Aaron's (AAN) Q3 Earnings and Revenues Surpass Estimates

Zacks Equity Research
·5-min read

Aaron's, Inc. AAN reported sturdy third-quarter 2020 results. Both top and bottom lines outpaced the Zacks Consensus Estimate and grew year over year. Solid performance at the company’s Progressive Leasing and the Aaron's Business segments contributed to the quarterly performance. Strong invoice growth, operating cost management and sturdy customer payment activity remain tailwinds. With respect to the earlier-announced separation, management is on track to conclude the transaction in the fourth quarter.

Encouragingly, shares of the Zacks Rank #1 (Strong Buy) company have gained 71% over the past six months, outperforming the industry’s 17.8% rally.

Q3 Highlights

Aaron's delivered adjusted earnings of $1.80 per share, which surpassed the Zacks Consensus Estimate of $1.43. Further, the metric advanced nearly 147% from 73 cents earned in the prior-year quarter.

The company recorded earnings per share of $1.60 on a GAAP basis, up from 58 cents reported in the year-ago quarter.

Aarons, Inc. Price, Consensus and EPS Surprise

Aarons,  Inc. Price, Consensus and EPS Surprise
Aarons, Inc. Price, Consensus and EPS Surprise

Aarons, Inc. price-consensus-eps-surprise-chart | Aarons, Inc. Quote

Consolidated revenues rose 9.2% to $1,052.3 million and surpassed the Zacks Consensus Estimate of $1,010 million. Revenue growth was mainly backed by strength in customer payment activity at its businesses, partly reflecting the various government stimulus programs with respect to the pandemic.    

Aaron’s franchisee revenues dipped 2.2% to $101.2 million. Same-store revenues for franchised stores grew 5.8% and same-store customer counts dropped 5.8% in the reported quarter. Notably, the company’s franchisees had a customer base of 210,000 at the end of the quarter.

Adjusted EBITDA grew significantly year over year to $178.3 million from $87.1 million reported in the year-ago quarter. Also, adjusted EBITDA margin expanded 790 basis points (bps) to 16.9% in the reported quarter.

Segment Details

Progressive Leasing

Revenues at the segment grew 13.7% to $601.1 million in the reported quarter. Moreover, invoice volumes rose 3.4% due to a 3% rise in invoice volume per active door and a 0.4% jump in active doors to roughly 20,000. As of Sep 30, 2020, the division had 892,000 customers, reflecting a 1.9% decline year over year.

The segment’s adjusted EBITDA was $115.2 million, up 83.4% from the year-ago quarter. Moreover, adjusted EBITDA margin expanded 730 bps to 19.2%, mainly driven by solid portfolio performance and operating-expense control.

Aaron's Business

Total revenues at Aaron’s Business segment grew 3.4% to $441 million, mainly due to robust customer payment activity and increased merchandise sales to franchisees, partly offset by a reduction of 134 outlets in the 15 months ended Sep 30, 2020. Moreover, same-store revenues rose 7.3%, while customer count on a same-store basis dropped 3.7%.

Non-retail sales, which mainly includes merchandise sales to franchisees, climbed 12% year over year. Lease revenues and fees for the three months ended Sep 30 improved 1.7% from the year-ago quarter. Further, retail sales surged 53.1% in the reported quarter. At the quarter-end, the company-operated Aaron’s stores had 902,000 customers, reflecting an 8.3% year-over-year drop.

The segment’s adjusted EBITDA was $65.1 million, up 153.1% year over year. Also, adjusted EBITDA margin expanded 880 bps to 14.8% owing to sturdy customer payment activity and lower merchandise write-offs.

As of Sep 30, 2020, Aaron's Business had 1,086 company-operated stores and 308 franchised stores.

Vive

Sales at the Vive segment, formerly known as Dent-A-Med, Inc., amounted to $10.2 million in the quarter under review.

Financial Position

The company ended the quarter with cash and cash equivalents of $470.2 million, debt of $285.1 million and shareholders’ equity of $1,638.7 million. As of Sep 30, 2020, the company generated cash from operations of $551.8 million.

Moreover, the company paid out dividends of nearly $8 million in the first nine months of 2020. Also, the company had roughly $956.3 million available liquidity as of Sep 30.

Outlook

Going ahead, management issued a fourth-quarter view. Notably, it anticipates revenues of $1.025-$1.045 billion and adjusted earnings of $1.20-$1.30 per share. The Zacks Consensus Estimate for the same quarter is currently pegged at $1.03 billion for revenues and $1.21 for earnings.

A Few More Solid Picks

Dollar General DG has a long-term earnings-growth rate of 11.1% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy BBY, also a Zacks Rank #2 stock, has a long-term earnings-growth rate of 7.7%.

Big Lots BIG has a long-term earnings-growth rate of 5.5%. Currently, it carries a Zacks Rank #2.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

">See the pot stocks we're targeting >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Aarons, Inc. (AAN) : Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
Big Lots, Inc. (BIG) : Free Stock Analysis Report
 
Dollar General Corporation (DG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research