Aaron's (AAN) Down 67% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Aaron's (AAN). Shares have lost about 67% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aaron's due for a breakout? 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 catalysts.

Aaron's Q4 Earnings & Sales Beat, Muted View

Aaron's reported robust fourth-quarter 2019 results. Aaron's reported adjusted earnings of $1.15 per share, which surpassed the Zacks Consensus Estimate of $1.06. Moreover, the metric rose 12.7% from the prior-year quarter.

Including one-time items, the company reported loss per share of $1.60 on a GAAP basis against earnings of 89 cents reported in the year-ago quarter.

Consolidated revenues inched up 1% year over year to $1003.6 million but missed the Zacks Consensus Estimate of $1008 million. The top line grew 8.4% when calculated on the basis of the 2019 adoption of ASC 842 associated with lease accounting. The revenue growth was backed by an increase in Progressive (NYSE:PGR) revenues and contributions from franchised stores acquired by the Aaron's Business segment. This was partly offset by the company’s store closures in 2019.

Aaron’s franchisee revenues declined 13.5% from the year-ago quarter to $101.2 million. However, same-store revenues for franchised stores decreased 1.2% and same-store customer counts dipped 4.9% in the reported quarter. Notably, the company’s franchisees had a customer base of 239,000 at the end of the quarter.

Adjusted EBITDA rose 11.1% year over year to $125.2 million, owing to robust growth at the Progressive segment. Adjusted EBITDA margin was up 30 bps to 12.5%, when calculated on the basis of the 2019 adoption of ASC 842.

Segment Details

Progressive Leasing

Revenues at the segment grew 6.7% year over year to $559.5 million in the reported quarter. Invoice volume rose 34.4% from the prior-year period, owing to a 23.3% rise in invoice volume per active door and a 9% increase in active doors to roughly 22,000. As of Dec 31, 2019, the division had 1,072,000 customers, reflecting 22.4% year-over-year growth. The segment’s EBITDA was $77.1 million, up 17.6% from the year-ago quarter. Further, EBITDA margin contracted 50 bps to 13.8%.

Aaron's Business

Total revenues at the Aaron’s Business segment fell 5.4% from the year-ago period to $435 million, thanks to lack of revenues from net closure of 145 stores in 2019, and revenue attrition from prior-year store mergers and lower collections. This was partly offset by gains from contributions from the buyout of 152 franchised locations. Moreover, same-store revenues inched up 0.4%, while customer count declined 4.8% from the prior-year level.

Non-retail sales tumbled 30.8% on a year-over-year basis. Lease revenues and fees for the three months ended Dec 31, 2019 decreased 1.2% from the comparable year-ago period. At the quarter-end, company-operated Aaron’s stores had 946,000 customers, reflecting an 8.9% year-over-year decrease. The segment’s adjusted EBITDA was $49.3 million, up 3.6% year over year, driven by recovery in collections performance, expense management and gains from real estate sales. Also, adjusted EBITDA margin expanded 90 bps to 11.3%.

As of Dec 31, 2019, the Aaron's Business segment had 1,167 company-operated stores and 335 franchised stores.

Vive

Sales at the Vive segment, formerly known was Dent-A-Med, Inc. (DAMI), amounted to $9.1 million, in line with the year-ago period.

Financial Position

The company ended the quarter with cash and cash equivalents of $57.8 million, debt of $341 million, and shareholders’ equity of $1,737.3 million. As of Dec 31, 2019, the company generated cash from operations of $317.2 million. Moreover, it repurchased 513,900 shares for $29.8 million in 2019. The company expects capital expenditure within $90-$100 million for 2020.

Guidance

Management provided guidance for 2020, which was lower than analyst expectations. The company projects total revenues in the band of $4,150-$4,300 million for 2020. Adjusted EBITDA is anticipated in the range of $430-$458 million.

Total Revenues at the Aaron’s Business segment are projected within $1,575-$1,625 million, while revenues at the Progressive segment are envisioned in the $2,540-$2,635 million range. However, revenues at the Vive segment are expected within $35-$40 million.

Adjusted EBITDA is anticipated within $125-$135 million for the Aaron’s Business and $310-$325 million for the Progressive division. For the Vive segment, management projects adjusted EBITDA of negative $2-$5 million. For 2020, management expects adjusted earnings in the range of $3.80-$4.00 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -29.07% 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. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Aaron's has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.