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Aaron's, Inc. Reports Second Quarter 2015 Results

07/24/2015
- Total Revenues of $769.0 Million, up 16%
- GAAP Diluted EPS of $.56
- Non-GAAP Diluted EPS of $.61
- Raises 2015 Guidance

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.

Aaron's logo

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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To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/aarons-inc-reports-second-quarter-2015-results-300118252.html

SOURCE Aaron's, Inc.

Aaron's, Inc., Sharon J. Lawrence, Vice President, Finance, 678.402.3000; SCR Partners, Jeff Black, 615.760.3679, JBlack@scr-ir.com

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