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Shares of The Aaron's Company, Inc. (AAN - Free Report) fell nearly 9% after the trading session on Oct 23. This is mainly due to the dismal third-quarter 2023 results, wherein the bottom and top lines missed the Zacks Consensus Estimate and declined on a year-over-year basis.
Aaron's delivered adjusted earnings of a penny per share, missing the Zacks Consensus Estimate of 6 cents. However, the bottom line plunged 97% year over year from the 31 cents per share reported in the prior-year quarter. On a GAAP basis, AAN reported a loss of 13 cents per share versus a loss of 51 cents in the year-ago quarter.
Quarter in Detail
Consolidated revenues declined 11.4% to $530.4 million, owing to weak lease revenues and fees, and drab retail sales at the Aaron's and BrandsMart businesses. The figure lagged the Zacks Consensus Estimate of $537 million.
Breaking up the components of consolidated revenues, we note that lease revenues and fees dropped 8.4% year over year to $340.8 million and retail sales decreased to $155.7 million from $188.7 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 11.2% year over year to $23.6 million, while franchise royalties and other revenues in the quarter decreased 6.1% to $5.6 million from the year-ago quarter.
In the Aaron’s business segment, revenues declined 8.9% year over year to $376.2 million due to lower lease portfolio size, coupled with fewer exercises of early purchase options and weak retail sales. In the quarter, we had expected sales of $369.2 million from Aaron’s business segment. E-commerce revenues rose 1.3% year over year and represented 18.5% of lease revenues.
For the BrandsMart segment, revenues decreased 17% to $152.4 million in the third quarter of 2023. Our estimate for sales from the BrandsMart segment was $162.3 million in the quarter. Its e-commerce product sales were 8.9% of the total product sales.
The Aaron's Company, Inc. Price, Consensus and EPS Surprise
Aaron’s gross profit declined 8.7% to $271.9 million and the gross margin expanded 520 basis points (bps) to 53.2%. The operating loss was $3.5 million compared with the prior-year quarter’s operating loss of $17.1 million.
Adjusted EBITDA declined 34% year over year to $25.3 million due to lower lease revenues and fees at the Aaron's business, and weak retail sales at BrandsMart, partly offset by reduced personnel costs and lower write-offs at the Aaron's business. The adjusted EBITDA margin contracted 160 bps to 4.8% compared with our estimate of 5.1%.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $39.3 million, a debt of $187.5 million, and shareholders’ equity of $700.7 million. In the quarter, the company provided $34.7 million in cash from operating activities.
At the end of the third quarter, the company generated an adjusted free cash flow of $7.8 million. Capital expenditure was $27.4 million in the reported quarter.
For 2023, capital expenditure is expected to be $87.5-$90 compared with the $85-$100 million guided earlier. For 2023, AAN expects an adjusted free cash flow of $75-$80 million, higher than its earlier projection of $85-$95 million.
This Zacks Rank #2 (Buy) company declared dividends worth $3.8 million in the quarter under review.
Outlook
For 2023, the company anticipates revenues of $2.12-$2.17 billion versus the $2.12-$2.22 billion predicted earlier. Adjusted EBITDA (excluding stock-based compensation) is projected to be $140-$150 million compared with the prior mentioned $140-$160. It envisions adjusted earnings per share (EPS) of $1.00-$1.20 for the full year, down from the $1.00-$1.40 communicated previously. Earnings per share are expected to be 35-50 cents compared with the earlier forecast of 55-80 cents.
For the Aaron’s business, revenues are expected to be $1.50-$1.54 billion compared with the prior stated $1.50-$1.57. Adjusted EBITDA is likely to be $170-$177.5 million compared with the earlier mentioned $170-$185 million.
For BrandsMart, revenues are anticipated to be $615-$630 million, lower than the $615-$645 million stated previously. Adjusted EBITDA is forecast at $12.5-$15 million compared with the $12.5-$17.5 million communicated previously.
Image Source: Zacks Investment Research
Consequently, shares of AAN have plunged 41.5% in the past three months against the industry’s 0.7% decline.
The Zacks Consensus Estimate for GES’ fiscal 2023 sales and EPS implies improvements of 3.4% and 9.9%, respectively, from the year-ago period’s levels.
MGM Resorts currently sports a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 81%, on average.
The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates year-over-year increases of 2.2% and 31%, respectively.
lululemon athletica, a yoga-inspired athletic apparel company, carries a Zacks Rank of 2, at present. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 17% and 18.4%, respectively, from the year-ago corresponding figures.
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Aaron's (AAN) Dips on Q3 Earnings & Sales Miss, Lowers View
Shares of The Aaron's Company, Inc. (AAN - Free Report) fell nearly 9% after the trading session on Oct 23. This is mainly due to the dismal third-quarter 2023 results, wherein the bottom and top lines missed the Zacks Consensus Estimate and declined on a year-over-year basis.
Aaron's delivered adjusted earnings of a penny per share, missing the Zacks Consensus Estimate of 6 cents. However, the bottom line plunged 97% year over year from the 31 cents per share reported in the prior-year quarter. On a GAAP basis, AAN reported a loss of 13 cents per share versus a loss of 51 cents in the year-ago quarter.
Quarter in Detail
Consolidated revenues declined 11.4% to $530.4 million, owing to weak lease revenues and fees, and drab retail sales at the Aaron's and BrandsMart businesses. The figure lagged the Zacks Consensus Estimate of $537 million.
Breaking up the components of consolidated revenues, we note that lease revenues and fees dropped 8.4% year over year to $340.8 million and retail sales decreased to $155.7 million from $188.7 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 11.2% year over year to $23.6 million, while franchise royalties and other revenues in the quarter decreased 6.1% to $5.6 million from the year-ago quarter.
In the Aaron’s business segment, revenues declined 8.9% year over year to $376.2 million due to lower lease portfolio size, coupled with fewer exercises of early purchase options and weak retail sales. In the quarter, we had expected sales of $369.2 million from Aaron’s business segment. E-commerce revenues rose 1.3% year over year and represented 18.5% of lease revenues.
For the BrandsMart segment, revenues decreased 17% to $152.4 million in the third quarter of 2023. Our estimate for sales from the BrandsMart segment was $162.3 million in the quarter. Its e-commerce product sales were 8.9% of the total product sales.
The Aaron's Company, Inc. Price, Consensus and EPS Surprise
The Aaron's Company, Inc. price-consensus-eps-surprise-chart | The Aaron's Company, Inc. Quote
Margins
Aaron’s gross profit declined 8.7% to $271.9 million and the gross margin expanded 520 basis points (bps) to 53.2%. The operating loss was $3.5 million compared with the prior-year quarter’s operating loss of $17.1 million.
Adjusted EBITDA declined 34% year over year to $25.3 million due to lower lease revenues and fees at the Aaron's business, and weak retail sales at BrandsMart, partly offset by reduced personnel costs and lower write-offs at the Aaron's business. The adjusted EBITDA margin contracted 160 bps to 4.8% compared with our estimate of 5.1%.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $39.3 million, a debt of $187.5 million, and shareholders’ equity of $700.7 million. In the quarter, the company provided $34.7 million in cash from operating activities.
At the end of the third quarter, the company generated an adjusted free cash flow of $7.8 million. Capital expenditure was $27.4 million in the reported quarter.
For 2023, capital expenditure is expected to be $87.5-$90 compared with the $85-$100 million guided earlier. For 2023, AAN expects an adjusted free cash flow of $75-$80 million, higher than its earlier projection of $85-$95 million.
This Zacks Rank #2 (Buy) company declared dividends worth $3.8 million in the quarter under review.
Outlook
For 2023, the company anticipates revenues of $2.12-$2.17 billion versus the $2.12-$2.22 billion predicted earlier. Adjusted EBITDA (excluding stock-based compensation) is projected to be $140-$150 million compared with the prior mentioned $140-$160. It envisions adjusted earnings per share (EPS) of $1.00-$1.20 for the full year, down from the $1.00-$1.40 communicated previously. Earnings per share are expected to be 35-50 cents compared with the earlier forecast of 55-80 cents.
For the Aaron’s business, revenues are expected to be $1.50-$1.54 billion compared with the prior stated $1.50-$1.57. Adjusted EBITDA is likely to be $170-$177.5 million compared with the earlier mentioned $170-$185 million.
For BrandsMart, revenues are anticipated to be $615-$630 million, lower than the $615-$645 million stated previously. Adjusted EBITDA is forecast at $12.5-$15 million compared with the $12.5-$17.5 million communicated previously.
Image Source: Zacks Investment Research
Consequently, shares of AAN have plunged 41.5% in the past three months against the industry’s 0.7% decline.
Stocks to Consider
Some better-ranked companies are MGM Resorts (MGM - Free Report) , Guess (GES - Free Report) and lululemon athletica (LULU - Free Report) .
Guess currently sports a Zacks Rank of 1 (Strong Buy). GES has a trailing four-quarter earnings surprise of 43.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GES’ fiscal 2023 sales and EPS implies improvements of 3.4% and 9.9%, respectively, from the year-ago period’s levels.
MGM Resorts currently sports a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 81%, on average.
The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates year-over-year increases of 2.2% and 31%, respectively.
lululemon athletica, a yoga-inspired athletic apparel company, carries a Zacks Rank of 2, at present. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 17% and 18.4%, respectively, from the year-ago corresponding figures.