ATLANTA, July 25, 2019 // PRNewswire //- Aaron's, Inc. (NYSE: AAN), a leading omnichannel provider of lease-purchase solutions, today announced financial results for the three months ended June 30, 2019.
"We are pleased to report strong second quarter results, achieving meaningful revenue, Adjusted EBITDA and Non-GAAP diluted EPS growth," said John Robinson, Chief Executive Officer. "Progressive performed at a high level, continuing its trend of growing revenues and profits through increasing invoice volume. At the same time, we continue to invest in the business to support strong expected growth with our existing partners and retailers in our pipeline. The Aaron's Business reported same-store revenues up 0.1%, a 190 basis point improvement over the prior year. We are encouraged by the progress being made in the Aaron's Business and continue to invest to improve our omnichannel platform," concluded Mr. Robinson.
Consolidated Results
For the second quarter of 2019, consolidated revenues were $968.1 million compared with $927.9 million for the second quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842 related to lease accounting, revenues increased $90.3 million, or 10.3%, compared to the prior year period. The increase in consolidated revenues was primarily due to the increase in revenues at Progressive and the contribution from 152 franchised locations acquired by the Aaron's Business in 2018, partially offset by the closure of Aaron's stores in the first half of 2019.
Net earnings for the second quarter of 2019 were $42.7 million compared to $38.5 million in the prior year period. Net earnings in the second quarter of 2019 included approximately $18.7 million in pretax charges primarily related to the closure of approximately 70 company-owned Aaron's stores, the majority of which were underperforming stores closed by the end of the second quarter. Adjusted EBITDA for the Company was $107.4 million for the second quarter of 2019, compared with $97.0 million for the same period in 2018, an increase of $10.4 million, or 10.7%, due primarily to the strong growth in our Progressive segment as well as a $3.6 million insurance recovery from hurricane losses reported in 2017. As a percentage of revenues, Adjusted EBITDA was 11.1% in the second quarter of 2019 and 2018 when calculated on a basis consistent with the 2019 adoption of ASC 842.
Diluted earnings per share for the second quarter of 2019 were $0.62 compared with $0.54 in the year ago period. On a non-GAAP basis, diluted earnings per share were $0.93 in the second quarter of 2019 compared with $0.84 for the same quarter in 2018, an increase of $0.09 or 10.7%.
The Company generated $244.6 million in cash from operations during the six months ended June 30, 2019 and ended the second quarter with $100.2 million in cash, compared with a cash balance of $15.3 million at the end of 2018. During the second quarter, the company repurchased 242,860 shares for $14.4 million at an average purchase price of $59.35 per share.
Progressive Leasing Segment Results
Progressive Leasing's revenues in the second quarter of 2019 were $516.3 million compared to reported revenues of $483.7 million in the second quarter of 2018. Calculated on a basis consistent with the 2019 adoption of ASC 842, revenues increased $82.7 million or 19.1%. Invoice volume increased 20.4% in the quarter, driven by a 23.4% increase in invoice volume per active door, partially offset by a 2.5% decrease in active doors to approximately 19,800. The decrease in active door count was primarily due to a reduction in locations in our mattress and mobile phone verticals, which was partially offset by additions in other verticals. Progressive Leasing had 909,000 customers at June 30, 2019, a 19.9% increase from June 30, 2018.
Earnings before income taxes for the second quarter of 2019 were $58.4 million. EBITDA for the second quarter of 2019 was $68.2 million compared with $55.8 million for the same period of 2018, an increase of 22.3%. As a percentage of revenues, EBITDA was 13.2% for the second quarter of 2019, an increase of 30 basis points compared to the second quarter of 2018, calculated on a basis consistent with the 2019 adoption of ASC 842. This increase was due primarily to improved gross margins partially offset by an acceleration in investments to support expected revenue growth and anticipated pipeline conversion.
The provision for lease merchandise write-offs was 7.6% of revenues in the second quarter of 2019, compared with 7.5% in the same period of 2018, calculated on a basis consistent with the 2019 adoption of ASC 842.
The Aaron's Business Segment Results
For the second quarter of 2019, total revenues for the Aaron's Business increased 1.9% to $443.2 million from $435.0 million in the second quarter of 2018. The increase was primarily due to the contributions from 152 franchised locations acquired throughout 2018, partially offset by the closure of 151 underperforming stores in the first half of 2019. Same-store revenues were up 0.1% in the second quarter of 2019, an improvement of 190 basis points from the second quarter of 2018, continuing the trend of improvement experienced throughout 2018. Customer count on a same-store basis was down 4.3% during the second quarter of 2019 compared to the same period in 2018. Company-operated Aaron's stores had 984,000 customers at June 30, 2019, a 2.9% increase from June 30, 2018.
Lease revenue and fees for the three months ended June 30, 2019 increased 8.0% compared with the same period in 2018. Non-retail sales, which primarily consist of merchandise sales to the Company's franchisees, decreased 36.4% for the second quarter of 2019 compared with the same period of the prior year. The decline is attributed primarily to the franchisee acquisitions completed in 2018.
Earnings before income taxes for the second quarter of 2019 were $0.1 million. Adjusted EBITDA for the three months ended June 30, 2019 was $39.7 million including a $3.6 million insurance recovery from hurricane losses reported in 2017. This compares to $42.4 million for the same period in 2018, a decrease of $2.7 million or 6.4%, due primarily to the timing of 2019 marketing expenses. As a percentage of revenues, Adjusted EBITDA decreased 80 basis points to 8.9% for the three months ended June 30, 2019, compared with 9.7% for the same period last year.
Write-offs for damaged, lost or unsaleable merchandise were 5.6% of revenues in the second quarter of 2019, compared with 4.0% for the same period last year. Contributing to the increase in write-offs was an increase in promotional offerings, higher ticket leases, store closure activity during the first half of 2019, and an increasing mix of e-commerce as a percent of revenue.
At June 30, 2019, the Aaron's Business had 1,171 Company-operated stores and 357 franchised stores.
Significant Components of Revenue and Franchise Performance
Consolidated lease revenues and fees for the three months ended June 30, 2019 increased 14.0% over the same period of the prior year, calculated on a basis consistent with the 2019 adoption of ASC 842. Franchise royalties and fees decreased 29.0% in the second quarter of 2019 compared with the same period a year ago, primarily as a result of the lower number of franchised stores. Franchise revenues totaled $108.0 million for the three months ended June 30, 2019, a decrease of 31.7% from the same period for the prior year. Same-store revenues for franchised stores increased 1.2% and same-store customer counts declined 2.7% for the second quarter of 2019 compared with the same quarter in 2018. Franchised stores had 254,000 customers at the end of the second quarter of 2019. Revenues and customers of franchisees are not revenues and customers of the Aaron's Business or the Company.
2019 Outlook
The Company will hold a conference call to discuss its quarterly results on Thursday, July 25, 2019, at 8:30 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Investor Relations section of the Company's website, aarons.com. The webcast will be archived for playback at that same site.
Headquartered in Atlanta, Aaron's, Inc. (NYSE: AAN), is a leading omnichannel provider of lease-purchase solutions. Progressive Leasing provides lease-purchase solutions through approximately 20,000 retail partner locations in 46 states. The Aaron's Business engages in the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories through its approximately 1,500 Company-operated and franchised stores in 47 states, Puerto Rico and Canada, as well as its e-commerce platform, Aarons.com. Dent-A-Med, Inc., d/b/a the HELPcard®, provides a variety of second-look credit products that are originated through federally-insured banks. For more information, visit investor.aarons.com, Aarons.com, ProgLeasing.com, and HELPcard.com.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this news release 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 "continue," "expect," "believe," "guidance," "outlook," "will," "expectations," and "trends" and similar terminology. These risks and uncertainties include factors such as changes in general economic conditions, competition, pricing, legal and regulatory proceedings and investigations, customer privacy; consumer, third party and employee fraud; information security, customer demand, the execution and results of our strategy and expense reduction and store closure and consolidation initiatives (including the risk that the costs associated with these initiatives exceeds expectations), risks related to M&A activities, including our recent franchisee acquisitions and the risk that the financial performance from those acquisitions and from M&A activities do not meet our expectations, risks related to Progressive Leasing's "virtual" lease-to-own business, the outcome of Progressive Leasing's pilot or test programs with various retailers and the results of Progressive Leasing's efforts to expand its relationships with existing retailer partners and establish new partnerships with additional retailers, increases in lease merchandise write-offs and bad debt expense associated with Progressive Leasing's growth in doors and customers and changes in product mix, and the other risks and uncertainties discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Statements in this release that are "forward-looking" include without limitation statements about our expectations regarding: the strength of our lease-to-own businesses; the results of our investments in the Aaron's Business and Progressive Leasing; the results of our business transformation initiatives in the Aaron's Business; revenue growth and pipeline conversions for Progressive Leasing; same store sales for the Aaron's Business and the updated 2019 fiscal year Outlook set forth in this press release, for the Company on a consolidated basis, and for Progressive Leasing, the Aaron's Business and DAMI. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. 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 press release.
Use of Non-GAAP Financial Information:
Non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA and Adjusted EBITDA are supplemental measures of our performance that are not calculated in accordance with generally accepted accounting principles in the United States ("GAAP"). Non-GAAP net earnings and non-GAAP diluted earnings per share for the second quarter of 2019 each exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $4.0 million in amortization expense resulting from franchisee acquisitions, $0.2 million in acquisition transaction and transition costs related to franchisee acquisitions and $18.7 million in restructuring charges. For the first six months of 2019 Non-GAAP net earnings and non-GAAP diluted earnings per share excludes $10.8 million in Progressive Leasing-related intangible amortization expense, $8.0 million in amortization expense resulting from franchisee acquisitions, $0.3 million in acquisition transaction and transition costs related to franchisee acquisitions and $32.0 million in restructuring charges. Non-GAAP net earnings and non-GAAP diluted earnings per share for the second quarter of 2018 exclude $5.4 million in Progressive Leasing-related intangible amortization expense, $1.2 million in amortization expense resulting from franchisee acquisitions, $0.9 million in net restructuring charge reversals and $21.6 million of charges related to the full impairment of the Company's PerfectHome Investment and the related expenses incurred. For the first six months of 2018 Non-GAAP net earnings and non-GAAP diluted earnings per share excludes $10.8 million in Progressive Leasing-related intangible amortization expense, $2.4 million in amortization expense resulting from franchisee acquisitions, $24.0 thousand in restructuring charges, $0.2 million in tax effects related to a Tax Act adjustment and $21.6 million of charges related to the full impairment of the Company's PerfectHome Investment and the related expenses incurred.
The EBITDA and Adjusted EBITDA figures presented in this press release are calculated as the Company's earnings before interest expense, depreciation on property, plant and equipment, amortization of intangible assets and income taxes. Adjusted EBITDA also excludes the other adjustments described in the calculation of non-GAAP net earnings above.
Management believes that non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA and Adjusted EBITDA provide relevant and useful information, and are widely used by analysts, investors and competitors in our industry as well as by our management in assessing both consolidated and business unit performance.
Non-GAAP net earnings and non-GAAP diluted earnings provides management and investors with an understanding of the results from the primary operations of our business by excluding the effects of certain items that generally arose from larger, one-time transactions that are not reflective of the ordinary earnings activity of our operations. This measure may be useful to an investor in evaluating the underlying operating performance of our business.
EBITDA and Adjusted EBITDA also provides management and investors with an understanding of one aspect of earnings before the impact of investing and financing charges and income taxes. These measures may be useful to an investor in evaluating our operating performance and liquidity because the measures:
This press release also discloses non-GAAP revenues for periods prior to January 1, 2019 as if the lessor accounting impacts of ASC 842 were in effect during the three and six months ended June 30, 2018. "Total Revenues, net of Progressive Bad Debt Expense" and the related percentages for the comparable prior year periods are a supplemental measure of our performance that are not calculated in accordance with GAAP in place during 2018. These non-GAAP measures assume that Progressive bad debt expense is recorded as a reduction to lease revenues and fees instead of within operating expenses in 2018. Please see Note 1 to the condensed consolidated financial statements and the "Results of Operations" section of our Form 10-Q for the quarter ended June 30, 2019 for a more comprehensive disclosure of bad debt expense and the impact of the adoption of ASC 842 related to accounting for leases for the prospective periods beginning with the first quarter of 2019.
Management believes these non-GAAP measures for 2018 provide relevant and useful information for users of our financial statements, as it provides comparability with the financial results we are reporting beginning in 2019 when ASC 842 became effective and we began reporting Progressive bad debt expense as a reduction to lease revenues and fees. We believe these non-GAAP measures provide management and investors the ability to better understand the results from the primary operations of our business in 2019 compared with 2018 by classifying Progressive bad debt expense consistently between the periods.
Finally, this press release presents pre-tax, pre-provision loss for DAMI, which is also a supplemental measure not calculated in accordance with GAAP. Management believes this measure is useful because it gives management and investors an additional, supplemental metric to assess DAMI's underlying operational performance for the period. Due to the growth of our originated credit card loan portfolio after our October 2015 acquisition of DAMI, we believe pre-provision, pre-tax loss helps investors to assess DAMI's operating performance until such time as the credit card portfolio reaches levels which management believes will be normal and recurring. Management uses this measure as one of its bases for strategic planning and forecasting for DAMI. Our use of pre-provision, pre-tax loss may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner.
Non-GAAP financial measures, however, should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, such as the Company's GAAP basis net earnings and diluted earnings per share and the GAAP revenues and earnings before income taxes of the Company's segments, which are also presented in the press release. Further, we caution investors that amounts presented in accordance with our definitions of non-GAAP net earnings, non-GAAP diluted earnings per share, EBITDA, Adjusted EBITDA, Total revenues net of Progressive bad debt expense and the related percentages for the comparable prior year period, and pre-tax, pre-provision loss may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner.
Michael P. Dickerson
Aaron's, Inc.
Vice President, Corporate Communications & Investor Relations
678.402.3950
Mike.Dickerson@Aarons.com
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SOURCE Aaron's, Inc.
Headquartered in Atlanta, Aaron's, Inc. is the sales and lease ownership and specialty retailing of furniture, consumer electronics, home appliances and accessories.