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Aaron's (AAN) Up 26.3% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have added about 26.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aaron's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Aaron's posted 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.
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, lower than its earlier projection of $85-$95 million.
The 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -76.39% due to these changes.
VGM Scores
At this time, Aaron's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aaron's has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Aaron's (AAN) Up 26.3% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have added about 26.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aaron's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Aaron's Q3 Earnings & Sales Misses Estimates, Lowers View
Aaron's posted 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.
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, lower than its earlier projection of $85-$95 million.
The 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -76.39% due to these changes.
VGM Scores
At this time, Aaron's has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aaron's has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.