THE AARON'S COMPANY, INC. Q1 2024 Earnings Results
May 6, 2024
Special Note Regarding Forward-Looking Information
Statements in this presentation regarding our 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 "believe," "expect," "expectation," "anticipate," "may," "could," "should," "intend," "seek," "estimate," "plan," "target," "project," "likely," "will," "forecast," "future," "outlook," or other similar words, phrases, or expressions. These risks and uncertainties include factors such as (i) changes in the enforcement of existing laws and regulations and the adoption of new laws and regulations that may unfavorably impact our business, and failures to comply with existing or new laws or regulations, including those related to consumer protection, as well as an increased focus on our industry by federal and state regulatory authorities; (ii) our ability to execute on our multi-year strategic plan and achieve the benefits and outcomes we expect, including improving our business, centralizing key processes such as customer lease decisioning and payments, real estate optimization, enhancing our e-commerce platform and digital acquisition channels, enhancing and growing BrandsMart, and optimizing our cost structure; (iii) our ability to attract and retain key personnel; (iv) our ability to manage cybersecurity risks, disruptions or failures in our information technology systems and to protect the security of personal information of our customers and employees; (v) weakening general market and economic conditions, especially as they may affect retail sales, increased interest rates, unemployment and consumer confidence; (vi) the concentration of our stores in certain regions or limited markets; (vii) the current inflationary environment could result in increased labor, raw materials or logistics costs that we are unable to offset or accelerating prices that result in lower lease volumes; (viii) business disruptions due to political and economic instability resulting from global conflicts such as the Russia-Ukraine conflict and related economic sanctions and the conflict in Israel, Palestine and surrounding areas, as well as domestic civil unrest; (ix) any future potential pandemics, as well as related measures taken by governmental or regulatory authorities to combat the pandemic; (x) challenges faced by our business, including commoditization of consumer electronics, our high fixed-cost operating model and the ongoing labor shortage; (xi) increased competition from direct-to-consumer and virtual lease-to-own competitors, as well as from traditional and online retailers and other competitors; (xii) increases in lease merchandise write-offs; (xiii) any failure to realize the benefits expected from the acquisition of BrandsMart, including projected synergies; (xiv) the acquisition of BrandsMart may create risks and uncertainties which could materially and adversely affect our business and results of operations; (xv) our ability to successfully acquire and integrate businesses and to realize the projected results and expected benefits of acquisitions or strategic transactions; (xvi) our ability to maintain or improve market share in the categories in which we operate despite heightened competitive pressure; (xvii) our ability to improve operations and realize cost savings; and (xviii) the other risks and uncertainties discussed under "Risk Factors" in the Company's most recent Annual Report on Form 10-K and from time to time in other documents that we file with the SEC. Statements in this presentation that are "forward-looking" include without limitation statements about: (i) the execution of our key strategic priorities; (ii) the growth and other benefits we expect from executing those priorities; (iii) our financial performance outlook; and (iv) the Company's goals, plans, expectations, and projections. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. 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 presentation.
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CEO Comments
"We are seeing strong positive momentum in the business, and our first quarter results were in line with our guidance. Our new omnichannel lease decisioning and customer acquisition program at the Aaron's Business is driving significant growth in lease merchandise deliveries, and we continue to expect mid-single digit lease portfolio growth by the end of 2024. At BrandsMart, we continue to achieve operational efficiencies, and despite the challenging retail demand environment, comparable sales improved sequentially.
We remain focused on our strategic priorities of improving operational performance, streamlining our cost structure, and innovating our business to better serve customers. Our management team and Board remain highly engaged and committed to taking all actions that will deliver additional value for our shareholders."
Douglas Lindsay
CEO, The Aaron's Company, Inc.
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Key Themes
- Delivered first quarter consolidated revenues and adjusted earnings in line with expectations, with operational improvements leading to positive momentum in the business
- Aaron's Business recurring revenue written increased 2.3% driven by 6.8% growth in lease merchandise deliveries
- E-commercerecurring revenue written increased 94.1% benefiting from new omnichannel lease decisioning and customer acquisition program
- Lease portfolio size ended Q1 down 4.8% YoY after starting the year down 7%; same store lease portfolio size ended Q1 down only 1.4% YoY after starting the year down 4.4%
- Positive momentum continued into Q2 with April lease merchandise deliveries up 18.6% YoY driven by e-commerce growth of 116.3%
- Write-offswere 5.9%; expect full year write-offs in line with guidance of 6% to 7%
- BrandsMart comparable sales decreased 9.4%, a sequential improvement of 460 basis points
- Reaffirms full year 2024 outlook for revenue and adjusted EBITDA and raises outlook for non-GAAP EPS on lower estimated tax rate
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Q1 Highlights
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Consolidated Q1 2024 Results of Operations1
Three Months Ended March 31, | Variance | ||||||||
($ in Thousands, except per share) | 2024 | 2023 | $ | % or bps | |||||
Consolidated | $ | 511,497 | $ | 554,361 | $ | (42,864) | (7.7) | % | |
Revenues | Aaron's Business | 381,055 | 412,133 | (31,078) | (7.5) | % | |||
BrandsMart | 132,523 | 144,158 | (11,635) | (8.1) | % | ||||
Consolidated | $ | 273,883 | $ | 295,694 | $ | (21,811) | (7.4) | % | |
Gross Profit | Aaron's Business | 244,631 | 260,706 | (16,075) | (6.2) | % | |||
BrandsMart | 29,476 | 35,135 | (5,659) | (16.1) | % | ||||
Gross Profit | Consolidated | 53.5% | 53.3% | -- | 20 bps | ||||
Aaron's Business | 64.2% | 63.3% | -- | 90 bps | |||||
Margin % | |||||||||
BrandsMart | 22.2% | 24.4% | -- | (220) bps | |||||
Net (Loss) Earnings | Consolidated | $ | (14,181) | $ | 12,798 | $ | (26,979) | nmf | |
Adjusted | Consolidated | $ | 22,749 | $ | 45,878 | $ | (23,129) | (50.4) | % |
Aaron's Business | 37,734 | 54,562 | (16,828) | (30.8) | % | ||||
EBITDA2 | |||||||||
BrandsMart | (2,588) | 2,757 | (5,345) | nmf | |||||
Adjusted EBITDA | Consolidated | 4.4% | 8.3% | -- | (390) bps | ||||
Aaron's Business | 9.9% | 13.2% | -- | (330) bps | |||||
Margin % | BrandsMart | (2.0)% | 1.9% | -- | (390) bps | ||||
(Loss) Earnings | Diluted (Loss) Earnings Per Share | $ | (0.46) | $ | 0.41 | $ | (0.87) | nmf | |
Per Share | Non-GAAP Diluted (Loss) Earnings Per Share2 | $ | (0.15) | $ | 0.66 | $ | (0.81) | (122.7) | % |
Cash Flow | Cash (Used In) Provided by Operating Activities | $ | (18,540) | $ | 60,960 | $ | (79,500) | (130.4) | % |
Adjusted Free Cash Flow2 | $ | (33,211) | $ | 42,546 | $ | (75,757) | nmf | ||
- Consolidated totals include unallocated corporate costs and intersegment elimination amounts
- Non-GAAPreconciliations of adjusted EBITDA, EPS, and adjusted free cash flow are included in the Appendix
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The Aaron's Company - Consolidated Q1 Highlights1
Revenues
-7.7% | |
$554.4M | $511.5M |
Q1 2023 | Q1 2024 |
Adjusted EBITDA | Highlights | |
-50.4% | • Revenues decreased YoY primarily due to | |||
lower lease revenues and fees at the | ||||
$45.9M | Aaron's Business and lower retail sales at | |||
$22.7M | BrandsMart | |||
Adjusted EBITDA and adjusted EBITDA | ||||
• | ||||
margin decreased YoY primarily due to | ||||
Q1 2023 | Q1 2024 | lower revenues at both business | ||
segments and higher other operating | ||||
Margin % | 8.3% | 4.4% | ||
expenses and write-offs |
Non-GAAP Diluted EPS
$0.66
-$0.15
Q1 2023 | Q1 2024 |
Adjusted Free Cash Flow
$42.5M
-$33.2M | |
Q1 2023 | Q1 2024 |
- Partially offset by lower personnel costs in both business segments
- Non-GAAPdiluted EPS decreased YoY as a result of lower consolidated earnings
- Adjusted free cash flow decreased YoY primarily due to purchases of lease merchandise inventory to support the growth in new agreement deliveries at the Aaron's Business and lower earnings at both business segments
1. Non-GAAP reconciliations of adjusted EBITDA, EPS, and adjusted free cash flow are included in the Appendix
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Aaron's Business Q1 Highlights
Revenues | |
-7.5% | |
$412.1M | $381.1M |
Q1 2023 | Q1 2024 |
Lease Portfolio Size
-4.8% | |
$121.9M | $116.1M |
Q1 2023 | Q1 2024 |
Adjusted EBITDA1 | Highlights |
-30.8% | • Revenues decreased YoY primarily due to | |||
a smaller lease portfolio size and lower | ||||
$54.6M | lease renewal rate; the lower lease | |||
$37.7M | renewal rate primarily resulted from an | |||
increasing mix of e-commerce | ||||
agreements written into the portfolio | ||||
Q1 2023 | Q1 2024 | ‒ E-commerce revenues increased 20.8% | ||
YoY, representing 24.0% of lease | ||||
Margin % | 13.2% | 9.9% | ||
revenues | ||||
Lease Renewal Rate | • Provision for lease merchandise write- | |||
offs2 was 5.9% as compared to 5.4% in the | ||||
prior year quarter, primarily due to an | ||||
-110 bps | increasing mix of e-commerce | |||
agreements written into the portfolio | ||||
88.5% | 87.4% | • | Adjusted EBITDA and adjusted EBITDA | |
margin decreased YoY, primarily due to | ||||
lower revenues and increased | ||||
investments in advertising, partially offset | ||||
by actions taken to lower personnel costs | ||||
Q1 2023 | Q1 2024 |
- Adjusted EBITDA does not include unallocated corporate expenses; non-GAAP reconciliations are included in the Appendix
- Provision for lease merchandise write-offs as a percentage of lease revenues and fees, which includes the impact of intercompany eliminations
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Aaron's Business Q1 Highlights - Lease Portfolio Size
Ending Lease Portfolio Size
$126.5M | -4.8% | ||||||
$121.9M | $119.6M | $116.4M | $117.7M | $116.1M |
Q4 '22 | Q1 '23 | Q2 '23 | Q3 '23 | Q4 '23 | Q1 '24 |
Total & Same Store1 Ending Lease Portfolio Size YoY
Highlights
• The ending lease portfolio size began Q1 |
2024 down 7.0% YoY and ended the |
quarter down 4.8% YoY |
‒ This improvement was driven by 6.8% |
YoY growth in lease merchandise |
deliveries |
• The same store lease portfolio size |
began Q1 2024 down 4.4% YoY and ended |
the quarter down only 1.4% YoY |
‒ This improvement was driven by 10.1% |
growth in same store lease merchandise |
deliveries |
-6.1% | -6.0% | -6.6% | -5.1% | ||||||||
-7.2% | -7.5% | -7.5% | |||||||||
-8.6% | |||||||||||
Q4 '22 | Q1 '23 | Q2 '23 | Q3 '23 |
-1.4%
-4.4%
-4.8%-7.0%
Q4 '23 | Q1 '24 |
• This momentum has continued into Q2 |
‒ April lease merchandise deliveries |
increased 18.6% YoY (22.0% on same |
store basis) |
‒ Lease portfolio size ended April down |
3.7% YoY (down 0.2% on same store |
basis) |
Total Lease Portfolio Size Same Store Lease Portfolio Size
1. With respect to any metric, "same store" includes all stores open for the 15-month period at the end of each quarter, excluding stores that received lease agreements from other acquired, closed or merged stores
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Aaron's Business Q1 Highlights - E-commerce & GenNext Store Strategy
E-commerce Highlights
Recurring Revenue Written1
+94.1% | |
Q1 2023 | Q1 2024 |
Revenues | |
+20.8% | |
Q1 2023 | Q1 2024 |
% of Lease | 17.9% | 24.0% |
Revenues | ||
GenNext Store Highlights
% of Revenues2
33.4% | |
26.7% | |
Q1 2023 | Q1 2024 |
GenNext Store Count
Opened in the Quarter
Q1'24 Initial Count
Q1'23 Initial Count | 265 |
222 | |
11 | |
11 | |
211 | 254 |
Q1 2023 | Q1 2024 |
- Monthly recurring revenue written into the portfolio resulting from new lease agreements
- As a percent of lease and retail revenues; excludes GenNext stores open less than one month
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Disclaimer
Aaron's Company Inc. published this content on 07 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 May 2024 20:47:57 UTC.
