Aaron Rents, Inc. Reports Third Quarter Results -- Revenues Up 20%; Same Store Revenues Up 8.4%; Earnings Impacted by Hurricanes Katrina and Rita

Oct 27, 2005

ATLANTA, Oct 27, 2005 /PRNewswire-FirstCall via COMTEX News Network/ -- Aaron Rents, Inc. (NYSE: RNT), the nation's leader in the sales and lease ownership, specialty retailing and rental of residential and office furniture, consumer electronics and home appliances and accessories, today announced revenues and earnings for the quarter ended September 30, 2005.

Revenues for the Company increased 20% for the third quarter, including a 22% increase in the Aaron's Sales & Lease Ownership division. Same store revenues for the Aaron's Sales & Lease Ownership division were up 8.4% for the third quarter compared to the same period a year ago. Hurricanes Katrina and Rita negatively impacted earnings in the quarter.

For the third quarter of 2005, revenues increased 20% to $278.7 million compared to $231.6 million for the same period a year ago. Net earnings were $8.8 million versus $10.6 million for the same quarter last year. Diluted earnings per share were $.17 compared to $.21 per share in 2004.

For the first nine months of this year, revenues advanced 18% to $829.4 million compared to $704.4 million for the first nine months of 2004. Net earnings for the nine months were up 12% to $43.4 million versus $38.8 million for the corresponding period last year. Diluted earnings per share for the first nine months were $.85 for 2005 and $.77 for 2004.

"Our third quarter results were obviously negatively affected by Hurricanes Katrina and Rita," said R. Charles Loudermilk, Sr., Chairman and Chief Executive Officer of Aaron Rents. "Approximately 125 of our Company- operated stores and five franchised stores in Louisiana, Mississippi, Texas, and Alabama had operations affected to some degree, with 18 of our Company- operated stores being severely impacted by these two disastrous storms. In addition, although our revenue growth has been excellent, high energy prices, increasing operating costs, and economic uncertainties have begun to create a more difficult market environment for many of our stores."

Included in the third quarter and first nine months financial results was $3.9 million of the estimated loss of merchandise in customers' homes and in stores that was either destroyed or severely damaged by Hurricanes Katrina and Rita, of which approximately $1.1 million is expected to be covered by insurance proceeds. The net pre-tax expense recorded in the third quarter for these estimated damages was $2.8 million, or $.04 per diluted share. The Company also estimates that property damage to stores in the affected markets will approximate $1.0 million, with insurance proceeds expected to fully cover these estimated costs. In addition, included in other income for the third quarter is $721,000 of expected proceeds from business interruption insurance associated with the operations of the hurricane-affected stores.

Although difficult to accurately quantify, the revenues and profitability of the stores in the four states in the hurricanes' path were adversely affected in the third quarter beyond insurance proceeds due to the displacement of customers, business closings and interruptions, collection difficulties, salary continuation and assistance for employees, and other extra costs.

"As we have stated before, our experience on past major hurricanes is that our business picks up three to six months after the storm occurs as customers return to their homes and need replacement furnishings," Mr. Loudermilk, Sr. continued. "We expect these events to result in increased business over the longer term, although the higher incidence of customer displacement caused by Hurricane Katrina in particular compared with past storms may affect this expectation. We will continue to assess the effects of Hurricanes Katrina and Rita."

The Aaron's Sales & Lease Ownership division increased its third quarter revenues 22% to $249.2 million compared to $204.3 million last year. First nine months sales and lease ownership revenues increased 20% to $739.3 million compared to $617.2 million a year ago.

Same store revenues (revenues earned in Company-operated stores open for the entirety of both periods) in the Aaron's Sales & Lease Ownership division increased 8.4% during the third quarter of 2005 compared to the third quarter of 2004. Same store revenues also increased 4.7% for Aaron's Sales & Lease Ownership stores open over two years at the end of September 2005.

The Company's rent-to-rent division increased revenues 6% during the third quarter to $28.7 million compared to $27.0 million a year ago. This division has seen a significant increase in revenues since Hurricane Katrina and revenues for the fourth quarter are expected to be up over 12%. Due to the substantial upfront costs of rapidly delivering merchandise to customers, earnings for the division were down 13% for the quarter to $1.5 million.

Rentals and fees for both the third quarter and the first nine months increased 21% over the previous year. In addition, franchise royalties and fees increased 15% for the third quarter and 21% year-to-date. Non-retail sales, which are primarily sales of rental merchandise to Aaron's Sales & Lease Ownership franchisees, increased 19% to $43.7 million for the third quarter from $36.8 million in the comparable period in 2004 and 11% to $131.5 million for the first nine months compared to $118.6 million for the same period last year. The increases in the Company's franchise revenues and the shipments of non-retail sales are the result of the increase in revenues of the Company's franchisees, who collectively had revenues of $312.3 million for the first nine months of 2005, a 19% increase over the comparable prior year period. Revenues of franchisees, however, are not revenues of Aaron Rents, Inc.

During the third quarter the Aaron's Sales & Lease Ownership division opened 13 new Company-operated stores, 22 new franchised stores and five RIMCO stores. In addition, during the quarter the Company acquired seven franchised stores, three stores from independent rental operators, and purchased the accounts of two other third party stores. The Company also closed five Company-operated stores during the quarter, four of which were in the New Orleans market. The Company expects new store openings for Company-operated and franchised stores combined to exceed 140 in 2005, in addition to a small number of third party acquisitions.

Through the three months and nine months ended September 30, the Company awarded area development agreements to open 13 and 50 additional franchised stores, respectively. At the end of September there were a total of 292 franchised stores awarded that are expected to be opened over the next several years.

At September 30 the Aaron's Sales and Lease Ownership division had 699 Company-operated stores and 383 franchised stores, as well as eight RIMCO stores. In addition, the Company operated 59 rent-to-rent stores.

"Even though our customers are facing some challenges which may slightly affect our revenue growth, and the effects of the hurricanes will still linger into the fourth quarter and beyond, we still anticipate strong growth for the fourth quarter and on into 2006. We expect in the fourth quarter of 2005 to achieve revenues in excess of $285 million, an 18% plus increase over the previous year's quarter, and diluted earnings per share in the range of $.26 to $.29," Mr. Loudermilk, Sr. continued. "For the 2005 fiscal year we expect Company revenues in excess of $1.1 billion (excluding revenues of franchisees) and diluted earnings per share in the range of $1.11 to $1.14. Our guidance for 2006 is to continue to increase our store base over 15% per year and to achieve diluted earnings per share in the range of $1.45 to $1.55."

Aaron Rents will hold a conference call to discuss its quarterly financial results on Thursday, October 27, 2005, at 4:30 pm Eastern Time. The public is invited to listen in to the conference call by webcast accessible through the Company's website, www.aaronrents.com, in the "Investor Relations" section. The webcast will be archived for playback at that same site.

Aaron Rents, Inc. based in Atlanta, currently has more than 1,150 Company- operated and franchised stores in 46 states, Canada, and Puerto Rico for the rental and sale of residential and office furniture, accessories, consumer electronics and household appliances. The Company also manufactures furniture, bedding and accessories at 10 facilities in four states.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release regarding Aaron Rents, Inc.'s business which 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. These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, customer demand and other issues, and the risks and uncertainties discussed under "Certain Factors Affecting Forward- Looking Statements" in the Company's Annual Report on Form 10-K for fiscal 2004, which discussion is incorporated herein by this reference. Statements in this release that are "forward-looking" include without limitation Aaron Rents' projected revenues, earnings, and store openings for 2005 and 2006 and its statements regarding the future effects of Hurricanes Katrina and Rita.

Aaron Rents, Inc. and Subsidiaries
                     Consolidated Statements of Earnings
                   (In thousands, except per share amounts)

                                    (Unaudited)               (Unaudited)
                                 Three Months Ended         Nine Months Ended
                                    September 30,             September 30,

                                 2005         2004         2005         2004

    Revenues:
      Rentals and Fees       $210,951     $173,721     $626,722     $516,318
      Retail Sales             14,442       13,651       43,799       42,700
      Non-Retail Sales         43,709       36,831      131,492      118,602
      Franchise Royalties
       and Fees                 7,548        6,568       21,876       18,094
      Other                     2,017          877        5,464        8,713
        Total                 278,667      231,648      829,353      704,427
    Costs and Expenses:
      Retail Cost of Sales      9,449        9,785       29,077       30,158
      Non-Retail Cost of Sales 40,639       34,253      122,361      110,268
      Operating Expenses      136,003      104,864      377,236      307,615
      Depreciation of Rental
       Merchandise             76,727       63,845      226,231      189,377
      Interest                  2,343        1,350        5,680        3,824
        Total                 265,161      214,097      760,585      641,242

    Earnings Before Taxes      13,506       17,551       68,768       63,185

    Income Taxes                4,663        6,904       25,383       24,336

    Net Earnings               $8,843      $10,647      $43,385      $38,849

    Earnings Per Share           $.18         $.21         $.87         $.78

    Earnings Per Share
     Assuming Dilution           $.17         $.21         $.85         $.77

    Weighted Average
     Shares Outstanding        49,861       49,711       49,807       49,557

    Weighted Average
     Shares Outstanding
     Assuming Dilution         50,844       50,681       50,786       50,500



                         Selected Balance Sheet Data
                                (In thousands)

                                                   (Unaudited)
                                                  September 30,   December 31,
                                                        2005           2004

    Cash                                              $6,753         $5,865
    Accounts Receivable, Net                          43,623         32,736
    Rental Merchandise, Net                          476,932        425,567
    Property, Plant and
     Equipment, Net                                  133,899        111,118
    Other Assets, Net                                125,123        125,002
    Total Assets                                     786,330        700,288

    Bank Debt                                         54,353         45,528
    Senior Notes                                     100,000         50,000
    Total Liabilities                                366,923        325,110
    Shareholders' Equity                           $ 419,407       $375,178

SOURCE Aaron Rents, Inc.

Gilbert L. Danielson
Executive Vice President, Chief Financial Officer of Aaron Rents, Inc.
+1-678-402-3334