ATLANTA-- Aaron's, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of residential furniture, consumer electronics, home appliances and accessories, today announced revenues and earnings for the three and twelve months ended December 31, 2013.
"As we previously announced on January 13 th, the Company's financial results in the fourth quarter did not meet expectations," said Ronald W. Allen, Chairman, President and Chief Executive Officer of Aaron's. "2013 has been a year of challenges and change for Aaron's and growing revenues and adding customers has been difficult with the ongoing economic pressures on low to middle income consumers."
For the fourth quarter of 2013, revenues decreased 2% to $553.9 million compared to $565.4 million for the fourth quarter of 2012. Net earnings were $22.7 million versus $36.6 million a year ago. Diluted earnings per share were $.30 compared to $.48 per share last year.
For the twelve months ended December 31, 2013, revenues increased 1% to $2.235 billion compared to $2.213 billion for the twelve months ended December 31, 2012. Net earnings were $120.7 million versus $173.0 million last year. Diluted earnings per share for the twelve months were $1.58 for 2013 compared to $2.25 in 2012.
Included in 2013 pre-tax earnings was an accrual of $28.4 million related to a pending regulatory investigation by the California Attorney General into Aaron's leasing, marketing and privacy practices. In addition, during 2013, $4.9 million of charges were recorded related to retirement expenses and a change in vacation policies. In 2012, a $10.4 million charge to earnings was recorded for costs associated with retirement expenses along with recognition of $35.5 million of income related to the settlement of a lawsuit.
On a non-GAAP basis, excluding from all periods the 2013 regulatory investigation accruals, the 2013 retirement and vacation related charges, the 2012 retirement expenses, and the 2012 reversal of a lawsuit-related accrual, net earnings for the twelve months ended December 31, 2013 would have been $142.4 million compared to $157.4 million in 2012, and earnings per share assuming dilution would have been $1.86 versus $2.04 last year.
"Our customer count grew only slightly in 2013 and due to the nature of the sales and lease ownership business it will take several quarters of increasing our customer base to significantly grow revenues and earnings," Mr. Allen continued. "We have spent substantial effort during the year strengthening our management team and operating practices and procedures, and believe the corporate infrastructure is now in place to produce solid and sustainable future financial performance. With better focus and execution our core business should return to more normal trends. We remain optimistic and look forward to better performance in 2014."
Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) decreased .9% during the fourth quarter of 2013 compared to the fourth quarter of 2012, and customer count on a same store basis was down 1.4%. For Company-operated stores open over two years at the end of December 31, 2013, same store revenues decreased 1.9% during the fourth quarter of 2013 compared to the fourth quarter of 2012. The Company had 1,138,000 customers and its franchisees had 613,000 customers at the end of the most recent quarter, a 1% increase 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.).
Due to the recognition of income tax benefits primarily related to the Company's furniture manufacturing operations and increased federal and state tax credits being applied to lower than expected earnings, the effective tax rates for the fourth quarter and twelve months of 2013 were 33.5% and 34.8%, respectively.
During 2013, the Company generated approximately $307 million of cash flow from operations and at December 31, 2013 had $231 million of cash on hand and $112 million in investments. In the fourth quarter of 2013 the Company acquired 3.5 million of its common stock under a previously announced $125 million accelerated share repurchase program. In February 2014 the program was completed and the Company will receive an additional 1.0 million shares of common stock upon settlement.
Aaron's Sales & Lease Ownership division revenues, which include non-retail sales, decreased $7.7 million, or 1%, in the fourth quarter of 2013 to $537.9 million compared to $545.6 million in revenues in the fourth quarter of 2012. Sales and lease ownership revenues for the twelve months of 2013 increased 1% to $2.168 billion compared to $2.150 billion for the same period a year ago.
Revenues of the HomeSmart division were $15.2 million in the fourth quarter of 2013, a 2% increase over the $14.8 million in revenues in the fourth quarter of 2012. HomeSmart revenues for the twelve months of 2013 were $62.7 million versus $55.2 million for the same period a year ago, a 14% increase.
Components of Revenue
Consolidated lease revenues and fees for the fourth quarter and twelve months of 2013 increased 2% and 4%, respectively, over the comparable previous year periods. In addition, franchise royalties and fees decreased .1% in the fourth quarter and increased 3% for the twelve months of 2013 compared to the same periods in 2012. The changes in the Company's franchise royalties and fees are primarily driven by increases in store front revenues of the Company's franchisees, which collectively had revenues of $247.8 million during the fourth quarter and $1.011 billion for the twelve months of 2013, an increase of 2% and 4%, respectively, over the comparable 2012 periods. Same store revenues and customer counts for franchised stores were up .5% and .7%, respectively, for the fourth quarter 2013 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, decreased 14% for the fourth quarter and 13% for the twelve months compared to the same periods last year due to less demand by franchisees.
During the fourth quarter of 2013, the Company opened 19 Company-operated Aaron's Sales & Lease Ownership stores, 16 franchised stores, three HomeSmart stores and four RIMCO stores. The Company also acquired one Aaron's Sales & Lease Ownership franchised store and two franchised stores closed during the quarter.
Through the three and twelve months ended December 31, 2013, the Company awarded area development agreements to open 14 and 39 additional franchised stores, respectively. At December 31, 2013, there were area development agreements outstanding for the opening of 159 franchised stores over the next several years.
At December 31, 2013, the Company had 1,262 Company-operated Aaron's Sales & Lease Ownership stores, 773 franchised Aaron's Sales & Lease Ownership stores, 81 Company-operated HomeSmart stores, three franchised HomeSmart stores, 27 Company-operated RIMCO stores and five franchised RIMCO stores. The total number of stores open at December 31, 2013 was 2,151.
Subsequent to December 31, 2013, the Company sold its 27 Company-operated and the rights to five franchised RIMCO stores.
First Quarter and Full Year 2014 Outlook
The Company is updating its guidance for 2014 and expects to achieve the following:
First quarter revenues (excluding revenues of franchisees) of approximately $600 million.
First quarter diluted earnings per share in the range of $.57 to $.62 per share.
Fiscal year 2014 revenues (excluding revenues of franchisees) of approximately $2.3 billion.
GAAP fiscal year 2014 diluted earnings per share in the range of $1.80 to $2.00. EPS guidance does not assume any additional share repurchases after the completion of the Company's previously announced accelerated share repurchase program.
New store growth of approximately 1% to 2% over the store base at the end of 2013, for the most part an equal mix between Company-operated and franchised stores, and including a small number of HomeSmart stores. This will be a net store growth after any opportunistic merging or disposition of stores.
The Company also plans to continue to acquire franchised stores or sell Company-operated stores to franchisees as opportunities present themselves.
The Company will also continue, as warranted, to consolidate or sell stores not meeting performance goals.
Aaron's, Inc., based in Atlanta, currently has more than 2,115 Company-operated and franchised stores in 48 states and Canada. The Company's Woodhaven Furniture Industries division manufactured approximately $104 million, at cost, of furniture and bedding at 14 facilities in seven states in 2013. Most of the production of Woodhaven is for shipment to Aaron's stores.
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