The Aarons Co Inc (AAN) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges with ...

• Consolidated Revenues: $511.5 million, a decrease from $554.4 million year-over-year.

• Adjusted EBITDA: $22.7 million, down from $45.9 million in the previous year.

• Non-GAAP Loss Per Share: $0.15.

• Adjusted Free Cash Flow: Use of cash $33.2 million.

• Lease Merchandise Deliveries Growth: Increased by 6.8% year-over-year.

• Same-Store Lease Portfolio Size: Down only 20 basis points year-over-year at the end of April; reached an inflection point in May with year-over-year growth.

• E-commerce Growth: Over 115% increase in leased merchandise deliveries year-over-year.

• Dividend: $0.125 per share payable on July 3rd to shareholders of record as of June 14th.

• Total Debt: $212.9 million, with a cash balance of $41 million.

• Effective Tax Rate: Revised to approximately 38%, down 12 percentage points from previous guidance.

• Warning! GuruFocus has detected 7 Warning Signs with AAN.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Aarons Co Inc (NYSE:AAN) reported that their performance for the first quarter was in line with guidance, showing positive momentum.

• E-commerce growth was significant, with over 115% increase, contributing positively to the company's performance.

• The Aarons Co Inc (NYSE:AAN) experienced the smallest decrease in lease portfolio size for the first quarter in a decade, indicating improved stability.

• The company's new omnichannel lease decisioning and customer acquisition program has significantly increased conversion rates of lease applications.

• The Aarons Co Inc (NYSE:AAN) has raised its outlook for non-GAAP diluted EPS for the full year 2024 due to a lower estimated tax rate.

Negative Points

• Despite exceeding top and bottom line expectations, comparable sales remained negative, indicating ongoing demand pressure.

• BrandSmart's profitability remains challenging, with the segment experiencing weaker customer traffic and a trend of customers trading down to lower-priced products.

• The lease renewal rate for the quarter was down approximately 110 basis points year over year, due to the increasing mix of e-commerce agreements.

• Write-offs as a percentage of lease revenues were up 50 basis points versus the prior year quarter, indicating increased credit risk.

• Consolidated revenues for the first quarter of 2024 decreased year-over-year, primarily due to lower lease revenues and fees at the Aaron's business and lower retail sales at BrandSmart.

Q & A Highlights

Q: Can you discuss how the store optimization efforts at Aaron's are progressing and any updated thoughts on the right level of store count moving forward? A: Douglas Lindsay, CEO, noted that Aaron's continues to rationalize markets and reduce costs, growing the e-commerce portfolio while maintaining strong customer service. The company opened 11 new stores and closed 30-40 in the quarter, with ongoing evaluations to optimize margins and efficiency. The focus is also on opening incremental net new stores, including showrooms, which cover markets more efficiently with lower working capital and smaller footprints.

Q: What specific factors contributed to the sequential improvement in the lease portfolio in April and May? A: Douglas Lindsay, CEO, explained that growth in the lease portfolio is driven by the company's omnichannel lease decisioning and customer acquisition program, which has significantly increased conversion rates and lease applications. The e-commerce channel saw over 100% growth in April, contributing to the positive trends.

Q: What gives you confidence in accelerating top-line growth at BrandSmart throughout 2024 to meet annual guidance? A: Stephen Olsen, President, attributed confidence to easier comparisons in the latter half of the year and anticipated demand rebound in key product categories. The focus remains on enhancing customer experience and operational efficiency.

Q: Can you provide an update on the health of the underlying consumer, particularly in light of inflation pressures? A: C. Kelly Wall, CFO, noted that while inflation has impacted consumers, Aaron's customers have shown resilience. The company's lease decisioning is effectively managing risk, and there hasn't been significant trade-down at Aaron's, although some pressure is evident at BrandSmart.

Q: Could you discuss the performance trends at BrandSmart and the integration progress post-acquisition? A: Stephen Olsen, President, reported that BrandSmart has seen growth in the leasing portfolio and retail sales year-over-year. The integration of financial decision tools across BrandSmart stores has been completed, improving performance and customer experience.

Q: How is the Augusta, Georgia store performing relative to expectations, and what are the plans for new store openings? A: Stephen Olsen, President, stated that the Augusta store is ramping up as expected, with positive customer feedback. The focus is on training and improving selling skills. New store openings are being evaluated based on real estate availability and development costs, with a new store planned in Kennesaw, Georgia.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.