driven by 20.4% invoice volume growth on account of a 23.4% increase in invoice volumes per active door, partly offset by a 2.5% reduction in active doors.

As of Jun 30, 2019, this division had 909,000 customers, reflecting 19.9% growth year over year. Further, the segment’s EBITDA margin expanded 30 basis points (bps). This momentum is likely to continue throughout 2019, with estimated revenues of $2,100-$2,175 million and an adjusted EBITDA of $275-$285 million. This guidance represents an improvement from revenues of $1,999 million and adjusted EBITDA of $65.5 million recorded last year.

Meanwhile, the Aaron’s Business division is progressing well driven by transformational initiatives. These efforts are meant to improve customer experience, operating efficiencies and employee engagement. Driven by the success of the pilots carried out in 2018, the company plans to expand the next generation concept to 40-50 locations by this year. These new store concepts are poised to boost in-store traffic and top-line growth. However, higher write-offs and ongoing investments related to transformation initiatives are hurting the segment’s adjusted EBITDA.

Nevertheless, Aaron’s, which shares space with Best Buy Co., Inc. (BBY - Free Report) , Conn's, Inc. (CONN - Free Report) and Systemax Inc. (SYX - Free Report) , is experiencing continued growth in its e-commerce business. In fact, lease revenues are benefiting from consistent investments in e-commerce.

Further, same-store sales (comps) increased 170 bps in the second quarter of 2019. For the current year, the company expects comps to be flat to up 2% on the back of higher pricing and product mix as well as gains from transformation efforts. Backed by these strengths, management expects revenues at Aaron’s Business segment to come in the band of $1,775-$1,855 million in 2019 compared with $1,792.6 million recorded last year.

Upbeat View for 2019

Aaron’s projects total sales to be between $3,905 million and $4,065 million in 2019, up from $3,828.9 million recorded last year. Moreover, adjusted EBITDA is now anticipated to be $430-$452 million, up from the prior view of $415-$442 million and $386.2 million registered in 2018.

Further, management expects adjusted earnings in the $3.85-$4.00 per share range, reflecting 15-19% growth year over year. Earlier, management anticipated adjusted earnings of $3.65-$3.85 per share.

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