Leading rent-to-own operator, Aaron's Inc. (AAN) reported impressive financial results for the fourth quarter of 2012. Driven by robust top-line performance, the company’s quarterly earnings surged 12% to 48 cents per share from the adjusted earnings of 43 cents posted in the comparable year-ago quarter. However, quarterly earnings fell short of the Zacks Consensus Estimate by a couple of cents.
Quarterly Details
On the back strong comparable-store sales (comps) growth, Aaron’s top line grew 9% to $568.5 million from $522.7 million in the year-ago quarter. However, total revenue fell short of the Zacks Consensus Estimate of $573.0 million.
Comps at the company’s owned stores increased 4.6% in the quarter, while stores open for over 2 years witnessed a rise of 3.1%. The improved comps performance came on the back of 7.8% growth in customer traffic at the company’s operated stores. Moreover, comps at the company’s franchise stores registered a 6.5% hike on the back of a 9.6% rise in customer traffic.
During the quarter, the company adopted a unique promotional strategy to boost its Black Friday sales. The customers were given an option to buy products immediately and pay after Jan 2013. This strategy resulted in better-than-expected deferral revenue for 2013. However, the company did not record these deferral revenues, but recognized all the expenses related to this promotional activity in fourth quarter.
Aaron's Sales & Lease Ownership division’s revenues was recorded at $539.8 million, up 8% from the fourth quarter of 2011. The company’s HomeSmart division reported revenues of $14.8 million, increasing $5.9 million from the year-ago quarter.
The company’s self-operated stores ended the 2012 with 1,134,000 customers, while its franchisee customer count came in at 604,000. Customer count increased 11.0% compared with the same period last year.
Brief Discussion on 2012
For 2012, Aaron’s adjusted earnings reached $2.04 per share, which was 16.6% higher from the adjusted earnings of $1.75 reported in 2011. However, it missed the Zacks Consensus Estimate of $2.07 per share. Including one-time items, the company reported an increase of 57.3% with earnings per share reaching $2.25 compared with $1.43 reported in 2011.
Total revenue increased 10% to $2,222.6 million from $2,022.3 million in 2011. However, it came below the Zacks Consensus Estimate of $2,229.0 million.
Financial Position
Cash and investments at Aaron’s as of Dec 31, 2012 were $215.4 million and total shareholders’ equity was $1,136.1 million. During 2012, the company generated nearly $60.0 million of cash flow from operating activities.
During 2012, Aaron’s repurchased 1,236,689 shares of common stock and still has 4,044,655 shares remaining under its current authorization.
Store Update
In the fourth quarter, Aaron's opened 37 new company-operated Sales & Lease Ownership stores as well as 26 new franchised stores and 2 RIMCO stores. The company also acquired 2 stores from its franchisees and 5 stores from third-party operators.
Moreover, during the quarter, the company sold one company-operated store to franchise and closed 1 company-operated Sales & Lease Ownership store. Further, Aaron’s opened and closed 1 each self-operated HomeSmart store.
As of Dec 31, 2012, Aaron’s has a total of 1,227 company-operated Sales & Lease Ownership stores, 742 franchised Sales & Lease Ownership stores, 78 HomeSmart stores, 1 franchised HomeSmart store, 19 company-operated RIMCO stores, and 6 franchised RIMCO stores. At the end of the year, the number of stores opened stood at 2,073.
Management Guidance
Aaron's expects to report total revenue of about $630.0 million in the first quarter of 2013, representing an increase of approximately 7.3% from the prior-year quarter. Earnings per share are anticipated to be between 70 cents and 74 cents, up 9%–16% year-over-year. Currently, the Zacks Consensus Estimate stands at 71 cents per share, which could witness a revision in coming days following the company’s guidance.
For full year 2013, the company expects total revenue of approximately $2.4 billion and earnings per share in the range of $2.25–$2.41. Currently, the Zacks Consensus Estimate stands at $2.33 per share, which could witness a revision in coming days following the company’s guidance.
In 2013, management targets new store growth of about 4%–6% over 2012, with equal numbers of company-operated and franchised stores and a small rise in number of HomeSmart stores. Going forward, the company will also remain focused on its strategy of acquiring franchised stores or selling underperforming company-operated stores.
Our View
Currently, Aaron’s holds a Zacks Rank #2 (Buy). Aaron’s leverages an extensive network of stores to effectively penetrate into its target markets, which in turn, facilitates the company to generate healthy sales and gain a competitive advantage over its rivals, Rent-A-Center, Inc. (RCII) and Advance America.
Other stocks in the retail consumer electronic universe worth considering are GOME Electrical Appliances Holding Limited (GMELY) and RadioShack Corporation (RSH), both carrying a Zacks Rank #2 (Buy).
AARONS INC (AAN): Free Stock Analysis Report
RENT-A-CENTER (RCII): Free Stock Analysis Report
RADIOSHACK CORP (RSH): Free Stock Analysis Report
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