ATLANTA -- 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 twelve months ended December 31, 2014.
For the fourth quarter of 2014, revenues increased 37% to $759.7 million compared to $553.9 million for the fourth quarter of 2013. Net earnings were $22.1 million versus $22.7 million a year ago. Diluted earnings per share were $.30 in both periods. The $205.9 million increase in revenue was due to $220.8 million in revenue from Progressive Leasing, acquired in April 2014, partially offset by a decrease in revenue from Aaron's core business.
"I am honored to be CEO of Aaron's as the Company begins its 60th year of operations," said John Robinson, Chief Executive Officer of Aaron's, Inc. "As we look at Aaron's today, we believe we have the right blend of assets to grow this Company into a true omni-channel lease purchase provider. Aaron's people, technology, brand, customer-base, retail relationships, store footprint, distribution network and manufacturing assets uniquely position us to execute this strategy."
"The growth of Progressive, driven by invoice volume growth at both new and existing retail doors, continues to exceed our expectations," continued Mr. Robinson. "We are continuing to invest in infrastructure to support our strong customer and retailer growth. We are also investing in our product to improve the efficiency of the process at the point of sale and to expand our offering to enable us to serve more customers."
"Aaron's traditional store-based business has not performed at a level that is satisfactory over the past few years," continued Mr. Robinson. "I have a high sense of urgency about improving our top-line, correctly aligning our cost structure, and managing the business for cash efficiency. While a number of initiatives are underway, including the realization of $50 million in annual cost savings, I am keenly focused on addressing each of these issues and will consider all options to improve our store-based operations."
"As CEO, my continuing priority will be to strengthen our Company for our customers, associates, franchisees, retail partners and shareholders. As we reduce costs and drive revenues in our profitable core business, we expect to generate the cash flows we need to reduce leverage, support the growth of Progressive and take opportunistic actions to create shareholder value," concluded Mr. Robinson.
For the twelve months ended December 31, 2014, revenues increased 22% to $2.725 billion compared to $2.235 billion for the twelve months ended December 31, 2013. Net earnings were $78.2 million versus $120.7 million last year. Diluted earnings per share for the twelve months were $1.08 for 2014 compared to $1.58 in 2013.
During the fourth quarter and full year of 2014, pre-tax earnings were negatively impacted by $8.8 million and $29.8 million of amortization expense related to the acquisition of Progressive, respectively, and $1.5 million and $2.8 million in Progressive deferred revenue fair value adjustments, respectively. Results in 2014 and 2013 were also affected by executive and other special retirement expenses, restructuring charges, regulatory investigation expense, Progressive transaction costs, financial advisory and legal costs related to addressing strategic matters, and change in vacation policy. See "Use of Non-GAAP Financial Information" and the related GAAP reconciliation accompanying this release.
On a non-GAAP basis, excluding the special charges, costs and expenses described above from all periods, net earnings for the fourth quarter of 2014 would have been $28.7 million compared to $22.7 million for the same period in 2013, and earnings per share assuming dilution would have been $.39 compared to $.30 a year ago. Net earnings for the twelve months of 2014 would have been $123.2 million compared to $142.4 million in 2013, and earnings per share assuming dilution would have been $1.69 versus $1.86 last year.
Adjusted EBITDA for the Company, which excludes the aforementioned special fees and expenses, was $62.8 million and $263.9 million for the three and twelve months ended December 31, 2014, respectively. Adjusted EBITDA is calculated as the Company's earnings before interest, depreciation on property, plant and equipment, amortization of intangible assets, income taxes and special fees and expenses.
Same store revenues in the core business (revenues earned in Company-operated stores open for the entirety of both quarters) decreased 2.8% during the fourth quarter of 2014 compared to the fourth quarter of 2013, and customer count on a same store basis was down 4.6%. For Company-operated stores open over two years at the end of December 31, 2014, same store revenues decreased 3.2% during the fourth quarter of 2014 compared to the fourth quarter of 2013. Company-operated Aaron's stores had 1,080,000 customers and its franchisees had 581,000 customers at the end of the most recent quarter, a 5% decline in total customers over the number at the end of the fourth quarter a year ago (customers of franchisees, however, are not customers of Aaron's, Inc.).
The effective tax rate increased in the fourth quarter of 2014 to 35.5% compared to 33.5% in the fourth quarter of 2013. The effective tax rate also increased for the twelve months of 2014 to 35.7% compared to 34.8% in the same period a year ago. The increase in the tax rate for both the quarter and year ended December 31, 2014 is primarily the result of decreased tax benefits related to the Company's furniture manufacturing operations and the loss of federal credits that have not been renewed by Congress.
The Company reacquired 1,000,952 shares during the first quarter of 2014 at the completion of the previously announced accelerated share repurchase program. The Company has authorization to purchase an additional 10,496,421 shares.
Aaron's Sales & Lease Ownership division revenues, which include non-retail sales, decreased $10.1 million, or 2%, in the fourth quarter of 2014 to $522.6 million compared to $532.7 million in revenues in the fourth quarter of 2013. Sales and lease ownership revenues for the twelve months of 2014 decreased 2% to $2.107 billion compared to $2.147 billion for the same period a year ago.
Revenues of the HomeSmart division were $15.5 million in the fourth quarter of 2014, a 2% increase over the $15.2 million in revenues in the fourth quarter of 2013. HomeSmart revenues for the twelve months of 2014 were $64.4 million versus $62.7 million for the same period a year ago, a 3% increase.
The Progressive division generated revenues of $220.8 million and a pre-tax profit of $3.2 million in the fourth quarter, and for the period from the April 14, 2014 acquisition date recorded $549.5 million in revenues and a pre-tax profit of $4.6 million. Progressive's EBITDA included in the Company's results during the fourth quarter and twelve months ended December 31, 2014 was $17.9 million and $50.4 million, respectively.
Components of Revenue
Consolidated lease revenues and fees for the fourth quarter and twelve months of 2014 increased 50% and 29%, respectively, over the comparable previous year periods, due to Progressive. Franchise royalties and fees decreased 7% in the fourth quarter and 4% for the twelve months of 2014 compared to the same periods in 2013. The Company's franchisees collectively had revenues of $241.2 million during the fourth quarter and $995.3 million for the twelve months of 2014, decreases of 3% and 2%, respectively, from the comparable 2013 period. Same store revenues and customer counts for franchised stores were down 2.9% and 5.2%, respectively, for the fourth quarter 2014 compared to 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, were flat for the fourth quarter and decreased 2% for the twelve months compared to the same periods last year due to less demand by franchisees.
During the fourth quarter of 2014, the Company opened six Company-operated Aaron's Sales & Lease Ownership stores, four franchised stores and one HomeSmart store. The Company also acquired five Aaron's Sales & Lease Ownership franchised stores and sold one store to a franchisee. One Company-operated Aaron's Sales & Lease Ownership store and three Aaron's Sales & Lease Ownership franchised stores were closed during the quarter. Through the three and twelve months ended December 31, 2014, the Company awarded area development agreements to open five and 28 additional franchised stores, respectively. At December 31, 2014, there were area development agreements outstanding for the opening of 138 franchised stores over the next several years.
At December 31, 2014, the Company had 1,243 Company-operated Aaron's Sales & Lease Ownership stores, 780 franchised Aaron's Sales & Lease Ownership stores, 83 Company-operated HomeSmart stores, and two franchised HomeSmart stores. The total number of stores open at December 31, 2014 was 2,108.
The Company is providing the below guidance for the 2015 year.
Diluted earnings per share is presented both on a GAAP basis and on a non-GAAP adjusted basis that excludes transaction-related amortization and special fees and expenses. The Company currently expects to achieve the following:
Total revenues of approximately $2.05 billion to $2.15 billion, including lease revenues of $1.55 billion to $1.65 billion.
Same store revenues of approximately negative 4% to negative 1% quarterly with an improving trend throughout the year.
Depreciation expense as a percentage of lease revenues of 35% to 37%.
Gross margins (total revenues minus cost of sales and depreciation) of 55% to 57% and operating profits of 6% to 8%.
Adjusted EBITDA of approximately $200 million to $220 million.
The Company anticipates opening approximately 10 new Company-operated and 15 to 20 franchised stores, and consolidating approximately 50 under-performing store locations during 2015.
Lease revenues of approximately $1.00 billion to $1.10 billion.
Depreciation expense as a percentage of lease revenues of 61% to 63%.
Amortization expense of approximately $26 million.
Gross margins of 37% to 39% and operating profits, excluding amortization expense, of 8% to 10%.
Adjusted EBITDA of $95 million to $105 million.
Operations are expected to be funded through internally generated cash flow.
Revenues of approximately $3.05 billion to $3.25 billion, excluding revenues of franchisees.
Adjusted EBITDA of $295 million to $325 million.
Capital expenditures of $55 million to $75 million.
Effective tax rate between approximately 36% and 38%.
GAAP diluted earnings per share of $1.68 to $1.88
Non-GAAP adjusted diluted earnings per share of $1.90 to $2.10.
EPS guidance does not assume any significant repurchases of the Company's common stock or the potential impact of any costs associated with store closures.
Given our focus on executing on our long-term strategy to integrate and grow Progressive, strengthen the core business, and continue Aaron's transformation into an omni-channel lease provider, going forward the Company will only be providing annual guidance. While we will no longer provide quarterly guidance, we will update our annual guidance on a quarterly basis when it is appropriate.
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, currently has more than 2,100 Company-operated and franchised stores in 48 states 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 over 15,000 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.
Have something to say? Share your thoughts with us in the comments below.