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 nine months ended September 30, 2013.
For the third quarter of 2013, revenues increased 2% to $539.5 million compared to $529.5 million for the third quarter in 2012. Net earnings were $21.1 million versus $28.9 million last year. Diluted earnings per share were $.28 compared to $.38 per share a year ago.
For the first nine months of 2013, revenues increased 2% to $1.687 billion compared to $1.654 billion for the first nine months of 2012. Net earnings were $98.0 million versus $136.4 million last year. Diluted earnings per share for the first nine months were $1.28 for 2013 compared to $1.77 in 2012.
The 2013 third quarter pre-tax earnings include an accrual of $13.4 million related to a pending regulatory investigation by the California Attorney General into Aaron's leasing, marketing and privacy practices. Included in pre-tax earnings for the second quarter of 2013 was a $15 million accrual for these proceedings. The Company is continuing to cooperate in the investigation, and while the outcome of the investigation is inherently uncertain, the Company believes at the current time that no further accruals will be necessary pertaining to this investigation and anticipates achieving a comprehensive resolution without litigation.
In addition, during the second quarter of 2013 $4.9 million of charges were recorded related to retirement expense and a change in vacation policies. Last year in the third quarter of 2012, a $10.4 million charge to earnings was recorded for costs associated with retirement expenses. In the first quarter of 2012, the Company recognized $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 charges, and the 2012 reversal of a lawsuit-related accrual, net earnings for the third quarter of 2013 would have been $30.8 million compared to $35.5 million for the same period in 2012, and earnings per share assuming dilution would have been $.40 compared to $.46 a year ago, a 13% decrease. Net earnings for the nine months of 2013 would have been $119.6 million compared to $120.8 million in 2012, and earnings per share assuming dilution would have been $1.56 versus $1.57 last year.
"As we previously announced on October 4 th, the third quarter results did not meet our expectations for revenue and customer growth, and consequently earnings were less than anticipated," said Ronald W. Allen, Chairman, President and Chief Executive Officer of Aaron's. "Both same store revenue and customer growth in Company-operated stores were below plan, as our low to middle income customers continue to be adversely affected by the present economic environment. Although non-retail sales of products from our fulfillment centers to our franchisees were slightly less compared to the third quarter a year ago, revenue and customer growth in our franchised stores increased during the quarter, and we believe this is an indication of existing customer demand. We feel that with better focus and execution our corporate business will improve in future periods."
"We remain optimistic on the prospects of Aaron's and expect that 2014 will show an improvement over 2013 performance as we move towards our more historical growth rates in future years. Prior to the end of the current year, we will announce 2014 revenue and earnings guidance as well as store opening plans, which we anticipate will include additional HomeSmart stores," Mr. Allen concluded.
Same store revenues (revenues earned in Company-operated stores open for the entirety of both quarters) increased .5% during the third quarter of 2013 compared to the third quarter of 2012, and customer count on a same store basis was up .3%. For Company-operated stores open over two years at the end of September 2013, same store revenues decreased .8% during the third quarter of 2013 compared to the third quarter of 2012. The Company had 1,114,000 customers and its franchisees had 597,000 customers at the end of the most recent quarter, a 3% increase in total customers over the number at the end of the third 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, the effective tax rates for the third quarter and nine months of 2013 were 28.2% and 35.0%, respectively. It is anticipated that the effective tax rate for the entire 2013 year will be approximately 35.5%.
During the first nine months of this year, the Company generated $244 million of cash flow from operations and at September 30, 2013 had $309 million of cash on hand and $107 million in investments. The Aaron's Board of Directors recently increased the total number of Aaron's common shares authorized for repurchase to 15 million. The Company currently intends to resume its repurchase activity through open market purchases, an accelerated buyback program, or both.
Aaron's Sales & Lease Ownership division revenues increased $7.1 million, or 1%, in the third quarter of 2013 to $522.9 million compared to $515.8 million in revenues in the third quarter of 2012. Sales and lease ownership revenues for the first nine months of 2013 increased 2% to $1.635 billion compared to $1.610 billion for the same period a year ago.
Revenues of the HomeSmart division were $14.8 million in the third quarter, a 5% increase over the $14.2 million in revenues in the third quarter of 2012. HomeSmart revenues for the first nine months of 2013 were $47.6 million versus $40.4 million for the same period a year ago, an 18% increase.
Components of Revenue
Consolidated lease revenues and fees for the third quarter and first nine months of 2013 increased 3% and 5%, respectively, over the comparable previous year periods. In addition, franchise royalties and fees increased 3% in the third quarter and 4% for the first nine months compared to the same periods in 2012. The increases in the Company's franchise royalties and fees are the result of an increase in revenues of the Company's franchisees, which collectively had revenues of $244.6 million during the third quarter and $763.3 million for the first nine months of 2013, an increase of 6% and 4%, respectively, over the comparable 2012 periods. Same store revenues and customer counts for franchised stores were up 2.2% and 2.5%, respectively, for the third quarter 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 3% for the third quarter and 12% for the nine months compared to the same periods last year due to less demand by franchisees.
During the third quarter of 2013, the Company opened five Company-operated Aaron's Sales & Lease Ownership stores, eight franchised stores, two franchised HomeSmart stores and one RIMCO store. The Company also acquired six franchised stores and sold two stores to a franchisee. Two Company-operated Aaron's Sales & Lease Ownership stores and one franchised RIMCO store were closed during the quarter.
Through the three and nine months ended September 30, 2013, the Company awarded area development agreements to open 12 and 25 additional franchised stores, respectively. At September 30, 2013, there were area development agreements outstanding for the opening of 167 franchised stores over the next several years.
At September 30, 2013, the Company had 1,242 Company-operated Aaron's Sales & Lease Ownership stores, 760 franchised Aaron's Sales & Lease Ownership stores, 78 Company-operated HomeSmart stores, three franchised HomeSmart stores, 23 Company-operated RIMCO stores and five franchised RIMCO stores. The total number of stores open at September 30, 2013 was 2,111.
Fourth Quarter and Full Year 2013 Outlook
The Company is updating its guidance for 2013 and expects to achieve the following:
•Fourth quarter revenues (excluding revenues of franchisees) of approximately $575 million.
•Fourth quarter diluted earnings per share in the range of $.38 to $.42 per share.
•Fiscal year 2013 revenues (excluding revenues of franchisees) of approximately $2.26 billion.
•GAAP fiscal year 2013 diluted earnings per share in the range of $1.67 to $1.71.
•Non-GAAP fiscal year 2013 diluted earnings per share in the range of $1.95 to $1.99, a change from the previous guidance of $2.15 to $2.23, which excludes the accruals for the regulatory investigation and the retirement and vacation related charges.
•EPS guidance does not assume any significant repurchases of the Company's Common Stock, however, it is the Company's current intention to resume its share repurchase program.
•New store growth of approximately 4% to 5% over the store base at the end of 2012, 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 will continue, as warranted, to consolidate or sell stores not meeting performance goals.
•The Company also plans to continue to acquire franchised stores or sell Company-operated stores to franchisees as opportunities present themselves.
Aaron's, Inc., based in Atlanta, currently has more than 2,111 Company-operated and franchised stores in 48 states and Canada. The Company's Woodhaven Furniture Industries division manufactured approximately $95 million, at cost, of furniture and bedding at 14 facilities in seven states in 2012. Most of the production of Woodhaven is for shipment to Aaron's stores.
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