Aaron's, Inc. Reports Second Quarter 2015 Results

- Total Revenues of $769.0 Million, up 16%

- GAAP Diluted EPS of $.56

- Non-GAAP Diluted EPS of $.61

- Raises 2015 Guidance

Jul 24, 2015, 07:15 ET from Aaron's, Inc.

ATLANTA, July 24, 2015 /PRNewswire/ -- Aaron's, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three and six months ended June 30, 2015.

For the second quarter of 2015, revenues increased 16.1% to $769.0 million compared with $662.5 million for the second quarter of 2014. Net earnings increased to $40.5 million compared with $8.5 million in the prior year period. Diluted earnings per share were $.56 compared with $.12 for the same quarter last year. EBITDA for the Company was $89.8 million compared with $43.0 million a year ago.

On a non-GAAP basis, net earnings for the second quarter of 2015 increased to $44.7 million compared with $27.2 million for the same period in 2014, and earnings per share assuming dilution increased to $.61 compared with $.37 a year ago. In 2015, non-GAAP net earnings and diluted earnings per share exclude the effects of amortization expense resulting from the acquisition of Progressive. In 2014, in addition to Progressive amortization, non-GAAP results exclude the effects of certain one-time Progressive transaction costs, financial advisory and legal costs related to addressing strategic matters and restructuring charges related to store closures. See "Use of Non-GAAP Information" and the related non-GAAP reconciliation accompanying this press release.

"The second quarter demonstrated our organization's ability to grow revenues and increase EBITDA at double-digit rates," said John Robinson, Chief Executive Officer of Aaron's, Inc. "Our core business achieved an increase in profit margin due to improved expense and inventory control. We're disappointed that core revenues were not stronger in the quarter but remain optimistic that recent initiatives will drive better year-over-year comps in the future."

"Progressive delivered an outstanding quarter with strong revenues and improved operating margins," continued Mr. Robinson.  "Our pipeline of new retailers is robust, and we're beginning to reap real benefits from the integration of the two businesses. Overall, the opportunity to grow Progressive remains exciting, and we'll maintain discipline in our core business until revenue initiatives gain more traction," Mr. Robinson said.

Financial Summary

During the first six months of 2015, revenues increased 27.5% to $1.591 billion compared with $1.248 billion for the first six months of 2014. Net earnings were $89.8 million versus $46.8 million last year. Diluted earnings per share were $1.23 compared with $.64 per share a year ago.

EBITDA for the Company increased 62.2% to $193.5 million for the six months of 2015 compared with $119.3 million a year ago. On a non-GAAP basis, net earnings for the first six months of 2015 were $98.1 million compared with $66.7 million for the same period in 2014, and earnings per share assuming dilution were $1.35 compared with $.92 a year ago.

Aaron's Inc., which includes Progressive, had 1,525,000 customers at the end of June 2015 versus 1,398,000 last year, a 9.1% increase. The Company ended the second quarter of 2015 with $91.1 million in cash compared with $3.5 million at the end of 2014. Debt was reduced to $494.9 million at June 30, 2015 from $606.1 million at December 31, 2014.

Core Results

Revenues of Aaron's Sales & Lease Ownership division decreased 3.9% in the second quarter of 2015 to $496.7 million compared with $516.9 million in revenues in the second quarter of 2014. Sales and lease ownership revenues for the first six months of 2015 decreased 3.0% to $1.049 billion compared with $1.082 billion for the same period a year ago.

HomeSmart division revenues were $15.5 million in the second quarter of 2015, a 3.1% decrease from $16.0 million in the second quarter of 2014. HomeSmart revenues for the first six months of 2015 were $32.3 million versus $33.3 million for the same period a year ago, also a 3.1% decrease.

EBITDA for the core business for the three and six months ended June 30, 2015 was $53.8 million and $129.2 million, respectively. As a percentage of revenues, EBITDA was 10.5% for the three months and 11.9% for the first six months of 2015 compared to 5.5% and 9.4% for the same periods a year ago. Margin improvement in the core business was driven by the Company's price, inventory reduction, and cost initiatives. Write offs for damaged, lost or unsaleable merchandise were 3.6% of revenues in the quarter.

Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) decreased 4.4% during the second quarter of 2015 compared with the second quarter of 2014, and customer counts on a same store basis were down 3.7%. Company-operated Aaron's stores had 1,053,000 customers and franchised stores had 579,000 customers at the end of the quarter, a 3.1% decline in total customers from the end of the second quarter a year ago (customers of franchisees are not customers of Aaron's, Inc.).

Progressive Results

Progressive's revenues in the second quarter of 2015 were $255.9 million and $507.6 million for the first six months. EBITDA for the second quarter and first six months of 2015 was $36.0 million and $64.3 million, respectively. As a percentage of revenues, EBITDA was 14.0% for the second quarter and 12.7% for the first six months of 2015. Write offs for damaged, lost or unsaleable merchandise were 6.1% of revenues.

Progressive had 473,000 customers at June 30, 2015. Progressive's results of operations beginning on its acquisition date of April 14, 2014 were included in the Company's financial statements for the second quarter of 2014.

The strength of Progressive's EBITDA margin in the second quarter was driven by strong lease portfolio performance, improved collection metrics, and increasing leverage on fixed operating expenses. Invoice volume per active door grew 28%.

Components of Revenue

Consolidated lease revenues and fees for the second quarter and six months of 2015 increased 19.5% and 33.9%, respectively, over the comparable prior year periods. Franchise royalties and fees decreased 4.5% in the second quarter and 5.3% for the first six months of 2015 compared with the same periods in 2014. The decrease in the Company's franchise royalties and fees are primarily the result of a decrease in revenues of the Company's franchisees. Franchisees had revenues of $237.1 million during the second quarter and $497.9 million for the six months of 2015, decreases of 2.3% and 3.1%, respectively, from the comparable 2014 periods. Same store revenues and customer counts for franchised stores were down 1.6% and 2.2%, respectively, for the second quarter of 2015 compared with the same quarter last year (revenues and customers of franchisees, however, are not revenues and customers of Aaron's, Inc.). Non-retail sales, which are primarily sales of merchandise to Aaron's Sales and Lease Ownership franchisees, increased .7% for the second quarter and 2.8% for the six months of 2015 compared with the same periods last year.

Store Count

During the second quarter of 2015, the Company opened four Company-operated Aaron's Sales & Lease Ownership stores and three franchised stores. The Company acquired seven Aaron's Sales & Lease Ownership stores from franchisees and sold four Company-operated Aaron's Sales & Lease Ownership stores to franchisees, one of which was merged with an existing franchised location. Twenty-five Company-operated Aaron's Sales & Lease Ownership stores and three franchised Aaron's Sales & Lease Ownership stores were closed during the quarter. The Company also completed a six store swap with a third party during the quarter and merged the acquired stores with existing locations.

At June 30, 2015, the Company had 1,211 Company-operated Aaron's Sales & Lease Ownership stores, 784 franchised Aaron's Sales & Lease Ownership stores, 83 Company-operated HomeSmart stores, and two franchised HomeSmart stores. The total number of stores open at June 30, 2015 was 2,080.

2015 Outlook

The Company is updating its EBITDA and diluted earnings per share guidance for the full year 2015. No change is being made to the revenue guidance previously published on April 24, 2015. Diluted earnings per share is presented both on a GAAP basis and on a non-GAAP basis that excludes Progressive-related intangible amortization. The Company currently expects to achieve the following:

Core Business

  • EBITDA in the range of $205 million to $220 million compared with the previous guidance of $200 million to $220 million.

Progressive

  • EBITDA in the range of $120 million to $130 million compared with the previous guidance of $105 million to $115 million.

Consolidated Results

  • EBITDA in the range of $325 million to $350 million compared with the previous guidance of $305 million to $335 million.
  • GAAP diluted earnings per share in the range of $1.92 to $2.12 compared with the previous guidance of $1.78 to $1.98.
  • Non-GAAP adjusted diluted earnings per share in the range of $2.15 to $2.35 compared with the previous guidance of $2.01 to $2.21.

Conference Call and Webcast

Aaron's will hold a conference call to discuss its quarterly financial results on Friday, July 24, 2015, at 10:00 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Company's Investor Relations website, investor.aarons.com, in the "Investor Relations" section. The webcast will be archived for playback at that same site.

About Aaron's, Inc.

Aaron's, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories, has more than 2,000 Company-operated and franchised stores in 48 states, the District of Columbia, and Canada. Aaron's was founded in 1955, is headquartered in Atlanta and has been publicly traded since 1982. Progressive Leasing, a wholly-owned subsidiary and leading virtual lease-to-own company, provides lease-purchase solutions through more than 16,000 retail locations in 46 states. Aaron's, Inc. includes the Aarons.com, ShopHomeSmart.com and ProgLeasing.com brands. For more information, visit www.aarons.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release regarding Aaron's, Inc.'s business that are not historical facts are "forward-looking statements" that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. Such forward-looking statements generally can be identified by the use of forward-looking terminology, such as "may," "expect," "forecast," "guidance," "intend," "believe," "could," "project," "estimate," "anticipate," "should" and similar terminology. These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, legal and regulatory proceedings, customer privacy, information security, customer demand, the integration of the Progressive acquisition, the execution and results of our new strategy, risks related to Progressive's "virtual" lease-to-own business with which the Company may be unfamiliar, and the other risks and uncertainties discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 as updated in its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015. Statements in this release that are "forward-looking" include without limitation: statements regarding the impact of the Company's strategies for its core business, new product introduction and Aaron's projected results (including Progressive's results) for the remainder of 2015, including statements under the heading "2015 Outlook." You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except as required by law, the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances after the date of this press release.

 

Aaron's, Inc. and Subsidiaries

Consolidated Statements of Earnings

(In thousands, except per share amounts)

 

(Unaudited)  Three Months Ended

(Unaudited)  Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Revenues:

Lease Revenues and Fees

$

660,472

$

552,494

$

1,355,754

$

1,012,310

Retail Sales

7,073

8,419

19,067

22,929

Non-Retail Sales

84,449

83,893

180,486

175,518

Franchise Royalties and Fees

15,491

16,225

32,495

34,309

Other

1,564

1,459

3,061

2,847

Total

769,049

662,490

1,590,863

1,247,913

Costs and Expenses:

Depreciation of Lease Merchandise

294,362

232,715

610,348

400,627

Retail Cost of Sales

4,849

5,478

12,553

14,491

Non-Retail Cost of Sales

76,463

76,227

163,315

159,134

Operating Expenses

325,555

311,116

653,475

573,815

Financial Advisory and Legal Costs

12,404

13,276

Progressive-Related Transaction Costs

5,464

6,267

Restructuring Expenses

2,264

2,264

Other Operating Expense/(Income), Net

277

5

(1,183)

(672)

Total

701,506

645,673

1,438,508

1,169,202

Operating Profit

67,543

16,817

152,355

78,711

Interest Income

792

1,074

1,231

1,827

Interest Expense

(5,622)

(5,479)

(11,591)

(7,012)

Other Non-Operating Income, Net

1,641

1,150

189

746

Earnings Before Income Taxes

64,354

13,562

142,184

74,272

Income Taxes

23,808

5,057

52,395

27,428

Net Earnings

$

40,546

$

8,505

$

89,789

$

46,844

Earnings Per Share

$

.56

$

.12

$

1.24

$

.65

Earnings Per Share Assuming Dilution

$

.56

$

.12

$

1.23

$

.64

Weighted Average Shares Outstanding

72,572

72,246

72,544

72,356

Weighted Average Shares Outstanding Assuming Dilution

72,965

72,598

72,910

72,733

 

Selected Balance Sheet Data

(In thousands)

(Unaudited)

June 30, 2015

December 31, 2014

Cash and Cash Equivalents

$

91,144

$

3,549

Investments

22,758

21,311

Accounts Receivable, Net

95,971

107,383

Lease Merchandise, Net

1,038,133

1,087,032

Property, Plant and Equipment, Net

211,886

219,417

Other Assets, Net

895,507

1,018,152

Total Assets

2,355,399

2,456,844

Debt

494,858

606,082

Total Liabilities

1,038,310

1,233,323

Shareholders' Equity

$

1,317,089

$

1,223,521

 

Use of Non-GAAP Financial Information:

This press release presents the Company's net earnings and diluted earnings per share in accordance with generally accepted accounting principles in the United States ("GAAP") and in a format that is not in accordance with GAAP due to the exclusion of $6.6 million in Progressive-related intangible amortization expense in the second quarter of 2015 and $13.2 million for the six months of 2015, as well as the exclusion of certain 2014 charges as presented and described in previous releases and as shown in this press release for comparative purposes.

Management regards the amortization expense relating to the Company's acquisition of Progressive as a special charge not arising out of the ordinary course of business. Management believes that presentation of net earnings and diluted earnings per share excluding this adjustment is useful because it gives investors supplemental information to evaluate and compare the Company's underlying operating performance from period to period.

Non-GAAP financial measures, however, should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, such as the Company's GAAP basis net earnings and diluted earnings per share and the GAAP operating income of the Company's segments, which are also presented in the press release. Please refer to our Current Report on Form 8-K furnishing this earnings release to the U.S. Securities and Exchange Commission on the date hereof for further information on our use of non-GAAP financial measures.

 

 

Reconciliation of Net Earnings and Earnings Per Share Assuming Dilution to Non-GAAP

Net Earnings and Earnings Per Share Assuming Dilution

(In thousands, except earnings per share)

(Unaudited)  Three Months Ended   June 30,

(Unaudited)  Six Months Ended   June 30,

2015

2014

2015

2014

Net Earnings

$

40,546

$

8,505

$

89,789

$

46,844

Add Progressive-Related Intangible Amortization Expense (1)(2)

4,150

6,083

8,320

6,118

Add Financial Advisory and Legal Costs (3)

7,779

8,373

Add Estimated Progressive-Related Transaction Cost (4)

3,426

3,953

Add Restructuring Expenses (5)

1,420

1,428

Non-GAAP Net Earnings

$

44,696

$

27,213

$

98,109

$

66,716

Earnings Per Share Assuming Dilution

$

.56

$

.12

$

1.23

$

.64

Add Progressive-Related Intangible Amortization Expense

.05

.08

.12

.08

Add Financial Advisory and Legal Costs

.11

.12

Add Progressive-Related Transaction Costs

.05

.05

Add Restructuring Expenses

.02

.02

Non-GAAP Earnings Per Share Assuming Dilution (6)

$

.61

$

.37

$

1.35

$

.92

Weighted Average Shares Outstanding Assuming Dilution

72,965

72,598

72,910

72,733

(1)

Net of taxes of $2,437 for the three months and $4,855 for the six months ended June 30, 2015 calculated using the effective tax rate for the three and six months ended June 30, 2015.

(2)

Net of taxes of $3,617 for the three months and $3,582 for the six months ended June 30, 2014 calculated using the effective tax rates for the three and six months ended June 30, 2014.

(3)

Net of taxes of $4,625 for the three months and $4,903 for the six months ended June 30, 2014 calculated using the effective tax rates for the three and six months ended June 30, 2014.

(4)

Net of taxes of $2,038 for the three months and $2,314 for the six months ended June 30, 2014 calculated using the effective tax rates for the three and six months ended June 30, 2014.

(5)

Net of taxes of $844 for the three months and $836 for the six months ended June 30, 2014 calculated using the effective tax rates for the three and six months ended June 30, 2014.

(6)

In some cases the sum of individual EPS amounts may not equal total EPS calculations.

 

 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Quarterly Segment EBITDA

(In thousands)

(Unaudited)

Three Months Ended June 30, 2015

Sales & Lease Ownership

Progressive

HomeSmart

Franchise

Manufacturing

Other1

Consolidated Total

Net Earnings

$

$

$

$

$

$

$

40,546

Income Taxes

23,808

Earnings Before Income   Taxes

40,690

23,314

48

11,993

376

(12,067)

64,354

Interest Expense

1,949

5,595

214

7

(2,143)

5,622

Depreciation

7,328

464

619

375

351

3,722

12,859

Amortization

363

6,587

3

6,953

EBITDA

$

50,330

$

35,960

$

884

$

12,368

$

734

$

(10,488)

$

89,788

Three Months Ended June 30, 2014

Sales & Lease Ownership

Progressive

HomeSmart

Franchise

Manufacturing

Other1

Consolidated Total

Net Earnings

$

$

$

$

$

$

$

8,505

Income Taxes

5,057

Earnings Before Income   Taxes

31,825

(323)

(460)

11,073

(89)

(28,464)

13,562

Interest Expense

1,981

4,254

222

13

(991)

5,479

Depreciation

8,676

260

647

403

384

3,274

13,644

Amortization

515

9,699

102

10,316

EBITDA

$

42,997

$

13,890

$

511

$

11,476

$

308

$

(26,181)

$

43,001

1Other segment is primarily revenues attributable to (i) the RIMCO segment through the date of sale in January 2014, (ii) leasing space to unrelated third parties in the corporate headquarters building and (iii) several minor unrelated activities. The pre-tax losses or earnings in the Other segment are the net result of the activity mentioned above, net of the portion of corporate overhead not allocated to the reportable segments for management purposes.

 

 

Aaron's, Inc. and Subsidiaries

Non-GAAP Financial Information

Six Months Segment EBITDA

(In thousands)

(Unaudited)

Six Months Ended June 30, 2015

Sales & Lease Ownership

Progressive

HomeSmart

Franchise

Manufacturing

Other1

Consolidated Total

Net Earnings

$

$

$

$

$

$

$

89,789

Income Taxes

52,395

Earnings Before Income Taxes

99,731

39,144

574

25,891

1,658

(24,814)

142,184

Interest Expense

3,881

11,064

454

17

(3,825)

11,591

Depreciation

15,037

918

1,247

741

733

7,165

25,841

Amortization

731

13,175

9

13,915

EBITDA

$

119,380

$

64,301

$

2,284

$

26,632

$

2,408

$

(21,474)

$

193,531

Six Months Ended June 30, 2014

Sales & Lease Ownership

Progressive

HomeSmart

Franchise

Manufacturing

Other1

Consolidated Total

Net Earnings

$

$

$

$

$

$

$

46,844

Income Taxes

27,428

Earnings Before Income Taxes

87,992

(323)

(586)

25,631

458

(38,900)

74,272

Interest Expense

3,925

4,254

471

28

(1,666)

7,012

Depreciation

17,506

260

1,298

829

767

6,350

27,010

Amortization

1,105

9,699

205

11,009

EBITDA

$

110,528

$

13,890

$

1,388

$

26,460

$

1,253

$

(34,216)

$

119,303

1Other segment is primarily revenues attributable to (i) the RIMCO segment through the date of sale in January 2014, (ii) leasing space to unrelated third parties in the corporate headquarters building and (iii) several minor unrelated activities. The pre-tax losses or earnings in the Other segment are the net result of the activity mentioned above, net of the portion of corporate overhead not allocated to the reportable segments for management purposes.

 

 

 

Reconciliation of 2015 Projected Guidance for Earnings Per Share

Assuming Dilution to Non-GAAP Earnings Per Share Assuming Dilution

Fiscal Year 2015

Low Range

High Range

Projected Earnings Per Share Assuming Dilution

$

1.92

$

2.12

Add Projected Progressive-Related Intangible Amortization Expense

.23

.23

Projected Non-GAAP Earnings Per Share Assuming Dilution

$

2.15

$

2.35

 

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SOURCE Aaron's, Inc.



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