Aaron's Inc. (AAN) adjusted earnings per share of 39 cents for fourth-quarter 2014, increased 30% from the prior-year figure of 30 cents and surpassed the Zacks Consensus Estimate of 36 cents. Following the better-than-expected results, shares of Aaron’s grew 3.1% on Friday.
Including one-time items, the company reported earnings per share of 30 cents, flat with the prior-year quarter.
The company outlined that it has made significant progress on the back of its strategic initiatives to strengthen its core business, mainly cost reduction. Further, the company is impressed with the Progressive acquisition, which led to better-than-expected performance aided by volume growth at both new and existing retail stores.
The company’s top-line grew 37% year over year to $759.7 million, compared with $553.9 million reported in the year-ago quarter. Revenue also surpassed the Zacks Consensus Estimate of $739 million, driven by the strong contribution from Progressive, offset by a decline in revenue at Aaron’s core business.
Comparable-store sales (comps) at the company-owned stores fell 2.8% in the quarter. Customer count on a same-store basis at the company-operated stores decreased 4.6%. Comps at the company’s franchised stores registered a 2.9% fall owing to a 5.2% decline in customer count.
At quarter-end, the company’s self-operated stores had 1.08 million customers, while the franchisees had a customer base of 581,000.
Segment Details
Core Business
Within the core business, the company’s Sales & Lease Ownership division posted revenues of $522.6 million, down 2% from the fourth quarter of 2013. Further, the HomeSmart division reported revenues of $15.5 million, increasing 2% from the year-ago comparable quarter.
Progressive
Progressive, which was acquired in Apr 2014, contributed $220.8 million to revenues in the fourth quarter. The segment’s pre-tax profits for the quarter totaled $3.2 million, while adjusted EBITDA was $17.9 million.
Full-Year 2014 Synopsis
For 2014, the company’s adjusted earnings came in at $1.69 per share, down 9.1% from 2013 but ahead of the Zacks Consensus Estimate of $1.66. Revenues for the year rose 22% to $2,725.2 million and surpassed the Zacks Consensus Estimate of $2,705 million.
Financial Position
Aaron’s cash and investments as of Dec 31, 2014 were at $29.8 million and total shareholder’s equity was $1,223.5 million.
In the first quarter of 2015, Aaron’s bought back 1 million shares, marking the completion of its previously announced accelerated share repurchase program. Currently, the company has an authorization to buy back another 10.5 million shares.
Store Update
Aaron’s opened six company-operated Sales & Lease Ownership stores, four franchised stores and one HomeSmart store in the quarter. The company also acquired five Aaron's Sales & Lease Ownership franchised stores and sold one store to a franchisee. Furthermore, Aaron’s shut down one of its company-operated Sales & Lease Ownership stores and three Aaron's Sales & Lease Ownership franchised stores during the quarter.
Moreover, the company has awarded area development agreements to open five additional franchised stores in the fourth quarter, making for about 28 of such franchised store opening agreements awarded in 2014. As of Dec 31, 2014, the company has area development agreements in place for the opening of nearly 138 franchised stores over the next several years.
As of Dec 31, 2014, Aaron’s had a total of 1,234 company-operated Sales & Lease Ownership stores, 780 franchised Sales & Lease Ownership stores, 83 company-operated HomeSmart stores and two franchised HomeSmart stores. At 2014-end, the company operated 2,108 stores in total.
Management Guidance
After closing 2014 on a strong note, Aaron’s initiated its outlook for 2015. Further, given the company’s ongoing efforts to strengthen its core business, integrate and expand Progressive and its goal to transform Aaron’s into an omni-channel lease provider, it declared that it will henceforth provide only annual guidance and update the same when necessary.
For 2015, Aaron's expects revenue in the range of $3.05 billion to $3.25 billion, which excludes revenues of franchisees. Its Core Business revenue for the year is anticipated in the range of $2.05-$2.15 billion, with about $1.55-$1.65 billion from lease revenue. Meanwhile, Progressive is expected to contribute about $1.00-$1.10 billion to the company’s 2015 revenue.
The company anticipates same-store revenue for its core business to witness an improving trend throughout 2015. Hence, it forecasts same-store revenues to decline in the range of 1% to 4% quarterly in 2015.
The company expects adjusted EBITDA between $295 and $325 million, with nearly $200-$220 million contributed by its core business and about $95-$105 million by Progressive.
Consequently, the company projects GAAP earnings in the range of $1.68 to $1.88 per share for 2015, while adjusted earnings are anticipated to range between $1.90 and $2.10 per share. Moreover, the company expects effective tax rate in the range of 36-38%.
For 2015, the company expects to incur nearly $55-$75 million as capital expenditures. Further, the company plans to open 10 new company-operated stores and 15 to 20 franchised stores in 2015. It also plans to consolidate about 50 underperforming stores during the year.
Other Stocks Worth Considering
Aaron’s currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader retail sector include Bebe Stores, Inc. (BEBE), Stage Stores Inc. (SSI) and Pacific Sunwear of California Inc. (PSUN), all carrying a Zacks Rank #1 (Strong Buy).
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