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Aaron's (AAN) Up 11.4% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have added about 11.4% 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 reported a wider-than-expected loss per share in the first quarter of 2024. Also, its revenues missed the Zacks Consensus Estimate and declined year over year.
Aaron's delivered an adjusted loss of 15 cents per share, wider than the Zacks Consensus Estimate of a loss of 8 cents. The company’s bottom line compared unfavorably with adjusted earnings of 66 cents per share in the year-ago quarter. The soft bottom-line performance can be attributed to the decline in revenues, and higher other operating expenses and write-offs. This was partly negated by reduced personnel costs.
Consolidated revenues declined 7.7% to $511.5 million, driven by soft lease revenues and fees at the Aaron's business, and a dip in retail sales at the BrandsMart business. The figure lagged the Zacks Consensus Estimate of $517 million.
Breaking up the components of consolidated revenues, lease revenues and fees dropped 7.4% year over year to $346 million, and retail sales decreased 9% to $136.9 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 5.4% year over year to $22.6 million, while franchise royalties and other revenues decreased 2.8% to $5.9 million from the year-ago quarter.
In the Aaron’s business segment, revenues declined 7.5% year over year to $381.1 million due to a 4.8% dip in the lease portfolio size at the end of the quarter and a reduction of 110 basis points (bps) in the lease renewal rate to 87.4%. The company noted that lease portfolio size gradually improved in the quarter, driven by growth in lease merchandise deliveries. At the beginning of the first quarter, the lease portfolio size was down 7% year over year.
Same-store lease portfolio size declined 1.4% year over year compared with a dip of 6% in the year-ago quarter. E-commerce revenues rose 20.8% year over year and represented 24% of lease revenues. For the first quarter, our model had predicted Aaron’s business revenues of $390.4 million, indicating a year-over-year decline of 5.3%.
In the BrandsMart segment, revenues decreased 8.1% to $132.5 million in the first quarter of 2024, mainly driven by a 9.4% decline in comparable sales. The decline in comparable sales was attributed to the ongoing weakness in customer traffic and customers’ shift to lower-priced products across major categories.
The segment’s e-commerce product sales slipped 9.2% year over year, representing 8.7% of the total product sales. E-commerce sales were mainly impacted by an increased shift to lower-priced products and a change in the category mix. Our estimate for BrandsMart segment revenues was $133 million for the first quarter, reflecting a year-over-year decline of 7.7%.
Margins
Aaron’s gross profit declined 7.48% year over year to $273.9 million, while the gross margin expanded 20 basis points (bps) to 53.5%. In the first quarter, the company reported an operating loss of $12.4 million against the year-ago quarter’s operating profit of $12.7 million.
Adjusted EBITDA declined 50.4% year over year to $22.7 million due to lower lease revenues and fees at the Aaron's business, and soft retail sales at BrandsMart, along with higher operating expenses and write-offs. The adjusted EBITDA margin declined 390 bps to 4.4%. We had estimated an adjusted EBITDA of 22.6 million, implying an adjusted EBITDA margin of 4.3%.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $41 million, a debt of $212.9 million, and shareholders’ equity of $670.5 million. In first-quarter 2024, it used $18.5 million of cash from operating activities.
At the end of first-quarter 2024, the company generated a negative adjusted free cash flow of $33.2 million. Capital expenditure was $20.9 million in the first quarter. It paid out dividends of $3.8 million in the first quarter.
For 2024, AAN expects a capital expenditure of $85-$95 million and an adjusted free cash flow of $15-$30 million. The company expects cash provided by operating activities of $99-$114 million for 2024.
Outlook
For 2024, AAN anticipates revenues of $2.055-$2.155 billion, while the adjusted EBITDA is projected to be $105-$125 million. AAN envisions the adjusted bottom line between break-even and earnings of 25 cents per share for 2024. Loss, on a GAAP basis, is expected to be 25-40 cents a share.
For the Aaron’s business, revenues are expected to be $1.46-$1.52 billion, whereas the adjusted EBITDA is likely to be $137.5-$152.5 million for 2024. For BrandsMart, revenues are anticipated to be $610-$650 million, whereas the adjusted EBITDA is forecast at $7-$12 million for 2024.
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 -68.97% due to these changes.
VGM Scores
At this time, Aaron's has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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. Notably, Aaron's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Aaron's (AAN) Up 11.4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Aaron's Company, Inc. (AAN - Free Report) . Shares have added about 11.4% 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 Posts Wider Q1 Loss, Misses Sales Estimates
Aaron's reported a wider-than-expected loss per share in the first quarter of 2024. Also, its revenues missed the Zacks Consensus Estimate and declined year over year.
Aaron's delivered an adjusted loss of 15 cents per share, wider than the Zacks Consensus Estimate of a loss of 8 cents. The company’s bottom line compared unfavorably with adjusted earnings of 66 cents per share in the year-ago quarter. The soft bottom-line performance can be attributed to the decline in revenues, and higher other operating expenses and write-offs. This was partly negated by reduced personnel costs.
Consolidated revenues declined 7.7% to $511.5 million, driven by soft lease revenues and fees at the Aaron's business, and a dip in retail sales at the BrandsMart business. The figure lagged the Zacks Consensus Estimate of $517 million.
Breaking up the components of consolidated revenues, lease revenues and fees dropped 7.4% year over year to $346 million, and retail sales decreased 9% to $136.9 million. Non-retail sales, which mainly include merchandise sales to franchisees, declined 5.4% year over year to $22.6 million, while franchise royalties and other revenues decreased 2.8% to $5.9 million from the year-ago quarter.
In the Aaron’s business segment, revenues declined 7.5% year over year to $381.1 million due to a 4.8% dip in the lease portfolio size at the end of the quarter and a reduction of 110 basis points (bps) in the lease renewal rate to 87.4%. The company noted that lease portfolio size gradually improved in the quarter, driven by growth in lease merchandise deliveries. At the beginning of the first quarter, the lease portfolio size was down 7% year over year.
Same-store lease portfolio size declined 1.4% year over year compared with a dip of 6% in the year-ago quarter. E-commerce revenues rose 20.8% year over year and represented 24% of lease revenues. For the first quarter, our model had predicted Aaron’s business revenues of $390.4 million, indicating a year-over-year decline of 5.3%.
In the BrandsMart segment, revenues decreased 8.1% to $132.5 million in the first quarter of 2024, mainly driven by a 9.4% decline in comparable sales. The decline in comparable sales was attributed to the ongoing weakness in customer traffic and customers’ shift to lower-priced products across major categories.
The segment’s e-commerce product sales slipped 9.2% year over year, representing 8.7% of the total product sales. E-commerce sales were mainly impacted by an increased shift to lower-priced products and a change in the category mix. Our estimate for BrandsMart segment revenues was $133 million for the first quarter, reflecting a year-over-year decline of 7.7%.
Margins
Aaron’s gross profit declined 7.48% year over year to $273.9 million, while the gross margin expanded 20 basis points (bps) to 53.5%. In the first quarter, the company reported an operating loss of $12.4 million against the year-ago quarter’s operating profit of $12.7 million.
Adjusted EBITDA declined 50.4% year over year to $22.7 million due to lower lease revenues and fees at the Aaron's business, and soft retail sales at BrandsMart, along with higher operating expenses and write-offs. The adjusted EBITDA margin declined 390 bps to 4.4%. We had estimated an adjusted EBITDA of 22.6 million, implying an adjusted EBITDA margin of 4.3%.
Financial Position
Aaron’s ended the quarter with cash and cash equivalents of $41 million, a debt of $212.9 million, and shareholders’ equity of $670.5 million. In first-quarter 2024, it used $18.5 million of cash from operating activities.
At the end of first-quarter 2024, the company generated a negative adjusted free cash flow of $33.2 million. Capital expenditure was $20.9 million in the first quarter. It paid out dividends of $3.8 million in the first quarter.
For 2024, AAN expects a capital expenditure of $85-$95 million and an adjusted free cash flow of $15-$30 million. The company expects cash provided by operating activities of $99-$114 million for 2024.
Outlook
For 2024, AAN anticipates revenues of $2.055-$2.155 billion, while the adjusted EBITDA is projected to be $105-$125 million. AAN envisions the adjusted bottom line between break-even and earnings of 25 cents per share for 2024. Loss, on a GAAP basis, is expected to be 25-40 cents a share.
For the Aaron’s business, revenues are expected to be $1.46-$1.52 billion, whereas the adjusted EBITDA is likely to be $137.5-$152.5 million for 2024. For BrandsMart, revenues are anticipated to be $610-$650 million, whereas the adjusted EBITDA is forecast at $7-$12 million for 2024.
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 -68.97% due to these changes.
VGM Scores
At this time, Aaron's has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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. Notably, Aaron's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.