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Aaron's Down More Than 8% in 3 Months: Can the Stock Revive?

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Shares of Aaron’s, Inc. (AAN - Free Report) have not only declined but also lagged the industry in the past three months. Notably, the Georgia-based company has lost 8.5% as compared to the industry’s growth of 26.5%. The stock’s dismal run on the bourses can be attributable to lower-than-expected results in third-quarter 2019. A decline in revenues at the Aaron’s segment, owing to store closures that occurred in the first half of 2019, hurt the top line to some extent.

Consequently, management narrowed its view for 2019. It now projects total revenues of $3,905-$4,010 million compared with $3,905-$4,065 million mentioned earlier. Adjusted earnings are envisioned to be $3.75-$3.85 per share, down from $3.85-$4.00 stated earlier.

These apart, sluggishness in the company’s active door count remained concerning. Active door count fell 1.6% to approximately 19,900 in the reported quarter due to a decline in active doors inside mattress and mobile.

 

 

Efforts to Revive Stock

Aaron’s has been progressing well with its transformational initiatives over the past few years. These initiatives are likely to bring the business segment back to sustainable long-term growth via investments in activities to improve customer experience, operating efficiencies, compliance and employee engagement.

The company is on track to expand the next-generation concept to 40-50 locations in 2019, including the renovation of existing stores, and repositioning to new and more attractive store locations. These new store concepts are poised to lift in-store traffic and revenues. Additionally, the company’s e-commerce site (Aarons.com) has witnessed significant growth in the past few years, and is attracting new and younger customers.

Further, it has been witnessing continued strength in its Progressive segment, which covers the virtual lease-to-own business. The segment has been performing well for quite some time now, backed by robust growth in invoice volume and a solid customer base. In third-quarter 2019, the segment’s revenues increased 4.9% year over year, while EBITDA grew 21.5%. Going ahead, the company expects revenues of $2,100-$2,150 million and adjusted EBITDA of $275-$280 million for the segment.

Bottom Line

We hope that such well chalked out efforts will help this Zacks Rank #3 (Hold) company get back on track in the near term. Additionally, the stock’s VGM Score of A and long-term earnings growth rate of 16.6% reflect its inherent strength.

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